The Keiter Stephens Accounting Blog » Tax

Several States Issuing Tax Amnesty in 2010

General — Tue, 07 Sep 2010 16:56:15 +0000

The current economic conditions continue to put stress on various states budgets. One way that state governments are looking to increase their coffers is through more aggressive collections on income and franchise taxes for taxpayers that have failed to file and pay taxes. The states are seeking taxpayers that have a physical presence or “nexus” in the state or an “economic nexus”. Physical presence can be having an employee perform certain functions in a state, having property in a state, or even a subcontractor performing work for your business in another state. Economic nexus involves advertising or solicitation in a state with substantial sales to a state.

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.

NC Franchise Tax Refund Opportunity For Contractors

General — Wed, 25 Aug 2010 21:38:12 +0000

We have recently become aware of a potential refund opportunity in North Carolina. Contractors using the percentage of completion methods that operate in North Carolina may have a franchise tax refund opportunity. The North Carolina Department of Revenue recently issued a notice regarding franchise tax paid on billings in excess of costs. The 2009 NC legislature provided an exemption for the “billings in excess of costs” liability account from the capital stock, surplus, and undivided profits base of the state’s franchise tax, effective for taxable years beginning on or after January 1, 2010. A recent amendment makes these changes effective retroactively to taxable years beginning on or after January 1, 2007, and authorizes taxpayers that paid franchise tax on the “billings in excess of costs” liability in taxable years 2007, 2008, and 2009 to apply for a refund of the franchise tax paid attributable to those amounts. The Department of Revenue issued a notice providing that taxpayers that paid franchise tax on their “billings in excess of costs” liability account for tax years in which the taxes were due in 2007, 2008, or 2009 may request a refund by filing either an amended income and franchise tax return (CD-405 or CD-401S) or Form NC-19 (Claim for Refund of Taxes). According to the notice, taxpayers are instructed to enter “Franchise Tax Paid on Billings in Excess of Costs” in the explanation section of the request for refund. To be considered timely, a request for refund must be received by the Department no later than January 1, 2011, and any refund requests received after that date will be barred. Source: http://www.dor.state.nc.us/taxes/corporate/ (PDF)

Please do not hesitate to contact us for additional information or for assistance in filing claims for refunds.

Cap and Trade Legislation Coming Closer to Fruition

General — Mon, 23 Aug 2010 21:29:44 +0000

The American Clean Act Energy and Security Act of 2009 passed in the U.S. House of Representatives. The U.S. Senate has since constructed a similar bill.

The bill consists of a cap-and-trade system, in which greenhouse gas emissions in the United States would be reduced in an effort to encourage companies to use and develop renewable resources.

Under the cap-and-trade system, the federal government would apply limits, or caps, on the total volume of greenhouse gas emissions that U.S. companies could emit yearly. Companies would have an allowance for each ton of greenhouse gas emitted. These allowances can then be bought and sold among companies.

The National Association of Manufacturers opposed the original House bill, due to the threat of increased costs and regulation to American manufacturers and consumers. The Association also expressed concerns that the Act could potentially cause severe competitive damage if the U.S. industry is the first to act, and other international manufacturing economies do not limit their own emissions. We will continue to monitor the proposed bill.

New Tax Legislative Update – Education Jobs and Medicaid Assistance Act

General — Fri, 20 Aug 2010 21:12:19 +0000

On August 10, 2010, The Education Jobs and Medicaid Assistance Act was signed into law. The Act includes several international tax reforms affecting multinational corporations. The measure provides $26 billion in aid to state and local governments, preserving public-sector jobs at a time of persistent unemployment. The law will raise $10.8 billion through changes to the tax code, according to Joint Committee on Taxation estimates. Among the offsets is a provision that prevents the splitting of creditable foreign taxes from the associated foreign income. The law also prevents businesses from claiming tax benefits when they engage in covered asset acquisitions and limits the use of section 956 for foreign tax credit (FTC) planning.

Other offsets in the law:

Separate the application of the FTC limitation to items
Re-sourced under tax treaties;
Ensure that earnings of foreign subsidiaries of U.S. companies
are subject to withholding tax when those earnings are repatriated to a
foreign parent corporation as a dividend;
Tighten affiliation rules that seek to prevent taxpayers from
excluding foreign interest expense from the FTC limitation by placing it
in foreign subsidiaries;
Repeal the 80/20 withholding rules for dividends; and
Eliminate the advance earned income tax credit

New Form 990 Presents Many Challenges, But Redesign Was Worth It, Practitioners Say

General — Sun, 15 Aug 2010 21:12:47 +0000

The redesign of Form 990 was a necessary and positive change despite the many challenges it presents to organizations and practitioners, participants in an Aug. 11 BNA Tax & Accounting webinar said.

The form, which lists revenues, expenses, and program services of charities and other tax-exempts, went through a massive redesign in 2007—the first in nearly 30 years. Most of the largest tax-exempt organizations have filed the 2008 redesigned form and if applicable, going forward, starting with the 2009 forms, they must add in two new mandatory schedules—Schedule H for hospitals and Schedule K for organizations with certain tax-exempt bond liabilities.

