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The IRS has announced penalty relief for the 2025 tax year relating to new information reporting obligations introduced under the One, Big, Beautiful Bill Act (OBBBA). The relief applies to penalties imposed under Code Secs. 6721 and 6722 for failing to file or furnish complete and correct information returns and payee statements.

The OBBBA introduced new deductions for qualified tips and qualified overtime compensation, applicable to tax years beginning after December 31, 2024. These provisions require employers and payors to separately report amounts designated as cash tips or overtime, and in some cases, the occupation of the recipient. However, recognizing that employers and payors may not yet have adequate systems, forms, or procedures to comply with the new rules, the IRS has designated 2025 as a transition period.

For 2025, the Service will not impose penalties if payors or employers fail to separately report these new data points, provided all other information on the return or payee statement is complete and accurate. This relief applies to information returns filed under Code Sec. 6041 and to Forms W-2 furnished to employees under Code Sec. 6051. The IRS emphasized that this transition relief is limited to the 2025 tax year only and that full compliance will be required beginning in 2026 when revised forms and updated electronic reporting systems are available.

Although not mandatory, the IRS encourages employers to voluntarily provide separate statements or digital records showing total tips, overtime pay, and occupation codes to help employees determine eligibility for new deductions under the OBBBA. Employers may use online portals, additional written statements, or Form W-2 box 14 for this purpose.

Notice 2025-62

IR-2025-110

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The 2026 cost-of-living adjustments (COLAs) that affect pension plan dollar limitations and other retirement-related provisions have been released by the IRS. In general, many of the pension plan limitations will change for 2026 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged.

The SECURE 2.0 Act (P.L. 117-328) made some retirement-related amounts adjustable for inflation. These amounts, as adjusted for 2026, include:

The catch-up contribution amount for IRA owners who are 50 or older is increased from $1,000 to $1,100.
The amount of qualified charitable distributions from IRAs that are not includible in gross income is increased from $108,000 to $111,000.
The limit on one-time qualified charitable distributions made directly to a split-interest entity is increased from $54,000 to $55,000.
The dollar limit on premiums paid for a qualifying longevity annuity contract (QLAC) remains $210,000.

Highlights of Changes for 2026

The contribution limit has increased from $23,500 to $24,500 for employees who take part in:

401 (k)
403 (b)
most 457 plans, and
the federal government’s Thrift Savings Plan

The annual limit on contributions to an IRA increased from $7,000 to $7,500.

The catch-up contribution limit for individuals aged 50 and over for employer retirement plans (such as 401(k), 403(b), and most 457 plans) has increased from $7,500 to $8,000.

The income ranges increased for determining eligibility to make deductible contributions to:

IRAs,
Roth IRAs, and
to claim the Saver’s Credit.

Phase-Out Ranges

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. The deduction phases out if the taxpayer or their spouse takes part in a retirement plan at work. The phase-out depends on the taxpayer’s filing status and income.

For single taxpayers covered by a workplace retirement plan, the phase-out range is $81,000 to $91,000, up from $79,000 to $89,000.
For joint filers, when the spouse making the contribution takes part in a workplace retirement plan, the phase-out range is $129,000 to $149,000, up from $126,000 to $146,000.
For an IRA contributor who is not covered by a workplace retirement plan but their spouse is, the phase-out range is $242,000 to $252,000, up from $236,000 to $246,000.
For a married individual filing separately who is covered by a workplace plan, the phase-out range remains $0 to $10,000.

The phase-out ranges for Roth IRA contributions are:

$153,000 to $168,000 for singles and heads of household,
$242,000 to $252,000 for joint filers,
$0 to $10,000 for married separate filers.

Finally, the income limits for the Saver’s Credit are:

$80,500 for joint filers,
$60,375 for heads of household,
$40,250 for singles and married separate filers.

Notice 2025-67

IR-2025-111

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The IRS released interim guidance and announced its intent to publish proposed regulations regarding the exclusion of interest on loans secured by rural or agricultural real property under Code Sec. 139L. Taxpayers may rely on the interim guidance in section 3 of the notice for loans made after July 4, 2025, and on or before the date that is 30 days after the publication of the forthcoming proposed regulations.

Partial Exclusion of Interest

Code Sec 139L, as added by the One Big Beautiful Bill Act (P.L. 119-21), provides for a partial exclusion of interest for certain loans secured by rural or agricultural real property. The amount excluded is 25 percent of the interest received by a qualified lender on a qualified real estate loan. A qualified lender will include 75 percent of the interest received on a qualified real estate loan in gross income. A qualified lender is not required to be the original holder of the loan on the issue date of the loan in order to exclude the interest under Code Sec 139L.

