On Monday, two days before the delayed Jan. 30 start of the 2013 filing season, the IRS announced a further delay in processing returns that contain Form 8863, Education Credits, which must be filed by people claiming the American opportunity and the lifetime learning tax credits (IR-2013-10).

Read more here

Pulling back from the “fiscal cliff” at the 13th hour, Congress on Tuesday preserved most of the George W. Bush-era tax cuts and extended many other lapsed tax provisions.

Shortly before 2 a.m. Tuesday, the Senate passed a bill that had been heralded and, in some quarters, groused about throughout the preceding day.

Read more here

So what happens when the IRS conducts an examination and asks for a canceled check to substantiate payment of an expense? Usually, as it has been doing for many years, the IRS accepts a copy of the canceled check. So taxpayers must take extra care to protect the copies of checks that may accompany their bank statements. How do you do this? If you have online access to bank statements, you should download and save the electronic copy of the statements and checks as a backup. If you have paper statements, you should save them or scan them and save them digitally for the requisite seven (7) year period at least. If you have neither online nor electronic copies of checks available to you, talk to your bank about changing that. If need be, you may even want to change banks in order to get that copies of your canceled checks. Banks may provide a substitute check but are not required to do so. A substitute check is legally the same as the original check if it accurately represents the information on the original check and includes the following statement: “This is a legal copy of your check. You can use it the same way you would use the original check” (Check 21 Act, §§4(b)(2), 4(e)).

Bottom line, bank customers need to understand what their bank will provide. Even if the bank does provide a substitute check with the proper language, it may charge for this service.

Thanks to Valerie Chambers and Robert Moise for providing this information to The Tax Advisor, July 1, 2012.

· C corporation’s enhanced charitable contribution deduction equal to the lesser of (a) basis plus half of the property’s appreciation, or (b) twice the property’s basis, for qualified contributions of book inventory to certain public schools if certain donee certification requirements are met. (Code Sec. 170(e)(3)(D)(iv))

· C corporation’s enhanced charitable contribution deduction equal to the lesser of (a) basis plus half of the property’s appreciation, or (b) twice the property’s basis, for certain contributions of computer technology or equipment (software, computer or peripheral equipment, and fiber optic cable) to schools or libraries for use in the U.S. for educational purposes that are related to the donee’s purpose or function. (Code Sec. 170(e)(6)(G))

