Bill to restore estimated tax safe harbor introduced.
The bill is intended to resolve hardships created when Congress, in November 1991, repealed the safe harbor certain taxpayers relied on to avoid a penalty for underpaying estimated taxes. It waives penalties if a taxpayer makes estimated payments equal to 100% of the previous year's tax liability.
Since 1992, certain taxpayers have been barred from using the 100% previous tax year safe harbor. Taxpayers with current tax year adjusted gross incomes over $75,000 and current year incomes more than $40,000 higher than the previous year's were singled out and, in effect, required to make estimated tax payments equal to 90% of the current year's tax liability.
Impossible burden. "The November 1991 law did not provide a workable objective standard on which these taxpayers could rely," Bumpers said. "Rather, it set a floating standard based on the current year's tax liability. The repeal of the safe harbor left these taxpayers in an untenable and costly situation.
"It is an absolute nightmare," he continued, "because the 1991 law requires these taxpayers or their accountants to compute their taxable income for each estimated tax period within a two-week window to determine how much in estimated tax payments to make. This is simply an impossible burden."
Backed by AICPA. The bill is supported by a coalition including the American Institute of CPAs, the National Federation of Independent Businesses, National Small Business United, the National Society of Public Accountants and the National Association of Enrolled Agents.
According to Harvey L. Coustan, chairman of the AICPA tax executive committee, the AICPA was strongly behind efforts last year to ameliorate the estimated tax problems "until the proposals turned into a major revenue raiser that would have required all individuals and unincorporated businesses to use 120% of the prior year's tax as a safe harbor."
The current bill rejects that approach, Coustan said, while still making a $600 million contribution to deficit reduction.
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|Publication:||Journal of Accountancy|
|Article Type:||Brief Article|
|Date:||Jun 1, 1993|
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