Tax Newsletter - 2007

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October 17, 2008


Federal Headlines

2009 Inflation Adjustment Amounts Released (IR-2008-117; Rev. Proc. 2008-66) The IRS has released inflation adjustments that will apply to more than three dozen tax items for tax years beginning in 2009. Adjustments that will affect most individual returns include: --The value of each personal and dependency exemption increases by $150, to $3,650. --The new standard deduction is $11,400 for married couples filing a joint return (up $500), $5,700 for singles and married individuals filing separately (up $250) and $8,350 for heads of household (up $350). --Tax-bracket thresholds increase for each filing status. For instance, for a married couple filing a joint return, the taxable income threshold separating the 15-percent bracket from the 25-percent bracket is $67,900, up from $65,100 in 2008. --The maximum earned income tax credit for low- and moderate-income workers and working families with two or more children is $5,028, up from $4,824. The income limit for the credit for joint return filers with two or more children is $43,415, up from $41,646. --The annual gift exclusion increases by $1,000, to $13,000. In addition to these broadly applicable adjustments, inflation adjustments are applied to the first time to the $3,000 increase to the phaseout amounts of the earned income credit for married taxpayers who file joint returns; the increase in the loan limit for agricultural bonds for first-time farmers; and the reduction in the amount of gain that is included in the gross income of a covered expatriate who ceases to be treated as a long-term resident or relinquishes U.S. citizenship. Finally, the dollar limit on contributions to funeral trusts is no longer adjusted for inflation because it was repealed for tax years beginning after August 29, 2008. IR-2008-117, 2008FED ¶46,626 Rev. Proc. 2008-66, 2008FED ¶46,627 Rev. Proc. 2008-66, FINH ¶30,602 Other References: Code Sec. 1 CCH Reference - 2008FED ¶107B CCH Reference - 2008FED ¶660.05 CCH Reference - 2008FED ¶660.055 CCH Reference - 2008FED ¶1201.05 CCH Reference - 2008FED ¶1201.07 CCH Reference - 2008FED ¶1201.13 CCH Reference - 2008FED ¶1201.28 CCH Reference - 2008FED ¶1201.33 CCH Reference - 2008FED ¶1201.34 CCH Reference - 2008FED ¶1201.51 CCH Reference - 2008FED ¶1201.525 CCH Reference - 2008FED ¶1201.53 CCH Reference - 2008FED ¶1201.565 CCH Reference - 2008FED ¶1201.57 CCH Reference - 2008FED ¶1201.575 CCH Reference - 2008FED ¶1201.58 CCH Reference - 2008FED ¶1201.585 CCH Reference - 2008FED ¶1201.59 CCH Reference - 2008FED ¶3270.30 CCH Reference - 2008FED ¶3280.01 CCH Reference - 2008FED ¶3280.025 CCH Reference - 2008FED ¶3280.07 CCH Reference - 2008FED ¶3280.073 CCH Reference - 2008FED ¶3290.01 Code Sec. 23 CCH Reference - 2008FED ¶3725.04 CCH Reference - 2008FED ¶3725.06 CCH Reference - 2008FED ¶3725.07 CCH Reference - 2008FED ¶3725.25 Code Sec. 24 CCH Reference - 2008FED ¶3770.03 CCH Reference - 2008FED ¶3770.06 CCH Reference - 2008FED ¶3770.07 CCH Reference - 2008FED ¶3770.25 Code Sec. 25A CCH Reference - 2008FED ¶3830.024 CCH Reference - 2008FED ¶3830.031 CCH Reference - 2008FED ¶3830.07 CCH Reference - 2008FED ¶3830.25 Code Sec. 32 CCH Reference - 2008FED ¶4082.032 CCH Reference - 2008FED ¶4082.048 CCH Reference - 2008FED ¶4082.07 CCH Reference - 2008FED ¶4082.45 Code Sec. 42 CCH Reference - 2008FED ¶4385.05 CCH Reference - 2008FED ¶4385.07 CCH Reference - 2008FED ¶4385.83 Code Sec. 55 CCH