HOUSE, SENATE PASS TAX-RELATED MEASURES: Late last month, congressional lawmakers passed separate measures to make permanent the child tax credit and to require the annual registration of federal income tax return preparers with the Internal Revenue Service.
As expected, House members approved a bill that would permanently extend the $1,000 child tax credit and would double the income levels for phasing it out. The Child Credit Preservation and Expansion Bill of 2004 (H.R. 4359), which won approval in a 271-139 House vote, repeals the scheduled reductions in the amount of the child tax credit from $1,000 to $700 in 2005 through 2008 and $800 in 2009.
The bill, introduced by Rep. Jon Porter, R-Nev., also increases the income level at which the credit begins to phase out from $110,000 to $250,000 for married couples filing jointly and from $75,000 to $125,000 for single taxpayers. The bill must be approved by the Senate.
For low-income families, the child credit is currently refundable up to 10 percent of earned income in excess of $10,500. H.R. 4359 would raise the 10 percent rate to 15 percent next year and would allow military families to include combat pay when calculating the refundable child credit.
The measure is the last of four bills to extend or make permanent tax cuts from 2001 and 2003 tax legislation. The House recently approved a permanent extension of the 10 percent income tax bracket and a measure to extend alternative minimum tax exemption amounts for one year. Last month, House lawmakers approved a bill to permanently eliminate the so-called marriage penalty for joint filers.
Meanwhile, the Senate passed the Tax Administration Good Government Bill (H.R. 1528), which includes tax administration improvements, increased taxpayer rights and protections, penalty and interest reform, and simplification provisions.
The House version of the legislation passed last June. The Senate picks up many of the House provisions related to tax administration reforms, penalty and interest reforms, confidentiality and disclosure and collection procedures, while adding Tax Court modernization, simplification and revenue-raising provisions. The bill now moves to a conference committee.
The Senate version would require the annual registration of federal income tax return preparers with the IRS. Any person who is paid to prepare five or more returns in a year and who isn’t authorized to practice before the IRS under Circular 230 (e.g., lawyers, CPAs and enrolled agents) would have to pass an initial, and then an annual, exam. The bill would also require providers of refund anticipation loans to register with the IRS. The proposal authorizes the IRS to require electronic filing for tax returns prepared by paid tax preparers who prepare at least 250 returns.
The measure would also increase the penalty for frivolous tax returns from $500 to $5,000 and would also permit the IRS to dismiss requests for collection due process hearings, installment agreements, offers-in-compromise and taxpayer assistance orders if they are based on frivolous arguments or are intended to delay tax administration.
IRS OFFERS PENALTY REFUND FOR EFTPS ENROLLMENT: Approximately 1 million employers qualify for a refund of a previously paid federal tax deposit penalty under a plan announced by the Internal Revenue Service to encourage enrollment in the Electronic Federal Tax Payment System.
The EFTPS-FTD penalty refund offer allows business taxpayers an opportunity to receive an automatic one-time penalty refund if they have been assessed a deposit penalty on a Form 941, Employer’s Quarterly Federal Tax Return. The offer is available to employers who are not mandated to use EFTPS. To qualify for the offer, the employer must use EFTPS for one year (four consecutive quarters), make all Form 941 payments on time, and have previously fully paid the penalty.
“This approach is a sound business decision for both taxpayers and the government,” said IRS Commissioner Mark W. Everson. “Using the electronic payment system is much more accurate and much less burdensome for taxpayers. At the same time, the government saves money because there are fewer errors, fewer notices and fewer problems.”
The IRS will look back up to four quarters prior to the four-quarter compliance period for a fully paid FTD penalty to abate. Penalties paid earlier than one year prior to the four-quarter compliance period are not eligible.
