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Who Hates America’s Small Businesses? H.R. 4213 American Jobs and Closing Tax Loopholes Act of 2010 Does.

By Stacie Clifford Kitts, CPA

Lately I’ve been reading commentary bouncing around the blogging community about S-corporations and self-employment tax. To understand the controversy, first we need to understand the tax benefits of a corporation electing  S-corporation status.

The IRS describes S-corporations this way: S corporations are corporations that elect to pass corporate income, losses, deductions, and credit through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income.

Shareholders of S-corporations generally receive a W2 for their services as employees. The remaining profits of the corporation are passed-through to the shareholder (on Form K-1) to report on their individual income tax return.

Currently, S-corporation shareholders avoid self-employment taxes on the flow through income reported to them by their S-Corps.

However,  congress wants to change this tax structure and make the income passed through to shareholders from some types of S-corporations subject to self-employment taxes.

I absolutely love what Joe Kristan at the Tax Update Blog has to say about the proposal:

It’s hard to do something exceptionally stupid to a tax code already brim-full of dumb, but Sander Levin, Charlie Rangel’s replacement as head of the House Ways and Means Committee, is up to the job. Exhibit A: his new proposal to apply self-employment tax to some — but only some — professional S corporations.

It would penalize the smallest personal service providers to the benefit of their larger competitors.. A sole proprietorship would pay taxes at a rate at least 2.9% higher than a competitor whose “principal asset” is the reputation of more than three employees.

The bill also will require businesses and the IRS to determine what the “principal asset” of a personal service corporation is. The bill obviously requires the valuation of intangible assets — reputation and skill — but in a way not elsewhere attempted in the tax law. How do you do this?

Let’s take an entirely hypothetical S corporation CPA firm with nine shareholders. All have been practicing in tax or audit work since they had hair. They like to think they are all highly skilled, but the skill sets differ. Some are known more as rainmakers, some view themselves more as technicians. One has an enormous Google footprint, while others are more old-school in their business development methods. Which counts more?

In his extensive coverage of this issue, Joe asks The S corporation medicare tax grab: what is to be done?

The tax blog world is aghast at the weird revenue grab from small S corporation professional practices contained in HR 4213. TaxGrrrl, Kay Bell, Robert D Flach, and Monica Lawver (UPDATE – Russ Fox, too) have all raised the alarm for this awful bill (and have kindly linked to the Tax Update while doing so).

But it will take more than being appalled to prevent the worst-designed tax rule since Sec.409A from becoming law. We need to contact our congresscritters, especially in the Senate, immediately. The Senate will take up the bill as soon as tomorrow. If you have a professional practice, call and e-mail your congresscritters early and often and let them know that your livelihood is more important to you than NASCAR and the rest of the “motorsports” industry. If you hire professionals, tell Congress that you don’t want your local professionals to be discriminated against in favor of the big guys. The message is simple: The S corporation tax increase in HR 4213 is a mess and should not be enacted.

In his latest post How not to determine your S corporation compensation Joe explains:

-The IRS already has the ability to go after professional corporations that underpay employment taxes. ….

– If you want to use an S corporation to reduce your payroll taxes, remember that hogs get slaughtered, and treating only $24,000 of $200,000 of professional firm earnings as salary is on the porcine side.

My take? It always feels sleazy when our lawmakers sneak in some stupid provision that gets overlooked by the majority because the focus is steered toward other areas.  It does appear to be a  poorly written provision that will be a nightmare to implement.  It’s about as ridiculous as the booby tax that we debated last year in the posts:

Let’s Talk Fuller Lips, Larger Breasts, Slimmer Thighs, and H.R. 3590 (Patient Protection and Affordable Care Act.)

Still Talking About Fuller Lips, Larger Breasts, Slimmer Thighs, And H.R. 3590

Vanity Tax = Tax the Other Guy Legislation HR 3590

An Interesting Rewrite for the Vanity Tax H.R. 3590 Looks As if Congress Found a Vanity Product with Enough Sin to Justify a Tax

Guidance – 2010 Section 179 Expense Rev. Proc. 2010-24

By Stacie Clifford Kitts, CPA

Golly, I am so busy that I haven’t  been paying attention to the latest announcements.

I am trying to catch up beginning with this one. Revenue Procedure 2010-24 – update on direct expensing of certain depreciable assets.  For those of you who are not CPA’s, accountants, or tax preparers in general,  direct expensing means that you can take an immediate deduction for tax purposes the cost of certain assets that you would otherwise need to capitalize and depreciate over a number of years.  This is important information in the planning process when you are considering  cash flow and income tax requirements.

