September
2002
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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 |
The Arkansas Public Accountant
CLICK HERE TO VISIT THE OFFICIAL ASPA ONLINE SHOPPING MALL!
OFFICERS & GOVERNORS 2001 - 2002
OFFICERS
President President Elect 1st Vice-President 2nd Vice-President Executive Secretary |
DeQueen Hot Springs Newport |
BOARD OF GOVERNORS
District I District II District III District IV District V District VI |
Pocahontas Searcy West Memphis Little Rock Prescott Nashville |
FROM THE PRESIDENT’S PEN
Dear Members:
I didn't think that this past year would pass as quickly as it has, but this will be my last letter to you as your president. This has been one of the best experiences of my life, and I now regret not taking a position as line officer back in 1978 when it was first offered to me. We have not seen a great deal of change in our society this past year, but we have had some of the best continuing professional education programs ever. I know this trend will continue into the future under the leadership of the fine officers coming along behind me. I will continue to serve the society in any way that I can be of benefit.
It has been a pleasure working with the fine officers and governors who represent ASPA. They are a great bunch of people and I hope you will support them in their future endeavors for the benefit of both our society and our profession.
We have more great CPE sessions lined up for you the rest of the year and into next year. I hope you all will make a special effort to attend the business meeting at the convention this year. Since we have discontinued the banquet, this will be your only chance to see your new officers installed. We have some special guests from NSA who will be at that meeting and I hope to see a lot of you there. Don't forget we will have the president's reception the night of September 26, 2002 and this will be a good opportunity to meet your new officers and some wonderful fellowship.
Again I want to thank each and every member for their support throughout this past year.
I hope to see you all in Little Rock at the annual convention.
Sincerely,
James C. Hodge, President
Arkansas Society of Public Accountants
ANNUAL SILENT AUCTION INFORMATION
We are once again holding the silent auction at our state convention this year in September. This has become a fun event for all who participate. So...we are asking for donations of items to be auctioned off. Look around your office and home for things you don't want or need any longer or ask local merchants for donations of unique or unusual items (or any items at all!) Just, pleaseeeee ....bring us something to auction off and don't forget to bring money to do some bidding of your own!!
If you have any questions, contact Donna at <dgowan@steward-net.com> or (501)268-5876 phone or fax or Shelly at <Sruss51670@aol.com> or (501) 843-5561 phone or fax.
(ED note) ASPA donated $500 to the NSA Scholarship Foundation in Hawaii at the Annual Convention and this assures that an accounting student from Arkansas will receive a scholarship this year. We need participation in this auction to provide the funds to do this each year.
IRS NEWS RELEASE
Release No: IR-2002-92
For Release: 8-9-2002
WASHINGTON - As the Internal Revenue Service reassigns workloads at its processing centers, some taxpayers may be filing their tax returns at different locations from the previous year. Because many tax professionals will need the addresses to IRS Centers before the tax filing season (January 1 - April 15), the IRS is providing them today to be used for tax year 2002 returns that will be filed during filing season 2003. The addresses are attached to this news release.
The IRS continues to redistribute workload among the 10 processing centers that process tax returns. Redistributing work among the centers is an example of the commitment of the IRS to provide better service to taxpayers.
For those who file paper returns, the new center addresses will be provided on the envelopes in the tax package. For these taxpayers, our reallocation of work loads to different centers will be seamless.
Taxpayers who e-file will not be affected by these changes for paper returns. More than a third of all individuals choose to e-file their federal tax returns.
If your client lives in Arkansas and you are filing a clients return and are not enclosing a payment, then use this address:
Internal Revenue Service
Memphis, TN 37501-0002
If you are filing a client's return and are enclosing a payment, then use this address:
Internal Revenue Service
PO Box 105017
Atlanta, GA 30348-5017
IRS ISSUES ITS FIRST CERTIFICATION OF HYBRID VEHICLE FOR CLEAN FUEL DEDUCTION.
WASHINGTON - The Internal Revenue Service has certified the first hybrid gas-electric automobile as being eligible for the clean-burning fuel deduction, reflecting swift action under a procedure for automobile manufacturers put in place in med-May.
Purchasers of a new Toyota Prius for model years 2001. 2002 and 2003 will be able to claim a deduction of $2,000 for the year that the vehicle was first put into use.
Federal law allows individuals to claim a deduction for the incremental cost of buying a motor vehicle that is propelled by a clean-burning fuel. By combining an electric motor with a gasoline powered engine, these hybrid vehicles obtain greater fuel efficiency and produce fewer emissions than similar vehicles powered solely by conventional gasoline-powered engines.
