2009 Citrin Cooperman Tax Alerts

Details Regarding New York State's "Great Appliance Swap-Out Program" and the Penalty and Interest Discount (PAID) Program

On February 3, 2010, New York State Department of Taxation and Finance ("the State") issued TSB-M-10(2)S ("Memo"). The Memo provides details to the State's "Great Appliance Swap-Out Program". The program will provide rebates to New York State residential consumers for purchasing new energy-efficient refrigerators, freezers, clothes washers, and dishwashers. To be eligible for the rebate, customers must purchase a qualifying appliance(s) individually or in a bundle between February 12, 2010, and February 21, 2010. The rebate can range from $50 to $555 depending upon the type and number of appliances purchased and whether the customer recycles the old appliances.

In addition, on December 15, 2009 the State issued a memorandum that discusses the Penalty and Interest Discount (PAID) Program, which encourages taxpayers to pay off their eligible tax liabilities that are at least three years old. A taxpayer who participates in the program will receive a reduction in the accrued interest and penalty currently owed on eligible tax liabilities. The program period will begin on January 15, 2010, and end on March 15, 2010. However, if the taxpayer does not make full payment of an eligible liability by March 15, 2010, the taxpayer will not receive any savings on that liability.

If you have any questions or need additional information, contact your Citrin Cooperman and Company, LLP advisor or one of the Firm's State and Local Tax Partners: Elliott Lavietes at 212-697-1000 (elavites@citrincooperman.com) or David Seiden at 914-949-2990 (dseiden@citrincooperman.com).

Donating to Haiti relief efforts? You may be eligible for a 2009 tax deduction

On Jan. 22, President Obama signed into law legislation permitting taxpayers to deduct certain 2010 charitable contributions for Haiti disaster relief on their 2009 tax returns, rather than on their 2010 returns, effectively accelerating their deduction.

Eligibility rules

Only monetary contributions made Jan. 12, 2010, through Feb. 28, 2010, are eligible for the acceleration of the tax deduction. This includes check or credit card donations, but not donations of stocks, bonds or other property, which will be deductible in the year made (i.e. 2010).

Additionally, only contributions to qualified domestic charitable organizations — that is, Sec. 501(c)(3) organizations — assisting in Haiti are eligible. Donations to foreign relief organizations aren’t eligible unless they have qualified U.S. affiliations.

The normal substantiation rules generally apply. Contributions must be substantiated by a bank record (such as a canceled check or credit card statement) or written documentation from the charity showing the charity’s name and the amount and date of the donation. The legislation provides one special form of substantiation for Haiti relief contributions only. Donations made through cellular phones via text message can be substantiated by a phone bill, as long as it shows the charity’s name and the amount and date of the donation.

Planning considerations

Both individuals and corporations can take advantage of the break. But some higher income taxpayers may be better off deferring the deductions to their 2010 returns. This is because they may be subject to a limitation on itemized deductions in 2009 that has been repealed for 2010. The limit applies to taxpayers with 2009 adjusted gross incomes (AGIs) over $166,800 ($83,400 for married couples filing separately).

Taxpayers who expect to be in higher tax brackets in 2010 also may be better off deferring eligible deductions to 2010, because the deduction will save them tax at a higher rate. For example, if your marginal rate is 28% for 2009 but 33% for 2010, for every $1,000 of deduction you defer to 2010, you’ll save an additional $50 in taxes (28% x $1,000 = $280, 33% x $1,000 = $330).

Also note that the AGI limits that normally apply to charitable donation deductions also apply here. For example, your 2009 deductions of monetary gifts to public charities can’t exceed 50% of your 2009 AGI. So if you’ve already made 2009 donations exceeding 50% of your AGI, you won’t be able to deduct otherwise eligible Haiti relief contributions on your 2009 tax return. However, those contributions will be deductible in 2010.

What’s right for you?

A donation to Haiti relief efforts can make a huge difference to people in tremendous need. And now it can also make a difference in your 2009 tax bill. For more information on how to apply this break to your particular situation — or assistance determining whether you should take the charitable deduction for 2009 or 2010 — please contact us. We’d be pleased to help you with this and other tax planning matters.

IRS provides guidance on electing to accelerate research or AMT credits in lieu of bonus depreciation

Corporations with unused research or alternative minimum tax (AMT) credits from pre-2006 tax years have a decision to make: Should they take advantage of the 50% first-year depreciation bonus that was extended through 2009 or should they elect to accelerate research or AMT credits in lieu of bonus depreciation?

Although the underlying concept is simple (which strategy will produce greater tax savings?), the rules and calculations involved in making this determination — and ultimately the election — have been somewhat unclear.

Fortunately, the IRS has now issued Revenue Procedure 2009-33, which provides corporations with guidance on the property eligible for the election, how and when to make the election, and how to compute the allowable credits. It also instructs corporations on what they must do if they made the election in 2008 but don't want to forgo bonus depreciation in 2009.

Bonus depreciation 101

The Economic Stimulus Act of 2008 created an additional 50% first-year depreciation deduction for qualified property acquired after 2007 and placed in service before 2009 (2010 for certain aircraft and property with "long production periods").

Eligible property included:

  • Tangible property eligible for the modified accelerated cost recovery system (MACRS) and with a recovery period of 20 years or less,
  • Purchased computer software, subject to limited exceptions,
  • Qualified leasehold improvement property, and
  • Water utility property.

Congress soon recognized, however, that bonus depreciation deductions provided no immediate tax savings to corporations with net operating losses (NOLs). To provide these corporations with a tax incentive to invest in qualified property, the Housing and Economic Recovery Act of 2008 allowed corporations to opt out of bonus depreciation and, instead, to increase certain pre-2006 research and AMT credit limits and claim them as refundable credits.

This option was generally available for qualified property acquired and placed in service after March 31, 2008 (so long as no written purchase contract existed at that time), and before Jan. 1, 2009 (Jan. 1, 2010, for certain aircraft and long-production-period property). Corporations that elected to forgo bonus depreciation could increase their research and AMT credit limits by as much as 20% of the bonus depreciation for which they were otherwise eligible.

The refundable credit couldn't exceed a "maximum increase amount," which is the lesser of $30 million or 6% of the total available pre-2006 credits. Also, corporations that elected to forgo bonus depreciation were required to depreciate qualified property using the straight-line method rather than MACRS.

The 2009 extension

Earlier this year, the American Recovery and Reinvestment Act of 2009 (ARRA) extended bonus depreciation to qualified property placed in service before Jan. 1, 2010 (Jan. 1, 2011, for certain aircraft and long-production-period property). ARRA also extended the election to claim increased pre-2006 research or AMT credits in lieu of bonus depreciation.

The election applies to "extension property," which generally refers to qualified property acquired after March 31, 2008, and placed in service during the 2009 calendar year (2010 for certain aircraft and long-production-period property). Essentially, corporations are allowed to make a separate election for their first tax year ending after Dec. 31, 2008 (2009 for calendar-year taxpayers), to forgo bonus depreciation on extension property in favor of a separately calculated accelerated credit amount.

Making the election

Rev. Proc. 2009-33 clarifies that if a corporation made the election last year (for its first tax year ending after March 31, 2008) then the election automatically applies to its first tax year ending after Dec. 31, 2008. But, these corporations can elect not to use last year's election and, instead, to claim bonus depreciation in 2009 on extension property.

