Our commitment is to you and as such we have created a website that brings you the resources and information that we think is most important to today’s middle market business owner and their advisors.

As the Federal, state and local governments draft new policies that impact the business community, we will provide the information here – and most often we will also have a brief review of the implications for you.

Please visit this page whenever you are looking for the latest accounting and tax and business pronouncements!

New Jersey Governor Corzine signs budget legislation enacting higher taxes and preserving property tax rebates for some taxpayers

Posted 6/26/09

On June 29, 2009, New Jersey Governor Jon S. Corzine signed into law budget legislation that enacts higher cigarette, tobacco, and top-tier personal income taxes, extends a corporate income tax surcharge, and preserves the property tax rebates for lower and middle-income and disabled and senior taxpayers.

The IRS announced a program for those taxpayers who have not previously complied with rules concerning disclosure of foreign bank or brokerage accounts

Posted 6/26/09

Legal advice may be warranted in many situations, as disclosure of possible criminal activities (including non-filing of foreign account disclosure forms) to a non-attorney is not privileged.

Taxpayers who conduct business or make sales in more than one state should be alert to issues regarding taxation in states other than their "home" state due to budget crisis. States are now making collection of taxes an important issue and large penalties and interest payments can be due by late filers. States are inventing more ways to claim jurisdiction of out of state businesses and state legislators find the idea of collecting taxes from those who have no vote in their state very appealing!

Governor Announces Filing Deadline Extended for Homestead Rebate and Senior Freeze Program

Posted 6/3/09

The New Jersey Tax Amnesty Program will be in effect from
May 4, 2009 to June 15, 2009!

Posted 4/24/09

Governor Jon S. Corzine recently signed a bill into law that authorizes a Tax Amnesty Program for New Jersey.  The Amnesty Program will begin on May 4, 2009, and end on June 15, 2009.

In accordance with the law, “amnesty …shall apply only to State tax liabilities for tax returns due on or after January 1, 2002 and prior to February 1, 2009 and shall not extend to any taxpayer who at the time of payment is under criminal investigation or charge for any State tax matter.”

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There were a number of important tax developments in the first quarter of 2009, and while the new law tax changes in the American Recovery and Reinvestment Act of 2009 got the most attention, many other developments occurred that may also significantly affect you.
These other key developments in the first quarter of 2009 are summarized below. Please call us at 973-994-9494 for more information about any of these developments and what steps you should implement to take advantage of favorable developments and to minimize the impact of those that are unfavorable.

Clarifying guidance on waivers of RMDs for 2009. Retirement plan account participants, IRA owners, and their beneficiaries do not have to take required minimum distributions (RMDs) for 2009. The IRS has issued guidance clarifying that:

• If you would have been required to make RMDs for 2009 and you do make withdrawals in 2009 (that are not RMDs for 2008): (a) you might be able to roll over the withdrawn amounts into other eligible retirement plans; but (b) you must still include any previously untaxed portion of the withdrawal that you do not roll over in your gross income.
• No 2008 RMDs are waived, even for eligible individuals who chose to delay taking their 2008 RMD until Apr. 1, 2009 (e.g., retired employees and IRA owners who turned 70 1/2 in 2008).
• The 2009 RMD waiver applies to individuals who may be eligible to postpone taking their 2009 RMD until Apr. 1, 2010 (generally, retired employees and IRA owners who attain age 70 1/2 in 2009). However, the law does not waive any RMDs for 2010.
• If a beneficiary is receiving distributions over a five year period, he or she can waive the distribution for 2009, effectively permitting the beneficiary to take distributions over a six year period.

Getting maximum advantage from the homebuyer credit. In two separate pieces of guidance, the IRS has explained how to take maximum advantage of the credit for first-time homebuyers. The credit is the lesser of 10% of the purchase price or $8,000 for a qualifying 2009 purchase ($7,500 for a qualifying 2008 purchase). The credit is refundable, meaning you get it even if you don't owe taxes. The credit has to be paid back for a home purchased in 2008 but generally not for one purchased in 2009. Acredit for a 2009 purchase can be claimed on the 2008 return. In a news release, the IRS has explained the several different ways that individuals who recently purchased a home or are considering buying one in the next few months can claim the up-to-$8,000 credit for 2009 home purchases including getting an extension, filing now and amending later, amending a previously filed 2008 return or claiming the credit on a 2009 return where higher income in 2008 would reduce the credit under so-called phase out rules. In separate guidance, the IRS explained how unmarried co-owners can get the maximum credit amount.

