President Signs "Cash for Clunkers" Bill

President Obama on June 24 signed legislation aimed at boosting the sale of vehicles at financially struggling U.S. automobile dealerships. The so-called "cash for clunkers" program provides $1 billion in tax-free vouchers to automobile dealers who participate in the new program. The program vouchers, worth $3,500 or $4,500, will be given to dealers when consumers trade in old vehicles for ones with higher fuel efficiency. The vouchers will not be considered taxable income for the car buyer.

The new law limits the number of vouchers to one per customer, including joint registered owners of a single eligible trade-in vehicle. The car voucher measure is included in the 2009 Supplemental Appropriations Bill for Iraq, Afghanistan, Pakistan and Pandemic Flu (HR 2346).

06-19-2009 - Lawmakers Ask IRS to Temporarily Halt Small Business Penalties

Lawmakers from the Senate Finance Committee and House Committee on Ways and Means have asked IRS Commissioner Douglas H. Shulman to suspend certain penalties assessed on small businesses while Congress works on legislation to address what they term an inequitable and unintended consequence in the tax code. The lawmakers argue that small businesses with investments in listed tax shelter transactions that are generating modest tax benefits have received tax penalties significantly larger than the tax benefits received.

In a letter dated June 12, the lawmakers requested that Shulman "use the discretion provided to the IRS with its effective tax administration authority to suspend efforts to collect IRC [Internal Revenue Code] section 6707A liabilities ... while Congress acts to remedy this situation." Code Sec. 6707A was enacted in the American Jobs Creation Act of 2004 (P.L. 108-357) as part of a package of provisions intended to help the IRS detect, deter and shut down tax shelters.

"When I advanced the legislation to shut down tax shelters, I did not intend to bankrupt small businesses that had no ill intent. I was focused on the big corporations that were actively seeking to hide their participation in tax shelters," said Senate Finance Committee ranking member Charles E. Grassley, R-Iowa.

Treasury regulations require taxpayers to tell the IRS if they invest in "listed" tax shelter transactions, and Code Sec. 6707A imposes large, strict liability penalties on taxpayers who fail to disclose this information to the IRS. For listed transactions, the penalties are $100,000 for natural persons and $200,000 for others, including Subchapter C and Subchapter S corporations. The impacted companies have reported that they were never informed that their transactions were considered abusive tax shelters by the IRS

Grassley, along with Senate Finance Committee Chairman Max Baucus, D-Mont., Ways and Means Oversight Subcommittee Chairman John Lewis, D-Ga., and ranking member Charles Boustany, R-La., pointed out that the inequitable consequences were unexpected at the time the penalty was enacted, and they plan to introduce legislation that would result in penalty amounts in more reasonable proportion to the tax benefits. They further claimed that while the penalty has helped the IRS end many abusive deals, many of the shelters being examined by the Service involve significantly smaller dollar amounts, and current penalty levels may be excessive in some circumstances.

"I don't condone investments in tax shelters, but I also want to make sure our small businesses survive and thrive," said Baucus. "It's important we get this done as soon as possible and I urge and expect the IRS to comply with our request." Grassley was even more succinct. "The penalty should be commensurate with the transgression," he said. None of the lawmakers offered a timetable as to when they might advance legislation to change tax code.

05-29-2009 - IRS Announces No Interest Rate Change for 3rd Quarter

The Internal Revenue Service today announced that interest rates for the calendar quarter beginning July 1, 2009, will remain the same. The rates will be:

• four (4) percent for overpayments [three (3) percent in the case of a corporation];
• four (4) percent for underpayments;
• six (6) percent for large corporate underpayments; and
• one and one-half (1.5) percent for the portion of a corporate overpayment exceeding $10,000.
  

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The interest rates announced today are computed from the federal short-term rate during April 2009 to take effect May 1, 2009, based on daily compounding.

Revenue Ruling 2009-17, announcing the rates of interest, is attached and will appear in Internal Revenue Bulletin No. 2009-26, dated June 29, 2009.

05-28-2009 - Law Offers Special Tax Breaks for Small Business; Act Now and Save, IRS Says

Small Business Week is May 17 to 23, and the Internal Revenue Service urges small businesses to act now and take advantage of tax-saving opportunities included in the recovery law.

The American Recovery and Reinvestment Act (ARRA), enacted in February, created, extended or expanded a variety of business tax deductions and credits. Because some of these changes—the bonus depreciation and increased section 179 deduction, for example—are only available this year, eligible businesses only have a few months to take action and save on their taxes. Here is a quick rundown of some of the key provisions.

Faster Write-Offs for Certain Capital Expenditures

Many small businesses that invest in new property and equipment will be able to write off most or all of these purchases on their 2009 returns. The new law extends through 2009 the special 50 percent depreciation allowance, also known as bonus depreciation, and increased limits on the section 179 deduction, named for the relevant section of the Internal Revenue Code. Normally, businesses recover these capital investments through annual depreciation deductions spread over several years. Both of these provisions encourage these investments by enabling businesses to write them off more quickly.

The bonus depreciation provision generally enables businesses to deduct half the cost of qualifying property in the year it is placed in service.

The section 179 deduction enables small businesses to deduct up to $250,000 of the cost of machinery, equipment, vehicles, furniture and other qualifying property placed in service during 2009. Without the new law, the limit would have dropped to $133,000. The existing $25,000 limit still applies to sport utility vehicles. A special phase-out provision effectively targets the section 179 deduction to small businesses and generally eliminates it for most larger businesses.

Bonus depreciation and the section 179 deduction are claimed on Form 4562. Further details are in the instructions for this form.

Expanded Net Operating Loss Carryback

Many small businesses that had expenses exceeding their incomes for 2008 can choose to carry those losses back for up to five years, instead of the usual two. For small businesses that were profitable in the past but lost money in 2008, this could mean a special tax refund. The option is available for a small business that has no more than an average of $15 million in gross receipts over a three-year period.

This option is still available for most eligible taxpayers, but only for a limited time. A corporation that operates on a calendar-year basis, for example, must file a claim by Sept. 15, 2009. For eligible individuals, the deadline is Oct. 15, 2009.

Eligible individuals should file a claim using Form 1045, and corporations should use Form 1139. Details can be found in the instructions for each of these forms, and answers to frequently-asked questions are posted on IRS.gov.

Exclusion of Gain on the Sale of Certain Small Business Stock

The new law provides an extra incentive for individuals who invest in small businesses. Investors in qualified small business stock can exclude 75 percent of the gain upon sale of the stock. This increased exclusion applies only if the qualified small business stock is acquired after Feb. 17, 2009 and before Jan. 1, 2011, and held for more than five years. For previously-acquired stock, the exclusion rate remains at 50 percent in most cases.

Estimated Tax Requirement Modified

Many individual small business taxpayers may be able to defer, until the end of the year, paying a larger part of their 2009 tax obligations. For 2009, eligible individuals can make quarterly estimated tax payments equal to 90 percent of their 2009 tax or 90 percent of their 2008 tax, whichever is less. Individuals qualify if they received more than half of their gross income from their small businesses in 2008 and meet other requirements. For details, see Publication 505.

COBRA Credit

Employers that provide the 65 percent COBRA premium subsidy under ARRA to eligible former employees claim credit for this subsidy on their quarterly or annual employment tax returns. To help avoid imposing an unnecessary cash-flow burden, affected employers can reduce their employment tax deposits by the amount of the credit. For details, see Form 941. Answers to frequently-asked questions are posted on IRS.gov.

Other ARRA business provisions relate to discharges of certain business indebtedness, the holding period for S corporation built-in gains and acceleration of certain business credits for corporations. Also see Fact Sheet FS-2009-11.

05-15-2008 - FHA plans to allow use of tax credit for down payments.

FHA plans to allow use of tax credit for down payments.

By AUBREY COHEN
SEATTLEPI.COM STAFF

Home buyers will be able to use the federal $8,000 first-time home buyer tax credit for down payments on Federal Housing Administration loans, U.S. Housing and Urban Development Secretary Shaun Donovan announced Tuesday.

"We all want to enable FHA consumers to access the tax credit funds when they close on their home loans so that the cash can be used as a down payment," Donovan said at the National Association of Realtors' Midyear Legislative Meetings & Trade Expo in Washington, according to a printed copy of the remarks released by HUD.

FHA will allow approved lenders and nonprofits, and state and local government agencies to issue short-term bridge loans buyers can use for down payments, Donovan said. Buyers would repay the loans after getting their tax refunds.

Donovan said FHA would soon release details on the new program.

Last month, the Legislature approved a program to provide the credit as a temporary loan, although that has since run up against an IRS rule barring taxpayers from designating someone else to get their refunds.

