July 2001

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 758 NEWPORT, AR 72112-0758 llonga@ipa.net

The Arkansas Public Accountant

OFFICERS & GOVERNORS
2000 - 2001

FROM THE PRESIDENT’S PEN

Dear Members::

The July 1 deadline for full compliance with the "Gramm-Leach-Bliley Act" will have come and gone by the time you read this.  I got my letters out, but not without a lot of grumbling (which of course did absolutely no good).  It made me feel a little better to be able to send out, along with the privacy notice, some information about the new tax legislation for 2001 and thereafter.  Since this privacy policy notice is an annual requirement, we will be attaching these to copies of all tax returns we prepare in the future.  Thanks to all my board members who listened to my, commiserated with me, and offered suggestions.

We have been talking about the "Quickbooks Seminar" for several months now, and this is the month it takes place.  Once again, the dates are July 26th & 27th at the Holiday Inn Select in Little rock, and the early bird discount is good until July 15th.  I hope to see a lot of you there.  If you have misplaced your registration form, email or call LaVerne and she'll get you signed up.

For those of you who may be interested, NSA's 56th Annual Convention will be August 22 - 29, 2001 in Minneapolis, MN.  Several of your Board members will be going.  It should be a lot cooler there than here in Arkansas in August, which helps make the trip even more exciting.

The year is now half over, and the August 15th deadline for filing extensions will soon be here.  As usual I'm having a hard time motivating myself to get busy on those, so I will probably be putting in overtime the first two weeks in August to get those done.  I tend to work more diligently if I have a deadline hanging over me.

Hope you're having a good summer and are finding time for some rest and relaxation.

Sincerely,

Shelly Russell

CARE NEEDED WHEN COMPARING NEW FEDERAL WITHHOLDING TABLES WITH OLD.

INFORMATION FURNISHED BY DAVID STELL, IRS MEDIA RELATIONS- OKLAHOMA CITY

The new IRS Publication 15-T, New Withholding Tables for 2001 (For Wages Paid After June 30, 2001), is currently reaching the mailboxes of employers nationwide.  Many are addressing their immediate curiosity regarding what difference the new withholding tables will make by making quick, sample calculations based on one employee's wages, then comparing that to current income tax withholding.

The IRS has received calls from concerned tax practitioners and employers who have mistakenly made the comparison using the wrong tables in the new Publication 15-T, and found the withholding had apparently increased.

It seems the problem is the result of employers looking for federal income tax withholding tables where they have traditionally found them - in the last group of pages in the booklet.  These tables have been located in that part of each year's Publication 15, Circular E, Employer's Tax Guide, for many years.

What's found in that same location in the new Publication 15-T is a set of withholding tables, too. But these tables are for determining the combined withholding for income tax, Social Security tax and Medicare tax.  The income tax only tables - the correct tables for the direct comparison referred to above, are contained in the front part of Publication 15-T, rather than in the back.  Once these income tax only tables are used, an employer can properly make the old-new comparison.

As a side note, the IRS has produced the additional combined tables (for income tax, Social Security tax and Medicare tax withholding) for employer use since 1996.  They have been found each year in a separate booklet that supplements the Circular E.  That booklet is entitled Publication 15-A, Employer's Supplemental Tax Guide.irs loses "filed when fedexed" dispute. An estate facing a $300,000 tax bill filed a Tax Court petition just before the filing deadline expired.  Its lawyer sent the petition by FedEx, exploiting the recent law change that expands the filed-when-mailed rule to cover filings sent by private delivery services as well as the post office.

Snag: The package was sent on a Friday, and the lawyer checked the "Hold Saturday" box on the shipping bill, mistakenly thinking this instructed FedEx to hold the package over the weekend and then deliver it on Monday.

Instead, this told FedEx to hold the package at its local depot for someone to pick it up on Saturday.  When nobody came, FedEx returned the package to the lawyer.

The lawyer resent the petition but the IRS objected that the deadline for doing so had passed and said the petition should be rejected.

Tax Court: The filed-when-mailed rule says that when a tax filing is mailed to the correct address, bears sufficient postage, and is sent on time, it is deemed properly filed even if not properly delivered.

