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June 2013

TAX ALERTS

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2013 Auto/Truck Maximum

Fair Market Value Rates are Released

The Internal Revenue Service (IRS) has released the 2013 maximum fair market values (FMVs) for employer-provided autos, trucks and vans, the personal use of which can be valued for fringe benefit purposes at the mileage allowance rate (56.5¢ per mile for 2013). It also has released the 2013 maximum fleet-average vehicle FMVs for autos, trucks and vans for purposes of the annual lease value (ALV) fringe benefit valuation method. Maximum FMVs for cents-per-mile valuation of personal use

An employer must treat an employee's personal use of an employer-provided auto as fringe benefit income and value it using one of several methods. One of the permitted methods allows an employer to value personal use at the mileage allowance rate (56.5¢ per mile for 2013). However, this method may be used only if the auto's FMV does not exceed $12,800, as adjusted for inflation. The inflation-adjusted figures for vehicles first made available to employees for personal use in 2013 are $16,000 for autos (up from $15,900 for 2012) and $17,000 for trucks and vans—i.e., passenger autos built on a truck chassis, including minivans and sport-utility vehicles (SUVs) built on a truck chassis—(up from $16,700 for 2012). Maximum FMVs for fleet-average ALV rule

Under the table value method, the fringe benefit value of an employee's personal use of a company-provided auto is found in a table in Regulation Section 1.61-21(d)(2)(iii). The employer determines the FMV of the auto, finds the dollar range in the table that corresponds to the FMV, and multiplies the ALV shown in the table for that FMV by the ratio of the employee's annual personal mileage of the auto to total annual mileage (employment-connected business driving plus personal driving). An employer with a fleet of 20 or more autos may determine the ALV of each auto in the fleet as though its FMV were equal to the “fleet-average value.” This “fleet-average value” is the average of the FMVs of the autos in the fleet. The fleet-average valuation rule cannot be used to compute the annual lease value of any auto whose FMV exceeds an annually adjusted inflation-indexed figure.

Under the IRS Notice 2013-27, the fleet-average valuation rule cannot be used to determine the ALV of any vehicle if its FMV on the date it is first made available in 2013 for employee personal use exceeds $21,200 for a passenger auto (up from $21,100 for 2012) or $22,300 for a truck or van (up from $21,900 for 2012). If all other applicable requirements are met, an employer with a fleet of 20 or more vehicles consisting of passenger autos, as well as trucks and vans, may use the fleet-average valuation rule as long as none exceeds its respective maximum allowable value.

For more information about this article, please contact us at taxalerts@windes.com or any of our tax professionals at (562) 435-1191, (949) 271-2600, or (213) 239-9745.

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2

Heated Debate Ahead

On Tax Reform Proposals

President Obama recently said that he wants a tax reform/deficit reduction package by August. The President has introduced a $3.77 billion budget for fiscal year (FY) 2014 with a host of tax reform proposals for lawmakers to consider. The House and Senate Budget Committees have approved competing deficit reduction and tax reform blueprints. Other committees are exploring ideas for tax reform; and private groups, most notably authors of the Simpson-Bowles Plan, are also making proposals. Whatever proposals are adopted, the outcome is sure to impact your tax strategy and planning.

All of the proposals have one common goal: reduce the federal government's approximate $16 trillion federal budget deficit. To reduce the budget deficit, many of the plans propose to cut spending and raise revenues. Lawmakers and the White House also want to replace sequestration (across-the-board spending cuts for many federal agencies) for FY 2014 and beyond with spending cuts, new revenue, or a combination of both. Individuals

The American Taxpayer Relief Act of 2012 (ATRA), signed into law on January 2, 2013, set the individual tax rates at 10, 15, 25, 28, 33, 35, and 39.6 percent for 2013 and beyond. The House GOP budget blueprint would consolidate the current seven individual income tax rate brackets into two rates. The lower rate would be 10 percent with the goal of a top rate of 25 percent. The Simpson-Bowles plan also calls for lower rates but does not specify the amounts; however, lower rates would be contingent on eliminating certain tax credits and deductions, possibly some popular ones such as the home mortgage interest deduction. President Obama has not proposed any changes to the current individual income tax rates.

