H.R. 3221

H.R. 3221 would:

►          Give the Federal Deposit Insurance Corporation the authority to create so-called bridge institutions for failing savings associations, mirroring a capability that has existed since 1991 for failed banks.

►          Give the Federal Housing Administration $300 billion in new lending authority and relax standards to provide affordable, fixed-rate mortgages to an estimated 400,000 debt-ridden homeowners. Any losses would be covered by an affordable housing fund financed by Fannie Mae and Freddie Mac, the government-sponsored companies that finance mortgages.

►          Allow the Treasury Department temporary authority to lend money to Fannie and Freddie or buy their stock to avert a collapse of one or both of the mortgage giants. The authority would expire on Dec. 31, 2009.

►          Create a new regulator and tighten controls on Fannie and Freddie, including power for the regulator to approve pay packages for company executives. Create a new affordable housing fund drawn from their profits. Permanently raise the limit on the loans they may buy to $625,000 in the highest-cost areas. Allow them to buy loans 15 percent higher than the median home price in certain cities.

►          Provide $3.9 billion in grants to the hardest-hit communities for buying and fixing up foreclosed property.

►          Modernize the FHA and allow it to back loans for riskier borrowers. Permanently increase the size of loans the agency may insure - currently set to revert to $362,790 by the end of the year - to $625,000 in the highest-cost areas. The agency could insure loans 15 percent higher than the median home price in certain cities.

►          Forbid the FHA from insuring mortgages in which the borrower's down payment is paid by the seller, beginning on Oct. 1, 2008. Place a one-year moratorium forbidding the agency from charging premiums based on the riskiness of the homeowner, until Oct. 1, 2009.

►          Provide $15 billion in housing tax breaks, including for low-income housing. Give a credit of up to $7,500 for first-time home buyers who purchase residences between April 9, 2008, and July 1, 2009. Allow people who don't itemize their taxes to claim a $500-$1,000 deduction on their 2008 property taxes. (NOTE: The credit is 10 percent of the purchase price or $7,500, whichever is less -- but for married people filing separately, the $7,500 limit becomes $3,500. Unmarried people who jointly purchase a home can divide the $7,500 credit, but how the division is to take place is left to IRS regulation-writers. The credit begins to phase out at the $150,000 income level for joint filers ($75,000 for other filers) and is not available for joint filers with income above $170,000 ($95,000 for other filers). It's also not available to nonresident aliens, those who qualify for a similar District of Columbia credit or those whose financing comes from tax-exempt mortgage revenue bonds. The credit is more of an interest-free loan than a complete giveaway; taxpayers will have to pay back the credit they claim over 15 years.)

►          Give states an additional $11 billion in tax-free municipal bond authority for low-interest loans to first-time home buyers, construction of low-income rental housing and refinancing subprime mortgages.

►          Offer protection from investor lawsuits for mortgage holders that modify loans to borrowers who are in default or about to default.

►          Provide $180 million for pre-foreclosure counseling and legal services for distressed
borrowers.

►          Provide Chrysler a corporate tax incentive even though the company is now structured as a partnership not a corporation. The bill does not name Chrysler but rather describes an unnamed automobile manufacturer “that will produce in excess of 675,000 automobiles” between Jan. 1 and June 30, 2008.

Some people may be adversely affected by the bill, including those who buy a vacation home, or who rent out a home while planning to make it their main residence at a later time. Currently, if a second home becomes a principal residence, after two years the owner can sell it and exclude up to $250,000 in gain from their income -- or up to $500,000 for couples filing jointly.

But the bill pro-rates the exclusion between the time that a home is used as a principal residence and the total length of ownership, which includes any "non-qualifying" use as a rental or vacation property. Non-qualifying use before the January 1, 2009, effective date of the provision, isn't used in the calculation, however. Nor are periods after a qualified use of the property or temporary absences of less than two years.

Read the Bill by clicking The American Housing Rescue & Foreclosure Prevention Act link.

