Locality Training 2003 Virginia Department of Taxation Agenda • Introductions 9:30 – 9:40 Howard Overbey • Filing Season 2003 9:40 –10:10 Gerald Gwaltney • Legislation & Forms Changes 10:10 - 11:10 Lee Mikelson • Processing Updates 11:10 – 11:45 Howard Overbey • Bank Franchise 11:45 – 12:15 Mike Fojtik • Lunch 12:15 – 1:15 • IRMS 1:15 – 1:45 Gerald Gwaltney • 760PY Return Preparation 1:45 – 2:30 Steve Mason • 763 Return Preparation 2:30 – 3:15 Percy Everson • Break 3:15 – 3:30 • Penalty & Interest 3:30 - 4:00 Lee & Percy • Panel Discussion 4:00 – 4:30 Howard Overbey Filing Season 2003 Another home run! Overview of Filing Season 2003 • Electronic filing growth continues! • Refunds issued fast, faster, fastest…. • Error rate continues downward trend! Thank you! Working together, we made filing season 2003 the best ever! Returns Processed As of November 5, 2003 Refund Turnaround Current Year Refunds, All Tax Types As of November 5, 2003 Refund Turnaround – Current Year Local Filed Paper Returns All Tax Types As of November 5, 2003 Refund Turnaround – Current Year All Tax Types & All Channels Local & Direct Refund Information As of November 5, 2003 Error Rates As of November 5st Rate Inventory Filing Season 2001 22.36% 238,099 Filing Season 2002 10.76% 37,848 Filing Season 2003 10.13% 33,509 Individual Error Rates Electronic vs Paper Filed Returns All Years & All Types • Electronic Returns 4.21% • Paper Filed Returns 12.89% • Overall Error Rate 10.13% As of November 5, 2003 Most Common Errors • Estimated, Extension & Other Payments – amounts claimed do not equal TAX Records • Penalty, Interest, and Addition to Tax errors (see above – related issues) • Tax Roll Problems – Name and SSNs do not match tax roll • Deductions and Subtractions errors Goals for 2004 • Issue Refunds – fast, faster, fastest ever! – Monitor workflow and receipt dates – Monitor Error inventory and focus on resolving refund returns with errors in a timely fashion • Increase Electronic Filing – Actively promote electronic filing via tax professional conferences and seminars – Expand returns eligible for electronic filing e.g. ifile will be able to accept returns with political contribution credits for taxable year 2003 returns • Continue to reduce errors – Continue to seek methods to resolve errors systematically – Continue to work with commercial tax preparation software developers to minimize errors Goals for 2004 • Improve speed of deposits – Continue to develop knowledge and experience working with new remittance system – Improve system reporting • Expand use of imaging technology – Implement TACS 2003 (Image based return processing) by 1/1/04 (wasn’t ready last year until 1/30/03) – “Backscan” for archive more returns processed via manual data entry • Support IRMS implementation – Prepare Channel processing procedures – Locate and resolve processing issues – Assist with preparation of training materials – Update forms and instructions – Set-up “print-on-demand” forms – Assist with conversion from STARS to IRMS Any questions about the numbers? Legislative & Form Changes Taxable Year 2003 Virginia Individual Income Tax Form Type - Filing Statistics Breakdown by Form Type • The 2002 760CG (paper CG + ELF) 71.62% • The 2002 760 Handprint (booklets & flats) 20.95% • In-house Electronic (Ifile & Telefile) 7.43% TY2002 Filing Statistics - as of July 9, 2003 Legislative Changes for TY2003 Individual Returns Fixed Date Conformity • 2003 Virginia General Assembly rolled date of conformity forward to 12/31/02 with 2 exceptions – Special Bonus Depreciation – must adjust Virginia return – Net Operating Loss – 2 years for Virginia • Impact of 2003 Federal Jobs and Growth Tax Relief Reconciliation Act – Prior to JGTRRA, the annual limitation for the §179 deduction for 2003 was $25,000 and the phase-out threshold began at $200,000. – For 2003, JGTRRA increased the annual limitation to $100,000 and increased the phase-out threshold to $400,000. – Therefore, each taxpayer claiming a §179 expense deduction in which (1) the deduction was in excess of $25,000 and/or (2) property placed in service for the taxable year was in excess of $200,000, must make an adjustment on his or her Virginia return. Legislative Changes for TY2003 Individual Returns Contributions • 3 New Contributions: – Home Energy Assistance Fund (Refund & Tax Dues) – 8 new School Foundations (Refunds & Tax Dues) – War Memorial and D-Day Memorial Foundation (Refunds & Tax Dues) • Historic Resources Fund - Contribution was scheduled to expire but sunset date was extended. Remains in effect as valid “refund only” contribution. Legislative Changes for TY2003 Individual Returns Subtractions • 3 New Subtractions – Peanut Quota Buyout Program - payments received in accordance with the Farm Security and Rural Investment Act of 2002.Retroactive to 2002. Use Code 47. – Avian Influenza - indemnification payments received by qualified poultry growers and table egg producers as a result of depopulation of poultry flocks because of avian influenza in 2002. Indemnification payments made to owners of poultry who contract with poultry growers do not qualify for the subtraction. Retroactive to TY2002. Use Code 45. – Military Death Gratuity – subtraction for military death gratuity payments made after September 11, 2001, to survivors of deceased military personnel killed in the line of duty to the extent included in federal adjusted gross income. Retroactive to TY2001. Use Code 46. • Foreign Source Income Subtraction Repealed. Legislative Changes for TY2003 Individual Returns Credits • Neighborhood Assistance Program Credit - eligible health care professions expanded to include professional counselors, clinical social workers, clinical psychologists, marriage and family therapists, and physical therapists. Pre-approval required. • Credit for Employers of the Disabled - Credit expired at end of taxable year 2002. No new credits will be authorized. However, taxpayers have up to 2 years left to claim eligible carry-over amounts. Legislative Changes for TY2003 Individual Returns Other • Refund Interest - Changes the start date for calculating interest due on refunds. For returns filed electronically, interest will be paid if refund not issued by 30th day following day of receipt and, for paper returns, if refund not issued by 60th day following day of receipt. Applies to current year individual income tax returns only. For prior year returns (late) filed in 2004, interest will be paid beginning on the 60th day following filing date. – For filing season 2003, VA TAX issued: • 99% of electronically filed refunds in 12 days or less • 87% of paper filed refunds in 12 days or less • Criminal Penalties - any individual who makes a fraudulent return or statement with intent to evade the payment of taxes shall be guilty of a Class 6 felony (increased from Class 1 misdemeanor). Form Changes for TY2003 The 760CG A New Schedule - the Schedule OSC • To be used for reporting Multiple Credit for Taxes Paid to Another State • Schedule will allow for detail for credits to be claimed for 4 states on one page • 2 Additional line items for each credit - filing status claimed on other state return and indicator for taxpayer claiming credit when filing status different (e.g. joint in VA but married filing separately in other state) • Taxpayers with one credit will use ADJ - taxpayers with multiple credits will use Schedule OSC Form Changes for TY2003 The 760CG Reasons for New Schedule OSC – Inconsistency among software developers when reporting detail for multiple credits as there has been no standard methodology established by Virginia – With no standard reporting method, unable to capture data efficiently either manually or using automated processing technology – At present and continuing with TY2003, VA TAX will not