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This is an expanded version of the e-alert that was sent to AICPA Tax Section members in the last week. Links to the documents referred to in this podcast are available in the emailed version which AICPA members can receive by joining the Tax Section at service@aicpa.org or 888-777-7077.

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AICPA Tax Tam briefs state society leaders on current tax developments, including Section 7216, Circular 230 and Section 6694 penalties, regulation and registration of tax return preparers, SSTS exposure draft, tax strategy patents, e-filing, extended due dates for returns, consumer financial protection agency, cellphones, trust fee deductibility, and estate taxes. Links to the documents referred to in this podcast are available in the emailed version which AICPA members can receive by joining the Tax Section at service@aicpa.org or 888-777-7077.

[PLAY]

This is an expanded version of the e-alert that was sent to AICPA Tax Section members in the last week. Links to the documents referred to in this podcast are available in the emailed version which AICPA members can receive by joining the Tax Section at service@aicpa.org or 888-777-7077.

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This is an expanded version of the e-alert that was sent to AICPA Tax Section members in the last week. Links to the documents referred to in this podcast are available in the emailed version which AICPA members can receive by joining the Tax Section at service@aicpa.org or 888-777-7077.

[PLAY]

This is an expanded version of the e-alert that was sent to AICPA Tax Section members in the last week. Links to the documents referred to in this podcast are available in the emailed version which AICPA members can receive by joining the Tax Section at service@aicpa.org or 888-777-7077.

[PLAY]

This is an expanded version of the e-alert that was sent to AICPA Tax Section members in the last week. Links to the documents referred to in this podcast are available in the emailed version which AICPA members can receive by joining the Tax Section at service@aicpa.org or 888-777-7077.

[PLAY]

This is an expanded version of the e-alert that was sent to AICPA Tax Section members in the last week. Links to the documents referred to in this podcast are available in the emailed version which AICPA members can receive by joining the Tax Section at service@aicpa.org or 888-777-7077.

[PLAY]

This is an expanded version of the e-alert that was sent to AICPA Tax Section members in the last week. Links to the documents referred to in this podcast are available in the emailed version which AICPA members can receive by joining the Tax Section at service@aicpa.org or 888-777-7077.

[PLAY]

This is an expanded version of the e-alert that was sent to AICPA Tax Section members in the last week. Links to the documents referred to in this podcast are available in the emailed version which AICPA members can receive by joining the Tax Section at service@aicpa.org or 888-777-7077.

[PLAY]

This episode is a re-release of the AICPA Tax Briefing for State Society Leaders conference call that took place January 12 - 13, 2009. Below, please find a summary of the major points covered in the call.

FIN 48—There are two important FASB requirements for accounting for uncertain tax positions of non-public companies that your firm needs to do right now, and as the tax person in your firm or business, you’ll undoubtedly be involved. On October 15, 2008, FASB deferred the effective date of FIN 48 (Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes) for all non-public companies for one year, until 2009 for calendar-year companies. However, that means that in January of 2009, calendar-year private companies should complete a FIN 48 analysis of their year-beginning tax positions so that they can record the effect of the change in accounting method at the end of 2009. This analysis could be “backed into” later in the year, but as time passes it will be more difficult to recall all tax positions (not just those that are unlikely) for all types of taxes for all open years in all jurisdictions and what the level of certainty and values were under the law at the beginning of the year. So if a company has not already done this analysis and if it wants to report in accordance with GAAP, the earlier it starts now, the better.

Another new FASB requirement relates to 2008 financials and any interim 2009 financial statements. A FASB Staff Position (FSP) was issued on December 30 that added reporting requirements for private companies that elect to defer the effective date for the adoption of FIN 48. Specifically, they must explicitly disclose that they are electing to defer the effective date and also disclose the company’s accounting policy for evaluating uncertain tax positions. This applies to 2008 financials and interim 2009 financials, until FIN 48 is adopted. The FSP doesn’t discuss specifics, but unless a company has something unusual, we hope that some standard language will suffice, such as “Management has elected to defer the application of FAS FIN 48, Accounting for Uncertain Tax Positions in accordance with FSP FIN 48-3. The Company will continue to follow FAS 5, Accounting for Contingencies, until it adopts FIN 48.” Additional information on FIN 48 for private companies is included in the February issue of The Tax Adviser magazine that most Tax Section members receive.

