AFRs for October 2010

The Applicable Federal Rates (AFRs) for the month of October are as follows:

	Annual	Semiannual	Quarterly	Monthly
Short-term (≤ 3 years)	0.41%	0.41%	0.41%	0.41%
Mid-term (> 3 years but ≤ 9 years)	1.73%	1.72%	1.72%	1.71%
Long-term (> 9 years)	3.32%	3.29%	3.28%	3.27%

2010 Largest Accounting Firms

ThomasYork was ranked #44 on the SF Business Times Largest Accounting Firms list in the Greater Bay Area. We moved up three spots from last year. The ranking for this list is based on the number of professionals (CPA and CPA-track staff) in the Greater Bay Area. Everyone at TY looks forward to moving up the list year after year.

SMALL BUSINESS JOBS ACT OF 2010

Looks like the folks in Washington are finally agreeing on something. Yesterday, September 23, the House passed the Small Business Jobs Act of 2010 (H.R. 5297). It is expected to be signed by the President soon.

Here are some of the key provisions:

• §179 expanded: For tax years beginning in 2010 and 2011, expense limit is increased to $500,000 and phaseout threshold increased to $2 million;
• §179 for (some) real estate: For tax years beginning in 2010 and 2011, taxpayers can elect to treat certain real estate as §179-eligible. Qualifying real estate includes:
• Qualified leasehold improvements;
• Qualified restaurant property; and
• Qualified retail improvement property.
• Bonus depreciation extended: Available for property purchased through December 31, 2010;
• Luxury auto depreciation increased: As a result of the extension of bonus depreciation, first-year depreciation of automobiles is bumped up $8,000;
• Deduction for start-up expenditures increased: Under IRC §195, increased from $5,000 to $10,000 for taxable years beginning in 2010 (only);
• Exclusion for small business stock: For purchases made after the date of enactment and before January 1, 2011, the exclusion for small business stock under IRC §1202 is increased to 100%;
• Five-year carryback for general business credits: Effective for credits determined in the taxpayer’s first taxable year beginning after December 31, 2009 (one year only), the carryback period for an “eligible small business” is increased from one to five years. In addition, the credit is not subject to the AMT limitation;
• Built-in gain period shortened to five years: For taxable years beginning in 2011 (only), the recognition period for the BIG tax is shortened to five years;
• Deduction for health insurance for SECA purposes: For 2010 (only), the deduction for self-employed health insurance is also a deduction for purposes of the SE tax;
• Cell phones removed from listed property: Permanent and effective for tax years ending after 2009;
• Information reporting required for rental property: Effective for payments made after December 31, 2010, rental real estate is treated as a trade or business for information reporting purposes. IRS to prescribe de minimis exceptions;
• Higher information return penalties: Penalties under IRC §6721 are substantially increased beginning in 2011;
• §457 plans can include Roth accounts: For tax years beginning after December 31, 2010; and
• Rollovers from elective deferral plans to in-plan Roth accounts allowed: Effective on the date of enactment. Will allow a two-year deferral (2011 and 2012) for rollovers done in 2010.

Now let's see what else happens by the end of the year.

Franchise Tax Board Auditing Head Of Household Returns

Sacramento - The Franchise Tax Board (FTB) announced mailing more than 135,000 review letters to taxpayers who claimed the “Head of Household” filing status on their 2009 state tax return.

Taxpayers who do not qualify will have their tax reassessed at either a single or married-filing-separate filing status. Nearly 29,000 taxpayers who used this status last year did not meet its requirements and were issued more than $31 million in tax assessments.

Each year FTB reviews tax returns of taxpayers who claim the Head of Household filing status because the qualifications are commonly misunderstood. The status generally results in lower tax liabilities for unmarried taxpayers who care for a dependent. To qualify, the taxpayer must provide care for more than one-half of the year and pay more than one-half the cost of maintaining their home. The qualifying person must be related to the taxpayer and meet the requirements to be a qualifying child or relative. More than 2 million California taxpayers use this filing status each year.

