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H&r Tax Software

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H&r Tax Software

H&r tax software 8. H&r tax software   Qualified Tuition Program (QTP) Table of Contents Introduction What Is a Qualified Tuition ProgramDesignated beneficiary. H&r tax software Half-time student. H&r tax software How Much Can You Contribute Are Distributions TaxableFiguring the Taxable Portion of a Distribution Additional Tax on Taxable Distributions Rollovers and Other TransfersRollovers Changing the Designated Beneficiary Introduction Qualified tuition programs (QTPs) are also called “529 plans. H&r tax software ” States may establish and maintain programs that allow you to either prepay or contribute to an account for paying a student's qualified education expenses at a postsecondary institution. H&r tax software Eligible educational institutions may establish and maintain programs that allow you to prepay a student's qualified education expenses. H&r tax software If you prepay tuition, the student (designated beneficiary) will be entitled to a waiver or a payment of qualified education expenses. H&r tax software You cannot deduct either payments or contributions to a QTP. H&r tax software For information on a specific QTP, you will need to contact the state agency or eligible educational institution that established and maintains it. H&r tax software What is the tax benefit of a QTP. H&r tax software   No tax is due on a distribution from a QTP unless the amount distributed is greater than the beneficiary's adjusted qualified education expenses. H&r tax software See Are Distributions Taxable , later, for more information. H&r tax software    Even if a QTP is used to finance a student's education, the student or the student's parents still may be eligible to claim the American opportunity credit or the lifetime learning credit. H&r tax software See Coordination With American Opportunity and Lifetime Learning Credits, later. H&r tax software What Is a Qualified Tuition Program A qualified tuition program is a program set up to allow you to either prepay, or contribute to an account established for paying, a student's qualified education expenses at an eligible educational institution. H&r tax software QTPs can be established and maintained by states (or agencies or instrumentalities of a state) and eligible educational institutions. H&r tax software The program must meet certain requirements. H&r tax software Your state government or the eligible educational institution in which you are interested can tell you whether or not they participate in a QTP. H&r tax software Qualified education expenses. H&r tax software   These are expenses related to enrollment or attendance at an Eligible educational institution (defined later). H&r tax software As shown in the following list, to be qualified, some of the expenses must be required by the institution and some must be incurred by students who are enrolled at least half-time. H&r tax software See Half-time student , later. H&r tax software The following expenses must be required for enrollment or attendance of a Designated beneficiary (defined later) at an eligible educational institution. H&r tax software Tuition and fees. H&r tax software Books, supplies, and equipment. H&r tax software Expenses for special needs services needed by a special needs beneficiary must be incurred in connection with enrollment or attendance at an eligible educational institution. H&r tax software Expenses for room and board must be incurred by students who are enrolled at least half-time. H&r tax software The expense for room and board qualifies only to the extent that it is not more than the greater of the following two amounts. H&r tax software The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student. H&r tax software The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution. H&r tax software You will need to contact the eligible educational institution for qualified room and board costs. H&r tax software    For tax years after 2010, the purchase of computer technology or equipment is only a qualified education expense if the computer technology or equipment is required for enrollment or attendance at an eligible institution. H&r tax software Designated beneficiary. H&r tax software   The designated beneficiary is generally the student (or future student) for whom the QTP is intended to provide benefits. H&r tax software The designated beneficiary can be changed after participation in the QTP begins. H&r tax software If a state or local government or certain tax-exempt organizations purchase an interest in a QTP as part of a scholarship program, the designated beneficiary is the person who receives the interest as a scholarship. H&r tax software Half-time student. H&r tax software   A student is enrolled “at least half-time” if he or she is enrolled for at least half the full-time academic workload for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled. H&r tax software Eligible educational institution. H&r tax software   For purposes of a QTP, this is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. H&r tax software S. H&r tax software Department of Education. H&r tax software It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. H&r tax software The educational institution should be able to tell you if it is an eligible educational institution. H&r tax software   Certain educational institutions located outside the United States also participate in the U. H&r tax software S. H&r tax software Department of Education's Federal Student Aid (FSA) programs. H&r tax software   How Much Can You Contribute Contributions to a QTP on behalf of any beneficiary cannot be more than the amount necessary to provide for the qualified education expenses of the beneficiary. H&r tax software There are no income restrictions on the individual contributors. H&r tax software You can contribute to both a QTP and a Coverdell ESA in the same year for the same designated beneficiary. H&r tax software   Are Distributions Taxable The part of a distribution representing the amount paid or contributed to a QTP does not have to be included in income. H&r tax software This is a return of the investment in the plan. H&r tax software The designated beneficiary generally does not have to include in income any earnings distributed from a QTP if the total distribution is less than or equal to adjusted qualified education expenses (defined under Figuring the Taxable Portion of a Distribution , later). H&r tax software Earnings and return of investment. H&r tax software    You will receive a Form 1099-Q, from each of the programs from which you received a QTP distribution in 2013. H&r tax software The amount of your gross distribution (box 1) shown on each form will be divided between your earnings (box 2) and your basis, or return of investment (box 3). H&r tax software Form 1099-Q should be sent to you by January 31, 2014. H&r tax software Figuring the Taxable Portion of a Distribution To determine if total distributions for the year are more or less than the amount of qualified education expenses, you must compare the total of all QTP distributions for the tax year to the adjusted qualified education expenses. H&r tax software Adjusted qualified education expenses. H&r tax software   This amount is the total qualified education expenses reduced by any tax-free educational assistance. H&r tax software Tax-free educational assistance includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. H&r tax software Taxable earnings. H&r tax software   Use the following steps to figure the taxable part. H&r tax software Multiply the total distributed earnings shown in box 2 of Form 1099-Q by a fraction. H&r tax software The numerator is the adjusted qualified education expenses paid during the year and the denominator is the total amount distributed during the year. H&r tax software Subtract the amount figured in (1) from the total distributed earnings. H&r tax software The result is the amount the beneficiary must include in income. H&r tax software Report it on Form 1040 or Form 1040NR, line 21. H&r tax software Example 1. H&r tax software In 2007, Sara Clarke's parents opened a savings account for her with a QTP maintained by their state government. H&r tax software Over the years they contributed $18,000 to the account. H&r tax software The total balance in the account was $27,000 on the date the distribution was made. H&r tax software In the summer of 2013, Sara enrolled in college and had $8,300 of qualified education expenses for the rest of the year. H&r tax software She paid her college expenses from the following sources. H&r tax software   Gift from parents $1,600     Partial tuition scholarship (tax-free) 3,100     QTP distribution 5,300           Before Sara can determine the taxable part of her QTP distribution, she must reduce her total qualified education expenses by any tax-free educational assistance. H&r tax software   Total qualified education expenses $8,300     Minus: Tax-free educational assistance −3,100     Equals: Adjusted qualified  education expenses (AQEE) $5,200   Since the remaining expenses ($5,200) are less than the QTP distribution, part of the earnings will be taxable. H&r tax software Sara's Form 1099-Q shows that $950 of the QTP distribution is earnings. H&r tax software Sara figures the taxable part of the distributed earnings as follows. H&r tax software   1. H&r tax software $950 (earnings) × $5,200 AQEE  $5,300 distribution           =$932 (tax-free earnings)     2. H&r tax software $950 (earnings)−$932 (tax-free earnings)     =$18 (taxable earnings)  Sara must include $18 in income (Form 1040, line 21) as distributed QTP earnings not used for adjusted qualified education expenses. H&r tax software Coordination With American Opportunity and Lifetime Learning Credits An American opportunity or lifetime learning credit (education credit) can be claimed in the same year the beneficiary takes a tax-free distribution from a QTP, as long as the same expenses are not used for both benefits. H&r tax software This means that after the beneficiary reduces qualified education expenses by tax-free educational assistance, he or she must further reduce them by the expenses taken into account in determining the credit. H&r tax software Example 2. H&r tax software Assume the same facts as in Example 1 , except that Sara's parents claimed an American opportunity credit of $2,500 (based on $4,000 expenses). H&r tax software   Total qualified education expenses $8,300     Minus: Tax-free educational assistance −3,100     Minus: Expenses taken into account  in figuring American opportunity credit −4,000     Equals: Adjusted qualified  education expenses (AQEE) $1,200           The taxable part of the distribution is figured as follows. H&r tax software   1. H&r tax software $950 (earnings) × $1,200 AQEE  $5,300 distribution           =$215 (tax-free earnings)     2. H&r tax software $950 (earnings)−$215 (tax-free earnings)     =$735 (taxable earnings)       Sara must include $735 in income (Form 1040, line 21). H&r tax software This represents distributed earnings not used for adjusted qualified education expenses. H&r tax software Coordination With Coverdell ESA Distributions If a designated beneficiary receives distributions from both a QTP and a Coverdell ESA in the same year, and the total of these distributions is more than the beneficiary's adjusted qualified higher education expenses, the expenses must be allocated between the distributions. H&r tax software For purposes of this allocation, disregard any qualified elementary and secondary education expenses. H&r tax software Example 3. H&r tax software Assume the same facts as in Example 2 , except that instead of receiving a $5,300 distribution from her QTP, Sara received $4,600 from that account and $700 from her Coverdell ESA. H&r tax software In this case, Sara must allocate her $1,200 of adjusted qualified higher education expenses (AQHEE) between the two distributions. H&r tax software   $1,200 AQHEE × $700 ESA distribution  $5,300 total distribution = $158 AQHEE (ESA)     $1,200 AQHEE × $4,600 QTP distribution  $5,300 total distribution = $1,042 AQHEE (QTP)   Sara then figures the taxable portion of her Coverdell ESA distribution based on qualified higher education expenses of $158, and the taxable portion of her QTP distribution based on the other $1,042. H&r tax software Note. H&r tax software If you are required to allocate your expenses between Coverdell ESA and QTP distributions, and you have adjusted qualified elementary and secondary education expenses, see the examples in chapter 7, Coverdell Education Savings Account under Coordination With Qualified Tuition Program (QTP) Distributions . H&r tax software Coordination With Tuition and Fees Deduction. H&r tax software   A tuition and fees deduction can be claimed in the same year the beneficiary takes a tax-free distribution from a QTP, as long as the same expenses are not used for both benefits. H&r tax software Losses on QTP Investments If you have a loss on your investment in a QTP account, you may be able to take the loss on your income tax return. H&r tax software You can take the loss only when all amounts from that account have been distributed and the total distributions are less than your unrecovered basis. H&r tax software Your basis is the total amount of contributions to that QTP account. H&r tax software You claim the loss as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23 (Schedule A (Form 1040NR), line 9), subject to the 2%-of-adjusted-gross-income limit. H&r tax software If you have distributions from more than one QTP account during a year, you must combine the information (amount of distribution, basis, etc. H&r tax software ) from all such accounts in order to determine your taxable earnings for the year. H&r tax software By doing this, the loss from one QTP account reduces the distributed earnings (if any) from any other QTP accounts. H&r tax software Example 1. H&r tax software In 2013, Taylor received a final distribution of $1,000 from QTP #1. H&r tax software His unrecovered basis in that account before the distribution was $3,000. H&r tax software If Taylor itemizes his deductions, he can claim the $2,000 loss on Schedule A (Form 1040). H&r tax software Example 2. H&r tax software Assume the same facts as in Example 1 , except that Taylor also had a distribution of $9,000 from QTP #2, giving him total distributions for 2013 of $10,000. H&r tax software His total basis in these distributions was $4,500 ($3,000 for QTP #1 and $1,500 for QTP #2). H&r tax software Taylor's adjusted qualified education expenses for 2013 totaled $6,000. H&r tax software In order to figure his taxable earnings, Taylor combines the two accounts and determines his taxable earnings as follows. H&r tax software   1. H&r tax software $10,000 (total distribution)−$4,500 (basis portion of distribution)     = $5,500 (earnings included in distribution)   2. H&r tax software $5,500 (earnings) x $6,000 AQEE  $10,000 distribution           =$3,300 (tax-free earnings)     3. H&r tax software $5,500 (earnings)−$3,300 (tax-free earnings)     =$2,200 (taxable earnings)                 Taylor must include $2,200 in income on Form 1040, line 21. H&r tax software Because Taylor's accounts must be combined, he cannot deduct his $2,000 loss (QTP #1) on Schedule A (Form 1040). H&r tax software Instead, the $2,000 loss reduces the total earnings that were distributed, thereby reducing his taxable earnings. H&r tax software Additional Tax on Taxable Distributions Generally, if you receive a taxable distribution, you also must pay a 10% additional tax on the amount included in income. H&r tax software Exceptions. H&r tax software   The 10% additional tax does not apply to distributions: Paid to a beneficiary (or to the estate of the designated beneficiary) on or after the death of the designated beneficiary. H&r tax software Made because the designated beneficiary is disabled. H&r tax software A person is considered to be disabled if he or she shows proof that he or she cannot do any substantial gainful activity because of his or her physical or mental condition. H&r tax software A physician must determine that his or her condition can be expected to result in death or to be of long-continued and indefinite duration. H&r tax software Included in income because the designated beneficiary received: A tax-free scholarship or fellowship (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), or Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. H&r tax software Made on account of the attendance of the designated beneficiary at a U. H&r tax software S. H&r tax software military academy (such as the USNA at Annapolis). H&r tax software This exception applies only to the extent that the amount of the distribution does not exceed the costs of advanced education (as defined in section 2005(d)(3) of title 10 of the U. H&r tax software S. H&r tax software Code) attributable to such attendance. H&r tax software Included in income only because the qualified education expenses were taken into account in determining the American opportunity or lifetime learning credit (see Coordination With American Opportunity and Lifetime Learning Credits , earlier. H&r tax software ) Exception (3) applies only to the extent the distribution is not more than the scholarship, allowance, or payment. H&r tax software Figuring the additional tax. H&r tax software    Use Part II of Form 5329, to figure any additional tax. H&r tax software Report the amount on Form 1040, line 58, or Form 1040NR, line 56. H&r tax software Rollovers and Other Transfers Assets can be rolled over or transferred from one QTP to another. H&r tax software In addition, the designated beneficiary can be changed without transferring accounts. H&r tax software Rollovers Any amount distributed from a QTP is not taxable if it is rolled over to another QTP for the benefit of the same beneficiary or for the benefit of a member of the beneficiary's family (including the beneficiary's spouse). H&r tax software An amount is rolled over if it is paid to another QTP within 60 days after the date of the distribution. H&r tax software Do not report qualifying rollovers (those that meet the above criteria) anywhere on Form 1040 or 1040NR. H&r tax software These are not taxable distributions. H&r tax software Members of the beneficiary's family. H&r tax software   For these purposes, the beneficiary's family includes the beneficiary's spouse and the following other relatives of the beneficiary. H&r tax software Son, daughter, stepchild, foster child, adopted child, or a descendant of any of them. H&r tax software Brother, sister, stepbrother, or stepsister. H&r tax software Father or mother or ancestor of either. H&r tax software Stepfather or stepmother. H&r tax software Son or daughter of a brother or sister. H&r tax software Brother or sister of father or mother. H&r tax software Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. H&r tax software The spouse of any individual listed above. H&r tax software First cousin. H&r tax software Example. H&r tax software When Aaron graduated from college last year he had $5,000 left in his QTP. H&r tax software He wanted to give this money to his younger brother, who was in junior high school. H&r tax software In order to avoid paying tax on the distribution of the amount remaining in his account, Aaron contributed the same amount to his brother's QTP within 60 days of the distribution. H&r tax software If the rollover is to another QTP for the same beneficiary, only one rollover is allowed within 12 months of a previous transfer to any QTP for that designated beneficiary. H&r tax software Changing the Designated Beneficiary There are no income tax consequences if the designated beneficiary of an account is changed to a member of the beneficiary's family. H&r tax software See Members of the beneficiary's family , earlier. H&r tax software Example. H&r tax software Assume the same situation as in the last example. H&r tax software Instead of closing his QTP and paying the distribution into his brother's QTP, Aaron could have instructed the trustee of his account to simply change the name of the beneficiary on his account to that of his brother. H&r tax software Prev  Up  Next   Home   More Online Publications
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Tax Quotes

