New Rule Will Not Affect Teacher Salaries in Upcoming School Year

New Rule Will Not Affect Teacher Salaries in Upcoming School Year

IR-2007-142, Aug. 7, 2007 WASHINGTON — Moving to clear up confusion about a recent tax law change, the Internal Revenue Service today reassured teachers and other school employees that new deferred-compensation rules will not affect the way their pay is taxed during the upcoming school year. Recently, the IRS has received inquiries from teachers who had been told that they had to make certain decisions about their pay this month or risk severe penalties. At issue is a 2004 law change that applies to people who decide to defer compensation from one year to a future year. In April, the Treasury Department and the IRS issued final rules implementing this law change. Under the 2004 law, when teachers and other employees are given an annualization election – that is, they are allowed to choose between being paid only during the school year and being paid over a 12-month period – and they choose the 12-month period, they are deferring part of their income from one year to the next. For instance, a teacher who chooses to get paid over a 12-month period, running from August of one year through July of the next year, rather than over the August to May school year, falls under this law. The IRS clarified that the new rules do not require school districts to offer teachers an annualization election. Thus, school districts that have not been offering teachers this election are not required to start. School districts that offer annualization elections may have to make some changes in their procedures. The IRS announced that the new deferred-compensation rules will not be applied to annualization elections for school years beginning before Jan. 1, 2008, so school districts and teachers will have time to make any changes that are needed. A list of Frequently Asked Questions contains more information.

IRS Seeks New Issues for Industry Issue Resolution Program

IRS Seeks New Issues for Industry Issue Resolution Program

IR-2007-141, Aug. 6, 2007 WASHINGTON — The Internal Revenue Service is encouraging business taxpayers, associations and other interested parties to submit controversial or frequently disputed tax issues to the Industry Issue Resolution (IIR) Program. The purpose of the IIR program is to clarify and recommend guidance that resolves an issue and benefits both taxpayers and the IRS by reducing the time and expense of resolving the issue through case-by-case tax examinations. Since the program began in 2000, there have been 89 submissions, of which 25 resulted in determinations that taxpayers can rely on. While business associations and business taxpayers may submit tax issues for resolution at any time, in order to be considered during the fall review, submissions must be received by Aug. 31, 2007. Business issues selected for consideration generally have two or more of the following characteristics: When assessing a common factual situation, interpretation of the tax regulations is uncertain. This uncertainty results in frequent, and often repetitive, examinations of the same issue among significant numbers of taxpayers. The uncertainty results in undue taxpayer burden. The issue is significant and affects a large number of taxpayers, either within an industry or across industry lines. The issue requires extensive factual development, and an understanding of industry practices and views of the issue would assist the IRS in determining proper and consistent tax treatment for the future. Although there is no set format for submitting an issue for review, there are specific data that need to be included in the submission. The IIR project submission procedures are available in Revenue Procedure 2003-36. Interested parties should submit issues by e-mail to IIR@IRS.GOV. Alternatively, submissions may be mailed or faxed to: Internal Revenue Service, Office of Prefiling and Technical Services Large and Mid-Size Business Division LM: PFT Mint Building 3rd Floor M3-420 1111 Constitution Avenue NW Washington, DC 20224 Fax: 202-283-8406

Purchasers of Ford Hybrids Still Qualify for Tax Credit

Purchasers of Ford Hybrids Still Qualify for Tax Credit

IR-2007–140, Aug, 6 , 2007 WASHINGTON — The Internal Revenue Service announced that purchasers of qualified Ford Motor Company vehicles may continue to claim the Alternative Motor Vehicle Credit. The announcement comes after the IRS concluded its quarterly review of the number of hybrid vehicles sold. Ford sold 6,272 qualifying vehicles to retail dealers during the quarter ending June 30, 2007. This brings the total number of Ford qualifying hybrids reported to date to 33,547. The credit amount and make and model of the certified vehicles sold are: Ford Escape 2WD Hybrid, Model Year 2008 — $3,000 Ford Escape 2WD, Model Years 2005, 2006 and 2007 — $2,600 Ford Escape 4WD Hybrid, Model Year 2008 — $2,200 Ford Escape 4WD, Model Years 2005, 2006 and 2007 — $1,950 Mercury Mariner 4WD Hybrid, Model year 2008 — $2,200 Mercury Mariner 4WD, Model Years 2006 and 2007 — $1,950 Mercury Mariner 2WD Hybrid, Model Year 2008 — $3,000 Taxpayers may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th vehicle. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. No credit is allowed after the fifth quarter.

