A Quarterly Publication of the Alabama Department of Revenue

1st QuarterFY 2012

(October, November,December 2011)

(Left to right): Assistant Commissioner Cynthia Underwood, Property Tax Division Director Bill Bass, Commissioner Magee, DerrickColeman, Deputy Commissioner Mike Mason.

storms,” said Faulkner. “In particular, Mr. Derrick Coleman of theProperty Tax Division aided AEMA by contacting revenue offices forthe counties damaged by tornadoes to ask that they share parceldata with us. AEMA and FEMA used this data during the initial re-sponse stages of the disaster, as well as during the recoveryprocess. This parcel data was also instrumental in completing aFEMA-funded project to generate historical building and districtdata layers for the entire state.

“Mr. Coleman was a vital asset to AEMA during our recoveryefforts. His dedication enabled AEMA to better assist those devas-tated by the storms. Please extend our appreciation to both Der-rick and his supervisor, Mr. Bill Bass.”

On Nov. 2, 2011, Commissioner Julie Magee presented theCommissioner’s Recognition Award to Property Tax Divi-sion Director Bill Bass and Field Operations Supervisor

Derrick Coleman for “significantly improving productivity and/orenhancing the reputation of the Department.”

In a letter sent to Commissioner Magee, Emergency Manage-ment Agency Director Art Faulkner praised the department andrecognized Derrick Coleman for his assistance to AEMA during thetornado outbreak which occurred April 27, 2011.

“Your staff assisted with our geospatial needs and enabled usto aid the cities and communities of Alabama devastated by the

Bass and Coleman ReceiveCommissioner’s Recognition Award

First Quarter FY 2012 October, November, December 2011Revenue REVIEW

2

ADORAnnouncesPenalty ReliefAvailable toCertain Taxpayers

The Alabama Department of Revenuewill waive penalties for taxpayerswhose 2011 estimated tax payments

were insufficient due to the recent “grossincome regulation” rule change.

The “gross income regulation” was anamendment to three income tax regula-tions that require Alabama resident taxpay-ers to include in their Alabama grossincome their distributable share of partner-ship, limited liability company, and s-corpo-ration income derived from both in-stateand out-of-state activities.

Prior to the administrative rulechange, the existing gross income tax regu-lation allowed residents to apportion in-come from partnerships, limited liabilitycompanies, and s-corporations, and ex-clude non-Alabama source income fromthe tax base. Because the administrativerule change became effective during the2011 tax year, the ADOR is offering relief toaffected taxpayers who, after filing their2011 annual individual income tax return,are billed for underestimation tax penalties.

Generally, the underestimation taxpenalty is applied if the amount a taxpayerowes is over $500 and the taxpayer’s pre-paid taxes do not equal at least 90 percentof the taxpayer’s current tax liability or 100percent of the taxpayer’s prior-year tax.

Taxpayers affected by the gross in-come tax rule and who receive a penaltybilling from the ADOR should contact thedepartment’s Individual and Corporate TaxDivision by telephone at 334.242.1011 orby email atcraig.davis@revenue.alabama.gov.

The Alabama Department of Rev-enue reminds Alabamians shop-ping the Internet, TV

home-shopping networks, or catalogsales to report and pay use tax on theirpurchases if no tax has been collectedby the online or catalog retailer.

Shoppers owe a 4 percent state usetax on their out-of-state purchases if notax has been collected by the out-of-state seller. Local taxes also apply if youlive in a city or county that levies a localsales or use tax. If your purchase re-ceipt shows that you have paid a salestax to another state equal to the Ala-bama tax rate, you will not be taxedagain.

The state use tax rate is 4 percent,the same as the state sales tax rate. Asis the sales tax, the 4-percent use tax isspecifically earmarked for the state’s Ed-ucation Trust Fund, adding to the im-portance of collecting of the tax. Theuse tax is not a new tax; it has been apart of the Alabama tax system as longas the state sales tax. The use tax is acomplementary tax to the state sales tax

and prevents Alabama merchants frombeing placed at an unfair competitivedisadvantage to out-of-state merchantswho may not be required to collect taxon sales to Alabama residents.

Items subject to use tax are thesame items that would be subject tosales tax if purchased in Alabama, suchas computers, books, electronic equip-ment, toys, games, furniture, jewelry,clothing, etc.

The use tax can be paid at the timeone files his or her annual Alabama indi-vidual income tax return by enteringthe amount of use tax owed on a lineitem included on the tax return. Bydoing this, the taxpayer simply either in-creases the balance due or decreasesthe income tax refund by the amount ofthe use tax owed.

For more information concerningAlabama’s consumer use tax reportingrequirements, contact the Alabama De-partment of Revenue Sales, Use andBusiness Tax Division at (334) 242-1490,or visit the department’s Web site at www.revenue.alabama.gov.

Consumer Use Tax CollectionsReported on Alabama Form 40 and 40A

Tax Year No. Returns Collections2000* 6,320 $203,3442001 6,540 $219,2762002 6,157 $242,7832003 6,447 $271,3482004 6,349 $295,0832005 6,132 $282,1422006 7,102 $312,7712007 7,457 $348,8722008 7,824 $373,7282009 10,032 $475,5042010 20,000 $761,646

*First available on the 2000 tax year returns.

Consumer Use Tax Reminder

First Quarter FY 2012 October, November, December 2011Revenue REVIEW

Universityof AlabamaSchool ofLaw to OfferOnline TaxTraining

Department revenue examinersand CPAs can now take advan-tage of an online program at the

University of Alabama School of Lawwhich offers select classes, a certificateprogram for CPAs, and an LL.M. in Taxa-tion. According to Assistant Dean forGraduate Law Programs Daniel Powell,“We have an excellent faculty of profes-sors and tax practitioners teaching thecourse live throughout the country.Using cutting-edge Internet technology,we deliver a true classroom experienceto every desk. Students will be able todo the following:

• Experience real-time interactionwith professors via video, audio, andtext chat.

• Download course materialsfrom our website.

• Review video of prior classes.• Communicate through instruc-

tor-sponsored bulletin boards.• Meet and work with other stu-

dents through video and chat rooms.• Attend class from home.Applications are due May 1, 2012.For information, questions, and ap-

plication, contact Daniel Powell at www.alabamallm.com or call the Univer-sity of Alabama School of Law at 205-348-2648.

3

The Alabama Department of Revenue(ADOR) reminds individuals whocurrently hold five-year disability ac-

cess parking placards and/or disability ac-cess license plates to renew their placardsand license plates during their designatedrenewal month beginning in 2012.

Expiration dates are shown on thebottom of the removable windshield plac-ard and on the month and year decals onthe license plate.

State Revenue Commissioner Julie P.Magee reminds individuals that before anew license plate or placard may be issued,individuals first must renew their disabilityparking access privileges.

Individuals seeking to renew dis-ability access parking privileges mayself-certify on the Application for Dis-ability Access Parking Privileges form(MVR 32-6-230) that they continue tomeet the requirements for the five-year placard and/or license plate. Theform is available at all county license plateissuing officials’ offices or may be down-loaded from the department’s Website at http://www.revenue. alabama.gov/motorvehicle/mvforms/MVR326230.pdf.

Individuals seeking disability ac-cess parking privileges for the firsttime must obtain the signature of a li-censed physician verifying that the in-dividual qualifies for the parkingcredentials prior to receiving them.The Application for Disability AccessParking Privileges form (MVR 32-6-

230) must be completed by a licensedphysician before an Alabama disabil-ity access placard and/or disability ac-cess license plate is issued in 2012.

The new five-year removable wind-shield placard is issued free-of-charge andwill expire at the end of the individual’sregistration renewal month in 2017.

The registration fee for the disabilityaccess parking license plate is the same asthat of a standard license plate – $23 annu-ally, plus a county issuance fee. The licenseplate is renewed annually and will be re-placed by a new five-year series in 2017.

Commissioner Magee advises that fed-eral guidelines do not require any vehicleownership rights to obtain a disability ac-cess placard, but do require vehicle owner-ship rights to obtain a disability accesslicense plate.

“A person with disabilities may obtaina maximum of two windshield placards;however, if an individual wishes to obtain aplacard and a license plate, only one plac-ard may be issued. Note there are no limitsplaced upon the number of disability ac-cess license plates that may be issued to anindividual with disabilities, provided vehi-cle ownership qualifications are met. Toobtain the license plate, the person withdisabilities must have an ownership inter-est in the vehicle,” explained Magee.

For more information concerning dis-ability parking access privileges, visitADOR’s Website at http://www.revenue. alabama.gov/motorvehicle/disabilityaccess.htm.

Immigration Law GuidancePlease refer to the following items on the ADOR web site:

ADOR Commissioner’s Memo of Dec. 20, 2011 http://www.revenue.alabama.gov/documents/immigration_memo_magee_revisedinstructions_12202011.pdf

Alabama Attorney General’s Guidance Lettershttp://www.ago.state.al.us/Page-Immigration

Recertification Required in 2012 forDisability Parking Access Privileges

First Quarter FY 2012 October, November, December 2011Revenue REVIEW

Alabama IndividualIncome Tax FilingUpdate

The Alabama Department of Revenueoffers the following tax-filing re-minders and tips for the 2012 tax

season.

