Tax Relief

Estate not taxed on transfer

November 11, 2008 | Mike Habib, EA

Estate not taxed on transfer of decedent’s pension to charitable beneficiary PLR 200845029

IRS has privately ruled that an estate will not be taxed on a distribution of the decedent’s pension benefits to a charitable beneficiary of the estate.

Facts. An individual, whom we’ll call, Smith, died owning an interest in a defined benefit pension plan (the Plan Interest) of which his estate (Estate) was the beneficiary. His will (Will) named Charity as a residuary beneficiary. The executor of Estate proposes to assign the benefit of the Plan Interest to Charity in partial satisfaction of Charity’s share of the residue. The Will gave the executor the power to distribute property in kind and state law further allows distributions in kind without any requirement that they be made on a pro-rata basis.

Year End Tax Planning

November 11, 2008 | Mike Habib, EA

Year-end tax planning client letter with checklist

As the end of the year approaches, it is a good time to think of planning moves that will help lower your tax bill this year and possibly the next. Factors that compound the challenge include the stock market’s swoon, the difficult economic climate we’re in right now, and the strong possibility that there will be tax changes in the works next year. In fact, there might even be another economic stimulus package carrying tax changes enacted before the end of this year.

The indisputably good news we are certain of is that Congress has acted to “patch” the AMT problem for 2008, has retroactively reinstated a number of tax breaks (such as the option to deduct state and local general sales tax instead of state and local income tax and the above-the-line deduction for higher education expenses), and has created new tax breaks that go into effect for the 2008 tax year (including a tax credit for first-time homebuyers, a nonitemizers’ deduction for state and local property tax and a nonitemizers’ deduction for certain disaster losses). For 2008, businesses enjoy tax breaks such as a beefed-up expensing option and a 50% bonus first-year depreciation write-off for most machinery and equipment placed into service this year and a reinstated research credit.

Timely reminder for small businesses

November 11, 2008 | Mike Habib, EA

Timely reminder for small businesses to steer clear of trouble on payroll tax and retirement plan contributions IRS Employee Plan News (Fall 2008)

In these trying times, with cash scarce and credit hard to find, a small business might be tempted to “temporarily” use money it deducts for taxes and retirement plan contributions from employees’ wages. The Fall 2008 issue of IRS’s Employee Plans News [https://www.irs.gov/pub/irs-tege/fall08.pdf] suggests that practitioners remind clients that failing to remit payroll taxes and retirement plan contributions in a timely manner not only would violate an employer’s legal obligation, but also could subject them to heavy penalties.

Payroll taxes. IRS suggests that small business employers be reminded that when they deduct income and Social Security taxes from employees’ wages, the money is not theirs to use, even for a short period of time. Deducted amounts must be remitted, along with their portion of payroll taxes, by the next scheduled Federal Tax Deposit deadline. An employer that doesn’t deposit the money on time could be hit with:

penalties for making late deposits and for not depositing the proper amount; and
penalties for failing to file returns and pay taxes when due, for filing false returns, and for submitting bad checks.

The rate of these penalties increases with each passing day until deposits are made. Interest is also charged on the total unpaid tax and the penalty. These penalties and interest can add up quickly and lead to even bigger financial troubles for noncompliant businesses.

Emergency Economic Stabilization Act of 2008

November 11, 2008 | Mike Habib, EA

As I’m sure you’re aware, on Oct. 3, 2008, the President signed into law the Emergency Economic Stabilization Act of 2008 (P.L. 110-343). Although virtually all of the press coverage of this law has concentrated on its hotly debated $700 billion financial industry bailout plan, the legislation also contains scores of tax changes, mostly beneficial, for individuals and businesses alike.

Here’s a brief review of the tax provisions individuals need to know about right now.

AMT relief: In general terms, to find out if you owe alternative minimum tax (AMT), you start with regular taxable income, modify it with various adjustments and preferences (such as addbacks for property and income tax deductions and dependency exemptions), and then subtract an exemption amount (which phases out at higher levels of income). The result is multiplied by an AMT tax rate of 26% or 28% to arrive at the tentative minimum tax. You pay the AMT only if the tentative minimum tax exceeds your regular tax bill. Although it was originally enacted to make sure that wealthy individuals did not escape paying taxes, the AMT has wound up ensnaring many middle-income taxpayers. One reason is that many of the tax figures (such as the tax brackets, standard deductions, and personal exemptions) used to arrive at your regular tax bill are adjusted for inflation, but the tax figures used to arrive at the AMT are not.

Excise Tax Refund Procedure

October 23, 2008 | Mike Habib, EA

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)

Trucking Employment Tax Relief

October 23, 2008 | Mike Habib, EA

Appeals Court reverses ruling that denied taxpayer Section 530 Relief

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

Trucking Tax & Accounting: Back Taxes – Unfiled delinquent tax returns – IRS & State audits – Messy books / accounting

Charitable Extenders

October 7, 2008 | Mike Habib, EA

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:

Mortgage Tax Debt Extension

October 7, 2008 | Mike Habib, EA

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.

AMT relief 2008

October 7, 2008 | Mike Habib, EA

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.

Tax Relief Act 2008

October 7, 2008 | Mike Habib, EA

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.