Duvall & Associates, Inc.
BUSINESS ADVISOR NEWSLETTER
 

Last-minute tax bill will create headaches

- by Alan Duvall 

Published in Dayton Daily News   December 31, 2006 

Ahh...comforting images of the Holiday Season.  Early morning patrons lining up after Thanksgiving in front of electronics stores.  And Republicans muscling last minute tax bills through Congress before the new wave of Democrats pours into its hallowed halls. 

Bundled with provisions expanding offshore oil drilling rights, overturning prospective reductions in physician Medicare payments and foreign trade measures was a sweeping bill providing a purported $38 million in federal tax reductions over the next five years. 

Retroactive to the beginning of 2006 and extended through 2007, the act preserves several tax benefits previously poised for expiration.  Tax breaks so preserved include the research and development credit, itemized deduction for state and local taxes, energy incentives, and higher-education and teacher expense deductions.  

Restaurants were aided by preservation of accelerated 15-year depreciation of qualified leasehold improvements and property.  Employers retained work opportunity and welfare employment tax credits. 

Increasingly popular Health Savings Accounts (HSA’s) were temporarily enhanced with provisions providing defined roll-overs from IRA’s, flexible spending and Health Reimbursement Accounts.  In addition, annual HSA contribution limits were increased for employees and employers alike.  

Unfortunately, the bill inexplicably failed to provide continuing exemption relief to millions of middle-class taxpayers who will suddenly find themselves ensnared by the Alternative Minimum Tax trap.  Some Alt Min relief was provided in the form of a modified refundable credit for recipients of employee incentive stock options. 

The late hour delay in passing the tax bill will inevitably create turmoil just in time for tax preparation.  Prior to the bill's passage, the Internal Revenue Service (IRS) had already printed 2006 individual and business tax forms.  It will not reprint those forms to reflect provisions imbedded in the new bill.   

In a memorandum to the Senate, the IRS deadpanned “taxpayers may be confused” – an understatement to be sure.  In 4 to 6 weeks the IRS hopes to mail sales tax deduction tables as well as post revised return filing instructions on its Web site.   

Expect an avalanche of incorrectly-filed returns and a long delay in the processing of refund requests. 

“If stupidity got us into this mess, then why can’t it get us out?”  Will Rogers. 

Alan Duvall is a certified public accountant in Dayton.  Contact him at Alan@Duvallcpa.com.