Complete List of Tax Topics

Your Federal Income Tax, Publication 17 (2009)

1. Filing Information

What's New

Who must file. Generally, the amount of income you can receive before you must file a return has been increased. See Table 1-1, Table 1-2, and Table 1-3 for the specific amounts.

Mailing your return. You may be mailing your return to a different address this year because the IRS has changed the filing location for several areas. If you received an envelope with your tax package, please use it. Otherwise, see Where Do I File , later in this chapter.

Reminders

Alternative filing methods. Rather than filing a return on paper, you may be able to file electronically using IRS e-file. Create your own personal identification number (PIN) and file a completely paperless tax return. For more information, see Does My Return Have To Be on Paper , later.

Change of address. If you change your address, you should notify the IRS. See Change of Address , later, under What Happens After I File.

Enter your social security number. You must enter your social security number (SSN) in the spaces provided on your tax return. If you file a joint return, enter the SSNs in the same order as the names.

Direct deposit of refund. Instead of getting a paper check, you may be able to have your refund deposited directly into your account at a bank or other financial institution. See Direct Deposit under Refunds, later. If you choose direct deposit of your refund, you may be able to split the refund among two or three accounts.

Alternative payment methods. If you owe additional tax, you may be able to pay electronically. See How To Pay , later.

Installment agreement. If you cannot pay the full amount due with your return, you may ask to make monthly installment payments. See Installment Agreement , later, under Amount You Owe. You may be able to apply online for a payment agreement if you owe federal tax, interest, and penalties.

Automatic 6-month extension. You can get an automatic 6-month extension to file your tax return if, no later than the date your return is due, you file Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return. See Automatic Extension , later.

Service in combat zone. You are allowed extra time to take care of your tax matters if you are a member of the Armed Forces who served in a combat zone, or if you served in the combat zone in support of the Armed Forces. See Individuals Serving in Combat Zone , later, under When Do I Have To File.

Adoption taxpayer identification number. If a child has been placed in your home for purposes of legal adoption and you will not be able to get a social security number for the child in time to file your return, you may be able to get an adoption taxpayer identification number (ATIN). For more information, see Social Security Number , later.

Taxpayer identification number for aliens. If you or your dependent is a nonresident or resident alien who does not have and is not eligible to get a social security number, file Form W-7, Application for IRS Individual Taxpayer Identification Number, with the IRS. For more information, see Social Security Number , later.

Frivolous tax submissions. The IRS has published a list of positions that are identified as frivolous. The penalty for filing a frivolous tax return is $5,000. Also, the $5,000 penalty will apply to other specified frivolous submissions. For more information, see Civil Penalties , later.

Introduction

This chapter discusses the following topics.

• Whether you have to file a return.
• Which form to use.
• How to file electronically.
• When, how, and where to file your return.
• What happens if you pay too little or too much tax.
• What records you should keep and how long you should keep them.
• How you can change a return you have already filed.

Do I Have To File a Return?

You must file a federal income tax return if you are a citizen or resident of the United States or a resident of Puerto Rico and you meet the filing requirements for any of the following categories that apply to you.

1. Individuals in general. (There are special rules for surviving spouses, executors, administrators, legal representatives, U.S. citizens and residents living outside the United States, residents of Puerto Rico, and individuals with income from U.S. possessions.)
2. Dependents.
3. Certain children under age 19 or full-time students.
4. Self-employed persons.
5. Aliens.

The filing requirements for each category are explained in this chapter.

The filing requirements apply even if you do not owe tax.

Individuals—In General

If you are a U.S. citizen or resident, whether you must file a return depends on three factors:

1. Your gross income,
2. Your filing status, and
3. Your age.

To find out whether you must file, see Table 1-1, Table 1-2, and Table 1-3. Even if no table shows that you must file, you may need to file to get money back. (See Who Should File , later.)

Gross income.

This includes all income you receive in the form of money, goods, property, and services that is not exempt from tax. It also includes income from sources outside the United States or from the sale of your main home (even if you can exclude all or part of it). Include part of your social security benefits if:

1. You were married, filing a separate return, and you lived with your spouse at any time during 2009; or
2. Half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly).

Community income.

Self-employed individuals.

Filing status.

Age.

Table 1-1.2009 Filing Requirements for Most Taxpayers

Surviving Spouses, Executors, Administrators, and Legal Representatives

You must file a final return for a decedent (a person who died) if both of the following are true.

• You are the surviving spouse, executor, administrator, or legal representative.
• The decedent met the filing requirements at the date of death.

For more information on rules for filing a decedent's final return, see Publication 559, Survivors, Executors, and Administrators.

U.S. Citizens and Residents Living Outside the United States

If you are a U.S. citizen or resident living outside the United States, you must file a return if you meet the filing requirements. For information on special tax rules that may apply to you, see Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad. It is available at most U.S. embassies and consulates. Also see How To Get Tax Help in the back of this publication.

Residents of Puerto Rico

Generally, if you are a U.S. citizen and a resident of Puerto Rico, you must file a U.S. income tax return if you meet the filing requirements. This is in addition to any legal requirement you may have to file an income tax return for Puerto Rico.

If you are a resident of Puerto Rico for the entire year, gross income does not include income from sources within Puerto Rico, except for amounts received as an employee of the United States or a U.S. agency. If you receive income from Puerto Rican sources that is not subject to U.S. tax, you must reduce your standard deduction. As a result, the amount of income you must have before you are required to file a U.S. income tax return is lower than the applicable amount in Table 1-1 or Table 1-2. For more information, see Publication 570, Tax Guide for Individuals With Income From U.S. Possessions.

Individuals With Income From U.S. Possessions

If you had income from Guam, the Commonwealth of the Northern Mariana Islands, American Samoa, or the U.S. Virgin Islands, special rules may apply when determining whether you must file a U.S. federal income tax return. In addition, you may have to file a return with the individual island government. See Publication 570 for more information.

Dependents

If you are a dependent (one who meets the dependency tests in chapter 3), see Table 1-2 to find whether you must file a return. You also must file if your situation is described in Table 1-3.

Responsibility of parent.

Generally, a child is responsible for filing his or her own tax return and for paying any tax on the return. But if a dependent child who must file an income tax return cannot file it for any reason, such as age, then a parent, guardian, or other legally responsible person must file it for the child. If the child cannot sign the return, the parent or guardian must sign the child's name followed by the words “By (your signature), parent for minor child.”

Child's earnings.

Amounts a child earns by performing services are his or her gross income. This is true even if under local law the child's parents have the right to the earnings and may actually have received them. If the child does not pay the tax due on this income, the parent is liable for the tax.