VSP appeal

http://www.webcpa.com/article.cfm?ARTICLEID=28453
Ken Starr to Appeal Tax-Exempt Case to Supreme Court

Rancho Cordova, Calif. (July 17, 2008)
By WebCPA staff

VSP Vision Care has hired former U.S. Solicitor General Ken Starr to represent the eye care insurance provider in an appeal to the U.S. Supreme Court on its tax-exempt status.

Starr became famous as an independent counsel investigating Whitewater and other scandals during the Clinton administration and the author of the Starr Report detailing Monica Lewinski's involvement with President Clinton. VSP has added him to its legal team as it files a writ of certiorari to the Supreme Court for a final hearing on its tax-exempt status.

"They take a small number of cases, but we think it's an important case," said spokesman Pat McNeil. "We feel that having a not-for-profit model for health care, along with a for-profit model, is important."

VSP plans to file with the Supreme Court by August 7 and expects to hear in the fall on whether the high court will take the case. McNeil believes the case could set a precedent.

Starr joins an appellate legal team that already includes senior litigation partner Douglas C. Ross of Davis Wright Tremaine LLP, who has represented VSP in the tax matter since 2003, and Thomas A. Fessler, VSP's vice president and general counsel.

"This case is really about determining what guidelines the IRS uses to define what constitutes a tax-exempt not-for-profit organization," said Starr in a statement. "VSP had a tax-exemption for more than 40 years, has not changed their business philosophy or focus on the community, and yet lost their tax-exempt status. In the end, we are simply asking the Supreme Court to recognize the significant community benefit VSP offers to more than 55 million Americans."

In 1960, VSP was granted an exemption from its obligation to pay federal income taxes. In 2003, based on an examination conducted in 1999, the IRS issued a final adverse determination letter, revoking tax-exempt status for VSP's California corporation effective Jan. 1, 2003. VSP has been paying taxes since then while pursuing its so-far unsuccessful appeals.

Car donation drops

http://accounting.smartpros.com/x62523.xml
New Tax Laws Dry up Car Donations

July 15, 2008 (Business Wire) -- Car donations have plummeted since Congress in 2004 tightened the tax rules for claiming charitable deductions, according to a Grant Thornton analysis of new IRS data.

Before 2005, taxpayers who donated a vehicle were allowed to deduct its fair market value. Tax legislation enacted in 2004 changed the rules to generally limit vehicle donation deductions of over $500 to either the actual proceeds from a vehicle's sale or the vehicle's fair market value -- whichever is less.

Recently released IRS statistics reveal the 2004 law had an immediate and drastic affect on car donations. An analysis of the new numbers by Grant Thornton's National Tax Office shows that between tax year 2004 and 2005, car donations of over $500 dropped by two-thirds.

Over 900,000 tax returns claimed deductions for donated automobiles in 2004. In 2005, the last year for which the IRS has detailed data, less than 300,000 tax returns included such claims.. The total amount deducted for all car donations declined from $2.4 billion in 2004 to just a half a billion dollars the following year, a decrease of over 80 percent.

"Congress was concerned that people were inflating the value of donated cars under the old system, claiming full blue book value for vehicles that had been turned down by the local junk yard," said Mel Schwarz of Grant Thornton's National Tax Office in Washington, D.C. "The hope was that charities would still get the same number of cars they could auction for the same amount of money, and the only change would be the elimination of excess charitable deductions. That hope was clearly not recognized."

It is worth noting that the although the total number of car donations fell by 67 percent, and the amount of deductions claimed as a result of such donations fell by over 80 percent, the deduction claimed per car donated only declined by 41 percent. "This suggests a generous tax deduction was not the only thing lost with this change," noted Schwarz.

Donations of vehicles besides automobiles also declined. The number of returns claiming non-car vehicle donations dropped over 25 percent from 2004 to 2005, and the amount claimed in deductions fell from $205 million to $140 million.