Phase-Out Credit for Toyota and Lexus Hybrids Continues With Reporting of Second Quarter Sales

Phase-Out Credit for Toyota and Lexus Hybrids Continues With Reporting of Second Quarter Sales

IR-2007-139, Aug. 6, 2007 WASHINGTON — After reviewing the second quarter 2007 sales of Toyota Motor Sales USA Inc., the Internal Revenue Service announced that purchasers of qualifying Toyota and Lexus vehicles may continue to claim the Alternative Motor Vehicle Credit. Given the number of vehicles sold, the phase out period for Toyota vehicles began on Oct. 1, 2006. Toyota sold 70,641 qualifying vehicles to retail dealers in the quarter ending June 30, 2007. This brings the cumulative sales of qualified Toyota hybrid vehicles sold from the period of Jan. 1, 2006, through June 30, 2007, to 344,083. Taxpayers may claim the full amount of the credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th qualified vehicle. The sale of Toyota’s 60,000th qualified vehicle occurred in the quarter ending June 30, 2006. Therefore, for qualifying vehicles purchased between Oct. 1, 2006, and March 31, 2007, consumers may claim 50% of the credit amount. Consumers who purchase qualifying vehicles between April 1, 2007, and Sept. 30, 2007, may only claim 25% of the credit amount. No credit is allowed after Sept. 30, 2007. The applicable credit amounts are as follows: Qualifying Vehicle Full Credit When Purchased By 9/30/06 Reduced Credit When Purchased From 10/1/06 Through 3/31/07 Reduced Credit When Purchased From 4/1/07 Through 9/30/07 No Credit When Purchased After 9/30/07 05, 06 and 07 Toyota Prius $3,150 $1,575 $787.50 $0 06 and 07 Toyota Highlander 2WD and 4WD $2,600 $1,300 $650 $0 07 Toyota Camry Hybrid $2,600 $1,300 $650 $0 06 and 07 Lexus RX 400h 2WD and 4WD $2,200 $1,100 $550 $0 07 Lexus GS450h $1,550 $775 $387.50 $0

IRS Seeks Comments on Updates to Corporate and Partnership Tax Forms

IRS Seeks Comments on Updates to Corporate and Partnership Tax Forms

IR-2007-138, Aug. 2, 2007 WASHINGTON — The Internal Revenue Service has released for comment and discussion draft revisions to Form 1065, U.S. Return of Partnership Income, and Form 1120, U.S. Corporation Income Tax Return. The IRS plans to have the forms and related schedules ready for use for taxable years ending on or after Dec. 31, 2008. Comments are due from the public by Sept. 14, 2007. The changes to Forms 1065 and 1120 will provide the IRS with a more accurate understanding of these entities and their ownership structures. The proposed changes will enable the IRS to focus compliance resources on returns and issues that warrant examination. The IRS is soliciting comments from the public as to whether the proposed revisions will enhance compliance and the extent to which the changes may affect taxpayer burden. “The current business models of our taxpayers involve multiple entities operating in different forms, both foreign and domestic,” said Deborah M. Nolan, Commissioner of the Large and Mid-Size Business Division. “These changes are designed to increase the transparency of the relationships between entities that make up these enterprises, enabling us to be much more efficient and effective.” The major change to Form 1120 involves ownership. In particular, a corporation will be required to identify entities which own 10 percent or more of the corporation and individuals who own 50 percent or more of the corporation. A corporation will also be required to identify any foreign or domestic corporation in which it owns 10 percent or more of the total stock voting power, any disregarded entity that it owns and any foreign or domestic partnership or trust in which it owns an interest of 10 percent or more. Additionally, a new Schedule B is added for Form 1120 filers required to file Schedule M-3. New Schedule B asks questions concerning ownership, allocations, transfers of interest, cost sharing arrangements and changes in methods of accounting. Small corporations, those having less than $10 million in assets, will not be required to file the new Schedule B. The major changes to the Form 1065 also involve ownership issues. The revisions add new questions to the existing Schedule B. The revised Schedule B includes reporting requirements for partnerships having complex ownership structures. These partnerships are required to identify entities having direct and indirect (through attribution) ownership interests of 10 percent or more in the partnership and to identify entities in which the partnership owns interests of 10 percent or more. The revised Schedule B also asks for information about cancelled debt, and like-kind exchanges that the partnership may have participated in at any time during the tax year. Additionally, for Form 1065 filers required to file Schedule M-3, there is a new Schedule C requiring the partnership to provide additional information about related party transactions. The new Schedule C also asks for the identity of individuals or entities owning 50 percent or more of the partnership and of other entities required to file U.S. income tax returns. Minor revisions have been made to Schedule K-1. These revisions require the partnership to identify contributions and distributions of built-in gain or loss property and to identify the maximum percentage of a partner’s share of profit, loss and capital in cases where those amounts change during the year. Some small partnerships will have a reduction in burden, as the asset threshold for filing certain schedules with Form 1065 has been increased from $600,000 to $1,000,000. However, partnerships with complicated ownership structures, related party transactions, contributions and distributions of built in gain or loss property, special allocation issues and optional basis adjustments may spend more time providing information. The IRS has taken care to ask only for information that in most cases will be readily available. The redesign of the Forms 1065 and 1120 is based on two guiding principles: Promoting compliance by accurately reflecting the entity’s ownership structure so the IRS may efficiently assess the risk of noncompliance; and Minimizing the filing burden on most taxpayers by requiring this information only from complex entities. The redesigned forms are available under Draft Forms on IRS.gov. Questions and comments should be e-mailed to the IRS at Judith.A.McNamara@irs.gov by Sept. 14, 2007. Related Items: Form 1120 Draft Schedule B, Form 1120 Draft Form 1065 Draft Schedule C, Form 1065 Schedule K-1, Form 1065

