The most significant provision in the Emergency Economic Stabilization Act of 2008 for small businesses as well as individuals is the one-year "patch" of the Alternative Minimum Tax (AMT), says Tom Ochsenschlager, AICPA vice president, taxation, who spoke with AccountingWEB about the broader impacts of the bill. Small businesses are affected by the AMT because they are typically S Corporations or limited liability companies, and as flow-through entities, their revenues are often subject to the tax. "This AMT patch will have very important budget impacts for small businesses," he says.
The new law also reduces the standard for tax preparers to substantial authority, the same standard required of taxpayers, a second provision with wide application. Tax preparers had previously been held to a higher standard and been called upon to provide more information than clients, leading to a potential conflict of interest, Ochsenschlager says.
Ochsenschlager is "pleased that the extensions part of the bill passed as early as it did. Things will run more smoothly this year." Even so, he adds, it will be a daunting task for the Internal Revenue Service to incorporate the more than 100 new provisions in the bill into their forms and computers, and for the AICPA to revise the recently completed 2008 checklist that the Association provides to members each year.
Millions of people will not fall into the AMT this year because of the fix, but that does not mean that things have gotten any easier for their accountants and tax preparers. Ochsenschlager recommends that tax preparers, who took a conservative position and did not assume an AMT fix this year, should recalculate their clients' fourth quarter estimated tax, because clients may have overpaid. And because there is no certainty that Congress will allow a similar fix for the AMT next year, preparers must look at all of the AMT implications when discussing tax planning with clients. Many other tax credits and deductions were extended for two years in the new legislation, but not the AMT exemption levels.
Emergency Economic Stabilization Act of 2008.
A big part of the cost of the AMT to taxpayers and ultimately to tax preparers is its complexity, Ochsenschlager says, because it becomes the responsibility of the tax preparer to take the time to explain the measure and help clients who are not subject to the tax this year to put together a strategy that may keep them out of the AMT next year. Even the most informed clients have difficulty with the AMT because, "It involves complex strategies that are often counterintuitive. It is difficult to arrange your affairs to minimize your exposure and, once you are in it, it is difficult to get out," he says.
The distribution of the AMT is very geographic, Ochsenschlager says. States like New York with concentrations of higher wage earners and higher income tax rates show more taxpayers who are subject to the AMT.
The importance of attaching the AMT "fix" to a bill that would be likely to pass in both houses of Congress cannot be underestimated, because a standoff between the "Blue Dog" Democrats in the House of Representatives (those conservative and moderate Democrats who often vote for fiscally conservative measures) and Senate Republicans had made it doubtful that the two houses would agree on a bill this year. The House Democrats were insisting the AMT be paid for with other taxes, while Senate Republicans opposed any change in tax policy because they do not want to place the extensions of tax cuts in The Economic Growth and Tax Relief Reconciliation Act of 2001 in jeopardy. Both groups are acting on principle, Ochsenschlager says, and both have assumed the "high ground," which suggests that the fight will go on.
Evolution of the Emergency Economic Stabilization Act of 2008: