Navigation

The Bottom Line

                                               SITE BLOG

 

Wednesday
Dec172014

Congress passes tax extender legislation.

Detail list at bottom. LINK

By Alistair M. Nevius, J.D. 
December 16, 2014

The Senate passed a bill to retroactively extend more than 50 expired tax provisions through 2014, by a vote of 76–16 on Tuesday evening. The extender bill passed the House of Representatives on Dec. 3, and it now goes to President Barack Obama for his signature. The Joint Committee on Taxation estimates that the one-year extension of the expired provisions will cost the government almost $42 billion in lost revenue over 10 years.

Among the highlights of the bill: The research and development (R&D) credit, first-year bonus depreciation, and the increased Sec. 179 expensing limits are all extended.

The bill, H.R. 5771, known as the Tax Increase Prevention Act of 2014, temporarily extends a host of expired individual, business, and energy tax breaks, as well as certain provisions relating to multiemployer defined benefit plans. The bill also makes some technical corrections to prior legislation.

H.R. 5771 includes another bill, the ABLE Act of 2014, which provides for tax-favored accounts that will allow disabled individuals to save money to pay for their disability expenses.

The bill contains various offsets, designed to pay for the anticipated revenue lost from the creation of ABLE accounts. Among these offsets are:

  • Amending the definition of personal holding company income to exclude dividends received by U.S. shareholders from controlled foreign corporations;
  • Instituting inflation adjustments for certain civil penalties (see below);
  • Enacting a new Sec. 3511, allowing for certified professional employer organizations, which will be treated as an employer for work-site employees performing services for customers of the organization for employment tax purposes.

Earlier proposals to permanently extend some expired provisions, or to extend all provisions two years, through 2015, were not adopted.

Tax incentives for individuals

Tax incentives for individuals that are extended through 2014 include:

  • The Sec. 62 deduction for certain expenses of elementary and secondary school teachers;
  • The Sec. 108 exclusion from gross income of discharge of qualified principal residence indebtedness;
  • The Sec. 132 provision providing parity between employer-provided mass transit and parking benefits;
  • The Sec. 163 treatment of mortgage insurance premiums as qualified residence interest;
  • The Sec. 164 deduction for state and local general sales taxes;
  • The Sec. 170 special rule for contributions of capital gain real property made for conservation purposes;
  • The Sec. 222 above-the-line deduction for qualified tuition and related expenses; and
  • The Sec. 408 provision allowing tax-free distributions from individual retirement plans for charitable purposes.

Tax incentives for businesses

Business tax incentives extended through 2014 include:

  • The Sec. 41 R&D credit;
  • The Sec. 42 temporary minimum low-income housing tax credit rate for nonfederally subsidized buildings;
  • The military housing allowance exclusion for determining whether a tenant in certain counties qualifies as low-income under the Housing Assistance Tax Act of 2008, P.L. 110-289;
  • The Sec. 45A Indian employment tax credit;
  • The Sec. 45D new markets tax credit (and carryovers of the unused limitation are extended through 2019);
  • The Sec. 45G railroad track maintenance credit;
  • The Sec. 45N mine rescue team training credit;
  • The Sec. 45P employer wage credit for employees who are active duty members of the uniformed services;
  • The Sec. 51 work opportunity tax credit;
  • Sec. 54E qualified zone academy bonds;
  • The Sec. 168 provision classifying certain race horses as three-year property;
  • The Sec. 168 provision allowing 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements;
  • The Sec. 168 provision allowing a seven-year recovery period for motorsports entertainment complexes;
  • The Sec. 168 provision allowing accelerated depreciation for business property on an Indian reservation;
  • Sec. 168 bonus first-year depreciation (for certain property with longer production periods, the property must be placed in service before Jan. 1, 2016);
  • The Sec. 168 election to accelerate the alternative minimum tax credit in lieu of bonus depreciation (and special rules were added for round 4 extension property);
  • The Sec. 170 enhanced charitable deduction for contributions of food inventory;
  • The increased expensing limitations and treatment of certain real property as Sec. 179 property;
  • The Sec. 179E election to expense mine safety equipment;
  • The Sec. 181 special expensing rules for certain film and television productions;
  • The Sec. 199 deduction allowable with respect to income attributable to domestic production activities in Puerto Rico;
  • The Sec. 512 modification of tax treatment of certain payments to controlling exempt organizations;
  • The Sec. 871 treatment of certain dividends of regulated investment companies (RICs);
  • The Sec. 897 treatment of RICs as qualified investment entities under the Foreign Investment in Real Property Tax Act, P.L. 96-499;
  • The subpart F exception for active financing income;
  • The Sec. 954 lookthrough treatment of payments between related controlled foreign corporations under foreign personal holding company rules;
  • The Sec. 1202 exclusion of 100% of gain on certain small business stock;
  • The Sec. 1367 allowance for basis adjustments to stock of S corporations making charitable contributions of property;
  • The Sec. 1374 reduction in S corporation recognition period for built-in gains tax;
  • Sec. 1391 empowerment zone tax incentives;
  • The Sec. 7652 temporary increase in the limit on cover over of rum excise taxes to Puerto Rico and the Virgin Islands; and
  • The American Samoa economic development credit under the Tax Relief and Health Care Act of 2006, P.L. 109-432.

