Overview of Income Tax Law Changes

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					This presentation does not reflect changes made by Public Law 110-343, passed and enacted on
October 3, 2008.

                       Overview of 2008 Income Tax Law Changes
                                          (Edited transcript)

Female Voice:               It is my pleasure to introduce Bob Erickson, Senior Technical
                            Advisor from the Internal Revenue Service Tax Forms and
                            Publications Group. Bob?

Bob Erickson:               Thank you. Can everybody hear me? Just want to make sure. Well
                            welcome again to Orlando and thanks for coming to this year’s
                            Tax Forum. I know every year this sounds like a broken record but
                            here I go again. Our friends in Congress did not stop making tax
                            law changes. In fact – are you ready for this? They passed seven
                            new major tax bills just since December, 2007. The last one, the
                            ink is still not dry. It was passed on July 30th and it’s covered in
                            our session. Let me tell you what they did pass. December 20th, the
                            Mortgage Forgiveness Debt Relief Act of 2007. Six days later the
                            Tax Increase Prevention Act of 2007. Three days later the Tax
                            Technical Corrections Act of 2007. Then in February on the 13th
                            they passed that little known law, the Economic Stimulus Act of

                            I’m sure you’re all hearing about economic stimulus until you’re
                            tired of it right now. June, two new bills. The Heroes Earnings
                            Assistance and Relief Tax Act of 2008. That’s on the 17th. One day
                            later they passed for the second time the Food Conservation and
                            Energy Act of 2008. The first time they messed up. A bunch of
                            pages got deleted before they went to the President. They had to
                            pass it twice. And finally last week, July 30th, they passed the
                            Housing and Economic Recovery Act of 2008 and I’m going to
                            cover all of it for you. Believe it or not, and I know you do believe
                            it, Congress is not finished yet. We still have at least three major
                            pending tax bills that I’ll discuss briefly at the end of our

                            So let’s get going with the first slide and that is the tax rate on net
                            capital gain and qualified dividends. As you recall there are two
                            major rates for capital gains, 5% and 15%. Starting in 2008 that
                            5% rate goes to zero. That’s right. There’s no tax on dividends and
                            capital gain that was taxed at 5%. The 15% rate remains
                            unchanged as do the 25 and 28% rates on unrecaptured section
                            1250 gain and collectibles gain. By the way, this rate applies to
                            both the regular tax as well as the AMT. Congress decided also
                            that it needed to give some benefits to corporations but only for
                            qualified timber gain. So they lowered the maximum rate to 15%

Overview of 2008 Income Tax Changes                                                       Page 1 of 14
This presentation does not reflect changes made by Public Law 110-343, passed and enacted on
October 3, 2008.

                            for timber held for more than 15 years. Now this applies to the net
                            of the gains and losses under section 631(a) and 631(b). This rate
                            also applies for both the regular tax as well as the AMT.

                            Now it’s kind of interesting. This effective date, it only applies to
                            tax years ending after May 22nd, 2008, and beginning before May
                            23rd, 2009. In addition – there’s an additional restriction. Only gain
                            realized on days in the tax year that are after May 22nd, 2008 and
                            before May 23rd, 2009, are included in qualified timber gain so it’s
                            really only for one total one year period that this applies but if you
                            have corporate clients you need to know this. For regular
                            individuals, they already get a 15% rate so there’s no benefit to

                            IRA contribution limits. It’s been increased by a full thousand
                            dollars, up to $5,000 for most taxpayers and $6,000 for taxpayers
                            age 50 or older at the end of the year. So that includes their catch-
                            up contributions of $1,000.00. It’s still limited because they can’t
                            exceed their taxable compensation and there are AGI limits that
                            apply to the maximum traditional IRA deduction and the
                            maximum Roth IRA contribution. You can find those in Rev Proc
                            2007-66. That explains what the AGI limits are. Those are indexed
                            to inflation each year.

