Updates for 2009 and 2010 !

Information Reporting of Merchants' Credit Card and Third-Party Network Sales—After 2010

After 2010, the Act generally requires banks to file an information return with IRS reporting the gross amount of credit and debit card payments a merchant receives during the year, along with the merchant's name, address, and taxpayer identification number (TIN). Similar reporting is also required for third party network transactions. This is a strong incentive to correctly report income. It is believed this will raise over $9.8 billion over ten-years.

Worker, Homeownership, and Business Assistance Act of 2009

Friday, November 6, 2009, President Obama signed this Act into law. It includes the following tax issues.

1 – FUTA tax surcharge.

This .2% surcharge has been around many years and is why our FUTA tax rate is 6.2% instead of 6.0%. This surcharge is now extended to run through June 30, 2011.

2 – Mandatory efiling by tax return preparers.

Efiling of individual income tax returns is mandatory starting with returns filed after December 31, 2010 (just over a year from today). This requirement applies to all tax return preparers EXCEPT those who reasonably expect to file 10 or fewer individual tax returns during the calendar year.

3 – Failure to File Penalty.

The Failure to File penalty for Partnerships and S Corporations is increased from $89 per month to $195 per month. This brings the penalty to $195 per month per partner/shareholder with a maximum of 12 months. This is effective for tax years beginning after December 31, 2009.

4 – NOL carryback.

A special carryback period exists for an NOL created in a tax year ending after December 31, 2007, and beginning before January 1, 2010. Instead of using the normal carryback period, a taxpayer can ELECT to carry this NOL back 3, 4, or 5 years. This is not limited to a small business NOL.

The election, once made, is irrevocable. The election must be made by the due date (including extensions) of the taxpayer’s last taxable year beginning in 2009. (In other words the election to carryback a calendar year individual’s 2008 or 2009 loss can be made as late as October 15, 2010.)

Taxpayers are limited to ONE election from these years and cannot make the election for both years. However a taxpayer who has an eligible small business NOL can make TWO elections providing the first election was made timely under the former law. In other words an election for an individual’s calendar year 2008 income tax return’s eligible small business NOL would have to have been made by October 15, 2009 in order for the individual to be able to make the election again for the 2009 calendar year small business NOL. All taxpayers who had an eligible small business loss for years beginning in 2008 and ending after December 31, 2008, can still make the election under the old law for that tax year and again make an election under the new law for an eligible small business loss for the year starting in 2009.

More complexity exists. The NOL carryback under this election can only offset 50% of the taxpayer’s taxable income in the 5th carryback year and 100% of all subsequent carryback years. In the case of an eligible small business loss, the NOL carryback under this provision offsets 100% of the taxpayer’s taxable income in the 5th carryback year instead of only 50%.

An “eligible small business loss” is the same as it was under the election we had available under the earlier Act (a small business with $15,000,000 of annual average gross receipts).

The AMT-NOL carried back as a result of this election no longer has the 90% limitation in the carryback year.

5 – First Time Homebuyer’s Credit.

Again we have changes. The credit is extended to closings on or before April 30, 2010. This is extended to closings on or before June 30, 2010 IF the taxpayer has a binding contract on or before April 30, 2010. Taxpayers who have served at least 90 days on “qualified official extended duty service” between January 1, 2009 and April 30, 2010, have an extra year to make their purchase (extending their date to April 30, 2011).

Again a taxpayer can elect to claim the credit for a qualifying 2010 purchase on the 2009 income tax return or wait until the 2010 return is filed.

The credit is not available for purchases AFTER November 6, 2009, to a taxpayer:

- Who is eligible to be claimed as a dependent,

- Is not at least the age of 18 years of age on the purchase date (if the taxpayer’s spouse is at least age 18, the taxpayer is deemed to have met this test),

- Who purchases the property from a family member of the taxpayer’s spouse, or

- Who purchases a residence for more than $800,000.

(Previously the denial for purchases from the family member was limited to the family member’s family and did not mention the spouse’s family.)

Effective for purchases AFTER November 6, 2009, the modified AGI limitation starts at $125,000 ($225,000 for MFJ).

Effective for purchases AFTER November 6, 2009, a “first time homebuyer” includes a “long-time resident” which is defined as an individual (and, if married, such individual’s spouse) who purchases a new principal residence if the individual has owned and used the same prior residence as such individual’s principal residence for any 5-consecutive period during the 8-year period ending on the date of the purchase of the new principal residence. The maximum dollar credit for this individual is $6,500 ($3,250 for MFS) instead of the $8,000.

Effective for dispositions or cessations of use as a principal residence after December 31, 2008, the recapture does NOT exist if the taxpayer, or taxpayer’s spouse, received Government orders for qualified official extended duty service. For purposes of this paragraph and the extended eligible dates above, “qualified official extended duty service” means service on qualified official extended duty as 1) a member of the uniformed services, 2) a member of the Foreign Service of the United States, or 3) an employee of the intelligence community. All three of these are defined in Section 121(d)(9).

Effective for taxable years ending after December 31, 2009, documentation MUST be sent with the tax return verifying the qualifying purchase. (IRS has been asking for documentation on many claims already filed if it appears the taxpayer may be ineligible.)