Nonprofits: Are You at Risk of Losing Your Tax-Exempt Status?

Last week, Gina M. Lavarda of Iowa published a new report titled “Nonprofits: Are You at Risk of Losing Your Tax-Exempt Status?” Check out the following clip of her abstract courtesy of the Tax Prof. Alternatively, you can download a PDF of the full report by clicking here.

In 2004, the IRS studied 110 § 501(c)(3) organizations and found that seventy-five percent of them had violated federal tax law by engaging in political-campaign activities during the 2004 campaign period. The IRS learned that many of these organizations did not understand the broad scope of the political-campaign prohibition and that organizations’ leaders mistakenly spoke on behalf of their organizations rather than in their personal capacities separate from their organizations. Following the study, the IRS stated that any § 501(c)(3) organization that did not comply with federal tax law’s statutory requirements and restrictions risked losing its tax-exempt status.

As the 2008 campaign was in full swing, the IRS promised to step up its enforcement of § 501(c)(3) requirements. As a result, courts likely will face increased litigation related to § 501(c)(3) organization violations. This Note reviews the requirements and restrictions that are placed on § 501(c)(3) organizations, including the political-campaign prohibition. In addition, this Note proposes a test to assist courts, § 501(c)(3) organizations, and leaders of § 501(c)(3) organizations in determining when organizations’ leaders are acting or speaking on behalf of their organizations and when they are speaking in their personal capacities, exercising their First Amendment free-speech rights.

Clean Power Grants Step In to Fill Tax Credit Gap, But Problems Remain

From Reuters.com:

If it seems like it’s been twice as hard to raise money for renewable projects this year compared with 2007, that’s because it has been. At the Renewable Energy Finance Forum in San Francisco on Tuesday, John Eber, managing director at investment bank JP Morgan, said tax-equity financing for renewable energy is expected to total $2.5-$2.6 billion this year, down from $3.6 billion last year and $6 billion in 2007. Tax-equity financing is based on the exchange of tax credits, so it’s no wonder it has plummeted in a market where profits — and therefore taxes high enough to make use of tax credits for renewable-energy projects — are harder to come by.

However, federal cash grants, which will enable renewable projects to get money in lieu of tax credits and were approved back in February, could definitely help fill the tax-equity gap. Eber said, “The vast majority of projects are going to [want to] use the grant.” However, there have been a variety of complications that have kept many clean power projects from being eligible for the grants.

Among the biggest problems, Keith Martner, a partner at law firm Chadbourne & Parke, explained, is that four types of investors are disqualified from owning part of a project eligible for the grants. “Projects backed by private-equity funds will not receive cash grants unless there is a corporation between the…fund and the project,” he said. Another issue has been a lack of clarity about some of the requirements. For example, construction must begin, or projects must be completed, in 2009 or 2010, but some confusion remains about when projects can be considered to have begun construction, Martner said.

Even if the program is tweaked so that investors aren’t disqualified, the clock is ticking as the grants are set to expire in 2010. Martner thinks there’s a “decent chance” the program will be extended, but added that any such extension would be unlikely to happen before late 2010 — at the earliest — “because the government likes the stimulative effect of a deadline.” The drawback to having a short deadline and an uncertain extension is that it makes it difficult to plan for larger, longer-term projects.

So far, the majority of the projects that have been approved for grants are already up and running, according to Martner. The Treasury received 240 applications for cash grants as of Sept. 18, of which 178 were for projects already in service and 62 were for projects already under construction. The Treasury has authorized $1.05 billion for 40 projects so far. Most of that grant money — $970 million — has been allocated for wind projects, with less than 1 percent going into solar projects so far.

Burning Down the House? IRS Nixes Tax Deductions

According to this new Associated Press article, the IRS is trying to prevent homeowners from claiming a charitable contribution deduction for donating their home to local fire departments. Over the past few decades, dozens of homes across the country have been burnt to the ground so firemen in training can gain real life experience. However, the IRS is seeking to put a stop to this trend by claiming that such houses were already slated for demolition and that donating them for fire training is not an act of charity.

The dispute adds a new element of controversy to the decades-old debate over whether the risks associated with "live burns" — more than a dozen firefighters have been killed in the past two decades — outweigh the training benefits.

Fire chiefs say live burns supply invaluable training for volunteer departments, which make up the bulk of the nation's firefighters. And some fear that the tax disputes will discourage donors from coming forward.

Nobody tracks the number of live burns each year, but fire officials say they are increasingly rare because of mounting safety and environmental restrictions and because fewer homes are up for demolition in this slumping economy.

"We need to keep our skills current. Those opportunities are going to become fewer and farther between," said Fire Chief Mitch Ross in Upper Arlington, the wealthy Columbus suburb where the Sherwin Road home owned by James Hendrix burned down in 2004.

Churches, corporations and cities with vacant properties also donate buildings for fire training. Sometimes it is a dilapidated old barn, other times a sprawling suburban house. It's impossible to know exactly how many people have tried to claim such deductions; the IRS would not comment.

Tips on Getting Feds to Cut Your House Payment

From MSNBC.com:

If your income slumped along with the economy, you've got plenty of company these days. So much so that the government has a program meant to help you out by cutting your mortgage payments to 31 percent of your gross income. But it turns out that qualifying for this benefit will probably take some fancy footwork, a sympathetic partner and a little luck. Here are some pointers for navigating the terrain.

Get to know the program

The program in question is the Obama administration's $75 billion Making Home Affordable program.

It applies to mortgages held by Fannie Mae and Freddie Mac, the two giant mortgage holders that the government took control of a year ago. Under the government's auspices, Fannie and Freddie are now cutting interest rates on mortgages they own to as little as 2 percent, with the aim of lowing payments to no more than 31 percent of a homeowner's gross income.