                            Rollovers to Roth IRAs. They changed the rollover rules. In the
                            past, prior to 2008, rollovers could only be made to a Roth IRA
                            from a traditional SEP or SIMPLE IRA. Now you can rollover to a
                            Roth IRA amounts from a qualified pension, profit- sharing, or
                            stock bonus plan, and that even includes a 401(k) plan, it includes
                            annuity plans, tax shelter annuity plans under 403(b), and deferred
                            compensation plans of a state or local government. Those are for
                            section 457 plans. This rollover is subject to the same rules that
                            apply for converting a traditional IRA to a Roth IRA and generally
                            that includes modified AGI can’t be more than $100,000. And you
                            can’t be married filing separately. You can withdraw all or part of
                            the assets from the traditional IRA and reinvest them within 60
                            days in a Roth IRA. There’s a 10% additional tax on early
                            distributions but it doesn’t apply if the property is timely rolled
                            over. You have to roll over the same property you received and
                            finally you can choose to only roll over part. The rest is generally
                            taxable and subject to the 10% additional tax on early distributions.

                            Let’s talk about the continued phase out of the phase out itself.
                            That’s the phase out of personal exemptions and itemized
                            deductions. If you recall back in 2006 and 2007 the reduction
                            would be 2/3 of the amount that would otherwise apply. Now

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This presentation does not reflect changes made by Public Law 110-343, passed and enacted on
October 3, 2008.

                            starting in 2008 and also for 2009 the amount that’s reduced is
                            only going to be 1/3 of the amount that would otherwise apply. For
                            an example, you have a $3,500 personal exemption. That means
                            that the maximum reduction is 1/3 of $3,500, or $1,167, so you’ll
                            still be able to claim $2,333. Now what’s interesting is in 2010, the
                            phase out of the phase outs is reversed and the full phase out once
                            again applies. You know Congress.

                            Kiddie Tax rules. They’re not just for kiddies anymore. As you
                            know, the investment income of a child under age of 18 is taxed at
                            the parent’s tax rate. Form 8615 is used to figure the child’s tax or
                            if the parent wants to include the income on the parent’s own
                            return Form 8814 can be used to do that. This is what we call the
                            kiddie tax rules.

                            The big change for 2008 is that the rules will continue to apply to a
                            child under age of 18; but also beginning in 2008 it’s going to
                            apply to a child who is age 18 at the end of the year and whose
                            earned income is not more than half of the child’s support. So there
                            is an earned income rule that’s attached to that. It also applies to a
                            student who’s under age 24 at the end of the year and whose
                            earned income is not more than half of the child’s support. What is
                            a student? Same rules that apply for dependency. A child who
                            during any part of five calendar months of the year was enrolled as
                            a full time student at a school or took a full time on farm training
                            course given by a school or state, county, or local government
                            agency. It includes a technical trade or mechanical school but does
                            not include on the job training courses, correspondence school, or a
                            school offering courses only through the internet. This is a
                            permanent tax law change meaning it does not expire. It will stay
                            in effect until Congress sees fit to repeal it or change it again.

                            Guess what? They’ve increased the standard deduction but there’s
                            a catch. It’s only for people who pay real estate taxes. That’s right.
                            Interesting combination. For 2008 only and not in 2009, not in
                            2007, one year only, the standard deduction is increased by the
                            amount of your otherwise deductible real estate taxes with a
                            maximum of $500, 1,000 if married filing jointly. That is you take
                            your normal standard deduction and tack on an extra 500 or 1,000
                            if married filing jointly, providing you paid at least that much in
                            real estate taxes. Now you don’t count any real estate taxes that
                            you’ve already deducted in computing AGI. For example if you’ve
                            got a Schedule C and you’re due to have some business real estate
                            taxes you can’t count those. This is a change that was just enacted
                            six days ago.

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This presentation does not reflect changes made by Public Law 110-343, passed and enacted on
October 3, 2008.

                            First time homebuyer credit. Guess what? There’s a brand new tax
                            credit. Or is it a tax credit? Because some people think it’s a loan.
                            I’m one of those people. This first time homebuyer credit has to be
                            paid back, but without interest over 15 years. But let’s get in to the
                            details first of all. It’s a refundable tax credit meaning you don’t
                            have to have any tax liability. It’s up to $7,500 or 10% of the
                            purchase price of the home, whichever is less. With the prices of
                            most homes these days I think most people get the maximum
                            7,500. Married filing separately is half that amount, 3,750. It
                            applies only to homes purchased after April 8th, 2008 and before
                            July 1st, 2009. The good news is if you buy a home during that
                            2009 portion of this period you can pretend you bought it in 2008
                            and claim the credit in 2008. That’s an option you have. Now like
                            all good credits this is not for higher income people so it’s phased
                            out over a $20,000.00 range starting at an AGI of $75,000,
                            $150,000 if married filing jointly.

                            In other words if you earn $95,000 or more you’re not going to get
                            anything, 170,000 or more if married filing jointly. What this loan
                            functions as – excuse me, did I say loan? I meant credit. It actually
                            is a loan. It’s a 15 year interest free loan with 1/15 of the credit
                            recaptured as tax on your tax return for the year starting two years
                            after the year purchased. So if you bought a home in 2008 and you
                            get the $7,500 credit you’ve got to pay back and add to your tax
                            liability $500 in 2010, 2011, and so forth until you’ve paid back
                            the entire $7,500. You claim this credit on a new old form. It’s a
                            new Form, 5405, but we used to use that when there was a first
                            time homebuyer credit in the 1970s. Now let’s talk a little bit about
                            the details ‘cause the devil’s in the details. What’s a first time
                            homebuyer? Somebody who has not owned a main home for three
                            years before the purchase date of this new home. So if you haven’t
                            owned a home for three years, you’re considered a first time

                            If you have two unmarried individuals and they buy a house
                            together or even three they can divide that $7,500 amount any way
                            they want. Now so there’s no hanky-panky you cannot apply – this
                            doesn’t apply to property acquired from a related person meaning
                            your son, your daughter, your father, your mother, and so forth, or
                            your spouse. And it doesn’t apply to gifts where the basis is
                            determined by reference to someone – the transferred over basis, or
                            if you acquired it from a decedent. If you construct the home
                            yourself the date that counts for that April 8th, July 1st dates is the
                            day you move in. That’s the date that counts on constructed
                            property. You can’t claim the credit at all if you’ve ever claimed a
                            DC first time homebuyer credit, if your residence is financed with

Overview of 2008 Income Tax Changes                                                       Page 4 of 14
This presentation does not reflect changes made by Public Law 110-343, passed and enacted on
October 3, 2008.

                            tax exempt financing, if you’re a non-resident alien you can’t
                            claim it, or if you dispose of the residence before the end of the

                            Now that loan repayment I was talking about, it’s accelerated if
                            you sell your home or if the home is no longer your principal
                            residence, you move out. Then you have to pay it back completely
                            in the year that happens. The good news is if you lose money or
                            have a very small gain on the sale the amount of the recapture is
                            limited to the gain on the sale as long as you didn’t sell it to an
                            unrelated party. And really good news, if you die, there’s no
                            recapture at all. There’s also no accelerated recapture if say your
                            home burns down, you have an involuntary conversion, and you
                            acquire a replacement residence within two years. Then we wait
                            until you get rid of the replacement residence. Also if it’s part of a
                            divorce settlement. The spouse that keeps the home takes on the
                            recapture responsibility. So that pretty much sums up how that
                            credit – I mean loan – I mean credit works.

                            Okay. Exclusion on the sale of your main home. They’ve changed
                            the rules for surviving spouses. Instead of the $250,000 exclusion
                            you normally would get its 500,000 if you’re an unmarried
                            surviving spouse as long as you meet three requirements. The sale
                            occurs no later than two years after the date of the other spouse’s
                            death, the ownership and use requirements for joint filers were met
                            immediately before the date of the death, and finally during the
                            two year period ending on the date of death there was no sale or
                            exchange of the main home by either spouse that qualified for the
                            exclusion. And this is for sales after 2007. Okay.

                            Exclusion of the sale – They’ve enacted a new provision in the
                            military bill where you can elect to postpone the running of the
                            five year test period of ownership and use because if you don’t
                            meet the two out of the five you don’t get the exclusion or might
                            get a limited exclusion. You can freeze that for 10 years starting in
                            2008 if you or your spouse are serving outside the United States in
                            the Peace Corps. Now the military already have this and so do
                            members of the intelligence committee, they’re just extending it to
                            the Peace Corps. Also for sales or exchanges after June 17th, 2008,
                            members of the intelligence community that elect to postpone the
                            five year running test no longer have to move to a post of duty
                            outside the United States. So that’s a change in the rules for them.

