Thursday, January 24, 2008

Stimulus Plan Agreed to by Congress

If passed by the Senate intact, taxpayers would begin to receive rebate checks beginning in May. Individuals who earn at least $3,000 but don't pay taxes would get $300. Full rebates of up to $600 or $1,200 would be paid to individuals earning up to $75,000 adjusted gross income in 2008 or couples filing jointly and earning up to $150,000. Above that, rebates would be reduced by 5 percent for each $1,000 in income. Rebates would be reduced by $50 for each $1,000 in income, meaning a couple with no children earning $174,000 or singles earnings $87,000 would have no rebate. A single mother of two children earning $50,000 and paying at least $600 in taxes would receive $1,200 —a $600 individual rebate and $300 a child. A married couple with three children earning $100,000 and paying at least $1,200 in taxes would receive $2,100 — a $1,200 rebate and $300 a child.

The majority of taxpayers would also see their tax rate reduced on the 2008 return so they won't have to pay taxes on the rebate amount. In 2008 the tax rate would be cut from 10 percent to 0 percent on the first $6,000 of taxable income for individual taxpayers and the first $12,000 of taxable income for couples.

For one year, jumbo loan limits would increase from the current $417,000 limit to 125% of the area median price for a residence of the applicable size, but in no case to exceed 175 percent of the limitation.

Another temporary change in the Tax Code would allow American businesses that buy new equipment this year to deduct an additional 50 percent of the cost of their investment in 2008. Section 179 deduction would also increase to $250,000 with phase out exceeding $800,000.

For more info, click here to view H.R. 5140.

Wrong 1099-SSA forms
Due to a programming error, about 2.7 million SSA-1099s contained incorrect amounts. SSA has corrected the error and is mailing revised SSA-1099s to affected beneficiaries. A fact sheet describing the problem is available at the link above.

The incorrect forms over-reported the amount of benefits received by some Social Security beneficiaries who purchase Medicare Advantage or prescription drug plans under Social Security parts C and D. The incorrect information is in Box 3, Benefits Paid, of the form.

In some cases, Social Security computers preparing the 1099s included premiums for plans paid in 2006 as part of benefits received in 2007.

What employers should know about compensatory time off

From the San Francisco Chronicle:

Tuesday, January 22, 2008

Updating of wills is important

Something to think about. Many should also set up a living trust in addition to drafting a will. There is also the living will (a.k.a. a health care directive) and power of attorney appointing a trusted relative or friend to tell the doctor whether or not to resuscitate and to take care of your finances in case you become disable.

Friday, January 18, 2008

IRS Boosts Tax Audits

The Internal Revenue Service said it has increased its enforcement efforts, auditing 84 percent more returns in fiscal year 2007 of individuals with incomes of $1 million or more compared to fiscal year 2006.

The number of those taxpayer audits jumped from 17,015 in fiscal year 2006 to 31,382 in fiscal year 2007, which ended Sept. 30. One out of 11 individuals with incomes of $1 million or more faced an audit in 2007.

The IRS has also been auditing more individuals with lower incomes. Audits of individuals with incomes over $200,000 climbed 29.2 percent to 113,105 taxpayers in fiscal year 2007 from 87,885 in 2006. The IRS conducted 13.7 percent more audits of individuals with incomes of $100,000 or less, auditing 293,188 returns in fiscal year 2007 compared to 257,851 in 2006.

The total number of individual returns audited increased 7 percent, reaching 1,384,563 in 2007 from 1,293,681 in 2006. The IRS filed 3.8 million levies and almost 700,000 liens during 2007, an increase from 2006.

Businesses, too, experienced more IRS audits, with the agency focusing on mid-market corporations with assets between $10 million and $50 million. Audits of S corporations were up 26 percent to 17,681 during 2007 from 13,984 in 2006. Audits of partnerships increased to 12,195 during 2007, 25 percent more than the prior year's total of 9,777.

Audits of businesses in general rose to 59,516 in 2007, an increase of almost 14 percent from the prior year's total of 52,223. While audits of large corporations dipped slightly in 2007 to 9,644, the number is up 14 percent from fiscal year 2002.

