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News Notes

Filing Deadline • Installment Agreement Fees • Mileage Rates • Disclosure of Reportable Transactions • Private Annuity Transactions (box)

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

From the IRS

Filing Deadline

According to Notice 2006-103, because in 2007, Patriots’ Day falls on Monday, April 16, individual income taxpayers residing in Maine, Massachusetts, New Hampshire, New
York, Vermont, Maryland and the District of Columbia have until Tuesday, April 17, 2007, to file documents in paper or electronic form that are otherwise due on April 16, 2007. These documents include U.S. individual income tax returns in the Form 1040 series and Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. Individual income taxpayers in these states and the District of Columbia also have until April 17, 2007, to make Federal tax payments otherwise due on April 16, 2007, including the first installment of estimated tax for tax year 2007.

The additional time provided for filing returns and paying tax is not available to individuals residing in other states, regardless of whether they file paper returns or electronically. Also, the additional time is not available for filing, or paying tax reported on, returns of taxpayers who are not individuals, such as Form 1041, U.S. Income Tax Return for Estates and Trusts, and Form 1065, U.S. Return of Partnership Income.

Installment Agreement Fees

IR-2006-176 announced increases in user fees for installment agreements. The increases—the first since the fees were implemented in 1995—result from hikes in labor and other costs of processing the various applications.

Effective Jan. 1, 2007:

For new direct debit installment agreements, when payments are deducted directly from a taxpayer’s bank account, the fee increases from $43 to $52.
For other new installment agreements, the fee rises from $43 to $105.
To restructure an existing or reinstate a defaulted installment agreement, the fee increases from $24
to $45.

In fiscal-year 2006, almost 2.8 million taxpayers established installment agreements to pay their tax bills.

Mileage Rates

The optional standard mileage rate for 2007 will be 48.5¢ per mile for business miles driven, according to Rev. Proc. 2006-49. This is up from the 44.5¢ rate set for 2006 in Rev. Proc. 2005-78.

Rev. Proc. 2006-49 sets the 2007 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

The Service said that beginning Jan. 1, 2007, the standard mileage rates for the use of a car (including vans, pickups or panel trucks) will be:

48.5¢ per mile for business miles driven;
20¢ per mile driven for medical or moving purposes; and
14¢ per mile driven in service of charitable organizations.

Regulations

Disclosure of Reportable Transactions

According to IR 2006-167, on Nov. 1, 2006, Treasury and the IRS issued updated regulations reflecting changes to the requirements for (1) disclosure of reportable transactions by taxpayers and material advisors and (2) list maintenance by material advisors made by the American Jobs Creation Act of 2004 (AJCA); see TD 9295, REG-103038-05, REG-103039-05 and REG-103043-05.

Background: The AJCA enacted updated rules requiring material advisors to file returns disclosing reportable transactions and to maintain investor lists. It also updated the penalties that can be imposed on material advisors who fail to comply with these obligations. The Service and Treasury previously issued interim guidance on these updated rules and on the parallel set of rules for taxpayer disclosure of reportable transactions. (For a discussion, see Auclair, Tax Clinic, “New Reportable Transaction Guidance,” TTA, February 2005; Tax Trends, “IRS Guidance on Reportable Transaction Disclosure Penalties,” TTA, April 2005; Tax Trends, “IRS Guidance on Reportable Transaction Understatement Penalties,” TTA, April 2005; and Schaefer, Tax Practice Management, “Reportable Transactions—What Tax Advisers Need to Know,” TTA, September 2005.)

In drafting the new regulations, consideration was given to comments received in response to the interim guidance.

With one limited exception, the new regulations have been issued as proposed to permit taxpayers and material advisors to comment before they become effective. In removing the book-tax difference category of reportable transactions and adding a new category for “transactions of interest,” the new rules reflect the flexibility of the reportable transaction rules.

Comments sought: Treasury and the IRS request comments on the proposed regulations, particularly on how the rules can be targeted to capture useful information about potentially abusive transactions while minimizing the burden imposed on tax-
payers and material advisors.

Written or electronic comments and requests for a public hearing must be received by Jan. 31, 2007. Send submissions to: CC:PA:LPD:PR (REG-103039-05), room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may also be hand-delivered, Monday–Friday, between 8 am and 4 pm, to CC:PA:LPD:PR (REG-103039-05), Courier’s Desk, Internal Revenue Service, Crystal Mall 4 Building, 1901 S. Bell St., Arlington, VA, or sent electronically, via the IRS’s website, at www.irs.gov/regs or via the Federal eRulemaking Portal at www.regulations.gov (indicate IRS and REG-103039-05).

Private Annuity Transactions Shut Down

by Eileen Sherr, CPA, MT, AICPA Technical Manager—Taxation, Washington, DC

Private annuities (and private annuity trusts), with their controversial, claimed deferred-or-avoided tax treatment, have been proliferating in various parts of the country over the past few years, especially in high-end real estate markets. The IRS is now putting an end to such preferential treatment.

The Service recently issued proposed regulations (REG-141901-05, 10/18/06) and IR 2006-161, generally effective for transactions completed after Oct. 17, 2006. The new rules apply the same tax treatment to exchanges of real estate or other appreciated property for an annuity, regardless of whether private, commercial or secured. Estate planners and others using private annuities will now (or, as discussed below, starting in six months) have to calculate the tax on the annuity’s fair market value and recognize gain at the time of the exchange (similar to selling the asset outright, but without the cash to pay the tax).

The new guidance declares obsolete Rev. Rul. 69-74, which some taxpayers had (inappropriately, according to Treasury) relied on to defer or avoid tax. Charitable gift annuities are not affected by the proposed guidance. Because many legitimate estate planning (and closely held business-succession-planning) transactions may be in process (and are done for nontax reasons), the effective date is postponed for six months (until April 17, 2007) for “plain vanilla” family-style annuities (which, according to Treasury, pose the least likelihood of abuse).

Practitioners and taxpayers who had been planning on using private annuities to transfer assets and spread out the capital gain taxes over many years (as the annuity payments came out of the trust) should consider the new rules’ effect and other options for selling and transferring appreciated property. Those clients, and estate planners with delayed-effective-date, plain-vanilla annuities, need to complete their transactions in the next few months, to obtain the tax benefits under the old rules.

The AICPA Tax Division’s Trust, Estate, and Gift Tax Technical Resource Panel is considering commenting on this guidance; if you have any thoughts or would like to participate on a task force drafting such comments, please contact Eileen Sherr at esherr@aicpa.org.

For more details on the proposed regulations, see Ratner, Tax Clinic, “Service Issues Prop. Regs. on Exchanges for Annuities,” this issue.