When it comes to taxes, everyone has an opinion. These quotes reflect the opinions of their authors; their inclusion here is not an official IRS endorsement of the sentiments expressed.

"Taxes are what we pay for civilized society.'' — Oliver Wendell Holmes, Jr., U.S. Supreme Court Justice

"The power of taxing people and their property is essential to the very existence of government.'' — James Madison, U.S. President

"To tax and to please, no more than to love and to be wise, is not given to men." —  Edmund Burke, 18th Century Irish political philosopher and British statesman

“I am proud to be paying taxes in the United States. The only thing is – I could be just as proud for half the money.” — Arthur Godfrey, entertainer

“People who complain about taxes can be divided into two classes: men and women.” 
— Unknown

"No government can exist without taxation. This money must necessarily be levied on the people; and the grand art consists of levying so as not to oppress.'' — Frederick the Great, 18th Century Prussian king

"Like mothers, taxes are often misunderstood, but seldom forgotten.'' — Lord Bramwell, 19th Century English jurist

"The best measure of a man's honesty isn't his income tax return. It's the zero adjust on his bathroom scale.'' — Arthur C. Clarke, author

"Next to being shot at and missed, nothing is really quite as satisfying as an income tax refund.” — F. J. Raymond, humorist

A tax loophole is "something that benefits the other guy. If it benefits you, it is tax reform.'' 
— Russell B. Long, U.S. Senator

"Few of us ever test our powers of deduction, except when filling out an income tax form.'' 
— Laurence J. Peter, author

“The hardest thing in the world to understand is the income tax.” — Albert Einstein, physicist

“Taxation with representation ain’t so hot either.” — Gerald Barzan, humorist

“Where there is an income tax, the just man will pay more and the unjust less on the same amount of income.” — Plato

“Income tax has made more liars out of the American people than golf.” — Will Rogers, humorist

