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December 29, 2008

Federal Headlines

IRS Issues Proposed and Temporary Regulations Regarding Employment Tax Returns and Deposits (T.D. 9440; NPRM REG-148568-04)

 

The IRS has issued temporary and proposed regulations relating to the federal employment tax return filing requirements under Code Sec. 6011 and to the employment tax deposit requirements under Code Sec. 6302. These temporary regulations amend the current regulations issued under Code Secs. 6011 and 6302 and are part of the IRS's effort to reduce taxpayer burden by permitting certain employers to file one return annually to report their employment tax liabilities instead of four quarterly returns. The temporary regulations affect taxpayers that file Form 941, "Employer's QUARTERLY Federal Tax Return," Form 944, "Employer's ANNUAL Federal Tax Return," and any related Spanish-language returns or returns for U.S. possessions.

Form 944 Program

 

The temporary regulations allow certain employers to file an annual employment tax return, Form 944, to report their social security, Medicare, and withheld Federal income taxes rather than the quarterly Form 941. For these employers, Form 944 will replace Form 941, reducing the number of returns they are required to file each year. Most participating employers can also pay their employment taxes annually with their Form 944, rather than making monthly or bi-weekly deposits. Generally, Form 944 is due January 31 of the year following the year for which the return is filed. If the employer timely deposits all accumulated employment taxes on or before this due date, the employer will have 10 extra calendar days to file Form 944 pursuant to Reg. §31.6071(a)-1.

 

Caution: Although some agricultural and domestic employers may also file annual employment tax returns, Form 944 does not replace Form 943, Employer's Annual Tax Return for Agricultural Employees, or the Form 1040 Schedule H, Household Employment Taxes. However, if an employer files Form 944, the employer may choose to report wages with respect to household employees on Form 944, instead of reporting such wages on Schedule H (Form 1040).

 

Eligibility for the Form 944 Program is generally limited to employers with an annual estimated employment tax liability of $1,000 or less. The IRS will notify employers it believes are eligible; however, the temporary regulations provide that the Form 944 program is voluntary. The IRS will issue guidance informing employers how they can contact the IRS to participate in the Form 944 Program and how they can elect out if they later decide that they want to file Forms 941 instead of Form 944. Because the program is being made voluntary, beginning in tax year 2010, employers will be able to opt out for any reason if they follow procedures to be provided in future guidance.

 

The temporary regulations also clarify that, for most employers, the look back period for determining deposit frequency is the 12 month period ending on the preceding June 30. For employers in the Form 944 Program, however, the look back period is the second calendar year preceding the current calendar year. For instance, the look back period for 2009 is calendar year 2007.

Deposit Rule Safe Harbor

 

These temporary regulations also incorporate the safe harbor for employers who file Forms 941 that was included in the 2006 proposed regulations. The safe harbor helps small employers who file Form 941 and have an unexpected increase in their deposit liability for a quarterly return period. The temporary regulations also provide an alternate method for determining whether the taxpayer's employment tax obligations are de minimis, which is based on the employment taxes due for the prior return period. This special rule does not apply to employers who file Form 944.

 

Also employers may pay their employment taxes when they timely file their quarterly returns if the taxes due for the current quarter or for the prior quarter is less than $2,500. Modifying the de minimis deposit rule to allow employers to base the determination on the employment taxes due for the immediately preceding quarter provides a safe harbor for employers regarding their deposit obligations. However, these regulations have no application to the One-Day rule, which requires employers to make a deposit on the next banking day if they accumulate $100,000 or more of employment taxes on any day during a deposit period. Due to the programming changes necessary to implement this safe harbor, the safe harbor will be available for deposit periods beginning on or after January 1, 2010.

Comments Requested

 

The text of the temporary regulations also serves as the text for the proposed regulations. The IRS requests comments on the substance of the proposed regulations. Written or electronic comments must be received by March 30, 2009. Submissions should be sent to: CC:PA:LPD:PR (REG-148568-04), Room 5203, IRS, P.O. Box 7604, Ben Franklin Station, Washington, DC, 20044. Submissions may also be hand-delivered Monday through Friday between the hours of 8:00 a.m. and 4:00 p.m. to: CC:PA:LPD:PR (REG-148568-04), Courier's Desk, IRS, 1111 Constitution Avenue NW., Washington, DC, or sent electronically via the Federal eRulemaking Portal at www.regulations.gov (referencing IRS-REG-148568-04).

