This year's tax return stumbling blocks

Copyright c 1998 Nando.net
Copyright c 1998 The Associated Press 

WASHINGTON (March 28, 1998 http://www.nando.net) -- Common stumbling blocks on 
tax returns this year involve missing or incorrect taxpayer identification 
numbers, errors on the earned-income credit and the complex new capital-gains 
rules.

When the April 15 filing deadline approaching, the Internal Revenue Service 
suggested double-checking returns to ensure
taxpayer numbers -- Social Security numbers in most cases -- are listed for the 
taxpayer, spouse and dependents.

A mistaken number was the most-frequent error on returns filed last year and was 
the second-most-counted mistake on this
year's returns filed through February, according to the IRS.

A taxpayer without a Social Security number can file a special IRS form W-7 to 
receive an IRS-issued taxpayer identification
number.

These identification numbers must be listed for children or spouses in order to 
qualify for certain tax benefits, such as the earned-income credit for low-
income families or the child-care credit. A child's name and number must be 
listed on the
child-care-credit form this year.

The IRS cited 2.5 million cases last year in which the taxpayer identification 
number was missing or didn't match the agency's records. In such cases, the IRS 
removed the credit or exemption claimed on the tax form, which can lead to a 
lower refund.

Carol Thompson, a tax specialist in Monterey, Calif., said accuracy of taxpayer 
numbers is particularly critical for electronically filed returns. Some are 
being rejected because women failed to notify the Social Security Administration 
of a name change after marriage.

"People have to be much more careful to be sure things are accurate," Thompson 
said.

Another problem involves confusion over the new capital-gains rules, said 
Thompson, an enrolled agent licensed to represent
taxpayers before the IRS.

The 1997 tax law cut the maximum capital-gains rate from 28 percent to 20 
percent, but tricky transition rules apply. The new lower rates apply for asset 
sales after May 7, 1997; prior sales are subject to the higher capital-gains 
rate.

The most common error this year involves the earned-income credit, according to 
the IRS. This benefit is available to taxpayers whose incomes are under $25,760 
and have one child that qualifies under the rules. For two or more children, the 
income limit is $29,290.

A common error among recipients of the credit is failing to calculate housing 
allowances or contributions to retirement plans, such as 401(k) plans, into 
their nontaxable earned income.

Other errors arise in figuring the refund or balance due and obtaining the 
correct tax from the tax table.

The IRS will have 150 offices in major cities open Saturday from 9 a.m. to 3 
p.m. local time to handle tax questions in person.

In addition, taxpayers can check the following services:

  Toll-free telephone service: 1-800-829-1040

  Internet: www.irs.ustreas.gov

  Tax forms by fax: 703-368-9694.

By ROB WELLS, AP Tax Writer