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Virginia Department of Taxation 2005 Updates

Virginia Department of Taxation 2005 Updates. Topics for Review. Pass-Through Entities Income Tax Provisions Preparer Fraud Provisions Other Information for Preparers. Pass-Through Entities . Registration for PTEs How does a PTE register to file Form 502?

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Virginia Department of Taxation 2005 Updates

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  1. VirginiaDepartment of Taxation2005 Updates

  2. Topics for Review • Pass-Through Entities • Income Tax Provisions • Preparer Fraud Provisions • Other Information for Preparers

  3. Pass-Through Entities • Registration for PTEs • How does a PTE register to file Form 502? • Filing requirements • No requirement for investment entities • See Tax Bulletin 05-6 • Return issues • No “bottom line” for entity’s income • No adjustment/apportionment of separate line items on Form 502

  4. Income Taxes 2005 Fixed Date Conformity • HB 2411 and SB 856 advance the date of conformity to federal law to January 7, 2005 • SB 897 allows specifically for Virginia to recognize federal deductions claimed for contributions made for tsunami relief efforts

  5. Income Taxes 2005 Fixed Date Conformity • Virginia now conforms to provisions of the Working Families Tax Relief Act of 2004 and the American Job Creation Act of 2004 • Virginia law does not allow a 5-year carryback period for NOLs generated in 2001 or 2002, or deductions for bonus depreciation

  6. Income Taxes 2005 Extensions • HB 2325 – applies to individual and corporate income tax filers (including fiduciaries and PTEs) • Six-month FILING extension allowed – no paper extension request needed

  7. Income Taxes 2005 Extensions • 90% payment requirement still applies • Extension penalty increases from 0.5% to 2% per month • Penalty on returns filed without an extension is 2% per month for first six months, IF the return is filed within six months from the original due date • e.g., calendar year return filed by November 1

  8. Income Taxes 2005 Extensions • Extension invalid for returns filed more than six months after the due date – normal late filing penalty (30%) will apply • New Extension Payment Forms: • Form 760IP replaces Form 760E • Form 500CP replaces Form 500E • Form 502E for pass-through entities discontinued (no payment required for Form 502)

  9. Income Taxes 2005 Credits • Conservation Tillage Equipment • Equipment for reduction of soil compaction now included • Maximum annual credit increased from $2,500 to $4,000 • Land Preservation • Certain pre-2002 credits eligible for transfer • New valuation and appraisal requirements

  10. Income Taxes 2005 Credits • Neighborhood Assistance Act • Maximum annual credit for individuals increased to $50,000 • Rent Reduction • Credit provisions extended through 12/31/10 • Restrictions on new credits

  11. Income Taxes 2005 Credits Enterprise Zones • Enterprise Zone Act expired 7/1/05; replaced with a grant program • Zones in effect as of 6/30/05 will continue until the end of their 20-year designation period • Business tax credit and real property investment tax credit will continue for certain businesses • Major Business Facility Job Tax • Form 304 must now be filed 90 days before the return due date • Due date for Form 304 for businesses in severely economically distressed areas is April 1, 2006

  12. Income Taxes 2005 Credits • Qualified Equity and Subordinated Debt Investment Tax • Lower annual revenue required to qualify • Credit no longer available to professional/institutional investors • Penalty provisions adjusted to align with other states and avoid disincentives

  13. Income Taxes 2005 Individual Income: 2004 Provisions Effective for 2005 • Standard Deduction • Single filers $3,000 (no change) • Married filing jointly $6,000 (formerly $5,000) • Married, filing separately $3,000 (formerly $2,500) • Filing Threshold • Single filers $7,000 (formerly $5,000) • Married, filing jointly $14,000 (formerly $8,000) • Married, filing separately $7,000 (formerly $4,000)

  14. Income Taxes 2005 Individual Income: 2004 Provisions Effective for 2005 • Personal Exemptions • 2005 legislation moved effective date up to 2005 • Yourself $900 • Your Spouse $900 • Dependents $900 • Exemptions for age and blindness remain at $800

  15. Income Taxes 2005 Subtraction for Federal & Virginia Government Employees • SB 866 clarifies the salary requirements for the subtraction • The subtraction is available only to employees of the federal and Virginia governments whose total salary from ALL employment is $15,000 or less

  16. Income Taxes 2005 Subtraction for Federal & Virginia Government Employees • For example, an individual who earned $10,000 in a federal government job and $15,000 in a private-sector job in 2005 would NOT be eligible for the subtraction • The subtraction amount for eligible individuals is the amount of government salary up to $15,000

  17. Income Taxes 2005 Refund Checkoffs: Process Changes • HB 2303 creates a new process for limiting voluntary contributions (refund checkoffs) • Only 25 contributions may be offered on the return forms (provision from 2004 legislation)