Page Last Reviewed or Updated: 10-Mar-2014

The H&r Tax Software

H&r tax software Publication 556 - Main Content Table of Contents Examination of ReturnsIf Your Return Is Examined Interest Netting Abatement of Interest Due to Error or Delay by the IRS Abatement of Interest for Individuals Affected by Presidentially Declared Disasters or Military or Terrorist Actions Offer in Compromise Appeal RightsAppeal Within the IRS Appeals to the Courts Refund or Credit of Overpayments Before Final Determination Claims for RefundTime for Filing a Claim for Refund Limit on Amount of Refund Processing Claims for Refund Reduced Refund How To Get Tax Help Examination of Returns Your return may be examined for a variety of reasons, and the examination may take place in any one of several ways. H&r tax software After the examination, if any changes to your tax are proposed, you can either agree with those changes and pay any additional tax you may owe, or you can disagree with the changes and appeal the decision. H&r tax software Examination selection criteria. H&r tax software   Your return may be selected for examination on the basis of computer scoring. H&r tax software A computer program called the Discriminant Inventory Function System (DIF) assigns a numeric score to each individual and some corporate tax returns after they have been processed. H&r tax software If your return is selected because of a high score under the DIF system, the potential is high that an examination of your return will result in a change to your income tax liability. H&r tax software   Your return may also be selected for examination on the basis of information received from third-party documentation, such as Forms 1099 and W-2, that does not match the information reported on your return. H&r tax software Or, your return may be selected to address both the questionable treatment of an item and to study the behavior of similar taxpayers (a market segment) in handling a tax issue. H&r tax software   In addition, your return may be selected as a result of information received from other sources on potential noncompliance with the tax laws or inaccurate filing. H&r tax software This information can come from a number of sources, including newspapers, public records, and individuals. H&r tax software The information is evaluated for reliability and accuracy before it is used as the basis of an examination or investigation. H&r tax software Notice of IRS contact of third parties. H&r tax software    The IRS must give you reasonable notice before contacting other persons about your tax matters. H&r tax software You must be given reasonable notice in advance that, in examining or collecting your tax liability, the IRS may contact third parties such as your neighbors, banks, employers, or employees. H&r tax software The IRS must also give you notice of specific contacts by providing you with a record of persons contacted on both a periodic basis and upon your request. H&r tax software    This provision does not apply: To any pending criminal investigation, When providing notice would jeopardize collection of any tax liability, Where providing notice may result in reprisal against any person, or When you authorized the contact. H&r tax software Taxpayer Advocate Service. H&r tax software   The Taxpayer Advocate Service is an independent organization within the IRS whose goal is to help taxpayers resolve problems with the IRS. H&r tax software If you have an ongoing issue with the IRS that has not been resolved through normal processes, or your problems with the IRS are causing financial difficulty, contact the Taxpayer Advocate Service. H&r tax software    Before contacting the Taxpayer Advocate Service, you should first discuss any problem with a supervisor. H&r tax software Your local Taxpayer Advocate will assist you if you are unable to resolve the problem with the supervisor. H&r tax software   For more information, see Publication 1546. H&r tax software See How To Get Tax Help , near the end of this publication, for more information about contacting the Taxpayer Advocate Service. H&r tax software Comments from small business. H&r tax software    The Small Business and Agricultural Regulatory Enforcement Ombudsman and 10 Regional Fairness Boards have been established to receive comments from small business about federal agency enforcement actions. H&r tax software The Ombudsman will annually evaluate the enforcement activities of each agency and rate their responsiveness to small business. H&r tax software If you wish to comment on the enforcement actions of the IRS, you can take any of the following steps. H&r tax software Fax your comments to 1-202-481-5719. H&r tax software Write to the following address: Office of the National Ombudsman U. H&r tax software S. H&r tax software Small Business Administration 409 3rd Street, SW Washington, DC 20416 Call 1-888-734-3247. H&r tax software Send an email to ombudsman@sba. H&r tax software gov. H&r tax software File a comment or complaint online at www. H&r tax software sba. H&r tax software gov/ombudsman. H&r tax software If Your Return Is Examined Some examinations are handled entirely by mail. H&r tax software Examinations not handled by mail can take place in your home, your place of business, an Internal Revenue office, or the office of your authorized representative. H&r tax software If the time, place, or method is not convenient for you, the examiner will try to work out something more suitable. H&r tax software However, the IRS makes the final determination of when, where, and how the examination will take place. H&r tax software Throughout the examination, you can act on your own behalf or have someone represent you or accompany you. H&r tax software If you filed a joint return, either you or your spouse, or both, can meet with the IRS. H&r tax software The person representing you can be any federally authorized practitioner, including an attorney, a certified public accountant, an enrolled agent (a person enrolled to practice before the IRS), an enrolled actuary, or the person who prepared the return and signed it as the preparer. H&r tax software If you want someone to represent you in your absence, you must furnish that person with proper written authorization. H&r tax software You can use Form 2848 or any other properly written authorization. H&r tax software If you want to consult with an attorney, a certified public accountant, an enrolled agent, or any other person permitted to represent a taxpayer during an interview for examining a tax return or collecting tax, you should make arrangements with that person to be available for the interview. H&r tax software In most cases, the IRS must suspend the interview and reschedule it. H&r tax software The IRS cannot suspend the interview if you are there because of an administrative summons. H&r tax software Third party authorization. H&r tax software   If you checked the box in the signature area of your income tax return (Form 1040, Form 1040A, or Form 1040EZ) to allow the IRS to discuss your return with another person (a third party designee), this authorization does not replace Form 2848. H&r tax software The box you checked on your return only authorizes the other person to receive information about the processing of your return and the status of your refund during the period your return is being processed. H&r tax software For more information, see the instructions for your return. H&r tax software Confidentiality privilege. H&r tax software   Generally, the same confidentiality protection that you have with an attorney also applies to certain communications that you have with federally authorized practitioners. H&r tax software   Confidential communications are those that: Advise you on tax matters within the scope of the practitioner's authority to practice before the IRS, Would be confidential between an attorney and you, and Relate to noncriminal tax matters before the IRS, or Relate to noncriminal tax proceedings brought in federal court by or against the United States. H&r tax software   In the case of communications in connection with the promotion of a person's participation in a tax shelter, the confidentiality privilege does not apply to written communications between a federally authorized practitioner and that person, any director, officer, employee, agent, or representative of that person, or any other person holding a capital or profits interest in that person. H&r tax software   A tax shelter is any entity, plan, or arrangement, a significant purpose of which is the avoidance or evasion of income tax. H&r tax software Recordings. H&r tax software    You can make an audio recording of the examination interview. H&r tax software Your request to record the interview should be made in writing. H&r tax software You must notify the examiner 10 days in advance and bring your own recording equipment. H&r tax software The IRS also can record an interview. H&r tax software If the IRS initiates the recording, you must be notified 10 days in advance and you can get a copy of the recording at your expense. H&r tax software Transfers to another area. H&r tax software    Generally, your return is examined in the area where you live. H&r tax software But if your return can be examined more quickly and conveniently in another area, such as where your books and records are located, you can ask to have the case transferred to that area. H&r tax software Repeat examinations. H&r tax software    The IRS tries to avoid repeat examinations of the same items, but sometimes this happens. H&r tax software If your tax return was examined for the same items in either of the 2 previous years and no change was proposed to your tax liability, please contact the IRS as soon as possible to see if the examination should be discontinued. H&r tax software The Examination An examination usually begins when you are notified that your return has been selected. H&r tax software The IRS will tell you which records you will need. H&r tax software The examination can proceed more easily if you gather your records before any interview. H&r tax software Any proposed changes to your return will be explained to you or your authorized representative. H&r tax software It is important that you understand the reasons for any proposed changes. H&r tax software You should not hesitate to ask about anything that is unclear to you. H&r tax software The IRS must follow the tax laws set forth by Congress in the Internal Revenue Code. H&r tax software The IRS also follows Treasury Regulations, other rules, and procedures that were written to administer the tax laws and court decisions. H&r tax software However, the IRS can lose cases that involve taxpayers with the same issue and still apply its interpretation of the law to your situation. H&r tax software Most taxpayers agree to changes proposed by examiners, and the examinations are closed at this level. H&r tax software If you do not agree, you can appeal any proposed change by following the procedures provided to you by the IRS. H&r tax software A more complete discussion of appeal rights is found later under Appeal Rights . H&r tax software If You Agree If you agree with the proposed changes, you can sign an agreement form and pay any additional tax you may owe. H&r tax software You must pay interest on any additional tax. H&r tax software If you pay when you sign the agreement, the interest is generally figured from the due date of your return (excluding any extension of time to file) to the date of your payment. H&r tax software If you do not pay the additional tax when you sign the agreement, you will receive a bill that includes interest. H&r tax software If you pay the amount due within 10 business days of the billing date, you will not have to pay more interest or penalties. H&r tax software This period is extended to 21 calendar days if the amount due is less than $100,000. H&r tax software If you are due a refund, you will receive it sooner if you sign the agreement form. H&r tax software You will be paid interest on the refund. H&r tax software If the IRS accepts your tax return as filed, you will receive a letter in a few weeks stating that the examiner proposed no changes to your return. H&r tax software