January 2003

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

CLICK HERE TO VISIT THE OFFICIAL ASPA ONLINE SHOPPING MALL!

OFFICERS & GOVERNORS 2002 - 2003

OFFICERS

BOARD OF GOVERNORS

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

Suzanne Baltz Donna Gowan Lonnie Taylor Alma Strozyk Bradley Crain Ronny K. Woods

Pocahontas Searcy West Memphis Little Rock Prescott Nashville

FROM THE PRESIDENT’S PEN

HAPPY NEW YEAR!

The "Gear Up 1040 Tax Seminar was a great success. Our attendance was up by over 20% and we had great speakers to help us review a lot of tax material which will help us thru a successful tax filing season.

Mark your calendars now for June 6 or June 7 for the Gear Up Technology Seminar. This will be the first time that ASPA has sponsored this seminar and from the indications of the participants at the Gear Up 1040 Seminar, this will be well attended. The seminar will be held each day at the Holiday Inn Select on Shackleford Road in Little Rock and our seating will be limited each day to approximately 120. Be sure to complete your registration form as soon as you receive it to assure that you reserve your seat on the day of your preference.

Your board of governors met December 17, 2002. Two very important actions that the board took during the meeting: 1) The board approved the appointment of Alma B. Strozyk of Little Rock to complete the term of District IV Governor, George Simpson, who passed away in October. Alma is a long term member of ASPA and has always been active within the Society. I appreciate Alma's willingness to serve ASPA as Governor of District IV, and I, along with the rest of the board, look forward

to working with her. 2) The board approved the applications of 15 new members. Their names are listed elsewhere in this newsletter and we welcome them to ASPA.

I want this newsletter to continue to be a great benefit to each of you as members. Within the next few months the newsletter will take on a "new look" as we begin to print it on a higher quality paper and begin to include pictures of our events. Our executive secretary works hard to ensure that we have articles and information relevant to our practices and I appreciate all that she does. Thank you LaVerne Long for always working hard for out membership and being available to assist us when we call on you. Our hard-working executive secretary is another great benefit enjoyed by members of ASPA!

Don't forget to access the ASPA website at www.arspa.org for links to websites that can help you in your practice. As you discover additional websites that you think will be helpful and useful to other ASPA members, let us know so that we can add them to our Links page. Make www.arspa.org your website of choice for helpful website links.

I wish all of you a successful and not too stressful tax filing season.

Donny Woods, President

Arkansas Society of Public Accountants

ANNOUNCEMENT OF ASBPA

EXECUTIVE DIRECTOR VACANCY

Jim George has announced his retirement as the Executive Director of the Arkansas State Board of Public Accountancy and the Board is seeking a highly qualified and motivated individual for the position. You can view the complete position specifications at our website: www.arspa.org or go to the State Board website.

AS THE PRESIDENT MENTIONED IN HIS ARTICLE THIS MONTH, WE WILL BE HAVING THE GEAR UP TECHNOLOGY SEMINAR ON JUNE 6 AND 7, 2003. I WOULD JUST LIKE TO CLARIFY FOR THOSE OF YOU WHO WERE NOT IN ATTENDANCE AT THE GEAR UP 1040 IN DECEMBER.

THIS IS A ONE DAY SEMINAR AND RESERVATIONS WILL BE ACCEPTED ON A FIRST COME, FIRST SERVED BASIS

YOU WILL BE REQUIRED TO MARK THE DAY YOU WOULD LIKE TO ATTEND. THIS WILL BE EITHER A FRIDAY (6) OR SATURDAY (7). PLEASE DO NOT PUT "DOESN'T MATTER". YOU NEED TO MAKE A SELECTION OF ONE OR THE OTHER. (IF IT REALLY DOES NOT MATTER, PLEASE SELECT A DAY AND THEN PUT IN THAT IT REALLY DOES NOT MATTER.)

THE REGISTRATION FORM FOR THIS SEMINAR WILL BE MAILED ON OR ABOUT THE 15TH OF APRIL AS I AM AWARE THAT YOU DO NOT HAVE THE TIME TO FOOL WITH IT DURING TAX FILING TIME.

