NOL stands for refund!

Even a loss is worth something, especially on your taxes. 

Businesses with a need for a cash infusion may be able to obtain one quickly as a result of a tax refund from recently expanded Net Operating Loss (NOL) carryback allowances. These provisions in the law address the fact that although a net loss may appear in only one tax year, it represents weaknesses that may have arisen over years in which their effect was temporarily masked by favorable income opportunities.  Once the economy recedes and the business posts a loss, as it has done recently, it would otherwise be unable to obtain tax benefits from the amount of loss that exceeded income in that tax year.  In a sense, these provisions in the law acknowledge swings in the business cycle and help smooth them out. In addition, for many struggling small businesses in a tight credit environment, these provisions can provide much-needed cash flow.

 The Internal Revenue code allows for carryforwards and carrybacks of an NOL. The general NOL carryback period is the two years preceding the loss year. If the NOL is not fully used on the carryback, it may be carried forward for the 20 taxable years following the loss year. A taxpayer may elect to waive the two-year carryback and carry the entire NOL forward, but an immediate tax refund may be considered more beneficial. The carryback period for purposes of the alternative minimum tax is the same as the period chosen for the regular tax.

Congress has made it easier to use your net operating losses.

Under the American Recovery and Reinvestment Act of 2009, for a tax year that began or ended in the 2008 calendar year, an “eligible small business” could elect a three-, four- or five-year NOL carryback period for certain losses, instead of the usual two-year period. An “eligible small business” is one whose average annual gross receipts for the three tax years ending with the year of the NOL are $15 million or less. For tax years ending after Dec. 31, 2007, and those beginning before Jan. 1, 2010, the Worker, Homeownership and Business Assistance Act of 2009 removed the eligible small business requirement, making the extended carryback period available to businesses of any size. However, the election may be made for either 2008 or 2009 but not both.

If an NOL is carried back to the fifth preceding year, it can be used to offset only 50% of the taxable income in that carryback year. This extended carryback period will benefit many taxpayers by providing a relatively quick cash infusion of a larger amount than would be available with a two-year carryback.

How do you get your money?  An individual, estate or trust can obtain a tentative (quick) refund of taxes paid in prior years by filing a Form 1045, Application for Tentative Refund. A corporation uses a Form 1139, Corporation Application for Tentative Refund. The tentative refund form must be filed within one year after the end of the year in which the NOL arose. If this form is properly and timely filed (with all required attachments), the refund will be issued within 90 days.

If the tentative refund approach is not used, a taxpayer may file amended tax returns for the carryback years to obtain the benefits of an NOL carryback. However, the IRS usually takes longer than 90 days to process an amended return, and it can conduct an examination of the loss year and/or the carryback years before issuing a refund. Handling an examination will often involve considerable time, during which any refund will be delayed. Obviously, if the examination discloses an issue, the refund might not be issued, and a tax deficiency might arise.

Besides NOL carrybacks, another procedure allows a corporation that has paid in more estimated tax for the current year than it needed to have paid, based on currently anticipated income (or loss) to obtain a quick refund of the overpaid estimated tax without waiting to file its tax return for the year and then waiting for its refund check several months thereafter. This refund can be obtained by filing a Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax. The Form 4466 must be filed after the close of the taxable year and before the 16th day of the third month after the end of the year (March 15 for calendar-year corporations). It must be filed before the corporation files its tax return. The expected overpayment of estimated tax must exceed 10% of the corporation’s expected tax liability and be greater than $500.

This surprises many experts.  (These may be the same people that told you Congress would continue the Bush tax cuts.)

In the United States, the estate rate in recent years was 45 percent, with an exemption for the first $2 million. In 2009, however, the exemption jumped to $3.5 million, which meant that the heirs of a rich, dying parent had about 1.5 million additional reasons to console themselves if said parent died on the first day of 2009 rather than the last day of 2008. With this incentive, it’s not hard to imagine such heirs giving their parent the best medical care money could buy, at least through the end of the year. Indeed, two Australian scholars found that when their nation abolished its inheritance tax in 1979, a disproportionately high number of people died in the week after the elimination of the tax as compared with the week before.

