JANUARY 23, 2011 UPDATE

[Gutter Chaves Josepher Rubin Forman Fleisher Law Firm]

January 23, 2011
An Electronic Newsletter of Gutter Chaves Josepher Rubin Forman
Fleisher P.A.
Charles (Chuck) Rubin, Editor/Author (except as otherwise noted) ©
2011

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CONTENTS:

1. APPLICABLE FEDERAL RATES–FEBRUARY 2011
2. PRESENTATION MATERIALS AVAILABLE
3. IRS EXPANDS SIMPLIFIED FILINGS FOR SMALLER EXEMPT ORGANIZATIONS
4. AMENDED RETURNS AND THE TIMELY MAILED/TIMELY FILED RULE
5. TREASURY SET TO CHASE OFF MORE FOREIGN CAPITAL
6. WHOLESALE CLUB PURCHASES CAN BE DEDUCTIBLE, BUT…
7. APPLICATION OF NONDISCRIMINATION RULES TO GROUP HEALTH PLANS
DEFERRED
8. ADDITIONAL NEW TAX LAW PROVISIONS
9. FIRM ANNOUNCEMENTS
10. ABOUT OUR FIRM

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1. APPLICABLE FEDERAL RATES–FEBRUARY 2011

A chart and table of the February applicable federal rates can be
viewed at http://tinyurl.com/4rv6c4s.

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2. PRESENTATION MATERIALS AVAILABLE

Earliest this month, Robert Chaves and Charles Rubin presented an
annual update on foreign tax issues, including a detailed review of
the foreign tax provisions under FATCA (as part of the 2010 HIRE Act)
at the 29th International Tax Conference in Miami. Copies of the
presentation materials are available for viewing and downloading at
the bottom of our firm’s Resources web page at http://www.floridatax.com/Resources.html.

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3. IRS EXPANDS SIMPLIFIED FILINGS FOR SMALLER EXEMPT ORGANIZATIONS

The IRS has doubled the $25,000 gross receipts threshold to $50,000
that allows exempt organizations to file an “e-postcard” Form 990-N,
in lieu of a full Form 990. More particularly, an exempt organization
with annual gross receipts of less than $50,000 can use the Form 990-
N:

--if for the first year of existence, total gross receipts (including
amounts pledged by donors) are $75,000 or less;

--if in the second or third year, $60,000 or less;

--if in fourth or later year, $50,000 or less.

Now don’t get too excited – as before, private foundations and Code
§509(a)(3) organizations cannot use the Form 990-N. Nor does it
relieve organizations of having to file a Form 990-T to report
unrelated business income.

Foreign organizations and U.S. possession organizations cannot use
this alternate filing if they have significant activity (including
lobbying and political activity or the operation of a trade or
business, but excluding investment activity) in the U.S.

Rev.Proc. 2011-15

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4. AMENDED RETURNS AND THE TIMELY MAILED/TIMELY FILED RULE

A recent Chief Counsel Advice reveals the quirky nature of the timely
mailed/timely filed rule as to amended returns. The CCA notes that the
rule which treats a return as filed as of the date of mailing under
Code Section 7502 will NOT apply to an amended return that shows an
increase in tax due. This is because Section 7402 only applies to
returns that are “required to be filed” and such returns are not
required. Thus, under the CCA, a taxpayer who submitted an amended
return that was timely when mailed, but beyond the statute of
limitations for assessment of taxes when received by the IRS, could
not be assessed taxes for the increased tax amount shown on the
return.

However, the CCA notes that if the amended return included a claim for
refund, then the timely mailed/timely filed rule WOULD apply since the
law requires a claim to filed in such case.

Thus, this is quite a quirky situation where the timely mailed rule
should be available to help taxpayers submitting amended returns
seeking a refund (to save them from a late filing based on the day the
IRS receives the return), but will not be applied to help the IRS when
such a return shows additional tax due.

CCA 201052003

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5. TREASURY SET TO CHASE OFF MORE FOREIGN CAPITAL

The U.S. does not tax nonresident aliens on interest earned on their
U.S. bank deposits. This is an implementation of a policy to draw
their capital to the U.S.

