This year, more Americans and businesses may be asking: Where’s my tax refund?

 That’s because cash-strapped states such as North Carolina, Alabama and Hawaii have been forced to slow down issuing income tax refunds to individuals and businesses because of a lack of funds in their budget.

Kansas has hinted that a delay might be possible, and processing paper refunds in Iowa has slowed because the state doesn’t haven’t enough employees to get them processed faster.

Another state, New York, is still considering whether they’ll follow the likes of Hawaii and delay refund payments.

“States typically do this when they are tight and they don’t have a budget in place,” said Karla Dennis, CEO of Cohesive, a nationwide tax preparation firm. Things are dire at many states: forty-one states are expected to have mid-year budget gaps totaling $37.7 billion, according to the Center on Budget and Policy Priorities.

Delaying the refund, Dennis says, “gives the state funds to work with in the interim to fill a gap in their revenues.”

Here’s a link to the full article: http://finance.yahoo.com/news/CashStrapped-States-Delay-cnbc-3787752102.html?x=0&.v=1

Although the leaders of Congress and the Administration had indicated their intention to revise the law during 2009 so the 2009 rates and exemptions would apply during 2010, this did not happen. Thus, effective at the beginning of this 2010 year, the estate tax and generation-skipping transfer tax are both repealed for one year.

Certain members of Congress have indicated a desire to retroactively impose the taxes to January 1, 2010. There is uncertainty whether a retroactive enactment of these taxes would be constitutional.
During this period of the repeal of the estate tax and generation-skipping transfer tax, you may wish to consider the following:

• Review estate documents and consider potential changes to them
• Reconsider outright bequests to spouse
• Reconsider making 2010 contributions to exempt trusts
• Nonexempt irrevocable trusts should consider making outright distributions to grandchildren during 2010
• Consider outright gifts to grandchildren
• Review post-mortem situations if a spouse has already passed in 2010
• Consider taxable gifts
• Revisit and reconsider gifts to trusts

Retroactive Change
The general consensus among many estate tax practitioners throughout the country is that the retroactive change to the tax laws will likely be upheld by the courts. Thus, any planning or action taken must consider the possible impact of retroactive legislation. Given that there is some uncertainty considering the validity of such retroactive legislation, it is likely that litigation would be filed and would be in the courts for years before a final resolution would be obtained.

As a firm, Somerset believes it is prudent for our clients to revisit estate and gift tax planning and related documents already in place to address all of the opportunities and pitfalls associated with this unprecedented estate and gift tax situation.

Sunset Provisions
For decedents dying, gifts made or generation-skipping transfers occurring after December 31, 2010, the tax law is to be applied and administered as if the provisions and amendments of the Economic Growth and Tax Relief Reconciliation Act of 2001 “had never been enacted.”

The expected result of this sunset will be a return to the tax law prior to the Act which, for estate and gift tax purposes, would mean a lifetime exemption of $1 million and a maximum rate of 55%, with a 5% surcharge on larger estates. In addition to the resurrection of the estate and generation-skipping transfer taxes, a number of other changes implemented under the Act would be affected.

The general consensus among many estate tax practitioners throughout the country is that these sunset provisions will not occur. However, given the uncertainty of this as well, Somerset believes the potential impact of such sunset provisions should be addressed by our clients.

If you have any questions about this brief summary, please post a comment here or contact a member of Somerset’s Estate Planning Team.

If you have questions or comments on Indiana sales and use tax issues, please let us know by posting a comment here or contact us via email.

Brokers are currently required to show the gross proceeds from sales of securities on Form 1099-B. Beginning in 2011 for corporate stock transactions, the customer’s adjusted basis in the security and whether any gain or loss is long-term or short-term must be reported on the form as well. This reporting requirement becomes effective in 2012 for sales of stock in a regulated investment company (RIC) or stock acquired in connection with a dividend reinvestment plan (DRP). For sales of notes, bonds, debentures, commodities and other financial instruments, this additional reporting is required beginning in 2013.

The basis a broker is required to report is the total amount paid by a customer or credited against a customer’s account as a result of the acquisition of securities. This amount should be adjusted for commissions and the effects of other transactions occurring within the account, such as transfers or organizational actions. The adjusted basis of any security (other than RIC or DRP stock) must be reported using the “first-in, first out (FIFO)” method. However, a broker must report basis using any permitted lot identification and basis determination method, including the “average basis” method, if a valid instruction to do so is received from the customer.