Certain Children Under Age 19 or Full-Time Students

If a child's only income is interest and dividends (including capital gain distributions and Alaska Permanent Fund dividends), the child was under age 19 at the end of 2009 or was a full-time student under age 24 at the end of 2009, and certain other conditions are met, a parent can elect to include the child's income on the parent's return. If this election is made, the child does not have to file a return. See Parent's Election To Report Child's Interest and Dividends in chapter 31.

Self-Employed Persons

You are self-employed if you:

• Carry on a trade or business as a sole proprietor,
• Are an independent contractor,
• Are a member of a partnership, or
• Are in business for yourself in any other way.

Self-employment can include work in addition to your regular full-time business activities, such as certain part-time work you do at home or in addition to your regular job.

You must file a return if your gross income is at least as much as the filing requirement amount for your filing status and age (shown in Table 1-1). Also, you must file Form 1040 and Schedule SE (Form 1040), Self-Employment Tax, if:

1. Your net earnings from self-employment (excluding church employee income) were $400 or more, or
2. You had church employee income of $108.28 or more. (See Table 1-3.)

Use Schedule SE (Form 1040) to figure your self-employment tax. Self-employment tax is comparable to the social security and Medicare tax withheld from an employee's wages. For more information about this tax, see Publication 334, Tax Guide for Small Business.

Employees of foreign governments or international organizations.

If you are a U.S. citizen who works in the United States for an international organization, a foreign government, or a wholly owned instrumentality of a foreign government, and your employer is not required to withhold social security and Medicare taxes from your wages, you must include your earnings from services performed in the United States when figuring your net earnings from self-employment.

Ministers.

Table 1-2.2009 Filing Requirements for Dependents

Aliens

Your status as an alien—resident, nonresident, or dual-status—determines whether and how you must file an income tax return.

The rules used to determine your alien status are discussed in Publication 519, U.S. Tax Guide for Aliens.

Resident alien.

If you are a resident alien for the entire year, you must file a tax return following the same rules that apply to U.S. citizens. Use the forms discussed in this publication.

Nonresident alien.

Dual-status taxpayer.

Who Should File

Even if you do not have to file, you should file a federal income tax return to get money back if any of the following conditions apply.

1. You had federal income tax withheld from your pay or made estimated tax payments.
2. You qualify for the earned income credit. See chapter 36 for more information.
3. You qualify for the additional child tax credit. See chapter 34 for more information.
4. You qualify for the health coverage tax credit. See chapter 37 for more information.
5. You qualify for the refundable credit for prior year minimum tax.
6. You qualify for the making work pay credit. See chapter 37 for more information.
7. You qualify for the government retiree credit. See chapter 37 for more information.
8. You qualify for the first-time homebuyer credit. See chapter 37 for more information.
9. You qualify for the refundable American opportunity credit. See chapter 35 for more information.

Which Form Should I Use?

You must use one of three forms to file your return: Form 1040EZ, Form 1040A, or Form 1040. (But also see Does My Return Have To Be on Paper , later.)

Form 1040EZ

Form 1040EZ is the simplest form to use.

You can use Form 1040EZ if all of the following apply.

1. Your filing status is single or married filing jointly. If you were a nonresident alien at any time in 2009, your filing status must be married filing jointly.
2. You (and your spouse if married filing a joint return) were under age 65 and not blind at the end of 2009. If you were born on January 1, 1945, you are considered to be age 65 at the end of 2009.
3. You do not claim any dependents.
4. Your taxable income is less than $100,000.
5. Your income is only from wages, salaries, tips, unemployment compensation, Alaska Permanent Fund dividends, taxable scholarship and fellowship grants, and taxable interest of $1,500 or less.
6. You did not receive any advance earned income credit (EIC) payments.
7. You do not claim any adjustments to income, such as a deduction for IRA contributions or student loan interest.
8. You do not claim any credits other than the earned income credit or the making work pay credit.
9. You do not owe any household employment taxes on wages you paid to a household employee.
10. You are not claiming the additional standard deduction for real estate taxes, taxes on the purchase of a new motor vehicle, or disaster losses.

Figuring tax.

Form 1040A

If you do not qualify to use Form 1040EZ, you may be able to use Form 1040A.

You can use Form 1040A if all of the following apply.

1. Your income is only from wages, salaries, tips, IRA distributions, pensions and annuities, taxable social security and railroad retirement benefits, taxable scholarship and fellowship grants, interest, ordinary dividends (including Alaska Permanent Fund dividends), capital gain distributions, and unemployment compensation.
2. Your taxable income is less than $100,000.
3. Your adjustments to income are for only the following items.
   1. Educator expenses.
   2. IRA deduction.
   3. Student loan interest deduction.
   4. Tuition and fees deduction.
4. You do not itemize your deductions.
5. Your taxes are from only the following items.
   1. Tax Table.
   2. Alternative minimum tax. (See chapter 30.)
   3. Advance earned income credit (EIC) payments, if you received any. (See chapter 36.)
   4. Recapture of an education credit. (See chapter 35.)
   5. Form 8615, Tax for Certain Children Who Have Investment Income of More Than $1,900.
   6. Qualified Dividends and Capital Gain Tax Worksheet.
6. You claim only the following tax credits.
   1. The credit for child and dependent care expenses. (See chapter 32.)
   2. The credit for the elderly or the disabled. (See chapter 33.)
   3. The child tax credit. (See chapter 34.)
   4. The additional child tax credit. (See chapter 34.)
   5. The education credits, including the refundable American opportunity credit. (See chapter 35.)
   6. The retirement savings contributions credit. (See chapter 37.)
   7. The earned income credit. (See chapter 36.)
   8. The making work pay credit. (See chapter 37.)
   9. The government retiree credit. (See chapter 37.)
7. You did not have an alternative minimum tax adjustment on stock you acquired from the exercise of an incentive stock option. (See Publication 525, Taxable and Nontaxable Income.)

Form 1040

If you cannot use Form 1040EZ or Form 1040A, you must use Form 1040. You can use Form 1040 to report all types of income, deductions, and credits.

You may have received Form 1040A or Form 1040EZ in the mail because of the return you filed last year. If your situation has changed this year, it may be to your advantage to file Form 1040 instead. You may pay less tax by filing Form 1040 because you can take itemized deductions, some adjustments to income, and credits you cannot take on Form 1040A or Form 1040EZ.

You must use Form 1040 if any of the following apply.