Treasury, IRS Release Report on Improving Voluntary Compliance

Treasury, IRS Release Report on Improving Voluntary Compliance

IR-2007-137, Aug. 2, 2007 WASHINGTON — The Treasury Department and the Internal Revenue Service (IRS) released today an IRS report addressing the agency’s implementation of the 2006 strategy to improve voluntary compliance with federal tax laws. A copy of the report is attached. The IRS report, Reducing the Federal Tax Gap: A Report on Improving Voluntary Compliance, details steps currently being taken by the IRS, as well as those under development, to address key elements of the “tax gap.” The report builds on the seven components of the Comprehensive Strategy for Reducing the Tax Gap, which the Treasury Department released in September 2006. Those components are: Reducing Opportunities for Evasion Making a Multi-Year Commitment to Research Continuing Improvements in Information Technology Improving Compliance Activities Enhancing Taxpayer Service Reforming and Simplifying the Tax Law Coordinating with Partners and Stakeholders In each of these areas, the report sets out compliance objectives and initiatives, along with targeted completion dates, that the IRS is implementing to improve tax compliance over the next several years. Detailed information is provided on each step currently being taken to reduce opportunities for tax evasion, leverage technology and support legislative proposals that, as implemented, will improve compliance. At the same time, the report reaffirms that taxpayer rights must be respected and burdens on compliant taxpayers must be minimized. The report also presents an outreach approach to ensure all taxpayers understand their tax obligations. Additionally, it recognizes the importance of having a multi-year research program that will assist in understanding both the scope of and reasons for noncompliance. Full implementation of the initiatives outlined in the report will have a positive effect on the rate of voluntary compliance. The report reflects the commitment of the IRS to apply its resources where they are of most value in reducing noncompliance while ensuring fairness, observing taxpayer rights, and minimizing the burden on taxpayers who comply. The overall compliance rate achieved under the U.S. revenue system is quite high. For the 2001 tax year, the IRS estimates that over 86 percent of tax liabilities were collected, after factoring in late payments and recoveries from IRS enforcement activities. Nevertheless, an unacceptable amount of the tax that should be paid every year is not, short-changing the vast majority of Americans who pay their taxes accurately and giving rise to the tax gap. The gross tax gap was estimated to be $345 billion in 2001. After enforcement effects and late payments, this number was reduced to a net tax gap of approximately $290 billion.

George Blaine Named Associate Chief Counsel, Income Tax & Accounting

George Blaine Named Associate Chief Counsel, Income Tax & Accounting

IR-2007-136, Aug. 1, 2007 WASHINGTON — The Internal Revenue Service announced today the appointment of George Blaine to the position of Associate Chief Counsel, Income Tax and Accounting, (ITA) effective August. 3, 2007. He will replace Lewis Fernandez who will retire on that date. "We in the Office of Chief Counsel have been extremely fortunate that Lew Fernandez was willing a year ago to take on the top leadership role within Income Tax and Accounting,” said Donald L. Korb, IRS Chief Counsel. “The approach Lew has taken to revitalize that very important part of our National Office has set the stage for his successor to take the organization to the next level. After leaving the Office of Chief Counsel, Mr. Fernandez will continue his tax career at PricewaterhouseCoopers in Washington, D.C.” “George Blaine is an outstanding choice for this important assignment,” Korb added. “His many years of service to the Office of Chief Counsel and his extensive experience and strong technical knowledge of Income Tax and Accounting issues have prepared him well to take over this role.” The Associate Chief Counsel, ITA, provides legal advice and support services regarding federal tax matters involving tax accounting and a wide variety of issues relating to corporate and individual income taxation. The Associate Chief Counsel, ITA, also serves as senior legal advisor and expert consultant on litigation and other legal matters as they pertain to tax accounting and individual income taxation issues and represents the Office of Chief Counsel on sensitive and controversial legal matters related to these areas. Since November 2003, Blaine has served as Deputy Associate Chief Counsel, ITA. As one of two Deputies to the Associate Chief Counsel, Blaine supervises approximately 115 professionals responsible for the basic income tax rules in Subchapter A, inclusions, exclusions, most individual deductions and credits, recognition, timing and special methods of accounting. From 2000 to 2003, Blaine served as the Deputy Assistant Chief Counsel, Administrative Provisions and Judicial Practice Division. Blaine served as Chief of two branches in ITA from 1995 through 2000. In 1999, he received the Office of Chief Counsel’s “Manager of the Year” award. From 1988 to 1994, he was the Special Counsel in the Tax Litigation (later Field Service) Division. Blaine received an LL.M in Taxation from the George Washington University in 1987. He received his B.A. in 1971 and a J.D. in 1974 from Temple University.