September 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:

As I write this I have just returned from the National Society of Accountants Annual Convention in Minneapolis, along with Donna Gowan, Donny Woods, Suzanne Baltz, LaVerne Long, and three of our spouses.  As anticipated the weather was much cooler there, which was a welcome change from Arkansas.  We all had a great time!

At the convention I was elected to the position of Arkansas State Director for NSA, so I will be attempting to take Donna Gowan's place.  A hard act to follow!  Donna has served ASPA in many capacities over the years, and has been a tremendous asset to us.  I know she will continue to be there for us in whatever she is asked to do.

It was very exciting to be a part of the voting process during the NSA Convention.  There were three contested races this year, all qualified individuals, so that made our job a little more difficult.  They each came and spoke to our individual District Caucuses, which definitely helped us make our decisions.  Even with all the business conducted, there's time to do some fun things, talk with exhibitors, vote on silent auction items, and fellowship with other accountants.  It's much like our own convention except on a much larger scale.

Speaking of our convention -- it's coming up very soon.  The business session will be held on October 16, followed by the Business Entities Seminar October 17-18.  I  hope all of you are planning to come and be a part of this important time in our year.

I'm sure you noticed when you received your dues statements that ASPA is now accepting credit card payments.  The Board voted at our last meeting to offer this as another membership service, so we will be making this option available on future seminars as well.

I'll look forward to seeing you soon.

Sincerely,

Shelly F. Russell
President - ASPA

ASPA SILENT AUCTION

ASPA WILL AGAIN BE HAVING THE SILENT AUCTION AT OUR STATE CONVENTION THIS YEAR.  THIS WILL BE HELD OCTOBER 16, 17 & 18 AT THE HOLIDAY INN SELECT IN LITTLE ROCK.  I HAVE BEEN ASKED TO HELP WITH THIS EVENT THIS YEAR.

PLEASE BE THINKING OF SOMETHING THAT YOU CAN DONATE AND BRING IT TO ME AT THE CONVENTION.  IF YOU ARE UNABLE TO ATTEND AND WOULD LIKE TO DONATE AN ITEM, PLEASE CONTACT ME AT 501-268-5876 OR EMAIL ME AT dgowan@steward-net.com.

THANK YOU!

Donna Gowan

District VIII Governor's Column

NSA CHAMPIONS CAUSE OF TAX PRACTITIONERS

Nowhere has the National Society of Accountants been more successful than in the area of taxation.  We are in constant dialogue with the Internal Revenue Service, represented ably on the IRS Advisory Committee, the Information Reporting Program Advisory Committee, and the Special Enrollment Examination Advisory Committee.  We have testified on several topics this year, both before Congress and the Internal Revenue Service.  NSA's Federal Taxation Committee has been very effective and has only scratched the surface of what can be accomplished.

The 15 long years of intensive work, from 1945 to 1959, resulted in the professional opportunity to pass a Special Enrollment Exam.  The current alphabet soup of societies did not exist during that time, and NSA labored alone against the national bar and CPA associations.  The contest was not even in terms of money, membership, or influence, yet NSA (NSPA) prevailed.  When the first exam was administered, there were 1,264 people who passed it, and 46% were NSPA members.

NSPA continued to focus on improving the status of practitioners, and in 1966, Circular 230 was updated and the designation, "Enrolled Agent," was created, primarily because of the efforts of NSPA.  In 1993, NSPA convinced the National Office of Appeals to permit EA's  to represent taxpayers before Appeals in docketed Tax Court cases regardless of the amount in dispute.  Since most cases are settled at the Appeals level, this provided a major benefit to clients.

In 1998, the written and oral testimony submitted by NSA played a major role persuading Congress to reduce the long-term capital gains holding period from 18 months to 12 months.  Also in 1998, NSA was primarily responsible for bringing about the rule changes to allow for abatement of tax penalties for late filing of estimated taxes by a S corporation - a penalty for which no reasonable cause exception existed previously.

Child and education credits are immune from the alternative minimum tax.  NSA was active in persuading Congress that this protection was needed.

Last year, clients were able to "check a box" to authorize IRS to contact the practitioner directly about that tax return, and there are many practice benefits to that process.  This simple solution was offered by NSPA in 1987, but it took 13 years to accomplish.

One of the most far - reaching accomplishments in the tax field by NSA came after a 6 - year - effort - it was the success achieved in persuading Congress in 1998 to require IRS to (1) change its mission from "compliance"  to " service;" (2) allocate resources to educate IRS employees about the implications of a service mission; and (3) design employee evaluation systems using the service mission as a yardstick.

NSA recently sponsored a joint conference with Taxpayer Advocate Service that was designed as a pilot program to provide IRS Taxpayer Advocates with an understanding of what it takes to be an advocate from a practitioner's perspective while the TAS personnel educate NSA members about what it takes to resolve problems with the IRS bureaucracy.  It was a historic event for both IRS and the practitioner community.

