Congress working on tax deduction for Haiti donors

By NIRVI SHAH
nshah@MiamiHerald.com

Taxpayers may be able to write off cash donations made to relief efforts in Haiti on their 2009 income tax returns.The U.S. House unanimously passed a bill Wednesday that would make donations made after Jan. 11 and before March 1 deductible for 2009.

The goal is to encourage donations beyond the $275 million already given, according to estimates by The Chronicle of Philanthropy.

The Senate is expected to pass the bill as well. Without a change, donations made this year couldn’t be deducted from income taxes until taxpayers file 2010 returns. In 2005, a similar law was created to encourage donations to victims of a tsunami in the Indian Ocean that happened at the end of 2004.

Contributions to U.S.-based, tax-exempt charities that provide assistance to foreign countries can be counted as tax-deductible contributions on federal income tax returns. Donations to foreign organizations generally are not deductible.

Only taxpayers who itemize their deductions on Form 1040, Schedule A, can claim deductions to charities. Regardless of the amount of a donation, taxpayers need bank records or written communication from the charity that shows the date and amount of their gift.

With millions collected by charities via text messages, the House bill specified that taxpayers could use a phone bill as a receipt. Some text donations can be verified with receipts at http://www.mgive.org/receipt.

Other proposals related to contributions to Haiti include allowing a waiver of the limit on how much of a taxpayer’s income can be deducted in a year — if the donations are cash and specifically designated for Haiti relief. The current limit is 50 percent. A corporation can donate up to 10 percent.

Another proposal is to allow corporations that donate food to relief efforts to deduct the actual market value of the donation, rather than the cost to produce the food.

That tax break expired at the end of 2009.

GAO: 68% of S Corp Tax Returns Have Errors

The Government Accountability Office today released Tax Gap: Actions Needed to Address Noncompliance with S Corporation Tax Rules (GAO-10-195):

According to IRS data, about 68% of S corporation returns filed for tax years 2003 and 2004 (the years data were available) misreported at least one item. About 80% of the time, misreporting provided a tax advantage to the corporation and/or shareholder. The most frequent errors involved deducting ineligible expenses, which could decrease S corporation shareholder tax liabilities. Even though a majority of S corporations used paid preparers, 71% of those that did were noncompliant. Stakeholder representatives said that preparer mistakes may be due to the lack of preparer standards as well as their misunderstanding of the tax rules. Shareholders of S corporations also made mistakes in calculating basis – their ownership share of the corporation – when taking losses passed to them from the corporation, potentially decreasing their total taxes. IRS officials as well as stakeholder representatives said that calculating and tracking basis was one of the biggest challenges for shareholders, and that S corporations themselves were in a better position in most cases to calculate basis for their shareholders.

To improve compliance with shareholder basis rules, Congress should require S corporations to calculate and report shareholder’s stock and debt basis as completely as possible. S corporations would report the calculation on the Schedule K-1 and send it to shareholders as well as IRS. If Congress judges that stock purchase price information that is currently only available to shareholders should not be transmitted to the S corporation due to privacy concerns, an alternative is to require that S corporations report less complete basis calculations using information already available to the S corporation.

To help address the compliance challenges with S corporation rules, we recommend that the Commissioner of Internal Revenue take the following four actions:

• Identify and evaluate options for improving the performance of paid preparers who prepare S corporation returns, such as licensing preparers and ensuring that appropriate penalties are available and used.
• Send additional guidance on S corporation rules and record-keeping requirements to new S corporations to distribute to their shareholders, including providing guidance on calculating basis and directing them to the specific IRS Web site related to S corporation tax rules.
• Require examiners to document their analysis such as using comparable salary data when determining adequate shareholder compensation or document why no analysis was needed.
• Provide more specific guidance to shareholders and tax preparers, such as that provided to IRS examiners, on determining adequate shareholder compensation through means such as IRS’s Web site.

Crackdown on Tax Fraud leads to Tax return preparers E-filing your Tax Return

Created 12/21/2009 – 12:50

Tax return preparers will have to pay attention to an amendment added in the Senate version of the Worker, Homeownership, and Business Assistance Act of 2009, which extended the First Time Homeowner Credit and unemployment benefits, because beginning in 2010, this amendment will require tax return preparers to file any individual tax return electronically unless the preparer expects to file fewer than 10 returns in a calendar year. This means that individual tax return preparers will be required to apply for an EFIN, the Electronic Filing Identification Number, which will help the Internal Revenue Service (IRS) to track their returns. The requirement applies to individual tax returns, estate, and trust returns. Note: This new law does not affect 2009 tax returns filed in 2010.

