2011 New Law Letter

•     Selected “Individual” Tax Breaks Expiring After 2012: 1) enhanced rules for Coverdell education savings accounts; 2) enhanced student loan interest deduction; 3) enhanced earned income tax credit; 4) expanded and enhanced $1,000 child credit; 5) expanded child and dependent care credit; 6) expanded and enhanced American Opportunity Tax credit (formerly the “Hope” credit); 7) expanded rules for tax-free treatment of scholarships under the NHSC Scholarship Program and the Armed Forces Scholarship Program; and 8  )  tax-free employer-provided educational assistance up to $5,250 per year.

•     Planning Alert! Although Congress has traditionally extended a majority of expiring tax breaks in the past, there is no guarantee that it will do so in the future.

Estate And Gift Tax Relief Through 2012. Over the years, the estate tax has generally been imposed only on estates exceeding certain dollar amounts (“exclusion amounts”). In 2001, Congress increased the estate tax exclusion amount in stages and, by 2009, the estate tax applied only to taxable estates in excess of $3.5 million. The 2001 Act also repealed the estate tax for “2010 only.” The Tax Relief Act reinstated the estate tax retroactive to January 1, 2010. For 2010 through 2012, the Act increased the estate tax exclusion amount to $5 million ($5,120,000 for 2012). This legislation also reduced the tax rate on the amount of the estate in excess of $5 million to 35% (down from 55%). Caution! For individuals dying after 2012, the exclusion amount is scheduled to revert to $1 million, and the top rate is scheduled to go back up to 55%.

•           Election To “Opt Out” Of The Estate Tax For 2010 Only.  For individuals dying in 2010, the new law allows an executor the option to use the rules in effect prior to the reinstatement of the estate tax (i.e., the “no estate tax” rules), or the new rules (i.e., a “$5 million exclusion amount”). Although this option to use the “no estate tax” rules for 2010 only, could save “estate” taxes for larger estates (e.g., those over $5 million), it could have a negative “income” tax impact on the beneficiaries who receive appreciated property from the estate. This is because an individual who inherits an asset from an estate that elects out of the estate tax, generally acquires a basis for income tax purposes equal to the lesser ofthe decedent’s basis or the value of the asset on the date of the decedent’s death (commonly referred to as a “modified carryover basis”). However, under the modified carryover basis rule, there is a limited amount of basis increase for certain appreciated properties (e.g., generally up to a $1.3 million increase with an additional $3 million for assets passing to the surviving spouse). By contrast, if the executor does not elect out of the estate tax for 2010, heirs of the estate will generally acquire an income tax basis equal to the asset’s value on the decedent’s date of death (even if this value exceeds the decedent’s tax basis). In other words, there is no $1.3 million or $3 million limit on the basis increase to the heirs, if the executor does not elect out of the estate tax. Thus, if an estate with appreciated assets makes the “no estate tax” election for 2010, beneficiaries who later sell appreciated property they inherited from the estate might have a lower basis in the property and, therefore, a larger gain on the sale.

•     Tax Tip. For most estates of decedents dying in 2010 that are valued at $5 million or less, using the “new rules” (i.e., $5 million exclusion amount) will probably be preferable to the “no estate tax” election since: 1) there will be no estate tax, 2) no Federal estate tax return is required to be filed for 2010, and 3) the heirs of the estate will generally have a basis in appreciated assets received from the estate equal to the fair market value of the assets at the date of the decedent’s death. Estates choosing to use the “new rules” (i.e., the $5,000,000 exclusion) do not have to make an “election.” The new estate tax rules apply automatically unless the executor affirmatively elects out of the estate tax for 2010 by timely filing a Form 8939.

