Tax News and Updates

Tax Amnesty in Illinois Signed into Law

The state of Illinois will be offering a tax amnesty program through November 8, 2010. This particular program (IL Senate Bill 377) had been languishing on the Governor's for two months until it was finally signed into law on August 16th. Tax debts arising from the period of June 30, 2002 to July 1, 2009, are eligible for penalty and interest waivers if paid in full before November 8th. The law also doubles penalties and interest for taxpayers who don't participate in this amnesty.

Obama's Economic Advisors Analyze Opportunities for Tax Reform

The President's Economic Recovery Advisory Board released their report examining various opportunities for reforming the tax system in the United States of America. PERAB held a conference call today to release their report, to summarize their concerns, and then voted to send the report to President Obama for review. The tax reform report is available for download from the Whitehouse Web site (126 pages in pdf format).

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Six Tax-Efficient Ways to Pay for Back to School Items

Students going back to school can utilize a variety of tax-favored ways to pay for college tuition, books, supplies, and computers. Here's six ideas for paying for school expenses that have varying degrees of tax efficiency:

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Saying Farewell to the Advance Earned Income Credit

2010 will be the last year for the advance earned income credit. This program, first enacted in 1978, enables lower-income taxpayers to receive a portion of their expected earned income credit in advance as an additional amount in their normal paycheck. The program will remain in effect through December 31, 2010. After that, taxpayers will no longer be able to receive advances of their earned income credit.

In 2008 (the last year for which data is presently available) 140,253 taxpayers reported receiving advanced earned income credit payments totalling $78,248,000. (IRS Statistics of Income, 2008 Individual Complete Report, section 1, table A, page 5, PDF.)

Elimination of the advanced earned income credit is part of HR 1586. This legislation provides funding to states to assist in hiring school teachers and to fund state Medicaid programs. To pay for those programs, Congress eliminated the advanced Earned Income Credit and tightened the rules regarding foreign tax credits.

The foreign tax credit is designed to help people and businesses avoid paying US tax on the same items of income that are also taxed in a foreign country. Some taxpayers, however, utilized a splitting strategy to defer reporting foreign income while at the same time taking a foreign tax credit in the US against this deferred income. HR 1586 tightens rules relating to the accounting of foreign income, foreign subsidiaries and the use of tax treaties to prevent the misuse of the foreign tax credit.

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California Sending out Head of Household Audit Letters

California's Franchise Tax Board began mailing out some 135,000 notices to Californians who claimed the head of household filing status on their 2009 California return. The letters simply ask that the taxpayer answer a few questions to confirm that they are eligible to utilize the head of household status. Taxpayers can respond by mailing the audit questionnaire back to the state, by faxing in their answers, or by using California's Audit Letter Web Response application.

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Tax-Free Shopping for Back to School
Several states waive sales tax charges during the back-to-school shopping period. Different states offer a limited period of time, usually over a weekend, during which school supplies, clothing, and computers ...

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Florida Property Owners Get Help for BP Claims

Property owners in the state of Florida will be able to request new assessments from their county to help document the decline in property value from damage caused by the Gulf oil spill for the purpose of submitting a claim to British Petroleum. Appraisals will not be used, however, to re-assess property taxes.

Will Taxes Go Up in 2011?

One of the most pressing tax planning questions is where are tax rates heading for the year 2011? Because at the end of 2010, all of the tax breaks implemented under President George W. Bush will expire. Among a host of changes, tax rates will revert to their pre-2001 levels, roughly as follows:

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Donating Your House to the Fire Department for Training

Can a person obtain a tax deduction for donating his house to a local fire department that will burn the house down as part of a training exercise? In a recent court case (summarized by the Tax Professor Paul Caron), the Court did not decide on this issue of whether the taxpayers were eligible for a charitable deduction. Rather, the Court ruled that the taxpayer failed to supply the required documents to substantiate the value of his donation.

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Small Non-Profits Could Lose Tax-Exempt Status, IRS says

The IRS is encouraging small not-for-profits organizations to file any missing tax returns for the years 2007, 2008 and 2009. The underlying issue, apparently, is a change in how smaller charities report their income to the IRS. For 2006 and earlier years, non-profits with annual receipts of $25,000 or less were exempt from filing returns with the agency. Starting with 2007, charities are required to file regardless of the size of their income. Smaller charities may be eligible to file the so-called electronic postcard (Form 990-N) or the shorter Form 990-EZ. The IRS is providing a special grace period: as long as all returns are filed by October 15, 2010, non-profit organizations will be able to keep their tax-exempt status.

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