George's heirs say, "Thumbs up to no estate taxes."

If the tax is suspended for a year, a parent worth $100 million who died in 2010 could have passed along all $100 million to his or her heirs.  But, with a scheduled resumption of the tax in 2011, such heirs would have surrendered more than $40 million if their parent had the back luck to die even one day too late.  It is reported that George Steinbrenner’s heirs will save $600 million in taxes if no estate tax law is passed for 2010.  Perhaps the bickering politicians may decide to smooth out the tax law if they realize how many assisted suicides they may be responsible for during the waning weeks of 2010.

If Congress doesn’t change the law soon, and many think that in this highly partisan election year it will not, the estate tax will come roaring back in 2011. Not only will the top rate jump to 55%, but the exemption will shrink from $3.5 million per individual in 2009 to just $1 million in 2011, potentially affecting eight times as many taxpayers.  Consider these examples: On a $5 million estate, the tax consequence of dying a minute after midnight on Jan. 1, 2011 rather than two minutes earlier could be more than $2 million; on a $15 million estate, the difference could be about $8 million.

Are estate taxes dead in 2010?

Advisers say the estate-tax dilemma is especially awkward for heirs.  Heirs may be tempted to pull plugs on December 31. Economists might call the taking of a life to reap a tax advantage a “perverse incentive.” District attorneys might call it homicide.

The IRS really does want to help BP oil spill victims.

Saturday, July 17 the Internal Revenue Service is opening offices in seven cities to provide help to the victims of the BP oil spill.

The IRS has announced some guidance for individuals and businesses affected by the oil spill in the Gulf of Mexico and announced a number of new efforts to help affected taxpayers, including a special Gulf Coast Assistance Day on July 17.

The guidance provided by the IRS is based on current law and it explains how recipients of payments from BP should treat the payments for tax purposes. According to current legislation, BP payments for lost income are taxable in the same way that the wages or business income these payments are replacing would have been. The law treats compensation for lost wages or income differently for tax purposes than compensation for physical injuries or property loss, which generally are nontaxable.

Every person can have unique financial circumstances, so the IRS encourages taxpayers to review their tax situation or talk with their tax preparers about the implications of payments or compensation from the oil spill.

The new information is available in a question-and-answer format on a special section of the IRS website, IRS.gov. The IRS is closely monitoring the situation in the Gulf, and additional information will be added to IRS.gov as it becomes available.

The IRS has several options for BP oil spill victims.

To help people in the Gulf Coast area dealing with tax issues regarding their losses, the IRS has announced a special assistance day on July 17 in seven cities. Taxpayers and tax preparers will be able to work directly with IRS employees to resolve tax issues, including specific topics related to the oil spill. The IRS will hold the Gulf Coast Assistance Day in four states:

• Alabama: Mobile. 
• Florida: Panama City and Pensacola. 
• Louisiana: New Orleans, Houma and Baton Rouge.
• Mississippi: Gulfport.

In addition, taxpayers with problems related to the Gulf spill will soon be able to reach IRS personnel through an IRS toll-free telephone line. The number is:  866-562-5227.  The special services phone line will operate weekdays from 7 AM to 10 PM Eastern Daylight Time.  Specially trained IRS personnel will be available to help people with tax questions related to the oil spill.

The IRS encourages taxpayers in the Gulf struggling with payment or collection issues to contact the agency. The IRS continues to have a number of ways to help taxpayers dealing with oil spill issues or other economic hardship issues, including:

• Assistance of the Taxpayer Advocate Service for those taxpayers experiencing economic harm, who are seeking help resolving tax problems that have not been resolved through normal channels.
• Postponement of collection actions in certain hardship cases.
• Added flexibility for missed payments on installment agreements and offers in compromise for previously compliant individuals having difficulty paying.
• IRS employees will be permitted to consider a taxpayer’s current income and potential for future income when negotiating an offer in compromise.
• Accelerated levy releases for taxpayers facing economic hardship.