1. Your taxable income is $100,000 or more.
2. You itemize your deductions.
3. You had income that cannot be reported on Form 1040EZ or Form 1040A, including tax-exempt interest from private activity bonds issued after August 7, 1986.
4. You claim any adjustments to gross income other than the adjustments listed earlier under Form 1040A.
5. Your Form W-2, box 12, shows uncollected employee tax (social security and Medicare tax) on tips (see chapter 6) or group-term life insurance (see chapter 5).
6. You received $20 or more in tips in any 1 month and did not report all of them to your employer. (See chapter 6.)
7. You were a bona fide resident of Puerto Rico and exclude income from sources in Puerto Rico.
8. You claim any credits other than the credits listed earlier under Form 1040A.
9. You owe the excise tax on insider stock compensation from an expatriated corporation.
10. Your Form W-2 shows an amount in box 12 with a code Z.
11. You had a qualified health savings account funding distribution from your IRA.
12. You are an employee and your employer did not withhold social security and Medicare tax.
13. You have to file other forms with your return to report certain exclusions, taxes, or transactions.
14. You are a debtor in a bankruptcy case filed after October 16, 2005.
15. You have a net disaster loss attributable to a federally declared disaster, even if you are claiming the standard deduction.

Table 1-3.Other Situations When You Must File a 2009 Return

Does My Return Have To Be on Paper?

You may be able to file a paperless return using IRS e-file (electronic filing). If your 2009 adjusted gross income (AGI) is $57,000 or less, you are eligible for Free File. If you do not qualify for Free File, then you should check out www.irs.gov for low-cost e-file options or Free File Fillable Forms.

IRS e-file

Free File Fillable Forms.

If you do not need the help of a tax preparer, then Free File Fillable Forms may be for you. These forms:

• Do not have an income requirement so everyone is eligible,
• Are easy to use,
• Perform basic math calculations,
• Are available only at www.irs.gov, and
• Apply only to a federal tax return.

Electronic return signatures.

To file your return electronically, you must sign the return electronically using a personal identification number (PIN). If you are filing online using software, you must use a Self-Select PIN. If you are filing electronically using a tax practitioner, you can use a Self-Select PIN or a Practitioner PIN.

Self-Select PIN.

Table 1-4Benefits of IRS e-file

Practitioner PIN.

The Practitioner PIN method allows you to authorize your tax practitioner to enter or generate your PIN. The practitioner can provide you with details.

Form 8453.

For more details, visit www.irs.gov/efile and click on “ Individual Taxpayers. ”

Power of attorney.

State returns.

Refunds.

Refund inquiries.

Amount you owe.

Using Your Personal Computer

IRS approved tax preparation software is available for online use on the Internet, for download from the Internet, and in retail stores.

For information, visit our website at
www.irs.gov/efile.

Through Employers and Financial Institutions

Some businesses offer free e-file to their employees, members, or customers. Others offer it for a fee. Ask your employer or financial institution if they offer IRS e-file as an employee, member, or customer benefit.

Free Help With Your Return

Free help in preparing your return is available nationwide from IRS-trained volunteers. The Volunteer Income Tax Assistance (VITA) program is designed to help low to moderate income taxpayers and the Tax Counseling for the Elderly (TCE) program is designed to assist taxpayers age 60 or older with their tax returns. Many VITA sites offer free electronic filing and all volunteers will let you know about the credits and deductions you may be entitled to claim. To find a site near you, call 1-800-829-1040. Or to find the nearest AARP TaxAide site, visit AARP's website at www.aarp.org/taxaide or call 1-888-227-7669. For more information on these programs, go to www.irs.gov and enter keyword “VITA” in the upper right-hand corner.

Using a Tax Professional

Many tax professionals electronically file tax returns for their clients. You may personally enter your PIN or complete Form 8879, IRS e-file Signature Authorization, to authorize the tax professional to enter your PIN on your return.

Note.

Tax professionals may charge a fee for IRS e-file. Fees can vary depending on the professional and the specific services rendered.

When Do I Have To File?

April 15, 2010, is the due date for filing your 2009 income tax return if you use the calendar year. For a quick view of due dates for filing a return with or without an extension of time to file (discussed later), see Table 1-5.

Table 1-5. When To File Your 2009 Return

If you use a fiscal year (a year ending on the last day of any month except December, or a 52-53-week year), your income tax return is due by the 15th day of the 4th month after the close of your fiscal year.

When the due date for doing any act for tax purposes—filing a return, paying taxes, etc.—falls on a Saturday, Sunday, or legal holiday, the due date is delayed until the next business day.

Filing on time.

Your paper return is filed on time if it is mailed in an envelope that is properly addressed, has enough postage, and is postmarked by the due date. If you send your return by registered mail, the date of the registration is the postmark date. The registration is evidence that the return was delivered. If you send a return by certified mail and have your receipt postmarked by a postal employee, the date on the receipt is the postmark date. The postmarked certified mail receipt is evidence that the return was delivered.

Private delivery services.

If you use a private delivery service designated by the IRS to send your return, the postmark date generally is the date the private delivery service records in its database or marks on the mailing label. The private delivery service can tell you how to get written proof of this date. The following are designated private delivery services.

• DHL Express (DHL): Same Day Service.
• Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First.
• United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, and UPS Worldwide Express.

Private delivery services cannot deliver items to P.O. boxes. You must use the U.S. Postal Service to mail any item to an IRS P.O. box address.

Electronically filed returns.

If you use IRS e-file, your return is considered filed on time if the authorized electronic return transmitter postmarks the transmission by the due date. An authorized electronic return transmitter is a participant in the IRS e-file program that transmits electronic tax return information directly to the IRS. The electronic postmark is a record of when the authorized electronic return transmitter received the transmission of your electronically filed return on its host system. The date and time in your time zone controls whether your electronically filed return is timely.

Filing late.

Nonresident alien.

• April 15, 2010, if you use a calendar year, or
• The 15th day of the 4th month after the end of your fiscal year if you use a fiscal year.

• June 15, 2010, if you use a calendar year, or
• The 15th day of the 6th month after the end of your fiscal year, if you use a fiscal year.

Filing for a decedent.

Extensions of Time To File

You may be able to get an extension of time to file your return. Special rules apply for those who were:

• Outside the United States, or
• Serving in a combat zone.

Automatic Extension

If you cannot file your 2009 return by the due date, you may be able to get an automatic 6-month extension of time to file.

If you do not pay the tax due by the regular due date (generally, April 15), you will owe interest. You may also be charged penalties, discussed later.

How to get the automatic extension.

You can get the automatic extension by:

1. Using IRS e-file (electronic filing), or
2. Filing a paper form.

E-file options.

E-file using your personal computer or a tax professional.

E-file and pay by credit or debit card.

