No Estate Tax, But 2010 Still May Not Be So Great for Heirs
No joke: The other day a financial planner told me about a client who asked if he could rework his father’s end-of-life advance directive to take into account the ever-changing estate tax. In other words, could he pull the plug on the old man if it looked like he was going to die before January 1, but keep him going if he lived into next year?
To his credit, the planner told his client to buzz off. But if this loving son thought he’d stand to cash in if his father died this year, he might be in for an unpleasant surprise. It is true that, thanks to Senate gridlock, the estate tax has been repealed for 2010. But that gift came accompanied by a lump of coal: Some heirs may find themselves owing lots more capital gains tax when they sell inherited assets.
Here’s the problem. Until this year, an heir could take advantage of what’s known as stepped-up basis on inherited property. In other words, capital gains taxes would be based on the value of an asset at the time the owner died, rather than what he originally paid for it. Say Uncle Harry bought some stock for $1,000. When Harry passed away and left his shares to his nephew Jack, they were worth $5,000. Under 2009 law, the basis of that stock would be stepped up to $5,000. Thus, if Jack sold the stock for $5,000, he’d owe no capital gains tax.
But as a trade-off for what lawmakers presumed would be a repealed estate tax, heirs this year face a very different set of rules, known as carry-over basis. Now, they will have to pay capital gains tax on the difference between their sale price and the asset’s value when the decedent acquired it. In other words, Jack would have a taxable gain of $4,000 and, at this year’s 15 percent capital gains rate, owe tax of $600. Plus, he’ll have the more-than-annoying chore of trying to figure out what Uncle Harry actually paid for his shares, especially if Harry reinvested dividends or the stock split over the years.
The actual rules are a bit more complicated. Executors have the right to step-up basis by as much as $1.3 million (plus another $3 million for a surviving spouse) and there are some other exceptions, but the general rule applies. Thus, some heirs will owe a lot more capital gains tax on property they inherit this year. Many, in fact, were better off in 2009, when they enjoyed a $3.5 million exemption from the estate tax plus got the benefit of stepped-up basis.
There are two important implications of this: The first is that while it is true that estates of billionaires such as George Steinbrenner could pass to heirs tax-free this year, those heirs may end up owing more capital gains taxes. Of course, nobody is worried much about the Steinbrenner heirs. But taxpayers who inherit small businesses, many of which have a very low basis, may be hit hardest by this.
Here’s what happens: Say Uncle Harry built his business with sweat equity. His company was worth $3 million when he died, but its tax basis was zero. Jack inherits the firm and sells it right away. If Harry died in 2009, there would be no tax (since Harry’s estate was worth less than $3.5 million it owed no estate tax, and thanks to stepped-up basis Jack owed no capital gains tax). But under 2010 rules, Jack would owe $255,000 ($3 million less the $1.3 million in allowed step-up leaves $1.7 million in gains taxed at 15 percent).
You may have heard some cryptic talk from Congress about allowing executors the option of using either 2009 or 2010 estate tax rules for those who die this year. Lawmakers have not been very clear about what that is all about. Now you know.
Unpaid Sales And Use Taxes In California Is A Serious Tax Problem
The Los Angeles Times ran an article on September 27, 2010 which discussed delinquent sales taxes in California owed to the State Board of Equalization.
The article said that the total of uncollected sales- and use-tax revenue — including unpaid penalties and interest — stood at $1.4 billion as of June 30, according to the Board of Equalization figures obtained by The Times. Much of that money was paid by consumers but not turned over to the state by retailers, although it also includes some transactions in which the debt is in dispute.
About a third of the largest defaults come from auto dealers and related businesses, according to a Times review of state records.
For help with your delinquent tax payments, call tax attorney Mitchell A. Port at 310.559.5259 to solve your tax problem.
Will Congress Miss Another Tax Deadline? AMT Patch Déjà Vu
The alternative minimum tax, America’s favorite stealth levy, threatens to hit 27 million taxpayers this year if Congress doesn’t patch it once again. Given legislators’ apparent determination to defer any action on tax issues until after the election, an AMT fix will likely come late in the year, if at all.
A quick review of history: when Congress passed the 2001 tax cuts, it increased the AMT exemption only through 2004, mostly to avoid the huge revenue loss a 10-year patch would have caused. Since then, Congress has enacted annual patches to protect unsuspecting taxpayers from the levy. And, despite rhetorical battles over whether Congress should “pay for” the patches with offsetting spending cuts or tax increases, lawmakers never approved any offsets. Nevertheless, Congress extended the “temporary” AMT fix each year, apparently more comfortable forgoing revenue in annual $70 billion bites rather than incurring a one-time charge many times larger.
Three years ago a dawdling Congress waited almost until Christmas before boosting the AMT exemption enough to spare more than 20 million Americans from the extra tax. That 11th-hour action forced the IRS to delay processing returns for as many as 13 million affected taxpayers while programmers implemented and tested the new parameters. It wasn’t until February 15 that the IRS said that taxpayers could “… now file tax returns that include … the Alternative Minimum Tax (AMT).”
The most recent AMT fix expired at the end of last year. As a result, 27 million taxpayers will owe the tax for 2010 unless Congress acts. But Congress once again seems paralyzed, driven this time by disagreement over how to handle the impending expiration of most of the 2001-2003 tax cuts. The result: a potential reprise of the 2007 mess. As long as Congress eventually approves the patch, few taxpayers will even notice the delay. But that’s no way to run a railroad—or a government.
The AMT is only one symptom of our dysfunctional approach to tax policy. We’ve been living with the temporary Bush-era income tax cuts for nearly a decade and no one yet knows their fate at the end of this year. Our ever-changing estate tax keeps (very wealthy) people awake nights while providing job security for estate planners.
Lawmakers can—and probably should—disagree about what tax policy America should pursue. But loading the tax code with temporary provisions and then leaving taxpayers and the IRS hanging while politicians squabble over what to do about them is the worst sort of legislative misbehavior.
How Not to Create New Jobs
It is a good thing the “Creating American Jobs and Ending Offshoring Act,” which died in the Senate today, was never supposed to pass. That’s because it would have neither created American jobs nor ended offshoring (a word that never should have become a verb).
The bill, sponsored by Senate Democrats, had three parts: It would have given employers a two-year payroll tax exemption for hiring Americans to replace foreigners who do the same work overseas. It would bar companies from taking a tax deduction for the cost of moving operations to an overseas start-up. And it would require firms to pay taxes immediately on income they earn from importing products they make overseas. Currently, they can defer their U.S. taxes by letting their foreign subsidiaries hang on to their profits.
I suppose the Senate’s debate today may serve some useful purpose as a show vote. Endangered Democrats can go home and argue that while they care deeply about American jobs, Republicans–who voted en masse to kill the bill–do not. But partisan politics aside, this is a classic example why Congress should not be allowed anywhere near tax policy during election season.