 Individuals who have suffered physical and/or economic losses as a result of the BP oil spill may also seek loans from the Small Business Administration (SBA).  Homeowners and Renters can apply for loans to cover damages to their home, personal property, and vehicles.  Businesses can apply for loans for damages to their real estate or business contents and for economic losses. 

To reach the SBA:
SBA Answer Desk – 800-U-ASK-SBA (800-827-5722)
Send e-mails to: answerdesk@sba.gov

Ultimately, the owners of corporations have to pay taxes on the dividends they receive.  That sounds like double taxation to us.  So why don’t we correct this? 

Surprisingly little attention is being paid to fixing the most growth-inhibiting, anticompetitive tax of all, the corporate income tax. Reducing or eliminating the corporate tax would curtail numerous wasteful tax distortions, boost growth in both the short and long run, increase America’s global competitiveness, and raise future wages.

The Canadian economy boomed after they lowered business taxes.

The US has the second-highest corporate income tax rate of any advanced economy (39% including state taxes).  Many major competitors, Germany and Canada among them, have reduced their corporate tax rate, making American companies less competitive globally.

So why don’t we fix this?

Various credits and deductions, depreciation, interest and other credits reduce the effective corporate tax rate. But netting everything, our corporate tax severely retards and misaligns investment.  This competitive disadvantage becomes more obvious as more and more capital becomes internationally mobile in this globally connected world.

Corporate income is taxed a second time at the personal level as dividends.  Capital gains on the sale of stock are also taxed.  With new taxes in the health reform law and the expiration of the Bush tax cuts, total corporate taxes are going to go up, NOT down.

So why don’t we change this?

The OECD has OCD about lowering taxes on small business.

There is considerable evidence that high corporate taxes are economically dangerous. In a 2008 working paper entitled “Taxation and Economic Growth,” the Organization for Economic Cooperation and Development (OECD) concluded that “Corporate taxes are found to be most harmful for growth, followed by personal income taxes and then consumption taxes.”

Every major tax reform proposal in recent decades has centered on lowering taxes on capital income and moving toward a broad-based, low-rate tax on consumption. This could be accomplished by junking the separate corporate income tax, integrating it with the personal income tax (e.g., attributing corporate income and taxes to shareholders or eliminating personal taxes on corporate distributions), and/or allowing an immediate tax deduction (expensing) for investment (which cancels the tax at the margin on new investment and hence is the priority of most economists). The Hall-Rabushka Flat Tax, the Bradford progressive consumption tax, a value-added Tax (VAT), the FairTax retail sales tax, four decades of Treasury proposals and the 2005 President’s Tax Commission proposals would all move in this direction.

Reducing or eliminating the negative effects of the corporate tax on investment would increase real GDP and future wages significantly.  Reducing taxes on new investment could help strengthen what is a historically slow recovery from such a deep recession. It would also strengthen the economy long-term. American workers would benefit from more jobs in the short run and higher wages in the long run.

So why don’t we move in this direction?

It moves slow but ineffectively.

The answer is:  Our Congress long ago lost the ability to respond quickly to enact economically healthy legislation.  Our system of government is broken.  We need to fix it first before we can hope to fix our tax structure.

There certainly is nothing funny about death.  However, we did find some jokes about taxes:

Multiple choice:  If a lawyer and an IRS agent were both drowning, and you could only save one of
them, would you:

(1)   Go to lunch, (2) Read the paper, (3) Surf the net, (4) Have a drink.

What’s the difference between an IRS agent and a mosquito?
One is a bloodsucking parasite, the other is an insect.

Leona was not mean to everyone.

Top Five Prison Activities of Late Tax Evader Leona Helmsley:

1.      Making thousands of “1040 SUX” license plates.

2.      Playing Lisa Leeson in the all-tax evader version of “Rogue Trader.”

3.      Trying to keep cellmate from playing the “King Kong” game.

4.      Thinking of new ways to have home staff treated as independent contractors.

5.      Receiving estate planning tips from dog Trouble.

6.      Copywriting the trademark “Queen of Mean.”

 The healthcare reform bill now includes a tanning booth tax of 10 percent. You know what this means? All of the benefits could be funded by the cast of ‘Jersey Shore.” 

