Estimated tax rules opposed by AICPA.
The new benefits will be paid for partially by changing the method of calculating estimated tax payments, limited some taxpayers' ability to base quarterly estimated tax payments on the prior year's tax liability.
"The funding mechanism for this legislation presents an insidious trap for taxpayers," warned Donald H. Skadden, AICPA vice-president-taxation. "In many instances, taxpayers will have to calculate their estimated payments four times a year -- often with incomplete or inadequate information," he added, pointing out that often taxpayers will have only 15 days to put this information together and file the proper forms. "This is clearly unacceptable," Skadden said.
While only 400,000 taxpayers may exceed the law's allowed thresholds, many times that number likely will have to make quarterly calculations to determine whether they are subject to the new rules. According to Skadden, the taxpayers most likely to be affected by the funding mechanism are small business owners operating as sole proprietors, partnerships and small corporations.
Before the bill was passed, the AICPA contacted the administration and Democratic and Republican leaders in the House and Senate to let them know of the Institute's opposition and to suggest alternative funding methods. AICPA representatives also met with members and staff of both the House Ways and Means Committee and the Senate Finance Committee. While the Institute's suggestions were not embraced in full, some of the harshest provisions of the law were eased through exceptions and higher thresholds.
Provisions. In general, the new law means 100% of the prior year's tax safe harbor for quarterly estimated taxes will not be available if the taxpayer's modified adjusted gross income (AGI) grows by more than $40,000 for that year and if the taxpayer has AGI over $75,000 in the current year.
The following are exceptions:
* The first estimated tax payment each year (usually due April 15) may be based on 100% of prior-year liability.
* Taxpayers not subject to estimated tax requirements for any of the three preceding years may base their current estimated payments on 100% of the prior year's liability.
* Gains from involuntary conversions and sale of a principal residence are not included in determining whether the $40,000 threshold is exceeded.
* If they have less than a 10% ownership interest, limited partners and S corporation shareholders may use the prior year's income from the partnership or S corporation in determing whether the $40,000 threshold is exceeded.
The new law is effective for tax years 1992 through 1996 and may require partnerships and S corporations to provide K-1 type information within a few days after the end of May, August and December.
The AICPA tax division is planning to issue a practice guide to assist members in interpreting and applying these new rules.
The possibility of having the new estimated tax rules repealed also is being explored by the tax division. "Since the current approach for calculating estimated taxes is relatively simple for most taxpayers," said Skadden, "we strongly encourage Congress to scrap the new rules and find other means for funding the benefits. We would be happy to work with the tax writers to find a simpler way to bring it about."
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|Title Annotation:||American Institute of Certified Public Accountants|
|Publication:||Journal of Accountancy|
|Date:||Feb 1, 1992|
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