Reference - 2008FED ¶5101.045 Code Sec. 59 CCH Reference - 2008FED ¶5411.01 Code Sec. 61 CCH Reference - 2008FED ¶5504.025 Code Sec. 62 CCH Reference - 2008FED ¶6006.0324 CCH Reference - 2008FED ¶6006.0325 CCH Reference - 2008FED ¶6006.106 Code Sec. 63 CCH Reference - 2008FED ¶6023.023 CCH Reference - 2008FED ¶6023.034 CCH Reference - 2008FED ¶6023.036 CCH Reference - 2008FED ¶6023.07 CCH Reference - 2008FED ¶6023.10 Code Sec. 68 CCH Reference - 2008FED ¶6081.01 CCH Reference - 2008FED ¶6081.20 Code Sec. 132 CCH Reference - 2008FED ¶7438.054 CCH Reference - 2008FED ¶7438.07 CCH Reference - 2008FED ¶7438.77 Code Sec. 135 CCH Reference - 2008FED ¶7551.021 CCH Reference - 2008FED ¶7551.20 Code Sec. 137 CCH Reference - 2008FED ¶7625.01 CCH Reference - 2008FED ¶7625.021 CCH Reference - 2008FED ¶7625.025 CCH Reference - 2008FED ¶7625.027 CCH Reference - 2008FED ¶7625.10 Code Sec. 146 CCH Reference - 2008FED ¶7854.07 CCH Reference - 2008FED ¶7854.75 Code Sec. 147 CCH Reference - 2008FED ¶7861.39 Code Sec. 148 CCH Reference - 2008FED ¶7889.12 CCH Reference - 2008FED ¶7889.29 Code Sec. 151 CCH Reference - 2008FED ¶8005.12 CCH Reference - 2008FED ¶8005.145 Code Sec. 163 CCH Reference - 2008FED ¶9402.09 Code Sec. 170 CCH Reference - 2008FED ¶11,620.021 CCH Reference - 2008FED ¶11,620.041 CCH Reference - 2008FED ¶11,620.512 CCH Reference - 2008FED ¶11,700.026 Code Sec. 179 CCH Reference - 2008FED ¶12,126.03 CCH Reference - 2008FED ¶12,126.031 CCH Reference - 2008FED ¶12,126.07 Code Sec. 213 CCH Reference - 2008FED ¶12,543.051 CCH Reference - 2008FED ¶12,543.69 Code Sec. 220 CCH Reference - 2008FED ¶12,675.045 Code Sec. 221 CCH Reference - 2008FED ¶12,695.25 Code Sec. 501 CCH Reference - 2008FED ¶22,613.20 Code Sec. 512 CCH Reference - 2008FED ¶22,837.051 CCH Reference - 2008FED ¶22,837.153 Code Sec. 513 CCH Reference - 2008FED ¶22,846.4999 Code Sec. 877 CCH Reference - 2008FED ¶27,425.027 CCH Reference - 2008FED ¶27,425.03 CCH Reference - 2008FED ¶27,425.175 Code Sec. 877A CCH Reference - 2008FED ¶27,438.03 Code Sec. 2032A CCH Reference - FINH ¶4240.71 Code Sec. 2503 CCH Reference - FINH ¶9842.23 Code Sec. 2523 CCH Reference - FINH ¶11,884.2 Code Sec. 4161 CCH Reference - ETR ¶13,105.05 CCH Reference - ETR ¶13,105.39 Code Sec. 4261 CCH Reference - ETR ¶19,305.014 CCH Reference - ETR ¶19,305.02 CCH Reference - ETR ¶19,305.495 Code Sec. 6012 CCH Reference - 2008FED ¶35,150.021 Code Sec. 6033 CCH Reference - 2008FED ¶35,425.025 CCH Reference - 2008FED ¶35,425.39 Code Sec. 6039F CCH Reference - 2008FED ¶35,690.01 CCH Reference - 2008FED ¶35,690.10 Code Sec. 6323 CCH Reference - 2008FED ¶38,160.032 CCH Reference - 2008FED ¶38,160.038 CCH Reference - ETR ¶45,675.02 CCH Reference - ETR ¶45,675.165 Code Sec. 6334 CCH Reference - 2008FED ¶38,225.01 CCH Reference - 2008FED ¶38,225.103 Code Sec. 6601 CCH Reference - 2008FED ¶39,415.025 CCH Reference - 2008FED ¶39,415.1897 CCH Reference - FINH ¶21,640.20 CCH Reference - FINH ¶21,640.30 Code Sec. 7430 CCH Reference - 2008FED ¶41,743.16 CCH Reference - FINH ¶22,440.50 Code Sec. 7702B CCH Reference - 2008FED ¶43,168.01 CCH Reference - 2008FED ¶43,168.03 CCH Reference - 2008FED ¶43,168.35 Tax Research Consultant CCH Reference - TRC INDIV: 12,162 CCH Reference - TRC INDIV: 18,154.05 CCH Reference - TRC INDIV: 18,154.10 CCH Reference - TRC INDIV: 18,156.15 CCH Reference - TRC INDIV: 18,158 CCH Reference - TRC INDIV: 27,102 CCH Reference - TRC INDIV: 30,356.10 CCH Reference - TRC INDIV: 39,126.05 CCH Reference - TRC INDIV: 42,114.05 CCH Reference - TRC INDIV: 42,408 CCH Reference - TRC INDIV: 42,452.05 CCH Reference - TRC INDIV: 42,452.15 CCH Reference - TRC INDIV: 42,454.05 CCH Reference - TRC INDIV: 42,506 CCH Reference - TRC INDIV: 51,052.15 CCH Reference - TRC INDIV: 51,052.156 CCH Reference - TRC INDIV: 57,260.10 CCH Reference - TRC INDIV: 57,262.05 CCH Reference - TRC INDIV: 57,352 CCH Reference - TRC INDIV: 57,356 CCH Reference - TRC INDIV: 57,358 CCH Reference - TRC INDIV: 57,454.10 CCH Reference - TRC INDIV: 57,552 CCH Reference - TRC INDIV: 60,054.05 CCH Reference - TRC INDIV: 60,058 CCH Reference - TRC INDIV: 60,152 CCH Reference - TRC INDIV: 60,160 CCH Reference - TRC INDIV: 63,306 CCH Reference - TRC INDIV: 66,066.05 CCH Reference - TRC FILEIND: 6,050 CCH Reference - TRC FILEIND: 6,052 CCH Reference - TRC FILEIND: 12,056 CCH Reference - TRC FILEIND: 12,102 CCH Reference - TRC FILEIND: 12,102.05 CCH Reference - TRC FILEIND: 12,104 CCH Reference - TRC FILEIND: 12,106 CCH Reference - TRC FILEIND: 15,052.05 CCH Reference - TRC FILEIND: 15,052.15 CCH Reference - TRC FILEIND: 15,054 CCH Reference - TRC FILEIND: 15,054.05 CCH Reference - TRC FILEIND: 15,152.25 CCH Reference - TRC FILEIND: 18,052.05 CCH Reference - TRC FILEIND: 18,052.054 CCH Reference - TRC FILEIND: 30,406 CCH Reference - TRC CCORP: 42,060 CCH Reference - TRC BUSEXP: 9,102.25 CCH Reference - TRC BUSEXP: 18,220.15 CCH Reference - TRC BUSEXP: 24,906.10 CCH Reference - TRC BUSEXP: 24,906.102 CCH Reference - TRC BUSEXP: 54,220.10 CCH Reference - TRC BUSEXP: 57,306.05 CCH Reference - TRC DEPR: 12,104 CCH Reference - TRC DEPR: 12,112.05 CCH Reference - TRC FILEBUS: 9,106 CCH Reference - TRC COMPEN: 36,350 CCH Reference - TRC COMPEN: 36,352 CCH Reference - TRC COMPEN: 36,354 CCH Reference - TRC COMPEN: 36,356 CCH Reference - TRC COMPEN: 36,654 CCH Reference - TRC COMPEN: 45,060.25 CCH Reference - TRC COMPEN: 45,064 CCH Reference - TRC COMPEN: 45,064.10 CCH Reference - TRC COMPEN: 45,064.15 CCH Reference - TRC COMPEN: 45,066 CCH Reference - TRC COMPEN: 45,066.15 CCH Reference - TRC PAYROLL: 6,060.25 CCH Reference - TRC RETIRE: 66,204 CCH Reference - TRC RETIRE: 66,752 CCH Reference - TRC SALES: 6,364.20 CCH Reference - TRC SALES: 51,154.10 CCH Reference - TRC SALES: 51,612.30 CCH Reference - TRC ESTGIFT: 3,300 CCH Reference - TRC ESTGIFT: 6,050 CCH Reference - TRC ESTGIFT: 6,052 CCH Reference - TRC ESTGIFT: 6,052.20 CCH Reference - TRC ESTGIFT: 6,054 CCH Reference - TRC ESTGIFT: 6,056 CCH Reference - TRC ESTGIFT: 6,060.10 CCH Reference - TRC ESTGIFT: 12,050 CCH Reference - TRC ESTGIFT: 12,054.10 CCH Reference - TRC ESTGIFT: 18,604.15 CCH Reference - TRC ESTGIFT: 36,204 CCH Reference - TRC ESTGIFT: 42,050 CCH Reference - TRC ESTGIFT: 42,064 CCH Reference - TRC ESTGIFT: 45,360 CCH Reference - TRC ESTGIFT: 51,150 CCH Reference - TRC ESTGIFT: 51,160 CCH Reference - TRC ESTGIFT: 60,104 CCH Reference - TRC ESTGIFT: 60,106.05 CCH Reference - TRC ESTTRST: 100 CCH Reference - TRC ESTTRST: 12,052 CCH Reference - TRC ESTTRST: 21,252 CCH Reference - TRC ESTTRST: 39,350 CCH Reference - TRC EXPAT: 100 CCH Reference - TRC EXPAT: 3,302 CCH Reference - TRC EXPAT: 12,000 CCH Reference - TRC EXPAT: 12,100 CCH Reference - TRC EXPAT: 12,102 CCH Reference - TRC EXPAT: 12,604 CCH Reference - TRC INTL: 100 CCH Reference - TRC INTLOUT: 100 CCH Reference - TRC INTLOUT: 6454 CCH Reference - TRC IRS: 48,152.10 CCH Reference - TRC IRS: 48,160.35 CCH Reference - TRC LITIG: 7,200 CCH Reference - TRC EXEMPT: 12,306.15 CCH Reference - TRC EXEMPT: 12,256 CCH Reference - TRC EXEMPT: 