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What's New? Firm News
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What's New in Tax Law . . . Highlights in this Issue:
Notice 2008-1: S Corporations and Employee Fringe Benefits In December, 2007, the IRS published Notice 2008-1, which is the IRS guideline that allows S corporation shareholders to deduct the premiums of an accident and/or health insurance policy that are in the shareholder's name. This had been a concern due to Revenue Ruling 61-146, which was issued in May, 2006. This Ruling implied that S corporation shareholders, who held health insurance policies individually, would not be allowed a self-employment health insurance deduction. This was due to the fact that the health insurance plan was not established by the S corporation. Now, under Notice 2008-1, S corporation shareholders may deduct premiums paid for health insurance in the shareholder's name for themselves, their spouses, and their dependents if the following conditions are met: •1) The shareholder holds 2-percent or more interest in the S corporation, and has earned income from the S corporation exceeding the total of all premium payments; •2) The shareholder is not eligible to participate in any subsidized health plans maintained by the shareholder or of the shareholder's spouse employer; •3) The S corporation reports the health insurance premiums paid on the shareholder's Form W-2 in the same year; •4) The shareholder includes the premium costs in gross income on Form 1040; and •5) The S corporation pays the premium costs by the end of the year by either: •a. Paying the premiums directly to the insurance company at the end of the year, or •b. The shareholder pays the premiums, furnishes proof of payment to the S corporation, and the corporation reimburses the shareholder, prior to the end of the year. To review this IRS notice, visit the following website: http://www.irs.gov/pub/irs-drop/n-08-01.pdf Notice 2008-13: New Laws related to Tax Return Penalties The IRS has issued Notice 2008-13, which implements a May 2007 law. This notice expands the tax return penalty and heightens the standards of conduct that must be met by a tax return prepared in order to avoid penalty. This notice also solicits input from tax return preparers on a planned overhaul of the tax return preparer penalty system, which is anticipated to be completed by the end of 2008. For undisclosed positions on a tax return, Notice 2008-13 replaced the realistic possibility standard with a requirement that there must be a reasonable belief that the tax treatment of the position would, more likely than not, be sustained on its merits. In cases in which the taxpayer discloses their position on the tax return, the notice implements the new law. This law states that there must be a reasonable basis for the tax treatment of the position taken on the tax return. Notice 2008-13 provides interim rules to implement and interpret these heightened standards. The interim rules will be in effect until the overhaul of the current return preparer penalty regulations is complete. The interim rules emphasize: •· the importance of tax return preparers understanding the legal basis for positions taken on tax returns, •· the requirement for taxpayers to disclose certain positions, and •· the need for preparers to advise taxpayers on the various penalties that can apply when a position is taken on a return that may not be supported by existing law. Under Notice 2008-13, preparers generally can continue to rely on taxpayer representations in preparing returns. Preparers can also generally rely on representations of third parties, unless the preparer has reason to know they are wrong. The new law also expanded the return preparer penalty to cover all tax return preparers, not just income tax return preparers. However, preparers of many information returns will NOT be subject to the new penalty provision, unless they willfully understate tax or act in reckless or intentional disregard of the law. Notice 2008-13 also includes examples illustrating how the new standards would apply to specific situations. To review this IRS notice, visit the following website: http://www.irs.gov/pub/irs-drop/n-08-11.pdf Important Tax Law Changes Congress, before adjoining for 2007, passed several tax laws. Those changes to the law include: •1) The Tax Increase Prevention Act of 2007, which boosts the AMT exemption for individuals. This law only applies for the 2007 tax year. •2) The Mortgage Forgiveness Debt Relief Act of 2007, the main focus of this bill is to provide for an exclusion of upon to $2 million of principal residence mortgage forgiveness debt, which is effective for debt discharge in 2007-2009. Other last minute tax laws passed are:
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