Do your fit the agent profile?

You may be qualified to be a tax auditor if:

1.      At Christmas, you are always the one that can find the burnt out bulb.

2.      The only jokes you know are based on IRS regulations.

3.      You bought your wife a new calculator for her birthday.

4.      You can’t write unless the paper has debit and credit columns.

5.      You never wear matching socks.

6.      irs.gov is your only Favorite bookmark.

7.      When people around you yawn, you think it is because they didn’t get enough sleep.

 When it comes to taxes, there are two types of people. There are those that have to get it done early, also known as psychopaths, and the rest of us.” 

No end to budget woes in sight.

As part of a plan to close his state’s budget deficit, New York Governor David Paterson is proposing a tax on Internet pornography. You see, this is why we can’t have blind governors. I mean, no offense, but of course he’s going to tax pornography. If he can’t enjoy it, nobody can. What’s next, a tax on tool shop calendars?

And there are a lot of other new taxes coming. California state legislators want to solve the state’s giant deficit by taxing marijuana. Meanwhile, Oregon wants to increase a tax on beer.   The deficits of these states could be solved this summer before students have to go back to college.

The right tax elections can save YOU money!

Our life is the result of the choices we make.  That is especially true of the taxes we pay.

A wide range of federal tax elections gives individual taxpayers options for how they report certain income or expense items. Some of the more common elections for individuals concern retirement plans, medical expenses and interest expense.  Each election has specific rules as to who can make the election, when and how it is made, and when it is most advantageous.

The following are some federal tax elections that affect many taxpayers but may be all too easily forgotten:

RETIREMENT PLANS:

Nonspouse beneficiaries and IRAs.  Non-spouse beneficiaries may elect under IRC § 402(c)(11) to roll all or any portion of a deceased employee’s eligible retirement plan into an IRA or individual retirement annuity established by the non-spouse beneficiary for the purpose of receiving this distribution from the decedent.  This transfer is deemed to be an eligible rollover distribution, allowing the non-spouse beneficiary to defer tax on the rolled-over portion of the retirement plan, subject to the minimum required distribution (MRD) rules for inherited IRAs (see section 401(a)(9)). The election is valid even if the decedent had already begun taking distributions from the retirement plan. The election is deemed made when the plan is rolled over and the first MRD is made. The transfer must be directly trustee-to-trustee.

Spousal beneficiaries and IRAs. A surviving spouse can elect under the distribution rules for IRAs provided in sections 408(a)(6) and 408(b)(3) to treat a deceased spouse’s traditional or Roth IRA as if it were his or her own. In essence, this election allows the surviving spouse to become the owner of the IRA and treat it under the rules for retirement benefits, as opposed to those for death benefits. The election is possible whether or not the decedent had begun taking IRA distributions; however, the surviving spouse must be the sole beneficiary and have an unlimited right to draw from the account. If the decedent was required to have made an MRD in the year of death but did not do so, the surviving spouse, although electing to be the owner of the IRA, must calculate the MRD for that year as if it were made by the decedent. See Treas. Reg. § 1.408-8, especially Q&A no. 5. There are no forms to file, nor is there a specified due date to make the election.

There spousal and non-spousal beneficiary elections.

Re-characterizations of IRA contributions. Taxpayers who mistakenly contribute to a traditional IRA when they intended to make a contribution to a Roth IRA or vice versa can undo the mistake by electing to recharacterize the contribution or contributions. This election also enables taxpayers who converted an IRA to a Roth IRA to undo the conversion. The recharacterization is not treated as a rollover for purposes of the one-rollover-per-year rule. The recharacterized IRA and its resulting earnings must be transferred together to the second IRA. No formal election is required; however, the taxpayer must notify the trustee of each IRA involved in the trustee-to-trustee transfer by the due date of the tax return (including extension) for the year in which the IRA contribution or Roth conversion occurred.