 

• Elections And Due Dates. For estates of decedents dying in 2010, the IRS has recently announced the due dates 1) for making the “no estate tax” election (which also requires the use of the modified carryover basis rules), and 2) for filing an estate tax return (if required) where the election is not made. The “no estate tax” election is made on Form 8939, and is due no later than January 17, 2012. If the estate makes this election, it will not be required to file a federal estate tax return (i.e., Form 706), because the election exempts the estate from any federal estate tax. If the estate does not wish to “elect out” of the estate tax for 2010, no election of any sort is required. Instead, the estate will “automatically” be subject to the retroactive estate tax rules and will generally be required to file a federal estate return (Form 706) only if the estate has a value exceeding $5 million. If a Form 706 is required to be filed, the filing deadlines are as follows: 1) if the decedent died after 2009 and before December 17, 2010, the due date was September 19, 2011 (unless the estate timely requested an automatic 6-month extension allowing it to file and pay taxes by March 19, 2012); and 2) if the decedent died after December 16, 2010 and before 2011, the due date is 9 months after the date of death (unless the estate timely requested an automatic 6-month extension for filing Form 706 and paying taxes).

 

 

• Gift Tax. For 2011 and 2012, there is a single, unified, lifetime “estate” and “gift” tax exclusion amount of $5,000,000 ($5,120,000 for 2012). The gift tax rate for 2011 and 2012 on amounts in excess of the exclusion amount is 35%. This exclusion amount may be used to reduce otherwise taxable gifts during life and any unused amount may be used to reduce estate tax at death. Planning Alert! After 2012, the exclusion amount is currently scheduled to revert to $1 million, and the top gift tax rate is scheduled to increase to 55%. Tax Tip.  Any unused $5 million exclusion amount that passes from a spouse dying in 2011 or 2012 to the surviving spouse (as discussed above), may be used by the surviving spouse to reduce other wise taxable gifts made before 2013. Any amount not used to offset pre-2013 gifts, may be used in the surviving spouse’s estate if the surviving spouse dies before 2013.

Two Percent Social Security Tax Holiday For “2011 Only.” For 2011 only, there is a 2% reduction in Social Security taxes for both employees and self-employed individuals. Therefore, if you are an employee, your take-home pay for 2011 is generally being increased by 2% of each dollar of compensation that you earn. However, since Social Security taxes apply only to the first $106,800 of compensation in 2011, your maximum savings will generally be $2,136 (i.e., $106,800 x 2%). Likewise, if you are self-employed, your Social Security taxes are reduced by 2% of your self-employment income for 2011 (up to $106,800). Therefore, if your self-employment income is $106,800 or more, your self-employment taxes will be reduced by $2,136. Tax Tip! This temporary Social Security tax reduction will not impact your future Social Security benefits.

 Adoption Credit Increased And Made Refundable For 2010 And 2011. For tax years beginning in 2010 and 2011, two significant changes were made to the adoption credit: 1) the maximum adoption tax credit was increased to $13,360 (for 2011) per child, and 2) the credit became “refundable” (this generally means that, to the extent the credit exceeds your income taxes before the credit, the IRS will send you a check for the excess). For 2011, the adoption credit is phased‑out as your modified adjusted gross income increases from $185,210 to $225,210 (whether you’re married filing a joint return, or single). Tax Tip. Generally, for “domestic” adoptions, you are allowed the adoption credit in the tax year following the year the qualifying adoption expense is “paid.” However, the credit is allowed for adoption expenses paid in the same tax year that the adoption is finalized. Therefore, qualified expenses for a “domestic” adoption paid during 2011 will generally result in a credit in 2012 (when the credit is no longer refundable). However, if you can finalize the adoption on or before December 31, 2011, your 2011 expenses will qualify for the credit in 2011 and the credit will be refundable if you have insufficient tax to utilize the credit. Tax Alert! For 2012, the adoption credit is scheduled to be reduced to $12,650 and will not be refundable. Foreign Adoptions. Expenses incurred in attempting to adopt a child who is not a citizen or resident of the United States, do not qualify for the adoption credit unless and until the adoption is actually finalized. Consequently, if you are currently pursuing the adoption of a foreign child, you will be entitled to the adoption credit for 2011 only if you finalize the adoption by the end of 2011.