capture credit for taxes paid to another state – program will continue to be manually audited – Beginning with taxable year 2004, VA TAX will capture credit detail and begin implementing automated audit/review programs Form Changes for TY2003 The 760CG Other Changes • 760CG Page 1 - Line 10 Deductions. Order has been changed in response to requests from Tax Professionals - will now flow as 10a Federal Itemized, 10b State/Local Income Tax, and then 10 Deductions • 760CG Page 1 - Line 23 Other Credits. New Political Contribution Credit Indicator • 760CG Page 2 - Telephone Numbers. Moved to above Schedule ADJ/CG Part 1 for technical reasons Form Changes for TY2003 The 760CG • Schedule ADJ - one code box for School Foundation Contributions eliminated (25e) • Schedule FED - Full name and address added to schedule and indicators to reflect if information in lines 1 - 10 is from the Federal Schedule C or the Federal Schedule F. (For the Schedule FED download program, we will also provide the taxable year.) • Schedule INC - added VA Account Number and a taxpayer indicator • Schedule INC - added to 2D barcode with space allotted for 10 wage statements Form Changes for TY2003 The 760CG • Schedule CR, Page 2 - Line item reference errors for Foreign Source Retirement Income corrected • Schedule CR, Page 4 - Credit for Employers of Disabled Individuals has expired - form will reflect that no new credits may be claimed and allow only for carryover credits to be claimed for TY2003 • Schedule CR, Page 4 - Line items for Land Preservation Credit expanded and text changed to allow for easy reconciliation of transferred credit amounts Form Changes for TY2003 The TY2003 760 Resident Return Handprint Changes • Whole Dollar amounts only – Note: with Virginia requiring whole dollar rounding on its 2003 returns, 26 out of 42 states that have individual income taxes will now be requiring whole dollar rounding. – For taxable year 1998, only 13 states required whole dollar rounding – the number has doubled in 5 years. • Minor Adjustments to Schedule ADJ, contribution area • New Schedule OSC • Schedule CR wording for expired Credit for Employers of Disabled Individuals • Schedule CR line items updated for Land Preservation Credit Form Changes for TY2003 The TY2003 760PY Part-Year Resident Return • Whole Dollars Only • Check Boxes Added upper left-hand corner: – Amended Return – Net Operating Loss – Fixed Date Conformity • General Clean-Up – Spacing, Fonts, and Boxes – Preparer’s Firm Name added – Consistent wording Form Changes for TY2003 The TY2003 763 Nonresident Return • Whole Dollars Only • New Lines 19a & 19b – Withholding amounts for married taxpayers must now be separately recorded – extra line causes all line items to shift i.e., Lines 19a – 19g now are now Lines 19a – 19h • Check Boxes Added upper left-hand corner: – Amended Return – Net Operating Loss – Fixed Date Conformity – Name and address different than shown on 2002 return • General Clean-Up – Spacing, Fonts, and Boxes – Consistent wording Form Changes for TY2003 The TY2003 Schedule NPY • Schedule Renamed – Now - “Schedule of Adjustments for Nonresident or Part-Year Resident” – Was - “Schedule for Computing the Age Deduction; Credit for Tax Paid to Another State; Addition to Tax, Penalty and Interest; Contributions and Consumer’s Use Tax” • Whole Dollars Only • General Clean-Up – Spacing, Fonts, and Boxes – Consistent wording Form Changes for TY2003 Other Form Changes • 760E (Extension Return / Voucher) – Form redesigned; it is the same form but it has a new, fresh look! – Whole Dollar amounts only – Special 760E / CG version • 770 – General Clean-up Form Changes for TY2003 The 760CG Return Package, Substitute Form Specifications, other Forms, and Instructions can be viewed at: www.tax.state.va.us Just click onto the tax professional page and enter password “VA_Tax” The Hotline number is 1-804-367-9286 e-file! Our Electronic Forms What is E-file? • E-file is a joint federal and state program that allows tax professionals and taxpayers to submit both federal and state returns to the IRS electronically using commercial tax preparation software (also referred to as ELF or JELF). • VA TAX receives the returns by accessing a secure IRS site and downloading the Virginia returns daily • For each e-filed return, Virginia either accepts or rejects the return and then sends an acknowledgement to the tax professional – so the filer knows within 2 to 3 days if Virginia has accepted or rejected the return! (And, if we reject the return, we provide the filer with a reason code so the filer can fix the return and and resubmit!) • E-filed returns have a 4.7% error rate compared to a 10.41% error rate for paper returns. And, the errors for e-filed returns are usually simple errors that can be quickly resolved without any taxpayer contact! • Refunds are issued fast – no mail delays, no manual processing at TAX to capture the return information – the return is transferred right from the preparer’s computer into ours! Individual Income Tax What can be filed using e-file? • 760 Returns w/o credits from the Schedule CR or the Credit for Taxes Paid to Another State – Exception: may file using e-file if only credit claimed from the Schedule CR is the Political Contribution Credit • 760PY returns w/o credits from the Schedule CR or the Credit for Taxes Paid to Another State • 763 returns w/o credits from the Schedule CR or the Credit for Taxes Paid to Another State Virginia now accepts “state only” returns – however, not all software supports this functionality. Advise tax professionals to check with their software developer. Individual Income Tax What cannot be filed using e-file • Amended Returns • Prior Year Returns – use ifile • Fiduciary Returns • Extension Requests – use ifile • Returns with certain other subtractions that require documentation • Returns with Federal Forms 4852, Substitute W2s • Returns for deceased taxpayers – including joint returns with one deceased taxpayer • Fiscal Year Returns • Returns with Schedule CR credits claimed (except for 760s when the only Schedule CR credit claimed is the Political Contribution Credit) • Returns with Credit for Taxes Paid for Another State If your Locality is using Tax Preparation Software: • Always ensure you are using the latest version of your software • Your Locality name should be printed on page 2 of the 760CG, bottom left hand corner – we need to know if your Locality prepared the return! • Send us original returns, single sided – not copies • If using software with 2D Barcode capability, do not change information on the return after you print – ALWAYS make the changes in your software and reprint • Report problems with your software to your software company – if you cannot resolve the issues with your software developer, let us know – contact Lee Mikelson at Lmikelson@tax.state.va.us • Other questions or issues, use the Tax Preparer hotline 1-804-367-9286 or send us a secure email via www.tax.state.va.us Return Processing Making it even easier than last year!! Return Processing • General Theme - use the PP3! • What’s New in PP3? – Refund Interest (House Bill 39) – Simpler Screening – Reporting Incorrectly Keyed on-line Direct Deposits • Return Screening Concept – Separate, distinct list of screening codes for each return type • Take a return - match it to the appropriate list! – PP3 has been organized to make this easy! • Screening codes you physically apply - Refer to PP3 Exhibit 8-14 (8-E14-1 for the forms, 8-E-14-2 for the CR) • List of ALL screening codes that show up on STARS, either manually applied or system applied! (RP1) - Refer to PP3 Exhibit 8-24. Updated Screening Sheet 770, 760 763, or Code Description 760CG Handprint 760PY AD Schedule ADJ Not Attached/Completed X AX W-2 Altered X X X BB Nonresident Fiduciary