All those extra audits paid off for the IRS, with enforcement revenue reaching $59.2 billion, compared to $48.7 billion in 2006 and $34.1 billion in 2002.

Thursday, January 17, 2008

New rules on gift certificates

California SB250 (Corbett) gives consumers the right, as of January 1, 2008, to cash in an unused or partially used gift card when the value of the card is less than $10.00. Previously, retailers didn't have to issue a refund.

Thanks to David Fogel, CPA for this alert, see

Supreme Court Rules on Trust Fee Deductions

The Supreme Court has handed down a unanimous decision in a case involving the deductibility of investment advisory fees by trusts, ruling that the expenses are deductible only to the extent that they exceed 2 percent of the adjusted gross income.

The case, Knight vs. Commissioner of Internal Revenue, involved the family of the founder of Pepperidge Farm, Henry Rudkin. The trust that handled his estate tried to deduct the entire $22,241 it spent on investment advice in 2000, but the Internal Revenue Service said it could only deduct the expenses to the extent that they exceeded the 2 percent floor mandated by Section 67 of the Tax Code. The discrepancy amounted to a tax deficiency of $4,448.

After the Tax Court and the Second U.S. Circuit Court of Appeals ruled against the trust, the case went to the Supreme Court. Chief Justice John Roberts wrote the decision saying the deductions are still subject to the 2 percent floor.

The Supreme Court also heard arguments in another tax case, MeadWestvaco Corp. vs. Illinois Department of Revenue. That case involves a tax imposed by Illinois on the $1 billion gain by MeadWestVaco when it sold information provider LexisNexis in 1994, a company it acquired in 1968 for $6 million. The court will decide on whether the tax ruling conflicts with court decisions in several earlier cases involving AlliedSignal, F.W. Woolworth and Asarco.

For further reading, see
David Fogel CPA sent me the following comment, "the decision wasn't absolute --- the court didn't say that investment advisory fees paid by a trust are always subject to the 2%-of-AGI reduction. The court still left the door open for fees paid by trusts that individuals wouldn't normally pay. For example, the court stated that in appropriate cases, "the incremental cost of expert advice beyond what would normally be required for the ordinary taxpayer would not be subject to the 2% floor."" Thanks, David.

Wednesday, January 9, 2008

IRS Sets Rules for Charitable Contributions

Washington, D.C. (Jan. 9, 2008)
By WebCPA staff

The Internal Revenue Service has established rules for substantiating lump-sum charitable contributions made through the Combined Federal Campaign or similar programs such as a United Way campaign.

Taxpayers who claim charitable contribution deductions for cash, check or other monetary gifts made in taxable years beginning after Aug. 17, 2006, are subject to the recordkeeping requirements of Section 170(f)(17).

To substantiate a deduction, Section 170(f)(17) requires a taxpayer to maintain a bank record or a written communication from the donee showing the name of the donee organization, the date of the contribution and the amount of the contribution.

The IRS and the Treasury Department expect to issue regulations under Section 170 incorporating the recordkeeping requirements of Section 170(f)(17). Taxpayers making lump-sum charitable contributions through the CFC or a similar program may rely on Notice 2008-16 to comply with Section 170(f)(17) until those regulations go into effect.

Friday, January 4, 2008

IRS Beefs up Taxpayer Privacy

Washington, D.C. (Jan. 4, 2008)

The Internal Revenue Service and the Treasury Department have released final regulations and a revenue procedure requiring tax preparers to obtain consent before they can distribute taxpayer information to third parties, along with a proposal to restrict the marketing of refund anticipation loans and similar products.

Preparers must obtain a taxpayer's consent, either by paper or electronically, before tax return information can be disclosed to any third party or used for any purpose other than filing the return. If the taxpayer agrees to the disclosure and use of personal information, the consent must identify the intended purpose of the disclosure, identify the recipients and describe the particular authorized disclosure or use of the information.