Lower shareholder basis adjustments for charitable contributions by S corporations. A temporary tax incentive to encourage S corporations to make charitable donations of appreciated assets is available for contributions made in tax years beginning before Jan. 1, 2012 (Code Sec. 1367(a)(2)) Generally, an S corporation’s charitable contribution of property provides its shareholders with a fair market value (FMV) deduction for gifts of property. In association with the charitable gift, shareholders must reduce their basis of shares in the corporation. Under the temporary incentive, shareholders reduce their basis in the stock of the S corporation by their pro rata share of the adjusted basis of the contributed property, rather than by the FMV of the charitable contribution that flows through to the shareholder. The lower basis reduction results in a proportionately larger gain when the stock is later sold by the shareholder. Thus, the shareholder benefits by having that reduction determined by the basis of the property (which is a smaller amount) rather than its FMV (a larger amount). For example, if in 2011 an S corporation with one individual shareholder makes a charitable contribution of stock with a basis of $100 and a FMV of $500, the shareholder is treated as having made a $500 charitable contribution and reduces the basis of his S corporation stock by $100. If the S corporation makes the contribution in tax years beginning after 2011, the shareholder will be treated as having made a $500 charitable contribution and will reduce the basis of his S corporation stock by $500.
Expensing election for costs of film and TV production. Taxpayers may elect to expense production costs of qualified film and television (TV) productions in the U.S., but only for productions commencing before Jan. 1, 2012. (Code Sec. 181(f)) Expensing doesn’t apply to the part of the cost of any qualifying film or TV production that exceeded $15 million for each qualifying production. The limit is $20 million if production expenses are “significantly incurred” in certain low-income communities or isolated areas of distress.
Expensing of environmental remediation costs. Taxpayers may elect to treat qualified environmental remediation expenses that would otherwise be chargeable to a capital account as deductible in the year paid or incurred, but only if the expenses are paid or incurred before Jan. 1, 2012. (Code Sec. 198(h)) To be deductible currently, pre-2012 expenses must be paid or incurred in connection with the abatement or control of hazardous substances (including petroleum products) at a qualified contaminated site.
Domestic production activities deduction for Puerto Rico. The Code Sec. 199 domestic production activities deduction is available only if, among other conditions, the taxpayer has domestic production gross receipts (DPGR) from: (1) any sale, exchange or other disposition, or any lease, rental or license, of qualifying production property manufactured, produced, grown or extracted by the taxpayer in whole or in significant part within the U.S.; (2) any sale, exchange, etc., of qualified films produced by the taxpayer; (3) any sale, exchange or other disposition of electricity, natural gas, or potable water produced by the taxpayer in the U.S.; (4) construction activities performed in the U.S.; or (5) engineering or architectural services performed in the U.S. for construction projects located in the U.S. For a taxpayer’s first six tax years beginning after 2005 and before Jan. 1, 2012, Puerto Rico is included in the term “U.S.” in determining DPGR, but only if all of the taxpayer’s Puerto Rico-sourced gross receipts are taxable under the federal income tax for individuals or corporations. (Code Sec. 199(d)(8)(C))
Empowerment Zone tax breaks. The designation of an economically depressed census tract as an “Empowerment Zone” makes businesses and individual residents within such a Zone eligible for special tax incentives, including: the 20% wage credit under Code Sec. 1396; liberalized Code Sec. 179 expensing rules ($35,000 extra expensing and the break allowing only 50% of expensing eligible property to be counted for purposes of the investment-based phaseout of expensing); tax-exempt bond financing under Code Sec. 1394; and deferral under Code Sec. 1397B of capital gains tax on sale of qualified assets sold and replaced. Empowerment Zone designations expire on Dec. 31, 2011. (Code Sec. 1391(d))
Foreign Provisions:
Subpart F exception for active financing income. Certain income from the active conduct of a banking, financing or similar business, or from the conduct of an insurance business (collectively referred to as “active financing income”), is temporarily excluded from the definition of Subpart F income, but only for tax years of foreign corporations beginning after Dec. 31, ’98 and before Jan. 1, 2012, and for tax years of U.S. shareholders with or within which any such tax year of the foreign corporation ends. (Code Sec. 953(e)(10) and Code Sec. 954(h)(9))
Look-through rule for payments between related CFCs under foreign personal holding company income rules. For tax years of a foreign corporation before Jan. 1, 2012, and tax years of U.S. shareholders with or within which such tax years of foreign corporations end, dividends, interest, rents, and royalties received by one controlled foreign corporation (CFC) from a related CFC are not treated as foreign personal holding company income (FPHCI) to the extent attributable or properly allocable to non-subpart-F income, or income that is not effectively connected with the conduct of a U.S. trade or business of the payor (look-through treatment). (Code Sec. 954(c)(6)(C))
Treatment of RIC as qualified investment entity. Gain from the disposition of a U.S. real property interest (USRPI) by a foreign person is treated as income effectively connected with a U.S. trade or business and is subject to tax and to Code Sec. 1445 withholding under Foreign Investment in Real Property Tax Act (FIRPTA) provisions. A USRPI does not include an interest in a domestically controlled “qualified investment entity.” A regulated investment company (RIC) is included within the definition of a “qualified investment entity” through 2011. ( Code Sec. 897(h)(4)(A) ).
Miscellaneous Provisions Expiring on Dec. 31, 2011:
· The 7-year straight line cost recovery period for motorsports entertainment complexes won’t apply for property placed in service after Dec. 31, 2011. (Code Sec. 168(i)(15)(D))
· The Indian employment credit only applies for tax years beginning before Jan. 1, 2012. (Code Sec. 45A(f))
· Accelerated depreciation for qualified Indian reservation property applies for property placed in service through 2011. (Code Sec. 168(j))
· The railroad track maintenance credit applies through 2011. (Code Sec. 45G(f))
· The mine rescue team training credit applies through 2011. (Code Sec. 45N(e))
· For tax years beginning after Dec. 31, 2008, and before Jan. 1, 2012, the 100%-of-taxable-income limitation of percentage depletion for oil and gas from marginal wells applicable to independent producers and royalty holders owning interests in marginal wells is suspended. For tax years beginning on or after Jan. 1, 2012, the 100% of the taxable income limit returns for marginal wells. (Code Sec. 613A(c)(6)(H))
· A taxpayer may claim a 30% credit for the cost of installing qualified alternative vehicle refueling property for use in the taxpayer’s trade or business (up to $30,000 maximum per year per location) or installed at the taxpayer’s principal residence (up to $1,000 per year per location). This credit won’t apply to property (except for hydrogen refueling property) placed in service after Dec. 31, 2011. (Code Sec. 30C(g)(2))
· Under the energy efficient appliance credit, for appliances produced in 2011, and depending on their specifications, manufacturers can claim a (i) $25, $50, or $75 credit for each qualifying dishwasher; (ii) $175 or $225 credit for each qualifying clothes washer; (iii) $150 or $200 credit for each qualifying refrigerator. (Code Sec. 45M)
· The designation of the District of Columbia Enterprise Zone (DC Zone) under Code Sec. 1400(f) applies through Dec. 31, 2011. (Code Sec. 1400(f)) This designation renders businesses and individual residents within the Zone eligible for special tax incentives, including additional expensing under Code Sec. 179 and a 20% wage credit under Code Sec. 1396 for eligible DC Zone employers.
· The election to expense 50% of the cost of advanced mine safety equipment applies through 2011. (Code Sec. 179E(g))
· The increase in the limit on cover over of rum excise taxes to Puerto Rico and the Virgin Islands applies through 2011. (Code Sec. 7652(f))
· The American Samoa economic development credit applies for the first six tax years of a taxpayer beginning after Dec. 31, 2005 and before Jan. 1, 2012. (Sec. 119 of P.L. 109-432, as amended by Sec. 756 of P.L. 111-312).