X BM Border State Method used to compute Out-Of State Credit X CC Local Filed Prior Year Return with Payment Processed by Locality X X X CO Coalfield Employment Enhancement Tax Credit . X X CX Form 760 C/F Attached – Not Liable X X DD Nonresident Allocation Percentage Schedule Not Attached/Completed X EE Withholding claimed exceeds amount on W-2’s by $5 or more X X X FC Federal Schedule C oval filled X FD Fixed Date Conformity Additions/Subtractions X X FF Dependent on Another’s Return X X FJ Self employed Farming, Fisherman, Merchant Seaman X X Fed Form 1040 Not Attached to Form 763/760PY or Fed Form 1041 Not FX X Attached to Form 770 GX Secondary Filer Deceased X X HH Head of Household X X HX Primary Filer Deceased X X Low-Income Families Tax Credit – CLI Section of Schedule ADJ Not IC X X Attached/Completed II Schedule of Income and Adjustments (Part 1) on 760PY Incomplete X IX Farmer/Fishermen filed by March 1 X X New Screening Code for 2004 • Apply manually to Handprint Current Year Forms and 760CG – Write “OS” – if the schedule OSC is attached – Should be pre-printed on the CG (note – may not be supported by all software brands for ty2003 – but will be mandatory for ty2004) – Screening code will not be transferred to STARS – when the code is keyed during data capture, it will cause a special data capture keying template to be display for the data entry operator Wow – only one new screening code!!!! Farmer, Fisherman, or Merchant Seaman • Batch Farmer, Fisherman, & Merchant Seaman separately and sort by postmark date i.e., on or before and after March 1st!!!! – See LPR 4.0, page 1 – 760CG returns may have a pre-printed “FJ” code. This code is to prompt you to screen for Farmer, Fisherman, & Merchant Seaman – cross through the FJ code and write in the IX or UX code, as applicable – If postmarked on or before March 1, write screening code IX on return – If postmarked after March 1, write screening code UX on return – Bundle these returns separately and label as Farmer, Fisherman, & Merchant Seaman returns to assist TAX in processing correctly This is CRITICAL – Be on the look-out for these returns LAP-Sorts • LAP-Sorts 1 & 2 Exhibit 8-2 • Local Tax Due Group Control Document (Yellow) Exhibit 8-17 • Local Denied Group Control Document (Pink) Exhibit 8-21 • Accepted AR (Green) Exhibit 8-3 Form LAP-SORT 1 FIPS Code ____________________ LOCAL SORT IDENTIFICATION SHEET Group like documents together. DO NOT mix document types. Form Type 760Handprint 760CG with 2D 760CG without 2D (circle one) 760PY 763 763S 770 Bottom Line Type Refund Tax Due Zero Balance (circle one) (Rev11/02) Form LAP-SORT 2 FIPS Code ____________________ LOCAL SORT IDENTIFICATION SHEET For Direct Filed Returns Direct Filed work is listed below, only for your information. Work does not have to be sorted by form, tax year or type. All Direct Filed work may be bundled together and you do not need to circle the type on this form. Secure this Form on top of the bundle of direct filed work Prior Year return Forms 760C and 760F NOT accomp anied by a return Amended return Form CU-7 NOT accompanied by a return Form 760 with certain contributions or Consumer Use Tax Form CU-7 with a return and one check for both liabilities Tax Due return with Credit Card payment claimed Form CU-7 with a refund return and no payment Fiscal Year Filer on Form 760 Form 760E Extensions NOT accompanied by a return (Rev11/02) 1 FIPS Code ____________________ Number Accepted ______________ Local AR On-line Accelerated Refund Group Control Document Group Control Number ______________________________ (from Screen E04) Form Type (circle one) 760Handprint 760CG with 2D 760CG without 2D On-line Operator Number / Date Keyed _________________ __________/__________/__________ *********************************** Return Screener Name ________________________________________ Date Screened __________/__________/__________ (REV 11/02) The Bottom of the Form • “Late date” exact positioning – For 760 Handprint forms, use the boxes located bottom middle of the form – ALWAYS write as MMDDYY – For 760CG Forms, WRITE THE LATE ON THE LINE located bottom middle of the form – ALWAYS record as MMDDYY with NO dashes or slashes!!! – CRITICAL • LAR - Accepted Accelerated Refund • DLAR - Denied Accelerated Refund • LTD – Check the LTD indicator IF YOU collected and deposited payment or if you are going to assess the taxpayer for missing payment or the difference due if partial payment was received – If you are not going to assess, send in as direct even if you’re a “local file” locality – and send any payment received with the return to TAX also! – Prevents double billing – Prevents not billing at all! Staples • Reference PP3 1-1-2 • W2’s - middle left for Handprint • Attachments - upper left • Always be careful not to damage anything inside the borders Order of Forms & Attachments • Virginia Tax Return – always place first • ADJ (or NPY for 763 or 760PY) • Schedule FED • Schedule CR • Schedule INC • Schedule OSC • Schedule 760 C or F • Forms 301, 304, 306 and/or 307 • Federal attachments • Any other attachments / correspondence Howard’s Light Bulbs • PP3 4-3-1 - 2D barcode returns - if any printed data is altered, write the word “ALTERED” directly above the 2D barcode, and draw 4 heavy black lines horizontally through the barcode: – if you do not obscure the 2D barcode, TAX’s automated system will read the return data from the barcode and fail to capture the data as altered – Do not mark through 1D barcodes • Medium point red or black pens are ok – do not use fine point pens • TD keying (E03) - If credit card payment is indicated, do NOT key the TD, pull and send to TAX as a direct filed return • “CC” code – prior year return and Locality inadvertently deposited the funds, use CC to stop TAX from billing Howard’s Light Bulbs • Shipping returns - fill out one locality shipment form per shipment • Ship to same addresses as previous years: – Department of Taxation, Channel Processing, PO Box 1336, Richmond 23218-1336 – Department of Taxation, Channel Processing, 3600 W. Broad St, Richmond 23230-4915 • “Return to Taxpayer” Letters - 8-E1-1 and 8-E1-2 • 759C Reports – due to Erma by the 10th • LPR 2.2 New Method for reporting incorrectly keyed on-line direct deposits – review the PP3 and follow the new procedures Common Screening / Procedural Mistakes • Not putting SSNs on second page • Late dates – not writing on return or not writing in correct area – please be careful!!! • Assessed vs. not assessed tax dues (if you want us to assess, return must be submitted as direct filed) • Adding an ADJ for P&I and then leaving the SSN off of the ADJ • 760PY’s - putting the numbers wrong in move in-move out date area - refer to PP3 4-4-1 (MAKE SURE YOU CONVERT THE DATES ON THE FORM TO THE CORRECT CODES) Local Estimated Concerns • Using wrong year voucher • Using FIPS code block for other information (such as “voucher #1) • Using 760ES to process a return payment • Mixing 760PMT’s, 760E’s, etc., in with 760ES’s • Submitting “zero” vouchers Local Estimated Concerns • Always use the correct voucher for the period: – The pre-printed vouchers include the “period” in the scanline – If the taxpayer’s payment is submitted with the wrong voucher, it could be applied incorrectly – even considered late – Either prepare a new voucher – or, cross through and write in the correct period – You must cross through the period shown in the scanline • The payment due dates are, for taxpayers with evenly distributed earnings, May 1, June 15, September 15, and January 15 Local Estimated Concerns • Omitting revenue source code on deposit certificate • Using the wrong revenue source code on the deposit certificate • Creating TA number incorrectly on 559’s from Deposit Certificate Local Estimated Concerns • Envelopes for