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Health Savings Accounts
posted 4/1/09

Health Savings Accounts (HSAs) are tax-exempt savings accounts used to pay for qualified medical expenses. Due to the recent demand of consumer-directed health plans and with households bearing more health care risk burdens, HSAs, which were signed into law on December 8, 2003, were designed to help individuals save for future qualified medical and retiree health expenses on a tax-free basis. On a whole, these plans are intended to reduce health care spending and encourage more consumer control.

HSAs allow the consumer to deposit funds into the account on a tax-free basis, as well as withdraw funds without any tax consequences as long as the funds are used for qualified medical expenses. Employers may also deposit money into an employee’s HSA on a tax-free basis. The funds in the account can be invested and any earnings will not be taxed. Unused funds roll over from one year to the next and accumulate. HSAs must be used in conjunction with high-deductible health plans (HDHP). These plans have low monthly premiums, yet high deductibles. These HSA-eligible plans constitute a small but growing share of the private insurance market.

According to the U.S. Department of the Treasury, individuals that are eligible for HSAs are those that are covered by a HDHP, are not covered by any other health insurance, are not enrolled in Medicare (therefore, must be under the age of 65), and cannot be claimed as a dependent on someone else’s tax return. There are no income limits on who may contribute to a HSA. An individual may be enrolled in specific disease or illness insurance and accident, disability, dental care, vision care and long-term care insurance and still be eligible for a health savings account.

High Deductible Health Plans (HDHPs)

A high-deductible health plan usually costs less than traditional health care coverage costs. Money saved on insurance can therefore be put into the HSA. For the 2009 calendar year, the minimum deductible for HDHPs is $1,150 for self-only coverage and $2,300 for family coverage.¹

HDHPs are required to meet certain criteria, including minimum deductible amounts, which are higher than health plan deductibles on average and maximum limits on enrollee out-of-pocket spending. These amounts are annually adjusted for inflation. HSA-eligible plans are sold either to individuals or through group plans (those offered through employers).

HSA Contribution Rules

Contributions to HSAs can be made by the individual or employer or both. For 2009, the maximum annual HSA contribution is $3,000 for self-only coverage and $5,950 for family coverage.² Individuals over the age of 55 can contribute an additional $1,000 to their accounts in 2009 and going forward. These amounts can come from all sources—contributions can be made on behalf of an individual and then can be deducted by that individual. Contributions made by the employer are not taxable to the employees and are simply excluded from income and wages. Contributions made by the individual himself are considered “above-the-line” deductions. Contributions must be discontinued once an individual is enrolled in any type of Medicare, at the age of 65. Contributions to the HSA in excess of the contribution limits must be withdrawn by the individual or they are subject to a six percent excise tax.

Eligibility to contribute to an HSA is determined by the effective date of HDHP coverage. However, in 2007 and for the future, if someone is covered on December 1, they are treated as an eligible individual for the entire year. Nevertheless, if an individual ceases to be eligible during the following year, the excess over the pro-rated contribution is included in income and is subject to an additional ten 10% tax. The amount contributed to an HSA is not determined by the date of establishing the account. Medical expenses incurred before the establishment of the account cannot be reimbursed from the account.

HSA Distributions

Distributions from the HSA are tax-free if they are withdrawn solely for qualified medical expenses. Over-the-counter drugs are now included in these expenses. Qualified medical expenses must be incurred on or after the date the HSA was established. Tax-free distributions can be taken for qualified medical expenses of the individual covered by the high deductible and the spouse and any dependent of the individual (even if they are not covered by the HDHP). If any funds are withdrawn from the account that are not used for qualified medical expenses, this amount must be included in income, therefore will be subject to tax, and subjected to a 10% penalty tax (except if the person dies or becomes disabled or is 65 years old). HSA distributions can be used to reimburse prior years’ expenses as long as these expenses were incurred on or after the date of the establishment of the HSA.

Traditional medical costs such as diagnosis, treatment of disease and routine medical visits are allowable for HSA payments. Additionally, many expenses that might not be covered by traditional health insurance plans, such as prescription drugs, some non-prescription drugs, eye care, dental care, COBRA premiums, acupuncture, Braille books, midwife services, seeing-eye dogs and qualified long-term care services, can be paid for through HSA accounts.