Energy tax incentives

Various energy tax provisions extended through 2014 include:

  • The Sec. 25C credit for nonbusiness energy property;
  • The Sec. 30C credit for alternative fuel vehicle refueling property;
  • The Sec. 40 second-generation biofuel producer credit;
  • The Sec. 40A incentives for biodiesel and renewable diesel;
  • The Sec. 45 production credit for Indian coal facilities placed in service before 2009;
  • The Sec. 45 credits with respect to facilities producing energy from certain renewable resources;
  • The Sec. 45L credit for energy-efficient new homes;
  • The Sec. 168 special allowance for second-generation biofuel plant property;
  • The Sec. 179D deduction for energy-efficient commercial buildings;
  • The Sec. 451 special rule for sales or dispositions to implement Federal Energy Regulatory Commission or state electric restructuring policy for qualified electric utilities; and
  • The Secs. 6426 and 6427 excise tax credits relating to certain fuels.

Pension plan provisions

Finally, two provisions affecting multiemployer defined benefit pension plans are extended through 2015:

  • The Sec. 431 automatic extension of amortization periods; and
  • The shortfall funding method and endangered and critical rules under the Pension Protection Act of 2006, P.L. 109-280.

Inflation-adjusted civil penalties

The following penalties will be adjusted for inflation after 2014:

  • The Sec. 6651 penalty for failure to file a tax return or pay tax;
  • The Sec. 6652(c) penalty for failure to file certain information returns;
  • The Sec. 6695 return preparer penalty;
  • The Sec. 6698 penalty for failure to file a partnership return;
  • The Sec. 6699 penalty for failure to file an S corporation return;
  • The Sec. 6721 penalty for failure to file correct information returns; and
  • The Sec. 6722 penalty for failure to furnish correct payee statements.

 Alistair M. Nevius ( anevius@aicpa.org ) is the JofA’s editor-in-chief, tax.

Wednesday
Dec172014

Another List of Things Successful People Do.

American Express Open Forum

 

The two things I have seen on all of these lists are: #5. They Are Willing to Fail and #2. They Exercise Incredible Drive. These are in my opinion central to all the other elements of success going hand in hand like a married couple. A willingness to risk loss is central to any advance be it scientific, business, political, militarily, or personal relationships. It is the acceptance to pay a price for wanting more.  The second item, #2. They Exercise Incredible Drive is the mate to the first one.  It is the long hard work the successful give to reach their goal.  And that long hard work, that effort may require sacrificing personally in time with family and friends and even sacrificing relationships that work counter to their goal. Without guarantee of succeeding. Those are high personal costs in the one thing that cannot be bought for any price, time.  People will forgive, forget, accept the failings of others but time will not return to be spent again.

One can work hard and never be successful because the acceptance of failure was not present. One can accept failure and never pay the price in effort. If you choose to do one would it not be good to do the other? 