You should keep this letter with your tax records. H&r tax software If You Do Not Agree If you do not agree with the proposed changes, the examiner will explain your appeal rights. H&r tax software If your examination takes place in an IRS office, you can request an immediate meeting with the examiner's supervisor to explain your position. H&r tax software If an agreement is reached, your case will be closed. H&r tax software If you cannot reach an agreement with the supervisor at this meeting, or if the examination took place outside of an IRS office, the examiner will write up your case explaining your position and the IRS's position. H&r tax software The examiner will forward your case for processing. H&r tax software Fast track mediation. H&r tax software   The IRS offers fast track mediation services to help taxpayers resolve many disputes resulting from: Examinations (audits), Offers in compromise, Trust fund recovery penalties, and Other collection actions. H&r tax software   Most cases that are not docketed in any court qualify for fast track mediation. H&r tax software Mediation can take place at a conference you request with a supervisor, or later. H&r tax software The process involves an Appeals Officer who has been trained in mediation. H&r tax software You may represent yourself at the mediation session, or someone else can act as your representative. H&r tax software For more information, see Publication 3605. H&r tax software 30-day letter and 90-day letter. H&r tax software   Within a few weeks after your closing conference with the examiner and/or supervisor, you will receive a package with: A letter (known as a 30-day letter) notifying you of your right to appeal the proposed changes within 30 days, A copy of the examination report explaining the examiner's proposed changes, An agreement or waiver form, and A copy of Publication 5. H&r tax software You generally have 30 days from the date of the 30-day letter to tell the IRS whether you will accept or appeal the proposed changes. H&r tax software The letter will explain what steps you should take, depending on which action you choose. H&r tax software Be sure to follow the instructions carefully. H&r tax software Appeal Rights are explained later. H&r tax software 90-day letter. H&r tax software   If you do not respond to the 30-day letter, or if you later do not reach an agreement with an Appeals Officer, the IRS will send you a 90-day letter, which is also known as a notice of deficiency. H&r tax software You will have 90 days (150 days if it is addressed to you outside the United States) from the date of this notice to file a petition with the Tax Court. H&r tax software Filing a petition with the Tax Court is discussed later under Appeals to the Courts and Tax Court . H&r tax software The notice will show the 90th (or 150th) day by which you must file your petition with the Tax Court. H&r tax software Suspension of interest and penalties. H&r tax software   Generally, the IRS has 3 years from the date you filed your return (or the date the return was due, if later) to assess any additional tax. H&r tax software However, if you file your return timely (including extensions), interest and certain penalties will be suspended if the IRS does not mail a notice to you, stating your liability and the basis for that liability, within a 36-month period beginning on the later of: The date on which you filed your tax return, or The due date (without extensions) of your tax return. H&r tax software If the IRS mails a notice after the 36-month period, interest and certain penalties applicable to the suspension period will be suspended. H&r tax software   The suspension period begins the day after the close of the 36-month period and ends 21 days after the IRS mails a notice to you stating your liability and the basis for that liability. H&r tax software Also, the suspension period applies separately to each notice stating your liability and the basis for that liability received by you. H&r tax software    The suspension does not apply to a: Failure-to-pay penalty, Fraudulent tax return, Penalty, interest, addition to tax, or additional amount with respect to any tax liability shown on your return or with respect to any gross misstatement, Penalty, interest, addition to tax, or additional amount with respect to any reportable transaction that is not adequately disclosed or any listed transaction, or Criminal penalty. H&r tax software Seeking relief from improperly assessed interest. H&r tax software   You can seek relief if interest is assessed for periods during which interest should have been suspended because the IRS did not mail a notice to you in a timely manner. H&r tax software   If you believe that interest was assessed with respect to a period during which interest should have been suspended, submit Form 843, writing “Section 6404(g) Notification” at the top of the form, with the IRS Service Center where you filed your return. H&r tax software The IRS will review the Form 843 and notify you whether interest will be abated. H&r tax software If the IRS does not abate interest, you can pay the disputed interest assessment and file a claim for refund. H&r tax software If your claim is denied or not acted upon within 6 months from the date you filed it, you can file suit for a refund in your United States District Court or in the United States Court of Federal Claims. H&r tax software   If you believe that an IRS officer or employee has made an unreasonable error or delay in performing a ministerial or managerial act (discussed later under Abatement of Interest Due to Error or Delay by the IRS ), file Form 843 with the IRS Service Center where you filed the tax return. H&r tax software If the IRS denies your claim, the Tax Court may be able to review that determination. H&r tax software See Tax Court can review failure to abate interest later under Abatement of Interest Due to Error or Delay by the IRS . H&r tax software If you later agree. H&r tax software    If you agree with the examiner's changes after receiving the examination report or the 30-day letter, sign and return either the examination report or the waiver form. H&r tax software Keep a copy for your records. H&r tax software You can pay any additional amount you owe without waiting for a bill. H&r tax software Include interest on the additional tax at the applicable rate. H&r tax software This interest rate is usually for the period from the due date of the return (excluding any extension of time to file) to the date of payment. H&r tax software The examiner can tell you the interest rate(s) or help you figure the amount. H&r tax software   You must pay interest on penalties and additions to tax for failing to file returns, for overstating valuations, for understating valuations on estate and gift tax returns, and for substantially understating tax liability. H&r tax software Interest is generally figured from the date (including extensions) the tax return is required to be filed to the date you pay the penalty and/or additions to tax. H&r tax software   If you pay the amount due within 10 business days after the date of notice and demand for immediate payment, you will not have to pay any additional penalties and interest. H&r tax software This period is extended to 21 calendar days if the amount due is less than $100,000. H&r tax software How To Stop Interest From Accruing If you think that you will owe additional tax at the end of the examination, you can stop the further accrual of interest by sending money to the IRS to cover all or part of the amount you think you will owe. H&r tax software Interest on part or all of any amount you owe will stop accruing on the date the IRS receives your money. H&r tax software You can send an amount either in the form of a deposit in the nature of a cash bond or as a payment of tax. H&r tax software Both a deposit and a payment stop any further accrual of interest. H&r tax software However, making a deposit or payment will stop the accrual of interest on only the amount you sent. H&r tax software Because of compounding rules, interest will continue to accrue on accrued interest, even though you have paid the underlying tax. H&r tax software To stop the accrual of interest on both tax and interest, you must make a deposit or payment for both the tax and interest that has accrued as of the date of deposit or payment. H&r tax software Payment or Deposit Deposits differ from payments in two ways: You can have all or part of your deposit returned to you without filing for a refund. H&r tax software However, if you request and receive your deposit and the IRS later assesses a deficiency for that period and type of tax, interest will be figured as if the funds were never on deposit. H&r tax software Also, your deposit will not be returned if one of the following situations applies: The IRS assesses a tax liability. H&r tax software The IRS determines that, by returning the deposit, it may not be able to collect a future deficiency. H&r tax software The IRS determines that the deposit should be applied against another tax liability. H&r tax software Deposits returned to you will include interest based on the Federal short-term rate determined under section 6621(b). H&r tax software The deposit returned will be treated as a tax payment to the extent of the disputed tax. H&r tax software A disputed tax means the amount of tax specified at the time of deposit as a reasonable estimate of the maximum amount of any tax owed by you, such as the deficiency proposed in the 30-day letter. H&r tax software Notice not mailed. H&r tax software    If you send money before the IRS mails you a notice of deficiency, you can ask the IRS to treat it as a deposit. H&r tax software You must make your request in writing. H&r tax software   If, after being notified of a proposed liability but before the IRS mails you a notice of deficiency, you send an amount large enough to cover the proposed liability, it will be considered a payment unless you request in writing that it be treated as a deposit. H&r tax software Keep copies of all correspondence you send to the IRS. H&r tax software   If the amount you send is at least as much as the proposed liability and you do not request that it be treated as a deposit, the IRS will not send you a notice of deficiency. H&r tax software If you do not receive a notice of deficiency, you cannot take your case to the Tax Court. H&r tax software See Tax Court , later under Appeal Rights . H&r tax software Notice mailed. H&r tax software    If, after the IRS mails the notice of deficiency, you send money without written instructions, it will be treated as a payment. H&r tax software You will still be able to petition the Tax Court. H&r tax software   If you send money after receiving a notice of deficiency and you have specified in writing that it is a “deposit in the nature of a cash bond,” the IRS will treat it as a deposit if you send it before either: The close of the 90-day or 150-day period for filing a petition with the Tax Court to appeal the deficiency, or The date the Tax Court decision is final, if you have filed a petition. H&r tax software Using a Deposit To Pay the Tax If you agree with the examiner's proposed changes after the examination, your deposit will be applied against any amount you may owe. H&r tax software The IRS will not mail you a notice of deficiency and you will not have the right to take your case to the Tax Court. H&r tax software If you do not agree to the full amount of the deficiency after the examination, the IRS will mail you a notice of deficiency. H&r tax software Your deposit will be applied against the proposed deficiency unless you write to the IRS before the end of the 90-day or 150-day period stating that you still want the money to be treated as a deposit. H&r tax software You will still have the right to take your case to the Tax Court. H&r tax software Installment Agreement Request You can request a monthly installment plan if you cannot pay the full amount you owe. H&r tax software To be valid, your request must be approved by the IRS. H&r tax software However, if you owe $10,000 or less in tax and you meet certain other criteria, the IRS must accept your request. H&r tax software