Broker Check

March 20, 1995

Republican Contract to Expand Home Office Deduction

          The Job Creation and Wage Enhancement Act of 1995, a part of the Contract with America was recently introduced into the House of Representatives. The bill would amend the Internal Revenue Code to clarify the definition and thus expand the availability of the Home Office deduction. In doing so, it effectively reverses the Supreme Court decision in Commissioner v. Soliman.

          The proposed bill would qualify a home office as a principal place of business if it is the location where the taxpayer`s essential administrative activities are conducted on a regular and systematic basis by the taxpayer and the office is necessary because the taxpayer has no other location for the performance of such activities of the business. This bill would benefit the growing number of self-employed taxpayers who manage their businesses from a home office and would benefit employees if they can prove their home office is for their employer`s convenience.

Form 1040-V

          Some of you might have noticed the new form in your tax package sent by the Federal Government, a payment voucher the size of a postcard named Form 1040-V, Payment Voucher. This voucher is supposed to be used by individuals with a balance due on their 1994 individual income tax returns; it is to accompany the payment. However, there was an uncertainty that existed as to where to send the payment, to the Service Center where the tax return went or to the address on the voucher. In a recent Tax Practitioner Alert the IRS has clarified its position. Here are some of the ways the IRS wants the Form 1040-V to be used:

  1. If the taxpayer has a pre-printed Form 1040-V send it with the tax return and payment to the service center address, not the address shown on the Form 1040-V instructions.
  2. For all other situations, a facsimile copy of Form 1040-V may be used, but its use is not required. However, do not use the lockbox address shown in the instructions. Instead, send the return, payment, and voucher to the Service Center address.
    Just as we elected to do all along!

New User Fees Imposed by IRS

          The Internal Revenue Service has established new user fees for the following services that confer a special benefit on identifiable recipients:

  1. $43 to enter into an installment agreement for the payment of back taxes
  2. $24 to restructure or reinstate an existing installment agreement.

Only your Name and Number

          Social Security accuracy will be very important this year, not only for primary and secondary social security numbers, but also for dependents. Refunds could be held up for about 12 weeks if a return contains an inaccurate social security number. No interest will be paid on these delayed refunds.

IRS Changing Tax Collection Policy

          The Internal Revenue Service is fundamentally changing in the way it collects taxes from businesses, a shift expected to most dramatically affect small businesses. The IRS will begin this spring to sort business tax returns by industry group instead of by type of tax return. That means that instead of putting all sole proprietorships into one pile be they deli owners or chiropractors, just because they all file a Schedule C with their returns the IRS will now make a separate pile for each line of work according to their SIC (Standard Industrial Classification).

          Then, Agents will tackle each pile differently armed with new, detailed enforcement guidelines specific to that industry. The agency plans to define more than 100 business categories covering all work and develop their 100 guidelines in the next four years.

          The IRS insists that the new program won`t specifically target any type or size of business. We predict the impact will be strongest on small business and cash based businesses of all sizes.

Axed Nonresident Employee`s Termination Pay Escapes NY Tax

          The New York Tax Appeals Tribunal has determined that a lump sum payment made to a nonresident individual employed in the state to end his employment contract was not New York source income subject to New York`s personal income tax. In a complicated fact pattern the tribunal determined that the lump sum payment was not derived from New York sources because it was paid in consideration of the taxpayer`s relinquishing his right to future employment. The tribunal found that the employment agreement was secured by consideration having no connection with New York, that is, the taxpayer`s promise to work in the future. Because the agreement was not predicated on his working in New York, the lump sum payment was not New York source income. The fact the taxpayer testified that he would probably have continued to work in New York was found not to support the conclusion that the taxpayer`s contractual rights would be exercised in New York.

          If you have any questions on these or any other matters, please do not hesitate to call us.