"A lot of people are working on the IRS issue, including the National Association of Realtors, and my understanding is we're pretty close on getting that put into place," said Erik Hand, president of Response Mortgage Services, which is real estate company John L. Scott's mortgage branch.

FHA loans fell out of favor during the housing boom, with the explosion of privately funded subprime mortgages. But the subprime market has all but disappeared over the past two years, and FHA's nationwide market share surged from 1.9 percent in the fourth quarter of 2006 to 23.7 percent at the end of last year, according to HUD.

Don Riley, executive vice president of Windermere Services, said 60 to 65 percent of first-time buyers in the Seattle area use FHA loans, which allow people to buy with as little as 3.5 percent down.

Allowing use of the tax credit for down payments essentially turns the credit into a form of down payment assistance. The FHA allows government agencies and nonprofits to give buyers down payment assistance, although it recently barred such assistance from home sellers.

HUD officials said mortgages with seller-funded assistance had higher default rates, largely because sellers often built the assistance into the price, meaning buyers were essentially financing the entire purchase. Hand noted that the same was not true of loans with government and nonprofit assistance.

05-05-2009 State of Arizona Offering Amnesty

If you have failed to file prior Arizona tax returns, there is no time like the present. The State of Arizona is offering an amnesty program for late filers who file their past years returns between May 1, 2009 and June 1, 2009. The state is offering to allow filers to pay back taxes owed to the state without penalty or criminal prosecutions, and at a reduced interest rate for those who qualify. The taxes that are eligible for the amnesty program cover not only income tax but also other taxes such as transaction privilege tax.

For taxes filed on an annual basis, such as income tax, amnesty is available for years beginning on or after January 1, 2002 and ending before January 1, 2008. Taxpayers who file taxes, such as transaction privilege or withholding, on a monthly or quarterly basis are eligible for tax periods beginning on or after January 1, 2003 and ending before January 1, 2008.

The Amnesty Tax Returns must be accompanied by the Amnesty Application form, and must be filed or postmarked by June 1st in order to qualify for the Amnesty Program. Also, the tax due must be paid in full by the June 1st due date.
To obtain the amnesty forms or more information regarding the amnesty program please visit the state’s website at http://www.revenue.state.az.us/Taxamnesty/

04-01-2009 - IRS Ramping Up Offshore Tax-Avoidance Efforts

The Internal Revenue Service is stepping up efforts to recoup an estimated $50 billion in lost tax revenue per year through offshore tax havens and the Obama Administration is dedicating more resources to back new programs and initiatives to bolster the Service's endeavors. Most of the work, however, lies in implementing policies that would expand the obligations of foreign banks to provide information regarding transactions by U.S. citizens.

Testifying on March 31 before the Subcommittee on Select Revenue Measures of the House Committee on Ways and Means, IRS Commissioner Douglas Shulman told lawmakers that offshore issues are a high priority of the administration, noting that the president's budget proposal committed to identifying $212 billion in savings over the next decade from international enforcement, reforming deferral and other tax reform policies.

A main tool to accomplish the administration's directives will come from revamping the Service's qualified intermediary (QI) program, which provides the IRS with information on the activities of foreign banks and other financial institutions. More data is needed said Shulman, and the IRS is considering expansion of the reporting requirements to include more sources of income for U.S. account holders, strengthening the documentation rules, and requiring withholding for accounts with documentation that is considered insufficient.

Shulman said in addition that he has increased the number of audits in the offshore banking arena over the past five months and prioritized stepped-up hiring of international tax experts and investigators. Also, the Service has offered an amnesty program for offshore account holders who reveal their unreported assets. Those who volunteer the information will pay back taxes and interest for six years, and pay either an accuracy-related or delinquency penalty on all six years. They will also pay a penalty of 20 percent of the amount in the foreign bank accounts in the year with the highest aggregate account or asset value. The program will run another six months and then be reevaluated, said Shulman.

Stephen E. Shay, former international tax counsel for the U.S. Department of Treasury and now a tax partner at Boston-based Ropes & Gray, agreed with Shulman that improvements are needed in the QI program and he urged the Service to require information from QI banks on U.S. customers regardless of whether they hold assets in a QI bank account. He also recommended increasing IRS enforcement resources devoted to cross-border enforcement, including resources to allow QI banks to submit information electronically. Shay also suggested that the IRS consider eliminating the foreign-targeted bearer obligation exception to beneficial owner documentation, or QI reporting.

03-30-2009 - IRS Announces New Voluntary Disclosure Terms for Offshore Account Holders, Sets Six-Month Deadlines

IRS Announces New Voluntary Disclosure Terms for Offshore Account Holders, Sets Six-Month Deadlines

The IRS has announced new steps to coax U.S. taxpayers with undisclosed foreign bank accounts to come forward. In return for paying back taxes for the past six years, plus interest and a set of stiff penalties, the IRS will promise not to bring criminal charges or the 75-percent fraud penalty. IRS Commissioner Douglas H. Shulman announced this policy shift and clarification at a press briefing from his Washington, D.C. offices on March 26, at which he also released internal IRS documents that put the plan into motion.

"We believe the guidance represents a firm, but fair, resolution of these cases and will provide consistent treatment for taxpayers," Shulman explained. "The goal is to have a predictable set of outcomes to encourage people to come forward and take advantage of our voluntary disclosure practice while they still can." He set a deadline of six months for disclosures under the terms of the guidance, at which time the program will be re-evaluated.

The IRS has issued a series of three memoranda, and has revised the Internal Revenue Manual (IRM), to reflect updated policies concerning voluntary disclosure, primarily in connection with offshore transactions. Voluntary disclosure occurs when a taxpayer timely discloses information necessary to determine or correct the taxpayer's liability. The IRM continues to provide that its voluntary disclosure practices do not create any substantive or procedural rights for taxpayers, but are a matter of internal IRS practice.

Voluntary Disclosure Terms

Shulman emphasized that the terms being offered for the disclosure of offshore accounts are an outgrowth of current policy and carry penalties at a level consistent with voluntary disclosure programs in the past. Within this framework, Shulman enumerated the amounts that would need to be paid by taxpayers with heretofore undisclosed offshore accounts who "come clean" under the program:

--Back taxes due on newly disclosed assets for the last six years;
--Interest due on these back taxes for the last six years;
--A 20-percent accuracy-related under Code Sec. 6662 or a 25-percent delinquency penalty under Code Sec. 6651 for each tax year at issue; and
Looking to the past six years, a 20-percent penalty on the total balance of all the taxpayer's foreign bank accounts or assets during the year among the past six in which the accounts had their highest aggregate value.
CCH Comment. This latter penalty is reduced to 5 percent for passive investors in certain transactions.

While Shulman observed that the penalties demanded under the program are not insubstantial, he pointed to several advantages to participating taxpayers regarding what the IRS will not do:

--The IRS will not pursue charges of criminal tax evasion against taxpayers who voluntarily disclose their offshore assets under this new policy; and
--The IRS will not pursue other penalties against participating taxpayers, such as the Code Sec. 6663 fraud penalties (75-percent of the unpaid tax) or the statutory penalty for willful failure to file a TD F 90-22.1, Report of Foreign Bank and Financial Accounts Report, (FBAR) (the greater of $100,000 or 50-percent of the foreign account balance) that both annually apply to undisclosed accounts and assets during the relevant tax years.

Shulman also touted the advantage to offshore account holders of "getting the matter behind them" and giving them certainty as to their tax liability.
In a follow-up comment, an IRS spokesman emphasized that "it is too late for any taxpayer who is under criminal investigation to make a voluntary disclosure. The IRS cannot discuss specific situations, but the voluntary disclosure process does not apply when the IRS has information related to a specific taxpayer from a criminal enforcement action."

CCH Comment. The issue apparently remains unclear as to whether taxpayers recently disclosed by the Swiss Bank, UBS, as holding undisclosed bank accounts in Switzerland may successfully participate in this initiative. The IRS provided reporters during the March 26 briefing a copy of Section 9.5.11.9 of the Internal Revenue Manual that holds taxpayers to have timely participated in the voluntary disclosure program if they disclose before the IRS has initiated a civil or criminal examination or notified the taxpayer of such an investigation. Their failure to disclose their accounts/assets before the IRS received notice under the UBS deferred prosecution agreement may, therefore, be irrelevant.

03-25-2009 - Be careful when borrowing tax refund amount upfront

BY PATRICIA KITCHEN | patricia.kitchen@newsday.com

Getting back what the government owes you in a day or two may sound appealing, especially this year when money is tight and consumers are strapped.

