There are many tax-saving steps that can be taken before the end of this year. Here is a list of the most important actions that should be taken no later than Dec. 31, 2009 to save taxes:

... Realize losses on stock while substantially preserving investment position.

... Convert investment income taxable at regular rates (e.g., interest income) into qualifying dividend income.

... Arrange with employer to defer bonus until 2010.

... Increase basis in partnership or S corporation to make possible a 2009 loss deduction.

... Use credit card to prepay expenses.

... Make energy saving improvements to your home that qualify for tax credits in 2009, or purchase a credit-eligible hybrid car or alternative fuel motor vehicle.

... Pay contested taxes to deduct them this year while continuing to contest them next year.

... Put equipment in service before year-end to qualify for the 50% bonus first-year depreciation allowance.

... Make expenditures qualifying for the $250,000 business property expensing option.

... Settle insurance or damage claim if this will maximize casualty loss deduction.

... Apply bunching strategy to “miscellaneous” itemized deductions, medical expenses and other itemized deductions to increase deductible amounts.

... Increase withholding to eliminate or reduce estimated tax penalty.

... Set up self-employed retirement plan.

... Make gifts taking advantage of the $13,000 gift tax exclusion.

... Watch out for marriage penalty in regard to year-end marriage or divorce plans.

... Consider deferring a debt cancellation event until 2010.

... Decide whether to elect to deduct investment interest against capital gains and/or qualified dividends.

... Avoid personal holding company tax by making dividend payments.

... Take steps to avoid or minimize income tax on Social Security benefits.

... Structure real estate deal to avoid paying interest on tax deferred under installment method.

... Step up level of participation in business activity to meet material participation standard under passive loss rules.

... Dispose of passive activity to free up suspended losses.

... Ask employer to increase withholding of state and local taxes to pull the deduction of those taxes into 2009.

... Extend subscriptions to professional journals, pay union or professional dues, enroll in (and pay tuition for) job-related courses, etc., to bunch into 2009 miscellaneous itemized deductions subject to the 2%-of-AGI floor.

Please give me a call to discuss any of these items that you feel are applicable to your particular situation.

Sincerely,

Perry P. Gambrell, Jr.

One of the major areas affecting individual taxpayers in the American Recovery and Reinvestment Act of 2009 was in the first-time homebuyer credit. Subject to certain restrictions and timing, the credit has been increased from $7,500 to $8,000 and the recapture rules relaxed. I am including below excerpts from the analysis of the section of the law from Thomson Reuters / RIA. The relevant Internal Revenue Code Sections are included as references. Please feel free to contact me if you have questions or want to discuss the applicability of this law to your situation.