Filing Deadline Date Sameas Federal – Moved toTuesday, April 17, 2012

Alabama taxpayers will have until Tues-day, April 17, 2012, to file their 2011 Ala-bama return and pay any additionalAlabama tax due. The ADOR will follow thefederal filing and payment deadline date for2011 returns. The April 17, 2012, deadlinewill apply to the following:

• 2011 Alabama individual income taxreturns

• Individual estimated tax returnsand payments for the first quarter of taxyear 2012 (Form 40ES)

• Any other Alabama income, corpo-rate estimate, financial institution excise, orbusiness privilege tax returns, administeredby the ADOR having an April 15, 2012, filingand payment deadline date.

Alabama 2011 individual income taxyear returns filed under extension will bedue Oct. 15, 2012.

Consider E-file More than 1.3 million Alabamians elec-

tronically filed their tax returns last year. E-file is a safe, secure method of filing one’stax return and guarantees a quicker turn-around time on refund processing than tra-ditional paper returns. The I.R.S. recentlyannounced that it will begin accepting e-fileand Free File returns on Jan. 17, 2012.

Taxpayers who meet certain eligibilityrequirements may be able to e-file theirstate and federal returns free-of-charge. Formore information concerning eligibility re-quirements and a listing of online serviceproviders offering free filing programs, visitthe department’s Web site at

www.revenue.alabama.gov or the I.R.S. siteat www.irs.gov. Eligible taxpayers are en-couraged to view each company’s offeringsto determine the one which best suits theirfiling situation.

Depreciation DeductionTax Relief, Unemployment InsuranceReauthorization and Jobs Creation Actof 2010:

Alabama will follow the increased de-duction allowed under the recently-enactedTax Relief, Unemployment Insurance Reau-thorization and Jobs Creation Act of 2010,which amends Section 168(k) of the Inter-nal Revenue Code. Section 168(k) providesthat qualifying assets acquired after Sept. 8,2010, through Dec. 31, 2011, will have a 100percent bonus depreciation.

Small Business Jobs Act of 2010:Alabama is following the increased de-

ductions allowed by the Small Business JobsAct of 2010, which amends Section 179 andSection 168 of the Internal Revenue Code.

More information regarding Alabama’streatment of depreciation is available atwww.revenue.alabama.gov. See Current Is-sues under the Practitioner’s Corner.

Small Business HealthInsurance Premiums

Qualifying employers can deduct anadditional 100 percent of the amount paidas health insurance premiums on qualifyingemployees in connection with an employer-provided health insurance plan. Qualifyingemployers have less than 25 employees.Qualified employees are Alabama residentswho earn no more than $50,000 of wagesand report no more than $75,000 in ad-justed gross income. Income threshold islimited to $150,000, if married filing jointly.Sole proprietors claim this deduction onthe Form Schedule C under “other ex-penses.” Pass-through-entities claim thisdeduction on the Alabama partnership re-turn Schedule K. The amount is then dis-tributed to the partners or shareholders onthe Schedule K-1.

More information on the Small Busi-ness Health Insurance Premiums deductionis available at www.revenue.alabama.gov.See Current Issues under the Practitioner’sCorner. The Small Business Health Care de-duction is available for all tax years afterDec. 31, 2010.

Reemployment Act of2010 (effective for taxyears 2011 and 2012)

The Reemployment Act of 2010 pro-vides an income tax deduction to employ-ers who hire individuals collectingunemployment or whose unemploymentbenefits have expired. Employers will re-ceive an income tax deduction up to 50 per-cent of the gross wages paid to eachindividual hired from these categories whoremains with the employer for 12 consecu-tive months. The deduction is limited, de-pending on the wage rates paid toemployees. It is effective for tax years 2011and 2012 for employees hired during 2010and 2011, respectively.

Homeowners InsuranceRetrofitting Deduction

Homeowners who retrofit or upgradetheir homes to make their residences moreresistant to losses due to hurricane, tor-nado, or other natural disasters may claiman income tax deduction on their annual in-come tax returns. The deduction is limitedto the lesser amount of either 50 percent ofthe retrofit cost or $3,000. This deductionis available to taxpayers who itemize theirdeductions, as well as to those who claimthe standard deduction.

Full Employment Act of2011 (effective for taxyears after Jan. 1, 2011)

The Full Employment Act of 2011 pro-vides small business employers, having 50or fewer employees, with a $1,000 tax creditfor each newly-created job, with a set

4

First Quarter FY 2012 October, November, December 2011Revenue REVIEW

hourly wage of $10 or more. The credit isavailable to the employer after the em-ployee has completed 12 months of consec-utive employment in the new job. It iseffective for tax years beginning after Jan. 1,2011.

Disaster Relief PaymentsAlabama’s tax treatment of disaster re-

lief payments follows that of the InternalRevenue Service (IRS) treatment of quali-fied disaster relief payments under the In-ternal Revenue Code §139. Generally, suchpayments are not taxable as long as they arenot payments received in lieu of income.Note: Unemployment compensation is nottaxable for Alabama purposes.

Treatment of ROTHIndividual RetirementAccounts

Alabama’s tax treatment will follow theIRS Code provision that allows a 2010rollover from a traditional Individual Retire-ment Account to a Roth Individual Retire-ment Account. Any gain will be equallydistributed and reported over tax years2011 and 2012.

Discontinued Mailing ofPaper Returns

The ADOR will not mail individual in-come tax return instruction booklets thisyear. Forms and instruction booklets maybe printed from the department’s web siteat www.revenue.alabama.gov. See “Forms.”Tax booklets and forms are available atADOR taxpayer service centers and at mostpublic libraries where federal tax forms andbooklets are available.

Review your returnBefore mailing or electronically filing,

be sure to review all the information onyour return one more time. Errors willdelay the processing of your return.

Consumer Use TaxTaxpayers who purchased items online

or through catalog or telephone mail-ordersales during 2011 and did not pay any salesor use tax to the out-of-state retailer shouldreport and pay the Alabama consumer usetax due when filing their 2011 Alabama re-turns.

Choose Your PreparerCarefully

The ADOR cautions taxpayers to bewary of claims by preparers offering largerrefunds than other preparers. Take time tocheck out the preparer’s credentials.

While most preparers provide excel-lent service to their clients, it is importantto be aware that even if someone else pre-pares the return, the taxpayer is ultimatelyresponsible for all of the information re-ported on his or her return. The depart-ment urges taxpayers to never sign a blankreturn and always review the return beforesigning it. Question any item shown on thereturn that you do not understand.

Owe Additional Taxes?The ADOR offers taxpayers a variety of

electronic payment options – from E-checkto credit card payment options. More infor-mation is available at www.revenue.alabama. gov. See Electronic Services.

Estimated Tax ReminderApril 17, 2012, also marks another im-

portant date on the tax calendar for individ-uals—the start of the 2012 tax-filing periodfor individuals who are required to file quar-terly estimated income tax reports and pay-ments. Self-employed individuals arerequired to report and pay estimated in-come tax on a quarterly basis, based on thecurrent maximum individual rate of fivepercent. In addition, individuals who re-ceive taxable income from income sourcesother than wages or salaries on which notax has been withheld are also required toreport and pay estimated tax on a quarterly

basis, if the taxable income received ex-ceeds certain amounts. The estimated taxfiling and payment threshold for individualsis set at $500 in tax liability annually. Exam-ples of such taxable income would includeinterest income or capital gains distribu-tions. The reporting and payment dates forindividuals are April 15, June 15, Sept. 15,and Jan. 15 of the following year.

Where’s My Refund?If you file an accurate 2011 refund re-

turn, the ADOR advises that you can expectto have your refund approved by the ADORand issued by the state within 15 weeksfrom the date the return is received.

To check on the processing status ofyour refund return, go to “Where’s My Re-fund” at www.revenue.alabama.gov or callthe Refund Hotline at 1.800.558.3912.Please allow at least four weeks after youelectronically file or mail your Alabama re-fund return before using the automatedsystems.

Last year the ADOR processed over 1.8million individual income tax returns andapproved over 1.2 million individual in-come tax refunds for issuance to taxpayers,totaling over $582 million.

You can receive your 2011 state refundby either paper check or direct deposit.Last year, 638,166 Alabama taxpayers optedto have their state income tax refunds di-rect-deposited into their accounts. Checkout the benefits of direct deposit. It is aneasy and secure way to receive your tax re-fund.

Alabama Tax AssistanceThe ADOR is committed to providing

quality customer service to taxpayers. As-sistance is available at taxpayers’ conven-ience through the department’s Web site atwww.revenue.alabama.gov or by calling334.242.1000. The ADOR also operatesnine Taxpayer Service Centers locatedacross the state for walk-in assistance. For alisting of ADOR Taxpayer Service Center lo-cations, visit www.revenue.alabama.gov.See About Us.

