Tax & Business Planning e-alert CASH FOR CLUNKERS TAX REBATE. August 2009

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1 Tax & Business Planning e-alert August 2009 In this Issue: 1 Cash for Clunkers Tax Rebate he Tax and Business Planning Practice Group provides these e- Alerts periodically to keep our clients, taxpayers and businesses updated on recently adopted legislation and key changes in tax laws. 2 Federal Employment Tax Audits Announced Health Care Reform 3 Direct Payments for Energy-Related Projects Foreign Bank Account Reporting Amnesty Soon to Expire Kansas New Law Changes that Limits the Period for Filing Refund Claims for Sales and Use Taxes 4 Missouri Upcoming Back to School Sales Tax Holiday and Increased Exemptions From Franchise Taxes CASH FOR CLUNKERS TAX REBATE The Car Allowance Rebate System (CARS), or as it is more widely known the Cash for Clunkers program, has been passed by Congress and signed into law by the President. If you purchase a qualifying new car, to replace your low gas mileage used care, your car dealer may be eligible to receive a rebate voucher worth $3,500 - $4,500 to apply to the purchase price. The total rebate program is limited to $1 billion and limits the number of vouchers to one per customer. The rebate only applies to new car purchases made before November 1, 2009 or when the $1 billion funds are exhausted, whichever comes first. KANSAS CITY ST. LOUIS CHICAGO DENVER PHOENIX WASHINGTON DC NEW YORK WILMINGTON DE OVERLAND PARK ST. JOSEPH SPRINGFIELD TOPEKA EDWARDSVILLE

2 Tax & Business Planning e-alert As a result of earlier federal tax legislation, which we reported in our March e-alert (click here or paste this link into your browser: you may also deduct the sales tax on the new vehicle on your federal income tax return. The purchase of a hybrid vehicle may result in additional tax credits. Kansas has announced that the CARS rebate will not be subject to state sales or use taxes and the rebate will not be considered part of the purchase price. Other states are expected to take similar positions on the rebate. FEDERAL EMPLOYMENT TAX AUDITS ANNOUNCED The IRS announced its National Research Program (NRP) will be directed towards collecting data on compliance by employers in the following primary areas: Classification of workers as employees or independent contractors; Fringe benefits; Officer s compensation, and Reimbursement of expenses The IRS initiative will begin in November Additionally, it was announced that the IRS project will also include a detailed employment tax examination of certain taxpayers. The IRS plans to randomly select businesses and conduct a series of audits to determine if they are properly following a host of payroll tax and compensation-related rules. It is expected that the audits will involve the examination of thousands of businesses over a three-year period. Another NRP is already under way on employment taxes in general. The IRS program is in addition to audits announced by several states dealing with employment issues. If your business may have weaknesses in the above areas, please contact us we can help you review your compliance. HEALTH CARE REFORM As of press time, heath care reform is currently being debated in Congress. One of the most contentious points of the debate is paying for the costs of the heath care overhaul. One idea is to tax employer-provided health benefits. Legislation pending in the House would impose a surtax ranging from 1 percent for individuals making more than $280,000 to 5.4 percent for individuals with more than $1 million in income. We are tracking this legislation and will keep you updated on any significant developments. Page 2 of 6

3 DIRECT PAYMENTS FOR ENERGY PROJECTS The Treasury Department and the Energy Department have recently announced a program that provides an estimated $3 billion of funds to be available for energy projects. One interesting part of the program is that the funds will provide direct payments in lieu of tax credits designed to provide an immediate stimulus. Previously, these companies would have to wait until the tax credit on the tax return is processed to cover the costs of the energy project. There is an application process, and certain terms and conditions are required to be met to be a part of the program. To learn more, contact one of our attorneys to assist you. FOREIGN BANK ACCOUNT REPORTING AMNESTY If you have owned a foreign bank account in the past six years and have not disclosed it to the IRS, you may consider taking advantage of the IRS voluntary disclosure/amnesty program. The new administration is cracking down on United States citizens and residents with foreign bank accounts. The Bank Secrecy Act generally requires certain United States persons holding a financial interest in, or signature or other authority over, a bank, securities or other financial account in a foreign country to report these accounts to the government. If you have not been properly reporting these foreign accounts to the IRS, there is an increased risk that you could be subject to penalties and even jail time. This amnesty, which only lasts until September 23, 2009, allows you to minimize your penalties and eliminate the risk of criminal prosecution. KANSAS: NEW LIMITATIONS PERIOD FOR TAX RETURNS AND REFUNDS The Kansas legislature has modified the period governing the filing of tax returns. Seeking to clarify present law, the new law provides that amended income tax returns can be filed within three years of the due date for the return plus valid extensions of the filing date. In addition, the new law substantially limits the period for filing refund claims for sales and use taxes. The new period is one year from the filing date of the original tax return. This is a change from previous law, which allowed three years from the due date of the return to file a refund claim. The new one-year period applies even during an audit of the taxpayer, and there is no extension of the one-year period just because you are being audited. However, the state is still allowed to take as long as three years to audit your tax returns. The effective date for the shorter one-year period is for claims filed after June 15, Page 3 of 6

4 MISSOURI: ANOTHER SCHOOL TAX HOLIDAY Missouri has announced its annual back-to-school sales tax holiday beginning on August 7 and ending on August 9. The sales tax holiday includes clothing, school supplies, computers, software and peripherals, and certain other back to school items subject to specific dollar limits for each item (e.g. computers not to exceed $3,500). Included in the tax holiday are all state sales and use taxes. Local taxes are covered only if the city and county agree to participate in the event. At press time, the following localities are participating in this year s tax holiday: most major cities, including, St. Louis and Springfield; most major counties, including Jackson and St Louis (but not Greene County); and most local taxing districts (but not all of them). There are specific definitions of what items qualify for tax savings. For example, watches, jewelry and sporting equipment are not included. For more information go to the state web page at and click on the link for 2009 Back to School Sales Tax Holiday Information. MISSOURI FRANCHISE TAX CHANGES IN 2010 The Missouri legislature has provided some tax relief to small businesses beginning next year. For tax years beginning on or after January 1, the exemption from franchise taxes increases to $10 million from the current amount of only $1 million. The effective tax rate on larger corporations is also reduced to 1/30 of 1 percent (.0033) of capital. It is unclear how a small corporate taxpayer should indicate it is not required to file a franchise tax return. Taxpayers may need to check a box on the Corporation Franchise Tax Schedule form, or on the Corporation Income Tax/Franchise Tax Return, or on the Annual Report form. The Tax and Business Planning Practice Group provides these e-alerts periodically to keep our clients, taxpayers and businesses updated on recently adopted legislation and key changes in tax laws. We intend to provide these alerts to you as new developments warrant. This Tax Alert focuses on a variety of issues impacting businesses and individuals at the federal and state level. If you have questions about any of the information contained in this e-alert, please contact your legal or tax advisor or a member of the Polsinelli Shughart PC Tax & Business Planning Practice Group at Page 4 of 6

5 Tax and Business Planning Attorneys William J. Sanders, Chair David N. Zimmerman, Vice-Chair Overland Park Christopher S. Abrams J. Michael Cornett St. Louis Washington, D.C John F. Crawford Carl. R. Desenberg St. Louis Erik R. Edwards Steven H. Goodman Virginia C. Gross Brian T. Howes D. Scott Lindstrom Overland Park S. Patrick O Bryan pobryan@polsinelli.com William B. Prugh wprugh@polsinelli.com Thomas J. Schenkelberg tschenkelberg@polsinelli.com J. Harlan Stamper hstamper@polsinelli.com About Polsinelli Shughart s Tax and Business Planning Group All companies, organizations and individuals can expect to encounter issues in the tax arena. The Tax Group of Polsinelli Shughart PC provides creative solutions and legal guidance on international, federal, state and local tax laws to entities in all major industries and tax status classifications. Our attorneys partner with our clients to develop business solutions for both short-term and long-term planning. The Tax Group s strong reputation is built on its skills in sound and effective planning, in-depth analysis and favorable resolutions and outcomes, particularly in complex tax matters involving diverse businesses. Our attorneys pride themselves on innovative thinking and expertise in structuring business formation, combinations, reorganizations, mergers and acquisitions, and liquidations in the most tax-advantageous manner. To learn more about our services, visit us online at Page 5 of 6

6 If you know of anyone who you believe would like to receive our updates, or if you would like to be removed from our e-distribution list, please contact Sarah Blair via at Polsinelli Shughart PC provides this material for informational purposes only. The material provided herein is general and is not intended to be legal advice. Nothing herein should be relied upon or used without consulting a lawyer to consider your specific circumstances, possible changes to applicable laws, rules and regulations and other legal issues. Receipt of this material does not establish an attorney-client relationship. The following legend is affixed pursuant to U.S. Treasury Regulations governing tax practice. Any U.S. Federal tax advice contained in this communication (whether distributed by mail, , fax, or other means) is not intended or written to be used, and cannot be used, by any person for the purposes of (1) avoiding U.S. Federal tax penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended, or (2) promoting, marketing or recommending to another party any tax-related matter addressed herein, whether an entity, investment plan or other transaction. Polsinelli Shughart is very proud of the results we obtain for our clients, but you should know that past results do not guarantee future results; that every case is different and must be judged on its own merits; and that the choice of a lawyer is an important decision and should not be based solely upon advertisements. Polsinelli Shughart is a registered trademark of Polsinelli Shughart PC. About Polsinelli Shughart PC With more than 480 attorneys, Polsinelli Shughart PC is a national law firm that is a recognized leader in the areas of business litigation, financial services, bankruptcy, real estate, business law, labor and employment, construction, life sciences and health care. Serving corporate, institutional and individual clients regionally, nationally and worldwide, Polsinelli Shughart is known for successfully applying forward-thinking strategies for both straightforward and complex legal matters. The firm can be found online at Page 6 of 6