Commentary: Internal Revenue rulings roundup

Daily Record (Rochester, NY), Sep 26, 2008 by James W Rahmlow

Early issuance of updated draft

Form 990 instructions

In connection with the significant IRS project of redesigning Form 990 -- the annual information return required to be filed by tax-exempt organizations -- a revised draft of the detailed instructions was issued in August.

The draft status allowed the instructions to be issued for taxpayers to have as much time as possible to review significant changes required for all 2008 returns filed in the 2009 season. The IRS has emphasized no changes are anticipated between now and the final print date set for late November, and changes will be made only if there are large errors or omissions in the draft.

One of the key changes in the revised draft is the presentation of separate instructions for each of the forms, which reduces the need for many organizations to review a particular schedule's instructions. Additionally, a glossary of more than 175 definitions is provided, along with the increased use of examples in the instructions.

Foreign-controlled domestic corporations rising

An interesting statistic presented this summer in an issue of the Statistics of Income Bulletin shows the globalization trend of foreign-controlled corporations operating domestic corporations in the United States. Referred to as "FCDCs," the roughly 60,000 entities paid federal taxes of more than $40 billion dollars for 2005, the last year for which statistics were available. Leading the pack were United Kingdom-controlled domestic corporations with more than $11 billion in federal taxes paid. Second were Japanese- controlled corporations with almost $8 billion paid in federal taxes.

September interest rates issued

For transactions required to use September interest rate pricing, the IRS issued September Applicable Federal Rates (AFRs) and September Adjusted AFRs:

Applicable Adjusted

Federal Applicable

RatesFederal Rates

Short- 2.38 1.81

term percent percent

Mid- 3.46 3.21

term percent percent

Long- 4.58 4.53

term percent percent

Rates for October will be issued in a Revenue Ruling.

IRS employee given probation

According to the Department of Justice, a Kentucky-based IRS tax examiner has been placed on probation and fined for the unauthorized access of information related to sports stars and Hollywood celebrities.

The discovery of the transgression was determined during a routine access review performed by the Treasury Inspector General for Tax Administration (TIGTA), which specifically searched for questionable access by employees. While the search revealed numerous unauthorized accesses, they were limited mostly to business accounts where the employee worked, not individual taxpayer accounts.

Clarification on equipment expensing, depreciation

Following up on provisions enacted by the Economic Stimulus Act of 2008, the IRS issued guidance clarifying both the Code Sect. 179 expensing provision as well as the first-year bonus depreciation.

In relation to the Code Sect. 179 expensing provision, the new legislation allows taxpayers to directly expense qualifying equipment in an amount not to exceed $250,000, provided the assets are placed in service in 2008. Being a small- to mid-size business provision, the amount is reduced in instances in which the total 2008 purchases exceed $800,000.

Businesses also may elect to take first-year bonus depreciation of 50 percent of any new property acquired and placed in service for calendar year 2008. The provision is applicable for tangible personal property and other property described in Code Sect. 168(k). Special provisions apply for certain aircraft purchases.

4Q interest rates on over and underpayments

In a predictable, but nonetheless surprising, move the IRS increased interest rates for over and underpayments for the fourth quarter of 2008.

For corporations, the rate paid on overpayments will be 5 percent, up to $10,000, and 3.5 percent for overpayments exceeding that amount.

Corporate underpayments will be 6 percent for regular corporations, and 8 percent for large corporate underpayments.

For individuals, the rate of 6 percent will apply, both to overpayments and underpayments.

James W. Rahmlow, a certified public accountant, is a partner with Mengel, Metzger, Barr & Co. He may be contacted at jrahmlow@mmb- co.com.