How do you know if Fannie or Freddie own your mortgage? The simplest way is to visit each of the lender's Web sites and type in the information requested about you and your residence. Remember: The giant home financing organizations buy loans that were originated by commercial banks and own a significant portion the nation's entire home loan assets. That means you may have taken out your mortgage through Bank of America, Wells Fargo or another private lender, and they may still be servicing your account, while ownership has actually been transferred to Fannie or Freddie (if not, you're out of luck).

If you do have a Fannie or Freddie loan, then figure out what portion of your gross monthly income your housing payment consumes. In this case, your "housing payment" means not only your mortgage costs but your PITI (principal, interest, taxes and insurance). Since you first took out your mortgage, it may have zoomed way up as a percentage of your household income, either because you and your spouse's income has fallen or because the adjustable rate of interest on the loan has ratcheted up. In either case, you should consider applying.

Continue Reading…

Unemployment Among Youths Skyrockets to 52.2%

It was recently announced that the unemployment rate for young Americans (between 16 and 24 years old) has increased to a staggering 52.2%. This is the highest it has been since World War II and represents a significant problem for the county’s economic recovery. There has not been any real mention at any plans aimed at creating new entry-level jobs, meaning many of these youths are entering the work force with expectations of low earning potential, and a fierce job market.

"It's an extremely dire situation in the short run," said Heidi Shierholz, an economist with the Washington-based Economic Policy Institute. "This group won't do as well as their parents unless the jobs situation changes."

Al Angrisani, the former assistant Labor Department secretary under President Reagan, doesn't see a turnaround in the jobs picture for entry-level workers and places the blame squarely on the Obama administration and the construction of its stimulus bill.

"There is no assistance provided for the development of job growth through small businesses, which create 70 percent of the jobs in the country," Angrisani said in an interview last week. "All those [unemployed young people] should be getting hired by small businesses."

There are six million small businesses in the country, those that employ less than 100 people, and a jobs stimulus bill should include tax credits to give incentives to those businesses to hire people, the former Labor official said.

Will the Homebuyers Tax Credit be Extended

Just last week I posted an entry to my blog with last minute tips for people hoping to take advantage of the expiring first time homebuyers credit. However, as the deadline to claim the credit gets closer and closer, more experts are predicting that Congress will pass some type of incentive extension within the next few weeks. In fact, there are reportedly over 5 bills currently being considered by the Senate and House of Representatives.

Effect of Current Credit

Although it is difficult to measure the exact effect of the current credit, many people assert that it contributed to the leveling off of the recent housing market crash. According to the IRS, over 1.4 million American families have taken advantage of the credit so far. Another 400,000 are expected to by the end of the year. This total represents a sales increase of around 10% from last year.

While this does represent a decent increase, it is not clear if the increase was because of the credit or not. Mike Larson of Weiss Research claims that low prices and reasonable rates of 30-year fixed mortgages have made more of an impact than the Federal government’s tax credit. He refers to it as “the icing on the cake, not the cake itself. Falling home prices have worked their magic. That's why we are where we are."

Multiple Bills being Considered

As I mentioned before, there are already nearly half a dozen bills being considered by Congress. The most popular bill simply extends the current credit’s deadline from November 30^th, 2009 to May 30^th, 2010. However, there are other variations that would expand the credit even further. One seeks to raise the value of the credit from $8,000 to $15,000 while others would change the credit so that all homebuyers, as opposed to just those who have not purchased a house within the past three years, can take advantage of it.

Economy Still in Trouble

The main reason that supporters want to extend the bill is simple: the economy is still in trouble. Without a tax incentive, U.S. home sales will drop in 2010. Specifically, many are worried that sales during the winter months (when real estate activity is typically low) will plummet and put our economy back into trouble. Senator Isakson from Georgia, who actually worked in real estate before running for office claims “December through February is historically the worst time for home sales anyway because of the winter months, so with the credit ending November 30, you have a double whammy.”

Popular Credit

In all honestly, one of the largest reasons Congress is considering extending the credit is because of its mass popularity. Politicians are always thinking about their next reelection, and supporting legislation that is popular among your constituents is a great way to get reelected. Average taxpayers are always claiming that Congress does not do enough for “main street Americans” extending or expanding the current credit would be a great way to please them.

Opposition to Extension

There is quite a bit of opposition to extending the credit. First and foremost, there is concern over its costs. The first credit was passed in a state of economic emergency. Americans were frightened that the banking system would collapse, and that the housing marketing would crash entirely. Therefore, Congress was able to get the credit created without much debate about the costs. However, when you look at the math, this credit has already been very expensive. If 1.4 million families have already taken advantage of the credit, and 400,000 more will before it expires, then we are looking at a total cost of nearly $15 billion. Additionally, experts are worried that excessive credits will be the first step in creating the next real estate bubble.

Heavy Industry Pressure

Another thing to consider when examining the housing credit is the amount of pressure real estate and construction lobbyists have put on Congress. The National Association of Home Builders, The National Association of Realtors, and even the Business Roundtable (an association of chief executives) have all published statements promoting an extension of the credit. They are also pushing for lower interest rates, and an extension of the limits on loans eligible for government backing or purchase

Likelihood of Extension

With all of this debate about whether the credit has worked or not, what exactly are the odds that the credit will be extending? Lisa Poole of Time Magazine says there is a 2 to 1 chance that it will be either extended or expanding, but I would say that the odds are probably better than that. I doubt that it will be increased to $15,000, but I am pretty confident we will see some type of extension on the $8,000 credit for first time homebuyers.

Common Reasons Taxpayers get into Debt

My team shot another video last week for out tax tips video series. In this episode Edward Lester discusses some common reasons taxpayers get into tax debt. You can watch the embedded video below and be sure to head over to my YouTube channel and subscribe to my videos.