Perry P. Gambrell, Jr.
CPA

Changes to first-time homebuyer credit are signed into law.
An individual who is a first-time homebuyer of a principal residence in the U.S. after Apr. 8, 2008 and, under pre-2009 Recovery Act law, before July 1, 2009 is allowed, subject to an income phase-out, a refundable tax credit for 10% of the purchase price, up to a maximum of $7,500 ($3,750 on a separate return). The credit is allowed for the tax year in which the taxpayer purchases the home unless the taxpayer makes an election as described below.
Two credit recapture rules generally apply. Under a “regular recapture rule,” the credit is recaptured ratably over 15 years with no interest charge, beginning in the second tax year after the tax year in which the home is purchased. For each tax year of the 15-year recapture period, the credit is recaptured as an additional income tax equal to 6-2/3% of the amount of the credit.
Under an “accelerated recapture rule,” if the taxpayer sells the home, or the home ceases to be used as the principal residence of the taxpayer or the taxpayer's spouse, before the complete repayment of the credit, any remaining credit repayment amount is due on the tax return for the year in which the home is sold or ceases to be used as the principal residence. The credit repayment amount can't exceed the amount of gain from the sale of the residence to an unrelated person.
However, neither the regular nor accelerated recapture rule applies in any tax year ending after the taxpayer's death. In the case of an involuntary conversion of the home, recapture isn't accelerated if a new principal residence is acquired within a two-year period. And in the case of a transfer of the residence to a spouse or to a former spouse incident to a divorce, the transferee spouse—and not the transferor spouse—will be responsible for any future recapture. Under pre-2009 Recovery Act law, there were no other exceptions to the credit recapture rules.
A taxpayer can elect to treat a home purchased during the eligible period in 2009 as if purchased on Dec. 31, 2008 for purposes of claiming the credit on the 2008 tax return and for establishing the beginning of the recapture period. Under pre-2009 Recovery Act law, this election applied for all first-time homebuyer credit purposes except the Code Sec. 36(c) definitions (i.e., the definitions for first-time homebuyer, principal residence, purchase, purchase price, and related persons, and the eligible period ended on June 30, 2009.
Under pre-2009 Recovery Act law, the credit couldn't be claimed if the purchase of the residence was financed by tax-exempt mortgage revenue bonds.
New Law. Under the 2009 Recovery Act, the first-time homebuyer credit is extended to apply to principal residences purchased before Dec. 1, 2009. (Code Sec. 36(h) as amended by 2009 Recovery Act §1006(a)(1)) Correspondingly, for purposes of the election to treat the purchase of a principal residence as having been made on Dec. 31, 2008, the last date of purchase has also been extended until Nov. 30, 2009. (Code Sec. 36(g) as amended by 2009 Recovery Act §1006(a)(2))
The maximum amount of the credit is increased from $7,500 to $8,000. (Code Sec. 36(b) as amended by 2009 Recovery Act §1006(b)(1)) For married individuals filing separately, the maximum credit is increased from $3,750 to $4,000. (Code Sec. 36(b)(1)(B) as amended by 2009 Recovery Act §1006(b)(2))
Observation: The $8,000 maximum credit applies to taxpayers other than married individuals filing separately. That is, it applies to single filers and married couples filing joint returns.
Recapture rules.
The 2009 Recovery Act provides that for a principal residence purchased after Dec. 31, 2008 and before Dec. 1, 2009 for which a first-time homebuyer credit is allowed, the “regular recapture rule” won't apply. (Code Sec. 36(f)(4)(D)(i) as amended by 2009 Recovery Act §1006(c)(1))
Observation: That is, recapture of the credit is waived for qualifying home purchases occurring during the period Jan. 1, 2009 through Nov. 30, 2009. This change transforms the credit from the equivalent of an interest-free loan (under pre-2009 Recovery Act law) into direct financial support for qualifying home purchases.
Also, for a principal residence purchased after Dec. 31, 2008 and before Dec. 1, 2009 for which a first-time homebuyer credit is allowed, the “accelerated recapture rule” will apply only if the taxpayer disposes of the residence, or the residence ceases to be the principal residence of the taxpayer or the taxpayer's spouse, during the 36-month period beginning on the date of purchase of that residence by the taxpayer. (Code Sec. 36(f)(4)(D)(ii) )
Observation: Thus, if the taxpayer sells the home, or the home ceases to be used as the taxpayer's (or the taxpayer's spouse's) principal residence within 36 months of purchase, the taxpayer will have to repay the credit. The repayment will be due on the tax return for the year in which the home is sold or ceases to be used as the principal residence. It's not clear how the waiver of the “regular recapture rule” affects the “accelerated recapture rule” in this case. Presumably, because the taxpayer will not have made any ratable repayments during this up-to-36-month period, the entire amount of the credit (not to exceed the amount of gain from sale to an unrelated person) will have to be repaid at this time.
Election to treat purchase as made Dec. 31, 2008.
The election to treat pre-Dec. 1, 2009 purchases as made in 2008 applies for all first-time homebuyer credit purposes, except the Code Sec. 36(c) definitions and the above new rules on waiver of recapture. (Code Sec. 36(g) as amended by 2009 Recovery Act §1006(c)(2)) In other words, the waiver of recapture applies without regard to whether the taxpayer makes an election to treat the pre-Dec. 1, 2009 purchase as occurring on Dec. 31, 2008.
Qualified mortgage revenue bond financing permitted.
The rule which prohibited the taking of the credit if the purchase of the residence was financed with the proceeds of qualified mortgage revenue bonds has been eliminated. (Code Sec. 36(d) as amended by 2009 Recovery Act §1006(e)) So, the purchase of a home may be financed with the proceeds of a mortgage revenue bond, i.e., a qualified mortgage issue the interest on which is tax-exempt under Code Sec. 103.
Effective: Residences purchased after Dec. 31, 2008 (2009 Recovery Act §1006(f)) and before Dec. 1, 2009. (Code Sec. 36(h) )