Before you request an installment agreement, you should consider other less costly alternatives, such as a bank loan. H&r tax software You will continue to be charged interest and penalties on the amount you owe until it is paid in full. H&r tax software Unless your income is below a certain level, the fee for an approved installment agreement has increased to $105 ($52 if you make your payments by electronic funds withdrawal). H&r tax software If your income is below a certain level, you may qualify to pay a reduced fee of $43. H&r tax software For more information about installment agreements, see Form 9465, Installment Agreement Request. H&r tax software Interest Netting If you owe interest to the IRS on an underpayment for the same period the IRS owes you interest on an overpayment, the IRS will figure interest on the underpayment and overpayment at the same interest rate (up to the amount of the overpayment). H&r tax software As a result, the net rate is zero for that period. H&r tax software Abatement of Interest Due to Error or Delay by the IRS The IRS may abate (reduce) the amount of interest you owe if the interest is due to an unreasonable error or delay by an IRS officer or employee in performing a ministerial or managerial act (discussed later). H&r tax software Only the amount of interest on income, estate, gift, generation-skipping, and certain excise taxes can be reduced. H&r tax software The amount of interest will not be reduced if you or anyone related to you contributed significantly to the error or delay. H&r tax software Also, the interest will be reduced only if the error or delay happened after the IRS contacted you in writing about the deficiency or payment on which the interest is based. H&r tax software An audit notification letter is such a contact. H&r tax software The IRS cannot reduce the amount of interest due to a general administrative decision, such as a decision on how to organize the processing of tax returns. H&r tax software Ministerial act. H&r tax software    This is a procedural or mechanical act, not involving the exercise of judgment or discretion, during the processing of a case after all prerequisites (for example, conferences and review by supervisors) have taken place. H&r tax software A decision concerning the proper application of federal tax law (or other federal or state law) is not a ministerial act. H&r tax software Example 1. H&r tax software You move from one state to another before the IRS selects your tax return for examination. H&r tax software A letter stating that your return has been selected is sent to your old address and then forwarded to your new address. H&r tax software When you get the letter, you respond with a request that the examination be transferred to the area office closest to your new address. H&r tax software The examination group manager approves your request. H&r tax software After your request has been approved, the transfer is a ministerial act. H&r tax software The IRS can reduce the interest because of any unreasonable delay in transferring the case. H&r tax software Example 2. H&r tax software An examination of your return reveals tax due for which a notice of deficiency (90-day letter) will be issued. H&r tax software After you and the IRS discuss the issues, the notice is prepared and reviewed. H&r tax software After the review process, issuing the notice of deficiency is a ministerial act. H&r tax software If there is an unreasonable delay in sending the notice of deficiency to you, the IRS can reduce the interest resulting from the delay. H&r tax software Managerial act. H&r tax software    This is an administrative act during the processing of a case that involves the loss of records or the exercise of judgment or discretion concerning the management of personnel. H&r tax software A decision concerning the proper application of federal tax law (or other federal or state law) is not a managerial act. H&r tax software Example. H&r tax software A revenue agent is examining your tax return. H&r tax software During the middle of the examination, the agent is sent to an extended training course. H&r tax software The agent's supervisor decides not to reassign your case, so the work is unreasonably delayed until the agent returns. H&r tax software Interest from the unreasonable delay can be abated since both the decision to send the agent to the training class and not to reassign the case are managerial acts. H&r tax software How to request abatement of interest. H&r tax software    You request an abatement (reduction) of interest on Form 843. H&r tax software You should file the claim with the IRS Service Center where you filed the tax return that was affected by the error or delay. H&r tax software   If you have already paid the interest and you would like a credit or refund of interest paid, you must file Form 843 within 3 years from the date you filed your original return or 2 years from the date you paid the interest, whichever is later. H&r tax software If you have not paid any of the interest, these time limitations for filing Form 843 do not apply. H&r tax software   Generally, you should file a separate Form 843 for each tax period and each type of tax. H&r tax software However, complete only one Form 843 if the interest is from an IRS error or delay that affected your tax for more than one tax period or for more than one type of tax (for example, where 2 or more tax years were being examined). H&r tax software   If your request for abatement of interest is denied, you can appeal the decision to the IRS Appeals Office. H&r tax software Tax Court can review failure to abate interest. H&r tax software    The Tax Court can review the IRS's refusal to abate (reduce) interest if all of the following requirements are met: You filed a request for abatement of interest (Form 843) with the IRS after July 30,1996. H&r tax software The IRS has mailed you a notice of final determination or a notice of disallowance. H&r tax software You file a petition with the Tax Court within 180 days of the mailing of the notice of final determination or the notice of disallowance. H&r tax software   The following requirements must also be met: For individual and estate taxpayers — your net worth must not exceed $2 million as of the filing date of your petition for review. H&r tax software For this purpose, individuals filing a joint return shall be treated as separate individuals. H&r tax software For charities and certain cooperatives — you must not have more than 500 employees as of the filing date of your petition for review. H&r tax software For all other taxpayers — your net worth must not exceed $7 million, and you must not have more than 500 employees as of the filing date of your petition for review. H&r tax software Abatement of Interest for Individuals Affected by Presidentially Declared Disasters or Military or Terrorist Actions If you are (or were) affected by a Presidentially declared disaster occurring after 1996 or a terrorist or military action occurring after September 10, 2001, the IRS may abate (reduce) the amount of interest you owe on certain taxes. H&r tax software The IRS may abate interest for the period of any additional time to file or pay that the IRS provides on account of the disaster or the terrorist or military action. H&r tax software The IRS will issue a notice or news release indicating who are affected taxpayers and stating the period of relief. H&r tax software If you are eligible for relief from interest, but were charged interest for the period of relief, the IRS may retroactively abate your interest. H&r tax software To the extent possible, the IRS can take the following actions: Make appropriate adjustments to your account. H&r tax software Notify you when the adjustments are made. H&r tax software Refund any interest paid by you where appropriate. H&r tax software For more information on disaster area losses, see Disaster Area Losses in Publication 547. H&r tax software For more information on other tax relief for victims of terrorist attacks, see Publication 3920. H&r tax software Offer in Compromise In certain circumstances, the IRS will allow you to pay less than the full amount you owe. H&r tax software If you think you may qualify, you should submit your offer by filing Form 656, Offer in Compromise. H&r tax software The IRS may accept your offer for any of the following reasons: There is doubt about the amount you owe (or whether you owe it). H&r tax software There is doubt as to whether you can pay the amount you owe based on your financial situation. H&r tax software An economic hardship would result if you had to pay the full amount owed. H&r tax software Your case presents compelling reasons that the IRS determines are a sufficient basis for compromise. H&r tax software If your offer is rejected, you have 30 days to ask the Appeals Office of the IRS to reconsider your offer. H&r tax software The IRS offers fast track mediation services to help taxpayers resolve many issues including a dispute regarding an offer in compromise. H&r tax software For more information, see Publication 3605. H&r tax software Generally, if you submit an offer in compromise, the IRS will delay certain collection activities. H&r tax software The IRS usually will not levy (take) your property to settle your tax bill during the following periods: While the IRS is evaluating your offer in compromise. H&r tax software The 30 days immediately after the offer is rejected. H&r tax software While your timely-filed appeal is being considered by Appeals. H&r tax software Also, if the IRS rejects your original offer and you submit a revised offer within 30 days of the rejection, the IRS generally will not levy your property while it considers your revised offer. H&r tax software For more information about submitting an offer in compromise, see Form 656. H&r tax software Appeal Rights Because people sometimes disagree on tax matters, the IRS has an appeals system. H&r tax software Most differences can be settled within this system without expensive and time-consuming court trials. H&r tax software However, your reasons for disagreeing must come within the scope of the tax laws. H&r tax software For example, you cannot appeal your case based only on moral, religious, political, constitutional, conscientious, or similar grounds. H&r tax software In most instances, you may be eligible to take your case to court if you do not reach an agreement at your appeals conference, or if you do not want to appeal your case to the IRS Office of Appeals. H&r tax software See Appeals to the Courts , later, for more information. H&r tax software Appeal Within the IRS You can appeal an IRS tax decision to a local Appeals Office, which is separate from and independent of the IRS office taking the action you disagree with. H&r tax software The Appeals Office is the only level of appeal within the IRS. H&r tax software Conferences with Appeals Office personnel are held in an informal manner by correspondence, by telephone, or at a personal conference. H&r tax software If you want an appeals conference, follow the instructions in the letter you received. H&r tax software Your request will be sent to the Appeals Office to arrange a conference at a convenient time and place. H&r tax software You or your representative should be prepared to discuss all disputed issues at the conference. H&r tax software Most differences are settled at this level. H&r tax software If agreement is not reached at your appeals conference, you may be eligible to take your case to court. H&r tax software See Appeals to the Courts , later. H&r tax software Protests and Small Case Requests When you request an Appeals conference, you may also need to file either a formal written protest or a small case request with the office named in the letter you received. H&r tax software Also, see the special appeal request procedures in Publication 1660. H&r tax software Written protest. H&r tax software   You need to file a written protest in the following cases: All employee plan and exempt organization cases without regard to the dollar amount at issue. H&r tax software All partnership and S corporation cases without regard to the dollar amount at issue. H&r tax software All other