Filing a paper Form 4868.

When to file.

You must request the automatic extension by the due date for your return. You can file your return any time before the 6-month extension period ends.

When you file your return.

Individuals Outside the United States

You are allowed an automatic 2-month extension (until June 15, 2010, if you use the calendar year) to file your 2009 return and pay any federal income tax due if:

1. You are a U.S. citizen or resident, and
2. On the due date of your return:
   1. You are living outside the United States and Puerto Rico, and your main place of business or post of duty is outside the United States and Puerto Rico, or
   2. You are in military or naval service on duty outside the United States and
      Puerto Rico.

However, if you pay the tax due after the regular due date (generally, April 15), interest will be charged from that date until the date the tax is paid.

If you served in a combat zone or qualified hazardous duty area, you may be eligible for a longer extension of time to file. See Individuals Serving in Combat Zone , later, for special rules that apply to you.

Married taxpayers.

If you file a joint return, only one spouse has to qualify for this automatic extension. If you and your spouse file separate returns, this automatic extension applies only to the spouse who qualifies.

How to get the extension.

To use this automatic extension, you must attach a statement to your return explaining what situation qualified you for the extension. (See the situations listed under (2), earlier.)

Extensions beyond 2 months.

No further extension.

Individuals Serving in Combat Zone

The deadline for filing your tax return, paying any tax you may owe, and filing a claim for refund is automatically extended if you serve in a combat zone. This applies to members of the Armed Forces, as well as merchant marines serving aboard vessels under the operational control of the Department of Defense, Red Cross personnel, accredited correspondents, and civilians under the direction of the Armed Forces in support of the Armed Forces.

Combat zone.

For purposes of the automatic extension, the term “combat zone” includes the following areas.

1. The Persian Gulf area, effective January 17, 1991.
2. The qualified hazardous duty area of the Federal Republic of Yugoslavia (Serbia/Montenegro), Albania, the Adriatic Sea, and the Ionian Sea north of the 39th parallel, effective March 24, 1999.
3. Afghanistan, effective September 19, 2001.

Extension period.

The deadline for filing your return, paying any tax due, and filing a claim for refund is extended for at least 180 days after the later of:

1. The last day you are in a combat zone or the last day the area qualifies as a combat zone, or
2. The last day of any continuous qualified hospitalization for injury from service in the combat zone.

How Do I Prepare My Return?

This section explains how to get ready to fill in your tax return and when to report your income and expenses. It also explains how to complete certain sections of the form. You may find Table 1-6 helpful when you prepare your return.

In most cases, based on the paper return you filed last year, the IRS will mail you Form 1040, Form 1040A, or Form 1040EZ with related instructions. Before you fill in the form, look at the form instructions to see if you need, or would benefit from filing, a different form this year. Also see if you need any additional forms or schedules. You may also want to read Does My Return Have To Be on Paper , earlier.

If you do not receive a tax return package in the mail, or if you need other forms, you can order them or print them from the Internet. See How To Get Tax Help in the back of this publication.

Table 1-6. Six Steps for Preparing Your Return

Substitute tax forms.

Form W-2.

• Your name, address (including ZIP code), and phone number.
• Your SSN.
• Your dates of employment.
• Your employer's name, address (including ZIP code), and phone number.

Form 1099.

When Do I Report My Income and Expenses?

You must figure your taxable income on the basis of a tax year. A “tax year” is an annual accounting period used for keeping records and reporting income and expenses. You must account for your income and expenses in a way that clearly shows your taxable income. The way you do this is called an accounting method. This section explains which accounting periods and methods you can use.

Accounting Periods

Most individual tax returns cover a calendar year—the 12 months from January 1 through December 31. If you do not use a calendar year, your accounting period is a fiscal year. A regular fiscal year is a 12-month period that ends on the last day of any month except December. A 52-53-week fiscal year varies from 52 to 53 weeks and always ends on the same day of the week.

You choose your accounting period (tax year) when you file your first income tax return. It cannot be longer than 12 months.

More information.

Accounting Methods

Your accounting method is the way you account for your income and expenses. Most taxpayers use either the cash method or an accrual method. You choose a method when you file your first income tax return. If you want to change your accounting method after that, you generally must get IRS approval.

Cash method.

If you use this method, report all items of income in the year in which you actually or constructively receive them. Generally, you deduct all expenses in the year you actually pay them. This is the method most individual taxpayers use.

Constructive receipt.

Generally, you constructively receive income when it is credited to your account or set apart in any way that makes it available to you. You do not need to have physical possession of it. For example, interest credited to your bank account on December 31, 2009, is taxable income to you in 2009 if you could have withdrawn it in 2009 (even if the amount is not entered in your passbook or withdrawn until 2010).

Garnisheed wages.

If your employer uses your wages to pay your debts, or if your wages are attached or garnisheed, the full amount is constructively received by you. You must include these wages in income for the year you would have received them.

Debts paid for you.

Payment to third party.

If a third party is paid income from property you own, you have constructively received the income. It is the same as if you had actually received the income and paid it to the third party.

Payment to an agent.

Income an agent receives for you is income you constructively received in the year the agent receives it. If you indicate in a contract that your income is to be paid to another person, you must include the amount in your gross income when the other person receives it.

Check received or available.

A valid check that was made available to you before the end of the tax year is constructively received by you in that year. A check that was “made available to you” includes a check you have already received, but not cashed or deposited. It also includes, for example, your last paycheck of the year that your employer made available for you to pick up at the office before the end of the year. It is constructively received by you in that year whether or not you pick it up before the end of the year or wait to receive it by mail after the end of the year.

No constructive receipt.

There may be facts to show that you did not constructively receive income.

Accrual method.

If you use an accrual method, you generally report income when you earn it, rather than when you receive it. You generally deduct your expenses when you incur them, rather than when you pay them.

Income paid in advance.

Additional information.

Social Security Number

You must enter your social security number (SSN) in the space provided on your return. Be sure the SSN on your return is the same as the SSN on your social security card. If you are married, enter the SSNs for both you and your spouse, whether you file jointly or separately.

If you are filing a joint return, write the SSNs in the same order as the names. Use this same order in submitting other forms and documents to the IRS.

Name change.

If you changed your name because of marriage, divorce, etc., be sure to report the change to your local Social Security Administration (SSA) office before filing your return. This prevents delays in processing your return and issuing refunds. It also safeguards your future social security benefits.

Dependent's social security number.

You must provide the SSN of each dependent you claim, regardless of the dependent's age. This requirement applies to all dependents (not just your children) claimed on your tax return.

Exception.

No social security number.

Adoption taxpayer identification number (ATIN).