The payroll tax holiday is the silliest idea in this triptych of terrible tax policy. At their best, such schemes suffer from big design challenges. Unless their sponsors are very careful, firms can easily turn these laws into a tax windfall simply by employing someone they would have hired anyway. In its own broader proposal for a payroll tax holiday, the Obama Administration took a serious stab at curbing this problem. That plan, however, went nowhere in Congress.
The Senate bill made a half-hearted effort to prevent such abuses, but failed. The idea, I suppose, is that ABC Corp. would close its plant in Shanghai, lay off 200 Chinese, open a new plant in Sheboygan, bring in 50 Americans (since U.S. workers are more productive) and, for its trouble, get a two-year payroll tax holiday for those new hires. But in reality, multi-nationals are more likely to grab the tax break for the normal rotation of staff in and out of the U.S.
Besides, does anybody seriously expect firms to open and shut plants to take advantage of a modest two-year tax break?
And even if they did, how long do you think it would take for some subsidiary of the People’s Liberation Army to move into that abandoned Shanghai plant, restart production and under-price its Sheboygan competitor, thanks to dramatically lower wage rates and an artificially devalued currency that would dwarf the tax subsidy.
If Senate Democrats are truly worried about losing jobs overseas, they could rethink trade policy or even restructure the U.S. corporate tax code, which has evolved into a toxic combination of loopholes and high rates. But with this bill, it seems the only jobs they are seriously trying to protect are their own.
Revoking An Installment Agreement
The California Franchise Tax Board can revoke the installment agreement it has made with you and your business if:
New liabilities accrue.
Payments are dishonored.
A business entity repeatedly fails to make I/A payments.
Your business can enter an installment agreement if you cannot pay your total balance in 90 days due to a financial hardship. Under this program, you would agree to pay a specified amount on a specified day each month.
The requirements to meet when you request an installment agreement are:
You must file any delinquent tax returns.
You may need to complete a financial condition form and then send it to the Franchise Tax Board. If necessary, the FTB may require other financial documentation to process your installment agreement request.
FTB staff will determine if an account qualifies for an installment agreement and the time period allowed.
Even if you enter an installment agreement, the FTB may need to file a lien to secure your tax debt. Applicable penalties, fees, and interest accrue until the balance is paid. This increases your balance due.
If you need tax help, contact Mitchell A. Port at (310) 559-5259.
Ask TaxMama Issue 569 – Role Models
September 24, 2010 by Tax Blog
Filed under Questions & Answers
Dear Family,
Each week, I try to find an interesting graphic for the issue, and a related link. Have you ever clicked on the graphic at the top of an Ask TaxMama issue? You’ll find treasures there. For instance, this week, we feature the 1950s TV series Sky King. It started before I was born. But imagine a young girl watching this show waaaay back then and seeing the teenage character, Penny, being independent, flying an airplane and fighting bad guys. Gloria Winters played one of the more interesting and less ditzy, female characters in television in those days. She was a rare, positive female role model – one that wasn’t a teacher always in trouble (Eve Arden, in Our Miss Brooks) or wife (Mary Tyler Moore or Lucille Ball), or a cute, but helpless nut (Gracie Allen). Oh, don’t get me wrong. I loved watching those women. They were funny and smart. But their characters – well, imagine if you behaved the way they did in real life. Even as a child, I used to cringe watching Lucy getting into all that trouble.
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Of course, these days, we have lots of strong, smart women who’ve broken through the class ceiling – Hilary Clinton, Barbara Walters, Oprah Winfrey. In fact 15 women are running Fortune 500 companies. Considering that women comprise at least 50% of the human population, isn’t it fabulous to see that they make up 3% of the nation’s corporate leadership? Never mind. It’s a start.
Speaking of smart, strong women, Suzan Ali, EA just sent me this article about how you can avoid foreclosure on your home. It’s a trick we talked about a year or two ago. But here is more detail. You’ll like this!
Incidentally, get to know this tax professional. Suzan is smart, enthusiastic, energetic – and is about to build a really successful tax practice. I had the privilege of meeting her and spending time with Suzan at the IRS Tax Forums this summer. We had such fun! You will be seeing more of this amazing dynamo in the next few years.
Two pieces of great news this week. One – IRS is holding an Open House this weekend to help certain folks resolve tax problems. See IRS News for more details.
Two – Congress has passed The Small Business Jobs Act of 2010. I haven’t read all the details yet. You will find the highlights in this week’s IRS News, including a link to the new law – so you can read it yourself. One good thing that finally emerged from this is that cell phones are finally been removed from “Listed Property.” It’s something I’ve been predicting would happen. Hooray!
Celebration? Hallelujah! I have finally finished editing the second edition of Small Business Taxes Made Easy! It will be released in December. The book really is terrific and immensely helpful. I’ve built in a To Do list with every chapter – and will be building a site where readers can access and customize those lists for your own use. This is one of those books you’re going to want to carry around with you, make notes in about ideas for your own business and for discussions with your tax professional – and for day-to-day operations and planning. (The publisher just told me that they are giving me a very special pre-publication price for anyone who wants to pre-order books in batches of 25. If you are interested, send me a note and tell me how many you want for your friends, clients, or classes. I need to submit the information to McGraw-Hill by the end of this month so they can add this to their print run.
One of the big scandals of the week was the arrest of the City of Bell’s government and administration team. It seems the court is reluctant to allow them to post bail since the court believes the money they would use is money taken illegally from the City. That’s a new and refreshing twist. At our CSEA Breakfast meeting this week, Doug was asking about the tax applications. How would these culprits (alleged nothing!) handle the tax issues of having to repay the money? My question is – is there any money with which to repay the City of Bell, or has it been squandered or moved offshore? My other big question is – can the State and the Courts cancel their pensions? It’s one thing to have stolen several million dollars from their residents; but imagine the injury if the City of Bell and the State of California has to keep funding pensions, some of which are half a million dollars each year?
Last week TaxMama’s RoundTable discussion got quite lively and interesting. You can watch the replay online, just as if you’d been there. We discussed how to create a balance sheet when a business has no books, answered a batch of questions about s corporations, dealt with what to do when a corporation did not do a payroll for the officer when it should have…and lots more.
http://taxmama.com/category/tax-roundtables/
EA Class News
We had two terrific classes ever this week – Audit Workpapers, and Appeals. It’s always nice when you can include real life information and play with it, isn’t it?
Catch the FALL SPECIAL price – Part 3 live and Self-Study on Parts 1 and 2
http://irsexams.com/registration/
Remember, you can get a 10% discount on the EA Class if you register for TaxMama’s Family first. The discount code can be found in the Family Look-Ups resource.