For 2010,

.. the HIRE Act changes the $125,000 amount and the $500,000 amount to $250,000 and $800,000, respectively, for taxable years beginning in 2010.

Section 201 of the Act also provides that these amounts will not be adjusted for inflation for taxable years beginning in 2010.

A complete copy of the Revenue Procedure is provided below.

Rev. Proc. 2010-24

SECTION 1. PURPOSE

This revenue procedure modifies the inflation adjusted amounts in Rev. Proc. 2009-50, 2009-45 I.R.B. 617, that apply to taxpayers who elect to expense certain

depreciable assets under § 179 of the Internal Revenue Code. This modification reflects statutory changes enacted subsequent to the publication of Rev. Proc. 2009-50.

SECTION 2. BACKGROUND

Prior to the enactment of the Hiring Incentives to Restore Employment Act of 2010, Pub. L. No.111-147, 124 Stat. 71 (2010) (the HIRE Act), § 179(b)(1) prescribed a

$125,000 limitation (the $125,000 amount) on the aggregate cost of § 179 property that could be treated as an expense for taxable years beginning after 2006 and before 2011.

For those same taxable years, § 179(b)(2) provided that the $125,000 amount is reduced by the amount by which the cost of § 179 property placed in service during the

taxable year exceeds $500,000 (the $500,000 amount). Both the $125,000 amount and the $500,000 amount were adjusted for inflation annually under § 179(b)(5). For

taxable years beginning in 2010, section 3.20 of Rev. Proc. 2009-50 provides that the $125,000 amount and the $500,000 amount, adjusted for inflation, are $134,000 and

$530,000, respectively.

Section 102 of the Economic Stimulus Act of 2008, Pub. L. No.110-185, 122 Stat. 613 (2008), changed the $125,000 amount and the $500,000 amount to $250,000 and

$800,000, respectively, for taxable years beginning in 2008 and 2009, and also provided that these amounts will not be adjusted for inflation.

Similarly, § 201 of the HIRE Act changes the $125,000 amount and the $500,000 amount to $250,000 and $800,000, respectively, for taxable years beginning in 2010.

Section 201 of the Act also provides that these amounts will not be adjusted for inflation for taxable years beginning in 2010.

SECTION 3. APPLICATION

To reflect the statutory changes made to § 179 by § 201 of the HIRE Act, section 3.20 of Rev. Proc. 2009-50 is modified to read as follows:

.20 Election to Expense Certain Depreciable Assets. For taxable years beginning in 2010, under § 179(b)(1) the aggregate cost of any § 179 property a

taxpayer may elect to treat as an expense cannot exceed $250,000. Under § 179(b)(2), the $250,000 limitation is reduced (but not below zero) by the amount by which the cost

of § 179 property placed in service during the 2010 taxable year exceeds $800,000.

SECTION 4. EFFECT ON OTHER DOCUMENTS

Section 3.20 of Rev. Proc. 2009-50 is modified and superseded.

SECTION 5. EFFECTIVE DATE

This revenue procedure is effective for taxable years beginning in 2010.

SECTION 6. DRAFTING INFORMATION

The principal author of this revenue procedure is Patrick M. Clinton of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information

regarding this revenue procedure contact Patrick M. Clinton on (202) 622-4930 (not a toll-free call).

IRS Patrol: Haiti Relief Workers Qualify for Combat Zone Extension; Military Personnel and Designated Civilians Have at Least 180 Days to File and Pay

WASHINGTON — Members of the military and certain civilians providing earthquake relief in Haiti have additional time to file their 2009 returns and pay any taxes due, the Internal Revenue Service announced [in April].

Deadlines for taking care of a variety of federal tax matters are automatically extended for persons serving in a combat zone or a contingency operation. Operation Unified Response is a contingency operation, thus giving designated persons providing earthquake relief in Haiti the same extensions that are available to military and support personnel serving in Iraq, Afghanistan, and other combat zone localities.

This relief applies to members of the military, Red Cross personnel, accredited correspondents, and civilian support personnel acting under the direction of the Armed Forces.  In most cases, the relief also applies to spouses.