cases, unless you qualify for the small case request procedure, or other special appeal procedures such as requesting Appeals consideration of liens, levies, seizures, or installment agreements. H&r tax software   If you must submit a written protest, see the instructions in Publication 5 about the information you need to provide. H&r tax software The IRS urges you to provide as much information as you can, as it will help speed up your appeal. H&r tax software That will save you both time and money. H&r tax software    Be sure to send the protest within the time limit specified in the letter you received. H&r tax software Small case request. H&r tax software   If the total amount for any tax period is not more than $25,000, you may make a small case request instead of filing a formal written protest. H&r tax software In figuring the total amount, include a proposed increase or decrease in tax (including penalties), or claimed refund. H&r tax software If you are making an offer in compromise, include total unpaid tax, penalty, and interest due. H&r tax software For a small case request, follow the instructions in our letter to you by sending a letter: Requesting Appeals consideration, Indicating the changes you do not agree with, and Indicating the reasons why you do not agree. H&r tax software Representation You can represent yourself at your appeals conference, or you can be represented by any federally authorized practitioner, including an attorney, a certified public accountant, an enrolled actuary, or an enrolled agent. H&r tax software If your representative attends a conference without you, he or she can receive or inspect confidential information only if you have filed a power of attorney or a tax information authorization. H&r tax software You can use a Form 2848 or any other properly written power of attorney or authorization. H&r tax software You can also bring witnesses to support your position. H&r tax software Confidentiality privilege. H&r tax software   Generally, the same confidentiality protection that you have with an attorney also applies to certain communications that you have with federally authorized practitioners. H&r tax software See Confidentiality privilege under If Your Return Is Examined , earlier. H&r tax software Appeals to the Courts If you and the IRS still disagree after the appeals conference, you may be entitled to take your case to the United States Tax Court, the United States Court of Federal Claims, or a United States District Court. H&r tax software These courts are independent of the IRS. H&r tax software If you elect to bypass the IRS's appeals system, you may be able to take your case to one of the courts listed above. H&r tax software However, a case petitioned to the United States Tax Court will normally be considered for settlement by an Appeals Officer before the Tax Court hears the case. H&r tax software If you unreasonably fail to pursue the IRS's appeals system, or if your case is intended primarily to cause a delay, or your position is frivolous or groundless, the Tax Court may impose a penalty of up to $25,000. H&r tax software See Appeal Within the IRS, earlier. H&r tax software Prohibition on requests to taxpayers to give up rights to bring civil action. H&r tax software   The Government cannot ask you to waive your right to sue the United States or a Government officer or employee for any action taken in connection with the tax laws. H&r tax software However, your right to sue can be waived if: You knowingly and voluntarily waive that right, The request to waive that right is made in writing to your attorney or other federally authorized practitioner, or The request is made in person and your attorney or other representative is present. H&r tax software Burden of proof. H&r tax software   For court proceedings resulting from examinations started after July 22, 1998, the IRS generally has the burden of proof for any factual issue if you have met the following requirements: You introduced credible evidence relating to the issue. H&r tax software You complied with all substantiation requirements of the Internal Revenue Code. H&r tax software You maintained all records required by the Internal Revenue Code. H&r tax software You cooperated with all reasonable requests by the IRS for information regarding the preparation and related tax treatment of any item reported on your tax return. H&r tax software You had a net worth of $7 million or less and not more than 500 employees at the time your tax liability is contested in any court proceeding if your tax return is for a corporation, partnership, or trust. H&r tax software    The burden of proof does not change on an issue when another provision of the tax laws requires a specific burden of proof with respect to that issue. H&r tax software Use of statistical information. H&r tax software   In the case of an individual, the IRS has the burden of proof in court proceedings based on any IRS reconstruction of income solely through the use of statistical information on unrelated taxpayers. H&r tax software Penalties. H&r tax software   The IRS has the burden of initially producing evidence in court proceedings with respect to the liability of any individual taxpayer for any penalty, addition to tax, or additional amount imposed by the tax laws. H&r tax software Recovering litigation or administrative costs. H&r tax software   These are the expenses that you pay to defend your position to the IRS or the courts. H&r tax software You may be able to recover reasonable litigation or administrative costs if all of the following conditions apply: You are the prevailing party. H&r tax software You exhaust all administrative remedies within the IRS. H&r tax software Your net worth is below a certain limit (see Net worth requirements , later). H&r tax software You do not unreasonably delay the proceeding. H&r tax software You apply for administrative costs within 90 days of the date on which the final decision of the IRS Office of Appeals as to the determination of the tax, interest, or penalty was mailed to you. H&r tax software You apply for litigation costs within the time frames provided by Tax Court Rule 231, found at http://www. H&r tax software ustaxcourt. H&r tax software gov  www. H&r tax software ustaxcourt. H&r tax software gov . H&r tax software   Prevailing party, reasonable litigation costs, and reasonable administrative costs are explained later. H&r tax software Note. H&r tax software If the IRS denies your award of administrative costs, and you want to appeal, you must petition the Tax Court within 90 days of the date on which the IRS mails the denial notice. H&r tax software Prevailing party. H&r tax software   Generally, you are the prevailing party if: You substantially prevail with respect to the amount in controversy or on the most significant tax issue or set of issues in question, and You meet the net worth requirements, discussed later. H&r tax software   You will not be treated as the prevailing party if the United States establishes that its position was substantially justified. H&r tax software The position of the United States is presumed not to be substantially justified if the IRS: Did not follow its applicable published guidance (such as regulations, revenue rulings, notices, announcements, private letter rulings, technical advice memoranda, and determination letters issued to the taxpayer) in the proceeding (This presumption can be overcome by evidence. H&r tax software ), or Has lost in courts of appeal for other circuits on substantially similar issues. H&r tax software   The court will generally decide who is the prevailing party. H&r tax software Reasonable litigation costs. H&r tax software   These include the following costs: Reasonable court costs. H&r tax software The reasonable costs of studies, analyses, engineering reports, tests, or projects found by the court to be necessary for the preparation of your case. H&r tax software The reasonable costs of expert witnesses. H&r tax software Attorney fees that generally may not exceed $125 maximum hourly rate as set by statute and indexed for inflation. H&r tax software See Attorney fees , later. H&r tax software Reasonable administrative costs. H&r tax software   These include the following costs: Any administrative fees or similar charges imposed by the IRS. H&r tax software The reasonable costs of studies, analyses, engineering reports, tests, or projects. H&r tax software The reasonable costs of expert witnesses. H&r tax software Attorney fees that generally may not exceed $125 per hour. H&r tax software See Attorney fees , later. H&r tax software Timing of costs. H&r tax software    Administrative costs can be awarded for costs incurred after the earliest of: The date the first letter of proposed deficiency is sent that allows you an opportunity to request administrative review in the IRS Office of Appeals, The date you receive notice of the IRS Office of Appeals' decision, or The date of the notice of deficiency. H&r tax software Net worth requirements. H&r tax software   An individual taxpayer may be able to recover litigation or administrative costs if the following requirements are met: For individuals — your net worth does not exceed $2 million as of the filing date of your petition for review. H&r tax software For this purpose, individuals filing a joint return are treated as separate individuals. H&r tax software For estates — your net worth does not exceed $2 million as of the date of the decedent's death. H&r tax software For charities and certain cooperatives — you do not have more than 500 employees as of the filing date of your petition for review. H&r tax software For all other taxpayers — as of the filing date of your petition for review, your net worth does not exceed $7 million, and you must not have more than 500 employees. H&r tax software Qualified offer rule. H&r tax software    You can also receive reasonable costs and fees and be treated as a prevailing party in a civil action or proceeding if: You make a qualified offer to the IRS to settle your case, The IRS does not accept that offer, and The tax liability (not including interest, unless interest is at issue) later determined by the court is equal to or less than the amount of your qualified offer. H&r tax software You must also meet the remaining requirements, including the exhaustion of administrative remedies and the net worth requirement, discussed earlier, to get the benefit of the qualified offer rule. H&r tax software Qualified offer. H&r tax software    This is a written offer made by you during the qualified offer period. H&r tax software It must specify both the offered amount of your liability (not including interest) and that it is a qualified offer. H&r tax software   To be a qualified offer, it must remain open from the date it is made until the earliest of: The date it is rejected, The date the trial begins, or 90 days from the date it is made. H&r tax software Qualified offer period. H&r tax software    This period begins on the day the IRS mails you the first letter of proposed deficiency that allows you to request review by the IRS Office of Appeals. H&r tax software It ends 30 days before your case is first set for trial. H&r tax software Attorney fees. H&r tax software   Attorney fees generally may not exceed $125 maximum hourly rate as set by statute and indexed for inflation. H&r tax software However, this amount can be higher in certain limited circumstances depending on the level of difficulty of the issues in the case and the local availability of tax expertise. H&r tax software See IRS. H&r tax software gov for more information. H&r tax software    Attorney fees include the fees paid by a taxpayer for the services of anyone who is authorized to practice before the Tax Court or before the IRS. H&r tax software In addition, attorney fees can be awarded in civil actions for unauthorized inspection or disclosure of a taxpayer's return or return information. H&r tax software   Fees can be awarded in excess of the actual amount charged if: You are represented for no fee, or for a nominal fee, as a pro bono service, and The award is paid to your representative or to your representative's employer. H&r tax software Jurisdiction