In these trying times, with cash scarce and credit hard to find, a small business might be tempted to "temporarily" use money it deducts for taxes and retirement plan contributions from employees' wages. The Fall 2008 issue of IRS's Employee Plans News suggests that practitioners remind clients that failing to remit payroll taxes and retirement plan contributions in a timely manner not only would violate an employer's legal obligation, but also could subject them to heavy penalties.

Payroll taxes. IRS suggests that small business employers be reminded that when they deduct income and Social Security taxes from employees' wages, the money is not theirs to use, even for a short period of time. Deducted amounts must be remitted, along with their portion of payroll taxes, by the next scheduled Federal Tax Deposit deadline. An employer that doesn't deposit the money on time could be hit with:

• penalties for making late deposits and for not depositing the proper amount; and

• penalties for failing to file returns and pay taxes when due, for filing false returns, and for submitting bad checks.

The rate of these penalties increases with each passing day until deposits are made. Interest is also charged on the total unpaid tax and the penalty. These penalties and interest can add up quickly and lead to even bigger financial troubles for noncompliant businesses.

RIA observation: Perhaps the most compelling argument to make is that a company owner could be personally on the hook for unpaid payroll tax. Under Code Sec. 6672, when an employer fails to properly pay over its payroll taxes, IRS can seek to collect a penalty equal to 100% of the unpaid taxes from any "responsible person," i.e., a person who (1) is responsible for collecting, accounting for and paying over payroll taxes and (2) willfully fails to perform this responsibility.

Employee elective deferrals. Businesses that maintain a retirement plan and allow employees to make elective deferrals might be tempted to "borrow" money they deduct from employees' pay for plan contributions to pay other business expenses. IRS stresses that employers have fiduciary obligations under the Employee Retirement Income Security Act of '74 (ERISA) to deposit the deducted amounts as soon as those amounts can be segregated from their own general assets, but no later than the 15th business day of the month immediately after the month in which they withheld the contributions. Under a proposed Dept. of Labor rule, plans with fewer than 100 participants are treated as meeting this deposit rule if such contributions are transferred to the plan within 7 business days from the date those amounts would otherwise have been payable to the employee in cash.

RIA Checkpoint, Federal Taxes Weekly Alert Newsletter, 10/30/2008, Volume 54 No. 44

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How does a taxpayer compare the after-tax financial cost of leasing and buying a business-use passenger vehicle? It is no simple decision when one considers the various tax provisions concerning depreciation systems, taxable gain or loss on disposition, and the income inclusion that partially offsets the lessee's deduction of lease payments.

The monthly lease payment indifference point is the amount at which the taxpayer is indifferent between leasing and purchasing the vehicle. The dollar amount of the proposed monthly lease payment must be below the indifference point to render the lease alternative more attractive than the purchase alternative. If the monthly lease payment is greater than the indifference point, purchasing the auto is more attractive than the lease alternative. The indifference point is determined by comparing the present value of the after-tax cash flows associated with the purchase and the after-tax cash flows associated with the lease.

The Economic Stimulus Act of 2008 (ESA) permits a 50% additional first-year depreciation deduction for new assets acquired in 2008. The ESA also increases the first-year depreciation allowed by $8,000 for passenger autos to which the 50% additional first-year depreciation deduction applies. Passenger autos built on a truck chassis with a gross vehicle weight rating greater than 6,000 pounds (including minivans and sport utility vehicles (SUVs)) are entitled to the 50% bonus depreciation without limitations on the depreciation allowed. Additionally, the ESA reduced the income inclusion amount that partially offsets the lessee's deduction of lease payments.

SUVs that are built on a truck chassis and rated at more than 6,000 pounds (loaded weight) are exempt from the depreciation limits because such vehicles fall outside the definition of a passenger auto. Because there are no depreciation limits associated with the heavy SUV, there exists the opportunity to use both the 50% bonus depreciation and Section 179 depreciation in the first year. However, use of the Section 179 deduction is limited to $25,000 for these heavy SUVs. Because no depreciation limits apply to heavy SUVs, there are likewise no inclusion amounts for those who lease a heavy SUV.

Given these additional deduction allowances in 2008, consideration should be given to the lease vs. buy option based on the specific circumstances and holding period intentions of the buyer/lessee. For additional information and assistance in making your decision, please contact the Tax Department at KAF.

Source: Popi Barrett, Kirkland Albrecht & Fredrickson

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The annual gift tax exclusion will increase from $12,000 to $13,000 effective January 1, 2009, the Internal Revenue Service (IRS) has announced. The gift tax exclusion is the amount the IRS allows a taxpayer to gift to another individual without reporting the gift.

The increase means that more can be given away for estate tax planning purposes. For example, a married couple with four children will be able to give away up to $104,000 in 2009 with no gift tax implications.

The tax code permits the gift tax exclusion, which has remained at $12,000 since 2006, to rise when inflation would produce an increase of $1,000 or more. This year’s inflation figures pushed the amount above the next $1,000 threshold.

Source: Law Office of Donald D. Vanarelli Blog

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November 2008
	Short Term	Mid Term	Long Term
Annual	1.63%	2.97%	4.24%
Semi annual	1.62%	2.95%	4.20%
Quarterly	1.62%	2.94%	4.18%
Monthly	1.61%	2.93%	4.16%
Adjusted AFR for Original Issue Discount (Code Sec. 1288(b))	2.20%	3.35%	4.90%
Code Sec. 382 Adjusted Federal Long Term Rate			4.94%
Long Term Tax exempt rate			4.94%
Low income Housing Credit (Code Sec. 42(b)(2))
70% present value			7.87%
30% present value			3.36%
Valuation Tables (Code Sec. 7520)			3.60%
Deemed Rate of Return for Transfers to Pooled Income Funds (Code Sec. 642(c)(5))			4.80%

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