The amount of the deduction for the Prius was set after the manufacturer documented for the IRS the incremental cost related to the vehicles electric motor and related equipment. Toyota Motor Sales, U.S.A., submitted the necessary information to the IRS under the process specified in Revenue Procedure 2002-42, which was issued in May.
Under the law, $2,000 is the maximum amount of the one-time deduction, which must be taken in the year the vehicle was first used.
Individuals take this benefit as an adjustment to income. They do not have to itemized deductions on their tax returns to claim it. Taxpayers may claim the deduction for a past year by filing an amended return.
Love will find you when you least expect it. Which makes it more like the IRS than we think.
Jeff MacNelly, political cartoonist/creator of the Shoe comic strip.
Taxation is, in fact, the most difficult function of government and that against which their citizens are most apt to be refractory.
Thomas Jefferson
Tax Information From the IRS
September 2002
Provdied by SB/SE Taxpayer Education & Communication
Little Rock, AR
Schedule K-1 Matching Update
Earlier this year, the IRS initiated the first matching program of Schedule K-1 forms from Partnerships, S Corporations and Trusts to individual returns. The first phase of the initiative has been completed. Based on preliminary stakeholder feedback and IRS evaluation, there may be some enhancements made to the program to further reduce taxpayer burden and to improve compliance. The IRS will continue to work with stakeholders, especially tax practitioners, to refine the initiative. The IRS remains committed to improving compliance on information reporting on K-1s, and therefore ensuring fairness to all taxpayers, while imposing the least possible burden on taxpayers who are covered by K-1s.
As a result of discussions with external stakeholders, the IRS ceased issuing notices on August 1, 2002, to taxpayers for the tax year 2000 on Schedule K-1 matching issues. The notices issued prior to August 1 are legally valid and will be processed as usual. Therefore, taxpayers and practitioners receiving these notices should respond as indicated in the notice.
In November 2002, the IRS expects to have sufficient data from closed cases to begin determining possible enhancements to the program. A review of various aspects of the program is planned, including the accuracy of the screen-out process and the level of no-change rates. The IRS will be working closely with external stakeholders once the data gathering and analysis are completed to develop future policy and procedures for the K-1 matching program. The matching of tax year 2001 returns will continue as scheduled, with anticipated refinements to be incorporated into the process.
K-I information will still be used in the following applications to enhance compliance:
- Including K-1 information in the Substitute for Return program used to address non-filers.
- Adding K-1 information to the information reviewed by our Lead Development Center, which identifies abusive scheme promoters and users.
- Enhancing classification and selection of business and individual returns for examination through a more complete understanding of related
flow-through entities.
To fulfill this vision, the modifications being made to the Schedule K-1 matching programs are essential. It may be helpful to remember the following suggestions when preparing tax returns:
- Adequately identify "amended" K-1 forms. The flow through entity issuing the K-1 should clearly mark these as amended. Individuals are not
required to attach the K-1 to their returns. Therefore, the only way any individual can inform the IRS that an amended K-1 has been
received is to attach a schedule or explanation.
- Adequately identify "estimated" K-1 forms.
- Avoid netting information unless adequate schedules are or explanations are attached. Properly treat and report related expenses. Avoid
netting flow-through related expenses against any K-1 income item. Additionally, passive activity loss or other loss carry-overs that have been
netted against ordinary flow-thru income (loss) should be explained on a schedule such as the Form 8582, Passive Activity Loss Limitation.
Federal Tax Deposit Penalty Refund Pilot Program
Under a new pilot program, some business taxpayers may to eligible to receive a one-time refund of a Federal Tax Deposit (FTD) penalty assessed in the third quarter of 2001. The program will determine the effectiveness of offering a one-time penalty refund as an incentive to migrate paper coupon users to the Electronic Federal Tax Payment System (EFTPS).
Why ETEPS? It's a fast, convenient, safe way for taxpayers to make their FTD payments, and the IRS estimates it could eliminate up to 90% of the deposit errors found among paper submissions.
How does the pilot work? Approximately 600 randomly selected taxpayers with full-paid penalties from third and fourth quarters of 2001 were sent Publication 04048, Special Penalty Refund Offer. To be eligible for the refund, the taxpayer must enroll in EFTPS, and use the system to make all Form 941 tax payments for one full year (four quarters). At the end of the year, the taxpayer will request the penalty refund. Once the IRS verifies that the taxpayer meets the qualifications, the penalty will be refunded. If successful, it is anticipated that the program will be made available to all taxpayers in 2003.