WELCOME NEW MEMBERS

• MALLORY S. TAYLOR, LITTLE ROCK, DISTRICT 4
• ROY B. THOMPSON, CONWAY, DISTRICT 1
• RHONDA. BURKETT, VAN BUREN, DISTRICT 1
• TERESA J. COOPER, RUSSELLVILLE, DISTRICT 1
• THOMAS E. SIMMONS, HOT SPRINGS, DISTRICT 6
• JOHN K. JONES, BENTON, DISTRICT 5
• MICHAEL A. NEEB, WYNNE, DISTRICT 3
• MELISSA L. ANDREW, BLYTHEVILLE, DISTRICT 3
• LAYTON BOWMAN, MT. HOME, DISTRICT 1
• DALE E. BROWN, FAYETTEVILLE, DISTRICT 1
• BRADLEY W. GAITHER, LITTLE ROCK, DISTRICT 4
• KRISTINA BOLHOUSE, CLARKSVILLE, MI, DIA-STATE
• JOHN P. CRAFT, MAUMELLE, DISTRICT 4
• WILLIAM M. RIPPER, FORREST CITY, DISTRICT 3
• JUDITH A. VALE, BENTONVILLE, DISTRICT 1

INFLATION ADJUSTMENTS FOR 2003 RETURNS

The standard deduction in 2003 on joint returns will increase to $7,950 (from $7,850 in 2002) and on single returns to $4,750 (from $4,700)

The personal exemption will go up to $3,050 (from $3,000)

The 3% reduction of itemized deductions will apply to the extent that adjusted gross income (AGI) exceeds $139,500 (up from $137,300) on both joint and single returns.

The phaseout of personal exemptions will occur as AGI rises on joint returns from $209,250 to $331,750 (up from $206,000 to $328,500) and on single returns from $139,500 to $262,000 (up from $137,300 to $259,800). Income levels at which tax brackets apply will rise by about 1.6%.

NEW WAYS TO REACH THE IRS

"Call the right number to get the right answer."

The IRS is making it easier and more efficient for taxpayers to get the answers to their Federal Tax questions by providing two new toll free numbers. These new toll free numbers represent a substantial difference in how taxpayers can contact the IRS.

Starting on December 2nd, if a taxpayer has a business or specialty tax question the can call the new Business and Specialty Tax Line on 1-800-829-4933. Customers calling this number can apply for a new Employer Identification Number (EIN), and receive help on Employment Taxes, Partnerships, Corporations, Estate, Gift, Trusts and Excise Taxes, or other small business issues. This new number will enable the Internal Revenue Service to provide better service for businesses, with a number dedicated just for them, and better service for customers with individual income tax questions by reserving the traditional 1040 help line (1-800-829-1040) for them.

Access to the IRS information will be quicker and easier with fewer topic choices to negotiate with the separate individual and business service lines. Sorting Separating the incoming calls by individual and business issues means you will reach a customer service representative who is trained in your topic, more quickly and efficiently.

You can continue to obtain assistance with any Form 1040 issue by calling 1-800-829-1040.

If you need information about an individual income tax refund, and have access to the Internet, the fastest way to get assistance is through the "where's my refund?" automated self-service feature, available 24/7 at <http://www.irs.gov> . If information is not readily available via the Internet, please call the Refund Hotline at 1-800-829-1954, which is the second new toll free number the IRS has established to provide more efficient service to customers.

The Business and Individual Tax Lines are designed to handle general inquiries. As always, if you have received correspondence from IRS directing you to call a different number, you should call that number to receive the quickest resolution of your specific issue.

If you need additional information related to the above topics, please contact the local Taxpayer Education and Communication office at 501-324-5328 ext.276.

IRS MAKES CHANGES TO INDIVIDUAL TAXPAYER IDENTIFICATION NUMBER (ITIN) APPLICATION.

WASHINGTON - Resident and non-resident aliens applying for an Individual Taxpayer Identification Number must soon use a newly revised Form W-7.

The new application forms will request additional information. The applications are now available in both English and Spanish on www.irs.gov. The English language version, Form W-7 and the Spanish language version, Form W-7 (SP) is also available at IRS offices.

Along with their application, applicants must also submit documents proving their alien status and their identity. Individuals can submit their application at an IRS Taxpayer Assistance Center (TAC), mail the documentation to the Internal Revenue Service, Philadelphia Service Center, ITIN Unit, P O Box 447, Bensalem, PA 19020, or process the application through an IRS authorized acceptance agent.

The IRS issues the nine-digit numbers to individuals who must have a U.S. taxpayer identification number but who aren't eligible for a Social Security number. ITINs are for tax purposes only and don't affect immigration status, authorize work in the U.S. or provide eligibility for Social Security benefits or the Earned Income Tax Credit.

If you or a client made a Roth IRA conversion in 2002 while having income near the $100,000 limit for doing so, take care to audit proof the 2002 return.

If the IRS later disallows some deductions or finds you under-reported your income, your adjusted gross income may be re-computed at over $100,000- with your Roth IRA conversion being disallowed and big penalties resulting.

You can voluntarily reverse a Roth IRA conversion for 2002 as late as October 15, 2003. But if your 2002 return is audited, it probably won't be until after then. The IRS sometimes also permits late reversals without penalty, but only when the taxpayer volunteers that there is a problem, not when the IRS finds it in an audit.