Normally, eligible taxpayers have at least 180 days after they leave the combat zone or contingency operation area to take care of various tax-related matters.  For Operation Unified Response and the Haiti earthquake, these tax-related matters include:

  • Filing a 2009 federal income tax return,
  • Paying tax due for 2009,
  • Making a 2009 IRA contribution, and
  • Making a quarterly estimated tax payment for 2010

The exact deadline depends on when an eligible taxpayer went to Haiti, when he or she left Haiti, and the tax matter involved. These extensions are penalty-free and interest-free.  No form needs to be filed to get this relief.

Questions and answers on combat zone extensions can be found on IRS.gov. Publication 3, Armed Forces Tax Guide, also available on the IRS Web site, describes this and other special tax provisions for members of the military.

IRS Presents: Got a Tax Notice? Number 1 – Don’t Panic

The Internal Revenue Service sends millions of letters and notices to taxpayers every year. Here are eight things taxpayers should know about IRS notices – just in case one shows up in your mailbox.

  1. Don’t panic. Many of these letters can be dealt with simply and painlessly.
  2. There are a number of reasons why the IRS might send you a notice. Notices may request payment of taxes, notify you of changes to your account, or request additional information. The notice you receive normally covers a very specific issue about your account or tax return.
  3. Each letter and notice offers specific instructions on what you are asked to do to satisfy the inquiry.
  4. If you receive a correction notice, you should review the correspondence and compare it with the information on your return.
  5. If you agree with the correction to your account, then usually no reply is necessary unless a payment is due or the notice directs otherwise.
  6. If you do not agree with the correction the IRS made, it is important that you respond as requested. You should send a written explanation of why you disagree and include any documents and information you want the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.
  7. Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call to help us respond to your inquiry.
  8. It’s important that you keep copies of any correspondence with your records.

For more information about IRS notices and bills, see Publication 594, The IRS Collection Process. Information about penalties and interest is available in Publication 17, Your Federal Income Tax for Individuals. Both publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Links:

  • Publication 594, Understanding the Collection Process (PDF 129K)
  • Publication 17, Your Federal Income Tax (PDF 2,072K)
  • Tax Topic 651, Notices — What to Do

YouTube Videos:

IRS Presents: Wondering About Your Tax Return – Here’s Some Stuff to Know

Most taxpayers have already filed their federal tax returns, but many may still have questions. Here’s what the IRS wants you to know about refund status, recordkeeping, mistakes and what to do if you move.

Refund Information

You can go online to check the status of your 2009 refund 72 hours after IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after you mail a paper return. Be sure to have a copy of your 2009 tax return available because you will need to know your filing status, the first Social Security number shown on the return, and the exact whole-dollar amount of the refund. You have three options for checking on your refund:

  • Go to IRS.gov, and click on “Where’s My Refund”
  • Call 1-800-829-4477 24 hours a day, seven days a week for automated refund information
  • Call 1-800-829-1954 during the hours shown in your tax form instructions

What Records Should I Keep?

Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, stock transactions, IRAs and business or rental property — should be kept longer.

You should keep copies of tax returns you have filed and the tax forms package as part of your records. They may be helpful in amending already filed returns or preparing future returns.

Change of Address

If you move after you filed your return, you should send Form 8822, Change of Address to the Internal Revenue Service. If you are expecting a refund through the mail, you should also file a change of address with the U.S. Postal Service.

What If I Made a Mistake?

Errors may delay your refund or result in notices being sent to you. If you discover an error on your return, you can correct your return by filing an amended return using Form 1040X, Amended U.S. Individual Income Tax Return.

Visit IRS.gov for more information on refunds, recordkeeping, address changes and amended returns.
Links:

Guidance Regarding Change of Address

Revenue Procedure 2010-16 explains how the Internal Revenue Service is informed of a change of address.

Revenue Procedure 2010-16 will be in Internal Revenue Bulletin 2010-19, dated May 10, 2010.

IRS Patrol: IRS Reaches Out to Millions of Employers on Benefits of New Health Care Tax Credit

WASHINGTON ― The Internal Revenue Service [last month] began mailing postcards to more than four million small businesses and tax-exempt organizations to make them aware of the benefits of the recently enacted small business health care tax credit.

Included in the Patient Protection and Affordable Care Act approved by Congress last month and signed into law by President Obama, the credit is one of the first health care reform provisions to go into effect. The credit, which takes effect this year, is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.

“We want to make sure small employers across the nation realize that –– effective this tax year –– they may be eligible for a valuable new tax credit. Our postcard mailing –– which is targeted at small employers –– is intended to get the attention of small employers and encourage them to find out more,” IRS Commissioner Doug Shulman said. “We urge every small employer to take advantage of this credit if they qualify.”