for determination of employment status. H&r tax software    The Tax Court can review IRS employment status determinations (for example, whether individuals hired by you are in fact your employees or independent contractors) and the amount of employment tax under such determinations. H&r tax software Tax Court review can take place only if, in connection with an audit of any person, there is a controversy involving a determination by the IRS that either: One or more individuals performing services for that person are employees of that person, or That person is not entitled to relief under Section 530(a) of the Revenue Act of 1978 (discussed later). H&r tax software   The following rules also apply to a Tax Court review of employment status: A Tax Court petition to review these determinations can be filed only by the person for whom the services are performed, If you receive a Notice of Determination by certified or registered mail, you must file a petition for Tax Court review within 90 days of the date of mailing that notice (150 days if the notice is addressed to you outside the United States), If during the Tax Court proceeding, you begin to treat as an employee an individual whose employment status is at issue, the Tax Court will not consider that change in its decision, Assessment and collection of tax is suspended while the Tax Court review is taking place, Payment of the asserted employment tax deficiency is not required to petition the U. H&r tax software S. H&r tax software Tax Court for a determination of employment status. H&r tax software There can be a de novo review by the Tax Court (a review which does not consider IRS administrative findings), and At your request and with the Tax Court's agreement, small tax case procedures (discussed later) are available to simplify the case resolution process when the amount at issue (including additions to tax and penalties) is $50,000 or less for each tax period involved. H&r tax software   For further information, see Publication 3953, Questions and Answers About Tax Court Proceedings for Determination of Employment Status Under IRC Section 7436. H&r tax software Section 530(a) of the Revenue Act of 1978. H&r tax software   This section relieves an employer of certain employment tax responsibilities for individuals not treated as employees. H&r tax software It also provides relief to taxpayers under audit or involved in administrative or judicial proceedings. H&r tax software Tax Court review of request for relief from joint and several liability on a joint return. H&r tax software    As discussed later, at Relief from joint and several liability on a joint return under Claims for Refund, you can request relief from liability for tax you owe, plus related penalties and interest, that you believe should be paid by your spouse (or former spouse). H&r tax software You also can petition (ask) the Tax Court to review your request for innocent spouse relief or separation of liability if either: The IRS sends you a determination notice denying, in whole or in part, your request, or You do not receive a determination notice from the IRS within 6 months from the date you file Form 8857. H&r tax software   If you receive a determination notice, you must petition the Tax Court to review your request during the 90-day period that begins on the date the IRS mails the notice. H&r tax software See Publication 971 for more information. H&r tax software Note. H&r tax software Your spouse or former spouse may file a written protest and request an Appeals conference to protest your claim of innocent spouse relief or separation of liability. H&r tax software See Rev. H&r tax software Proc. H&r tax software 2003-19, which is on page 371 of the Internal Revenue Bulletin 2003-5 at  www. H&r tax software irs. H&r tax software gov/pub/irs-irbs/irb03-05. H&r tax software pdf. H&r tax software Tax Court You can take your case to the United States Tax Court if you disagree with the IRS over: Income tax, Estate tax, Gift tax, Employment tax involving IRS employment status determinations, or Certain excise taxes of private foundations, public charities, qualified pension and other retirement plans, or real estate investment trusts. H&r tax software For information on Tax Court review of a determination of employment status, see Jurisdiction for determination of employment status, earlier. H&r tax software For information on Tax Court review of an IRS refusal to abate interest, see Tax Court can review failure to abate interest, earlier under Examination of Returns. H&r tax software For information on Tax Court review of Appeals determinations with respect to lien notices and proposed levies, see Publication 1660. H&r tax software You cannot take your case to the Tax Court before the IRS sends you a notice of deficiency. H&r tax software You can only appeal your case if you file a petition within 90 days from the date the notice is mailed to you (150 days if it is addressed to you outside the United States). H&r tax software The notice will show the 90th (or 150th) day by which you must file your petition with the Tax Court. H&r tax software Withdrawal of notice of deficiency. H&r tax software If you consent, the IRS can withdraw a notice of deficiency. H&r tax software A notice of deficiency may be rescinded if the notice was issued as a result of an administrative error; the taxpayer submits information establishing the actual tax due is less than the amount shown in the notice; the taxpayer specifically requests a conference with the appropriate Appeals office for the purpose of entering into settlement negotiations. H&r tax software However, the notice may be rescinded only if the appropriate Appeals office first decides that the case is susceptible to agreement. H&r tax software See Revenue Procedure 98-54 for a more detailed explanation of the requirements. H&r tax software Once withdrawn, the limits on credits, refunds, and assessments concerning the notice are void, and you and the IRS have the rights and obligations that you had before the notice was issued. H&r tax software The suspension of any time limitation while the notice of deficiency was issued will not change when the notice is withdrawn. H&r tax software After the notice is withdrawn, you cannot file a petition with the Tax Court based on the notice. H&r tax software Also, the IRS can later issue a notice of deficiency in a greater or lesser amount than the amount in the withdrawn deficiency. H&r tax software Generally, the Tax Court hears cases before any tax has been assessed and paid; however, you can pay the tax after the notice of deficiency has been issued and still petition the Tax Court for review. H&r tax software If you do not file your petition on time, the proposed tax will be assessed, a bill will be sent, and you will not be able to take your case to the Tax Court. H&r tax software Under the law, you must pay the tax within 21 days (10 business days if the amount is $100,000 or more). H&r tax software Collection can proceed even if you think that the amount is excessive. H&r tax software Publication 594 explains IRS collection procedures. H&r tax software If you filed your petition on time, the court will schedule your case for trial at a location convenient to you. H&r tax software You can represent yourself before the Tax Court or you can be represented by anyone admitted to practice before that court. H&r tax software Small tax case procedure. H&r tax software   If the amount in your case is $50,000 or less for any 1 tax year or period, you can request that your case be handled under the small tax case procedure. H&r tax software If the Tax Court approves, you can present your case to the Tax Court for a decision that is final and that you cannot appeal. H&r tax software You can get more information regarding the small tax case procedure and other Tax Court matters from the United States Tax Court, 400 Second Street, N. H&r tax software W. H&r tax software , Washington, DC 20217. H&r tax software More information can be found on the Tax Court's website at www. H&r tax software ustaxcourt. H&r tax software gov. H&r tax software Motion to request redetermination of interest. H&r tax software   In certain cases, you can file a motion asking the Tax Court to redetermine the amount of interest on either an underpayment or an overpayment. H&r tax software You can do this only in a situation that meets all of the following requirements: The IRS has assessed a deficiency that was determined by the Tax Court. H&r tax software The assessment included interest. H&r tax software You have paid the entire amount of the deficiency plus the interest claimed by the IRS. H&r tax software The Tax Court has found that you made an overpayment. H&r tax software You must file the motion within one year after the decision of the Tax Court becomes final. H&r tax software District Court and Court of Federal Claims Generally, the District Courts and the Court of Federal Claims hear tax cases only after you have paid the entire tax and penalties, and filed a claim for a credit or refund. H&r tax software The taxpayer may litigate certain types of employment tax cases in either the United States District Court or the United States Court of Federal Claims. H&r tax software Before taxpayers can initiate suit in either of these courts with respect to certain employment taxes, they will have to pay, at a minimum, the employment tax assessment attributable to one employee for any one quarter and file a claim for refund of the tax. H&r tax software Once the claim for refund is denied or 6 months elapse without any action by the IRS, the taxpayer may initiate suit. H&r tax software As explained later under Claims for Refund, you can file a claim with the IRS for a credit or refund if you think that the tax you paid is incorrect or excessive. H&r tax software If your claim is totally or partially disallowed by the IRS, you should receive a notice of claim disallowance. H&r tax software If the IRS does not act on your claim within 6 months from the date you filed it, you can then file suit for a refund. H&r tax software You generally must file suit for a credit or refund no later than 2 years after the IRS informs you that your claim has been rejected. H&r tax software However, you can file suit if it has been 6 months since you filed your claim and the IRS has not yet delivered a decision. H&r tax software You can file suit for a credit or refund in your United States District Court or in the United States Court of Federal Claims. H&r tax software However, you cannot appeal to the United States Court of Federal Claims if your claim is for credit or refund of a penalty that relates to promoting an abusive tax shelter or to aiding and abetting the understatement of tax liability on someone else's return. H&r tax software For information about procedures for filing suit in either court, contact the Clerk of your District Court or of the United States Court of Federal Claims. H&r tax software Refund or Credit of Overpayments Before Final Determination Any court with proper jurisdiction, including the Tax Court, can order the IRS to refund any part of a tax deficiency that the IRS collects from you during a period when the IRS is not permitted to assess that deficiency, or to levy or engage in any court proceeding to collect that deficiency. H&r tax software In addition, the court can order a refund of any part of an overpayment determined by the Tax Court that is not at issue on appeal to a higher court. H&r tax software The court can order these refunds before its decision on the case is final. H&r tax software Taxpayers should thoroughly review IRS settlement offers before signing a Tax Court Decision document to ensure that all adjustments are correct, including the inclusion of any tax credits that the taxpayer is allowed to claim. H&r tax software Note. H&r tax software The court may no longer order a refund of an overpayment after the case is final. H&r tax software Generally, the IRS is not permitted to take action on a tax deficiency during: The 90-day (or 150-day if outside the United States) period that you have to petition a notice of deficiency to the Tax Court, or The period that the case is under appeal if a bond