NewsNotes

Lesli S. Laffie, J.D., LL.M.

Business Disaster Relief • E-filing Plea • Midquarter Convention • Redefined Disaster Area • Saver's Credit • 2002 Inflation Adjustments (chart)

From the IRS

Business Disaster Relief

In light of the September 11 terrorist attacks (which may trigger unanticipated losses), Ann. 2001-112 describes procedures that business taxpayers may use to redesignate their estimated income tax overpayments as employment tax deposits; such overpayments can be used to pay current employment tax obligations. This redesignation is being allowed because, as a result of the attacks, the estimated tax liability of some taxpayers will be less than the sum of their total estimated tax payments.

To make the redesignation, taxpayers should contact the IRS at (866) 562-5227. If, as a result of the redesignation, the total estimated taxes paid is less than the amount required to satisfy estimated income tax obligations, a taxpayer may be liable for additions to tax under Sec. 6654 or 6655.

Midquarter Convention

Notice 2001-70 provides that the IRS will issue regulations permitting taxpayers to elect not to apply the Sec. 168(d)(3) midquarter-convention rules to certain property placed in service in the tax year that includes Sept. 11, 2001. The Service has also provided a way to make the election before the regulations are issued.

As a result of events related to the terrorist attacks, many taxpayers have encountered difficulty completing the acquisition of property and placing it in service in accordance with plans developed earlier in the year. Also, certain taxpayers would choose to delay the acquisition and placing of property in service during the last quarter of their tax year if failing to delay would result in application of the midquarter convention.

Accordingly, if the third quarter of a taxpayer's 2001 tax year includes Sept. 11, 2001, the taxpayer may elect to apply the half-year convention to all property (other than property described in Sec. 168(d)(2)) placed in service during the taxpayer's 2001 tax year for Sec. 168(d) purposes.

To make the election, a taxpayer must write "Election Pursuant to Notice 2001-70" across the top of Form 4562, Depreciation and Amortization, for the tax year that includes September 11.

Taxpayers may rely on this notice until the Sec. 168 regulations are amended to incorporate this guidance.

Redefined Disaster Area

A Sept. 11, 2001, disaster-area notice (FEMA-1391-DR), in which President Bush determined that certain areas in New York were eligible for relief under the Disaster Relief and Emergency Assistance Act (42 USC Section 5121), has been amended. Taxpayers in the following counties with losses relating to the disaster may deduct them on their 2000 returns: Albany, Allegany, Broome, Cattaraugus, Cayuga, Chautauqua, Chemung, Chenango, Clinton, Columbia, Cortland, Delaware, Dutchess, Erie, Essex, Franklin, Fulton, Genesee, Greene, Hamilton, Herkimer, Jefferson, Lewis, Livingston, Madison, Monroe, Montgomery, Nassau, Niagra, Oneida, Onondaga, Ontario, Orange, Orleans, Oswego, Otsego, Putnam, Rensselaer, Rockland, St. Lawrence, Saratoga, Schenectady, Schoharie, Schuyler, Seneca, Steuben, Suffolk, Sullivan, Tioga, Tompkins, Ulster, Warren, Washington, Wayne, Westchester, Wyoming and Yates Counties.

Saver's Credit

Ann. 2001-106 provides, in question-and-answer form, a description of the new "saver's credit," an income tax credit for eligible taxpayers who contribute to a retirement plan or IRA. The IRS has also provided a sample notice that employers can give employees to explain the credit. The saver's credit was enacted in the Economic Growth and Tax Relief Reconciliation Act of 2001.

The credit is available to taxpayers who (1) are age 18 or older, (2) are not full-time students, (3) are not claimed as dependents on another's return and (4) have adjusted gross income that does not exceed $50,000 if married filing jointly (MFJ) ($37,500 for head of household and $25,000 if single or married filing separately). The maximum contribution taken into account for the credit for an individual is $2,000 ($2,000 per spouse if MFJ).