Here, the FedEx package met all three requirements.

The checking of the "Hold Saturday" box did not mean the package was misaddressed.  Rather, this error was analogous to putting the wrong zip code on an otherwise properly addressed mailing  which the Tax Court has long held does not cause a mailing to be misaddressed.  Estate pf Marguerite M. Conner, TC Memo 2001-27.

MISTAKEN ROTH IRA CONVERSIONS MADE IN 1998 CAN STILL BE CORRECTED.

TAXPAYERS WHO MADE ROTH IRA CONVERSIONS, BUT THEN FOUND THEIR INCOME EXCEEDED THE $100,000 ELIGIBILITY CEILING, HAVE BEEN ABLE TO GET PRIVATE LETTER RULINGS FROM THE IRS PERMITTING THEM TO "RECHARACTERIZE" THEIR IRAs BACK TO REGULAR STATUS EVEN AFTER THE December 31, 1999, DEADLINE.  REQUIREMENTS: THE TAXPAYER MUST HAVE ACTED REASONABLY AND IN GOOD FAITH AND MUST SEEK TO CORRECT THE ERROR BEFORE THE IRS FINDS IT.  Letter Rulings 2001 16053 and 2001 116058.

THE IRS IS ABOUT TO BEGIN GARNISHING THE SOCIAL SECURITY CHECKS OF TAXPAYERS WHO OWE BACK TAXES.  AT RISK ARE PERSONS AT LEAST SIX MONTHS IN ARREARS IN TAX PAYMENTS WHO RECEIVE MORE THAN $750 PER MONTH FROM SOCIAL SECURITY.  THE TREASURY INTENDS TO WITHHOLD 15% OF BENEFITS ABOVE THAT AMOUNT AS PAYMENT TO THE IRS.  BENEFITS FOR DISABLED PEOPLE AND PAYMENTS UNDER THE SUPPLEMENTAL SECURITY INCOME PROGRAM WON'T BE GARNISHED.

TAX INFORMATION FROM THE IRS

PROVIDED BY TAXPAYER EDUCATION & COMMUNICATIONS SB/SE

NASHVILLE, TN

HIGHLIGHTS OF THE ECONOMIC GROWTH TAX RELIEF RECONCILIATION ACT OF 2001.

The Economic Growth and Tax Relief Reconciliation Act of 2001 makes 441 changes to the Internal Revenue Code.  A $1.35 trillion tax cut is phased in over 10 years and will sunset at the end of 2010, restoring tax rates to their current levels absent further Congressional action.

Marginal Tax Rate Reductions

New 10% tax rate bracket  A portion of taxable income that is currently taxed at 15 percent for taxable years beginning after December 31, 2000.  The 10 percent rate bracket applies to the first $6,000 of taxable income for single individuals, $10,000 of taxable income for heads of households, and $12,000 for married couples filing joint returns.  The taxable income amounts for the rate structure will remain the same for the year 2002 through 2007.  For 2008 and thereafter, the taxable income amount changes for single individuals and married couples filing joint returns to $7,000 and $12,000 respectively.

The limitation on itemized deduction and the phase out of personal exemptions will be reduced by one-third in taxable years beginning in 2006 and 2007, and is reduced by two-thirds in taxable years beginning in 2008 and 2009.  The provision is fully effective for taxable years beginning after December 31, 2009.

Tax Benefits Relating to Children

CHILD TAX CREDIT

The child tax credit has been increased beginning taxable years after December 31, 2000.  The following table shows the increase of the child tax credit.

The tax relief reconciliation act makes the child tax credit refundable to the extent of 10 percent of the taxpayer's earned income in excess of $10,000 for calendar year 2001-2004.  The percentage is increased to 15 percent for calendar years 2005 and thereafter.  The $10,000 amount is indexed for inflation beginning in 2002.  Families with three or more children are allowed a refundable credit for the amount by which the taxpayer's social security taxes exceed the taxpayer's earned income credit (the present - law rule), if that amount is greater than the refundable credits based on the taxpayer's earned income in excess of $10,000.  The tax relief  act provides that the refundable portion of the child credit does not constitute income, and shall not be treated as resources for purposes of determining eligibility or the amount or nature of the benefits or assistance under any Federal program or any State or local program financed with Federal funds.