The single largest provision in the $15.1 billion package of housing tax incentives in the recently enacted Housing Assistance Tax Act of 2008 (the “Housing Act”) is a measure allowing individuals buying their first home to take a tax credit of up to $7,500 of the purchase price. Qualified homebuyers can subtract the credit amount from their federal income tax when they buy a home and even get a refund if the credit exceeds the tax. However, they are then required to pay the credit back over 15 years. The result is that the credit resembles an interest-free loan that must be repaid to the government. Here are the details of the new credit:
• The home must be located in the U.S. and must be the taxpayer's principal residence (main home). The taxpayer (and the taxpayer's spouse if married) must not have owned another principal residence in the U.S. in the three-year period before purchasing the new home. Thus, the home doesn't literally have to be the taxpayer's first home.
• The home must have been purchased from April 9, 2008 through June 30, 2009, inclusive. Purchases from certain related persons and acquisitions by gift or inheritance don't qualify. A home constructed by the taxpayer does qualify if the taxpayer moves in from April 9, 2008 through June 30, 2009.
• A special rule allows taxpayers who purchase a principal residence in the first six months of 2009 to treat the purchase as if made on Dec. 31, 2008. This allows the taxpayer to claim the credit for 2008 rather than 2009.
• The credit is equal to 10% of the price paid for the home, up to a maximum of $7,500. The $7,500 maximum credit applies both to individuals and married couples filing a joint return. A married individual filing separately can claim a maximum credit of $3,750.
• The credit is phased out for individual taxpayers with modified adjusted gross income (AGI) between $75,000 and $95,000 ($150,000 and $170,000 for joint filers) for the year of purchase. Taxpayers with modified AGI over $95,000 ($170,000 for joint filers) can't claim the credit.
• The credit is refundable, meaning that households with incomes too low to owe income tax can benefit from it.
• In the second year after purchase, taxpayers who took the credit must start paying back the credit in equal installments over 15 years, with no interest charge. This works as follows. Suppose a first-time homebuyer purchases a home for $100,000 this coming December and claims the maximum credit of $7,500 on his 2008 tax return. He would then be required to pay back $500 (one-fifteenth of the credit) on his tax return for 2010 and for each of the following 14 years, through 2024.
• If the taxpayer sells the home (or the home ceases to be the principal residence of the taxpayer or the taxpayer's spouse) before complete repayment of the credit, any remaining credit is due on the tax return for the year in which the home is sold (or ceases to be the principal residence). If the home was sold at a loss to an unrelated person, repayment of the remaining credit is forgiven to the extent of the loss.
• No credit is allowed if: the taxpayer was ever entitled to a D.C. homebuyer credit; the home purchase was financed through tax-exempt mortgage revenue bonds; the taxpayer is a nonresident alien; or the taxpayer disposes of the residence (or it ceases to be a principal residence) in the year of purchase.
I hope this information is helpful. If you would like more details about this provision or any other aspect of the new law, please do not hesitate to call.

Sincerely,


Perry P. Gambrell, Jr.

As the end of the year approaches, it is a good time to think of planning moves that will help lower your tax bill this year and possibly the next. Factors that compound the challenge include the stock market's swoon, the difficult economic climate we're in right now, and the strong possibility that there will be tax changes in the works next year. In fact, there might even be another economic stimulus package carrying tax changes enacted before the end of this year.

