Worker Classification

Employers must withhold Social Security and income taxes from employee paychecks. Conversely, independent contractors are responsible for reporting and paying their own Social Security and income taxes.

Businesses use several factors to determine how to classify its workers, including the degree of control the business has over its workers. Generally, the more control the business has over a worker, the more likely it is that the worker is an employee rather than an independent contractor.

Facts that provide evidence of the degree of control and independence fall into three categories:

1. Behavioral control
2. Financial control
3. Type of relationship

Behavioral control relates to whether the business has a right to direct and control how the worker performs the task for which they are hired. In general, anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that the employer has the right to control the details of how the services are performed. Such details include:

When and where to do the work
What tools or equipment to use
What workers to hire or to assist with the work
Where to purchase supplies and services
What work must be performed by a specified individual
What order or sequence to follow

Financial control looks at whether a worker has the ability to affect financial decisions. Does the worker have a significant investment in assets or tools? Are there unreimbursed expenses that the worker has to bear themselves? Are the worker’s services available to the public? What is the method of payment; do they get paid whether the work is done or not or do they get paid only if they finish the job? Independent contractors can realize a profit or loss on a job. Can the worker make business decisions that affect his bottom line?

Relationship of the parties looks to whether or not there is a contract between the worker and the business and how it is worded; whether the worker gets any type of benefits – vacation and sick pay, pension plan, and health or life insurance; and the permanency of the relationship such as continuing indefinitely or only for a specific project or period. Also, does the worker have his own business, which he markets to others?

If you want the IRS to determine whether a specific individual is an independent contractor or an employee, file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.

John R. Dundon, EA - www.1040.com/jd - Taxpayer Advocate - Enrolled with the United States Department of Treasury to Practice before the IRS - Under contract with the United States Department of Treasury as a Certified ITIN Acceptance Agent - Direct phone # 720-234-1177

Independent Contractor or Employee

It is critical that you, the employer, correctly determine whether the individuals providing services are employees or independent contractors. Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors. If you are an independent contractor and hire or subcontract work to others, you will want to review the information in this section to determine whether individuals you hire are independent contractors (subcontractors) or employees.

Before you can determine how to treat payments you make for services, you must first know the business relationship that exists between you and the person performing the services. The person performing the services may be -

An independent contractor
An employee (common-law employee)
A statutory employee
A statutory nonemployee

In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered

John R. Dundon, EA - www.1040.com/jd - Taxpayer Advocate - Enrolled with the United States Department of Treasury to Practice before the IRS - Under contract with the United States Department of Treasury as a Certified ITIN Acceptance Agent - Direct phone # 720-234-1177

Medical expenses for dependent elderly relatives

With regard to medical expenses, long-term care expenses are deductible if an individual is a chronically ill individual under the cognitive impairment trigger and are provided pursuant to a plan of care prescribed by a licensed health care practitioner.

In Notice 97-31, 1997-1 CB 417, the IRS established a safe-harbor definition for cognitive impairment triggers and indicated that taxpayers may rely on either or both of the following safe-harbor definitions:

(1) "Severe cognitive impairment" means a loss or deterioration in intellectual capacity that is (a) comparable to (and includes) Alzheimer's disease and similar forms of irreversible dementia, and (b) measured by clinical evidence and standardized tests that reliably measure impairment in the individual's (i) short-term or long-term memory, (ii) orientation as to people, places, or time, and (iii) deductive or abstract reasoning.

(2) "Substantial supervision" means continual supervision (which may include cuing by verbal prompting, gestures, or other demonstrations) by another person that is necessary to protect the severely cognitively impaired individual from threats to his or her health or safety (such as may result from wandering).

For example if an elderly dependent relative has Alzheimer's disease and wanders, the costs of his/her stay in an assisted living facility are deductible medical expenses.