The new restrictions on car donations have not dampened Americans' overall generosity. The total amount of deductions claimed for charitable deductions increased from $156 billion in 2004 to $172 billion in 2005. In 2006, the number increased again to $173 billion.

Tax Court not a Real Court

http://www.webcpa.com/article.cfm?ARTICLEID=28426
Appeals Court Says Tax Court Is Not a Real Court

Cincinnati (July 11, 2008)
By WebCPA staff

The U.S. Court of Appeals for the Sixth Circuit issued an opinion in a tax dispute that found the U.S. Tax Court is not a court as defined by law.

The case, Mobley v. Commissioner of Internal Revenue, involved an IRS audit of a couple's 2000 tax return in which the IRS increased their tax liability by $32,554. The Mobleys consented to the increased assessment and collection, then filed an amended tax return for 2000, claiming a refund of $27,715. The IRS audited that return as well and disallowed the claim because the couple failed to respond to requests for evidence supporting their claim.

The couple filed a petition with the Tax Court, seeking a redetermination of their income tax for 2000 and asking for the audit to be reopened so they could produce supporting evidence. After changing residence several times, the Mobleys said they had never received actual notice of an audit and never had an opportunity to produce evidence supporting their claims. The Tax Court dismissed the petition, concluding that it lacked jurisdiction because "no notice of deficiency had been issued to petitioners for their taxable year 2000."

The Tax Court also rejected the Mobleys' request to transfer the case to the U.S. District Court for the Eastern District of Kentucky pursuant to 28 U.S.C. Section 1631. It agreed with the appeals court, reasoning that the section "by its terms applies only to a 'court' as defined in 28 U.S.C. Section 610" and that the "Tax Court is not included among the courts listed in 28 U.S.C. Sec. 610."

At stake is whether the Tax Court has authority to transfer a case over which it lacks jurisdiction to a federal district court that otherwise would have jurisdiction over the dispute. The Tax Court was originally known as the Board of Tax Appeals, and was within the Bureau of Internal Revenue, before it became known as a court.

"No one disputes that the Mobleys established at least three of the requirements for a transfer," wrote the appeals court. "The Tax Court lacked jurisdiction over the dispute; a transfer would serve the interest of justice; and the court to which the Mobleys want the case transferred is a court as defined in Section 610-namely, a 'district court of the United States.' The question is whether they satisfied the fourth element: Is the Tax Court, where the claimants initially filed the action, a court as defined in Section 610?... To our knowledge (and counsel's knowledge), every other court to address the issue has agreed that the Tax Court is not a 'court as defined in Section 610.'"

The appeals court ended up agreeing with the Tax Court on the jurisdictional question, saying, "Because the Mobleys do not challenge the Tax Court's jurisdictional ruling and because the Tax Court correctly concluded that it lacked authority to transfer the case under Section 1631, we affirm."

Mileage rate

Due to rising gas prices, the mileage rate will increase by eight cents to 58.5 cents a mile for all business miles driven from July 1 through Dec. 31, 2008. The new rate for computing deductible medical or moving expenses will also increase by eight cents to 27 cents a mile. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile. See news release IR-2008-82 and Announcement 2008-63.

McCain v Obama on taxes

http://online.wsj.com/article/SB121374794468982701.html?mod=hps_us_inside_today
Your Tax Bill:
How McCain, Obama Differ

Capital-Gains Rates Are Likely
To Rise, No Matter Who Wins;
Far Apart on Estate Taxes
June 18, 2008; Page D1

Get ready for higher capital-gains taxes.

As the presidential campaign heats up, investment and tax advisers are issuing that warning to upper-income clients. Underpinning this view is Sen. Barack Obama's early lead in the polls, as well as speculation that Democrats will increase their majority in Congress.

Today's capital-gains tax rates "are probably the lowest we'll see" for decades to come, says Nadine Gordon Lee, president of Prosper Advisors LLC, a wealth-management firm in Armonk, N.Y.