The indisputably good news we are certain of is that Congress has acted to “patch” the AMT problem for 2008, has retroactively reinstated a number of tax breaks (such as the option to deduct state and local general sales tax instead of state and local income tax and the above-the-line deduction for higher education expenses), and has created new tax breaks that go into effect for the 2008 tax year (including a tax credit for first-time homebuyers, a nonitemizers' deduction for state and local property tax and a nonitemizers' deduction for certain disaster losses). For 2008, businesses enjoy tax breaks such as a beefed-up expensing option and a 50% bonus first-year depreciation writeoff for most machinery and equipment placed into service this year and a reinstated research credit.

We have compiled a checklist of actions based on current tax rules that may help you save tax dollars if you act before year-end. Not all actions will apply in your particular situation, but you will likely benefit from many of them. We can narrow down the specific actions that you can take once we meet with you to tailor a particular plan. In the meantime, please review the following list and contact us at your earliest convenience so that we can advise you on which tax-saving moves to make:

• Increase the amount you set aside for next year in your employer's health flexible spending account (FSA) if you set aside too little for this year. Don't forget you can set aside amounts to get tax-free reimbursements for over-the-counter drugs, such as aspirin and antacids.
• If you become eligible to make health savings account (HSA) contributions in December of this year, you can make a full year's worth of deductible HSA contributions for 2008.
• Realize losses on stock while substantially preserving your investment position. There are several ways this can be done. For example, you can sell the original holding, then buy back the same securities at least 31 days later. It may be advisable for us to meet to discuss year-end trades you should consider making.
• Postpone income until 2009 and accelerate deductions into 2008 to lower your 2008 tax bill. This strategy may enable you to claim larger deductions, credits, and other tax breaks for 2008 that are phased out over varying levels of adjusted gross income (AGI). These include IRA and Roth IRA contributions, conversions of regular IRAs to Roth IRAs, child credits, higher education tax credits, the above-the-line deduction for higher-education expenses, and deductions for student loan interest. Postponing income also is desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. Note, however, that in some cases, it may pay to actually accelerate income into 2008. For example, this may be the case where a person's marginal tax rate is much lower this year than it will be next year.
• If you believe a Roth IRA is better than a traditional IRA, and want to remain in the market for the long term, consider converting traditional-IRA money invested in beaten-down stocks (or mutual funds) into Roth IRAs if eligible to do so. Keep in mind, however, that such a conversion will increase your adjusted gross income for 2008.
• It may be advantageous to try to arrange with your employer to defer a bonus that may be coming your way until 2009.
• If you own an interest in a partnership or S corporation you may need to increase your basis in the entity so you can deduct a loss from it for this year.
• Consider using a credit card to prepay expenses that can generate deductions for this year.
• If you expect to owe state and local income taxes when you file your return next year, ask your employer to increase withholding of state and local taxes (or pay estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2008.
• Those facing a penalty for underpayment of federal estimated tax may be able to eliminate or reduce it by increasing their withholding.
• You may be able to save taxes this year and next by applying a bunching strategy to “miscellaneous” itemized deductions, medical expenses and other itemized deductions.
• Estimate the effect of any year-end planning moves on the alternative minimum tax (AMT) for 2008, keeping in mind that many tax breaks allowed for purposes of calculating regular taxes are disallowed for AMT purposes. This includes the deduction for state property taxes on your residence, state income taxes (or state sales tax if you elect this deduction option), miscellaneous itemized deductions, and personal exemption deductions. Other deductions, such as for medical expenses, are calculated in a more restrictive way for AMT purposes than for regular tax purposes. As a result, in some cases, deductions should be deferred rather than accelerated to keep them from being lost because of the AMT.
• If you are thinking of making energy saving improvements to your home, such as putting in extra insulation or installing energy saving windows, postpone your move until 2009. A credit of up to $500 may be available for such improvements if made next year (but not this year).
• Substantial tax credits are available for installing energy generating equipment (such as solar electric panels or solar hot water heaters) to your home. The credits are available whether you spend the money this year or next, but if you're installing solar electric property, and will be spending more than $6,667, the credit will be larger for expenses made in 2009 rather than 2008.
• If you are thinking of buying a hybrid vehicle eligible for a tax credit, check to see if it's eligible for the credit, and, if so, purchase it before year-end.
• You may want to pay contested taxes to be able to deduct them this year while continuing to contest them next year.
• Businesses should consider making expenditures that qualify for the up to $250,000 business property expensing option for assets bought and placed in service this year; the maximum expensing amount will drop to $133,000 for assets bought and placed in service next year (higher expensing amounts apply to certain specialized assets). Businesses also should consider making expenditures that qualify for 50% bonus first year depreciation if bought and placed in service this year. This bonus writeoff generally won't be available next year (some exceptions apply, such as for businesses affected by Presidentially declared disasters).
• You may want to settle an insurance or damage claim in order to maximize your casualty loss deduction this year.
• If you are self-employed and haven't done so yet, set up a self-employed retirement plan.
• You can save gift and estate taxes by making gifts sheltered by the annual gift tax exclusion before the end of the year. You can give $12,000 in 2008 to an unlimited number of individuals but you can't carry over unused exclusions from one year to the next.
• If you're thinking of donating a used auto to charity, you may want to inquire whether the charity plans to sell the car or use it in its charitable activities; the latter may yield a bigger deduction for you.
• If you are age 70 1/2 or older, own IRAs (or Roth IRAs), and are thinking of making a charitable gift before year-end, consider arranging for the gift to be made directly by the IRA trustee. Such a transfer can achieve important tax savings.
• If you are receiving Social Security benefits, there are a number of steps you can take to reduce or eliminate tax on your benefits.
• Consider extending your subscriptions to professional journals, paying union or professional dues, enrolling in (and paying tuition for) job-related courses, etc., to bunch into 2008 miscellaneous itemized deductions subject to the 2%-of-AGI floor.
• Depending on your particular situation, you may also want to consider deferring a debt-cancellation event until 2009, electing to deduct investment interest against capital gains, and disposing of a passive activity to allow you to deduct suspended losses.