Appreciated employer securities. An individual who receives appreciated employer securities as part of a lump-sum distribution may elect under section 402(e)(4)(B) to have the net unrealized appreciation included as ordinary income in the year of the distribution. Generally, the net unrealized appreciation is excluded from income in the year of the lump-sum distribution. This election, however, allows the taxpayer to forgo that rule and step up the basis of the securities for the amount of net unrealized appreciation. The election can be made on the return of the year in which the distribution was made or on an amended return. The taxpayer makes the election by attaching a statement to the tax return and by including the net unrealized appreciation on the tax return, either as part of a distribution reported on Form 4972, Tax on Lump-Sum Distributions From Qualified Retirement Plans, or on the appropriate line of Form 1040 (line 44 for 2009 returns).

MEDICAL EXPENSE ELECTION:

Generally, medical expenses unpaid at the date of death are not allowed as a deduction on the decedent’s individual income tax return but are a deduction for the estate tax return. Many taxpayers do not have an estate tax liability. In such cases, the executor of an estate can elect to treat any medical expenses paid out of the estate within one year of the date of death as an itemized deduction under section 213(c) on the decedent’s Form 1040, subject to the applicable percentage of adjusted gross income floor. This election allows the decedent to get some tax benefit. If the estate is subject to the estate tax, this election doesn’t make sense, as the benefit derived from the deduction at the estate level is likely to yield a greater benefit. The election is made by attaching a statement in duplicate containing the executor’s signature to the income tax return in which the medical expenses are claimed, and it must be made within the time limit for filing the individual income tax return for the year in which the medical expenses are claimed. See Treas. Reg. § 1.213-1(d).

QUALIFIED HOME EQUITY DEBT INTEREST ELECTION:

The proper election will allow you to deduct home equity interest on your Schedule C.

In a difficult lending environment, many self-employed small business owners are unable to finance their businesses through normal commercial lending practices. They might refinance their home or obtain a home equity loan. Normally, interest on such indebtedness is treated as an itemized deduction by individual taxpayers under section 163(h)(3). However, by using the interest tracing rules, such taxpayers might elect to treat such debt as not secured by the qualified residence and deduct the related interest expense on Schedule C rather than Schedule A. This treatment reduces their self-employment income, self-employment tax and adjusted gross income. The election is made by the due date of the return, including extension, for the year in which the election is effective, by deducting the interest on the appropriate line of the tax return. It is also recommended that taxpayers attach a statement to the tax return. See Temp. Treas. Reg. § 1.163-10T(o)(5).

It's not prudent to irritate Mother Nature.

If you had a loss, what can you deduct on your taxes? 

Taxpayers who find themselves the victim of a natural disaster or theft this summer should know the rules for deducting their casualty losses next year when they file their federal tax return.

Generally, you may deduct losses to your home, household items and vehicles on your federal income tax return.

You may NOT deduct casualty and theft losses covered by insurance.  You must reduce your loss by the amount of the reimbursement you receive from your insurance company. 

Losses from floods qualify as casualty losses.

A casualty does not include normal wear and tear or progressive deterioration from age or termite damage.  The damage must be caused by a sudden, unexpected or unusual event like a car accident, fire, earthquake, flood or vandalism.  Driving your old car down to flood plain just before the storm hits is probably not going to work for you either.

If your property is not completely destroyed or if it is personal-use property, the amount of your casualty or theft loss is the lesser of the adjusted basis of your property, or, the decrease in fair market value of your property as a result of the casualty or theft, reduced by any insurance or other reimbursement you receive or expect to receive.  Adjusted basis means the tax basis or base for tax purposes.  For example, if you have depreciated the $20,000 truck you use for business by $4,000 and deducted that amount previously on your tax return, your adjusted basis would be $16,000.

If business or income-producing property, such as rental property, is completely destroyed, the amount of your loss is your adjusted basis in the property minus any salvage value, and minus any insurance or other reimbursement you receive or expect to receive.

To claim a casualty or theft loss, you must complete Form 4684, Casualties and Thefts, and attach it to your return. Generally, you may claim casualty or theft loss of personal use property only if you ITEMIZE deductions on Form 1040, Schedule A.  However, you can deduct a 2008 or 2009 net disaster loss from a federally declared disaster even if you do not itemize your deductions.  (The recent floods in New England and Tennessee were federally declared disasters.)