President Obama has, however, proposed a minimum 30 percent tax on individuals with incomes over $1 million (full phase in at $2 million). This was known as the "Buffett Rule" (now called the Fair Share Tax). President Obama would also limit the tax rate at which higher income individuals can reduce their tax liability to a maximum of 28 percent. This limit would apply to all itemized deductions, foreign excluded income, tax-exempt interest, employer-sponsored health insurance, retirement contributions, and selected above-the-line deductions. Another proposal would limit contributions and accruals on tax-favored retirement accounts, including IRAs, qualified plans, tax-sheltered annuities, and deferred compensation plans.

Another proposal endorsed by the President, but which will be a difficult sale in Congress, is to increase the federal estate tax. ATRA "permanently" extended the estate tax at a maximum rate of 35 percent with a $5 million exclusion (indexed for inflation). President Obama wants to raise the maximum rate to 45 percent with a $3.5 million exclusion (not indexed for inflation) after 2017. Businesses

Reducing the U.S. corporate tax rate is a common goal of many of the tax reform proposals but they take different approaches. President Obama has said he would support lowering the corporate tax rate in exchange for businesses giving up unspecified tax preferences. These could include tax ~~~~~~

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Heated Debate Ahead On Tax Reform Proposals (continued) incentives for fossil fuels, the domestic production activity deduction, and more. The House blue-print would reduce the top corporate tax rate to 25 percent, paid for by tax savings elsewhere. The Simpson-Bowles plan also calls for a reduction in the corporate tax rate, contingent on businesses relinquishing unspecific tax preferences. President Obama and the House and Senate budgets also propose a number of incentives to encourage business spending and job creation. These include:

Enhanced small business expensing (Obama and House but at different amounts);

Permanent research tax credit (Obama, House and Senate);

Temporary tax credit for increasing payrolls (Obama); and

Special incentives for manufacturing in the U.S. (Obama).

Another key difference among the competing proposals: the House budget plan would repeal the Patient Protection and Affordable Care Act, including all of its business tax-related provisions, such as employer-shared responsibility provisions, the medical device excise tax, and more. The Senate approved a non-binding resolution to repeal the medical device tax but is not expected to go along with repeal of the entire Affordable Care Act. Internet sales tax In May, the Senate is expected to approve the Marketplace Fairness Act (H.R. 743). The bill gives states the authority to compel online merchants, regardless of where they are located, to collect sales tax at the time of a transaction. However, states would be able to compel collection of sales tax only after they have simplified their sales tax laws, such as by adopting the Streamlined Sales and Use Tax Agreement. The bill has the support of President Obama. However, the bill may not pass in the House, where many lawmakers view it as a tax increase. For more information about this article, please contact us at taxalerts@windes.com or any of our tax professionals at (562) 435-1191, (949) 271-2600, or (213) 239-9745.

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Planning Ahead for Your 2013 Tax Return

For most taxpayers, the tax deadline has passed. But planning for next year can start now. The Internal Revenue Service (IRS) reminds taxpayers that being organized and planning ahead can save time and money in 2014. Here are six things you can do now to make next April 15 easier. 1. Adjust your withholding. Each year, millions of American workers

have far more taxes withheld from their pay than is required. Now is a good time to review your withholding to make the taxes withheld from your pay closer to the taxes you will owe for this year. This is especially true if you normally get a large refund and you would like more money in your paycheck. If you owed tax when you filed, you may need to increase the federal income tax withheld from your wages. Use the IRS Withholding Calculator at IRS.gov to complete a new Form W-4, Employee's Withholding Allowance Certificate.

2. Store your return in a safe place. Put your 2012 tax return and supporting

documents somewhere safe. If you need to refer to your return in the future, you will know where to find it. For example, you may need a copy of your return when applying for a home loan or financial aid. You can also use it as a helpful guide for next year's return.

3. Organize your records. Establish one location where everyone in your household

can put tax-related records during the year. This will avoid a scramble for misplaced mileage logs or charity receipts come tax time.

4. Hire a tax professional. If you use a tax professional to help you with tax planning,

consult with your tax advisor and start your tax planning now. You will have more time when you are not up against a deadline or anxious to receive your tax refund.

5. Consider itemizing deductions. If you usually claim a standard deduction, you may

be able to reduce your taxes if you itemize deductions instead. If your itemized deductions typically fall just below your standard deduction, you can ‘bundle’ your deductions. For example, an early or extra mortgage payment or property tax payment or a planned donation to charity could equal some tax savings. Planning an approach now that works best for you can pay off at tax time next year.

