Tax Lawyers Minneapolis

One-Week Filing Extension to Taxpayers Whose Preparers Were Affected by Hurricane Irene

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On September 1, 2011, the Internal Revenue Service announced that it is granting taxpayers whose preparers were affected by Hurricane Irene until September 22, 2011 to file returns normally due September 15.  The taxpayer’s preparer must be located in an area that was under an evacuation order or a severe weather warning because of Hurricane Irene, even if the preparer is located outside of the federally declared disaster areas.

This relief, which primarily applies to corporations, partnerships and trusts that previously obtained a tax filing extension, is available to taxpayers regardless of their location.

It is important to note that this relief does not apply to any tax payment requirements.

Underpayment and Overpayment Interest Rates for the Fourth Quarter of 2011

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On August 18, 2011, the Internal Revenue Service announced that interest rates will decrease for the calendar quarter beginning October 1, 2011. The rates will be:

  • three (3) percent for overpayments (two (2) percent in the case of a corporation);
  • three (3) percent for underpayments;
  • five (5) percent for large corporate underpayments; and
  • zero and one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

Section 6621 of the Internal Revenue Code establishes the rates for interest on tax overpayments and tax underpayments. These rates determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Rev. Rul. 2011-18. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. Pursuant to I.R.C. section 6621(c), the rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. See section 301.6621-3 of the Regulations on Procedure and Administration for the definition of a large corporate underpayment and for the rules for determining the applicable date.

The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

Notice 88-59, 1988-1 C.B. 546, announced that, in determining the quarterly interest rates to be used for overpayments and underpayments of tax under section 6621, the Internal Revenue Service will use the federal short-term rate based on daily compounding because that rate is most consistent with section 6621 which, pursuant to section 6622, is subject to daily compounding.

Interest factors for daily compound interest for annual rates of 1.5 percent, 3 percent, 4 percent and 6 percent are published in Tables 8, 11, 13, and 17 of Rev. Proc. 95-17, 1995-1 C.B. 556, 562, 567, and 571. Interest factors for daily compound interest for an annual rate of 0.5 percent are published in Appendix A of Revenue Ruling 2010-31, 2010-52 IRB 898, 899. 3.

Contact Sherayzen Law Office

If you have any questions with respect to IRS interest rates and any other tax-related concerns, you should contact our experienced tax firm to discuss your case.

Form 2290: Highway Use Tax Return is Now Due on November 30, 2011

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On July 15, 2011, the IRS advised truckers and other owners of heavy highway vehicles that their next federal highway use tax return (which is usually due on August 31) will instead be due on November 30, 2011.  IRS Notice 2011-77 explains that the main reason for the extension of the deadline is to alleviate any confusion and possible multiple filings of Form 2290 that could result if Congress reinstates or modifies the  highway use tax after September 30, 2011.

Generally, the highway use tax of up to $550 per vehicle applies to trucks, truck tractors and buses with a gross taxable weight of 55,000 pounds or more. A variety of special rules apply to vehicles with minimal road use, logging or agricultural vehicles, vehicles transferred during the year and those first used on the road after July. Ordinarily, vans, pick-ups and panel trucks are not taxable because they fall below the 55,000-pound threshold. The tax is currently set to expire on September 30, 2011.  For trucks and other taxable vehicles in use during July, the Form 2290 and payment are, under normal circumstances, due on August 31.

The new November 30 filing deadline for Form 2290 (Heavy Highway Vehicle Use Tax Return) applies to the tax period that begins on July 1, 2011. It covers the vehicles used during July, as well as those first used during August or September. Returns should not be filed and payments should not be made prior to November 1, 2011.

To aid truckers applying for state vehicle registration on or before November 30, 2011, the new regulations require states to accept as proof of payment the stamped Schedule 1 of the Form 2290 issued by the IRS for the prior tax year (the one that ended on June 30, 2011). Under federal law, state governments are required to receive proof of payment of the federal highway use tax as a condition of vehicle registration. Normally, after a taxpayer files the return and pays the tax, the Schedule 1 is stamped by the IRS and returned to filers for this purpose. Prior to the new regulations, a state normally would accept a prior year’s stamped Schedule 1 as a substitute proof of payment only through September 30.

For those acquiring and registering a new or used vehicle during the July – November period, the new regulations require a state to register the vehicle, without proof that the highway use tax was paid, if the person registering the vehicle presents a copy of the bill of sale or similar document showing that the owner purchased the vehicle within the previous 150 days.

IRS Increases Mileage Rate to 55.5 Cents per Mile

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On June 23, 2011, the IRS announced an increase in the optional standard mileage rates for the final six months of 2011. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business and other purposes.

In recognition of recent rise in the price of gasoline, the IRS increased the rate to 55.5 cents a mile for all business miles driven from July 1, 2011, through December 31, 2011. This is an increase of 4.5 cents from the 51 cent rate in effect for the first six months of 2011, as set forth in Revenue Procedure 2010-51.  This is a special adjustment for the final months of 2011; normally, the IRS updates the mileage rates only once a year in the fall for the next calendar year.

The new six-month rate for computing deductible medical or moving expenses will also increase by 4.5 cents to 23.5 cents a mile, up from 19 cents for the first six months of 2011. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.

Reporting Canadian RRSPs and RRIFs in the United States: Form 8891

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It comes as a surprise to most taxpayers the Canadian Registered Retirements Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs) must be reported in the United States.  Yet, any U.S. citizen or resident who is a beneficiary of an RRSP or RRIF must complete Form 8891 and attach it to Form 1040. A U.S. citizen or resident who is an annuitant of an RRSP or RRIF must file the form for any year in which he receives a distribution from the RRSP or RRIF.

A separate Form 8891 should be completed and filed for each RRSP or RRIF. This requirement includes spouses who have RRSPs or RRIFs.

There are three types of financial information that U.S. citizens and residents must report to the IRS using Form 8891: (i) contributions to RRSPs and RRIFs; (ii) undistributed earnings in RRSPs and RRIFs; and (iii) distributions received from RRSPs and RRIFs. The taxpayers must comply with this reporting requirement even if their earnings from these retirement plans are not considered as taxable income in Canada. Remember, income accrued in the RRSP and RRIF is subject to U.S. taxation unless a treaty choice is made to the contrary (see below).

The chief reason for the existence of Form 8891 is the fact that, prior to year 2003, the IRS maintained that RRSPs and RRIFs are foreign trusts and the annuitants and beneficiaries of these plans must annually file Form 3520 with the IRS. See IRS Announcement 2003-25. IRS was authorized to impose heavy penalties for failure to file Form 3520. 26 U.S.C. §6677.

In 2003, however, the IRS adopted a new simplified reporting regime where U.S. citizens and resident aliens who hold interests in RRSPs and RRIFs only need to file the new Form 8891 in lieu of the burdensome Form 3520 required earlier. See IRS Announcement 2003-75. Furthermore, Form 8891 allows the filers to make the election under Article XVIII(7) of the U.S.-Canada income tax convention to defer U.S. income taxation of income accrued in the RRSP or RRIF. Id. The filers are still required to maintain supporting documentation relating to information required by Form 8891 (such as Canadian Forms T4RSP, T4RIF, or NR4, and periodic or annual statements issued by the custodian of the RRSP or RRIF). Id. Nevertheless, the new simplified reporting regime substantially reduces the reporting burden of taxpayers who hold interests in RRSPs and RRIFs.

A word of caution: taxpayers who need to file Form 8891 are likely to be subject to FBAR (Report on Foreign Bank and Financial Accounts) reporting requirements. Generally, the FBAR is required to be filed by any U.S. person who has a financial interest in or signature authority or other authority over any financial account in a foreign country, if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year. Since RRSPs are considered to be financial accounts, it is important to verify whether a taxpayer needs to file an FBAR.

Contact Sherayzen Law Office NOW For International Tax Help

Note: This requirement may no longer be required; if you believe that you may be subject to Form 8891 requirements, contact Sherayzen Law Office for confirmation on this tax form. Our experienced international tax firm will guide you through the complex maze of international tax reporting requirements, including any voluntary disclosure issues.

Remember, it does not matter whether you are located in another state or outside of the United States – we can help!