T.D. 9440, 2009FED ¶47,009

Proposed Regulations, NPRM REG-148568-04, 2009FED ¶49,410

Other References:

 

Code Sec. 6011

 

CCH Reference - 2008FED ¶35,130B

 

CCH Reference - 2008FED ¶35,130BA

 

CCH Reference - 2008FED ¶35,131

 

CCH Reference - 2008FED ¶35,131C

 

Code Sec. 6302

 

CCH Reference - 2008FED ¶38,055A

 

CCH Reference - 2008FED ¶38,055AB

 

CCH Reference - 2008FED ¶38,055B

 

CCH Reference - 2008FED ¶38,055BB

 

Tax Research Consultant

 

CCH Reference - TRC PAYROLL: 3,352.05

 

CCH Reference - TRC PAYROLL: 3,352.15

 

IRS Releases Final Form 990 and Instructions for Tax-Exempt Organizations

 

The IRS announced on December 24 that it has released the final versions of the 2008 Form 990, Return of Organization Exempt From Income Tax, Form 990-EZ, Short Form Return, schedules and instructions. The release is the culmination of a redesign project that began in June 2007, when the IRS first issued a draft of the redesigned form.

 

The redesigned Form 990 must be filed in 2009 for the 2008 tax year. Form 990-EZ generally was not changed, although schedules from the Form 990 redesign must be used with the Form 990-EZ. Form 990 must be filed by May 15 for a calendar year taxpayer. An automatic three-month extension is available, and another three-month extension may be requested.

 

Form 990 must be filed by all tax-exempt organizations that exceed the filing threshold for Form 990-EZ. For 2008, the thresholds for using Form 990-EZ are gross receipts under $1 million and total assets under $2.5 million. The IRS has reported that it receives 500,000 Form 990 and Form 990-EZ returns, and has identified approximately 1.3 million public charities and noncharitable exempt organizations.

 

Form 990 had not been substantially redesigned in 30 years. The new form has an 11-page, 11-part core form that must be completed by all organizations, and 16 schedules to be filed by organizations satisfying the schedule's requirements. The revised instructions are 75 pages long.

 

The IRS website (www.irs.gov) for charities and nonprofit organizations has copies of the forms and instructions plus online courses, interactive workshops, frequently asked questions and background papers describing the redesigned form. The revised instructions also explain the features of the new form and instructions.

By Brant Goldwyn, CCH News Staff

 

Lawmakers Ask Bush to Suspend RMDs for 2008

 

Sixty-one members of Congress are displeased with the Treasury Department's recent decision not to provide relief from required minimum distributions from IRAs and similar arrangements for 2008 (TAXDAY, 2008/12/22, T.1). The bipartisan group of lawmakers asked President Bush to use his executive authority to suspend RMDs for 2008 and, moreover, to allow individuals to recontribute RMDs already taken for 2008.

Lower Account Balances

 

Generally, RMDs are calculated by dividing the prior December 31 balance of the IRA or retirement plan account by a life expectancy factor provided by the IRS. RMDs for 2008 are based on account balances as of December 31, 2007, which were typically higher than today's account balances because of the steep decline in the stock market during 2008. Some individuals have near-worthless investments, Cindy Hockenberry, EA, tax analyst, National Association of Tax Professionals (NATP), told CCH.

 

Several bills were introduced in Congress in recent weeks to suspend RMDs for 2008 and beyond. One proposal would have suspended RMDS for 2008, 2009 and 2010. Ultimately, Congress voted to suspend RMDs only for 2009 as part of the Worker, Retiree and Employer Recovery Act of 2008 (P.L. 110-458), which President Bush signed into law on December 23.

No Relief for 2008

 

On December 17, a senior Treasury official revealed that the government would not suspend RMDs for 2008. "Because Congress has provided broad and direct relief [for 2009]...the Treasury and the IRS have determined that any further change to the RMD rules should not be undertaken," Kevin I. Fromer, Treasury assistant secretary for legislative affairs, told House Education and Labor Committee Chairman George Miller, D-Calif.

Executive Action

 

"We respectfully request that you use your executive authority to direct the Secretary of the Treasury to use the flexibility provided by statute to immediately waive the (RMD) rules for the 2008 tax year," the lawmakers wrote to President Bush on December 19. According to the lawmakers, the Treasury Department and the IRS could act without legislation.

