Recent 2009 Federal Tax Developments

October 15, 2009

By: Simon Lebo

2009 has seen a number of new federal tax developments. We'd like to highlight some of the more important federal tax developments for you. Please give our office a call or send us an email if you have any questions about these developments.

Health care reform. Congress returned to work after its August recess with health care reform at the top of its agenda. The tax provisions in the pending bills are very different from each other and it is unclear at this time which will be enacted. The House has proposed a surtax on higher-income individuals to pay for heath care reform. This approach has little support in the Senate. A final Senate bill is likely to include new taxes on high-dollar health insurance plans. President Barack Obama wants Congress to get a health care reform bill to the White House before 2010.

Audits. The IRS is gearing up to launch a new employment tax compliance project. The project is expected to focus on four areas: worker classification, fringe benefits, non-filers, and officers' compensation. Taxpayers will be randomly selected for the National Research Program (NRP) study of employment tax noncompliance.

First-time homebuyer credit. The first-time homebuyer credit, which reaches 10 percent or $8,000 of the purchase price of a qualified residence, is set to end after November 30, 2009. A residence constructed by the taxpayer only qualifies for the first-time homebuyer credit if the taxpayer must occupy the residence on or before November 30, 2009.

Motor vehicle sales tax deduction. The motor vehicle sales tax deduction may be claimed for more than one vehicle but the deduction per vehicle is limited to the tax on up to $49,500 of the purchase price of each qualifying vehicle. The deduction phases out for higher-income individuals.

Filing status. The Tax Court signaled in July that it does not plan to extend married filing joint status to same-sex couples anytime soon (Merrill v Commr ). Married filing joint status is based on a marriage, the court found. The Defense of Marriage Act of 1996 declared for federal purposes that marriage is between a man and a woman and a spouse is defined as a person of the opposite sex.

Roth IRAs. Effective for 2010, individuals will be able to roll over funds to a Roth IRA regardless of current income and other restrictions. The IRS also issued interim guidance on rollovers from employer plans to Roth IRAs.

Retirement savings. President Obama and the IRS announced new initiatives in September to encourage Americans to save for retirement. The IRS issued seven rulings and notices to streamline automatic enrollment in retirement plans and more.

Refunds. Starting in 2010, taxpayers can check a box on their return to use all or part of their refund to purchase Series I U.S. savings bonds. The bonds will be mailed directly to the taxpayer.

WOTC. The American Recovery and Reinvestment Act of 2009 added two new targeted groups for the Work Opportunity Tax Credit (WOTC): disconnected youth and unemployed veterans working for an eligible employer during 2009 or 2010. In August, the IRS clarified who qualifies as a disconnected youth or unemployed veteran and provided some transition relief.

S corporations. S corporations are a popular choice of business entity. It is important to keep in mind that when corporate officers perform a service for the corporation and receive, or are entitled to receive, payments, these payments are considered wages.

LLCs and LLPs. In July, the Tax Court rejected the IRS's claim that members of limited liability companies (LLCs) and limited liability partnerships (LLPs) should be automatically presumed not to materially participate in the entities' activities under the Tax Code or temporary regulations (Garnett v Commr) .

Please contact Simon J. Lebo, Esq. should you have any questions relating to these, or any other legal matters pertaining to you or your business.