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It’s tax season 2022

Treasury warns taxpayers to brace for a turbulent tax-filing season

The IRS is still dealing with backups in processing returns from the past two filing seasons.

A paper W-4 tax form is pictured.

Americans can start filing their income tax returns Jan. 24, but existing backlogs and longstanding operational problems at the IRS, aggravated by the coronavirus pandemic, are likely to make for a frustrating filing season for taxpayers and tax preparers, a Treasury Department official said Monday.

The IRS is still dealing with backups in processing returns from the past two filing seasons. While the tax collector typically has about about 1 million pieces of unopened mail, including tax returns, in its backlog when starting a new filing season, it had 6 million unprocessed individual returns as of Dec. 23, the most recent date for which data is available on the agency’s website.

More than 150 million individual income tax returns typically roll in over the course of a few months.

Tax returns for 2021 are due April 18 for most individual filers, a few days after the normal April 15 deadline due to a holiday in Washington, D.C., though extensions can be requested. This year’s start and end dates, announced by the IRS on Monday, are more in line with historical norms, which have been upended since 2020 because of the pandemic.

Last year, the IRS held off the start date to Feb. 12, to give the agency extra time to reprogram operations based on tax law changes passed in late 2020.

There haven’t been any discussions about delaying the deadline beyond this April, the Treasury official said, though that’s happened each of the last two years when the due date was reset to May 17, 2021, and July 15, 2020.

Disruptions from the ongoing pandemic have been made worse by years of budget cuts, a shrinking workforce and outdated technologies at the IRS. President Joe Biden and Democrats in Congress want to boost spending on the IRS to improve enforcement and other agency functions like customer service, but the Treasury official blamed Republicans for blocking fresh funding.

To improve odds of faster tax return and refund processing, taxpayers should take several steps, including filing electronically and providing direct deposit information rather than requesting paper checks for a return, the official said.

E-filing is more important than ever this year, the official said.

Though most taxpayers file electronically, some 10 percent of total tax returns still get sent to the IRS on paper, and a good chunk of those paper returns remain unprocessed, caught up in a mail backlog that developed early in the pandemic. For millions, that’s meant delayed refunds and incorrect penalties and assessments by the IRS because agency employees have yet to process all of the mail that poured in.

According to the Treasury official, taxpayers should also turn to the IRS website for self-help answers to questions rather than dialing the IRS, given the low level of service from perpetually flooded phone lines. They should also check the accuracy of their tax returns before filing, as mistakes trigger reviews that can move slowly because of the existing backlog.

Extra attention is warranted this year due to economic stimulus checks the IRS previously sent out and advance Child Tax Credit payments, which more than 30 million households received monthly from July through December. They can claim an extra six months’ worth of the credits when they file their returns.

The IRS is sending taxpayers separate letters on stimulus and child credit payments they received to help them accurately record the information on their upcoming returns.

The IRS could get more individual income tax returns than normal this year because the stimulus and child credit payments may trigger tax returns from people who typically earn too little to file. Still, that extra workload shouldn’t affect IRS processing, the Treasury official said.

The agency should be able to process most refunds within three weeks, its normal turnaround time, the Treasury official said.

Child Tax Credit ( Form 6419)

TAXING TIMES Child tax credit parents are being sent letter from IRS – here’s what to do with yours when it comes
, Dec 27 2021
AMERICAN families who received Child Tax Credit payments are being sent a letter from the IRS that is crucial to hang on to.

Some 36million families should be expecting the letter, which will be important when it comes time to file taxes for 2021.

Families who received advance CTC payments should hang on to a letter from the IRS

Families who received advance CTC payments should hang on to a letter from the IRSCredit:
The note is called Letter 6419: 2021 advance Child Tax Credit (CTC).

It will include the amount of cash each family received due to the expanded Child Tax Credit and will also verify the number of children in the family who qualified for payments.

On December 22, the IRS announced that it would be sending the letter to Child Tax Credit recipients this month.

Separate letters will also be going out to people who received the third round of stimulus checks earlier this year at the end of January.

The IRS hopes that by sending out the official forms, errors and delays when it comes to processing tax returns can be avoided.