After a bitter partisan battle, on August 2 Congress passed and the President signed into law S. 365, the “Budget Control Act of 2011.” The initial $1 trillion round of deficit reduction over fiscal years 2012 through 2021 doesn’t include revenue hikes, but the second, $1.5 trillion round of deficit reduction over the same years may feature fundamental tax changes as part of the work-product of the bill’s newly established Joint Select Committee on Deficit Reduction (JSC). This article provides an overview of the JSC’s mandate, tax changes it could adopt, a timeline of the JSC’s work, and some thoughts about the Budget Control Act’s impact on tax planning.

JSC’s Mandate. The JSC’s goal is to reduce the deficit by an additional $1.5 trillion over fiscal years 2012 through 2021, and in finding these savings, its duties are to “provide recommendations and legislative language that will significantly improve the short-term and long-term fiscal imbalance of the Federal Government.” The Administration’s interpretation of the JSC’s mandate is that everything is on the table, including tax reform. Without contesting the point, Republican lawmakers, no doubt looking at the composition of the committee (see below), believe that in the framework of the compromise legislation it will be “impossible” (in House Speaker John Boehner’s words) to use the deal to hike taxes.

Possible Tax Changes. It is hard to say what, if anything, the JSC might recommend by way of tax changes. But looking to past proposals:

· Businesses may have to give up costly tax breaks, such as accelerated depreciation under Code Sec. 168, the domestic production activities deduction under Code Sec. 199, and the election under Code Sec. 472 to use the last-in, first-out (LIFO) inventory accounting method. Industries (such as oil and gas) may have to give up some of their tax preferences. In return, corporations may wind up with a modestly lower top rate.

· In the international arena, a territorial tax regime may be adopted, there may be a repatriation holiday to induce multinationals to bring home overseas profits, and there may be crackdowns on transfer pricing tax strategies.

· There could be a new round of loophole closers, such as a crackdown on “carried interest.”

· Individuals may find cutbacks in key tax breaks, such as the mortgage interest deduction, in exchange for flattened and lowered tax rates.

Other issues the JSC will have to deal with include: the post-2012 expiration of the Bush-era income tax cuts (including the current rate schedules, and low tax rates for long-term capital gains); and the expiration of the Bush-era rules for estate and gift taxation, and the transfer tax rules in the 2010 Tax Relief Act, effective for estates of decedents dying, gifts made, or generation-skipping transfers made after Dec. 31, 2012.

In remarks after he signed the Budget Control Act of 2011 into law, the President reiterated his call for a balanced plan that includes revenue changes as well as spending cuts. He said that “since you can’t close the deficit with just spending cuts, we’ll need a balanced approach where everything is on the table. Yes, that means making some adjustments to protect health care programs like Medicare so they’re there for future generations. It also means reforming our tax code so that the wealthiest Americans and biggest corporations pay their fair share. And it means getting rid of taxpayer subsidies to oil and gas companies, and tax loopholes that help billionaires pay a lower tax rate than teachers and nurses …. Everyone is going to have to chip in. It’s only fair. That’s the principle I’ll be fighting for during the next phase of this process.”

