Taxable Talk

This afternoon I spoke to the Exchange Club of Irvine regarding tax law changes in 2007. One issue that came up that I couldn't give a complete answer to was the Alternative Minimum Tax (AMT). Would Congress pass another "patch" bill for 2007? Would Congressman Rangel's bill that included other tax increases pass? What would the impact be on the 2007 filing season?

Before I answer those questions, let me note that it's not just taxpayers who are concerned. The IRS Oversight Board is "gravely concerned" regarding possible delays in the filing season due to changes with the AMT. Paul Cherecwich, chair of the Board, sent a letter to the Senate Finance Committee noting the Board's concerns. The Oversight Board estimates that a late filing season start date of January 28, 2008 will result in $17 billion in delayed refunds, while a February 18, 2008 filing season start date will result in $87 billion of delayed refunds.

Other potential impacts of the delay include more taxpayers filing paper returns (the IRS can shut down electronic return processing but can't stop paper returns from being mailed) increasing expenses, increase errors, and generally make next tax season a nightmare. "In conclusion, the Oversight Board urges Congress to take quick action so as to mitigate the risks of AMT changes on taxpayers. Although it is difficult to quantify the exact impact with certainty, the risks are high and the effect on taxpayers is potentially very burdensome."

So, let me answer the questions that were posed today. Congress will pass an AMT patch that's acceptable to President Bush and Congressional Republicans because the AMT primarily impacts "Blue" states. Congressman Rangel's bill won't pass as currently written; House Democrats will have to live without their "paygo" rules. As to the impact on the tax season, let's just say that I think the rest of my hair will be gray by next April 15th.

A sure way to know when the IRS will announce the standard mileage rates for the following year is to look at my schedule. At lunch today I spoke to the Exchange Club of Irvine on 2007 tax law changes. Naturally, this afternoon the IRS issues Revenue Procedure 2007-70 with the 2008 mileage rates.

Those rates are:

Business Miles: $0.505/mile (up from $0.485 in 2007)
Charity Miles: $0.14/mile (unchanged)
Medical or Moving: $0.19/mile (down from $0.20 in 2007)

I'm not sure how any mileage rate goes down from 2007 to 2008 given the price of gasoline. However, the IRS uses an independent contractor to determine these rates.

Several months ago, I participated in a phone form on the FBAR program (Foreign Bank Account Rreporting); generally, if you have a foreign bank account with $10,000 or more in it you must file Form TD F90-22.1 with the Department of the Treasury by June 30th of each year. Today I received information on questions that were asked in that phone forum (the phone forum was in early June, so it took nearly six months for the answers to be distributed...).

Some of the answers are different than what I was led to believe during the conference call.

1. The due date of the FBAR is June 30th, but the form must be received by June 30th, not postmarked by June 30th. This is different from tax forms which have a postmark due date.



2. You must file a form if you have $10,000 in one or more foreign bank accounts. This is determined by adding the maximum balance in each account during the year, not the maximum balance of all the accounts at one point during the year. For example, the maximum you have in foreign accounts is $9,500 ($9,000 in account 1 and $5,000 in account 2 on June 15th). However, the maximum you had in account 2 was $4,000 on August 10th (the maximum in account 1 was $9,000). You are required to file Form TD F90-22.1.



3. A faxed signature is not acceptable for an FBAR.



4. Foreign life insurance can be considered a foreign financial account subject to reporting (by the policyholder) on an FBAR.



5. A line of credit does not have to be reported on an FBAR.

There were many other items listed in this email; I've only posted the highlights. Anyone who believes they are impacted by this should talk with their tax professional to get full information on their situation.