So should you be rushing to sell your investment winners now to take advantage of today's historically low tax rates? While some investors say they are considering it, very few say they are doing anything different right now. Election Day still is more than four months away, an eternity in American politics -- and even if lawmakers do enact higher taxes next year, nobody knows how much higher they will be or what the effective dates will be. Moreover, investors seem far more worried about the economy and the slumping stock market than about tax rates.

"There's no question in my mind the next president will raise the capital-gains rate. It's just a question of when," says David Anderson, a retired banker living in Darien, Conn. But Mr. Anderson sees "no rush" to sell investments immediately, especially in view of the stock market's sinking spell this year. He also notes the adage that you shouldn't make investment moves solely for tax reasons and says there still appears to be "plenty of time" to take action before any capital-gains tax-rate changes become effective.

Sen. Obama is calling for higher taxes on families making more than $250,000 a year. That includes increased taxes not only on ordinary income such as salary but also on capital gains and most corporate dividends. The Illinois senator also is calling for higher Social Security taxes on many upper-income workers.

Sen. John McCain has staked out a strong antitax stance. That includes extending President Bush's income-tax cuts and enacting new breaks, such as raising the exemption for dependents.

Here is a look at the still-evolving plans of Sens. Obama and McCain, as well as thoughts from financial advisers and tax lawyers on what, if anything, to consider doing this year.

Income taxes. Sen. Obama is calling for higher taxes on the wealthiest Americans but lower taxes on lower- and middle-income households. "It's time for folks like me who make over $250,000 to pay our fair share," Sen. Obama said in a speech last week. "If you are a family making less than $250,000, my plan will not raise your taxes -- not your income taxes, not your payroll taxes, not your capital-gains taxes, not any of your taxes. In fact, chances are you will get a tax cut."

For example, the Illinois senator wants to raise the top ordinary income-tax rate, now 35%, to 39.6%. For 2008, the top federal rate of 35% in most cases applies to taxable income of more than $357,700. (The 2009 income threshold won't be announced until later this year.)

The Obama plan also includes imposing higher Social Security taxes on workers making over $250,000. However, the senator hasn't given precise details, such as how much more those people would pay. Under current law, the maximum amount of earnings subject to the Social Security tax for 2008 is $102,000.

In contrast, Sen. McCain wants to make permanent the current federal income-tax rates. He also opposes Sen. Obama's plan to lift the earnings cap on the Social Security payroll tax. Such a move would be bad news for the economy, says Douglas Holtz-Eakin, senior policy adviser to Sen. McCain and a former Congressional Budget Office director.

If the Obama plan becomes law, investment advisers agree that among the biggest winners could be tax-exempt municipal bonds, which are issued by state and local governments. Tax-exempt bonds typically benefit when ordinary income-tax rates rise. But be careful before you jump into the muni market: Even though these bonds typically are known as tax-exempts, some pay interest subject to the alternative minimum tax, which ensnared about four million investors last year. If that includes you, be sure to check with your broker whether the bonds you're considering are "AMT bonds."

One New Jersey investor says she recently purchased her first muni bond -- $5,000 of hospital bonds. She says part of the reason was her expectation of higher tax rates in 2009.

Even though investment advisers say most clients aren't doing anything different, some should be thinking about making changes. "For an investor with a low-basis, large concentration in a publicly traded company, a family business or some other illiquid asset, taking steps to diversify in 2008, before a potential capital-gains rate increase, could result in significant tax savings," says Dan Schrauth, wealth adviser with JPMorgan Private Bank in San Francisco. Many clients are taking "a serious look" at the potential for higher capital-gains rates as a relevant factor in determining when to diversify out of a concentrated position, he says.