• You have a child living with you who was placed in your home for legal adoption.
• You cannot get the child's existing SSN even though you have made a reasonable attempt to get it from the birth parents, the placement agency, and other persons.
• You cannot get an SSN for the child from the SSA because, for example, the adoption is not final.
• You are eligible to claim the child as a dependent on your tax return.

Nonresident alien spouse.

If your spouse is a nonresident alien, your spouse must have either an SSN or an ITIN if:

• You file a joint return,
• You file a separate return and claim an exemption for your spouse, or
• Your spouse is filing a separate return.

Individual taxpayer identification number (ITIN).

Penalty for not providing social security number.

SSN on correspondence.

If you write to the IRS about your tax account, be sure to include your SSN (and the name and SSN of your spouse, if you filed a joint return) in your correspondence. Because your SSN is used to identify your account, this helps the IRS respond to your correspondence promptly.

Presidential Election Campaign Fund

This fund helps pay for Presidential election campaigns. The fund reduces candidates' dependence on large contributions from individuals and groups and places candidates on an equal financial footing in the general election. If you want $3 to go to this fund, check the box. If you are filing a joint return, your spouse can also have $3 go to the fund. If you check a box, your tax or refund will not change.

Computations

The following information on entering numbers on your tax return may be useful in making the return easier to complete.

Rounding off dollars.

You may round off cents to whole dollars on your return and schedules. If you do round to whole dollars, you must round all amounts. To round, drop amounts under 50 cents and increase amounts from 50 to 99 cents to the next dollar. For example, $1.39 becomes $1 and $2.50 becomes $3. If you have to add two or more amounts to figure the amount to enter on a line, include cents when adding the amounts and round off only the total.

Equal amounts.

If you are asked to enter the smaller or larger of two equal amounts, enter that amount.

Negative amounts.

If you need to enter a negative amount, put the amount in parentheses rather than using a minus sign. To combine positive and negative amounts, add all the positive amounts together and then subtract the negative amounts.

Attachments

Depending on the form you file and the items reported on your return, you may have to complete additional schedules and forms and attach them to your return.

Form W-2.

Form 1040EZ.

Form 1040A.

Form 1040.

Third Party Designee

You can authorize the IRS to discuss your return with a friend, family member, or any other person you choose. If you check the “Yes” box in the Third party designee area of your 2009 tax return and provide the information required, you are authorizing:

1. The IRS to call the designee to answer any questions that arise during the processing of your return, and
2. The designee to
   1. Give information that is missing from your return to the IRS,
   2. Call the IRS for information about the processing of your return or the status of your refund or payments,
   3. Receive copies of notices or transcripts related to your return, upon request, and
   4. Respond to certain IRS notices about math errors, offsets (see Refunds , later), and return preparation.

The authorization will automatically end no later than the due date (without any extensions) for filing your 2010 tax return. This is April 15, 2011, for most people.

See your form instructions for more information.

Signatures

You must sign and date your return. If you file a joint return, both you and your spouse must sign the return, even if only one of you had income.

If you are due a refund, it cannot be issued unless you have signed your return.

Enter your occupation in the space provided in the signature section. If you file a joint return, enter both your occupation and your spouse's occupation. Entering your daytime phone number may help speed the processing of your return.

When someone can sign for you.

You can appoint an agent to sign your return if you are:

1. Unable to sign the return because of disease or injury,
2. Absent from the United States for a continuous period of at least 60 days before the due date for filing your return, or
3. Given permission to do so by the IRS office in your area.

Power of attorney.

Unable to sign.

If the taxpayer is mentally incompetent and cannot sign the return, it must be signed by a court-appointed representative who can act for the taxpayer. If the taxpayer is mentally competent but physically unable to sign the return or POA, a valid “signature” is defined under state law. It can be anything that clearly indicates the taxpayer's intent to sign. For example, the taxpayer's “X” with the signatures of two witnesses might be considered a valid signature under a state's law.

Spouse unable to sign.

Child's return.

If a child has to file a tax return but cannot sign the return, the child's parent, guardian, or another legally responsible person must sign the child's name, followed by the words “By (your signature), parent for minor child.”

Paid Preparer

Generally, anyone you pay to prepare, assist in preparing, or review your tax return must sign it and fill in the other blanks in the paid preparer's area of your return.

A paid preparer can sign the return manually or use a rubber stamp, mechanical device, or computer software program. The preparer is personally responsible for affixing his or her signature to the return.

If the preparer is self-employed (that is, not employed by any person or business to prepare the return), he or she should check the self-employed box in the Paid Preparer's Use Only space on the return.

The preparer must give you a copy of your return in addition to the copy filed with the IRS.

If you prepare your own return, leave this area blank. If another person prepares your return and does not charge you, that person should not sign your return.

If you have questions about whether a preparer must sign your return, contact any IRS office.

Refunds

When you complete your return, you will determine if you paid more income tax than you owed. If so, you can get a refund of the amount you overpaid or, if you file Form 1040 or Form 1040A, you can choose to apply all or part of the overpayment to your next year's (2010) estimated tax. You cannot have your overpayment applied to your 2010 estimated tax if you file Form 1040EZ.

Follow the form instructions to complete the entries to claim your refund and/or to apply your overpayment to your 2010 estimated tax.

If the direct deposit cannot be done, the IRS will send a check instead.

Split refunds.

Overpayment less than one dollar.

If your overpayment is less than one dollar, you will not get a refund unless you ask for it in writing.

Cashing your refund check.

Cash your tax refund check soon after you receive it. Checks not cashed within 12 months of the date they are issued will be canceled and the proceeds returned to the IRS. If your check has been canceled, you can apply to the IRS to have it reissued.

Refund more or less than expected.

If you receive a check for a refund you are not entitled to, or for an overpayment that should have been credited to estimated tax, do not cash the check. Call the IRS. If you receive a check for more than the refund you claimed, do not cash the check until you receive a notice explaining the difference. If your refund check is for less than you claimed, it should be accompanied by a notice explaining the difference. Cashing the check does not stop you from claiming an additional amount of refund. If you did not receive a notice and you have any questions about the amount of your refund, you should wait 2 weeks. If you still have not received a notice, call the IRS.

Offset against debts.

If you are due a refund but have not paid certain amounts you owe, all or part of your refund may be used to pay all or part of the past-due amount. This includes past-due federal income tax, other federal debts (such as student loans), state income tax, and child and spousal support payments. You will be notified if the refund you claimed has been offset against your debts.

Joint return and injured spouse.