5

First Quarter FY 2012 October, November, December 2011Revenue REVIEW

OCTOBER 2011

Issue Number: IR-2011-103Oct. 20, 2011

IRS Announces Pension Plan Limitationsfor 2012

WASHINGTON – The Internal Rev-enue Service announces cost of living ad-justments affecting dollar limitations forpension plans and other retirement-relateditems for Tax Year 2012. In general, many ofthe pension plan limitations will change for2012 because the increase in the cost-of-liv-ing index met the statutory thresholds thattrigger their adjustment. However, otherlimitations will remain unchanged. High-lights include:

• The elective deferral (contribution)limit for employees who participate in401(k), 403(b), most 457 plans, and the fed-eral government’s Thrift Savings Plan is in-creased from $16,500 to $17,000.

• The catch-up contribution limit forthose aged 50 and over remains unchangedat $5,500.

• The deduction for taxpayers mak-ing contributions to a traditional IRA isphased out for singles and heads of house-hold who are covered by a workplace retire-ment plan and have modified adjustedgross incomes (AGI) between $58,000 and$68,000, up from $56,000 and $66,000 in2011. For married couples filing jointly, inwhich the spouse who makes the IRA con-tribution is covered by a workplace retire-ment plan, the income phase-out range is$92,000 to $112,000, up from $90,000 to$110,000. For an IRA contributor who is

not covered by a workplace retirement planand is married to someone who is covered,the deduction is phased out if the couple’sincome is between $173,000 and $183,000,up from $169,000 and $179,000.

• The AGI phase-out range for tax-payers making contributions to a Roth IRAis $173,000 to $183,000 for married couplesfiling jointly, up from $169,000 to $179,000in 2011. For singles and heads of house-hold, the income phase-out range is$110,000 to $125,000, up from $107,000 to$122,000. For a married individual filing aseparate return who is covered by a retire-ment plan at work, the phase-out range re-mains $0 to $10,000.

• The AGI limit for the saver’s credit(also known as the retirement savings con-tributions credit) for low-and moderate-in-come workers is $57,500 for marriedcouples filing jointly, up from $56,500 in2011; $43,125 for heads of household, upfrom $42,375; and $28,750 for married indi-viduals filing separately and for singles, upfrom $28,250.

Below are details on both the un-changed and adjusted limitations.

Section 415 of the Internal RevenueCode provides for dollar limitations on ben-efits and contributions under qualified re-tirement plans. Section 415(d) requiresthat the Commissioner annually adjustthese limits for cost of living increases.Other limitations applicable to deferredcompensation plans are also affected bythese adjustments under Section 415.Under Section 415(d), the adjustments areto be made pursuant to adjustment proce-dures which are similar to those used to ad-just benefit amounts under Section215(i)(2)(A) of the Social Security Act.

The limitations that are adjusted by ref-erence to Section 415(d) generally willchange for 2012 because the increase in thecost-of-living index met the statutorythresholds that trigger their adjustment.For example, the limitation under Section402(g)(1) on the exclusion for elective de-ferrals described in Section 402(g)(3) willincrease from $16,500 to $17,000 for 2012.This limitation affects elective deferrals toSection 401(k) plans, Section 403(b) plans,and the Federal Government’s Thrift Sav-

ings Plan.Effective January 1, 2012, the limitation

on the annual benefit under a defined ben-efit plan under section 415(b)(1)(A) is in-creased from $195,000 to $200,000.

Under section 1.415(d)-1(a)(2)(ii) ofthe Income Tax Regulations, the adjustmentto the limitation under a defined benefitplan under section 415(b)(1)(B) is deter-mined using a special rule. This specialrule takes into account the following recenthistory of changes in the cost-of-living in-dexes: (1) the cost-of-living index for thequarter ended September 30, 2009, was lessthan the cost-of-living index for the quarterended September 30, 2008; (2) the cost-of-living index for the quarter ended Septem-ber 30, 2010, was greater than thecost-of-living index for the quarter endedSeptember 30, 2009, but less than the cost-of-living index for the quarter ended Sep-tember 30, 2008; and (3) the cost-of-livingindex for the quarter ended September 30,2011, was greater than the cost-of-living in-dexes for all prior periods.

For a participant who separated fromservice before January 1, 2010, the limita-tion under a defined benefit plan underSection 415(b)(1)(B) for 2012 is computedby multiplying the participant’s 2011 com-pensation limitation by 1.0327 in order toreflect changes in the cost-of-living indexfrom the quarter ended September 30,2008, to the quarter ended September 30,2011. For a participant who separated fromservice during 2010 or 2011, the limitationunder a defined benefit plan under Section415(b)(1)(B) for 2012 is computed by mul-tiplying the participant’s 2011 compensa-tion limitation by 1.0376 in order to reflectchanges in the cost-of-living index from thequarter ended September 30, 2010, to thequarter ended September 30, 2011.

The limitation for defined contributionplans under Section 415(c)(1)(A) is in-creased in 2012 from $49,000 to $50,000.

The Code provides that various otherdollar amounts are to be adjusted at thesame time and in the same manner as thedollar limitation of Section 415(b)(1)(A).After taking into account the applicablerounding rules, the amounts for 2012 are asfollows:

6

IRSNEWS

First Quarter FY 2012 October, November, December 2011Revenue REVIEW

The limitation under Section 402(g)(1)on the exclusion for elective deferrals de-scribed in Section 402(g)(3) is increasedfrom $16,500 to $17,000.

The annual compensation limit underSections 401(a)(17), 404(l), 408(k)(3)(C),and 408(k)(6)(D)(ii) is increased from$245,000 to $250,000.

The dollar limitation under Section416(i)(1)(A)(i) concerning the definition ofkey employee in a top-heavy plan is in-creased from $160,000 to $165,000.

The dollar amount under Section409(o)(1)(C)(ii) for determining the maxi-mum account balance in an employee stockownership plan subject to a 5 year distribu-tion period is increased from $985,000 to$1,015,000, while the dollar amount used todetermine the lengthening of the 5 year dis-tribution period is increased from $195,000to $200,000.

The limitation used in the definition ofhighly compensated employee under Sec-tion 414(q)(1)(B) is increased from$110,000 to $115,000.

The dollar limitation under Section414(v)(2)(B)(i) for catch-up contributionsto an applicable employer plan other than aplan described in Section 401(k)(11) or Sec-tion 408(p) for individuals aged 50 or overremains unchanged at $5,500. The dollarlimitation under Section 414(v)(2)(B)(ii) forcatch-up contributions to an applicable em-ployer plan described in Section 401(k)(11)or Section 408(p) for individuals aged 50 orover remains unchanged at $2,500.

The annual compensation limitationunder Section 401(a)(17) for eligible partici-pants in certain governmental plans that,under the plan as in effect on July 1, 1993,allowed cost of living adjustments to thecompensation limitation under the planunder Section 401(a)(17) to be taken intoaccount, is increased from $360,000 to$375,000.

The compensation amount under Sec-tion 408(k)(2)(C) regarding simplified em-ployee pensions (SEPs) remains unchangedat $550.

The limitation under Section408(p)(2)(E) regarding SIMPLE retirementaccounts remains unchanged at $11,500.

The limitation on deferrals under Sec-

tion 457(e)(15) concerning deferred com-pensation plans of state and local govern-ments and tax-exempt organizations isincreased from $16,500 to $17,000.

The compensation amounts underSection 1.61 21(f)(5)(i) of the Income TaxRegulations concerning the definition of“control employee” for fringe benefit valua-tion purposes is increased from $95,000 to$100,000. The compensation amountunder Section 1.61 21(f)(5)(iii) is increasedfrom $195,000 to $205,000.

The Code also provides that severalpension-related amounts are to be adjustedusing the cost-of-living adjustment underSection 1(f)(3). After taking the applicablerounding rules into account, the amountsfor 2012 are as follows:

The adjusted gross income limitationunder Section 25B(b)(1)(A) for determin-ing the retirement savings contributioncredit for married taxpayers filing a joint re-turn is increased from $34,000 to $34,500;the limitation under Section 25B(b)(1)(B) isincreased from $36,500 to $37,500; and thelimitation under Sections 25B(b)(1)(C) and25B(b)(1)(D), is increased from $56,500 to$57,500.

The adjusted gross income limitationunder Section 25B(b)(1)(A) for determin-ing the retirement savings contributioncredit for taxpayers filing as head of house-hold is increased from $25,500 to $25,875;the limitation under Section 25B(b)(1)(B) isincreased from $27,375 to $28,125; and thelimitation under Sections 25B(b)(1)(C) and25B(b)(1)(D), is increased from $42,375 to$43,125.

The adjusted gross income limitationunder Section 25B(b)(1)(A) for determin-ing the retirement savings contributioncredit for all other taxpayers is increasedfrom $17,000 to $17,250; the limitationunder Section 25B(b)(1)(B) is increasedfrom $18,250 to $18,750; and the limitationunder Sections 25B(b)(1)(C) and25B(b)(1)(D), is increased from $28,250 to$28,750.

