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J.K. Lasser Daily Tax Tip brought to you by TaxACT
Everyone wants to get as much back in their tax refund as possible, but tax laws are constantly added, changed, or updated. The J.K. Lasser Daily Tax Tip, brought to you by TaxACT, provide some insight into complex tax situations and offers helpful advice and guidance. Now that's something everyone can use!

The Daily Tax Tip content is provided by America's all-time best selling tax guide, J.K. Lasser's™ Your Income Tax Guide 2006 by John Wiley & Sons, Inc. Tax advice provided by The Daily Tax Tip shall not be construed as a substitute for the advice obtained or given by a certified tax professional.

• Income Splitting Barred to California Registered Domestic Partner
  In a 2006 legal memorandum, the IRS concluded that the community property income-splitting rule allowed to California spouses does not apply to registered domestic partners, despite the California law (effective in 2005) that extended to registered domestic partners community property rights and virtually all other spousal rights and responsibilities. Thus, a California registered domestic partner must report all of his or her earned income from personal services. He or she cannot report on a separate federal return only one-half of the combined income of both partners, as he or she could if married. According to the IRS, domestic partners under the new California law are not married and Supreme Court precedent allowing married couples in community property states to split income applies only to husbands and wives.
• Nonresident Alien Becomes Resident
  Where one spouse is a U.S. citizen or resident and the other is a nonresident alien who becomes a resident during the tax year, the couple may make a special election to file a joint return for that year and be taxed on their worldwide income. Thereafter, neither spouse may make the election again even if married to a new spouse.
• Election To File a Joint Return
  Where a U.S. citizen or resident is married to a nonresident alien, the couple may file a joint return if both elect to be taxed on their worldwide income. The requirement that one spouse be a U.S. citizen or resident need be met only at the close of the year. Joint returns may be filed in the year of the election and all later years until the election is terminated.
• Spouse in Combat Zone
  If your spouse is in a combat zone or a qualified hazardous duty area, you can sign a joint return for your spouse. Attach a signed explanation to the return.
• Can Filing Separately Avoid Exemption Phaseout or Itemized Deduction Reduction?
  Filing separately will sometimes allow either you or your spouse to avoid part of the personal exemption phaseout or the reduction to specified itemized deductions. If you file jointly and have total 2008 adjusted gross income (AGI) exceeding $239,950, the exemption phaseout applies. If you file separately, the phaseout does not apply to the spouse reporting separate AGI of $119,975 or less. On the other hand, where your joint AGI is $239,950 or less, a spouse reporting AGI over $119,975 on a separate return will be subject to the phaseout although no phaseout would apply on a joint return. If for 2008 you itemize deductions, the deductions for taxes, mortgage interest, charitable donations, and miscellaneous deductions are reduced if AGI exceeds $159,950 on a joint return, or exceeds $79,975 on a separate return. If you file separately, the reduction does not apply on a separate return showing AGI of $79,975 or less. Where joint AGI is $159,950 or less, a spouse filing separately with separate AGI over $79,975 is subject to the reduction although no reduction would apply on a joint return.
• Switching From Separate to Joint Return
  If you and your spouse file separate returns, you have three years from the due date (without extensions) to change to a joint return. If a joint return is filed, you may not change to separate returns once the due date has passed. The filing of separate or joint estimated tax installments does not commit you to a similar tax return.
• Getting Married Can Raise Your Taxes
  The so-called marriage penalty is faced by couples whose joint return tax liability exceeds the combined tax they would pay if single. This is generally the case where each spouse earns a substantial share of the total income. On the other hand, if one spouse has little or no income, there generally is a marriage bonus or singles penalty, as the couple tax on a joint return is less than the sum of the tax liabilities that would be owed if they were single. Tax legislation has reduced the marriage penalty by increasing the standard deduction for married couples filing jointly to double the amount allowed to a single person, and also making the 15% bracket twice as wide.
• IRS Failure To Release Lien
  A suit for damages may also be brought in federal district court against the IRS if IRS employees improperly fail to release a lien on your property. Before you sue, you must file an administrative claim for damages. The lawsuit must be filed within two years after your claim arose. You may sue for actual economic damages plus costs of the action; the types of damages that may be recovered are similar to those discussed for suing the IRS for unauthorized collection actions.
• Penalty for Frivolous Action
  If you bring an action in federal district court for unauthorized collection activities that the court considers to be frivolous, it may impose a penalty of up to $10,000.
• Recovering Attorneys' Fees
  Attorneys' fees include the fees paid by a taxpayer for the services of anyone who is authorized to practice before the Tax Court or IRS.
• Upfront Payment for OIC
  A new law requires taxpayers to make an upfront payment when they submit an offer-in-compromise to the IRS on or after July 16, 2006. For a lump-sum offer, the taxpayer must include 20% of the offer with the application; the same requirement applies for offers to pay in five or fewer installments. For periodic payment offers, the first proposed installment must accompany the offer. The IRS can allow exceptions for low-income taxpayers or for offers based on doubt as to liability. Any upfront payment is in addition to the user fee that generally must accompany the submission, but the fee will be credited toward the outstanding tax liability.
• Penalty for Frivolous Tax Court Action
  If you bring a frivolous case to the Tax Court or unreasonably fail to pursue IRS administrative remedies, the Tax Court may impose a penalty of up to $25,000. Furthermore, if you appeal a Tax Court decision and the federal appeals court finds that the appeal was frivolous, the court may impose a penalty.
• Notice of Deficiency
  If you do not respond to the 30-day letter, or if you later do not reach an agreement with an appeals officer, the IRS will send you a 90-day letter, also called a notice of deficiency. The IRS is required to specify on the notice the 90th day by which you must file your petition with the Tax Court.
• Too Good to Be True
  If you claim a deduction, credit, or exclusion on your return that would seem to a reasonable person to be too good to be true under the circumstances, the IRS is likely to consider you negligent unless you show you made an attempt to verify the correctness of the position.
• Penalties Relating to Reportable Transactions
  Effective for returns and statements due after, and filed after, October 22, 2004, a $10,000 penalty may be imposed on individuals who fail to adequately disclose a reportable transaction on Form 8886; the penalty is $50,000 for taxpayers that are not natural persons. If the reportable transaction is also a listed transaction, the penalty amounts increase to $100,000 and $200,000, respectively. See the Form 8886 instructions for definitions of reportable and listed transactions. These penalties apply whether or not there is an understatement of tax liability due to the transaction. They apply in addition to the other penalties discussed in 48.6.Penalties are also imposed for understating tax liability attributable to reportable transactions with a significant tax avoidance purpose, effective for taxable years ending after October 22, 2004. The penalty is generally 20% of the understatement if the transaction was adequately disclosed on Form 8886. There is an exception for reasonable cause, but to qualify, stringent requirements must be met; see Code Section 6664(d). If the transact