If you have questions about the Penalty Refund Program, you may call 1-513-263-5200 (not toll-free) between 8:00 a.m. and 5:30 p.m., ET. Pilot participants may also email questions to nerohiocincytec@irs.gov.
Trusts
Regulation 7701-4(b) states that generally trusts are created simply to carry on a profit-making business and are disregarded for Federal Income Tax purposes because they are not set up to simply protect and conserve the property for the beneficiaries. Therefore these businesses should generally be moved to the owner's return. Some exceptions are as follows:
- Rentals
- Oil and gas
- Crop-share farms where you are providing the property
- Some timber activities where you are selling off trees to keep the property at its peak
- Short-term operation until the business is closed or sold.
Farm rental is allowed to be in a trust. It is very important to properly disclose the activity as a rental on your return, if necessary attach a statement to Schedule F stating that the activity is a farm rental. Merely reporting the activity on Schedule F without an explanation makes the activity appear to be farm business, instead of a rental.
When Contractors get Safe Harbor.
When the IRS finds that contractors who work for a company really are its employees, the company may still avoid paying back employment taxes by meeting "safe harbor" tests that show it acted in good faith in treating the workers as contractors. One test is whether the company properly filed 1099s for all the workers to report what it paid them.
New & Better Way to Use Real Estate Swaps. For owners of investment property, like-kind exchanges under Section 1031 of the Internal Revenue Code have long been a prime tax break. You can effectively swap real estate investments while deferring income tax.
Increasingly, 1031 exchanges involving factional interests of property are becoming available. You relinquish your investment property and wind up sharing a larger property with other owners.
Benefits.
You can trade up to a higher-quality property while winding down your commitment of time and effort.
Ground rules.
While there are a variety of real estates exchanges, a basic transaction goes something like this....
- You find a buyer for your investment property and close the sale.
- The sales proceeds are held by a qualified third-party intermediary - a firm that is in the business of facilitating exchanges.
- Within 45 days of the sale, you identify possible replacement properties to this intermediary.
- Within 180 days of the original sale, you close a deal for a replacement property.
- The intermediary uses the proceeds from the original sale to purchase the replacement property for you.
- As long as you receive neither cash nor debt reduction from the entire transaction, no income tax will be due.
Problems.
For many investors, such a transaction will be ideal. You might be moving in retirement, eager to trade your Ohio shopping center for a marina in Florida. However, some problems may arise.....
Time. You might not be able to identify a replacement property in 45 days and close a deal within 180 days. Failure to meet these deadlines
won't necessarily cost you the tax advantages, but you may have to fight the IRS for them.
Effort. You might not want to keep managing the property. After years of hands on involvement, you may prefer a more passive role,
especially as you grow older.
Fractional interests.
This kind of exchange proceeds just like the one described previously, but only up to a point. When you need to specify replacement properties within the 45 day window, you would include one or more properties offered by a fractional interest firm.
Then, within the 180 day period, you can direct the qualified intermediary holding the proceeds from your property sale to invest that money in a fractional interest exchange, as a tenant in common. ( under this form of ownership, your interest in the property passes to your heirs when you die, not to the other owners.) Generally, you'll buy a prepackaged interest in a larger, institutional grade property.
Key: You'll wind up with a deed for your share of the property rather than a share of a partnership that owns the property. That's important because exchanges of partnership interests do not qualify for tax-free treatment under Section 1031.
If the transaction is handled properly, you'll owe no taxes. You'll go from owning a relatively small investment property to being a part owner of a larger piece of real estate.
Example: You own a strip shopping center that no longer meets your needs. You sell it for $2.5 million and appoint a qualified intermediary to hold the proceeds.
Within 45 days, you specify a $10 million industrial park as a possible replacement. Within the 180 day allowance period, the intermediary off the outstanding $1.5 million loan on your old shopping center. The remaining $1 million is used to purchase a 10% interest in the $10 million office park.
Added benefit: Now you are a 10% owner of a larger property, with no management responsibility. Moreover, you may receive tax-sheltered cash flow. Check it out!
There is a difference between a tax collector and a taxidermist---- the taxidermist leaves the hide.
Mortimer Caplan
Former Commissioner of the IRS
There's nothing wrong with the younger generation that becoming taxpayers won't cure.
Dan Bennett, columnist and comedian
Don't forget to register for the Annual Convention and Gear Up BE Seminar. Dates are September 25th, 26th and 27th. Hope to see you there. Call 870-523-5329 for more information. 1040 dates are December 18th and 19th. Will be mailing information next month.
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