But, if you're thinking of getting a tax refund loan - in which you borrow the amount of your tax refund upfront - you'll want to ask plenty of questions about how much it will truly cost in fees.

"Even under the best of circumstance this is expensive credit for such a short period of time," said Jean Ann Fox, director of financial services for the Consumer Federation of America, which together with the National Consumer Law Center prepares reports on refund anticipation loans and services.

A seven-to-14-day loan for $3,000 can cost $62 to $110 in fees, according to this year's report, "Big Business, Big Bucks: Quickie Tax Loans Generate Profits for Banks and Tax Preparers While Putting Low-Income Taxpayers at Risk."

Yet, filing the return electronically and having the IRS deposit it directly to your bank account can get you your return in about 10 days at no extra charge, Fox said.

Cary Carbonaro, a certified financial planner in Huntington Village, said she could see the need for access to quick cash back when it took six to eight weeks to get a refund.

But now, she said she would advise taking out such a loan only in "life or death situations" or "if you have no money and need to feed your kids."

Otherwise, "I don't see any reason to do it - ever."

Of course, some tax preparers "don't always make clear" how quickly the IRS is processing electronically filed returns, said Chi Chi Wu, staff attorney with the National Consumer Law Center.

She pointed to shopper research that found only one in 17 preparers telling the customer they could get a return in eight to 15 days by e-filing.

In 2007, 8.7 million American taxpayers forked over about $833 million in tax refund loan fees, according to the report.

Some also paid more than $68 million in related "add on fees" called "application," "administrative," "e-filing," "service bureau," "transmission," or "processing" fees, which can cost from $25 to several hundred dollars.

Not all tax preparers charge such add on fees, Wu said, so it's wise to comparison shop ahead of time if you must go the tax refund loan route.

s C03-32-2009 - Net Operating Losarryback Guidance Provided for Eligible Small Businesses

The IRS announced that small businesses with deductions exceeding their income in can use a new net operating loss (NOL) tax provision to get a refund of taxes paid in prior years. The IRS has updated the instructions for Form 1045, Application for Tentative Refund, and 1139, Corporation Application for Tentative Refund, so that eligible small businesses can make use of the special carryback provision under Code Sec. 172(b)(1)(H) for 2008. The new provision, enacted as part of the American Recovery and Reinvestment Act of 2009 (P.L. 111-5), enables small businesses with a net operating loss in 2008 to elect to offset this loss against income earned in up to five prior years. Some taxpayers must make the election to use this special carryback by April 17, 2009.

CCH Comment. With the economic downturn and the new law, the IRS expects record numbers of small businesses to be eligible for the refunds. The IRS is putting in special steps to ensure timely processing of these refunds to help small businesses during this period.


CCH Comment. The IRS has clarified that the $15 million in gross receipts test is to be applied over the three-year tax period ending with the tax year of the NOL. Although this is consistent with the CCH's interpretation of the rule in CCH'sAmerican Recovery and Reinvestment Act of 2009: Law, Explanation and Analysis, there was confusion regarding the application of the test, which is based on the gross receipts test in Code Sec. 448(c). In particular, some interpreted the test to be applied over the three-year tax period preceding the NOL year. Including the NOL year as one of the test years could allow more taxpayers to meet the requirements for the expanded NOL period because a loss year arguably means a taxpayer will have lower gross receipts for the year.

For small businesses that use a fiscal year, this special carryback may be used for an NOL in either a tax year that ends in 2008 or a tax year that begins in 2008. Once a taxpayer makes this election, it may not be changed.
To qualify for the new five-year carryback provision, a small business must have no greater than an average of $15 million in gross receipts over a three-year period ending with the tax year of the NOL. If a small business previously elected to waive the carryback of 2008 NOL but now wants to elect this special carryback, the small business may revoke its previous election to waive the carryback. The election revocation must be made on or before April 17, 2009. Form 1045 or Form 1139, whichever the taxpayer uses, generally must be filed within one year after the end of the tax year of the NOL. Further, the current year's tax return must be filed by the date the Form 1045 or Form 1139 is filed. Form 1045 and Form 1139 are filed at the same place the taxpayer's return is filed, as listed on the return instructions.

In addition, Frequently Asked Questions (FAQs) have been posted on the IRS.gov website. Small businesses that file Form 1040 can also call 1-800-829-1040 with NOL questions. Corporations can contact 1-800-829-4933 with NOL questions.

Rev. Proc. 2009-19, 2009FED ¶46,292

IR-2009-26,

2009FED ¶46,293

Other References
Code Sec. 172

03-20-2009 ID thieves targeting tax returns

WBBH-TV
updated 7:12 a.m. MT, Sat., March. 14, 2009

LEE COUNTY: Identity thieves are now targeting tax returns to make money at your expense. In fact, the problem has become so bad, the Internal Revenue Service opened a special office to handle identity theft cases.

Like millions of Americans, Dan Jacobs filed his tax return with a tax preparer, but instead of getting his money from the IRS, he got a phone call.

"We had been rejected by the IRS. My social security number had already been used by another individual," said Jacobs.

Someone had stolen Jacobs' social security number, gotten a job, and filed a tax return using his identity.

"You hear about it all the time, but until it hits you, it hits home. You wonder, you get scared, upset," said Jacobs.

Shalimar Price of the IRS says the problem has become so widespread, the agency has opened a special identity theft unit.

In fact, the Federal Trade Commission just issued a new report showing identity theft went up 20-percent from 2007 to 2008.

"We see now when they file their tax returns, they may see their tax return has already been filed. That happens, and so people come into our office," said Price.

The IRS has issued an alert telling people if you get a letter from the IRS saying a tax return has already been filed for you - pay attention, chances are its legit.

"Any type of correspondence from the IRS if you question it-- contact us. Come in, call. If you get an email - we don't email you," said Price.

Another sign you may be the target of identity theft is an IRS letter indicating you received wages from an employer unknown to you.

The IRS says the best way to avoid identity theft in the first place is to protect your personal information, especially things like W-2s.

"You want to make sure information such as your tax return is safe. Don't leave it in your car. You want to make sure it's safe," said Price.

"It was disturbing," said Jacobs.

Jacobs filed a police report and notified credit agencies, things the IRS tells you to do, but says he still doesn't have his identity back.

"Frustrating. Extremely frustrating," said Jacobs.

He wants others to know it can happen to you, too.

You can reach the IRS Identity Theft Hotline at 1-800-908-4490 or the Federal Trade Commission at 877-ID-THEFT.

Baucus Outlines Offshore Tax Haven Legislation

Senate Finance Committee Chairman Max Baucus, D-Mont., on March 12 began circulating among the IRS, the Financial Crimes Enforcement Network (FinCEN) and the business community a preliminary draft of legislation aimed at curbing offshore tax evasion. Baucus intends to introduce a final bill within weeks and has scheduled a hearing on the subject for March 17.

Baucus outlined a three-pronged approach to the problem that would detect, deter and discourage offshore tax evasion by giving the IRS increased time and tools to spot and shut down offshore noncompliance, requiring certain reports to be filed with tax returns, increasing penalties and closing a loophole that results in employers in offshore tax havens avoiding payment of Social Security taxes on workers.

The information reporting would require entities transferring funds offshore, other than on behalf of publicly traded companies, to report to the IRS the amount and destination of funds transferred. In order to give the IRS more time to detect and examine offshore activity, the measure would extend the statute of limitations from three years to six years for tax returns that reported, or should have reported, certain international transactions. The bill would also require the Foreign Bank Account Reports (FBAR) form to be filed with the income tax return. Currently, the FBAR is filed only with the Treasury’s FinCEN. In addition, it requires preparers to ask a series of due diligence questions to determine whether an FBAR should be filed. This is similar to the existing earned income tax credit due diligence regime.

Deterrence also comes through provisions that would: (1) enhance the foreign trust “failure to file” penalty by establishing a $10,000 minimum penalty, (2) expand the types of property considered to be a distribution, such as artwork and jewelry, and (3) double applicable fines and penalties on tax underpayments attributable to certain offshore transactions Companies would also be discouraged from establishing offshore entities through modification of a provision in the Heroes Earnings Assistance and Relief Tax Act of 2008 (P.L.110-245) and requiring offshore entities that hire workers to perform services pursuant to a government contract to treat those workers as American employees subject to Social Security tax.

Believe me, as a Trader you DON’T want to do your own taxes!

Every year at this time, many Americans sit down with a strong cup of coffee, a yellow No. 2 pencil and a legal pad and try to make sense of that giant jigsaw puzzle known as the federal income tax return.

Tax time is a little like the anti-holidays, where tax forms with forgettable names and numbers suddenly replace those visions of sugar plums that were dancing in our heads just a few weeks ago.