NSA members have volunteered tens or thousands of hours and personal funds to create a better IRS system for you and your clients.  In this area, as well as many others, NSA continues to work toward improving conditions with your practice sphere.

Wanda Samek
NSA District VIII Governor

NEW IRA DISTRIBUTION TABLE CUTS REQUIRED DISTRIBUTIONS FOR MOST TAXPAYERS

The good news from the IRS is that almost all IRA owners can now keep more of their money in their IRAs longer, if they choose to do so.

• Advantage: The longer the money is held in the IRA, the more tax deferred investment returns and avoidance of current income taxes will accrue.
• Key: New tables released by the IRS that determine the size of required minimum annual IRS distributions reduce the size of required minimum distributions for most people.
• New Uniform Rule: Everybody is treated as having a joint life expectancy based on his/her own age and that of a beneficiary who is 10 years younger.  This is true even if the actual beneficiary is older than that or there is no beneficiary at all.

This new distribution schedule is available now.  Don't overlook using it if you're at the point where you must take minimum annual distributions.

To determine how much it may save, compare the life expectancy you would use under the old rules to compute this year's required distribution with that given below by the new table.

Uniform Distribution Table

Important exception: The sole exception to using the new Uniform Distribution Table occurs when a spouse is the sole IRS beneficiary and is also more than 10 years younger than the IRA owner.

Distributions should be calculated on the basis of actual joint life expectancies.

NEWS FROM YOUR STATE DIRECTORS

FROM YOUR EXECUTIVE SECRETARY

THE DUES STATEMENTS AND THE REGISTRATION FORM FOR BUSINESS ENTITIES ARE NOW IN THE MAIL.  IF YOU DID NOT RECEIVE YOURS LET ME KNOW.  I WILL BE MAILING THE GEAR UP 1040 FORMS SOON AND SINCE THESE WERE PRINTED BEFORE WE MADE THE DECISION TO ACCEPT CREDIT CARDS, THERE IS NOT A PLACE ON THEM FOR USING A CREDIT CARD.  IF YOU WANT TO USE YOUR CREDIT CARD, I GUESS YOU COULD DO THAT IF YOU WOULD ENCLOSE ALL THE NECESSARY INFORMATION ON A SEPARATE SHEET.

BE PATIENT WITH ME AS I HAVE NOT DONE THIS BEFORE .  THE PROCESS LOOKS VERY SIMPLE TO ME AND I DO NOT ANTICIPATE ANY PROBLEMS.  BUT REMEMBER - MURPHY'S LAW.

$$$IRS concedes.  Modification of early IRA distributions due to disability is permitted. A disabled individual began taking distributions from his IRA before age 59 « without penalty by doing so in substantially equal annual payments over his life expectancy, as permitted by the law.  He later sought to change the schedule of his distributions. IRS ruling: Normally, the schedule of penalty free IRA distributions taken before 59 « cannot be modified, or all the early distributions become taxable.  However, the Tax Code specifically allows modifications due to a disability.  If the individual qualifies as disabled, no penalty will apply. Letter Ruling 200126037.

$$$ IRS loses.  Cannot justify seven year late tax bill.  More than 10 years after Thomas Johnson made a gift to an IRS approved charity, the IRS sent a letter demanding information about it   giving only 21 days to reply and not saying what the inquiry was about.  When Johnson said he had only a general recollection, the IRS disallowed his charity deduction and added interest and fraud penalties, quadrupling the tax.  And it said the  statute of limitations didn't apply because of the fraud.  Court:

The IRS gave no justification for either the very late tax assessment or fraud charge.  So the three year limitation period applies, the tax is lifted, and the IRS must pay Johnson's legal bills.   Thomas Johnson, DC CA. No. CV 00461 R (Ex): 87 AFTR2d p.2001-1047.

TAX INFORMATION FROM IRS

IRS TEAMS GET INPUT FROM SMALL BUSINESS, TAX PRACTITIONERS, TO IMPROVE AUDIT PROCESS

The IRS is looking to improve the audit process for the nation's small business owners and self-employed individuals.  IRS teams working on the new initiative, called the Small Business/Self Employed (SB/SE) Exam Reengineering Project, will be contacting members of small business and tax practitioner groups to get feedback and suggestions about the agency's exam process.

The projects goal will be helping reduce audit times, ensure fairness in the IRS process and encourage tax compliance.

"It's time to update and simplify our audit procedures so we keep providing top quality service to our customers - the American taxpayer," said Joe Kehoe,, SB/SE Commissioner.