Corporations that didn't make the election last year may elect to forgo bonus depreciation on extension property in 2009 and claim accelerated research or AMT credits instead.

Either election must be made on a timely filed return for the first tax year ending after Dec. 31, 2008 (with limited relief available for late elections). Rev. Proc. 2009-33 cautions fiscal-year taxpayers, however, that "even if the taxpayer does not place in service any extension property in its first taxable year ending after Dec. 31, 2008, the taxpayer must make the election . . . for that taxable year if the taxpayer wishes to apply such election to extension property placed in service in a subsequent taxable year."

Suppose, for example, that a corporation is on a fiscal year ending June 30. It hasn't previously elected to forgo bonus depreciation, but wishes to do so for property it plans to place in service in November and December of 2009. The election must be made on the corporation's return for the tax year ending June 30, 2009 (due Sept. 15), because it's the first tax year ending after Dec. 31, 2008 — even though the property is actually placed in service during its second tax year ending after Dec. 31, 2008.

Additionally, the revenue procedure provides guidance on computing the bonus depreciation amount for extension property, allocating it between research and AMT credits and reporting that allocation with a corporation's tax return.

Special rules

Rev. Proc. 2009-33 contains special rules for certain types of taxpayers. For example, S corporations are eligible to make the election, but increases in research or AMT credit limits are applied at the corporate level, not at the shareholder level. The revenue procedure outlines the time and manner for S corporations to make the election.

Taxpayers that are members of a corporate controlled group should pay careful attention to IRS guidelines: If any member of a controlled group makes the election, it applies to all of them. Rev. Proc. 2009-33 (together with previous revenue procedures) provides detailed guidance on determining the members of a controlled group, making the election and allocating credits among the members.

Corporations that are partners in a partnership must notify the partnership in writing that they're making the election to forgo bonus depreciation. Generally, this notice must be made by the time the election itself is due. The revenue procedure provides guidance on determining a corporate partner's distributive share of partnership items relating to any extension property the partnership placed in service during a tax year.

Weighing your options

If your business is a corporation with unused pre-2006 research or AMT credits — and you've acquired property eligible for bonus deprecation since March 31, 2008 (or plan to do so in the coming months) — investigate whether an election to forgo bonus depreciation and claim accelerated credits would reduce your tax bill.

After you do the math and determine which strategy is better, it's critical to follow the IRS's guidelines carefully to ensure that you obtain the desired tax treatment.

For more information, please contact your Citrin Cooperman tax professional or email us at info@citrincooperman.com

New York City Sales and Use Tax Rate Increase and Partial Repeal of Clothing exemption

Starting tomorrow, August 1, 2009, the new sales tax rates for New York City will go into effect.

The new provisions incorporate the following changes:

  • Increase in the New York City (NYC) sales tax rate from 4.0% to 4.5%. This will result in an overall NYC sales tax rate of 8.875% when combined with NYS sales tax rate;
  • Sales on clothing and footwear over $110 will now be subject to sales tax in NYC. Clothing and footwear under $110 will remain exempt from sales tax in NYC. The under $110 exemption also remains in effect for NYS;
  • The sales tax rate on credit rating and reporting services, beauty and barbering services will be increased from 4.0% to 4.5% in NYC. The law also provides that taxes on these services can only be imposed through November 30, 2011, unless the taxability is extended by future legislation.

If you have any questions, please call your Citrin Cooperman professional or contact us at info@citrincooperman.com.

New Jersey Budget - Tax Alert

Faced with large deficits and declining revenues like so many other States, Governor Corzine signed into Law the new state budget bill on June 29, 2009.

The new budget imposes increased personal income tax rates; additional corporation taxes; increased taxes on cigarettes and alcohol, and eliminates property tax deductions and rebates for certain individuals.

Highlights of the New Jersey Budget

Income Taxes

  • Increased income tax rates for one year (2009)
  • The top personal income tax rates for taxpayers with taxable income exceeding $400,000 but not over $500,000 will be 8%; if taxable income is over $500,000 but not over $1 million the top rate will be 10.25%; and 10.76% if taxable income is over $1 million.
  • No additions to tax or penalties will be imposed for underpayment of estimated tax that otherwise would be due on salaries, wages, and other remuneration received before October 1, 2009, as a result of the increase in the tax rates.
  • Employers will not be subject to interest, penalties, or other costs that otherwise would be imposed for insufficient withholding as a result of the new tax rates.

Property Taxes Deduction and Rebates

For tax years beginning January 1, 2009, the deduction of up to $10,000 for property taxes paid will be reduced or eliminated for high-income taxpayers, as follows:

  • The deduction will be limited to a maximum of $5,000 for a taxpayer who has gross income over $150,000 but not over $250,000; the deduction is eliminated for a taxpayer who has gross income over $250,000. If the taxpayer is 65 years old or older, blind, or disabled he or she will be entitled to the full $10,000 deduction regardless of their gross income.
  • Eliminates property tax rebates for non-senior citizen and non disabled homeowners with incomes over $75,000.
  • Provides 2/3 of last year's rebate amount to homeowners who earn between $50,000 and $75,000.
  • Eliminates property tax rebates for renters

Corporations

  • Extends the 4% surcharge for one year imposed on corporations for taxable periods ending before July 1, 2010.
  • For 2009 and 2010, if corporate taxpayers repurchase debt for less than the original debts face value, that "difference" is considered loan forgiveness income which cannot be deferred for New Jersey purposes even though it can be deferred at the federal level.

Other

  • Raises tax rates on wine and liquor, but not beer, by 25%
  • Increases taxes on cigarettes to $2.70 per pack – up 12.5 cents
  • Taxes lottery winnings over $10,000 and requires withholding on such winnings
  • The rate of tax on most insurance companies will be increased. For more information on this increase, please contact your Citrin Cooperman & Company tax advisor.

Counsel's Corner

New MTA Payroll Tax to Affect Staffing Companies
by Joel A. Klarreich & Nick Florio

In May 2009, Governor Paterson signed into law the Metropolitan Commuter Transportation Mobility Tax ("MTA Payroll Tax"). The MTA Payroll Tax is retroactive to March 1, 2009, and its proceeds will be distributed to the New York State Metropolitan Transportation Authority.

The MTA Payroll Tax is imposed on most employers (and certain self-employed individuals, partners, and members) engaging in business within New York City and the counties of Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess, and Westchester. A covered employee is an individual employed within these areas. There are special rules for determining if an employee's services are allocated to these areas. Specifically, the MTA Payroll Tax is imposed at a rate of .34% of an employer's payroll expense for all covered employees for each calendar quarter. "Payroll expense" for covered employees who are subject to federal social security taxes means the total wages and compensation as defined in section 3121 of the Internal Revenue Code, without regard to the annual cap contained in section 3121(a)(1).

Staffing firms should consider the alternatives available to them in connection with the imposition of the new tax. Staffing employers may treat the MTA Payroll Tax as a business overhead expense and not attempt to pass the new tax through to a client. In the alternative, the company may determine whether it is possible to increase the bill rate submitted to a client or add an additional charge. In any event, the enactment of the MTA Payroll Tax is a prime example of why staffing firms should consider providing for a tax-based bill rate adjustment in any client contract for staffing services, which could allow for automatic adjustments should burden rates change in the future.