Other amendments tacked on to the bill by the Senate:

· Extend the 0.2‐percent Federal Unemployment Tax Act (FUTA) surtax through June 30, 2011 to pay for the extension of unemployment insurance benefits

· Increase penalties for failure to file Partnership or S Corporation returns from $89 to $195 per month per partner or shareholder effective December 31, 2009. The penalty may also be imposed for incomplete returns of Schedules K-1.

Increase the required estimated tax due from corporations with assets of at least $1 billion due in July, August or September 2014 by 33 percentage points, to 133.25 percent of the payment otherwise due for the quarter. The payment due in the following quarter is reduced by a corresponding amount.

Reports of widespread fraud and abuse in the preparation of tax returns, particularly in regard to the Earned Income Credit and the First-time Homebuyer’s Credit, prompted the IRS to prepare a set of recommendations for Congress and the President to address this fraud. The final IRS recommendations for registration of tax return preparers will be made public in early January, according to the American Institute of Certified Public Accountants (AICPA).

In a video presentation [2] on their web site, Barry Melancon, AICPA president, and Alan Einhorn, chairman of the AICPA’s Tax Executive Committee, review what has happened so far in the discussion of tax preparer fraud prevention, and emphasize that the AICPA supports “a reasonable solution,” but express concern about possible damage to the CPA credential. One part of a “reasonable solution” is a single preparer indentifying number and making all preparers subject to existing penalties under Circular 230, but Melancon and Einhorn expressed concern about other kinds of registration and testing. If Congress votes to create a new certification and exam, Melancon says, “The process would go too far.”

The original version of the Act also permits all businesses, regardless of their gross receipts, to carry back net operating losses incurred in 2009 for up to five years (with a 50 percent income limit in the fifth year).

Deferred Income May Not Be Preferred-Bush Tax cuts Expiring!

Alix Stuart, CFO.com | US
December 15, 2009

For executives who have been deferring parts of their compensation, 2010 may be the time to rake in their winnings. While it’s rarely advantageous to pay taxes sooner rather than later, the likely expiration of former President Bush’s tax cuts at the end of next year could make doing so a relative bargain. The top individual tax rate is scheduled to increase in 2011 from 35% to 39.6%, as it was in 2001 prior to the cuts. While Congress could still maintain the lower rates, many think it’s unlikely lawmakers will do so.

“It’s a bit of a twist: people usually try to defer compensation as long as possible, but now you see many evaluating how to accelerate it as much as possible because of the fear the tax situation will become much worse,” says Andrew Liazos, partner and head of the executive-compensation group at law firm McDermott, Will & Emery.

Although many executives have already completed their paperwork giving the go-ahead to deferrals, it may not be too late for them to change their mind and take all of their salary and incentive compensation in 2010. Liazos explains that the elections may not be binding until the last day of 2009, depending on the language of the contract, so they could be changed if necessary.

Some companies are even planning to do away with their nonqualified deferred-compensation plans entirely, in part for tax reasons. While the practice is far from common, at least two public companies — AECOM Technology and Medquist — have taken this step in recent weeks, according to their regulatory filings. Liazos says he is currently working with two companies considering this option.

But the clock is ticking on that decision as well. In order to pay out accumulated compensation in 2010, companies must liquidate the plan (and all related plans) by the end of December, since Internal Revenue Service laws require a lag of at least 12 months and one day between shutdown and payout, according to Liazos.

The main drawback to liquidating the plans is that companies may not establish another deferred-compensation plan for at least another three years, according to IRS rule 409(A). For executives who expect tax rates to remain high, that might not be too high a price.

Public perception, however, may be a larger stumbling block. George Paulin, chairman and CEO of compensation consultancy Frederic W. Cook, says “a couple” of his public-company clients briefly considered such an idea but quickly rejected it. He says executives were concerned that liquidating a plan could send the wrong message: “How does it look if we’re only doing it so that people will save money on taxes?”

© CFO Publishing Corporation 2009. All rights reserved.

Cash for Caulkers could mean $12K per home

By Steve Hargreaves, CNNMoney.com staff writer
On 6:24 pm EST, Tuesday December 8, 2009

President Obama proposed a new program Tuesday that would reimburse homeowners for energy-efficient appliances and insulation, part of a broader plan to stimulate the economy.

The administration didn’t provide immediate details, but said it would work with Congress on crafting legislation. Steve Nadel, director at the American Council for an Energy-Efficient Economy, who’s helping write the bill, said a homeowner could receive up to $12,000 in rebates.