Below are some of the significant tax forms in a typical trader’s federal tax return. We suggest that you look at them, become familiar with what they do – and then forget them.

Why? Because you’re a trader, not an accountant.

You can’t read the results of your blood test, can you? Or diagnose engine trouble? Or figure out what the heck dry cleaning is, right?

So why would you attempt to do your own taxes – or let just any accountant attempt to, given the unique rules and regulation that govern trader taxation?

That’s our job. As traders and accountants, Traders Accounting’s tax professionals specialize in helping you prepare an audit-proof tax return that trims your taxes to the absolute minimum.

What’s more, our tax experts keep on saving you money by staying current on every tax law change – especially those that could pose a threat to your trader tax status or offer opportunities for even greater tax savings.

Here are the trader’s most important tax forms. Call Traders Accounting today to keep them from dancing in your head!

Mark-to-Market Statement of Intent

For most traders, switching to the mark-to-market (MTM) accounting method is the single most tax-efficient move they will ever make.

Why? Because it changes the tax status of your earnings from capital gains/losses to ordinary income/losses, thereby avoiding the $3,000 capital loss limitation and the wash sale rule.

To elect mark-to-market, you must enclose a statement of intent with your tax return (or extension request) by April 15th the year prior to beginning MTM. That means that to use MTM on this year’s return, you would have to have elected it April 15th of last year.

The IRS makes one exception: If you file as a new business entity (partnership, limited liability company or C corporation), you have two months from opening to note your accounting preference in your meeting minutes. You need not notify the IRS until you file Form 3115 (below).

Form 3115: Application for Change in Accounting Methods

Your first year using MTM, you must submit IRS Form 3115 (Application for Change in Accounting Methods) with your tax return. This form contains a one-time adjustment, Section 481(a), which captures duplications and omissions resulting from the change in accounting methods.

If the adjustment is $25,000 or less, you may deduct the full amount on your return; if it exceeds $25,000, you may deduct 25% each year for the next four years.

Schedule C: Profit or Loss from Business

If you file as a sole proprietor and do not elect mark-to-market accounting, you will report your expenses on Schedule C (Profit or Loss from Business) and your trades on Schedule D (Capital Gains and Losses), a disconnect the IRS considers suspect.

One way to avoid flagging the taxman is to trade under a formal business entity (limited partnership, LLC or C corporation). Tax treatment of business entities is both more favorable and more predictable than that afforded sole proprietors.

Schedule D: Capital Gains and Losses

Traders in stocks, options and single-stock futures who do not elect mark-to-market accounting must report their trading activity on Schedule D (Capital Gains and Losses).

Schedule D contains two parts: short-term capital gains/losses for holdings of less than one year, and long-term capital gains/losses for holdings of more than one year. This also is the form on which wash sale adjustments are recorded.

Because trading frequently involves the buying and selling of unequal shares, calculations of gain or loss must be broken down into the smallest number of shares on either the buy or sell side. This can be a time-consuming and tedious process.

If you’re an active trader, filling out Schedule D can be an arduous task without the assistance of an experienced trader tax professional. Traders Accounting can help simplify your record keeping and streamline your Schedule D preparation.

Form 6781: Gains and Losses from Section 1256 Contracts and Straddles

If you trade in commodities – including such Section 1256 contracts as futures, foreign exchange and nonequity options – you must report your trading activity on Form 6781 (Gains and Losses from Section 1256 Contracts and Straddles). You enter the gross amount of your Section 1256 proceeds from your 1099 on Part 1, Line 2 (Net Gain or Loss) of Section 1 (Contracts Marked to Market).

The IRS generously allows commodities traders to split their Schedule D gains and losses, 60% long-term and 40% short-term. This is such an attractive deal that many commodities traders choose not to elect mark-to-market accounting, thereby retaining their profitable 60/40 split on gains. An added plus: losses on Form 6781 may be carried back three years against gains.

Form 4797: Sales of Business Property

Traders in stocks, options and single-stock futures who elect mark-to-market accounting report their trading activity on Form 4797 (Sales of Business Property (Also Involuntary Conversions and Recapture Amounts Under Sections 179 and 280F(b)(2)).

Under the mark-to-market accounting method, all securities that you hold at the end of the year are treated as if they were sold and repurchased on the last day of the year; they are “marked to market” for tax purposes. All trading activity should be entered under Section II of Form 4797 (Ordinary Gains and Losses).

Note: long-term investments that are not part of your trading business should be entered on Schedule D and not marked to market on Form 4797.

Form 4868: Application for Automatic Extension of Time

Tax time can be confusing, especially for beginners. Which brings us to Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return).

When filed by April 15, the extension automatically moves your tax deadline forward three months to Aug. 15. If needed, you can then file a second extension, to Oct. 15, giving you a full six months to file.

However, the second extension is not automatic, and won’t be official until you receive the form marked “granted” back from the IRS.

And beware: An extension only buys you time to file, not pay. If you don’t remit more than 90% of your estimated tax due by the original April 15 deadline, your extension will be deemed invalid.

Don’t suffer through another tax season alone. Get Traders Accounting on your team today. As both traders and accountants, we can help design a tax-effective trading plan that is right for you. It’s a gift that will keep on giving for years to come.

Text of H.R. 1068: To amend the Internal Revenue Code of 1986 to impose a tax on certain securities transactions

111th CONGRESS

1st Session

H. R. 1068

To amend the Internal Revenue Code of 1986 to impose a tax on certain securities transactions to the extent required to recoup the net cost of the Troubled Asset Relief Program.

IN THE HOUSE OF REPRESENTATIVES

February 13, 2009

Mr. DEFAZIO (for himself, Mr. WELCH, Ms. SUTTON, Mr. CAPUANO, Mr. WU, Mr. STARK, Ms. DELAURO, and Ms. EDWARDS of Maryland) introduced the following bill; which was referred to the Committee on Ways and Means

---

A BILL

To amend the Internal Revenue Code of 1986 to impose a tax on certain securities transactions to the extent required to recoup the net cost of the Troubled Asset Relief Program.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the ‘Let Wall Street Pay for Wall Street’s Bailout Act of 2009’.

SEC. 2. FINDINGS.

Congress finds the following:

(1) The Bush Administration allocated the first $350 billion of TARP funds in a manner that has outraged the Nation by failing to provide the most basic oversight of the funds.

(2) Congress has declined to block the remaining $350 billion of TARP funds despite the lack of oversight and the record fiscal year 2009 budget deficit estimated at $1.2 trillion.

(3) The Board of Governors of the Federal Reserve System has committed more than a trillion dollars to stabilize the economy by bailing out various banks deemed ‘too big to fail’.

(4) The $700 billion TARP fund and the new Federal Reserve lending facilities were created to protect Wall Street investors; therefore, the same Wall Street investors should pay for this infusion of taxpayer money.

(5) The easiest method to raise the money from Wall Street is a securities transfer tax, a tax that has a negligible impact on the average investor.

(6) This transfer tax would be on the sale and purchase of financial instruments such as stock, options, and futures. A quarter percent (0.25 percent) tax on financial transactions could raise approximately $150 billion a year.

(7) The United States had a transfer tax from 1914 to 1966. The Revenue Act of 1914 (Act of Oct. 22, 1914 (ch. 331, 38 Stat. 745)) levied a 0.2 percent tax on all sales or transfers of stock. In 1932, Congress more than doubled the tax to help overcome the budgetary challenges during the Great Depression.

(8) All revenue generated by this transfer tax should be deposited in the general fund of the Treasury of the United States, scaled to meet the net cost of these bailouts, and phase out when the cost of the bailouts are repaid.

SEC. 3. RECOUPMENT OF DEFICIT ARISING FROM FEDERAL BAILOUT.

(a) In General- Chapter 36 of the Internal Revenue Code of 1986 is amended by inserting after subchapter B the following new subchapter:

‘Subchapter C--Tax on Securities Transactions

‘Sec. 4475. Tax on securities transactions.

‘SEC. 4475. TAX ON SECURITIES TRANSACTIONS.

‘(a) Imposition of Tax- There is hereby imposed a tax on each covered securities transaction an amount equal to the applicable percentage of the value of the security involved in such transaction.

‘(b) By Whom Paid- The tax imposed by this section shall be paid by the trading facility on which the transaction occurs.

‘(c) Applicable Percentage- For purposes of this section--

‘(1) IN GENERAL- The term ‘applicable percentage’ means the lesser of--

‘(A) the specified percentage, or

‘(B) 0.25 percent.