Qualified Real Estate Loan

A qualified real estate loan is secured by qualified rural or agricultural property only if, at the time that the interest accrues, the qualified lender holds a valid and enforceable security interest with respect to the property under applicable law. Subject to a safe harbor provision, the amount of a loan that is a qualified real estate loan is limited to the fair market value of the qualified rural or agricultural property securing the loan, as of the issue date of the loan. If the amount of the loan is greater than the fair market value of the property securing the loan, determined as of the issue date of the loan, only the portion of the loan that does not exceed the fair market value is a qualified real estate loan.

The safe harbor allows a qualified lender to treat a loan as fully secured by qualified rural or agricultural property if the qualified lender holds a valid and enforceable security interest with respect to the qualified rural or agricultural property under applicable law and the fair market value of the property security the loan is at least 80 percent of the issue price of the loan on the issue date.

Fair market value can be determined using any commercially reasonable valuation method. Subject to certain limitations, the fair market value of any personal property used in the course of the activities conducted on the qualified rural or agricultural property (such as farm equipment or livestock) can be added to the fair market value of the rural or agricultural real estate. The addition to fair market value may be made if a qualified lender holds a valid and enforceable security interest with respect to such personal property under applicable law and the relevant loan must be secured to a substantial extent by rural or agricultural real estate.

Use of the Property

The presence of a residence on qualified rural or agricultural property or intermittent periods of nonuse for reasons described in Code Sec. 139L(c)(3) does not prevent the property from being qualified rural or agricultural property so long as the the property satisfies the substantial use requirement.

Request for Comments

The Treasury Department and the IRS are seeking comments on the notice in general and on the following specific issues:

The extent to which the forthcoming proposed regulations address the meaning of certain terms;
The extent to which the forthcoming proposed regulations address whether property is substantially used for the production of one or more agricultural products or in the trade or business of fishing or seafood processing;
The extent to which the forthcoming proposed regulations address how the substantial use requirement applies to properties with mixed uses;
The manner in which the forthcoming proposed regulations address changes involving qualified rural or agricultural property following the issuance of a qualified real estate loan;
The manner in which the forthcoming proposed regulations address how a qualified lender determines whether the loan remains secured by qualified rural or agricultural property;
The extent to which the forthcoming proposed regulations address how Code Sec. 139L applies in securitization structures; and
The extent to which the forthcoming proposed regulations address Code Sec. 139L(d), regarding the application of Code Sec. 265 to any qualified real estate loan.

Written comments should be submitted, either electronically or by mail, by January 20, 2026.

Notice 2025-71

IR-2025-113

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The IRShas provided a safe harbor for trusts that otherwise qualify as investment trusts under Reg. §301.7701-4(c) and as grantor trusts to stake their digital assets without jeopardizing their tax status as investment trusts and grantor trusts. The Service also provided a limited time period for an existing trust to amend its governing instrument (trust agreement) to adopt the requirements of the safe harbor.

Background

Under “custodial staking,” a third party (custodian) takes custody of an owner’s digital assets and facilitates the staking of such digital assets on behalf of the owner. The arrangement between the custodian and the staking provider generally provides that an agreed-on portion of the staking rewards are allocated to the owner of the digital assets.

Business or commercial trusts are created by beneficiaries simply as a device to carry on a profit-making business that normally would have been carried on through a business organization classified as a corporation or partnership. An investment trust with a single class of ownership interests, representing undivided beneficial interests in the assets of the trust, is classified as a trust if there is no power under the trust agreement to vary the investments of the certificate holders.

Trust Arrangement

The revenue procedure applies to an arrangement formed as a trust that (i) would be treated as an investment trust, and as a grantor trust, if the trust agreement did not authorize staking and the trust’s digital assets were not staked, and (ii) with respect to a trust in existence before the date on which the trust agreement first authorizes staking and related activities in a manner that satisfies certain listed requirements, qualified as an investment trust, and as a grantor trust, immediately before that date. If the listed requirements (described below) are met, a trust's authorization in the trust agreement to stake its digital assets and the resulting staking of the trust's digital assets will, under the safe harbor, not prevent the trust from qualifying as an investment trust and as a grantor turst.

Requirements for Trust

The requirements for the safe harbor to apply are as follows:

Interests in the trust must be traded on a national securities exchange and must comply with the SEC’s regulations and rules on staking activities.
The trust must own only cash and units of a single type of digital asset under Code Sec. 6045(g)(3)(D).
Transactions for the cash and units of digital asset must be carried out on a permissionless network that uses a proof-of-stake consensus mechanism to validate transactions.
Trust’s digital assets must be held by a custodian acting on behalf of the trust at digital asset addresses controlled by the custodian.
Only the custodian can effect a sale, transfer, or exercise the rights of ownership over said digital assets, including while those assets are staked.
Staking of the trust's digital assets must protect and conserve trust property and mitigate the risk that another party could control a majority of the assets of that type and engage in transactions reducing the value of the trust’s digital assets.
The trust’s activities relating to digital assets must be limited to (1) accepting deposits of the digital assets or cash in exchange for newly issued interests in the trust; (2) holding the digital assets and cash; (3) paying trust expenses and selling digital assets to pay trust expenses or redeem trust interests; (4) purchasing additional digital assets with cash contributed to the trust; (5) distributing digital assets or cash in redemption of trust interests; (6) selling digital assets for cash in connection with the trust's liquidation; and (7) directing the staking of the digital assets in a way that is consistent with national securities exchange requirements.
The trust must direct the staking of its digital assets through custodians who facilitate the staking on the trust's behalf with one or more staking providers.
The trust or its custodian must have no legal right to participate in or direct the activities of the staking provider.
The trust's digital assets must generally be available to the staking provider to be staked.
The trust's liquidity risk policies must be based solely on factors relating to national securities exchange requirements regarding redemption requests.
The trust's digital assets must be indemnified from slashing due to the activities of staking providers.
The only new assets the trust can receive as a result of staking are additional units of the single type of digital asset the trust holds.

Amendment to Trust

A trust may amend its trust agreement to authorize staking at any time during the nine-month period beginning on November 10, 2025. Such an amendment will not prevent a trust from being treated as a trust that qualifies as an investment trust under Reg. §301.7701-4(c) or as a grantor trust if the aforementioned requirements were satisfied.

Effective Date

This guidance is effective for tax years ending on or after November 10, 2025.

Rev. Proc. 2025-31

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WASHINGTON – National Taxpayer Advocate Erin Collins told attendees at a recent conference that she wants to see the Taxpayer Advocate Service improve its communications with taxpayers and tax professionals.

“What I would like to do is improve our responsiveness and communication with fill-in-the-blank, whether it be taxpayer or practitioner, because I think that is huge,” Collins told attendees November 18, 2025, at the American Institute of CPA’s National Tax Conference.

“I think a lot of my folks are working really hard to fix things, but they’re not necessarily communicating as fast and often as they should,” she continued. “So, I would like to see by year-end we’re in a position that that is a routine and not the exception.”

In tandem with that, Collins also told attendees she would like to see the IRS be quicker in terms of how it fixes issues. She pointed to the example of first-time abatement, something she called an “an amazing administrative relief for taxpayers” but one that is only available to those who know to ask for it.

She estimated that there are about one million taxpayers every year that are eligible to receive it and among those, most are lower income taxpayers.

The IRS, Collins noted, agreed a couple of years ago that this was a problem. “The challenge they had was how do they implement it through their systems?”

Collins was happy to report that those who qualify for first-time abatement will automatically be notified starting with the coming tax filing season, although she did not have any insight as to how the process would be implemented.

Patience

Collins also asked for patience from the taxpayer community in the wake of the recently-ended government shutdown, which has increased the TAS workload as TAS employees were not deemed essential and were furloughed during the shutdown.

She noted that TAS historically receives about 5,000 new cases a week and the shutdown meant the rank-and-file at TAS were not working. She said that the service did work to get some cases closed that didn’t require employee help.

“So, any of you who are coming in or have cases, please be patient,” Collins said. “Our guys are doing the best they can, but they do have, unfortunately, a backlog now coming in.”

By Gregory Twachtman, Washington News Editor

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The IRS and Treasury have issued final regulations that implement the excise tax on stock repurchases by publicly traded corporations under Code Sec. 4501, introduced in the Inflation Reduction Act of 2022. Proposed regulations on the computation of the tax were previously issued on April 12, 2024 (NPRM REG-115710-22) and final regulations covering the procedural aspects of the tax were issued on July 3, 2024 (T.D. 10002). Following public comments and hearings, the proposed computation regulations were modified and are now issued as final, along with additional changes to the final procedural regulations. The rules apply to repurchases made after December 31, 2022.

Overview of Code Sec. 4501

Code Sec. 4501 imposes a one percent excise tax on the fair market value of any stock repurchased by a “covered corporation”—defined as any domestic corporation whose stock is traded on an established securities market. The statute also covers acquisitions by “specified affiliates,” including majority-owned subsidiaries and partnerships. A “repurchase” includes redemptions under Code Sec. 317(b) and any transaction the Secretary determines to be economically similar. The amount subject to tax is reduced under a netting rule for stock issued by the corporation during the same tax year.

Scope and Definitions

The final regulations clarify the definition of stock, covering both common and preferred stock, with several exclusions. They exclude:

Additional tier 1 capital not qualifying as common equity tier 1,
Preferred stock under Code Sec. 1504(a)(4),
Mandatorily redeemable stock or stock with enforceable put rights if issued prior to August 16, 2022,
Certain instruments issued by Farm Credit System entities and savings and loan holding companies.