is provided. H&r tax software Claims for Refund If you believe you have overpaid your tax, you have a limited amount of time in which to file a claim for a credit or refund. H&r tax software You can claim a credit or refund by filing Form 1040X. H&r tax software See Time for Filing a Claim for Refund , later. H&r tax software File your claim by mailing it to the IRS Service Center where you filed your original return. H&r tax software File a separate form for each year or period involved. H&r tax software Include an explanation of each item of income, deduction, or credit on which you are basing your claim. H&r tax software Corporations should file Form 1120X, Amended U. H&r tax software S. H&r tax software Corporation Income Tax Return, or other form appropriate to the type of credit or refund claimed. H&r tax software See Publication 3920 for information on filing claims for tax forgiveness for individuals affected by terrorist attacks. H&r tax software Requesting a copy of your tax return. H&r tax software   You can obtain a copy of the actual return and all attachments you filed with the IRS for an earlier year. H&r tax software This includes a copy of the Form W-2 or Form 1099 filed with your return. H&r tax software Use Form 4506 to make your request. H&r tax software You will be charged a fee, which you must pay when you submit Form 4506. H&r tax software Requesting a copy of your tax account information. H&r tax software   Use Form 4506-T, Request for Transcript of Tax Return, to request free copies of your tax return transcript, tax account transcript, record of account, verification of nonfiling, or Form W-2, Form 1099 series, Form 1098 series, or Form 5498 series transcript. H&r tax software The tax return transcript contains most of the line items of a tax return. H&r tax software A tax account transcript contains information on the financial status of the account, such as payments, penalty assessments, and adjustments. H&r tax software A record of account is a combination of line item information and later adjustments to the account. H&r tax software Form W-2, Form 1099 series, Form 1098 series, or Form 5498 series transcript contains data from these information returns. H&r tax software Penalty for erroneous claim for refund. H&r tax software   If you claim an excessive amount of tax refund or credit relating to income tax (other than a claim relating to the earned income credit), you may be liable for a penalty of 20% of the amount that is determined to be excessive. H&r tax software An excessive amount is the amount of the claim for refund or credit that is more than the amount of claim allowable for the tax year. H&r tax software The penalty may be waived if you can show that you had a reasonable basis for making the claim. H&r tax software Time for Filing a Claim for Refund Generally, you must file a claim for a credit or refund within 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later. H&r tax software If you do not file a claim within this period, you may no longer be entitled to a credit or a refund. H&r tax software If the due date to file a return or a claim for a credit or refund is a Saturday, Sunday, or legal holiday, it is filed on time if it is filed on the next business day. H&r tax software Returns you filed before the due date are considered filed on the due date. H&r tax software This is true even when the due date is a Saturday, Sunday, or legal holiday. H&r tax software Disaster area claims for refund. H&r tax software   If you live in a Presidentially declared disaster area or are affected by terroristic or military action, the deadline to file a claim for a refund may be postponed. H&r tax software This section discusses the special rules that apply to Presidentially declared disaster area refunds. H&r tax software    A Presidentially declared disaster is a disaster that occurred in an area declared by the President to be eligible for federal assistance under the Disaster Relief and Emergency Assistance Act. H&r tax software Postponed refund deadlines. H&r tax software   The IRS may postpone for up to 1 year the deadlines for filing a claim for refund. H&r tax software The postponement can be used by taxpayers who are affected by a Presidentially declared disaster. H&r tax software The IRS may also postpone deadlines for filing income and employment tax returns, paying income and employment taxes, and making contributions to a traditional IRA or Roth IRA. H&r tax software For more information, see Publication 547. H&r tax software   If any deadline is postponed, the IRS will publicize the postponement in your area and publish a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin. H&r tax software A list of the areas eligible for assistance under the Disaster Relief and Emergency Assistance Act is available at the Federal Emergency Management Agency (FEMA) website at www. H&r tax software fema. H&r tax software gov and at the IRS website at www. H&r tax software irs. H&r tax software gov. H&r tax software Nonfilers can get refund of overpayments paid within 3-year period. H&r tax software   The Tax Court can consider taxes paid during the 3-year period preceding the date of a notice of deficiency for determining any refund due to a nonfiler. H&r tax software This means that if you do not file your return, and you receive a notice of deficiency in the third year after the due date (with extensions) of your return and file suit with the Tax Court to contest the notice of deficiency, you may be able to receive a refund of excessive amounts paid within the 3-year period preceding the date of the notice of deficiency. H&r tax software The IRS may postpone for up to 1 year certain tax deadlines, including the time for filing claims for refund, for taxpayers who are affected by a terrorist attack occurring after September 10, 2001. H&r tax software For more information, see Publication 3920. H&r tax software Claim for refund by estates electing the installment method of payment. H&r tax software   In certain cases where an estate has elected to make tax payments through the installment method, the executor can file a suit for refund with a U. H&r tax software S. H&r tax software District Court or the U. H&r tax software S. H&r tax software Court of Federal Claims before all the installment payments have been made. H&r tax software However, all the following must be true before a suit can be filed: The estate consists largely of an interest in a closely-held business. H&r tax software All installment payments due on or before the date the suit is filed have been made. H&r tax software No accelerated installment payments have been made. H&r tax software No Tax Court case is pending with respect to any estate tax liability. H&r tax software If a notice of deficiency was issued to the estate regarding its liability for estate tax, the time for petitioning the Tax Court has passed. H&r tax software No proceeding is pending for a declaratory judgment by the Tax Court on whether the estate is eligible to pay tax in installments. H&r tax software The executor has not included any previously litigated issues in the current suit for refund. H&r tax software The executor does not discontinue making installment payments timely, while the court considers the suit for refund. H&r tax software    If in its final decision on the suit for refund the court redetermines the estate's tax liability, the IRS must refund any part of the estate tax amount that is disallowed. H&r tax software This includes any part of the disallowed amount previously collected by the IRS. H&r tax software Protective claim for refund. H&r tax software   If your right to a refund is contingent on future events and may not be determinable until after the time period for filing a claim for refund expires, you can file a protective claim for refund. H&r tax software A protective claim can be either a formal claim or an amended return for credit or refund. H&r tax software Protective claims are often based on current litigation or expected changes in the tax law, other legislation, or regulations. H&r tax software A protective claim preserves your right to claim a refund when the contingency is resolved. H&r tax software A protective claim does not have to state a particular dollar amount or demand an immediate refund. H&r tax software However, to be valid, a protective claim must: Be in writing and be signed, Include your name, address, social security number or individual taxpayer identification number, and other contact information, Identify and describe the contingencies affecting the claim, Clearly alert the IRS to the essential nature of the claim, and Identify the specific year(s) for which a refund is sought. H&r tax software   Generally, the IRS will delay action on the protective claim until the contingency is resolved. H&r tax software Once the contingency is resolved, the IRS may obtain additional information necessary to process the claim and then either allow or disallow the claim. H&r tax software   Mail your protective claim for refund to the address listed in the instructions for Form 1040X, under Where To File. H&r tax software Exceptions The limits on your claim for refund can be affected by the type of item that forms the basis of your claim. H&r tax software Special refunds. H&r tax software   If you file a claim for refund based on one of the items listed below, the limits discussed earlier under Time for Filing a Claim for Refund may not apply. H&r tax software These special items are: A bad debt, A worthless security, A payment or accrual of foreign tax, A net operating loss carryback, and A carryback of certain tax credits. H&r tax software   The limits discussed earlier also may not apply if you have signed an agreement to extend the period of assessment of tax. H&r tax software For information on special rules on filing claims for an individual affected by a terrorist attack, see Publication 3920. H&r tax software Periods of financial disability. H&r tax software   If you are an individual (not a corporation or other taxpaying entity), the period of limitations on credits and refunds can be suspended during periods when you cannot manage your financial affairs because of physical or mental impairment that is medically determinable and either: Has lasted or can be expected to last continuously for at least 12 months, or Can be expected to result in death. H&r tax software    The period for filing a claim for refund will not be suspended for any time that someone else, such as your spouse or guardian, was authorized to act for you in financial matters. H&r tax software   To claim financial disability, you generally must submit the following statements with your claim for credit or refund: A written statement signed by a physician, qualified to make the determination, that sets forth: The name and a description of your physical or mental impairment, The physician's medical opinion that your physical or mental impairment prevented you from managing your financial affairs, The physician's medical opinion that your physical or mental impairment was or can be expected to result in death, or that it has lasted (or can be expected to last) for a continuous period of not less than 12 months, and To the best of the physician's knowledge, the specific time period during which you were prevented by such physical or mental impairment from managing your financial affairs, and A written statement by the person signing the claim for credit or refund that no person, including your spouse, was authorized to act on your behalf in financial matters during the period described in paragraph (1)(d) of the physician's statement. H&r tax software Alternatively, if a person was authorized to act on your behalf in financial matters during any part of the period described in that paragraph, the beginning and ending dates of the period of time the person was so authorized. H&r tax software    The period of limitations will not be suspended on any claim for refund that (without regard to this provision) was barred as of July 22, 1998. H&r tax software Limit on Amount of Refund If you file your claim within 3 years after filing your return, the credit or refund cannot be more than the part of the tax paid wi