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Archive-name: taxes-faq/part1 Posting-Frequency: monthly Last-modified: 1996/1/14 Misc.taxes Frequently Asked Questions (FAQ) General (part 1 of 1) Maintainer: firstname.lastname@example.org (Wayne Ross) Copies of this FAQ as well as those for other newsgroups may be obtained by anonymous ftp from rtfm.mit.edu. For the misc.taxes faq look under /pub/usenet/news.answers/taxes-faq (this is part1). Or, send email to email@example.com with send usenet/news.answers/taxes-faq/part1 in the body of the message, leaving the subject line empty. Contents: Misc.taxes newsgroup (group charter, history, mailing list and archive site(s)). Misc.taxes.moderated newsgroup (charter) Other FAQs of interest Abbreviations used in misc.taxes Internet tax resources IRS publications Basis Estate taxes Gift taxes Information returns Misc.taxes newsgroup ~~~~~~~~~~~~~~~~~~~~~~~~ The unmoderated misc.taxes (m.t.) newsgroup is one of the principal Usenet groups which deals with taxes (mostly US Federal). The original charter was tax laws and advice. In the recent past the group's content has expanded from questions and answers to tax questions, to include discussions of proposed tax schemes, (flat tax, value added tax, etc.) and tax protest issues. The volume of protest, advertising and other postings to misc.taxes had in the minds of some so cluttered the newsgroup, that in December 1995 a second newsgroup, misc.taxes.moderated (m.t.m.) was voted upon and created to focus more narrowly (see below). The efficacy of the moderated group remains to be seen. For a number of years, Sam Houston State University has provided digests of the misc.taxes and gatewayed these digests into the FedTax-L mail-oriented discussion list. The following is noted at that site: "FedTax-L is a mail-oriented discussion list supported by Sam Houston State University of Huntsville, Texas, to provide a generally unmoderated environment for the discussion of federal taxation issues from both a practical and academic viewpoint. The discussions are intended to include latest trends, regulatory actions, and, of course, a lively exchange of ideas and concerns." "The list is mirrored to and from the USENET newsgroup misc.taxes so that any discussion appearing on that media is forwarded to subscribers of FedTax-L and all posts appearing on FedTax-L are forwarded to all network news sites carrying misc.taxes." "To subscribe to FedTax-L, include the text: SUBSCRIBE FedTax-L "Your Real Name in Quotes" in the body of a mail message to LISTSERV@SHSU.BITNET (LISTSERV@SHSU.edu)." NOTE: Whether this service will be expanded to include misc.tax.moderated is unknown! Sam Houston State indirectly archives(ed) the unmoderated group as a by-product of maintaining the FedTAX-L mailing list see: gopher://niord.shsu.edu:70/1 (try the 4th item on main menu, then the 8th) An archive of the last month's postings of m.t. was also maintained by kentlaw.edu see: http://www.kentlaw.edu/lawnet/lawlinks.html (select tax matters on the forms menu) Misc.taxes.moderated newsgroup ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ The charter for misc.taxes.moderated follows: Misc.taxes.moderated is for the discussion of taxes, including, but not limited to, proposed and existing tax laws, regulations and procedures, among professional tax practitioners and other interested persons, and for answering queries concerning taxes. This newsgroup is intended to provide a home for well-tempered discussions, including, but not limited to, the following subjects: 1. Current developments in tax law including but not limited to, court decisions, legislative enactments, and executive actions with tax implications, and proposed laws and actions. 2. The content and effects of existing tax laws, and rulings of courts at all levels. 3. Professional ethics and professional discipline of tax professionals. 4. Problems encountered by tax practitioners that may be of interest to the tax community. 5. First-person anecdotes and commentary by non-practitioners concerning encounters they have had with tax practitioners, the IRS, the courts or other entities which administer taxes. 6. Queries (including those from non-practitioners) concerning the content of the tax law, and replies to those posts, so long as the context of the exchange makes it clear that **specific legal tax advice is not being provided**. Responses will be posted in the newsgroup and not sent by E-mail, so that the response can benefit from peer review by others in the group. 