FTB advises taxpayers who receive an audit letter to respond promptly by completing the enclosed questionnaire. Failure to respond could result in a tax assessment and penalty. Questionnaires can be submitted by any of these methods:

• Respond electronically at ftb.ca.gov. Use HOH Audit Letter Web Response page.
• Respond by fax at 866.223.8195.
• Respond by mail using the pre-addressed envelope provided with the audit letter.

FTB provides the following tools on its website to assist taxpayers:

• Head of Household “self-test.”
• Answers to frequently asked questions.
• Publication 1540, “CA Head of Household Filing Status,” in English and Spanish.

Final Schedule on Disclosures of Uncertain Tax Positions

The IRS has looked at the comments submitted in response to its proposed schedule of uncertain tax positions, and it's ready to produce a final version. Some of the concerns that businesses raised have been incorporated into the finished product.

Internal Revenue Service Commissioner Douglas Shulman said the agency plans to move forward with an unpopular plan to require businesses with more than $10 million in assets and have taken a reserve on the financial statements to file the new Schedule UTP, Uncertain Tax Position Statement. The schedule will require annual disclosure of uncertain tax positions with a concise description of the positions. The proposal does not require companies to disclose their risk assessment or tax reserve amounts, even though the IRS can issue a summons to compel submission of the information.

Many businesses are required by FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes, (FASB ASC 740-10), to identify and quantify a tax position relating to a specific federal tax return for which a taxpayer is required to reserve an amount. The IRS said that the information developed in the course of complying with FIN No. 48 or other accounting standards is highly relevant to understanding the tax positions and assessing how those affect the taxpayer’s tax liability, Shulman said in a speech at Financial Executives International's Washington Policy Conference on September 21, 2010.

The agency said the information would allow it to focus its examination resources on returns that contain specific uncertain tax positions that are of “particular interest or of sufficient magnitude to warrant inquiry, as well as allowing examination teams to identify all of the issues underlying the tax returns more quickly and efficiently.” The proposed schedule and instructions seek information related to three categories of tax data:

• Positions for which a reserve is reflected in the taxpayer’s financial statements;
• Positions for which no reserve is reflected because the taxpayer expects to litigate and win the position; and
• Positions for which no reserve is reflected because the IRS has a general administrative practice of not examining the position.

The IRS released Announcement 2010-09 in January 2010 and extended the comment deadline in March. It was followed with a proposed Schedule UTP and draft instructions in Announcement 2010-30 in April. The comment period ended June 1.

Many accountants voiced concerns during the comment period. One complaint centered on the burden on taxpayers who are already stretched to meet current disclosure requirements. Some accountants argued that the proposal could undercut the integrity of the financial statement process by creating tension between taxpayers and tax advisers. They also feared that a disproportionately large share of the costs would fall on small businesses.

Source: WG&L Accounting & Compliance Alert Checkpoint 9/22/2010

GAAP Just for Private Companies?

A blue ribbon panel on private company financial reporting, expected to make its final recommendations before the end of the year, does not believe the current approach for setting generally accepted accounting principles (GAAP) related to private companies is meeting user needs in a cost-effective matter. The panel also has rejected any near-term future model based solely on International Financial Reporting Standards (IFRS).

The panel was formed earlier this year by the AICPA, the Financial Accounting Foundation (FAF) which oversees the Financial Accounting Standards Board (FASB), and the National Association of State Boards of Accountancy (NASBA) to explore the future of standard setting for private companies.

Three financial reporting models are being considered by the panel and would result in appropriate differences in GAAP for private companies. The panel will be deciding whether to recommend either: (1) U.S. GAAP with exclusions and enhancements for private companies, (2) a basic U.S. GAAP with public company add-ons, or (3) separate, stand-alone standards for private companies based on current U.S. GAAP.

The panel also is exploring whether to recommend a board separate from the FASB to oversee private company standards.

Input on how accounting standards can best meet the needs of users of private company financial statements may be given by visiting www.fasb.org, and the public comment period ends Wednesday, September 15, 2010.

Source: http://www.aicpa.org/News/FeaturedNews/Pages/BlueRibbonPanelUpdate.aspx