YOU ARE NOT GOING TO BELIEVE THIS - THE IRS HAS BUGS

Bedbugs aren’t a problem just in hotels. The IRS has them too. The critters have infiltrated several IRS offices, so the agency and its employee union have reached an agreement on how to handle them. When an infestation is confirmed, a pest technician and a pest-sniffing dog will come in to find and kill the varmints.

At least taxpayers get better treatment from the Revenue Service than the bedbugs.

COMPLETION OF 2012 FARM BILL

'AG ORGANIZATIONS WANT COMPLETION OF FARM BILL IN 2012'

(KNEB) -- KNEB.com reports, "A coalition of 17 organizations ... recently sent a letter to the leaders of the House and Senate Agriculture Committees" saying that waiting until 2013 "to complete the next farm bill could negatively impact the baseline." Supporters of the current farm bill "say many programs enacted by the 2008 Farm Bill have spent less than projected."

http://www.kneb.com/news/agricultural/244d69cb-2d02-4bf4-a39e-d946d7219aa8

CELEBRITY TAX PROBLEM OF THE WEEK

Scorsese, Pacino Whacked by IRS Tax Liens

Movie director, Martin Scorsese and actor, Al Pacino have separately been hit by the Internal Revenue Service with tax liens.

Scorsese was slapped with a tax lien for $2.85 million from the IRS on February 14, according to the New York Post. Scorsese’s tax lien appears to be related to his former accountant, Kenneth Starr, who was convicted of fraud and sentenced last week to 90 months in prison. The Oscar-winning director’s lawyers are contesting the claims.

Scorsese’s reps have also said that the “Goodfellas” director has paid off the IRS tax lien, in addition to earlier tax liens totaling nearly $1.9 million from 2002-2003.

Pacino is another former client of Starr who is also facing tax liens from the IRS. The IRS filed a lien for $188,283.50 against the “Godfather” actor for unpaid taxes from 2008 and 2009. Pacino’s representative told TMZ that he has a new business manager who will pay off the Academy Award-winning actor’s tax debts.

RISKY TIME FOR FARMLAND VALUES

(Omaha World-Herald) -- Omaha.com reports, "Nebraska's cropland could lose half its value if interest rates rise and grain prices fall," two Federal Reserve economists said in a publication Monday. Farmland prices reached records at the end of 2010, with average increases of nearly 18% in Nebraska 17.6% in the past year. "Since 2004, the USDA estimated, farmland prices are up 40%."

http://omaha.com/article/20110524/MONEY/705249971#risky-time-for-farmland-values

DEBT FORGIVENESS - IS IT TAXABLE?

Q. The bank wrote off a portion of my home loan. I thought that was a good deal, but now someone told me that it was taxable. I thought if anybody could help me, you could. Please tell me it isn’t so!

A. First and foremost this can be complicated, so make sure you get commitment help to advise you on your particular circumstances. Here are the basic rules:

Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.

• Mortgage debt that is partly or entirely forgiven during tax years 2007 through 2012, may allow you to be able to claim special tax relief and exclude the debt forgiven from your income. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.

• Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion but proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.

• Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision however in some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.

You normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed. Examine the Form 1099-C carefully.

As I said at the beginning, this can be confusing, so make sure you get help with you return.

NEW IRS INTERPRETATION OF BUILDING CONSTRUCTION BEGAN BEFORE SEPTEMBER 8, 2010

As we have reported, the tax law passed late last year had very favorable tax treatment for the construction of new farm buildings. In that law, for any new farm buildings placed in service after September 8, 2010, and before January 1, 2012, a farmer would be able to write off 100% of this new construction cost in the year placed in service.

For example, if a farmer started to build a new machine shop in late 2010 and placed it in service in May, 2011, they could deduct 100% of this cost on the 2011 tax return. The first interpretation was that this 100% bonus depreciation would apply on any new building placed in service between these dates, but the IRS does not see it that way.

The IRS has thrown us a curve. In the IRS interpretation, both the construction must commence and be placed in service during these time periods. Therefore, if a farmer started the construction before September 9, 2010, they can only deduct 50% of the new building as bonus depreciation. The beginning of construction is defined, “as when physical work of a significant nature begins”.

DEDUCTING SPECIAL EDUCATION COSTS FOR CHILDREN WITH SPECIAL NEEDS

Q. Our daughter that is in middle school has learning disabilities and we are sending her to a private school to take advantage of smaller classes. Are there any tax benefits? It is going to be expensive, so anything we can deduct will help.

A. I am sorry to hear that you have issues with your daughter. I know how frustrating and difficult that can be. I respect the commitment that you are making.

You have asked me whether you may deduct the special education costs you are incurring on behalf. It may be possible for some of the cost to be deducted as medical expenses, but there are hoops and limitations.

Expenses that you incur in order to enable your child to compensate for or overcome disabilities or to prepare your child for future normal education or normal living are deductible medical expenses. Thus, any expenses for therapy that helps your child's adaptation are deductible medical expenses. In addition, the expenses of your child's schooling at a “special school” for mentally or physically disabled individuals are deductible (including the cost of an ordinary education) if the resources of the school are the reason for your child's presence and the educational services provided are rendered only as an incident to the medical care provided.

The qualification of a school as a special school depends on the school's curriculum. Thus, a school qualifies as a special school only if the primary focus of its curriculum is to enable students to compensate for or overcome disabilities, and to prepare them for future normal education or normal living. For example, schools that provide special services for children with mental and/or physical disabilities, such as schools for the teaching of Braille or lip reading are special schools because the primary purpose of the schools is alleviating or treating a physical handicap. Similarly, schools with special programs for treating severe learning, mental, psychological or emotional disorders or dyslexia are special schools.

In contrast, a school that does not provide a special program, but is beneficial because of its small class size or because it provides added services within a normal academic setting, is not a special school, since the primary purpose of the school is academic. However, if an ordinary school is willing to develop a special program that meets your child's needs, the school will qualify as a special school, since the determination of whether a school is a special school is made on the basis of your child's curriculum, not the curriculum of the school as a whole.

In addition, the medical expense deduction is part of your itemized deductions and is limited to the amount that exceeds 7.5% of your adjusted gross income unless you have a health saving account; flex spending account or employer provided medical benefits. Make sure that you check with the school and your CPA for detailed guidance.