A blog post

Third Quarter, 2009 Tax Developments

Posted on the 04 November, 2009 at 10:06 pm Written by in Taxes

The third quarter of 2009 has seen a flood of new federal tax developments. We’d like to highlight some of the more important federal tax developments for you. As always, please give our office a call or send us an email if you have any questions about these developments.

 Audits

The IRS is gearing-up to launch a new employment tax compliance project. The project is expected to focus on four areas: worker classification, fringe benefits, non-filers, and officers’ compensation. Taxpayers will be randomly selected for the NPR study of employment tax noncompliance.         

First-time homebuyer credit

 The first-time homebuyer credit, which reaches 10 percent or $8,000 of the purchase price of a qualified residence, is set to end after November 30, 2009. A residence constructed by the taxpayer only qualifies for the first-time homebuyer credit if the taxpayer occupies it on or before November 30, 2009.

 Motor vehicle sales tax deduction

In July, the IRS reminded taxpayers that the motor vehicle sales tax deduction may be claimed for more than one vehicle butthe deduction per vehicle is limited to the tax on up to $49,500 of the purchase price of each qualifying vehicle. The deduction phases out for higher-income individuals. If you are considering a new car or truck purchase before year-end, please contact our office for more information about this valuable tax incentive.

 Filing status

The Tax Court signaled in July that it does not plan to extend married filing joint status to same-sex couples anytime soon (Merrill v. Commr). Married filing joint status is based on a marriage, the court found. The Defense of Marriage Act of 1996 declared for federal purposes that marriage is between a man and a woman and a spouse is defined as a person of the opposite sex.

Roth IRAs

Effective for 2010, individuals will be able to roll over funds to a Roth IRA regardless of current income and other restrictions, the IRS reminded taxpayers in September. The IRS also issued interim guidance on rollovers from employer plans to Roth IRAs. It’s not too early to start planning for Roth IRA conversions. Please contact our office if you have any questions.

Refunds

Starting in 2010, taxpayers can check a box on their return to use all or part of their refund to purchase Series I U.S. savings bonds. The bonds will be mailed directly to the taxpayer.

COI income

The IRS issued election procedures in August for deferring cancellation of indebtedness (COI) income on repurchased debt.

The American Recovery and Reinvestment Act of 2009 enacted Code Sec. 108(i) giving taxpayers an election to defer COI income from the reacquisition at a discount of an applicable debt instrument in 2009 or 2010. The income is deferred until 2014 and then must be reported ratably over five years, through 2018.

WOTC

The American Recovery and Reinvestment Act of 2009 added two new targeted groups for the Work Opportunity Tax Credit (WOTC): disconnected youth and unemployed veterans working for an eligible employer during 2009 or 2010. In August, the IRS clarified who qualifies as a disconnected youth or unemployed veteran and provided some transition relief.

 S corporations

S corporations are a popular choice of business entity. The IRS reminded S corporation shareholders that when corporate officers perform a service for the corporation and receive or are entitled to payments, these payments are considered wages.

Accounting methods

In September, the IRS announced revised procedures for automatic consent to change of accounting method. Generally, taxpayers must obtain IRS consent to change a method of accounting. The IRS has attempted to streamline this process by permitting taxpayers to obtain automatic consent for over 140 enumerated changes.

LLCs and LLPs

In July, the Tax Court rejected the IRS’s claim that members of limited liability companies (LLCs) and limited liability partnerships (LLPs) should be automatically presumed not to materially participate in the entities’ activities under the Tax Code or temporary regulations (Garnett v. Commr).