No exemption from tax specified in any other New York State law applies to this tax. Moreover, no tax credit(s) may be used to reduce the amount of the MTA Payroll Tax due. Finally, an employer is prohibited from deducting from the wages or compensation of an employee any amount that represents all or any portion of the MTA Payroll Tax.

For employers, the MTA Payroll Tax must be reported and paid for each calendar quarter by the last day of the month following the end of each calendar quarter when regular employee withholding payments are due (i.e., April 30, July 31, October 31, and January 31). For 2009, however, a special rule provides that the initial report and payment is due by November 2, 2009, and must include the MTA Payroll Tax due for the period March 1, 2009, through September 30, 2009. The payment due for the period October 1, 2009, through December 31, 2009, is due February 1, 2010. (Separate rules exist for employers which are PrompTax filers.) Hopefully, the appropriate filing forms and instructions will soon be issued soon by New York State.

* * * * * * * * * * * * * * * *

Joel A. Klarreich, Esq. is a partner at the New York City law firm of Tannenbaum Helpern Syracuse & Hirschtritt LLP, where he chairs the Corporate, Staffing Industry and Franchise Departments.

Nick Florio, CPA is an audit and accounting partner at Citrin Cooperman & Company, LLP, where he provides business consulting and financial advice to a variety of closely-held private businesses.

This article is general in nature and is not intended to be a substitute for legal or tax advice or a legal opinion rendered in response to a specific set of facts. This article may be considered attorney advertising in some jurisdictions.

State Tax Alert - New York State Tax Legislation

I.     2009-2010 Budget Bill

Faced with the largest deficit in New York State history and a severe economic crisis, Governor Paterson signed into law the 2009-2010 New York State Budget Bill ("Budget Bill"), which affects individuals and businesses. The Budget Bill is intended to generate additional revenue for New York State ("NYS") by increasing tax rates, eliminating deductions, and expanding the types of transactions that will be subject to tax.

Changes Affecting Individuals

An Increase in the Top Personal Income Tax Rate From 6.85% to 7.85% for certain Taxpayers and 8.97% for Taxpayers with Income over $500K.

Effective for taxable years beginning in 2009, 2010, and 2011:

Joint Filers: For joint filers with taxable income over $300,000 but not over $500,000, the tax is $19,756 plus 7.85% of the excess over $300,000; for such filers with taxable income over $500,000, the tax is $35,456 plus 8.97% of the excess over $500,000.

Heads of Households: For heads of household with taxable income over $250,000 but not above $500,000, the tax is $16,562 plus 7.85% of the excess over $250,000; for such filers with taxable income over $500,000, the tax is $36,187 plus 8.97% of the excess over $500,000.

Individuals and Married Filing Separately: For single filers and married filers filing separately with taxable income over $200,000 but not above $500,000, the tax is $13,303 plus 7.85% of the excess over $200,000; for such filers with taxable income over $500,000, the tax is $36,853 plus 8.97% of the excess over $500,000.

The Impact of the New Tax Rates can be illustrated as follows:

Let's assume you file a NY Resident Income Tax Return and your New York Taxable Income (income less deductions) is $400,000.

NY Taxable Income Tax calculated under prior law Tax calculated under new law Increase in Tax due to Budget Bill
For Joint Filers $400,000 $26,606 $27,606($19,756+[100,000x7.85%]) $1,000
For Heads of Household $400,000 $26,837 $28,337(16,562+[150,000x7.85%]) $1,500
For Single Filers $400,000 $26,003 $29,003(13,303+[200,000x7.85%]) $2,000

When your NY Taxable Income is $900,000

For Joint Filers $900,000 $60,856 $71,336(35,456+[400,000x8.97%]) $10,480
For Heads of Household $900,000 $61,087 $72,067(36,187+[400,000x8.97%]) $10,980
For Single Filers $900,000 $61,253 $72,733(36,853+[400,000x8.97%]) $11,480

Please note, if your NY Taxable Income does not exceed $300,000 for Joint Filers, $250,000 for Heads of Households, and $200,000 for Single Filers or Married Filing Separately, your tax will not increase under the Budget Bill.

Elimination of Itemized Deductions for Taxpayers with Income over $1 Million

Under prior law, NYS taxpayers who itemized deductions for federal income tax purposes could claim those same deductions (with certain modifications) for NYS tax purposes; in the case of taxpayers with NYS adjusted gross income over $525,000, the modifications included a disallowance of 50% of the taxpayer's federal itemized deductions. The Budget Bill prohibits taxpayers with NYS adjusted gross income in excess of $1 million from claiming any itemized deductions, except charitable contributions.

The elimination of itemized deductions for most New York resident taxpayers with NYS adjusted gross income in excess of $1 million should not be significant since the majority of a taxpayer's itemized deductions can be attributed to State and Local taxes, which were not deductible for NYS purposes prior to the Budget Bill. The other two biggest itemized deductions that will no longer be deductible for most taxpayers will be interest expense and miscellaneous other deductions.

Let's assume the total of interest expense and miscellaneous other deductions for a taxpayer with adjusted gross income in excess of $1M totals $150,000. Based upon the Budget Bill, the taxpayer would have previously been allowed to take $75,000 ($150,000 x 50%) as an itemized deduction. Under the Budget Bill, the taxpayer will no longer be allowed to claim these deductions. This disallowance will cost the taxpayer approximately $6,728 of NYS tax ($75,000 x 8.97%) and, if the taxpayer is a New York City Resident, approximately an additional $2,738 ($75,000 x 3.65%).

Budget Bill Affect on Estimated Tax Filers

Based on the new increased rates and the elimination of itemized deductions other than charitable contributions for taxpayers with New York adjusted gross income exceeding $1 million, you may need to increase the amount of estimated tax you pay for tax year 2009 to avoid the penalty for underpayment of estimated tax.

To avoid the underpayment penalty, which is applicable to all categories of individual filers (i.e. joint filers), estates, and trusts, the total amount of estimated tax and withholding tax you pay for calendar year 2009 must now be:

  • At least 90% of the amount of income tax due as shown on your return for 2009 (obviously using the new, higher rates); or
  • 110% of the tax shown on your return for 2008 recomputed using the 2009 tax rates and itemized deduction rules (100% of that amount if your New York adjusted gross income shown on that return is $150,000 or less or, if married filing separately for 2009, less than $75,000). To qualify for this provision, you must have filed a return for 2008, and it must have been for a full 12-month year.

Any shortfall attributable to the April 15, 2009 first quarter estimated tax payment will not be subject to an underpayment of estimated tax penalty provided the June 15, 2009 second quarter estimated tax payment is sufficient to make up such shortfall in the first quarter estimate paid.

Partnership and S Corporations Filing Composite Returns

Partnership and New York S corporations filing composite (i.e. group) personal income tax returns on behalf of their electing nonresident partners and shareholders must compute the NYS personal income tax due for each nonresident partner or shareholder based on the highest effective rate of tax. The recent law changes have increased the highest effective rate of tax from 6.85% to 8.97% for tax year 2009. Accordingly, a partnership or New York S corporation that files composite estimated tax payments on behalf of its nonresident partners or shareholders may need to increase the amount of estimated tax it pays to avoid the penalty for underpayment of estimated tax.

There will be no penalty for any shortfall with regard to the April 15, 2009 first quarter payment provided that any shortfall is included in the June 15, 2009 second quarter payment.