                            There we go. This is the exclusion for emergency responders. For
                            tax years 2008 through 2010 gross income does not include the
                            following items, if they’re provided to you as a volunteer by a state

Overview of 2008 Income Tax Changes                                                       Page 5 of 14
This presentation does not reflect changes made by Public Law 110-343, passed and enacted on
October 3, 2008.

                            or local government, and that is rebates or reductions of property
                            or income taxes for providing services as a member of a qualified
                            emergency response organization. What does that mean? A
                            qualified emergency response organization is any volunteer
                            organization organized and operated by written agreement to
                            provide fire fighting or emergency medical services for purposes
                            within the boundaries of a state or local government. That’s what
                            we mean by that. Also they can exclude up to $30.00 a month for
                            providing those services as a member of a qualified emergency
                            response organization. The amount you exclude under this
                            provision reduces any deductions that you get in the case of the
                            first item, for taxes or the second item for contributions.

                            Now let’s talk about our favorite discussion, the recovery rebate
                            credit which is phase two of the economic stimulus payments
                            you’ve all heard about and that has put quite a punch into the
                            economy as you’ve heard about recently. Well we have a new tax
                            credit in addition to the economic stimulus payment and this is for
                            people who did not get enough of an economic stimulus payment.

                            For tax years beginning in 2008, taxpayers can claim a refundable
                            credit figured in the same manner as the economic stimulus
                            payment except that you base the amounts on your 2008 return.
                            The IRS based them on your 2007 tax return. That means if you
                            have an extra qualifying child in 2008 you might be able to get an
                            additional refundable tax credit. As I said, it’s refundable and the
                            amount of the credit, of course, is reduced by any economic
                            stimulus payment that you already received in 2008.

                            Now let’s say you figure this worksheet and you say “Oh gee, I’m
                            going to get less than I actually got in 2008.” You don’t have to
                            pay the extra amount back. This is a win-win. You only get a credit
                            if it helps to benefit you, not if it hurts you in any way. Now
                            there’s going to be a calculator on irs.gov during the next filing
                            season that will help people figure the amount of the credit. But
                            most of you use software and I’m sure the software will do that for
                            you as well.

                            Okay, the AMT exemption amount. Like I said, this is another
                            broken record. Every year I have this slide on the computer and
                            every year Congress decides at the last minute to change the rules.
                            And that is the AMT exemption amount is scheduled or actually it
                            already has under the law, decreased from 44,350 to 33,750 if
                            you’re single or head of household. You’re married filing jointly,
                            you’re a surviving spouse, the amount is dropped from 66,250 to

Overview of 2008 Income Tax Changes                                                     Page 6 of 14
This presentation does not reflect changes made by Public Law 110-343, passed and enacted on
October 3, 2008.

                            45,000, and finally married filing separately is 33,125 down to

                            Now as they did in the past, Congress has a bill that will actually
                            increase instead of decrease the amounts. That bill has gone
                            nowhere. It probably will be enacted sometime probably on a very
                            cold snowy night in December. But if it gets enacted they will
                            increase the amount to 46,200 for single or head of household,
                            69,950, married filing jointly, or surviving spouse, and 34,975 if
                            married filing separately. But as I said that’s the law now, not as
                            what we would like it to be. There are other AMT changes to talk
                            about. Okay. And that is Congress has added two new provisions
                            that will eliminate the AMT on some tax exempt interest. As you
                            know private activity bond interest is generally taxable for AMT
                            even though it’s not taxable for the regular tax. However for
                            certain housing bonds which I won’t go in to, they have exempted
                            housing bonds issued after July 30th, 2008 from the AMT. These
                            mainly involve residential rental projects, mortgage bonds, and
                            veteran’s mortgage bonds.

                            Also a state or local bond subject to a guarantee that’s made after
                            July 30th, 2008 by a federal home loan bank in connection with the
                            original issuance of that bond now will qualify for tax treatment as
                            a tax exempt bond. Before they would not be treated as tax exempt

                            The special depreciation allowance. How many of you remember
                            the old 50% special allowance? That’s pretty much gone these
                            days except for Gulf Opportunity Zone and I think New York
                            Liberty Zone. However they’ve enacted a brand new one. It’s been
                            resurrected. So for most new property purchased and placed in
                            service after 2007 that means after December 31st, 2007 we have a
                            new 50% additional first year allowance. To be eligible the
                            property must be property with a recovery period of 20 years or
                            less, off-the-shelf computer software, qualified leasehold property,
                            or water utility property. This special allowance however does not
                            apply if the alternative depreciation system, ADS, is required to be
                            used. If you elect into ADS, you can still claim the 50% allowance.
                            You can also elect out of the special depreciation allowance if you
                            don’t want to take it with respect to any class of property. You
                            figure the allowance as before, after you figure the 179 deduction,
                            but before you do your regular depreciation.

                            And one new rule is that they’ve increased the amount that applies
                            to automobiles. If you claim the special allowance and it applies
                            the limit on depreciation in section 179 is bumped up by an

Overview of 2008 Income Tax Changes                                                     Page 7 of 14
This presentation does not reflect changes made by Public Law 110-343, passed and enacted on
October 3, 2008.

                            additional 8,000. That was in the old bill but it was a lot less than
                            8,000 under the old rules. So keep that in mind. That will help
                            people who are claiming depreciation on cars.

                            The section 179 expense deduction. Alright, that has increased to
                            $250,000. It was going to be 128,000 by the way. $285,000 for
                            enterprise zone and renewal community building businesses and
                            350,000 in qualified section 179 Gulf Opportunity Zone property.
                            There is a phase out and that’s been bumped up as well. It begins
                            when your 179 property placed in service during the year exceeds
                            800,000 and 1.4 million if it’s qualified section 179 Gulf
                            Opportunity Zone property.

                            Self-employment tax; the rules have changed on two items here.
                            How many of you have clients who use the optional method of
                            computing self-employment? I see just a smattering of hands here,
                            probably because you can’t really get four credits of coverage for
                            the year because the limits are so low. Well, Congress fixed that
                            starting in 2008. The thresholds have now been increased to allow
                            electing taxpayers to assure them that they will get four credits of
                            coverage. For 2008 the lower limit of 1,600, the amount that’s pre-
                            printed on your Schedule SE has gone up to 4,200 and the upper
                            limit for gross farm income has gone from 2,400 to 6,300.
                            Secondly, CRP or conservation reserve program payments that
                            farmers get for not planting crops, that’s excluded from net self-
                            employment earnings now as long as that taxpayer is receiving
                            social security disability or retirement benefits. If they’re not
                            retired, they’re not getting those benefits; it’s still included in self-
                            employment tax earnings.

                            So let’s talk about the increase in the meal expense limit for certain
                            transportation workers. This limit has been gradually going up ever
                            since the Taxpayer Relief Act of 1997 was passed. In other words
                            this change in law was enacted back in 1997, and we have now
                            reached the maximum. Workers who are subject to Department of
                            Transportation hours of service limits; like truckers, they can
                            deduct 80% of their business meals consumed during or incident to
                            any period of duty when those limits are in affect. Let me give you
                            a list of the occupations included. Certain air transportation
                            employees such as pilots, crews, dispatchers, mechanics and
                            control tower operators, interstate truck operators, interstate bus
                            drivers, certain railroad employees such as engineers, conductors,
                            training crews, dispatchers, and control operations personnel, and
                            certain merchant mariners. Those people now are peaked out at
                            80%, unlike the rest of us at 50%, and that will continue forever
                            until Congress changes the law.

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This presentation does not reflect changes made by Public Law 110-343, passed and enacted on
October 3, 2008.