1. You are not legally obligated to pay the past-due amount.
2. You made and reported tax payments (such as federal income tax withheld from your wages or estimated tax payments), or claimed a refundable tax credit (see the credits listed under Who Should File, earlier).

Note.

If the injured spouse's residence was in a community property state at any time during the tax year, then the injured spouse must only meet (1) above.

Amount You Owe

When you complete your return, you will determine if you have paid the full amount of tax that you owe. If you owe additional tax, you should pay it with your return.

If the IRS figures your tax for you, you will receive a bill for any tax that is due. You should pay this bill within 30 days (or by the due date of your return, if later). See Tax Figured by IRS in chapter 30.

How To Pay

If you have an amount due on your tax return, you can pay by check, money order, credit or debit card. If you filed electronically, you also may be able to make your payment electronically.

Check or money order.

Payment not honored.

If your check or money order is not honored by your bank (or other financial institution) and the IRS does not receive the funds, you still owe the tax. In addition, you may be subject to a dishonored check penalty.

Electronic payment options.

Electronic payment options are convenient, safe, and secure methods for paying individual income taxes. There's no check to write, money order to buy, or voucher to mail. Payments can be made 24 hours a day, 7 days a week.

Credit or debit card.

Link2Gov Corporation

RBS WorldPay, Inc.

Official Payments Corporation

Electronic funds withdrawal.

You can e-file and pay in a single step by authorizing an electronic funds withdrawal from your checking or savings account. If you select this payment option, you will need to have your account number, your financial institution's routing transit number, and account type (checking or savings). You can schedule the payment for any future date up to and including the return due date. Be sure to check with your financial institution to make sure that an electronic funds withdrawal is allowed and to get the correct routing and account numbers.

Electronic Federal Tax Payment System (EFTPS).

EFTPS is a free tax payment system that all individual and business taxpayers can use. You can make payments online or by phone. Here are just a few of the benefits of this easy-to-use system.

• Convenient and flexible. You can use it to schedule payments in advance. For example, you can schedule estimated tax payments (Form 1040-ES) or installment agreement payments weekly, monthly, or quarterly.
• Fast and accurate. You can make a tax payment in minutes. Because there are verification steps along the way, you can check and review your information before sending it.
• Safe and secure. It offers the highest available levels of security. Every transaction receives an immediate confirmation.

Estimated tax payments.

Interest

Interest is charged on tax you do not pay by the due date of your return. Interest is charged even if you get an extension of time for filing.

Interest on penalties.

Interest is charged on the failure-to-file penalty, the accuracy-related penalty, and the fraud penalty from the due date of the return (including extensions) to the date of payment. Interest on other penalties starts on the date of notice and demand, but is not charged on penalties paid within 21 calendar days from the date of the notice (or within 10 business days if the notice is for $100,000 or more).

Interest due to IRS error or delay.

Interest and certain penalties may also be suspended for a limited period if you filed your return by the due date (including extensions) and the IRS does not provide you with a notice specifically stating your liability and the basis for it before the close of the 36-month period beginning on the later of:

• The date the return is filed, or
• The due date of the return without regard to extensions.

For more information, see Publication 556.

Installment Agreement

If you cannot pay the full amount due with your return, you can ask to make monthly installment payments for the full or a partial amount. However, you will be charged interest and may be charged a late payment penalty on the tax not paid by the date your return is due, even if your request to pay in installments is granted. If your request is granted, you must also pay a fee. To limit the interest and penalty charges, pay as much of the tax as possible with your return. But before requesting an installment agreement, you should consider other less costly alternatives, such as a bank loan.

To ask for an installment agreement, use Form 9465, Installment Agreement Request. You should receive a response to your request within 30 days. But if you file your return after March 31, it may take longer for a reply.

In addition to paying by check or money order, you can use a credit or debit card or EFTPS to make installment agreement payments. See Credit or debit card and Electronic Federal Tax Payment System (EFTPS) , under How To Pay, earlier.

Guaranteed availability of installment agreement.

The IRS must agree to accept the full payment of your tax liability in installments if, as of the date you offer to enter into the agreement:

1. Your total taxes (not counting interest, penalties, additions to the tax, or additional amounts) do not exceed $10,000,
2. In the last 5 years, you (and your spouse if the liability relates to a joint return) have not:
   1. Failed to file any required income tax return,
   2. Failed to pay any tax shown on any such return, or
   3. Entered into an installment agreement for the payment of any income tax,
3. You show you cannot pay your income tax in full when due,
4. The tax will be paid in full in 3 years or less, and
5. You agree to comply with the tax laws while your agreement is in effect.

Online payment agreement (OPA) application.

You may be able to apply online for a payment agreement if you owe federal tax, interest, and penalties. If you have received a balance due notice from the IRS and you cannot pay in full, you may request a payment agreement. The OPA application allows you, or your authorized representative, to self-qualify for and apply for a payment agreement, receive notification of approval, and arrange a payment schedule. To use the OPA application, you must have filed all required tax returns. You should also have the following information available:

• Balance due notice from the IRS.
• Social security number or individual taxpayer identification number.
• Personal identification number, which can be established online using the caller identification number from the balance due notice.

Gift To Reduce Debt Held by the Public

Bureau of the Public Debt
Department G
P.O. Box 2188
Parkersburg, WV 26106-2188.

You can deduct this gift as a charitable contribution on next year's tax return if you itemize your deductions on Schedule A (Form 1040).

Peel-Off Address Label

After you have completed your return, peel off the label with your name and address from the back of your tax return package and place it in the appropriate area of the Form 1040, Form 1040A, or Form 1040EZ you send to the IRS. If you have someone prepare your return, give that person your label to use on your tax return.

If you file electronically and you are required to attach or file certain forms or worksheets use the label on Form 8453. (More information on electronic filing is found earlier in this chapter.)

The label helps the IRS to correctly identify your account. It also saves processing costs and speeds up processing so that refunds can be issued sooner.

Correcting the label.

No label.

P.O. box.

If your post office does not deliver mail to your street address and you have a P.O. box, print your P.O. box number on the line for your present home address instead of your street address.

Foreign address.

If your address is outside the United States or its possessions or territories, enter the information on the line for “City, town or post office, state, and ZIP code” in the following order:

1. City,
2. Province or state, and
3. Name of foreign country. (Do not abbreviate the name of the country.)

Follow the country's practice for entering the postal code.

Where Do I File?

After you complete your return, you must send it to the IRS. You can mail it or you may be able to file it electronically. See Does My Return Have To Be on Paper , earlier.

Mailing your return.

If an addressed envelope came with your tax forms package, you should mail your return in that envelope. If you do not have an addressed envelope or if you moved during the year, mail your return to the address shown at the end of this publication for the area where you now live.