Estimated Payments for Nonresident Partners and Shareholders

Partnerships and New York S corporations must make estimated tax payments for their nonresident partners and shareholders, unless the partner or shareholder meets specific exceptions or gives the partnership or S corporation an exemption form. "Estimated tax" for nonresident partners and shareholders means a partner's or shareholder's distributive or pro rata share of the entity's income derived from New York sources for the year, less the partner's or shareholder's share of certain partnership-related deductions allocated to NYS, multiplied by the highest effective rate of personal income tax. Because of the increase in the highest effective rate of tax, a partnership or New York S corporation that makes estimated tax payments on behalf of its individual nonresident partners or shareholders may need to increase the amount of estimated tax it pays.

There will be no penalty for any shortfall with regard to the April 15, 2009 first quarter payment provided that any shortfall is included in the June 15, 2009 second quarter payment.

Modifications of the NYS Residency Test

Prior to the Budget Bill, an individual domiciled (defined as a place where a taxpayer maintains his true home) in NYS was not considered a NYS resident for tax purposes if within any 548 consecutive day period (i) the individual was out of the country for at least 450 days, (ii) the individual was not present in NYS for more than 90 days, and (iii) the individual's spouse or minor children did not reside at the individual's permanent place of abode (home) in NYS for more than 90 days. The Budget Bill eliminates the third requirement so that the spouse's or minor children's presence in NYS no longer needs to be at a "permanent place of abode (home)". This change was instituted because individuals were avoiding tax as residents by having their spouses or children stay with relatives or in a hotel.

Taxation of Non-Residents on Sales of Interests in Entities Holding New York State Real Estate

Under current law, non-residents are taxed on gains from the sale of real property located in NYS. Prior to the Budget Bill, taxable gains did not include gains from the sale of an interest in an entity that held NYS real estate. Effective May 7, 2009, a provision under the Budget Bill modifies the term "real property located in this state" to now include an interest in a partnership, limited liability company, S corporation, or non-publicly traded C corporation with 100 or fewer shareholders, if 50% or more of the fair market value of the entity on the date the interest is sold is attributable to real property located in NYS. For this calculation, property is included in the denominator only if owned by the entity for at least two years prior to the sale of the interest. The portion of the gain subject to NYS tax is equal to the total gain multiplied by a percentage equal to the value of NYS real property held by the entity divided by the value of all the entity's assets.

In situations where NYS real property is commingled with non-real property assets (for example investments in stocks and bonds), the above formula can be a tax trap for the unwary. This tax trap could result in a non-resident being taxed on a gain that is not attributable to the appreciation of NYS real property, rather it may be attributable to non-real property assets. If you believe this situation might apply to you, please contact your Citrin Cooperman & Company, LLP tax advisor.

Changes Affecting Businesses

Increased First Estimated Tax Payment of Franchise Tax

A corporation with a franchise tax liability of more than $100,000 in the preceding year was required to pay 30% of the prior year's tax liability as the first estimated tax payment. Under the Budget Bill, the mandatory first installment is increased to 40% of the preceding year's tax liability. The increase to 40% also applies to the Metropolitan Commuter Transportation District Surcharge imposed with respect to the franchise tax.

Expanded Definition of Nexus for Sales Tax Purposes

NYS has once again expanded its jurisdiction to tax corporations that have no physical presence in NYS. This year's Budget Bill enacts a new law effective on June 1, 2009, requiring out-of-state retailers to collect NYS sales tax based upon the presence of an affiliate in NYS. An out-of-state retailer is required to collect NYS sales tax if any affiliate either (1) uses, in NYS, the same trademark, service mark or trade name as the out-of-state retailer, or (2) engages in activities in NYS that inure to the benefit of the out-of-state retailer in its development or maintenance of a market for its goods or services in NYS (but only "to the extent those activities of the [NYS] affiliate are sufficient to satisfy the nexus requirement of the United States Constitution"). Significantly, the threshold for "affiliation" here is a more than 5% ownership connection. Other states generally use a 50% ownership connection threshold.

Partnership Filing Fee Extended to General Partnerships

The Budget Bill extends the annual filing fee already applicable to limited liability companies (LLCs) and limited liability partnerships (LLPs) to certain general partnerships. The filing fee does not apply to partnerships (other than LLPs) with less than $1 million of New York source gross income.

Transportation Services Subject to Sales Tax

Effective June 1, 2009, sales tax will be imposed on specified transportation services. The new legislation includes services for limousines and town cars but specifically excludes taxicabs, buses, or other scheduled public transportation. Taxable receipts include charges for: handling, carrying, baggage, booking, administrative, mark-ups, and other amounts attributable to providing transportation services. Transportation for funerals is excluded.

Auto Rental Tax

Effective June 1, 2009, the sales and use tax rate on passenger automobile rentals will be 6%.

Sales and Use Tax Exemptions For Certain Motor Vehicles, Aircraft, and Vessels Modified

Effective June 1, 2009, the sales tax exemption for commercial aircraft and the use tax exemption for motor vehicles, vessels, and aircraft is modified. For purposes of the commercial aircraft exemption, the definition of commercial aircraft is amended to provide that an aircraft, used primarily to transport a purchaser's personnel or those of an affiliated entity does not qualify for exemption. In addition, the "new resident" use tax exemption is amended to provide that it will not apply to the use of aircraft, vessel, or motor vehicle purchased by a business entity out-of-state for use in-state primarily to carry individuals employed by or otherwise associated either

(1) with the purchaser if any of the transported individuals were residents at the time of the property's purchase;

or

(2) with an affiliated entity of the purchaser if the affiliated entity was a resident when the property was purchased.

For purposes of these provisions, persons are affiliated with an ownership interest of more than 5% (direct or indirect).

Business Credits

Low-Income Housing Tax Credits Program: The Budget Bill authorizes the allocation of an additional $4 million of credits for eligible low-income buildings from $20 million to $24 million.

Empire Zones Reform

The Budget Bill implements revisions to the Empire Zone Program and the income tax credits by decertifying businesses that have received more benefit from the program than they have provided and by increasing the cost-benefit ratio test for entry into the program. The bill also accelerates the sunset date from June 30, 2011 to June 30, 2010.

II.     

Metropolitan Commuter Transportation Mobility Tax (MCTMT)

Enacted as part of the Metropolitan Transportation Authority funding legislation and signed by Governor Paterson on May 7, 2009, this new payroll tax is committed to supporting MTA programs and providing it with a steady source of revenue.

This tax is assessed on employers not on employees. However, self-employed individuals (including partners in a partnership and members of an LLC) are subject to this tax provided they have more than $10,000 of net earnings from self employment allocated to the Metropolitan Commuter Transportation District (MCTD). This new tax requires a separate return to be filed and payment for the tax to be remitted separately from any other tax payments. In other words it is not part of a payroll tax filing for employers; and it is not part of an individual's return for self employed individuals. Therefore, estimated New York State personal income tax payments will not be applied against this tax.

The following is a general summary of the new Metropolitan Commuter Transportation Tax.

