News

IRS Works to Quickly, Accurately Implement AMT Patch

Good News!!

WASHINGTON — The Internal Revenue Service announced it will immediately begin the final reprogramming steps for its income-tax processing systems to prepare for the upcoming tax season following final passage of the Alternative Minimum Tax “patch” Wednesday by the House.

“Our people will do everything they can to quickly update our systems for this major change and make this filing season as smooth as possible for everyone,” said Linda Stiff, IRS Acting Commissioner. “Our goal is to process tax returns accurately and to issue refunds to taxpayers as quickly as possible.”

The AMT and AMT-related tax calculations affect a number of core IRS processing systems that will need to be updated. The IRS is continuing to aggressively explore options for the 2008 filing season in order to minimize the impact of processing delays on taxpayers. Additional details will be available to the public as soon as plans are finalized.

To help the tax professional and software communities prepare for the upcoming filing season, revised copies of the 12 tax forms impacted by the AMT legislation will be posted to IRS.gov within 72 hours after the AMT patch is signed into law.

As more details on the AMT situation develop, the IRS encourages taxpayers to visit IRS.gov for more information.

IRS Issues List of Vehicles that Qualify for the Alternative Motor Vehicle Credit

WASHINGTON — Purchasers of certain large trucks, buses or other heavy vehicles running on alternative fuel can claim a credit of up $32,000, and purchasers of certain large hybrid trucks and other heavy hybrid vehicles can claim a credit of up to $12,000 if they qualify for the Alternative Motor Vehicle Credit.

Qualified Alternative Fuel Motor Vehicles (QAFMV) are powered solely by alternative fuels, such as compressed natural gas, liquefied natural gas, liquefied petroleum gas, hydrogen and any liquid at least 85 percent of the volume of which consists of methanol. Vehicles powered by a combination of an alternative fuel and a petroleum-based fuel may qualify for a reduced credit.  Purchases of new vehicles with special equipment, as well as ones converted for alternative power, may qualify.

A credit also is available for certain new qualified heavy hybrid vehicles with a gross vehicle weight rating in excess of 8,500 pounds. A qualifying heavy hybrid motor vehicle draws propulsion energy from onboard sources of stored energy which are both an internal combustion or heat engine using consumable fuel, and a rechargeable energy storage system. This credit should be not confused with the alternative motor vehicle credit for qualified hybrid passenger automobiles and light trucks.

The list of vehicles is updated periodically

IRS Announces 2008 Standard Mileage Rates; Rate for Business Miles Set at 50.5 Cents per Mile

WASHINGTON — The Internal Revenue Service today issued the 2008 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning Jan. 1, 2008, the standard mileage rates for the use of a car (including vans, pickups or panel trucks) will be:

• 50.5 cents per mile for business miles driven;
• 19 cents per mile driven for medical or moving purposes; and
• 14 cents per mile driven in service of charitable organizations.

The new rate for business miles compares to a rate of 48.5 cents per mile for 2007. The new rate for medical and moving purposes compares to 20 cents in 2007. The rate for miles driven in service of charitable organizations has remained the same.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS), after claiming a Section 179 deduction for that vehicle, for any vehicle used for hire or for more than four vehicles used simultaneously. Revenue Procedure 2007-70 contains additional information on these standard mileage rates.

Interest Rates Drop for the First Quarter of 2008

WASHINGTON – The Internal Revenue Service today announced that interest rates for the calendar quarter beginning January 1, 2008, will drop by one percentage point.  The new rates will be:  

• seven (7) percent for overpayments [six (6) percent in the case of a corporation];
• seven (7) percent for underpayments;
• nine (9) percent for large corporate underpayments; and
• four and one-half (4.5) percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis.  For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.  Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points.  The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points.  The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The interest rates announced today are computed from the federal short-term rate based on daily compounding determined during October 2007.

Plan Now to Get Full Benefit of Saver’s Credit; Tax Break Helps Low- and Moderate-Income Workers Save for Retirement

IR-2007-187, Nov. 9, 2007

WASHINGTON — Low- and moderate-income workers can take steps now to save for retirement and earn a special tax credit in 2007 and the years ahead, according to the Internal Revenue Service.

The saver’s credit helps offset part of the first $2,000 workers voluntarily contribute to IRAs and to 401(k) plans and similar workplace retirement programs. Formally known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply.

“We want low- and moderate-income workers to know about this valuable credit so they can effectively plan ahead and take full advantage of it,” said Richard J. Morgante, commissioner of the Wage and Investment Division of the IRS. “Now that a growing number of employers are automatically enrolling their employees in 401(k) plans, the saver’s credit offers many workers who save for retirement an added bonus.”

Eligible workers still have time to make qualifying retirement contributions and get the saver’s credit on their 2007 tax return. People have until April 15, 2008, to set up a new individual retirement arrangement or add money to an existing IRA and still get credit for 2007. However, elective deferrals must be made by the end of the year to a 401(k) plan or similar workplace program, such as a 403(b) plan for employees of public schools and certain tax-exempt organizations, a governmental 457 plan for state or local government employees, and the Thrift Savings Plan for federal employees. Employees who are unable to set aside money for this year may want to schedule their 2008 contributions soon so their employer can begin withholding them in January.     