What Happens After I File?

After you send your return to the IRS, you may have some questions. This section discusses concerns you may have about recordkeeping, your refund, and what to do if you move.

What Records Should I Keep?

If you file a claim for refund, you must be able to prove by your records that you have overpaid your tax.

How long to keep records.

Note.

If you receive a Form W-2, keep Copy C until you begin receiving social security benefits. This will help protect your benefits in case there is a question about your work record or earnings in a particular year. Review the information shown on your annual (for workers over age 25) Social Security Statement.

Copies of returns.

Transcript of tax return.

You can request the following items.

Return transcript.

This includes most of the line items of a tax return as filed with the IRS. Return transcripts are available for the current year and returns processed during the prior 3 processing years. Most requests will be processed within 10 business days.

Account transcript.

This contains information on the financial status of the account, such as payments made on the account, penalty assessments, and adjustments made by you or the IRS after the return was filed. Return information is limited to items such as tax liability and estimated tax payments. Account transcripts are available for most returns. Most requests will be processed within 30 calendar days.

Record of account.

This is a combination of line item information and later adjustments to the account. This information is available for the current year and 3 prior tax years. Most requests will be processed within 30 calendar days.

More information.

Refund Information

You can go online to check the status of your 2009 refund 72 hours after IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after you mail a paper return. If you filed Form 8379 with your return, allow 14 weeks (11 weeks if you filed electronically) before checking your refund status. Be sure to have a copy of your 2009 tax return available because you will need to know the filing status, the first SSN shown on the return, and the exact whole-dollar amount of the refund. To check on your refund, do one of the following.

• Go to www.irs.gov, and click on “where's my refund.”
• Call 1-800-829-4477 24 hours a day, 7 days a week for automated refund information.
• Call 1-800-829-1954 during the hours shown in your form instructions.

Interest on Refunds

If you are due a refund, you may get interest on it. The interest rates are adjusted quarterly.

If the refund is made within 45 days after the due date of your return, no interest will be paid. If you file your return after the due date (including extensions), no interest will be paid if the refund is made within 45 days after the date you filed. If the refund is not made within this 45-day period, interest will be paid from the due date of the return or from the date you filed, whichever is later.

Accepting a refund check does not change your right to claim an additional refund and interest. File your claim within the period of time that applies. See Amended Returns and Claims for Refund , later. If you do not accept a refund check, no more interest will be paid on the overpayment included in the check.

Interest on erroneous refund.

All or part of any interest you were charged on an erroneous refund generally will be forgiven. Any interest charged for the period before demand for repayment was made will be forgiven unless:

1. You, or a person related to you, caused the erroneous refund in any way, or
2. The refund is more than $50,000.

For example, if you claimed a refund of $100 on your return, but the IRS made an error and sent you $1,000, you would not be charged interest for the time you held the $900 difference. You must, however, repay the $900 when the IRS asks.

Change of Address

If you have moved, file your return using your new address.

If you move after you filed your return, you should give the IRS clear and concise written notification of your change of address. Send the notification to the Internal Revenue Service Center serving your old address. You can use Form 8822, Change of Address. If you are expecting a refund, also notify the post office serving your old address. This will help in forwarding your check to your new address (unless you chose direct deposit of your refund). If you are affected by a federally declared disaster, you may be able to change your address with the IRS orally.

Be sure to include your SSN (and the name and SSN of your spouse, if you filed a joint return) in any correspondence with the IRS.

What If I Made a Mistake?

Errors may delay your refund or result in notices being sent to you. If you discover an error, you can file an amended return or claim for refund.

Amended Returns and Claims for Refund

You should correct your return if, after you have filed it, you find that:

1. You did not report some income,
2. You claimed deductions or credits you should not have claimed,
3. You did not claim deductions or credits you could have claimed, or
4. You should have claimed a different filing status. (Once you file a joint return, you cannot choose to file separate returns for that year after the due date of the return. However, an executor may be able to make this change for a deceased spouse.)

If you need a copy of your return, see Copies of returns under What Records Should I Keep, earlier in this chapter.

Form 1040X.

Completing Form 1040X.

Filing Form 1040X.

Time for filing a claim for refund.

Generally, you must file your claim for a credit or refund within 3 years after the date you filed your original return or within 2 years after the date you paid the tax, whichever is later. Returns filed before the due date (without regard to extensions) are considered filed on the due date (even if the due date was a Saturday, Sunday, or legal holiday). These time periods are suspended while you are financially disabled, discussed later. If the last day for claiming a credit or refund is a Saturday, Sunday, or legal holiday, you can file the claim on the next business day. If you do not file a claim within this period, you may not be entitled to a credit or a refund.

Protective claim for refund.

Generally, a protective claim is a formal claim or amended return for credit or refund normally based on current litigation or expected changes in tax law or other legislation. You file a protective claim when your right to a refund is contingent on future events and may not be determinable until after the statute of limitations expires. A valid protective claim does not have to list a particular dollar amount or demand an immediate refund. However, a valid protective claim must:

• Be in writing and signed,
• Include your name, address, SSN or ITIN, 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.

Limit on amount of refund.

If you file your claim within 3 years after the date you filed your return, the credit or refund cannot be more than the part of the tax paid within the 3-year period (plus any extension of time for filing your return) immediately before you filed the claim. This time period is suspended while you are financially disabled, discussed later.

Tax paid.

Payments, including estimated tax payments, made before the due date (without regard to extensions) of the original return are considered paid on the due date. For example, income tax withheld during the year is considered paid on the due date of the return, April 15 for most taxpayers.

Financially disabled.

The time periods for claiming a refund are suspended for the period in which you are financially disabled. For a joint income tax return, only one spouse has to be financially disabled for the time period to be suspended. You are financially disabled if you are unable to manage your financial affairs because of a medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. However, you are not treated as financially disabled during any period your spouse or any other person is authorized to act on your behalf in financial matters. To claim that you are financially disabled, you must send in the following written statements with your claim for refund.

1. A statement from your qualified physician that includes:
   1. The name and a description of your physical or mental impairment,
   2. The physician's medical opinion that the impairment prevented you from managing your financial affairs,
   3. The physician's medical opinion that the impairment was or can be expected to result in death, or that its duration has lasted, or can be expected to last, at least 12 months,
   4. The specific time period (to the best of the physician's knowledge), and
   5. The following certification signed by the physician: “I hereby certify that, to the best of my knowledge and belief, the above representations are true, correct, and complete.”
2. A statement made 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 of disability (or the exact dates that a person was authorized to act for you).

Exceptions for special types of refunds.