‘(2) SPECIFIED PERCENTAGE-

‘(A) IN GENERAL- The term ‘specified percentage’ means, with respect to any taxable year beginning in a calendar year, the percentage that the Secretary estimates would result in the aggregate revenue to the Treasury under this section for such taxable year and all prior taxable years to equal the Secretary’s estimate of the net cost (if any) to the Federal Government of--

‘(i) carrying out the Troubled Asset Relief Program established under title 1 of the Emergency Economic Stabilization Act of 2008, and

‘(ii) the exercise of authority by the Board of Governors of the Federal Reserve System under the third undesignated paragraph of section 13 of the Federal Reserve Act (12 U.S.C. 343).

‘(B) DETERMINATION OF PERCENTAGE- Such percentage shall be determined by the Secretary not later than 30 days after the date of the enactment of this section, and redetermined for taxable years beginning in each calendar year thereafter. Such percentage shall take into account the Secretary’s most recent estimation of such net cost. Any specified percentage determined under this paragraph which is not a multiple of 1/100th of a percentage point shall be rounded to the nearest 1/100th of a percentage point.

‘(d) Covered Securities Transaction- The term ‘covered securities transaction’ means--

‘(1) any transaction to which subsection (b), (c), or (d) of section 31 of the Securities Exchange Act of 1934 applies, and

‘(2) any transaction subject to the exclusive jurisdiction of the Commodity Futures Trading Commission.

‘(e) Administration- The Secretary shall carry out this section in consultation with the Securities and Exchange Commission and the Commodity Futures Trading Commission.’.

(b) Clerical Amendment- The table of subchapters for chapter 36 of such Code is amended by inserting after the item relating to subchapter B the following new item:

‘subchapter c. tax on securities transactions’.

(c) Effective Date- The amendments made by this section shall apply to sales occurring more than 30 days after the date of the enactment of this Act.

Believe me, you DON’T want to do your own taxes!

Jim Crimmins on why his trader/accountants are your best bet

Every year at this time, many Americans sit down with a strong cup of coffee, a yellow No. 2 pencil and a legal pad and try to make sense of that giant jigsaw puzzle known as the federal income tax return.

Tax time is a little like the anti-holidays, where tax forms with forgettable names and numbers suddenly replace those visions of sugar plums that were dancing in our heads just a few weeks ago.

Below are some of the significant tax forms in a typical trader’s federal tax return. We suggest that you look at them, become familiar with what they do – and then forget them.

Why? Because you’re a trader, not an accountant.

You can’t read the results of your blood test, can you? Or diagnose engine trouble? Or figure out what the heck dry cleaning is, right?

So why would you attempt to do your own taxes – or let just any accountant attempt to, given the unique rules and regulation that govern trader taxation?

That’s our job. As traders and accountants, Traders Accounting’s tax professionals specialize in helping you prepare an audit-proof tax return that trims your taxes to the absolute minimum.

What’s more, our tax experts keep on saving you money by staying current on every tax law change – especially those that could pose a threat to your trader tax status or offer opportunities for even greater tax savings.

Here are the trader’s most important tax forms. Call Traders Accounting today to keep them from dancing in your head!

Mark-to-Market Statement of Intent

For most traders, switching to the mark-to-market (MTM) accounting method is the single most tax-efficient move they will ever make.

Why? Because it changes the tax status of your earnings from capital gains/losses to ordinary income/losses, thereby avoiding the $3,000 capital loss limitation and the wash sale rule.

To elect mark-to-market, you must enclose a statement of intent with your tax return (or extension request) by April 15th the year prior to beginning MTM. That means that to use MTM on this year’s return, you would have to have elected it April 15th of last year.

The IRS makes one exception: If you file as a new business entity (partnership, limited liability company or C corporation), you have two months from opening to note your accounting preference in your meeting minutes. You need not notify the IRS until you file Form 3115 (below).

Form 3115: Application for Change in Accounting Methods

Your first year using MTM, you must submit IRS Form 3115 (Application for Change in Accounting Methods) with your tax return. This form contains a one-time adjustment, Section 481(a), which captures duplications and omissions resulting from the change in accounting methods.

If the adjustment is $25,000 or less, you may deduct the full amount on your return; if it exceeds $25,000, you may deduct 25% each year for the next four years.

Schedule C: Profit or Loss from Business

If you file as a sole proprietor and do not elect mark-to-market accounting, you will report your expenses on Schedule C (Profit or Loss from Business) and your trades on Schedule D (Capital Gains and Losses), a disconnect the IRS considers suspect.

One way to avoid flagging the taxman is to trade under a formal business entity (limited partnership, LLC or C corporation). Tax treatment of business entities is both more favorable and more predictable than that afforded sole proprietors.

Schedule D: Capital Gains and Losses

Traders in stocks, options and single-stock futures who do not elect mark-to-market accounting must report their trading activity on Schedule D (Capital Gains and Losses).

Schedule D contains two parts: short-term capital gains/losses for holdings of less than one year, and long-term capital gains/losses for holdings of more than one year. This also is the form on which wash sale adjustments are recorded.

Because trading frequently involves the buying and selling of unequal shares, calculations of gain or loss must be broken down into the smallest number of shares on either the buy or sell side. This can be a time-consuming and tedious process.

If you’re an active trader, filling out Schedule D can be an arduous task without the assistance of an experienced trader tax professional. Traders Accounting can help simplify your record keeping and streamline your Schedule D preparation.

Form 6781: Gains and Losses from Section 1256 Contracts and Straddles

If you trade in commodities – including such Section 1256 contracts as futures, foreign exchange and nonequity options – you must report your trading activity on Form 6781 (Gains and Losses from Section 1256 Contracts and Straddles). You enter the gross amount of your Section 1256 proceeds from your 1099 on Part 1, Line 2 (Net Gain or Loss) of Section 1 (Contracts Marked to Market).

The IRS generously allows commodities traders to split their Schedule D gains and losses, 60% long-term and 40% short-term. This is such an attractive deal that many commodities traders choose not to elect mark-to-market accounting, thereby retaining their profitable 60/40 split on gains. An added plus: losses on Form 6781 may be carried back three years against gains.

Form 4797: Sales of Business Property

Traders in stocks, options and single-stock futures who elect mark-to-market accounting report their trading activity on Form 4797 (Sales of Business Property (Also Involuntary Conversions and Recapture Amounts Under Sections 179 and 280F(b)(2)).

Under the mark-to-market accounting method, all securities that you hold at the end of the year are treated as if they were sold and repurchased on the last day of the year; they are “marked to market” for tax purposes. All trading activity should be entered under Section II of Form 4797 (Ordinary Gains and Losses).

Note: long-term investments that are not part of your trading business should be entered on Schedule D and not marked to market on Form 4797.

Form 4868: Application for Automatic Extension of Time

Tax time can be confusing, especially for beginners. Which brings us to Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return).

When filed by April 15, the extension automatically moves your tax deadline forward three months to Aug. 15. If needed, you can then file a second extension, to Oct. 15, giving you a full six months to file.

However, the second extension is not automatic, and won’t be official until you receive the form marked “granted” back from the IRS.

And beware: An extension only buys you time to file, not pay. If you don’t remit more than 90% of your estimated tax due by the original April 15 deadline, your extension will be deemed invalid.

Don’t suffer through another tax season alone. Get Traders Accounting on your team today. As both traders and accountants, we can help design a tax-effective trading plan that is right for you. It’s a gift that will keep on giving for years to come.

Cheers,

Jim Crimmins

Tax Evaders Refuse to Recognize New Charges

CONCORD, N.H. — A couple convicted of tax evasion said Thursday that the federal government has no right to bring 11 new charges against them, including gun violations and obstruction of justice.

Ed and Elaine Brown and at least four co-conspirators stockpiled explosives and firearms at the couple's home for possible use against law enforcement, according to the indictment.

Officials entered not guilty pleas on the Browns' behalf at a hearing Thursday in U.S. District Court in Concord.

They were convicted in January 2007 of failing to pay taxes on $1.9 million of income over eight years. The couple claims the federal income tax is not legitimate. Their argument — repeatedly rejected by courts — is that no law authorizes the federal income tax and that the 1913 constitutional amendment permitting it was never properly ratified.

The Browns fled to their Plainfield home before the trial ended, and Ed Brown threatened to kill any officers who attempted to arrest them. U.S. marshals posing as supporters apprehended them in October 2007. The new charges stem from that incident.

They appeared separately Thursday, shackled at the ankles. Elaine Brown, who was arraigned first, said she would not attend the new trial. Her husband said the couple lived under a different form of law.

"I thought today was here to release us," he said, adding that authorities have kept him in solitary confinement for more than a year. "I have not been able to find out anything about anything."