Upcoming Events
Upcoming on CPE LINK – with CPE for CPAs, EAs, and more
Pick up the International Tax: Value Bundle – Roger B. Adams, EA (with minor assist from TaxMama)
October 6 – Understanding Tax Treaties
Learn the fundamental principles of the purpose and application of tax treaties. Why should you care? Because there are over five million Americans living outside of the U.S., over two million of whom live in the Western hemisphere (principally in Canada and Mexico).
November 11 – The Alien in America
Here in the U.S. we are surrounded by Aliens. There are very few aspects of US taxation with more complex rules, procedures, forms, and instructions than that concerning the alien with American presence. This webcast will provide a basic framework of dealing with the principle and most common circumstances that tax professionals will encounter.
October 8 – Eva Rosenberg, EA, Tom Buck, CPA and Sonya Wilt, EA
IRS Practice Series: 10 Steps to Resolving Collection Issues
You’re going to learn how to help your clients set up installment agreements, how to use the various types of offers in compromise, and even how to suspend collections!
We have FOUR classes coming up in November, including
November 9 – Doing Tax Research Online for Free – Eva Rosenberg, EA
November 17 – Getting Ready for Tax Season – Eva Rosenberg, EA
Preview the Series on YouTube
The IRS Practice Series
Team taught with Eva Rosenberg, EA, Tom Buck, CPA and Sonya Wilt, EA
Oct 8, 9:00am – 10 Steps to Resolving Collection Issues
Nov 1, 10:00am – Hands-on Collections Workshop
Dec 7, 10:00am – 6 Simple Steps to an Offer-in-Compromise (form 656)
Dec 10, 9:00am – The Un-agreed Collection Alternatives and Appeals
http://www.cpelink.com/teamtaxmama
SELF-STUDY at CPE LINK:
>Homebuyers Credits for Tax Professionals
The specific laws related to your clients. How to get it right the first time. What to watch out for.
And how to overcome IRS Rejections.
>IRS Practice Series: Overview of Collection Issues – Price = ZERO:
This on-demand webcast provides a broad overview of the collections process. From preparing the Power of Attorney – IRS Form 4868, to freezing the collection activity, to Offers-in-Compromise and Appeals, the course will explore the numerous collection issues a practitioner may encounter and lay the ground work for the IRS Practice Series. Topics will be covered in more detail in the dozen courses of The IRS Practice Series – leading to a Tax Mediary (CTM) Certificate upon completion of the series.
Resources
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http://www.cpelink.com/teamtaxmama
Other TaxMama News:
At Equifax this week, you learn about the Estate Tax Update: How the Estate Tax Will Affect You. ,. Ilyce Glink answers your question – Renting vs. Owning Property: How to Make the Call? Linda Rey talks about Insuring Teenage Drivers and Earning Teen Driver Discounts. Dan Solin admonishes us to Avoid Exchange-Traded Funds (ETFs) as Part of Your Investment Strategy. The Equifax Experts tell you 13 Ways Your Credit Card Account May Have Changed.
http://www.equifax.com/blog/tax/en_ff
This week’s AccountingWeb.com blog muses over things that go wrong in audits – and challenges you to come up with the most satisfying way to make IRS aware of the client’s unhappiness with the way the audit was handled. Do you know how to do that? Post your ideas – and TaxMama will post THE excellent solution next week.
http://www.accountingweb.com/blogs/accountingweb/talk-taxmama
In IRS News this week, we learn about the Small Business Jobs Act of 2010 and how it will affect your taxes this very year. For the most part, good things have just come your way! IRS is holding a special Open House this weekend for Veterans, the Disabled and Non-Profit Organizations. And at the very last minute, we received the text of IRS Commissioner Doug Shulman’s speech to the American Bar Association. Why the American Bar Association is meeting in Toronto, Canada, I don’t know. And why the IRS Commissioner went to Canada is a mystery to me, too. Perhaps we can solve it by reading the speech.
http://taxmama.com/category/asktaxmama/irs-news/
Money Funnies this week is all about economic progress.
http://taxmama.com/category/asktaxmama/money-funnies/
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In? TaxQuips this week we talked about making a living from home using some of the ideas presented in Raven Blair Davis’ Careers from the Kitchen Table. Family Members can find a copy in the Quick Look-Ups Resource area. Everyone else may buy this book here. Use coupon code raven25 to get a 25% discount until Monday. We also learn that there really are people who make a living as Mystery Shoppers. In fact, Brad gives up access to his ebook on the topic – as a gift. We discuss bogus credit card charges and some of your experiences. And what do when your ex-spouse has filed a tax return and forged your signature or PIN. http://taxmama.com/category/tax-quips/
Do you know how to file a tax return when you live in two or more states?
http://blog.taxqueries.com
As always, we love your feedback, opinions and ideas.
You are what makes all this fun – and interesting!
Please use the Comments link online.
http://taxmama.com/asktaxmama/ask-taxmama-issue-569
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TAX CALENDAR
http://taxmama.com/tax-calendar-2010/————————————————————-
09/15/2010 Partnership Returns Due- FINAL DEADLINE
09/15/2010 Corporate Returns Due- FINAL DEADLINE
09/15/2010 S Corporate Returns Due- FINAL DEADLINE
09/15/2010 Estate & Trusts Returns – Final Deadline; Bankruptcy fillings use the same form
09/15/2010 Individuals, Farmers & Fishermen Pay 3rd Quarter Estimated Tax Payment
09/15/2010 Corporations – 3rd Quarter Estimate Tax payment Due
09/15/2010 Estates & Trusts 3rd Estimated Tax Payment
09/15/2010 Deadline for Corporations and Partnerships to fund SEP-IRAs for previous year.
09/30/2010 Last day to establish SIMPLE plans for current year
09/30/2010 Time for businesses to consider setting up retirement plans
10/15/2010 Net Operating Loss – Eligible Small Business carry back loss
10/15/2010 Personal Returns – FINAL DEADLINE
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From TaxMama® to You!————————————————————-
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EA EXAM NEWS & SOLVING THE TAX PUZZLE————————————————————-
Take TaxMama®’s 2010 EA Exam Review Class
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Class is going strong.
Part 2 is going strong.
This weekend we cover Corporations and quiz everyone intensely.
Tax Professional and author Wayne Davis ( www.yousaveontaxes.com ) just passed Part I of the exam.
He says ‘I could go on and on about all the valuable info and “insider tips” that you have provided in the class lectures.”
– sign up now – and join the FUN!
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IRS Commissioner Doug Shulman to the American Bar Association
WASHINGTON — Following is a speech delivered by IRS Commissioner Doug Shulman today in Toronto, Canada. (See links to related materials at end of this document.)
It is my great honor and privilege to be in Toronto addressing the ABA.