Families who were eligible for the expanded Child Tax Credit but did not receive any monthly payments in 2021 will still be able to claim the full amount on their 2021 tax returns.Parents who didn’t receive advance Child Tax Credit payments could receive up to $3,600 per child under the age of six when tax returns are filed next year.

For children ages six through 17, that amount is up to $3,000.

If you have a newborn baby in December, you will also be able to claim up to $3,600.

The IRS said that parents who give birth on December 31 can claim the tax credit for newborns providing the eligibility test is met.

The monthly Child Tax Credit payments of up to $300 for children under six and up to $250 for children ages six to 17 began going out in July and were sent every month through December.

To be able to claim the full amount of stimulus money, an individual taxpayer must have an adjusted gross income (AGI) under $75,000.

The AGI must be under $150,000 for couples who are married and file taxes jointly.

The 6 Biggest Tax Law Changes of 2016

The 6 Biggest Tax Law Changes of 2016

As you enter 2016, tax law changes are going to become an increasingly big issue when filing your Federal tax return. Federal taxes and laws change every year, but it pays to pay attention to those changes to maximize refunds and minimize payments. Here are six of the biggest tax law changes that will affect you in 2016.

 

1. New 2016 Filing Dates

For 2016, the first major change to be aware of is the date of the deadline for filing Federal tax returns. Typically, taxes are due on April 15 of each year; but this year, the Washington D.C. holiday of Emancipation Day is on Friday, April 15. As a result, the tax deadline is extended by Federal law through the weekend until April 18 for most filers. However, it’s extended until April 19 if you live in parts of New England — like Massachusetts — where Patriot’s Day is a holiday.

2. Rising Obamacare Penalties

Another major issue filers should be aware of is the increasing penalties related to Obamacare. Obamacare penalties rise this year based on the schedule established under the law. The changes to Obamacare this year are significant especially on the penalties side.

Those penalties started at $95 per adult or 1 percent of income above the filing threshold in 2014, then rose to $285 per adult or 2 percent of income above the filing limit for the filing year 2015. Now, in 2016, those penalties will rise again to $695 per adult or 2.5 percent of income. There is a family maximum in place for 2016, however, of $2,085 per person.

 

3. Tax Brackets and Deductions

Tax brackets and deductions are also going up again for filers this year. The average bracket is set to rise by about 0.5 percent this year which is consistent with some estimates for rough inflation. Standard deductions are also set to rise, but only in the head of household category.

The filing statuses of single, married filing jointly and married filing separately are not seeing any change in standard deductions because the inflation rate was very low for 2015. Head of household filers get a $50 bump to $9,300. On the positive side, personal exemptions are rising for all tax payers by $50 to a rate of $4,050.

4. Health Savings Account Contribution Limits

Tax payers should also be aware of — and take advantage of — the increasing contribution limits on health savings accounts (HSAs). HSAs are some of the greatest options for long term savings that are available to tax payers. The accounts let individuals set aside money on a pre-tax basis which can then be used to pay for qualified expenses. Money that is not spent can be rolled over into future years until it is spent.

This is great for most tax payers since they will end up facing significantly more in healthcare expenses later in life. For 2016, the contribution limit on individual HSAs is $3,350 and the contribution limit for families rises to $6,750 with an available catch-up contribution of $1,000 for those 55 and older.

 

5. Estate Tax Exemption Increases

Estate tax exemptions are also increasing this year. For 2016, estate tax exemptions are rising to $10.9 million per married couple and $5.45 million per individual. At this level, only about 0.1 percent of estates in 2016 will be affected.

Given this slow rise of the last few years, individuals working on estate planning should be less concerned with Federal estate taxes and more concerned with state level estate taxes and with minimizing capital gains taxes. Both of these can take a significant chunk out of the wealth passed onto heirs.

6. Higher Earned Income Tax Credit

Finally, the Earned Income Tax Credit (EITC) is also increasing this year. The EITC is designed to help lower income individuals and families by providing money to them. For 2016, the maximum EITC ranges from as little as $506 for a single individual with no children to $6,269 for individuals with three or more children. The phase out thresholds for the EITC are also higher so for instance single individuals with one child earning as much as $39,295 are eligible for at least part of the EITC.