Monday
Dec012014

IRS Has Millions of Dollars in Frozen Credit Accounts

WASHINGTON. D.C. (NOVEMBER 26, 2014)

 

The Internal Revenue Service needs to take action to resolve millions of dollars in so-called “frozen credit accounts” that are effectively in a state of limbo, preventing some taxpayers from receiving their tax refunds, according to a new government report.

J. Russell George

The report, from the Treasury Inspector General for Tax Administration, examines the accounts, which require special handling or await the occurrence of a pending future event. The IRS’s computer system uses special coding to identity these types of accounts. These situations are commonly referred to as freeze conditions. Taxpayer accounts in “credit” status (in which payments exceed assessments), and also coded with at least one freeze condition, are commonly referred to as frozen credit accounts.

If the freeze conditions are not adequately identified and resolved, TIGTA noted, IRS processing of taxpayer frozen credit accounts can be delayed and taxpayers can be adversely affected by delayed refunds or payments not applied to the proper tax modules.

Frozen credit accounts that are not adequately identified and resolved could also lead to barred assessments, collections and refunds due to the expiration of the applicable statute of limitations; unnecessary payment of additional interest to taxpayers for not issuing applicable refunds on a timely basis; or taxpayer burden if the delayed refunds or payments not applied to the proper tax module affect a taxpayer’s ability to meet their financial obligations.

The IRS has procedural requirements and standardized systemic checks in place to identify and resolve most frozen credit accounts. In addition, the IRS has conducted research projects to help identify ways to improve the processing of these accounts. However, TIGTA’s review found that further IRS actions are still needed to resolve some frozen credit accounts and some IRS computer systems need modifications to better reflect current procedures.

By reviewing samples of three different frozen credit conditions, TIGTA identified 156 individual tax modules with credits of $46.4 million and 128 business tax modules with credits of almost $1.6 billion for which the IRS did not take actions that could have resolved the credit tax modules sooner.

“By improving adherence to its processing procedures and making improvements to certain computer systems, the IRS can minimize resolution delays for many frozen credit accounts,” said TIGTA Inspector General J. Russell George in a statement.

TIGTA made 10 recommendations for the IRS to re-emphasize its existing procedures, establish and enforce new procedures, and make improvements to its computer systems. In response, IRS management agreed with nine of the 10 recommendations and plans to take appropriate corrective actions. However, IRS management stated that, due to resource constraints, they will not take corrective actions for two of the agreed recommendations related to improving computer systems. For the one disagreed recommendation, IRS management said it believes the current process will ensure that credits are properly resolved within the Offshore Voluntary Disclosure Program. TIGTA contended that it continues to believe that the IRS remains at risk for not resolving frozen credits in taxpayer accounts by not implementing all of the recommendations.

“As you acknowledge in your report, we have detailed procedures and standardized systemic checks to identify and resolve the conditions leading to a frozen credit in a taxpayer’s account,” wrote Karen Schiller, commissioner of the IRS’s Small Business/Self-Employed Division. “Most special conditions are resolved within a few months. And, as you also note in your report, we have initiated research projects to help identify ways to improve frozen credit processing. These projects have resulted in several recommendations, many of which we have implemented with the goal of returning frozen credit accounts to the normal compliance process and providing taxpayer refunds, when appropriate, in a more timely and efficient manner. However, you found that further action is needed to resolve some accounts with frozen credit condition and recommended we take several actions to improve our performance in resolving these accounts. We agree that there are additional actions we can take.”

Tuesday
Nov182014

Need Want and a Full Gas Tank

A client stopped by today to drop off his weekly paperwork. We chatted and he told me his vehicle ran out of gas earlier today. He walked to a gas station and bought a gallon and poured it into his vehicle then continued on.  This time of year his business slows down and I know he gets tighter with his cash. This client is cautious. He keeps a reasonable emergency fund in cash, pays for business insurance in full at the start of the policy, and over-pays his estimated taxes. Why would he let his vehicle run out of gas?