CA Tax Panel to Recommend New Business Tax

As my home state’s economic woes continue, the California tax commission has been working on ways to increase revenue. Reports suggest the commission is about to recommend a new business tax that has “never been tried on a wide scale in the U.S.” They will reportedly recommend repealing state sales and corporate taxes then try the all-new business tax instead. Check out the following clip of an Associated Press article discussing the announcement.

A commission charged with reforming California's tax structure will recommend repealing the state sales and corporate taxes, flattening the income tax rate and taxing businesses in a way that has never been tried on a wide scale in the U.S.

The Commission on the 21st Century Economy is expected to submit a sweeping report to the governor and Legislature Tuesday after spending a year looking for ways to stabilize California's volatile tax system.

A draft copy of the report obtained by The Associated Press said the commission will recommend California change its personal income tax structure to reduce the burden on the wealthy.

It also recommends replacing the state sales and corporate taxes with a new business levy that taxes net receipts, in an attempt to tax the value of all goods and services produced by businesses in the state.

Continue Reading at Google.com…

Dollar's days of dominance may end

From the Washington Times:

World Bank President Robert B. Zoellick warned Monday that, with foreign economic powers rising quickly on the world stage, time is running out for the privileged role enjoyed by the American currency.

The dollar's status as the world's reserve currency has given the U.S. prestige and privileges that are unique in the world, lifting living standards by enabling Americans to borrow cheaply and consume far more than they produce with little consequence for decades.

"The United States would be mistaken to take for granted the dollar's place as the world's predominant reserve currency," Mr. Zoellick said in a speech to Johns Hopkins University's School for Advanced International Studies in Washington. "Looking forward, there will increasingly be other options to the dollar."

Mr. Zoellick, who was appointed by President George W. Bush, noted that the world economic order established after World War II, with the United States and a handful of European countries largely dominating, is quickly coming to an end.

Year Round Tax Planning Tips

Last week the Roni Deutch Tax Center – Tax Help Blog posted a new article discussing some year round tax planning tips. As the blog entry explains, even if you are a regular wage-earning employee and do not have to worry about making quarterly payments, you should still get in the habit of thinking about your taxes all year long. It will make tax season less stressful, and by planning your finances in advance you can keep your tax liability as low as possible. Below is a snippet of the article with some fall tax tips, but be sure to check out the full entry at RDTC.com.

Fall (September – November)

When your children go back to school and the leaves start falling from the trees, you need to start thinking about taxes. The year is coming to an end, and if you have a steady job then you should have a pretty good idea about what your total income is going to be for the year. Once you calculate your yearly income, you will know what tax bracket you fall in, and can make any necessary adjustments to your withholdings. If you have not paid enough, you can have your employer take out additional taxes from your paycheck. It will mean less money each month, but it sure beats having to pay the IRS a large payment in April. On the other hand, if you have overpaid your taxes then you can lower your withholdings and get a little extra holiday season cash.

The fall months are also your last chance to make any longer-term tax moves that cannot be made last minute come December. For example, if you plan to make a large charitable donation, then you will want to make it now so that you can make sure you get proper receipts and documentation. Finally, if you are trying to buy a house and take advantage of the $8,000 Federal tax credit then you are going to want to make sure you close escrow during the fall months. The credit expires on December 1st, and is unlikely to get extended into next year.

Questions for the Tax Lady: September 28th, 2009

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: Roni, I’m a self-employed taxpayer and I completely forgot about the recent quarterly payment due date. I have the money to make the payment, should I just mail it in late?

Answer: Yes. The most recent quarterly payment due date was September 15^th. However, if you were unable to get your payment in then I would recommend sending it in as soon as possible. If you are only a couple of days late then the IRS will most likely not care, but if you just ignore the payment entirely then you might incur a penalty this tax season.

Question #2: What is the difference between a Roth IRA and a traditional IRA?

The main difference between a traditional and Roth IRA is the tax implications. With a Roth IRA all contributions are made from income that you have already paid taxes on. Your contributions are not tax deductible, but you will not have to pay income taxes on future withdrawals. On the other hand, with a traditional IRA the contributions are deductible but future withdrawals will be taxed.

Changes in Federal Revenues and Tax Rates on Capital Gains

A few days ago, The Congressional Budget Office published a letter on recent changes in federal revenue and the tax rates on capital gains. I have included a small quote from the letter courtesy of the Tax Prof, but you can download the full PDF letter by clicking here.

As a result of the economic downturn, CBO expects revenues from individual and corporate income taxes in 2009 to account for about 50% of total revenue, below the average of about 57% over the past five years. ... CBO expects that when complete information for the year is available, it will show that receipts from corporate income taxes fell substantially in 2009, to about 1.0% of GDP, less than half of the 2.1% of GDP in 2008. The decline stems from a sharp drop in taxable corporate profits.

In answering your questions about how the pending changes in the taxation of capital gains tax will affect revenues and behavior, it is useful to consider how the pending increase compares with previous changes. The top tax rate on most long-term gains was reduced from around 35% to 28% in 1978 and 1979, and was reduced to 20% in 1981. It was raised to 28% in 1987, reduced to 20% again in 1997, and reduced to 15% in 2003. The increase pending in 2011 is to 18% for some gains held over five years and to 20% for most other long-term gains. Thus, the pending tax change is well within the range of changes experienced in the last 30 years, and we have incorporated the impacts from those historical changes into our modeling of the effects of the upcoming law change.

The White House Wants to Hear YOUR Tax Reform Suggestions

With thousands of taxpayers showing up to protests around the country and a seemingly endless debate on funding for health care reform, the White House is asking for input on tax reform from regular Americans like you and I. Check out the following request that was recently posted to WhiteHouse.gov.

President Obama has asked the President's Economic Recovery Advisory Board (PERAB) to develop options for tax reform. The members of the tax subcommittee are preparing ideas to be considered by the board and would like to give anyone a chance to have input into the process on this important issue. Anyone wanting to share ideas and opinions for consideration by the subcommittee can do so here. The deadline for submissions is October 15th, 2009.

