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February 8, 2010

Federal Headlines

IRS Offers Tips on Items Excluded from Income (Tax Tip 2010-25)

 

The IRS has provided a tax tip to reacquaint taxpayers with situations where certain types of income are partially taxed or not taxed at all. The IRS identified common examples of items that are not included in income, such as:

 

--adoption expense reimbursements for qualifying expenses,

 

--child support payments,

 

--gifts, bequests and inheritances,

 

--workers' compensation benefits,

 

--meals and lodging for the employer's convenience,

 

--compensatory damages awarded for physical injury or physical sickness,

 

--welfare benefits, and

 

--cash rebates from a dealer or manufacturer.

Additionally, the IRS pointed out several items that may or may not be included in income depending on the circumstances, such as:

 

--life insurance proceeds,

 

--scholarship or fellowship grant amounts, and

 

--noncash income.

 

The IRS reminded taxpayers that all other items, including income such as wages, salaries and tips, must be included in income unless specifically excluded by law.

 

For more information, see IRS Publication 525, Taxable and Nontaxable Income.

IRS Tax Tip 2010-25 --Is this Income Taxable?

 

IRS Provides Waiver of Eligibility Requirements for Foreign Earned Income, Housing Cost Exclusions for Countries with Adverse Conditions in 2009 (Rev. Proc. 2010-17)

 

The IRS has released a list of countries for which the existence of adverse conditions during specified periods may excuse failure by a taxpayer to meet the foreign presence or residency requirements of Code Sec. 911(d)(1) for tax year 2009. An individual who left one of the countries listed on or after the specified departure date will be treated as a qualified individual for purposes of the foreign earned income and housing cost exclusions if the individual can establish that, but for those adverse conditions, he or she could reasonably have been expected to meet the eligibility requirements.

 

The countries are:

 

- Madagascar, departure on or after March 18, 2009; and

 

- Guinea, departure on or after October 1, 2009.

 

Under Code Sec. 911(a), a qualified individual is allowed to elect to exclude from gross income his or her foreign earned income and housing cost amount. Code Sec. 911(d)(1) defines a "qualified individual" as a U.S. citizen or resident whose tax home is in a foreign country and who meets certain requirements of residence or presence in a foreign country, while Code Sec. 911(d)(4) provides an exception to the eligibility requirements where the individual was a bona fide resident but was forced to leave due to war, civil unrest or other adverse conditions that precluded the normal conduct of business. In such an instance, the taxpayer will be treated as a "qualified individual."

Rev. Proc. 2010-17, 2010FED ¶46,277

Other References:

 

Code Sec. 911

 

CCH Reference - 2010FED ¶28,049.5775

 

Tax Research Consultant

 

CCH Reference - TRC EXPAT: 12,058

 
 

State Headlines

Alabama --Corporate, Personal Income Taxes: Rule Adopted on Pass Through Entities

 

The Alabama Department of Revenue has adopted a personal and corporate income tax rule on composite returns of pass-through entities. Effective for taxable years beginning on or after January 1, 2009, a pass-though entity is required to file a composite return and make composite payments on behalf of its nonresident owners or members if there are one or more nonresident owners or members at any time during the taxable year. For tax years beginning from January 1, 2009, through December 31, 2009, a pass-through entity may reduce the amount of its composite payment to the extent that the nonresident member made tax payments or estimated deposits to Alabama in regard to the nonresident member's income from the pass-through entity. Documentation of the composite payment reduction must be attached to the composite return. After January 1, 2010, nonresident consent agreements become ineffective for all future tax periods.

 

In computing the amount of the composite payment, the pass-through entity must apply the maximum tax rate to each nonresident member's distributive share of income, to include both separately stated income and nonseparately stated income.

Rule 810-2-32.2-.02, Alabama Department of Revenue, effective February 15, 2010

Arizona --Sales and Use Tax: Tax Increase Will Appear on May Ballot

 

The Arizona legislature has approved a resolution to refer a temporary one-cent state transaction privilege (sales) and use tax increase to voters at a special election set for May 18, 2010. If passed by the voters, the increase would become effective June 1, 2010, and last for three years.

S.C.R. 1001, passed February 4, 2010, effective as noted above

New Mexico --Personal Income Tax: Legislation Creating Addback for State and Local Tax Deduction Introduced

 

Legislation introduced in New Mexico would create a personal income tax addition modification for state and local taxes deducted for federal income tax purposes. If enacted, the addback would apply to taxable years beginning on or after January 1, 2010. The House of Representative's Taxation and Revenue Committee approved the legislation as amended to include a subtraction modification for any amount included in federal adjusted gross income that represents a refund of state and local taxes (applicable to taxable years beginning on or after January 1, 2011).

H.B. 270, as introduced in the New Mexico House of Representatives on February 3, 2010, and approved by the Taxation and Revenue Committee on February 4, 2010

 
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