The IRS rejected requests to exclude all preferred stock or foreign regulatory capital instruments, limiting exceptions to U.S.-regulated issuers only.

Exempt Transactions and Carveouts

Several categories of transactions are excluded from the excise tax base. These include:

Repurchases in connection with complete liquidations (under Code Secs. 331 and 332),
Acquisitive reorganizations and mergers where the corporation ceases to be a covered corporation,
Certain E and F reorganizations where no gain or loss is recognized and only qualifying property is exchanged,
Split-offs under Code Sec. 355 are included unless the exchange is treated as a dividend,
Reorganizations are excluded if shareholders receive only qualifying property under Code Sec. 354 or 355.

The IRS adopted a consideration-based test to determine whether the reorganization exception applies, disregarding whether shareholders actually recognized gain.

Application to Take-Private Transactions and M&A

The final rules clarify that leveraged buyouts, take-private deals, and restructurings that result in loss of public listing status are not considered repurchases for tax purposes. This reverses prior treatment under proposed rules, aligning with policy concerns that such deals are not akin to value-distribution schemes.

Similarly, cash-funded acquisitions and upstream mergers into parent companies are excluded where the repurchase is part of a broader ownership change plan.

Netting Rule and Timing Considerations

Under the netting rule, the amount subject to tax is reduced by the value of new stock issued during the tax year. This includes equity compensation to employees, even if unrelated to a repurchase program. The rule does not apply where a corporation is no longer a covered corporation at the time of issuance.

Stock is treated as repurchased on the trade date, and issuances are counted on the date the rights to stock are transferred. The IRS clarified that netting applies only to stock of the covered corporation and not to instruments issued by affiliates.

Foreign Corporations and Surrogates

The excise tax also applies to certain acquisitions by specified affiliates of:

Applicable foreign corporations, i.e., foreign entities with publicly traded stock,
Covered surrogate foreign corporations, as defined under Code Sec. 7874.

Where such affiliates acquire stock from third parties, the tax is applied as if the affiliate were a covered corporation, but limited only to shares issued by the affiliate to its own employees. These provisions prevent U.S.-parented multinational groups from circumventing the tax through offshore affiliates.

Exceptions Under Code Sec. 4501(e)

The six statutory exceptions remain intact:

Reorganizations with no gain/loss under Code Sec. 368(a);
Contributions to employer-sponsored retirement or ESOP plans;
De minimis repurchases under $1 million per tax year;
Dealer transactions in the ordinary course of business;
Repurchases by RICs and REITs;
Repurchases treated as dividends under the Code.

The IRS expanded the RIC/REIT exception to cover certain non-RIC mutual funds regulated under the Investment Company Act of 1940 if structured as open-end or interval funds.

Reporting and Administrative Requirements

Taxpayers must report repurchases on Form 720, Quarterly Federal Excise Tax Return. Recordkeeping, filing, and payment obligations are governed by Part 58, Subpart B of the regulations. The procedural rules also address:

Applicable filing deadlines;
Corrections for adjustments and refunds;
Return preparer obligations under Code Secs. 6694 and 6695.

These provisions codify prior guidance issued in Notice 2023-2 and reflect technical feedback from tax professionals and stakeholders.

Applicability Dates

The final rules apply to:

Stock repurchases occurring after December 31, 2022;
Stock issuances during tax years ending after December 31, 2022;
Procedural compliance starting with returns due after publication in the Federal Register.

Corporations may rely on Notice 2023-2 for transactions before April 12, 2024, and either the proposed or final regulations thereafter, provided consistency is maintained.

Takeaways

The final regulations narrow the excise tax’s reach to align with Congressional intent: discouraging opportunistic buybacks that return capital to shareholders outside traditional dividend mechanisms. By excluding structurally transformative M&A transactions, debt-like preferred stock, and regulated financial instruments, the IRS attempts to strike a balance between tax enforcement and market practice.

T.D. 10037

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During the presidential campaign, then candidate Barack Obama promised to close international tax loopholes and crack down on offshore tax evasion. In May, President Obama unveiled sweeping measures to reform the nation's international tax rules. The president also proposed to overhaul the rules for holding funds in offshore accounts, repeal the last-in, first-out (LIFO) accounting rules, tax carried interest as ordinary income, and provide limited business tax relief. Details of the president's proposals were released by the Treasury Department in the "Green Book" (named for the color of its cover).

International taxation

A U.S. based company is generally allowed to defer U.S. taxation on its foreign source income until the earnings are repatriated. President Obama has proposed various measures to limit the ability of U.S. companies to take deductions for offshore expenses against U.S. income. According to the president, some companies abuse the deferral rules and his proposals will close loopholes. Opponents counter that the deferral rules are necessary to ensure American competitiveness in the global economy.

The president also proposed t

Require corporation status under check-the-box election for certain overseas "disregarded entities" established by U.S. businesses;
Curb income shifting through intangible property transfers;
Curb earnings-stripping by expatriated entities through interest deductions;
Repeal the 80/20 company rules that shelter dividends as foreign-source income;
Prevent withholding avoidance by foreign portfolio investors through equity swaps; and
Modify the foreign tax credit rules for dual capacity taxpayers.

Many of the details of these international proposals, especially about how to calculate the amount of deferred deductions to match foreign expenses with deferred income, need to be fleshed out. The president's proposals serve as a blueprint for Congress to use when drafting legislation. Congress may approve all or some of the proposals or make significant changes to them.

Offshore accounts

The IRS is aware that some Americans fail to report all or part of their assets in foreign bank accounts. Estimates of unreported income reach as high as $100 billion. President Obama would strengthen the rules for reporting by Americans and disclosure by foreign banks. Individuals and banks that fail to follow the heightened rules would be subject to enhanced sanctions.

LIFO

Many businesses use LIFO to account for inventory. The last units of inventory purchased are generally treated as the first units sold. The president has proposed to repeal LIFO, which would raise more than $65 billion in revenue.

Carried interest

Under current law, carried interest (partnership profits interests allocable to the performance of services) is taxed as capital gains. President Obama is asking Congress to tax carried interest as ordinary income subject to self-employment tax. Similar measures have failed in Congress before but the need to raise revenue may convince lawmakers to change the tax treatment of carried interest this time.

Business incentives

President Obama has proposed about $70 billion in tax cuts for businesses. One of the most significant incentives would be a permanent research tax credit. A temporary tax break for qualified small business stock would also be extended and expanded.

The president also called on Congress to extend the carryback period for net operating losses (NOLs). Current law allows an extended period for NOLs but is limited to small businesses. President Obama did not specify to what extent he would extend the NOL carryback but is recommending that Congress set aside significant budget resources of over $60 billion between 2009 and 2010 to carry this off.

Additionally, the president has proposed extending a number of temporary business tax incentives. These include tax breaks for restaurants, incentives to produce biodiesel and renewable diesel fuels, and tax credits for investing in economically-challenged neighborhoods. Congress could tack-on more temporary incentives.

All of the president's proposals will be debated at length in Congress over the next several months. The White House is asking Congress to move quickly on international reform and other measures to boost federal revenues. Our office will keep you posted of developments. Please contact us if you have any questions.

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Just over 100 days into his administration, President Barack Obama is releasing more details about his tax policies. The Treasury Department's recently published "Green Book" (which is called green for the color of its cover) describes the president's tax proposals. As expected, many of the proposals build on the president's campaign promises to cut taxes for middle-income individuals. Congress has already begun drafting legislation and debating the president's proposals, which could be enacted into law later this year.

Making Work Pay credit

The centerpiece of President Obama's individual tax incentives is the Making Work Pay credit. Many individuals are already receiving the benefit of this credit in their paychecks. The credit reaches $400 for single taxpayers and $800 for married couples filing joint returns if they fall below certain income limits. The credit, however, is temporary and will expire after 2010. President Obama is asking Congress to make the credit permanent but many in Congress worry that a permanent credit would be too expensive.

More middle-income Incentives

Several other incentives are also targeted to middle-income taxpayers. These include marriage penalty relief, a permanent American opportunity education tax credit and permanent extension of lower individual marginal income tax rates (except for the 36 and 39.6 percent rates). The president has also proposed extending the state and local sales tax deduction, the higher education tuition deduction, the teacher's classroom expense deduction, the saver's credit, and the deduction for charitable contributions of IRA funds. These proposals enjoy significant support in Congress and are expected to pass.

President Obama did not propose extending several new tax breaks. These include the first-time homebuyer credit, which sunsets after December 1, 2009, and the deduction for state and local taxes paid on motor vehicles, which expires after December 31, 2009. The first-time homebuyer is popular in Congress and lawmakers may extend it one or two more years, especially if home sales remain slow.

Higher-income taxpayers

More controversial are the president's proposals for higher income individuals. As mentioned, the top two individual marginal income tax rates would revert to 36 and 39.6 percent after 2010. President Obama has also proposed reinstating and expanding limitations on itemized deductions for higher-income individuals along with reinstating the personal exemption phaseout for higher-income individuals.

The White House generally defines higher-income taxpayers as individuals with incomes above $200,000 and families with incomes above $250,000. It is unclear if these amounts refer to taxable income or adjusted gross income. More details are expected to be released when legislation is introduced in Congress.

Children

One of the most popular federal tax incentives is the child tax credit. The 2009 Recovery Act expanded the credit. President Obama has proposed making the enhanced child tax credit permanent.

The president has also recommended a permanent enhanced earned income tax credit (EITC). Under current law, more families are eligible for the EITC. However, the president has proposed eliminating the advanced EITC, which provides the credit in advance through payroll.

