Voluntary Disclosure - Extended

Taxpayers with undisclosed foreign accounts or entities and unreported offshore income should make a voluntary disclosure because it enables them to become compliant, avoid substantial civil penalties and generally eliminate the risk of criminal prosecution. Making a voluntary disclosure also provides the opportunity to calculate, with a reasonable degree of certainty, the total cost of resolving all offshore tax issues. Taxpayers who do not submit a voluntary disclosure run the risk of detection by the IRS and the imposition of substantial penalties, including the fraud penalty and foreign information return penalties, and an increased risk of criminal prosecution.

The IRS announced a one-time extension of the September 23, 2009 deadline for special voluntary disclosures by taxpayers with unreported income from offshore accounts. Taxpayers now have until October 15, 2009. There will be no further extensions.

The September 23, 2009, deadline for certain FBAR filers and certain offshore-related information returns who have no unreported income is also extended to Oct. 15, 2009.

Rev. Proc. 84-35 - Reasonable cause safe harbor for Small Partnerships

Rev. Proc. 84-35 provides a reasonable-cause safe harbor for certain small partnerships. Under this procedure, a domestic partnership composed of 10 or fewer partners, each of whom is a natural person (other than a nonresident alien) and each of whom has fully reported his or her share of the income, deductions, and credits of the partnership on timely filed income tax returns(including extension), is considered to have met the reasonable cause test and is not subject to the penalty under Sec. 6698.

If a partnership of 10 or fewer partners fails to qualify for relief under Rev. Proc. 84-35, the partnership may still show reasonable cause for failure to file a timely and complete return (Rev. Proc. 84-35, §3.03).

Though S Corp are also considered pass thru entities there is no clear guidance if the S Corp can also qualify for this safe harbor and get relief from any statutory penalty for the late or incomplete filing of Form 1120S.

Expanded 529 Plan Features - American Recovery and Reinvestment Act of 2009

The American Recovery and Reinvestment Act of 2009 (ARRA) added computer technology to the list of college expenses (tuition, books, etc.) that can be paid for by a 529 plan.
As a result, for 2009 and 2010, the definition of qualified higher education expenses includes expenses for computer technology and equipment or Internet access and related services to be used by the designated beneficiary of the 529 plan while enrolled at an eligible educational institution. Software designed for sports, games or hobbies does not qualify, unless it is predominantly educational in nature.

Additional Relief to file late classification election for Eligible Entities

Revenue Procedure 2009-41 (IRB 2009-39) provides guidance with regard to eligible entities seeking relief to file late classification elections. An entity classification election is necessary only when an eligible entity chooses to be classified initially as other than its default classification or when an eligible entity chooses to change its classification.

This revenue procedure supersedes Rev. Proc. 2002-59 by extending late entity classification relief to both initial classification elections and changes in classification elections along with extending the time for filing late entity classification elections to within 3 years and 75 days of the requested effective date of the eligible entity’s classification. Thus, the extended filing period no longer is limited, as it was under Rev. Proc. 2002-59, to entities newly formed under local law requesting relief to file an initial classification election and to the due date for the first federal tax return (excluding extensions) of the entity’s desired classification for the year of the entity’s formation.

The revenue procedure also provides guidance for those eligible entities that do not qualify for relief under this revenue procedure.