Note: The mandate to the PERAB is NOT to recommend a new tax system. They are to consider ideas on tax simplification, better enforcement of tax law, and reforming corporate taxes and to present the pros and cons of potential tax options. They were instructed not to consider options that involve raising taxes on families making less than $250,000 per year. So be mindful of their constraints when submitting ideas.

In general, the tax subcommittee will post all comments online for others to examine and those suggestions may spur other people's ideas. All statements, including attachments and other supporting materials, received are part of the public record and subject to public disclosure. You should submit only information that you wish to make available publicly. Please do not submit materials exceeding five single-spaced pages of text. If submitting via e-mail, please send to perab@do.treas.gov. Please also include a cover sheet including the submitter's name and organization, type of organization (individual, business, government, non-profit organization, or association), submission date, and contact information.

A Tiny Tax Could Do a World of Good

From the New York Times:

The G-20 nations could help both the poor and the global economy by fully financing lagging efforts to fight poverty and disease worldwide, and the best way to do this would be to impose a very small tax on the prosperous foreign exchange industry.

The eight United Nations Millennium Development Goals — which include eradicating extreme poverty and hunger, establishing universal primary education, reducing child mortality, improving maternal health and combating AIDS, malaria and other diseases — are meant to be reached by 2015. Morally and practically, the world must try harder to keep these promises. President Obama has made it clear that the United States has, in his words, “a responsibility to protect the health of our people, while saving lives, reducing suffering and supporting the health and dignity of people everywhere.”

Disease takes an enormous toll on economic growth: it sidelines or kills productive workers and causes tremendous suffering. Take, for instance, tuberculosis, an illness that with the right treatment can usually be cured. In 2007, it killed nearly 1.8 million people, more than 600 times the number who have died from H1N1 swine flu. The World Bank estimates that tuberculosis has caused the gross domestic product in some countries to fall as much as 7 percent.

Or consider maternal health. About 530,000 women worldwide die each year from pregnancy-related causes, most of them preventable, and millions more suffer injuries or develop lifelong disabilities. A serious effort to reduce those numbers would bring real economic gains. Improvements in the health of Asian women and children accounted for a significant share of that continent’s economic growth from 1965 to 1990.

Continued at NYTimes.com…

Cap and Trade Reform: The True Cost to Taxpayers

Last weekend, I was featured in a segment on FOX Business Network to discuss the United Nation’s recent general assembly, as well as the tax issues surrounding cap and trade reform. As I explained during the interview, reforms on cap and trade will have a direct effect on taxpayers, during a time where many families in this country are already struggling to get by.

American Clean Energy and Security Act of 2009

Earlier this summer, the United States House of Representatives passed H.R.2454, the American Clean Energy and Security Act of 2009, which claims to “create clean energy jobs, achieve energy independence, and reduce global warming pollution and transition to a clean energy economy.” However, the bill has become quite controversial as it includes a cap and trade “global warming reduction plan” that aims to reduce greenhouse gas emissions by 17% before the year 2020. It also includes new requirements for utility companies regarding carbon technology, incentives for energy efficient homes and buildings, as well as grants for new “green” jobs.

Highly Controversial Legislation

As with most of the recent legislation coming out of Congress, H.R.2454 has quickly become very controversial. Opponents claim that the nearly 1,300 page bill was quickly put together. They also point to its slim 219 to 212 vote passage as a bad sign. Many experts assert that the bill will do little to actually help the environment, and is mostly a way to increase Federal revenue. Currently, only about 15% of the country’s pollution permits are being auctioned off, the rest are just being given away. The new cap and trade legislation makes great efforts to convert the system to become entirely auction based. That way the Government can take more control in auctioning off permits and reap profits from energy companies, who will still be allowed to pollute – but will just be paying more to do so.

Direct Cost to Taxpayers

Like I explained in my television segment the other day, these charges to energy companies will be passed down directly to American taxpayers. Let’s take a step back and consider the domino effect: when businesses have less revenue because of higher taxes, they are going to have to make cuts elsewhere. This means consumers will end up paying more for their monthly utilities, and energy companies will likely have to reduce their work forces to reduce expenses. In Great Britain, they have a cap and trade system in place and the average family pays an estimated $1,300 per year for it. However, here in the United State experts are predicting that the cost could end up being more like $1,800.

Excessive Handouts

Another popular criticism of the American Clean Energy and Security Act of 2009 is the amount of handouts for Congress members to please their constituents. The bill is also stuffed with provisions that are favorable to companies that lobbied for the bill. According to the Center for Public Integrity, over 2,300 different lobbyists worked on the bill, which resulted on “provisions for portable spas and technical standards for hot-food-holders within the body of the bill.” All of these handouts result in direct costs to the average taxpayer.

Funding for Health Care Reform

As Joe Walsh points out in this article on Reuters, many experts are predicting that cap and trade taxes could be used to help offset the cost of health care reform. Why? “Because with all currently proposed {health care reform} bills estimated to expand deficits even as Obama pledges not to sign a bill that increases them by so much as a ‘dime,’ ever, he will need carbon cash to pay for Americans' health care.”

Walsh continues to explain that proponents of cap and trade restrictions and working with Senators to create a bill that would not include an immediate public option, but one that could become available down the road once funding was available. Analysts predict that changing cap and trade restrictions to help fund a future public option could be an easy way to get the health care reform bill passed without instant tax increases on the average American taxpayer.

Good Question: Do Sin Taxes Really Work?

Sin taxes – such as those levied on cigarettes and alcohol – are frequently the subject of debate by tax experts because they try to serve two different purposes. First of all, they are a great way to generate revenue, but they also work to discourage certain behaviors. WCCO.com recently published a great piece on whether or not sin taxes actually work. Check out a section of their article below.

