Friday, February 17, 2012

Payroll tax cut extension breezes through Congress

The House and Senate quickly approved the payroll tax cut bill on Friday, sending the legislation to the White House for the President's signature.
He has already promised to sign the legislation.

Authorities foil planned suicide bombing attack on Capitol building

By Debbie Siegelbaum 02/17/12 01:36 PM ET
A potential suicide bombing attack of Congress was thwarted Friday when authorities arrested a suspect on his way to the Capitol.
The suspect has been identified as Amine El Khalifi, a 29 year-old illegal immigrant from Morocco residing in Alexandria, Va.

El Khalifi has been charged with attempting to use a weapon of mass destruction against property that is owned and used by the United States, according to a statement Friday from the Department of Justice.

The DOJ noted that the arrest was the culmination of an investigation of the suspect by the FBI, which included undercover agents posing as members of al Qaeda.

“The complaint filed today alleges that Amine El Khalifi sought to blow himself up in the U.S. Capitol Building,” wrote Neil MacBride, U.S. Attorney for the Eastern District of Virginia, in the DOJ statement.  “El Khalifi allegedly believed he was working with al Qaeda and devised the plot, the targets and the methods on his own.”

The explosives and firearm that El Khalifi allegedly sought and attempted to use had been rendered inoperable by law enforcement and posed no threat to the public, the DOJ added.

The arrest near the Capitol was carried out by the FBI and Capitol Police, wrote Capitol Police spokeswoman Sgt. Kimberly Schneider in a statement.

“This arrest was the culmination of a lengthy and extensive operation during which the individual was closely and carefully monitored,” Schneider wrote. “The U.S. Capitol Police was intimately involved in the investigation for the duration of the operation. At no time was the public or Congressional community in any danger.”

The FBI did not immediately respond to requests for comment, but lawmakers reacted swiftly to the news of the arrest.

The ranking member of the Senate’s Homeland Security and Governmental Affairs Committee, Sen. Susan Collins (R-Maine), said she had been in contact with the FBI about the arrest of El Khalifi.

“The brazen nature of this plot — targeting the U.S. Capitol building with the aim of killing innocent people and desecrating a symbol of our democracy — is disturbing,” she said in a statement.

"While we are still learning details, this plot appears to be yet another example of radicalized extremists attempting to attack Americans from within our borders,” Collins added.

Collins noted the sharp escalation in homegrown terrorist plots in recent years, citing a report by The Congressional Research Service that identified 36 arrests in such cases between 2009 and 2012.

"Today's arrest is a reminder that we must redouble our efforts to confront the threat posed by violent Islamist extremism, while making the clear distinction between a major religion followed by millions of law abiding Americans and a twisted ideology,” Collins concluded.

The chairman of the Committee on House Administration echoed the sentiment.

“Today’s incident serves as an important reminder of the need for constant vigilance to protect this nation and its capital from the threat of those who wish to do us harm,” wrote Rep. Dan Lungren (R-Calif.) in a statement following the arrest.

“I applaud the FBI and the United States Capitol Police in their efforts to protect the U.S. Capitol,” he added. “I thank the dedicated men and women in law enforcement in these and other agencies across the country.”

El Khalifi made his initial court appearance at 4:15 p.m. Friday, according to the DOJ. If convicted, he faces a maximum penalty of life in prison. - The Hill

Tuesday, February 14, 2012

President’s budget proposes AMT elimination, tax reform

FEBRUARY 13, 2012
President Barack Obama unveiled his proposed budget for fiscal year 2013 on Monday. Included in its 256 pages are several tax reform proposals, including plans to eliminate the alternative minimum tax (AMT), to repeal LIFO, and to tax dividends of high-income taxpayers at ordinary income rates. The budget estimates that the proposed tax changes would raise more than $1.5 trillion over the next 10 years. Overall, the document’s introduction claims that the budget would reduce the federal deficit by more than $4 trillion over that span.
At the same time, the Treasury Department issued its General Explanations of the Administration’s Fiscal Year 2013 Revenue Proposals (Green Book). In a prepared statement, Treasury Secretary Timothy Geithner called the proposed budget “a responsible, long-term deficit reduction plan that simplifies the tax code and asks the most fortunate to pay their fair share.”
Tax reform
The budget’s introduction sets out five tax reform principles:
  1. Simplify the Internal Revenue Code and lower tax rates;
  2. Reform inefficient and unfair tax breaks;
  3. Decrease the deficit and protect progressivity;
  4. Increase job creation and growth; and
  5. Observe the “Buffett Rule.”
The budget characterizes the “Buffet Rule” as: “No household making over $1 million annually should pay a smaller share of its income in taxes than middle class families pay” (2013 budget, page 39). Its name derives from Warren Buffet’s observation that his effective tax rate is lower than his secretary’s.
The budget proposes that those making more than $1 million should pay at least 30% of their income in tax. The budget’s introduction says that “[t]he Administration will work to ensure that this rule is implemented in a way that is equitable, including not disadvantaging individuals who make large charitable contributions” (id.), but no specifics are provided.
The president is proposing that this “Buffet Rule” replace the current AMT.
To achieve these five tax reform principles, and “[t]o begin the national conversation about tax reform” (id.), the budget offers five specific proposals:
Tax cut expiration and estate tax changes
The budget proposes to allow some of the 2001 and 2003 Bush-era tax cuts to expire. These tax cuts, enacted by the Economic Growth and Tax Relief Reconciliation Act, P.L. 107-16, in 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003, P.L. 108-27, introduced lower tax brackets and a lower capital gains tax rate. The cuts were extended by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312, and are scheduled to expire at the end of this year.
The budget proposes to let the lower tax rates expire for taxpayers with household income over $250,000 per year (that is, the 36% and 39.6% brackets would be reinstated).
The budget would also:
  • Reinstate the limitation on itemized deductions for upper-income taxpayers;
  • Reinstate the personal exemption phaseout for upper-income taxpayers;
  • Tax qualified dividends as ordinary income for upper-income taxpayers; and
  • Tax net long-term capital gains at a 20% rate for upper-income taxpayers.

The budget also proposes returning the estate tax to its 2009 parameters. Read more in the Journal of Accountancy

Friday, February 10, 2012

Employer health coverage questions addressed

FEBRUARY 9, 2012
The IRS and Treasury Department, along with two other federal departments, on Thursday further described planned guidance on provisions for employer-sponsored health coverage mandated by the Patient Protection and Affordable Care Act (PPACA), P.L. 111-148, scheduled to take effect in 2014.
Treasury and the IRS issued Notice 2012-17 covering frequently asked questions (FAQs) by employers. The Departments of Labor and Health and Human Services simultaneously issued substantively identical notices, and the three departments will collaborate in developing the anticipated guidance.
Automatic enrollment to be delayed
Under regulations to be issued by the Labor Department, employers with more than 200 employers are required by the PPACA to automatically enroll new full-time employees in a health benefit plan they offer. FAQs issued last year indicated the Labor Department planned to issue the regulations by 2014. However, according to the FAQs released Thursday, Labor says the regulations will not be ready to take effect by 2014, because of a need for coordination in developing the guidance and its smooth implementation. Moreover, Labor has taken the position that employers are not required to comply with the automatic enrollment provisions until it issues the regulations.
Counting full-time employees
The FAQs also described planned approaches to determining whether an employee meets the 30-hour-per week threshold for being considered a full-time employee and thus counted toward the threshold of 50 or more employees that subjects an employer to the “shared responsibility” provisions of Sec. 4980H. Under those provisions, an employer is subject to a penalty if the employer-sponsored health coverage does not provide “minimum essential coverage” or is not affordable relative to the employee’s household income.
The IRS and Treasury are considering a safe harbor of a look-back period of three months (and not more than 12 months) for determining if an employee meets the definition of a full-time employee. This approach was outlined in Notice 2011-36.
Another planned safe harbor will allow use of the employee’s Form W-2 wages, in lieu of household income, to determine whether coverage is affordable.
Waiting period
The PPACA also limits to 90 days a group health insurer’s enrollment waiting period. The agencies are developing guidance on how to coordinate this period with the look-back safe harbor for determining the number of full-time employees.
Comments are requested by April 9 and should be sent to the Labor Department in a form and manner described in the notice. All comments will be shared by the three departments.
From the Journal of Accountancy

Couples who filed joint returns must now file separate powers of attorney

FEBRUARY 6, 2012
Starting March 1, the IRS will no longer accept old versions of Form 2848, Power of Attorney and Declaration of Representative, and will accept only the version released in October 2011. The new version of the form requires a husband and wife who filed a joint tax return to each file a separate power of attorney on separate Forms 2848 to designate the representative he or she chooses, even if it is the same person (Instructions to Form 2848 (rev. October 2011)).

Under the most recent prior version of Form 2848 (rev. June 2008), a husband and wife who filed a joint return and wanted to have the same representative could file one Form 2848 (Instructions to Form 2848 (rev. June 2008)).
Another change in the form is that the representative must provide his or her preparer tax identification number (PTIN). A new category of representative—registered tax return preparer—has been added to the form.

In discussions with Benson Goldstein, senior technical manager, tax, for the AICPA, the IRS has indicated that only the new version of Form 2848 will be accepted, starting on March, 1. Husbands and wives who already had a power of attorney on file as of that date do not have to file new separate forms.

Wednesday, February 8, 2012

TIGTA: Revise Form 1099-R to improve taxpayer compliance

FEBRUARY 7, 2012
In a report released on Tuesday, the Treasury Inspector General for Tax Administration (TIGTA) recommended the IRS change its Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., to improve taxpayer compliance with reporting and paying tax on this type of income (TIGTA, Opportunities Exist to Identify More Taxpayers Who Underreport Retirement Income (2012-30-011) (1/30/12)).

TIGTA performed an audit of selected 2007 tax returns to determine if the IRS has effective controls and processes in place to ensure that taxpayers and retirement income payers are computing and reporting the taxable portion of retirement income correctly.

The IRS has estimated that underreported retirement income added $4.2 billion to the tax gap in 2001. For 2008 and 2009, taxpayers filed approximately 21 million returns reporting $293 billion in income from IRAs, and approximately 52 million returns reporting $1 trillion in income from pensions.

In its audit, TIGTA found that taxpayers are receiving contradictory and confusing information on Forms 1099-R that they receive. Some of the confusion stems from Forms 1099-R that report a taxable amount, but also have the box checked indicating that the taxable amount could not be determined. TIGTA says the Form 1009-R instructions require some payers to complete the form this way.

TIGTA also reported that some taxpayers receive Forms 1099-R reporting gross distribution amounts but with the taxable amount left blank. Current IRS guidelines do not require the payer to always include the taxable amount on Form 1099-R when it cannot be determined.

Among the changes TIGTA recommended were:
  • Clarify the meaning of “Taxable amount not determined” in box 2b of Form 1099-R to reduce taxpayer confusion (the current Form 1099-R instructions for recipients state, if box 2b is “checked, the payer was unable to determine the taxable amount.”). According to TIGTA, the IRS should clearly communicate that the taxpayer is responsible for determining the taxable amount.
  • Include the dates of distributions and transfers on Form 1099-R and Form 5498, IRA Contribution Information, to enable the IRS to identify distributions not rolled over within the 60-day limit.
  • Establish procedures to transcribe additional lines from various tax forms (this section of the report is heavily redacted, but the legible part suggests converting the simplified method worksheet that taxpayers complete in determining the taxable and tax-free amount of their pension into a tax form that is required to be filed with the tax return).

The IRS responded to these suggestions by agreeing to clarify the box 2b, taxable amount not determined, instructions. However, the IRS did not agree that including the dates of distributions and transfers would increase compliance. It agreed to study whether requiring taxpayers to file the worksheet and including any other forms in reporting would increase compliance without burdening taxpayers too much.