It is a very busy time at the IRS. And while I could speak to you today about many important issues, ranging from:
- Our international efforts, including the recent announcement of the realignment and renaming of our Large and Mid-Size Business Division to Large Business and International;
- To our return preparer initiative;
- To our efforts to implement recent legislation;
I would like instead to focus today on transparency which is part of our larger strategy to get to and resolve taxpayer issues more quickly.
I have been clear since my first day on the job that I thought transparency and increased information flow were the key to the future of sound, fair and efficient tax administration.
If we receive information with tax returns and from third parties, we can identify potential non-compliance more efficiently and target our resources more effectively. I also believe the concept of more transparency is consistent with our nation’s historic framework of a voluntary compliance system. Our tax system is set up in such a way that taxpayers fill out their own returns. This self-assessment system reflects the fact that it is the taxpayer, and not the IRS, who possesses all of the information relevant to tax liability. We then use information reported by the taxpayer to make judgments about issues to pursue, and returns to audit.
Inherent in this system is the basic assumption that a taxpayer will be forthcoming in dealing with the IRS with respect to the items it has reported on its tax return, including the underlying positions related to those items. But this is much more than an assumption – it is the foundation on which our tax system is built.
Guided by the fundamental principle that transparency is essential to achieving an effective and efficient self-assessment tax system, the IRS took a major step towards transparency with Announcement 2010-9. It described our proposal to require business taxpayers to report basic information regarding their uncertain tax positions when they filed their tax returns.
I believe that it helps achieve what most taxpayers and the IRS strive for and basically want:
- We want certainty regarding a taxpayer’s tax obligations sooner rather than later;
- We want consistent treatment across taxpayers; and
- We want an efficient use of government and taxpayer resources by focusing on issues and taxpayers that pose the greatest risk of tax noncompliance.
As I said last January when the announcement was released, and as I still believe today, our proposal represented a reasonable approach. But I also believed that it was important to allow taxpayers an opportunity to provide input on the proposal.
So while it is unusual for the IRS to provide drafts of forms and instructions in advance of their implementation, in April we released a draft of the Schedule UTP and its instructions and asked for public comments regarding the overall proposal and the specifics of those drafts. I thought this step was essential to facilitate meaningful comment on the details of the proposal.
We have worked very hard to engage in a constructive dialogue to address legitimate concerns regarding the design and implementation of the proposal.
This morning, I am pleased to announce that we have completed our review of the comments and later today will be releasing the final Schedule UTP and its instructions effective for 2010 tax years. At the same time, we will be releasing a directive to the field, and important modifications to the policy of restraint that will provide guidance to IRS examiners and other personnel regarding how we will implement UTP reporting.
But before I discuss the final Schedule UTP and how it differs from the original proposal, I want to once again discuss our goals in developing the requirement to report uncertain tax positions. These goals are simple:
- Create certainty sooner for taxpayers;
- Cut down the time it takes to find issues and complete an audit, which benefits both the IRS and taxpayers;
- Ensure that both the IRS and taxpayer spend more time discussing the law as it applies to their facts, and less time looking for information;
- Help us prioritize taxpayers for examination;
- Help us identify issues where there is uncertainty and where we need to develop further guidance;
- Help us prioritize selection of issues during an audit; and
- Obtain key information regarding uncertain tax positions without getting into the heads of the taxpayers or their advisors, as it relates to quantifying risk.
I believe the final Schedule UTP that is being released today fulfills these goals in a very balanced and sensible fashion. The final product addresses important concerns expressed by affected taxpayers and the practitioner and business community and moves us towards our shared objectives of efficiency, earlier certainty, and consistency of tax administration regarding corporate taxpayers.
Let me take a few minutes to discuss the major comment areas and describe how we made important changes to address those that we determined would improve the proposal while preserving its core objectives.
To start I would like to focus on a set of comments that could be best characterized as concerns regarding the technical aspects of and burden associated with filing the schedule.
The first of these relates to questions raised about who should have to file the new schedule beginning with the 2010 tax year. We initially proposed that it should be all companies with over $10 million in assets who issue audited financial statements. We heard concerns that this was too much too soon for smaller companies.
In response, we have instituted a five-year phase in for filing the schedule. The largest corporations – those with $100 million or more in assets will file beginning with 2010 tax years …those with $50 million in assets beginning two years later … and those with $10 million in assets beginning two years after that. This will give corporations with total assets under $100 million additional time to comply with the new reporting requirement.
Next, I would like to discuss the proposed requirement that Schedule UTP filers include a calculation of the Maximum Tax Adjustment, or MTA, with respect to each tax position included on the schedule. We felt we needed to size issues in order to prioritize audit selection and issue focus. However, we asked taxpayers if there was another way to ascertain a sense of materiality or order of magnitude.
We received many comments on this proposed requirement that on the whole expressed two basic concerns: (1) that the requirement was burdensome because an MTA was not currently being calculated; and (2) that the MTA would in many cases be significantly greater than any potential adjustment with respect to an issue – giving the IRS a distorted view related to the risk of particular issues.
After hearing these concerns and reviewing alternative approaches, we decided to eliminate the MTA requirement as a means to quantify the reported positions. Instead of assigning a specific maximum tax adjustment to a position, the final Schedule UTP requires a filer to rank its UTPs from highest to lowest based on the size of the position. Taxpayers will use U.S. federal income tax reserve amounts to rank the positions on the schedule, but will not be asked to provide reserve amounts anywhere on the schedule.
The last area I want to touch on in this comment category is the requirement to identify positions that a taxpayer did not reserve for either because of a taxpayer’s expectation to litigate the issue or because of an administrative practice of the IRS. Related to this were comments seeking clarification regarding the reporting of tax positions that were immaterial or unambiguous.
With respect to the disclosures required for positions that are not subject to a reserve due to an administrative practice of the IRS – after reviewing the comments, we determined that the concerns about the administrability of this requirement outweighed the value of the information that may be included. Therefore, we have eliminated the requirement to report so-called “administrative practice” positions.
Regarding the “expect to litigate” category, we ultimately determined that the information provided by this requirement was necessary to meet our goals. However, we clarified the instructions to respond to concerns that this category could have been read more broadly than it was intended and could require disclosure of highly certain or immaterial positions.
Taken together, these changes – the phased-in implementation of the Schedule for corporations with assets under $100 million; the elimination of the requirement to calculate and include a maximum tax adjustment for each position; the clarification of the expect to litigate requirement; and the elimination of administrative practice positions – address important burden and reporting concerns raised by affected taxpayers and their representatives, while still allowing us to achieve the proposal’s goals.
The next major category of comments concerned how the proposal impacted privilege and the IRS’ long standing policy of restraint.
We received comments about the potential sensitivity of the requirement for Schedule UTP filers to provide a concise description for all uncertain tax positions included on the Schedule UTP. These comments raised concerns that the disclosure of tax positions on Schedule UTP could enable adversaries to raise questions of waivers of privilege with respect to confidential communications related to the disclosed tax positions.