Tax Rate = 0.34%
MCTD = New York City, Long Island and lower NYS counties(Orange County and below)
Base = All remuneration, including bonuses (i.e. medicare wages)
Initial Filing = November 2, 2009, covering the period March 1, 2009 through September 30, 2009.
Subsequent Filings = Calendar quarter basis, with returns due at the same time as payroll tax returns
Due Date of Payment = When the return is due (first payment is due November 2, 2009)

Tax On Individuals with New Earnings from Self Employment

Tax Rate = 0.34% (same as above)
MCTD = New York City, Long Island and lower NYS counties (Orange County and below) (same as above)
Base = Self employment (S.E.) income as reported on schedule SE of Form 1040; Notes: if SE income is $10,000 or less there is no tax due. If business is conducted both in and out of the MCTD, only the income allocated to the MCTD is subject to this tax.
Initial Filing = November 2, 2009. Reportable income on this initial filing is equal to 10/12 of income allocated to the MCTD for calendar year 2009.
Subsequent Filings = Calendar quarter basis, with returns due at the same time as payroll tax returns (same as above)
Due Date of Payment = When the return is due (first payment is due November 2, 2009) (same as above)

Non-Resident partners of partnerships and members of LLC's are subject to this tax on their share of self employment income allocable to the MCTD irrespective of whether they personally provide services within the MCTD. Generally, the partnership or LLC is required to withhold and pay estimated taxes on behalf of the non-resident partners. There are exceptions to this withholding requirement. For more information on these exceptions, or this new tax, please contact your Citrin Cooperman & Company, LLP advisor.

Please be aware that the filing forms and instructions with regard to the Metropolitan Commuter Transportation Mobility Tax will be forthcoming from New York State within the next few months.

For more information please contact your Citrin Cooperman tax advisor:

New York City
212.697.1000 		New Jersey
973.218.0500 		White Plains
914.949.2990 		Philadelphia
215.545.4800 		Connecticut
203.254.3000

New York State Excise Tax on Beer & Wine Increased on May 1st, 2009

Dear Clients and Friends:

Effective May 1, 2009, New York State has increased the New York State Excise Tax on beer and wine. As a result, a special "floor tax" is being imposed on all beer and wine held in inventory at the beginning of business on May 1, 2009. This "floor tax" is applicable to all New York State wholesalers, retailers and other sellers of beer and wine. This includes grocery stores, liquor stores, restaurants, bars and clubs.

The excise tax on beer will increase by $.03 per gallon, from $.11 per gallon to $.14 per gallon, a 27% increase. The excise tax on wine will increase by $.1107 per gallon, from $.1893 per gallon to $.30 per gallon, a $58% increase.

In order to tax the beer and wine held in inventory (wholesalers which was taxed under the old rates). At the new rates, a one-time excise tax will be imposed on wholesalers, retailers, manufacturers, distributors and other sellers of beer and wine. The affected taxpayers must take a physical inventory, file a floor tax return and pay the increased tax on all beer and wine in their possession or under their control for purposes of sale as of the beginning of business on May 1, 2009. Even if no tax is due, those taxpayers still must file a tax return. The tax return is due July 20, 2009, and must include a copy of the May 1, 2009 inventory, which contains, the brand, per unit measurement, number of units and the total number of gallons.

Please be aware that there is an exemption from the excise tax on beer that applies to certain brewers on the first 6.2 million gallons of beer brewed and sold in New York State in each calendar year. Beer held in inventory on May 1, 2009, by wholesalers, retailers and other sellers of beer on which the tax was not imposed because of the brewers' exemption is not subject to the "floor tax." All beer sellers may presume that beer held in inventory is not subject to the "floor tax" provided both the following are met:

  • The beer is brewed in New York State and
  • The brewer's principal executive office is located in New York State

If you are not sure whether any beer in your inventory was sold under the New York State brewers' exemption, contact your supplier or the brewer directly. You must attached a schedule to the "floor tax" return, that provides a breakdown of the beer that is subject to the "floor tax" and the beer that is not subject to the "floor tax" because of the brewers' exemption.

We have included for your reference a copy of the TSB-M's 09(3)M and 09(3.1)M issued by New York State on this issue, as well as the applicable Form MT-70 and the instructions. To view this document, click here.

Kindly contact us should you have further questions on this new tax, and if you require any assistance in completing or filing the Form MT-70.

Yours in Service,

Citrin Cooperman & Company, LLP

To: Our Clients

From: Citrin Cooperman & Company, LLP

RE: New Cobra Laws Under the American Recovery and Reinvestment Act of 2009

The new economic recovery law immediately affects employers and employees covered by COBRA, which provides continuing health benefits. For example, if employers terminated employees as far back as September 1, 2008, they must now notify qualifying individuals of new, extended benefit rights.

For employers, the time is now to comply with a little-known provision in the new stimulus law, signed by President Obama on February 17th. Part of the American Recovery and Reinvestment Act of 2009 is a revamping of COBRA law for certain employees.

COBRA, which stands for the Consolidated Omnibus Budget Reconciliation Act, is the federal law that gives terminated employees and their families the right to continue group health benefits provided by group plans. This extended coverage is provided for limited periods of time under certain circumstances such as involuntary job loss, reduction in hours worked, transition between jobs, death, divorce, and other life events. Many states have similar laws.

The new key provision: Individuals who were terminated on or after September 1, 2008, who qualified for COBRA but declined coverage, now have the right to choose to be covered -- with a government-paid subsidy of the insurance premium through 2009.

The key date is March 1: Employers who terminated employees between September 1, 2008 and March 1, 2009 must notify qualifying employees who declined COBRA coverage that they (and their spouses, ex-spouses, and qualifying dependents) now have the right to choose to continue coverage.

An employer's notice must tell eligible individuals they have 60 days to elect COBRA coverage. If they do so, under the new law, the premium subsidy ends when they:

  • Become eligible for health insurance coverage from another employer.
  • Enroll in and are covered by Medicare.

Organizations that terminate employees on or after March 1, 2009 must notify them (and their qualifying spouses, ex-spouses, and dependents) of the right to continue coverage if they've been in an employer's benefit plan.

Employers must use a federal government issued model notice. However, the applicable government agencies have 30 days following the law's February 17th enactment date to design and issue the notice. Employers should begin to track down the current address or contact information for eligible individuals to expedite the contact process when the model notice is available. Notices must be sent to eligible individuals within 60 days of the enactment date of the new law.

Here's a rundown of other COBRA changes:

  • The new COBRA subsidy to help pay the premiums for health benefits. Starting March 1, COBRA premiums may not exceed 35 percent of the cost. The remaining premium cost must be paid by employers, who then can claim a tax credit against wage withholding and payroll taxes to cover their paid portion of the premiums. When an employer's deductions from wage withholding and payroll taxes don't cover all of the COBRA subsidy, the employer will be able to file with IRS for the remaining amount.
  • The premium subsidy continues for up to nine months for eligible individuals and their qualifying family members.
  • Eligible individuals who declined to take COBRA benefits between September 1, 2008 and March 1, 2009 have a new 60-day election period during which they can choose to enroll and receive the subsidized COBRA coverage.
  • The COBRA premium subsidy continues through December 31, 2009.
  • The temporary subsidy is available to qualifying individuals under the federal COBRA law and similar state and governmental medical benefit continuation coverage laws.
  • Individuals are not eligible for COBRA subsidies in a year when their adjusted gross incomes (AGIs) exceed certain limits. The government recaptures part or all of the COBRA subsidy in the form of additional income tax when the qualifying individual's AGI is between $125,000 and $145,000 for single filers or $250,000 and $290,000 for joint filers. Individuals who anticipate that their incomes will exceed those amounts in a taxable year can waive the COBRA premium subsidy.
  • The COBRA 18-month continuation coverage period remains the same and begins with the individual's loss of health insurance benefits in an employer plan due to the qualifying employee's involuntary termination of employment.
  • The employer can permit eligible individuals to switch their coverage option to a less expensive choice when they elect to exercise their COBRA rights. This is a change from the previous COBRA provision that allowed qualifying individuals only to continue the coverage option they had as active employees.