Government often uses the tax code to encourage and discourage certain behaviors. And budget times have state and federal governments looking for money. That combination has renewed interest in the idea of new sin taxes on soda and junk food. But do sin taxes work?

"The research around tobacco has shown that large increases on taxes on cigarettes has been the single most effective policy to reduce tobacco use," said Mary Story, a dietitian and public health professor at the University of Minnesota.

Story published a brief analyzing the impact and effectiveness of sin taxes, concluding that a 10 percent increase in sugar-sweetened beverage prices could cut consumption by 8 percent to 10 percent.

Story also wrote that "a few studies have concluded that, in response to changes in relative prices, some consumers will substitute a healthier beverage for an SSB. For example, a study conducted in 2004 found that increases in SSB prices resulted in small increases in consumption of whole and reduced-fat milk, juice, coffee and tea."

However, tracking the success of sin taxes is difficult. Advocates who are against smoking and alcohol abuse point to tax increases as a strong factor in reducing consumption. The American Lung Association says a 10 percent increase in cigarette taxes is strongly correlated with a 7 percent decrease in youth smoking.

Full House Star Dave Coulier Owes Back Taxes

According to WalletPop.com there is a new addition to the list of 2009’s biggest celebrity tax evaders. Earlier in the week it was discovered that 90’s sitcom star Dave Coulier is in serious debt to the IRS. His debts reportedly total over $50,000 and the both the IRS and his home state of California have both issued liens against Coulier to collect the unpaid tax debts.

The state of California filed an $11,793 lien against him on May 4 in the Los Angeles County Recorder of Deeds office. The IRS filed a $37,063 lien against him on March 17, 2008, in Los Angeles County.

Checking up on Dave Coulier's Official website, I found no mention of his little tiff with the taxing authorities. He does however, indicate that he'll be visiting close to my home in Wisconsin next month. I also checked Dave's Twitter feed to see if he tweeted about the situation. He hasn't yet mentioned his back taxes on Twitter, but he does indicate that becoming a senator may be one way to pick your nose in peace - or not.

This much I can tell you for certain; It's better to pay our taxes when they are due, than it is to try retrospectively prying the IRS off our backs. I always suggest leaving tax form preparation to a professional tax accountant, because being able to talk in comical voices won't make a tax audit one bit funnier.

IRS Issues Guidance on 2009 Required Minimum Distribution Waiver

In their newest press release the IRS has offered guidance on how a new piece of legislation (The Worker, Retiree, and Employer Recovery Act of 2008) is affecting the required minimum distribution for retirement plan administrators, plan participants and retirees.

Generally, a required minimum distribution is the smallest annual amount that must be withdrawn from an IRA or an employer’s plan beginning with the year the account owner reaches age 70½. The 2008 law waives required minimum distributions for 2009 for IRSs and defined contribution plans (such as 401(k)s) and allows certain amounts distributed as 2009 required minimum distributions to be rolled over into an IRA or another retirement plan.

Notice 2009-82 provides relief for people who have already received a 2009 required minimum distribution this year. Individuals generally have until the later of Nov. 30, 2009, or 60 days after the date the distribution was received, to roll over the distribution.

The notice also provides guidance for retirement plan sponsors. It contains two sample plan amendments that plan sponsors may adopt or use to amend their plans to either stop or continue 2009 required minimum distributions. Both sample amendments provide that participants and beneficiaries can choose to receive or not to receive 2009 required minimum distributions. Also, both sample amendments allow the employer to offer direct rollover options of certain 2009 required minimum distributions.

Plan sponsors may need to tailor the sample amendment to their plan’s particular terms and administration procedures and must adopt the amendment no later than the last day of the first plan year beginning on or after Jan. 1, 2011 (Jan. 1, 2012 for governmental plans).

Old Debts Under $100 Don't Matter Under FICO '08

From Consumerist.com:

An update to how the new FICO '08 scoring system got revamped this year:

Collection amounts where the original debt was under $100 will be totally disregarded, MarketWatch reports. Back in Feb we reported that they would still be taken into account but only matter less. Also, FICO'08 has been rolled out to all three credit bureaus since last month. Before it was only being tested at one and there was some disagreement over whether all the bureaus would accept it.

However, Freddie Mac and Fannie Mae haven't adopted FICO '08 yet. So if you're getting a traditional conforming mortgage backed by one of them, lenders are still going to judge you under the old FICO system.

No matter what flavor of FICO gets applied to you, you can do better at the credit score game by paying your bills on time, maintaining low debt to income ratios, high available credit to debt ratios, keeping old credit cards open, and disputing erroneous items from your credit report.

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Recent Television Appearances

Over the past week, I have made a couple of television appearances on both FOX News and the FOX Business Network. I uploaded all of the videos to my YouTube channel, and have embedded them below for you all to view.

The first two videos are part one and two of my segment that aired on FOX Business yesterday morning. I joined a handful of other tax experts to discuss the UN’s 64^th annual general assembly, and shared my views on the costs of cap and trade reform.

I also appeared on FOX News’s Fox and Friends over the weekend to discuss President Obamas tax changes, and reminisce on his tax policy campaign promises. Checkout the full video below.

IRS Extends Amnesty Program for Tax Cheats

A few weeks ago, I posted a blog entry about the IRS amnesty program and the deadline for offshore tax evaders to turn themselves in. However, with the Wednesday deadline approaching, the Federal government has announced a 3-week extension. Check out the following article about the announcement courtesy of the Associated Press.

Procrastinating tax cheats will get a few extra weeks to apply for an amnesty program that has been flooded with applications from people who hid assets overseas.

The Internal Revenue Service said Monday it will extend the deadline, originally set for Wednesday, until Oct. 15.

More than 3,000 Americans have applied for the program, which promises no jail time and reduced penalties for tax dodgers who come forward, said a government official who spoke on condition of anonymity because the agency has not publicly released the size of the program.