These are just some of the year-end steps that can be taken to save taxes. Again, by contacting us, we can tailor a particular plan that will work best for you.

Very truly yours,


Perry P. Gambrell, Jr.
Certified Public Accountant

In 2007, the Treasury Inspector General for Tax Administration released two reports suggesting that hundreds of thousands of taxpayers are incorrectly reporting billions of dollars in deductions for noncash charitable donations. Taxpayers and tax preparers should review the substantiation and reporting requirements for charitable contributions, especially since the Pension Protection Act of 2006 (PPA) recently added even more requirements. Schedule M on the new Form 990, which will allow IRS to identify those charities receiving noncash donations, gives taxpayers and tax preparers added incentive to make sure they get the substantiation and reporting of their charitable deductions right. Unfortunately, these requirements have become unduly complex over the years as both Congress and Treasury have sought to prevent actual and perceived improper deductions. This Practice Alert, which is excerpted from a more extensive article in the March/April 2008 issue of Taxation of Exempts , discusses the requirements for substantiating and reporting charitable contributions.

The dollar thresholds. The discussion below follows the standard practice of organizing the substantiation and reporting requirements by the dollar thresholds at which different rules take effect. Unless otherwise stated, the dollar thresholds represent the amount of the deduction that the donor claims for the charitable contribution, which will not always equal the actual value of the contribution. If, for example, a donor receives goods or services in exchange for the contribution, and is forced to reduce his or her deduction accordingly, the threshold is usually determined by the deduction amount, not the gross value of the contribution. For this purpose, “deduction amount” means the deduction before applying any income limitations under Code Sec. 170(b) (i.e., limitations of charitable deductions to 50%, 30%, or 20% of the donor's “contribution base,” usually adjusted gross income).

Unless otherwise stated, the substantiation and reporting requirements apply to the contributions of individuals, corporations, and partnerships. They apply to partnerships at the entity level, even though inadequate substantiation can result in the denial of the deduction at the individual partner level.

