We have posted a summary of these rulings on our website.

The recently enacted “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010” is a sweeping tax package that includes, among many other items, an extension of the Bush-era tax cuts for two years, estate tax relief, a two-year “patch” of the alternative minimum tax (AMT), a two-percentage-point cut in employee-paid payroll taxes and in self-employment tax for 2011, new incentives to invest in machinery and equipment, and a host of retroactively resuscitated and extended tax breaks for individuals and businesses. Here’s a look at the key elements of the package:

·       The current income tax rates will be retained for two years (2011 and 2012), with a top rate of 35% on ordinary income and 15% on qualified dividends and long-term capital gains.

·       Employees and self-employed workers will receive a reduction of two percentage points in Social Security payroll tax in 2011, bringing the rate down from 6.2% to 4.2% for employees, and from 12.4% to 10.4% for the self-employed.

·       A two-year AMT “patch” for 2010 and 2011 will keep the AMT exemption near current levels and allow personal credits to offset AMT. Without the patch, an estimated 21 million additional taxpayers would have owed AMT for 2010.

·       Key tax credits for working families that were enacted or expanded in the American Recovery and Reinvestment Act of 2009 will be retained. Specifically, the new law extends the $1,000 child tax credit and maintains its expanded refundability for two years, extends rules expanding the earned income credit for larger families and married couples, and extends the higher education tax credit (the American Opportunity tax credit) and its partial refundability for two years.

·       Businesses can write off 100% of their equipment and machinery purchases, effective for property placed in service after September 8, 2010 and through December 31, 2011. For property placed in service in 2012, the new law provides for 50% additional first-year depreciation.

·       Many of the “traditional” tax extenders are extended for two years, retroactively to 2010 and through the end of 2011. Among many others, the extended provisions include the election to take an itemized deduction for state and local general sales taxes in lieu of the itemized deduction for state and local income taxes; the $250 above-the-line deduction for certain expenses of elementary and secondary school teachers; and the research credit.

·       After a one-year hiatus, the estate tax will be reinstated for 2011 and 2012, with a top rate of 35%. The exemption amount will be $5 million per individual in 2011 and will be indexed to inflation in following years. Estates of people who died in 2010 can choose to follow either 2010′s or 2011′s rules.

·       Omitted from the new law: Repeal of a controversial expansion of Form 1099 reporting requirements.

·       Also not included: Extension of the Build America Bonds program, which permits state and localities to issue federally-subsidized municipal bonds.

We have created the following articles and client alerts that dive deeper into each aspect of the new Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.  Over the following days we will post more detailed information on each of the key components.

We hope this information is helpful. If you would like more details about these provisions or any other aspect of the new law, please do not hesitate to contact your Keiter Stephens engagement partner.

Qualified Therapeutic Discovery Program (QTDP) awards were recently issued and 45 biotechnology companies in Virginia were awarded more than $11 million in federal tax credits and grants.  Accounting for those funds under tax basis accounting as well as Generally Accepted Accounting Principles (GAAP) can be difficult. The grants themselves are not taxable, but many grant recipients will need to amend their 2009 tax returns in order to take full advantage of the grants.  They may also need to make certain elections with their 2010 filings.

How to account for the grants under GAAP is a little less clear.  Some have suggested that since the awards were based upon research and development expenditures that the R&D costs should be reduced by the amount of the grants.  However, most experts seem to feel that the grants should be recognized “below the line” (below operating income) as an other, non-recurring income.

Very few CPAs are familiar with the QTDP grants, however, the clients that we helped submit QTDP applications received 18% of the total grant amounts awarded in the state of Virginia.    If you have questions on QTDP issues or other biotech, life-sciences, I.T. or technology business concerns, please contact Rick White or Robert Tobey.

Source: RIA

Source: RIA

Employers also may qualify for an up-to-$1,000 tax credit for retaining qualified individuals. The workers must be employed by the employer for a period of not less than 52 consecutive weeks, and their wages for such employment during the last 26 weeks of the period must equal at least 80% of the wages for the first 26 weeks of the period.

The IRS had issued guidance on these tax breaks in the form of frequently asked questions (FAQs). Updated FAQs explain: when an employee is considered to begin work; how the exemption can be claimed for a new hire who replaces a prior employee; that the exemption can be taken for someone who was self-employed for the entire 60-day lookback period; that minors may sign the HIRE Act employee affidavit (Form W-11); and what counts as wages for the retention credit.

Source: RIA

Source: RIA

Keiter Stephens is closely monitoring this repeal and will update as soon as information is available.  Should you have questions regarding this ruling and how it may impact your business, please contact your KS client service representative.

Source: RIA

Several states are offering the “carrot vs stick” theory also known as amnesty where a taxpayer may come forward under a specified amnesty program,  pay back taxes (and interest) for a period of prior years and avoid any penalties. If, however, the taxpayer does not come forward, the “stick” is significant penalties for failure to file and pay taxes.  States that are currently offering amnesty programs are summarized below.  Please consult your Keiter Stephens representative to review your specific situation.