                            There are three new tax credits I want to talk about. First one. The
                            agricultural chemicals security credit, new Form 8931. Now we all
                            know about what happened in Oklahoma City and I think fertilizer
                            was a big part of the problem. Congress is now addressing that
                            with a tax credit of 30% for qualified security expenditures that are
                            paid or incurred after May 22nd, 2008, by sellers, distributors, and
                            manufacturers of specific agricultural chemicals. What do these
                            expenditures include? Employee security training, background
                            checks, access controls to chemicals at the facility, tagging,
                            locking tank valves and chemical additives to prevent illegal use,
                            perimeter protection, installation of security lighting, cameras,
                            recording equipment, intrusion detection, sensors, measures to
                            increase computer security, conducting a security vulnerability
                            assessment and implementing a site security plan. There is a limit.
                            It’s $100,000 per facility and two million dollars per taxpayer. This
                            credit is not permanent. It expires after 2012. It’s part of the
                            general business credit and like I said it’s on new Form 8931.

                            The second one is a credit for employer differential wage payments
                            on new Form 8932. It’s also part of the general business credit.
                            What are differential wage payments? Let me tell you. Your wage
                            payments that are made to employees during any period in which
                            the employee is performing services in the uniformed services,
                            that’s mainly the military, while on active duty for over 30 days.
                            The amount paid cannot exceed the wages the individual would
                            have normally received from the employer for performing services
                            for that employer. The credit is 20% of the amount of the wage
                            payments that are made and it’s limited to $4,000.00 per employee.
                            It applies only to an eligible small business which is defined as
                            somebody who has an average of less than 50 employees on
                            business days during any given year. They also have to have a
                            written plan to provide these payments to all qualified employees.

                            To be a qualified employee, you have to have been an employee
                            for the taxpayer for at least 91 days prior to the period for which
                            the differential wage payment is made. You can’t just start paying
                            them to a new employee. There is a waiting period. And there’s no
                            credit available after 2009, so it’s only for wages that are paid
                            after June 17th, 2008, through the end of 2009.

                            The third credit is to holders of certain forestry conservation
                            bonds. Now what is this credit? This is a credit that the IRS has to
                            approve for forestry conservation. The bonds are used for that
                            purpose. They get a credit in lieu of interest. It’s like the other
                            bond credits and we’re adding that to new Form 8912.

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This presentation does not reflect changes made by Public Law 110-343, passed and enacted on
October 3, 2008.

                            There are also changes, major changes to some of the business tax
                            credits. The first one is the low income housing credit. Number
                            one, for buildings that are placed in service after 2007 this is not
                            retroactive, the credit is allowed against both the regular tax and
                            the AMT. So people who pay AMT will still get the credit. The
                            credit rate is set at a minimum of 9% for non-federally subsidized
                            new buildings. Right now that credit rate is around seven and a
                            half percent, so this is for buildings placed in service after July 30th
                            of 2008.

                            There are a number of other changes that simplify and reform the
                            credit but they’re really too complicated to get in to at this
                            overview. The rehabilitation credit is allowed against both the
                            regular tax and the AMT for any credits and expenditures that are
                            taken into account after 2007. Now there’s an interesting
                            provision, the last one, only for corporations. Instead of claiming
                            the special depreciation allowance they can just say “I don’t want
                            it.” They can instead increase the amount of their prior year
                            minimum tax and research credit tax liability limits by something
                            called the bonus depreciation amount. That would take a seminar
                            in itself to explain how you compute that amount. But let me tell
                            you, the resulting increase in the credit is allowed as a refundable
                            credit, so this extra increase that you get from this rule, even if you
                            pay no tax you can get a tax credit that’s refunded to you if you’re
                            a corporation only. Fun stuff isn’t it?

                            Talk about more relief for the Gulf Opportunity Zone. There’s a
                            new rule in the bill that just passed six days ago. If a taxpayer
                            claimed a deduction for a casualty loss for a main home damaged
                            in Hurricane Katrina, Rita, or Wilma, and they received a grant
                            under certain federal laws to reimburse that loss in a later year, the
                            taxpayer can decide “I don’t want to include that grant in income
                            instead, I want to file an amended return for the year of the
                            casualty loss and reduce the loss by the amount of the
                            reimbursement. Congress passed that rule allowing you to prepare
                            amended returns instead of including the amount in income. There
                            are two rules if you do this. The amended return must be filed by
                            the later of the due date of the return for the year the grant was
                            received or July 30th, 2009. Also there are going to be no interest
                            or penalties that apply to the tax as long as it’s paid within one year
                            of the date the amended return was filed. No interest, no penalties.