Tax-Free Medical Benefits Extended To Children Under Age 27. Effective March 30, 2010, an employer‑provided health plan may provide tax-free reimbursements to an employee’s child who is under age 27 at the end of the tax year. This exclusion applies even if the employee cannot claim the child as a dependent for tax purposes. Previously, an employer could only reimburse “tax free” the medical expenses of an employee, the employee’s spouse and the employee’s “dependents.”   

In addition, if you are self-employed, you may take an “above-the-line” deduction (i.e., unrestricted by the limitations on “itemized deductions”) for health insurance premiums that you pay for your child who is under age 27 at the end of the year, even if the child is not your “dependent” for tax purposes.

RECENT NON LEGISLATIVE TAX DEVELOPMENTS  COURT CASES  AND RULINGS

In 2011, the IRS and the Courts have been busy issuing rulings and decisions that will affect many taxpayers. The following highlights some of the more important developments impacting individual taxpayers:

IRS Says Employee-Use Of Employer‑Provided Cell Phone Can Be Tax‑Free Fringe Benefit If Provided Primarily For Noncompensatory Business Reasons. If your employer provides you with a cell phone or similar communication device (e.g., PDA, Blackberry), the IRS has recently announced that this will be deemed a tax‑free fringe benefit so long as the phone is provided “primarily for non‑compensatory business reasons.” This generally means that if you are provided the phone because your employer needs to be able to contact you at all times for work‑related matters, your employer needs you to be available to speak with clients while you are away from the office, or you need to speak with clients in other time zones at times outside your normal work day, your phone will not be treated as taxable compensation to you. The IRS also announced that your employer may reimburse you for work‑related use of your personally‑owned cell phone, provided your employer requires you to use your personal phone for business purposes and the reimbursement is only for reasonable cell phone coverage. Planning Alert! The IRS warns that your employer‑provided phone (or your employer’s reimbursements for your personally‑owned phone) will be taxable if the arrangement is a substitute for compensation or there is no substantial business reason for you to have the cell phone. For example, if an employer provides you the phone primarily to promote goodwill among employees, or as a perk to attract employees, IRS says that this will constitute taxable compensation.

Tax Court Says A Consultant May Not Deduct Contributions To SEP If Determined To Be A “Common Law” Employee. Generally, if you are a sole proprietor or independent contractor, you can establish a qualified retirement plan (e.g., 401(k), SIMPLE Plan, SEP) and make deductible contributions. By contrast, if you are an “employee” and do not have another business, generally you may participate in your employer’s retirement plan, but you are not allowed to establish a separate 401(k) plan, SIMPLE Plan, or SEP for yourself. In a recent Tax Court case, an outside consultant was providing services primarily to one client that classified him as an “independent contractor” for tax reporting purposes. Consistent with that treatment, the consultant established a SEP to which he made deductible contributions. After an IRS audit, the IRS asserted that the consultant was really a “common law” employee of the client. The Court ultimately agreed with the IRS, and disallowed any deduction for the consultant’s contributions to his SEP, and also imposed an “excess contribution” excise tax on the contributions. Planning Alert!Determining whether a worker is an independent contractor or common law employee for tax purposes is a gray

area, and is generally a case‑by‑case determination. The IRS has recently advised its field agents to pay special attention to the “independent contractor” classification of professional “consultants” particularly former executives who are now providing similar services to their former employer as an independent contractor. Caution! If you are receiving income as an “independent contractor,” we should carefully analyze your classification before you establish a retirement plan for your business. This case illustrates that setting up a plan could be costly if you are later determined to be an employee and not an independent contractor.