How These Accounts Work

HSA accounts are owned by the individual, not the employer. This allows the individual to decide whether they would like to contribute, how much to use for medical expenses, which medical expenses to pay from the account, whether to pay for medical expenses from the account or to save the account for future use, which company will hold the account and what type of investments to use to grow the account. HSA accounts can be set us through banks, credit unions, insurance companies or entities already approved by the IRS, as well as through one’s employer. Like IRAs, HSAs can grow through investment earnings; they have the same investment options, same investment limitations and the same restrictions on self-dealing as with IRAs.

Since HSAs are owned by the account holder and the accounts are “portable,” individuals may keep their accounts even if they switch jobs or are no longer enrolled in an HSA-eligible health plan.

HSAs work in this way: individuals first spend from their HSA. If the HSA funds are exhausted before reaching the deductible, the individual must pay out-of-pocket. Once the deductible is reached, the insurance pays for all of the remaining costs. For 2009, the maximum annual out-of-pocket amount is $5,800 (for self-only coverage) and $11,600 (for family coverage).³

Comparison to Flexible Spending Accounts (FSAs)

The tax benefits on HSAs and FSAs are similar, but there are several differences between the two plans. Unlike in FSAs where “use it or lose it” rules apply, in HSAs, unspent balances in accounts remain in the account until spent—they roll-over to future years. Funds in the FSA must be spent by the end of the plan year or they are lost. For FSAs, individuals do not need to be enrolled in a high deductible health plan, unlike HSAs. Health savings accounts encourage account holders to spend their funds more wisely on their medical care.

From Employer’s Point of View

Employers may offer their employees HSAs as an alternative to traditional health insurance, increasing their own flexibility in managing health care costs. The benefits for an employer include lower premiums on employees’ health plans, lower payroll taxes (any HSA contributions made by employers are pre-tax or tax-deductible) and key recruiting incentives. Employers may contribute as little or as much as they would like to their employees’ HSAs, as long as the contributions do not exceed the annual statutory limit. Employer contributions must be comparable for all employees within the same category of coverage (i.e. self-only vs. family coverage and full-time vs. part-time employees). Since employees self-administer their HSA, there are minimal administrative costs for the employer.

Benefits of Health Savings Accounts

Many experts are recommending health savings accounts to help solve the retirement equation. An HSA can provide a valuable source of retirement income alongside a 401(k) and individual retirement account. HSAs offer a triple tax advantage—money contributed to the account is tax free, the account grows tax free and withdrawals for medical expenses are not taxed either.⁴ There are no time restraints on HSA withdrawals, unlike IRAs where investors are required to make mandatory distributions at age 70 1/2.

Proponents of HSAs, those who support consumer-directed health care, believe that these accounts will make consumers more cost-conscious, ultimately saving money for themselves and their employers. Opponents of HSAs argue that when only healthy individuals enroll in these plans, the risk pool of traditional insurance plans will become diluted with a sicker, more medically expensive population. In effect, these traditional plans will then have to increase cost sharing, potentially leading to a higher number of unemployed.⁵ Some critics believe HSAs will simply become a tax shelter for the wealthy, some think that patients are ill-equipped to judge proper care and that strong consumer choices may result in delay of needed care.

Health savings accounts seem most beneficial for single adults and high-income families.

Trends

According to a report by the United States Government Accountability Office compiled in April 2008, the number of individuals covered by HDHPs has increased significantly between 2004 and 2007, from .4 million to about 4.5 million, yet this still comprises a small share of individuals with private health coverage (about 2% of the population with health insurance in 2006).⁶ Participation in HSAs has also increased greatly and industry estimates suggest continued growth in HSA participation. However, not as many individuals, upon having established a HDHP, enrolled in an HSA concurrently.

The taxpayers with the highest HSA activity were those with higher incomes on average than other tax filers. The average AGI for filers with health savings accounts was approximately $139,000 compared with $57,000 for all other filers. These income differences existed across all age groups.⁷

Most participants in HDHP plans recommend them only for healthy consumers, but not for those who use maintenance medication, have a chronic condition, have children or do not have the funds to meet the high deductible.