The IRS is extending the deadline to give a rush of applicants more time to prepare their paperwork. The agency said there will be no additional extensions.

Tax advisers said the program, combined with a high-profile case against Swiss banking giant UBS AG, has generated a lot of calls from nervous tax dodgers.

"They're sitting in disbelief that this is going on," said Richard Boggs, chief executive of Nationwide Tax Relief, a Los-Angeles-based tax firm that specializes in clients with tax debts exceeding $100,000. "I ask people to ask of themselves, 'What is their peace of mind worth? What is a fresh start worth? What is a clear conscience worth?'"

The IRS long has had a policy that certain tax evaders who come forward before they are contacted by the agency usually can avoid jail time as long as they agree to pay back taxes, interest and hefty penalties. Drug dealers and money launderers need not apply. But if the money was earned legally, tax evaders can usually avoid criminal prosecution.

New Tax Tips Video: Tax Tips for New Car Buyers

Last week, my team shot another episode of our Tax Tips Video Series. Check out the new video below where James Owens explains some useful tax tips for new car buyers. You can also head over to my YouTube channel and subscribe to my videos.

Car Showrooms Quiet After Clunkers Clamor Ends

As many suspected might happen, the number of customers visiting car showrooms and dealerships has dropped significantly since the Cash for Clunkers program has ended. According to a new Boston.com article, inventory at dealerships is accumulating again, and they are being forced to offer new incentives to draw customers.

Manager Adam Silverleib said business was “pretty intense’’ as a result of the federal stimulus program, with the dealership hustling to accommodate customers and handle the piles of paperwork required for them to receive reimbursement on vouchers. “Now we’re kind of back to where we were in the spring,’’ he said.

In an attempt to draw customers back to showrooms, some dealers are offering new incentives, albeit none as enticing as a $4,500 for a rusting junker. Silko, for example, is promoting 2.9 percent financing on new Accords, along with other deals on its website.

Nationwide, customers snatched up 700,000 new cars, most of them foreign-made, and the government ended up paying out nearly $3 billion toward the purchases. But from the start, analysts predicted that Cash for Clunkers would not boost sales for the year. September’s sales swoon seems to be making their case. Car sales are usually slow after Labor Day, but because of the recession consumers this year are especially reluctant to say yes to major purchases. To make matters worse for dealers, most are still waiting for voucher reimbursements.

“It was probably, in the end, a complete waste of taxpayer money,’’ said John Wolkonowicz, a senior auto analyst at IHS Global Insight, Lexington forecasting firm. “The dealers, who were supposed to be the primary beneficiaries, many were forced into cash flow problems because the government didn’t pay them in a timely fashion.’’

Fed Rejects Geithner Request for Study of Governance, Structure

From Bloomberg.com:

The Federal Reserve Board has rejected a request by U.S. Treasury Secretary Timothy Geithner for a public review of the central bank’s structure and governance, three people familiar with the matter said.

The Obama administration proposed on June 17 a financial- regulatory overhaul including a “comprehensive review” of the Fed’s “ability to accomplish its existing and proposed functions” and the role of its regional banks. The Fed was to lead the study and enlist the Treasury and “a wide range of external experts.”

Some top central bank officials, after agreeing to the review, saw a potential threat to Fed independence after the Treasury released the proposal, two of the people said. The Obama plan said the Treasury would consider recommendations from the review and “propose any changes to the Fed’s governance and structure.”

“It is not obvious at all why that is a Treasury responsibility or even appropriate why the Treasury would undertake that kind of study,” said Robert Eisenbeis, chief monetary economist at Cumberland Advisors Inc. in Vineland, New Jersey, and a former Atlanta Fed research director. “The Fed was created by Congress and it is not part of the executive branch.”

Nearing an End: The First-Time Homebuyers Credit

Early in the year Congress enacted an $8,000 tax credit for first time homebuyers purchasing a house between January 1st and November 30th of this year. As you can tell, that November deadline is just around the corner. In order to qualify, your house must close escrow on or before that date. The IRS even states, “you may not claim the credit in anticipation of a purchase that has yet to happen.”

Beating the Deadline

If you plan to take advantage of the credit but have not already begun the process of buying a home, you are probably too late. Even after you have an accepted offer, and approval on a loan, it can take 30 to 60 days to close escrow. Additionally, title and escrow companies are being swamped with purchases that need to be completed before December 1st, which will likely cause delays if you are trying to close escrow at the last minute.

On the other hand, if you have already begun the process then there are a few things you can do to make sure you beat the deadline. Depending on what stage in the game you are at, you want to make sure that you have all of your ducks in a row. Tell your real estate agent, loan officer, and title company that you are in a hurry and push for as short of a close of escrow as possible.

Qualifying as a "First-Time" Homebuyer

There has been a lot of confusion over the phrase "first-time" homebuyer, as you can actually qualify for the credit if you have bought a home in the past. As long as you have not owned your principal residence within the last three years, then you qualify for the credit. This means, that if you owned rental property and have rented it out for the past three years while residing elsewhere (in property you do not own), you qualify for the credit. So, if you purchased any property this year, then I would highly recommend speaking with a tax professional to find out if you qualify or not. You may be pleasantly surprised.

Non-Houses Qualify Too

As I mentioned before, if you purchased any property in the past year you may qualify for the credit. It actually applies to multiple different types of property including condos, townhouses, motor homes, and even houseboats. As long as the property is your principal place of residence, you can qualify for the credit. Therefore, a summer or vacation home would not qualify.

Income Limits

In order to qualify for the full $8,000, your adjusted gross income (AGI) needs to be under $75,000 for single taxpayers and $150,000 for married filing jointly. If your income is above those limits, then the amount of the credit will be reduced depending on exactly how much money you made this year. If your AIG exceeds $95,000, or $170,000 for married couples filing jointly, then you will not qualify for any of the credit.

