The Tax Year 2012 Business Rule Change page has been posted on IRS.gov.

You can access the site at Tax Year 2012 Schemas and Business Rules

We will continue to keep this file updated as changes occur.

WASHINGTON - The Internal Revenue Service today announced guidance to borrowers, mortgage loan holders and loan servicers who are participating in the Principal Reduction AlternativeSM offered through the Department of the Treasury’s and Department of Housing and Urban Development’s Home Affordable Modification Program® (HAMP-PRA®).

To help financially distressed homeowners lower their monthly mortgage payments, Treasury and HUD established HAMP, which is described at www.makinghomeaffordable.gov. Under HAMP-PRA, the principal of the borrower’s mortgage may be reduced by a predetermined amount called the PRA Forbearance Amount if the borrower satisfies certain conditions during a trial period. The principal reduction occurs over three years.

More specifically, if the loan is in good standing on the first, second and third annual anniversaries of the effective date of the trial period, the loan servicer reduces the unpaid principal balance of the loan by one-third of the initial PRA Forbearance Amount on each anniversary date. This means that if the borrower continues to make timely payments on the loan for three years, the entire PRA Forbearance Amount is forgiven. To encourage mortgage loan holders to participate in HAMP–PRA, the HAMP program administrator will make an incentive payment to the loan holder (called a PRA investor incentive payment) for each of the three years in which the loan principal balance is reduced.

Guidance on Tax Consequences to Borrowers

The guidance issued today provides that PRA investor incentive payments made by the HAMP program administrator to mortgage loan holders are treated as payments on the mortgage loans by the United States government on behalf of the borrowers. These payments are generally not taxable to the borrowers under the general welfare doctrine.

If the principal amount of a mortgage loan is reduced by an amount that exceeds the total amount of the PRA investor incentive payments made to the mortgage loan holder, the borrower may be required to include the excess amount in gross income as income from the discharge of indebtedness. However, many borrowers will qualify for an exclusion from gross income.

For example, a borrower may be eligible to exclude the discharge of indebtedness income from gross income if (1) the discharge of indebtedness occurs (in other words, the loan is modified) before Jan. 1, 2014, and the mortgage loan is qualified principal residence indebtedness, or (2) the discharge of indebtedness occurs when the borrower is insolvent. For additional exclusions that may apply, see Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals).

Borrowers receiving aid under the HAMP–PRA program may report any discharge of indebtedness income undefined whether included in, or excluded from, gross income undefined either in the year of the permanent modification of the mortgage loan or ratably over the three years in which the mortgage loan principal is reduced on the servicer’s books. Borrowers who exclude the discharge of indebtedness income must report both the amount of the income and any resulting reduction in basis or tax attributes on Form 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment).

Guidance on Tax Consequences to Mortgage Loan Holders

The guidance issued today explains that mortgage loan holders are required to file a Form 1099-C with respect to a borrower who realizes discharge of indebtedness income of $600 or more for the year in which the permanent modification of the mortgage loan occurs. This rule applies regardless of when the borrower chooses to report the income (that is, in the year of the permanent modification or one-third each year as the mortgage loan principal is reduced) and regardless of whether the borrower excludes some or all of the amount from gross income.

Penalty relief is provided for mortgage loan holders that fail to timely file and furnish required Forms 1099-C, as long as certain requirements described in the guidance are satisfied.

Details are in Revenue Procedure 2013-16 available on IRS.gov.

The Modernized e-File (MeF) Sunday maintenance build will be extended. The system will not be available from Sunday, January 20, 2013 at 1:00am, Eastern until Sunday, January 20, 2013 at approximately 11:00am, Eastern. The extended build window is needed to implement system enhancements impacting the upcoming filing season.

We apologize for any inconvenience this may cause. Thank you in advance for refraining from accessing the MeF Production and ATS environments during this period.

Tax-free IRA rollovers to charity extended
IRA owners, age 70½ or older, can transfer tax-free up to $100,000 for both 2012 (by February 1, 2013) and 2013 to eligible charities.

In-plan Roth rollovers expanded
More funds can be rolled into designated Roth accounts.

Phone forums

• Ethics – professional standards of conduct for individuals who advise retirement plans (February 13 at 2 p.m. ET)
• 2012 Cumulative List of Changes in Plan Qualification Requirements for plans that will submit a determination letter application beginning February 1, 2013 (February 28 at 2 p.m. ET)

List of pre-approved plans
Second six-year cycle (PPA) list of pre-approved defined contribution plans submitted on or after February 1, 2011.

