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Washington Watch - December 8, 2010

Wednesday, December 08, 2010

Bush Tax Cuts Extended To All For 2 Years

After much debating and disagreeing among the parties, President Obama announced a compromise package to end the standoff regarding the extension of the Bush tax cuts. The NASE is hopeful that this compromise will allow for passage to avoid raising taxes on the millions of self-employed Americans who pay taxes at their individual income tax rates.

The compromise proposal would:

  • Extend the 2001 and 2003 tax cuts for two years, which are set to expire on Jan. 1, for all income levels. This was a key part of the compromise for which Republicans and moderate Democrats lobbied.
  • Revive and extend the expired estate tax at a rate of 35 percent and an exemption level of $5 million. The accepted plan resembles an earlier compromise offered by Jon Kyl (R-Ariz) and Blanche Lincoln (D-Ark.).
  • Renew and extend for the 13 months expired funding for emergency unemployment benefits. This proposal was a concession by Republicans because it cost $120 billion.
  • Cut the Social Security payroll tax from 6.2 percent to 4.2 percent for one year. This was a Democrat-proposed item.
  • Allow businesses to write off the full cost of capital investments for one year.
  • Revive and extend through 2011 the expired “patch” to prevent millions of taxpayers from having to pay the alternative minimum tax. Both parties generally support this proposal.

The president also commented on another part of the proposal, which will extend parts of the stimulus bill:

"In exchange for a temporary extension of the tax cuts for the wealthiest Americans, we will be able to protect key tax cuts for working families -- the Earned Income Tax Credit that helps families climb out of poverty; the Child Tax Credit that makes sure families don’t see their taxes jump up to $1,000 for every child; and the American Opportunity Tax Credit that ensures over 8 million students and their families don’t suddenly see the cost of college shooting up," he said.

The compromise represents a key victory for Republicans and much frustration for many progressive Democrats. The next step will be to gain passage of the legislation in both the House and the Senate, before it is signed into law. It is unclear if the Democrats will side with the White House on this compromise; however it is likely that the House and Senate will ultimately approve the package.

To read Obama's entire speech on the topic, please visit here.

IRS Continues Efforts to Ensure Accurate Return Preparation

The Internal Revenue Service has started sending out more than 10,000 letters to tax return preparers nationwide to remind them of their obligation to prepare accurate tax returns on behalf of their clients.

Also, during the 2011 filing season, IRS representatives will visit approximately 2,500 tax return preparers who received these letters to further discuss their responsibilities as a return preparer and to verify their compliance with existing requirements.

The tax agency is sending the letters to paid preparers who completed tax returns in which the IRS has identified common errors. The letter includes an enclosure that reminds tax return preparers of their responsibilities and consequences of filing incorrect returns.

While most return preparers are professionals who provide honest and excellent service to their clients, some make basic errors or engage in fraud and other illegal activities. The IRS will continue to work closely with the Department of Justice to pursue civil or criminal action as appropriate.

The IRS urges taxpayers to be careful when choosing a preparer. Reputable return preparers will ask to see receipts and will ask multiple questions to determine whether expenses may be claimed as deductions or otherwise qualify for favorable tax treatment. By doing so, they are trying to help their clients avoid penalties, interest or additional taxes that could result from an IRS examination.

These letters and planned visits are another step in increased IRS efforts to heighten awareness of preparer responsibilities and to ensure paid tax return preparers are assisting taxpayers appropriately. The IRS is continuing its efforts to implement the recommendations IRS Commissioner Doug Shulman announced in January following a comprehensive six-month study of the tax return preparer industry.

The IRS recently launched a new online application system to obtain a Preparer Tax Identification Number (PTIN). All paid tax return preparers who prepare all or substantially all of a tax return are required to use the new registration system to obtain a PTIN. Individuals who obtained a PTIN prior to Sept. 28, 2010, need to reapply under the new system but generally will be reassigned the same number.

For more, see the Tax Professionals page on this website, which features step-by-step instructions and multiple FAQson the new registration system. 


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