Beginning in 2011, transfers of securities are required to be reported on transfer statements and given to the receiving broker within 15 days after the transfer occurs. The transfer statement is not filed with the IRS, so there is no official form or format. However, the transfer statement must provide the name of the person furnishing the statement, the broker receiving the statement, the owner or owners transferring the securities, and if different, the owner or owners of the securities after any transfer other than a sale, such as a transfer of gifted or inherited securities. The date the transfer is initiated and the settlement date of the transfer must be provided, and the securities being transferred must be identified. Additionally, the following information must be included:

• the total adjusted basis of the securities;
• the original date of acquisition;
• the date for determining whether any gain or loss with respect to the security would be long-term or short-term at the time of sale; and
• the extent to which the reported basis amount has been adjusted to reflect any organizational actions.

There are several additional requirements included in these regulations. Along with the additional reporting requirements, the IRS imposes penalties on brokers for failing to file or furnish complete and correct returns and statements after the sale of a security. These penalties will be applied to the revised Form 1099-B and the new reporting required for transfers and organizational actions.

These proposed reporting requirements will substantially increase the recordkeeping and paperwork burden for brokers. Our Tax Team can help you understand the requirements to ensure your compliance by the effective date of January 1, 2011. Please contact us or post any questions or comments you have.

$2.5 million credit per fiscal year has been made available by the state. Contributions qualified for the tax credit will be allowed through a notification/application process with the Indiana Department of Revenue on a first-come first-serve basis.

In order to file your Form 5500 through EFAST2, each plan sponsor must obtain “signer” credentials using the I-REG system (Internet Registration). You must have internet connection and an email address in order to receive these credentials.

So, who needs credentials? The person(s) who sign the Form 5500 on behalf of a plan sponsor or plan administrator must apply for “signer” credentials. If you have filed a Form 5500 in prior years, you will receive a postcard from the DOL regarding applying for these credentials. There are a few things to remember about these credentials.

• Only one set of credentials will be issued for each email address. Signer credentials permit the user to sign as the plan sponsor, the plan administrator or both.
• Typically, a person who signs Form 5500 will require only the filing signer credentials because they will rely on their service provider (Somerset or TPA) to actually prepare and transmit the filing. You may need additional credentials if you will be filing your own Form 5500. If you have other benefit plans that require the Form 5500 that Somerset is not currently providing for you, please contact Susan Hitch for further information.
• The credentials belong to you as an individual, not the business for which you work. Think of the credentials in the same way you think of your social security number–it always belongs to you, no matter where you work.  For this reason, you will want to update your profile whenever your email address changes so that any notification from DOL is delivered to you in a timely fashion.

As of January 1, 2010, you may log into I-REG at www.efast.dol.gov to register for your credentials. There will be a series of input screens for you to act upon, culminating in the assignment of specific electronic credentials, comprised of a User ID and PIN. Please print and save this information for future reference. 

For our clients, Somerset will invite you to an electronic “signing ceremony” where you will input your User ID and PIN into our software, which will allow us to electronically transmit to the DOL/EBSA. You will still be required to keep a paper copy of the signed Form 5500 in your permanent records. You will no longer be able to submit paper Forms 5500 to the DOL/EBSA in Lawrence, Kansas. Somerset will send you a paper or PDF copy of the electronically signed filing. We will receive confirmation from EFAST2 that the filing has been accepted and processed and will keep in our files.

If you have any questions regarding this process, please post a comment here or contact Susan Hitch, Employee Benefit Team and Tax Supervisor.

In order to qualify under the Act, the contribution must satisfy all of the requirements for a charitable contribution deduction under the Code, must be made for the relief of victims in areas affected by the earthquake in Haiti on January 12 and must be made in cash. In recognition of a recent innovation in charitable giving, the Act also relaxes the record keeping and substantiation requirements otherwise applicable to such contributions. Under the Act, if the contribution is charged to a telephone or wireless services bill, these requirements are satisfied if the taxpayer has a telephone bill showing the name of the donee organization, the date of the contribution and the amount of the contribution.

One item of note, if approved, it will allow phone bills to be used as proof for taxpayers who made their donation via a text message.

Your tax advisor can help determine if you should consider taking advantage of this provision should it become law and possibly delay filing your tax returns until after March 1. We will monitor the progress of this legislation and provide updates as available.

If you have any questions, please post them here or contact us.