The Treasury Department doesn’t care too much about this policy – its
mission is to increase tax compliance and collections. This disconnect
with the broader policy of nontaxation is evident in recent proposed
regulations issued by the Treasury Department.

Presently, under current Regulations, U.S. bank deposit interest
payments are reported to the IRS only if the interest is paid to a
U.S. person or a nonresident alien who resides in Canada. Treas. Regs.
§1.6049-8. The IRS has now issued new proposed Regulations that will
extend information reporting requirements to include bank deposit
interest paid to nonresident aliens who reside in any foreign country.

The rationale for the enhanced reporting is to strengthen the U.S.
information exchange program (i.e., the U.S. reporting of tax
information to other countries so that other countries can tax their
residents) and reducing the ability of U.S. persons to avoid taxation
by fraudulently claiming to be nonresident aliens.

Will this Regulation, if finalized, decrease U.S. bank deposits (and
the resulting lending and increased economic activity that results
from such deposits)? Well, it surely isn’t going to increase them.

Proposed Treas. Regs. §1.6049-4 , §1.6049-5 , §1.6049-6 ,§1.6049-8 ,
§1.3406(g)-1

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6. WHOLESALE CLUB PURCHASES CAN BE DEDUCTIBLE, BUT…

A semi-secret of many restaurants and stores is that a large part of
their ingredients and inventory of items for sale are purchased at
wholesale clubs, such as Costco and Sam’s Club. Such purchases are a
testament to the favorable prices available at such clubs that are
available to both businesses and individual shoppers.

There is nothing that prohibits a taxpayer from expensing items
purchased from such clubs, or adding them to cost of goods sold for
purposes of determining income from sale of inventory. However, there
is a right way and wrong way to go about this. A recent Tax Court case
illustrates the wrong way.

In the case, the taxpayers, who ran two restaurants, included in their
cost of goods sold items purchased from grocery stores and wholesale
clubs. They produced photocopied receipts from the stores to
substantiate their expenses. In upholding the IRS in disallowing a
large part of these deductions, the Tax Court noted:

“These receipts are of little value. Without an explanation from the
Daouds, it is impossible for us to distinguish items used at their
Wienerschnitzels from those used by them personally. Many of the items
on the receipts are household or personal care products, or food and
drink (e.g., liquor) that we find were probably not served or used at
their restaurants.”

Some simple lessons can be gleaned. First, detail on the receipts what
was purchased. Second, don’t combine personal items on the same
receipts as business items.

It didn’t help the taxpayers that there were a multitude of other
facts and issues detailed in the case that raised numerous questions
for the Court as to the accuracy of the taxpayers’ returns, perhaps
coloring the Court’s opinion of the taxpayers’ claims that the
receipts substantiated bona fide business items.

Daoud, TC Memo 2010-282

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7. APPLICATION OF NONDISCRIMINATION RULES TO GROUP HEALTH PLANS
DEFERRED

In the past, there were no nondiscrimination rules that applied to
employer-sponsored health coverage, outside of self-insured medical
reimbursement plans. By “nondiscrimination,” this means that plans
cannot be more favorable to highly compensated employees than to other
employees. However, recent health care Acts now impose these rules on
insured group health plans.

Due to lack of guidance on how to apply nondiscrimination rules in
context of insured group health plans, the IRS has suspended the
application of the nondiscrimination provisions (and any related
sanctions) until after regulations or other administrative guidance is
promulgated. Such guidance, when issued, will further provide for a
time period for taxpayers to review and implement their provisions.

Notice 2011-1

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8. ADDITIONAL NEW TAX LAW PROVISIONS

In our last installment of the review of the key tax provisions of the
Tax Relief, Unemployment Insurance Reauthorization, and Job Creation
Act of 2010, we take a quick look and some other key provisions of the
Act:

I. Rates, Exemptions and Special Rules.

A. Extension of Bush tax rates through 2012, including favorable
capital gains rates and rates on qualified dividends.

B. Numerous other favorable provisions are extended to 2011 or
2012.

II. Social Security Rate Reduction.

A. The employee social security tax rate is reduced from 6.2% to
4.2%.
1. This is for 2011 only. Given the expected deadlock in
Congress in 2011 and 2012, the extension of this reduction to 2012 is
uncertain.