After 30 years, it was “definitely” time to redesign the Form 990, said Travis Patton, a partner at PricewaterhouseCoopers. “If you looked at the old form it had become very choppy. Sections were out of order; there was revenue that was reported in two different places and it didn’t give the focus on some of the critical activities that organizations are currently doing and allow them to describe those in a nice manner,” Patton said. “I do think that the redesign is extensive. It obviously requires organizations to report a great amount of more detail than they did before. But I think it was necessary.”

Meredith Monroe, a senior associate in PricewaterhouseCoopers’ Exempt Organization Tax Services practice, agreed the redesign was needed and said that many of the challenges experienced by taxpayers and practitioners with the 2008 forms will not be as daunting with the 2009 forms and beyond because they will be more accustomed to the larger amount of detail and record-keeping required for the form. “Once organizations start to get a little bit more organized and their policies are in line, I think it will be really beneficial to the public and to the organization as a whole to get more organized,” Monroe said. Source: BNA Tax Daily.

Full Phase-In of the Domestic Production Activities Deduction at 9% in 2010

General — Fri, 23 Jul 2010 21:22:05 +0000

Internal Revenue Code Section 199 (Sec 199) was enacted to help offset the repeal of a tax break for U.S. exporters. Since 2004, Sec 199 has given U.S. manufacturers tax relief in the form of a deduction of a percentage of qualifying expenses. The deduction started at 4% for tax years 2004 – 2006, increased to 6% for tax years 2007 – 2009 and will be 9% for 2010 and all following years. In order to be eligible for the Sec 199 deduction, the taxpayer must have qualified production activities income (QPAI) which is domestic production gross revenue (DPGR) for the tax year minus costs of goods sold and other expenses or deductions allocable to those receipts.

DPGR includes the gross receipts of a taxpayer derived from any lease, rental, license, sale, exchange, or other disposition of qualifying production property (QPP). Common forms of QPP are:

Manufacture, production, growth, or extraction of tangible personal property by the taxpayer in whole or in significant part in the U.S.
Production of qualified films
Production in the U.S. of electricity, natural gas, or portable water
U.S. real property construction
Performance in the U.S. of engineering or architectural services in connection with U.S. real property construction

The amount of the deduction for any tax year may not exceed the taxpayer’s taxable income or activities eligible for the deduction. Now that the deduction is fully phased in, the deduction is designed to be economically equivalent to a 3% reduction in the tax rate on eligible activities conducted in the U.S. The amount of the deduction is also limited to 50% of the taxpayer’s wages attributable to DPGR. Consequently, businesses that are sole proprietorships or partnerships with no employees are not eligible for the deduction.

Congress OKs Legislation to Extend Closing Date for Homebuyer Credit

General — Thu, 01 Jul 2010 19:07:30 +0000

On June 30, Congress passed H.R. 5623, the Homebuyer Assistance Improvement Act of 2010. The Act, which is now cleared for the President’s signature, provides first-time homebuyer credit relief to taxpayers who couldn’t meet a key June 30, 2010, closing date.

Under prior law, both the regular Code 36 first-time homebuyer credit of $8,000 and the reduced credit of $6,500 for long-term residents generally expired for homes purchased after Apr. 30, 2010. However, if a written binding contract to purchase a principal residence was entered into before May 1, 2010, the credit could be claimed if the purchase closed before July 1, 2010.

The Act amends Code Sec. 36(h)(2) to provide that if a written binding contract to purchase a principal residence was entered into before May 1, 2010, the credit may be claimed if the purchase is closed before Oct. 1, 2010. Thus, this extension allows homebuyers who signed a contract no later than the April 30th deadline to complete their closing by the end of September.

The three-month extension of the closing date provides tax relief for those who couldn’t close on time because of backlogs at lenders and federal programs involved in homebuyer loans. In the words of the Act’s supporters, the three-month extension “will give time for all the new mortgages to be processed and not punish those homeowners who have been delayed through no fault of their own.”

The cost of the three-month closing reprieve is fully offset with revenue raisers, including these tax changes: expanding the bad check penalty under Code Sec. 6657 to cover electronic payments, effective for instruments tendered after the enactment date; and providing for disclosure of prisoner return information under Code Sec. 6103(k)(10) to state prisons, effective for disclosures after the enactment date.

2009 Update on Foreign Bank Account Reporting

General — Wed, 16 Jun 2010 16:08:39 +0000

Did you know that you if you have a foreign account, or signature or other authority over a foreign account you may be required to file a Report of Foreign Bank and Financial Accounts (FBAR)?

Who has to file an FBAR, Report of Foreign Bank and Financial Accounts form number TD F 90-22.1?
Any United States person which includes a citizen or resident of the United States, a domestic partnership, a domestic corporation, and a domestic estate or trust who has a financial interest in or signature authority or other authority over any financial account in a foreign country, if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year.
A single-member LLC, which is a disregarded entity for U.S. tax purposes is considered a United States person for FBAR purposes. The tax rules concerning disregarded entities do not apply with respect to the FBAR reporting requirement.