Who Qualifies for COBRA? Some Key Eligibility Factors

Qualifying events that trigger an individual's right to elect COBRA continuation of health insurance benefits are the following.

For employees:

  • The involuntary and voluntary termination of employment for reasons other than gross misconduct.
  • A reduction in the number of hours of employment that disqualifies the individual from employer-paid coverage in an employer-sponsored health plan.

For employees' spouses and ex-spouses:

  • Involuntary and voluntary termination of employment of the covered employee for reasons other than gross misconduct.
  • A reduction in the number of hours of employment of the covered employee that disqualifies an individual from employer-paid coverage in an employer-sponsored health plan.
  • The covered employee's becomes entitled to Medicare.
  • The divorce or legal separation of the covered employee.
  • The death of the covered employee.

For employees' dependent children:

  • The same five events listed above for spouses and ex-spouses.
  • The loss of dependent child status under the health plan rules.

To qualify for COBRA continuation benefits, the covered individual must have been enrolled in the employer's health benefits plan when the employee was working. And the employer's health plan must continue in effect.

Who are involuntarily terminated employees?

COBRA benefits are available to voluntarily and involuntarily terminated employees – except those terminated for gross misconduct -- and their qualifying spouses, ex-spouses, and dependents covered in an employer's health insurance plan.

But which employees are involuntarily terminated for gross misconduct?

The new law doesn't define these terms. Employers can expect disagreements on whether or not certain employees were involuntarily terminated. Individuals involved in these disputes can use a newly created appeal process with the Department of Labor (DOL).

The DOL has 15 days to determine the individual's eligibility for the COBRA subsidy.

What's an Employer to Do?

First, when terminating an employee, obtain and retain written documentation that confirms the reason or reasons for the employee's job separation. For example, conduct exit interviews with departing employees and have them complete an "Exit Interview" Form on which they indicate the reason or reasons for leaving the job.

Second, assume that any termination that occurs because of the employer's actions is likely an involuntary termination.

Third, do NOT engage in constructive discharge. In other words, do not get involved in activities that encourage or force an employee to quit a job and then expect to evade responsibility for a termination.

If you have any questions about how this new law will affect you, please contact your Citrin Cooperman professional.

Disclaimer: This is for informational purposes only; it is not intended to be legal advice. For legal guidance in your specific situations, always consult with an attorney who is familiar with employment law and labor issues.

To: Our Clients

From: Citrin Cooperman & Company, LLP

RE: New I-9 Form and Procedures Take Effect on April 3, 2009

All employers should take note that as of April 3, 2009, a new version of Form I-9, Employment Eligibility Verification, has been issued and becomes effective, replacing the previous version of the form which is no longer valid. Employment eligibility verification procedures pertaining to the acceptable forms of identification for completion of Form I-9 have also been amended. Employers must immediately begin utilizing the new form and procedures when verifying employees' identities and work eligibility.

The amended Form I-9 is available for viewing and download on the United States Citizenship and Immigration Services' ("USCIS") website at www.uscis.gov. Employers must now use the new version, identifiable by the following notation in the bottom, right corner of the Form: "(Rev. 02/02/09) N." The previous edition of Form I-9, which is no longer valid, contained the notation "(Rev. 06/05/07) N" in the bottom, right corner. A Form I-9 must be completed for each new or rehired employee on or before the first day of employment. The employee must attest to being a United States citizen, a United States noncitizen national, a lawful permanent resident, or an alien authorized to work in the United States. Additionally, within three (3) business days of the employee's first date of employment, the employee must present original document(s) to the employer to verify the employee's identity and employment authorization. Employers must review the employee's document(s) and confirm that the document(s) reasonably appear to be genuine and to relate to the individual presenting the document(s). Employers are not required to update or re-verify I-9 documentation for continuing employees for whom a previous version of Form I-9 had been used.

Important changes have been made to the List of Acceptable Documents for verifying an employee's identity and employment authorization. This list is contained on the last page of the Form. One significant change is that all documents presented as verification of identity and employment authorization must be currently valid (i.e., unexpired). A document with no expiration date (e.g., social security account number card) will be deemed unexpired. Additionally, the revised Form contains several changes to "List A" on the last page of Form I-9, which lists the documents that may be used to establish both an employee's identity and employment eligibility.

The following changes are effective April 3, 2009:

  • In addition to the removal of all expired documents, three documents have specifically been removed from List A. Those documents include Form I-688 (Temporary Resident Card) and Forms I-688A and I-688B (Employment Authorization Cards). The Department of Homeland Security ("DHS") explained that those documents were no longer issued and that all such documents that were previously issued have expired. Form I-766, which USCIS issues to those individuals who formerly received Forms I-688, I-688A, and I-688B, still remains in List A on the List of Acceptable Documents.
  • A "Passport from the Federated States of Micronesia (FSM) or the Republic of the Marshall Islands (RMI) with Form I-94 or Form I-94A indicating nonimmigrant admission under the Compact of Free Association Between the United States and the FSM or RMI" has been added to List A as an acceptable document for establishing both identity and employment eligibility.
  • List A now includes machine-readable immigrant visas that contain a pre-printed temporary I-551 notation. The Department of State ("DOS") has been affixing those notations for several years, and they are triggered after the bearer is admitted to the United States as a lawful permanent resident.

If you have questions about this form, please contact your Citrin Cooperman & Company, LLP professional.

Disclaimer: This is for informational purposes only; it is not intended to be legal advice. For legal guidance in your specific situations, always consult with an attorney who is familiar with employment law and labor issues.

To: Our Clients

From: Citrin Cooperman & Company, LLP

RE: US Treasury Form TD 90-22.1, Foreign Bank Account Information by US persons

As you may be aware, all US taxpayers are required to report the ownership of or signature authority over, foreign bank and security accounts. This reporting requirement has been in existence for many years.

The United States Treasury has recently made significant changes in format and related penalties for non compliance or incomplete filing of US Treasury Form TD 90-22.1, Foreign Bank Account Information by US persons.

In essence, each US person who has a financial interest in or signatory or other authority over any foreign financial account in a foreign country, the aggregate value of which exceeds $10,000 for all accounts at anytime during the calendar year, is required to file this form. The due date is June 30th of the subsequent year with no extension.

The rules are lengthy and complex and define who is a US person, what is a financial account and if a US person has a financial account as well as whether a US person is deemed to have a signature or other authority over a foreign account.

There are exceptions for non US resident athletes and entertainers depending on the services performed and length of time that they spend in the US during the year.

Penalties for non compliance or incomplete filing range from a minimum fine of $10,000 to a civil penalty of 50% of the account value or $100,000, whichever is greater. If a criminal tax situation is deemed to exist, the individual can be subjected to imprisonment of from 5 to 10 years.

If you would like to discuss this topic further, kindly contact Wayne Holton of our International Tax Department at wholton@citrincooperman.com or 212-697-1000, x416.