6. Keep up with changes. Find out about tax law changes, helpful tips, and IRS

announcements all year on the IRS website, www.irs.gov. For more information about this article, please contact us at taxalerts@windes.com or any of our tax professionals at (562) 435-1191, (949) 271-2600, or (213) 239-9745.

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Who Will Pay More Taxes Under

the President’s Fiscal Year

2014 Budget Proposal?

A new study by the nonpartisian Tax Policy Center (TPC) concluded that many households would pay higher taxes under the President's budget proposal, but that the lion's share of the increased tax burden would fall on the wealthiest Americans—in particular, on the top 1% of earners. The following provisions in the President's budget are projected to bring in the following amounts in gross receipts, and reduce the deficit by that amount, over the 2014-2013 period:

Reduce the value of itemized deductions and other tax preferences to 28% for those with income in the top three (i.e., 33%, 35%, and 39.6%) tax brackets—$529 billion.

Return estate tax to 2009 levels and close loopholes—$79 billion.

Observe the “Buffett” rule, also referred to in the budget as the “Fair Share Tax,” under which households with at least $1 million of income pay a minimum of 30% in taxes (after charitable contributions)—$53 billion.

Tax carried interest income as ordinary income, instead of at the 20% capital gains rate—$16 billion.

Limit the amount that an individual can accumulate in a tax-preferred retirement account to $3 million—$9 billion.

Require non-spouse beneficiaries of Individual Retirement Account (IRA) owners and retirement plan participants to take inherited distributions over no more than five years—$5 billion.

The TPC projects that by 2023, the President's cumulative 2014 budget proposals would impact tax-payers as follows:

Tax units (i.e., an individual, or a married couple who file a tax return jointly, along with all dependents) with incomes (measured in 2012 dollars) under $30,000 would pay less in taxes. Tax units making less than $10,000 would see an overall increase in their after-tax income of 2.7%, which is the largest projected increase.

Tax units with incomes from $30,000 to $75,000 would pay slightly higher taxes. The average federal tax rate for tax units in this group would increase by 0.1 or 0.2 percentage points, reflecting an actual tax increase of $54 to $141.

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Who Will Pay More Taxes Under the President’s Fiscal Year 2014 Budget Proposal? (continued)

Tax units with incomes from $75,000 to $200,000 would see an average rate increase of 0.2 percentage points, resulting in increased taxes of $269 to $382.

Tax units with incomes from $200,000 to $500,000 would face a 0.9 percentage point increase, resulting in an average tax increase of $2,933. This would reflect a -1.2% change in after-tax income.

Tax units with incomes from $500,000 to $1 million would face a 1.6 percentage point increase, resulting in an average tax increase of $13,474. This would reflect an average -2.4% change in after-tax income. This group represents approximately 0.6% of all tax units.

Tax units with incomes over $1 million would face a 2.3 percentage point increase, resulting in an average tax increase of $96,112. This would represent an average -3.7% change in after-tax income. This group represents approximately 0.5% of all tax units.

Broken down by share of total federal tax increases, using the 2023 model, TPC projects that 62.4% of the increase would be borne by the tax units with incomes over $1 million; 10.3% of the increase would fall to those making between $500,000 and $1 million; and 15.7% would go to those in the $200,000 to $500,000 range. Therefore, 88.4% of the total increase would be borne by tax units with incomes over $200,000. For more information about this article, please contact us at taxalerts@windes.com or any of our tax professionals at (562) 435-1191, (949) 271-2600, or (213) 239-9745.

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Internal Revenue Service, Australia, and

United Kingdom Unite to Combat

Offshore Tax Evasion

The tax administrations from the United States, Australia, and the United Kingdom announced a plan to share tax information involving a multitude of trusts and companies holding assets on behalf of residents in jurisdictions throughout the world. The three nations have each acquired a substantial amount of data revealing extensive use of such entities organized in a number of jurisdictions including Singapore, the British Virgin Islands, Cayman Islands, and the Cook Islands. The data contains both the identities of the individual owners of these entities and the advisors who assisted in establishing the entity structure. The Internal Revenue Service (IRS), Australian Tax Office and HM Revenue & Customs have been working together to analyze this data and have uncovered information that may be relevant to tax administrations of other jurisdictions. Thus, they have developed a plan for sharing the data, as well as their

