Tax Relief Blog

Special refund procedures for coal producers and exporters on excise tax paid on exported coal Ann. 2008-103, 2008-46 IRB

In a new Announcement, IRS has advised taxpayers how to claim a refund of the excise tax on exported coal under the new procedures provided in Sec. 114 of the Energy and Extension Act of 2008 (2008 Energy Act, P.L. 110-343, 10/3/2008). The claim must be filed with IRS by Nov. 3, 2008.

Background. A manufacturers excise tax is imposed on coal mined from underground or surface mines located in the U.S. and sold or used by the producer. (Code Sec. 4121) In '98, a district court (Ranger Fuel Corp v. U.S., (DC VA 1998) 83 AFTR 2d 99-375 ) held that the coal excise tax is unconstitutional to the extent it applies to exported coal based on the blanket prohibition imposed by the Export Clause of the U.S. Constitution, and IRS acquiesced, in effect, in that decision by issuing guidance on how to claim a refund for coal excise tax imposed on exported coal. (Notice 2000-28, 2000-1 CB 1116)

The 2008 Energy Act creates a new procedure under which certain coal producers and exporters may claim a refund of excise taxes imposed on coal exported from the U.S.

New refund procedures. Notice 2008-103 provides guidance to domestic coal producers and exporters on the submission of claims for refund of the coal excise tax pursuant to Section 114 of the 2008 Energy Act, which provides the criteria for refunds of the coal excise tax on coal exported on or after Oct. 1, '90, and on or before Oct. 3, 2008. These claims must be filed by Nov. 3, 2008. All claims for a refund under the 2008 Energy Act must be filed on a paper Form 8849, Claim for Refund of Excise Taxes, Schedule 6, Other Claims, and can't be filed electronically. "Exported Coal Claim" must be written at the top of Form 8849. The claims must be mailed to: IRS, Cincinnati, OH 45999-0002, and filed no later than Nov. 3, 2008. (Notice 2008-103, Sec. 3)

Notice 2008-103, Sec. 4, describes the information each claim by a coal producer under the 2008 Energy Act must contain. Notice 2008-103, Sec. 5, describes the information each claim by an exporter under the 2008 Energy Act must contain.

Appeals Court reverses ruling that denied taxpayer Section 530 Relief

Trucker tax relief, trucking tax relief, trucking tax problem resolution.

Peno Trucking, Inc. v. Commissioner, CA6, 102 AFTR 2d ¶ 2008-5360

Trucking Tax Help - Trucking Tax Relief - Trucker Tax Help

Facts. Peno Trucking, Inc. (Peno) owned approximately 15 tractor-trailers (trucks), which it leased to the Ohio Transport Corporation. Under the lease agreements, Peno provided drivers to operate the trucks. Peno was responsible for all work performed by the drivers. Peno entered into an agreement with each of the drivers during the periods at issue which expressly provided that the drivers were independent contractors and not employees. Peno reported the income earned by the drivers on Forms 1099. IRS reclassified the workers as employees and issued an assessment against Peno. Peno appealed the IRS determination.

Employee versus independent contractor issue. In 2007, the Tax Court ruled in IRS's favor on the employee versus independent contractor issue. In ruling that the payments to the drivers constituted wages that should have been subject to federal employment tax, the Tax Court noted that: (1) Peno oversaw the drivers' responsibilities, determined the days they could work, and controlled which loads they would haul. (2) Peno made a substantial investment to acquire and maintain the fleet of approximately 15 trucks. (3) There was no opportunity for the drivers to assume a risk of loss. (4) Peno had the right to discharge its drivers. (5) The drivers performed a service that was essential to Peno's operations. (6) The drivers worked in the course of Peno's business rather than having a transitory relationship with Peno. (7) Although Peno and its drivers entered into written agreements which expressly provided that the drivers were independent contractors, the facts indicated otherwise.

The U.S. Court of Appeals for the Sixth Circuit has now affirmed the Tax Court's decision on the employee versus independent contractor issue. It agreed with the Tax Court's analysis of the seven factors above.

