Rebate check confounding 2001 returns

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  • | 12:00 p.m. February 8, 2002
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by Mike Sharkey

Staff Writer

Last summer millions of Americans were delighted to get an early Christmas present from the IRS in the form of a tax rebate check. Today, those same rebates are causing problems for taxpayers, tax preparers and the IRS.

The new line on three different tax forms — line 47 of form 1040, line 30 of form 1040A and line 7 of 1040EZ — has been creating confusion almost since the first 2001 returns made it back to the IRS. In a nutshell, if you received the full amount of your rebate last summer — $300 for a single person or married person filing separately, $500 for a head of household, or $600 for a married couple jointly or a qualified widow(er) — leave the line blank.

Because so many Americans are improperly including the refund as earned income in 2001, the IRS is mounting a nationwide campaign to educate both taxpayers and tax preparers about the refund checks and their affect on 2001 returns.

“We are aware of the situation and we have people all over the country dealing with tax preparers to make sure they understand the tax laws and how the rebate affects this year’s returns,” said Gloria Sutton, who handles media relations for the IRS office in Jacksonville.

Sutton said the IRS started noticing the mistake when the first returns came in a few weeks ago. On Jan. 23, she sent a out a press release cautioning taxpayers about the new line on all 1040 forms. Still, many people are filing incorrect returns. Others, thanks to misinformed preparers, are getting shortchanged on their refund. Others, still, are being told they owe the IRS this year because their preparer is counting the refund check as income.

Katie McGuire, the district manager for Jackson Hewitt Tax Service, said it’s important for the general public to understand that the rebate checks were just that, rebates, and not any type of advance on their 2001 tax return.

“No, it does not affect your return negatively,” said McGuire. “It can only affect your return positively.”

Sutton seconded McGuire’s assessment of the return, saying the only reason a taxpayer should enter any amount on the new line is if they are qualified for and were due a refund last summer, but didn’t get one. McGuire said there is a pretty simple method for recovering an unpaid refund.

“If you did not receive a rebate check, based on your 2001 income, you could be eligible for a rate reduction credit,” said McGuire. “If you received the full amount, it’s all null and void. If you received a partial payment, you may be entitled to more.”

Sutton said those who do their own taxes are being urged to fill out the forms carefully. If errors are still made, the IRS will eventually catch them, adjust the return and take appropriate action. Sutton stressed that the IRS will not audit the incorrect returns, but rather correct the mathematical mistake, inform the taxpayer via a letter and issue a refund check.

However, if a taxpayer is using a professional preparer who insists on considering the rebate check as either 2001 income or an advance on a 2001 tax refund from the IRS, there are actions the consumer can take. The key, Sutton said, is how comfortable the consumer is with their preparer.

“There are a couple of things they can do,”said Sutton. “If they are comfortable with their preparer they can direct them to our web site [] and say, ‘There’s your proof.’ If they are fed up with their preparer, they can walk away and have someone else do it.”

One thing, according to Sutton, that cannot happen is for the preparer to keep someone’s tax documents, especially if the taxpayer hasn’t signed the return.

“Those are compliance forms and they may not keep them,” said Sutton. “If they have a problem with a professional CPA [certified public accountant] or CPA firm, they can report the person to their professional regulatory board. If they have hired an individual to do their taxes, they can give the IRS a call.”

There is one thing consumers can do to eliminate the potential problem altogether and get their refund checks back in a matter of days rather than weeks: file electronically. Last year 42 million people filed their taxes over the Internet. Sutton said this year the IRS expects that number to be around 46 million. The steady rise in e-filers hasn’t caught the IRS off-guard.

“We have planned strategically for this for quite some time,” said Sutton, adding there are many advantages to filing electronically. “It’s a win-win situation. It prevents errors, they can’t leave out W-2s, they can’t skip lines or make any basic mathematical errors. It won’t let you progress without doing each step correctly. And, you get your refund back in about half the time. If you have it deposited directly into your account, it’s even faster.”

Sutton warned, though, the Internet program will ask about the 2001 rebate check.

“The software developers created the program and it has to ask you if you got it,” said Sutton. “But, it should not reduce your refund or tell you it’s income.”



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