We believe these concerns principally arose from the fact that the draft instructions required Schedule UTP filers to provide the rationale for a position reported on the Schedule along with a description of the nature of the uncertainty related to that position. The final instructions eliminate these requirements and make it clear that a taxpayer need only disclose information sufficient to identify the issue and the relevant facts. In addition, the instructions now specifically state that the concise description should not include information related to the corporation’s assessment of the hazards of a tax position or an analysis of the support for or against the tax position.
I believe that this significant change, made in response to comments we received, will continue to provide us with the information we need while at the same time addressing the concerns raised about privilege.
We are also releasing today an announcement that clarifies and strengthens the policy of restraint. There are three key changes described in today’s announcement that I want to bring to your attention:
- We provide that disclosing issues on the Schedule UTP does not otherwise affect the protections afforded under the policy of restraint.
- We provide that drafts of issue descriptions and information regarding quantification or ranking of issues are protected under the policy.
- We adopt a policy that we will not seek documents that would otherwise be privileged, even though the taxpayer has disclosed the document to a financial auditor as part of an audit of the taxpayer’s financial statements.
These changes are designed to reassure taxpayers that we are not seeking their legal analysis or risk assessments. We are instead seeking issue identification that will help accomplish our shared goals of efficiency, certainty, and consistency that I described earlier. I remain committed to the important taxpayer protections afforded by the longstanding IRS policy of restraint and under existing privilege laws.
The final major area of comments I would like to address this morning relates to concerns raised, not about the proposal itself, but instead about how the IRS will use the information it receives on Schedule UTP. Many of the comments voiced anxiety about how IRS agents would use the information reported on the schedule during examinations.
To address these concerns, and make clear our expectations for how the information should be used, we are releasing a directive to the field later today that will provide initial guidance to the IRS personnel who will be on the front lines administering the new UTP reporting requirements.
The directive makes clear that we expect examiners to engage with taxpayers early in the process to eliminate uncertainty as quickly as possible, whenever possible. This is key to our overall philosophy and shared goal of creating certainty sooner and being more efficient and effective. Also, over the next year, our examiners will receive special training on the handling of Uncertain Tax Positions.
In addition, a centralized process or triage team will be established to review UTPs and to determine their proper treatment. We know that Uncertain Tax Positions are uncertain for a number of reasons. There may be ambiguity in tax law and a lack of published guidance. Our triage team will identify trends of areas of uncertainty, and this will become an important source of inputs to our guidance pipeline. I see working with our colleagues at the Treasury Department and publishing guidance to clarify uncertain areas based on what we learn from Schedule UTP filings as a measure of success.
The directive to the field also reinforces longstanding principles of fairness and impartiality that are essential to balanced and principled tax administration.
Now I recognize that issuing such a directive cannot and will not ensure perfection, but we are committed to the positions and principles contained in the directive. However, should you see a problem, I urge you to make us aware of it. That will provide us the best chance to work out any bumps along the road to implementation as quickly as possible.
Some also expressed concerns that the reported UTP information would be automatically disclosed to foreign governments under treaties or information exchange agreements. Let me assure you that there will be no automatic release of UTP information to other governments. Our treaties and information exchange agreements do not require disclosure of information in cases in which there is no reciprocity, so it would be very, very rare to exchange such information unless the requesting government has similar information it can make available to the IRS. Further, even if reciprocity did exist, we would consider other factors in determining whether to disclose the information, including the relevance of the information to the foreign government, which in many cases would not be present.
Before I close this morning, I would like to talk for a little bit about some of the other important initiatives we provide aimed at earlier and speedier issue resolution and greater efficiency and certainty. They are a major part of the overall re-tooling of our relationship with large corporate taxpayers.
A perfect example is the CAP program. In exchange for more openness and transparency on the corporate taxpayer’s part, we help resolve issues early and ensure accurate returns are filed. Taxpayers who are transparent with us get certainty with respect to their obligations at the time their return is filed, rather than waiting for the regular examination.
I am a staunch advocate of CAP and believe that it is time to make the pilot permanent. We soon will be issuing guidance that will make CAP permanent and available to a greater number of taxpayers.
The permanent CAP will also include elements missing from the pilot, such as a Pre-CAP process that provides taxpayers a defined path to get into CAP and a CAP maintenance program for taxpayers already in CAP for a number of years where we will address and resolve issues with taxpayers as they arise.
Our toolkit also includes Industry Issue Resolution Projects. These involve the cooperative efforts of industry representatives, our operating divisions, our Chief Counsel, and the Treasury Department to reach administrable, common sense solutions for uncertain tax areas.
Industry Issue Resolution is really another form of guidance and helps reduce uncertainty on business tax issues within particular industries, such as our forthcoming guidance for the telecommunications and electric utility industries to resolve capitalization versus repair issues for network assets.
We have also made a major change to the Fast Track Settlement Program which should encourage more use of this issue resolution tool.
Our LB&I and Appeals functions have recently removed internal barriers that may have discouraged the use of the program. For example, it used to be that an examiner’s case was left open in our tracking system during the time it went to Fast Track Appeals. This increased the examiner’s cycle time and created a potential disincentive for the use of Fast Track. We have fixed this and an examiner will get credit for closing a case at the time it goes to Fast Track. I have also ensured that our Appeals function has the resources to handle more fast track cases, and now every taxpayer will have the opportunity to use the process.
Now, rather than spending time on a full audit…ending with a dispute and thus opening up an appeal… the process will be collapsed, speeding up issue resolution. The program’s historical success rate in resolution is 80 percent, so it is a win/win for the IRS and taxpayers in the category of certainty sooner.
The last issue I want to discuss is the Schedule M3. The M3 has been a very useful tool in specific areas for specific taxpayers. It has helped us square up US and Global accounting and better understand permanent versus temporary issues.
However, I have always believed in continuous improvement. But it is especially important that when we look for new information…like the Schedule UTP…that we examine the other information that we already require.
To this end, we are forming an M3 working group with industry involvement to look at ways to reduce burden and duplication.
I believe that the combination of steps we are announcing today demonstrates our commitment and our preparedness to implement reporting of uncertain tax positions, while taking into account the legitimate concerns of taxpayers and their representatives.
The Schedule UTP we are releasing today is a principled and balanced approach that will improve tax administration concerning our largest and most complex taxpayers. It will also provide significant benefits to taxpayers, including getting them earlier certainty as to their uncertain tax positions, while preserving important taxpayer protections and respecting the important relationships the taxpayer has with its tax advisors and independent auditors.
This enhanced transparency, coupled with our extensive set of initiatives aimed at improving issue resolution, is a positive step forward for our nation’s tax system.
By working together we can achieve an improved relationship between the IRS and corporate taxpayers, and mutual benefits in the areas of earlier certainty, efficiency, and consistency as to corporate tax administration.