The deductible amount under §219(b)(5)(A) for an individual making quali-fied retirement contributions remains un-changed at $5,000.

The applicable dollar amount under

Section 219(g)(3)(B)(i) for determining thedeductible amount of an IRA contributionfor taxpayers who are active participants fil-ing a joint return or as a qualifyingwidow(er) is increased from $90,000 to$92,000. The applicable dollar amountunder Section 219(g)(3)(B)(ii) for all othertaxpayers (other than married taxpayers fil-ing separate returns) is increased from$56,000 to $58,000. The applicable dollaramount under Section 219(g)(7)(A) for ataxpayer who is not an active participantbut whose spouse is an active participant isincreased from $169,000 to $173,000.

The adjusted gross income limitationunder Section 408A(c)(3)(C)(ii)(I) for de-termining the maximum Roth IRA contribu-tion for married taxpayers filing a jointreturn or for taxpayers filing as a qualifyingwidow(er) is increased from $169,000 to$173,000. The adjusted gross income limi-tation under Section 408A(c)(3)(C)(ii)(II)for all other taxpayers (other than marriedtaxpayers filing separate returns) is in-creased from $107,000 to $110,000.

The dollar amount under Section430(c)(7)(D)(i)(II) used to determine ex-cess employee compensation with respectto a single-employer defined benefit pen-sion plan for which the special electionunder section 430(c)(2)(D) has been madeis increased from $1,014,000 to $1,039,000.

Issue Number: IR-2011-104Oct. 20, 2011

In 2012, Many Tax Benefits Increase Dueto Inflation Adjustments

WASHINGTON — For tax year 2012,personal exemptions and standard deduc-tions will rise and tax brackets will widendue to inflation, according to the InternalRevenue Service.

By law, the dollar amounts for a varietyof tax provisions, affecting virtually everytaxpayer, must be revised each year to keeppace with inflation. New dollar amountsaffecting 2012 returns, filed by mosttaxpayers in early 2013, include the fol-lowing:

• The value of each personal and de-pendent exemption, available to most tax-payers, is $3,800, up $100 from 2011.

7

First Quarter FY 2012 October, November, December 2011Revenue REVIEW

• The new standard deduction is$11,900 for married couples filing a joint re-turn, up $300, $5,950 for singles and mar-ried individuals filing separately, up $150,and $8,700 for heads of household, up$200. Nearly two out of three taxpayers takethe standard deduction, rather than itemiz-ing deductions, such as mortgage interest,charitable contributions and state and localtaxes.

• Tax-bracket thresholds increase foreach filing status. For a married couple fil-ing a joint return, for example, the taxable-income threshold separating the 15-percentbracket from the 25-percent bracket is$70,700, up from $69,000 in 2011.

Credits, deductions, and related phaseouts.

• For tax year 2012, the maximumearned income tax credit (EITC) for low-and moderate- income workers and work-ing families rises to $5,891, up from $5,751in 2011. The maximum income limit for theEITC rises to $50,270, up from $49,078 in2011.The credit varies by family size, filingstatus and other factors, with the maximumcredit going to joint filers with three ormore qualifying children.

• The foreign earned income deduc-tion rises to $95,100, an increase of $2,200from the maximum deduction for tax year2011.

• The modified adjusted gross in-come threshold at which the lifetime learn-ing credit begins to phase out is $104,000for joint filers, up from $102,000, and$52,000 for singles and heads of household,up from $51,000.

• For 2012, annual deductibleamounts for Medical Savings Accounts(MSAs) increased from the tax year 2011amounts; please see the table below.

Medical Savings Self-only Family Accounts (MSAs) coverage coverage

Minimum annual deductible $2,100 $4,200Maximum annual deductible $3,150 $6,300Maximum annual out-of-pocket

expenses $4,200 $7,650

The $2,500 maximum deduction for in-terest paid on student loans begins to

phase out for a married taxpayers filing ajoint returns at $125,000 and phases outcompletely at $155,000, an increase of$5,000 from the phase out limits for taxyear 2011. For single taxpayers, the phaseout ranges remain at the 2011 levels.

Estate and GiftFor an estate of any decedent dying

during calendar year 2012, the basic exclu-sion from estate tax amount is $5,120,000,up from $5,000,000 for calendar year 2011.Also, if the executor chooses to use the spe-cial use valuation method for qualified realproperty, the aggregate decrease in thevalue of the property resulting from thechoice cannot exceed $1,040,000, up from$1,020,000 for 2011.

The annual exclusion for gifts remainsat $13,000.

Other Items• The monthly limit on the value of

qualified transportation benefits exclusionfor qualified parking provided by an em-ployer to its employees for 2012 rises to$240, up $10 from the limit in 2011. How-ever, the temporary increase in the monthlylimit on the value of the qualified trans-portation benefits exclusion for transporta-tion in a commuter highway vehicle andtransit pass provided by an employer to itsemployees expires and reverts to $125 for2012.

• Several tax benefits are unchangedin 2012. For example, the additional stan-dard deduction for blind people and seniorcitizens remains $1,150 for married individ-uals and $1,450 for singles and heads ofhousehold.

Details on these inflation adjustmentscan be found in Revenue Procedure 2011-52, which will be published in Internal Rev-enue Bulletin 2011-45 on November 7,2011.

DECEMBER 2011

Issue Number: IR-2011-116Dec. 9, 2011

IRS Announces 2012 Standard MileageRates, Most Rates Are the Same as in July

WASHINGTON – The Internal Rev-enue Service issued the 2012 optional stan-dard mileage rates used to calculate thedeductible costs of operating an automo-bile for business, charitable, medical ormoving purposes.

Beginning on Jan. 1, 2012, the stan-dard mileage rates for the use of a car (alsovans, pickups or panel trucks) will be:

• 55.5 cents per mile for businessmiles driven

• 23 cents per mile driven for medicalor moving purposes

• 14 cents per mile driven in serviceof charitable organizations

The rate for business miles driven isunchanged from the mid-year adjustmentthat became effective on July 1, 2011. Themedical and moving rate has been reducedby 0.5 cents per mile.

The standard mileage rate for businessis based on an annual study of the fixed andvariable costs of operating an automobile.The rate for medical and moving purposesis based on the variable costs as determinedby the same study. Independent contractorRunzheimer International conducted thestudy.

Taxpayers always have the option ofcalculating the actual costs of using their ve-hicle rather than using the standardmileage rates.

A taxpayer may not use the businessstandard mileage rate for a vehicle afterusing any depreciation method under theModified Accelerated Cost Recovery System(MACRS) or after claiming a Section 179 de-duction for that vehicle. In addition, thebusiness standard mileage rate cannot beused for more than four vehicles used si-multaneously.

These and other requirements for ataxpayer to use a standard mileage rate tocalculate the amount of a deductible busi-ness, moving, medical or charitable ex-pense are in Rev. Proc. 2010-51.

Notice 2012-01 contains the standardmileage rates, the amount a taxpayer mustuse in calculating reductions to basis for de-preciation taken under the business stan-dard mileage rate, and the maximum

8

First Quarter FY 2012 October, November, December 2011Revenue REVIEW

standard automobile cost that a taxpayermay use in computing the allowance undera fixed and variable rate plan.

Issue Number: IR-2011-117Dec. 14, 2011

IRS Releases Guidance on ForeignFinancial Asset Reporting

WASHINGTON – The Internal Rev-enue Service released a new information re-porting form that taxpayers will use startingthis coming tax filing season to report spec-ified foreign financial assets for tax year2011.

Form 8938 (Statement of Specified For-eign Financial Assets) will be filed by taxpay-ers with specific types and amounts offoreign financial assets or foreign accounts.It is important for taxpayers to determinewhether they are subject to this new re-quirement because the law imposes signifi-cant penalties for failing to comply.

The Form 8938 filing requirement wasenacted in 2010 to improve tax complianceby U.S. taxpayers with offshore financial ac-counts. Individuals who may have to fileForm 8938 are U.S. citizens and residents,nonresidents who elect to file a joint in-come tax return and certain nonresidentswho live in a U.S. territory.

Form 8938 is required when the totalvalue of specified foreign assets exceedscertain thresholds. For example, a marriedcouple living in the U.S. and filing a joint taxreturn would not file Form 8938 unlesstheir total specified foreign assets exceed$100,000 on the last day of the tax year ormore than $150,000 at any time during thetax year.

The thresholds for taxpayers who re-side abroad are higher. For example in thiscase, a married couple residing abroad andfiling a joint return would not file Form8938 unless the value of specified foreignassets exceeds $400,000 on the last day ofthe tax year or more than $600,000 at anytime during the year.

Instructions for Form 8938 explain thethresholds for reporting, what constitutes aspecified foreign financial asset, how to de-termine the total value of relevant assets,what assets are exempted, and what infor-

mation must be provided.Form 8938 is not required of individu-

als who do not have an income tax returnfiling requirement.