late vouchers – Need one side only of the envelope – Cut to same size as voucher! – Smooth, clean edges! – However – WE PREFER THAT YOU USE LATE CARDS INSTEAD OF CUTTING ENVELOPES! NO window envelopes – use a late card!!! Bank Franchise TAX Bank Franchise Tax What is Bank Franchise Tax? Tax based on the net capital of banks and trust companies. Revenue Collected – 2002 $65 million – 2001 $60 million – 2000 $67 million 80% of Revenue Allocated to Localities When and Where Returns Are Filed • Form 64 must be filed in duplicate on or before March 1st of each year • Returns are filed with the locality in which the principal office of the bank is located • Schedules C and H are filed with each locality assessing the tax Responsibilities of Localities • Ensure each bank, which has a principal office in your locality, files a complete return on or before March 1st • Ensure that Form 64 and Schedule E are signed by an officer of the bank • Ensure that Schedule H is properly completed and the local tax is entered on line 17 of Form 64 Responsibilities of Localities • Verify the value of the real estate listed on Schedule C and verify real estate values with each locality listed on Schedule C • Execute the certificate at the bottom of the schedule • Execute the Commissioner of the Revenue’s Certificate of Assessment at the bottom of Form 64 Responsibilities of Localities Send the original of each return by March 20th to the Virginia Department of Taxation Schedule C • Real Estate Deductions Allowed – Real estate owned by the bank – Real estate used or occupied by the bank and held in the name of a majority owned subsidiary of the bank – Real estate used or occupied by the bank and held in the name of a bank holding company which owns a majority of the capital stock of the bank Schedule C – The assessed value attributable to leasehold improvements owned by the bank up to the amount of the unencumbered equity – Real estate used or occupied by a majority owned subsidiary of the bank up to that portion of the assessed value which represents the bank’s percentage of ownership of the subsidiary’s common stock Schedule H • Locality Allocation Table – Copy is filed with each locality imposing tax upon the filing bank – An adjusted copy will be mailed from the Department of Taxation if a correction is made to the return Contact Information Bank Franchise Tax Coordinator Chad Cannon Phone Number: 804-367-8031, extension 8154 E-mail: Ccannon@tax.state.va.us Mailing Address: Virginia Department of Taxation Bank Franchise Tax Post Office Box 0546 Richmond, Virginia 23218-0546 Lunch Time Introducing the New Integrated Revenue Management System A new day, and a whole new way to do business. Overview Topics • What is the Integrated Revenue Management System (IRMS)? • Implementation Timeline • Black-out Period • Training • Key Differences between STARS & IRMS – with a sneak peek! • IRMS Access What is IRMS? • IRMS will be the system of record for taxpayer demographic and financial information for TAX. • The functions now performed by your office using STARS will be performed in IRMS. Implementation Timeline • Joint Integration Test 11/07/02 - 11/28/03 • End-to-End Test 02/16/03 – 03/31/04 • Integrated User Acceptance Test 04/26/04 - 07/16/04 • Mock Production 07/12/04 – 08/06/04 • STARS Blackout 08/27/04 – 09/13/04 • Go-Live 09/14/04 STARS Blackout Period The Blackout Period • limited to view only capability in STARS • Deposits will continue to be processed during this time • Various systems will continue to process work but will hold the information until IRMS goes-live and then will upload the information over a period of time • Conversion from STARS to IRMS of taxpayer records is completed Training • Technology based training (TBT) will be delivered via the agency’s Learning Management System to the staff of CORs and Treasurers • TBT will be supported by our Performance Support System (PSS) and TARP. • PSS is an online help system and TARP is an online database of procedures! • Locality training kick-off is scheduled for around July 1st, 2004 Everything you need will be right at your desktop! Training Content Areas • Overview • Returns Processing, Payment Processing, and Assessment • Access and Security Activities – In-depth on tasks such as preparing returns and • Customer Information: exoneration processing – In-depth on tasks related to individual or business profiles and accounts • Performing Penalty and Interest Calculations – In-depth training on tasks related to calculating P&I using P & I Calculator Key Differences between STARS & IRMS • Windows based - new look and feel – Drop down menus instead of screen numbers – Electronic Information (i.e., Uncollectibles, Exonerations, etc.) • Tax account structure: – customer profile for each taxpayer – For joint taxpayers, each taxpayer will have a separate customer profile • Tax account number: – Customer profile for each “FEIN” – Account numbers assigned based on FEIN – 15 character account numbers: XX – XXXXXXXXXX - XXX: • 2 digit tax type suffix • FEIN + “F” • 3 digit location code • Online training and procedures Individual Tax Account Structure – differences between STARS & IRMS • STARS - For joint returns, STARS stores on tax roll as “Robert and Susan Smith”. If Susan had filed returns separately before she married, then Susan would also be on tax roll as “Susan Jones”. • IRMS - For joint returns, each taxpayer will still have a separate profile – if you accessed Susan Smith’s profile, you would see a list of all returns she filed separately as Susan Jones and the returns she filed jointly with Robert as Susan Smith. Note - In IRMS, the first name, last name, and middle initial will also be stored in separate fields and a history of name and address changes will be maintained. Business Tax Account Number – differences between STARS & IRMS • STARS - For a business with 2 locations in different Localities, each location is assigned a separate Virginia Account number for filing sales tax: – Location A = 1234567891 – Location B = 5678912345 • IRMS - For a business with 2 locations in different Localities, each location will have the same account number except that the last 3 digits will be different: – Location A = 11-123456789F-001 – Location B = 11-123456789F-002 By establishing one customer profile using the FEIN and then creating separate account numbers using established prefixes and suffixes, all of a customer’s accounts will be linked i.e., IRMS will maintain a relationship among the separate accounts by establishing one customer profile Conversion • STARS Individual – TAX began collecting and storing separate name fields in 2003 to facilitate conversion from STARS to IRMS: – STARS stores “Robert & Susan Smith” as one name in one field – TAX has also been capturing the separate names “Robert” + “Smith” and “Susan” + “Smith” and storing to minimize conversion problems – If TAX does not have the separate names stored, then a program will be used to determine the separate names and then to create the new record in IRMS – It is possible that conversion errors could occur • STARS Business – TAX has been capturing the FEIN on all Corporate returns in order to facilitate conversion to IRMS: – Starting sometime next spring, business taxpayers will begin receiving information about the conversion and the change in account numbers – To minimize problems, IRMS has been designed such that it will be able to accept and process with the old Virginia Account number Conversion • Converting from STARS to IRMS will be a major undertaking – it is very likely that we will experience some problems and that some clean-up will be required after conversion • During the blackout period, several Channels will continue to process returns and payments: – When IRMS goes-live, the Channels