• IRS Announces 2009 Standard Mileage Rates
• IRS Offers Tips for Year-End Donations
• The Emergency Economic Stabilization Act of 2008
• Tax Provisions in New Housing Act
• Filing Extensions Changing for Some Business Taxpayers
• IRS Increases Mileage Rates through Dec. 31, 2008
• Economic Stimulus Payments on the Way

• Congress Reaches Agreement on Stimulus Package

• New IRS E-Mail and Telephone Scams

• Legislative TAX Update

• IRS Warns of E-mail Scam Soliciting Donations to California Wildfire Victims

• "Member Satisfaction Survey" e-mail Scam

• Beware! Contractors Working in Chicago

• Small Business and Work Opportunity Act

• Federal Minimum Wage Increase

• IRS Warns of New e-mail Scams

• Federal and Illinois Deadlines Extended

• Tax Payment Pilot

• Congress Passes On 12.9.06 And Signed Into Law 12.20.06 - Tax Relief and Health Care Act of 2006

• Special One Time Credit

• Tax Reconciliation Act

• Split Refund Program

• E-mail Fraud

Beginning on Jan. 1, 2009, the standard mileage rates for the use of a car (also vans, pickups, or panel trucks) will be:

• 55 cents per mile for business miles driven
• 24 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

The new rates for business, medical and moving purposes are slightly lower than rates for the second half of 2008 that were raised by a special adjustment mid-year in response to a spike in gasoline prices. The rate for charitable purposes is set by law and is unchanged from 2008.

The business mileage rate was 50.5 cents in the first half of 2008 and 58.5 cents in the second half. The medical and moving rate was 19 cents in the first half and 27 cents in the second half.

The mileage rates for 2009 reflect generally higher transportation costs compared to a year ago, but the rates also factor in the recent reversal of rising gasoline prices. While gasoline is a significant factor in the mileage rate, other fixed and variable costs, such as depreciation, enter the calculation.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

One provision offers older owners of individual retirement arrangements (IRAs) a different way to give to charity. There are also rules designed to provide both taxpayers and the government greater certainty in determining what may be deducted as a charitable contribution. Some of these changes include the following.

Special Charitable Contributions for Certain IRA Owners

An IRA owner, age 70 ½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charitable organization. This option, created in 2006 and recently extended through 2009, is available to eligible IRA owners, regardless of whether they itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.

To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity. Amounts so transferred are not taxable and no deduction is available for the amount given to the charity.

Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.

Transferred amounts are counted in determining whether the owner has met the IRA’s required minimum distribution rules. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats transferred amounts as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions. See Publication 590, Individual Retirement Arrangements (IRAs), for more information on qualified charitable distributions.

Rules for Clothing and Household Items

To be deductible, clothing and household items donated to charity must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to be in good used condition or better if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances, and linens.

Guidelines for Monetary Donations

To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.

Donations of money include those made in cash or by check, electronic funds transfer, credit card, and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

These requirements for monetary donations do not change or alter the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet the requirements of both provisions.

To help taxpayers plan their holiday-season and year-end giving, the IRS offers the following additional reminders:

• Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of the year count for 2008. This is true even if the credit card bill isn’t paid until next year. Also, checks count for 2008 as long as they are mailed this year.
• Check that the organization is qualified. Only donations to qualified organizations are tax-deductible. IRS Publication 78, available online and at many public libraries, lists most organizations that are qualified to receive deductible contributions. The searchable online version can be found at IRS.gov under “ Search for Charities.” In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even though they often are not listed in Publication 78.
• For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to people who choose the standard deduction, including anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceeds the standard deduction. Use the 2008 Form 1040 Schedule A, available now on IRS.gov, to determine whether itemizing is better than claiming the standard deduction.
• For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value.Additional rules apply for a contribution of $250 or more.
• The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value of the vehicle is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.
• If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.

For additional information on charitable giving:

• Visit IRS.gov and click on " Charities and Non-Profits."
• See IRS Publication 526, Charitable Contributions.
• Review the on-line mini-course, Can I Deduct My Charitable Contributions? 

THE EMERGENCY ECONOMIC STABILIZATION ACT OF 2008

The Emergency Economic Stabilization Act of 2008, was signed on October 3rd and contains over $150 billion in tax breaks.

Return Preparer Penalties

The Act lowered the reporting standard under section 6694 to “substantial authority” from “more likely than not” for undisclosed, non-tax shelter positions. This is the same standard that applies to taxpayers. The change is retroactive to the date when the higher standard was enacted, May 25, 2007. This is a great victory for CPAs that the AICPA had been fighting for since Congress raised the standard for preparers to a level higher than for taxpayers, creating potential conflicts of interest between CPAs and their clients.

Brokers’ Statements to Arrive Later Beginning this Filing Season

The Act extends the date by which brokers must furnish information forms to customers. This includes stock broker 1099-B forms and also other forms from brokers, including realtors. Beginning with statements furnished in 2009, brokers will avoid penalties if they furnish these forms on or before February 15 – as opposed to the old due date of January 31. This could further compress the return preparation season for practitioners.

AMT Relief

The law extends AMT relief for nonrefundable personal credits and increases the AMT exemption amounts to $46,200 for singles and heads-of-household, $69,950 for joint filers and surviving spouses and $34,975 for married filing separately through 2008. The law also abates all unpaid AMT liabilities, including penalties and interest, associated with the exercise of incentive stock options before 2008. For those who have already paid AMT-ISO liability, the law accelerates the minimum tax credit associated with AMT items to allow the unused credit to be refunded over two years rather than five.

Individual Extenders

The law extends the following individual tax provisions through 2009:

• the itemized deduction for state and local sales taxes;
• the above-the-line qualified tuition and expenses deduction;
• the limited addition to the standard deduction for real property taxes paid by non-itemizers;
• the provision that allows taxpayers to make tax-free distributions of up to $100,000 per year to qualified charities from their traditional and Roth IRAs;
• a provision allowing regulated investment companies (RICs) to designate some dividends as interest-related dividends;
• the estate tax look-through for RIC stock held by nonresidents,
• the designation of RICs as qualified investment entities under section 897; and
• the above-the-line $250 deduction for teachers' classroom expenses.

Business Extenders

The law extends the following business tax provisions through 2009:

• Research tax credit increased to 14%; alternative incremental credit repealed; and alternative simplified credit increased;
• 15-year cost recovery for leasehold and restaurant improvement;
• Contributions of food and contributions of books and computer hardware to schools is extended, and S corp shareholders can receive pass-through charitable deductions of appreciated property equal to fair market value rather than the S corp basis in the property;
• New markets tax credit for loans to small businesses in distressed areas; and
• FUTA surcharge of .2% (on wage base up to $7,000 per employee).

Energy Tax Provisions

The Act contains a variety of extended and new tax incentives in the energy area, including:

• Credit of up to $500 for residential insulation, storm doors, etc. is extended to cover property placed in service through 2009.
• Deduction under 179 for energy efficient commercial buildings is extended through 2013;
• The credit to encourage production of renewable energy is extended through 2009 and expanded to include additional sources of renewable energy; and
• Solar and fuel cell credits are extended through 2016.

Child Tax Credit

For the 2008 tax year, the refundable threshold for the child tax credits would decrease from $12,050 to $8,500.

Brokers to Report Customer Basis

The Act requires brokers to report the customer’s basis in sold securities beginning in 2011 for stocks, 2012 for mutual funds, and 2013 for other securities. The IRS and some taxpayers have had difficulty determining basis, and in some cases reported cost reflected the FMV on the date the stock was transferred into a brokerage account rather than actual cost.

The AICPA has suggested that brokers provide basis information to taxpayers in a format that would enable taxpayers and tax preparers to download the information directly into their tax return preparation software.

Foreign Deferred Comp

Beginning in 2009, compensation paid by certain foreign corporations or partnerships that is deferred by more than a year will be taxable when vested. This provision reflects a concern that employers in lower-taxing countries have little or no tax cost from delaying the compensation deduction until the income is picked up by the employee.

Exclusion of Mortgage Debt Relief from Income

Home mortgage debt relief of up to $2 million will continue to be excluded from cancellation of indebtedness income through 2012.

Executive Comp for Financial Institutions

Responding to taxpayer outrage over executive compensation in troubled financial institutions that have to be bailed out, Congress enacted restrictions on senior executive compensation for companies that sell more than $300 million in assets under the Federal Government’s new troubled asset recovery program. Deductible compensation for the CEO, CFO and three other highest paid officers is limited to $500,000, and “golden parachutes” are sharply curtailed, with possible non-deductibility for the payor and a 20% excise tax on the payee.

Community Bank Relief on Fannie and Freddie Stock Losses

Community banks can report losses on Fannie Mae and Freddie Mac preferred stock as ordinary, rather than capital losses.

Disaster Relief

The Act provides a variety of tax relief measures for disaster victims, and this alert contains only highlights. Victims and their advisers should consult the Act for details and additional relief provisions that might apply.

Businesses can deduct up to 50% of the demolition and cleanup costs incurred before 2011, can expense hazardous waste cleanup costs, and can carry back NOLs for five years instead of two. Also, small businesses in certain flood areas can get a 40 percent credit on wages up to $5,000 from the disaster date until the end of the year. For individuals in flood areas, the 10% and $100 floor on casualty losses is eliminated. Those who shelter disaster victims for at least 60 days can qualify for an extra personal exemption of $500 per victim (up to four). Discharge of personal debts of flood victims would not result in income. Charitable deductions limits for individuals and corporations were suspended for contributions to Midwestern relief efforts. Through 2010, the 10 percent IRA penalty for early withdrawal of up to $100,000 would be waived if it is a disaster assistance recovery distribution in a Midwest flood zone. For victims in presidentially declared disasters in 2008 and 2009, Section 179 expensing is increased from $250,000 to $350,000 for disaster area expenditures for business through 2011. First-year depreciation is increased on new and personal property investment in the disaster area and any depreciation benefits may be claimed against the AMT.

Tax Provisions in New Housing Act

On July 30th President Bush approved the Housing and Economic Recovery Tax Act of 2008.  Here are highlights of its tax provisions: 

• A new refundable tax credit for first-time homebuyers. Your clients’ adult children may want to take advantage of a new refundable credit equal to the lesser of $7,500 or 10% of the price of a first home purchased between April 8, 2008 and July 1, 2009.  The credit phases out at AGI levels over $150,000 for MFJ and $75,000 for singles.  The credit must be repaid over 15 years in equal installments (or entirely repaid if sold earlier), but in the meantime, it’s like an interest-free loan.
• Additional standard deduction for state and local real property taxes paid in 2008.  Home owners who claim the standard deduction would get an additional deduction for state and local real property taxes for 2008.  The maximum amount that may be taken for this additional standard deduction is the lesser of the real estate taxes paid or $500 for single taxpayers and $1,000 for joint filers.  This may help older clients who have paid off their mortgages, or clients in states with little or no income tax to itemize.
• Limitations on the exclusion of gain from the sale of a principal residence.  Beginning in 2009, the taxpayer exclusion from gain on the sale of a principal residence would not apply to any gain allocated to periods of “nonqualified use”. Such use is defined as when the taxpayer is not the principal resident of the dwelling (i.e. when the taxpayer used the home as a vacation home or rental)  However, “nonqualified use” does not include periods when the homeowner vacated their property for military or other official service, change of employment,  health conditions, or other unforeseen circumstances.
• Eliminating costs on housing programs by the AMT.   Taxpayers who claim the low-income housing tax credit and the rehabilitation tax credit will be able to offset these amounts against the AMT.  In addition, interest on tax-exempt housing bonds would no longer be applicable to AMT for housing bonds issued after July 30th.
• Increasing the applicability of the low-income housing credit.  Several changes in this law will increase the availability of this credit.
• Electing to accelerate AMT credits and research credits instead of bonus depreciation.  C corporations eligible to claim the 50% bonus depreciation can choose to accelerate recognition of part of their AMT or R&D tax credits. If so elected, these credits are REFUNDABLE, subject to limitation, even if there is a tax loss. Credits generated through 12/31/05 are eligible for the refundability treatment. Companies that report earnings on a quarterly basis may be in the position of booking a tax asset for the third and fourth quarters of 2008 because of these refundable credits.
• Protecting identities in real estate transactions.  Rather than requiring the seller of real estate to provide their social security number to the purchaser, sellers may now give their personal information to an independent third party for verification to prevent identity theft.
• Enhancing the rehabilitation of government leased buildings.  Rather than restricting a property owner from full use of the rehab tax credit if more than 35 percent of a property is currently leased by the government, the act would give access to the full rehab credit so long as a state or local government or tax-exempt entity does not lease more than 50 percent of the property.
• Delaying the effective date of the worldwide interest allocation election for two years (until tax years beginning after December 31, 2010).  An election may be made only for the first taxable year beginning after December 31, 2010.  A special phase-in rule is provided relating to the first taxable year to which the worldwide interest allocation rules apply. Pursuant to the phase-in rule, a taxpayer making the election makes an adjustment to foreign source income.
• Information reporting on credit card transactions.  Beginning in 2011, financial institutions will have to annually report the gross amount of credit cards processed for businesses.  This report will include the name, address, and taxpayer ID of the payee, who will receive a copy of the report.  This is an attempt to capture possibly unreported cash income and is expected to raise $7.6 billion over 10 years as part of funding of the Housing Act.  Financial institutions will have to reprogram computers by 2011 to capture the information for the report, and those who have credit card revenue will also have to shape up their income reporting compliance.

