1st Quarter FY 2 013 (October, November, December 2012) A Quarterly Publication of the Alabama Department of Revenue Magee Announces Senior Management Reorganization ommissioner Julie P. Magee recently deputy commissioner, vacated by Mason, most recently served as deputy announced the appointment of December 1. commissioner, prior to his appointment. CMichael E. Mason to the post of Commenting on the appointments, Mason is a certified public accountant and assistant state revenue commissioner, Commissioner Magee said, “I am confident holds a BS degree in accounting from the effective Dec. 1, 2012, following the in their leadership capabilities and know University of Alabama and a Master of retirement of Ms. Cynthia Underwood on they will continue to lead the department Business Administration degree from Troy Nov. 30, 2012. Commissioner Magee also in the utmost professional and progressive University. Most recently, he was named appointed Joe W. Garrett Jr., ADOR Tax way.” the 2012 recipient of the prestigious Wade Policy Administrator, to fill the post of Mason, a 38-year career employee, Anderson Memorial Medal, awarded annually by the Multistate Tax Commission and the Federation of Tax Administrators. Underwood Retires In 1999, he received the Outstanding ssistant Revenue Commissioner Cynthia Underwood retired Nov. 30, 2012, Certified Public Accountant in Government after a 30-year career in Revenue. A lovely reception for friends, family and Award by the Alabama Society of Certified A co-workers was held in the Persons Cafeteria. Public Accountants. Garrett began his career with the ADOR in 2002 as a legal and policy advisor to the commissioner of revenue. Prior to joining the department, Garrett was a manager with PricewaterhouseCoopers’ state and local tax group in Atlanta, Ga., and served as a tax consultant. Garrett holds degrees from the University of Florida Levin College of Law, the University of Alabama School of Law, and Auburn University. He is a member of both the Georgia and Alabama bar associations and is a recognized speaker at state and national tax forums and conferences. In 2012, Garrett was named to the State and Local Taxation Technical Resource Panel (TRP) of the American Institute of Certified Public Accountants, marking a unique distinction for the ADOR in that Alabama is the only state from which a state government representative has been selected. Prior to Garrett’s appointment, Assistant Commissioner Michael E. Mason served on the TRP for 10 years. Rep. Thad McClammy presents Cynthia with a special Legislative Commenting on the recent senior staff Proclamation. changes, Commissioner Magee said, “Ms. First Quarter FY 2013 Revenue REVIEW October, November, December 2012

taxes. Mr. Stewart has served as director of the department’s Tax Policy and Research Division since 2008. Stewart, a native of Greenville, Ala., received a Bachelor of Science degree from the Commerce School of Washington and Lee University in Lexington, Va. Mike Gamble, a certified public manager, began his career with the ADOR in 1992. Prior to his appointment as director of the Tax Policy and Research Division, Gamble served as assistant director of the department’s Motor Vehicle Division. Most recently, he served as project manager for implementation of the department’s electronic title application processing system, ETAPS, which significantly reduced the title issuance processing time from weeks to days. ETAPS is used statewide by 4,000 designated agents to process annually over 1.2 million applications for certificate of title. Gamble, a native of Huntsville, Ala., received a Bachelor of Science degree in accounting from the Auburn University and Assistant Revenue Commissioner Mike Mason (ctr) and Deputy Commissioners Joe a Master of Business Administration degree Garrett and Curtis Stewart review proposed legislation for this year’s Regular from Troy University. Session, which convened February 5. Commenting on the recent senior staff Underwood’s retirement brings to a close a capabilities and know they will very distinguished and accomplished career serve the department well.” in state government. She will indeed be Stewart joins Joe Garrett, missed,” said Magee. “I am confident that ADOR deputy commissioner, both Mr. Mason and Mr. Garrett will as serving as one of the two continue to lead the department with the deputy commissioners now same dedication to taxpayer service as Ms. heading the department’s Underwood and look for new opportunities senior management team, to improve our service commitment to along with Assistant Alabama taxpayers,” said Magee. Commissioner Michael E. Effective Jan. 1, 2013, Magee named Mason. Curtis Stewart, former Tax Policy and Stewart, a certified public Research Division director, to the post of accountant, brings to his new deputy revenue commissioner. assignment 11 years of Commissioner Magee also appointed Mike combined experience in the Gamble, former Motor Vehicle Division private sector as a sole assistant director, to fill the director post practitioner in the Atlanta, Ga., vacated by Stewart. area and as a former audit and Tax Policy and Research Division Director Mike “Over the last year, we have worked to tax manager with KPMG Gamble realign and reorganize the department into accounting firm. Stewart began his career changes, Commissioner Magee said, “Both a more successive organization that will be with the ADOR in 1991, and since that time Mr. Stewart and Mr. Gamble set high better prepared to meet new operational has held management positions within the standards for taxpayer service, and I am and administrative responsibilities,” said department in various tax administration confident they will look for new Magee. “I have every confidence in Mr. areas, including regulatory licenses, opportunities to improve our service Stewart’s and Mr. Gamble’s leadership severance, tobacco, fuel, sales and use commitments.” 2 First Quarter FY 2013 Revenue REVIEW October, November, December 2012

Alabama estimated tax penalty if they file and pay by April 15, 2013. Alabama farmers and fishermen seeking this state relief should contact the Alabama Department of Wha t’s New Revenue at 334.242.1000 or by email at Contact Us www.revenue.alabama.gov, if the underestimation penalty is applied. for 2 013? Alabama Gross Income Calculation Resident individual taxpayers who are partners or Free ADOR E-file Option members of a partnership, limited liability company or S- This year the Alabama Department of Revenue is Corporation must include in calculations of their Alabama offering a free electronic filing option to all Alabama gross income their proportionate share of income from taxpayers filing a state tax return. No income limitations or such entities, regardless of whether the income is earned other qualifications must be met to take advantage of the within or outside of Alabama. Resident individuals are department’s free online filing system. See e-Services for also allowed an income tax credit for a portion of the tax more information. paid by the entity to another state (Reference: Act 2012- Last year more than 1.3 million Alabamians 427). electronically filed their tax returns. E-file is a safe, secure New Irrigation Equipment/Reservoir method of filing one’s tax return and guarantees a quicker Tax Credit turnaround time on refund processing than traditional Alabama allows an income tax credit for the purchase paper returns. and installation of irrigation equipment or for the purchase Alabama Tax Refund Card and installation of a qualified reservoir. The credit is equal This year the ADOR is introducing taxpayers to a new to 20 percent of the cost of purchase and installation of refund payment choice. Taxpayers, filing a refund return, the irrigation equipment or the qualified reservoir, but can opt to receive their 2012 individual income tax refund cannot exceed $10,000. Taxpayers are allowed to claim a in the form of a new refund debit card, the Alabama Tax credit for either the irrigation equipment or reservoir, but Refund Card. The Alabama Tax Refund Card is a prepaid not both. The credit is available for all tax years beginning VISA debit card and can be used just like cash at retail after Dec. 31, 2011 (Reference: Act 2012-391). locations. Free teller-assisted cash withdrawals can be Windstorm Catastrophe Savings Account made at banks and credit unions that accept VISA. Deduction To receive the card, taxpayers simply check the box on their 2012 Alabama tax return, indicating they wish to This is a new deduction available beginning with the receive their refund in the form of a refund debit card. The 2012 tax year. Residential property owners may establish Alabama Tax Refund Card is a safe and secure way for and designate a catastrophe savings account to provide taxpayers to receive their 2012 Alabama refunds. for reimbursements for insurance deductible amounts and other uninsured losses. Taxpayers are allowed a limited Alabama Will Follow Federal Filing Relief deduction against the income earned on deposits into a Offered to Alabama Farmers and Fishermen catastrophe savings account. The deduction is limited, The Internal Revenue Service recently announced that based on the taxpayer’s insurance deductible (Reference it will issue guidance to provide relief from the federal Act 2012-413). estimated tax penalty for those farmers and fishermen Heroes for Hire Credit who are unable to file and pay their 2012 federal taxes by New for this tax year, the “Heroes for Hire Credit” the March 1 deadline, due to the delayed start of the tax provides an additional $1,000 tax credit for job creation to filing season. (Reference “IRS Provides Penalty Relief to employers who hire recently deployed, and now Farmers and Fisherman,” IR-2013-7, issued Jan. 18, discharged, unemployed veterans. Additionally, any 2013.) Alabama will offer similar relief. Normally, farmers recently deployed, and now discharged, unemployed and fishermen who choose not to make Alabama quarterly veteran who holds at least 50 percent interest in a start-up estimated tax payments are not subject to an estimated business is eligible for a one-time $2,000 income tax credit tax penalty if they file their Alabama annual tax returns and for expenses associated with the start-up business pay the full amount of Alabama tax due by February 28 (Reference Act 2012-168). each year. Alabama farmers and fishermen who miss the state New Refund Donation Check-offs February 28 deadline this year will not be subject to the Alabama taxpayers have two new refund donation 3 First Quarter FY 2013 Revenue REVIEW October, November, December 2012 check-offs from which to choose this year, bringing the Treatment of ROTH Individual Retirement total number of available refund donation check-offs on Accounts the 2012 return to nineteen. The Alabama Veterinary Alabama’s tax treatment will follow the IRS Code Medical Foundation Spay/Neuter Program provides provision that allows a 2010 rollover from a traditional assistance to low income Alabamians to spay or neuter Individual Retirement Account to a Roth Individual their dog or cat. The second new check-off is the Retirement Account. Any gain will be equally distributed Alabama Association of Rescue Squads. This fund and reported over tax years 2011 and 2012. provides for training for member rescue squads and inspections to ensure that members’ equipment and Consumer Use Tax buildings meet standards (Reference: Act 2012-305 and Taxpayers who purchased items online or through Act 2012-543, respectively). catalog or telephone mail-order sales during 2012 and did Alabama Injured Spouse Provisions not pay any sales or use tax to the out-of-state retailer should report and pay the Alabama consumer use tax due Legislation passed in 2012 allows Alabama’s tax laws when filing their 2012 Alabama returns. to follow federal law provisions in Title 26 U.S.C. §6015 which address “injured spouse.” A taxpayer requesting Tax Relief, Unemployment Insurance this relief must complete and attach Alabama Form AL Reauthorization & Jobs Creation Act of 2010 8379, Injured Spouse Allocation to his or her tax return. Alabama will follow the increased deduction allowed Previously, Alabama’s tax laws recognized only “innocent under the federal Tax Relief, Unemployment Insurance spouse” relief (Reference: Act 2012-474). Reauthorization and Jobs Creation Act of 2010, pertaining Roth IRA Treated as Qualified Trust to Section 168(k) of the Internal Revenue Code. Section Alabama’s code section relating to qualified trusts 168(k) provides that qualifying assets acquired after Sept. was amended in 2012 to include ROTH IRAs as a qualified 8, 2010, through Dec. 31, 2011, will have a 100 percent trust (Reference: Act 2012-381). bonus depreciation. New Filing/Payment System for Alabama Small Business Jobs Act of 2010 Withholding Tax Alabama follows the increased deductions allowed by the federal Small Business Jobs Act of 2010, which Effective July 1, 2013, business taxpayers must use amended Section 179 and Section 168 of the Internal My Alabama Taxes (MAT) to file and pay Alabama Revenue Code. withholding taxes online. The department encourages all employers to register in MAT as soon as possible to allow Small Business Health Insurance Premiums time to become familiar with the new system. Qualifying employers can deduct an additional 100 percent of the amount paid as health insurance premiums Other Important Reminders on qualifying employees in connection with an employer- Homeowners Insurance Retrofitting provided health insurance plan. Qualifying employers Deduction have less than 25 employees. Qualified employees are residents who earn no more than $50,000 of wages and Homeowners who retrofit or upgrade their homes to report no more than $75,000 in adjusted gross income. make their residences more resistant to losses due to Income threshold is limited to $150,000, if married filing hurricane, tornado, or other natural disasters may claim an jointly. Sole proprietors claim this deduction on the Form income tax deduction on their annual income tax returns. Schedule C under “other expenses.” Pass-through- The deduction is limited to the lesser amount of either 50 entities claim this deduction on the partnership return percent of the retrofit cost or $3,000. This deduction is Schedule K. The amount is then distributed to the available to taxpayers who itemize their deductions, as partners or shareholders on the Schedule K-1. More well as to those who claim the standard deduction. information on the Small Business Health Insurance Disaster Relief Payments Premiums deduction is available at Alabama’s tax treatment of disaster relief payments www.revenue.alabama.gov. See Current Issues under the follows that of the Internal Revenue Service (IRS) treatment Practitioner’s Corner. The Small Business Health Care of qualified disaster relief payments under the Internal deduction is available for all tax years after Dec. 31, 2010. Revenue Code §139. Generally, such payments are not Reemployment Act of 2010 (effective for tax taxable as long as they are not payments received in lieu years 2011 and 2012) of income. Note: Unemployment compensation is not The Reemployment Act of 2010 provides an income taxable for Alabama purposes. 4 First Quarter FY 2013 Revenue REVIEW October, November, December 2012 tax deduction to employers who hire individuals collecting Estimated Tax Reminder unemployment or whose unemployment benefits have April 15, 2013, also marks another important date on expired. Employers will receive an income tax deduction the tax calendar for individuals—the start of the 2013 tax- up to 50 percent of the gross wages paid to each filing period for individuals who are required to file individual hired from these categories who remains with quarterly estimated income tax reports and payments. the employer for 12 consecutive months. The deduction is Self-employed individuals are required to report and pay limited, depending on the wage rates paid to employees. estimated income tax on a quarterly basis, based on the It is effective for tax years 2011 and 2012 for employees current maximum individual rate of five percent. In hired during 2010 and 2011, respectively. addition, individuals who receive taxable income from Full Employment Act of 2011 income sources other than wages or salaries on which no The Full Employment Act of 2011 provides small tax has been withheld are also required to report and pay business employers, having 50 or fewer employees, with a estimated tax on a quarterly basis, if the taxable income $1,000 tax credit for each newly-created job, with a set received exceeds certain amounts. The estimated tax hourly wage of $10 or more. The credit is available to the filing and payment threshold for individuals is set at $500 employer after the employee has completed 12 months of in tax liability annually. Examples of such taxable income consecutive employment in the new job. It is effective for would include interest income or capital gains tax years beginning after Jan. 1, 2011. distributions. The reporting and payment dates for individuals are April 15, June 15, Sept. 15, and Jan. 15 of Review your return the following year. Before mailing or electronically filing, be sure to review Choose Your Preparer Carefully all the information on your return one more time. Errors will delay the processing of your return. The ADOR cautions taxpayers to be wary of claims by preparers offering larger refunds than other preparers. Where’s My Refund? Take time to check out the preparer’s credentials. If you file an accurate 2012 refund return, the ADOR While most preparers provide excellent service to their advises that you can expect to have your refund approved clients, it is important to be aware that even if someone by the ADOR and issued by the state within 15 weeks from else prepares the return, the taxpayer is ultimately the date the return is received. responsible for all of the information reported on his or her To check on the processing status of your refund return. The department urges taxpayers to never sign a return, go to “Where’s My Refund” at blank return and always review the return before signing it. www.revenue.alabama.gov or call the Refund Hotline at Question any item shown on the return that you do not 1.800.558.3912. Please allow at least four weeks after you understand. electronically file or mail your refund return before using Protect Your Personal Information the automated systems. Last year the ADOR processed over 1.8 million Be on the alert for tax scams. During the tax-filing individual income tax returns and approved over 1 million season, various tax scams are reported. If you receive an individual income tax refunds for issuance to taxpayers, e-mail from someone claiming to represent the ADOR and totaling over $519 million. seeking personal or financial information, do not reply. The Alabama Department of Revenue does not initiate Direct Deposit taxpayer communications through e-mail. You can choose to receive your refund by the new Alabama Tax Assistance Alabama Tax Refund Card, by check, or by direct deposit. Last year, approximately two-thirds of Alabama taxpayers The ADOR is committed to providing quality customer opted to have their state income tax refunds direct- service to taxpayers. Assistance is available at taxpayers’ deposited into their bank accounts. Direct deposit is safe, convenience through the department’s Web site at secure, and provides taxpayers with quick access to their www.revenue.alabama.gov or by calling 334.242.1000. refunds. Be sure to check out the benefits of direct The ADOR also operates nine Taxpayer Service Centers deposit. located across the state for walk-in assistance. For a listing of locations, visit www.revenue.alabama.gov. See Owe Additional Taxes? About Us. The ADOR offers taxpayers a variety of electronic payment options—from E-check to credit card payment options. See “e-Services” at www.revenue.alabama.gov for more information. 5 First Quarter FY 2013 Revenue REVIEW October, November, December 2012 2013 Sales Tax Holiday for Farmers’ Fuel Severe Weather Preparedness Items Tax Refund Set Feb. 22 through Feb. 24 Deadline April 1 labama’s second annual Severe Weather Preparedness Sales Tax Holiday will be A held Friday, Feb. 22, 2013, through Sunday, Feb. 24, 2013. Alabamians are encouraged to stock up on a variety of supplies for protecting their he Alabama Department of Revenue homes or businesses during Alabama’s tornado and hurricane seasons. (ADOR) reminds Alabama farmers A provision in the Severe Weather Preparedness Sales Tax Holiday law allows Tthat April 1, 2013, is the deadline date counties and municipalities to join the state by removing their own local sales and use for filing their 2012 state fuel tax refund taxes from the same items during the same weekend (Reference: Act 2012-256). claims with the ADOR. To allow retailers sufficient time to prepare for the upcoming sales tax holiday in February, local governments should notify the ADOR by Jan. 22, 2013, of their decision Due to recent changes in Alabama’s regarding their participation. The ADOR will use this information to compile a listing of motor fuel tax law, the 2012 refund period all cities and counties participating in the 2013 Severe Weather Preparedness Tax covers fuel purchases made between Jan. 1, Holiday. The city and county listing will be available at http://www.revenue.alabama. 2012, through Sept. 30, 2012. Effective Oct. gov/salestax/WPSalesTaxHol.htm and provide guidance to both retailers and 1, 2012, Alabama’s motor fuel tax law no consumers. longer provides for this refund for fuel The following list contains examples of items covered under the Severe Weather purchases made after Sept. 30, 2012 Preparedness holiday. [Reference: Act 2011-565]. Items below that have a sales price of $60 or less per item The 2012 refund claims are based on • Batteries: AAA-cell batteries, AA-cell batteries, C-cell batteries, D-cell portions of the state excise tax paid by batteries, 6-volt batteries, 9-volt batteries. (NOTE: coin batteries, farmers on gasoline and “clear” motor fuel automobile batteries, and boat batteries are not exempt.) used in tractors or any auxiliary engines • Cellular phone battery attached to tractors during 2012 for • Cellular phone charger agricultural purposes. The refund rate is 11 • Portable self-powered or battery-powered radio, two-way radio, weather- cents per gallon for gasoline and “clear” band radio or NOAA weather radio motor fuel. • Portable self-powered light source, including battery-powered flashlights, The refund provision also allows lanterns, or emergency glow sticks Alabama farmers transporting biomass to • Tarpaulin, plastic sheeting, plastic drop cloths, and other flexible, electricity-generating facilities to receive a waterproof sheeting fuel tax refund up to $1,000. • Ground anchor system, such as bungee cords or rope, or tie-down kits • Duct tape Farmers who have previously filed • Plywood, window film or other materials specifically designed to protect refund claims with the ADOR were mailed window coverings forms early this month. Any individual • Non-electric food storage cooler or water storage container qualifying for a refund may obtain a claim • Non-electric can opener form by writing to the following address: • Artificial ice, blue ice, ice packs, reusable ice Alabama Department of Revenue, Business • Self-contained first aid kit and License Tax Division, Motor Fuels • Fire extinguisher Section, Post Office Box 327540, • Smoke detector Montgomery, AL 36132-7540, or telephone • Carbon monoxide detector (334) 242-9608. • Gas or diesel fuel tank or container For more information on the fuel tax Items below that have a sales price of $1,000 or less: refund, farmers may contact the • Portable generators and power cords department’s Motor Fuels Section at (334) 242-9608, or email For more information about Alabama’s annual Sales Tax Holiday for Severe [email protected]. Weather Preparedness, visit ADOR’s Website at www.revenue.alabama.gov. 6 First Quarter FY 2013 Revenue REVIEW October, November, December 2012 ADOR Meetings and Seminars One Spot Taxpayer ADOR Holds OIVS Training for Counties Advisory Committee Jay Starling and Sherry Helms held an informative seminar Tuesday, Dec. 4, 2012, for county officials who will be part of the state’s new Online Insurance Verification System, in Meeting accordance with the Mandatory Liability Insurance Law, effective Jan. 1, 2013. A subcommittee of the One Spot Visual displays, a walk-through of the liability insurance verification process, and a Advisory Committee, the Taxpayer Advisory question-and-answer session proved helpful to the attendees, who asked pertinent Committee, met Friday, Nov.1, 2012, in the questions relevant to the topics they will face in the registration process. ADOR Commissioner’s Conference Room. Local members representing the cities and counties in Alabama listened as Com mis - sion er Julie Magee began presiding over the assembly.