7. Tax humor (There is such a thing). Other Usenet FAQs of interest ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ "kill files" are becoming a survival necessity on Usenet; from rtfm.mit.edu above try: ftp: rtfm.mit.edu/pub/usenet/news.answers/killfile-faq Parts of the misc.invest FAQ contain tax information as well as investment information try ftp: rtfm.mit.edu/pub/usenet/news.answers/investment-faq/general/ part4, part5, part6 and part7 Part 4 discusses 401(k) plans, IRA's and SEPS; part 5 dividends and 'shorting against the box', part 7 short and long term gains, wash sales and the Uniform Gift to Minors Act (UGMA). Abbreviations used in misc.taxes ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Some posters sign their articles with titles: CA Chartered Accountants, used principally in the UK and present/former Commonwealth countries to indicate accountants licensed and regulated by the country or province to provide advice on accounting and tax matters to the public. CFP Chartered Financial Planners, a US designation for those who have been licensed by their state to provide financial advice to the public. Areas of advice include investments, insurance, taxation, etc. CPA Certified Public Accountant, US equivalent of CA. These individuals like those preceding are licensed and regulated by the states, are required to pass a written proficiency examination, satisfy a one or two year experience requirement and hold a college level degree. EA Enrolled Agent, a US designation for persons enrolled by the Internal Revenue Service (a US Federal government agency) to provide federal tax advice and services to the public. These individuals are required to pass a written proficiency examination and conform to the IRS rules of practice. Other common abbreviations are: IRC or code (The US Internal Revenue Code, the law or statutes passed by congress, usually in the form IRC 61). Reg or regs (The regulations interpreting the code published by the US Treasury and/or Internal Revenue Service, usually in the form Reg 1.61(a)(1)). Rev Rule (Internal Revenue Rulings further interpreting the regs or code, usually in the form 95-67). Rev Proc (Internal Revenue Procedures IRS administrative procedures about a specific subject or area, usually in the form Rev Proc 95-3). IRM (Internal Revenue Manual, the IRS employees manual setting out how agents and others are to perform audits and examinations, assess penalties, etc. Most of the manual is available to the public, however, some sections are for internal use only). Pub (IRS publications intended to assist taxpayers in complying with specific sections of the IRC or in handling certain type of transactions, usually in the form Pub 510). Internet Tax Resources ~~~~~~~~~~~~~~~~~~~~~~ Internet tax resources are extensive and change almost daily. There is a significant state and federal government presence and the emphasis to date seems to be on laws, regulations, tax forms, etc. Publically accessible commentary, and explanations by other than the tax authorities is limited. As more accounting and legal firms establish home pages the amount of commentary should increase. The IRS home page below provides a great deal of US Federal tax information: http://www.ustreas.gov/treasury/bureaus/irs/irs.html Included are: a FAQ, toll free and local numbers to contact the IRS for information, downloadable tax forms, instructions and publications, key word search of the document data base, and downloadable tax forms in various formats. These form files are large and may require lengthy connect time. The Adobe Acrobat executables (very large) is also available for download. Last year Compuserve also made available the forms and Acrobat reader for download. Other on-line services may also provide this material. One of the most comprehensive non-governmental listing of tax information (mostly US) is maintained by Frank McNeil. Frank's listings are available at: http://www.best.com/~ftmexpat/html/taxsites.html. Barry Rubin also maintains an extensive linked listing of tax resources (including state tax pages) on his homepage. http://www.netpoint.net/~br/ Note: The tilde ~ is required. Many http servers use the tilde to specify certain site specific file paths. In 1994, several firms offered electronic filing via the Internet and there have been some newspaper articles on the possibility of the IRS offering direct electronic filing (bypassing third parties), via the FedWorld BBS which is reachable using telnet. IRS Publications ~~~~~~~~~~~~~~~~ The IRS produces a vast number of publications. These range from the comprehensive "Your Federal Income Tax" to specific topics like "Accounting Periods and Methods". IRS Publication 910 (available via IRS homepage) lists many of these publications, and provides a topical index to the publications. You may also be able to find copies of many of the publications at your public library. The advantage of these publications are that they are free and authoritative, and if followed are seldom disputed by the IRS. The disadvantage is that they reflect the IRS position which may not always be the most taxpayer favorable or reflect adverse court decisions. -o- DISCLAIMER: The following is for general information only. It is not intended to be tax advice, and should NOT be relied upon. Please contact your tax advisor for specific questions. -o- Basis ^^^^^ Basis is the dollar amount attributed by the tax rules to some item of property. Although similar to