Asking why a person does or does not act will not get the real answer.  Ask people why a person does something the person knows is stupid and most people will answer “I was not thinking.” Chatting with him I learned he was headed to a gas station for gas and then to a vendor nearby it. He wanted to buy gas at that station because it cost 27¢ less a gallon and it was close to his next stop.  He felt he could reach it with the gas in his vehicle’s tank. At this point of the conversation he adds that when he got back to his vehicle a tow truck driver was sitting behind his vehicle.  Houston enacted Safe Clear which authorizes tow truck drivers to remove “abandoned” vehicles from the freeways and feeder roads to ensure the free flow of traffic.  He was fortunate to return to his vehicle before the driver towed his vehicle to the impound yard, a.k.a. car jail.  The cost to bail his vehicle out of car jail would be over $250; if he got there the same day it is impounded.  For each day a vehicle is impounded a storage fee is added.  For this client $250 is a large amount of cash at this time of the year.  And the possible cost could have been much higher.  After telling him about Safe Clear my client fell silent thinking about his choice and the possible outcome had his vehicle been towed. He left after stating “I dodged a bullet.”

I learned why he ran out of gas; he wanted to buy gas from a station with less expensive gas prices, 27¢ less per gallon.  And it was close to his next stop.  It was a choice he made knowing the vehicle’s fuel level was low.  He felt he would reach the desired station with the fuel in his vehicle’s gas tank. It was his wants and feelings that determined his thinking. My client let his wants determine his choice, not a principle, or the facts of the situation.  The fact for my client was his vehicle’s gas gage indicated the tank was empty.  The need was for him to stop at the next gas station and buy gas.

Sadly most people do the same. People use their wants and feelings as the reason for a choice. Not the facts or needs.  People buy vehicles because of how they feel driving it.  Or want to project an image of success, glamor, or being in the right crowd.

When you choose ask yourself if you are choosing to satisfy a want, a feeling, or is it based on the facts and needs. Knowing why you making the choice may make you change it.  

Tuesday
Oct142014

Businesses See More Revenue & Profit if Using a Public Accountant, Says Survey

by Isaac M. O'Bannon

budget_1_.542b2654cbadc.png

Small busineseses are much more confident heading into 2015, based largely on significantly increased revenues and profits so far in

2014, according to a new survey of small business owners. Small businesses who use a professional public accountant, like a CPA, reported even greater gains than businesses that did not.

Overall, the study, commissioned by online accounting software maker Xero, showed that 81 percent of small businesses experiencing revenue growth this year, 22 percent are seeing gains of more than 100 percent.

For 2015, nearly 90 percent forecast a revenue increase, with 21 percent expecting to grow more than 100 percent. This data shows that

SMBs are having a fiscally healthy 2014 with no signs of stopping in the new year. As a result of such significant growth, SMBs are confident, happy and taking risks:

  • A Certainty of Satisfaction: 87 percent are content to extremely satisfied with how their business is performing.
  • Risky Business: 68 percent of small businesses never or only occasionally take a risk while 32 percent will almost always take a risk.
  • Nothing Ventured, Nothing Gained: These risk takers have experienced a 49 percent growth in revenue over the last 12 months vs. 43 percent for non or occasional risk takers.
  • Glass Half Full: Risk taking SMBs are also more optimistic, forecasting 63 percent growth over the next 12 months vs. 51 percent for those who are risk averse.

In order to achieve 2015 goals and grow their businesses, SMBs are looking to expand their teams and invest in top talent such as accounting professionals:

  • Hiring Now and in the Future: 51 percent of small businesses plan to hire now and through 2015.
  • Employing an Accountant Pays Off: SMBs who use an accounting professional with online accounting software experienced a 16 percent increase in revenue over businesses that do not work with an accountant but use online accounting software.
  • Using More Accountants Equals More Revenue: When SMBs pair an outside accounting professional with an internal one and use online accounting software they increase the prior mentioned revenue gains by 50 percent – seeing a 24 percent increase in revenue vs. 16 percent when working with only one accountant.

“We’re thrilled to see that small businesses are growing, thriving and hiring,” said Jamie Sutherland, Xero’s U.S. President. “As a company that makes online accounting software, we hear every day from business owners how having an accurate, up-to-date view of their financials is key to their growth. It’s great to see the actual data support this with significant revenue gains when business owners work with an accountant and use accounting software.”

Link