County personnel gather in the Persons Commissioner Julie Magee responds to a Building Auditorium to learn more about question from a committee member. OIVS.

Processing Division Assistant Director Don Graham (ctr) is joined by FAST Jay Starling outlines the OIVS process, Enterprises representatives Christina Mclvor and Nathan Scafe. step-by-step. 7 First Quarter FY 2013 Revenue REVIEW October, November, December 2012 Collection Services Field Supervisors’ Meeting

Sherry Helms prepares her notes to Field supervisors met in Montgomery recently for their annual meeting. Attending display, on screen, how each county were (left to right) 1st row: Roxanne Moore (Jefferson/Shelby TPSC), Director Voncile employee will verify an applicant’s Catledge, Assistant Director Joan Crumbley, Mike Kelly (Auburn TPSC), Louie Hughes insurance. (Tuscaloosa TPSC); back row: John Q. Davis (Montgomery TPSC), Dwight Bush (Gadsden TPSC), Field Coordinator Paul Harshman, Mark Flagge (Mobile TPSC), Mark Peterson (Muscle Shoals TPSC), Keith Crowley (Dothan TPSC). Foreign Audit Specialists Attend Annual Meeting

The 2012 annual meeting of ADOR foreign Audit Specialists (FAS) included the following representatives: Seated: Shirley Aiken, Melissa Jones, Jackayla Baker, LaCynthia Holt, Adesha Tate, Kap White; standing: Lyvonda McKee, Harold Daniels, Dan Lawrence, Lyle Palmer, Mac Sadler, Barry King, Richard Friar, Dewey Staggs, John Dixon, Albert McDonald, Pat Estes, Pettus Strong, Kevin White, Audrey Jones. Not pictured: B K. Arora. 8 First Quarter FY 2013 Revenue REVIEW October, November, December 2012 AG, REVENUE COMMISSIONER ANNOUNCE ARREST OF BIRMINGHAM WHOLESALERS FOR TOBACCO TAX EVASION AND CRIMINAL POSSESSION OF FORGED INSTRUMENTS

(MONTGOMERY)—Attorney General 44 counts each (for a total of 88 imprisonment and fines of up to $15,000 Luther Strange and Revenue Commissioner counts) of willful tobacco tax evasion, in for each of the 77 class C felony counts of Julie P. Magee announced a 242-count violation of Alabama Code Section 40-29- second-degree possession of a forged indictment resulting in the arrests of two 110, with each month of tax evasion instrument. If found guilty, the men also Birmingham business partners who own constituting a separate count, beginning in could be subject to other financial penalties and operate a wholesale distribution January 2007 and continuing through plus interest on the taxes evaded. company that supplies goods to retail August 2010; and Attorney General Strange and convenience stores. 77 counts each (for a total of 144 Commissioner Magee commended those Farhad Jiwani, 57, and Allaudin counts) of second-degree possession of a involved in this case, noting Deputy Merchant, 65, have been arrested by the forged instrument in violation of Section Attorney General Mike Duffy and Assistant Jefferson County Sheriff’s Office. Jiwani 13A-9-6, with separate counts for each Attorney General Pete Smyczek of the surrendered on December 21 and has been commercial invoice presented to the Attorney General’s Special Prosecutions released on bond. Merchant surrendered Alabama Department of Revenue by the Division and Special Agent Jerome Jan. 7, 2013. defendants. Dangerfield of the Alabama Department of Jiwani and Merchant are the vice If convicted, both men face up to five Revenue’s Investigations Division. president and president, respectively, and years imprisonment and fines of up to *An indictment is merely an the owners of “Joey Enterprises, Inc.” The $100,000 for each of the 44 tax evasion accusation. The defendants are presumed company is located in Birmingham and counts, as well as a maximum of 10 years innocent unless and until proven guilty. does business as “Northstar Wholesale.” In all, Jiwani and Merchant are accused of evading $1,050,244.74 in state tobacco taxes. Reminder: Prescription Items for This is the second time in the past year that the Attorney General’s Office has partnered with the Alabama Department of Animals Not Exempt from Tax Revenue, a member of the Attorney General’s Special Prosecution Alliance, to he Alabama Department of Revenue (ADOR) reminds business taxpayers that prosecute individuals for evading Alabama’s prescription veterinary items, as well as non-prescription veterinary items, are tobacco taxes. On November 20, 2012 taxable sales under Alabama sales and use tax laws. Shamim Ahmed Khan, also the operator of T “Unlike prescription drugs sold for human consumption, there is no similar a wholesale distributer, pled guilty in Shelby exemption for medications or drugs sold for animal consumption,” said Joe Walls, County to criminal possession of a forged ADOR Sales and Use Tax Division director. “Prescription items sold by licensed instrument in an attempt to evade state veterinarians, as well as prescription items sold by retail pharmacies, etc., for animal tobacco taxes. Khan was sentenced to 10 consumption are taxable.” years, which was split for the defendant to “Reportedly, there has been some confusion regarding the taxability of serve six months imprisonment and five veterinary prescription items sold by retail pharmacies, and we want to address that years probation. In addition, Khan was and offer any assistance that we can,” said Walls. “While the majority of their ordered to pay restitution to the State of prescription items and drug sales are exempt, those sold for animal consumption Alabama for taxes owed plus interest and are not,” reminded Walls. penalties, totaling $1,721,996. Please note that this advisory does not address the exemption allowed for In this case, Attorney General livestock, poultry, or fish raised in commercial or farming enterprises. Reference Strange’s Office presented evidence to a Code of Alabama 1975 as amended, and view Section 40-23-4 Exemptions. Jefferson County grand jury on December For more information, taxpayers should contact the Sales and Use Tax Division 7, which resulted in Jiwani and Merchant’s at 334.242.1490 or visit ADOR’s website at www.revenue.alabama.gov. indictment.* Specifically, the indictment charges the two men with the following: 9 First Quarter FY 2013 Revenue REVIEW October, November, December 2012 Administrative Rules Montgomery TSC Effective Nov. 27, 2012: Adopted: Moves to New 810-5-8-.09 Identification Numbers Repealed: Location 810-5-75-.41 DEALER REQUIRED TO TITLE VEHICLE-Title Applica - tion Submitted to Department and is Returned to Dealer Be - cause Transfer of Vehicle was not consummated. he Alabama Department of Revenue Montgomery Taxpayer Service Center, previously located at 1021 Amended: TMadison Avenue, is now located at 2545 Taylor Road. 810-5-8-.08 Refunds of Mandatory Liability Insurance (MLI) Rein - The telephone and fax numbers for the Montgomery statement Fees Taxpayer Service Center, 334.242.2677 and 334.265.9887, 810-5-1-.230 License Plates for Truck Tractors Limited to Travel respectively, have remained unchanged, along with the within Fifteen Miles of its Domiciled Corporate Limits mailing address. 810-5-1-.247 Vehicle Identification Number (VIN) Inspections “We are very pleased with the accessibility our new 810-5-75-.27 Title Procedure-First Title for a Vehicle Reconstructed office space offers to taxpayers in the central Alabama area,” with a Glider Kit said State Revenue Commissioner Julie P. Magee. 810-5-75-.48 Defining “Junk,” “Parts Only,” and “Scrap” Vehicles “Accessibility and taxpayer convenience are so important to and Requiring Notice our agency’s service commitment,” added Magee. “Our new 810-5-75-.68 Exemptions from Titling office facility provides our taxpayers with both of these advantages.” Effective Dec. 24, 2012: The Montgomery Taxpayer Service Center serves area residents in Autauga, Bullock, Butler, Chilton, Crenshaw, Adopted: Dallas, Elmore, Lowndes, Macon, Montgomery, and Pike 810-6-5-.36 Prepaid Wireless 9-1-1- Charge counties. It is one of nine taxpayer service centers operated by the Alabama Department of Revenue. Amended: As part of the department’s continued effort to provide 810-5-8-.04 Registration Denial—Mandatory Liability Insurance Law easier access and accommodations to Alabama taxpayers conducting business with the ADOR, the Motor Vehicle Effective Jan. 2, 2013: Division and several other offices within the ADOR which Adopted: provide customer walk-in assistance, also relocated to the 810-3-21-.03 Maximum Credit for Tax Paid Other Jurisdictions new Montgomery Taxpayer Service Center. “These moves have allowed the department to Effective Jan. 11, 2013: consolidate all ADOR offices receiving high volumes of Adopted: customer traffic and to relocate those offices to a much- 810-8-7-.02 Definitions needed convenient and accessible property location for our 810-8-7-.04 Sales Subject to the Tax taxpayers. Prior to this consolidation effort, taxpayers 810-8-7-.05 Producer’s Responsibility to Collect and Remit the Tax conducting business with our agency have been required, in 810-8-7-.06 Purchaser’s Responsibility to Remit the Tax some instances, to visit several different offices within the 810-8-7-.07 Application of the Tax ADOR, and in some cases, different buildings,” said 810-8-7-.08 Conversion of Cubic Yards to Tons Magee. “The new taxpayer service center location also provides our customers with free, ample parking and easy Effective Jan. 23, 2013: interstate access—two important location considerations for Amended: all our taxpayers, but especially for trucking companies and their drivers, conducting business with the department,” 810-5-12-.05 Evidence of Liability Insurance for Licensed Motor Ve - added Magee. hicle Dealers, Motor Vehicle Reconditioners, Motor Vehicle Re - Business hours for the new Montgomery Taxpayer builders, and Motor Vehicle Wholesalers Service Center are 8:00 a.m. through 5:00 p.m., Monday 810-6-3-.65 Sales Tax Holiday through Friday. 810-6-3-.07.05 Charitable Organizations and Institutions 10 First Quarter FY 2013 Revenue REVIEW October, November, December 2012 theft. IRS-Criminal Investigation will use October 24, 2012 every means available to investigate and DOJ NEWS bring to justice those who engage in the ALABAMA WOMAN October 18, 2012 illegal use of other taxpayer’s information.” SENTENCED TO PRISON On April 25, 2012, Barbara Murry, FAMILY MEMBERS IN Douglas Murry, Yolanda Moses, Lee Moses, FOR USING STOLEN Veronica Temple, Jeffrey Temple and others IDENTITIES TO OBTAIN ALABAMA PLEAD GUILTY were charged in a 33-count indictment by a IN MILLION DOLLAR federal grand jury on a variety of counts TAX REFUNDS stemming from a stolen identity refund WASHINGTON – Jacqueline Slaton was STOLEN IDENTITY fraud scheme. According to court sentenced to 70 months in prison and REFUND FRAUD SCHEME documents, all of the defendants are family order to pay restitution of over $100,000 for WASHINGTON – Several family members. Barbara Murry owned and her involvement in stolen identity refund members, all residents of Montgomery, Ala., operated B & B Weaving Shop, located in fraud scheme, according to the Justice pleaded guilty in the Middle District of Montgomery. B & B Weaving Shop was Department and the Internal Revenue Alabama to their involvement in a million located in the same building as B & B Tax Service. dollar stolen identity refund fraud scheme, Service. Barbara Murry’s daughter, Yolanda According to court documents, in according to the Department of Justice and Moses, owned and operated B & B Tax 2012, Slaton was in the midst of filing false the Internal Revenue Service. Service. tax returns using stolen identities when IRS Veronica Temple and Yolanda Moses The indictment alleges that Veronica special agents executed a search warrant both pleaded guilty to one count of Temple and her sister, Yolanda Moses, and ended her operation. At the time, conspiracy to defraud the United States, obtained stolen identities from multiple Slaton had access to hundreds of stolen one count of theft of public funds and one sources. Veronica Temple, Yolanda Moses identities. count of aggravated identity theft. Barbara and others filed false tax returns from B & B According to the plea agreement, Murry pleaded guilty to one count of Tax Service and from their homes and between December 2011 and March 2012, conspiracy to defraud the United States and