SIMPLE WAYS TO AVOID UNDERPAYMENT PENALTIES

Our tax system is a pay-as-you-go system. Taxes for the current year are paid throughout the year by withholding and estimated tax payments.

The combined total of these payments must be at least 90% of the tax you ultimately owe, or you'll pay a penalty for underpayment of estimated taxes.

__________

the easy way

But you can avoid the penalty if you base your estimated taxes for 2003 on one of the following two "safe harbors".....

• pay in at least 90% of your 2003 tax liability
• pay in 100% of you 2002 tax liability.

If you do that, you'll avoid penalty no matter how high you 2003 tax bill turns out to be.

Important exception: If your adjusted gross income in 2002 was greater than $150,000 (or $75,000 if married filing separately), you cannot use the 100% of-the-prior-year's-tax safe harbor. Your safe harbor is 110% of the 2002 tax. You must pay this amount to avoid underpayment penalties or rely on the 90% rule.

Problem with safe harbors: While reliance on a safe harbor lets you avoid an underpayment penalty, it may cause you to overpay your taxes.

__________________

the annualized method

To match your tax payments more closely with the time when income is earned, you can figure out the estimated taxes using the annualized method. This method is helpful to taxpayers who earn most of their income late in the year. They don't have to make estimated tax payments before the income is received. The tax payment is tied to cash flow.

Self-employed professionals in particular who work for clients throughout the year but only collect for it late in the year, should be sure to look at the annualized method.

To use this method, you will have to complete IRS Form 2210. This will take time and you will have to charge extra to your client for doing this, but can be worth the time and expense incurred.

EXTRA DEDUCTION FOR REFINANCING YOUR HOME MORTGAGE

Record-low interest rates are motivating many home owners to refinance their mortgages. A tax deduction for "points," or loan fees, can make refinancing even more attractive.

Normally points incurred on a refinancing must be deducted over the life of the loan. But there are two exceptions......

• If the new loan is used in part to finance improvements to the home, an allocable portion of the points is deductible.
• When a home is refinanced for a second time, any remaining undeducted points from the prior refinancing may become fully deductible.

Details: IRS Publication 936, Home Mortgage Interest Deduction.

EARNED INCOME CREDIT EXEMPT FROM LEVY

A woman who owed taxes for the past two years declared bankruptcy to escape them. But she also was owed a refund for a later year, and the IRS sought to keep the refund in payment of the tax bill.

Court: Most of the woman's refund consisted of an earned income credit (EIC), and state law that exempts "public assistance benefits" from levy includes the EIC among such benefits. Thus the IRS cannot take the portion of the refund allocable to the EIC.

In re Paula Sharp, Debtor; Bnkr.,ED Ky., No. 02-50796

BANKS BENEFIT WHEN CUSTOMERS MAKE NON - PIN PURCHASES

Question: A customer came into the store this morning and used her Visa debit card to make a purchase. When I asked her to enter her Personal Identification Number (PIN) in our processing terminal she refused, saying her bank charges her 50 cents every time she does that.

Why would a bank issue a debit card with a PI and then penalize their cardholder for using the PIN when they make a purchase?

Answer: It's simple. The cardholder's bank makes more money when a PIN is not used.

A $100 purchase made with a Visa debit card, for example, costs the merchant about $1.85 to process when not used a PIN.

With a PIN it costs 35 cents to process. Because most of the processing fees go to the bank that issued the card, it is no surprise that banks prefer to have their debit or check cards processed without a PIN.

The revenue difference to the banks is so significant that it is not unusual to see them encourage non-PIN transactions by rewarding cardholders who conduct them that way with rebates, frequent flier miles, or sweepstakes entries.

A growing number of banks, like this customer's, are even starting to charge their cardholders a fee if they use their PIN.

So frustrating and Wal-Mart and 18 other large merchants have filed a class action suit against Visa and MasterCard.

At the heart of the suit is the requirement stipulated by Visa and MasterCard that merchants "honor all cards" including debit or check cards that are presented without a PIN.

While the case is scheduled for trial in April 2003, not one expects the issue to be resolved anytime soon.

It has taken six years just for the trial date to be set. With both sides heavily invested in the outcome, the trial could take another six years to be decided.

In the meantime, I suggest the merchant ask customers for PIN when they use a debit or check card. Cardholders are getting used to the question as more merchants upgrade their processing equipment to accept these types of transactions.

Who knows, the more cardholders who are asked, the more likely they might choose a bank that doesn't penalize them for providing their PIN.

Reprint: The Print Out, Independent Accountants Association of Michigan, October 2002 by Charles Creamer, Midwest Transaction Group.