Earned Income and AGI Limits
Filing Status Qualifying Children Claimed
Zero One Two Three or more
Single, Head of Household or Widowed $14,880 $39,296 $44,648 $47,955
Married Filing Jointly $20,430 $44,846 $50,198 $53,505
Data provided by: IRS.gov
In 2016, you should be aware of these tax law changes as you’re filing federal tax returns. As a tax payer, you should take advantage of these changes to choose the optimal filing status for you. Carefully decide how to approach Obamacare taxes, estate taxes and more while doing your taxes this year.

ID Theft victims can obtain tax returns

The IRS posted instructions on its website for taxpayers or their CPA or other authorized representative to obtain copies of returns filed by thieves using the taxpayers’ stolen identification. The new procedures represent a change of policy for the Service, which previously had refused to release fraudulent returns due to privacy concerns.

Acknowledging that taxpayers victimized by stolen identification tax refund fraud may have a compelling concern to determine just what information about them was stolen and how it was used, the IRS said it will provide copies of fraudulent returns for the current tax year and up to six previous tax years. However, requests for the returns must meet strict requirements, and certain information will be redacted from the copies provided. Also, the IRS must have resolved the underlying identity theft case before it will provide a copy of any affected return. For now, only individual returns in the 1040 series may be requested.

Due to federal privacy laws, the victim’s name and SSN must be listed as either the primary or secondary taxpayer on the fraudulent return; return information cannot be disclosed to any person listed only as a dependent. The request must be in writing and signed by the taxpayer or representative and include certain documentation.

A request by an identity theft victim must include the taxpayer’s:

Name and Social Security number (SSN);
Mailing address;
Tax year or years requested; and
The statement “I declare that I am the taxpayer.”
In addition to the victim’s items in 1 through 3 above, a request by a person authorized to obtain an identity theft victim’s tax information must include the requesting person’s:

Name and tax identification number;
Relationship to the identity theft victim;
Mailing address;
Centralized authorization file number, if documentation of authorization is on file with the IRS covering the tax year or years requested; and
The statement “I declare that I am a person authorized to obtain the tax information requested.”
The requesting identity theft victim or authorized person must also include a copy of his or her government-issued identification, such as a driver’s license or passport. A requesting authorized person must also include documents demonstrating the person’s authority to receive the requested tax return information, such as Form 2848, Power of Attorney and Declaration of Representative, or Form 8821, Tax Information Authorization, unless:

The person is requesting return information of a minor child as a parent or legal guardian, or;
The person’s authority to obtain return information for the requested tax year(s) is on file with the IRS, and the person is providing his or her CAF number.
The identity theft victim’s mailing address on the request must match the IRS’s last known address on file for the victim.

The provided returns will partly redact names and addresses of primary and secondary taxpayers and dependents (or children reported for other tax benefits). They will fully redact names and addresses of all other persons or entities. They will redact, except for the last four digits, taxpayer identification numbers, employer identification numbers, telephone numbers, and bank routing and account numbers. Personally identifiable numbers (e.g., designee’s personal identification number (DPIN), preparer tax identification number (PTIN), etc.) and signatures will be fully redacted.

Requests should be mailed to the IRS at P.O. Box 9039, Andover, MA 01810-0939.

If the underlying case has been resolved, taxpayers or their representatives will receive requested returns or follow-up correspondence within 90 days. The IRS will acknowledge receipt of a request within 30 days.

 

IRS can revoke your Passport

Think you only need a passport to board an international flight? In 2016, some fliers better have one to fly domestic, which means they had better be paying their taxes. The Real ID Act created a national standard for state-issued IDs. It hits air travel in 2016. Some states initially refused to comply, fearing that the feds would make a national database of citizens. Others cited high administrative costs and a 50% increase in fees for drivers. Most states are OK, but millions in Louisiana, Minnesota, New Hampshire and New York may have to start using a passport to fly domestically.

Those states skipped the stricter standards for state-issued IDs. As a result, the TSA could insist on passports rather than driver’s licenses to board flights. The TSA will accept $55 passport cards and $135 passport books as valid identification. But some advice says that people in Minnesota should get passports by January 2016 to fly domestically. New York has been granted a waiver, so any driver’s license should still work. Louisiana has a waiver until Oct. 10, 2016, meaning that existing driver’s licenses work there too. Ditto for New Hampshire which has a waiver until June 1, 2016.