Instant Money vs. Waiting

If you are in the process of purchasing a home then you may not have to wait until next year to get the credit. You actually have a few different options. First of all, the IRS will allow you to claim the credit on your 2008 return, meaning you can amend your old return and get the money within a few weeks. Alternatively, if you are taking advantage of an FHA loan then you can use the credit towards your closing costs, or for an additional down payment. Finally, you could wait and claim the full $8,000 credit on your 2009 tax return this April.

Future of the Credit

As the credit's expiration date gets closer and closer, many are pushing Congress to extend and expand the credit. In fact, the National Association of Realtors and the National Association of Home Builders have spent a lot of time and money lobbying Congress. They are hoping to get the credit extended into 2010, raise the amount to $15,000, and make it available to all homebuyers. Senator Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, and Senator Johnny Isakson (R-Ga.) have sponsored a bill that would expand the credit, but it is very unlikely any legislation will get passed into law before the November 30th deadline.

Questions for the Tax Lady: September 21st, 2009

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: If I sell my house at a loss, can I deduct that amount on my income tax return?

No, you cannot deduct the loss of funds from the sale of a personal residence. However, if the home was an investment property, and not your principal place of residence, then you may be able to deduct a capital loss. However, I recommend you have a tax professional review your finances before taking such a deduction.

Question #2: I ran out of time to trade in my car before the Cash for Clunkers program expired. Do you know it will ever come back?

Although many people have praised the Cash for Clunkers program, it does not look like it will get another extension. The program was successful in increasing auto sales, and provided a decent economic boost, but there has been no serious mention of bringing it back. However, there are other similar programs such as “dollars-for-dishwashers,” that are likely to begin in the next few weeks.

Tax Recordkeeping Tips

Last week the Roni Deutch Tax Center® Tax Help Blog posted a new article on tips to keep your tax records organized. Check out a snippet of the article below, or you can find the full post here.

Old Documents

Before you go out and buy a huge safe to store your piles of financial documents, you might want to consider throwing some of them away. According to the IRS you will want to keep them for at least 3 years or up to 7, depending on your unique situation. There are some documents such as records on appreciable assets that you might want to keep for a few extra years. However, for the most part you should be fine discarding any documents more than 3 years old if you regularly file a return.

W-2s & 1099s

All income related tax documents should be kept somewhere safe. This includes any W-2s for jobs you have worked during the year, and 1099s from any independent contracting work and/or gambling winnings. All of these documents are considered “basic records” and should be kept for at least 3 years. If you have enough room, then you might even want to keep them a little longer just in case.

Receipts

As far as receipts go, too much is better than too little when it comes to storing your tax documents. If you are deducting any expenses, then you need to keep your proof. If you are having trouble organizing receipts of multiple different sizes, then you could always photo copy a few onto a single sheet of paper. This will make the documents easier to organize, and can save room as well.

Tax Settlement Records

If you recently settled IRS back tax debts, then you will need to keep all of your records for at least a few years. That way, if there are ever any discrepancies in the future – such as a new tax lien or wage garnishment – then you will be prepared to get it resolved as soon as possible.

Obama: Requiring Health Insurance is not a Tax Increase

In his recent media campaign to promote his health care President Obama told ABC's "This Week" on Sunday that forcing people to obtain health care coverage is not a tax increase. Therefore, it does not break his promise to raise taxes on middle income Americans.

"For us to say you have to take responsibility to get health insurance is absolutely not a tax increase," Obama said in response to persistent questioning, later adding: "Nobody considers that a tax increase."

A proposal going before the Senate Finance Committee this week includes the mandate for health coverage. Obama has praised the plan in general, and indicated in the interview conducted Friday that he could back the coverage mandate.

He noted that consumers currently pay higher health insurance premiums due to the costs run up by hospitals and other facilities providing care to uninsured people.

Those unable to afford health insurance should get government help, Obama said, but others who can afford coverage but choose not to get it should face coverage requirements similar to those for auto insurance.

Continued at CNN.com…

Fight Obesity? Add Sales Tax to Soda Tab

From the Associated Press:

In a bid to ramp up the public health battle against obesity, a group of nutrition and economics experts are pushing for a tax of 1 cent on every of ounce of sodas and other sweetened beverages.

Proposals for a hefty soda tax though have repeatedly fallen flat. The idea was even floated as a way to help pay for health care reform, but government officials on Wednesday said that's not likely to happen.

The experts' plan was released by the influential New England Journal of Medicine, in a health policy article by Arkansas' surgeon general, New York City's health commissioner and five national experts on health and economics.

A soda tax would generate tax revenue while discouraging people from consuming extra calories, the authors contend. They cited a series of studies that showed higher rates of obesity and diabetes among women who drank more sugar-sweetened beverages. They argue that a steeper soda tax would borrow the same strategy that helped drive down cigarette smoking while bolstering government revenues.

But a golden opportunity for enacting a national soda tax apparently slipped away Wednesday, when the Senate Finance Committee released its health reform proposal without a previously considered soda tax provision.

Homebuyer Tax-Credit Extension Gains Lawmaker Support

Senators are working to make sure that lawmakers are aware of the November 30^th deadline for the first time homebuyers tax credit. Sen. John Isakson, a Republican from Georgia, along with a few other Senators, are pushing to extend the $8,000 credit, which they claim drastically increase homes sales over the past year.

“I’m working the floor now to make everyone aware that the $8,000 credit sunsets on Nov. 30,” Isakson said in an interview today. The former real estate executive says he is “talking to everybody and anybody.”

Realtors, bankers and homebuilders have joined in the push, starting a campaign that encourages Congress to extend the program for one year with the tag line: “Don’t Let America’s Real Estate Recovery Expire.” Executives including Fannie Mae’s Michael Williams and Hyperion Partners LP’s Lewis Ranieri have attributed improvements in home sales and prices to the credit, and Isakson said he is worried the market may suffer without it.