Payment to retirement plan to make up for lost funds is not a "contribution." An employer that maintains a retirement plan for its employees made risky investments in it that have lost much of their value. The employer has heard that its employees are upset and considering filing a lawsuit over the losses. To head off any such lawsuit, the employer now intends to make a payment to the plan to make up for the investment losses. IRS ruling: The payment will not be a "contribution" to the plan. It will be a "restorative payment" made to avert liability for breach of fiduciary duty, even though it will not be the result of any legal action. Thus, the payment will not be subject to the legal requirements that apply to plan contributions. Revenue Ruling 2002-45, IRB 2002-29,1.

An electronic accountable T & E Plan. A company intends to set up a record-keeping system for employee travel and entertainment expenses under which employees will use company credit cards and document the details of their expenditures through the Web site of a third-party record-keeper. In most cases, the system will use electronic receipts for expenditures, eliminating most of the paperwork in the company's current record-keeping system. IRS ruling: The new system will quality as an "accountable plan" because it meets IRS requirements to document deductible expenses, allowing tax-free expense reimbursements to employees. Letter ruling 200235006.

Express delivery filing trap. Richard Schafer sent a Tax Court petition to the Court using UPS next day service. When the IRS said the petition arrived late, he invoked the "filed when mailed rule," which now applies to IRS-approved express delivery services, to say it was filed on time.  Tax Court: Schafer had dropped off the petition at an outlet of Mail Boxes Etc., to be sent by UPS, but Mail Boxes Etc., hadn't delivered it to UPS until the next day - after the deadline. The "sent" date was that on which the filing was given to UPS - so it was late. Richard M. Schafer, TC Summary Opinion 2002-119.

Mass confusion about tax law helps company beat charge. A car Auction company didn't report cash transactions exceeding $10,000 to the IRS on Form 8300, as required by law. The IRS found out and charged the company with intentionally disregarding the law. AT trial, the company's CEO said its accountant had advised it that the reporting rule did not apply in the auction business, so any failure to comply with the law was inadvertent and a jury acquitted the firm.

The IRS then asked for a new trial because the jury had heard prejudicial testimony about the fact that there is a very high non- compliance rate for Form 8300.

Court: The fact of the high non- compliance rate is evidence of the mass confusion regarding Form 8300 and supported the CEO's defense. New trial denied. Kruse, Inc., DC ND Ind.,No. 1-99-cv-428.

THE PINE BLUFF AND HOT SPRINGS IRS OFFICES WILL NO LONGER BE GIVING TAXPAYER SERVICE.

This communication was received today (1-6-03) by email from the Little Rock District Senior Tax Specialist, Gregory O. Metcalf.

YOUR EXECUTIVE SECRETARY RECEIVED THE FOLLOWING COMMUNICATION FROM "GEAR UP" IMMEDIATELY FOLLOWING OUR SEMINAR ON THE 18TH AND 19TH OF DECEMBER, 2002. THIS TEXT CAN ALSO BE FOUND IN THE "MEMBERS" AREA OF THE GEAR UP WEBSITE: www.gearup.com

There has been a lot of confusion regarding Money Purchase plans and how much can be contributed under the new law.

Contributions to Money Purchase plans are limited to the lesser of 100% of compensation or $40,000 with an upward compensation ceiling of $200,000. However, the employer deduction is limited to 25% of aggregate compensation for all participants.

Since most of our clients will only contribute that which they can deduct, the effective contribution rate will be 25% for the typical client.

BONUS DEPRECIATION

Don't forget to consider the bonus depreciation this year when preparing tax returns. This provision is perhaps the most important one in the new law. It allows an additional 30% on the purchase of new assets. Taxpayers can take it now, or may need to file amended returns. Look into this for your clients and it may be an additional fee for you also if you file amended returns for them. Also don't forget about the new rules in carry backs of NOLs. You can now carryback to 1997 if needed.

From Linda Holmstrom, PRO, State of Arkansas, Department of Finance and Administration

I have been informed that the next Quarterly, which will be for Jan-March 2003, will not be mailed out, nor any future newsletters. I have several CPAs and PAs signed up for the email version, but most receive it by mail.

Can you put a small paragraph in your newsletter that the Quarterly will not be mailed but will be available on the Web , and if anyone wants notification when the new edition is published, to notify me by email?

This is the link to the current newsletter: http://www.accessarkansas.org/dfa/taxes/quarterly/quarterly.htm

Linda's email: Linda.Holmstrom@rev.state.ar.us

Don't forget that you have a family. Take time out for them and also try to keep fit during tax season. Get out of that chair and walk around your office at least once every hour. Stretch you muscles and hopefully this will relieve some of your stress.

HAPPY TAX SEASON!!!!

IS THAT POSSIBLE??? I HOPE SO. TILL NEXT MONTH

Newsletter | By Laws | Officers & Governors | Membership Types | Event Calendar | Information Links | Contact
Entire Contents Copyright © 2003 Arkansas Society of Public Accountants. All Rights Reserved.
Legal Notice

RETURN TO MAIN SITE