U.S. Marshal Stephen Monier and U.S. Attorney Tom Colantuono declined to comment on Brown's accusation. Monier added that authorities would grant the couple a brief meeting in a holding cell after the hearing — the couple's first time together since October 2007.

The Browns say they will represent themselves, but Judge James Muirhead appointed standby lawyers for the couple. Those attorneys — Bjorn Lange and Michael Iacopino — declined to comment.

The couple also waived their right to bail hearings.

Judge George Singal of Maine will preside over the trial scheduled for April 13. Federal judges in New Hampshire recused themselves after the Browns threatened to harm New Hampshire Judge Steven McAuliffe in 2007. Both McAuliffe and Judge Paul Barbadaro said they would be worried that their impartiality would be questioned because of the threats.

The Brown's home — now under the control of federal authorities — became a rallying place for the couple's anti-government, anti-tax supporters in 2007, some of whom pledged to use violence to defend them. Four have since been convicted and sent to prison.

The Browns, both in their late 60s, are currently serving five-year prison sentences.

Four supporters of the Browns have been sent to prison for helping the couple resist efforts to arrest. Some of the explosive devices prosecutors say were seized from the Browns' property included nine homemade antipersonnel mines intended to fire shotgun shells from trees when approaching marshals hit tripwires.

(Source)

If you ever needed a reason to sit down and do some tax planning, the new $787 billion fiscal stimulus bill -- includin

SAN FRANCISCO (MarketWatch)

From an earlier-than-usual red flag on who might fall into the alternative minimum tax this year to a new question on paycheck withholding, the final bill, expected to be signed into law by President Obama early next week, should prompt taxpayers to consider how best to lower their tax bill in the year ahead.

Of course, there are some straight-up tax breaks that don't necessarily require much tax planning per se.

Unemployed people will find their first $2,400 of benefits is untaxed, and they may qualify for reduced health-insurance premiums through their former employer's group plan, or Cobra.
There's the $8,000 tax credit for first-time home buyers who buy between Jan. 1 and Dec. 1, 2009 -- this credit doesn't have to be paid back, unlike the $7,500 perk available in 2008.
But there is one aspect of the home-purchase credit that could require planning: You can claim the credit on your 2008 taxes, even if you bought the house in 2009, according to Mark Luscombe, a principal analyst with CCH Inc., a Riverwoods, Ill., tax publisher and unit of Wolters Kluwer.

"There may need to be a little IRS instruction in that regard because the [2008] forms and instructions probably don't at present contemplate an $8,000 credit," he said. "But it is fairly clear that making that election will not change the 2009 purchase to a 2008 purchase." The home-buyer credit starts to phase out for taxpayers with adjusted gross income above $75,000 for single filers and $150,000 for joint filers, according to CCH.
Then, there's the above-the-line deduction for sales tax paid to buy a new car in 2009. You can only deduct the tax on the purchase price up to $49,500. Luscombe warns that taxpayers shouldn't take both this deduction and the itemized deduction for state sales tax. This deduction on a car purchase phases out at AGI of $125,000 for single files and $250,000 for joint returns. According to CCH, the new-car credit is only for vehicles bought on or after the law's effective date.

AMT relief

Thanks to the stimulus bill, taxpayers now know the precise alternative-minimum tax exemption amounts earlier than usual. For the past few years, Congress has waited until year's end to pass the "patch" that prevents more taxpayers falling into this parallel tax system. The exemption reduces the amount of income taxed at the AMT rate.

Knowing the 2009 exemption amounts now -- $70,950 for joint filers and $46,700 for single and head-of-household filers -- gives taxpayers more time to run scenarios to see where their tax bill is likely to fall, and figure out how to lower that bill. (Absent a patch this year, those figures would have gone back down to just $45,000 for couples filing jointly and $33,750 for individuals, according to CCH.)

"This expected bit of tax help probably won't have a very stimulative effect, but it will lessen uncertainty and help people plan their tax moves earlier in the year," Luscombe said.
"As a result of the AMT exemption amounts going up, fewer people should be subject to the AMT," said Greg Rosica, tax partner at Ernst & Young LLP, in a conference call with reporters Friday.

Credit for workers

Those taxpayers eligible for the "make work pay" credit -- up to $400 for single workers and $800 for couples -- may want to assess their withholding before this credit starts showing up in their paychecks.
The credit, available in 2009 and 2010, was trimmed to $400 per worker per year, from a draft stimulus bill's $500 payout.

The credit begins to phase out for single filers with adjusted gross income of $75,000 and married-filing-joint filers with AGI of $150,000. The credit isn't available to taxpayers with AGI topping $95,000 for single filers and $190,000 for joint filers, according to CCH.
It's still uncertain exactly how the credit will be paid out. While some tax experts say employers will automatically adjust workers' paychecks, others say that's not so.
"There's supposed to be a choice between having it as a credit on your tax return or having it deducted from your payroll taxes," Luscombe said. "I would think the employee would have to make some input on that regard, rather than having the employer automatically start the deduction. Some people have suggested maybe a revised W-4 would have to be submitted [to] reflect the employee's choice."
That means workers will need to decide whether they want the money in their paycheck or as a tax refund later. Given the variability of individual's tax situations, some taxpayers could find the credit leads to a larger-than-expected refund come tax time in April 2010 -- or a bill for money owed (if, say, a couple's overall income picture means they're not eligible for a credit but a spouse received one anyway).

Meanwhile, some fixed-income people -- including those who receive Social Security, railroad retirement benefits and veterans' benefits -- will get a one-time $250 payment, a decrease from $300 in an earlier draft of the bill.

Child and education breaks

Got kids? If you're a lower-income taxpayer, you may benefit from the expanded child tax credit. This refundable credit, worth up to $1,000 per child, now starts kicking in on income of $3,000 and up, compared to current law of $8,500 and higher, according to CCH. Lower-income taxpayers also get the benefit of an expanded earned income tax credit.
Meanwhile, more higher-income taxpayers get access to the valuable Hope college-education credit, expanded to $2,500, up form $1,800 currently, and renamed under the stimulus bill to the American Opportunity Tax Credit.

"It's figured as 100% of eligible expenses to $2,000 plus 25% of expenses above $2,000, so someone with total eligible expenses of $4,000 or more would reach the maximum amount," according to a press release by CCH.

The credit phases out when adjusted gross income hits $80,000 for single filers or $160,000 for joint filers. That means more people are eligible: Under current law, the Hope credit phase-out in 2009 starts at $50,000 for single filers and $100,000 for married filers.

Breaks for the bus ride

Mass-transit commuters get a bigger benefit, too. Right now you can pay some of your commuting costs with pre-tax dollars -- if your employer offers this perk. The stimulus bill raises the maximum dollar amount eligible under this perk to $230 for transit passes and van pooling, up from $120, according to CCH. The change brings up the transit limit to match the $230 already allowed for parking costs.

Business breaks

The stimulus bill reduces the required estimated tax payments people in business must make for 2009. "It does not eliminate any of the tax you have to pay," Rosica said. "You're still responsible for your full tax bill come tax filing time for 2009, but it does allow more of a conservation of cash throughout the year."

And there are more perks for small businesses in the bill, including an extension of the current Section 179 expense and the bonus depreciation provisions.

That other stimulus bill in 2008 increased the Section 179 expense deduction to $250,000 from $128,000, and offered 50% bonus depreciation, allowing certain businesses to immediately write off one-half of the cost of a capital expense. This stimulus bill allows those perks in 2009 as well.
Small firms also benefit from the net operating loss carry-back provision, which allows them to use existing losses to offset taxes paid on profits in previous years. Already, firms could do that for the two most recent years, but the stimulus bill expands that to five years.
While early drafts of the stimulus plan offered that break to all companies, the final bill limits it to those with $15 million or less in gross revenue.

That's a big hit to bigger companies who were hoping to collect some quick cash to invest back into their firms, said Clint Stretch, managing principal of tax policy at Deloitte Tax.
And some say lawmakers might have missed a chance to stimulate greater business activity.
"Our best estimate is that taxpayers with less than $15 million of gross receipts are 98% of all corporations, but only 5% of taxable income, so Congress has covered most corporations, but not the ones who account for 95% of corporate tax activity," Stretch said in an email message Friday.

UBS admits helping tax evaders

Swiss banking giant agrees to pay $780 million and hand over account information after helping U.S. clients evade the IRS.

WASHINGTON (CNN) -- Switzerland's largest bank, UBS, has admitted helping U.S. taxpayers hide money from the IRS, and has agreed to pay $780 million in fines and restitution, and to turn over account information.

The deferred prosecution agreement was approved Wednesday by a federal court judge in Fort Lauderdale, Fla.