I appreciate your attention this morning and I look forward to continuing the dialogue on important issues that affect us all.
Thank you.
Related items:
- Form 1120 Schedule UTP
- Form 1120 Schedule UTP Instructions
- Announcement 2010-75
- Announcement 2010-76
- Internal Directive on Reporting of Uncertain Tax Positions
- Ask TaxMama :: Where taxes are fun and answers are free
- TaxQuips :: The number ONE free tax podcast online
- IRS News at TaxMama.com :: Where you can find more IRS News
IRS Commissioner Doug Shulman to the American Bar Association
September 24, 2010 by Tax Blog
Filed under Questions & Answers
WASHINGTON — Following is a speech delivered by IRS Commissioner Doug Shulman today in Toronto, Canada. (See links to related materials at end of this document.)
It is my great honor and privilege to be in Toronto addressing the ABA.
It is a very busy time at the IRS. And while I could speak to you today about many important issues, ranging from:
- Our international efforts, including the recent announcement of the realignment and renaming of our Large and Mid-Size Business Division to Large Business and International;
- To our return preparer initiative;
- To our efforts to implement recent legislation;
I would like instead to focus today on transparency which is part of our larger strategy to get to and resolve taxpayer issues more quickly.
I have been clear since my first day on the job that I thought transparency and increased information flow were the key to the future of sound, fair and efficient tax administration.
If we receive information with tax returns and from third parties, we can identify potential non-compliance more efficiently and target our resources more effectively. I also believe the concept of more transparency is consistent with our nation’s historic framework of a voluntary compliance system. Our tax system is set up in such a way that taxpayers fill out their own returns. This self-assessment system reflects the fact that it is the taxpayer, and not the IRS, who possesses all of the information relevant to tax liability. We then use information reported by the taxpayer to make judgments about issues to pursue, and returns to audit.
Inherent in this system is the basic assumption that a taxpayer will be forthcoming in dealing with the IRS with respect to the items it has reported on its tax return, including the underlying positions related to those items. But this is much more than an assumption – it is the foundation on which our tax system is built.
Guided by the fundamental principle that transparency is essential to achieving an effective and efficient self-assessment tax system, the IRS took a major step towards transparency with Announcement 2010-9. It described our proposal to require business taxpayers to report basic information regarding their uncertain tax positions when they filed their tax returns.
I believe that it helps achieve what most taxpayers and the IRS strive for and basically want:
- We want certainty regarding a taxpayer’s tax obligations sooner rather than later;
- We want consistent treatment across taxpayers; and
- We want an efficient use of government and taxpayer resources by focusing on issues and taxpayers that pose the greatest risk of tax noncompliance.
As I said last January when the announcement was released, and as I still believe today, our proposal represented a reasonable approach. But I also believed that it was important to allow taxpayers an opportunity to provide input on the proposal.
So while it is unusual for the IRS to provide drafts of forms and instructions in advance of their implementation, in April we released a draft of the Schedule UTP and its instructions and asked for public comments regarding the overall proposal and the specifics of those drafts. I thought this step was essential to facilitate meaningful comment on the details of the proposal.
We have worked very hard to engage in a constructive dialogue to address legitimate concerns regarding the design and implementation of the proposal.
This morning, I am pleased to announce that we have completed our review of the comments and later today will be releasing the final Schedule UTP and its instructions effective for 2010 tax years. At the same time, we will be releasing a directive to the field, and important modifications to the policy of restraint that will provide guidance to IRS examiners and other personnel regarding how we will implement UTP reporting.
But before I discuss the final Schedule UTP and how it differs from the original proposal, I want to once again discuss our goals in developing the requirement to report uncertain tax positions. These goals are simple:
- Create certainty sooner for taxpayers;
- Cut down the time it takes to find issues and complete an audit, which benefits both the IRS and taxpayers;
- Ensure that both the IRS and taxpayer spend more time discussing the law as it applies to their facts, and less time looking for information;
- Help us prioritize taxpayers for examination;
- Help us identify issues where there is uncertainty and where we need to develop further guidance;
- Help us prioritize selection of issues during an audit; and
- Obtain key information regarding uncertain tax positions without getting into the heads of the taxpayers or their advisors, as it relates to quantifying risk.
I believe the final Schedule UTP that is being released today fulfills these goals in a very balanced and sensible fashion. The final product addresses important concerns expressed by affected taxpayers and the practitioner and business community and moves us towards our shared objectives of efficiency, earlier certainty, and consistency of tax administration regarding corporate taxpayers.
Let me take a few minutes to discuss the major comment areas and describe how we made important changes to address those that we determined would improve the proposal while preserving its core objectives.
To start I would like to focus on a set of comments that could be best characterized as concerns regarding the technical aspects of and burden associated with filing the schedule.
The first of these relates to questions raised about who should have to file the new schedule beginning with the 2010 tax year. We initially proposed that it should be all companies with over $10 million in assets who issue audited financial statements. We heard concerns that this was too much too soon for smaller companies.
In response, we have instituted a five-year phase in for filing the schedule. The largest corporations – those with $100 million or more in assets will file beginning with 2010 tax years …those with $50 million in assets beginning two years later … and those with $10 million in assets beginning two years after that. This will give corporations with total assets under $100 million additional time to comply with the new reporting requirement.
Next, I would like to discuss the proposed requirement that Schedule UTP filers include a calculation of the Maximum Tax Adjustment, or MTA, with respect to each tax position included on the schedule. We felt we needed to size issues in order to prioritize audit selection and issue focus. However, we asked taxpayers if there was another way to ascertain a sense of materiality or order of magnitude.
We received many comments on this proposed requirement that on the whole expressed two basic concerns: (1) that the requirement was burdensome because an MTA was not currently being calculated; and (2) that the MTA would in many cases be significantly greater than any potential adjustment with respect to an issue – giving the IRS a distorted view related to the risk of particular issues.
After hearing these concerns and reviewing alternative approaches, we decided to eliminate the MTA requirement as a means to quantify the reported positions. Instead of assigning a specific maximum tax adjustment to a position, the final Schedule UTP requires a filer to rank its UTPs from highest to lowest based on the size of the position. Taxpayers will use U.S. federal income tax reserve amounts to rank the positions on the schedule, but will not be asked to provide reserve amounts anywhere on the schedule.
The last area I want to touch on in this comment category is the requirement to identify positions that a taxpayer did not reserve for either because of a taxpayer’s expectation to litigate the issue or because of an administrative practice of the IRS. Related to this were comments seeking clarification regarding the reporting of tax positions that were immaterial or unambiguous.
With respect to the disclosures required for positions that are not subject to a reserve due to an administrative practice of the IRS – after reviewing the comments, we determined that the concerns about the administrability of this requirement outweighed the value of the information that may be included. Therefore, we have eliminated the requirement to report so-called “administrative practice” positions.