District Court Decision Emphasizes Importance Of Reviewing Spousal Rights Under 401(k) Plans. Many employer‑sponsored retirement plans (e.g., a 401(k) plan) provide that if a participant dies, his or her plan balance must go to the surviving spouse unless the surviving spouse expressly waives survivorship rights to the plan account. In a recent case, a participant in a 401(k) plan named his three adult children as the beneficiaries of his 401(k) account after his first wife’s death. He later remarried and died 6 weeks after the wedding. Even though his children were expressly named as beneficiaries, the Court concluded that his 401(k) balance must go to his second spouse because she had not waived her spousal rights to the survivor benefit. Planning Alert! The participant could have avoided this problem by having his new spouse waive her spousal rights in the plan after he remarried, if she were willing to do so.

IRS Provides “Passive Loss” Relief For Real Estate Professionals Who Own Rental Real Estate. Generally, any losses from renting real estate, where the average period rented is more than seven days, are deemed for tax purposes to be “passive” losses. Passive activity losses (PALs) are generally suspended, and are not allowed unless and until you have qualifying “passive” income to offset the losses (dividends, interest, wages, and income from business activities in which you materially participate, are not considered “passive income” for this purpose). However, if you are a “qualified real estate professional” (QREP) and meet certain “material participation” tests, you will be able to deduct losses from your rental real estate activities even if you do not have passive income (e.g., the losses could offset your W‑2 compensation, interest, dividend income, and income from businesses in which you materially participate). Generally to be a QREP, (assuming that you meet certain “material participation” tests) you must: 1) spend more than 750 hours for the year working in qualifying real estate activities in which you materially participate, AND 2) spend over 50% of your work time for the year working in qualifying real estate activities in which you materially participate. As a QREP, you are also allowed to make a “tax” election to treat all of your rental real estate activities as a “single” rental real estate activity. Planning Alert! If you have multiple rental properties, this election frequently makes it easier for you to qualify as a QREP and also to meet the required “material participation” tests, allowing your rental real estate losses to offset your non‑passive income. This “aggregation” election is generally made by filing a statement with your original income tax return for the tax year you want to treat all of your real estate rental properties as a single activity. However, under new IRS guidance, you may now be able to make this election for prior tax years on an amended return if you meet certain conditions. Tax Tip. Making this election for prior tax years may insulate rental real estate deductions that you have taken in prior years from future IRS attack. These rules can be complicated, please call our office for additional information if you think this election might benefit you.

New Reporting Requirements For Owners Of Certain “Foreign” Investments Or Accounts.   Any U.S. person having interests in (or signature authority over) foreign financial accounts that in the aggregate exceed $10,000 at any time during the calendar year is required to file a foreign bank account report, Form TD F 90‑22.1 (FBAR), disclosing those accounts to the Department of Treasury. The FBAR is due by June 30 of the following year. Civil penalties for non‑willful failure to file the FBAR can range up to $10,000 per violation. The criminal penalties for willful failure to file a FBAR include a monetary penalty of up to $500,000 and a prison term of up to 10 years. Under the FBAR reporting rules, a “financial account” generally includes a securities, brokerage, savings, demand, checking, deposit, time deposit, or other account maintained with a foreign financial institution. A financial account also includes a commodity futures or options account, an insurance or annuity policy with a cash value, and shares in a mutual fund or similar pooled fund. Generally, a “foreign financial account” is a financial account located outside of the United States. For example, under the FBAR reporting rules, an account maintained with a branch of a United States bank that is physically located outside of the United States is a foreign financial account. An account maintained with a branch of a foreign bank that is physically located in the United States is not a foreign financial account. Tax Tip. The IRS recently clarified that owners and beneficiaries of IRAs or qualified retirement plans are not required to report a foreign financial account held in the IRA or qualified plan. In addition, IRS says that financial accounts maintained with a financial institution located on a U.S. military installation is not required to be reported.