"UBS admitted to conspiring to defraud the United States by impeding the IRS," the Justice Department announced late Wednesday.

The statement says that UBS, "in an unprecedented move" based on an order by Swiss authorities, has agreed "to immediately provide the U.S. government with the identities of, and account information for, certain U.S. customers of UBS's cross-border business."

UBS (UBS) also has agreed to end its business practice of providing banking services to U.S. customers with undeclared accounts.

"Swiss bankers routinely traveled to the United States to market Swiss bank secrecy to United States clients interested in attempting to evade U.S. income taxes," the Justice Department said.

The government document says Swiss bankers made a total of about 3,800 trips to discuss their clients' accounts.

The government said that because the bank has acknowledged responsibility for its actions, has cooperated fully, and has taken remedial actions, the United States will recommend dismissal of the criminal charge "provided the bank fully carries out its obligations under the agreement."

Two former UBS bankers have pleaded guilty to charges of conspiracy for similar conduct.

The acting head of the Justice Department Tax Division called Wednesday's agreement "but one milestone" in the effort to make sure U.S. citizens pay their fair share of taxes.

"The veil of secrecy has been pulled aside, and we will continue to aggressively pursue those who shirk their federal tax obligations, or assist others in doing so," said John DiCicco, acting assistant attorney general for the Justice Department Tax Division.

IRS Commissioner Doug Shulman issued a warning to the taxpayers who held the accounts, telling them to voluntarily pay up.

Shulman said the taxpayers should note that Wednesday's agreement also stipulates that the U.S. government will continue to seek enforcement of its court action.

"People who have hidden unreported income off shore need to get right with their government. They should come forward and take advantage of our voluntary disclosure process," Shulman said.

FACTBOX - Tax details of US stimulus plan

Feb 17 (Reuters) - The $787 billion U.S. economic stimulus package contains about $287 billion in tax cuts, according to the latest congressional calculations on the value of the package and its impact on U.S. budget deficits.

President Barack Obama signed the bill on Tuesday, saying he wants quick action to boost the struggling economy.

Here are some of the major tax provisions in the bill:

FOR WORKERS, CONSUMERS AND RETIREES

* A "making work pay" refundable tax credit championed by Obama of up to $400 per individual and $800 for couples in 2009 and 2010. It is calculated at a rate of 6.2 percent of earned income and is phased out for individuals with adjusted incomes over $75,000 and couples with incomes over $150,000.

* A one-time payment of $250 to Social Security beneficiaries, railroad retirees and veterans receiving benefits from the Department of Veterans Affairs. State government retirees not eligible for Social Security would also get the $250 payment.

* Increases the earned income tax credit for low-income workers with three or more children.

* Increases eligibility for the refundable child tax credit to more low-income workers. The bill reduces the income floor to $3,000 in 2009 and 2010 from the current floor of $8,500.

* A new $2,500 tax credit for college education expenses. The credit phases out for individuals earning more than $80,000 and couples with incomes over $160,000.

* An $8,000 tax credit for first-time home buyers for homes purchased between Jan. 1 and Dec. 1, 2009. The tax credit phases out for individuals earning more than $75,000 and couples earning more than $150,000.

* Temporary relief from the alternative minimum tax for millions of middle-class taxpayers who otherwise would be ensnared by the tax originally meant for the very wealthy.

FOR BUSINESSES

* Small businesses with gross receipts of up to $15 million can write off 2008 losses against five previous tax years. Current laws allows a two-year carryback of losses.

Businesses will also be allowed to immediately write off more of their investments in computers and other equipment.

* Businesses that repurchase debt at a lower amount than when it was issued will be able to defer taxes on it. Usually reduced or canceled debt is treated as income and taxed. The break applies to debt repurchased adjusted after Dec. 31, 2008, and before Jan. 1, 2011.

* A tax break on capital gains from the sale of stock held in a small business for more than five years.

* The bill raises about $7 billion in revenues by repealing a Treasury Department decision last year to liberalize rules that were intended to prevent companies in a merger from taking huge tax breaks on losses of firms they were acquiring.

FOR STATE AND LOCAL GOVERNMENTS

* Creates a new category of tax-preferred bonds for investment in economic recovery zones for job training, education and economic development.

* Creates a new category of tax-preferred bonds for the construction, and repair of public schools and the purchase of land for schools.

* Creates a federal subsidy for state and local governments offering bonds that give investors credits against their federal taxes in place of interest payments.

FOR RENEWABLE ENERGY

* Extends tax breaks for wind facilities and other renewable energy facilities and provides other tax incentives to encourage development of renewable energy facilities.

* Authorizes an additional $1.6 billion of new clean renewable energy bonds as well as $2.4 billion of energy conservation bonds to finance state and local government projects to reduce greenhouse gas emissions.

* Extends tax credits for energy-efficient improvements to existing homes.

* Provides a tax credit for purchase of "plug-in" electric vehicles of at least $2,500. The credit is increased depending on the battery capacity of the car purchased.

* Provides a new 30 percent investment tax credit for facilities engaged in producing renewable energy technology and conservation. (Editing by Peter Cooney and David Wiessler)

Is mark-to-market accounting right for you?

Jim Crimmins explains how the most popular tax accounting method doesn’t fit all!


One of the most important decisions you’ll make as a trader is whether to elect the mark-to-market (MTM) accounting method.

Although MTM is only available to traders, not investors, and does offer some significant tax advantages, it’s not right for everyone. (If you’re wondering if you qualify as a trader, check out my first post – the answer isn’t as clear-cut for the IRS as you may think.)

What makes this decision so important is that once you select MTM, you’re stuck with it – there is no going back simply because it would be to your advantage tax-wise to do so.

Here are some basics you need to know about mark-to-market: how it works, advantages and disadvantages, the process to elect it, and how to separate and exempt long-term investments

The MTM Method

Since 1997, mark-to-market accounting has enabled traders to change the tax status of their earnings from capital gains/losses to ordinary income/losses.

This occurs on the last day of the year, at which time you tally all of your open holdings as if you were selling them at the market price that day – in other words, they are “marked to market.”

Then, on New Year’s Day, you re-tally your holdings as if you were repurchasing them at the current price. The basis of each holding is then adjusted to reflect these hypothetical gains and losses for tax purposes.

There are numerous advantages to electing mark-to-market:

• No wash sales: MTM traders are exempt from the wash sale rule. Because holdings are tallied at year’s end, there is no need to account for gains or losses that might occur within the 30-day wash sale restrictions. Many traders elect MTM specifically to avoid cumbersome wash sale accounting.

• Favorable tax rate: Under MTM, income is taxed at a lower rate than capital gains. Losses are fully deductible: Because your profits/losses are treated as ordinary income and not capital gains/losses, you are not bound by the $3,000 capital loss limitation. This means you can deduct all losses in the year they occur, providing tax relief when you need it most.

• No change to self-employment exemption: Even though MTM income is not considered capital gains, traders who elect MTM remain exempt from self-employment tax, the same as investors and non-MTM traders.
  

Now let’s look at the disadvantages of mark-to-market:

• No capital loss carryover: Capital losses can only be offset by capital gains. If you are carrying forward a substantial capital loss, beware: by selecting MTM, your gains would be considered ordinary income moving forward; hence only $3,000 per year could be used to offset your capital loss.

• Loss of long-term capital gains: A trader who deals mainly with 1256 contracts may not want to elect MTM because they would lose the favorable 60% long-term capital gain on futures.

• Election is permanent: As an individual trader, once you’ve made the MTM election, you’re stuck with it. You can petition the IRS, but don’t expect leniency, especially if there is a tax advantage to you. One way you may be able to avoid the MTM “life sentence” is establishing a legal entity (general partnership, LLC, C corporation) and not electing MTM. Alternately, you might be able to dissolve the entity that is currently using MTM and form a new one.

How to elect MTM

To elect mark-to-market as your accounting method, you must enclose a statement of intent with your tax return or extension request and file by the tax deadline the year prior to beginning MTM accounting.

The one exception: if you file as a new legal entity, such as an LLC, you have two months from opening to note your accounting preference in your meeting minutes.

Your first year using MTM, you will fill out IRS Form 3115 (Application for Change in Accounting Methods) and submit it with your tax return. This form contains an adjustment, Section 481(a), which captures duplications and omissions resulting from the change in accounting methods.

If the adjustment is $25,000 or less, you may deduct the full amount on your return; if it exceeds $25,000, you may deduct 25% each year for the next four years.

How to exempt your investments from MTM

Before you elect mark-to-market, be sure to separate your investment holdings from your trading stocks and options. Why? Because unless they are clearly separated, you will be required to mark them to market at year’s end and report any gain as ordinary income. That could prove disastrous for stocks that have greatly increased in value over the years.

