What are the new changes for 1997?
Refer to Tax Topic 302, Highlights of Tax Changes, for a
brief overview of the tax law changes that are effective in 1997. Some items will be
discussed in more detail in separate topics. Remember, this information is effective for
your current 1997 return. For more detailed information, refer to Publication
553, Highlights of 1997 Tax Changes.
Has the exclusion from income of up to $5,250 of
employer-provided educational assistance under a qualified plan been extended?
Yes. It now applies to benefits you receive for courses that begin before June 1, 2000.
However, the exclusion does not apply to graduate-level courses that begin after June 30,
1996. For more information, get Publication 508, Educational
What can I do to avoid any errors on my tax return in order to
receive my refund as quickly as possible?
Refer to Tax Topic 303, Checklist of Common Errors When
Preparing Your Tax Return, to assist you in double checking your arithmetic and your
entire return to help eliminate any delays in receiving your refund.
If I won't be able to finish my return by April 15, can I get
Yes. You can get an extension by filing Form 4868, Application
for Automatic Extension of Time to File U.S. Individual Income Tax Return, by April
15. By filing the extension, you avoid the late filing penalty. However, Form 4868 does
not extend the time to pay your income tax. For more details, refer to Tax
Topic 304, Extensions of Time to File Your Tax Return.
Special rules apply to U.S. citizens and residents who are not in the United States on
April 15. For more information, refer to Publication 54, Tax
Guide for U.S. Citizens and Resident Aliens Abroad.
I will be vacationing overseas on April 15. Since I will be
out of the country, do I qualify for the automatic 2-month extension?
You are allowed an automatic 2-month extension (until June 15, if you use a calendar
year) to file your return and pay any federal income tax that is due if you are a U.S.
Citizen or resident and on the regular due date (April 15, if you use a calendar year):
- You are living outside of the United States and Puerto Rico, and your main place of
business or post of duty is outside the United States and Puerto Rico, or
- You are in the military or naval service on duty outside the United States and Puerto
How long do I need to keep certain records?
Records such as receipts, canceled checks, and other documents that prove an item of
income or a deduction appearing on your return should be kept until the period of
limitations expires for that return. Usually this is 3 years from the date the return was
due or filed, or 2 years from the date the tax was paid, whichever is later. There is no
period of limitations when a return is false or fraudulent or when no return is filed. You
should keep some records indefinitely, such as property records, since you may need them
to prove the gain or loss if the property is sold. For more details, refer to Publication 552, Recordkeeping for Individuals.
If you are an employer, you must keep all your employment tax records for at least 4
years after the tax is due or paid, whichever is later. For additional information, refer
to Tax Topic 305, Recordkeeping. People in business often
have expenses for travel, entertainment, and gifts. The documentation you should keep for
each of these expenses can be found in Publication 463, Travel,
Entertainment, Gift, and Car Expenses.
I was a student in 1996 and had no income. In 1997, I started
working and did not have enough tax withheld. Will I owe a penalty because I did not make
estimated tax payments?
You will not have to pay a penalty for 1997 if you did not owe tax for 1996. For
additional information on the penalty for underpayment of estimated tax, refer to Tax Topic 306. For information on how to increase the amount of tax
withheld by your employer, refer to Tax Topic 753, Form W-4, Employee's Withholding Allowance Certificate. For
information on estimated tax requirements, refer to Tax Topic 355
or Publication 505, Tax Withholding and Estimated Tax.
I recently opened up a new account at the bank, and they asked
me to complete a Form W-9. Is this necessary?
Your investment income is generally not subject to regular withholding, however, it may
be subject to backup withholding to ensure that income tax is collected on this income.
Under backup withholding, when you open up a new account you must certify under
penalties of perjury that your social security number is correct and that you are not
subject to backup withholding. Form W-9, Request for Taxpayer Identification Number and
Certification, is used to make this certification. If you fail to make this
certification on Form W-9, or similar statement, backup withholding may begin immediately
on your new account, and 31% of the interest paid on your account will be withheld. For
additional information on who is subject to backup withholding, refer to Tax Topic 307.
I have already filed my return and now I have received another
Form W-2. What can I do?
If you find that you did not report some income, you claimed deductions or credits you
should not have claimed, you failed to claim some deductions or credits you are entitled
to, or you should have used a different filing status, you should file an amended return.
The form you use to correct the Form 1040, 1040A, or 1040EZ you already have filed is Form 1040X, Amended U.S. Individual Income Tax Return. Refer
to Tax Topic 308, Amended Returns, for additional
For additional information on when, where, and how to file, refer to Tax Topic 301.
Who should I call to report someone who is not filing tax
If you believe someone is violating federal tax laws, you should contact the IRS at
1-800-829-1040 for the Criminal Investigation Hotline in your area. If you prefer, you may
provide your information in writing to your local IRS office, or the Criminal
Investigation Branch at the service center where you file your return. Refer to your tax
package for the address of your service center. Although you are not required to identify
yourself, it is helpful to do so. Your identity will be kept confidential. You may also be
entitled to a reward. For additional information, refer to Tax Topic
309, Tax Fraud - How to Report.
What is the difference between Form 8821 and Form 2848?
Form 8821, Tax Information Authorization, is used to
authorize someone to receive confidential tax information. Form 8821 cannot be used to
name an individual to represent you before the IRS. Form 2848, Power
of Attorney and Declaration of Representative, is used to authorize the individual or
individuals named to receive confidential tax information and to represent you before the
IRS. For additional information, refer to Tax Topic 310, Power
of Attorney Information.