Tax Practice Guides and Checklists—Tax section members receive an annual package of over 600 pages of engagement letters, organizers, checklists, and other practice guides, and they’re now posted online . These include return-specific checklists for preparing and reviewing tax returns. Some forms checklists come in simple and complex versions so that, for instance, you don’t have to use a complex individual return checklist for a child’s return. These practice guides are carefully prepared and reviewed by fellow practitioners for your use. They are up-to-date through the Emergency Economic Stabilization Act of 2008, and subsequent developments will be reported in your Tax Section E-Alerts. In prior years, we sent a CD-ROM version of the checklists, but to avoid delays in scribing and mailing the CDs and with most members now having broadband internet, this year we’re only distributing the checklists. You’ll have to log on and be recognized as a tax section member to access this premium web content, and if you’re not a member, you can join online at aicpa.org/tax or on the phone at 800/513-3037. Each document may be downloaded to your computer directly allowing you to use any or all of the Practice Guides and checklists at your convenience and without requiring you to be logged on to the AICPA web site. A “one click” option allows you to download the entire package in a few moments directly to your computer.

Audio E-Alerts—Tax Section member receive bi-weekly emailed e-alerts that report current developments in tax law and practice. This emailed alert is necessarily brief and to the point, and we’re beginning expanded version in bi-weekly audio e-alerts that can be uploaded to your MP3 player or listened to online. Each alert will be approximately 15-20 minutes in length and can be accessed online. These audio alerts are available to AICPA members without charge, but they do not contain the links to the source documents that are included in the emailed version that goes to Tax Section members. These audio alerts may be of particular interest to younger staff and will help them become more knowledgeable about current tax developments.

SSTS Exposure Draft—The AICPA Tax Division recently issued an Exposure Draft of revisions to the Statements on Standards for Tax Services (SSTSs). The draft addresses changes in federal and state tax laws affecting the provisions in SSTS No. 1, Tax Return Positions, and No. 8, Form and Content of Advice to Taxpayers, and also members’ requests for clarification. Corresponding revisions to the current SSTS Interpretations will be made at a later date.

Revisions to SSTS No. 1 are proposed to clarify the need to satisfy both the AICPA standards and the standards of the applicable taxing authority. Revisions to SSTS No. 8 are proposed to address new requirements that apply when providing certain types of tax advice. In addition, the original SSTS Nos. 6 and 7 have been combined into the revised SSTS No. 6. The original SSTS No. 8 has been renumbered SSTS No. 7. Various revisions also have been made to the language of the original SSTSs.

AICPA members are welcome to comment on the exposure draft, with comments due by May 15, 2009. Please send your comments to sstscomments@aicpa.org or to SSTS Comments, AICPA, 1455 Pennsylvania Avenue NW, Washington, DC 20004-1081.

Section 6694 Penalties—The Emergency Economic Stabilization Act of 2008 lowered the reporting standard under section 6694 to “substantial authority” from “more likely than not” for undisclosed, non-tax shelter positions. This is the same standard that applies to taxpayers. The change is retroactive to the date when the higher standard was enacted, May 25, 2007. This is a great victory for CPAs that the AICPA had been fighting for since Congress raised the standard for preparers to a level higher than for taxpayers, creating potential conflicts of interest between CPAs and their clients.

Section 7216 Final Regs—IRS regulations on the unauthorized disclosure of tax return information went into effect on January 1. Absent a specific, exception, Treas. Reg. section 301.7216 generally prohibits the disclosure or use of tax return information without the client’s explicit, written consent. Under section 7216, a tax return preparer is subject to a criminal penalty for “knowingly or recklessly” disclosing or using tax return information. Each violation of section 7216 could result in a fine of up to $1,000 or one year imprisonment, or both.

AICPA members who are engaged in tax return preparation and tax planning services need to become familiar with Treas. Reg. section 301.7216 and Revenue Procedure 2008-35, the authoritative guidance with respect to a preparer’s disclosure or use of tax return information. In a practice guide for members, the Tax Section is providing several examples of consent forms which have been developed by CPA members for their discussions or consultations with individual clients.

1099B Forms Coming Two Weeks Later—The Emergency Economic Stabilization Act of 2008 extended the date by which brokers must furnish information forms to customers. This includes stock broker 1099-B forms and also other forms from brokers, including realtors. Beginning with statements furnished in 2009, brokers will avoid penalties if they furnish these forms on or before February 15 – as opposed to the old due date of January 31. This could further compress the return preparation season for practitioners.

Form 1065 Extended Due Date—Last year, the Tax Division held discussions with IRS concerning the dilemma of the late receipt of Forms 1065, Schedule K-1 that has perplexed the clients of CPAs who prepare the Form 1040, 1065, 1120 and 1120S tax returns which include such K-1 information. On January 24, 2008, we recommended, as a short-term solution, that the Service open a regulation project to: (1) address the difficulties taxpayers face when receiving delayed Schedules K-1 and (2) move the extended due date for partnership returns from October 15 to September 15, thus providing a maximum extension of five months. On July 1, 2008, the IRS released proposed regulations which would, in fact, limit certain flow-through entities to a maximum 5-month extension. The Service has indicated that the proposed regulations won’t be finalized until they have had an opportunity to analyze any comments submitted. On September 24, 2008, the Tax Division submitted comments with regard to the impact on trusts. The AICPA generally supports limiting the extension of the due date for partnership returns to five months. However, our prior letter and comments did not consider the issue of the proper extended due date for fiduciary returns because we were primarily focusing on the filing problems created for individuals who are partners in partnerships. We believe that the extension period for fiduciary returns (i.e., Form 1041 for trusts and estates) should remain at six months, rather than being reduced to five months as set forth in the temporary regulations applicable to all returns which are due after January 1, 2009. The Division will be testifying at the IRS hearing on the proposed regulations on January 13, 2009.