Stimulus Act Provides Substantial Tax Breaks for Businesses and Individuals

On Feb. 17, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (ARRA). While approximately two-thirds of the nearly $800 billion stimulus act is focused on government spending initiatives intended to create jobs and jumpstart the economy, about one-third provides tax breaks for businesses and individuals.

Businesses will enjoy new tax breaks

The act provides some new breaks that will benefit many businesses:

Reduced estimated tax payment requirements. For 2009, ARRA reduces the estimated tax payment requirements for many small business owners. Owners generally will qualify for the reduced payments if their adjusted gross income (AGI) for 2008 was less than $500,000 and if more than 50% of their 2008 gross income was generated from a "small business," which is defined as a business that, on average, had fewer than 500 employees during 2008.

Deferral of income from cancellation of debt. Taxpayers generally must recognize cancellation-of-debt income (CODI) when they cancel - or repurchase - debt for an amount less than its adjusted issue price. In certain situations, ARRA allows businesses to defer CODI generated from repurchasing business debt after Dec. 31, 2008, and before Jan. 1, 2011, until calendar year 2014 and then report the income ratably over the 2014 through 2018 tax years.

S corporation built-in gains tax relief. Although a C corporation conversion to an S corporation isn't a taxable event, the S corporation normally must hold on to its assets for 10 years to avoid tax on any built-in gains that existed at the time of the conversion. Under ARRA, for tax years beginning in 2009 and 2010, there generally will be no tax on an S corporation's net unrecognized built-in gain if the seventh tax year in the recognition period occurred before the 2009 and 2010 tax years.

Other business breaks expanded

The act expands some important tax breaks for businesses:

Net operating loss carryback. Generally, a net operating loss (NOL) may be carried back two years to generate a current tax refund, providing a cash infusion in times of loss. For 2008 (not 2009), ARRA extends the maximum NOL carryback to five years for qualified small businesses with gross receipts of $15 million or less.

Work Opportunity credit. Employers can claim a credit equal to 40% of the first $6,000 of wages paid to employees in certain target groups, such as ex-felons, food stamp recipients and disabled veterans. ARRA expands the eligible target groups to include unemployed veterans and disconnected youth. This expanded benefit generally applies to such workers hired in 2009 and 2010.

Depreciation breaks extended

To spur additional investment, ARRA extends the increase in the Section 179 limit for initial year expensing to $250,000 (from $125,000 indexed for inflation). The expensing election begins to phase out dollar for dollar when total asset acquisitions for the tax year exceed $800,000 (up from $500,000 indexed for inflation). The new higher limit applies for calendar year 2009 or a business's fiscal year that begins in 2009.

Another depreciation-related provision extends the special allowance for certain property, generally if acquired in 2009. For eligible property, the special depreciation amount is equal to 50% of its adjusted basis. For passenger automobiles that are eligible property under the 50% bonus depreciation rules, the $8,000 increase for the first-year limit on depreciation also is extended to new vehicles placed in service in 2009.

Last year, corporate taxpayers were also allowed to accelerate their alternative minimum tax (AMT) and research and development (R&D) credits in lieu of taking the 50% bonus depreciation. That break has now been extended through 2009.

Energy-related breaks for businesses expanded

ARRA creates or expands several energy-related breaks for businesses, such as the:

  • Advanced energy investment credit,
  • Renewable electricity production credit, and
  • Alternative fuel pump tax credit.

Individuals also enjoy new tax breaks

ARRA also provides some new tax breaks for individuals:

New relief for most workers, retirees and other Social Security recipients. For 2009 and 2010, ARRA creates the Making Work Pay credit of up to $800 for joint filers and $400 for other filers. The credit generally phases out for joint filers with AGIs exceeding $150,000 and for other filers with AGIs exceeding $75,000. Unlike last year's "recovery rebate," which was distributed via checks mailed to taxpayers, the new credit will generally be "paid" through a reduction in income tax withholding.

The act also provides a one-time payment of $250 to many people on fixed incomes, such as Social Security recipients and disabled veterans. Similarly, it provides a one-time refundable tax credit of $250 to certain government retirees who aren't eligible for Social Security benefits. Both the $250 payment and the $250 credit reduce any allowable Making Work Pay credit.

New sales tax deduction for vehicle purchases. ARRA creates a new above-the-line deduction for state and local sales and excise taxes paid on the purchase of new cars, light trucks, motorcycles and recreational vehicles. The deduction is available for vehicles purchased from Feb. 17, 2009, through Dec. 31, 2009.

The deduction is not, however, available for tax attributable to vehicle value in excess of $49,500. The deduction also phases out based on AGI, but the limits are higher than those for the Making Work Pay credit: The phaseout begins for joint filers with AGIs exceeding $250,000 and for other filers with AGIs exceeding $125,000.

Other individual breaks expanded

The bulk of the tax relief for individuals involves expanding existing breaks. Here are the key changes to be aware of:

Credit for first-time homebuyers. Last year, a refundable credit equal to 10% of the purchase price of a principal residence was made available to qualified first-time homebuyers. This credit was set to expire July 1, 2009, but ARRA extends its availability to purchases made before Dec. 1, 2009. For qualifying purchases made after Dec. 31, 2008, the act also increases the maximum credit from $7,500 to $8,000. Perhaps most significant, the act eliminates the repayment obligation for taxpayers whose qualifying purchase occurs after Dec. 31, 2008 - except in situations where a home is sold within three years of purchase.

American Opportunity education credit (previously called the Hope credit). For 2009 and 2010, ARRA expands this credit to cover 100% of the first $2,000 of tuition and related expenses (including books) and 25% of the next $2,000 of such expenses. The maximum credit is $2,500 per year for the first four years of postsecondary education. (The maximum Hope credit was $1,800 and applied to only the first two years of postsecondary education.) The credit phases out for joint filers with AGIs exceeding $160,000 and for other filers with AGIs exceeding $80,000.

529 savings plans. 529 plan distributions used to pay qualified education expenses - tuition, room, board, mandatory fees and books - are generally tax free. For expenses paid in 2009 and 2010, ARRA expands the definition of qualified education expenses to include computers and computer technology.

Qualified small business stock gain exclusion. Generally, taxpayers selling qualified small business (QSB) stock are allowed to exclude 50% of their gain as long as they've held the stock for at least five years. ARRA increases the exclusion to 75% if the stock is issued after Feb. 17, 2009, and before Jan. 1, 2011.

AMT relief granted early this year

One tax provision affecting individuals that many thought wouldn't be enacted until later in the year is the extension of alternative minimum tax (AMT) relief. ARRA provides a one-year "patch" that increases the AMT exemption. For married couples filing jointly, the 2009 exemption is $70,950. For singles and heads of households, it's $46,700, and for married filing separately, it's $35,475.

The patch also expands the AMT income ranges over which the exemptions phase out and only partial exemptions are available. The 2009 phaseout ranges are now $150,000 to $433,800 for married filing jointly, $112,500 to $299,300 for singles and heads of households, and $75,000 to $216,900 for married filing separately. The exemption is completely phased out if AMT income exceeds the top of the applicable range.

Additionally, ARRA extends a provision through 2009 that allows certain nonrefundable personal tax credits to provide a benefit against the AMT. These include the dependent care credit, the American Opportunity credit and the Lifetime Learning credit. The act also excludes from the AMT any income from tax-exempt bonds issued in 2009 and 2010, along with 2009 and 2010 refundings of bonds issued after Dec. 31, 2002, and before Jan. 1, 2009.