directed the tax refunds from these returns Slaton filed at least 102 fraudulent federal one count of aggravated identity theft. to be deposited into over ten different bank income tax returns using stolen identities. Douglas Murry pleaded guilty to one count accounts that were controlled by the She also filed 102 fraudulent Alabama state of conspiracy to defraud the United States defendants and their co-conspirators. tax returns. The total federal and state tax and one count of aggravated identity theft. Veronica Temple, Yolanda Moses and refunds requested was $154,904. Slaton had Lee Moses and Jeffrey Temple both pleaded Barbara Murry recruited individuals in the tax refunds directed to prepaid debit guilty to one count of filing a false tax order to have false tax refunds deposited cards and had the cards mailed to various return. Veronica Temple and Yolanda Moses into their bank accounts, including Douglas addresses on a U.S. carrier’s route. A postal are scheduled to be sentenced on Feb. 6, Murry. Between January 2006 and April employee agreed to collect the prepaid 2013. Sentencing dates for the other 2012, the defendants and their co- debit cards for a fee. defendants have not been scheduled. conspirators directed over 700 false tax “The Justice Department remains “The Tax Division is committed to refunds claiming in excess of $1.3 million to committed to investigating and prosecuting prosecuting those who steal the personal several bank accounts controlled by the tax fraud perpetrated by identity thieves,” identities of American taxpayers to commit defendants and their co-conspirators. said Assistant Attorney General for the tax refund fraud,” said Assistant Attorney This case was investigated by Special Justice Department’s Tax Division Kathryn General for the Justice Department’s Tax Agents of the IRS - Criminal Investigation. Keneally. “The lengthy prison sentences Division Kathryn Keneally. “We continue to Trial Attorneys Jason H. Poole and Michael handed down by this court, in this and work closely with the IRS to protect the Boteler of the Justice Department’s Tax other cases, show that criminals will pay a public from these criminals.” Division and Assistant United States high price for committing stolen identity “Honest and law abiding citizens are Attorney Jared Morris are prosecuting this refund fraud.” frustrated by those who use deceit and case. “Be assured that IRS has made an fraud to line their pockets with other Additional information about the Tax unwavering commitment to the pursuit of people’s money as well as skirt their own Division and its enforcement efforts may be identity theft,” stated Richard Weber, Chief, tax obligations,” said Richard Weber, Chief, found at www.justice.gov/tax. IRS Criminal Investigation. “Identity theft is IRS-Criminal Investigation. “The U.S. not a victimless crime. Identity theft is a government and the people of the United contemptible crime that victimizes honest States will not tolerate the misuse of our taxpayers and causes immense nation’s tax system to facilitate identity hardship. IRS Criminal Investigation works 11 First Quarter FY 2013 Revenue REVIEW October, November, December 2012 in concert with our partners at the U.S. Division. “We will prosecute and seek just Attorneys Jason H. Poole, Justin Gelfand Attorney’s Office and together we will hold punishment against those who commit and Michael Boteler, and Assistant U.S. those who engage in similar conduct stolen identity refund fraud.” Attorney Jared Morris, who are prosecuting accountable.” “Identity theft causes victims great the case. Assistant Attorney General Keneally harm,” stated George L. Beck, U.S. Attorney Additional information about the Tax and George L. Beck Jr., U.S. Attorney for the for the Middle District of Alabama. “It Division and its enforcement efforts may be Middle District of Alabama, commended victimizes honest taxpayers and causes found at www.justice.gov/tax. the efforts of special agents of IRS - them an enormous amount of hardship. We November 2, 2012 Criminal Investigation, who investigated the will continue to work tirelessly to rid our case, and Tax Division Trial Attorneys Jason citizens of this horrible crime.” Owner of Tax Preparation H. Poole and Michael Boteler and Assistant According to the court documents, U.S. Attorney Todd Brown, who prosecuted between October 2009 and April 2012, Firm Operating in Alabama the case. Djonret and her co-conspirators filed more and Georgia Pleads Guilty Additional information about the Tax than 1,000 false tax returns that claimed Division and its enforcement efforts may be more than $1.7 million in fraudulent tax to Fraud and Filing False found at www.justice.gov/tax. refunds. Djonret obtained stolen identities Returns October 31, 2012 from multiple sources, including Alabama state databases. She and her co- Nine Defendants Convicted for Crimes Alabama Woman Pleads conspirators filed most of the tax returns Committed at Premier Tax from her residence in Montgomery. They Bruce King, the owner and operator of Guilty to a Sophisticated used an elaborate network of individuals to Premier Tax, pleaded guilty in federal court Million Dollar Identity launder the tax refunds and recruited to charges of conspiring to defraud the individuals to purchase prepaid debit cards United States and filing false tax returns, Theft Scheme to which the fraudulent tax refunds were according to the Justice Department and Defendant Also Pleads Guilty in a directed. Djonret and her co-conspirators the Internal Revenue Service. Additionally, Separate Case for Filing False Returns would then use the prepaid debit cards to Vonecia Orum, a return preparer who worked at Premier Tax, pleaded guilty to for Clients obtain the proceeds. In March 2012, the owner of a delivering false tax returns to the IRS. Antoinette Djonret pleaded guilty in With the guilty pleas of King and two cases: one involving the filing of more Montgomery tax preparation business and five return preparers, one of whom was Orum, a total of nine people associated than a million dollars’ worth of false tax with Premier Tax have now been convicted returns using stolen identities and the Djonret, were charged with conspiring to defraud the United States and aiding in the of crimes. Six were named in a 28-count other case involving the filing of false tax indictment that was returned on March 28, returns for clients, according to the Justice filing of false tax returns. According to court documents, in 2007 and 2008, Djonret was 2012. These six were King and Orum, as Department and the Internal Revenue well as Antoinette Djonret, Nakesha Service. employed as a tax preparer at Premier Tax in Montgomery. Djonret received Donaldson, Angela Smith and Jenika On Aug. 9, 2012, a federal grand jury in Williams, all of whom had previously Montgomery, Ala., returned a superseding instructions on how to file false tax returns and admitted to filing false tax returns for pleaded guilty. In July and August of 2011, indictment charging Djonret and five others three other defendants – Tonja Toney, for conspiring to file false tax returns using real clients. She pleaded guilty to one count of aiding and abetting the presentation of a Kimberly Womack and Kina Lane – pleaded stolen identities and various other charges. guilty to criminal informations charging Djonret had earlier been charged with false tax return in relation to this case. Sentencing has been scheduled for them with filing false tax returns. making false claims in a criminal complaint According to court documents, that was filed on Feb. 22, 2012, and in an Feb. 6, 2013. Djonret faces between two and 15 years in prison, three years of Premier Tax was a tax preparation indictment that was filed on March 28, business operated by King that had 2012. Djonret pleaded guilty in this case to supervised release, restitution and a maximum fine of $750,000, or twice the loss several locations in Alabama and in one count of conspiring to file false tax Georgia. King held training sessions in returns and one count of aggravated caused by the offense. Kathryn Keneally, Assistant Attorney which he taught preparers how to falsify tax identity theft. returns in order to fraudulently increase “The Justice Department will not General for the Justice Department’s Tax Division, and U.S. Attorney George L. Beck, clients’ tax refunds. Those he taught went tolerate criminals stealing people’s on to work at Premier Tax and filed identities and robbing the public fisc,” said Jr. commended the efforts of special agents of IRS – Criminal Investigation, who numerous false tax returns. According to Kathryn Keneally, Assistant Attorney court documents, the tax loss caused by General for the Justice Department’s Tax investigated the case, and Tax Division Trial 12 First Quarter FY 2013 Revenue REVIEW October, November, December 2012 these fraudulent returns exceeded $1 403(b), most 457 plans, and the federal unchanged and adjusted limitations. million. government’s Thrift Savings Plan is Section 415 of the Internal Revenue Court records also indicated that in increased from $17,000 to $17,500. Code provides for dollar limitations on addition to falsifying tax returns , some • The catch-up contribution limit for benefits and contributions under qualified preparers working at Premier Tax also used employees aged 50 and over who retirement plans. Section 415(d) requires false dependents on tax returns – they participate in 401(k), 403(b), most 457 that the Commissioner annually adjust would use people’s personal identifying plans, and the federal government’s these limits for cost of living increases. information, without their consent, as Thrift Savings Plan remains unchanged Other limitations applicable to deferred dependents on clients’ tax returns. Four of at $5,500. compensation plans are also affected by the defendants—Djonret, Donaldson, • The deduction for taxpayers making these adjustments under Section 415. Smith, and Williams—were involved in this contributions to a traditional IRA is Under Section 415(d), the adjustments are aspect of Premier Tax and they pleaded phased out for singles and heads of to be made pursuant to adjustment guilty to charges of aggravated identity household who are covered by a procedures which are similar to those used theft, in addition to charges of conspiracy workplace retirement plan and have to adjust benefit amounts under Section to defraud the United States or filing false modified adjusted gross incomes (AGI) 215(i)(2)(A) of the Social Security Act. tax returns. between $59,000 and $69,000, up from The limitations that are adjusted by This case was investigated by Special $58,000 and $68,000 in 2012. For reference to Section 415(d) generally will Agents of the IRS - Criminal Investigation. married couples filing jointly, in which change for 2013 because the increase in the Trial attorneys Jason Poole and Justin the spouse who makes the IRA cost-of-living index met the statutory Gelfand of the Justice Department’s Tax contribution is covered by a workplace thresholds that trigger their adjustment. Division and Assistant U.S. Attorney Jared retirement plan, the income phase-out For example, the limitation under Section Morris of the Middle District of Alabama are range is $95,000 to $115,000, up from 402(g)(1) on the exclusion for elective prosecuting this case. $92,000 to $112,000. For an IRA deferrals described in Section 402(g)(3) is contributor who is not covered by a increased from $17,000 to $17,500 for workplace retirement plan and is 2013. This limitation affects elective married to someone who is covered, the deferrals to Section 401(k) plans, Section IRS News deduction is phased out if the couple’s 403(b) plans, and the Federal income is between $178,000 and Government’s Thrift Savings Plan. Issue Number: IR-2012-77 $188,000, up from $173,000 and Effective January 1, 2013, the limitation October 18, 2012 $183,000. on the annual benefit under a defined • The AGI phase-out range for taxpayers benefit plan under Section 415(b)(1)(A) is IRS Announces 2013 making contributions to a Roth IRA is increased from $200,000 to $205,000. For a Pension Plan Limitations; $178,000 to $188,000 for married participant who separated