Alternative Minimum Tax
Making an Offer in Compromise to the IRS may now involve posting 20% of the offer at the time the OIC is made. It is hard to understand how this will improve the offer in compromise program, and it is unclear what will happen to the 20% if the offer in compromise is not accepted by the IRS.
If the dreaded alternative minimum tax almost hit you last year, relax. The recently passed tax bill has greatly reduced the chances it will bite you this year.
But if your teenage children have investment income or you are arguing with the Internal Revenue Service over past returns, then provisions of the bill require immediate attention.
For the most part, the Tax Increase Prevention and Reconciliation Act of 2005 "extends things that otherwise would have expired," said Mark Luscombe, a lawyer and certified public accountant with CCH Inc., a tax analysis and publishing firm in Riverwoods, Ill. "I don't think there should be a great deal of planning issues coming out of this for the individual."
And yes, it is called a 2005 law, even though it was finally passed in May 2006. Congress just took its time.
One place where the new law does demand action is from those people who are thinking of making the IRS a so-called "offer in compromise" or OIC in a tax dispute. At present, the offers to pay cents on the dollar of outstanding taxes can be made without having to include any money up front.
As of July 17, however, the offers must include a 20% down payment in most cases. What happens to that down payment if the offer is rejected is not clear. "At this point, we don't have that information," said Christopher Miller, IRS spokesman in Milwaukee.
For that reason, "if you are going to submit an offer, do it before July 17," said Cindy Hockenberry, a tax information analyst for the National Association of Tax Professionals in Appleton.
Beyond encouraging people to move quickly to settle tax disputes, the new law did two things in particular that make tax planning easier: It extended lower rates for capital gains and dividend income from 2008 to 2010, and it increased the exemption amounts for the alternative minimum tax.
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