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BHBM Tax Alert 12/15/2009

Tuesday, December 15, 2009

FEDERAL

Chinese Drywall Casualty Loss

Several Senators, including David Vitter, have requested formal guidance in the form of an IRS Notice or a Revenue Procedure for the federal income tax treatment of the expenses incurred with respect to Chinese drywall.  The Senators cited a letter from the general counsel of the Consumer Product Safety Commission which suggested that there is an association between the Chinese drywall and severe problems, including corrosion and odors.

Originally, the IRS, in a letter dated July 2, 2009, suggested that it would wait until there was conclusive evidence that Chinese drywall emits an unusual odor or causes unusual damage before allowing taxpayers a casualty loss deduction.  In their written request, the Senators are suggesting that the IRS now has the conclusive evidence that it needs in order to complete the proper written guidance for the casualty loss deduction.

Employee vs. Independent Contractor

In times of economic uncertainty, some companies attempt to classify workers as independent contracts rather than employees so that the companies do not have to pay unemployment insurance, workers’ compensation, Social Security taxes, health insurance or retirement savings for these workers.  Worker-classification issues have existed for many years, but this problem surfaces more frequently in harder economic times. 

For a more in-depth look at some of the traditional factors which have been used to determine whether an individual is an employee or an independent contractor, please click here [reference to article].

Revenue Procedure 2009-52

The IRS issued Rev. Proc. 2009-52 to provide guidelines on the new Net Operating Loss carryback provision.  Rev. Proc. 2009-52 applies to taxpayers who incurred an NOL in a year ending after December 31, 2007 and before January 1, 2010.  The election is made under IRC §172(b)(1)(H).  In order to carryback an NOL under the new legislation, the taxpayer must file an election statement either on or before the due date (including extensions) for filing the return for the taxpayer’s last taxable year beginning in 2009 specifying the length of the NOL carryback period.  The election statement must also be attached to the taxpayer’s claim for tentative carryback adjustment or amended return applying the applicable NOL to the carryback year.

Estate Tax Update

At this time, the legislature has not passed an estate tax bill.  The legislature is currently debating whether to pass a bill which would simply extend all of the 2009 provisions or a bill which would establish a permanent estate tax rate and exemption level.  The members of the House and Senate cannot yet agree on either of these two ideas.  There have been several articles and comments which have suggested that the legislature may simply do nothing.  If this occurred, then there would be no estate tax for decedents dying in 2010. 

The most likely scenario is an extension of 2009 tax rates and exemption levels which is currently included in H.R. 3326.

Reminder - Louisiana School Tuition and Expense Tax Deduction

La. R.S. 47:291:10-12 authorizes an income tax deduction for amounts paid for educational expenses on the 2009 state income tax return.  This deduction applies to tuition for private and parochial schools, uniforms, school supplies and study materials for all primary and secondary school students.

A taxpayer may deduct up to fifty percent (50%) of the actual amount of tuition and fees paid of incurred by the taxpayer up to a maximum of $5,000 per student.

If the taxpayer hasn’t yet reached the maximum amount of $5,000 per student for 2009, the taxpayer should pay spring tuition before the end of 2009 in order to claim the deduction on the state income tax return which is due by May 15, 2010.

Online Holiday Shopping

The Louisiana Department of Revenue (LDR) has issued a reminder to all Louisiana residents that online shopping does not equate to tax-free shopping.  The public statement points out that “[p]roducts purchased from out-of-state vendors such as online retailers, mail-order companies, and television shopping networks are subject to Louisiana Consumer Use Tax.”  Furthermore, the LDR points out that this tax applies regardless of whether or not the online retailer collects the tax.  However, the statement fails to state what avenues the LDR plans to explore to ensure compliance by online shoppers.

Upcoming:  2010 Tax Planning

In the next Baldwin Haspel Burke & Mayer Tax Alert, we will include an in depth look at tax planning for 2010.  This will include a look at what effect the Health Care Bill will have on taxes, the latest on the Estate Tax, and a closer look at the repeal of the capital gains tax by Louisiana on the sale of a business interest.  Given the effect of each of these items on Louisiana taxpayers, 2010 may be the perfect year to explore strategies for selling a Louisiana business.

 

If you would like to receive BHBM Email Tax Alerts to stay informed on the latest changes in tax law on the Federal and State level, please email Stacey Lala at slala@bhbmlaw.com.