AARP/TCE Program and Scope

1. AARP/TCE Program and Scope • What is the mission of AARP/TCE? • Why are we concerned about scope? • What returns are in scope? • Concerns for Tax Year 2009 • Class discussion Slides available on www.w2in.com/aarp Don Priebe taxes@w2in.com Scope November 2009

2. Why are we here? • Clients Served • Types of Service • Types of Tax Returns Prepared • References • AARP Policy Manual v4.0 (2009-2010) • IRS Pub 4491/4555 (TCE Textbook) for TY 2009 • IRS Pub 4012 TCE Resource Guide) for TY 2009 Scope November 2009

3. AARP/TCE Mission • The program’s mission is to provide high quality free income tax assistance and tax form preparation to low- and moderate-income taxpayers, with special attention to those age 60 and older. Scope November 2009

4. Standard Service Standard Service (during the standard 1040-filing season) is provided at sites to low- and middle-income taxpayers with special attention given to those age 60 and older. Services are provided at sites that are available to the public as well as targeted sites for selected populations such as nursing homes, retirement centers, and VA hospitals. Scope November 2009

5. Shut-in Service • Shut-in Visits are provided by appointment as needed to homebound taxpayers age 60 or older. • Two persons must attend each home visit. • A maximum of 30 miles per round trip will be reimbursed for travel to provide shut-in services. Scope November 2009

6. State Service • Non-Federal Servicemay be provided as long as priority is given to the target population, and no additional cost is incurred. • We prepare NY returns corresponding to in-scope federal returns. Scope November 2009

7. Why are we concerned about scope? • Assure that accurate returns are prepared for our clients by limiting our assistance to area in which we are properly trained • Avoid liability for mistakes in areas in which we are not trained Scope November 2009

8. Volunteer Protection Act of 1997, PL 105-19 Exempts a volunteer of a nonprofit organization or governmental entity from liability for harm caused by an act or omission of the volunteer on behalf of such organization or entity if: • the volunteer was acting within the scope of his or her responsibilities at the time; • the volunteer was properly licensed or otherwise authorized for the activities or practice in the state in which the harm occurred; • the harm was not caused by willful or criminal misconduct, gross negligence, reckless misconduct, or a conscious, flagrant indifference to the rights or safety of the individual harmed; • the harm was not caused by the volunteer operating a motor vehicle, vessel, aircraft, or other vehicle for which the state requires the operator or owner to possess an operator’s license or maintain insurance. Scope November 2009

9. Policy of the AARP Program • Counselors must only deal with tax-related topics on which they have received IRS or AARP Tax-Aide training and certification. • Counselors must refer taxpayers with complicated or complex tax returns, which involve matters outside the scope of their training, to professional tax preparers or to the IRS. No specific paid preparer or business can be named • Counselors may deny service if they feel that the person is providing misleading tax information or refer service if the Counselor does not feel qualified on a particular tax lawissue(s). Scope November 2009

10. So what is in scope?? • The AARP/TCE training covers most of the commonly used individual income tax forms. • It covers only simple business ventures reportable on Schedule C-EZ. • It does not cover rentals. • It does not cover complex investments. Scope November 2009

11. Individual Returns Only • Includes 1040, 1040EZ, 1040A • Does not include 1040NR • Include 1040-X (new form this year) • No non-individual returns • 1041 Estates and Trust • 1120 Corporate • 1065 Partnership • 990 Exempt Organization Scope November 2009

12. Pub 4012 has a two page chart on what is “in-scope” Scope November 2009

13. In Scope Income Items • Wages • Dividends and Interest * • Taxable refunds • Alimony received • Simple businesses (Sch C-EZ) * • Schedule C out of scope • Simple capital gain/loss * * details to follow Scope November 2009

14. In Scope Income Items (continued) • Sale of business property (4797) out of scope • Pensions / IRA distributions * • Rents and Royalties mostly out of scope * • Farm Income out of scope • Unemployment (new rules this year) • Social Security • Some other income * * Details to follow Scope November 2009

15. Interest and Dividends • Reported on 1099-INT or 1099-DIV • Reported on K-1 or equivalent • Taxable, tax-exempt, Fed/NY split • Foreign taxes paid (but no 1116) • Caution – For Liquidation distributions see Schedule D Scope November 2009

16. Business Income • AARP/TCE only supports Schedule C-EZ • Shows a net profit • Less than $5000 in expenses • No inventory • No depreciation • No office in home • Only one business per taxpayer Scope November 2009

17. Capital Gains and Losses • Mutual fund CG distributions • Investment trades with basis information • Capital gain from K-1s (new in-scope) • No straddles, mark-to-market, etc. • Sale of principle residence • Cancellation of debt on principle residence (new in-scope) • No installment sales Scope November 2009

18. IRA and Pension • Normal IRA and pension distributions • IRA rollovers • Premature distributions with penalty • Charitable donation of IRA funds • No 8606 • No 5329 Scope November 2009

19. Rents and Royalties • The only thing in scope is rents and royalties received, documented on a 1099-Misc, with no corresponding expenses. • The more common real property rentals with depreciation and/or other expenses are out of scope. Scope November 2009

20. In Scope Other Income • Gambling winnings (with or without withholding) • Jury duty, election pay • Contests, prizes • NOT cancellation of debt Scope November 2009