12,306.15 CCH Reference - TRC EXEMPT: 15,118 CCH Reference - TRC EXEMPT: 15,168 CCH Reference - TRC EXEMPT: 12,306.15 CCH Reference - TRC EXCISE: 3,114.05 CCH Reference - TRC EXCISE: 6,156.05 CCH Reference - TRC EXCISE: 9,104.05 CCH Reference - TRC PLANIND: 3,052 CCH Reference - TRC PLANIND: 3,058.10 CCH Reference - TRC PLANIND: 3,060.10 CCH Reference - TRC PLANIND: 3,064.15 CCH Reference - TRC PLANIND: 3,204 CCH Reference - TRC PLANIND: 3,362.05 CCH Reference - TRC PLANIND: 9,304.10 CCH Reference - TRC PLANIND: 9,350.15 CCH Reference - TRC PLANIND: 15,154 CCH Reference - TRC PLANIND: 15,254 CCH Reference - TRC PLANIND: 15,302 IRS Announces 2009 Cost of Living Adjustments for Pension Plans (IR-2008-118) The IRS has announced cost-of-living adjustments (COLAs) applicable to dollar limitations on benefits under qualified retirement plans and to other provisions affecting such plans that take effect on January 1, 2009. The maximum limitation for the Code Sec. 415(b)(1)(A) annual benefit for defined benefit plans increases from $185,000 to $195,000, while the Code Sec. 415(c)(1)(A) limitation for defined contribution plans increases $49,000. Also, for participants who separated from service before 2009, the Code Sec. 415(b)(1)(B) limitation is computed by multiplying the participant's compensation limit, as adjusted through 2008, by 1.0530. The compensation amounts under Reg. §1.61-21(f)(5)(i) concerning the definition of "control employee" for fringe benefit valuation purposes remains is increased from $90,000 to $95,000. The annual compensation limit under Code Secs. 401(a)(17), 404(l), 408(k)(3)(C) and 408(k)(6)(D)(ii) increases from $230,000 to $245,000. The annual compensation limitation under Code Sec. 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed COLAs to the compensation limitation under the plan to be taken into account, increases from $345,000 to $360,000. Various other amounts were also adjusted. Plan administrators who received favorable determination letters need not request new letters solely due to yearly amendments adjusting their plans' maximum limitations. IR-2008-118, 2008FED ¶46,628 Other References: Code Sec. 25B CCH Reference - 2008FED ¶3838.03 CCH Reference - 2008FED ¶3838.07 CCH Reference - 2008FED ¶3838.25 Code Sec. 45A CCH Reference - 2008FED ¶4440.021 Code Sec. 61 CCH Reference - 2008FED ¶5907.032 CCH Reference - 2008FED ¶5907.044 CCH Reference - 2008FED ¶5907.27 Code Sec. 219 CCH Reference - 2008FED ¶12,662.01 Code Sec. 401 CCH Reference - 2008FED ¶17,903.01 CCH Reference - 2008FED ¶17,903.025 CCH Reference - 2008FED ¶17,903.03 CCH Reference - 2008FED ¶17,903.105 CCH Reference - 2008FED ¶17,903.15 CCH Reference - 2008FED ¶18,112.0245 CCH Reference - 2008FED ¶18,112.0265 CCH Reference - 2008FED ¶18,112.036 CCH Reference - 2008FED ¶18,112.048 Code Sec. 402 CCH Reference - 2008FED ¶18,221.022 CCH Reference - 2008FED ¶18,221.10 Code Sec. 404 CCH Reference - 2008FED ¶18,347.01 CCH Reference - 2008FED ¶18,347.025 CCH Reference - 2008FED ¶18,348.028 CCH Reference - 2008FED ¶18,348.107 CCH Reference - 2008FED ¶18,349.022 Code Sec. 408 CCH Reference - 2008FED ¶18,922.0249 CCH Reference - 2008FED ¶18,922.0253 CCH Reference - 2008FED ¶18,922.0264 CCH Reference - 2008FED ¶18,922.1068 Code Sec. 408A CCH Reference - 2008FED ¶18,930.024 CCH Reference - 2008FED ¶18,930.197 Code Sec. 409 CCH Reference - 2008FED ¶18,951.03 CCH Reference - 2008FED ¶18,951.20 Code Sec. 414 CCH Reference - 2008FED ¶19,173.25 CCH Reference - 2008FED ¶19,198.25 Code Sec. 