“If you take that kind of business out of what’s already a very weak housing market, you do nothing but protract and extend the recession,” Isakson said. December “marks the beginning of the historical worst time for home sales,” he said.

White House spokesman Robert Gibbs told reporters today that President Barack Obama’s economic team is looking at the tax credit and “evaluating the impact” on new home sales.

Continue reading at Bloomberg.com…

Senate Finance Reform Package Released to Public

As I blogged about yesterday, Senator Max Baucus’ reform bill is causing quite a stir on Capitol Hill with many predicting a tax increase on the middle class. Now you can read the whole 220-page package proposed by Baucus and decide for yourself.

Jon Stewart on the ACORN Tax Scandal

Comedian Jon Stewart made light of the recent tax scandals surrounding ACORN in a recent episode of The Daily Show. Check out an embedded video of the segment below via Tax Prof.

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
The Audacity of Hos
www.thedailyshow.com
Daily Show Full Episodes Political Humor Healthcare Protests

White House Moves To Fill Top Treasury Tax Post

From the Wall Street Journal:

President Barack Obama Wednesday nominated Michael Mundaca to serve as assistant secretary for tax policy at the Treasury Department.

Mundaca has been serving as acting assistant secretary for much of this year. He served in the Clinton administration's Treasury Department as deputy international tax counsel, and returned to Treasury in 2007.

A previous nominee for Treasury's top tax job, University of Southern California Professor Elizabeth Garrett withdrew her nomination earlier this year.

Households' Net Worth Rises for First Time in Two Years

The Federal Reserve released some surprising, but good news this morning: US Households net worth’s have risen for the first time in 2 years. MarketWatch.com has posted an interesting article explaining how consumers in the US are paying down debts at record pace. Check out a snippet of their article below, or find the original post here.

American households were $2 trillion richer on June 30 than they were three months earlier, the first time in two years that household net worth has increased, the Federal Reserve reported Thursday in its quarterly flow of funds report.

Household wealth rose in the second quarter at a 17% annual rate, or $2 trillion, to $53.1 trillion after falling at a 13% rate in the first quarter, the Fed said. It was the first time since the second quarter of 2007 that wealth had increased. Read the full report.

Net worth is defined as assets minus liabilities. Assets rose by $2 trillion to $67.2 trillion. Liabilities fell by $34 billion to $14.1 trillion.

The rally on Wall Street was the main reason for the increase in household wealth, but rising home prices contributed as well. Wealth in corporate equities rose by $1.04 trillion, while real estate wealth rose by $139 billion. Assets held in mutual funds, life insurance and pension funds rose by $1.06 trillion.

Households had lost real-estate wealth for nine consecutive quarters before the second quarter's gain.

Consumers continued to pay down debts or have their debts written off at a record pace. In the second quarter, household debt fell at a 1.7% annual rate to $13.7 trillion, matching the record percentage decline in the fourth quarter. Household debt has fallen four quarters in a row and is down 5% from the peak. Before this recession, household debt had never declined in any quarter dating back to 1952.

Obama's Secret Plan to Save Money on Missile Defense

From the Washington Post.com:

I'm glad to see the Obama administration abandoning the really dumb and provocative long-range missile defense system based in Poland and the Czech Republic and replacing it with a short-range missile defense system that's sea-based with sites in (probably) Romania, Israel and Turkey. I might like to see them abandon the idea altogether, but them's the breaks. This way, you do less to anger Russia and you save a bit of money. You just can't say you're saving any money.

Look at the Pentagon's fact sheet, courtesy of Spencer Ackerman. "Cost-effective" is the preferred euphemism for "will save a boatload of money." In his remarks today, Obama stuck to the message: He used the term "cost-effective" three times.

Usually, of course, you don't need to dance around the fact that your policy change will save taxpayers giant sacks of cash. But you do on national security. Saving money there, after all, is pretty much like sending Osama bin Laden a great big check. This view is particularly strongly held by conservatives who are normally quite quick to point out the bloat and waste and inefficiency inherent in government spending projects, but stand proudly behind a hyper-funded and largely unaccountable military-spending sector. It reminds me of Chris Hayes's comment that the most fiscally pernicious words in the English language are "non-defense discretionary spending."

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Don’t Try to Throw This Lady Tax Attorney out At Third!

Yesterday, I made an appearance on the Wall Street Journal’s Franchise Show in a segment titled, “Don’t Try to Throw This Lady Tax Attorney out At Third!” I discussed building my franchise and what life events helped make me the business leader I am today.

I’ve included an embedded video below that features the audio of the interview. You can stream it or click here to download an Mp3.

Dem Senator Warns of 'Big, Big Tax' on Middle Class

With the several myths and rumors going around about the health care reform package, it is getting difficult for taxpayers to understand how the bill is going to get paid for. As such, Democratic Senator Jay Rockefeller (W.VA) has warned that another bill that is being worked on by the Senate that is full of tax hikes on the American middle class. ABCNews.com has posted this interesting article on the Senator’s warnings, which you can find a snippet of below.

It's not every day that you hear a Democratic senator charge that a fellow Democrat is proposing to raise taxes on the middle class, but that is what happened on Tuesday when Sen. Jay Rockefeller, D-W.Va., ripped into the health-care bill developed by Sen. Max Baucus, D-Mt., the chairman of the Senate Finance Committee.

The Baucus proposal would impose, starting in 2013, a 35 percent excise tax on insurance companies for "high-cost plans" -- defined as those above $8,000 for individuals and $21,000 for family plans.

Health economists believe a tax on high-priced benefits could help slow the growth of health costs by making consumers more sensitive to prices.

The tax contemplated by Baucus is also a big revenue raiser. It is expected to raise $200 billion, money that Baucus is hoping to use to pay for subsidies for the uninsured.

Given how much money this kind of tax can raise, Rockefeller says he understands why it is "tempting."