The IRS lets you exempt your personal investments from your trading business, but only if you identify those investments up front.

Like the MTM election itself, this designation is irrevocable – you cannot decide later to fold your investment losers into your trading stock for ordinary losses or cherry-pick your trading winners for capital gains treatment.

Under the IRS guidelines, you must clearly identify your investment stock as such in your records by the close of the day on which you acquired it or when the MTM election was made.

There are two ways to do this: you may establish a separate account for your investment stocks (the wisest course of action for MTM traders), or simply note in your records which securities are not part of your trading business.

Be prepared to convince the IRS that your investments have “no connection” to your trading business. Otherwise, you’ll be required to mark them to market at year’s end and report any gains as ordinary income.

Get Advice Before You Decide

Is the mark-to-market method right for you? Every trader faces different circumstances.

For some, MTM is the obvious solution to the time-consuming task of tracking wash sales. For others, the ability to fully deduct their losses in the year they occur can make a big difference starting out.

Oddly enough, traders who close their positions daily may not ever have to go through the MTM since there is typically nothing left at year’s end to reclassify.

If you find yourself carrying forward a capital loss or have other questions relating to mark-to-market accounting, be sure to consult one of our Traders Accounting tax professionals about your situation before you decide.

Cheers,

Jim Crimmins

10 Tips for Taxpayers Hit by the Recession

For many tax filers, this tax season may be unlike any other.

If you’ve lost your job, are searching for a new one or attempting to strike out on your own, your tax return may be affected. The same is true if you are collecting unemployment, lost your home in foreclosure or tapped your retirement accounts early.

These tough financial times, in fact, are raising so many, and so varied, tax-related questions that the Internal Revenue Service has set up a special section on its Web site addressing them: What if I lose my job? What if I can’t pay my taxes? What if my income declines?

The answers to these questions could change your usual strategy, which is why many of you need to take extra care when doing your taxes this year. And if there’s any silver lining to earning less money, it may be that you’re more likely to qualify for the many tax breaks that come with limits on how much you can earn to claim them.

Indeed, taxpayers who earned too much to collect the stimulus checks mailed out last year — but have watched their income decline or disappear altogether since then — may have a chance to collect the extra cash now.

When every dollar counts, you want to be sure to take advantage of all breaks available. Below are 10 tips for tax filers feeling the ill effects of the recession:

1. UNEMPLOYMENT The good news is that unemployment benefits were extended last year. The bad news is that those benefits are taxable. Your tax bracket is based on total income, including any money earned before you were laid off. “That catches a lot of people off guard,” said Mark Steber, vice president of tax resources at Jackson Hewitt. You should receive a 1099-G that will show what you received from unemployment and any tax you elected to have withheld. If you didn’t elect to withhold taxes, you may owe them now. Severance and pay for vacation or sick time is also taxable.

2. MORE DEDUCTIONS When you income drops, you’re more likely to qualify for certain tax breaks that phase out if you earn too much money. Tax professionals said that more people are qualifying for the Earned Income Tax Credit, which is aimed at working people and families with low incomes: a married couple filing jointly with two children and an adjusted gross income less than $41,646 in 2008 may be eligible for a maximum tax credit of $4,824. The credit is refundable, which means that even if you do not owe any taxes, you’ll receive the credit in the form of a check from Uncle Sam.

If you’re on the hunt for a new job, many of your costs may also be deductible, as long as you itemize your deductions instead of taking the standard deduction. Deductible expenses include résumé paper, printing, travel expenses, long-distance calls and faxes, postage, even meals and lodging expenses. But job expenses are considered a miscellaneous deduction, which means you can only deduct costs that exceed 2 percent of your adjusted gross income. Since other expenses can also be included in the miscellaneous bucket — from tax preparation fees to work uniforms — be sure you’re including them all, said George Jones, a senior tax analyst at CCH.

If you need to relocate for a new job, moving expenses are deductible for all taxpayers, as long as your new job is located at least 50 miles farther from your old residence than your old job was.

A smaller paycheck will also make it more likely to qualify for the medical deduction: Medical expenses, including health insurance costs, exceeding 7.5 percent of your adjusted gross income are deductible, as long you itemize.

And more taxpayers are also likely to qualify for the child tax credit, the additional child tax credit, as well as the Saver’s Credit, which allows some I.R.A. and 401(k) plan participants to reduce their tax bill by up to $1,000 — even though they’ve already received a tax benefit by excluding their contribution amount from their gross income. But to qualify, married couples filing jointly need to have adjusted gross income of $53,000 or less, according to CCH.

3. REBATE Remember the stimulus checks distributed last year in an attempt to jump-start the economy? If you earned too much to qualify, but your income dropped last year (or you had a child), you may still have a chance to claim it (or more of it). Here’s why: Since the government wanted to get the money into people’s hands quickly, eligibility was based on taxpayers’ 2007 tax returns. But taxpayers have the chance to claim the Recovery Rebate Credit — or a larger portion of it — based on their 2008 income if they didn’t receive the maximum amount.

Single taxpayers with incomes of less than $75,000 will get the full $600 credit, though people with incomes up to $87,000 will receive a reduced amount. Married taxpayers filing jointly with income up to $150,000 will qualify for the $1,200 check, though it phases out completely at $174,000, according to Mr. Jones. You can claim the rebate on line 70 of your 1040 tax return.

4. DISCHARGED DEBT Normally, if a portion of your mortgage debt is forgiven, the amount erased is considered taxable income. But Congress has temporarily lifted that rule for debts wiped out on your primary home. So if your lender restructured your loan and reduced the amount, or you had debt forgiven as part of a foreclosure, you will not owe taxes on that amount — up to $2 million, or $1 million for married people filing separately — as long as the debt reduction occurred from 2007 to 2012, according to Mr. Jones.

There are caveats. This only applies to debt used to purchase, build or improve your home. It does not apply to those who used cash from refinancing their mortgage to pay off credit card debt, for example. And it comes at a cost. When you sell your home, you may end up paying more in capital gains taxes. That’s because participating in this break will reduce the cost basis of your home by the amount of the debt forgiven.

If you’ve had other debts discharged, you may be exempt from paying taxes on the forgiven debt if you have declared bankruptcy or are insolvent (your total debts exceed assets), according to the I.R.S.

5. I.R.A. AND 401(K) WITHDRAWALS Taxpayers who tapped their I.R.A. (and did not repay it within 60 days) will owe income taxes. Those under age 59 ½ will also owe a 10 percent penalty. There are some cases where the penalty is waived. If, for instance, you used the money to pay for your medical insurance after you lost your job, according to the I.R.S., you would not pay a penalty. Participants in 401(k) plans are subject to similar rules, though withdrawals that are deemed qualifying hardships — like costs tied to foreclosure, eviction and education — are still subject to the penalty if made before age 59 ½. But you can take penalty-free withdrawals if you left your job the year you turned 55 or later.

Roth I.R.A.’s can be tapped without penalty, as long as you withdraw your own contributions and not investment earnings.

6. NEWLY SELF-EMPLOYED Many people who have lost their jobs are attempting to strike out on their own. Just “be aware you are now self-employed and there are whole series of new rules,” Mr. Steber said. Some of those rules are good — “There are a lot of deductions and benefits,” Mr. Steber said. And some are bad — “You owe self-employment taxes, including Medicare and Social Security, and you are responsible for both parts.” While most workers typically split this 15.3 percent combined tax with their employer, the self-employed must pay the entire amount. It’s also important to keep meticulous records of all expenses.

7. CAN’T PAY TAXES If you can’t afford to pay your taxes, you should still file your return on time and pay as much as you can to avoid penalties and interest, the I.R.S. said. But call the I.R.S. to see whether you can get an extension, a payment plan or other relief.

8. INVESTMENT LOSSES Most Americans are fortunate enough to still be employed, though their retirement accounts have been decimated. The upside, at least for eternal optimists is that investors can use their investment losses (in taxable accounts only) to offset an equal amount of gains. But if you don’t have any gains, or your losses exceed your gains, losses can be used to offset up to $3,000 of ordinary income (or $1,500 for married individuals filing separately). Remaining losses can be carried over to future years — indefinitely.

9. FILE ONLINE If you file your taxes electronically and chose to receive your refund via direct deposit, it could take as few as 10 days to receive the money. Filing on paper could take several weeks.

10. GET HELP If you’re entering uncharted territory, you may want to consult with a professional. And make sure your tax preparer knows all the facts pertinent to your changing circumstances. “Not telling them is not going to give you the best answer,” Mr. Steber said.

Source: NY Times
By TARA SIEGEL BERNARD