Regarding the “expect to litigate” category, we ultimately determined that the information provided by this requirement was necessary to meet our goals. However, we clarified the instructions to respond to concerns that this category could have been read more broadly than it was intended and could require disclosure of highly certain or immaterial positions.
Taken together, these changes – the phased-in implementation of the Schedule for corporations with assets under $100 million; the elimination of the requirement to calculate and include a maximum tax adjustment for each position; the clarification of the expect to litigate requirement; and the elimination of administrative practice positions – address important burden and reporting concerns raised by affected taxpayers and their representatives, while still allowing us to achieve the proposal’s goals.
The next major category of comments concerned how the proposal impacted privilege and the IRS’ long standing policy of restraint.
We received comments about the potential sensitivity of the requirement for Schedule UTP filers to provide a concise description for all uncertain tax positions included on the Schedule UTP. These comments raised concerns that the disclosure of tax positions on Schedule UTP could enable adversaries to raise questions of waivers of privilege with respect to confidential communications related to the disclosed tax positions.
We believe these concerns principally arose from the fact that the draft instructions required Schedule UTP filers to provide the rationale for a position reported on the Schedule along with a description of the nature of the uncertainty related to that position. The final instructions eliminate these requirements and make it clear that a taxpayer need only disclose information sufficient to identify the issue and the relevant facts. In addition, the instructions now specifically state that the concise description should not include information related to the corporation’s assessment of the hazards of a tax position or an analysis of the support for or against the tax position.
I believe that this significant change, made in response to comments we received, will continue to provide us with the information we need while at the same time addressing the concerns raised about privilege.
We are also releasing today an announcement that clarifies and strengthens the policy of restraint. There are three key changes described in today’s announcement that I want to bring to your attention:
- We provide that disclosing issues on the Schedule UTP does not otherwise affect the protections afforded under the policy of restraint.
- We provide that drafts of issue descriptions and information regarding quantification or ranking of issues are protected under the policy.
- We adopt a policy that we will not seek documents that would otherwise be privileged, even though the taxpayer has disclosed the document to a financial auditor as part of an audit of the taxpayer’s financial statements.
These changes are designed to reassure taxpayers that we are not seeking their legal analysis or risk assessments. We are instead seeking issue identification that will help accomplish our shared goals of efficiency, certainty, and consistency that I described earlier. I remain committed to the important taxpayer protections afforded by the longstanding IRS policy of restraint and under existing privilege laws.
The final major area of comments I would like to address this morning relates to concerns raised, not about the proposal itself, but instead about how the IRS will use the information it receives on Schedule UTP. Many of the comments voiced anxiety about how IRS agents would use the information reported on the schedule during examinations.
To address these concerns, and make clear our expectations for how the information should be used, we are releasing a directive to the field later today that will provide initial guidance to the IRS personnel who will be on the front lines administering the new UTP reporting requirements.
The directive makes clear that we expect examiners to engage with taxpayers early in the process to eliminate uncertainty as quickly as possible, whenever possible. This is key to our overall philosophy and shared goal of creating certainty sooner and being more efficient and effective. Also, over the next year, our examiners will receive special training on the handling of Uncertain Tax Positions.
In addition, a centralized process or triage team will be established to review UTPs and to determine their proper treatment. We know that Uncertain Tax Positions are uncertain for a number of reasons. There may be ambiguity in tax law and a lack of published guidance. Our triage team will identify trends of areas of uncertainty, and this will become an important source of inputs to our guidance pipeline. I see working with our colleagues at the Treasury Department and publishing guidance to clarify uncertain areas based on what we learn from Schedule UTP filings as a measure of success.
The directive to the field also reinforces longstanding principles of fairness and impartiality that are essential to balanced and principled tax administration.
Now I recognize that issuing such a directive cannot and will not ensure perfection, but we are committed to the positions and principles contained in the directive. However, should you see a problem, I urge you to make us aware of it. That will provide us the best chance to work out any bumps along the road to implementation as quickly as possible.
Some also expressed concerns that the reported UTP information would be automatically disclosed to foreign governments under treaties or information exchange agreements. Let me assure you that there will be no automatic release of UTP information to other governments. Our treaties and information exchange agreements do not require disclosure of information in cases in which there is no reciprocity, so it would be very, very rare to exchange such information unless the requesting government has similar information it can make available to the IRS. Further, even if reciprocity did exist, we would consider other factors in determining whether to disclose the information, including the relevance of the information to the foreign government, which in many cases would not be present.
Before I close this morning, I would like to talk for a little bit about some of the other important initiatives we provide aimed at earlier and speedier issue resolution and greater efficiency and certainty. They are a major part of the overall re-tooling of our relationship with large corporate taxpayers.
A perfect example is the CAP program. In exchange for more openness and transparency on the corporate taxpayer’s part, we help resolve issues early and ensure accurate returns are filed. Taxpayers who are transparent with us get certainty with respect to their obligations at the time their return is filed, rather than waiting for the regular examination.
I am a staunch advocate of CAP and believe that it is time to make the pilot permanent. We soon will be issuing guidance that will make CAP permanent and available to a greater number of taxpayers.
The permanent CAP will also include elements missing from the pilot, such as a Pre-CAP process that provides taxpayers a defined path to get into CAP and a CAP maintenance program for taxpayers already in CAP for a number of years where we will address and resolve issues with taxpayers as they arise.
Our toolkit also includes Industry Issue Resolution Projects. These involve the cooperative efforts of industry representatives, our operating divisions, our Chief Counsel, and the Treasury Department to reach administrable, common sense solutions for uncertain tax areas.
Industry Issue Resolution is really another form of guidance and helps reduce uncertainty on business tax issues within particular industries, such as our forthcoming guidance for the telecommunications and electric utility industries to resolve capitalization versus repair issues for network assets.
We have also made a major change to the Fast Track Settlement Program which should encourage more use of this issue resolution tool.
Our LB&I and Appeals functions have recently removed internal barriers that may have discouraged the use of the program. For example, it used to be that an examiner’s case was left open in our tracking system during the time it went to Fast Track Appeals. This increased the examiner’s cycle time and created a potential disincentive for the use of Fast Track. We have fixed this and an examiner will get credit for closing a case at the time it goes to Fast Track. I have also ensured that our Appeals function has the resources to handle more fast track cases, and now every taxpayer will have the opportunity to use the process.
Now, rather than spending time on a full audit…ending with a dispute and thus opening up an appeal… the process will be collapsed, speeding up issue resolution. The program’s historical success rate in resolution is 80 percent, so it is a win/win for the IRS and taxpayers in the category of certainty sooner.
The last issue I want to discuss is the Schedule M3. The M3 has been a very useful tool in specific areas for specific taxpayers. It has helped us square up US and Global accounting and better understand permanent versus temporary issues.