In addition, the Division is also considering suggesting possible legislative changes in this area taking into account our members’ attitudes as solicited in a survey earlier this year. Also, on October 29, 2008 representatives of the Partnership TRP met with the Joint Committee on Taxation a possible change to due dates and/or extended due dates of Forms 1065, 1040, 1120S and 1041 to relieve workload compression and to better manage the workflow of these returns.
State Taxation of Nonresidents—The ACIPA has been closely monitoring a Congressional initiative that would affect the ability of states to tax nonresidents temporarily working within their jurisdiction. Currently the states that have an individual income tax have a wide variety of tipping points. Some do not impose taxes on nonresidents until they have worked as many as 30 days within the state; others seem to require only a day or two. This has resulted in much confusion and probably significant non compliance for businesses, such as many accounting firms that frequently have employees working in states where the employer does not have an office. A bi-partisan bill was introduced in the last congress that would have required all states to conform to a 60-day rule such that the non resident employee would not be subject to tax within the state until the employee completed more than 60 days of service within the state in a calendar year. Included in the bill was what we refer to as the “snap back” rule whereby, once the 60 days was exceed, the employer was responsible for withholding the non resident state taxes for all the days worked with the state, including the first 60 days. In response to pressure from state taxing authorities, in the final days of the 110th Congress the 60 day rule was lowered to 30 days while still preserving the Snap back” provision. We believe there is a strong possibility that the 111th Congress take up where they left off last session and pass the 30 day with snap back version. Although we would have preferred the 60 day rule or even the 30 day rule without the snap back, this measure would add a much needed level of certainty in the area of state taxation of non residents.

Pension Legislation Changes—At the end of the year, Congress passed the “Worker, Retiree and Employer Recovery Act of 2008)” which liberalized the funding rules for single and multi-employer qualified retirement plans and the minimum required distribution rules (MRDs) for retirees who have reached age 70 ½. The bill also makes technical corrections to the “Pension Protection Act of 2006” (PPA ’06)

Specifically, the bill would

• Allow pension plans to smooth out unexpected asset losses over two years;
• Provide a transition to the new funding rules;
• Allow multiemployer plans to freeze their status based on the previous year’s funding level;
• Allow pension plans that are less than 60 percent funded at the beginning of 2009 to look back to the previous plan year to ascertain their funding status; and
• Suspend mandatory withdrawals from retirement plans or IRAs for individuals age 70 ½ or older during 2009. The Treasury Department and IRS plan to issue MRD relief for 2008 very soon.

The changes were needed because of the confluence of PPA ’06 mandated minimum contribution increases with the current economic crisis. We are also considering advocating additional changes; we will survey members in business and industry to try to determine if they anticipate continuing funding difficulties.


Obama Tax Agenda

Although this is necessarily speculative, we tried to pull together some of the common denominators of what President Obama spoke about in his campaign and his economic advisors have been saying since the election. Following are our predications at this moment:

• Estate tax – freeze 2009 – i.e. $3.5 mil exclusion and 45% marginal rate. AICPA is fighting for:
o “portability” loosely defined as permitting a surviving spouse to “inherit” whatever portion of the exclusion was not consumed by the deceased spouse
o “conformity” so that the same exclusion would apply for purposes of the gift tax and the generation skipping transfer tax

• Marginal rates for individuals – no increase in 2009 and perhaps not for 2010 unless there is a significant recovery in the economy before then.
o Some reduction in payroll taxes for lower and middle income individuals to be effective in 2009 as a stimulus to the economy
o Once the economy has “sufficiently” recovered we are expecting the Administration to proposed increasing the rates on upper income individuals to those in place before the reductions of 2001 raising the top rate back to 39.6%

• We expect a proposal to increase the rates for qualified dividends and long term capital gains to 20%. But this, too, may not be proposed until it appears we’re on the way to an economic recovery.

• Individuals with IRAs may be able to avoid penalties if they withdraw, before age 59 ½ , some level of funds ($10,000 has been talked about) to tie them over the economic slump.

• For businesses, the new president has supported a continuation of the bonus deprecation rules and the ability to currently expense as much as $250,000 of asset purchased and placed in service in 2009

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