The FBAR reporting rules have been in effect for years. However, recent legislation imposes a new reporting requirement on individuals who, for any tax year beginning after March 18, 2010, hold interests in “specified foreign financial assets” (SFFAs) exceeding certain threshold amounts. For example, IRS says reporting is required for individuals filing a joint return where the aggregate SFFAs are greater than $100,000 at the end of the year or greater than $200,000 at any time during the year. SFFAs include foreign financial accounts. However, according to the IRS, SFFAs also include other foreign financial assets held for investment including stock in foreign corporations; interests in foreign partnerships; notes, bonds and debentures, issued by foreign persons; interests in foreign trusts or estates; and many other types of foreign investment assets. SFFAs are required to be reported on Form 8938. Form 8938 is filed along with an individual’s income tax return for the applicable year. The penalty for failing to timely file Form 8938 generally ranges from $10,000 to $50,000. Planning Alert! For the vast majority of individuals subject to this new reporting requirement, the 2011 tax year will be the first year that the Form 8938 will be required to be filed. However, as we complete this letter, the IRS has not yet released its final Form 8938, or its regulations providing guidance on how these new reporting rules will work. Consequently, the IRS has announced that individuals are not required to file Form 8938 until the form is finalized and released to the public. Once it is finalized, Form 8938 will have to be filed with the individual’s next income tax return (and will have to include the required information for any previous “suspended” year). Caution! FBAR reporting is still required for persons with aggregate financial accounts (or signature authority over such accounts) in excess of $10,000. The Form 8938 reporting requirements are in addition to the FBAR reporting requirements. Tax Tip. If you need to file, or are uncertain whether or not you need to file a FBAR form or a Form 8938, we will be glad to assist you.

 

 

DEVELOPMENTS IMPACTING PRIMARILY BUSINESSES

 

• Qualifying 50%/100% §168(k) Bonus Depreciation Property. Property qualifies for the §168(k) bonus depreciation deduction if it is purchased new and it has a depreciable life for tax purposes of 20 years or less (e.g., machinery and equipment, furniture and fixtures, cars and light general purpose trucks, sidewalks, roads, landscaping, depreciable computer software, farm buildings, qualified motor fuels facilities and “qualified leasehold improvements”). Planning Alert! These are only examples of qualifying property. If you have a question about property that we did not mention, call us and we will help you determine if it qualifies.

 

• Re‑Conditioning Used Property. Although §168(k) bonus depreciation property must generally be “new,” capital expenditures incurred to re‑condition or re‑build used property may qualify. Example. Tim purchases a used machine for use in his business during 2011 for $50,000. Also during 2011, Tim incurs $20,000 to recondition the machine. The $50,000 cost of the used machine does not qualify for the §168(k) bonus depreciation deduction. However, the $20,000 expenditure to recondition the machine would qualify for the 100% deduction.

 

• Qualified Leasehold Improvement Property. Even though improvements to a commercial building do not generally qualify for the §168(k) bonus depreciation deduction, “qualified leasehold improvement property” (QLHIP) does qualify. Furthermore, QLHIP qualifies for the 100% deduction if it is “acquired and placed-in-service” after September 8, 2010 and before 2012. QLIP is generally any capital improvement to an interior portion of a building that is used for nonresidential commercial purposes, provided that 1) the improvement is made under or pursuant to a lease either by the lessee, sublessee or lessor of that interior building portion; 2) the interior building portion is to be occupied exclusively by the lessee or sublessee; and 3) the improvement is placed-in-service more than 3 years after the date the building was first placed-in-service. Planning Alert! QLIP does not include any improvement attributable to: the enlargement of the building; any elevator or escalator; any structural component benefitting a common area; or the internal structural framework of the building. Caution! Leasehold improvements made to property leased between certain related persons will not qualify.

• Newly‑Constructed Buildings And Cost Segregation Studies. Depreciable components of newly‑constructed or newly‑renovated buildings that are properly classified as depreciable personal property under a cost segregation study with a depreciable life of 20 years or less, qualify for the 100% §168(k) bonus depreciation if “acquired and placed-in-service” after September 8, 2010 and before 2012. In certain situations, these nonstructural components of the building might qualify for the 100% bonus depreciation even if the construction or renovation of the building itself began before September 9, 2010, provided you make a timely election to apply the 100% §168(k) rules separately to the components.