1. Form 1065, U.S. Return of Partnership Income
2. Form 1041, U.S. Income Tax Return for Estates & Trusts
3. Form 8804, Annual Return for Partnership Withholding Tax (Section 1446)

The regulation does not change the process for requesting an extension of time to file, nor does it affect extensions of time to file other types of business returns, such as those used by S corporations.

The IRS initiated the proposal to reduce the extension of time to file, carefully weighing the impact on partnerships and other affected entities against the burden the existing deadline puts on individuals, who need this information to file timely and accurate returns.

IRS Increases Mileage Rates through Dec. 31, 2008 

The Internal Revenue Service today announced an increase in the optional standard mileage rates for the final six months of 2008. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

The rate will increase to 58.5 cents a mile for all business miles driven from July 1, 2008, through Dec. 31, 2008. This is an increase of eight (8) cents from the 50.5 cent rate in effect for the first six months of 2008.

In recognition of recent gasoline price increases, the IRS made this special adjustment for the final months of 2008. The IRS normally updates the mileage rates once a year in the fall for the next calendar year.

While gasoline is a significant factor in the mileage figure, other items enter into the calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs.

The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.

The new six-month rate for computing deductible medical or moving expenses will also increase by eight (8) cents to 27 cents a mile, up from 19 cents for the first six months of 2008. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.

Mileage Rate Changes

Economic Stimulus Payments on the Way

The Internal Revenue Service has begun to transfer economic stimulus payments to millions of Americans, some of whom will see payments in their bank accounts as early as today.

The IRS will issue payments of up to $600 ($1,200 for married couples) plus $300 for eligible children younger than 17, throughout the spring and summer. The first wave of payments will go to people who opted for direct deposit on their 2007 income tax returns.

“People who chose direct deposit will receive their economic stimulus payments the quickest,” IRS Commissioner Doug Shulman said. “We know there are many people who are eligible for an economic stimulus payment who have not filed a tax return. If you think you may be eligible, even if you don’t normally file a tax return, please check it out. And, use direct deposit to get your payment faster.”

Whether a taxpayer opted for direct deposit determines how soon the payment will arrive. The first cycle of paper checks will be mailed starting May 9.

Even people who normally do not have a filing requirement may be eligible for the stimulus payment. People who have no filing requirement must have at least $3,000 in qualifying income. Qualifying income includes any combination of earned income, nontaxable combat pay they elect to include in earned income and certain payments from Social Security, Veterans Affairs and Railroad Retirement.

People with at least $3,000 in qualifying income may qualify for an economic stimulus payment of $300 ($600 for married couples) plus the $300 per qualifying child payment. However, they must file a 2007 income tax return by Oct. 15 , 2008, to receive a stimulus payment. They can use the simple Form 1040A and provide basic information. Form 1040A is available on IRS.gov, the official IRS Web site.

The payment schedule announced earlier this year is for people who filed early enough to have their tax returns processed by April 15. People who did not submit a return in time for it to be processed by April 15 may see their stimulus payments later than the scheduled dates.

Below are the schedules for economic stimulus payments related to tax returns processed by April 15, 2008: 

Some taxpayers may receive smaller economic stimulus payments than they anticipated. By law, the stimulus payments are offset to satisfy past-due taxes, student loans, child support and certain other debts.

The IRS will send notices to taxpayers who have already filed a 2007 tax return and who are eligible for an economic stimulus payment. This notice will serve as an important recordkeeping document and should be retained by taxpayers. By keeping people informed, the IRS hopes to reduce calls to customer service representatives who are still busy helping taxpayers complete tax returns.
 

Congress Reaches Agreement on Stimulus Package

             February 7, 2008 the Senate voted in favor of an amended version of H.R. 5140 that included low-income senior citizens and disabled veterans among recipients of tax rebate checks.  The House quickly followed suit approving the bill.  President Bush has indicated he will sign the legislation into law.   Treasury Secretary Henry Paulson has said the IRS would be able to begin sending checks by early May.

Individuals:

There are two components.

1. The minimum rebate amount is $300 ($600 for married filing jointly).

The taxpayer will receive this amount if he has at least $1 of tax liability or $3,000 in qualifying income, defined as the sum of net self employment income, veterans’ disability payments (including payments to survivors of disabled veterans), and social security benefits.  This payment is refundable, meaning the recipient gets the full amount.

The maximum rebate amount is $600 ($1,200 for married filing jointly).  The taxpayer’s rebate under this credit will be equal to the minimum of his tax liability or 10% of the first $6,000 of taxable income ($12,000 if married filing jointly).  This credit is not refundable.

2. Qualifying Child Credit.

If a taxpayer receives $1 of the income tax rebate and the taxpayer has children, the taxpayer will also receive $300 per child.  The payment is refundable, meaning the recipient is entitled to the full child credit without regard to income tax liability.

            The amount of the credit (including both the basic credit and the qualifying child credit) is phased out at a rate of 5% of adjusted gross income beginning at $75,000 ($150,000 in the case of joint returns).  Residents of the U.S. possessions will also receive the benefit, but the provision denies the basic credit and the qualifying child credit to individuals if the tax return does not include valid identification numbers for all persons listed on the return.    Safeguards to ensure that illegal immigrants do not obtain rebates or bonus payments remain in the final agreement.

Business Tax Provisions:

1. The Bill increases the expensing limit under §179 to $250,000 and the phase-out to $800,000 for 2008.  This is an increase from the scheduled expensing limit of $128,000 and the phase-out threshold of $510,000.
   

2. The Bill also allows a trade or business to depreciate an additional 50 percent of the cost of an asset acquired and placed into service in 2008.  The types of property eligible for bonus depreciation will be the same as included in previous depreciation packages:
   

1. Tangible property that has a recovery period not exceeding 20 years, 

2. Purchased computer software, 

3. Water utility property, and 

4. Qualified leasehold improvement property.

The bonus depreciation will be allowed under the AMT.  The proposal is effective for calendar year 2008 beginning after the date of first Committee action.

Other Provisions:
The remaining provisions of the Bill include provisions temporarily increasing conforming loan limits for the Federal Housing Authority.

The proposal raises FHA’s loan limit, the dollar amount of a mortgage that FHA can insure, for its single-family program from 87 percent of the conforming loan amount to as high as 175 percent (effectively $362,790 to $729,750) of the conforming loan limit in certain geographic regions where the cost of housing is very high and from 48 percent to 65 percent (effectively $200,160 to $271,050) of the conforming loan limit in less expensive markets.

FHA would also have the authority to raise those loan limits by up to an additional $100,000 if market conditions warrant such increases.

This proposal expires on December 31, 2008.

None of the provisions of this bill have any affect on tax return preparation for 2007; however the returns submitted for 2007 will generate the refunds distributed to taxpayers.  It is anticipated that many more taxpayers will seek to have their returns prepared earlier rather than later in order to participate quickly in the refund program.

 New IRS E-Mail and Telephone Scams Using the IRS Name;
Advance Payment Scams Starting 

The Internal Revenue Service today warned taxpayers to beware of several current e-mail and telephone scams that use the IRS name as a lure. The IRS expects such scams to continue through the end of tax return filing season and beyond.

The IRS cautioned taxpayers to be on the lookout for scams involving proposed advance payment checks. Although the government has not yet enacted an economic stimulus package in which the IRS would provide advance payments, known informally as rebates to many Americans, a scam which uses the proposed rebates as bait has already cropped up.

The goal of the scams is to trick people into revealing personal and financial information, such as Social Security, bank account or credit card numbers, which the scammers can use to commit identity theft.

