01/11/2009

Extra Points: Tax Items Of Note

IRS Announces Cost Of Living Adjustments For 2009.  The IRS announced the following cost of living adjustments to its inflation adjusted tax levels:

1. 2009 Gift Exemption:  An individual can give $13,000 in present interest assets (formerly $12,000) to each recipient without incurring gift tax or using the $1 million lifetime gift tax exemption.
2. 2009 Earnings Subject To Social Security Tax:  The first $106,800 (formerly $102,000) of each individual’s wage or self-employment income will be subject to the social security tax. All wage and self-employment income is subject to Medicare tax.
3. 2009 Estate Tax Exemption:  The federal estate tax exemption was raised to $3.5 million in 2009 (assuming the decedent did not use any part of his or her $1 million lifetime gift tax exemption).
4. 2009 Standard Mileage Rate:  Due to the decrease in the price of gasoline from 2008 levels, the 2009 standard mileage rate for the use of a car for business purposes is 55 cents per mile (formerly 58 cents per mile in the last half of 2008).

• Court Affirms That IRS Need Not Accept An Offer In Compromise.  The Tax Court recently ruled that the IRS did not abuse its discretion when it refused to accept a taxpayer’s settlement offer, even though that settlement offer was higher than the amount the IRS calculated that the taxpayer could presently pay and the offer met the IRS requirements for consideration. This decision affirms that offers in compromise are approved at the discretion of the IRS and taxpayers do not have a “right” to receive one.
• Court Upholds Limits On Representation By Unenrolled Agents.  The Eleventh Circuit has recently upheld regulations which restrict the ability of unenrolled agents to represent taxpayers in front of the IRS. In that case, an unenrolled agent, who was a former IRS employee, often obtained powers of attorney from clients. However, IRS employees generally refused to permit the unenrolled agent to represent these clients in IRS matters. The unenrolled agent challenged these actions in court.

The court noted that the regulations balance the need for affordable representation with the need for competent representation that protects the taxpayer and the IRS. The court further noted that, if the unenrolled agent wanted to fully represent clients, he could demonstrate his knowledge and become an enrolled agent.

• California Tax Refunds Are Delayed.  For those persons with California business interests or taxable income, the California State Controller has stated that his office has instituted a 30 day delay on all California tax refunds and other payments starting February 1st — because the state is running out of money to pay the refunds.  To institute this, on January 27, the Controller instructed the California Franchise Tax Board not to send over any more tax refund claims.
  The Controller stated that he must delay $3.7 billion in tax refund payments in February because the state has not addressed its growing budget deficit. The State of California has a projected shortfall of $41.6 billion over the next year and a half. To put that amount in perspective, total appropriations for the Nebraska budget for fiscal year 2008-09, including federal appropriations, is projected to be approximately $8.1 billion.  California’s projected shortfall will be over three times the total Nebraska budget for the same period.