Does a power of attorney stay in effect for more than one
When you complete the Form 2848, Power of Attorney and Declaration of Representative,
you must show the type of tax, the tax form number, and the year or period(s) for which
the power is granted. You can list returns for any number of specified years or periods
that have already ended and returns for years or periods that will end no later than three
years from the date the form is signed. A general reference to "all years,"
"all periods," or "all taxes" is not acceptable. The Form 2848 will be
returned to you for correction if you use such general references. For additional
information, refer to Tax Topic 310, Power of Attorney
I forgot to mail my Form W-2, schedules or forms with my tax
return. What should I do?
Wait until the Internal Revenue Service requests the Form W- 2, schedules or forms. The
request will be made in writing within six weeks from the date you mailed the return.
I just received my tax package in the mail. Why are there so
many forms and schedules in it?
We print several packages that include different forms and schedules that may be filed
with Form 1040. We mail you the package that includes the items
you may need based on what you filed last year. We use packages instead of mailing forms
and schedules separately as a cost-saving measure for us and a convenience for you.
Do I have to file all the forms and schedules that are in my
No. Complete and attach to your return only the forms and schedules you need to report
your income, deductions, and credits.
I'm concerned about the public debt. Can I make a payment to
Yes. If you wish to do so, enclose a separate check with your income tax return. Make
it payable to "Bureau of the Public Debt." You can also send the check
separately to: Bureau of the Public Debt, Department G, Washington, DC 20239-0601. You may
be able to deduct this contribution on your next tax return if you itemize your
deductions. Do not add your contribution to any tax you may owe. If you owe tax, make a
separate check for that amount payable to "Internal Revenue Service."
How do I obtain copies of Revenue Rulings, Revenue Procedures,
and Internal Revenue Bulletins?
Contact the following:
Superintendent of Documents
U.S. Government Printing Office
P.O. Box 371954
Pittsburgh, PA 15250-7954
By voice: 202-512-1800
By modem (the Federal Bulletin Board): 202-512-1387
You can locate most recent Internal Revenue Bulletin Highlights by visiting the Uncle
Fed's IRS Bulletins, and then print or
download the Rulings and Procedures you need..
How would I obtain a private letter ruling?
If you are under examination, your request for a letter ruling should be submitted
under section 4.02 of Revenue Procedure 97-1 (including the applicable user fee) to the
examining or appeals officer. The examining officer must then forward the request to
If you are not under examination, submit the letter ruling request (with applicable
user fee) to:
Associate Chief Counsel (Domestic)
Internal Revenue Service
Attn: CC: DOM: CORP: T
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044
See Revenue Procedure 97-1.
I had a large amount of income this year compared to last
year. Can I average the two years together?
Income averaging is no longer available. It was repealed by the Tax Reform Act of 1986.
For IRS purposes, how do I classify a limited liability
corporation? Is it a corporation or a partnership?
A limited liability company (LLC) is an entity formed under state law by filing
articles of organization as an LLC. Unlike a partnership, none of the members of an LLC
are personally liable for its debts. An LLC may be classified for Federal income tax
purposes either as a partnership or a corporation. It is classified as a partnership if it
has no more than two of the following corporate characteristics:
- Centralization of management
- Continuity of life
- Free transferability of interests
- Limited liability
For more information about partnerships, see Publication 541, Tax
Information on Partnerships.
What are the limits for 1997 for a 401K plan? What are the
limits for 1997 for other types of pension plans?
Section 415 of the Internal Revenue Code provides for dollar limitations on benefits
and contributions under qualified retirement plans. It also requires that the Commissioner
annually adjust these limits for cost-of-living increases. Effective January 1, 1997, the
limitation on the annual benefit under a defined benefit plan under section 415(b)(1)(A)
is increased from $120,000 to $125,000. For participants who separated from service before
January 1, 1997, the limitation for defined benefit plans under section 415(b)(1)(B) is
computed by multiplying the participant's compensation limitation, as adjusted through
1996, by 1.0294. The limitation for defined contribution plans under section 415(c)(1)(A)
remains unchanged at $30,000.
Administrators of defined benefit or defined contribution plans that have received
favorable determination letters should not request new determination letters solely
because of yearly amendments to adjust maximum limitations in the plans.
What is a Pure Trust?
The family estate trust, also known as the pure trust, involves the transfer of an
individual's personal, investment, and business assets, and the assignment of the
individual's lifetime services, to the trust. The Service has ruled in Revenue Ruling
75-257, and the Tax Court and other courts have held, that the income from these trusts is
taxable to the transferor under assignment of income principles, for salary and other
compensation paid to the trust attributable to the services of the transferor, and the
revocable trust rules, if the transferor has the power to revoke the trust, including the
right to terminate the trust pursuant to his role as trustee or majority interest holder
in the trust.
The grantors may also be taxed on the income from a family trust because of their power
to distribute income to themselves or their dependents without consent of an adverse
party. Negligence penalties are imposed on taxpayers who attempt to avoid tax through the
use of a family estate trust.
See Rev. Rul. 75-257, 1975-2 CB 251; Vercia v Commr, 73 TC 1246(1980); Pfluger v Commr,
840 F2d 1379 (7th Cir 1988); IRC 677; Fergen v Commr, TC Memo 1984-23
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