will systematically transfer the captured data to IRMS over a period of time – We will not be able to upload everything processed during the blackout to IRMS in one day – by uploading the returns and payments over a period of time, we will be able to monitor the system and, if necessary, take corrective action if problems are encountered Windows – Accelerated Refunds STARS IRMS Compare the difference! Windows – Local Uncollectibles Uncollectibles can be entered online or uploaded via the web! Windows – Return Detail Tabs for maneuverin g IRMS Access • Local offices will connect to VITA to gain access to IRMS • The connection to VITA can be achieved via: – A dial-up modem - the least expensive option and potentially very slow depending upon number of users and other variables; or – A high-speed circuit – much faster but more expensive then the modem option. • Whether your office uses a modem or a high-speed connection, the connection to VITA will be secure. IRMS Access • Contact VITA to find out more about the requirements for installing a high- speed connection • All connection costs will be incurred by the Local office… each Locality must determine which connection method will best suit their needs based on number of users, transaction volume, response time desired, etc. IRMS – Minimum Workstation Requirements • Pentium 350MHz is the minimum requirement, but the Pentium III processor is recommended • 128M Ram • 10 gig hard drive • Operating Systems: Windows 98 Windows 98 SE Windows ME Windows NT 4.0 w/SP 6a and higher Windows 2000 Windows XP • Internet Explorer 6.0, SP 1 • Internet connectivity via modem or local area network • Anti-virus software (TAX uses Norton) • Firewall software (TAX uses zone alarm pro) Note – these are minimum requirements for running IRMS – your Locality should also consider any other applications used by its staff to determine workstation requirements. *The 10 gig hard drive is a recommendation. Preliminary analysis indicates that 1GB is needed for IRMS. The 760PY Preparing the Part-Year Resident individual income tax return. Who Files a Part-Year Return? • Individuals whose residency in Virginia began or ended during the taxable year. Part-Year residents include: – Virginia residents who move out of Virginia during the taxable year and become domiciliary residents of another state, provided they do not move back to Virginia for at least 6 months; or – Individuals who move into Virginia during the taxable year and become either domiciliary or actual residents of Virginia Who Files a Part-Year Return? • The act of leaving Virginia and then returning to the state within 6 months does not, in general, demonstrate intent to establish residency in another state. For example: – A Virginia resident who enters the military and is assigned duty outside of Virginia remains a Virginia resident; and – A Virginia resident who accepts employment in other countries on a non-permanent basis and who does not take action to abandon Virginia as his or her legal residence remains a Virginia resident. What Form does a Part-Year Resident use? • Part-Year residents file Form 760PY along with Schedule NPY and Schedule CR, if applicable. Exceptions: – If the taxpayer’s entire federal adjusted gross income is from Virginia sources, the taxpayer may file as a resident using the Form 760; or – If the taxpayer maintains legal domicile in another state and lived in Virginia for less than 183 days, the taxpayer may file as a nonresident using the 763 return package Note – the return for a taxpayer who was a resident of Virginia but who died during the taxable year should be prepared using the resident return, not a Part-Year return. How the Part-Year Return Works. • The Part-Year Resident return separates income based on residency status. That is, federal adjusted gross income is separated based on when income was received or payments made. Personal exemptions are prorated based on length of residency. The standard deduction amount is prorated based on the percentage of federal adjusted gross income attributable to Virginia residency. • A Part-Year Resident whose total income is attributable to Virginia is allowed to file a Resident Return because the percentage of VAGI attributable to Virginia is 100%. • A Part-Year Resident who lived in Virginia for less than 183 days may file using the Nonresident Return, Form 763. The taxpayer will then compute taxable income as a resident, and determine net taxable income based on the percentage of Virginia source income reported. Preparing the 760PY • First, complete the return through Line 5 – Be sure to enter the dates of residency accurately – If the return is for married taxpayers, be sure to enter each taxpayer’s dates of residency • Then, complete Parts I through V on page 2 of the return – Information from page 2 flows to page 1 – By completing page 2 first, you can then complete the return much more quickly and accurately – If the return is for married taxpayers with different dates of residency, be sure each taxpayer’s exemptions and deductions are adjusted appropriately – Remember, a resident spouse and a part-year spouse may file a joint or combined 760PY Note – to prepare the 760PY return, you will need a copy of the federal return. A copy of the federal return must accompany the 760PY when it is submitted for processing. Preparing the 760PY Other considerations when preparing the Part-Year Return • Page 1, Line 12 Personal Exemptions – Use the ratio schedule provided in the 760PY Instruction Booklet to calculate the taxpayer’s prorated personal exemption amount – For married taxpayers be sure to compute each taxpayer’s personal exemption amount based on that taxpayer’s dates of residency Result = the ratio reflects the exact number of days the taxpayer lived in Virginia. For example, if the taxpayer lived in Virginia for 152 days (moved out on June 1), the ratio is .416 – or 152 divided by 365. Preparing the 760PY Other considerations when preparing the Part-Year Return • Page 2, Part I, Line 30 Moving Expenses: – Moving expenses are considered expenses in the state to which the taxpayer moved – Record total moving expenses on Line 30 A1 and/or Line 30 B1 – Moving expenses incurred as a result of a move to Virginia are recorded on line 30 A2 and/or Line 30 B2 and result in a lower Virginia Adjusted Gross Income (VAGI) – Moving expenses incurred as a result of a move out of Virginia are recorded on line 30 A3 and/or Line 30 B3 and do not result in a lower VAGI Moving expenses cannot be prorated i.e., a taxpayer may not assign some moving expenses to one state and the remaining expenses to another state. Preparing the 760PY Other considerations when preparing the Part-Year Return • Page 2, Part I, Line 32 Federal Adjusted Gross Income – Line 32 must equal the Federal Adjusted Gross Income as shown on the federal return – For married taxpayers, Line 32A1 and Line 32 B1 must add together to equal the joint Federal Adjusted Gross Income as shown on the federal return If the sum of Lines 32 A1 and 32 B1 do not equal the amount shown on the federal return, the return will be subject to Audit Review and adjustment. Preparing the 760PY Other considerations when preparing the Part-Year Return • Page 2, Part III, Line 40 Subtraction for income attributable for period of residency outside of Virginia – Amounts shown on Line 32 A3 & B3 are transferred to Lines 40 A3 & B3 in order to calculate the total amount to be subtracted from the taxpayer’s Virginia Adjusted Gross Income – If the amounts on Line 32 A3 and/or B3 are negative, transfer the amounts to Line 35 A and B as an addition Result = Computation Isolates income received as a Virginia resident for taxation by Virginia. Just as the income from the other state will not be taxed by Virginia, any negative