Requirements applicable to all charitable deductions. To take a charitable deduction for any contributions of cash, checks, or other monetary gifts made after Aug. 17, 2006, Code Sec. 170(f)(17) requires that a donor retain either (1) a bank record or (2) a written communication from the donee showing the name of the donee organization, the date of the contribution, and the amount of the contribution. For these purposes, a bank record can include a canceled check, a bank copy of a canceled check, or a bank statement containing the name of the charity, the date, and the amount. This provision therefore puts an end to the ability of taxpayers to claim a charitable deduction for undocumented cash contributions, even if each contribution is of a relatively small amount.

Donors making contributions through payroll deductions can satisfy the “written communication” portion of Code Sec. 170(f)(17) with (1) a pay stub, Form W-2, or other document furnished by the employer stating the amount withheld for payment to a charity; and (2) a pledge card or other document prepared by (or at the direction of) the donee organization showing the name of the donee organization. (Notice 2006-110, 2006-51 IRB 1127)

Similarly, donors of noncash property must retain a “receipt” (which can include a letter or other written communication) from the donee. It must show the name of the donee, the date and location of the contribution, and a reasonably detailed description (but not necessarily the value) of the property contributed. ( Reg. § 1.170A-13(b)(1) ) When obtaining a receipt would be “impractical,” however, (e.g., if the donor deposits property at a charity's unattended drop site), the donor can support a deduction by keeping “reliable written records” that contain the following information:

The name and address of the donee.
The date and location of the contribution.
A reasonably detailed description (but not necessarily the value) of the property contributed.
The fair market value of the property at the time the contribution was made.
The method used to determine the fair market value (and, if the valuation was determined by appraisal, a copy of the appraiser's signed report).
The terms of any agreement or understanding entered into by the donor relating to the use, sale, or other disposition of the contributed property. (Reg. § 1.170A-13(b)(2)(ii))
Requirements applicable to charitable deductions of $250 or more. The most significant provision that takes effect with gifts of this size is Code Sec. 170(f)(8). It requires donors taking a deduction of $250 or more for any one contribution (either cash or noncash) to obtain a “contemporaneous written acknowledgment” from the donee. This acknowledgment must state (1) the amount of cash and/or provide a description (but not the value) of any noncash property contributed and (2) whether the donee organization provided any goods or services in consideration (in whole or in part) for any cash or other property contributed.

If goods and services were provided as consideration, the acknowledgment also must provide a good faith estimate of the value of such goods or services (or, if such goods or services consisted solely of “intangible religious benefits,” a statement to that effect). (Code Sec. 170(f)(8)(B)) To be “contemporaneous,” a written acknowledgment must be obtained on or before the earlier of (1) the date the donor files the return for the tax year in which he or she makes the contribution or (2) the due date (including extensions) for filing that return. (Code Sec. 170(f)(8)(C))

In determining whether they have crossed the $250 threshold, donors need only look at the amount of a single contribution to a specific donee. Accordingly, separate contributions of less than $250 to the same donee do not require a contemporaneous written acknowledgment, even if they total $250 or more during the same tax year. (Reg. § 1.170A-13(f)(1))

Requirements applicable to noncash charitable deductions of more than $500. Donors of cash of more than $500 face no substantiation and reporting requirements other than those discussed above. Other donors face a more complicated situation. The most notable requirement that takes effect for noncash contributions above the $500 threshold is filing an Form 8283, which any donor, other than certain C corporations, must do when claiming a charitable deduction for a noncash gift of over $500. C corporations, other than personal service and closely held corporations, must file Form 8283 only if the amount claimed as a deduction is more than $5,000.

Another requirement is to maintain the “reliable written records” discussed above. These donors' records must also include information regarding (1) how the donor acquired the property (e.g., by purchase, gift, bequest, inheritance, or exchange); (2) the approximate date on which the donor received the property (or substantially completed its production, manufacture, or creation); and (3) the adjusted basis of the contributed property (with the exception of publicly traded securities) immediately before the contribution. (Reg. § 1.170A-13(b)(3))

Additional requirements apply to gifts of particular kinds of noncash contributions in excess of $500—specifically, (1) qualified vehicles, (2) qualified conservation contributions under Code Sec. 170(h) , and (3) clothing and household items.