During the next several months, SB/SE teams will develop a host of recommendations to streamline the current audit process.  As part of this effort, they are conducting interviews with IRS employees and members of several small business and tax practitioner organizations to gauge their opinions on the exam process and to hear about their expectations for the Exam Reengineering Project.

"By tapping the diversity and expertise of the private sector, we can start achieving significant improvements in the exam selection process in fiscal year 2002," Kehoe said.  "Improving the audit process can be a win win situation for taxpayers and the IRS."

The SB/SE Operating Division serves 45 million taxpayers including small business owners and self employed individuals.  These groups contribute $915 billion in taxes annually.  They include seven million small businesses, including corporations and partnerships and 33 million self-employed and supplemental income earners.  SB/SE's mission is to provide their customers top quality service by educating and informing them of their tax obligations, so they understand and comply with applicable laws.

More information on this initiative and other educational information may be found on www.irs.gov.

HOW WILL ADVANCE PAYMENT AFFECT 2001 RETURN?

• "Will the check I get this year make my refund lower when I file my tax return next year?"
• "Will I have to pay it back next year?"
• "Will I have to report this payment on my 2001 return?

The Internal Revenue Service is hearing these questions from a number of taxpayers who are getting advance payment or "rebate" checks now from the IRS.

The good  news is that the advance payment check will not reduce your refund or cause you to owe more taxes next year. In fact, it will either have no effect or a positive effect when you file next year.

If you got the maximum, you're done.

If you receive the maximum advance payment this year   $300 for Single or Married Filing Separately; $500 for Head of Household; $600 for Married Filing Jointly   neither your tax liability nor your refund will be affected when you file your 2001 tax return next year.  In fact, you won't need to show the amount of the advance payment you received this year on your 2001 tax return at all.

Didn't get a check, or only got a partial payment?  You've got a second chance.

If you do not get the advance payment this year or do not get maximum amount, you may still qualify to receive it when you file your 2001 return.  Taxpayers who do no receive the maximum advance payment for their filing status but have taxable income in tax year 2001 will be referred to a worksheet in the tax return instructions to figure if they qualify for the credit.

To complete the worksheet, you'll need to know the amount of the advance payment you receive this year, so keep a copy of the advance payment notification letter or some other record of the amount.  If the worksheet shows you qualify for the credit or any part of it, you can claim that amount against your 2001 tax liability.

IRS concedes. 1996 return may be filed now to claim $125,000 exclusion on home sale.  A couple had lived in their home for 50 years when the husband died.  His widow sold the home in 1996 and qualified to take the $125,000 exclusion for gain on a home sale that then existed in the law.  However, she never filed a tax return for the year. IRS ruling: The deadline for claiming the exclusion was the same as for claiming a refund.  That is the later of three years or two years after the tax was paid, or if no return was filed, within two years after the tax was paid.  But the widow never filed or paid any tax.  Therefore, the deadline never ran and she can file a return now and claim the exclusion. Letter Ruling 200124011.

HOT! IRS warns small businesses against failing to withhold tax from wages.  An increasingly popular tax scam is based on convincing small businesses that employees are exempt from withholding on their wages, by citing various technical sounding arguments.  Warning:   IRS has just issued a special notice warning that there are no legal grounds for not withholding employment taxes.  Businesses that fail to do so may face steep penalties.  Those that have already failed to do so should pay overdue taxes promptly and file corrected returns.  IRS Notice 2001-40.

IRS loses.  Volunteer fire department avoids tax on "tip jars."

A tax-exempt volunteer fire department raised funds for its fire-fighting activities by placing gambling devices know as "tip jars"  in local taverns.  The IRS said the gambling income was unrelated to the fire department's tax-exempt purpose and taxed it.  Court: The fire department's involvement in operating the tip jars was minimal, and the activity of the taverns in doing so is not attributed to it.  The department's actions relating to the tip jars failed to reach the level of operating a trade or business that was unrelated to its exempt purpose   and it escaped tax on the income from them.  Vigilant Hose Co. of Emmitsburg, DC MD, 2001 - 2 USTC p50,458.

BY NOW YOU SHOULD HAVE RECEIVED YOUR ANNUAL CONVENTION REGISTRATION
AND ALSO YOUR DUES STATEMENTS.

IF YOU HAVE NOT RECEIVED BOTH OF THESE DOCUMENTS, PLEASE BE IN TOUCH WITH ME.  
EITHER BY FAX 870-217-0154, EMAIL llonga@ipa.net OR PHONE 870-523-5329
or the US MAIL: POST OFFICE BOX 758, NEWPORT, AR 72112.

See you next month!

Newsletter | By Laws | Officers & Governors | Membership Types | Event Calendar | Information Links | Contact
Entire Contents Copyright © 2001 Arkansas Society of Public Accountants. All Rights Reserved.
Legal Notice

RETURN TO MAIN SITE