from service couples filing jointly, up from $173,000 before January 1, 2013, the limitation for Taxpayers May Contribute to $183,000 in 2012. For singles and defined benefit plans under Section up to $17,500 to their heads of household, the income phase- 415(b)(1)(B) is computed by multiplying out range is $112,000 to $127,000, up the participant’s compensation limitation, 401(k) plans in 2013 from $110,000 to $125,000. For a as adjusted through 2012, by 1.0170. WASHINGTON — The Internal married individual filing a separate The limitation for defined contribution Revenue Service announced cost of living return who is covered by a retirement plans under Section 415(c)(1)(A) is adjustments affecting dollar limitations for plan at work, the phase-out range increased in 2013 from $50,000 to $51,000. pension plans and other retirement-related remains $0 to $10,000. The Code provides that various other items for Tax Year 2013. In general, many of • The AGI limit for the saver’s credit (also dollar amounts are to be adjusted at the the pension plan limitations will change for known as the retirement savings same time and in the same manner as the 2013 because the increase in the cost-of- contribution credit) for low- and dollar limitation of Section 415(b)(1)(A). living index met the statutory thresholds moderate-income workers is $59,000 for After taking into account the applicable that trigger their adjustment. However, married couples filing jointly, up from rounding rules, the amounts for 2013 are as other limitations will remain unchanged $57,500 in 2012; $44,250 for heads of follows: because the increase in the index did not household, up from $43,125; and The limitation under Section 402(g)(1) meet the statutory thresholds that trigger $29,500 for married individuals filing on the exclusion for elective deferrals their adjustment. Highlights include: separately and for singles, up from described in Section 402(g)(3) is increased • The elective deferral (contribution) limit $28,750. from $17,000 to $17,500. for employees who participate in 401(k), Below are details on both the The annual compensation limit under 13 First Quarter FY 2013 Revenue REVIEW October, November, December 2012 Sections 401(a)(17), 404(l), 408(k)(3)(C), is increased from $17,000 to $17,500. deductible amount of an IRA contribution and 408(k)(6)(D)(ii) is increased from The compensation amount under for taxpayers who are active participants $250,000 to $255,000. Section 1.61 21(f)(5)(i) of the Income Tax filing a joint return or as a qualifying The dollar limitation under Section Regulations concerning the definition of widow(er) is increased from $92,000 to 416(i)(1)(A)(i) concerning the definition of “control employee” for fringe benefit $95,000. The applicable dollar amount key employee in a top-heavy plan remains valuation purposes remains unchanged at under Section 219(g)(3)(B)(ii) for all other unchanged at $165,000. $100,000. The compensation amount taxpayers (other than married taxpayers The dollar amount under Section under Section 1.61 21(f)(5)(iii) remains filing separate returns) is increased from 409(o)(1)(C)(ii) for determining the unchanged at $205,000. $58,000 to $59,000. The applicable dollar maximum account balance in an employee The Code also provides that several amount under Section 219(g)(7)(A) for a stock ownership plan subject to a 5 year pension-related amounts are to be adjusted taxpayer who is not an active participant distribution period is increased from using the cost-of-living adjustment under but whose spouse is an active participant is $1,015,000 to $1,035,000, while the dollar Section 1(f)(3). After taking the applicable increased from $173,000 to $178,000. amount used to determine the lengthening rounding rules into account, the amounts The adjusted gross income limitation of the 5 year distribution period is for 2013 are as follows: under Section 408A(c)(3)(B)(ii)(I) for increased from $200,000 to $205,000. The adjusted gross income limitation determining the maximum Roth IRA The limitation used in the definition of under Section 25B(b)(1)(A) for contribution for married taxpayers filing a highly compensated employee under determining the retirement savings joint return or for taxpayers filing as a Section 414(q)(1)(B) remains unchanged at contribution credit for married taxpayers qualifying widow(er) is increased from $115,000. filing a joint return is increased from $173,000 to $178,000. The adjusted gross The dollar limitation under Section $34,500 to $35,500; the limitation under income limitation under Section 414(v)(2)(B)(i) for catch-up contributions Section 25B(b)(1)(B) is increased from 408A(c)(3)(B)(ii)(II) for all other taxpayers to an applicable employer plan other than a $37,500 to $38,500; and the limitation (other than married taxpayers filing plan described in Section 401(k)(11) or under Sections 25B(b)(1)(C) and separate returns) is increased from Section 408(p) for individuals aged 50 or 25B(b)(1)(D), is increased from $57,500 to $110,000 to $112,000. over remains unchanged at $5,500. The $59,000. The dollar amount under Section dollar limitation under Section The adjusted gross income limitation 430(c)(7)(D)(i)(II) used to determine 414(v)(2)(B)(ii) for catch-up contributions under Section 25B(b)(1)(A) for excess employee compensation with to an applicable employer plan described in determining the retirement savings respect to a single-employer defined benefit Section 401(k)(11) or Section 408(p) for contribution credit for taxpayers filing as pension plan for which the special election individuals aged 50 or over remains head of household is increased from under Section 430(c)(2)(D) has been made unchanged at $2,500. $25,875 to $26,625; the limitation under is increased from $1,039,000 to $1,066,000. The annual compensation limitation Section 25B(b)(1)(B) is increased from Issue Number: IR-2012-78 under Section 401(a)(17) for eligible $28,125 to $28,875; and the limitation participants in certain governmental plans under Sections 25B(b)(1)(C) and October 18, 2012 that, under the plan as in effect on July 1, 25B(b)(1)(D), is increased from $43,125 to In 2013, Various Tax 1993, allowed cost of living adjustments to $44,250. the compensation limitation under the plan The adjusted gross income limitation Benefits Increase Due to under Section 401(a)(17) to be taken into under Section 25B(b)(1)(A) for Inflation Adjustments account, is increased from $375,000 to determining the retirement savings $380,000. contribution credit for all other taxpayers is WASHINGTON — For tax year 2013, The compensation amount under increased from $17,250 to $17,750; the the Internal Revenue Service announced Section 408(k)(2)(C) regarding simplified limitation under Section 25B(b)(1)(B) is annual inflation adjustments for more than employee pensions (SEPs) remains increased from $18,750 to $19,250; and the two dozen tax provisions. unchanged at $550. limitation under Sections 25B(b)(1)(C) and • The annual exclusion for gifts rises to The limitation under Section 25B(b)(1)(D), is increased from $28,750 to $14,000 for 2013, up from $13,000 for 408(p)(2)(E) regarding SIMPLE retirement $29,500. 2012. accounts is increased from $11,500 to The deductible amount under Section • The amount used to reduce the net $12,000. 219(b)(5)(A) for an individual making unearned income reported on a child’s The limitation on deferrals under qualified retirement contributions is tax return subject to the “kiddie tax,” is Section 457(e)(15) concerning deferred increased from $5,000 to $5,500. $1,000, up from $950 for 2012. compensation plans of state and local The applicable dollar amount under • The foreign earned income exclusion governments and tax-exempt organizations Section 219(g)(3)(B)(i) for determining the rises to $97,600, up from $95,100 in 14 First Quarter FY 2013 Revenue REVIEW October, November, December 2012

2012. Issue Number: IR-2012-95 calculating reductions to basis for Details on these inflation adjustments Nov. 21, 2012 depreciation taken under the business and others such as the low-income housing standard mileage rate, and the maximum credit, the dollar limits for high-deductible 2013 Standard Mileage standard automobile cost that a taxpayer health plans and other amounts can be may use in computing the allowance under found in Rates Up 1 Cent per Mile a fixed and variable rate plan. Revenue Procedure 2012-41, which will for Business, Medical and Issue Number: IR-2012-97 be published in Internal Revenue Bulletin 2012-45 on Nov. 5, 2012. Moving Nov. 21, 2012 Issue Number: Corrected Special WASHINGTON — The Internal Fall 2012 Statistics of Edition Tax Tip 2012-13 Revenue Service issued the 2013 optional standard mileage rates used to calculate the Income Bulletin Now October 25, 2012 deductible costs of operating an automobile for business, charitable, medical Available Don’t Fall for Phony IRS or moving purposes. WASHINGTON — The Internal Websites Beginning on Jan. 1, 2013, the Revenue Service announced that the fall 2012 issue of the Statistics of Income The Internal Revenue Service is issuing standard mileage rates for the use of a car Bulletin is available. This issue features a warning about a new tax scam that uses a (also vans, pickups or panel trucks) will be: individual income tax return data for Tax website that mimics the IRS e-Services • 56.5 cents per mile for business miles Year 2010. online registration page. driven Nearly 143 million individual income The actual IRS e-Services page offers • 24 cents per mile driven for medical or tax returns were filed for Tax Year 2010, an web-based products for tax preparers, not moving purposes increase of 1.7 percent from 140.5 million the general public. The phony web page • 14 cents per mile driven in service of returns filed for 2009. The adjusted gross looks almost identical to the real one. charitable organizations income (AGI) reported on these returns The IRS gets many reports of fake The rate for business miles driven totaled $8.1 trillion, a 6.1-percent increase websites like this. Criminals use these sites during 2013 increases 1 cent from the 2012 from the previous year. to lure people into providing personal and rate. The medical and moving rate is also The Statistics of Income (SOI) Division financial information that may be used to up 1 cent per mile from the 2012 rate. produces the SOI Bulletin on a quarterly steal the victim’s money or identity. The standard mileage rate for business basis. Articles included in the publication The address of the official IRS website is based on an annual study of the fixed and provide the most recent data available from is www.irs.gov. Don’t be misled by sites variable costs of operating an automobile. various tax and information returns filed by claiming to be the IRS but ending in .com, The rate for medical and moving purposes U.S. taxpayers. This issue of the SOI .net, .org or other designations instead of is based on the variable costs. Bulletin also includes articles on the .gov. Taxpayers always have the option of following topics: If you find a suspicious website that calculating the actual costs of using their • Partnership Returns , 2010. For 2010, the claims to be the IRS, send the site’s URL by vehicle rather than using the standard number of partnerships increased 2.5 email to [email protected]. Use the subject mileage rates. percent, from the previous year. The line, ‘Suspicious website’. A taxpayer may not use the business number of partners increased by 6.1 Be aware that the IRS does not initiate standard mileage rate for a vehicle after percent, from the previous year, and this contact with taxpayers by email to request using any depreciation method under the number has grown 9 out of the last 10 personal or financial information. This Modified Accelerated Cost Recovery System years. Nearly half of all partnerships and includes any type of electronic (MACRS) or after claiming a Section 179 more than a third of all partners were communication, such as text messages and deduction for that vehicle. In addition, the classified in the real estate and rental social media channels. business standard mileage rate cannot be and leasing sector. If you get an unsolicited email that used for more than four vehicles used • Nonprofit Charitable Organizations, appears to be from the IRS, report it by simultaneously. 