Taxing developments

Taxing developments
Three of the country's top organizations for tax professionals are urging Congress to repeal the alternative minimum tax, streamline capital gains taxes and worker classification rules and get rid of phaseouts.
MAR 20, 2000
In a joint proposal, the American Bar Association's tax section, the American Institute of Certified Public Accountants and the Tax Executives Institute called on Congress to act on their list of initiatives. "Our tax system is being undermined by complexity," said Paul J. Sax, chairman of the ABA tax section. David A. Lifson, chairman of the AICPA tax executive committee added: "Complexity in certain key areas may be strangling voluntary compliance." The organizations singled out some initiatives that will be popular among investment professionals, including changes in capital gains laws and recent education tax incentives, which should be "as simple as the Three R's," they said. The groups' recommendations include: * Scrapping the individual and corporate alternative minimum tax, arguing that it is an outdated exercise in unnecessary complexity that requires duplicate recordkeeping and is beginning to affect middle-income taxpayers. * Simplifying the tax law's eight different education breaks, such as the recently enacted tuition credits. "The eligibility criteria vary from one incentive to the next and most of them are so complicated taxpayers would need a college degree just to decide whether they qualify," the groups said; * Streamlining capital gains taxes. The multitude of rates and holding periods is "excessively complex" and "incomprehensible," Mr. Lifson said. The groups urge establishing a single preferential rate and a single long-term holding period. * Codifying "family status" for purposes of targeted tax breaks like the earned income credit. * Phasing out phaseouts. "Due to the many phaseouts, we tax professionals have difficulty telling you what your top marginal rate is," Mr. Sax said. * Synchronizing safe harbors for the self-employed. * Creating an objective test for worker classification. * Making temporary provisions permanent. Although Congress last year renewed several expiring provisions through 2001, the groups said their frequent expiration wreaks havoc with tax planning, especially for businesses. * Simplifying capitalization and expensing. The organizations recommended an "objective, administrable test." * Untangling the foreign tax credit. The groups also argued that the foreign tax credit needs to be modernized. Although many of these recommendations have been discussed before, this marks the first time they have been compiled into a list by three of the leading organizations of tax professionals. Shaking up the COLA * Changes to various exemption, exclusion and limitation amounts have occurred for the year 2000. These changes result from either cost-of-living inflationary adjustments or legislative phase-ins. For estate tax purposes, the unified credit for both 2000 and 2001 will be increased from $650,000 to $675,000. This phase-in is part of a schedule to increase the unified credit to $1 million by the year 2006. * Gift tax exclusion. The annual amount holds at $10,000 for 2000. The amount is scheduled to be indexed for inflation, but will increase only in increments of $1,000. Thus, inflationary amounts will accumulate, but the exclusion will not be increased until the cumulative amount reaches a multiple of $1,000. * Averaging on qualified retirement plan distributions. As of this year, five-year averaging may no longer be used for eligible lump-sum distributions from qualified retirement plans. Individuals who attained age 50 before 1986 may now only use 10-year averaging.

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