January 2001

National

The Internal Revenue Service is providing a new series of tax tips for the current filing season.

More than 70 tax tips will be available, with a new tip posted each business day through the April filing deadline on the IRS website at www.irs.gov/prod/news/nandf.html. The tax tips, which began Jan. 2, are designed to provide concise, useful information on topics affecting millions of taxpayers.

The tips will cover a wide range of topics, including child credits and higher education benefits, common errors to avoid when preparing tax returns, and what to do if taxes owed cannot be paid.

The service is also providing an overview of common tax issues in Publication 17, also available at the IRS website.

Small Businesses Overpay Taxes, Failing to Take Advantage of TRA ‘97

Approximately 2000 small businesses overpaid an average of $11,638 in alternative minimum taxes (AMT) for 1998, a recent US Treasury study found.

These small businesses should have been exempt from the AMT, having average gross receipts of no more than $5 million for three consecutive taxable years, but apparently were not familiar with the Taxpayer Relief Act of 1997.

“These overpayments are especially troubling because there is no automatic system for refunding them or even alerting taxpayers who have mistakenly overpaid,” Senate Small Business Committee Chair Christopher Bond (R—Mo.) told AccountingWEB.

According to the study, which was issued by the treasury inspector general for tax administration, the collective overpayment for 1998 may have totaled more than $251 million. Estimates for 1999 have not yet been determined. Currently, the onus is on the taxpayer who has until 2002 to catch this mistake and request a refund.

The study can be viewed at the US Treasury website.

IRS Internet Review Could Chill Free Speech in Cyberspace

The IRS has been examining how current laws restrict the political, commercial, and lobbying activities of tax-exempt organizations on their websites—causing fears of increasing government intrusion among some groups.

IRS officials published a notice in October seeking comment on the issue, saying that they are considering whether to modernize laws that affect some 1.3 million entities exempt from taxes under section 501(c) of the tax code. Section 501(c)(3) organizations are prohibited from engaging in political activity and can take part in only “insubstantial” lobbying.

Some tax-exempt organizations have expressed concern that the IRS could hold them accountable and possibly revoke their tax-exempt status for links on their websites to political groups or for statements made by visitors to the public areas of their websites, according to published reports.

“This request raises many concerns,” said House Majority Leader Dick Armey (R—Texas), in a published report. “The idea of turning the tax man into a net cop would have a chilling effect on free speech on the Internet.”

Practitioners Can Forgo Social Security Number and Use Special ID, Says IRS

Because of a program started in 2000, tax practitioners can apply to the IRS for a special identification number to be used in lieu of their more personal Social Security number when preparing client returns.

For CPAs looking for a practitioner’s ID, Form W7-P should be completed and submitted to the Philadelphia Service Center.

The IRS notes that names and/or birth dates mismatched with Social Security Administration records can cause a delay in processing some of these applications. Practitioners affected by these delays would receive notification and instructions to contact SSA to have their records corrected.

Form W7-P can be downloaded from the IRS website at www.irs.gov.

NY State and Local

NY Innocent Spouse Relief Retroactive to 1999

An “innocent” spouse looking for relief from joint New York state income tax liability can turn to a new section of the state tax law for relief.

Section 654 of the New York State Tax Law has made it easier to be relieved from an income tax liability related to a spouse (or former spouse). Taxpayers can now request innocent spouse relief for a spouse’s understatement of tax—regardless of the amount of the understatement.

A taxpayer divorced or living apart from a spouse during the past 12 months can request relief by separating the liability for an understatement of tax between him/herself and the spouse. Also, if an “innocent” taxpayer qualifies for neither innocent spouse relief nor separation of liability, the tax department may grant the taxpayer equitable relief.

The new tax relief applies to any income tax liability and is applicable to any taxable year beginning on or after January 1, 1999. The new legislation replaces relief under section 651(b)(5) of the New York State Tax Law.

NY Senate Majority Unveils Plan to Expand Biotech Jobs via Tax Incentives

The state Senate, led by Majority Leader Joseph L. Bruno, announced in December its plan to make New York a biotechnology leader through $500 million in government and private investments aimed at luring new biotech industries to the state.

The plan, dubbed Generating Employment Through New York Science (GEN*NY*SIS), builds on Gov. George Pataki’s idea to encourage the growth of high-tech industry in the state. It would provide a total of $225 million in state grants to match federal, industry, and academic funding and additional targeted tax incentives to new companies launched by rapid advances in the life sciences, genomics, and genetics; the plan would seek to build new ties between these industries and New York universities and research institutions.

“First and foremost, the goal of GEN*NY*SIS is the creation of new jobs for New Yorkers and to make our state an undisputed leader in research and development of applied life sciences technology,” said Sen. Bruno (R-C, Brunswick). “Recent rapid advances in the field of life sciences, including the completed mapping of the human genome and other genetic discoveries, have unveiled new job and commercial opportunities for which New York must be properly prepared to compete in this growing industry.”

As part of the plan, $45 million in targeted tax relief would be provided to stimulate job growth, including creation of special tax benefit life science development zones.

New York City Homeowners Could Receive Oil Tax Relief

New York City residents could get a break on home heating oil this winter, as City Hall considers temporarily eliminating the home heating oil tax.

According to a December New York Times story, Mayor Rudolph Giuliani’s proposal for a home heating oil tax break was the focus of a 67-page study released by his Home Heating Oil Task Force. The purpose of the cut would be to improve the financial situation of New York City residents who pay their own heating costs—especially residents who are old and/or impoverished.

“What we have tried to do is anticipate this year the problems people are going to face,” Giuliani said.

Waiving the four percent tax would save the average homeowner between $50 and $100 this season.