In their August 2 press releases about the Budget Control Act of 2011, neither House Speaker Boehner (R-OH) nor Senate Republican Leader Mitch McConnell (R-KY) mentioned the possibility of tax reform as part of the deficit reduction package.

Statutory Timelines. The Budget Control Act of 2011 carries extremely aggressive targets that Congress and the JSC are supposed to meet. Here’s a summary of what has to be done and when:

· No later than Aug. 16, 2011 (14 days after the enactment date), the 12 members and the co-chairs of the JSC must be appointed by the majority and minority leaders of the Senate, and the Speaker and minority leader of the House, who each must appoint three members. The Speaker and the majority leader of the Senate must each appoint one member to serve as co-chair from among the JSC members.

· No later than Sept. 16, 2011 (45 days after the enactment date), the JSC is to hold its first meeting.

· No later than Oct. 14, 2011, House and Senate committees may transmit to the JSC their recommendations for law changes necessary to meet the goal of JSC.

· No later than Nov. 23, 2011, the JSC must vote on a report containing the findings, conclusions, and recommendations of the committee, as well as the estimates provided by the Congressional Budget Office (CBO), and legislative language in support of those recommendations, which must also contain a statement of the deficit reduction achieved over fiscal years 2012 through 2021. A majority of JSC members must approve the report and accompanying legislative language, and the text of the report and accompanying legislative language must be made public promptly after the vote on adoption of those matters. Any JSC member may file additional, supplemental, or minority views within 3 calendar days if the member provides notice of this intention at the time of final vote on adoption of the report and legislative language.

· No later than Dec. 2, 2011, if a majority of the JSC approve a report and legislative language, they must be transmitted to the President, Vice President, the Speaker of the House, and the majority and minority leaders of the House and Senate.

· No later than Dec. 23, 2011, if the JSC approves a report and legislative language, it must be voted on by both the Senate and the House of Representatives. No amendments will be considered.

RIA observation: Because time is so short, the JSC may lean heavily on earlier tax proposals, such as those made earlier this year by the President’s Fiscal Commission, the Debt Reduction Task Force, or last month by the bipartisan “Gang of Six.”

If the JSC Fails to Approve a Report. If a majority of the JSC members fail to approve a report and legislative language, a sequestration process (i.e., across-the-board reductions) must be implemented, with annual cuts starting in 2013. The cuts will be split 50-50 between defense and domestic spending.

The Administration has said that if the JSC doesn’t approve a report, or if Congress fails to pass the JSC’s recommendation, nearly $1 trillion of deficit reduction would be achieved, anyway, by letting the Bush-era tax cuts expire at the end of 2012. The threat of a Presidential veto of an extension of the Bush-era tax cuts, would, according to the Administration, help force a balanced (i.e., tax increases and spending cuts) deficit reduction.

Tax Planning Implications. In 2010, businesses and individuals weren’t certain what tax rules would apply to them for 2011 and 2012 until December 17, when the 2010 Tax Relief Act was signed into law. That pattern of uncertainty until the very last minute is highly likely to be repeated again this year, making year-end tax planning, and tax planning for a longer horizon, a guessing game at best until at least the end of this year.

If the JSC approves recommendations that include comprehensive tax reform, they are not likely to begin to go into effect until 2013. If that’s the case, Congress still will need to address the host of tax breaks set to expire at the end of this year under current law (such as the Code Sec. 41 research credit, the Code Sec. 51 work opportunity tax credit, and the Code Sec. 222 above-the-line deduction for qualified tuition and related expenses). Also, without yet another “patch,” the higher alternative minimum tax (AMT) exemptions and ability to offset AMT with personal credits will both expire at the end of this year.

If the JSC can’t report out a recommendation, or Congress doesn’t pass it, then the extenders would still have to be dealt with late this year or early the next. And in 2012, there would be yet another bruising battle over the Bush-era tax cuts that are scheduled to expire at the end of 2012 under current law.

Retroactive employment benefits. An employer that misclassified workers as independent contractors may have to retroactively pay employment benefits in addition to employment taxes. In 1996, a federal appeals court held that Microsoft Corporation, which had agreed to reclassify “freelancers” as employees after an IRS employment tax audit, also had to include the misclassified workers in its §401(k) plan and §423 employee stock purchase plan [Vizcaino v. Microsoft Corp., CA9, 78 AFTR 2d 96-6690, 10/3/96].