income incurred in the other state will not lower the Virginia tax. Preparing the 760PY Other considerations when preparing the Part-Year Return • Page 1, Line 18(f) Credit for Taxes Paid to Another State – In general, Virginia allows a credit for earned or business income (or gain on a capital asset not used in business or trade) from sources outside of Virginia, which is subject to tax by Virginia as well as another state – For a Part-Year resident, the credit can only be claimed for income or gain derived from sources outside of Virginia and received while a Virginia resident because income received while not a Virginia resident is subtracted from the taxpayer’s Virginia Adjusted Gross Income – As a result, out of state credits claimed on Form 760PY are frequently incorrect Preparing the 760PY An Example Name: John Q. Taxpayer Dates of Residency: June 1 – December 31 Deduction: Standard Filing Status: Single Federal Adjusted Gross Income (FAGI): $25,000 Breakdown of FAGI Wages ($2,000 per month) $24,000 Interest Income ($100 per quarter) 400 Dividend income (paid on December 1) 600 Total FAGI $25,000 Preparing the 760PY An Example Income received while a resident of a another state Wages for January – May @ 2,000 per month $10,000 Interest income for 1st quarter (Jan-March) 100 Total income received in other state $10,100 Income received while a resident of Virginia Wages for June – December @ 2,000 per month $14,000 Interest income for 2nd, 3rd & 4th quarters 300 Dividend income 600 Total income received in Virginia $14,900 Preparing the 760PY An Example Compute the Standard Deduction A. Income received as a Virginia Resident = $14,900 B. Total Federal Adjusted Gross Income = $25,000 C. Divide A by B = 59.6% D. Standard Deduction for Single = $3,000 E. Part-Year Standard Deduction (C X D) = $1,788 Preparing the 760PY An Example Compute the Personal Exemption A. Look-up Ratio using table in Instructions: .586 B. One Personal Exemption = $800 C. Part-Year Personal Exemption (A X B) = $469 John moved to Virginia on June 1st June 1st is the 152nd day of the year John lived 151 days outside of Virginia With 365 days in the year, 365 – 151 = 214 days in Virginia 214 divided by 365 = .586 But it’s easier to just use the ratio schedule! Now, let’s make it a little more complicated! Special Situations Situation #1 1. Taxpayer is a Part Year Resident; and 2. Taxpayer received Virginia source income while the taxpayer was a Nonresident; and 3. Taxpayer’s income is not all Virginia Source (i.e., the part-year taxpayer is not eligible to file as a resident) Taxpayer is required to file both a 760PY Part-Year Return and a 763 Nonresident Return Special Situations Situation #1 1. Prepare the 760PY to report the income received during the taxpayer’s residency in the state • Subtract all income the taxpayer received while a nonresident, including Virginia source income Result = Part-Year tax liability is computed based only on the income received by the taxpayer during his or her period of residency 2. Prepare the 763 to report the Virginia source income received while the taxpayer was a nonresident • Prepare the return following standard procedures except • Prepare Part V using only the Virginia source Income received while a nonresident. Result = Nonresident tax liability is computed based only on the taxpayer’s Virginia source income received during his or her period of non-residency. Special Situations Situation #2 1. Married Taxpayers 2. One taxpayer is a full-year resident; and 3. One taxpayer is a part-year resident Taxpayers may file a joint or combined 760PY Part-Year return, or the resident taxpayer can file a 760 Resident return, with the part-year resident filing a 760PY Part-Year return and both using filing status 3. Special Situations Situation #2 1. If the married taxpayers elect to file a joint or combined 760PY Part- Year return: • The resident taxpayer may NOT: • Subtract income from other states • Prorate personal exemptions and deductions • The part-year resident MUST: • Subtract income from the other states • Prorate personal exemptions and deductions Result = tax liability computed using the resident taxpayer’s total income and the part-year taxpayer’s income received during residency Special Situations Situation #2 2. If the married taxpayers elect to file separately: • Both must use filing status 3. Using the federal return and all other available documentation, determine income, exemptions, and deductions as if the taxpayers had filed separate federal returns : • In general, the taxpayer claiming an exemption for a dependent must be reporting at least half of the federal adjusted gross income • In computing itemized deductions, determine each taxpayer’s share of the itemized deductions based on which taxpayer incurred the expenses – but if that is not possible, allocate the itemized deductions proportionately based on each taxpayer’s respective share of the federal adjusted gross income reported on the joint federal return. • Prepare a 760 return for the resident taxpayer • Prepare a 760PY return for the part-year resident • Neither taxpayer may claim the other taxpayer as a dependent Result = tax liability computed separately for each taxpayer based on that taxpayer’s residency status Questions? The 763 Preparing the Nonresident individual income tax return. Who Files a Nonresident Return? • Nonresidents of Virginia with Virginia Adjusted Gross Income at or above the Virginia filing thresholds must file if they have income from Virginia sources. • Virginia source income is income received from labor performed, business conducted, or property located in Virginia and includes: – Wages or salaries received for services performed in Virginia – Income received from the rental, sale, exchange or other disposition of real estate and intangible personal property having situs in Virginia, including business income and proceeds from real estate transactions based through by a Virginia trust – Income, including interest, received from a partnership, sub-chapter S corporation, or other business entity that does business in Virginia – Prizes paid by the Virginia Lottery, – Gambling winnings from wagers placed or paid at a Virginia location Who is a Nonresident? • Nonresidents include: – Individuals who do not live in Virginia or who live in Virginia for an aggregate of 183 days or less and are not domiciliary residents of Virginia – Members of the U.S. armed forces who have another state as their home of record even though they may be stationed in Virginia for years Note: With approval from the Tax Department, a Partnership, S Corporation, or Limited Liability Company with nonresident partners, shareholders, or members may file a unified Nonresident return on behalf of their nonresident partners, shareholders, and members, thus relieving these persons of filing a separate Virginia Nonresident return Filing Exceptions for Nonresidents • Residents of Kentucky and the District of Columbia who commute to work daily in Virginia do not have to file if they: – Have no actual place of abode in Virginia at any time during the taxable year; and – Salaries and wages are the only Virginia source income; and – Salaries and wages are subject to taxation by Kentucky or the District of Columbia Filing Exceptions for Nonresidents • Nonresidents with Virginia source income who are residents of Maryland, Pennsylvania, or West Virginia do not have to file if: – They are not actual or domiciliary residents of Virginia – Salaries and wages are the only Virginia source income; and – Salaries and wages are subject to taxation by Maryland, Pennsylvania, or West Virginia Residents of Kentucky, Maryland, Pennsylvania, West Virginia, or the District of Columbia who have Virginia source income other than salaries and