The new Form 8938 filing requirementdoes not replace or otherwise affect a tax-payer’s obligation to file an FBAR (Report ofForeign Bank and Financial Accounts). Formore go to the FBAR page on this website.

Failing to file Form 8938 when re-quired could result in a $10,000 penalty,with an additional penalty up to $50,000 forcontinued failure to file after IRS notifica-tion. A 40 percent penalty on any under-statement of tax attributable tonon-disclosed assets can also be imposed.Special statute of limitation rules apply toForm 8938, which are also explained in theinstructions.

Form 8938, the form’s instructions,regulations implementing this new foreignasset reporting, and other information tohelp taxpayers determine if they are re-quired to file Form 8938 can be found onthe FATCA page of irs.gov.

See TD 9567.

Issue Number: IR-2011-118Dec. 15, 2011

IRS Offers Tips for Year-End Giving

WASHINGTON – Individuals and busi-nesses making contributions to charityshould keep in mind several important taxlaw provisions that have taken effect in re-cent years. Some of these changes includethe following:

Special Charitable Contributions for CertainIRA Owners

This provision, currently scheduled toexpire at the end of 2011, offers older own-ers of individual retirement accounts (IRAs)a different way to give to charity. An IRAowner, age 70½ or over, can directly trans-fer tax-free up to $100,000 per year to an el-igible charity. This option, created in 2006,is available for distributions from IRAs, re-gardless of whether the owners itemizetheir deductions. Distributions from em-ployer-sponsored retirement plans, includ-ing SIMPLE IRAs and simplified employee

pension (SEP) plans, are not eligible.To qualify, the funds must be con-

tributed directly by the IRA trustee to theeligible charity. Amounts so transferred arenot taxable and no deduction is availablefor the transfer.

Not all charities are eligible. For exam-ple, donor-advised funds and supporting or-ganizations are not eligible recipients.

Amounts transferred to a charity froman IRA are counted in determining whetherthe owner has met the IRA’s required mini-mum distribution. Where individuals havemade nondeductible contributions to theirtraditional IRAs, a special rule treats trans-ferred amounts as coming first from taxablefunds, instead of proportionately from tax-able and nontaxable funds, as would be thecase with regular distributions. See Publica-tion 590, Individual Retirement Arrange-ments (IRAs), for more information onqualified charitable distributions.

Rules for Clothing and Household Items

To be deductible, clothing and house-hold items donated to charity generallymust be in good used condition or better. Aclothing or household item for which a tax-payer claims a deduction of over $500 doesnot have to meet this standard if the tax-payer includes a qualified appraisal of theitem with the return. Household items in-clude furniture, furnishings, electronics, ap-pliances and linens.

Guidelines for Monetary Donations

To deduct any charitable donation ofmoney, regardless of amount, a taxpayermust have a bank record or a written com-munication from the charity showing thename of the charity and the date andamount of the contribution. Bank recordsinclude canceled checks, bank or creditunion statements, and credit card state-ments. Bank or credit union statementsshould show the name of the charity, thedate, and the amount paid. Credit cardstatements should show the name of thecharity, the date, and the transaction post-ing date.

Donations of money include thosemade in cash or by check, electronic funds

9

First Quarter FY 2012 October, November, December 2011Revenue REVIEW

transfer, credit card and payroll deduction.For payroll deductions, the taxpayer shouldretain a pay stub, a Form W-2 wage state-ment or other document furnished by theemployer showing the total amount with-held for charity, along with the pledge cardshowing the name of the charity.

These requirements for the deductionof monetary donations do not change thelong-standing requirement that a taxpayerobtain an acknowledgment from a charityfor each deductible donation (either moneyor property) of $250 or more. However,one statement containing all of the requiredinformation may meet both requirements.

Reminders

To help taxpayers plan their holiday-season and year-end giving, the IRS offersthe following additional reminders:

• Contributions are deductible in theyear made. Thus, donations charged to acredit card before the end of 2011 count for2011. This is true even if the credit card billisn’t paid until 2012. Also, checks count for2011 as long as they are mailed in 2011.

• Check that the organization is quali-fied. Only donations to qualified organiza-tions are tax-deductible. IRS Publication 78,searchable and available online, lists mostorganizations that are qualified to receivedeductible contributions. It can be found atIRS.gov under Search for Charities. In addi-tion, churches, synagogues, temples,mosques and government agencies are eli-gible to receive deductible donations, evenif they are not listed in Publication 78.

• For individuals, only taxpayers whoitemize their deductions on Form 1040Schedule A can claim deductions for chari-table contributions. This deduction is notavailable to individuals who choose thestandard deduction, including anyone whofiles a short form (Form 1040A or 1040EZ).A taxpayer will have a tax savings only if thetotal itemized deductions (mortgage inter-est, charitable contributions, state and localtaxes, etc.) exceed the standard deduction.Use the 2011 Form 1040 Schedule A to de-termine whether itemizing is better thanclaiming the standard deduction.

• For all donations of property, in-cluding clothing and household items, get

from the charity, if possible, a receipt thatincludes the name of the charity, date of thecontribution, and a reasonably-detailed de-scription of the donated property. If a dona-tion is left at a charity’s unattended dropsite, keep a written record of the donationthat includes this information, as well as thefair market value of the property at the timeof the donation and the method used to de-termine that value. Additional rules applyfor a contribution of $250 or more.

• The deduction for a motor vehicle,boat or airplane donated to charity is usu-ally limited to the gross proceeds from itssale. This rule applies if the claimed value ismore than $500. Form 1098-C, or a similarstatement, must be provided to the donorby the organization and attached to thedonor’s tax return.

• If the amount of a taxpayer’s de-duction for all noncash contributions isover $500, a properly-completed Form 8283must be submitted with the tax return.

• And, as always it’s important tokeep good records and receipts.

IRS.gov has Additional information oncharitable giving including:

• Charities & Non-Profits• Publication 526, Charitable

Contributions.• On-line mini-course, Can I Deduct

My Charitable Contributions?

JANUARY 2012

Issue Number: IR-2012-3Jan. 5, 2012

More Innocent Spouses Qualify for ReliefUnder New IRS Guidelines

IRS YouTube Video: Innocent Spouse:English | Spanish | ASL

Podcast: Innocent SpouseWASHINGTON – The Internal Rev-

enue Service has released new proposedguidelines designed to provide relief tomore innocent spouses requesting equi-table relief from income tax liability.

A Notice proposing a new revenueprocedure, posted on IRS.gov, revises thethreshold requirements for requesting equi-table relief and revises the factors used by

the IRS in evaluating these requests. Thefactors have been revised to ensure that re-quests for innocent spouse relief aregranted under section 6015(f) when thefacts and circumstances warrant and that,when appropriate, requests are granted inthe initial stage of the administrativeprocess. The new guidelines are availableimmediately and will remain available untilthe finalized revenue procedure is pub-lished. The IRS will immediately begin usingthese new guidelines when evaluating equi-table relief requests.

“The IRS is significantly changing theway we determine innocent spouse relief,”said IRS Commissioner Doug Shulman.“These improvements should dramaticallyenhance our process to make it fairer forvictimized taxpayers facing difficult situations.”

This is the second major change madeto the innocent spouse program. In July,the IRS extended help to more innocentspouses by eliminating the two-year timelimit that previously applied to requestsseeking equitable relief.

The IRS invites public comment on theproposed revenue procedure. There arethree ways to submit comments.

• E-mail to:Notice.Comments@irscounsel.treas.gov.Include “Notice 2012-8” in the subject line.

• Mail to: Internal Revenue Service,CC:PA:LPD:PR (Notice 2012-8), Room 5203,P.O. Box 7604, Ben Franklin Station, Wash-ington, DC 20044.

• Hand deliver to: CC:PA:LPD:PR (No-tice 2012-8), Courier’s Desk, Internal Rev-enue Service, 1111 Constitution AvenueNW, Washington, DC, between 8 a.m. and 4p.m., Monday through Friday.

The deadline is Feb. 21, 2012.

Issue Number: IR-2012-4Jan. 6, 2012

IRS Releases New Tax Gap Estimates;Compliance Rates Remain StatisticallyUnchanged From Previous Study

The Internal Revenue Service releaseda new set of tax gap estimates for tax year2006. The tax gap is defined as the amountof tax liability faced by taxpayers that is not

10

First Quarter FY 2012 October, November, December 2011Revenue REVIEW

paid on time.The new tax gap estimate represents

the first full update of the report in fiveyears, and it shows the nation’s compliancerate is essentially unchanged from the lastreview covering tax year 2001.

The tax gap statistic is a helpful guideto the scale of tax compliance and to thepersisting sources of low compliance, but itis not an adequate guide to year-to-yearchanges in IRS programs or to year-to-yearreturns on IRS service and enforcement initiatives.

The following table summarizes thenew estimates being released today, as com-pared to the 2001 estimates, along with thetotal tax liabilities in each year.