What constitutes signature or other authority over an account?
A person has signature authority over an account if the person can control the disposition of money or other property in it by delivery of a document containing his or her signature (or his or her signature and that of one or more other persons) to the bank or other person with whom the account is maintained. Other authority exists if a person who can exercise power that is comparable to signature authority over an account by direct communication to the bank or other person with whom the account is maintained, either orally or by some other means.

When is the FBAR due?
The FBAR is due by June 30 of the year following the year that the account holder meets the $10,000 threshold. The granting, by IRS, of an extension to file Federal income tax returns does not extend the due date for filing an FBAR. Filers cannot request an extension of the FBAR due date, however, persons with signature authority over, but no financial interest in, a foreign financial account for which an FBAR would otherwise have been due on June 30, 2010, will now have until June 30, 2011, to report those foreign financial accounts.

Virginia Tax Incentives for Investment Income from Technology and Science Start-ups

Robert Tobey — Thu, 10 Jun 2010 14:49:54 +0000

The Commonwealth of Virginia has enacted a tax incentive for investment income from technology and science start-ups which exempts from Virginia taxation long-term capital gain and carried interest income from investments in small technology and science start-up companies. In order to qualify for this exemption a taxpayer must report this income for federal tax purposes in taxable years beginning on or after January 1, 2011 for investments made in small technology or science companies made between April 1, 2010 and June 30, 2013.

For purposes of this exemption, the investment must be made in a company which:

1) Has annual gross receipts for the most recent fiscal year which are not more than $3 million.

2) Has its principal office or facility in Virginia.

3) Is engaged in business primarily in or substantially produces its product in Virginia.

4) Has not obtained during its existence more than $3 million, in aggregate, equity and debt, not including bank debt, financing.

5) Is primarily engaged, or is primarily organized to engage in, the fields of advanced computing, advanced materials, advanced manufacturing, agricultural technologies, biotechnology, medical device technology, nanotechnology, or any similar technology related field determined by the Virginia Department of Taxation.

The Virginia Secretary of Technology is also authorized to approve any other business as qualified.

Finally, if a taxpayer has claimed a Virginia qualified equity and subordinated debt investment tax credit in a qualified business, the taxpayer is not eligible for the tax incentive for investment income for technology and science start-ups for the same business. The Virginia qualified equity and subordinated debt investment tax credit is a credit of up to $50,000. Eligible taxpayers can claim either the incentive for investment income for technology and science start-ups or the qualified equity and subordinated debt investment tax credit. Taxpayers should analyze which tax incentive provides the greatest tax benefit based on the facts and circumstances.

If you have any questions regarding the above described tax incentive or the qualified equity and subordinated debt investment tax credit, please call or e-mail Robert Tobey at rtobey (at) kshgs (dot) com.

Qualified Therapeutic Discovery Tax Credit

Ben Sady — Wed, 05 May 2010 15:37:11 +0000

A taxpayer planning on applying for the discretionary tax credit under new Internal Revenue Code (IRC) §48D must immediately begin documenting why the IRS should choose its qualifying therapeutic discovery project and award the taxpayer credits rather than awarding these to other applicants’ therapeutic discovery projects.

This new tax credit was added to the IRC under the Patient Protection and Affordable Care Act (P.L. 111-148). It provides that a taxpayer, which is a company employing no more than 250 people, through either a tax credit or cash grant, may seek to recover up to 50% for a qualified investment made in 2009 and 2010 in a qualifying therapeutic discovery project.

A qualified investment is described in the legislation as the aggregate amount of costs paid or incurred in 2009 and 2010 for expenses necessary for and directly related to the conduct of a qualifying therapeutic discovery project. A qualifying investment does not include compensation paid to the company’s CEO or certain other officers, interest expense, facilities maintenance expense, certain indirect general and administrative costs, or any other expenditure as determined by the Secretary of the Treasury as appropriate to carry out the purpose of the legislation.

A qualifying therapeutic discovery project is a project designed to develop a product, process, or therapy to diagnose, treat, or prevent diseases and afflictions by conducting pre-clinical activities, clinical trials, clinical studies, and research protocols, or by developing technology or products designed to diagnose diseases and conditions, including molecular and companion drugs and diagnostic, or to further the delivery or administration of therapeutics.

A taxpayer interested in qualifying for these credits must first apply for IRS/ Department of Health and Human Service (HHS) certification, explaining, in a compelling, well-written, believable narrative which nonscientists can understand, why the taxpayer and the project qualify for the credit. In evaluating applications the IRS and HHS are seeking projects which will reasonably result in:

1) new ways to treat unmet medical needs;

2) prevention, treatment, or detection of chronic or acute diseases;

3) reduced U.S. healthcare costs over time; or

4) significant advances toward curing cancer within 30 years.

It is expected competition for the $1billion of tax credits allotted under IRC §48D will be stiff. A taxpayer interested in applying for these credits must be ready to submit its application as soon as the program commences, which is currently planned for May 23.
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Contact Robert Tobey if you would like to discuss how your company may qualify for the IRC §41D credit or would like to engage us to help draft your application. We will post updates on guidance for applying for these credits as it becomes available.