The proposal is part of the President’s larger spending plan, which also includes money for small businesses, renewable energy manufacturing, and infrastructure.

We know energy efficiency “creates jobs, saves money for families, and reduces the pollution that threatens our environment,” Obama said. “With additional resources, in areas like advanced manufacturing of wind turbines and solar panels, for instance, we can help turn good ideas into good private-sector jobs.”

The program contains two parts: money for homeowners for efficiency projects, and money for companies in the renewable energy and efficiency space.

The plan will likely create a new program where private contractors conduct home energy audits, buy the necessary gear and install it, according to a staffer on the Senate Energy Committee and Nadel at the American Council for an Energy-Efficient Economy.

Big-ticket items like air conditioners, heating systems, washing machines, refrigerators, windows and insulation would likely be covered, Nadel said.

Consumers might be eligible for a 50% rebate on both the price of the equipment and the installation, up to $12,000, said Nadel. So far, there is no income restriction on who is eligible. That would mean a household could spend as much as $24,000 on upgrades and get half back.

Homes that take full advantage of the program could see their energy bills drop as much as 20%, he said. The program is expected to cost in the $10 billion range.

It’s not clear how the home efficiency plan would be administered – the government may issue rebates to consumers directly, homeowners might get a tax credit, or the program could be run via state agencies.

If consumers have to spend a lot of money up front to get the credit, it could throw a wrench in the works, David Kreutzer, an energy analyst at the Heritage Foundation, told CNN.

“This will not be something that’s attractive to people who are having trouble already making their budget payments month to month or week to week,” he said.

To keep consumers from having to spend thousands of dollars before getting reimbursed, Nadel said, one idea is to have contractors or big box retailers pay part of the cost up front.

Fraud issues could also come up, Kreutzer said.

“Any program that is going to run through a third party and is going to distribute billions of dollars needs to have lots of checks and balances to make sure there’s not abuse,” he said.

Nadel noted that as a way to guard against fraud, contractors would have to be certified to participate.

Energy company boost

Obama’s new spending plan also calls for renewable energy companies to get additional support. That could come in the form of loan guarantees – basically, money the government uses to secure loans for startups.

In the original stimulus bill passed earlier this year, $6 billion was earmarked for such loan guarantees. But then lawmakers took away $2 billion to fund Cash for Clunkers – the popular program that paid people to turn in their old cars.

The $4 billion from the original bill has funded about $40 billion in loans, said the staffer on the Senate Energy Committee. Meanwhile, firms are hoping for another $4 billion in loan guarantees, since they have another $40 billion worth of projects that need funding.

A bill on energy efficiency reimbursements already has supporters in the Senate.

“Not only will [such legislation] increase our energy security and transform our energy infrastructure to a modern, clean and efficient one,” Senate Energy Committee Chairman Jeff Bingaman, D-N.M., wrote in a recent op-ed column in the Hill, a Capitol Hill newspaper. “But it also will position the United States to lead in the development of clean energy technologies.”

Standard Mileage deduction drops from .55 to .50 per mile

Standard Mileage Rates for 2010 Released (IR-2009-111; Rev. Proc. 2009-54)

The IRS has released the 2010 optional standard mileage rates that employees, self-employed individuals and other taxpayers can use to compute deductible costs of operating automobiles (including vans, pickups and panel trucks) for business, medical, moving and charitable purposes. The revenue procedure also provides substantiation rules for employees’ local travel or transportation expenses when a payor (an employer, its agent, or a third party) provides a mileage allowance under a reimbursement or other expense allowance arrangement. Finally, the procedure explains the fixed and variable rate allowance (FAVR) rules that payors can use to reimburse business expenses paid or incurred with respect to an automobile owned or leased by an employee. The mileage rates are all lower than they were for 2009, reflecting generally lower transportation costs.

The updated rates are effective for deductible transportation expenses paid or incurred on or after January 1, 2010; and for mileage allowances or reimbursements paid to, or transportation expenses paid or incurred by, an employee or a charitable volunteer on or after January 1, 2010. Rev. Proc. 2008-72, I.R.B. 2008-50, 1286, is superseded.

Business Mileage Rate

The standard mileage rate for business mileage in 2010 will be 50 cents per mile. When a taxpayer uses this mileage rate for automobiles the taxpayer owns, depreciation will be considered to have been allowed at a rate of 23 cents per mile. This depreciation reduces the taxpayer’s basis in the automobile.