2009. For 2009, nonprofit charitable sending it to [email protected]. These and other requirements for a organizations (excluding private The IRS has information at www.irs.gov taxpayer to use a standard mileage rate to foundations) tax exempt under Internal that can help you protect yourself from tax calculate the amount of a deductible Revenue Code (IRC) section 501(c)(3) scams of all kinds. Search the site using the business, moving, medical, or charitable reported $2.7 trillion in total assets and term “phishing.” expense are in Rev. Proc. 2010-51. Notice 2012-72 contains the standard mileage $1.5 trillion in revenue. rates, the amount a taxpayer must use in • Transactions Between Large Foreign- 15 First Quarter FY 2013 Revenue REVIEW October, November, December 2012 Owned Domestic Corporations and resident and nonresident aliens and others ITIN. These options provide alternatives to Related Foreign Persons, 2008. The total who have filing or payment obligations mailing in passports and other original value of nonloan transactions between under U.S. law. Designed specifically for tax documents. large foreign-owned domestic administration purposes, ITINs are only Certifying Acceptance Agents (CAAs) – corporations and related foreign parties issued to people who are not eligible to an important intermediary in the ITIN totaled $1.187 trillion, a 36-percent obtain a Social Security Number. application process – will be able to engage decrease from the record high of $1.86 “Our review allowed us to evaluate the in the ITIN process by reviewing original trillion in 2006. program and gather feedback to make documents or copies certified by the The Statistics of Income Bulletin is needed adjustments,” said IRS Acting issuing agency, but will be subject to new available for download at IRS.gov/taxstats. Commissioner Steven Miller. “We believe safeguards. CAAs will be required to certify Printed copies of the Statistics of Income the final rules balance the need for greater to the IRS that they have verified the Bulletin are available from the integrity for the ITIN and refund processes authenticity of the documents supporting Superintendent of Documents, U.S. while minimizing the impact on taxpayers.” the ITIN application. For certain ITIN Government Printing Office, P.O. Box The IRS will maintain its new, stronger applicants, this provides an option where 371954, Pittsburgh, PA 15250-7954. The standard for issuing ITINs. ITIN applications they will not need to mail original annual subscription rate is $67 ($93.80 will continue to require original documents such as passports. foreign), single issues cost $44 ($61.60 documentation or copies certified by the With respect to dependent children, in foreign). issuing agency. In addition, the IRS order to adequately substantiate identity For more information about these finalized its earlier decision to no longer and foreign status and protect important data, write to the Director, Statistics of accept notarized copies of documents for child tax credits, ITIN applications Income (SOI) Division, RAS:S, Internal ITINs. Most of the interim guidelines have submitted to IRS by a CAA will continue to Revenue Service, P.O. Box 2608, been made permanent. Those be required to include original Washington, DC 20013-2608. requirements that changed will provide documentation. For children under six, one Issue Number: IR-2012-98 additional flexibility for people seeking of the documents can include original ITINs while continuing the stronger medical records. For school-age children, Nov. 29, 2012 protections. the documentation can include original, IRS Strengthens Integrity A key change is that, for the first time, current year school records such as a report new ITINs will expire after five years. This card. of ITIN System; Revised change will help ensure ITINs are being CAAs will now need to meet new Application Procedures in used for legitimate tax purposes. Taxpayers requirements and will face stronger due who still need an ITIN will be able to diligence standards to verify the accuracy of Effect for Upcoming Filing reapply at the end of the expiration period. supporting documentation. For the first Season This step will provide additional safeguards time, only those covered under Circular 230 to the ITIN program to help ensure only are eligible to serve as a CAA. Exceptions WASHINGTON –– The Internal people with legitimate tax purposes are are made for CAA applicants from financial Revenue Service announced updated using the numbers. In addition, the IRS will institutions, gaming facilities, Low-Income procedures to strengthen the Individual explore options, through engagement with Taxpayer Clinics and Volunteer Income Tax Taxpayer Identification Number (ITIN) interested groups, for deactivating or Assistance (VITA) Centers. CAAs will be program requirements. The new refreshing the information relating to required to take formal forensic training to modifications and documentation standards previously issued ITINs. help them identify legitimate identification further protect the integrity of the ITIN As part of its review process, the IRS documents. The IRS also plans greater application and refund processes while heard from stakeholders that it is difficult in oversight and compliance activities with helping minimize burden for applicants. some instances for individuals to be CAAs to safeguard the ITIN process. The changes build on previously without documents such as passports for In addition to direct submission of announced interim procedures. During the extended periods. As a result, the IRS documents to the IRS ITIN centralized site last several months, the IRS gathered determined that trusted outlets other than or use of CAAs, ITIN applicants will have feedback from stakeholders and interested its centralized ITIN processing site need to several other avenues for verification of groups on how to best safeguard the be available to review original their documents. These options include integrity of and improve procedures for this documentation. As part of this recognition, some key IRS Taxpayer Assistance Centers important tax identification number. while original documents or copies certified (TACs), U.S. Tax Attachés in London, Paris, ITINs play a critical role in the tax by the issuing agency are still required for Beijing and Frankfurt, and at the Low- administration process and assist with the most applicants, there will be more options Income Taxpayer Clinics and Volunteer collection of taxes from foreign nationals, and flexibility for people applying for an Income Tax Assistance (VITA) Centers that 16 First Quarter FY 2013 Revenue REVIEW October, November, December 2012 have CAAs. The procedure announced Oct. (ATRA), the Internal Revenue Service The IRS anticipates that the vast 2, 2012 for foreign students at educational announced it plans to open the 2013 filing majority of all taxpayers can file starting Jan. institutions to be certified through the season and begin processing individual 30, regardless of whether they file Student Exchange Visitors Program (SEVP) income tax returns on Jan. 30. electronically or on paper. The IRS will be remains. The IRS will begin accepting tax able to accept tax returns affected by the The finalized procedures are effective returns on that date after updating forms late Alternative Minimum Tax (AMT) patch Jan. 1, 2013, in time for the 2013 tax-filing and completing programming and testing as well as the three major “extender” season when many ITIN applications are of its processing systems. This will reflect provisions for people claiming the state and submitted along with a taxpayer’s income the bulk of the late tax law changes enacted local sales tax deduction, higher education tax return. Later in January, participating Jan. 2. The announcement means that the tuition and fees deduction and educator IRS Taxpayer Assistance Centers will be vast majority of tax filers — more than 120 expenses deduction. available to review and certify passports and million households — should be able to Who Can’t File Until Later? national identification cards in person for start filing tax returns starting Jan 30. There are several forms affected by the primary, secondary and dependent The IRS estimates that remaining late legislation that require more extensive applicants. The first set of TACs that will households will be able to start filing in late programming and testing of IRS systems. review and certify documents for ITINs are February or into March because of the need The IRS hopes to begin accepting tax located in areas where past ITIN activity has for more extensive form and processing returns including these tax forms between been prevalent. Additional details on systems changes. This group includes late February and into March; a specific participating IRS locations and other rules people claiming residential energy credits, date will be announced in the near future. will be available soon on IRS.gov. depreciation of property or general The key forms that require more As announced previously, some business credits. Most of those in this extensive programming changes include categories of applicants are not impacted by group file more complex tax returns and Form 5695 (Residential Energy Credits), these documentation changes, including: typically file closer to the April 15 deadline Form 4562 (Depreciation and Amortization) • Spouses and dependents of U.S. military or obtain an extension. and Form 3800 (General Business Credit). A personnel who need ITINs. “We have worked hard to open tax full listing of the forms that won’t be • Nonresident aliens applying for ITINs for season as soon as possible,” IRS Acting accepted until later is available on IRS.gov. claiming tax treaty benefits. Commissioner Steven T. Miller said. “This As part of this effort, the IRS will be The IRS also stressed that it will date ensures we have the time we need to working closely with the tax software continually monitor and work with update and test our processing systems.” industry and tax professional community to interested stakeholders on the ITIN process The IRS will not process paper tax minimize delays and ensure as smooth a tax and intends to make appropriate returns before the anticipated Jan. 30 season as possible under the adjustments to ensure the process works in opening date. There is no advantage to circumstances. a fair, balanced fashion that meets the filing on paper before the opening date, Updated information will be posted on needs of taxpayers and tax administration. and taxpayers will receive their tax refunds IRS.gov. Individuals or organizations that want to much faster by using e-file with direct Jan 8, 2013 comment on these procedures can do so by deposit. submitting an email to “The best option for taxpayers is to file National Taxpayer [email protected]. electronically,” Miller said. More details on the permanent The opening of the filing season Advocate Delivers Annual procedures and other important follows passage by Congress of an extensive Report to Congress; information for ITIN applicants are available set of tax changes in ATRA on Jan. 1, 2013, on IRS.gov. with many affecting tax returns for 2012. Focuses on Tax Reform, Issue Number: IR-2013-2 While the IRS worked to anticipate the late IRS Funding and Identity tax law changes as much as possible, the Jan. 8, 2013 final law required that the IRS update forms Theft IRS Plans Jan. 30 Tax and instructions as well as make critical WASHINGTON — National Taxpayer processing system adjustments before it Advocate Nina E. Olson released her 2012 Season Opening For 1040 can begin accepting tax returns. annual report to Congress, identifying the Filers The IRS originally planned to open need for tax reform as the overriding electronic filing this year on Jan. 22; more priority in tax administration. The Advocate WASHINGTON — Following the than 80 percent of taxpayers filed also expressed concern that the Internal January tax law changes made by Congress electronically last year. Revenue Service is not adequately funded under the American Taxpayer Relief Act Who Can