preliminary analysis, if requested by those other tax administrations. “This is part of a wider effort by the IRS and other tax administrations to pursue international tax evasion,” said IRS Acting Commissioner Steven T. Miller. "Our cooperative work with the United Kingdom and Australia reflects a bigger goal of leaving no safe haven for people trying to illegally evade taxes.” There is nothing illegal about holding assets through offshore entities; however, such offshore arrangements are often used to avoid or evade tax liabilities on income represented by the principal or on the income generated by the underlying assets. In addition, advisors may be subject to civil penalties or criminal prosecution for promoting such arrangements as a means to avoid or evade tax liability or circumvent information reporting requirements. It is expected that this multilateral cooperation and coordinated effort will allow many countries to efficiently process this information and effectively enforce any laws that may have been broken. Increasingly, tax administrations are working together in this way to assist one another in identifying non-compliance with the tax laws. U.S. taxpayers holding assets through offshore entities are encouraged to review their tax obligations with respect to these holdings, seek professional advice if necessary, and participate in the IRS Offshore Voluntary Disclosure Program where appropriate. Failure to do so may result in significant penalties and possibly criminal prosecution. For more information about this article, please contact us at taxalerts@windes.com or any of our tax professionals at (562) 435-1191, (949) 271-2600, or (213) 239-9745.

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Internal Revenue Service (IRS)

Reminds Those with Foreign Assets

of U.S. Tax Obligations

The IRS reminds U.S. citizens and resident aliens, including those with dual citizenship who have lived or worked abroad during all or part of 2012, that they may have a U.S. tax liability and a filing requirement in 2013. For U.S. citizens and resident aliens living overseas or serving in the military outside the U.S., the filing deadline is Monday, June 17, 2013. Because the normal June 15 extended due date falls on Saturday this year, eligible taxpayers receive two additional days to send in their returns. To use this automatic two-month extension, taxpayers must attach a statement to the return explaining which of these two situations applies: (1) they are living abroad or (2) serving in the military outside the U.S. Nonresident aliens who received income from U.S.

sources in 2012 must also determine whether they have U.S. tax obligations. The filing deadline for nonresident aliens can be April 15 or June 17, depending on sources of income. Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to fill out and attach Schedule B to the tax return. Certain taxpayers may also have to fill out and attach to the return Form 8938, Statement of Foreign Financial Assets. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located. Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on Form 8938 if the aggregate value of those assets exceeds certain thresholds. Separately, taxpayers with foreign accounts whose aggregate value exceeded $10,000 at any time during 2012 must file Treasury Department Form TD F 90-22.1. This is not a tax form and is due to the Treasury Department by June 30, 2013. For more information about this article, please contact us at taxalerts@windes.com or any of our tax professionals at (562) 435-1191, (949) 271-2600, or (213) 239-9745.

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California Governor Makes

Changes to 2013-2014 Budget

California Governor Edmund G. Brown, Jr. has revised the state's 2013–2014 budget to reflect that the state's economic and budget recovery is continuing. The goal of the May revision is to modernize California's job creation and economic development incentives, while also creating a tax on Medi-Cal managed care plans. Job creation and economic development The May revision of the Governor's budget aims to modernize the state's job creation and economic development incentives. The budget revision proposed to reshape the Enterprise Zone program to meet the needs of the current economy. Currently, the Enterprise Zone program does not encourage the creation of new jobs. Rather, it rewards moving jobs from one place to another within the state; nor