The easy answer may be to dig our your passport to avoid any doubt. Yet the IRS may have something to say about whether your passport is any good. H.R.22 has passed both the House and the Senate. It is expected to pass and be signed into law, adding new section 7345 to the tax code. The title of the section is “Revocation or Denial of Passport in Case of Certain Tax Delinquencies.”

 

The idea goes back to 2012, when the Government Accountability Office reported on the potential for using the issuance of passports to collect taxes. Sen. Harry Reid (D-Nev.) got on board, and then Sen. Orrin Hatch wrote a Memo to Reporters and Editors. The idea has grown in popularity since then. The State Department could revoke, deny or limit passports for anyone the IRS certifies as having a seriously delinquent tax debt in an amount in excess of $50,000.

Assuming that it passes, in January of 2016, the State Department will start blocking Americans with ‘seriously delinquent’ tax debts. Administrative details about how all this will work are scant. But in all likelihood, it will mean no new passport and no renewal. It could even mean the State Department will rescind existing passports of people who fall into that category.

 

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The list of affected taxpayers will be compiled by the IRS. The IRS will use a threshold of $50,000 of unpaid federal taxes. But this $50,000 figure includes penalties and interest. And as everyone knows, interest and penalties can add up fast. Notably, if you are contesting a proposed tax bill administratively with the IRS or in court, that should not count. That is not yet a tax debt.

There is also an administrative exception, allowing the State Department to issue a passport in an emergency or for humanitarian reasons. But how that will work isn’t clear, nor is the amount of time it will take to get special dispensation. You would still be able to travel if your tax debt is being paid in a timely manner, as under a signed installment agreement.

Yet the dynamics are still significant and could drastically alter how people interact with the IRS. Moreover, these harsh rules are not limited to criminal tax cases. They aren’t even limited to situations where the government thinks that you are fleeing a tax debt. In fact, you could have your passport revoked merely because you owe more than $50,000 and the IRS has filed a notice of lien.

A $50,000 tax debt is easy to amass today, especially considering interest and penalties. Moreover, the IRS files tax liens routinely. It’s the IRS way of putting creditors on notice so the IRS eventually gets paid. In that sense, the you-can’t-travel idea seems extreme. IRS tax liens cover all your property, even acquired after the lien is filed. The courts use liens to establish priority in bankruptcy proceedings and real estate sales. The IRS can file a Notice of Federal Tax Lien after:

IRS assesses the liability;
IRS sends a Notice and Demand for Payment saying how much you owe; and
You fail to fully pay within 10 days.
A tax lien can also be filed by mistake. In most cases, there’s no mistake and the IRS lien is valid. But occasionally, the person might not actually owe the taxes and may just need to straighten out a pile of paperwork. With all this in mind, if this becomes law, is it subject to challenge? Is it constitutional? The right to travel is established, both between states and internationally. And although some restrictions have been upheld, it is not clear that this measure would pass the constitutional test.

Consider especially the roughly eight million Americans living overseas, many of whom are already reeling from FATCA compliance problems. Moreover, although we think of passports as useful only when traveling domestically, even stateside flights may soon make passports even more fundamental.

IRS charges penalty for no health coverage

It’s official: if you make a quarter of a million bucks a year and decide not to pay for health insurance, you’re going to have to fork over $2,448 to the feds.

The Internal Revenue Service finally released its maximum fines for those who choose to go without health insurance. Under terms of the Patient Protection and Affordable Care Act, fines were included for those who decided not to have coverage as an incentive to get more folks to purchase coverage.

The maximum family penalty issued by the IRS was $12,240 for a five-member family. That’s five times $2,448, in case you wondered.

Most Americans who may have been on the fence about getting coverage under the act won’t get dinged too hard. For individuals earning more than $19,650, the fine is one percent of annual income. For those making between $10,150 and $19,650,  it’s a flat fee of $95. For those earning less than $10,150, there’s no penalty.

The penalty is due when people file 2014 taxes.

11/8/2013 IRS warns, be aware of phone scams…

Internal Revenue Service (IRS)

IRS Special Edition Tax Tip 2013-13:  IRS Warns of Phone Scam

Internal Revenue Service (IRS) sent this bulletin at 11/07/2013 12:34 PM EST

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IRS Tax Tips

 

 

 

 


    IRS Special Edition Tax Tip 2013-13

Inside This Issue


IRS Warns of Phone Scam

The IRS is warning the public about a phone scam that targets people across the nation, including recent immigrants. Callers claiming to be from the IRS tell intended victims they owe taxes and must pay using a pre-paid debit card or wire transfer. The scammers threaten those who refuse to pay with arrest, deportation or loss of a business or driver’s license.