 

• 100% §168(k) Bonus Depreciation Property Generally Must Be “Placed-In-Service” By December 31, 2011. If you plan on making substantial acquisitions of machinery, equipment, business vehicles, or other property qualifying for the 100% §168(k) bonus depreciation, you must place the property in service on or before the end of 2011 (before the end of 2012 for certain long-production-period property and qualifying noncommercial aircraft). Generally, “placed-in-service” means the property is ready and available for use. To be safe, qualifying property should be set up and tested on or before the last day of 2011. Planning Alert! The §168(k) bonus depreciation reverts to 50% for qualifying property placed-in-service in 2012 (except for certain long-production-period property and qualifying noncommercial aircraft).

§168(k) Bonus Depreciation For Passenger Automobiles, Trucks, And SUVs. The maximum annual depreciation deduction (including the §179 deduction, discussed below) for most business automobiles is capped at certain dollar amounts. For a business auto first placed-in-service in calendar year 2011, the maximum first-year depreciation deduction is generally capped at $3,060 ($3,260 for trucks and vans not weighing over 6,000 lbs). However, Congress previously increased the first-year depreciation cap for vehicles qualifying for the §168(k) bonus depreciation deduction by $8,000 for 2008 and 2009. Recent legislation again extended this $8,000 increase through 2012 for new vehicles otherwise qualifying for the §168(k) bonus depreciation deduction. For example, let’s say you are self employed and you are planning to purchase a new vehicle weighing 6,000 lbs or less that will be used 100% in your business. If you buy a new car and place it in service during 2011, your first‑year depreciation deduction will be $11,060 ($11,260 if you bought a truck or van). Tax Tip! Trucks, vans, and SUVs with loaded vehicle weights over 6,000 lbs are generally exempt from the passenger auto annual depreciation caps discussed above. Therefore, if you buy a new “heavy” truck, van, or SUV and use it 100% in your business during 2011, you could deduct the “entire cost” for 2011 using §168(k).

§179 Deduction Increased From $250,000 To $500,000 For 2010 And 2011. For the last several years, Congress has increased the maximum §179 up-front deduction for the cost of qualifying new or used depreciable business property (e.g., business equipment, computers, etc.). For property placed-in-service in tax years beginning in 2010 and 2011, the §179 cap was increased from $250,000 to $500,000, and the beginning of the deduction phase-out threshold was also increased from $800,000 to $2,000,000. In addition, for 2010 and 2011 purchases, a taxpayer may elect for up to $250,000 of “qualified real property” (discussed in the next segment) to be §179 property. Prior to this change, real property generally did not qualify for the §179 deduction.

Taxpayers Can “Elect” To Treat Up To $250,000 Of “Qualified Real Property” As §179 

 

Selected “Business” Tax Breaks Scheduled To Expire. A host of current tax breaks for businesses not previously discussed in this letter are scheduled to expire unless Congress takes action to extend these provisions. The expiration dates for some of the more popular tax breaks are as follows:

 

IRS Expands Interim Relief From Reporting Cost Of Employer-Provided Health Insurance On W-2s. Beginning with 2011 W-2s, employers were generally required to report the cost of employer-provided health insurance coverage on Forms W‑2. In 2010, the IRS announced that this reporting would be “optional” for all employers for the 2011 Forms W-2 (generally given to employees in January, 2012). The IRS recently extended this interim relief by making the reporting of the health insurance cost “voluntary” for “2012 Forms W-2″ for employers that file less than 250 W-2s for the 2011 calendar. Therefore, if your business files less than 250 W-2s for compensation paid to employees in 2011, it will not be required to report the health insurance cost on the 2012 W-2s (generally filed in January 2013). Practice Alert! Reporting the health insurance cost on the W-2 is for information purposes only, it does not cause the premiums to be taxable to the employee.