B. The self-employed social security tax rate is reduced from
12.4% to 10.4%.

1. This is for 2011 only. Given the expected deadlock in
Congress in 2011 and 2012, the extension of this reduction to 2012 is
uncertain.

III. AMT Exemption Amounts Increased for 2010 and 2011.

A. 2010

1. $72,450 (up from $70,950 in 2009) for married couples
filing a joint return and surviving spouses.

2. $47,450 (up from $46,700 in 2009) for an individual who
isn't married or a surviving spouse.

3. $36,225 (up from $35,475 in 2009) for married individuals
filing separate returns.

B. 2011

1. $74,450 for married couples filing a joint return and
surviving spouses.

2. $48,450 for an individual who isn't married or a
surviving spouse.

3. $37,225 for married individuals filing separate returns.

IV. Depreciation and Expensing Provisions.

A. 100% first year depreciation deduction for qualified tangible
personal property placed in service after September 8, 2010 and
through December 31, 2011 (through December 31, 2012 for certain
longer-lived and transportation property).

1. Generally, the property must be (1) depreciable property
with a recovery period of 20 years or less; (2) water utility
property; (3) computer software; or (4) qualified leasehold
improvements. Also the original use of the property must commence with
the taxpayer - used machinery doesn't qualify.

2. 50% write off applies in 2012.

B. Under Section 179 expensing, for tax years beginning in 2012 a
small business taxpayer will be allowed to write off up to $125,000
(indexed for inflation) of capital expenditures subject to a phaseout
(i.e., gradual reduction) once capital expenditures exceed $500,000
(indexed for inflation)

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9. FIRM ANNOUNCEMENTS

As noted above, Charles (Chuck) Rubin and Robert Chaves gave a
presentation earlier this month at the 29th International Tax
Conference in Miami.

Also, Charles (Chuck) Rubin gave a presentation to the Ft. Lauderdale
Tax Council last week on 2010-2011 tax and estate planning
developments.

Our attorneys are available for speaking engagements at Bar,
accountant, and other professional organization meetings and seminars
(schedules permitting). Feel free to contact us with any requests.

As this is our first newsletter of 2011, we would like to wish all of
our clients and friends a happy and healthy New Year!

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10. ABOUT OUR FIRM

Our firm seeks to protect and enhance the individual, family and
business wealth of our clients in the following principal practice
areas: Planning to Minimize Taxes (U.S. & International) • Probate &
Trust Litigation • Estate Planning, Charitable, Marital & Succession
Planning • Business Structuring & Transactions • Trusts & Estates
Administration • Tax Controversies • Creditor Protection.

Please visit our website at http://www.floridatax.com for information
about the firm, our attorneys, articles from recent monthly
newsletters, interesting articles and tax guides, and federal and
Florida tax rates and information. The firm and its attorneys have
been recognized in numerous peer rating guides, such as U.S. News &
World Report law firm rankings, Best Lawyers, Martindale-Hubbell,
Chambers, Who's Who in American Law, Florida Trend's Legal Elite,
Superlawyers, and South Florida Legal Guide Top Lawyers.

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DAILY TAX AND BUSINESS UPDATES AVAILABLE. View prior articles, updates
that we didn't have room for in this newsletter, or read the above
postings when they are first published, by visiting http://www.rubinontax.blogspot.com.

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The Usual Disclaimer: This newsletter summarizes for informational
purposes only information of interest to the clients and friends of
Gutter Chaves Josepher Rubin Forman Fleisher P.A. The information is
condensed from, and a general summary of, legislation, court
decisions, administrative rulings and other information, and should
not be construed as legal advice or opinion, and is not a substitute
for the advice of counsel.

Gutter Chaves Josepher Rubin Forman Fleisher P.A.

Boca Corporate Center
2101 Corporate Blvd., Suite 107
Boca Raton, Florida 33431
561.998.7847
www.floridatax.com