Friday, February 3, 2012

The basics of S corporation stock basis

Avoid problems in calculating and tracking shareholders' basis.

S Corporation Stock Basis
The concept of basis is simple, but calculating basis for S corporation stock takes much of many CPA tax practitioners’ time and energy. Why is this the case?

Basis measures the amount that the property’s owner is treated as having invested in the property. At the start of the investment, this is the property’s cost. But in the S corporation context, basis can become a moving target as a shareholder’s investment in the company changes. Unlike with C corporation stock basis, which stays the same each year, annual income, distributions and loans can all affect an S corporation shareholder’s basis, in sometimes surprising ways.

Calculating the S corporation shareholder’s basis correctly is important because it measures the amount the shareholder can withdraw or receive from the S corporation without realizing income or gain. The shareholder’s basis should reflect the shareholder’s economic investment in the corporation. Basis adjustments should be made at the end of each taxable year, taking into account income, distributions and deductions and losses—in the right order.

Often, the task of tracking basis is neglected because, when a profitable company makes only minimal distributions, the number simply doesn’t matter—until a major change happens, such as a change in the shareholder’s ownership or the end of the company’s life. When individuals embark on an investment or business venture, they often don’t think about what happens when the venture is over. Unless the tax accountant preparing the shareholder or company tax returns has the foresight to begin and maintain the basis calculations, piecing stock basis back together is like reconstructing a mosaic without all the pieces—it’s tedious, often difficult and sometimes nearly impossible. CPAs can help their shareholder clients avoid this mess by tracking basis from day one or as soon as they realize that their clients’ basis records are lax.

Wednesday, February 1, 2012

Business Tax Resources for 2012

Jan. 2, 2012
The new year brought with it several tax law changes, including new credits for hiring veterans, new rules for capital gain and foreign financial asset reporting, and an increased due diligence penalty for practitioners who prepare returns that claim the earned income credit.
Tax relief and health care acts shape 2011 returns  January 2012
Keep on top of this tax filing season’s changes in tax law and practice and procedure. Plus: A downloadable PDF with a handy collection of important numbers for individual returns to keep at your fingertips during tax season.
Many tax provisions set to expire at year-endDec. 22, 2011
While Congress has focused on trying to extend the reduced payroll tax rate, a large number of other expiring provisions have been ignored. Among the changes scheduled to take effect January 1 are elimination of 100% bonus depreciation and increased Sec. 179 expensing amounts, reduction of the AMT exemptions to their statutory levels, and expiration of the research and development credit.
Standard mileage rates for 2012 releasedDec. 9, 2011
The IRS released standard mileage rates for use in 2012. Taxpayers can use the optional standard mileage rates to calculate the deductible costs of operating an automobile.

Tax filing resources for individuals—Tax year 2011

JANUARY 24, 2012

Tax filing season resources
This is the one-stop shop for all the updates you need to know for this year’s tax filing season. Find resources from the Journal of Accountancy, plus tax return checklists and tax savings tips from the AICPA, categorized by tax topic. 
Tax season startsJan. 16, 2012
Tuesday, Jan. 17, marks the start of tax season, as the IRS opens up its system to accept e-filed individual tax returns. It will also start accepting returns through its Free File program. Unlike last year, when the start of tax season was delayed for some taxpayers by last-minute tax law changes, this year the IRS will be accepting all individual returns when it opens up its e-filing system.
New tax provisions for 2012Jan. 2, 2012
The new year brought with it several tax law changes, including new credits for hiring veterans, new rules for capital gain and foreign financial asset reporting, and an increased due diligence penalty for practitioners who prepare returns that claim the earned income credit.
Tax relief and health care acts shape 2011 returns 
January 2012
Keep on top of this tax filing season’s changes in tax law and practice and procedure. Plus: A downloadable PDF with a handy collection of important numbers for individual returns to keep at your fingertips during tax season.
Standard mileage rates for 2012 releasedDec. 9, 2011
The IRS released standard mileage rates for use in 2012. Taxpayers can use the optional standard mileage rates to calculate the deductible costs of operating an automobile.