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2006 Tax News

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IRS Announces Hybrid Cars that Qualify for a Tax Credit

Last year's Energy Policy Act replaced the $2,000 clean-fuel burning deduction with a tax credit that is potentially worth much more. The tax credit for hybrid vehicles applies to vehicles purchased or placed in service on or after January 1, 2006.

The credit is only available to the original purchaser of a new, qualifying vehicle. (If a qualifying vehicle is leased to a consumer, the leasing company may claim the credit.) The amount of the credit varies based on the fuel efficiency of the vehicle.

These models have been certified by the IRS for the credit in the following amounts:

  • 2007 Ford Escape Front WD Hybrid — $2,600
  • 2007 Ford Escape 4 WD Hybrid — $1,950
  • 2007 Mercury Mariner 4 WD Hybrid — $1,950
  • 2007 Toyota Camry Hybrid — $2,600
  • 2005 Toyota Prius — $3,150
  • 2006 Toyota Prius — $3,150
  • 2006 Toyota Highlander 4WD Hybrid — $2,600
  • 2006 Toyota Highlander 2WD Hybrid — $2,600
  • 2007 Lexus GS 450h — $1,550
  • 2006 Lexus RX400h 2WD — $2,200
  • 2006 Lexus RX400h 4WD — $2,200
  • 2006 Ford Escape Hybrid Front WD — $2,600
  • 2006 Ford Escape Hybrid 4 WD — $1,950
  • 2006 Mercury Mariner Hybrid 4 WD — $1,950
  • 2005 Honda Insight CVT — $1,450
  • 2006 Honda Insight CVT — $1,450
  • 2005 Honda Civic Hybrid MT and CVT — $1,700
  • 2006 Honda Civic Hybrid CVT — $2,100
  • 2005 Honda Accord Hybrid AT and Navi AT — $650
  • 2006 Honda Accord Hybrid AT w/updated calibration and Navi AT w/updated calibration — $1,300

Another hurdle: If you're interested in the tax break, you may want to buy soon because the full credit is only available for a limited time. Taxpayers can claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th vehicle. The IRS and manufacturers are tracking these amounts. For example, for the quarter ending March 31, 2006, the IRS announced that Toyota (which owns Lexus) sold 41,779 qualifying vehicles to retail dealers and Ford (which owns Mercury) sold 6,192 qualifying vehicles.

For the second and third calendar quarters after the manufacturer records its sale of the 60,000th vehicle, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit.


Collect a Double Tax Break For Fuel-Efficient Vehicles  Several new federal income tax credits kicked in this year for buying new fuel-efficient vehicles. In this article, we explain two of them, list the IRS-approved credit amounts to date, and show you how to combine the credit with another tax break for home equity loans



Employers with less than $4000 payroll may file Form 944

Beginning January 1, 2006, certain employment tax filers will be able to file the new Form 944 (Employer’s Annual Federal Tax Return) once a year rather than filing Form 941 (Employer’s Quarterly Federal Tax Return) four times a year.

The new Form 944 will reduce burden on eligible small employers who file quarterly returns with little or no employment tax due. Most employers who file Form 944 will be able to make a single payment with their annual return.

Eligible employers are those with estimated annual employment tax liability of $1,000 or less. The IRS will begin mailing notification letters between February 1 and February 15, 2006 to eligible small employers for calendar year 2006. Employers who do not receive a letter and believe they are eligible to file the new Form 944 can call the IRS at 1-800-829-0115 to find out if they qualify. Taxpayers should contact the IRS by April 1, 2006.

New employers who expect to owe $1,000 or less in total annual employment tax (approximately $4,000 or less in annual wages) also are eligible to file Form 944. These employers can indicate their estimated tax amount when applying for their EIN (Employer’s Identification Number) on Form SS-4. The IRS will notify the employer to file either Form 944 or Form 941 in the same notice indicating the taxpayer’s new EIN  1/4/06


The IRS is hiring private debt collectors.

The Internal Revenue Service plans to turn over the names of people who owe $7.7 billion to debt collection agencies starting in June. If the extra heat pays off, the agency gradually will add to the list as it whittles away roughly $50.7 billion in unpaid taxes.

The move will give many Americans one more reason to hate the IRS.