John R. Dundon, EA - www.1040.com/jd - Taxpayer Advocate - Enrolled with the United States Department of Treasury to Practice before the IRS - Under contract with the United States Department of Treasury as a Certified ITIN Acceptance Agent - Direct phone # 720-234-1177

Tax Incentives for Ethanol

Biofuels have been embraced by supporters from President George W. Bush to the Natural Resources Defense Council. Before 1930, the U.S. Treasury focused on shutting down small alcohol producers. After 1978, U.S. energy policy sought to encourage ethanol production to reduce dependence on foreign oil. Federal and state incentives have been credited with increasing ethanol production from 175 million gallons in 1980 to 3.9 billion gallons in 2005.

The Internal Revenue Code contains three income tax credits designed to encourage ethanol use:

1. Alcohol mixture credit
2. Pure alcohol credit
3. Small ethanol producer's credit

These credits, together with other subsidies, come close to making the price of ethanol competitive with petroleum-based fuels. In theory, ethanol use could reduce dependence on foreign oil and greenhouse gas emissions from transport. In practice, the environmental benefits of ethanol are in doubt. Using the tax system to encourage conservation and discourage driving may be a better way to reduce greenhouse gases and oil dependency

John R. Dundon, EA - www.1040.com/jd - Taxpayer Advocate - Enrolled with the United States Department of Treasury to Practice before the IRS - Under contract with the United States Department of Treasury as a Certified ITIN Acceptance Agent - Direct phone # 720-234-1177

Help for Victims of Ponzi Schemes - Revenue Rule

The IRS provides two items of guidance to help taxpayers who are victims of losses from Ponzi-type investment schemes.

Revenue Ruling 2009-9 provides guidance on determining the amount and timing of losses from these schemes, which is difficult and dependent on the prospect of recovering the lost money (which may not become known for several years).

Revenue Procedure 2009-20 simplifies compliance for taxpayers by providing a safe-harbor means of determining the year in which the loss is deemed to occur and a simplified means of computing the amount of the loss.

John R. Dundon, EA - www.1040.com/jd - Taxpayer Advocate - Enrolled with the United States Department of Treasury to Practice before the IRS - Under contract with the United States Department of Treasury as a Certified ITIN Acceptance Agent - Direct phone # 720-234-1177

2009 Alternative Min Tax (AMT) Changes

The AMT exemption amount has increased to $46,700 ($70,950 if married filing jointly or qualifying widow(er); $35,475 if married filing separately).

AMT exemption amount for a child increased. The AMT exemption amount for a child whose unearned income is taxed at the parent's tax rate has increased to $6,700.

Certain credits still allowed against AMT. The special rule that allows the credit for child and dependent care expenses, credit for the elderly or the disabled, education credits, mortgage interest credit, and the District of Columbia first-time homebuyer credit to be applied against the AMT was scheduled to expire at the end of 2008. However, Congress has extended the special rule through 2009, so those credits can be applied against the AMT for 2009.

This special rule is also expanded to include the personal use part of the alternative motor vehicle credit. It also applies to the nonbusiness energy property credit. Qualified motor vehicle tax allowed against AMT. If you claim the standard deduction for the regular tax and it includes any state or local sales or excise tax on the purchase of a qualified motor vehicle, that tax is also allowed as a deduction for the AMT.

Tax-exempt interest on specified private activity bonds issued in 2009 or 2010 exempt from AMT. Tax-exempt interest on specified private activity bonds issued in 2009 or 2010 is not an item of tax preference and therefore is not subject to the AMT. A refunding bond is treated as issued on the date of the issuance of the refunded bond (or, in the case of a series of refundings, the original bond). However, tax-exempt interest on a specified private activity bond issued in 2009 or 2010 to currently refund a private activity bond issued after 2003 and before 2009 is not an item of tax preference

John R. Dundon, EA - www.1040.com/jd - Taxpayer Advocate - Enrolled with the United States Department of Treasury to Practice before the IRS - Under contract with the United States Department of Treasury as a Certified ITIN Acceptance Agent - Direct phone # 720-234-1177

Taxpayer Advocacy Services inside IRS

The IRS and the Taxpayer Advocate Service (TAS) worked together to develop the Tax Toolkit.