Requirements applicable to noncash charitable deductions of $5,000 or more. Crossing the $5,000 threshold triggers the most onerous substantiation rule for donors of noncash property: the requirement to obtain a “qualified appraisal” of the contributed property. (Code Sec. 170(f)(11)(C))

Qualified appraisal. All donors claiming a charitable deduction of more than $5,000 for an item (or similar items) of noncash property (other than publicly traded securities and certain other excepted items) must obtain a qualified appraisal and keep it in their records “for as long as it may be relevant in the administration of the internal revenue laws.” (Reg. § 1.170A-13(c)(3)(iv)(C)) They also must complete the appraisal summary on section B of Form 8283, which must be signed and dated by both the qualified appraiser and the donee. (Reg. § 1.170A-13(c)(4)(i)(B), (C))

As defined in the Code and regs, a qualified appraisal is a written appraisal document that:

Is made not earlier than 60 days before the property is contributed.
Is received by the donor before the due date (including extensions) of the return on which the deduction is claimed.
Includes certain specified information.
Does not involve an appraisal fee based on a percentage of the appraised value of the property (with one narrow exception for certain fees to nonprofit appraiser associations) or the value of the property allowed as a charitable deduction under Code Sec. 170.
Is conducted in accordance with “generally accepted appraisal standards” (e.g., the Uniform Standards of Professional Appraisal Practice), as well as any applicable regs or other guidance provided by Treasury.
Is conducted, prepared, signed, and dated by a “qualified appraiser.” (Code Sec. 170(f)(11)(E) ; Reg. § 1.170A-13(c)(3))
A key component of a “qualified appraisal,” then, is that it be conducted by a “qualified appraiser.” Under new provisions in the PPA, a qualified appraiser is an individual who:

Has an appraisal designation from a recognized professional appraiser organization or has met minimum education and experience requirements to be set by regulation.
Is regularly paid to perform appraisals.
Can demonstrate verifiable education and experience valuing the type of property appraised.
Has not been barred from practice before IRS during the three years preceding the date of the appraisal.
Meets any additional requirements prescribed by the Treasury in regs or other guidance. (Code Sec. 170(f)(11)(E))
Requirements applicable to deductions of $20,000 or more for contributions of art. Donors who take a total deduction of $20,000 or more for contributions of works of art must attach a complete copy of their signed appraisal to the return on which they claim the deduction. For individual objects valued at $20,000 or more, a photograph of “sufficient qualify and size” must be provided to IRS upon request. (Ann. 90-25, 1990-8 IRB 25; Instructions to Form 8283)

Rev Proc 96-15, 1996-1 CB 627, contains a procedure open to those who contribute works of art valued at $50,000 or more. Such donors may, before filing the return claiming the charitable deduction, request a Statement of Value from the IRS to substantiate the value of the gift for income tax purposes. This does not save the donor the trouble of getting an appraisal, as the donor has to submit a completed appraisal to IRS to get the Statement of Value.

Requesting a Statement also presents a potential downside risk. If the donor does not withdraw the request before receiving an answer and obtains a Statement of Value that is lower than his or her appraisal, the donor nevertheless must attach the Statement to his or her income tax return reporting the charitable deduction (though the donor can also enclose additional information supporting his or her appraised value). On the other hand, if the Statement accords with the donor's own appraisal, he or she is entitled to rely on it, assuming the Statement was based on “accurate statements of the material facts.”

Requirements applicable to deductions of more than $500,000. Donors claiming a deduction of more than $500,000 for an item (or group of similar items) donated to one or more donees must attach their qualified appraisal to their returns. (Code Sec. 170(f)(11)(D))

Source: Federal Taxes Weekly Alert (preview) 10/30/2008, Volume 54, No. 44

Business standard mileage rate increases for last half of 2008—other rates also rise


IRS has announced that the optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) will increase 8¢ from 50.5¢ to 58.5¢ per mile for business travel from July 1, 2008 to Dec. 31, 2008 to better reflect the real cost of operating an auto in this period of rapidly rising gas prices. The rate for using a car to get medical care or in connection with a move that qualifies for the moving expense will also increase 8¢ for the last half of 2008 from 19¢ to 27¢ per mile.