HDHP plans are generally popular with employers because they are a way to cut health care costs. HSAs seem very advantageous to employers and insurers. However, HDHP plans are not immune from premium increases. Blue Cross/Blue Shield confirmed that premiums for its HDHPs rise in tandem with older plans.⁸

Consumer-directed plans encourage individuals to manage their own spending; however, a dearth of medical information available makes it difficult for consumers to shop around for care. Most insurers or health care programs do not disclose prices of different services, which adds to the difficulty of making informed spending decisions when a consumer has a HSA/HDHP.

1 - U.S. Treasury <http://www.treas.gov/press/releases/hp975.htm>
2 - U.S. Treasury <http://www.treas.gov/press/releases/hp975.htm>
3 - U.S. Treasury <http://www.treas.gov/press/releases/hp975.htm>
4 - Knight, Victoria. “Getting Personal: HSAs Help Pay Retirement Health Costs.” The Wall Street Journal. < http://online.wsj.com/article/BT-CO-20090326-700014.html>
5 - Gremminger, Shawn. “The Growth of Health Savings Accounts.” Summer 2006. <http://www.childrenshospitals.net>
6 - GAO-08-474R Health Savings Accounts.
7 - GAO-08-474R Health Savings Accounts.
8 - Yee, Chen May. “Health-savings plans may not live up to name.” Star Tribune. 11 April 2008. <http://www.startribune.com/business.17324849.html>

New Provisions Affecting Your Personal & Business Taxes
posted 2/27/09

The American Recovery and Reinvestment Act of 2009, which became law on February 17, 2009, has numerous provisions affecting income taxes for individuals and their businesses.

The following summary contains information on those provisions which we believe to be of importance to you, and is not intended to be a complete description of all the tax provisions in the Act.

Provisions Affecting Your Personal Income Tax Returns

• The “Making Work Pay Credit” will provide up to a $400 tax credit for singles or $800 for couples filing jointly. The credit is 6.2% of earned income and phases out at Adjusted Gross Income (AGI) of $75,000 for singles or $150,000 for married filing jointly. This year's credit will be received through a reduction in employee withholding and self-employed required estimated tax payments, and will not be a check as it was for last year’s stimulus payment.

• Economic Recovery Payments of $250 will be sent to recipients of Social Security, SSI, Railroad Retirement and Veterans Disability Compensation Benefits, but for those who work it will be offset by any Make Work Pay Credit. Details as to how and when this payment will be made are not yet available.

• Federal and State Pensioners will receive a one-time refundable tax credit for those not eligible for Social Security Benefits. It is also reduced to the extent of any allowable Making Work Pay Credit. This primarily affects retired government employees who were not subject to social security during their working lives.

• The First-Time Home Buyer's Credit is increased to $8,000 for purchases between January 1, 2009 and December 1, 2009 and is limited to first-time home buyers (defined as someone who hasn't owned a home in the three years before the purchase). The most important change made by the Act is that the new credit does not have to be repaid. The home must be occupied as the buyer's principal residence within 24 months of the purchase. The credit phases out for taxpayers with adjusted gross incomes in excess of $75,000 ($150,000 in the case of a joint return). The credit is refundable and is recaptured if the home is sold within 36 months of the purchase date. A buyer who purchases a home after January 1, 2009 under the new rules can claim the credit on a 2008 return to speed receipt of the credit. A buyer who purchased a home before January 1, 2009, must go with the old "interest free loan" credit.

• Sales Tax on Vehicle Purchases is deductible in calculating adjusted gross income. For 2009, this legislation allows all taxpayers a deduction for state, local, and excise taxes paid on the purchase of a new car or light truck. The deduction phases out at AGI levels of $125,000 for singles or $250,000 for married filing jointly, and is available only as to the tax paid on the first $49,500 of vehicle cost.

• Alternative Minimum Tax Relief (AMT) is extended for 2009. The legislation increases the AMT exemptions for 2009 to $46,700 for individuals and $70,950 for joint filers, which is slightly more than the 2008 levels. Beginning in 2009, nonrefundable personal tax credits are allowed in calculating alternative minimum tax, so that taxpayers subject to AMT will be able to take advantage of these credits.

• The American Opportunity Education Tax Credit is allowed for up to four years of undergraduate education. For 2009 and 2010 the maximum credit will be $2,500 in each year, of which 40% of the credit is refundable (allowed even if the credit exceeds the tax). The credit phases out at adjusted gross income levels between $80,000 and $90,000 for singles and $160,000 and $180,000 for married filing jointly. This credit replaces the HOPE credit.

• A Student Computer Purchase (including software, printers, monitors and other peripherals) may be treated as a qualified education expense for Section 529 plans in 2009 and 2010. This permits penalty and tax-free withdrawals from 529 plans to pay for these educational expenses.

• Under COBRA Premium Assistance for the Unemployed the federal government will subsidize 65 percent of COBRA premiums for employees who are involuntary terminated between September 1, 2008, and December 31, 2009. The new provisions will become effective March 1, 2009. The former employer will pay 100% of the premiums and then take a payroll tax credit for 65% of the premiums, with the ex-employee paying the ex-employer 35% of the premiums. There will be some new administrative burdens associated with this process. The subsidy phases out between $125,000 and $145,000 for singles and between $250,000 and $290,000 for married filing jointly. For those whose benefit is phased out, the employer will pay the full premium, and the employee will pay 35% of the premium, but the IRS will collect the “excess subsidy” from the employee. Plan sponsors which include union trust funds and for-profit, tax-exempt, church and governmental employers, will be responsible for quickly administering the new provisions and will need to work closely with their COBRA administrators to accomplish this.

• Health Coverage Tax Credit -- effective May 1, 2009, the health coverage tax credit is increased from 65% to 80% of the individual's premiums for qualified health insurance of specific family members. The increased credit expires in 2011.

• Child Tax Credit—The amount refundable is now 15% of the taxpayer’s earned income in excess of $3,000 for 2009 and 2010. Previously it was the excess over $8,500.

• The Earned Income Tax Credit will increase in 2009 & 2010, for families with three or more children. They will be entitled to a credit of 45% of the family’s adjusted gross income up top $12,570, and the credit will start to phase out at adjusted gross income of $21,420.

Provisions Affecting Your Business Income Tax Return

• The Act extends some deductions which were scheduled to expire at the end of 2008. These include a special depreciation deduction (bonus depreciation) of 50% of cost for business personal property and limited types of business real estate. Also extended is the Section 179 deduction, which permits a current deduction of up to $250,000 of business personal property, for those businesses which purchase not more than $800,000 of business personal property.

• An additional extension is an election to accelerate AMT or R&D credits for those taxpayers who elect not to use bonus depreciation. The amount of credits that can be accelerate is based upon the amount of property purchased that is eligible for the bonus depreciation, and is further limited to the lower of $30 million or 6% of historic AMT and R&D credits.

• The net operating loss incurred in 2008 can be carried back to five, four or three years, (at the taxpayer’s election) instead of the two years normally permitted for a business with gross receipts not exceeding $15 million.

• Estimated Tax payments for 2009 are potentially reduced. If an individual has adjusted gross income below $500,000 and more than 50% of that income is from a small business, the individual will not incur a penalty for underestimating it taxes if at least 90% of the prior year’s tax or 90% of the current years tax, (whichever is lesser) is paid.

• As far as Small Business Stock capital gains, an individual who invests in the stock of a small business and holds the stock for at least five years may exclude up to 75% of the gain realized on the sale of that stock (subject to certain requirements). This provision is effective for investments made after the date of enactment and before January 1, 2011. For this purpose, a small business is defined as a corporation with less than $50 million in gross assets. Since stock purchased in 2009 cannot be sold until 2014 to meet the five year requirement, future changes in the tax law could affect this provision.

• The holding period to avoid S Corporation built-in gains tax is temporarily reduced from ten to seven years. Prior to this Act, a C corporation converting to S corporation status had wait at least ten years to avoid tax on any built in gains in the assets. The legislation reduces the threshold to seven years, but only for sales of the S corporation stock occurring in 2009 and 2010.

• The Enhanced Work Opportunity Credit is expanded to add to the categories of out-of-work individuals for which an employer can obtain the Work Opportunity Credit, which now includes unemployed veterans and disconnected youth. There are specific rules and limits for both groups. This credit is available for 2009 and 2010, and for any employee who started work after 2008.

• While under current law a taxpayer generally has income where the taxpayer cancels or repurchases its debt for an amount less than its adjusted issue price. The amount of cancellation of debt income ("CODI") is the excess of the old debt's adjusted issue price over the repurchase price. Certain businesses will be allowed to recognize CODI over 10 years (defer tax on CODI for the first four or five years and recognize this income ratably over the following five taxable years) for specified types of business debt repurchased by the business after December 31, 2008 and before January 1, 2011. This may provide an opportunity for some debt issuers to buy back their obligations at current discounted levels and delay recognition of the resulting cancellation of indebtedness income. This provision is primarily of use to companies with publicly traded debt, or perhaps bank debt where the bank would accept a discount for early payment.

Community Benefit Standard
posted 2/17/09

For the past four decades, the Community Benefit Standard (established by the IRS as Revenue Ruling 69-545) has served as an important function for hospitals; it aligns the overall mission of community service and charitable obligations as part of a hospital’s tax exempt status.

In the "Community Benefit Standard" the IRS acknowledged that, "the promotion of health is one of the purposes in the general law of charity that is deemed beneficial to the community as a whole even though the class of beneficiaries eligible to receive a direct benefit from its activities does not include all members of the community, such as indigent members of the community, provided that the class is not so small that its relief is not of benefit to the community."

In today’s challenging economy, one United States senator has chosen to raise the bar, ensuring compliance before giving away millions more in tax dollars.

Senator Charles Grassley (R - Iowa) has proposed two amendments to the current economic stimulus bill. His goal is to establish quantitative rules regarding charity care and community benefit standards for non-profit hospitals and accountability measures for failing to meet those standards.

As of 2008, the IRS introduced an optional Schedule H (a component of Form 990) for non-profit hospitals. Beginning in 2009, Schedule H will be mandatory for all 501(c)(3) hospital filers.

Non-profit hospitals need to address the following key areas:

• Implement Charity Care Policy
• Evaluate Community Benefit Programs
• Document Charity Care and Certain Other Community Benefit expenditures
• Document Community Building Activity Expenditures
• Aggregate Bad Debt, Medicare & Collection Practices

Please note - compliance with the IRS Revenue Ruling 69-545, the "Community Benefit Standard" is mandatory for all hospitals that attain tax exempt status under statute code 501(c)(3).

Compliance With Section 404a Is Mandatory For All Filers!
(Including Non-Accelerated Filers)
posted 2/4/09

A recent Alert from the Center for Audit Quality, issued on 12/31/08, addresses the following key areas:

1. Section 404a is now mandatory for all filers – including non-accelerated filers.
   
   
2. If you do not have accurate disclosure of your assessment of Internal Controls over Financial Reporting (ICFR), your entire 10k is deemed not current or timely.
   
   
3. There are significant penalties if your 10k is deemed not current, including not being eligible to use Forms S-3 or S-8 and also not qualifying for Rule 144, which can make raising additional funds more complex and expensive.
   

The SEC has already noted during inspections of non-accelerated filers ("Small Cap Companies") that there have been deficient 404a disclosures. With that in mind, these important issues must be given immediate attention and consideration.

FASB Codification To Supersede Current US GAAP
posted 12/31/08

The FASB recently announced that on 1 July 2009, the FASB Accounting Standards Codification (Codification) is expected to officially become the single source of authoritative nongovernmental US GAAP. The Codification will supersede current US GAAP, including FASB, AICPA, EITF, and related literature. The Codification is not intended to change US GAAP; instead it reorganizes the thousands of US GAAP pronouncements into approximately 90 Accounting Topics, and displays all Topics using a consistent structure. Certain SEC guidance also will be included in the Codification and will follow a similar topical structure in separate SEC sections.

The Codification will require a significant change in both the research of accounting issues and in referencing the accounting literature. Because the existing authoritative guidance will no longer represent US GAAP on 1 July 2009, it is important that its constituents become familiar with the Codification structure now.

NJ Family Leave Act Goes Into Effect on July 1, 2009
posted 12/15/08

The NJ Family Leave Act was signed by Gov. Corzine and will go into effect on July 1, 2009.  It will provide eligible employees up to 6 weeks of partial paid family leave benefits to care for sick family members or a newborn or a newly adopted child.  Employees must start contributing to the plan through payroll deductions, beginning on January 1, 2009.  For 2009 the required withholding will be 0.09% of employees’ taxable wage of $28,900.  The withholding rate will increase to 0.12% in 2010. Click here for full details (opens a PDF).

The Federal Research & Experimentation (R&E) Tax Credit Has Been Extended!
posted 10/17/08

Expenditures incurred through December 31, 2009 and improvements made to the calculation of the credit for 2009 are included.

As part of the "Emergency Economic Stabilization Act of 2008" (H.R. 1424), Congress and President Bush have extended, through December 31, 2009, the Federal tax benefit rewarding companies for investing in activities that focus on development or improvement to products, processes, techniques, formulas, or
software applications.

In addition, H.R. 1424 increases the Alternative Simplified Credit (ASC) from 12 to 14 percent for 2009 and repeals the Alternative Incremental Research Credit (AIRC) for 2009.

Considerations

Taxpayers must consider the effect of the retroactive extension of the R&E tax credit.  Fiscal year taxpayers that have already filed their 2007 returns should consider filing amended tax returns for expenditures incurred after December 31, 2007 (the expiration of the credit prior to the enactment of H.R. 1424). In addition, taxpayers will want to consider the effect of the retroactive extension on estimated tax payments for 2008.

The increase to the ASC from 12 to 14 percent is welcome, as many taxpayers are considering this relatively new method of calculating the R&E tax credit.  The ASC, when elected, allows taxpayers to calculate the base research expenditures using 50 percent of a rolling average of the prior three years' qualified research expenditures, rather than carrying out the difficult task of calculating the company's qualified research expenditures incurred from 1984-1988.  In addition, taxpayers currently using the AIRC should analyze which credit methodology (the traditional vs. the ASC) fits their facts and circumstances
best moving into 2009 and forward.

Due to the increased scrutiny taxpayers are currently experiencing in IRS exams, companies should review their existing documentation and methodology utilized to calculate its R&E tax credit claim to be certain adequate documentation to support its claim is available.

FIN 48 Announcement
posted 10/17/08

At a meeting on October 1, the FASB decided not to exempt private companies, pass-through entities, and not-for-profit organizations from FIN 48 (Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes).  There will be a one-year deferral for private pass-through entities, although the staff will study and seek public comments on this to be sure that the deferral will work as intended.  Private companies will be exempt from some disclosure requirements in FIN 48 (Paragraphs 21(a) and (b)), but not from other disclosure requirements, including the controversial tax examiner wakeup call in 21(d) that requires reporting of anticipated changes in the accrual in the next 12 months (e.g. the statute is about to expire on an uncertain tax position).  The FASB staff will provide guidance on the application of FIN 48 to pass-throughs. 

President Signs Comprehensive Housing Legislation
posted 8/4/08

Reacting to the continuing slumps in housing sales, rising unemployment numbers, and weakening credit markets, Congress passed the Housing and Economic Recovery Act of 2008 (H.R. 3221) and President Bush signed the measure into law on Wednesday, July 30, 2008.

The legislation includes a $15.1 billion tax title, the Housing Assistance Tax Act of 2008, which will, in part:

1. Provide first-time home buyers with a refundable credit of 10% of the purchase price of a home, up to $7500. Recipients would be required to repay any credit amount received over a 15 year period and the credit is phased out for individuals with an adjusted gross income in excess of $75,000 or $150,000 for joint filers;
   
   
2. Provide taxpayers who claim the standard deduction an additional standard deduction of up to $500 or $1000 for joint filers for state and local property taxes;
   
   
3. Provide an increase the state-by-state allocation of low-income housing tax credits;
   
   
4. Simplify the rules applicable to tax-exempt housing bonds;
   
   
5. Allow taxpayers in affected GO Zone areas to amend prior returns to take into account receipt of hurricane-related recovery grants.

The legislation also includes several revenue raising provisions and would also delay the phase-in of the world-wide interest allocation election enacted as part of the American Jobs Creation Act of 2004 for two years.

For complete details, please call Sobel & Co. at 973-994-9494.

Extension Period Shortened for Partnerships, Estates and Trusts
posted 7/14/08

The IRS has issued new regulations to reduce the automatic extension period to five months for income tax returns of partnerships, estates and trusts and for partnership withholding tax returns. Previously, the extension period was six months.

Shortening the extension period by one month will help practitioners by requiring calendar-year partnership, estate and trust K-1s to be sent no later than September 15, a month before the October 15 extended due date for the individual taxpayers.

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