TAS is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should.

The online toolkit, both English and Spanish versions, is available 24 hours a day, seven days a week and makes it easier for you to:

• Understand basic tax information
• Determine if you need an Individual Taxpayer Identification Number (ITIN)
• Learn about special tax credits
• Help prevent identity theft
• Understand why it’s important to follow the tax laws
• Learn more about the tax-related issues of starting a small business
• Understand your options when you owe the IRS money
• Get your tax refund quickly and fairly

http://www.taxtoolkit.irs.gov/

John R. Dundon, EA - www.1040.com/jd - Taxpayer Advocate - Enrolled with the United States Department of Treasury to Practice before the IRS - Under contract with the United States Department of Treasury as a Certified ITIN Acceptance Agent - Direct phone # 720-234-1177

Is a tax levy on your wages creating hardship?

A levy is a legal seizure of your property to satisfy a tax debt. Levies are different from liens. A lien is a claim used as security for the tax debt, while a levy actually takes the property to satisfy the tax debt.

If you do not pay your taxes (or make arrangements to settle your debt), the IRS may seize and sell any type of real or personal property that you own or have an interest in. For instance,
they could seize and sell property that you hold (such as your car, boat, or house), or they could levy property that is yours but is held by someone else (such as your wages, retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivables, the cash loan value of your life insurance, or commissions).

They usually levy only after these three requirements are met:

1. They assessed the tax and sent you a Notice and Demand for Payment;
2. You neglected or refused to pay the tax; and
3. They sent you a Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice) at least 30 days before the levy.

They may give you this notice in person, leave it at your home or your usual place of business, or send it to your last known address by certified or registered mail, return receipt requested.

Please note: if they levy your state tax refund, you may receive a Notice of Levy on Your State Tax Refund, Notice of Your Right to Hearing after the levy.

You may ask an IRS manager to review your case, or you may request a Collection Due Process hearing with the Office of Appeals by filing a request for a Collection Due Process hearing with the IRS office listed on your notice. You must file your request within 30 days of the date on your notice. Some of the issues you may discuss include:

1. You paid all you owed before we sent the levy notice,
2. They assessed the tax and sent the levy notice when you were in bankruptcy, and subject to the automatic stay during bankruptcy,
   
3. They made a procedural error in an assessment,
   
4. The time to collect the tax (called the statute of limitations) expired before they sent the levy notice,
   
5. You did not have an opportunity to dispute the assessed liability,
   
6. You wish to discuss the collection options, or
   
7. You wish to make a spousal defense.

At the conclusion of your hearing, the Office of Appeals will issue a determination. You will have 30 days after the determination date to bring a suit to contest the determination. Refer to Publication 1660, Collection Appeal Rights (PDF), for more information. If your property is levied or seized, contact the employee who took the action. You also may ask the manager to review your case. If the matter is still unresolved, the manager can explain your rights to appeal to the Office of Appeals.

Levying your wages, federal payments, state refunds, or your bank account. If they levy your wages, salary, or federal payments, the levy will end when:

1. The levy is released,
2. You pay your tax debt, or
3. The time expires for legally collecting the tax.

If they levy your bank account, your bank must hold funds you have on deposit, up to the amount you owe, for 21 days. This holding period allows time to resolve any issues about account ownership. After 21 days, the bank must send the money plus interest, if it applies, to the IRS. To discuss your case, call the IRS employee whose name is shown on the Notice of Levy.

Filing a claim for reimbursement when they made a mistake in levying your bank account
If you paid bank charges because of a mistake they made when they levied your account, you may be entitled to a reimbursement. You will have 30 days to appeal the determination to the Tax Court. Use Form 8546, Claim for Reimbursement of Bank Charges Incurred Due to Erroneous Service Levy or Misplaced Payment Check (PDF).

