Democrats on the California Budget Conference Committee Approve New Taxes

On June 16, 2009, the California Budget Conference Committee approved a package of “revenue raisers” to stave off the state’s budget deficit.  Some of the provisions include:

• Increasing the personal income tax withholdings by 10% beginning January 1, 2010;
• Changing estimated tax payments again to accelerate revenue. Beginning in 2010, taxpayers would be required to pay:
•   1^st quarter 30%
•   2^nd quarter 40%
•   3^rd quarter 0%
•   4^th quarter 30%
• Imposing 3% independent contractor withholding, beginning January 1, 2010;
• Requiring 7% backup withholding on interest, dividends, and other income in conformity with the federal backup withholding rules;
• Increasing tobacco tax by $1.50 per pack beginning October 1, 2009;
• Imposing a new 9.9% oil severance tax beginning October 1, 2009;
• Repealing two corporation tax breaks passed in September 2008 before they take effect: NOL carrybacks and credit sharing among affiliated corporations;
• Extending sales tax requirement to certain out-of-state sellers, such as Amazon, that pay commissions to California firms;
• Allowing the state to suspend occupational and professional licenses for delinquent taxpayers;
• Suspending the Homeowners’ and Renters’ Assistance Program; and
• Enhancing collections by requiring banks and other financial institutions to match their account records with the FTB’s delinquency account records.

A quick review of these provisions shows that, with the exception of certain tobacco and oil taxes, these provisions do not increase revenue to the state, but only accelerate the collection of taxes from one fiscal year to another.  This would seem to only defer the looming problem.

The Legislature should take up the budget package early next week, and all these provisions are subject to change, and Governor Schwarzenegger said he would veto any revenue proposals beyond those he had already included in his budget plan.  The Governor is also opposed to withholding on independent contractors.

Filed under: Uncategorized

Government Official Suggests Tweaks to Form 1040

Via Journal of Accountancy

The Treasury Inspector General for Tax Administration (TIGTA) has issued a report suggesting ways that Form 1040 could be improved to make it easier for taxpayers to avoid common errors.

The TIGTA analyzed the approximately 7 million math error notices the IRS sends out annually to narrow down the list to those that could partly be attributed to confusing wording or design of the forms.

The suggestions include better labeling of certain lines and the use of red ink to highlight important features.

Filed under: Tax

AICPA Weighs in on IRS Plan to Regulate Tax Preparers

Via AccountingWeb

"We have been monitoring this issue for several years and the AICPA will work closely with IRS Commissioner Shulman and his staff as they move forward. Clearly, we support the two goals of increasing compliance and maintaining high ethical standards. We have publicly expressed concerns about previous attempts to regulate tax preparers and we hope the IRS will avoid the pitfalls of those past efforts," said AICPA President and CEO Barry Melancon.

Read the full story here.

Filed under: Licensing

New Car Sales Tax Deduction Available in States with No Sales Tax

Via CPAWeb

The Internal Revenue Service has announced that the sales tax deduction available to new-car purchasers this year can also be taken in states that do not have a sales tax. This deduction can be taken by all taxpayers, either as an itemized deduction or as an addition to the standard deduction.  "This special tax break is available for people purchasing a new car this year, and that can include people in states without a sales tax," IRS Commissioner Doug Shulman said in a statement.

Filed under: Tax Legislation

IRS Seeking More Leverage on Tax Preparers Through New Licensing Rule

Via the Wall Street Journal

In a bid to gain better leverage to make sure paid tax preparers are qualified and ethical, IRS Commissioner Doug Shulman told the U.S. House Ways and Means Subcommittee on Oversight that the IRS is writing proposals that would require people who charge fees to prepare tax documents to be placed under some sort of licensing system.

Filed under: IRS, Licensing

Small Firms Considering Switch from S-Corp to C-Corp for Tax Advantages

Via Business Week

With upper-income tax rates set to increase in 2011, many firms are taking a look at ways to save taxes.  Traditionally, many small firm have elected to be treated as an S-Corporation due to the simplicity of compliance, among other factors.  This article from Business Week explores the trend of small firms looking into possible changes to C-Corporation status in the face of increased tax rates.

Filed under: Corporations, Tax

The Current Future of AMT

Via Investment News

The most current AMT patch exempts 26 million people from Alternative Minimum Tax, but is set to expire after 2009. So, as always, the future of the alternative minimum tax remains uncertain, Joseph W. Walloch writes in an InvestmentNews commentary.  It is unclear what Congress will do for 2010 and beyond. Congress is not expected to repeal the AMT altogether.

Filed under: AMT, Tax, Tax Legislation

How Will IFRS Effect the Tax Practice?

Via AICPA

It may be easy to assume that IFRS only applies to financial statement preparation services, but any switch from U.S. GAAP to International Financial Reporting Standards would require a review of the tax accounting policies and procedures of tax practices as well.  This article explores the potential impact of IFRS on the tax practice.

Filed under: IFRS

Exposure Draft Issued Proposing Revisions to Compilation and Review Standards

Via the AICPA

Based on recommendations form the Private Company Practice Section Reliability Task Force, the exposure draft includes three proposed standards:

- Framework and Objectives for Performing and Reporting on Compilation and Review Engagements

- Compilation of Financial Statements

- Review of Financial Statements

The full text of the exposure draft can be found here.

The PCPS task force recommended revising the standards to allow an accountant to issue a review report in situations where the accountant’s independence is impaired in connection with the performance of a nonattest service relating to the design or operation of an aspect of internal control over financial reporting.

According to the Journal of Accountancy article, significant changes to the standards would include:

• - The introduction the new terms such as moderate assurance, review evidence and review risk to the review literature to harmonize with international review standards.

• - A discussion of materiality in the context of a review engagement.

• - A requirement that an accountant establish an understanding with management regarding the services to be performed through a written communication, that is, an engagement letter.

• - The establishment of enhanced documentation requirements for compilation and review engagements.

• - Guidance for practitioners who are engaged to perform a compilation or review engagement when they have also been engaged to perform nonattest services.  The guidance includes reporting requirements for instances in which the accountant’s independence is impaired due to the performance of these services.

• - The ability for an accountant to include a general description in the accountant’s compilation report regarding the reason(s) for an independence impairment.

Barry Melancon, president of the AICPA, has issued a brief explanatory video here.

The comment deadline is July 31 and the proposed effective date fo the changes is for financial statements for periods on or after December 15, 2010.

Filed under: CPA Professional Standards, Financial Statements

Obama Tax Plan Aims at Corporate Tax Avoidance and Outsourcing

Via ABC News

President Barack Obama and Treasury Secretary Timothy Geithner announced plans for tax law overhauls intended to crack down on companies that avoid corporate taxes. The effort is expected to focus on tax laws that involve companies sending jobs overseas and on international tax shelters.

Filed under: Tax Legislation