The callers who commit this fraud often:

  • Use common names and fake IRS badge numbers.
  • Know the last four digits of the victim’s Social Security number.
  • Make caller ID appear as if the IRS is calling.
  • Send bogus IRS emails to support their scam.
  • Call a second time claiming to be the police or DMV, and caller ID again supports their claim.

The truth is the IRS usually first contacts people by mail – not by phone – about unpaid taxes. And the IRS won’t ask for payment using a pre-paid debit card or wire transfer. The agency also won’t ask for a credit card number over the phone.

If you get a call from someone claiming to be with the IRS asking for a payment, here’s what to do:

  • If you owe federal taxes, or think you might owe taxes, hang up and call the IRS at 800-829-1040. IRS workers can help you with your payment questions.
  • If you don’t owe taxes, call and report the incident to the Treasury Inspector General for Tax Administration at 800-366-4484.
  • You can also file a complaint with the Federal Trade Commission at FTC.gov. Add “IRS Telephone Scam” to the comments in your complaint.

Be alert for phone and email scams that use the IRS name. The IRS will never request personal or financial information by email, texting or any social media. You should forward scam emails to phishing@irs.gov. Don’t open any attachments or click on any links in those emails.

Read more about tax scams on the genuine IRS website, IRS.gov.

 

2014 Tax Season to Start Later Following Government Closure; IRS Sees Heavy Demand As Operations Resume

 

2014 Tax Season to Start Later Following Government Closure; IRS Sees Heavy Demand As Operations Resume

IR-2013-82, Oct. 22, 2013

WASHINGTON — The Internal Revenue Service today announced a delay of approximately one to two weeks to the start of the 2014 filing season to allow adequate time to program and test tax processing systems following the 16-day federal government closure.

The IRS is exploring options to shorten the expected delay and will announce a final decision on the start of the 2014 filing season in December, Acting IRS Commissioner Danny Werfel said. The original start date of the 2014 filing season was Jan. 21, and with a one- to two-week delay, the IRS would start accepting and processing 2013 individual tax returns no earlier than Jan. 28 and no later than Feb. 4.

The government closure came during the peak period for preparing IRS systems for the 2014 filing season. Programming, testing and deployment of more than 50 IRS systems is needed to handle processing of nearly 150 million tax returns. Updating these core systems is a complex, year-round process with the majority of the work beginning in the fall of each year.

About 90 percent of IRS operations were closed during the shutdown, with some major workstreams closed entirely during this period, putting the IRS nearly three weeks behind its tight timetable for being ready to start the 2014 filing season. There are additional training, programming and testing demands on IRS systems this year in order to provide additional refund fraud and identity theft detection and prevention.

“Readying our systems to handle the tax season is an intricate, detailed process, and we must take the time to get it right,” Werfel said. “The adjustment to the start of the filing season provides us the necessary time to program, test and validate our systems so that we can provide a smooth filing and refund process for the nation’s taxpayers. We want the public and tax professionals to know about the delay well in advance so they can prepare for a later start of the filing season.”

The IRS will not process paper tax returns before the start date, which will be announced in December. There is no advantage to filing on paper before the opening date, and taxpayers will receive their tax refunds much faster by using e-file with direct deposit. The April 15 tax deadline is set by statute and will remain in place. However, the IRS reminds taxpayers that anyone can request an automatic six-month extension to file their tax return. The request is easily done with Form 4868, which can be filed electronically or on paper.

IRS processes, applications and databases must be updated annually to reflect tax law updates, business process changes, and programming updates in time for the start of the filing season.

The IRS continues resuming and assessing operations following the 16-day closure. The IRS is seeing heavy demand on its toll-free telephone lines, walk-in sites and other services from taxpayers and tax practitioners.

During the closure, the IRS received 400,000 pieces of correspondence, on top of the 1 million items already being processed before the shutdown.

