Tax News

CCH (cch.taxgroup.com) reports:

  Automobile donations by taxpayers have "plummeted" since enactment of the American Jobs Creation Act of 2004 (2004 Jobs Act) (P.L. 108-357), said Mel Schwarz of Grant Thornton's National Tax Office in Washington, D.C. told CCH on July 21. The 2004 Jobs Act and subsequent IRS regulations significantly tightened the requirements for deducting the value of a vehicle donated to charity and seem to have discouraged individual donations of automobiles. Between tax years 2004 and 2005, automobile donations of more than $500 dropped by two-thirds, according to Grant Thornton's research.

2004 Jobs Act

  Before the 2004 Jobs Act, many individuals used their vehicle's "Blue Book" value as a reasonable starting point, Schwarz noted. The new rules generally limit vehicle donations over $500 to either the actual proceeds from the sale of the vehicle by the charity or the vehicle's fair market value, whichever is less. The exact amount depends on whether the charity sells the vehicle without any significant intervening use or material improvement or if the charity makes a significant intervening use of or material improvement to the vehicle.

Drop in Donations

  In 2004, more than 900,000 returns claimed deductions for donated automobiles. In 2005, the last year for which the IRS has detailed data, less than 300,000 tax returns included such claims, Grant Thornton found. "Donations fell 67 percent," Schwarz noted.

  The total amount deducted for all car donations declined from $2.4 billion in 2004 to just one half of a billion dollars the following year, Grant Thornton found. The decline represents a decrease of over 80 percent.

Congress's Intent

  The decline in donations is probably not what Congress intended, Schwarz observed. "Congress was concerned that people were inflating the value of donated used cars under the old system. The hope was that charities would still get the same number of cars they could auction for the same amount of money and the only change would be the elimination of excess charitable deductions. That hope was clearly not realized."

  By George L. Yaksick, Jr., CCH News Staff

CCH (cch.taxgroup.com) reports:

  The IRS reminded qualifying retirees and veterans that it is not too late to file for an economic stimulus payment. The IRS will send a second set of information packets to 5.2 million people who may be eligible but who have not yet filed to receive their stimulus payment. The packages will contain instructions, an example Form 1040A return showing the few lines that need to be completed, and a blank Form 1040A. The packages will be mailed over a three-week period starting July 21.

  The IRS has accounted for about 75 percent of the approximately 20 million Social Security and Veterans Affairs beneficiaries identified as being potential stimulus recipients. About 5.2 million of those have not filed a return or were not eligible for a stimulus payment

  Taxpayers were also reminded that the IRS has more than 400 local Taxpayer Assistance Centers operating normal business hours Monday through Friday that can provide assistance to retirees and veterans trying to receive their payments. A list for addresses and office hours can be found on the IRS website at Contact My Local Office.

  The Economic Stimulus Act of 2008 (P.L. 110-185) provided for payments of up to $600 ($1,200 for married filing jointly) for taxpayers who normally file a tax return and have a tax liability. Recipients could receive another $300 for each eligible child younger than 17. The Act also created a special category for people who had certain types of income but may not file a tax return because their income is too low or their income is nontaxable. Taxpayers in this category must have at least $3,000 in qualifying income to be eligible for the minimum amount of $300 ($600 married filing jointly). Qualifying income is the total of Social Security, Veterans Affairs and/or Railroad Retirement benefits plus earned income, including nontaxable combat pay.

IR-2008-91,
2008FED ¶46,524

Other References:

 
Code Sec. 6428

  CCH Reference - 2008FED ¶38,869.60

  Tax Research Consultant

  CCH Reference - TRC INDIV: 57,900

CCH (cch.taxgroup.com) reports:

  The IRS and Treasury issued final, proposed and temporary regulations under Code Sec. 1301 relating to the averaging of farm and fishing income in computing income tax liability. The regulations reflect changes to the law made by the American Jobs Creation Act of 2004 (P.L. 108-357) and provide guidance to individuals engaged in a farming or fishing business who elect to reduce their liability by treating all or a portion of the current tax year's farm or fishing income as if one-third of it had been earned in each of the prior three tax years.

  The definition of "fishing business" in the temporary regulations follows the definition in the Magnuson-Stevens Fishery Conservation and Management Act and the regulations under that Act. Thus, fishing includes catching, taking, or harvesting activities that result in the killing of fish or the bringing of live fish on board a vessel, but does not include the processing of fish. The temporary regulations also clarify that the maximum amount of income that an individual may elect to average is the total of the individual's farm and fishing income and gains, reduced by any farm and fishing deductions or losses allowed as a deduction in computing taxable income. Therefore, a taxpayer engaged in both a farming business and a fishing business must combine income, gains, deductions, and losses from both the farming business and the fishing business to determine the maximum amount of income that is eligible for averaging.

  A landlord is engaged in a farming business if this arrangement is established in a written agreement before the tenant begins significant activities on the land. Similarly a lessor of a vessel is engaged in a fishing business within the meaning of Code Sec. 1301(b)(4) if the payment due to the lessor under the lease is based on a share of the lessee's catch or a share of the proceeds from the sale of the catch, and the lease is a written agreement entered into before the lessee begins significant fishing activities resulting in the shared catch. A fixed lease payment is not eligible for income averaging.

  The regulations also provide that crew members on vessels engaged in fishing are engaged in a fishing business, whether or not they are treated as employees for employment tax purposes. Moreover, for purposes of income averaging computations, certain deposits into a Merchant Marine Capital Construction Fund also reduce taxable income.

  The temporary regulations generally apply to tax years beginning after July 22, 2008. Taxpayers may, however, apply the temporary regulations in taxable years beginning after December 31, 2003, but before July 23, 2008, if all provisions are consistently applied in each tax year.

  The text of the temporary regulations also serves as the text of proposed regulations.

T.D. 9417, 2008FED ¶47,052

Proposed Regulations, NPRM REG-161695-04, 2008FED ¶49,822

Other References:

 
Code Sec. 1301

  CCH Reference - 2008FED ¶31,789

  CCH Reference - 2008FED ¶31,789AE

  Tax Research Consultant

  CCH Reference - TRC FARM: 3,302

  CCH Reference - TRC FARM: 3,302.05

Tax Analysts report: