January 2002

The Arkansas Public Accountant is the monthly publication of the Arkansas Society of Public Accountants.  The society is a professional organization composed of Licensed Public Accountants, Enrolled agents and persons holding out to be accountants or tax preparers with their services available to the public.  This organization is dedicated to helping our members give the best possible service to their clients.  We are happy to accept articles and/or advertising that would be of interest to our members and ask that you submit any thing for publication by the 25th of the month to be included in the next month’s publication.  Please send to: LaVERNE LONG, Editor P.O. BOX 725 NEWPORT, AR 72112-0725 llonga@ipa.net

The Arkansas Public Accountant

OFFICERS & GOVERNORS 2001 - 2002

OFFICERS

BOARD OF GOVERNORS

District I District II District III District IV District V District VI

Suzanne Baltz Donna Gowan Lonnie Taylor George Simpson Carl Dalrymple Jr Ronnie Woods

Pocahontas Searcy West Memphis Little Rock Prescott Nashville

FROM THE PRESIDENT’S PEN

       Here we are beginning another year.  I'm sure that most of our offices are busy preparing for the year end W-2's and quarterly payroll  tax reports, along with the usual rush by some of our write up clients to complete their year end books.  After we have completed this task, they will swear that they could not possible have made that much money.

       I received a notice from the Arkansas Department of Finance and Administration the other day spelling out Emergency Regulation: 2001-01 and Proposed Regulation 2001-01.  Both of these regulations deal with the standard mileage rate for income tax purposes.  Arkansas is adopting the same mileage rates as the U. S. Treasury, which I am sure most of you know by now, but I will list them one more time before tax season gets into full swing.

• The optional mileage rate for employees and self-employed individuals using their vehicles for business is 34.5 cents per mile.
• The optional mileage rate for charitable travel remains at 14 cents per mile.
• The optional mileage rate for medical and moving travel is increased to 12 cents per mile.
• The standard mileage rate for business use of a vehicle by a rural mail carrier as set by the Internal Revenue Service for the tax year 2001 is also adapted.

I hope you all have a prosperous and productive tax season.

Sincerely.

James C. Hodge, President ASPA

TAX INFORMATION FROM THE IRS

PROVIDED BY TAXPAYER EDUCATION AND COMMUNICATION SB/SE

NASHVILLE, TN

IRS E-FILE POSTS HIGH MARKS IN CUSTOMER SATISFACTION SURVEY

WASHINGTON - A government-wide survey released today indicated the Internal Revenue Service has significantly improved customer satisfaction among individual taxpayers, especially among those who file their returns electronically.

The IRS posted an 11 percent increase in satisfaction among all individual tax filers since 2000 and a 22 percent increase since 1999.  It was the largest favorable gain of the 30 federal agencies surveyed by the American Customer Satisfaction Index.

One of the important reasons for the increase was the very high satisfaction rate among electronic filers.  The 2001 ACSI placed the satisfaction rate for electronic filers at 77.2 points higher than the previous year and nearly 7 points higher than the national score for private sector services.  It was the third year in a row that taxpayers using IRS e-file expressed increased satisfaction.

"This is great news.   We realize we have more work to do, but the survey is just one more indication that the IRS reorganization and its emphasis on customer service are paying off," said Charles O. Rossotti, IRS Commissioner. "The satisfaction with IRS e-file won't surprise any taxpayer who has used it.  When they try it, they like it.  It is fast, accurate and dependable."

The IRS continued an upward trend among people who file paper returns, a segment the ACSI termed "one of its toughest-to-please customer groups."  There was a four percent increase in customer satisfaction among paper filers for a score of 52.

For the 2001 filing season, there were 130.6 million individual tax returns.  Nearly fo.2 million returns were filed electronically, a 13 percent increase over the 2000 filing season.  The ASCI found that 78 percent of the people who filed electronically were so satisfied with the service that they would do it again.

Taxpayers have found that electronic filing has many advantages:

• It has a 99 percent accuracy rate, which reduces the chances of getting an error notice from the IRS.
• It is the fastest way to get refunds, in as few as 10 days with Direct Deposit.
• Taxpayers can create their own Personal Identification Number as an electronic signature.
• It provides privacy and security.
• Taxpayers receive an acknowledgement of receipt within 48 hours.

The ASCI survey for the first time also expanded its questionnaire to include customer satisfaction levels for other IS Operating Divisions.  The index provides a benchmark for customer satisfaction levels with Small Business form 1120 filers (66) Mid-size Business form 1120 filers (55), Tax Exempt Organizations (60) and Employee Plans (48).

Since 1994, the American Customer Satisfaction Index has been a national indicator of customer evaluations of the quality of goods and services in the private and government sectors.  The 30 selected federal agencies serve 90 percent of federal government customers.

The ASCI is one of several national surveys conducted in recent months that found Americans have a more positive view of the IRS.

FACTS YOU MAY HAVE OVERLOOKED!

IN THE ECONOMIC SLUMP FOLLOWING THE SEPTEMBER 11 ATTACKS, MANY BUSINESSES HAVE FOUND THAT THEY HAVE OVERPAID ESTIMATED TAXES FOR THE YEAR.  AS A RELIEF MEASURE, THE IRS HAS ANNOUNCED THAT SUCH OVERPAYMENTS MAY INSTEAD BE APPLIED AGAINST A BUSINESS'S EMPLOYMENT TAX OR WAGE WITHHOLDING OBLIGATIONS - SAVING THE FIRM FROM HAVING TO MAKE CASH PAYMENTS FOR THOSE TAXES.  INFORMATION: IRS DISASTER RELIEF, 866-562-5227.  IRS ANNOUNCEMENT 2001-112.