If you held the property for personal use, you must reduce your loss by $100. This $100 reduction for losses of personal-use property applies to each casualty or theft event that occurred during the year other than 2009.  In 2009, individuals must reduce their casualty and theft losses for personal-use property by $500 instead of $100. This $500 reduction for losses of personal-use property applies to each casualty or theft event.

The total of all your casualty and theft losses of personal-use property usually must be further reduced by 10 percent of your adjusted gross income. The 10 percent AGI limitation does not apply to net disaster losses resulting from federally declared disasters in 2008 and 2009.

In figuring your loss, do not consider the loss of future profits or income due to the casualty.  “Opportunity” losses are not deductible.  For example, if you purchased some lots, anticipating building homes on these lots, and the lots were flooded, you may not deduct the profits you expected to make on the planned selling of the homes that would have been built.

Casualty losses are normally deductible only in the year the casualty occurred. But if you have a deductible loss from a federally declared disaster you can choose to deduct that loss on your tax return for the previous year. If you have already filed your return for the preceding year, you can claim the loss on the previous year tax return by filing an amended return.

After wrestling with health care and financial markets reform, the House of Representatives and the Senate now turn to some tax issues.

Retroactive taxes.  There are many expired tax breaks that will be revived and made retroactive back to January 1:

          Research and development credits for business

          Writing off state sales tax as an alternative to state income tax

          Reinstatement of the extra standard deductions for property taxes

          Tax free IRA payment transfers to charities

          Deductions for college tuition

          Write offs for teachers’ supplies (even though it is a disgrace they have to pay for these)

           Depreciation of tenant improvements in just fifteen years

           Depreciation of restaurant renovations in just fifteen years

           Depreciation of farm equipment in just five years

Breaks for small business.  For companies with $50 million or less in assets:

          A 100 percent capital gains exclusion of the sales of a small company’s stock

          Stock must be held more than five years and is restricted to newly purchased shares

          A larger deduction for new business start-up costs, up to $20 thousand

          Additional funding of small business lending programs

Estate taxes.   I never believed that we would get this far into 2010 without Congress addressing the death of the estate tax exemption breaks.  The current law has expired.  Unless there is a new law, next year the exemption will be lowered to $1 million and the maximum rate will go up to 55 percent.  The impasse on passing new legislation is differences between Republicans and Democrats on the benefits to be provided to the heirs of large estates.  You can probably guess the party that wants lower exemption amounts.  Capitol Hill watchers predict that there will be a phased-in law with the exemption rising in steps from $3.5 million to $5 million.  Forecasters believe that the top rate will lowered to 35 percent.

Congress will not let joblessness rise.

Unemployment. 

In addition to the Jobs Bill already passed this year, Congress is prepared to provide additional incentives to companies to hire unemployed workers.  The poor job numbers reported on June 4 will only increase the likelihood that new tax credits for new jobs will be passed into law.  There will be no real escape from the recession until more Americans go back to work.

One of the scariest pieces of mail you can receive is a letter from the IRS.  Sometimes there is good reason for feeling fear.  Here is what to if you receive an IRS notice: 

The Internal Revenue Service sends millions of letters and notices to taxpayers every year. But the actual odds that you personally will receive a notice are relatively rare.  On average, only 2% of taxpayers are audited each year.

If you do get mail from the IRS, do not ignore it, do not throw it away.  It is important.

Here is what you should know about IRS notices:

Do not panic (immediately.) Many of these letters are innocuous and innocent and can be dealt with simply and painlessly.  You can panic later on if there is good reason. 

Mis-matching of reported income may lead to an audit.

There are a number of reasons why the IRS might send you a notice.  Each letter and notice offers specific instructions on what you are asked to do to satisfy the inquiry.

Some notices request additional information.  This is the least scary notice if you have the information requested readily available.  Do NOT ignore this notice.  If you fail to respond to this request in a timely manner, it could lead to a full-blown audit.