File Starting Jan. 30? to serve taxpayers and collect tax, and 17 First Quarter FY 2013 Revenue REVIEW October, November, December 2012 identified ways in which this chronic money they owe. by holding meetings with constituents to underfunding harms taxpayers and the Magnitude of “Tax Expenditures.” discuss the complexity of the existing tax public fisc. She also found that the IRS is To reduce taxpayer burden and enhance code and the trade-offs between tax rates not doing enough to assist victims of tax- public confidence in the integrity of the tax and tax breaks that tax reform will require. related identity theft and return preparer system, the report urges Congress to 2) Apply a “zero-based budgeting” fraud. greatly simplify the tax code. In general, approach to comprehensive tax reform that this means Congress should reassess the starts out with the assumption that all tax TAX REFORM need for existing income exclusions, benefits will be eliminated and then adds a The National Taxpayer Advocate’s exemptions, deductions and credits benefit back only if Members conclude that, annual report designates the complexity of (generally known as “tax expenditures”). on balance, the public policy benefits of the tax code as the #1 most serious For fiscal year (FY) 2013, the Joint providing that benefit through the tax code problem facing taxpayers and recommends Committee on Taxation has projected that outweigh the complexity it imposes on that Congress take significant steps to tax expenditures will come to about $1.09 taxpayers. simplify it. “The existing tax code makes trillion, while individual income tax revenue compliance difficult, requiring taxpayers to is projected to be about $1.36 trillion. To IRS FUNDING devote excessive time to preparing and The IRS budget has been reduced in put these numbers in perspective, if filing their returns,” Olson wrote. “It each of the last two fiscal years, and appears Congress were to eliminate all tax obscures comprehension, leaving many likely to face further cuts in coming years. expenditures, straight math indicates it taxpayers unaware how their taxes are Although these cuts reflect across-the-board could cut individual income tax rates by 44 computed and what rate of tax they pay; it reductions in federal discretionary percent and still generate the same amount facilitates tax avoidance by enabling spending, underfunding the IRS makes no of revenue it collects under current rules. sophisticated taxpayers to reduce their tax sense, Olson said. “The IRS is materially Tax Policy Decisions and Revenue liabilities and provides criminals with different from other discretionary programs Decisions Should Be Made Separately opportunities to commit tax fraud; and it in that it serves as the de facto Accounts and Then Married Up. The report undermines trust in the system by creating Receivable Department of the federal recommends that Congress approach tax an impression that many taxpayers are not government. Each dollar appropriated for reform in a manner similar to zero-based compliant, thereby reducing the incentives the IRS generates substantially more than budgeting. The starting assumption would that honest taxpayers feel to comply.” one dollar in additional revenue. It is be that all tax expenditures would be Compliance Burdens. The report therefore ironic and counterproductive that eliminated. A tax break would be retained states that the tax code imposes a concerns about the deficit are leading to only if a compelling case can be made that “significant, even unconscionable, burden cuts in the IRS budget, when those cuts are the benefits of that break outweigh the on taxpayers.” Since 2001, Congress has making the deficit larger.” complexity burden it creates. “In made nearly 5,000 changes to the tax code, Olson added: “The plain truth is that performing this analysis,” Olson said in an average of more than one a day, and the the IRS’s mission trumps all other agencies’ releasing the report, “we should look at number of words in the code appears to missions, because without an effective each provision in the code and ask have reached nearly four million. revenue collector, you can’t fund those questions like: ‘Does this government An analysis of IRS data by the Taxpayer other agencies.” incentive make sense?’; ‘If it does, is it Advocate Service (TAS) shows that IRS Funding Decisions Fail to Take better administered through the tax code individuals and businesses spend about 6.1 Into Account “Return on Investment.” or as a direct spending program?’; billion hours a year complying with tax- On a budget of $11.8 billion, the IRS ‘However well intentioned, is it doing what filing requirements. “If tax compliance were collected $2.52 trillion in FY 2012. That it was intended to do?’; and ‘If yes, can it be an industry, it would be one of the largest in translates to an average return-on- administered without imposing the United States,” the report says. “To investment (ROI) of about 214:1. Yet the unreasonable burdens on taxpayers or the consume 6.1 billion hours, the ‘tax appropriations process treats the IRS like IRS?’. At the same time, Congress can industry’ requires the equivalent of more any other discretionary spending program, separately consider how much revenue it than three million full-time workers.” with no explicit recognition that each dollar wants to raise, and it can then marry up our Individual taxpayers find return appropriated for the IRS generates optimally designed tax system with our preparation so overwhelming that few do it substantially more than one dollar in revenue needs by setting tax rates on their own. Nearly 60 percent of additional revenue. Last year, the IRS accordingly.” taxpayers hire paid preparers, and another Commissioner estimated in a letter to Recommendations. The report 30 percent rely on commercial software, Congress that proposed reductions in the recommends that Members of Congress with leading software packages costing $50 IRS budget would cause tax collections to take several steps, including: or more. In other words, taxpayers must fall seven times as much. 1) Lay the groundwork for tax reform spend money just to figure out how much “No business would fail to fund a unit 18 First Quarter FY 2013 Revenue REVIEW October, November, December 2012 that, on average, brought in $7 for every proceeds with liens and levies before refund, that return is rejected. The impact dollar spent. Shareholders would rebel and having a conversation to find out whether a on victims is significant. More than 75 bring lawsuits, or at least oust the tax delinquency is due to financial hardship, percent of taxpayers filing returns are due management or board of directors,” Olson which would suggest that an installment refunds, which average some $3,000 and wrote in her preface to the report. “Yet this agreement or offer-in-compromise should are not paid until the IRS fully resolves a is precisely what we are doing with the IRS be considered.” The report notes that the case. budget.” IRS’s limited resources to conduct outreach IRS Commitments. In 2008, the IRS Lack of Funding Hampers and education to taxpayers (particularly Commissioner testified about identity theft Taxpayer Service. The report says that small businesses) and to enforce the laws before a Senate Finance Committee lack of funding is also preventing the IRS also contribute to its inability to close the hearing. He stated: “My overall goal as the from meeting taxpayer needs. Since FY annual tax gap, which was most recently IRS Commissioner is that when a taxpayer 2004, when taxpayer service levels peaked, estimated at nearly $400 billion in 2006. The [who is an identity theft victim] contacts us the IRS’s performance in handling report points out that noncompliance with an issue or concern, we have in place a telephone calls and correspondence has violates the rights of compliant taxpayers, seamless process that gets the issue been declining. In FY 2004, the IRS who indirectly pay more tax to make up the resolved promptly.” Later that year, the IRS answered 87 percent of all calls seeking to shortfall. Based on Census Bureau data, the established an “Identity Protection reach a live telephone assister, and the average household effectively paid an extra Specialized Unit” (or “IPSU”), which was average wait time was just over 2½ minutes. $3,300 in tax in 2006 to subsidize designed to provide centralized assistance In FY 2012, the IRS answered just 68 noncompliance by others. to victims of identity theft. The National percent of its calls, and those who got Recommendations. The report Taxpayer Advocate supported the through spent an average of nearly 17 recommends that Congress: commitment to centralized and prompt minutes waiting on hold. In FY 2012, the 1) Consider revising the budget rules victim assistance. IRS received over 10 million letters in so that the IRS is “fenced off” from IRS Performance. The report says response to proposed tax adjustments, and otherwise applicable spending ceilings and the IRS has created numerous task forces at the end of the year, 48 percent of all is funded at a level designed to maximize and other teams in recent years in an taxpayer correspondence in its inventory tax compliance, particularly voluntary attempt to improve its identity theft had not been processed within established compliance, with due regard for protecting processes, yet victims still face the same timeframes – up dramatically from 12 taxpayer rights and minimizing taxpayer “labyrinth of procedures and drawn-out percent in FY 2004. burden. timeframes for resolution” that they faced “Congress has enacted laws that now 2) Keep in mind in allocating IRS five years ago. The IRS is instructing its require more than 140 million individuals to resources that tax compliance requires an employees to advise identity theft victims file income tax returns,” Olson said. “When appropriate balance between high quality that it will take 180 days – half a year – to taxpayers are attempting to comply with taxpayer service and effective tax-law resolve their cases. Complicated cases laws that require them to turn over a enforcement, and funding should be inevitably will take longer. Thus, the IRS’s significant portion of their incomes to pay provided in a manner that allows the IRS to procedural changes are not providing faster our nation’s bills, they have a right to maintain such a balance. relief. expect that their government will do a TAX-RELATED IDENTITY The report also says the IRS has better job of taking their telephone calls decided to reverse course and decentralize and answering their letters.” THEFT victim assistance. It recently created Lack of Funding Impairs Taxpayer The number of tax-related identity specialized units within each of 21 Rights and Increases Taxpayer Burden. The theft incidents has increased substantially in individual functions to work on identity report identifies numerous areas where recent years. Within TAS, identity theft case theft cases, apparently under the belief that lack of funding is causing taxpayer receipts increased by more than 650 most identity theft cases involve a single problems. “Nowhere is this more apparent percent from FY 2008 to FY 2012. At the issue that the relevant specialized unit can than in the IRS’s increasing use of end of FY 2012, the IRS had almost 650,000 work most efficiently. The report expresses automated enforcement procedures,” identity-theft cases in its inventory concern about this backtracking from a Olson said. “To conserve resources, the IRS servicewide. The problem has grown worse centralized approach. has largely automated its correspondence as organized criminal actors have found One-Stop Shopping Needed. TAS audits and its issuance of liens and levies. It ways to steal the Social Security numbers itself handled nearly 55,000 identity theft typically moves forward with tax (SSNs) of taxpayers, file tax returns using cases in FY 2012, most of which involved assessments without first talking to those taxpayers’ names and SSNs, and multiple issues that required actions by taxpayers to give them a chance to obtain fraudulent tax refunds. Then, when multiple units. The report expresses substantiate their return positions, and it