Tax Year 2001 Tax Year 2006(billions) (billions)

Total Tax Liabilities $2,112 $2,660Gross Tax Gap $345 $450

(83.7% compliance) (83.1% compliance)Enforcement and Late Payments $55 $65Net Tax Gap $290 $385

(86.3% compliance) (85.5% compliance)

The voluntary compliance rate – thepercentage of total tax revenues paid on atimely basis – for tax year 2006 is estimatedto be 83.1 percent. The voluntary compli-ance rate for 2006 is statistically unchangedfrom the most recent prior estimate of 83.7percent calculated for tax year 2001.

On a relative basis, the tax gap islargely in line with the growth in total tax li-abilities. In addition, some growth in the taxgap estimate is attributed to better data andimproved estimation methods. For exam-ple, the IRS developed a new econometricmodel for estimating the tax gap attributa-ble to small corporations which was thenapplied to newer operational data. Also,large corporation tax gap estimates for 2006are based on improved statistical methodsand updated data. Finally, the data relatedto individual income taxpayers continues toimprove based on improved estimationtechniques and newer data.

The tax gap can be divided into threecomponents: non-filing, underreportingand underpayment.

As was the case in 2001, the underre-

porting of income remained the biggestcontributing factor to the tax gap in 2006.Under-reporting across taxpayer categoriesaccounted for an estimated $376 billion ofthe gross tax gap in 2006, up from $285 bil-lion in 2001. Tax non-filing accounted for$28 billion in 2006, up from $27 billion in2001. Underpayment of tax increased to $46billion, up from $33 billion in the previousstudy.

Overall, compliance is highest wherethere is third-party information reportingand/or withholding. For example, mostwages and salaries are reported by employ-ers to the IRS on Forms W-2 and are subjectto withholding. As a result, a net of only 1percent of wage and salary income was mis-reported. But amounts subject to little orno information reporting had a 56 percentnet misreporting rate in 2006.

Issue Number: IR-2012-5Jan. 9, 2012

IRS Offshore Programs Produce $4.4Billion to Date for Nation’s Taxpayers;Offshore Voluntary Disclosure ProgramReopens

The Internal Revenue Service re-opened the offshore voluntary disclosureprogram to help people hiding offshore ac-counts get current with their taxes and an-nounced the collection of more than $4.4billion so far from the two previous interna-tional programs.

The IRS reopened the Offshore Volun-tary Disclosure Program (OVDP) followingcontinued strong interest from taxpayersand tax practitioners after the closure of the2011 and 2009 programs. The third offshoreprogram comes as the IRS continues work-ing on a wide range of international tax is-sues and follows ongoing efforts with theJustice Department to pursue criminal pros-ecution of international tax evasion. Thisprogram will be open for an indefinite pe-riod until otherwise announced.

“Our focus on offshore tax evasioncontinues to produce strong, substantial re-sults for the nation’s taxpayers,” said IRSCommissioner Doug Shulman. “We havebillions of dollars in hand from our previousefforts, and we have more people wanting

to come in and get right with the govern-ment. This new program makes good sensefor taxpayers still hiding assets overseas andfor the nation’s tax system.”

The program is similar to the 2011 pro-gram in many ways, but with a few key dif-ferences. Unlike last year, there is no setdeadline for people to apply. However, theterms of the program could change at anytime going forward. For example, the IRSmay increase penalties in the program forall or some taxpayers or defined classes oftaxpayers – or decide to end the programentirely at any point.

“As we’ve said all along, people need tocome in and get right with us before wefind you,” Shulman said. “We are followingmore leads and the risk for people who donot come in continues to increase.”

The third offshore effort comes asShulman also announced today the IRS hascollected $3.4 billion so far from peoplewho participated in the 2009 offshore pro-gram, reflecting closures of about 95 per-cent of the cases from the 2009 program.On top of that, the IRS has collected an ad-ditional $1 billion from up front paymentsrequired under the 2011 program. Thatnumber will grow as the IRS processes the2011 cases.

In all, the IRS has seen 33,000 volun-tary disclosures from the 2009 and 2011 off-shore initiatives. Since the 2011 programclosed last September, hundreds of taxpay-ers have come forward to make voluntarydisclosures. Those who have come in sincethe 2011 program closed last year will beable to be treated under the provisions ofthe new OVDP program.

The overall penalty structure for thenew program is the same for 2011, exceptfor taxpayers in the highest penalty category.

For the new program, the penaltyframework requires individuals to pay apenalty of 27.5 percent of the highest ag-gregate balance in foreign bankaccounts/entities or value of foreign assetsduring the eight full tax years prior to thedisclosure. That is up from 25 percent inthe 2011 program. Some taxpayers will beeligible for 5 or 12.5 percent penalties;these remain the same in the new program

11

First Quarter FY 2012 October, November, December 2011Revenue REVIEW

as in 2011.Participants must file all original and

amended tax returns and include paymentfor back-taxes and interest for up to eightyears as well as paying accuracy-relatedand/or delinquency penalties.

Participants face a 27.5 percent penalty,but taxpayers in limited situations can qual-ify for a 5 percent penalty. Smaller offshoreaccounts will face a 12.5 percent penalty.People whose offshore accounts or assetsdid not surpass $75,000 in any calendar yearcovered by the new OVDP will qualify forthis lower rate. As under the prior pro-grams, taxpayers who feel that the penaltyis disproportionate may opt instead to beexamined.

The IRS recognizes that its success inoffshore enforcement and in the disclosureprograms has raised awareness related totax filing obligations. This includes aware-ness by dual citizens and others who maybe delinquent in filing, but owe no U.S. tax.The IRS is currently developing proceduresby which these taxpayers may come intocompliance with U.S. tax law. The IRS is alsocommitted to educating all taxpayers sothat they understand their U.S. tax responsibilities.

More details will be available withinthe next month on IRS.gov. In addition, theIRS will be updating key Frequently AskedQuestions and providing additionalspecifics on the offshore program.

IRS and Alabama Securities CommissionWarn of Common Scams

AL/TN-2011-53AL, Dec. 15, 2011MONTGOMERY – Internal Revenue

Service (IRS) spokesman Dan Boone andAlabama Securities Commission (ASC) Di-rector Joseph P. Borg warn Alabamians notto be taken in by scammers during the holi-days and pretax season.

Borg said, “Citizens should use the vastarray of IRS and ASC resources to protectthemselves and learn how to make in-formed financial decisions. With tax rebatesand refunds on the way, large numbers ofbaby boomers retiring, and people desper-ate to make higher returns on life savings—it’s time to proceed with caution!”

“Scammers often use official-looking e-

mails,” Boone said. “But we’ve also had re-ports this year of tax scammers using themail, going door-to-door, and even usingthe good names of local churches, attempt-ing to trick people into filing false tax re-fund claims or giving out their personalinformation.”

Boone also cautioned people tochoose tax preparers carefully in the 2012filing season, reminding filers they are sign-ing their tax return under penalties of per-jury no matter who prepares the return.

Borg and Boone both advised remem-bering the old saying, “If it sounds too goodto be true, it probably is.”

Also they noted, “With identity thefton the rise, people must be vigilant in pro-tecting their personal information on paper,cell phones and computers.”

State and IRS officials warned Alabami-ans to be on the lookout for the followingscams or unsuitable investment productsand check things out before trusting any-one with your life savings:

1. Check to see if your invest-ment professional and the investmentproduct offered is properlylicensed/registered. Before you investcall the Alabama Securities Commission (1-800-222-1253) and give them informationabout your investment professional andproducts being offered. ASC will then run afree background check for you and provideinformation concerning prior convictions,negative business activities, and verify legallicensing and registration.

2. Affinity Fraud. Con artists fre-quently target members of closely knit reli-gious, political, or ethnic groups. Theirpitch is essentially, “since I am like you andbelieve like you, you can believe in me andin what I say.” When an investment is pre-sented in this context, the potential in-vestor should be extremely wary. This pitchseeks to substitute an emotional appeal forcareful analysis and critical thought. Al-abamians lost millions of dollars to affinityfraud during the past ten years. One con-gregation lost their building to foreclosuredue to a scam implemented by churchmembers.

3. Are variable and equity-in-

dexed annuities suitable for you? Thereturns on these products are tied to theperformance of investments in the stockmarket. Variable annuities have steadilygained popularity based upon their tax-de-ferred potential investment growth over thelong term, typically ten years or longer.While they can be appropriate investmentvehicles for some, variable annuities maynot be suitable for older investors withshort-term financial goals or who may re-quire quick access to their money due to fi-nancial emergencies. A more complexinvestment option is the equity-indexed an-nuity, whose relative success is tied directlyto the overall performance of a particulargroup of stocks. This instrument may beunsuitable for some retirees; it technically isclassified as an insurance product and is notsubject to the same rigorous oversight andregulation as most investment products. Po-tential investors need to understand therisk of investment products, possible highsurrender penalties for early withdrawals,possible tax consequences, and potential ofexposure to excessive market fluctuations.Be aware that agents may be motivated topromote and sell these products due tohigh sales commissions.

