August 1, 1993

Luxury Auto Lease Inclusion

          If you lease a "luxury" car that you use in your business for 30 days or more, you may have to include in your income for each tax year you lease a car, an "inclusion amount". The "inclusion amount" is a percentage of part of the fair market value of the leased car multiplied by the percentage of business and investment use of the car for the tax year. The inclusion amount is further prorated for the number of days of the lease term included in the tax year. Rules and amounts vary depending upon whether you leased the automobile after June 18, 1984, after December 31, 1986, after December 31, 1990 and after December 31, 1991. If you fall within any of these categories, call us to ask us what information we need to prepare your income tax return.

No Dependency Exemption

          In a recent Tax Court case, parents of a mentally retarded child who lived with them could not claim their child as a dependent on their tax return because more than one half of the child`s support was paid by the local government to encourage community care as an alternative to the child living in a state school. The parents might have gotten the exemption had the child left home, lived at the state school and the local government paid the tuition as a form of scholarship.

If It`s Not in Writing, It Doesn`t Count

          A taxpayer orally told the IRS to apply a payment to overdue payroll taxes. Instead, the IRS offset other taxes. The IRS feared the company was failing and those taxes would be uncollectible while the owner still could be personally liable for the payroll taxes. Write on the face and back of the check how you want the payment applied.

FDIC Insurance Limited for Retirement Plan Accounts

          In the past, if a retirement plan trust maintained deposit accounts at a federally insured institution, the maximum insurance protection limit would be passed through so that each participant would then be insured for up to $100,000 of the value of his or her own account of the plan.

           New amendments to the Federal Deposit Insurance Act and proposed regulations interpreting these amendments now limit the ability of a financial institution to provide pass-through insurance in several significant ways:

1. The institution is not able to provide pass-through insurance unless it meets certain requirements of the FDIC at the time the deposits are made. In certain cases, the institution must notify the depositor in writing what deposits qualify for pass-through insurance.
2. IRA and other retirement plan accounts will be aggregated for purposes of applying the $100,000 limit.
3. If an employer maintains more than one retirement plan trust account at the same institution, the plans will be aggregated for FDIC purposes. Therefore, if a participant has accounts in two plans maintained by his or her employer at the same institution, the benefits in those plans will be insured only up to a maximum of $100,000.
4. The FDIC is also proposing to limit the amount insured to the vested parties of a participant`s account.

          We therefore recommend if a person maintains accounts potentially eligible for pass-through insurance and considers the FDIC insurance an important feature of the investment to consider spreading the accounts amoung several different institutions in order to minimize the effect of the new FDIC insurance limits.

Connecticut`s New Tax Law Repeals Some Sales Tax on Tax Preparation Service

          The Connecticut General Assembly recently adopted a two year tax package. Highlights of it consist of the repeal of the sales tax on tax preparation services to business including business schedules of individuals` returns effective January 1, 1993.

          Additionally, the corporation business tax rate declines in four steps beginning January 1, 1995 to 11.25% from the present 11.5%. After that, it declines to 11% on January 1, 1996, to 10.5% on January 1, 1997 and to 10% on January 1, 1998. The interest rate on corporate tax deficiencies goes down to 15% from 20% effective January 1, 1994.

Complimentary Software

We have been provided with a pre-release version of a Travel and Entertainment Expense Account documentation software by Revolution Software. It is available for DOS only computers and is on a 3 1/2" diskette. If you want to obtain a copy, tell me.

          If you have any questions about these tax notes or any other matters, please call us.