Masonry Magazine February 1989 Page. 41
TAX MATTERS
Irving L. Blackman is the most published CPA in the country and spreads his tax knowledge as a dynamic speaker. Mr. Blackman specializes closely held business and will consult with readers of this column. He is a partner in Blackman Kallick Bartelstein, a Chicago-based accounting and business consulting firm. Direct your questions to 300 S. Riverside Plaza, Chicago, IL 60606, or call (312) 207-1040.
A LOOK AT THE NEW 1988 TAX LAW
On November 10, 1988, President Reagan signed his last tax hurrah-the Technical and Miscellaneous Revenue Act of 1988. The Act will soak some unhappy taxpayers about $4 billion over the next three years to pay for a shower of benefits for other lucky taxpayers.
Taxpayers Bill of Rights
The new law contains a series of provisions designed to bolster your rights when dealing with the IRS. Abusive action by the IRS should be curtailed. Here are some of the more important ground rules to help resolve disputes between the IRS and taxpayers:
* The IRS is prohibited from imposing production quotas on employees involved in the collection process.
* In general, taxpayers must receive a more complete description of why they are being assessed tax or penalties.
* Taxpayers can make an audio recording of an interview with the IRS.
* A taxpayer can suspend an interview to consult with his or her representative.
* Taxpayers can recover legal fees if the IRS' position is not substantially justified.
Section 89 Rules Eased
Starting in 1989, Section 89 of the tax code requires all employers to apply a complex set of nondiscrimination tests to each of their benefit plans. The rules are designed to discourage companies from favoring highly compensated employees. For example, a plan would be discriminatory if it provided free annual physicals only for the top executive group of the company. Under Section 89, the company could still deduct the cost of the physicals, but the value of the benefit would no longer be tax-free to the executive.
Here are some of the most significant changes made by the new law:
* Employers can select one day per year to test their plans for nondiscrimination.
* Employers have more freedom to combine "comparable" plans for testing purposes.
* Employers have more freedom to exclude certain employees and their families for testing purposes (for example, employee dependents covered by other company benefit plans or part-time workers).
* Employees can use a random sample of employees to perform the nondiscrimination tests.
New Rate on Accumulated Earnings
The Act looks back in time. For tax years starting after December 31, 1987, the accumulated earnings tax on corporations is a flat 28 percent. Under the old law, the tax was 27½ percent on the first $100,000 of accumulated taxable income and 38½ percent on the excess.
A New Tax Break for College Boosters
Back in 1986, the IRS caused problems for college booster clubs by ruling that no deduction would be allowed for a contribution to a college if the taxpayer received, in exchange, a right to buy game tickets. Under the new law, you can deduct 80 percent of contributions to an educational institution when you receive the right to buy game tickets in exchange.
The new break is allowed for contributions made by individuals or businesses in 1984 or after. You have until November 10, 1989 to file a refund claim. One caution: you can't get a deduction or refund for amounts paid to purchase game tickets.
Research Tax Credit Lives Again
The research tax credit was scheduled to die at the end of 1988. But the new law gives the credit a reprieve for one year-until December 31, 1989. This is the basic rule: if you incur qualified research expenses, you receive a tax credit if your current year expenses exceed your "base period" (generally, the three preceding years) expenses. Your credit is 20 percent of the excess.
The new law cracks down on the old benefits. Under old law, you could deduct all of the research expenses plus take the credit. But now, the research expense deduction must be reached by one-half of the credit claimed.
Terminating a Pension Plan Becomes More Costly
It has become fashionable for a business to terminate its pension plan. The surplus assets in the plan, after required distributions to employees, are returned to the employer. The amount of such asset reversion to the employer was taxed at a 10 percent nondeductible penalty. The new law balloons the penalty to 15 percent of the surplus assets. The higher penalty hits any employer receiving the reversion after October 20, 1988.
The New Kid on the Block: Tax-Free College Savings Bonds
You'll like this new law. The rule in a nutshell: No Federal income tax will be owed when Series EE bonds purchased after 1989 are redeemed if "qualified education expenses" incurred in the year of redemption equal or exceed the bond proceeds. Qualified expenses are tuition and other required fees (but not room and board) paid to a college or vocational school.
This benefit is only available to people who buy the bonds after reaching age 24. All interest is tax-free for a married couple filing a joint return whose adjusted gross income (AGI) is less than $60,000 ($40,000 for single filers). The break does not apply to joint filers whose AGI is over $90,000 ($55,000 for singles). The interest is partially tax-