But Michael Holland, who heads a New York-based investment firm bearing his name, says: "I don't hear anyone talking about doing anything" right now in anticipation of higher capital-gains taxes. "If we had a huge run-up [in stock prices] between now and December, I think you'd then begin to hear" talk about selling this year, he says. "I don't hear any of that right now."

Investment income. Under current law, the top long-term capital-gains rate on stocks, bonds, mutual-fund shares and other securities typically is 15%. ("Long term" means investments held more than one year.) If you make a profit by selling stocks or other securities you've owned for a year or less, that's considered a "short-term" gain and is subject to tax as ordinary income.

Sen. Obama wants to raise the long-term capital-gains rate for families making more than $250,000 to around 20% or somewhat higher -- but not above the 28% level it reached during the Reagan presidency, an Obama economic adviser says. The same rate would apply to most dividend income for these investors.

Sen. McCain wants to keep the current structure of tax rates on capital gains and dividends. But many wealth advisers believe that if he won the presidency, he would be forced to compromise with the Democrats in control of Congress and eventually would agree to a capital-gains rate increase.

Capital-gains rates are likely to "go up by more -- and possibly earlier" if Sen. Obama wins, says Thomas D. Gallagher of International Strategy and Investment Group. But rates "still probably go up under McCain," he says, noting that the 15% rate is set to rise automatically after 2010 if Congress takes no action.

Bob Willens, president of a tax-advisory firm in New York bearing his name, agrees the capital-gains rate is going up next year. "It's something you need to resign yourself to," he warns. But he says there's no reason to rush to sell today, since lawmakers aren't likely to make tax-rate increases retroactive to the start of next year. He sees the effective date more likely as sometime around mid-2009.

Estate taxes. Neither candidate wants to kill the estate tax permanently, as President Bush has proposed. Instead, both favor a compromise, but Sen. McCain's plan would be far more beneficial for wealthy heirs than the Obama plan.

Under current law, the federal estate-tax exemption this year is $2 million, and the top rate is 45%. (Transfers from one spouse to the other typically are tax-free.) Next year, that exclusion is set to rise to $3.5 million, with the rate remaining at 45%. In 2010, the federal estate tax is scheduled to disappear completely, only to return again in 2011 with an exclusion of $1 million.

Sen. McCain proposes raising the exclusion to $5 million and cutting the tax rate to 15%. Sen. Obama proposes a $3.5 million exclusion while keeping the top rate at 45%. In either case, the basic strategy is the same: If you're wealthy and care about how much your heirs get, make sure to keep breathing at least through the end of this year to take advantage of 2009's higher exclusion.

Write to Tom Herman at tom.herman@wsj.com

IRS Seizures not Always Legal

http://www.webcpa.com/article.cfm?articleid=28124&pg=ros
Washington, D.C. (June 17, 2008)
By WebCPA staff

The Internal Revenue Service violated some of its own legal requirements in some of the seizures of taxpayer property it conducted in the past two years, according to a new report.

The Treasury Inspector General for Tax Administration identified 25 instances in 19 of the 50 seizures it studied in which the IRS did not comply with a particular Tax Code requirement. TIGTA studied a random sample of 50 of the 683 seizures the IRS conducted between July 1, 2006, and June 30, 2007. Although the rate of violations seems high, TIGTA noted that it actually represents only about 1 percent, as there could have been numerous statutory violations in each case. Still, the instances may have resulted in violations of taxpayers' rights.

The 25 instances included 10 in which expenses and proceeds resulting from the seizures were not properly applied to the taxpayers' accounts, five instances in which the sales of seized properties were not properly advertised, and five instances in which the correct amounts of the liabilities for which the seizures were made were not provided on the notices of seizures sent to the taxpayers.

IRS seizures were on the wane for several years, but have increased recently. After the passage of the IRS Restructuring and Reform Act of 1998, IRS seizures decreased from 10,090 in fiscal year 1997 to 74 in fiscal year 2000. Seizures have climbed steadily since 2000, but remain less than 7 percent of the amount reported in fiscal year 1997.