The saver’s credit can be claimed by:

• Married couples filing jointly with incomes up to $52,000 in 2007 or $53,000 in 2008;
  
   
• Heads of Household with incomes up to $39,000 in 2007 or $39,750 in 2008; and
  
   
• Married individuals filing separately and singles with incomes up to $26,000 in 2007 or $26,500 in 2008.

Like other tax credits, the saver’s credit can increase a taxpayer’s refund or reduce the tax owed. Though the maximum saver’s credit is $1,000, $2,000 for married couples, the IRS cautioned that it is often much less and, due in part to the impact of other deductions and credits, may, in fact, be zero for some taxpayers.

A taxpayer’s credit amount is based on his or her filing status, adjusted gross income, tax liability and amount contributed to qualifying retirement programs. Form 8880 is used to claim the saver’s credit, and its instructions have details on figuring the credit correctly.

In 2005, the most recent year for which complete figures are available, saver’s credits totaling more than $900 million were claimed on nearly 5.3 million individual income tax returns. Saver’s credits claimed on these returns averaged $216 for joint filers, $149 for heads of household and $140 for single filers.

The saver’s credit supplements other tax benefits available to people who set money aside for retirement. For example, most workers may deduct their contributions to a traditional IRA. Though Roth IRA contributions are not deductible, qualifying withdrawals, usually after retirement, are tax-free. Normally, contributions to 401(k) and similar workplace plans are not taxed until withdrawn.

Other special rules that apply to the saver’s credit include the following:

• Eligible taxpayers must be at least 18 years of age.
  
   
• Anyone claimed as a dependent on someone else’s return cannot take the credit.
  
   
• A student cannot take the credit. A person enrolled as a full-time student during any part of 5 calendar months during the year is considered a student.
  
   
• Certain retirement plan distributions reduce the contribution amount used to figure the credit. For 2007, this rule applies to distributions received after 2004 and before the due date (including extensions) of the 2007 return. Form 8880 and its instructions have details on making this computation.

Begun in 2002 as a temporary provision, the saver’s credit was made a permanent part of the tax code in legislation enacted last year. To help preserve the value of the credit, income limits are now adjusted annually to keep pace with inflation. More information about the credit is on this Web site.

2008 Nissan Altima Certified as Qualified Hybrid Vehicle

IR-2007–188, Nov. 13, 2007

WASHINGTON —The Internal Revenue Service has acknowledged the certification by Nissan North America, Inc., that its 2008 Nissan Altima Hybrid vehicle meets the requirements of the Alternative Motor Vehicle Credit as a qualified hybrid motor vehicle.

The credit amount for the hybrid vehicle certification of the 2008 Nissan Altima Hybrid is $2,350.

The announcement comes after the IRS concluded its quarterly review of the number of hybrid vehicles sold. Nissan sold 2,627 qualifying vehicles to retail dealers in the quarter ending Sept. 30, 2007. This brings the total number of qualified hybrid vehicles sold to 7,849.

Original owners may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th vehicle. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. No credit is allowed after the fifth quarter.

Honda Hybrid Begins Phase-Out on January 1

IR-2007-191, Nov. 19, 2007

WASHINGTON — The Internal Revenue Service announced today that American Honda Motor Company, Inc, has submitted quarterly reports indicating that its cumulative sales of qualified vehicles to retail dealers reached the 60,000-vehicle limit during the calendar quarter ending Sept. 30, 2007.

Under the current tax law, the credit for buying a hybrid vehicle begins to phase out in the second calendar quarter after the quarter in which the manufacturer sells its 60,000th hybrid or lean burn technology vehicle.

The credit for all new qualified hybrid passenger automobiles or light trucks manufactured by Honda will begin to phase out on Jan. 1, 2008.

Vehicles purchased before Jan. 1, 2008 qualify for the full credit. For Honda hybrid vehicles bought on or after Jan. 1, 2008, and on or before June 30, 2008, the credit is 50 percent of the otherwise allowable credit amount. Taxpayers buying vehicles on or after July 1, 2008, and on or before Dec. 31, 2008, can only get 25 percent of the credit.

Here are the credit amounts for Jan. 1, 2008, through June 30, 2008:

• Honda Accord Hybrid AT, Model Year 2007 — $650
• Honda Accord Hybrid Navi AT, Model Year 2007 — $650
• Honda Civic Hybrid CVT, Model Year 2007 —$1,050
• Honda Civic Hybrid CVT, Model Year 2008 — $1,050

Here are the credit amounts for July 1, 2008 – Dec. 31, 2008:

• Honda Accord Hybrid AT, Model Year 2007 — $325
• Honda Accord Hybrid Navi AT, Model Year 2007 — $325
• Honda Civic Hybrid CVT, Model Year 2007 —$525
• Honda Civic Hybrid CVT, Model Year 2008 — $525
   

Beginning Jan 1, 2009, taxpayers who buy a Honda hybrid cannot claim the related tax credit.