wages, such as business income or gain from the sale of a residence, must file a Virginia Nonresident return. What Form does a Nonresident use? • Nonresidents file using Form 763 along with Schedule NPY and Schedule CR, if applicable. • For married taxpayers, if one taxpayer is a resident and the other taxpayer is a nonresident, the resident taxpayer files using the resident form 760 while the nonresident files using form 763. Exception: if the nonresident taxpayer has no income at all or all of the nonresident taxpayer’s income is Virginia source, then the married taxpayers may file a joint resident form 760 What Form does a Nonresident use? Special Situations Military – Married Couples • If both lived in Virginia the entire year; and • The active duty taxpayer is a domiciliary resident of another state; and • The nonmilitary spouse is a resident; and • Both taxpayers have nonmilitary Virginia source income; then • The taxpayer on active duty files a Form 763, using filing status 4; and • The nonmilitary taxpayer files a Form 760 using filing status 3. What Form does a Nonresident use? Special Situations Military - Married Couples • If both have nonmilitary Virginia source income; and • The active duty taxpayer is a domiciliary resident of another state; and • The nonmilitary spouse lived in Virginia for 183 days or less; then • The taxpayers may file a Form 763, using filing status 2. What Form does a Nonresident use? Special Situations Military - Married Couples • If both have nonmilitary Virginia source income; and • The active duty taxpayer is a domiciliary resident of another state; and • The nonmilitary spouse’s domicile changed to Virginia during the taxable year; then • The taxpayer on active duty files using Form 763, filing status 4; and • The nonmilitary spouse files using 760PY, filing status 3. Any income received from Virginia sources before the nonmilitary spouse became a Virginia resident should be reported on form 763. How the Nonresident Return Works. • Step 1 - The Nonresident taxpayer computes Virginia Taxable Income as if the taxpayer is a resident (lines 1 through 15); Then • Step 2 - The taxpayer determines the percentage of Virginia source income to total income. This percentage is referred to as the nonresident allocation percentage (Part V); Then • Step 3 - The taxpayer applies the nonresident allocation percentage to the Virginia Taxable Income computed as a resident to compute the Nonresident Taxable Income. Result – By applying the nonresident allocation to the Virginia Taxable Income computed as a resident, the taxpayer’s personal exemptions and deductions, as well as the income, are prorated based on the percentage of Virginia source income to total income. Preparing the 763 The 763 is prepared following the same general rules as preparing the resident 760 return, except as follows: • The 763 has 4 filing statuses, which are different than the filing statuses provided for on the Resident 760 and the Part-Year 760PY returns. The filing statuses are as follows: – Filing Status 1 = Single – Filing Status 2 = Married, filing joint return – Filing Status 3 = Married, spouse has no income from any sources – Filing Status 4 = Married, filing a separate return • The 763 does not provide for a “married, filing a combined return” filing status nor does it provide for a Spouse Tax Adjustment • Filing status 3 and 4 both provide a $2,500 standard deduction Note – to prepare the 763 return, you will need a copy of the federal return. A copy of the federal return must accompany the 763 when it is submitted for processing. Preparing the 763 Other considerations when preparing a Nonresident Return • In general, Virginia does not allow taxpayers filing a nonresident return to claim a credit for taxes paid to another state. The only exception is if: – The nonresident taxpayer is a resident of Oregon, Arizona, California, or the District of Columbia; and – The taxpayer has Virginia source income that is taxed by Virginia as well as the other state. Preparing the 763 Other considerations when preparing a Nonresident Return • The nonresident allocation percentage is computed to one decimal place only: e.g., 2.13% must be rounded down to 2.1% and 2.17% would be rounded up to 2.2% • A taxpayer may file both a 760PY and a 763 if the taxpayer had income generated in Virginia either prior to or after the taxpayer’s period of residency in Virginia Preparing the 763 Other considerations when preparing a Nonresident Return • The Federal Adjusted Gross Income (FAGI) reported on Line 6 should always equal the FAGI reported on the federal return unless the taxpayer is using filing status 4, married filing separately in Virginia. For filing status 4 returns: • Use the federal return and all other available documentation, to determine income, exemptions, and deductions as if the joint taxpayers had filed separate federal returns: • In general, the taxpayer claiming an exemption for a dependent must be reporting at least half of the federal adjusted gross income • In computing itemized deductions, determine each taxpayer’s share of the itemized deductions based on which taxpayer incurred the expenses – but if that is not possible, allocate the itemized deductions proportionately based on each taxpayer’s respective share of the federal adjusted gross income reported on the joint federal return. • Neither taxpayer may claim the other taxpayer as a dependent Questions? Break Time Penalty & Interest Calculations May 3rd, 2004 I’m late, I’m late, for a very important date! Agenda • What is an assessment? • How long does the taxpayer have to pay the assessment before any applicable penalty and interest is added to the assessment? • What are the penalties that may apply when calculating an assessment? • Examples Assessments as defined in Section 58.1-1820 of the Code of Virginia “Assessment” …..shall be deemed to be made when a written notice of assessment is delivered to the taxpayer……, or mailed to the taxpayer at his last known address. …an assessment shall also be deemed to be made when a notice of assessment is transmitted….to the taxpayer by either facsimile transmission or electronic mail….. Assessments & Payments as defined in Sections 58.1-308 and 58.1-1812 of the Code of Virginia “The taxpayer shall pay such additional tax….within 30 days after the amount of tax as computed is mailed….. “Upon such assessment..shall send a bill therefore to the taxpayer and the taxes, penalties, and interest shall be remitted…within 30 days….if …not paid within 30 days, interest at the rate provided shall accrue thereon from the date of such assessment until payment.” Critical Points related to Assessments • The act of calculating an assessment amount does not constitute the issuance of an assessment until the assessment is reduced to writing and delivered or mailed to the taxpayer. • The taxpayer has 30 days from the date of the assessment to pay the assessed amount before any additional interest and penalty is added to the assessment. Penalties • Late Filing Penalty • Late Payment Penalty • Extension Penalty Late Filing Penalty as defined in Section 58.1-347 of the Code of Virginia “Upon all [individual or fiduciary] returns on which tax is due, filed with or assessed by the commissioner of revenue after the time herein prescribed for the filing of returns, the commissioner of the revenue shall assess a penalty equal to six percent of the amount of taxes assessable thereon if the failure is for not more than one month, with an additional six percent for each additional month or fraction thereof during which such failure continues……, not exceeding thirty percent…” Late Payment Penalty as defined in Section 58.1-351 of the Code of Virginia “If any payment is not made in full when due, there shall be added to the entire tax or to any unpaid balance of the tax, a penalty of six percent of the amount thereof if the failure is for not more than one month, with an additional six percent for each additional month or fraction thereof during which such failure to pay continues……, not exceeding thirty percent… The penalty under this section shall not be applicable to any month or fraction thereof for which the individual is subject to the penalty imposed under Section 58.1-347.” Extension Penalty as defined in Section 58.1-344 of the Code of Virginia “…if the underestimation of the balance of tax due exceeds ten percent of the actual tax liability, there shall be added to the tax as a penalty an amount equal to one- half of one percent per month for each month or fraction thereof from the original due date….to the date of payment.” Valid Extension • Must file an extension request and tentative tax return - the 760E • Remit the tentative tax due with the 760E to TAX on or before the original due date • File the return prior to the expiration of the extension period If the taxpayer files the return after the expiration of the extension period, the extension is NOT a valid extension 760 - Penalty & Interest Example One • Tax Liability from line 17 = $850 • Prepayments from Line 24 = $725 • Tax Due on Line 25 = $125 • Taxpayer filed an Extension Request postmarked April 25th but did not remit any tax payment • The taxpayer filed the return with full tax due payment on August 15th but no interest or penalty was included What should the Locality assess? 760 - Penalty & Interest Example One 1.) First Question - Did the taxpayer file a valid extension? That is, did the taxpayer file the 760E before May 1st and then submit the return within the extension period? Yes 2.) Second Question - Is the balance of tax due greater than 10% of the tax liability? Yes Tax due divided by total tax liability = $125 divided by $850 = 14.7% 3.) Third Question – Since the taxpayer did not pay 90% of the total tax liability by May 1st but did file a valid extension, what penalty should be applied? Apply the extension penalty as follows: ½% for each month or portion of a month until tax is paid – therefore, ½% for May, June, July, and August = 2% 760 - Penalty & Interest Example One First Assessment Calculation Extension Penalty = 2% times $125 = $2.50 Interest for 104 days = $1.63 Total Assessment = $4.13 • Assumes annual interest rate of 4.5% for illustrative purposes only – always look-up the interest factor! • In this example, assessment is under $5.00 so COR is encouraged not to create a Memorandum of Assessment (refer to the PP4). 760 - Penalty & Interest Example One – Critical Points • 90% of tax liability was not paid by the original due date thus an Extension Penalty of 1/2% for each month is applicable • The Late Filing Penalty is not applicable because the taxpayer filed the return before the extended due date • The Late Payment Penalty is not applicable as the taxpayer paid the balance of tax due paid with return when filed • Interest is owed from original due date to date of payment 760 - Penalty & Interest Example Two • Tax Liability from line 17 = $850 • Prepayments from Line 24 = $725 • Tax Due on Line 25 = $125 • The taxpayer did not file an Extension Request (Form 760E) • The taxpayer filed the return and paid the full tax due on August 15th but no interest or penalty was included with the tax due payment What should the Locality assess? 760 - Penalty & Interest Example Two 1.) First Question - Did the taxpayer file a valid extension? That is, did the taxpayer file the 760E before May 1st and then submit the return within the extension period? NO 2.) Second Question – Since the taxpayer did not file an extension request and the return is a tax due with payment, what penalty should be applied? Apply the Late Filing Penalty as follows: 6% for each month or portion of a month until tax is paid – therefore, 6% for May, June, July, and August = 24% 760 - Penalty & Interest Example Two First Assessment Calculation Late Filing = 24% times $125.00 = $30.00 Interest for 104 days = $1.63 Total Assessment = $31. 63 Assumes annual interest rate of 4.5% for illustrative purposes only – always look-up the interest factor! 760 - Penalty & Interest Example Two – Critical Points • The Extension Penalty is not applicable because the taxpayer did not file an Extension Request (760E) by May 1st • The Late Filing Penalty is applicable because the taxpayer filed a tax due return after May 1st • The Late Payment Penalty is not applicable as the taxpayer paid the balance of tax due with the return • Interest is owed from original due date to date of payment 760 - Penalty & Interest Example Three • Tax Liability from line 17 = $850 • Prepayments from Line 24 = $725 • Tax Due on Line 25 = $125 • The taxpayer filed an Extension Request (Form 760E) before May 1st but did not make a tentative tax payment with the 760E • The taxpayer filed the return and paid $25.00 on August 25th What should the Locality assess? 760 - Penalty & Interest Example Three 1.) First Question - Did the taxpayer file a valid extension? That is, did the taxpayer file the 760E before May 1st and then submit the return within the extension period? Yes 2.) Second Question - Is the balance of tax due greater than 10% of the tax liability? Yes Tax due divided by total tax liability = $125 divided by $850 = 14.7% 760 - Penalty & Interest Example Three 3.) Third Question – Since the taxpayer filed an extension request and submitted the return before the extended due date but did not pay in full, what penalty is applicable? – Does the taxpayer owe an extension penalty? Yes – because the balance of tax due is greater than 10% of the tax liability – Does the taxpayer owe a Late Filing Penalty? No – because the taxpayer filed the return by the extended due date – Does the taxpayer owe a Late Payment Penalty? Yes – the full tax due amount was not paid when the return was filed Extension penalty = ½% for May, June, July, and August Late Payment Penalty = 6% for August (and for each month thereafter up to 30% until tax is paid) Remember – a penalty applies to each month or portion of a month! 760 - Penalty & Interest Example Three First Assessment Calculation Tax Due Amount = $125 Amount paid with Return = $25 Balance of Tax Due = $100 Extension Penalty = 2% times $125 = $2.50 Late Payment Penalty @ 6% of $100 = $6.00 Interest on $125 for 121 days = $1.89 Total Assessment = $110.39 • Assumes annual interest rate of 4.5% for illustrative purposes only • Assumes taxpayer is assessed on August 26th – “timing is always an issue….” 760 - Penalty & Interest Example Three – Critical Points • The taxpayer owes the Extension Penalty for 4 months because 90% of tax liability was not paid with extension • The taxpayer owes a Late Payment Penalty because full payment of the balance of tax due was not remitted when the return was filed on August 25th. Critical point – for balance due returns filed after May 1st, the Late Payment Penalty kicks-in on the date the balance due return is filed or the extended due date, whichever is earlier • Interest is owed from original due date to date of payment Penalty & Interest - Notes • The Late Payment Penalty should never be assessed in the same month that a Late Filing Penalty is assessed • The Extension Penalty and a Late Payment Penalty may both apply - see example 3 • If a taxpayer files and extension but submits his or her return after the expiration of the extended filing date - the extension is not valid and should not be considered when calculating penalty and interest Panel Discussion Thank you for attending. We look forward to working with you during filing season 2004!
Pages to are hidden for
"W2 Income Tax Form Calculator"Please download to view full document