Even as we progress into 2012 and as the tax season heats up even further, it is good to reflect on 2011 and review the events that made the tax headlines.
1. Removal of 2 Year Time Limit on Innocent Spouse Relief
In 2011, the IRS made a historic change to the 2 year limit on the Innocent Spouse Relief. The two year limit had been subject of controversy for years as many felt that it locked out genuine innocent spouses from the benefit of the relief. Prior to this ruling, about 2,000 Innocent Spouse Relief applications were being rejected by the IRS every year for not meeting the 2 year limit.
2. New Tax Preparer Rules
Another major tax event for 2011 was the introduction of more stringent rules for tax preparers. The IRS introduced new rules that required all preparers to apply for new Preparer Tax Identification Numbers (PTIN) before practicing. For some qualifying professionals such as attorneys and CPAs, the PTIN was automatic as long as the professional did not have outstanding issues with the IRS. For the rest of the applicants, they were expected to take a competence test before getting the PTIN. Furthermore, this group of preparers will also now be expected to take 15 hours of continuous tax training every year in order to continue practicing as preparers. These new rules took effect from January 1st 2012.
3. The Form 1099 for Small Businesses Repeal
In 2011, politicians passed a new law that would have required businesses to serve all their suppliers whose business transactions exceeded $600 a year with a Form 1099 MISC. This new law was to take effect on January 1st 2012. Currently, businesses are only required to provide the Form 1099 to a few suppliers such as consultants. With the introduction of the new bill, businesses would have had to significantly increase their administration and paperwork as they prepared a Form 1099 for all their suppliers. Following the enactment of the new law, businesses and stakeholders complained and campaigned against the bill and thankfully, the politicians had their plea and repealed this law.
4. The Backfired IRS Debit Card Solution
In 2011, the IRS also introduced a debit card that was to be issued to taxpayers who did not have bank accounts but who were expecting refund checks. This group of taxpayers seems to be the most disadvantaged, as they have to await a physical check in their mail so as to cash their refunds, which can take a while. The IRS introduced the debit card in a bid to resolve these delays. However, the response from taxpayers was very low and the IRS has decided to discontinue the product.
5. 2011 OVDI
Another major tax event for 2011 was the Offshore Voluntary Disclosure Initiative (OVDI). This was an initiative that was set to provide amnesty to taxpayers who had offshore accounts but who had not declared such accounts as is required. Through the program, taxpayers would pay much less penalties to get into compliance. This was the second of such programs with the first OVDI having run in 2009. The 2011 OVDI was quite a success, having raised $2.7 billion. Furthermore, more taxpayers are now paying taxes on foreign income following the disclosure.
6. Government Deficit Politics
Finally, another major tax event for 2011 was the negotiations on Capitol Hill that sort to resolve a large government deficit. In 2011, President Obama set a bipartisan team of politicians to come up with a strategy to meet the deficit amidst deadlines for this deficit. Though the talks have yielded some progress in terms of meeting the deficit, such progress is slow owing to the differences of the political sides.