Capital gains

Under current law, the maximum tax rate on qualified capital gains and dividends is 15 percent. Some taxpayers may be eligible for a zero percent rate. These rates are temporary and will expire after 2010. President Obama has asked Congress to extend the lower rates for middle-income taxpayers. However, higher income individuals would be taxed at 20 percent on qualified dividends and capital gains under the president's plan.

Health care

Congress has just started debating comprehensive health care reform. Lawmakers are looking for ways to fund health care reform. Under current law, the amount that an employer contributes to an employee's health coverage is generally excluded from the employee's taxable income. One idea being floated in Congress is to cap the tax exclusion for employment-based health care coverage. Administration officials have generally indicated their support for continuing the exclusion.

Retirement savings

During the campaign, then-candidate Obama often spoke about strengthening retirement savings, especially 401(k)s and similar defined contribution arrangements. The president has made one official proposal: mandatory automatic enrollment in IRAs. Generally, employers without a retirement plan would be required to offer automatic enrollment in an IRA to all employees on a payroll-deduction basis. White House officials have also discussed some "unofficial" proposals, such as the partial annuitization of 401(k)s, to strengthen retirement savings.

Estate tax

Eight years ago, Congress voted to repeal the federal estate tax for 2010. At that time, many observers predicted that repeal would be permanent. The recession has brought about different thinking. Instead of repealing the estate tax, the president has proposed extending the current rate of estate tax and exemption amount into 2010.

Congress has a lot of tax legislation on its agenda and is expected to enact much of it into law in late summer or early fall, maybe sooner. Our office will keep you posted of developments and please contact us if you have any questions.

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Many businesses are foregoing salary increases this year because of the economic downturn. How does a business find and retain employees, as well as keep up morale, in the face of this reality? The combined use of fringe benefits and the tax law can help. Some attractive fringe benefits may be provided tax-free to employees and at little cost to employers.

De minimis fringe benefits

A de minimis fringe benefit is any property or service whose value is so small or minimal that accounting for it would be administratively impracticable. Such benefits are excluded from an employee's gross income. Examples of de minimis fringe benefits include:

Occasional overtime meals and meal money. To qualify as a tax-free de minimis fringe benefit, the meal or meal money must be provided to your employees so that they can extend their normal workday, thereby enabling them to work overtime. Such meals and meal money can only be provided occasionally. This means that they generally cannot be provided routinely, when overtime work is a common occurrence or are contractually mandated for overtime work. Occasional snacks may also qualify as a de minimis fringe benefit but if the snacks are provided daily, they would not qualify.

Occasional transportation. Transportation costs can also qualify as de minimis fringe benefits. Taxi-fare for an employee to return home after working late, for example, may be a de minimis fringe benefit. The transportation must be occasional.

Holiday gifts. Traditional holiday gifts, such as a Thanksgiving turkey, with a low fair market value can generally qualify as a de minimis fringe benefit. However, cash or a cash equivalent such as a gift certificate in lieu of the property, do not qualify. In fact, cash and cash equivalent fringe benefits, no matter how little, are never excludable as a de minimis fringe benefit, except for occasional meal money or transportation fare.

E-filing. Electronically filing an employee's tax return, but not paying for someone to prepare the return, may qualify as a de minimus fringe benefit.

Telephone calls. An employer may treat the cost of local telephone calls made by employees as a de minimis fringe benefit.

Working condition fringe benefits

A working condition fringe benefit is any type of property or service provided to your employees to the extent that the cost of such property or services would have been deductible by the employee as a trade or business expense, depreciation expenses, or as if the employee paid for the property/services himself or herself. Working condition fringe benefits have special tax rules for employers and employees.

Vehicles. If an employer-provided vehicle is used 100 percent for business and the use is substantiated, use of the vehicle is considered a working condition fringe benefit. The value of use of the vehicle is not included in the employee's wages. However, when an employer-provided vehicle is used by the employee for both personal and business purposes, an allocation between the two types must be made. The portion allocable to the employee's personal use is generally taxable to the employee as a fringe benefit. The portion allocable to business use is generally considered a working condition fringe benefit and is excludable from the employee's income.

No additional cost services

If an employer-provided service does not cause the employer to incur any substantial additional costs, it may qualify as a "no additional cost service" and be excludible from the employee's income. The service must be offered to customers in the employer's ordinary course of business. Some of the most common examples are airline, rail and bus tickets and hotel and motel rooms provided at a reduced rate or at no cost to employees. This benefit can be offered to retired employees as well as active employees. There are special rules for highly-compensated employees.

If you are considering alternatives to salary compensation, and would like to know what your options are, please contact our office. We can discuss the tax benefits and drawbacks of providing your employees with various types of fringe benefits.