John R. Dundon, EA - www.1040.com/jd - Taxpayer Advocate - Enrolled with the United States Department of Treasury to Practice before the IRS - Under contract with the United States Department of Treasury as a Certified ITIN Acceptance Agent - Direct phone # 720-234-1177

Tax ramifications of no longer being employed

The loss of a job may create new tax issues. Severance pay and unemployment compensation are taxable. Payments for any accumulated vacation or sick time also are taxable. You should ensure that enough taxes are withheld from these payments or make estimated tax payments to avoid a big bill at tax time. Public assistance and food stamps are not taxable. The IRS has updated a helpful publication which lists a number of job-loss related tax issues. For more information, see Publication 4128, Tax Impact of Job Loss.

John R. Dundon, EA - www.1040.com/jd - Taxpayer Advocate - Enrolled with the United States Department of Treasury to Practice before the IRS - Under contract with the United States Department of Treasury as a Certified ITIN Acceptance Agent - Direct phone # 720-234-1177

Payment Options

If you filed on time but didn’t pay all or some of the taxes you owe by the deadline, you could face interest on the unpaid amount and a failure-to-pay penalty. The failure-to-pay penalty is equal to one half of one percent per month or part of a month, up to a maximum of 25 percent, of the amount still owed. The penalty rate is cut in half — to one quarter of one percent — while a payment plan is in effect.

Interest and penalties add to the total amount you owe. The sooner and the more you pay, even though it’s late, the less you will end up owing.

In addition, you may take advantage of a variety of electronic and other payment options, such as using charge or debit cards to pay your taxes, to make it easier, or apply for a payment plan.

Electronic Options

Electronic payment options are convenient, safe and secure methods for paying taxes or user fees. You can make payments online, by phone using a credit or debit card, or through the Electronic Federal Tax Payment System.

Installment Agreements

If you can’t pay all or some of the taxes you owe, you can apply for an installment agreement. The agreement allows you to pay any taxes you owe in monthly installments. If you owe $25,000 or less, you may apply for a payment plan electronically, using the Online Payment Agreement application. You must show the amount of your proposed monthly payment and the date you wish to make your payment each month.

The IRS charges $105 for setting up the agreement or $52 if the payments are deducted directly from your bank account ($43 for qualified lower-income taxpayers).The IRS will automatically give you the low income installment agreement fee if you qualify; you do not have to request it.
You are required to pay interest plus a late payment penalty on the unpaid taxes for each month or part of a month after the due date that the tax is not paid

John R. Dundon, EA - www.1040.com/jd - Taxpayer Advocate - Enrolled with the United States Department of Treasury to Practice before the IRS - Under contract with the United States Department of Treasury as a Certified ITIN Acceptance Agent - Direct phone # 720-234-1177

Married File Sep negates elig for EIC

John R. Dundon, EA - www.1040.com/jd - Taxpayer Advocate - Enrolled with the United States Department of Treasury to Practice before the IRS - Under contract with the United States Department of Treasury as a Certified ITIN Acceptance Agent - Direct phone # 720-234-1177

If you must Amend your return

If you need to make a change or adjustment on a return already filed, you can file an amended return. Use Form 1040X, Amended U.S. Individual Income Tax Return, and follow the instructions. Form 1040X cannot be filed electronically.

You should amend your return if you reported certain items incorrectly on the original return, such as filing status, dependents, total income, deductions or credits. You may also amend your return if you originally claimed the first-time homebuyer credit for a 2009 home purchase under the prior law allowing a credit, which generally must be repaid, of up to $7,500 rather than the newly expanded credit of up to $8,000 that normally doesn’t have to be repaid.

However, you don’t have to amend a return because of math errors you made; the IRS will correct those. You also usually won’t have to file an amended return because you forgot to include forms, such as W-2s or schedules, when you filed — the IRS will normally request those forms from you.

John R. Dundon, EA - www.1040.com/jd - Taxpayer Advocate - Enrolled with the United States Department of Treasury to Practice before the IRS - Under contract with the United States Department of Treasury as a Certified ITIN Acceptance Agent - Direct phone # 720-234-1177