has the New Jobs Hiring Credit, which was created in 2009, been effective at stimulating job growth. The May revision is intended to strengthen both of these programs to bolster California's business environment and reintegrate people into the workforce. To accomplish this goal, the hiring credit will be refocused to specific areas with high unemployment and poverty rates, and the credit will be available for hiring of long-term unemployed workers, unemployed veterans, and people receiving public assistance. In addition, the Enterprise Zone sales tax program will be expanded to a statewide, up-front sales tax exemption for manufacturing or biotech research and development equipment purchases. Finally, the May revision creates the California Competes Recruitment and Retention Fund, which will be administered by the Governor's Office of Business and Economic Development (GO-Biz). The purpose of GO-Biz is to negotiate agreements to provide businesses tax credits in ex-change for investments and employment expansion in California. These changes are revenue neutral and will allow California to be more effective at stimulating economic growth and creating new jobs. The changes are designed to ensure that small businesses can easily obtain the manufacturing sales tax exemption, and this program will dedicate a portion of the hiring credit and the incentive fund solely to small businesses. Managed care organization tax The May revision of the Governor's budget proposes a tax on Medi-Cal managed care plans starting in 2012–13. The tax is assessed on Medi-Cal managed care plans and the proceeds are matched with federal funds to provide supplemental payments to plans. The remaining tax proceeds are used to provide health services to children and seniors and persons with disabilities in the Medi-Cal program. In 2012–13, the tax rate will be equal to the gross premiums tax. In 2013–14 and subsequent years, the tax rate will equal the state sales tax rate. For more information about this article, please contact us at taxalerts@windes.com or any of our tax professionals at (562) 435-1191, (949) 271-2600, or (213) 239-9745.

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Amazon and Overstock

Lose in New York

This article is reproduced with permission from Spidell Publishing, Inc.

The New York Court of Appeals ruled that Amazon.com and Overstock.com should collect sales tax in the same manner as brick-and-mortar businesses. Amazon and Overstock had separately sued in New York to challenge the 2008 law that Internet retailers collect sales taxes on online purchases by New York residents. The companies argued that the law violated the Commerce Clause because it was forcing companies without a physical presence in the state to pay tax. However, the courts have found that by using "affiliates" to push traffic to Amazon and Overstock, the companies are establishing a presence in the state.

Most likely, the case will be appealed to the U.S. Supreme Court. States like Colorado and Illinois have ruled in favor of the online retailers, agreeing that taxing them violates the Commerce Clause. However, in late March, the Senate voted 75-24 in favor of adding an amendment that would levy Internet sales taxes to the Marketplace Fairness Act of 2013, which has not yet been enacted and which many pundits believe will never pass. California's Amazon bill California's ABX1 28, the "Amazon bill," was designed to require larger, out-of-state online retailers to collect use tax on taxable purchases shipped to California consumers. It went into effect Septem-ber 15, 2012. There are two requirements that the online retailer must meet in order to be considered to be engaged in business in California:

Sales in the previous 12 months of tangible personal property to purchasers in California that are referred to as part of affiliate agreements are in excess of $10,000; and

Total sales of tangible personal property to all California purchasers are in excess of $1 million.

The requirements are met at the website retailer level, not the affiliate level. Therefore, a retailer, such as Amazon.com, is now deemed to have nexus in California if it meets the $10,000 test and $1 million test for all sales, even if an individual affiliate does not meet the test. For more information about this article, please contact us at taxalerts@windes.com or any of our tax professionals at (562) 435-1191, (949) 271-2600, or (213) 239-9745.

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More Taxpayers Electronically File

Their Tax Returns in 2013

The Internal Revenue Service (IRS) provided updated statistics showing continued growth in electron-ic filing of tax returns on May 21, 2013. Through May 10, the IRS received almost 114 million tax re-turns that came in through e-file this year, up from 112.1 million at this point last year. Other highlights from the new filing season statistics show:

During 2013, the IRS issued more than 101 million refunds worth almost $268 billion.

Almost 80 percent of refunds used direct deposit.

For more information about this article, please contact us at taxalerts@windes.com or any of our tax professionals at (562) 435-1191, (949) 271-2600, or (213) 239-9745. C

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2013 FILING SEASON STATISTICS

Cumulative statistics comparing 5/11/12 and 5/10/13

Individual Income Tax Returns: 2012 2013 % Change

Total Receipts 135,473,000 134,349,000 -0.8

Total Processed 130,261,000 129,674,000 -0.5

E-filing Receipts:

TOTAL 112,089,000 113,954,000 1.7

Tax Professionals 70,344,000 70,380,000 0.1

Self-prepared 41,745,000 43,574,000 4.4

Web Usage:

Visits to IRS.gov 255,269,615 318,408,842 24.7

Total Refunds:

Number 102,522,000 101,082,000 -1.4

Amount $277.180 Billion $267.946 Billion -3.3

Average refund $2,704 $2,651 -2.0

Direct Deposit Refunds:

Number 79,308,000 79,880,000 0.7

Amount $231.656 Billion $228.467 Billion -1.4

Average refund $2,921 $2,860 -2.1

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