Increased enforcement efforts. The IRS has increased its enforcement efforts in this area. The 1099 Matching Program targets those individuals who file only one Form 1099-MISC with their personal income tax return. A person receiving payments from only one company may well be an employee, rather than an independent contractor. The IRS may also closely scrutinize a situation where a worker receives a Form 1099 from the same company over multiple years.

Forty state workforce (unemployment) agencies have signed a memorandum of understanding (MOU) with the IRS to share the results of employment tax examinations. Hodgson noted that roughly half of Department of Labor (DOL) investigations in this area are the result of worker complaints. The DOL is also a partner with the IRS in a misclassification enforcement initiative. Hodgson said that sometimes an employer’s worker classification problems begin after someone who has been treated as an independent contractor stops receiving work and files a claim for unemployment benefits.

A new Notice provides interim guidance significantly relaxing the Patient Protection and Affordable Care Act’s (PPACA’s) information reporting requirement for employer-sponsored health coverage. Under the new guidance, reporting continues to be voluntary for all employers in 2011, and it will be voluntary for small employers until further guidance is issued, but at least through 2012. The Notice also provides guidance on the nuts and bolts of the information reporting rule for employers who will be subject to it, and those employers that choose to voluntarily comply with it.

Background. For tax years beginning on or after Jan. 1, 2011, Code Sec. 6051(a)(14), which was added by PPACA §9002, generally provides that the aggregate cost of the applicable employer-sponsored health insurance coverage (as defined in Code Sec. 4980I(d)(1)) must be reported on Form W-2. For this purpose, the aggregate cost is to be determined under rules similar to the rules of Code Sec. 4980B(f)(4), referring to the definition of the “applicable premium” under the rules providing for COBRA continuation coverage. Code Sec. 6041(a)(14) does not, however, apply to reporting the amount contributed to an Archer MSA or the health savings account of an employee or the employee’s spouse, any salary reduction contributions to a flexible spending agreement, or certain “excepted benefits” described in Code Sec. 9832(c)(1) including worker’s compensation and disability income insurance.

In Notice 2010-69, 2010-44 IRB 576, IRS made this new reporting requirement optional for all employers for the 2011 Forms W-2 (which would generally be given to employees in January 2012) (see Federal Taxes Weekly Alert 10/14/2010).

Interim guidance. Notice 2011-28 provides further relief for small employers (i.e., those filing fewer than 250 Forms W-2) by making Code Sec. 6051(a)(14) reporting optional for health coverage provided through at least 2012, or until further guidance is issued by IRS. In other words, small employers won’t have to report the cost of health care coverage on any forms required to be furnished to employees before January 2014, at the earliest.

Notice 2011-28 also provides additional guidance, in question and answer (Q&A) format, to employers who are subject to the information reporting requirement for the 2012 Forms W-2, and to employers that choose to voluntarily comply with it for either 2011 or 2012. The Q&As are generally categorized as follows: general requirements; methods for reporting the cost of coverage on Form W-2; definitions of terms relating to the cost of coverage required to be reported; the types of coverage for which the cost is required to included on Form W-2; calculation methods used to determine the cost of coverage; and issues that an employer may have to address in determining the cost of coverage. These subjects are briefly addressed below:

· In general. IRS emphasizes that Code Sec. 6051(a)(14) ‘s new reporting requirement is purely information and has no effect on whether any particular coverage is excludible under Code Sec. 106 or otherwise. Rather, the purpose of the reporting is to “provide useful and comparable consumer information to employees on the cost of their health care coverage.” (Q&A-2)

· Employers subject to the reporting requirement. Except as otherwise provided, all employers that provide applicable employer-sponsored coverage during a calendar year are subject to the reporting requirement, beginning with the 2012 Forms W-2. This includes governmental entities and religious organizations, but not Federally recognized Indian tribal governments. However, employers that file 250 or fewer Forms W-2 for the preceding year are exempted from the reporting requirement for 2012 Forms W-2 (and possibly later, depending on when IRS issues further guidance). (Q&A-3)

· Method of reporting on the Form W-2. The aggregate reportable cost is reported in box 12 of Form W-2, using code “DD.” (Q&A-5) An employer is not required to issue a Form W-2 with the aggregate reportable cost to an individual for whom the employer is not otherwise required to file a Form W-2 (Q&A-9), nor is the employer required to report the total aggregate reportable costs attributable to its employees on Form W-3. (Q&A-10) IRS also provided guidance relating to employees who have coverage provided by the employer for a period during the calendar year after the employee terminated employment (Q&A-6); individuals with multiple employers during the year, or with multiple employers who are related and have a common paymaster (Q&A-7); and individuals who transfer to a new employer that qualifies as a successor employer under Code Sec. 3121(a)(1) (Q&A-8).