Reversal on Section 530 Relief. Under §530 of the Revenue Act of 1978, employers are protected from potentially large employment tax assessments if there was a reasonable basis for categorizing workers as independent contractors. A taxpayer can qualify for §530 relief if there is judicial precedent for treating the workers as independent contractors. Peno believed it was entitled to §530 relief because the Ohio Industrial Commission (OIC) and the Ohio Court of Common Pleas had previously ruled that two of its drivers were independent contractors.

The Tax Court, however, denied Peno's request for §530 relief (see Federal Taxes Weekly Alert 05/24/2007). The Tax Court said that for a taxpayer to have a reasonable basis for not treating an individual as an employee, the judicial precedent must have evaluated the employment relationship at issue through the federal common law tests. There was no evidence presented to the Tax Court that the OIC or the Ohio Court of Common Pleas had evaluated the employment relationship between Peno and its drivers under these tests. There was also no indication that the judicial rulings had been relied upon by Peno at the time it decided to classify the drivers as independent contractors.

The U.S. Court of Appeals for the Sixth Circuit disagreed with the Tax Court's decision. The Sixth Circuit noted that Peno had always treated the truckers in question as independent contractors, and that the company had always filed its tax returns in a manner consistent with this treatment. In addition, IRS had failed to submit any evidence to support Peno's treatment of the workers as anything other than independent contractors. The Sixth Circuit also said that the OIC appeared to have employed a 20-factor common law test for determining whether the drivers were employees or independent contractors that was virtually identical to the 20-factor test outlined by the IRS for the years at issue. Therefore, the OIC had used judicial precedent in ruling that two of Peno's drivers were independent contractors. Based on the above analysis, the Sixth Circuit reversed the Tax Court's decision and ruled that Peno was eligible for §530 relief.

Trucker tax relief, trucking tax relief, trucking tax problem resolution.

Charitable extenders and incentives in the 2008 Extenders Act

The Tax Extenders and Alternative Minimum Tax Relief Act of 2008, which was enacted on Oct. 3, 2008, extends several expired charitable giving tax breaks and provides several new tax incentives for charitable giving. Here is a brief overview of the charitable provisions in the new legislation.

Charitable giving provisions extended for two years. Several popular charitable incentives expired at the end of 2007 and would not have been available to taxpayers on their 2008 tax returns if Congress had not acted. The new law restores the provisions and extends them for two years (through 2009). The extended provisions include:

• IRA charitable rollover. This provision allows individuals aged 70 1/2 and older to donate up to $100,000 from their individual retirement accounts (IRAs) and Roth IRAs to public charities without having to count the distributions as taxable income. This giving incentive is particularly beneficial to those individuals who do not itemize their tax deductions and would not otherwise receive any tax benefit for their charitable contributions.
• Enhanced charitable deduction for food inventory. This provision allows businesses to claim an enhanced deduction for the contribution of food inventory. The new law also eliminates the percentage limitation for contributions made by certain farmers and ranchers after Dec. 31, 2007, but before Jan. 1, 2009.
• Enhanced charitable deduction for contributions of book inventory to schools. This provision allows C corporations an enhanced charitable deduction for donations of books to schools, public libraries and literacy programs.
• Enhanced charitable deduction for qualified computer contributions. This provision encourages businesses to contribute computer equipment and software to elementary, secondary, and post-secondary schools by allowing an enhanced deduction for such contributions.
• Basis adjustment to stock of S corporations making charitable contributions of property. Under this provision, if an S corporation makes a contribution to a charity the amount of a shareholder's basis reduction in the S corporation stock will be equal to the shareholder's pro rata share of the adjusted basis of the contributed property (rather than the pro rata share of the fair market value of the contribution, as was the case under prior law).