A taxpayer computes a deduction using the business standard mileage rate on a yearly basis, in lieu of computing the fixed and variable automobile costs allocable to business purposes, such as depreciation, lease payments, maintenance and repairs, tires, gasoline, oil, insurance, and license and registration fees. However, the taxpayer may continue to claim separate allowable deductions for parking fees and tolls, interest relating to the purchase of the automobile, and state and local personal property taxes. The standard business mileage rate may not be used for automobiles used for hire (such as taxicabs) or when five or more automobiles are owned or leased and used simultaneously by the taxpayer (such as in fleet operations). Rules providing for substantiation of an employee’s ordinary and necessary expenses for local travel or transportation away from home are also provided. Such expenses will be deemed substantiated when the employer, its agent or a third-party provider provides a mileage allowance under a reimbursement or other expense allowance arrangement.

Medical, Moving Mileage Rate

The standard mileage rate for medical and moving expenses will be 16.5 cents per mile.

Charitable Mileage Rate

The standard mileage rate for charitable purposes will remain at 14 cents per mile.

IR-2009-111, FED ¶46,547

Rev. Proc. 2009-54, FED ¶46,548

Tax Tip on The Gift Tax: Use It or Lose It

By Mary Beth Franklin
One of the least-understood tax rules is the federal gift tax. Gift taxes are paid by the grantor, not the recipient. But taxes are seldom owed, even on substantial gifts, because everyone gets a credit that exempts up to $1 million of taxable gifts over your lifetime.

Still, you must keep track of your largess and file a gift-tax return — Form 709 — for any gift to an individual that exceeds the annual gift exclusion, which is $13,000 this year. You can give $13,000 each to any number of individuals without worrying about the gift tax. You and your spouse can give up to $26,000 of either one of your assets per person, as long as the spouse agrees not to give the person another dime during the year.

You don’t get an income-tax deduction for such gifts, but there’s an important advantage: Assets given away during your life — and any future appreciation — won’t be in your estate to be taxed after you die.

Why worry about the gift exclusion as an end-of-year maneuver? If you don’t use your $13,000 annual exclusion by December 31, you lose it forever. Each new year presents you with a new exclusion, but you can’t reach back to benefit from a previous year’s unused allowance. Next year, the gift-tax exclusion will remain at $13,000.

Assume, for example, that a couple plan to give $50,000 to their son. If they give him all of the money during one calendar year, only $26,000 of the gift would be sheltered from the gift tax. The other $24,000 would eat into the credit that shelters $1 million of taxable gifts. However, if $26,000 was given in December and the balance in January, the full $50,000 would be protected. If you make a gift by check, be sure the recipient cashes it before the end of the year because when it comes to gifts, the IRS considers it given in the year the check is cashed.

Another option is to fund a 529 state-sponsored college-savings plan for your child or grandchild. You can contribute up to five years’ worth of gifts at once, meaning you could contribute up to $65,000 per child or up to $130,000 if you and your spouse make a joint contribution this year. Contributions to 529 plans are not deductible on federal tax returns, but some states offer deductions on state returns.

All contents © 2009 The Kiplinger Washington Editors

Hoyer Will Not Support Surtax to Fund Afghan War

Publication date: 12/02/2009

House Majority Leader Steny Hoyer (D-Md.) said Dec. 1 that he cannot currently support a proposal to impose a surtax that would be used to pay for U.S. military operations in Afghanistan.

The Share the Sacrifice Act of 2010 (H.R. 4130), offered Nov. 19 by House Appropriations Committee Chairman David Obey (D-Wis.), would impose a tax on couples with a net income tax liability of as little as $22,600. The surtax would begin at 1 percent and would rise along with income, although the maximum value of the tax would be left for the Obama administration to decide.

Hoyer said he is “generally in favor of paying for things, but the weak economy complicates things,” and he is “not supportive of [the surtax] at this point in time.”

Obey proposed similar legislation in 2007, and the idea was rejected by House leaders then as well.

Obey has said he believes the surtax is necessary to force the administration to offset the cost of the war and to remind the American public that U.S. military involvement in the Middle East comes with a price tag.

White House spokesman Robert Gibbs said Nov. 30 that he is not aware of a White House position on the surtax proposal, and Senate Majority Leader Harry Reid (D-Nev.) avoided commenting on the proposal, telling reporters Dec. 1 that he wants to wait and see what the president intends to propose for paying for the war in Afghanistan.

© 2009, The Bureau of National Affairs, Inc.

Bo-tax: a levy on nips and tucks?