The refundable child tax credit will no longer be reduced by the amount of the alternative minimum tax.  In addition, the law now allows the child tax credit to the extent of the full amount of the individual's regular income tax and alternative minimum tax.

The provision generally is effective for taxable years beginning after December 31, 2000.  The provision relating to allowing the child tax credit against alternative minimum tax is effective for taxable years beginning after December 31, 2001.

Marriage Penalty Relief Provisions

Standard Deduction Marriage Penalty Relief

The tax relief act increases the basic standard deduction for a married couple filing a joint return to twice the basic standard deduction for an unmarried individual filing a single return.  This increase is phased - in over five years beginning in 2005 and would be fully phased - in for 2009 and thereafter.  The table below shows the standard deduction for married couples filing a joint return as a percentage of the standard deduction for single individuals during the phase - in period.

Expansion of the 15% Rate Bracket for Married Couples Filing Joint Returns

This new law increases the size of the 15% regular income tax rate bracket for a married couple filing a joint return to twice the size of the corresponding rate bracket for an unmarried individual filing a single return.  The increase is phased-in over four years, beginning in 2005.  The increase in the size of the 15% bracket during the phase-in period is shown below:

Deduction for Qualified Higher Education Expenses

The new tax law permits taxpayers an above the line deduction for qualified higher educations expenses paid by the taxpayer during a taxable year.  Qualified higher education expenses are defined in the same manner as for purposes of the HOPE credit.

In 2002 and 2003, taxpayers with adjusted gross income that does not exceed $65,000 ($130,000 in the case of married couples filing joint returns) are entitled to a maximum deduction of $3,000 per year.  Taxpayers with adjusted gross income above these thresholds would not be entitled to a deduction.  In 2004 and 2005, taxpayers with adjusted gross income that does not exceed $65,000 ($130,000 in the case of married taxpayers filing joint returns) are entitled to a maximum deduction of $4,000 and taxpayers with adjusted gross income that does not exceed $80,000 ($160,000 in the case of married couples filing joint returns) are entitled to a maximum deduction of $2,000.

The provision is effective for taxable years beginning after December 31, 2001.

Estate, Gift, and Generation-Skipping Transfer Tax Provisions

Phase-out and Repeal of Estate and Generation-Skipping Transfer Taxes; Increase in Gift Tax Unified Credit Effective Exemption

Under the new tax law, in 2002, the 5 percent surtax (which phases out the benefit of the graduated rates) and the rates in excess of 50 percent are repealed.  In addition, in 2002, the unified credit effective exemption amount (for both estate and gift tax purposes) is increased to $1 million.  In 2003, the estate and gift tax rates in excess of 49 percent are repealed.  In 2004, the estate and gift tax rates in excess of 48 percent are repealed, and the unified credit effective exemption amount for estate tax purposes is increased to $1.5 million.  (The unified credit effective exemption amount for gift tax purposes remains at $1 million as increased in 2002.)  In addition, in 2004, the family owned business deduction is repealed.  In 2005, the estate and gift tax rates in excess of 47 percent are repealed.  In 2006, the estate and gift tax rates in excess of 46 percent are repealed, and the unified credit effective exemption amount for estate tax ;purposes in increased to $2 million.  In 2007, the estate and gift tax rates in excess of 45 percent are repealed.  In 2009, the unified credit effective exemption amount is increased to $3.5 million.  In 2010, the estate and generation-skipping transfer taxes are repealed.

From 2002 through 2009, the estate and gift tax rates and unified credit effective exemption amount for estate tax purposed are shown in the table below.

In 2010, the estate and generation-skipping transfer taxes are repealed.  Also beginning in 2010, the top gift tax rate will be the top individual income tax rate as provided under the bill, and, except as provided in regulations, a transfer to trust will be treated as a taxable gift, unless the trust is treated as wholly owned by the donor or the donor's spouse under the grantor trust provisions of the Code.