New tax incentives for charitable giving. New incentives for charitable giving contained in the new legislation include:

• Temporary suspension of limitations on charitable contributions. The amount allowed as a charitable deduction in any year may not exceed ten percent of the corporation's taxable income or fifty percent of an individual's adjusted gross income. The new law temporarily waives these limits regarding charitable cash contributions dedicated to Midwestern disaster relief efforts. The provision is effective for contributions paid during the period beginning on the earliest applicable disaster date for all States and ending on Dec. 31, 2008.
• Increase in standard mileage rate for charitable use of vehicles. The mileage rate individuals may use to compute a tax deduction for personal vehicle expenses associated with charitable work is statutory and has not been increased since 1997 and is currently at 14 cents per mile. For a taxpayer assisting in relief efforts related to the Midwestern disaster, the new law sets the charitable mileage rate at seventy percent of the current standard business mileage rate, beginning on the applicable disaster date and ending on Dec. 31, 2008.
• Exclusion from income of mileage reimbursements for charitable volunteers. In general, reimbursements received for operating expenses of a personal vehicle used in connection with charitable work in excess of the statutory charitable mileage rate are taxable income to the recipient. However, reimbursements for charitable mileage attributable to the Midwestern disaster up to the amount of the standard business mileage rate will not be considered taxable income through Dec. 31, 2008.

I hope this information is helpful. If you would like more details about these changes, or any other aspects of the new law, please do not hesitate to call.

Mortgage debt relief extension, tax relief for community banks, and crackdown on some executive compensation in the 2008 Economic Stabilization Act

I am writing to provide details regarding three tax provisions in the Emergency Economic Stabilization Act of 2008: which was enacted Oct. 3, 2008. Those provisions are: (1) an extension for home mortgage debt forgiveness relief, (2) tax relief for community banks that invested in Fannie Mae and Freddie Mac preferred stock, and (3) a tax crackdown on compensation and severance pay for certain financial executives. Here are the key details regarding those provisions.

Two-year extension of home mortgage debt forgiveness relief provision. The new law provides assistance to homeowners who have been caught in the current mortgage crisis and are trying to save their homes. Under 2007 tax legislation, taxpayers are generally allowed to exclude up to $2 million of mortgage debt forgiveness on their principal residence. However, this relief provision was scheduled to expire at the end of 2008. Under the new law, this debt relief provision is extended through 2012. To understand the importance of this relief provision, one needs to know that for income tax purposes, a discharge of indebtedness--that is, a forgiveness of debt--is generally treated as giving rise to income that's includible in gross income. Under pre-2007 tax law, there were no special rules applicable to discharges of acquisition debt on the taxpayer's principal residence. For example, assume a taxpayer who wasn't in bankruptcy and wasn't insolvent owned a principal residence subject to a $200,000 mortgage debt for which the taxpayer had personal liability. The creditor foreclosed and the home was sold for $180,000 in satisfaction of the debt. Under pre-2007 tax law, the debtor had $20,000 of debt discharge income. The result was the same if the creditor restructured the loan and reduced the principal amount to $180,000. In 2007 the tax laws were temporarily changed to allow taxpayers to exclude up to $2 million of mortgage debt forgiveness on their principal residence. For example, assume the same facts as in the foregoing example except that the discharge occurs in 2008. In that case the debtor has no debt discharge income when the creditor (1) restructures the loan and reduces the principal amount to $180,000 or (2) forecloses with the result that the $200,000 debt is satisfied for $180,000. However, this debt relief provision was scheduled to expire at the end of 2009. The new legislation extends the provision through 2012. The relief is not extended to home equity loans.

Tax relief for community banks. Some 800 community banks had huge losses on their Fannie Mae and Freddie Mac preferred stock holdings which became worthless when the government bailed those companies out. Without a tax change, these community banks would have had capital losses on these holdings that they couldn't utilize. The new legislation allows community bans to treat losses on their Fannie Mae and Freddie Mac preferred stock as ordinary losses that can offset ordinary income. Applying to any preferred stock that was owned on Sept. 6, 2008, or sold between Jan. 1, 2008, and Sept. 6, 2008, this provision allows banks to claim the book benefit of the loss on their tax returns, thereby reducing their need to obtain additional capital from the FDIC or investors.