Business equipment placed in service by year-end provides a half year's worth of depreciation deductions. LIMIT: If more than 40% of equipment acquired during the year is placed in service during the last quarter, first year depreciation is reduced.  BREAK: The IRS has suspended this limit for firms with a third quarter encompassing September 11, 2001, including all calendar-year firms.  WHY: Due to terrorist attacks, many had trouble placing equipment in service by the end of that quarter, so any equipment placed in service by year end can get maximum depreciation.  IRS Notice 2001- 70; IRB 2001-45, 1.

Making a "free" election on your 2001 tax return may reduce capital gains taxes that are owed in the future.

New rule:   An 18% maximum capital gains tax rate applies to assets acquired in 2001 or later if  held more than five years.  You can qualify assets acquired before 2001 for this lower rate by electing on the 2001 return to treat them as if you sold and repurchased them at market value on January 1, 2001, paying tax on any gain that results.

Opportunity: You may hold assets that had not risen in value above your tax basis as of the start of 2001 - perhaps because of poor market conditions then.  If so, you can make this election without owing any tax as a result.  It's then a "freebie" that can reduce future capital gains tax on any assets you hold until 2006, including investments such as real estate and stock and mutual fund shares.

Greetings From NSA

It's January, and I'm already thinking about vacation!  NSA has a great one lined up for you in Honolulu, HI; and since it's business-related, it's also a tax-deductible vacation.  What could be better than that?  The latest schedule I have received is as follows:

• Tuesday, August 20
• Education sessions and business meeting.
• Wednesday August 21
• Guest speaker, family day & luau
• Thursday August 22
• Education Sessions, ACAT luncheon
• Friday August 23
• Business sessions, elections & installation banquet

The convention will be held at the Hilton Hawaiian Village Hotel, with rates ranging from $17o -$210.  There will also be a list of lower rate accommodations available soon.  The convention information is on the NSA website at www.nsacct.org.

January may be your time to look at your insurance needs as well.  NSA has a number of professional plans available at very reasonable rates.  Included are Professional Liability Program, Tax Season Disability Income Protection, Business Property and Liability, and several Life &Health plans.  To find our more about the insurance, call toll-free 1-800-265-9366, or access complete plan information and applications at www.ftj.com.  Of course you have to be a member of NSA to get the special rates.

I enjoyed talking with several of you at my NSA display table at the Gear Up Tax Seminar.  If I missed you or if any of you need further information, you can e-mail me at Sruss51670@aol.com, or call me at 501-843-5561.

Shelly F. Russell

NSA State Director

SAVER'S TAX CREDIT

STARTING IN 2002, the new "saver's" tax credit is available to taxpayers who make contributions to an IRA or employer- sponsored retirement plan such as a 401(k), and who report no more than $50,000 of income on a joint return ($25,000 on a single return).

The maximum credit varies by income level, from $1,000 to $200 at the top income limit.

Helpful: The IRS has released an explanation of the credit in IRS Announcement 2001-106.  Find this in Internal Revenue Bulletin No. 2001-44, in the "Tax Regs in Plain English" section of the IRS Web site, www.irs.gov. IRS Announcement 2001-106.

GET LARGER TAX SAVINGS FROM BUSINESS MEALS AND ENTERTAINMENT

Many businesses leave valuable tax deductions on the table.  WHY?  Because they overlook opportunities to take a 100% deduction for many business meals and entertainment expenses, mistakenly applying the "normal" 50% deduction limit to all meals and entertainment.

By becoming alert to this deduction opportunity now, these businesses may be able to:

• get income tax refunds for past years by filing amended returns to deduct 100% of the cost of meals and entertainment that mistakenly were only 50% deducted.
• obtain larger meal and entertainment deductions in the future by improving their planning and record keeping.

Categories of meals

The Tax Code's 50% deduction limit for the cost of business meals applies specifically to meals taken while....

entertaining customers/clients

• traveling away from home for business
• attending a business convention or meeting, or a business luncheon at a club.

But many kinds of meals that do not fit into these three categories actually qualify for 100% deduction as a business expense.  

When meals paid for by the company do not involve customers or clients, look to see if they fit into one of the following expense categories that allow a 100% deduction.........

• "Convenience of the Employer" meals.  These are meals taken on the employer's premises, and paid for by it, for a business reason that benefits the employer.
• Short meal periods.  If employees are required to eat meals in a short period, such as 30 or 45 minutes and can't be expected to go off premises, eat and return within that time, fully deductible meals can be provided to them.
• Meals aren't otherwise available.  When nearby eating facilities are insufficient for employees to get meals at lunch and return within the lunch hour, the employer can provide fully deductible meals.
• Need to answer emergency calls.  When employees  must stay on a business's premises to be available to answer emergency calls, meals provided to them are fully deductible.
• Restaurant and food service employees.  Meals furnished to these employees before and after working hours are for the employer's convenience.
• Example: A waitress works the day shift.  Her employer can provide breakfast to her just before she starts work and lunch during her workday, and deduct the full cost of beth meals.
• Bonus benefits: Meals provided for the convenience of an employer are 100% deductible by the employer and tax free to employees.  Such tax-free meals may serve as a valuable benefit that may also help and retain quality employees  with IRS subsidizing the cost.
• The cost of employee activity meals and entertainment.  Meals are fully deductible when provided in relation to a social or recreational activity for employees.
• Examples: Holiday parties, retirement dinners, meals and entertainment celebrating business accomplishments, etc.

IMPORTANT NOTICE

THE MAILING ADDRESS FOR THE

ARKANSAS SOCIETY OF PUBLIC ACCOUNTANTS HAS CHANGED

FROM THIS POINT ON PLEASE ADDRESS ALL CORRESPONDENCE THRU THE U.S. MAIL TO:

POST OFFICE BOX 725

NEWPORT, AR 72112-0725

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