 RECENT NON LEGISLATIVE TAX DEVELOPMENTS COURT CASES AND RULINGS

The following are highlights from some of the more important recent IRS rulings and Court cases that impact businesses:

 Tax Court Concludes That Pass‑Through Income To Law Firm Partners Operating As A Limited Liability Partnership (LLP) Was Subject To Social Security And Medicare Taxes. Partners of businesses operating as partnerships are generally subject to Social Security and Medicare taxes (SECA tax) on their business income from the partnership. For example, the pass‑through business income from a “general partnership” to a general partner is subject to SECA tax. By contrast, business income from a “limited partnership” to a limited partner is generally exempt from SECA tax except to the extent of any “guaranteed payments” made to the limited partner. However, it has never been entirely clear whether and to what extent pass‑through business income to the owner of a Limited Liability Company (LLC) or Limited Liability Partnership (LLP) is subject to SECA tax. Planning Alert! In a recent case, the Tax Court held that owners of a law firm operating as a “limited liability partnership” (LLP) should be treated as “general” (not “limited”) partners and, therefore, should be subject to SECA tax on all pass‑through business income from the LLP (whether or not distributed). The Court concluded that an owner of an LLP qualifies for the “limited partner” exception to SECA taxes only if the LLP owner is a “mere investor” who does not “actively participate” in the business operations of the LLP. Since the lawyers in this case were not mere investors and actively participated in the firm’s law practice, the Court imposed SECA tax on their business income from the partnership. Although this case dealt with an LLP and not a “limited liability company” (LLC), the IRS could easily try to extend the rationale of this decision to LLC owners.

IRS Warns Employers Using Outside Payroll Firms They Have Obligation To Make Sure Employment Taxes Are Paid. It has become an increasingly common practice for businesses to outsource their payroll to outside third parties, commonly referred to as Payroll Service Providers (PSPs), Professional Employer Organizations (PEOs), or “Employee Leasing Companies.” The IRS has recently announced that the outside firm may be held liable for failure to pay over payroll taxes. Planning Alert! The IRS also said that the mere use of an outside payroll firm does not eliminate the “common law employer’s” obligation for the payment of the payroll taxes even if the failure to pay is entirely due to the payroll service provider’s negligence or fraud. Caution!  For businesses using outside payroll firms, the IRS has offered the following advice: 1) It strongly suggests that the address of record with the IRS not be changed to that of the payroll service provider. If there are any issues with an account, the IRS will contact the employer. Changing the address may significantly limit the employer’s ability to be timely informed of tax matters involving its business. 2) The IRS advises employers to make sure that the payroll service provider is using the “Electronic Federal Tax Payment System” (EFTPS). EFTPS maintains a business’s payment history for 16 months and can be viewed and monitored by the employer on‑line. A red flag should go up the first time a payroll service provider misses a payment or makes a late payment. Tax Tip. The IRS cautions that there have been instances of individuals and companies acting under the guise of payroll service providers who have stolen funds intended for payment of employment taxes. IRS says that employers who believe that a bill or notice received is a result of a problem with their payroll service provider should contact the IRS as soon as possible by calling the number on the bill, or writing to the IRS office that sent the bill.

The IRS Announces That More Small Tax‑Exempt Organizations May File A Simplified Annual Information Return. For tax years beginning on or after January 1, 2010, tax‑exempt organizations with annual gross receipts of $50,000 or less can file Form 990‑N (“Electronic Notification e‑Postcard”). The threshold previously was $25,000 in annual gross receipts.

FINAL COMMENTS

Please contact us if you are interested in a tax topic that we did not discuss. Tax law is constantly changing due to new legislation, cases, regulations, and IRS rulings. Our firm closely monitors these changes. In addition, please call us before implementing any planning ideas discussed in this letter, or if you need additional information. Note! The information contained in this material represents a general overview of tax developments and should not be relied upon without an independent, professional analysis of how any of these provisions may apply to a specific situation.

Circular 230 Disclaimer: Any tax advice contained in the body of this material was not intended or written to be used, and cannot be used, by the recipient for the purpose of 1) avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, or 2) promoting, marketing, or recommending to another party any transaction or matter addressed herein.