After repeal of the estate and generation-skipping transfer taxes, the present law rules providing a fair market value (i.e., stepped up) basis for property acquired from a decedent are

repealed.  A modified carryover basis regime generally takes effect, which provides that recipients of property transferred at the decedent's death will receive a basis equal to the lesser of the adjusted basis of the decedent or the fair market value of the property on the date of the decedent's death.

IMPORTANT CORRECTION TO THE BOARD'S 2001 QUALITY REVIEW SURVEY FORM:
The dates for the PEER REVIEW LETTERS' EXEMPTION SHOULD HAVE READ "between July 1, 1998 and June 30, 2001."

NSA'S DISTRICT GOVERNOR'S COLUMN 

NSA CHOOSES NEW EVP

After a careful and judicious search for a new Executive Vice President to manage and guide administrative functions of the National Society of Accountants, John G. Ams emerged as the candidate whose background, talents, and skills seemed tailor-made for NSA's operation.

As part of his application, Mr. Ams listed his qualifications for the position as including: familiarity with accounting and tax issues; member accreditation; member relations (working with volunteers); association financial management; personnel management; publications; communication skills; and continuing education programs and professional development.

In addition to holding the designation of Certified Association Executive, Mr. Ams is a lawyer and an accountant.  He graduated from Michigan State University with high honors (B.A.) and received his law degree (J.D.) From Georgetown University Law Center.  His employment experience includes titles such as: Senior Tax Law Specialist; Director of Tax Programs; Legislative Director & Tax Counsel; Treasurer & Vice President of Financial Affairs and Administration; Chief Financial Officer ; and Senior Vice President.  He is a meeting planner, a public speaker, and claims expertise in computer systems, budgeting, and negotiations.  He is truly a man who "speaks the language" of a national professional accounting society. Mr. Ams (pronounced "Ames") will assume full-time duties with NSA as of July 9th .  He will attend Committee Week 14-17. Planning and goal-setting for the coming year are accomplished annually during Committee Week and it is fortuitous that the new Executive Vice President will be on board in time to observe and participate in the important activity.  He will of course, also be active in preparing for and participating in the Annual Convention, August 23-26.  

The new EVP has lived in the Washington, DC area for many years and is knowledgeable as to how Washington works and the pursuit of objectives on Capitol Hill.  He is diplomatic, practical, introspective, and tends to analyze the overall picture.  An affable personality, he knows how to work with people and he understand how member societies function.

Filling the vacated position was deemed sufficiently important for President Ralph C. McBride to call a special board meeting to facilitate and speed the process once three finalists were identified by a search committee.  Each applicant brought an impressive array of credentials and experience to the table; each was a viable candidate; and any one of them would have brought creative insight, excellent preparation for the job, and a positive public relations image to NSA.  Members of the Board of Governors discussed issues, concerns, philosophies, and qualifications with each candidate extensively.  While the decision was difficult, the Governors are confident that Mr. Ams admirably meets the "goodness of fit" criteria and will commendably respond to the needs of NSA, its affiliated state societies, and its members.

Wanda Samek

NSA District VIII Governor

Every time you wake up and ask yourself, "What good things am I going to do today?"  
Remember that when the sun goes down at sunset, it will take part of your life with it.  

What shall I do to love?  Believe

What shall I do to believe? Love

DON'T FORGET TO REGISTER FOR THE "QUICKBOOKS SEMINAR" TO BE JULY 26 & 27 AT THE HOLIDAY INN SELECT IN LITTLE ROCK. THIS WILL BE THE ABSOLUTE BEST QUICKBOOKS SEMINAR YOU WILL HAVE THE OPPORTUNITY TO ATTEND.  WE HAVE HAD MEMBERS ATTEND THIS SEMINAR AND THEY GIVE GLOWING REPORTS ON THE QUALITY OF BOTH THE SPEAKER AND THE MATERIAL AND HOW IT IS PRESENTED. MORE AND MORE OF YOUR CLIENTS ARE GOING TO BE USING THIS SOFTWARE IN HOUSE AND YOU NEED TO BE FAMILIAR WITH HOW IT WORKS AND EVEN CONSIDER USING IT IN YOUR OWN OFFICE.

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