Tax Report: A Special Summary and Forecast Of Federal and State Tax Developments
RELIEF MAY BE COMING for people who lose money selling their homes.
The congressional budget and tax-cut package includes a provision that would allow homeowners to deduct losses on the sale of a principal residence just like any other capital losses. It would be retroactive to sales or exchanges after Dec. 31, 1994. Under current law, losses on a home sale are not deductible.
While President Clinton has vowed to veto the bill, the home-sale provision has a good chance of surviving as part of a White House-Congress compromise, tax advisers say. The provision enjoys strong support from influential lawmakers, including House Ways and Means Chairman Archer. Another proponent, Sen. Joseph Lieberman, a Connecticut Democrat, says the change would provide ``critical relief.″ He says many regions of his state have suffered ``steep price declines″ in recent years.
For example, he says, the median price of an existing home in Hartford has dropped about 20 percent since 1989.
IGNORANCE ISN’T BLISS in many cases when filing joint income-tax returns.
A recent Tax Court case may help spark renewed efforts in Congress to fix a major problem facing many divorced or separated couples who file joint returns. The problem occurs when the IRS later says the couple owes back taxes. Lawmakers say the IRS often pursues only one spouse, usually the easiest one to find, rather than the one who really is responsible. Current law also makes it tough for anyone claiming to be an ``innocent spouse″ to win in court, as a recent case involving Elizabeth Cockrell of New York City shows.
Ms. Cockrell was married in 1979 and got divorced in 1983. The IRS later dunned her for large amounts of back taxes. The Tax Court backed the IRS in 1993. She asked the court to reconsider. But now Judge Wells has ruled again in favor of the IRS _ even though he agreed she ``did not have actual knowledge″ that certain deductions would lead to trouble and said he sympathized with her ``plight.″ Ms. Cockrell was ``educated″ and ``should have realized her responsibility″ to review the returns, the judge said, adding: ``If the result we reach seems harsh, the remedy must lie with Congress.″ Ms. Cockrell says she is trying to decide whether to appeal.
THE TREASURY VOWS to simplify the rules on the alternative minimum tax.
Few tax provisions stir as much resentment and scorn as the alternative minimum tax, which is designed to force upper-income people with hefty deductions or large amounts of tax-free income to pay at least some tax. But it can be so mind-numbingly complex that many tax specialists want Congress to eliminate it, overhaul it, or at least simplify it greatly.
Among those urging simplification is Leslie B. Samuels, Treasury’s assistant secretary for tax policy. As evidence of the need for change, Mr. Samuels points out that the IRS receives about 3.7 million returns with the alternative minimum tax form filled out _ even though only about 400,000 of these returns were required to be filed.
The Treasury is working on ways to ``streamline and simplify″ the process, Mr. Samuels says.
INTEREST RATES on tax underpayments and overpayments will remain the same in next year’s first quarter as in this year’s fourth quarter. For example, the rate on underpayments will remain 9 percent. The rate on large corporate underpayments: 11 percent.
THE IRS BRACES for possible retroactive tax-law changes that would affect 1995 returns. IRS Commissioner Margaret Milner Richardson says a proposal to make a child tax credit retroactive to part of 1995 could cost the IRS more than $300 million in distribution and other expenses.
CONNECTICUT has received more than $18.4 million in a tax-amnesty program that expires Thursday. The state has received more than 5,400 amnesty applications from people and businesses, says Gene Gavin, the state’s revenue services commissioner.
CONSIDER SIGNING UP for direct deposit of your refund next year, advisers say.
Most people entitled to refunds on their 1995 returns to be filed next year will be able to tell the IRS to send their money directly to their checking or savings accounts, instead of waiting to get a check in the mail. Previously, only those filing electronically or using Form 1040PC could get direct deposit of refunds, an IRS spokesman says.
To sign up, taxpayers will write their bank-account information on a new Form 8888 and attach it to their tax return, the IRS says. This new form will be sent to taxpayers as part of the standard packages for Forms 1040 and 1040A. Taxpayers should consider using direct deposit because it is safer and faster than waiting for a government check to arrive, says Sidney Weinman, a lawyer at Research Institute of America, a New York-based tax publishing company.
``It sounds like a good idea to me because it’s more secure and you should get the refund more quickly,″ agrees Thomas Ochsenschlager of Grant Thornton in Washington.
BRIEFS: History update: In 1913, the entire federal tax law, plus explanations and other related material, fit into a single 400-page volume, says CCH Inc. of Riverwoods, Ill. Today, CCH’s flagship federal tax publication totals 40,500 pages in 22 volumes. . . . Sen. Sam Nunn, the Georgia Democrat, describes the tax code as ``thousands of pages of pet rocks that have nothing to do with the national interest.″