Taxpayers must also be informed that they are not required to sign the consent. If they sign the consent, they have to be told that federal law may not protect their information from further disclosure, and that if they sign the consent, they can set a time period for the duration of that consent. If taxpayers don't set a time period, the consent is valid for up to one year.

The rules require the paper consent documents to be in 12-point type on 8-1/2 by 11-inch paper so taxpayers don't miss the fine print. Electronic consent requests have to be in the same type as the Web site's standard text so they are equally visible.

If a taxpayer declines to consent to have their information disclosed or shared, the preparer cannot try to pressure the taxpayer by repeating the consent request. Consent from taxpayers is also required if the tax information will be sent outside the United States for processing. If the return is sent offshore, the individual taxpayer's Social Security number must be redacted.

The IRS also proposed restricting the marketing of refund anticipation loans, pointing out that RALs provide tax preparers with a financial incentive to take improper tax positions in order to inflate the refund claims. There is a 90-day comment period on the proposal.

Thursday, January 3, 2008

California offers tax help

Article from the Sacramento Bee:

Welcome back to reality! The Franchise Tax Board is hoping to whip California's 14 million taxpayers into shape in time for the April 15 tax filing deadline.

The agency gave notice Wednesday that the holidays are over with an announcement from FTB Chairman and state Controller John Chiang that taxpayers can expect expanded customer service this year. So, put away those new toys, toss out those trees and take a look at the goodies being promised by the FTB:

If you are single and have no dependents, there's a good chance you can have the FTB complete your tax return for you. The agency is introducing a program that it is calling ReadyReturn, which the agency bills as the first of its kind for states.

• To be eligible, singles must have earned all income from only one employer and take the standard deduction. Visit or call (800) 338-0305 to determine whether you qualify.

Changes are coming

The FTB wants to draw your attention to several legal and regulatory changes:

• In the 2007 tax year, registered domestic partners must file state tax returns either as married filing jointly or married filing separately.

• This won't affect your IRS filing status. Need details? Check FTB Publication 737 for domestic partners.

• The state's standard deductions are rising. Single? Married filing separately? You can take a deductions of $3,516, compared with 3,410 in 2006.

• Joint filers, surviving spouses and heads of household can deduct $7,032, up from $6,820.


Want to file electronically? If you file forms 5402EZ, 540A or 540, you're among the more than 6 million taxpayers who are eligible.

• The look of the online service has changed a bit. You won't see the application labeled View Payments and Balance Due. Instead, you'll click My FTB account. In addition to balances and payments, you can now view forms 1099-G and 1099-INT, plus California wage and withholding information.

• To access all this data, enter your name and Social Security number. This year, for the first time, the program is available in Spanish. Want to learn more? Go to


Who files?

You must if you are single or a head of household with total income equal to or greater than $14,138, or if you are married and your joint income is equal to or greater than $28,276.

Do you owe use tax?

Yes, you will likely have to pay taxes on all that online shopping over the holidays. Go to and use the calculator to assess the damage. You can pay online - charge it. Taxpayers can OK payments from their bank account to FTB's Web Pay, or for a fee, you can pay with Discover/NOVUS, MasterCard, American Express and Visa.

Can't pay?

Go online and request a payment plan. You'll generally qualify if you owe less than $25,000 and can repay within five years.

Need FTB assistance?

Call (800) 338-0505 for a 24-hour automated line. Call (800) 852- 5711 from 7 a.m. to 6 p.m. on business days to speak to a representative. If you're in The Bee's circulation area, your closest walk-in locations will be 3321 Power Inn Road, Suite 250, in Sacramento; 1515 Clay St., Suite 305, in Oakland; and 121 Spear St., Suite 400, in San Francisco.

Want volunteer assistance?

Go to www.vitavolunteers. org, the Web site for the Volunteer Income Tax Association. If you are 60 or older, try Tax Counseling for the Elderly. Get further details on TCE at (800) 829- 1040, or call (888) 227-7669 to find the nearest AARP Tax-Aide site.

Source: Franchise Tax Board