Your letter may notify you of changes to your account.  Depending on what kind of changes these are, you normally do not have to worry.  Many of these notices concern address changes or other changes you are aware of.  Again, if you disagree with the changes made you need to respond immediately.

If you receive a correction notice, you should review the correspondence and compare it with the information on your return.  Usually, a correction notice will notify you of arithmetic errors or logic errors on your return.  The notice will document the change that has been made.  If you disagree with the change made you need to respond immediately.  You should send a written explanation of why you disagree and include any documents and information you want the IRS to consider, along with the bottom tear-off portion of the notice.  Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.  If you agree with the correction to your account, then usually no reply is necessary unless a payment is due or the notice directs otherwise.

One change you should be concerned about is if someone reports moneys they paid you that you did not record on your return.  This change will usually result in additional taxes due (and probably interest and penalties.)  If this change is incorrect, you should contest the change aggressively.

Always report phishing attempts to your local FBI office.

Unlike most organizations these days, the IRS prefers the mail.  (If your get a surprise call or an e-mail purporting to be from the IRS be very wary, this may be a phishing attempt by a scam artist.  Report any such phishing attempts to the FBI.)  Most correspondence can be handled without calling or visiting an IRS office by snail mail.  However, if you have questions, YOU may call the telephone number in the upper right-hand corner of the notice.  Have a copy of your tax return and the correspondence available when you call to respond to your inquiry.

Keep all copies of any correspondence with your records for the applicable tax year.  Document any phone conversations with IRS representatives.  Sadly, even the IRS can and does give bad advice.  Make sure you keep detailed records of IRS recommendations and requests.

The time to panic is if you get a notice of an audit and you cannot support some of your deductions or other items on your return.  That is the time to call in an experienced professional who has a history of successful negotiations with the IRS.  Specifically, do NOT talk to an IRS Special Agent by yourself without adequate representation.

This is NOT the cover used by IRS quants.

The Internal Revenue Service quants have put out their spring issue.  It will not out sell the Sports Illustrated swimsuit issue but it does present some interesting figures.

The Internal Revenue Service today released the Spring 2010 Issue of the Statistics of Income Bulletin, which features data on high-income individual income tax returns filed for tax year 2007, gift tax returns filed in 2008 and trust income from the 2002 through 2006 period.

Here are some highlights:

In 2008 taxpayers filed over 4.5 million returns with adjusted gross income of $200,000 or more for tax year 2007, up from over 4 million returns in the prior year. These high-income returns represent over 3 percent of all returns filed for 2007.

Individual taxpayers who itemized reported $59 billion in deductions for non-cash charitable contributions in tax year 2007.  Of these nearly 24 million taxpayers, almost 7 million reported close to $53 billion in deductions on Form 8283, Non-cash Charitable Contributions.  The number of Form 8283 filers increased 12 percent from 6 million in 2006, and the amount claimed in donations increased to nearly 13 percent from $47 billion.

Approximately 257,000 gift tax returns were filed in 2008.  The huge majority (96 percent) were nontaxable.  The reported total amount of gifts was $45 billion.  Cash was the predominant type of asset gifted, representing 46 percent of the total, while corporate stock accounted for 24 percent, real estate 17 percent.  The majority of gift tax returns (almost 52 percent) were filed by female donors.

Of the more than 400,000 simple trusts analyzed in a panel study, total income was $15 billion in 2002 and reached $26 billion in 2006. Total deductions grew from $12 billion to $15 billion over the same period for simple trusts. For the more than 700,000 complex trusts analyzed in the panel study, reported total income increased from $28 billion in tax year 2002 to $60 billion in tax year 2006. Total deductions increased from $15 billion in 2002 to $20 billion in tax year 2006 for complex trusts.

You will not be alone if you itemize deductions.  Of the total amount of deductions taken on returns for tax year 2007 filed in 2008, only 36 percent of the amount was for standard deductions.  A whopping 64 percent of deductions were itemized deductions.

You probably will not find the Spring 2010 Issue of the Statistics of Income Bulletin under your son’s mattress, but it is still interesting to geeks like me.