In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees in 2010. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ low- and moderate-income workers.

For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. The maximum credit goes to smaller employers –– those with 10 or fewer full-time equivalent (FTE) employees –– paying annual average wages of $25,000 or less. Because the eligibility rules are based in part on the number of FTEs, not the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals. The credit is completely phased out for employers that have 25 FTEs or more or that pay average wages of $50,000 per year or more.

Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011. For tax-exempt organizations, the IRS will provide further information on how to claim the credit.

View the postcard.

View Information on state-by-state distribution of the postcard.

More information about the credit, including a step-by-step guide and answers to frequently asked questions, is available on the IRS Web site, IRS.gov.

IRS Patrol: Low Income Taxpayer Clinic Grant Recipients Announced

WASHINGTON — The Internal Revenue Service has awarded nearly $10 million in matching grants to Low Income Taxpayer Clinics (LITCs) for the 2010 grant cycle (Jan. 1 to Dec. 31, 2010).

LITCs are organizations that represent low-income taxpayers in federal tax controversies with the IRS for free or for a nominal charge, provide tax education and outreach for taxpayers who speak English as a second language, or both.

Through the LITC program, the IRS awards matching grants of up to $100,000 a year to qualifying organizations. For the 2010 grant cycle, the IRS awarded LITC grants to 160 organizations. LITCs and their employees and volunteers operate independently of the federal government.

The LITC grant program is a federal program administered by the Taxpayer Advocate Service, led by National Taxpayer Advocate Nina E. Olson.

Questions about the LITC Program can be addressed to the LITC Program Office at (202) 622-4711 (not a toll-free call) or by e-mail at LITCProgramOffice@irs.gov. IRS Publication 4134, Low Income Taxpayer Clinic List, provides information on LITCs in each geographic area and the languages each clinic serves in addition to English. It is available at www.irs.gov or at local IRS offices.

Organizations Receiving LITC Grants for the 2010 Cycle

IRS Patrol: IRS Seeks Applications for Information Reporting Advisory Council

WASHINGTON — The Internal Revenue Service is requesting membership nominations for the Information Reporting Program Advisory Committee (IRPAC), which provides recommendations to IRS leadership on a wide range of information reporting and administration issues.

“Information reporting is a key component of sound tax administration and the input and perspectives from IRPAC help improve the work of the IRS,” said IRS Commissioner Doug Shulman.

IRPAC presents an annual report to the IRS commissioner at a public meeting in the fall.

IRPAC consists of up to 35 members who are appointed to three-year terms by the IRS Commissioner. About one third of the membership terms expire each year. Nominations are currently being accepted for up to nine appointments which will begin January 2011.

The deadline for submitting applications is May 28, 2010. IRPAC members are drawn from diverse backgrounds. Members represent the taxpaying public, tax professional community, small and large businesses, colleges and universities, state tax administrations, banks, insurance companies, foreign financial institutions and the payroll community.

Anyone interested in being a member of IRPAC may nominate themselves or be nominated by a qualified person. All nominees must complete an application.

More information, including more on the application process, is available on the Tax Professional’s Page of IRS.gov. Questions about the nomination process can be sent to the following e-mail address:  *public_liaison@irs.gov.

Got New Employees- Check Out This Payroll Tax Break

By Stacie Clifford Kitts, CPA

Hired any new employees? No, well if you are in need of some staff, now is a good time to check out the tax breaks you might get if you hook up some new workers.

Beginning February 4, if you hired  or plan on hiring unemployed workers, there is a tax incentive that might help you out.  Outlined in more detail below is the 6.2% payroll tax incentive on wages paid after March 18 that could help you pay for those new employees.  If you qualify, you have until December 31, 2010 to take advantage of this new tax break.

But wait there’s more.

You  might also qualify to claim a new hire retention credit of up to $1,000 per employee if you keep your new workers at least a year without significantly decreasing their salary.

Read on for more information:

WASHINGTON —The Internal Revenue Service has posted on its website the newly-revised payroll tax form that most eligible employers can use to claim the special payroll tax exemption that applies to many new workers hired during 2010.

Designed to encourage employers to hire and retain new workers, the payroll tax exemption and the related new hire retention credit were created by the Hiring Incentives to Restore Employment (HIRE) Act signed by President Obama on March 18.