21. 1040 In Scope Adjustment Items • Educator expense • SE tax (short version) • Penalty on early CD withdrawal • Alimony paid • IRA deduction (no 8606) • Student loan interest • Tuition and fees deduction Scope November 2009

22. In Scope Standard Deduction • Regular Standard Deduction • Standard deduction of dependents • Increase in standard deduction due to age and/or blindness • Increase in standard deduction due to real estate taxes and/or new car purchase (Schedule L) new in scope Scope November 2009

23. In Scope Itemized Deductions • Medical expense including NY long term care • Taxes (including optional sales taxes) • Mortgage interest, points, PMI • Charity cash • Charity non-cash up to $500. Form 8283 is out of scope. Scope November 2009

24. Itemized Deductions (continued) • Casualty and Theft out of scope • Employee expenses • Tax preparation and payment fees • Investment expenses • Gambling losses Scope November 2009

25. Tax Calculation • Tax table in scope • Capital gains / qualified dividends worksheet in scope • Alternative Minimum Tax out of scope • Kiddie tax (8814/8615) out of scope Scope November 2009

26. In Scope Tax Credits • Foreign Tax Credit (no 1116 required) • Child Care Credit • Credit for Elderly • Education Credit • Retirement Savings Credit • Child Tax Credit • Residential Energy Credit (Part 1 only) • Other Tax Credits out of scope Scope November 2009

27. Other In Scope Taxes • SE Tax (short form) • Tax on tips (4137) • Early distribution penalty (no form 5329) • Advance EIC • Household employment taxesout of scope • Unwithheld FICA/Medicare commonly done Scope November 2009

28. In Scope Payments • Withheld and estimated tax payments • New Making Work Pay Schedule M • EIC (new rules) • Additional child tax credit • New Refundable education credit • First time homebuyer credit • Excess social security • Direct deposit • Third party designee NOT YOU Scope November 2009

29. TY 2009 Concerns • Powerpoints from the national meeting in Dallas show new in-scope items that are either explicitly out-of-scope in the text or not covered. • I have treated these as still out-of-scope Scope November 2009

30. Allegedly in-scope • Form 8606 • Partially deductible IRA contributions • Roth conversions • Form 8283 • Only Section A Part 1 (Items under $5,000 and publicly traded securities) • Health Savings Accounts Scope November 2009

31. In-scope, but ... • Form 5695 (Energy Credits) Part 1 is in scope, but no useful information is in the text. • 1099-C (Cancellation of debt) is in scope for forgiveness of principle residence debt, but not for the more common forgiveness of credit card or auto loan debt. Scope November 2009

32. Remember You are completely authorized as a volunteer preparer to NOT prepare a return. Some individuals may attempt to defraud the government by filing false tax returns. If you have any question at all about the validity of the information provided by a taxpayer or are uncomfortable with a taxpayer situation, discuss your concern with your site coordinator or other individual in charge of the site. Together, you can make the decision to diplomatically explain the confusion or concern, if possible, or simply refer the taxpayer to a paid tax preparer Scope November 2009

33. And lastly, • If you don’t know how to do it ... It’s out of scope • If you have to guess ... It’s out of scope • If it’s not right, but you think you can get away with it ... It’s out of scope • And if it’s out of scope ... Don’t do it. Scope November 2009

34. Class Discussion EIC & Child Care Sam and Janet Evening both have W2 jobs, earning about $32,000 total. They have a daughter Goode, age 9. They pay Becky (a 17 year old neighbor) $150 per month to come over and babysit Goode after school so they can work. They want to claim both EIC and the Child Care Tax Credit. They need the money fast, so they want to do an e-filed return with direct deposit. Becky refuses to tell them her SSN. Can they meet their goals? Scope November 2009

35. Class DiscussionChild Care You can help them, but without a provider SSN the return cannot be e-filed Scope November 2009

36. Class Discussion - EIC Sam and Janet Evening both have W2 jobs, earning about $32,000 total. They have a daughter Goode, age 9. Goode has investment interest income of $3,500 from her grandmother’s inheritance. Sam and Janet want to minimize the family’s taxes. They need the money fast, so they want to e-file with direct deposit. Can you help the family meet their goals ? Scope November 2009

37. Class Discussion - EIC • The $3,500 interest income is above the limit of investment income for EIC eligibility. • The $3,500 must be reported of Goode’s own return so that Sam and Janet can claim EIC • So now may you help the family meet their goals ? Scope November 2009

38. No, you may not • Goode Evening’s return requires a “kiddie tax” form (8615) and is out of scope Scope November 2009

39. Class Exercise EIC & Child Care Sam and Janet Evening both have W2 jobs, earning about $32,000 total. They have a daughter Goode, age 9. They pay Brenda (a 19 year old neighbor) $150 per month to come over and babysit Goode after school so they can work. They want to claim both EIC and the Child Care Tax Credit. They need the money fast, so they want to do an e-filed return with direct deposit. Brenda willingly provides her SSN. May you help them meet their goals? Scope November 2009

40. Class Exercise Child Care • Sorry, their return is now out of scope. A 19 year old babysitter making over $1,600 a year by working in your house is a household employee and requires that Schedule H be filed. • A 17 year old babysitter is exempt from this requirement. Scope November 2009