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If you have completed your tax return and you owe more money that you can afford to pay in full, do not worry, you have many options. While it is in your best interest to pay off as much of your tax liability as you can, there are many payment options you can utilize to help pay off your outstanding debt to Uncle Sam. This article discusses a few of your payment options.

If you have completed your tax return and you owe more money than you can afford to pay in full, do not worry, you have many options. While it is in your best interest to pay off as much of your tax liability as you can, there are many payment options you can utilize to help pay off your outstanding debt to Uncle Sam. This article discusses a few of your payment options.

Pay Uncle Sam as much as you can

First and foremost, if you cannot pay the full amount of taxes due, you should nevertheless file your return by the April 15 deadline. Moreover, you should send in as much money as you can with your return. The IRS assesses failure-to-file penalties so you should file your return despite being unable to pay the full amount with the return. As such, it's to your benefit to file your return by its due date and pay off any outstanding balance as soon as you can in order to minimize interest and penalties.

Payment options

If you are not able to pay the full amount of tax you owe, you have options. While you can obtain an automatic six-month extension of time to file, the IRS will still assess interest on the outstanding unpaid tax liability. To do so, you must file Form 4868, Application for Automatic Extension of Time To File U.S. Income Tax Return, by the due date for filing your calendar year return (typically April 15) or fiscal year return. However, an extension of time to file is not an extension of the time to pay your taxes. Penalties and interest continue to accrue during the extension.

Second, consider paying some or all of your tax liability by credit card or obtaining a cash advance on your credit card. The interest rate your credit card or bank charges (plus applicable fees) may be lower than the total amount of interest and penalties imposed by the IRS under the Tax Code.

You may also be eligible to take advantage of the IRS's monthly installment agreement option. This option allows eligible taxpayers to pay off their tax bill over a period of time - in monthly installments - to the IRS. However, if you have entered into an installment agreement during the preceding 5 years you cannot use this option. Additionally, even while you are making payments through an installment agreement, penalties and interest continue on the unpaid portion of that debt. To request an installment plan, you can use Form 9465, Request For Installment Agreement. Or, you can use the Online Payment Agreement (OPA) application.

There are many options for paying off your tax debt. Our office can discuss the payment options that will work best in your specific circumstances. Please don't hesitate to call our office with questions.

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The term "luxury auto" for federal tax purposes is somewhat of a misnomer. The IRS's definition of "luxury auto" is likely not the same as your definition.

The IRS limits the amount of depreciation that may be claimed on a passenger automobile used for business. These limits are popularly referred to as the "luxury car rules." Taxpayers who use the IRS standard business mileage rate (which is 55 cents-per-mile in 2009) do not have to worry about the depreciation allowance because the cents-per-mile rate includes depreciation.

MACRS

Taxpayers who choose to take a depreciation deduction for their vehicles start with the regular depreciation tables under the Modified Adjusted Cost Recovery System (MACRS). The vehicle must be used 50 percent or more for business purposes. The cost of a vehicle is depreciated over six years. In Year 1, 20 percent is depreciable; 32 percent in Year 2; 19.2 percent in Year 3; 11.52 percent in Years 4 and 5; and 5.76 percent in Year 6.

Dollar limits

Under Code Sec. 280F, annual dollar limits apply to "luxury autos." The applicable set of annual dollar amount limits depends on the date on which the vehicle is placed in service. The dollar limits are adjusted for inflation annually.

The annual maximum depreciation amounts for passenger automobiles first placed in service in calendar year 2009 are:

- $2,960 for the first tax year;
- $4,800 for the second tax year;
- $2,850 for the third tax year; and
- $1,775 for each tax year thereafter.

Bonus depreciation

In 2008, Congress authorized bonus depreciation as part of the Economic Stimulus Act of 2008. Fifty percent bonus depreciation applied in 2008 to vehicles unless the taxpayer elected out of it. This resulted in higher dollar limits ($8,000 if bonus depreciation was claimed for a qualifying vehicle placed in service in 2008, for a maximum first-year depreciation of no more than $10,960 for autos). Congress may extend bonus depreciation into 2009.

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If you are finally ready to part with those old gold coins, baseball cards, artwork, or jewelry your grandmother gave you, and want to sell the item, you may be wondering what the tax consequences will be on the disposition of the item (or items). This article explains some of the basic tax consequences of the sale of a collectible, such as that antique vase or gold coin collection.

Collectibles

You must pay tax on any gain you realize from the sale of a collectible item (or the entire collection), such as a gold watch or other jewelry, antique coins, artwork, figurines, and even baseball cards. Capital gains on collectibles are taxed at a rate of 28 percent, rather than the regular long-term capital gains rate, currently at 15 percent (zero for those in the 10 or 15 percent income tax brackets). Gain on collectibles is reported on Schedule D of Form 1040. To calculate capital gains on the sale or other disposition you need to determine what your basis in the item is.