Florida
The Florida Department of Revenue has issued a Tax Information Publication explaining the state’s tax amnesty program, which runs from July 1 to September 30, 2010. All taxes administered by the Department are eligible, except unemployment tax and Miami-Dade County Lake Belt Fees. Tax amnesty applies to tax, penalty, and interest that were due before July 1, 2010. Taxpayers must complete a Tax Amnesty Agreement to participate. Under the tax amnesty program, taxpayers will pay no penalty and only half of the interest due, if they: (1) report a tax liability that the Department did not know about; (2) file a late return for a tax obligation previously unknown to the Department; or (3) are responding to a Letter of Inquiry or a self-audit request. Taxpayers will pay no penalty and only three–fourths of the interest due, if they are responding to a Department bill, delinquency, audit, or other assessment. However, a 10% administrative collection processing fee will be imposed on any known debt over 90 days old and will not be waived under the amnesty program. The TIP also explains eligibility for tax amnesty; lists the taxes included in the amnesty program; provides examples of overlooked taxes; and explains how to apply for tax amnesty and how to file back taxes. (Florida Tax Information Publication 10ADM-02, 07/01/2010.)

District of Columbia
The District of Columbia is providing a tax amnesty program between August 2, 2010 and September 30, 2010 for all taxes administered by the Office of Tax and Revenue with the exception of real property related taxes and the ballpark fee. All tax periods prior to December 31, 2009 are covered by the amnesty program, which includes an abatement of taxpayer penalties and fees due and no imposition of criminal penalties. Notice, D.C. Office of Tax and Revenue, 07/29/2010, District of Columbia Tax Amnesty Program FAQ, Office of Tax and Revenue, 07/29/2010

Kansas
Kansas has enacted legislation that authorizes a tax amnesty program from September 1, 2010 to October 15, 2010 for tax liabilities due and unpaid for tax periods ending on or before December 31, 2008 L. 2010, S572 (c. 165), effective 06/10/2010; 2010 Kansas Tax Amnesty Instructions, Kansas Department of Revenue, 08/01/2010

Illinois
Illinois enacted legislation that will establish a 2010 tax amnesty program beginning on October 1, 2010 and ending on November 8, 2010. The program will apply to taxes due to the State of Illinois for the taxable period occurring after June 30, 2002 and prior to July 1, 2009. L. 2010, S377 (P.A. 96-1345), effective 08/16/2010

New Mexico
The New Mexico Taxation and Revenue Department has announced a temporary amnesty period for individuals and businesses that will run from June 7 to September 30, 2010. This limited time offer provides individuals and businesses relief from the interest and penalties associated with unreported state taxes that were due prior to January 1, 2010. State taxes that have already been assessed or are currently under audit or investigation are not eligible. However, other unreported state taxes that have not been assessed, audited or investigated, may be eligible. The Department will consider the following to determine eligibility for amnesty:(1) the taxpayer has not been selected for audit by the Department; (2) amnesty is not being requested for existing liabilities; (3) the taxpayer is not the subject of a criminal investigation; and (4) taxpayers in bankruptcy have bankruptcy court approval of the agreement, if required by bankruptcy law. www.taxrelief.newmexico.gov

Nevada 2010
The Nevada Department of Taxation is required to allow a taxpayer who on July 1, 2010, is delinquent in the payment of a tax, fee or assessment to pay the amount due without any penalty or interest in certain circumstances. The taxpayer must file with the Department a request for relief and pay the unpaid tax, fee or assessment in full to the Department between July 1, 2010, and October 1, 2010. The amnesty provision does not apply to any person who has entered into: (1) a compromise or settlement agreement with the Department regarding the unpaid tax, fee or assessment; or (2) a compromise with the Nevada Tax Commission regarding the unpaid tax, fee or assessment. A person who requests or receives amnesty relief may be selected for an audit and audited by the Department in the same manner as a person who does not request or receive relief. [L. 2010 Chapter 10 §64.]

Maine
Maine has established the 2010 Tax Receivables Reduction Initiatives, which are intended to encourage delinquent taxpayers to pay existing tax obligations. This program is composed of a “short-term initiative” and a “5–year initiative.” The short-term initiative applies to tax liabilities that are assessed as of December 31, 2009 and interest and penalties subsequently assessed on such tax liabilities. The 5-year initiative applies to tax liabilities that were assessed as of June 30, 2005 and interest and penalties subsequently assessed on such tax liabilities.

A taxpayer may participate in the initiatives without regard to whether the amount due is subject to a pending administrative or judicial proceeding. Participation in the initiatives is conditioned upon the taxpayer’s agreement to forgo or withdraw a protest or an administrative or judicial proceeding with regard to liabilities paid under the initiatives and not to claim a refund of money paid under the initiatives.  These initiatives are available to a taxpayer if the taxpayer:

·       properly completes and files a 2010 tax initiatives application as required by the State Tax Assessor;

·       pays all tax, interest and penalty for the respective initiative by the end of the initiatives period;

·       is not currently charged with, and has not been accepted by the Attorney General for criminal prosecution arising from, a violation of the state tax law as provided in Title 36 or Title 17-A or is not applying for relief on a debt that is the result of a criminal conviction; and

·       is not applying for relief with respect to a tax liability for which the state has secured a warrant or civil judgment in its favor in Superior Court.

This legislation does not prohibit the Assessor from instituting civil or criminal proceedings against any taxpayer with respect to any amount of tax that is not paid with the 2010 tax initiatives application or on any other return filed with the Assessor. A 2010 tax initiatives application may be filed from September 1, 2010 to November 30, 2010.