ATTN: Software Developers, Return Transmitters and Authorized IRS e-file Providers/EROs 

The Tax Year 2012 XML Stylesheets for Processing Year 2013 have been updated on IRS.gov.

You can access the new files from the Modernized e-File (MeF) Stylesheets site on IRS.gov.

Questions or comments may be directed to the e-help Desk at 1-866-255-0654.

Revenue Procedure 2013-15 provides the 2013 cost-of-living adjustments for inflation for certain items, including the tax tables.  It also includes items whose values were specified in the American Taxpayer Relief Act of 2012 (ATRA), such as the beginning of the 39.6% income tax brackets; the beginning income levels for the limitation on certain itemized deductions, and the beginning income levels for the phaseout of the personal exemptions.  In addition Rev. Proc. 2013-5 modifies Rev. Proc. 2011-52 to reflect an amendment to section 132(f)(2) made by ATRA concerning qualified transportation fringe benefits.  Specifically, for 2012, the monthly limitation regarding the aggregate fringe benefit exclusion amount for transit passes and transportation in a commuter highway vehicle is $240. 

Revenue Procedure 2013-15 will be published in Internal Revenue Bulletin 2013-5 on January 28, 2013.

WASHINGTON - The Internal Revenue Service today announced a simplified option that many owners of home-based businesses and some home-based workers may use to figure their deductions for the business use of their homes.

In tax year 2010, the most recent year for which figures are available, nearly 3.4 million taxpayers claimed deductions for business use of a home (commonly referred to as the home office deduction).

The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually.

"This is a common-sense rule to provide taxpayers an easier way to calculate and claim the home office deduction," said Acting IRS Commissioner Steven T. Miller. "The IRS continues to look for similar ways to combat complexity and encourages people to look at this option as they consider tax planning in 2013."

The new option provides eligible taxpayers an easier path to claiming the home office deduction. Currently, they are generally required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions.  Taxpayers claiming the optional deduction will complete a significantly simplified form.

Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.

Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees are still fully deductible.

Current restrictions on the home office deduction, such as the requirement that a home office must be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option. 

The new simplified option is available starting with the 2013 return most taxpayers file early in 2014. Further details on the new option can be found in Revenue Procedure 2013-13, posted today on IRS.gov. Revenue Procedure 2013-13 is effective for taxable years beginning on or after January 1, 2013, and the IRS welcomes public comment on this new option to improve it for tax year 2014 and later years. There are three ways to submit comments.

• E-mail to: Notice.Comments@irscounsel.treas.gov. Include “Rev. Proc. 2013-13” in the subject line.
• Mail to: Internal Revenue Service, CC:PA:LPD:PR (Rev. Proc. 2013-13), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.
• Hand deliver to: CC:PA:LPD:PR (Rev. Proc. 2013-13), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC, between 8 a.m. and 4 p.m., Monday through Friday.

The deadline for comment is April 15, 2013.

WASHINGTON - The Internal Revenue Service announced today annual inflation adjustments for tax year 2013, including the tax rate schedules, and other tax changes from the recently passed American Taxpayer Relief Act of 2012. 

The tax items for 2013 of greatest interest to most taxpayers include the following changes.

• Beginning in tax year 2013 (generally for tax returns filed in 2014), a new tax rate of 39.6 percent has been added for individuals whose income exceeds $400,000 ($450,000 for married taxpayers filing a joint return). The other marginal rates undefined 10, 15, 25, 28, 33 and 35 percent undefined remain the same as in prior years. The guidance contains the taxable income thresholds for each of the marginal rates.
• The standard deduction rises to $6,100 ($12,200 for married couples filing jointly), up from $5,950 ($11,900 for married couples filing jointly) for tax year 2012.
• The American Taxpayer Relief Act of 2012 added a limitation for itemized deductions claimed on 2013 returns of individuals with incomes of $250,000 or more ($300,000 for married couples filing jointly).
• The personal exemption rises to $3,900, up from the 2012 exemption of $3,800. However beginning in 2013, the exemption is subject to a phase-out that begins with adjusted gross incomes of $250,000 ($300,000 for married couples filing jointly). It phases out completely at $372,500 ($422,500 for married couples filing jointly.)
• The Alternative Minimum Tax exemption amount for tax year 2013 is $51,900 ($80,800, for married couples filing jointly), set by the American Taxpayer Relief Act of 2012, which indexes future amounts for inflation. The 2012 exemption amount was $50,600 ($78,750 for married couples filing jointly).
• The maximum Earned Income Credit amount is $6,044 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $5,891 for tax year 2012.
• Estates of decedents who die during 2013 have a basic exclusion amount of $5,250,000, up from a total of $5,120,000 for estates of decedents who died in 2012.
• For tax year 2013, the monthly limitation regarding the aggregate fringe benefit exclusion amount for transit passes and transportation in a commuter highway vehicle is $245, up from $240 for tax year 2012 (the legislation provided a retroactive increase from the $125 limit that had been in place).