Tax crackdown on compensation and severance pay for certain financial executives. Under the new law, when more than $300 million of a company's assets are purchased by the Treasury through an auction, (1) "golden parachute" payments are banned for top executives hired while the Treasury rescue is in effect and (2) tax provisions kick in to strengthen the tax treatment of remaining executive compensation and severance packages. Specifically, the deductibility of executive compensation for companies will be cut in half from pre-Act levels, and companies will also lose deductions available under pre-Act law for excessively large severance packages. Executives receiving severance packages will continue to face a 20% excise tax on payments once they reach an excessive threshold, and that tax will be due if the executive leaves for reasons other than a standard retirement for which they are eligible--not just if the company changes hands, as in pre-Act law.

I hope this information is helpful. If you would like more details about these changes, or any other aspects of the new law, please do not hesitate to call.

AMT relief in the 2008 Extenders Act I am writing to provide details regarding three key provisions in the "Tax Extenders and Alternative Minimum Tax Relief Act of 2008" (the 2008 Extenders Act), which was enacted on Oct. 3, 2008. The provisions extend partial relief to individual taxpayers from the alternative minimum tax, or AMT. Earlier temporary measures to deal with the unintended creep of the AMT's reach expired at the end of 2007, meaning that more than 20 million additional taxpayers would have faced paying the tax on their 2008 returns without the new relief.

Brief overview of the AMT. The AMT is a parallel tax system which does not permit several of the deductions permissible under the regular tax system, such as state, local and property taxes. Taxpayers who may be subject to the AMT must calculate their tax liability under the regular federal tax system and under the AMT system taking into account certain "preferences" and "adjustments." If their liability is found to be greater under the AMT system, that's what they owe the federal government. Originally enacted to make sure that wealthy Americans did not escape paying taxes, the AMT has started to apply to more middle-income taxpayers, due in part to the fact that the AMT parameters are not indexed for inflation.

In recent years, Congress has provided a measure of relief from the AMT by raising the AMT "exemption amounts"--allowances that reduce the amount of alternative minimum taxable income (AMTI), reducing or eliminating AMT liability. (However, these exemption amounts are phased out for taxpayers whose AMTI exceeds specified amounts.) For 2007, the AMT exemption amounts were $66,250 for married couples filing jointly and surviving spouses; $44,350 for single taxpayers; and $33,125 for married filing separately. However, for 2008, those amounts were scheduled to fall back to the amounts that applied in 2000: $45,000, $33,750, and $22,500, respectively. This would have brought millions of additional middle-income Americans under the AMT system, resulting in higher federal tax bills for many of them, along with higher compliance costs associated with filling out and filing the complicated AMT tax form.

New law provides one-year stopgap fix. To prevent the unintended result of having millions of middle-income taxpayers fall prey to the AMT, Congress has once again relied on a temporary "patch" to the problem, this time a one-year extension of the 2007 exemption amounts, increased slightly. Under the new law, for tax years beginning in 2008, the AMT exemption amounts are increased to: (1) $69,950 in the case of married individuals filing a joint return and surviving spouses; (2) $46,200 in the case of unmarried individuals other than surviving spouses; and (3) $34,975 in the case of married individuals filing a separate return.

Personal credits may be used to offset AMT through 2008. Another provision in the new law provides AMT relief for taxpayers claiming personal tax credits. The tax liability limitation rules generally provide that certain nonrefundable personal credits (including the dependent care credit, the elderly and disabled credit, and the Hope Scholarship and Lifetime Learning credits) are allowed only to the extent that a taxpayer has regular income tax liability in excess of the tentative minimum tax, which has the effect of disallowing these credits against AMT. Temporary provisions had been enacted which permitted these credits to offset the entire regular and AMT liability through the end of 2007. The new law extends this temporary provision to tax years beginning in 2008.

Extension and modification of AMT credit allowance against incentive stock options (ISOs). A further provision in the new law liberalizes the AMT refundable credit amount that was first enacted in 2006 to help taxpayers who were stung by the AMT as a result of exercising incentive stock options (ISOs). Under the regular tax, ISOs are not taxed upon exercise. Under the AMT, however, a taxpayer must pay tax on the stock value when the option is exercised. The economic downturn in 2000 resulted in many individuals having to pay tax on "phantom income" because the stock prices dropped dramatically after the date of exercise. In 2006, Congress provided relief for these situations but did not correct the problem entirely. The new law provides additional relief to affected taxpayers by accelerating the refund of taxes paid on the phantom income and by stopping further IRS efforts to collect those taxes. Specifically, the new law allows 50% of long-term unused minimum tax credits to be refunded over each of two years (instead of 20% over each of five years as was allowed under pre-2008 Extenders Act law), eliminates a rule that limited the relief available to higher-income taxpayers, and abates any underpayment of tax outstanding on the date of enactment related to ISOs and the AMT including interest.