415 CCH Reference - 2008FED ¶19,218.022 CCH Reference - 2008FED ¶19,218.023 CCH Reference - 2008FED ¶19,218.0235 CCH Reference - 2008FED ¶19,218.03 CCH Reference - 2008FED ¶19,218.034 CCH Reference - 200 FED ¶19,218.27 Code Sec. 416 CCH Reference - 2008FED ¶19,253.024 Code Sec. 457 CCH Reference - 2008FED ¶21,536.035 CCH Reference - 2008FED ¶21,536.036 CCH Reference - 2008FED ¶21,536.0365 CCH Reference - 2008FED ¶21,536.037 CCH Reference - 2008FED ¶21,536.07 Tax Research Consultant CCH Reference - TRC COMPEN: 27,252.10 CCH Reference - TRC COMPEN: 27,252.20 CCH Reference - TRC COMPEN: 27,508.10
State Headlines

California --Corporate, Personal Income Taxes: Designation Status of Local Agency Military Base Recovery Areas To Be Reassessed The California Department of Housing and Community Development plans to evaluate the designation status of each Local Agency Military Base Recovery Area (LAMBRA), within which corporation franchise and income and personal income tax incentives are provided, and the Department intends to establish guidelines for LAMBRA designation periods and their extension. As part of its effort to reassess LAMBRA designation periods, the Department will survey all LAMBRAs to determine whether they have met the conditions set forth in A.B. 2875, Laws 2002. Conditions Set Forth in A.B. 2875 A.B. 2875 established new LAMBRA designation period guidelines. Prior to the enactment of A.B. 2875, the California Trade and Commerce Agency, which administered the LAMBRA program prior to the Department, had executed a Memorandum of Understanding (MOU) with each LAMBRA that recognized an eight-year designation period. Although the MOUs did not specify the LAMBRA designation or expiration dates, the date a MOU was signed was considered the start date for the eight-year period. A.B. 2875 changed the law to provide that the eight-year period would begin only after the later of two conditions had been met. The legislation in effect changed the designation period stated or implied in the MOUs because most, if not all, of the LAMBRAs in 2002 had not met the later of the two conditions. Thus, according to A.B. 2875, their eight-year period had not begun. The conditions set forth in A.B. 2875 require the state to modify the terms of the original MOUs. However, it appears that the state has not fully or accurately implemented these modifications. Decisions on MOUs and Extensions on Hold Because the Department plans to reassess each LAMBRA designation period, it will place on hold any decisions on MOUs or requests for extensions of designation periods. Until further notice, LAMBRAs whose designation periods have expired should continue to operate as active LAMBRAs. Once the Department completes its surveys, it will notify the LAMBRAs of the results and prepare, if necessary, an MOU or amendment to implement any changes to the current designation periods. Subscribers to CCH Tax Research NetWork can view the text of the memorandum. Memorandum 8-07, California Department of Housing and Community Development, August 22, 2008. New Hampshire --Tobacco Tax: Rate Increase Takes Effect The New Hampshire Department of Revenue Administration has announced an increase in the tobacco tax on cigarettes effective October 15, 2008. The tax rate for each pack containing 20 cigarettes is increased from $1.08 to $1.33, and the rate for each pack containing 25 cigarettes is increased from $1.35 to $1.66. Tobacco licensees are responsible for the increased tax on every stamped pack of cigarettes