Details on these inflation adjustments and others are contained in Revenue Procedure 2013-15, which will be published in Internal Revenue Bulletin 2013-5 on Jan.28, 2013. Other inflation adjusted items were published in October 2012 in Revenue Procedure 2012-41.

Due to late tax law changes, the 2013 filing season for processing individual income tax returns will begin on January 30, 2013.

Certain tax returns will not be accepted, either electronically or on paper, until later in the filing season. Details on affected forms are in IRS News Release IR- 2013-2.

EROs and Online Providers may hold tax returns containing one or more of these forms until the IRS can accept them. EROs and Online Providers must advise taxpayers that the returns will not be e-filed until the IRS can accept the returns beginning January 30. Clearly explain to the taxpayer that this means the period for processing the return and/or checking the taxpayer's refund status cannot begin before January 31, 2013.

Therefore, the e-file stockpiling rule does not apply in this situation. For more details on stockpiling, see Publication 1345 Authorized IRS e-file Providers e-filing Individual Income Tax Returns.

Dear Virginia Tax Practitioner,

As the IRS Stakeholder Liaison area manager for Virginia, I want to thank you for your past support and ask for your continued partnership with you local stakeholder liaisons and me. SL is proud to be in our seventh year as the practitioner's gateway to the IRS. 

We introduced the Issue Management Resolution System (IMRS) seven years ago and have received more than a thousand IMRS issues. Check out some of the successes in our IMRS report on IRS.gov.  Please continue to tell us when you see a problem or have a suggestion to improve our processes.

Redesigned www.irs.gov

Our website has been recently redesigned. The new platform will deliver what you need at a faster pace.  Highlights from the redesigned website include:

·         Return to the home page from anywhere on the site by clicking on the IRS logo

·         Find familiar headings (individuals, businesses, charities, etc.) by clicking on the down-arrow at “Information For" in the top right-hand corner

·         Find a database listing of tax-exempt organizations, called "EO Select Check", under "Information For" Charities

·         Find Resources for Tax Professionals all on one page

·         Locate all our social media on our New Media page

·         Search our new Third Party Reporting Information Center for guidance on Forms Series 1099, etc.

·         Subscribe to our e-News Services.  All IRS subscriptions are sent from irs@service.govdelivery.com. PTIN reminders are also sent from this address. When in doubt about a link in an email, you can always go directly to www.irs.gov.

Keep up to date with RPO

Visit our Web page for PTIN Requirements for Tax Return Preparers to keep current on the rules and process your renewals. For additional PTIN information, contact the IRS Tax Professional PTIN Information line at 877-613-7846, available Monday-Friday, 8 a.m. - 5 p.m. CST.

 

How you can help your clients and colleagues

There are many ways you can assist us to further our partnership. Help us reach more practitioners by hosting joint events or webinars. Include IRS information in your newsletters or post an IRS tax center or web link on your website. You can even volunteer to teach a Small Business Tax Workshop in your community and share what you learn.

Finally, stay in touch with your local Stakeholder Liaison.  You may also contact me or if you need assistance in

Virginia, contact an SL below.

Herbert D. (Ley) Mills	Anna L. Falkenstein
Phone: 804-916-3892	Phone: 703-462-5925
Fax: 804-916-3895	Fax: 877-477-8418
Email: herbert.mills@irs.gov	Email: anna.l.falkenstein@irs.gov

Filing season can be a challenging and stressful time, but together we can make it easier. Use our free tools, products and services; and raise your issues and concerns through your local stakeholder liaison.

Sincerely,

David R. Yeskoo

Area Manager

Stakeholder Liaison Field,

South Atlantic

400 N. 8^th Street

Box 40– Room 1068

Richmond, VA     23219-4838