RIA observation: IRS's increase in the business standard mileage rate is undoubtedly a result of recent pressure brought to bear on IRS to take action to relieve taxpayers suffering from skyrocketing gas prices (see Newsstand e-mail 6/18/08). On June 11, 2008, Senator Norm Coleman (R-MN) sent a letter to IRS Commissioner Shulman, requesting that IRS increase the 2008 standard mileage rates to better reflect the high cost of travel. Coleman noted that in the past, in 2005, IRS raised the standard mileage rates for the last four months of the year, rather than waiting until year-end, due to a large increase in gas prices. Earlier, on June 6, 2008, National Treasury Employees Union (NTEU) President Colleen Kelley also wrote to Commissioner Shulman, on behalf of federal government employees, asking him to consider making a mid-year adjustment to the 2008 standard mileage rates.

RIA observation: The plight of taxpayers suffering from ever increasing gas prices has not been ignored by legislators. On May 19, 2008, Sen. Charles Schumer (D-NY) introduced a bill in the Senate, S. 3032, the “Reimburse Our American Drivers (ROAD) Act of 2008,” that would temporarily increase the standard mileage rate to 70¢ per mile on travel for business, medical, and moving expense-related purposes. Federal employees would also be allowed to use this rate. The rate would be in effect during all of 2008. The legislation has been referred to the Senate Finance Committee for consideration.

RIA observation: As the gas prices at the pump continue to rise at a record breaking pace, it is questionable whether the additional 8¢ per mile will provide significant relief to taxpayers, or turn out to be a matter of too little too late.

Background. The mileage allowance deduction replaces separate deductions for lease payments (or depreciation if the car is purchased), maintenance, repairs, tires, gas, oil, insurance and license and registration fees. The taxpayer may, however, still claim separate deductions for parking fees and tolls connected to business driving. (Rev Proc 2007-70, Sec. 5.04) IRS generally adjusts the standard mileage rate annually, based on a yearly study of the fixed and variable costs of operating an automobile.

Employers that require employees to supply their own autos may reimburse them at a rate that doesn't exceed the business mileage allowance for employment-connected business mileage, whether the autos are owned or leased. (Rev Proc 2007-70, Sec. 9.01) Additionally, an employee's personal use of lower-priced company autos may be valued at the optional mileage allowance if the conditions specified in Reg. § 1.61-21(e)(1) are met.

A separate rate for using a car to get medical care or in connection with a move that qualifies for the moving expense deduction. (Rev Proc 2007-70, Sec. 7.02) The mileage rate for driving an auto for charitable use (14¢ per mile) is a statutory rate that's not adjusted for inflation. (Rev Proc 2007-70, Sec. 7.01)

When the new rates are effective. The revised standard mileage rates in Ann. 2008-63 apply to deductible transportation expenses paid or incurred for business, medical, or moving expense purposes on or after July 1, 2008, and to mileage allowances that are paid both (1) to an employee on or after July 1, 2008; and (2) with respect to transportation expenses paid or incurred by the employee on or after July 1, 2008.

However, the standard mileage rates in Rev Proc 2007-70, 2007-50 IRB 1162, continue to apply to deductible transportation expenses paid or incurred for business, medical, or moving expense purposes before July 1, 2008, and to mileage allowances paid: (1) to an employee before July 1, 2008, or (2) with respect to transportation expenses paid or incurred by the employee before July 1, 2008. All other provisions of Rev Proc 2007-70 remain in effect. (Ann. 2008-63)

RIA Research References: For the optional mileage allowance, see FTC 2d/FIN ¶ L-1903; United States Tax Reporter ¶ 1624.157; TaxDesk ¶ 293,005.

Source: Federal Taxes Weekly Alert (preview) 06/26/2008, Volume 54, No. 26

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