Rebate Phone Call

At least one scheme using the word “rebate” as part of the lure has been identified. In that scam, consumers receive a phone call from someone identifying himself as an IRS employee. The caller tells the targeted victim that he is eligible for a sizable rebate for filing his taxes early. The caller then states that he needs the target’s bank account information for the direct deposit of the rebate. If the target refuses, he is told that he cannot receive the rebate.   

This phone call is a scam. No legislation has yet been enacted that would allow the IRS to provide advance payments to taxpayers or that determines the details of those payments. Moreover, the IRS does not force taxpayers to use direct deposit. Those who opt for direct deposit do so by completing the appropriate section of their tax return, with bank routing and account information, when they file; the IRS does not gather the information by telephone.

Legislative TAX Update

            The end of 2007 has seen Congress very busy with legislative acts which will have great impact not only on 2007 tax filings but for years to come.

            Not only did Congress pass The Tax Increase Protection Act of 2007 and the Energy Bill both reported to the NSTP membership last week but on December 20 both houses of Congress passed the Mortgage Relief Bill.  The President has already signed the Energy Bill and Virginia Tech Relief into law and today, December 26, signed the Mortgage Relief Bill into law. The White House has indicated he will sign The Tax Increase Protection Act of 2007 upon the legislation reaching his desk.

            The following is a summary of the most recently passed legislation: 

The Prevent Taxation of Payments to Virginia Tech Victims and Families Act

Signed into law by President Bush on December 19, 2007.

• Excludes from gross income payments from a special memorial fund for victims of the April 2007 Virginia Tech tragedy.

• Increases the penalty for failing to file a partnership return by $1 beginning in 2008 to pay for the tax break.

It should be noted that along with the penalty in the Mortgage Debt Relief Act of 2007, the penalty is now $86 per partner per month.

Mortgage Forgiveness Debt Relief Act of 2007

Passed by Congress, awaiting the signature of President Bush.

Mortgage Relief:

• A three-year exception for debt forgiveness on qualified home loans, retroactive to January 1, 2007.

• Excludes from taxation discharges of up to $2 million of indebtedness that is secured by a principal residence and is incurred in the acquisition, construction or substantial improvement of the principal residence.

• Indebtedness also includes refinancing of such acquisition indebtedness as long as the refinancing does not exceed the amount of the original indebtedness.

• The definition of principal residence for purposes of the Act is the same as that under §121 for the home sale gain exclusion.

• The basis of the taxpayer’s principal residence is reduced by the amount excluded from income under the Act. 

• Tax years relief is granted include 2007, 2008 and 2009.

Mortgage Insurance Deduction:

• Extended the Tax Relief and Health Care Act of 2006 allowing taxpayers to take an itemized deduction for premiums paid or accrued on qualified mortgage insurance as deductible qualified residence interest for three years through December 31, 2010.

• Deduction is phased out at 10 percent for each $1,000 by which the taxpayer’s AGI exceeds $100,000.

• Qualified mortgage insurance is mortgage insurance provided by the Veterans Administration, the Federal Housing Administration, the Rural Housing Administration or private mortgage insurance in Section 2 of the Homeowners Protection Act of 1998.

Survivor’s Home Sale Exclusion:

• Beginning January 1, 2008, the sale of a residence that had been jointly owned and occupied by the surviving and deceased spouse is entitled to the $500,000 gain exclusion.

• The sale must occur no later than two years after the date of death of the individual’s spouse.

Volunteer Emergency Responders:

• Individuals receiving a qualified state and local tax benefit, any reduction or rebate of tax and qualified payments of up to $360 each year provided on account of their volunteer services can exclude them from income.

• Tax treatment applies to tax years beginning after December 31, 2007.

Definitions:

The Act clarified the low-income housing credit and the definition of a cooperative housing corporation.

Other provisions:

• Increased the failure to file penalty for partnerships from $50 to $85 per partner per month.  Along with the $1 penalty increase in the Prevent Taxation of Payments to Virginia Tech Victims and Families Act brings the penalty to $86 per partner per month.

• S Corporation new failure to file penalty of 85 per S shareholder per month, up to 12 months.

• Increase in corporate estimated tax payments for corporations with 1 billion-plus assets, by 1.5 percent to 117.25 percent for payments due in July, August and September 2012.

While Congress has recessed for the holidays, they will return to Washington for some last minute legislation which will likely include:

·        Military tax breaks

·        Tax gap legislation

·        Tax shelter issues

·        Lower corporate tax rates

·        Farm-related tax incentives