 

"Furthermore, we ask that you use the same authority to allow retirees who have already withdrawn in 2008 to make recontributions to their accounts," the lawmakers wrote. Recontribution would help individuals who have already taken 2008 RMDs.

 

By George L. Yaksick, Jr., CCH News Staff

Lawmakers' RMD Letter to President Bush

 

State Headlines

Missouri --Personal Income Tax: Credit Allowed for Texas Margin Tax and Michigan Business Tax Paid

 

Individual partners of a Missouri limited liability limited partnership that derives substantially all of its income through its ownership interest in a limited partnership will be allowed to claim the Missouri personal income tax credit for tax paid to another state for their proportionate shares of the Texas margin tax (TMT) and Michigan business tax (MBT) paid directly by the limited partnership.

 

The Missouri Supreme Court has previously applied two tests, the "based on" test and the "object" test, to determine whether another state's tax is an income tax for which Missouri residents can take the credit for tax paid to another state. The "based on" test analyzes whether the tax was based on federal taxable income. The "object" test analyzes whether the object of the tax is that of an income tax, to compensate the state for benefits received, or that of a franchise tax, to pay for the privilege of doing business in the state.

 
Texas Margin Tax

 

The TMT is computed by determining the total revenue of the taxpayer using various revenue amounts reported on the taxpayer's federal income tax return. As such, the TMT is an income tax under the "based on" test. Furthermore, although the TMT is called a franchise tax, before a corporation doing business in Texas can dissolve it must satisfy all tax liabilities. Thus, the corporation must pay the TMT due even if the corporation ceases doing business in the state. As such, the TMT is a compensatory tax that operates as an income tax under the "object" test.

 
Michigan Business Tax

 

There are three components to the MBT: the business income tax, the modified gross receipts tax, and the annual surcharge. The business income tax and the modified gross receipts tax are based on an income base similar to federal taxable income. The surcharge then is also based on net income because it is simply an arithmetic function of the business income and modified gross receipts components of the tax. As such, the MBT qualifies as an income tax under the "based on" test. Furthermore, Michigan considers the MBT to be an income tax and enforces it as an income tax. It is not intended to be a business privilege or franchise tax. The object of the MBT is to operate as an income tax and be compensation for benefits received. As such, the MBT qualifies as an income tax under the "object" test.

Letter Ruling No. LR5309, Missouri Department of Revenue, December 12, 2008,

¶203-035

 

Other References:

 

Explanations at ¶15-710

New York City --Corporate Income, Miscellaneous Taxes: Limitations on SUV Depreciation Explained

 

The New York City Department of Finance has issued a memorandum designed to help taxpayers comply with general corporation tax, banking corporation tax, and unincorporated business tax provisions limiting the depreciation and first-year expense deductions allowed for sport utility vehicles (SUVs). At the federal level, passenger vehicle deduction limitations under IRC §280F do not apply to many SUVs because of their weight. However, under the New York City provisions, the IRC §280F limitations apply to all SUVs, regardless of weight. Accordingly, the applicable New York City deduction is based on the IRC §280F limitations that would apply if the SUV were a passenger automobile. The New York City limitations apply to depreciation deductions and IRC §179 deductions taken in tax years beginning on and after January 1, 2004, regardless of when the SUV was placed in service.

 

Each year, the Internal Revenue Service publishes the applicable IRC §280F limits for passenger automobiles placed into service during that calendar year. The limit applicable to a passenger automobile eligible for bonus depreciation under IRC §168(k), as amended by the federal Economic Stimulus Act of 2008 (P.L. 110-185), in the first year the automobile is placed in service is higher than for other passenger automobiles. However, these higher limits will apply only for unincorporated business tax and banking corporation tax purposes, and then only to SUVs that are qualified Resurgence Zone property. The memorandum also notes that no federal bonus deprecation of any kind was available for passenger automobiles placed into service on or after January 1, 2005, and before January 1, 2008. The Department has provided schedules setting forth the New York City limits for tax years beginning in 2004, 2005, 2006, 2007, and 2008. Tables are provided for SUVs built on a truck chassis and SUVs built on a car chassis.

 

The new memorandum supersedes Finance Memorandum 07-3.

Finance Memorandum 08-2, New York City Department of Finance, December 12, 2008, ¶600-673

 

Other References:

 

Explanations at ¶505-416

 

Explanations at ¶510-420

 

Explanations at ¶519-250
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