The IRS encourages taxpayers to wait to call or visit if their issue is not urgent, and to continue to use automated applications on IRS.gov whenever possible.

“In the days ahead, we will continue assessing the impact of the shutdown on IRS operations, and we will do everything we can to work through the backlog and pent-up demand,” Werfel said. “We greatly appreciate the patience of taxpayers and the tax professional community during this period.”

Is your business, a real business or hobby? 10/16/13

Business or hobby? The nine factors

By Robert Gard, CPA
October 2013

Tax Practice CornerThe IRS may question taxpayers regarding whether an activity is a business or a hobby. If the activity is not engaged in for profit, it is subject to the hobby loss rules in Sec. 183, and its deductible expenses are limited to the amount of income it generates, further subject to a threshold of 2% of adjusted gross income (AGI) as a miscellaneous itemized deduction.

Regs. Sec. 1.183-2(b) lists nine factors for determining whether a taxpayer engages in an activity for profit:

1. How the taxpayer carries on the activity. A tax preparer would first want to look for how the taxpayer handles the entity, ensuring that he or she is conducting all activities in a businesslike manner. The taxpayer can establish this by maintaining separate personal and business bank accounts, keeping records and books, and acting like similar profitable, operational entities.

2. The taxpayer’s expertise. A business operator should have extensive knowledge of his or her profession or activity, showing that he or she has studied accepted business methods and sought advice from experts.

3. The taxpayer’s time and effort in carrying out the activity.

Example. J manages a janitorial service, and his prime contract is with a fast-food chain. J also teaches three days a week at a local university and can clean the restaurants only late in the evening after closing or early in the morning before opening. This causes him to devote much of his personal time and effort to cleaning, which could indicate that he entered into and continued it with the actual and honest objective of making a profit.

4. An expectation that assets used in an activity, such as land, may appreciate in value. Regs. Sec. 1.183-2(b)(4) says such appreciation may be considered in lieu of current profits.

5. The taxpayer’s success in other activities. Even if the taxpayer’s activity is currently unprofitable, it may be for-profit if the taxpayer has been able to convert other activities from unprofitable to profitable in the past, especially ones similar to the current activity.

6. The taxpayer’s history of income or losses from the activity. The economy plays a big role in how much business J, the hypothetical janitor, can generate and keep. Since J’s main contract is with a fast-food chain whose budget fluctuates with the economy, he sometimes incurs losses, which alone are not conclusive. However, a long series of losses warrants consideration, and sustained earnings indicate a for-profit activity.

7. The relative amounts of the profits and losses. Regs. Sec. 1.183-2(b)(7) states, “The amount of profits in relation to the amount of losses incurred, and in relation to the amount of the taxpayer’s investment and the value of the assets used in the activity, may provide useful criteria in determining the taxpayer’s intent.” However, the presumption of profit motive in Sec. 183(d) says that if an activity has gross income for three or more of the last five years that exceeds the deductions attributable to the activity, the activity generally is presumed to be for-profit.

8. The taxpayer’s financial status. Although other substantial sources of income to the taxpayer do not preclude an activity from being considered for-profit, they may indicate the activity is a hobby. In the example, J also teaches three days per week at a local university during the academic year. He is not paid when school is not in session. During those months, he relies solely on his janitorial business for income. J’s janitorial services can be considered a for-profit activity whether or not school is in session.

9. Whether the activity provides recreation or involves “personal motives.” This may, with other factors, indicate lack of a profit motive. J’s janitorial service entails cleaning grills, mopping floors, and scrubbing public bathrooms. The activity lacks recreational appeal, helping J’s business to be seen as a for-profit activity rather than a hobby.

After reviewing the records and previous tax returns for an activity, a tax preparer can determine whether the activity is a hobby or a for-profit activity based on these nine factors. However, taxpayers must understand that no single defining pattern or factor is conclusive and that all the facts and circumstances must be considered. If an activity is deemed a hobby, its income is reported as other income on line 21 of Form 1040, U.S. Individual Income Tax Return, and the related expenses are reported as miscellaneous itemized deductions on Schedule A, Itemized Deductions, subject to the 2%-of-AGI floor.

Editor’s note: This article is adapted from “Tax Practice & Procedures: Nine Factors That Determine Whether an Activity Is a Hobby,” The Tax Adviser, July 2013, page 480.