and every unaffixed tobacco stamp in their possession on October 15, 2008. [CCH Note: The Department previously announced that the tax increase would take effect October 1, but then placed the increase on hold pending certification of the amount of tobacco tax revenue by the Commissioner of the Department of Revenue Administration. Ch. 296 (S.B 321), Laws 2008, provided for an increase in the cigarette tax from $1.08 to $1.33 per pack of 20 cigarettes if the amount of tax revenue for the period July 1, 2008, through September 1,2008, was below $50 million. The Commissioner has now made that certification.] The Department's announcement can be viewed at http://www.revenue.nh.gov/. Press Release, New Hampshire Department of Revenue Administration, October 15, 2008. Ohio --Personal Income Tax: Nonresident Officers Owed Local Taxes on Deferred Income Earned Locally An Ohio city was entitled to subject nonresident corporate officers (taxpayers) to the city's personal income tax because the corporate offices were located within the city; but the officers were entitled to apportion their income based on the number of days worked within and outside the city. The income in question included restricted stocks, stock options and payments made to the taxpayers under a supplemental retirement plan (SERP). The taxpayers first argued that the city could not tax them on income that they received after their retirement. This argument was rejected because a close reading of the applicable town ordinance indicated that the critical issue was when the income was earned rather than when it was paid. The court noted that compensation earned by a nonresident employee cannot evade municipal taxation simply by being deferred. The court did hold that the taxpayers should be entitled to apportion their income, though. The ordinance unambiguously restricts the town to taxing nonresidents for work activities occurring within its territorial boundaries. Therefore, the appellate court found that the trial court erred by not allowing the taxpayers to apportion their income. The town unsuccessfully argued that all of the disputed income was taxable because it related solely and directly to the taxpayers' capacities as corporate executives. The appellate court held that the town ordinance clearly allowed for apportionment by nonresidents and the fact that the nonresidents were executive officers did not matter. The taxpayers also took the position that the trial court erred in subjecting their income received under the SERP to the town's income tax. However, because the SERP described itself as a "deferred compensation arrangement "and the town's ordinances impose a tax on earnings designated as deferred compensation, the trial court was correct to conclude that the SERP payments were taxable by the municipality. Finally, the taxpayers argued that the appreciated value of their nontransferable stock options and restricted stocks was not subject to the local tax because the taxpayers did not realize any profit in either case until after their employment in the town had ceased. The appellate court reasoned that the stock options and stocks were a form of compensation earned for work done on behalf of the corporation and, thus, were taxable. Wardrop v. City of Middletown Income Tax Review Board, Ohio Court of Appeals, Butler County, Twelfth Appellate District, No. CA2007-09-235, October 13, 2008, ¶403-829 Other References: Explanations at ¶15-455

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