                            The last item is there was a deadline of December 31st, 2007 for
                            starting construction of self-constructed Gulf Opportunity Zone
                            extension property. That’s for purposes of claiming the 50%

Overview of 2008 Income Tax Changes                                                       Page 10 of 14
This presentation does not reflect changes made by Public Law 110-343, passed and enacted on
October 3, 2008.

                            depreciation allowance. That has been repealed. Now that includes
                            basically non-residential real property and residential rental
                            property only in those parts of the zone where 60% or more of the
                            housing units were damaged. So it’s a limited provision but they
                            don’t have to start the construction on any particular date anymore
                            as long as it’s placed in service under the normal rules that applied
                            previously. Now we’ll talk about tax relief for taxpayers affected
                            by the Kansas storms and tornadoes. Now what is this? This
                            provision applies basically to taxpayers that were affected by the
                            F5 tornado in Greensburg, Kansas, that happened on May 4th,
                            2007. There were also other storms in that area and there are a
                            total, I believe, of 24 counties in Kansas this applies to.

                            Rather than going to a lot of details since this is a very limited
                            provision, we have a new Publication 4492-A that explains exactly
                            how to claim the benefits of this provision because it’s basically
                            going to be retroactive to 2007. And they’re going to get relief.
                            Most of these provisions are similar to the provisions that apply to
                            Hurricane Katrina. They don’t get all of the provisions but I’m not
                            going to read them off. I’m just going to refer you to Pub 4492-A
                            to get more information about it.

                            Non-resident aliens, two changes here. The exemption from tax on
                            interest related dividends and short term capital gains that are paid
                            to a non-resident alien by a mutual fund which are also known as
                            regulated investment companies, that doesn’t apply after 2007 so
                            there’s going to be withholding on those non-resident aliens. U.S.
                            citizens who relinquish their citizenship after June 16th, 2008, are
                            now going to be treated as if they’ve sold all their property at fair
                            market value on the day before they relinquished their citizenship.

                            They can exclude the first $600,000of gain but then they have to
                            pay tax on the rest of it. They can elect to defer the tax if adequate
                            security is provided; like a bond or a letter of credit. That’s a
                            limited provision but you need to be aware of it in case you have a
                            client in that situation.

                            There are other tax relief provisions. The first one deals with the
                            credit for prior year minimum tax and only the refundable portion.
                            Under that rule starting in 2008, the refundable credit cannot be
                            less than a prior year refundable credit before the AGI phase out.
                            Let me explain what that means. Under prior law the taxpayer
                            could recover 20% of the available credit in the first year and then
                            20% of the remaining credit in each later year. That amount kept
                            shrinking so you’d never make it all the way to the full 20%.

Overview of 2008 Income Tax Changes                                                      Page 11 of 14
This presentation does not reflect changes made by Public Law 110-343, passed and enacted on
October 3, 2008.

                            Now the taxpayer can use the original 20% in the first year and the
                            same amount each later year so they can use it up in five years.
                            The second provision involves individuals receiving military death
                            gratuities or service members group life insurance payment. These
                            amounts can now be rolled over to a Roth IRA or a Coverdell ESA
                            without regard to the normal contribution or income limits that
                            apply for those provisions, as long as the rollover is made within
                            one year of the receipt of the payment or within one year of June
                            17th, 2008 if that’s the later. This applies to deaths from injuries
                            that occurred after October 6th, 2001. So they have opened up the
                            statute of limitations for this provision.

                            Expired individual provisions. There are a number of those that
                            have expired. The allowance of certain personal tax credits against
                            the AMT, the educator expense deduction, the tuition and fees
                            deduction, deduction for state and local general sales taxes, the
                            non-business energy property credit, and lastly the exclusion from
                            income for certain IRA distributions made directly to a charity.
                            All of the first five items are in bills to extend them or retroactively
                            reinstate them.