  18. Income Taxes 2005 Refund Checkoffs: Process Changes • An entity must receive at least $10,000 for each of the three preceding tax years in which it was listed on the return • TAX will make an annual report on voluntary contributions to the Chairs of the House and Senate Finance Committees

  19. Income Taxes 2005 Refund Checkoffs • New checkoff: Office of Commonwealth Preparedness • Checkoffs removed from return: • UVA Center for Politics • George Mason Law & Economics Center • Virginia Foundation for the Humanities

  20. Preparer Fraud Provisions Senate Bill 1225 • Adds definition of “income tax preparer” to §58.1-302 • Key elements = compensation, return, claim for refund • Definition excludes: • Typists, copy persons, other mechanicals • Tasks done for employer or as a fiduciary • Appeals and protective claims in response to assessments • Response to waiver request after audit

  21. Preparer Fraud Provisions New Code Section: §58.1-348.1 Class 6 Felony (1-5 Years and/or $2,500 fine) if preparer: • Knowingly and willfully aids, assists, counsels or advises preparation or presentation of a return, affidavit, claim or other document that he knows is fraudulent or false in any material matter

  22. Preparer Fraud Provisions New Code Section: §58.1-348.2 Prohibited Conduct • Any conduct subject to IRC §§6694 or 6695, or to criminal penalties under IRC or under Title 58.1 of the Code of Virginia • Any other fraudulent or deceptive conduct that substantially interferes with proper tax administration

  23. Preparer Fraud Provisions What’s Covered Under IRC §6694? • Understatement due to unrealistic positions • no realistic possibility of being sustained on merits • knew or should have known of such position • did not disclose such position • frivolous claims • Willful or reckless conduct • Willful attempt to understate the liability • Reckless or intentional disregard of rules or regulations

  24. Preparer Fraud Provisions What’s Covered Under IRC §6695? • Failure to furnish copy to taxpayer • Failure to sign return • Failure to furnish identifying number • Failure to retain a copy or list of returns • Failure to file correct information returns • Failure to be diligent in determining eligibility for EITC • Endorsing or negotiating a taxpayer’s check

  25. Preparer Fraud Provisions What’s Covered Under IRC and Virginia Criminal Provisions? • Fraud & false statements (IRC §7206 & VA Code §58.1-348.1) • Fraudulent execution of bonds, permits or entries, or other documents • Concealment of property • Withholding, falsifying, or destroying records

  26. Preparer Fraud Provisions §58.1-348.2: Injunctive Relief Civil action in Circuit Court: • Enjoin further engaging in the prohibited conduct OR • Enjoin practicing livelihood as a tax preparer if: • Continually or repeatedly engages in prohibited conduct • Injunction against prohibited conduct would not be sufficient to prevent interference with proper tax administration

  27. Preparer Fraud Provisions §58.1-348.2: Injunctive Relief Injunctive relief re livelihood – prima facie case if: • Previously enjoined from preparing US income tax returns • Previously enjoined from preparing another state’s income tax returns • Must have been enjoined within five years preceding the petition for injunction

  28. Preparer Information E-File: What’s New for 2005 • Forms 1099-MISC and 1099-G will be accepted as part of the Virginia electronic return. • Out-of-State Tax Credits for Maryland and North Carolina will be accepted on e-file returns. • New credit schedule will be added to the electronic return record. • Hard copies of the other states’ returns must be mailed to the Virginia Electronic Filing Unit. • Inclusion of other states planned for future years

  29. Preparer Information E-File: Benefits for Preparers and Clients • Fast Refunds – especially with direct deposit • Convenient electronic payments: • Direct Debit (new for 2005 – payments can be warehoused!) • Credit Card • I-file Web Payments • Notice of acceptance or rejection within 2-3 days. • All rejected returns are given error reason codes so the return can be corrected and resubmitted electronically. • Low error rate

  30. Preparer Information E-File: What Can be E-Filed? • Forms 760, 763 and 760PY (Resident, Non-Resident and Part-Year Resident Returns) except: • those with Schedule CR credits or • Credit for Tax Paid to a State other than Maryland or North Carolina. • “State Only” returns (note: not all software supports this capability).

  31. Preparer Information E-File: What Can’t Be E-Filed? • Amended Returns • Prior Year Returns – use I-file • Returns with “other subtractions” requiring documentation • Returns with Federal Forms 4852, Substitute W2’s • Fiscal Year Returns

  32. Preparer Information E-File: When Is E-Filing Mandatory? • Once a professional prepares 100 or more returns for a taxable year (beginning with 2004), E-file becomes mandatory for subsequent years, or preparer must use software that produces a 2D barcode • Clients can opt out of electronic filing (Form 8454T) • Preparer can request a hardship waiver (Form 8454P)

  33. Preparer Information E-File: Reminders • VA 1345 ELF Handbook available online • No separate registration for Virginia • Don’t mail in VA-8453; retain for 3 years • Don’t use Form 760PMT with a paper return

  34. Preparer Information E-File: Contact Information

  35. Any Questions ???

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