However, I have always believed in continuous improvement. But it is especially important that when we look for new information…like the Schedule UTP…that we examine the other information that we already require.
To this end, we are forming an M3 working group with industry involvement to look at ways to reduce burden and duplication.
I believe that the combination of steps we are announcing today demonstrates our commitment and our preparedness to implement reporting of uncertain tax positions, while taking into account the legitimate concerns of taxpayers and their representatives.
The Schedule UTP we are releasing today is a principled and balanced approach that will improve tax administration concerning our largest and most complex taxpayers. It will also provide significant benefits to taxpayers, including getting them earlier certainty as to their uncertain tax positions, while preserving important taxpayer protections and respecting the important relationships the taxpayer has with its tax advisors and independent auditors.
This enhanced transparency, coupled with our extensive set of initiatives aimed at improving issue resolution, is a positive step forward for our nation’s tax system.
By working together we can achieve an improved relationship between the IRS and corporate taxpayers, and mutual benefits in the areas of earlier certainty, efficiency, and consistency as to corporate tax administration.
I appreciate your attention this morning and I look forward to continuing the dialogue on important issues that affect us all.
Thank you.
Related items:
- Form 1120 Schedule UTP
- Form 1120 Schedule UTP Instructions
- Announcement 2010-75
- Announcement 2010-76
- Internal Directive on Reporting of Uncertain Tax Positions
- Ask TaxMama :: Where taxes are fun and answers are free
- TaxQuips :: The number ONE free tax podcast online
- IRS News at TaxMama.com :: Where you can find more IRS News
Small Business Jobs Act of 2010
New Jobs Act brings tax benefits (9-23-2010)
On September 23, the House passed the Small Business Jobs Act of 2010 (H.R. 5297). It is expected to be signed by the President.
Among its provisions:
- §179 expanded: For tax years beginning in 2010 and 2011, expense limit is increased to $500,000 and phaseout threshold increased to $2 million;
- §179 for (some) real estate: For tax years beginning in 2010 and 2011, taxpayers can elect to treat certain real estate as §179-eligible. Qualifying real estate includes:
- Qualified leasehold improvements;
- Qualified restaurant property; and
- Qualified retail improvement property.
- Bonus depreciation extended: Available for property purchased through December 31, 2010;
- Luxury auto depreciation increased: As a result of the extension of bonus depreciation, first-year depreciation of automobiles is bumped up $8,000;
- Deduction for start-up expenditures increased: Under IRC §195, increased from $5,000 to $10,000 for taxable years beginning in 2010 (only);
- Exclusion for small business stock: For purchases made after the date of enactment and before January 1, 2011, the exclusion for small business stock under IRC §1202 is increased to 100%;
- Five-year carryback for general business credits: Effective for credits determined in the taxpayer’s first taxable year beginning after December 31, 2009 (one year only), the carryback period for an “eligible small business” is increased from one to five years. In addition, the credit is not subject to the AMT limitation;
- Built-in gain period shortened to five years: For taxable years beginning in 2011 (only), the recognition period for the BIG tax is shortened to five years;
- Deduction for health insurance for SECA purposes: For 2010 (only), the deduction for self-employed health insurance is also a deduction for purposes of the SE tax;
- Cell phones removed from listed property: Permanent and effective for tax years ending after 2009;
- Information reporting required for rental property: Effective for payments made after December 31, 2010, rental real estate is treated as a trade or business for information reporting purposes. IRS to prescribe de minimis exceptions;
- Higher information return penalties: Penalties under IRC §6721 are substantially increased beginning in 2011;
- §457 plans can include Roth accounts: For tax years beginning after December 31, 2010; and
- Rollovers from elective deferral plans to in-plan Roth accounts allowed: Effective on the date of enactment. Will allow a two-year deferral (2011 and 2012) for rollovers done in 2010.
Note: You can get these Flash updates, too. Just visit CalTax.com and sign up for Spidell’s Flash Email.
- Ask TaxMama :: Where taxes are fun and answers are free
- TaxQuips :: The number ONE free tax podcast online
- IRS News at TaxMama.com :: Where you can find more IRS News
- IRS News :: Where you can comment on this
Small Business Jobs Act of 2010
September 24, 2010 by Tax Blog
Filed under Questions & Answers
New Jobs Act brings tax benefits (9-23-2010)
On September 23, the House passed the Small Business Jobs Act of 2010 (H.R. 5297). It is expected to be signed by the President.
Among its provisions:
- §179 expanded: For tax years beginning in 2010 and 2011, expense limit is increased to $500,000 and phaseout threshold increased to $2 million;
- §179 for (some) real estate: For tax years beginning in 2010 and 2011, taxpayers can elect to treat certain real estate as §179-eligible. Qualifying real estate includes:
- Qualified leasehold improvements;
- Qualified restaurant property; and
- Qualified retail improvement property.
- Bonus depreciation extended: Available for property purchased through December 31, 2010;
- Luxury auto depreciation increased: As a result of the extension of bonus depreciation, first-year depreciation of automobiles is bumped up $8,000;
- Deduction for start-up expenditures increased: Under IRC §195, increased from $5,000 to $10,000 for taxable years beginning in 2010 (only);
- Exclusion for small business stock: For purchases made after the date of enactment and before January 1, 2011, the exclusion for small business stock under IRC §1202 is increased to 100%;
- Five-year carryback for general business credits: Effective for credits determined in the taxpayer’s first taxable year beginning after December 31, 2009 (one year only), the carryback period for an “eligible small business” is increased from one to five years. In addition, the credit is not subject to the AMT limitation;
- Built-in gain period shortened to five years: For taxable years beginning in 2011 (only), the recognition period for the BIG tax is shortened to five years;
- Deduction for health insurance for SECA purposes: For 2010 (only), the deduction for self-employed health insurance is also a deduction for purposes of the SE tax;
- Cell phones removed from listed property: Permanent and effective for tax years ending after 2009;
- Information reporting required for rental property: Effective for payments made after December 31, 2010, rental real estate is treated as a trade or business for information reporting purposes. IRS to prescribe de minimis exceptions;
- Higher information return penalties: Penalties under IRC §6721 are substantially increased beginning in 2011;
- §457 plans can include Roth accounts: For tax years beginning after December 31, 2010; and
- Rollovers from elective deferral plans to in-plan Roth accounts allowed: Effective on the date of enactment. Will allow a two-year deferral (2011 and 2012) for rollovers done in 2010.
Note: You can get these Flash updates, too. Just visit CalTax.com and sign up for Spidell’s Flash Email.
- Ask TaxMama :: Where taxes are fun and answers are free
- TaxQuips :: The number ONE free tax podcast online
- IRS News at TaxMama.com :: Where you can find more IRS News
- IRS News :: Where you can comment on this