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Congress in Action - Late 2005

There must be a requirement that Congress makes changes to the tax law late each year. There were several specific changes made in bills earlier in 2005, but now Congress is finally addressing taxes in general very late in November. As of the Thanksgiving recess, the Senate passed their bill titled "Tax Relief Bill of 2005" but the House bill titled "Tax Relief Extension Act of 2005" is still in committee. Will any of this come to pass? Who knows.

Note that none of these provisions affect 2005 taxes.

But in case you are interested in the changes being considered, the following list should help. The cost of the Senate bill is listed as $60B, while the House proposal is currently at $56.6B. Except as noted, the items below refer the the Senate bill.

Alternate Minimum Tax
Extends 1 year of relief for 2006.
Charitable Deductions
For tax years 2006 & 2007, contributions in excess of $210 ($420 MFJ) can be taken as a deduction on form 1040 without itemizing deductions. This will give a benefit to those who take the standard deduction. For taxpayers who do itemize, deductions for cash and non-cash in excess of $210 ($420 MFJ) can be taken.
Note that this will eliminate a deduction for very small total annual contributions.
Estimated Tax Safe Harbor
This applies to the requirement to make estimated tax payments during the year to avoid a penalty. For those with an AGI of at least $150k, in 2006 the minimum will be 119% of 2005 taxes, and for 2007 it will be 110% of 2006 taxes.
Interest paid on Tax-Exempt Bonds
The same information will be required to be reported as for taxable bonds.
Offer in Compromise
This item relates to taxpayers with very large tax bills due - in excess of their total net worth. It is a method to settle the tax liability for a lesser amount that the IRS could collect, in contrast to an amount that will never be collectable.
These will require a 20% down payment on a lump-sum offer. If IRS rejects the offer, the down payment is forfeited and will not be applied to tax due.
Tax Preparer Penalties
Replaces the "realistic possibility" standard with a requirement that there be a reasonable belief that the tax treatment of the position taken is "more likely than not" the proper treatment.
The penalty for signing a return that understates taxes because a position is taken for which there was not a realistic possibility is increased from $250 to $1,000 with the new standard noted above.
The penalty for specified willful or reckless conduct in preparing a return is increased from $1,000 to $5,000.
Note that this provisions takes effect immediately after enactment, so it would affect the prepration of 2005 tax returns.
State and Local Sales Tax Deduction (House agrees)
Extended through 2006.
Deduction for Tuition and Fees (House agrees)
Extended through 2010.
Savers Credit (House agrees)
Through 2009, low-income taxpayers can receive a credit on up to $2,000 to qualified retirement savings plans.
Extended lower tax rates on Capital Gains and Dividends (House ONLY)
Extended through 2010.

Information above was derived from an analysis performed by The National Society of Tax Professionals (NSTP) for its member use. Republication of this information on this web site is by permission of the NSTP.

"Tax software is no substitute for tax knowledge."

Any views expressed herein are based on our best information. The content of this web site was written as general information without specific individual information and thus may not apply in all situations. This material was not written, and cannot be used by the taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.

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Janelle Ogg, EA
Richard Ogg, EA