EDWARDS TOPPLE SALADINO & FLOCH, LLP

Certified Public Accountants

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Interesting Information

EARNINGS LIMITS RULES WHILE COLLECTING SOCIAL SECURITY BENEFITS HAVE BEEN CHANGED - (April 26, 2000) The following information was obtained from the Social Security Legislative Bulletin 106-20 dated April 7, 2000 which can be found at the following web site: [http://www.ssa.gov/legislation/legis_bulletin_040700.html].

"Today, President Clinton signed into law P.L. 106-182, the Senior Citizens' Freedom To Work Act of 2000. As yet, a public law number has not been assigned.

The legislation:

Eliminates the Social Security retirement earnings test in and after the month in which a person attains full retirement age--currently age 65. Elimination of the retirement test would be effective with respect to taxable years ending after December 31, 1999.
In the calendar year the beneficiary attains the full retirement age, permanently applies the earnings limit for those at the full retirement age through age 69 ($17,000 in 2000, $25,000 in 2001 and $30,000 in 2002) and the corresponding reduction rate ($1 for $3 offset) to all months prior to attainment of the full retirement age. (In applying the earnings test for this calendar year, only earnings before the month of attainment of full retirement age are considered.)
Permits, beginning with the month in which the beneficiary reaches full retirement age and ending with the month prior to attainment of age 70, the retired worker to earn a delayed retirement credit for any month for which the retired worker requests that benefits not be paid even though he/she is already on the benefit rolls.
On March 1, 2000, the House approved an earlier version of H.R. 5. The Senate approved an amended version of the legislation on March 22, 2000. The House agreed to the Senate amendment to the legislation and cleared the measure for transmission to the President on March 28, 2000. For additional detail, see Legislative Bulletins 106-16, 106-17, 106-18 and 106-19."

Prior to April 7, 2000, the rules were as follows (This information was obtained from the Social Security Administration's Publication number 05-10069 dated January, 2000): " If you are under age 65, you can earn up to $10,080 with no reduction in your Social Security benefits. If you earn more than that, $1 in benefits is withheld for every $2 you earn over $10,080. If you are 65 through 69, you can earn up to $17,000 with no reduction in your Social Security benefits. If you earn more than that, $1 in benefits is withheld for every $3 you earn over $17,000. If you're age 70 or older, the earnings limits no longer apply." To find out more information, click the link above to view the entire publication.

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HOW DOES THE IRS PICK THE TAX RETURNS IT AUDITS? - The IRS uses many different criteria when it picks a tax return. One way is totally at random. Another way is by your occupation (you have to enter a business code number on your business tax returns) if the IRS is targeting a specific business or profession to examine. If your tax preparer is subject to IRS scrutiny, the IRS may pick all returns prepared by that preparer. The IRS also has a variety of methods of identifying suspicious tax returns. The bad news is that most audits cannot be predicted. The good news is that the amount of audits is declining and that less than 1% of tax returns are being picked for examination.

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IRS KEEPS SLOPPY BOOKS - In March, 1999, it was reported in several newspapers that the Internal Revenue Service had undergone an audit by the General Accounting Office. According to Gregory Kutz, associate director of the GAO, who supervised the audit, "The IRS cannot do some of the basic accounting and record keeping tasks that it expects American taxpayers to do." Although in 1998 the IRS did a good job of collecting taxes ($1.8 trillion), it had trouble collecting tax from delinquent taxpayers. They wrote off $119 billion as uncollectable. The IRS also issued $17 billion in fraudulent and inappropriate refunds. The audit found that the IRS had poor computer security, inadequate controls over basic financial reporting and weaknesses in administration. Many of the problems are blamed on an antique computer system that dates back to the early 1960's. A CPA I know commented, "Next time one of my clients is audited by the IRS and the agent says the records are inadequate I am going to show the agent the newspaper articles reporting that the IRS has inadequate records. Why do taxpayers have to live up to higher standards than the IRS?"

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LATE FILING PENALTIES AND HOW TO AVOID THEM - If you have reasonable cause, the IRS will waive the penalty for late filing. But what is reasonable cause? Does receiving a form late from your bank, stock broker or limited partnership investment constitute reasonable cause for waiving the late filing penalty (when you would have not otherwise had a tax liability)? The answer is yes and no. The tax courts have ruled for and against taxpayers in a variety of cases. If the taxpayer exercises ordinary business care and prudence and is still unable to file by the due date, the delay is due to reasonable cause. If there is a willful neglect, such as a conscious, intentional failure to file or a reckless indifference, that is not reasonable cause. What to do if you receive forms late or not at all? File an extension. And if the forms do not arrive by the time the extension runs out? File the tax return without the information if it is not available. You can always amend the tax return and use "reasonable cause" to avoid the penalty caused by additional tax due. Interest on the other hand will not be waived.

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PAID PREPARERS GET A VOTE OF CONFIDENCE - A Harris poll taken during the 1998 tax filing season found that 96% of those that used paid preparers to prepare their 1998 taxes were satisfied with the preparer. Only 3% were unhappy. That makes us happy.

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PAY YOUR TAXES WITH A CREDIT CARD AND GET FREQUENT FLYER MILES - The IRS initiated a new program allowing taxpayers to pay their 1998 tax balances (but not their 1999 estimates) by using MasterCard, VISA or American Express. The fees are typically around 2.5% of the tax paid. Some taxpayers feel it is worth the 2.5% to get additional frequent flyer miles. It may be a good deal if you owe a large balance. But it all depends on how many miles you can get and what restrictions are placed on them.

The IRS is continuing the program for the following three types of payments. Your 1999 balance of tax due; a request for extension of time to file your 1999 tax return; or an estimated tax payment for year 2000. The telephone system was activated on January 14, 2000. The estimated tax payment option was not available until March 1, 2000.

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TAXING DONATED EGGS - An online debate is raging among tax professors. If a woman accepts $50,000 for donating her eggs to an infertile couple, is it ordinary income or a capital gain? The question is really whether or not the eggs are considered a capital asset subject to long term capital gains tax rates (which are lower than ordinary rates).

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TAX HUMOR - GOP Senator Orrin Hatch said that it is a good thing the Ten Commandments were not written by a tax attorney. "Thou Shalt Not Kill" might have been "Thou Shalt Not Kill except as provided in Exodus, subchapter 21, clause 24 which states 'an eye for an eye.'"

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WHO ENJOYS DOING THEIR TAXES? - According to a survey performed in March, 1999, not very many people enjoy this task. People would rather work overtime, balance checkbooks, even give a speech (and people fear public speaking more than death according to another survey) than prepare their tax returns. Only one task ranked below preparing tax returns...washing windows.

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