"It's hard enough making it as it is, and then you're going to have a government agency hiring collectors to hound people?" said Christina Hess, 24, a catering administrative assistant who doesn't owe any back taxes. "It just seems like another way to screw us any way they can."
IRS officials say turning over the names of deadbeat taxpayers to professional collectors is necessary to slow the growing debt of the most recalcitrant taxpayers. Their overdue taxes grew 86 percent to $13 billion between 2000 and 2003.

"We believe that many of these taxpayers have simply chosen not to pay, even though they have the means to do so," IRS Commissioner Mark Everson said in congressional testimony. "This is unfair to every hard-working taxpayer who has paid his or her fair share."
Congress voted to allow the IRS to use debt collectors last year as a way to generate more income in light of the ballooning budget deficit.

The agency is reviewing bids and plans to pick between one and three collection agencies by March.

To minimize scams, IRS employees will send letters notifying taxpayers that a debt collector will be contacting them.

A similar plan failed miserably when it was tested about a decade ago, costing the government about $21 million to collect just $3.1 million, according to a Government Accountability Office report. 1/2/06


IRS Audits are now focusing on Executive Fringe Benefits.

 The purpose is to deny the deduction for the business and to include the expenses as income for the Executive. Areas scrutinized in the audits include:

  • Athletic Skyboxes and Cultural Entertainment Suites Awards
  • Bonuses Club Memberships
  • Corporate Credit Cards
  • Employee Discounts
  • Paid Vacations
  • Employer-Paid Parking
  • Loans Executive Dining Room
  • Relocation Costs
  • Financial Planning
  • Outplacement Services
  • Chauffeurs
  • Transportation/ Company Cars
  • Spousal/ Dependent Travel
  • Private Jet Use
  • Transfer of Property (such as real estate, stock, computers, furniture and cell phones)
  • Personal Use of "Listed" Property (such as computers, cell phones, and home office items)  10/25/05


44.5 cents Mileage


The Internal Revenue Service today issued the 2006 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning Jan. 1, 2006, the standard mileage rates for the use of a car (including vans, pickups or panel trucks) will be:
44.5 cents per mile for business miles driven;
18 cents per mile driven for medical or moving purposes; and
14 cents per mile driven in service of charitable organizations, other than activities related to Hurricane Katrina relief.

The new rate for business miles compares to a rate of 40.5 cents per mile for the first eight months of 2005. In September, the IRS made a special one-time adjustment for the last four months of 2005, raising the rate for business miles to 48.5 cents per mile in response to a sharp increase in gas prices, which topped $3 a gallon.  12/5/05


The US Tax System is Voluntary tax protester found Guilty

Irwin Schiff, an anti-tax crusader, and an associate were found guilty on October 24, 2005 of multiple charges including conspiracy, tax evasion and tax fraud.

Mr. Schiff, 77, who argues that paying taxes is voluntary, was handcuffed and led from United States District Court after a jury found him guilty of all 13 charges. Schiff has written books and maintained a lucrative business convincing gullible people that his convoluted ramblings were valid legal research. 10/28/05


IRS Tax Extensions for 6 Months

Form 4868 will get you an automatic 6-month extension and Form 2688 will become obsolete.Additionally, Form 7004 will also give you an automatic 6-month extension and will also be used for extensions for trusts and partnerships as well.Forms 2758, 8736 and 8800 will likewise become obsolete. All effective Jan1 2006.



Nexus Issue to be Addressed by New Jersey Supreme Court

The New Jersey Supreme Court has agreed to review a decision that raises the question of whether physical presence is required to establish sufficient nexus under the Commerce Clause of the U.S. Constitution for purposes of imposing the corporation business tax on the income of out-of-state corporations. The New Jersey Superior Court, Appellate Division concluded that the tax was constitutionally applied to income derived by a Delaware corporation from the licensing of trademarks, trade names, and service marks to a New Jersey clothing retailer, even though the corporation had no offices, employees, or real or tangible property in the state (see TAXDAY, 2005/08/25, S.14).

Lanco, Inc. v. Director, Division of Taxation, New Jersey Supreme Court, Dkt. 58542, petition for certiorari granted January 30, 2006.


Virtualex.com Ronald J. Cappuccio, J.D., LL.M.(Tax) 1800 Chapel Avenue West Suite 128 Cherry Hill, NJ 08002 Phone:(856) 665-2121      Fax: (856) 665-9005 Email: ron@taxesq.com




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