4. Self-Directed Pension Plans.Many types of securities fraud require thevictim to remove funds from legitimate in-vestments such as stock brokerage ac-counts, mutual funds, insurance policies,deferred compensation plans and mutualfunds so that they can be invested in aworthless scam. This scam may begin withadvice to convert an employer-sponsoredpension into a self-directed pension plan.While these plans may serve legitimate in-vestment purposes, all too often they onlyserve to benefit the scam artist.

5. Pump and Dump Schemes. Un-ethical broker-dealers frequently “pump” upthe value of low-priced securities traded onthe NASDAQ “pink sheets” and then“dump” the stock after naïve investors havepurchased the stock at inflated prices. Theballoon breaks when the promoters nolonger maintain the myth that there is valuein the shares and investors are left holdingworthless shares. These schemes frequently

12

First Quarter FY 2012 October, November, December 2011Revenue REVIEW

appear through unsolicited e-mail mes-sages. [Hundreds of millions of dollars havebeen lost by U.S. citizens in penny stock,micro cap and related pump and dumpscams and Alabamians have lost millions ofdollars.]

6. Phishing scams. Protect yourpersonal information and your money!Scammers sometimes pose as IRS represen-tatives. But the IRS will not contact youabout your taxes by e-mail. All unsolicited e-mail claiming to be from the IRS should bereported to phishing@irs.gov. If the IRSneeds to contact you, most often you willget an official notice in the mail. If someoneclaiming to be an IRS employee calls orcomes to your home or business, be care-ful. IRS callers should provide their nameand employee ID number. IRS visitorsshould have an official government badgeor ID. If you have any doubt whether anytype of contact from the IRS is authentic,don’t hesitate to decline giving out any in-formation, then call the IRS at 1-800-829-1040 to confirm that it’s really from the IRS.

7. Return Preparer Fraud: Mosttax preparers are honest, but dishonest pre-parers usually try to attract clients by prom-ising big refunds. Walk away if they suggestthat you borrow dependents, claim false taxdeductions or credits, or put anything youknow is incorrect on your tax return. Re-member, you are responsible for the accu-racy of your tax return and are signing itunder penalties of perjury!

8. “Free Money” Claims: Flyersand advertisements for free money fromthe IRS, suggesting that the taxpayer canclaim government money with little or nodocumentation, have been appearing incommunities around the country, includingsome in Alabama. Promoters are sometimestargeting church congregations, exploitingtheir good intentions and credibility. Theseschemes also often spread by word ofmouth among unsuspecting and well-inten-tioned people telling their friends and rela-tives. Frequently these scams targettaxpayers who normally do not have a filingrequirement, such as retirees, and involveclaims for nonexistent Social Security rebates.

9. Hiding Income Offshore: TheIRS aggressively pursues taxpayers involvedin abusive offshore transactions and thepromoters who facilitate or enable theseschemes. Taxpayers have tried to avoid orevade U.S. income tax by hiding income inoffshore banks and brokerage accounts, orby using offshore debit cards, credit cards,wire transfers, foreign trusts, employee-leasing schemes, private annuities or life in-surance plans. Don’t be tricked by thosewho try to convince you it’s legal to hide in-come from the IRS.

10. Frivolous Arguments: Promot-ers of these schemes make outlandish

claims about people being able to legallyquit filing and paying taxes. Read “TheTruth About Frivolous Arguments” atwww.IRS.gov to get the truth. People whohave fallen for these schemes often end upfinancially devastated when they are penal-ized or even prosecuted for failing to fileand pay taxes that were legally due. Reportsuspected tax fraud to the IRS using Form3949-A, Information Referral, available atIRS.gov or by calling 1-800-829-3676.

For more about common tax scams,check out the “Dirty Dozen Tax Scams for2011” at IRS.gov.

13

Administrative RulesEffective Dec. 8, 2011:Amended:810-6-5-.26 Utility Privilege or License Tax810-6-5-.26.01 Mobile Communication

Services Tax810-6-5-.26.02 Utility Tax Direct Pay Permit810-6-5-.27.01 Nursing Facility Tax

Effective Dec. 21, 2011:Repealed:810-11-1-.01 Papers810-11-1-.02 Applications for Permit810-11-1-.03 Separate Permits810-11-1-.04 Expiration of Licenses810-11-1-.05 Inspector’s Duties810-11-1-.06 Good Order810-11-1-.07 Encroachment of Dates810-11-1-.08 Application Forms810-11-1-.09 Betting810-11-1-.10 Announcements810-11-1-.11 Sham Exhibitions810-11-1-.12 Passes810-11-1-.13 Revocation of Licenses810-11-1-.14 Physicians810-11-1-.16 Admission of Press Represen-

tatives to Weighing In810-11-1-.17 Drinks Not to be Sold in

Bottles810-11-1-.18 Contestant’s Injuries810-11-1-.19 Collusive Contests810-11-1-.20 Pass Out Checks

810-11-1-.21 Ticket Sellers810-11-1-.22 Participants’ Representative810-11-1-.23 Prompt Appearance of Con-

testants in Ring810-11-1-.24 Contestants, How Often May

Compete810-11-1-.25 Use of Grease, etc.810-11-1-.26 Correct Names810-11-1-.27 Licenses, Cost810-11-1-.28 Contracts810-11-1-.29 Length of Boxing Program810-11-1-.30 Officials810-11-1-.31 Referee810-11-1-.32 Judges810-11-1-.34 Timekeeper810-11-1-.35 Announcer810-11-1-.36 Inspector at Ring810-11-1-.37 Seconds810-11-1-.38 Contestants810-11-1-.39 Bandages810-11-1-.40 Shoes810-11-1-.41 Down810-11-1-.42 Major Fouls810-11-1-.43 Minor Fouls810-11-1-.44 Number and Duration of

Rounds810-11-1-.46 Difference in Weight810-11-1-.47 Stopping a Match or

Exhibition810-11-1-.51 Seating of Patrons

(Continued on Page 14)

First Quarter FY 2012 October, November, December 2011Revenue REVIEW

810-11-1-.52 Decisions810-11-1-.53 Weights and Classes810-11-1-.54 Weighing Time810-11-1-.55 Ring Equipment810-11-1-.56 Height of Ring 810-11-1-.57 Ring, Obstructions810-11-1-.58 Buckets, Bottles and Fans810-11-1-.59 Gloves810-11-1-.60 Police810-11-1-.61 Officials Must Not be

Interested810-11-1-.62 Rest Period810-11-1-.63 Age Limit810-11-1-.64 Penalties810-11-1-.65 Suspensions810-11-1-.66 Fines810-11-1-.67 Admission Fees810-11-2-.01 Papers-Wrestling810-11-2-.02 Officials810-11-2-.03 Application for Permit810-11-2-.04 Expiration of Permit 810-11-2-.05 Expiration of Licenses 810-11-2-.06 Inspector’s Duties 810-11-2-.07 Good Order 810-11-2-.08 Encroachment of Dates810-11-2-.09 Application Forms810-11-2-.10 Betting810-11-2-.11 Announcements 810-11-2-.12 Sham Exhibitions810-11-2-.12.01 Collusive Contests810-11-2-.13 Passes810-11-2-.14 Revocation of Licenses 810-11-2-.15 Medical Examination810-11-2-.15.01 Drinks Not to be Sold in

Bottles810-11-2-.16 Failure to Appear810-11-2-.17 Licenses Not Accepted as

Passes810-11-2-.18 Tickets810-11-2-.19 Pass Out Checks810-11-2-.20 Ticket Sellers810-11-2-.21 Participants’ Representative810-11-2-.22 Prompt Appearance of Con-

testants in Ring810-11-2-.23 Use of Grease, etc. 810-11-2-.24 Correct Names810-11-2-.25 Licenses, Cost810-11-2-.27 Substitutions810-11-2-.29 Inspector in Charge810-11-2-.30 Decisions810-11-2-.31 Weights and Classes 810-11-2-.32 Weighing Time810-11-2-.33 Separate Permits

810-11-2-.34 Referee810-11-2-.35 Scales810-11-2-.36 Announcer810-11-2-.37 Seconds810-11-2-.38 Championship Passes810-11-2-.39 Time Limit on Length of

Matches810-11-2-.40 Final Decision of the Referee,

When Made810-11-2-.41 Costumes 810-11-2-.42 Ring810-11-2-.43 Improper Holds, Grips, etc.810-11-2-.44 Falls and Decisions810-11-2-.45 Physical Fitness810-11-2-.46 Contestants in All Matches

Must be Properly Trained and in FitPhysical Condition to Wrestle at TheirBest

810-11-2-.47 Age810-11-2-.48 Quitting or Conceding Defeat810-11-2-.49 Referee’s Discretion to Stop

the Bout 810-11-2-.49.01 Stopping a Match or

Exhibition 810-11-2-.50 Charging of Time upon Stop-

ping a Bout810-11-2-.51 Hygiene 810-11-2-.52 Separate Licenses810-11-2-.53 Premature Announcements 810-11-2-.54 Duties of the Commission 810-11-2-.55 Suspensions 810-11-2-.56 Fines 810-11-2-.57 Admission Fees810-11-2-.58 Police810-11-2-.59 Admission of Press Represen-

tatives to Weighing In810-11-3-.01 Application for License to Box,

Wrestle, or Participate Directly in Ei-ther Sport in Any Way on a ProfessionalBasis