                            The expired business provisions. They’re all still expired, reminds
                            me of the old Francisco Franco joke. He’s still dead. In this
                            situation they’re still expired. Congress is taking action or is
                            expected to take action before the end of the year to reinstate these
                            items. So you can have a look at them and you’ll see that all of
                            these are scheduled to be reinstated if the pending legislation

                            Speaking of which let’s talk about pending legislation. There are
                            three bills. H.R. 6449, the Renewable Energy and Job Creation
                            Act of 2008. It contains both energy tax incentives as well as a one
                            year extension for the majority of tax provisions expiring except
                            for the AMT. This bill also reduces the earned income threshold
                            for the additional child tax credit, that’s the refundable portion,
                            down to 8,500. That means more people can qualify for that credit.

                            Now you’ve heard a lot in the press about how Congress can’t
                            seem to get their act together on energy, the energy provisions, and
                            that’s true. That is why they haven’t done anything yet. They’re
                            going to make a second attempt when they return on September 8th
                            and resume debating these issues. The second one is H.R. 6275,
                            the Alternative Minimum Tax Relief Act of 2008. Essentially this
                            is the AMT patch I talked about earlier and that would increase the
                            AMT exemption amounts as well as allow six personal credits
                            against the AMT. There’s also some obscure revenue raisers in the

Overview of 2008 Income Tax Changes                                                       Page 12 of 14
This presentation does not reflect changes made by Public Law 110-343, passed and enacted on
October 3, 2008.

                            bill and unless you’re a hedge fund owner I wouldn’t worry about
                            it. The last item is S. 3335, the Jobs, Energy, Families, and
                            Disaster Relief Act of 2008. That was recently introduced. It also
                            contains energy tax incentives, the AMT patch, a one year
                            extension for the majority of tax provisions expiring, and also
                            disaster tax relief. It would also reduce the earned income
                            threshold for the additional child tax credit to $8,500.

                            You probably want to applaud the next one. On the revenue side it
                            generally requires basis reporting by brokers for securities acquired
                            after 2009. Okay. I know that’s been a big issue with tax preparers
                            on trying to get basis information. But these bills are a long way
                            from enactment so there are bound to be additional changes no one
                            knows about yet, some provisions may be eliminated, some of
                            these bills may never become law. Who really knows?

                            Finally we have a list of additional resources for you. The draft
                            2008 tax forms, this is all in your book. You can find out where to
                            find our draft form, our final forms. I assume all of you know
                            where to find those as well as Pub 553. Pub 553 unfortunately is
                            out of date because we last revised it in April and there’s been a lot
                            of tax law changes since then. “What’s Hot in Tax Forms,
                            Publications, and Other Tax Products” contains information on
                            corrections and the latest changes to our tax forms and
                            publications. If you actually want to read the bills Congress passes,
                            and I know you do, you’ll go to thomas.loc.gov and see for
                            yourself what they wrote and why we have such a hard time
                            translating it in to English.

                            And finally our e-mail address, *taxforms@irs.gov if you have any
                            questions or suggestions for improving our tax products. Now I
                            want to say one last item. I don’t normally cover inflationary
                            changes but because of the huge increase in gasoline prices the IRS
                            raised the standard mileage rate on July 1st to 58.5 cents a mile for
                            business, 27 cents a mile for medical and moving expenses. A
                            charitable contribution mileage rate of 14 cents is set by Congress
                            and they haven’t changed it. That’s in Announcement in 2008-63.
                            Now I’m going to take questions but I need you to come up to the
                            microphones. If you want to ask me any questions, otherwise thank
                            you very much for coming. I really appreciate your attendance.

Male Speaker:               Yes, is Form 4859 going to still be in use this year?

Bob Erickson :              The DC first time homebuyer credit, yes because even if Congress
                            doesn’t change the law there’s an unlimited carry over for an
                            unlimited number of years so the form will probably never go

Overview of 2008 Income Tax Changes                                                     Page 13 of 14
This presentation does not reflect changes made by Public Law 110-343, passed and enacted on
October 3, 2008.

                            away for that reason alone. Any other questions? Well if there are
                            no other questions, thank you very much for coming.

[End of Audio]

Overview of 2008 Income Tax Changes                                                   Page 14 of 14

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