Posted by TIFFANY O’CALLAGHAN

The health care bill currently being debated in the Senate includes a provision that would levy a 5% tax on elective cosmetic surgeries. The proposed Bo-tax is being presented by supporters as a simple economic tool to help offset health care costs, yet detractors—including some 7,000 doctors in the American Academy of Plastic Surgeons—say that the tax is based on inaccurate assumptions that everyone who gets plastic surgery is very wealthy, that it unfairly targets women, who make up the majority of plastic surgery patients, and that it will drive people to seek less expensive and potentially more dangerous options for cosmetic procedures.

As it’s currently written, the proposed tax wouldn’t apply to people seeking cosmetic treatment for injuries or disfigurements caused by accidents, trauma or disease. Yet, often, plastic surgeries aren’t clearly either for medical or aesthetic reasons, and instead can be a combination of both. (The person who has a nose job to clear up a breathing problem and has a little sculpting done as well, for example). Additionally, plastic surgeons argue that the taxes could further harm their business, which has already seen fewer patients since the economic downturn as liposuction and other procedures have lost popularity. Even as plastic surgeons criticize the proposed measure, they concede that there’s not likely to be a hue and cry against the tax from plastic surgery patients themselves, who would likely be too embarrassed to publicly protest. As Dr. Steven Teitelbaum, a Santa Monica-based plastic surgeon, told the New York Times:

“They don’t want to come out and march on Capitol Hill,” he said. “You’re not going to have a million-man Botox march.”

Yet, for all of its detractors—silent or vocal—it seems unlikely that the proposed tax’s opponents will generate much sympathy with lawmakers. What do you think? Is this a logical way to drum up some funding for more fundamental medical needs? Or is this “vanity tax” overstepping into what people should be allowed to do with their own money—after all, most elective cosmetic surgeries already aren’t covered by insurance plans. Whatever your views on the Bo-tax however, it seems unlikely that its opponents will earn much sympathy from lawmakers any time soon—in the ever-growing list of health care concerns, tax-free tummy tucks are not likely a high priority.

Read more: http://wellness.blogs.time.com/2009/11/30/bo-tax-a-levy-on-nips-and-tucks/?xid=rss-topstories#ixzz0YSoAKgR5

IRS: Offshore tax crackdown should produce ‘billions’

By Kevin McCoy, USA TODAY
More than 14,700 Americans with secret offshore bank accounts came forward for a recently concluded federal tax leniency program, helping generate what IRS Commissioner Douglas Shulman said on Tuesday would be “billions of dollars” in new tax revenue.
A rush of tax evaders applied before the program’s Oct. 15 deadline — nearly double the IRS preliminary tally — taking advantage of guarantees that they wouldn’t face criminal prosecution if they paid taxes, interest and reduced civil penalties.

Shulman said the applications, combined with 4,450 American accounts at Swiss banking giant UBS that are scheduled to be disclosed under a court settlement, are a win for Americans who pay their fair share, because former tax evaders will begin sharing the load.

“We have now gained access to thousands of taxpayers and bank accounts that we have never had before,” said Shulman, who added that an intensified federal crackdown on international tax evasion shows “we are serious about piercing the veil of bank secrecy.”

The IRS announcement came as the agency also disclosed the criteria Switzerland is using to determine which American clients of UBS will have their identities disclosed to U.S. authorities.

Shulman said the IRS is using voluntary disclosure program evidence to probe financial institutions and intermediaries that help Americans hide income offshore.

The leniency offer accompanied the IRS’ legal battle with UBS, which in February agreed to a $780 million settlement of criminal charges that it had secretly sent bankers into the U.S. to help American clients evade taxes. The bank later turned over data for up to 250 Americans whose accounts had alleged signs of tax evasion.

Under the federal civil settlement, Swiss authorities have until August to disclose accounts for 4,450 American clients of UBS. Federal officials said the first 500 would be identified by month’s end.

The targeted UBS accounts include those that held more than 1 million Swiss francs — roughly $985,000 — any time between 2001 and 2008 for which “tax fraud or the like” is suspected.

Similarly targeted are accounts that earned an annual average of 100,000 Swiss francs for at least three years.

The settlement criteria define “tax fraud” to include income under-reporting based on a “scheme of lies.” Other criteria target owners who used calling or debit cards to trade and move funds secretly.

Martin Press, a Fort Lauderdale tax lawyer whose firm represents some of the targeted Americans, said UBS appeared to be handing over ex-clients who moved their accounts to other Swiss banks.