Employers who hire unemployed workers this year (after Feb. 3, 2010, and before Jan. 1, 2011) may qualify for a 6.2-percent payroll tax incentive, in effect exempting them from the employer’s share of Social Security tax on wages paid to these workers after March 18. This reduction will have no effect on the employee’s future Social Security benefits. The employee’s 6.2 percent share of Social Security tax and the employer and employee’s shares of Medicare tax still apply to all wages.

In addition, for each qualified employee retained for at least a year whose wages did not significantly decrease in the second half of the year, businesses may claim a new hire retention credit of up to $1,000 per worker on their income tax return. Further details on both the tax credit and the payroll tax exemption can be found in a recently-expanded list of answers to frequently-asked questions about the new law now posted on IRS.gov.

How to Claim the Payroll Tax Exemption

Form 941, Employer’s QUARTERLY Federal Tax Return, revised for use beginning with the second calendar quarter of 2010, will be filed by most employers claiming the payroll tax exemption for wages paid to qualified employees. The HIRE Act does not allow employers to claim the exemption for wages paid in the first quarter but provides for a credit in the second quarter. The instructions for the new Form 941 explain how this credit for wages paid from March 19 through March 31 can be claimed on the second quarter return. The form and instructions are now available for download on IRS.gov.

The HIRE Act requires that employers get a signed statement from each eligible new hire, certifying under penalties of perjury, that he or she was not employed for more than 40 hours during the 60 days before beginning employment with that employer. Employers can use new Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, released last month, to meet this requirement. Though employers need this certification to claim both the payroll tax exemption and the new hire retention credit, they do not file these statements with the IRS. Instead, they must retain them along with other payroll and income tax records.

These two tax benefits are especially helpful to employers who are adding positions to their payrolls. New hires filling existing positions also qualify as long as they are replacing workers who left voluntarily or who were terminated for cause and otherwise are qualified employees. Family members and other relatives do not qualify for either of these tax benefits.

Businesses, agricultural employers, tax-exempt organizations, tribal governments and public colleges and universities all qualify to claim the payroll tax exemption for eligible newly-hired employees. Household employers and federal, state and local government employers, other than public colleges and universities, are not eligible.

IRS Patrol: COBRA Subsidy Eligibility Period Extended to May 31

WASHINGTON — Workers who lose their jobs during April and May may qualify for a 65-percent subsidy on their COBRA health insurance premiums, according to the Internal Revenue Service. The American Recovery and Reinvestment Act established this subsidy to help workers who lost their jobs as a result of the recession maintain their employer sponsored health insurance.

The Continuing Extension Act of 2010, enacted April 15, reinstated the COBRA subsidy, which had expired on March 31. As a result, workers who are involuntarily terminated from employment between Sept. 1, 2008 and May 31, 2010, may be eligible for a 65-percent subsidy of their COBRA premiums for a period of up to 15 months. In some cases, workers who had their hours reduced and later lose their jobs may also be eligible for the subsidy.

Employers must provide COBRA coverage to eligible individuals who pay 35 percent of the COBRA premium. Employers are reimbursed for the other 65 percent by claiming a credit for the subsidy on their payroll tax returns: Form 941, Employers QUARTERLY Federal Tax Return, Form 944, Employer’s ANNUAL Federal Tax Return, or Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees. Employers must maintain supporting documentation for the claimed credit.

There is much more information about the COBRA subsidy, including questions and answers for employers, and for employees or former employees, on the COBRA pages of IRS.gov.

Some people who are eligible for the COBRA subsidy also qualify for the health coverage tax credit (HCTC) and may want to choose the more generous HCTC benefit, instead. The HCTC pays 80 percent of health insurance premiums for those who qualify. See more at HCTC: Eligibility Requirements and How to Receive the HCTC.

IRS Patrol: IRS Offers Details on New Small Business Health Care Tax Credit

WASHINGTON — The Internal Revenue Service today issued new guidance to make it easier for small businesses to determine whether they are eligible for the new health care tax credit under the Affordable Care Act and how large a credit they will receive. The guidance makes clear that small businesses receiving state health care tax credits may still qualify for the full federal tax credit. Additionally, the guidance allows small businesses to receive the credit not only for regular health insurance but also for add-on dental and vision coverage.

Notice 2010-44 provides detailed guidelines, illustrated by more than a dozen examples, to help small employers determine whether they qualify for the credit and estimate the amount of the credit. The notice also requests public comment on issues that should be addressed in future guidance.

Included in the Affordable Care Act approved by Congress in March and signed into law by the President, the small business health care tax credit, which is in effect this year, is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.