cost or carrying value in its usage, it is mainly a tax creation. Most often one sees basis used in connection with some other words, i.e. adjusted basis, depreciable basis, gain or loss basis, substituted basis, etc. Usually a gain on the sale of property is the difference between the proceeds of the sale, and the seller's basis in the property sold. The determination of basis can vary depending upon the character of the property, from whom and under what circumstances it was obtained, etc. You should refer to the tax publications above or consult your tax advisor for specific questions. Estate taxes ^^^^^^^^^^^^ Property in an estate may be taxable, if the estate is large enough to be subject to estate taxes. Estate taxes, however, are levied against the estate not the beneficiaries of the estate. Of course, if you are the only beneficiary then you will in effect pay the estate tax. Remember an estate tax is based upon the value of estate assets, not the income which may later flow from the assets. Income from an estate asset which was distributed to you will or will not be taxed, based upon the character of that income. For example, if an estate included municipal bonds (exempt as to income), the estate would pay an estate tax on the value of the bonds, but the interest you receive after the bonds are distributed to you will not be taxable. In the above example, since the value of the interest accrued, and not yet paid on the bonds is an estate asset, that accrued interest is part of the value of the bond and is taxed to the estate. Gift taxes ^^^^^^^^^^ A gift for tax purposes means the transfer of property without adequate and full consideration. If you received 'some item' in exchange for your car or your services to 'some person', it wasn't a gift. For simplicity let's assume you received shares of stock from your mother on your birthday. First, your mother must determine the value of the stock on the date of gift. If the value is $10,000 or less there is no gift tax, because there is an annual exclusion of $10,000 per donee (recipient). Keep in mind, that if your mother also gave you $5,000 in cash then the total gifts within the year exceeds the $10,000 exclusion. If the value of the gift(s) exceed $10,000 there still may be no gift tax, if your father and mother elect so-called "gift-splitting". In gift-splitting one-half of the gift(s) is deemed to be given by each spouse. If the value of the gift(s) is more than $10,000 a gift tax return must be filed by the donor (giver) by April 15th of the year following the year of the gift, and a gift tax may be payable by the donor, NOT the donee. Note: A short Form 709 is required for split gifts over $10,000 even if no tax is due. Estate and gift taxes are unified excise taxes on the transfer of property, and there is a $600,000 lifetime credit per transferor for the total of both, which could reduce any gift tax due. We are getting into deeper water now, and you should consult a professional for further information. Information returns (1099 & K-1's) ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ You are required to report income whether or not you receive a 1099. Although information returns may make preparing your return easier that is NOT their primary purpose. The purpose of information returns (Forms 1099, etc.) is to help the IRS collect taxes due. You are responsible for reporting the correct income amount on your return regardless of the amount reported on Forms 1099. The IRS matches the income you report with that shown on the 1099's it receives. If an erroneous 1099 is received, you should first contact the payor and request them to send you, and the IRS a corrected information return. If the payor does not comply with your request and the amount is significant, you might send the payor a certified letter setting out the error and attaching copies of any supporting information. The purpose of the letter is to get the payor to issue a corrected information return, and to have written proof for the IRS that you tried to set the matter right. Retain a copy of your letter, so that if, and when challenged by the IRS, you can demonstrate your good faith attempt to correct the situation. You may wish to file a copy of the letter with your return as well, although the computer matching system seems to ignore some return attachments. Forms K-1 are specialized information type returns filed by so-called pass through tax entities, i.e. (partnerships, trusts, some estates, and small business corporations). Like a 1099 their purpose is to show the amount of income, deductions, etc. attributable to, and reportable by individuals with an interest in the issuing entity. K-1's are lengthy forms which show information by type, and indicate where on your 1040 each item is to be reported. Some K-1 deductions and credits may not apply to you, if for example you do not itemize your deductions. You should read the applicable instructions, contact the issuer or your tax advisor for specific questions.