TIGTA recommended that IRS agents routinely fill out a Seized Property Sale Report (Form 2436) for all seizure expenses and proceeds transactions, which seems to help curb some of the violations. The IRS agreed to create a new form for posting seizure expenses for releases and redemptions.

Buy & Hold, Sleeping Well at Night

http://online.wsj.com/article/SB121347710385475213.html
According to this Wall Street Journal article, the three requirements are:
A. a well-diversified investment plan,
B. invested in low-cost index funds,
C. with a long-term outlook.

I totally concur.

Debit cards for Social Security

http://accounting.smartpros.com/x62214.xml
The Direct Express Debit MasterCard card, designed as a safe, convenient alternative to paper checks that people without bank accounts may choose, is currently being introduced in 10 states, and will be rolled out nationwide this summer.

According to the Treasury, about 4 million Social Security and SSI recipients do not have bank accounts, and have had to depend on paper checks for their monthly payments.

"People without bank accounts now have a user-friendly, practical alternative to paper checks for their monthly federal benefit payments," said FMS Commissioner Judith Tillman.

The Direct Express card offers cardholders free access to their money. There is no sign-up fee, and no bank account or credit check is required to enroll. Cardholders can make purchases, pay bills and get cash at thousands of ATMs and retail locations.

An education campaign will accompany the launch of the card and will promote debit card literacy among likely users, reaching them through print and Web materials, public service announcements, direct mail and partner organizations.

Treasury has engaged a financial agent, Dallas-based Comerica Bank, to issue this nationally available card exclusively for payment of federal benefits. People currently receiving Social Security or Supplemental Security Income (SSI) checks in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina and Texas have received information about the card. People may sign up for the card by calling toll-free 1-877-212-9991 or visiting www.USDirectExpress.com.

Presidential candidates' tax plan

http://www.webcpa.com/article.cfm?ARTICLEID=28102
Presidential hopefuls Sen. Barack Obama, D-Ill., and Sen. John McCain, R-Ariz., clashed over their tax plans, trading accusations of hikes in capital gains and Social Security taxes.

"There will be change in Washington," said McCain, speaking to a group of small business leaders on Tuesday at a forum sponsored by the National Federation of Independent Businesses and eBay. "The only question is what kind of change. Will we enact the single largest tax increase since the Second World War, as my opponent proposes?"

Obama accused McCain of trying to outdo President Bush's tax policies. "I've said that McCain is running to serve out a third Bush term," he said. "But the truth is, when it comes to taxes, that's not being fair to George Bush. McCain wants to add $300 billion more in tax breaks and loopholes for big corporations and the wealthy, and he hasn't even explained how to pay for it."

Obama said his plan would raise capital gains taxes to 20 percent from the current 15 percent level, not the 28 percent that Republicans have predicted. "My discussions with Warren Buffett indicate that it will probably not have any significant impact in terms of investment," he said.

Obama wants to exempt small businesses and start-ups from capital gains taxes. He has called for letting the Bush tax cuts expire, raising taxes on those making over $250,000. His plan for payroll taxes would raise the cap on income subject to Social Security withholding, which is currently set at $102,000. Obama would allow income above the $200,000 level to be subject to Social Security taxes. Obama also called for cutting taxes for people making less than $75,000 a year and eliminating taxes on senior citizens who make less than $50,000 per year.

McCain has called for elimination of the alternative minimum tax and an extension of the Bush tax cuts. He told small business leaders that Obama's tax plan would harm them. "Under Senator Obama's tax plan, Americans of every background would see their taxes rise - seniors, parents, small business owners, and just about everyone else who has even a modest investment in the market," he said.

According to a June 12th article in the Wall Street Journal, the top 20% of taxpayers, those whose income exceeds $111,646, their after tax income would increase by 3% under McCain's plan and decrease by 2% under Obama's plan. For more, read
http://online.wsj.com/article/SB121319990210164643.html