If you file a claim for one of the items listed below, the dates and limits discussed earlier may not apply. These items, and where to get more information, are as follows.

• Bad debt. (See Nonbusiness Bad Debts in chapter 14.)
• Worthless security. (See Worthless securities in chapter 14.)
• Foreign tax paid or accrued. (See Publication 514, Foreign Tax Credit for Individuals.)
• Net operating loss carryback. (See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts.)
• Carryback of certain business tax credits. (See Form 3800, General Business Credit.)
• Claim based on an agreement with the IRS extending the period for assessment of tax.

Processing claims for refund.

Claims are usually processed 8-12 weeks after they are filed. Your claim may be accepted as filed, disallowed, or subject to examination. If a claim is examined, the procedures are the same as in the examination of a tax return. If your claim is disallowed, you will receive an explanation of why it was disallowed.

Taking your claim to court.

The IRS provides a direct method to move your claim to court if:

• You are filing a claim for a credit or refund based solely on contested income tax or on estate tax or gift tax issues considered in your previously examined returns, and
• You want to take your case to court instead of appealing it within the IRS.

When you file your claim with the IRS, you get the direct method by requesting in writing that your claim be immediately rejected. A notice of claim disallowance will be sent to you.

You have 2 years from the date of mailing of the notice of claim disallowance to file a refund suit in the United States District Court having jurisdiction or in the United States Court of Federal Claims.

Interest on refund.

If you receive a refund because of your amended return, interest will be paid on it from the due date of your original return or the date you filed your original return, whichever is later, to the date you filed the amended return. However, if the refund is not made within 45 days after you file the amended return, interest will be paid up to the date the refund is paid.

Reduced refund.

Effect on state tax liability.

If your return is changed for any reason, it may affect your state income tax liability. This includes changes made as a result of an examination of your return by the IRS. Contact your state tax agency for more information.

Penalties

The law provides penalties for failure to file returns or pay taxes as required.

Civil Penalties

If you do not file your return and pay your tax by the due date, you may have to pay a penalty. You may also have to pay a penalty if you substantially understate your tax, understate a reportable transaction, file an erroneous claim for refund or credit, file a frivolous tax submission, or fail to supply your SSN or individual taxpayer identification number. If you provide fraudulent information on your return, you may have to pay a civil fraud penalty.

Filing late.

If you do not file your return by the due date (including extensions), you may have to pay a failure-to-file penalty. The penalty is usually 5% for each month or part of a month that a return is late, but not more than 25%. The penalty is based on the tax not paid by the due date (without regard to extensions).

Fraud.

If your failure to file is due to fraud, the penalty is 15% for each month or part of a month that your return is late, up to a maximum of 75%.

Return over 60 days late.

If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.

Exception.

You will not have to pay the penalty if you show that you failed to file on time because of reasonable cause and not because of willful neglect.

Paying tax late.

You will have to pay a failure-to-pay penalty of ½ of 1% (.50%) of your unpaid taxes for each month, or part of a month, after the due date that the tax is not paid. This penalty does not apply during the automatic 6-month extension of time to file period if you paid at least 90% of your actual tax liability on or before the due date of your return and pay the balance when you file the return. The monthly rate of the failure-to-pay penalty is half the usual rate (.25% instead of .50%) if an installment agreement is in effect for that month. You must have filed your return by the due date (including extensions) to qualify for this reduced penalty. If a notice of intent to levy is issued, the rate will increase to 1% at the start of the first month beginning at least 10 days after the day that the notice is issued. If a notice and demand for immediate payment is issued, the rate will increase to 1% at the start of the first month beginning after the day that the notice and demand is issued. This penalty cannot be more than 25% of your unpaid tax. You will not have to pay the penalty if you can show that you had a good reason for not paying your tax on time.

Combined penalties.

If both the failure-to-file penalty and the failure-to-pay penalty (discussed earlier) apply in any month, the 5% (or 15%) failure-to-file penalty is reduced by the failure-to-pay penalty. However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.

Accuracy-related penalty.

You may have to pay an accuracy-related penalty if you underpay your tax because:

1. You show negligence or disregard of the rules or regulations, or
2. You substantially understate your income tax.

The penalty is equal to 20% of the underpayment. The penalty will not be figured on any part of an underpayment on which the fraud penalty (discussed later) is charged.

Negligence or disregard.

The term “negligence” includes a failure to make a reasonable attempt to comply with the tax law or to exercise ordinary and reasonable care in preparing a return. Negligence also includes failure to keep adequate books and records. You will not have to pay a negligence penalty if you have a reasonable basis for a position you took. The term “disregard” includes any careless, reckless, or intentional disregard.

Adequate disclosure.

Substantial understatement of income tax.

You understate your tax if the tax shown on your return is less than the correct tax. The understatement is substantial if it is more than the larger of 10% of the correct tax or $5,000. However, the amount of the understatement may be reduced to the extent the understatement is due to:

1. Substantial authority, or
2. Adequate disclosure and a reasonable basis.

If an item on your return is attributable to a tax shelter, there is no reduction for an adequate disclosure. However, there is a reduction for a position with substantial authority, but only if you reasonably believed that your tax treatment was more likely than not the proper treatment.

Substantial authority.

Whether there is or was substantial authority for the tax treatment of an item depends on the facts and circumstances. Some of the items that may be considered are court opinions, Treasury regulations, revenue rulings, revenue procedures, and notices and announcements issued by the IRS and published in the Internal Revenue Bulletin that involve the same or similar circumstances as yours.

Disclosure statement.

Reasonable cause.

You will not have to pay a penalty if you show a good reason (reasonable cause) for the way you treated an item. You must also show that you acted in good faith.

Filing erroneous claim for refund or credit.

You may have to pay a penalty if you file an erroneous claim for refund or credit. The penalty is equal to 20% of the disallowed amount of the claim, unless you can show a reasonable basis for the way you treated an item. The penalty will not be figured on any part of the disallowed amount of the claim that relates to the earned income credit or on which the accuracy-related or fraud penalties are charged.

Frivolous tax submission.

Fraud.

If there is any underpayment of tax on your return due to fraud, a penalty of 75% of the underpayment due to fraud will be added to your tax.

Joint return.

The fraud penalty on a joint return does not apply to a spouse unless some part of the underpayment is due to the fraud of that spouse.

Failure to supply social security number.

Criminal Penalties

You may be subject to criminal prosecution (brought to trial) for actions such as:

1. Tax evasion,
2. Willful failure to file a return, supply information, or pay any tax due,
3. Fraud and false statements, or
4. Preparing and filing a fraudulent return.