810-11-3-.02 Application for Permit to HoldBoxing or Wrestling Contest

Effective Dec. 23, 2011:Adopted:810-5-75-.68 Title Procedure – Exemptions

from Titling

Amended:810-5-75-.57 Application for Salvage Certifi-

cate of Title – Application for Certifi-cate of Title for a Stolen UnrecoveredVehicle

810-5-75-.48 Title Procedures – Defining“Junk,” “Parts Only,” and “Scrap” Vehi-cles and Requiring Notice

810-8-5-.06 Evidence of Liability Insurancefor Motor Vehicle Dealers, Motor Vehi-cle Reconditioners, Motor Vehicle Re-builders, or Motor Vehicle Wholesalers,Licensed under Act Number 539

Repealed:810-5-75-.07 Title Procedure – Request for

Change of Address Only on a Certifi-cate of Title

810-5-75-.26.01 Title Procedure – Motor Ve-hicles Exempt from Titling in OtherStates

810-5-75-.37 Application for Certificate ofTitle – Seller’s Signature Requirements

810-5-75-.44 Assignment/Reassignment ofSalvage Certificate of Title

810-5-75-.46.01 Assignment of Certificate ofTitle – Transferor’s Signature Requirements

Effective Jan. 10, 2012:Amended:810-5-1-.211 Motor Vehicle Registration

Delinquency Penalty and InterestCharges

810-5-1-.244 Proration of Motor VehicleRegistration Fees

810-5-1-.468 Refunds of Motor Vehicle Reg-istration Fees

810-6-5-.13 Persons, Firms, and Corpora-tions Subject to Lodgings Tax

Repealed:810-5-1-.227.03 Dealer/Manufacturer Li-

cense Plate Violations, Penalties810-5-1-.482 Classification Codes for Li-

cense Plates

Effective Jan. 11, 2012:Adopted:810-7-1-.22 Procedures Pertaining to Manu-

facturers of Tobacco Products Relatingto Commercial Cigarette-making orRolling Machines

Effective Jan. 18, 2012:Amended:810-5-75-.14 Involuntary Transfer by Opera-

tion of Law

14

First Quarter FY 2012 October, November, December 2011Revenue REVIEW

15

Tax CalendarRequired Monthly Returns Tax Activity

10th • Medicaid-related tax return and payment due fornursing facilities.

• Tobacco use tax return and payment due.

15th • Gasoline information return due from carriers,transporters, and warehouses.

• Lubricating oils information return due from carriers,transporters, and warehouses.

• Motor carrier mileage tax return and payment due.• Oil and gas production tax and privilege tax return and paymentdue two months following month of production.

• Withholding return and payment due from those employersrequired to remit on a monthly basis

20th • Aviation fuel tax return and payment due.• Coal severance tax return and payment due.• Coal transporters’ and purchasers’ returns due.• Contractors’ gross receipts tax return and payment due.• Gasoline tax return and payment due.• Iron ore severance tax return and payment due.• Local solid minerals tax returns and payments due.• Lodgings tax return and payment due.• Lubricating oils tax return and payment due.• Medicaid tax return and payment due from pharmaceuticalservice providers.

• Mobile telecommunications service tax return and payment due.• Motor fuel tax return and payment due.• Pari-mutuel pool tax return and payment due.• Rental or leasing tax return and payment due.• Sales tax (state and local) return and payment due.• Scrap Tire Environmental Fee due.• Tobacco tax (state and county) return and payment due.• Underground and aboveground storage tank trust fund chargedue.

• Uniform Natural Minerals tax return and payment due.• Use tax return and payment due.• Utility gross receipts tax return and payment due.

30th • Hazardous waste fee return and payment due.

Last dayof month • State horse wagering fee return and payment due.

Quarterly/Annual Tax Activity(April-June 2012)

April1 • Annual Dry Cleaning Trust Fund Fee return and payment dueby wholesalers of dry cleaning agents.

• Quarterly Dry Cleaning Trust Fund Fee return and payment due.• Utility license (2.2%) third quarterly payment due.

15 • First installment of estimated personal income tax due.• Financial institutions’ excise tax return and payment due.• Business privilege tax return (Form PSA) due for limited liabilityentities.

• First installment of estimated corporate income tax due (forcalendar-year taxpayers).

NOTE: Other fiscal-period taxpayers pay their corporate estimatedtax on the 15th day of the fourth, sixth, ninth and twelfth months oftheir tax year and file their return on the 15th day of the third monthfollowing the close of their tax year.• Partnership income tax return due.• Personal income tax return and payment due.

20 • Quarterly sales tax return and payment due.• Quarterly use tax return and payment due.• Quarterly rental or leasing tax return and payment due.• Quarterly Solid Waste Disposal Fee return and payment due.

30 • Quarterly forest products’ severance tax return and pay-ment due.

• Quarterly withholding return and payment due from employer.• Quarterly payroll fee and return due.• Quarterly IFTA tax return and payment due.

May10 • Quarterly NPM certification and bank verification due.

15 • Quarterly insurance premiums tax return and paymentdue.

June15 • Second installment of estimated corporate income taxdue (for calendar- year taxpayers).

• Second installment of estimated personal income tax due.

First Quarter FY 2012 October, November, December 2011Revenue REVIEW

36132-7540, or telephone (334) 242-9608.For more information on the fuel tax

refund, farmers may contact the depart-

16

Interest RatesRemain theSame for FirstQuarter of 2012

Interest rates for the calendar quarterbeginning Jan. 1, 2012, remain at three(3) percent, according to Internal Rev-

enue Bulletin No. 2011-52, dated Dec. 27,2011.

Under Sect. 40-1-44, Code of Alabama1975, the Department of Revenue will cal-culate interest on underpayments andoverpayments (where applicable) at thissame annual rate (3%); however, land soldby the state for taxes, shall be calculated at12% in accordance with Sect. 40-5-9. (His-torical rates shown right.)

Interest Rates By Calendar Quarter(Established by: 26 USCA §6621; §40-1-44, Code of Alabama 1975)

1ST QTR 2ND QTR 3RD QTR 4TH QTR

2001 9% 8% 7% 7%2002 6% 6% 6% 6%2003 5% 5% 5% 4%

2004 4% 5% 4% 5%2005 5% 6% 6% 7%2006 7% 7% 8% 8%

2007 8% 8% 8% 8%2008 7% 6% 5% 6%2009 5% 4% 4% 4%

2010 4% 4% 4% 4%2011 3% 4% 4% 3%2012 3%

Statement of Gross Tax Collections

Through End of 1st Quarter FY 2012 (Oct., Nov., Dec. 2011)

FYTD 2011-12 FYTD 2010-11 % Change

Business Privilege Tax 11,279,957.54 10,730,667.59 5.12Gasoline 98,258,998.39 101,477,258.57 (3.17)Income Tax-Corporate 92,869,984.48 83,450,561.32 11.29Income Tax-Individual 757,005,403.12 743,321,733.84 1.84Income Tax (Total) 849,875,387.60 826,772,295.16 2.79Motor Fuels 33,633,974.08 32,705,874.12 2.84Oil & Gas Privilege (8%) 21,963,262.03 19,676,495.61 11.62 Oil & Gas Production (2%) 7,549,408.80 8,287,375.49 (8.90)Sales 493,567,239.84 473,700,801.37 4.19Use Tax 68,224,221.05 64,832,104.61 5.23Utility Gross Receipts 101,668,571.38 99,539,142.50 2.14

SUBTOTAL 1,686,021,020.71 1,637,722,015.02 2.95SUBTOTAL (OTHER TAXES) 425,143,376.19 423,033,145.72 0.50

TOTAL (ALL TAXES) 2,111,164,396.90 2,060,755,160.74 2.45

The Alabama Department of Revenue(ADOR) reminds Alabama farmersthat April 2, 2012, is the deadline

date for filing their 2011 state fuel tax re-fund claims with the ADOR.

The refund claims are based on por-tions of the state excise tax paid by farmerson gasoline and “clear” motor fuel used intractors or any auxiliary engines attachedto tractors during 2011 for agricultural pur-poses. The refund rate is 11 cents per gal-lon for gasoline and “clear” motor fuel.

The refund provision also allows Ala-bama farmers transporting biomass to elec-tricity-generating facilities to receive a fueltax refund up to $1,000.

Farmers who have previously filed re-fund claims with the ADOR were mailedforms in January. Any individual qualifyingfor a refund may obtain a claim form bywriting to the following address: AlabamaDepartment of Revenue, Sales, Use andBusiness Tax Division, Motor Fuels Section,Post Office Box 327540, Montgomery, AL

ment’s Motor Fuels Section at (334) 242-9608, or email Steve.Dubose@revenue.alabama.gov.

Farmers’ Fuel Tax Refund Deadline April 2