· Aggregate cost of applicable employer-sponsored coverage. The “aggregate cost” of applicable employer-sponsored coverage is the total cost of coverage under all “applicable employer-sponsored coverage” provided to an employee (Q&A-11), which is defined as coverage under any “group health plan” made available to the employee that is excludable under Code Sec. 106. (Q&A-12) A “group health plan” refers to a plan of, or contributed to by, an employer or employee organization to provide health care to current and former employees, others currently or formerly associated with the employer in a business relationship, or their families. (Q&A-13) The “aggregate reportable cost” includes both the portions paid by the employer and the employee, regardless of whether the employee’s contributions were made on a pre-tax or after-tax basis (Q&A-14), and it also includes the cost of coverage includible in the employee’s gross income. (Q&A-15)

· Cost of coverage required to be included in the aggregate reportable cost. Except as otherwise provided, the cost of coverage under all applicable employer-sponsored coverage is included in the aggregate reportable cost, except contributions to an Archer MSA or Health Savings Account, and any salary reduction election to a flexible spending arrangement. (Q&A-16) The aggregate reportable cost does not include: the amount that an employer contributes to a multiemployer plan (Q&A-17); the cost of coverage under a Health Reimbursement Arrangement (Q&A-18); the cost of coverage under a dental or vision plan that isn’t integrated into a group health plan (Q&A-20); the cost of coverage provided under a self-insured group health plan that isn’t subject to any federal contribution coverage requirements (Q&A-21); or the cost of coverage provided by the federal government, the government of any State or political subdivision thereof, or any agency or instrumentality of any such government, under a plan maintained primarily for members of the military and their families (Q&A-22). If an employer offers a health flexible spending arrangement (FSA) through a Code Sec. 125 cafeteria plan, the amount of the health FSA required to be included is reduced (not below zero) by the employee’s salary reduction contribution. (Q&A-19)

· Methods of calculating the cost of coverage. An employer may calculate the reportable cost under a plan using: the COBRA applicable premium method (reportable cost for a period equals the COBRA applicable premium for that coverage during that period) (Q&A-25); the premium charged method (the premium charged by the insurer for an employee’s coverage during the applicable period) (Q&A-26); or the modified COBRA premium method (an employer that subsidizes the cost of COBRA determines the reportable cost based on a good faith estimate of the COBRA applicable premium for that period) (Q&A-27). An employer doesn’t have to use the same method for every plan, but must use the same method for every employee receiving coverage under a particular plan. (Q&A-24)

· Other issues relating to calculating the cost of coverage. IRS also provides guidance on: how an employer that charges a composite rate to an employee calculates its reportable cost (Q&A-28); how the reportable cost must account for increases or decreases to the cost during the year (Q&A-29); and how the reportable cost under a plan is calculated if an employee commences, changes or terminates coverage during the year (Q&A-30). IRS also clarified that the reportable cost under a plan must be determined on a calendar year basis.

When must these minimum distributions begin? If you reach age 70-1/2 in 2011, you actually have until April 1, 2012 to take your first year’s distribution, namely the one for 2011 (your age 70-1/2 year). However, if you wait until 2012 to take this distribution, you may wind up loading too much income into 2012. That’s because you’ll also have to take your second year’s annual minimum distribution in 2012, since the extended deadline until April 1 is available only in the first distribution year. That could have unpleasant tax consequences. For example, you may be pushed into a higher tax bracket in 2012. Additionally, you may be hit with a larger tax on social security benefits in 2012, and saddled with larger cutbacks for deductions (such as for medical expenses) that have an adjusted-gross-income-based “floor.”

The decision whether or not to accelerate minimum distribution payouts is not an easy one, and is not necessarily the best choice. If you’d like, one of our tax professionals at Maxfield•Peterson, P.C. can sit down with you to discuss your options, taking into account your overall financial picture. We would review your financial and tax situation, and determine whether you’d be better off beginning required distributions this year, instead of next. Give us a call so that we can get together and set up the right IRA and retirement plan payout strategy for you and your family.

Very truly yours,

Maxfield•Peterson, P.C.