newsnote

NewsNotes

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

Regulations

Effective Nov. 1, 2003, final regulations (TD 9086) will require a $150 user fee for many offers-in-compromise (OIC). The fee recovers part of the cost of processing OIC requests and evaluating a taxpayers ability to pay.

Taxpayers will normally pay the fee when submitting an OIC request. There will be no user fee imposed on OICs (1) based solely on doubt as to liability or (2) made by low-income taxpayers. The final regulations authorize the IRS to adjust the definition of low-income taxpayer and change the low-income standard if necessary.

If an OIC is accepted (1) to promote effective tax administration or (2) based on doubt as to collectibility, and if a determination that collecting more than the amount offered would create economic hardship, the fee will be applied to the offer (or refunded on request). In other circumstances, the fee payment will be taken into account in determining the acceptable amount of the offer; thus, taxpayers will pay no more in total than they would have paid without the fee.

User fees will not be refunded if an OIC is withdrawn, rejected or returned as nonprocessable after acceptance for processing. However, no additional fee will be charged if a taxpayer resubmits an offer that was rejected or returned in error by the IRS. The Service will work closely with taxpayers to perfect incomplete or inadequate offers before returning or rejecting them.

Expensing SUVs

by Roger W. Lusby III, CPA, CMA, AEP, Frazier & Deeter, LLC, Atlanta, GA

The Jobs and Growth Tax Relief Reconciliation Act of 2003, Section 202(a), quadrupled the Sec. 179 election from $25,000 to $100,000, effective for tax years beginning in 20032005. This provision allows small businesses and self-employed individuals (including many real estate agents, doctors, lawyers and CPAs) to expense the purchase of certain business equipment in the first year, including a sport utility vehicle (SUV) used for business purposes.

Sec. 280F(d)(5)(A) and (B) provide that a truck or van (including an SUV or minivan) is treated as a passenger automobile (i.e., subject to annual depreciation limits) only if it has a gross vehicle weight (GVW) of 6,000 pounds or less. GVW is the weight of the vehicle plus its maximum load (typically printed on the inside of the driver's door); see IRS Letter Ruling 9520034. (For more discussion, see Hritz, Tax Clinic, Luxury Automobile Exclusion Regs., this issue.)

The Sec. 179 deduction applies only to the business use of an SUV; such use must exceed 50% of total use to qualify. Thus, if an SUV costs $60,000 and is used 80% for business, the Sec. 179 deduction is $48,000, saving $16,800 in the top tax bracket. This tax savings makes it more attractive to purchase an SUV for business purposes than to lease it.

Another tremendous tax benefit is the fact that the Sec. 179 deduction is not pro-rated for a short year or adjusted for the part of the year the taxpayer purchased the business property. The purchase of a qualifying SUV in December results in the same tax benefits as one purchased in January. Below is a list of the SUVs with GVWs over 6,000 pounds and the manufacturers suggested retail price (MSRP); see Toups, MSN Money, Save up to $35,000 on a new SUV, at moneycentral.msn.com/content/Taxes/P48468.asp :

SUV MSRP

BMW X5 $39,500

Cadillac Escalade $53,855

Chevrolet Suburban $39,750

Chevrolet Tahoe $35,015

Dodge Durango $28,995

Ford Expedition $34,390

Ford Excursion $39,690

Hummer H2 $48,455

Hummer H1 $105,160

GMC Yukon $35,725

Land Rover Discovery $34,350

Land Rover Range Rover $71,200

Lexus LX 470 $63,625

Lexus GX 470 $44,925

Lincoln Navigator $49,225

Mercedes-Benz M Class $37,320

Mercedes-Benz G 500 $74,320

Porsche Cayenne $55,900

Toyota Land Cruiser $54,465

Toyota Sequoia $32,135

There are three tax caveats: (1) some states do not recognize the increased Sec. 179 election; (2) a taxpayer must have taxable income from an active trade or business to use the Sec. 179 deduction (otherwise, it carries over indefinitely until it can be deducted in a future year); and (3) depreciation recapture rules apply to the Sec. 179 deduction if the business use fails to exceed 50% during any year of the SUVs depreciation period (five years). As with all things too good to be true, Congress could close this loophole at any time.