As CPAs gear up for tax season, they’ll find the Form 1040 series for 2011 looking much the same as that of the previous year, but only because of Congress’ 11th-hour compromise late in 2010 to keep it so. Nonetheless, a number of new features affecting individuals and businesses, such as new information reporting forms, are debuting, so return preparers should be aware of developments in the past year that will affect 2011 tax returns.
For 2011 inflation-adjusted tax rates and updated amounts of various credits and other items, see the “Quick Guide” (click here to download). For inflation-adjusted items for the 2012 tax year, see the sidebar, “Looking Ahead to the 2012 Tax Year,” below.
The most significant event affecting 2011 returns was the signing on Dec. 17. 2010, of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Tax Relief Act), P.L. 111-312, which extended the ordinary income tax rates introduced by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), P.L. 107-16, and the capital gain tax rates introduced by the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA), P.L. 108-27. The Tax Relief Act also extended a large number of other expired or expiring provisions.
Many of the tax provisions enacted in EGTRRA and JGTRRA had been set to expire after 2010. The Tax Relief Act amended EGTRRA and JGTRRA to postpone the sunset of the affected provisions until after 2012 and extended many other provisions to 2011 or 2012.
PRACTICE AND PROCEDUREPTINs. This tax season is the second for which tax preparers must register with the IRS and obtain or renew preparer tax identification numbers (PTINs). The IRS required preparers who registered and obtained a PTIN for the 2011 filing season to renew it for 2012 by the end of 2011.
Mandatory e-filing. This tax season, the threshold above which preparers must e-file most individual and fiduciary income tax returns drops from 100 returns they or their firm reasonably expect to file during the year to 11. A transitional rule allowing return preparers to paper file upon written request from the taxpayer expired at the end of calendar 2011 (Notice 2011-27). EITC due diligence. The U.S.-Korea Free Trade Agreement Implementation Act, P.L. 112-41, increased the preparer penalty under Sec. 6695(g) from $100 to $500 for each failure to exercise due diligence with respect to the earned income tax credit. The higher penalty is effective for returns required to be filed after Dec. 31, 2011.
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