In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees in 2010. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers.

For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. The maximum credit goes to smaller employers –– those with 10 or fewer full-time equivalent (FTE) employees –– paying annual average wages of $25,000 or less. The credit is completely phased out for employers that have 25 FTEs or more or that pay average wages of $50,000 per year or more. Because the eligibility rules are based in part on the number of FTEs, not the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals.

Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011. For tax-exempt organizations, the IRS will provide further information on how to claim the credit.

More information about the credit, including a step-by-step guide and answers to frequently asked questions, is available on the Affordable Care Act page.

IRS Patrol: Tax-Free Employer-Provided Health Coverage Now Available for Children under Age 27

WASHINGTON — As a result of changes made by the recently enacted Affordable Care Act, health coverage provided for an employee’s children under 27 years of age is now generally tax-free to the employee, effective March 30, 2010.

The Internal Revenue Service announced today that these changes immediately allow employers with cafeteria plans –– plans that allow employees to choose from a menu of tax-free benefit options and cash or taxable benefits –– to permit employees to begin making pre-tax contributions to pay for this expanded benefit.

IRS Notice 2010-38 explains these changes and provides further guidance to employers, employees, health insurers and other interested taxpayers.

“These changes give employers a unique opportunity to offer a worthwhile benefit to their employees,” IRS Commissioner Doug Shulman said. “We want to make it as easy as possible for employers to quickly implement this change and extend health coverage on a tax-favored basis to older children of their employees.”

This expanded health care tax benefit applies to various workplace and retiree health plans. It also applies to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return.

Employees who have children who will not have reached age 27 by the end of the year are eligible for the new tax benefit from March 30, 2010, forward, if the children are already covered under the employer’s plan or are added to the employer’s plan at any time. For this purpose, a child includes a son, daughter, stepchild, adopted child or eligible foster child. This new age 27 standard replaces the lower age limits that applied under prior tax law, as well as the requirement that a child generally qualify as a dependent for tax purposes.

The notice says that employers with cafeteria plans may permit employees to immediately make pre-tax salary reduction contributions to provide coverage for children under age 27, even if the cafeteria plan has not yet been amended to cover these individuals. Plan sponsors then have until the end of 2010 to amend their cafeteria plan language to incorporate this change.

In addition to changing the tax rules as described above, the Affordable Care Act also requires plans that provide dependent coverage of children to continue to make the coverage available for an adult child until the child turns age 26. The extended coverage must be provided not later than plan years beginning on or after Sept. 23, 2010. The favorable tax treatment described in the notice applies to that extended coverage.

Information on other health care provisions can be found on this website, IRS.gov.

Guidance: This Regulation Provides Notice of Public Hearing About Preparer Identifying Numbers

REG-134235-08 provides notice of public hearing on a notice of proposed rulemaking providing guidance to tax return preparers on furnishing an identifying number on tax returns and claims for refund of tax that they prepare.

IRS Patrol: IRS Seeks Applications for Advisory Council

WASHINGTON — The Internal Revenue Service announced it is accepting applications for new members for the Internal Revenue Service Advisory Council (IRSAC), which provides a forum for IRS officials to discuss key areas of tax administration with a broad range of tax and other relevant professionals.

“Members of IRSAC provide the IRS with important feedback from a wide range of professionals dealing with many different aspects of our tax system,” said Doug Shulman, IRS Commissioner. “IRSAC members are doing their part to support sound tax administration.”

IRSAC has about 20 open seats for three-year terms starting in January 2011. IRSAC can have up to 35 members and submits a report to the IRS Commissioner annually at a public meeting in the fall. Applications will be accepted from May 3 to June 18, 2010.

Nominations of qualified individuals may come from individuals or organizations.  Federally registered lobbyists cannot be members of the IRSAC. IRSAC members are drawn from diverse backgrounds. Membership is balanced to represent the tax professional community, including tax attorneys, certified public accountants, enrolled agents, enrolled actuaries, appraisers, and the business community, among others.

Nominations should describe and document the proposed member’s qualification for IRSAC membership, including the applicant’s knowledge of Circular 230 regulations and the applicant’s past or current affiliations, as well as dealings with the particular tax segment or segments of the community that the applicant wishes to represent on the council.

More information, including application requirements, is available on the Tax Professional’s Page on IRS.gov. Questions about the application process can be sent to the following e-mail address:  *public_liaison@irs.gov.

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