If you purchased the item, your basis is generally what you paid for the item as well as certain expenses related to the purchase. Fees related to the sale itself should also be included, such as a broker's or auctioneer's fee or an appraisal or authentication fee.

If you inherited the item, then your basis is the item's fair market value (FMV) at the time you inherited it. There are two principal methods for determining FMV: an appraisal, such as used for estate purposes, or valuing the item based on contemporaneous sales of comparable items. However, this can be tricky because the condition of a collectible item plays significantly into its value.

If the item was a gift, then your basis is the same as the basis of the person who gave you the item.

If you buy and sell collectibles on a regular basis, devote a substantial amount of time and effort to the activity and have developed a degree of skill in identifying profitable transactions, you may be engaged in a trade or business. In this case, you may be engaged in a trade or business in the eyes of the IRS, and therefore your stock of collectibles may be "inventory" and your profits taxable as ordinary income.

Precious metals

Gold and silver, like stamps and coins, are treated by the IRS as capital assets except when they are held for sale by a dealer. Any gain or loss from their sale or exchange is generally a capital gain or loss. If you are a dealer, the amount received from the sale is ordinary business income. However, metals like gold and silver are classified by the Internal Revenue Code as collectibles, and gain recognized from the sale of gold or silver held for more than one year - whether or not in the form of jewelry or sold simply for its market content - is taxed at the maximum rate of 28 percent.

For all sales of more than $600, an information return generally must be filed with the IRS.

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In a period of declining stock prices, tax benefits may not be foremost in your mind. Nevertheless, you may be able to salvage some benefits from the drop in values. Not only can you reduce your taxable income, but you may be able to move out of unfavorable investments and shift your portfolio to investments that you are more comfortable with.

First, you should keep in mind that gain and loss on a sale of stock or mutual fund shares depends on the fair market value of the shares when sold or disposed of, compared to the cost basis of the stock. Your investments may have lost substantial value over recent periods. Nevertheless, if the stock's value when sold is higher than the basis, you still have a gain.

Example. You purchased X Corp stock in 2004, when it cost $5. At the end of 2007, the stock is worth $12. In November, 2008, you sell the stock when its value is $8 a share. Even though your investment has declined in value by 33 percent, you have a gain of $3 a share on the sale ($8 sales price less $5 cost).

The same tax-basis situation that may cause capital gain on the sale of shares that have dropped significantly in value over the past year also is causing many owners of mutual funds that have declined in value to be surprised with a capital gains distribution notice from their fund managers. If you own the mutual fund shares at the time of the capital gain distribution date, you must recognize the gain. Of course, that gain may be netted against your losses from stock or other capital asset sales.

If you realize a profit on a stock sale, the long-term capital gains tax is a maximum of 15 percent, while taxes on wages and other ordinary income can be taxed as high as 35 percent. For taxpayers in the 10 or 15 percent rate brackets, there is no capital gains tax. These reduced capital gains rates are scheduled to expire after 2010. Short-term capital gains (investments held for one year or less) are taxed at ordinary income rates up to 35 percent.

Capital losses can offset capital gains and ordinary income dollar for dollar. Capital gains can be offset in full, whether short-term or long-term. Ordinary income can be offset up to $3,000. If net capital losses (capital losses minus capital gains) exceed $3,000, the excess can be carried forward without limit and can offset capital gains and $3,000 of ordinary income in each subsequent year.

Because a capital loss can offset income taxed at the 35 percent rate, it can be advantageous to sell stock that yields capital gains in one year, while delaying the realization of capital losses until the following year.

Example. Mary has two assets. One asset would yield a $6,000 long-term capital loss when sold. The other would yield a $6,000 long-term capital gain. If Mary sells both assets in the same year, she has a net capital gain of zero. If she realizes the gain in 2008 and the loss in 2009 (by selling the assets in different years), she will increase her 2008 taxes by a maximum of $900 ($6,000 X 15 percent), but will reduce her taxes in 2009 and 2010 by a maximum of $2,100 ($3,000 X 35 percent X 2 years). She will reduce her taxes by $1,200 merely by shifting the timing of the sales.

Worthless securities. You can write off the cost of totally worthless securities as a capital loss, but cannot take a deduction for securities that have lost most of their value from stock market fluctuations or other causes if you still own them and they still have a recognizable value. You do not have to sell, abandon or dispose of the security to take a worthless stock deduction, but worthlessness must be evidenced by an identifiable event. An event includes cessation of the corporation's business, commencement of liquidation, actual foreclosure and bankruptcy. Securities become worthless if the corporation becomes worthless, even if the corporation has not dissolved, liquidated or ceased doing business.

If you would like to discuss these issues, please contact our office. We can help you consider your options.

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