Energy-related breaks expanded for individuals

ARRA creates or expands several energy-related breaks for individuals, such as:

  • Transit benefits,
  • Residential energy property credit,
  • Residential energy-efficient property credit, and
  • Plug-in electric vehicles credit.

Help given to laid-off workers

Although much of ARRA focuses on working Americans, it also provides some tax relief for laid-off workers. For 2009, the act suspends federal income tax on the first $2,400 of unemployment benefits per recipient.

Take full advantage

ARRA may significantly affect your tax liability in a variety of ways. If you would like more detailed information about this new tax law, please give us a call. We would be glad to help you determine exactly how ARRA will affect your tax liability - and what you should do to take full advantage of the act. Please contact your Citrin Cooperman partner to discuss details.

Thank you.

American Recovery and Reinvestment Act Creates New COBRA Obligations for Employers
by Joel A. Klarreich, Esq. with the assistance of Jason B. Klimpl, Esq.

On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (the "Act"). Among other things, the Act amends the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"). Under COBRA, employers are required to give eligible individuals and their covered dependents the option to continue their health insurance coverage sponsored by such employer for up to 18 months after they would otherwise have lost coverage due to a qualifying event, such as a termination of employment. Generally, employers may charge individuals who elect COBRA coverage the full health insurance premium for such coverage. The Act modifies this, so that certain "assistance eligible individuals" may only be charged 35% of the premium for COBRA coverage for periods of health coverage beginning on or after February 17, 2009, for up to 9 months.

Application to State "Mini-COBRA" Laws

Although employers with fewer than 20 workers are not subject to the federal COBRA requirements, several states, including New York, have enacted "mini-COBRA" laws designed to protect employees of smaller businesses. The Act defines "COBRA continuation coverage" to include such similar state mini-COBRA plans, which means even small employers are subject to the requirements described in this article.

Employers to Pay Initial Costs for Assistance Eligible Individuals

Assistance eligible individuals will be required to pay 35% of their COBRA premium, while employers that provide group health insurance will be required to pay the remaining 65%.[1][1][1] Employers that provide the subsidy will be reimbursed by the federal government in the form of credit against federal payroll taxes. Where the total subsidies provided by an employer exceed its federal payroll tax liability, the I.R.S. will provide a refund. This has the potential to be a significant cost for temporary staffing firms required to outlay the 65% portion of the premium.

Under the bill, an "assistance eligible individual" is any qualified beneficiary who became or becomes eligible for COBRA continuation coverage at any time between September 1, 2008, and December 31, 2009, as a result of the involuntary termination of the covered individual's employment which occurred during such period.

The Act does not extend the maximum COBRA continuation coverage period beyond its ordinary expiration date as measured from the date the assistance eligible individual was originally eligible for COBRA coverage.

Limitations

Individuals who are eligible for other group health coverage (e.g., such as a spouse's plan) or Medicare are not eligible for the premium reduction. Moreover, if premium assistance is provided to an individual whose modified adjusted gross income for the taxable year exceeds $125,000 (or $250,000 in the case of a joint return), the assistance will be recaptured by the government through a phased increase in individual income taxes. The subsidy is completely eliminated for individuals whose modified adjusted gross income exceeds $145,000 (or $290,000 in the case of a joint return). Such high-income individuals will have the option to waive the premium reduction assistance.

Employee Reimbursement & Credits

There is no premium subsidy for periods of coverage that began prior to February 17, 2009. However, where an assistance eligible individual paid or pays the full COBRA premium amount for a period covered by the Act, the plan administrator must make a reimbursement payment to such individual for the amount of the premium she or he paid in excess of the amount required to be paid under the Act. The plan administrator may alternatively credit the individual for such amount in a manner that reduces subsequent premium payments if it is reasonable to believe that the credit will be used by the individual within 180 days.

Plan Enrollment Options

Generally, a qualified beneficiary under COBRA is only entitled to participate in the same level of group health care plan coverage under which the individual participated while eligible for regular coverage. The Act permits employers to allow former employees to enroll in a different level of coverage available under the employer's group health care plan. However, the premium under the new level of coverage must not exceed the premium for the former level of coverage. Moreover, employers must offer current employees the same right to switch coverage levels. Under the Act, individuals have 90 days to elect this change after receiving the proper notice.

COBRA Election and Notice

The Act provides a special extended election opportunity to assistance eligible individuals who were eligible for and previously declined COBRA coverage. This special extended election period commences upon the date of the Act's enactment and ends 60 days after the individual receives the special election notice required by the Act. Consequently, plan administrators must locate former employees who are assistance eligible individuals to provide them with notice of the Act's COBRA provisions. For individuals who became entitled to coverage before the Act's enactment, plan administrators must provide notice by April 18, 2009. This could be a monumental task for staffing firms acting as their own plan administrator.

The notice must include (i) the forms necessary for establishing eligibility for the premium reduction; (ii) the name, address, and telephone number necessary to contact the plan administrator and any other person maintaining relevant information in connection with the premium reduction; (iii) a description of the extended period; (iv) a description of the obligation of the qualified beneficiary to notify the plan providing continuation coverage of eligibility for coverage under another group health or similar plan and the penalty for failure to notify the plan; (v) a description of the qualified beneficiary's right to a reduced premium; and (vi) a description of the option of the qualified beneficiary to enroll in a different coverage if permitted by the employer. The Act requires that the DOL issue model notices within 30 days of its enactment.

Staffing firms should keep a detailed record of the notices sent out to former employees and if possible should send those notices with delivery confirmation.

COBRA coverage elected by a qualified beneficiary during an extended election period will commence with the first period of coverage beginning on or after the date of the enactment of the Act.

Enforcement and Regulatory Guidance

Assistance eligible individuals who are denied treatment by their group health plan have the right to appeal to the U.S. Department of Labor ("DOL"). Under the Act, the DOL is empowered to make a determination of coverage within 15 business days of receipt of an individual's application for review. The DOL is currently developing an official process and application form for appeals.

It is expected that the DOL and the U.S. Department of the Treasury will issue guidelines to assist employers comply with their COBRA obligations under the Act. Employers should remain alert for any additional guidance issued by these federal departments.

Conclusion

Employers and plan administrators must take immediate action to comply with their obligations under the Act. Businesses must quickly identify and provide adequate notice to assistance eligible individuals and individuals who originally declined COBRA coverage but are now eligible to elect such coverage. Moreover, employers must modify their accounting and payroll practices and allocate responsibilities to account for the new COBRA premium reduction provisions.

___________________

[2][1] In some cases, the individual's group health plan or insurance company will be responsible for providing the 65% subsidy.

* * * * * * * * * * * * * * * *

Joel A. Klarreich is a partner at the New York City law firm of Tannenbaum Helpern Syracuse & Hirschtritt LLP, where he chairs the Corporate, Staffing Industry and Franchise Departments. Jason B. Klimpl is an associate in the Employment Law Group at Tannenbaum Helpern Syracuse & Hirschtritt LLP.

This article is general in nature and is not intended to be a substitute for legal advice or a legal opinion rendered in response to a specific set of facts. This article may be considered attorney advertising in some jurisdictions.

© 2009 Tannenbaum Helpern Syracuse & Hirschtritt LLP
All Rights Reserved

©2009 Citrin Cooperman & Company, LLP. All rights reserved.