I hope this information is helpful. If you would like more details about these changes, or any other aspects of the new law, please do not hesitate to call.

Individual and business extenders and other relief provisions in the 2008 Extenders Act The "Tax Extenders and Alternative Minimum Tax Relief Act of 2008" (the 2008 Extenders Act), which was enacted on Oct. 3, 2008, provides extensions for several popular tax breaks and the addition of several new relief provisions, including disaster area tax relief. Here's an overview of the key provisions in the new legislation:

Deduction of state and local general sales taxes. The option to deduct state and local general sales taxes is extended through 2009.

Qualified tuition deduction. The above-the-line tax deduction for qualified higher education expenses is extended through 2009.

Teacher expense deduction. The provision allowing teachers an above-the-line deduction for up to $250 for educational expenses is extended through 2009.

IRA rollover provision. The provision allowing qualified taxpayers to make tax-free contributions from their IRA plans to qualified charitable organizations is extended through 2009.

Additional standard deduction for real property taxes. The standard deduction for real property taxes for nonitemizers is extended through 2009.

Research and development credit. The research tax credit is extended through 2009. In addition, the alternative simplified credit is increased from 12% to 14% for the 2009 tax year, and the alternative incremental research is repealed for the 2009 tax year.

15-year straight-line cost recovery for qualified leasehold, restaurant, and retail improvements. The 15-year writeoff for qualified leasehold, restaurant and retail improvements is extended through 2008.

Basis adjustment to stock of an S corporation making charitable contributions of property. Favorable Subchapter S basis rules for gifts of appreciated property are extended through 2009.

Deduction allowable with respect to income attributable to domestic production activities in Puerto Rico. The provision allowing a Section 199 domestic production activities deduction for activities in Puerto Rico is extended through 2009.

Other extended provisions. Other provisions extended through 2009 include:

• Qualified zone academy bonds.
• Indian employment credit.
• Accelerated depreciation for business property on Indian reservation.
• Tax credit for certain expenditures for maintaining railroad tracks.
• 7-year recovery period for certain motorsports racetrack property.
• Work opportunity tax credit for Hurricane Katrina employees.
• New markets tax credit.
• Increased rehabilitation credit for structures in the Gulf Opportunity Zone.
• Enhanced charitable deduction for qualified computer contributions.
• Tax incentives for investments in the District of Columbia.
• Enhanced charitable deduction for food inventory.
• Enhanced charitable deduction for contributions of book inventory to schools.
• Special expensing rules for certain film and television productions.
• Exception under Subpart F for active financing income.

Revenue raisers. The new legislation offsets the cost of the tax break extensions by requiring hedge fund managers and others to account for deferred compensation (income held in offshore accounts and other corporate structures) as it accrues, rather than avoiding appropriate and timely income taxes.

Additional tax relief provisions. In addition to the extensions of tax relief described above, the 2008 Extenders Act also includes liberalizations for the child tax credit, income averaging for Exxon Valdez litigation amounts, a 5-year writeoff for certain farming equipment, and a change in the standards for imposition of the tax return preparer penalty.

Disaster relief. Included in the new legislation is Midwestern disaster area tax relief for victims of the disaster in Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska and Wisconsin, and a new tax relief package for victims of all Federally-declared disasters occurring after Dec. 31, 2007 and before Jan. 1, 2010 (e.g., eased loss deduction rules, a new business writeoff for demolition, cleanup and repair, a 5-year carryback for casualty losses or qualified disaster expenses, bonus 50% first year depreciation for property placed in service through Dec. 31, 2011 (Dec. 31, 2012 for real property), and increased expensing dollar limits).

I hope this information is helpful. If you would like more details about these changes, or any other aspects of the new law, please do not hesitate to call.