the real taxpayer files a return claiming the concern that creation of 21 specialized 19 First Quarter FY 2013 Revenue REVIEW October, November, December 2012 units will erode the centralized role of the rate of taxpayers who claim the and fear for taxpayers who had IPSU, require taxpayers to speak with adoption tax credit. Congress created reasonable cause for not filing FBAR multiple functions, increase the time it the adoption tax credit to help low and forms or whose failure to file was takes to resolve cases, and heighten the risk middle income families afford the costs inadvertent. that some issues may not be addressed. of an adoption, which are estimated to Research Study on Factors “Taxpayers need ‘one-stop shopping’ – run as high as $40,000. Yet the IRS, Influencing Voluntary Tax Compliance a single point of contact they can work with partly using income-based rules, by Small Businesses. Volume 2 of the to resolve all issues in their cases – and the selected 69 percent of tax returns report contains six research studies, IRS needs a ‘traffic cop’ to make sure that claiming the credit during the 2012 filing including preliminary results of a survey of all units complete their actions and that season for audit, compared with one sole proprietors that TAS commissioned to parts of cases do not fall through the percent of returns overall. These audits better understand factors that may affect cracks,” Olson said. “And six months is an imposed significant burden on the income tax reporting compliance. The unacceptable period of time to expect affected taxpayers for several reasons, Advocate’s office undertook the study taxpayer-victims to wait. The IRS must do most notably because the median because the IRS has estimated that only 43 more to provide the prompt and seamless refund claim constituted nearly one- percent of sole proprietor income is assistance to identity theft victims that quarter of the taxpayers’ adjusted gross reported on tax returns, representing the Commissioner Shulman promised.” income for the year, and the audits on largest portion of the tax gap (i.e., tax that is OTHER KEY ISSUES average took over four months. Despite owed but is not timely and voluntarily the burden, the payoff was relatively paid). Developing a more complete picture ADDRESSED small. The IRS denied only about 10 of the attitudes of this category of taxpayers Federal law requires the Advocate’s percent of the amounts claimed in tax therefore could assist the IRS in improving Annual Report to Congress to identify at year 2010, and as of mid-November had tax compliance. Based on IRS computer least 20 of the “most serious problems” denied only about 1.5 percent of the scoring of the likely compliance level of tax encountered by taxpayers and make amounts claimed in tax year 2011. The returns, the Advocate’s office selected a administrative and legislative excessive focus on returns claiming the sample of the most compliant and the least recommendations to mitigate those adoption credit burdened many compliant returns and commissioned an problems. Overall, this year’s report taxpayers and c anonymous survey of certain groups of identifies 23 problems, provides updates on ould have the effect of negating these taxpayers to determine attitudinal six previously identified problems, makes Congress’s intent to encourage and other differences. Among the dozens of recommendations for adoptions, the report says. preliminary findings: administrative change, makes seven • The IRS’s Offshore Voluntary • Respondents in the high-compliance recommendations for legislative change, Disclosure programs and their group expressed more trust in and analyzes the 10 tax issues most failure to distinguish adequately government and the IRS. frequently litigated in the federal courts. between “bad actors” and “benign • Respondents from low-compliance Among the “most serious problems” actors.” The IRS has sought to increase communities were suspicious of the tax addressed are the following: enforcement of Foreign Bank and system and its fairness. • The IRS’s failure to provide tax Financial Accounts (FBAR) reporting • Respondents in the high-compliance refunds to victims of preparer requirements in recent years and has group were more likely to use return fraud. When a taxpayer is victimized by offered a series of voluntary disclosure preparers. a preparer who receives a fraudulent programs designed to settle with • Taxpayers in the low-compliance groups refund by paper check, the IRS will issue taxpayers who had failed to file required expressed less trust in tax preparers and a replacement refund to the taxpayer. FBAR forms. However, the report says, were less likely to use them or follow However, the IRS will not issue a the programs generally applied a “one- their advice. replacement refund when a taxpayer is size-fits-all” approach that required the • Low-compliance taxpayers tended to be victimized by a preparer who receives payment of significant penalties and did clustered in certain communities. the fraudulent refund by altering the not distinguish between “bad actors” * * * * * bank routing number on a direct-deposit and “benign actors.” By generally Please visit www.taxpayeradvocate. irs. request, even though the IRS has requiring taxpayers who make voluntary gov/ 2012AnnualReport for more received legal advice that it may do so. disclosures to “opt out” of the disclosure information about this report, including an Olson says the taxpayer-victim is legally program and submit to comprehensive Executive Summary, downloadable entitled to receive the refund, and the audits in order to avoid draconian infographics on the Most Serious Problems, IRS has no legal basis for withholding it. penalties, the report argues that the and videos of the National Taxpayer • The IRS’s extraordinarily high audit program has caused excessive burden Advocate discussing key issues. 20 First Quarter FY 2013 Revenue REVIEW October, November, December 2012 Tax Calendar

Required Monthly Returns Tax Activity Quarterly/Annual Tax Activity (March, April and May 2013) 10 • Tobacco use tax return and payment due. • Monthly Jenkins Act Report March Motor carrier mileage tax return and payment due. 15 • 1 • Freight line equipment return due. • Oil and gas production tax and privilege tax return and payment • Public utility property tax return delinquent after this date. due the second month following the month of production. • Withholding return and payment due from those employers re - • Corporate income tax return and information return due quired to remit on a monthly basis. 15 (for calendar-year taxpayers). • Business Privilege Tax return. 20 • Coal severance tax return and payment due. • Coal transporters’ and purchasers’ returns due. • Contractors gross receipts tax return and payment due. April • Iron ore severance tax return and payment due. • Annual Dry Cleaning Trust Fund Fee return and payment due • Local solid minerals tax returns and payments due. 1 by wholesalers of dry cleaning agents. • Lodgings tax (state and local) return and payment due. Quarterly Dry Cleaning Trust Fund Fee return and payment due. • Lubricating oils tax return and payment due. • • Medicaid-related tax return and payment due for nursing facili - • Utility license (2.2%) third quarterly payment due. ties. • Medicaid tax return and payment due from pharmaceutical serv - 10 • Quarterly Hospital Assessment for Medicaid Tax due. ice providers. • Mobile Telecommunication services tax return and payment due. 15 • Annual NPM payment due into escrow. • Pari-mutuel pool tax return and payment due. • Estimated personal income tax and first installment due. • Prepaid Wireless 9-1-1 Charge return and payment due. • Financial institutions’ excise tax return and payment due. • Rental or leasing tax (state and local) return and payment due. • Business Privilege tax return due for limited liability entities. • Sales tax (state and local) return and payment due. • First installment of estimated corporate income tax due (for cal - • Schedule D (NPM Cigarette Activity) report due. endar-year taxpayers). • Tobacco tax (state and county) return, reports and payment due. • Note: Other fiscal-period taxpayers pay their corporate estimated • Underground and aboveground storage tank trust fund charge tax on the 15th day of the fourth, sixth, ninth, and twelfth months due. of their tax year and file their return on the 15th day of the third Uniform Natural Minerals Tax return and payment due. • month following the close of their tax year. • Scrap Tire Environmental Fee return and payment due. • Partnership income tax return due. • Use tax (state and local) return and payment due. Personal income tax return and payment due. • Utility gross receipts tax return and payment due. • Quarterly sales tax return and payment due. 22 • Blender return and payment due. 20 • • Exporter return due. • Quarterly use tax return and payment due. • Importer return due. • Quarterly rental or leasing tax return and payment due. • Supplier/Permissive Supplier return and payment due. • Quarterly Solid Waste Disposal Fee return and payment due.

30 • Hazardous waste fee return and payment due. 30 • Annual TPM certification due. Last day • Annual NPM certification and bank verification due. of month • State horse wagering fee return and payment due. • Quarterly Construction Employer Fee due. • Terminal Operator return due. • Quarterly forest products’ severance tax return and payment due. • Transporter return due. (Continued on Page 22) 21 First Quarter FY 2013 Revenue REVIEW October, November, December 2012

Interest Rates Interest Rates By Calendar Quarter

Remain the Same (Established by: 26 USCA §6621; §40-1-44, Code of Alabama 1975 )

nterest rates for the calendar quarter 1ST QTR 2ND QTR 3RD QTR 4TH QTR beginning Jan. 1, 2013, remain at three I(3) percent, according to Internal 2001 9% 8% 7% 7% Revenue Bulletin No. 2012-99, dated Nov. 2002 6% 6% 6% 6% 30, 2012. 2003 5% 5% 5% 4% Under Sect. 40-1-44, Code of Alabama 1975 , the Department of Revenue will 2004 4% 5% 4% 5% calculate interest on underpayments and 2005 5% 6% 6% 7% overpayments (where applicable) at this 2006 7% 7% 8% 8% same annual rate (3 %); however, land sold 2007 8% 8% 8% 8% by the state for taxes, shall be calculated at 2008 7% 6% 5% 6% 12% in accordance with Sect. 40-5-9. (Historical rates shown right.) 2009 5% 4% 4% 4% 2010 4% 4% 4% 4% State Auditor’s Office 2011 3% 4% 4% 3% Recognizes ADOR 2012 3% 3% 3% 3% Property Management 2013 3% Section tate Auditor Samantha Shaw sent a letter to Commissioner Julie Magee, Statement of Gross Tax Collections Scommending Revenue for achieving a perfect audit for the fifth consecutive year. Through End of 1st Quarter FY 2013 The audit of ADOR‘s non-consumable (October, November, December 2012) personal property covered the time period Oct. 29, 2012, through Nov. 14, 2012. FYTD 2012-13 FYTD 2011-12 % Change Shaw’s letter stated, “All items costing $500 or more were audited. Your agency Business Privilege Tax $ 17,560,934.50 $ 11,279,957.54 55.68 had 3,460 items with an acquisition cost of Gasoline 97,931,778.90 98,258,998.39 (0.33) $6,705,537.37. I am pleased to report that all items were located. While everyone in Income Tax-Corporate 80,637,558.55 92,869,984.48 (13.17) the agency is to be commended, I would Income Tax-Individual 795,235,469.57 757,005,403.12 5.05 like to congratulate your property manager on this achievement.” Income Tax (Total) 875,873,028.12 849,875,387.60 3.06 Motor Fuels 33,548,205.35 33,633,974.08 (0.26) Quarterly/Annual Tax Activity (Continued from Page 21) Oil & Gas Privilege (8%) 21,729,833.90 21,963,262.03 (1.06) • Quarterly NPM payment due into es - Oil & Gas Production (2%) 5,976,048.90 7,549,408.80 (20.84) crow. Sales 505,449,892.46 493,567,239.84 2.41 • Quarterly withholding return and pay - ment due from employer. Use Tax 76,568,487.54 68,224,221.05 12.23 • Quarterly IFTA tax return and payment Utility Gross Receipts 95,816,878.14 101,668,571.38 (5.76) due. SUBTOTAL $1,730,455,087.81 $1,686,021,020.71 2.64 May SUBTOTAL (OTHER TAXES) $ 416,874,665.87 $ 425,143,376.19 (1.94)

10 • Quarterly NPM certification and TOTAL (ALL TAXES) $2,147,329,753.68 $2,111,164,396.90 1.71 bank verification due. 22