The IRS has issued final regulations modifying reporting obligations for partnerships involved in Code Sec. 751(a) exchanges of partnership interests. The regulations remove the requirement that partnerships furnish transferors with certain information relating to unrealized receivables and inventory items by January 31 following the exchange year. The regulations are effective for returns filed for tax years ending on or after May 20, 2026.

The IRS has issued final regulations modifying reporting obligations for partnerships involved in Code Sec. 751(a) exchanges of partnership interests. The regulations remove the requirement that partnerships furnish transferors with certain information relating to unrealized receivables and inventory items by January 31 following the exchange year. The regulations are effective for returns filed for tax years ending on or after May 20, 2026.

Under Code Sec. 6050K, partnerships must file Form 8308, Report of a Sale or Exchange of Certain Partnership Interests, for transfers involving Code Sec. 751(a) property. The IRS and Treasury Department received comments that many partnerships could not determine the information required for Part IV of Form 8308 by the January 31 furnishing deadline. As a result, the final regulations remove Reg. §1.6050K-1(c)(2) and revise Reg. §1.6050K-1(c)(1) to permit partnerships to furnish Form 8308 completed in accordance with the form instructions.

Although partnerships are no longer required to furnish Part IV information to transferors and transferees by January 31, they must still file a completed Form 8308, including Part IV, with Form 1065. The IRS finalized the regulations without substantive changes from the proposed regulations issued in 2025.

T.D. 10048

The IRS has issued guidance on qualified long-term care distributions from qualified retirement plans. The guidance affects providers of certified long-term care insurance (issuers), plan administrators, and individual participants receiving qualified long-term care distributions. The IRS also extended the general deadline for amending a plan to permit qualified long-term care distributions to December 31, 2027.

The IRS has issued guidance on qualified long-term care distributions from qualified retirement plans. The guidance affects providers of certified long-term care insurance (issuers), plan administrators, and individual participants receiving qualified long-term care distributions. The IRS also extended the general deadline for amending a plan to permit qualified long-term care distributions to December 31, 2027.

Background

The SECURE 2.0 Act of 2022 (SECURE 2.0 Act), permitted defined contribution plans to make qualified long-term care distributions, effective for distributions made after December 29, 2025. The 10 percent additional tax on early distributions would not apply to distributions under Code Sec. 401(a)(39). However, a qualified long-term care distribution would be included in the taxpayer’s gross income.

Disclosure Requirements

The guidance addresses content requirements and procedures for submitting an Issuer Disclosure to the IRS. There is no general deadline for submitting an Issuer Disclosure. However, an issuer must submit an Issuer Disclosure to the IRS before the issuer can file a long-term care premium statement with a defined contribution plan.

Distribution Requirements

Under the guidance, the plan administrator is permitted to rely on the issuer’s statement and the information provided on the long-term care premium statement in making a qualified long-term care distribution. It is optional for a plan to permit qualified long-term care distributions, but the exception to the 10% additional tax only applies if the plan permits qualified long-term care distributions, even if the employee uses a distribution to pay for long-term care insurance. Unlike other permitted distributions, a qualified long-term care distribution would not be eligible for an extended 3-year repayment to a retirement plan.

Reporting Requirements

The payment of a qualified long-term care distribution to an employee must be reported by the payor on Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts, etc.

Further, issuers must make a return to the IRS using Form 1099-LPS, Long-Term Care Premiums Paid Statement. The issuer will report the long-term care premiums paid for the calendar year. The Form 1099-LPS must be filed with the IRS no later than February 1 of the calendar year following the calendar year the long-term care premium statement was filed with the plan.

Deadline Extension

The guidance extends the deadline for a plan sponsor of a defined contribution plan that is not a governmental plan, a section 403(b) plan maintained by a public school, or an applicable collectively bargained plan, to amend its plan to permit qualified long-term care distributions from December 31, 2026, to December 31, 2027. The deadlines to amend defined contribution plans that are applicable collectively bargained plans or governmental plans remain as provided in Notice 2024-02. Thus, Notice 2024-2, I.R.B. 2024-2, 316, is modified in part.

Notice 2026-33

The IRS finalized regulations treating income derived by individual members of an Indian tribe from fishing rights-related activities as compensation for purposes of limitations on benefits and contributions under a qualified retirement plan. These regulations are effective for plan years beginning on or after May 4, 2026, and affect participants, beneficiaries, sponsors, and administrators of Tribal plans.

The IRS finalized regulations treating income derived by individual members of an Indian tribe from fishing rights-related activities as compensation for purposes of limitations on benefits and contributions under a qualified retirement plan. These regulations are effective for plan years beginning on or after May 4, 2026, and affect participants, beneficiaries, sponsors, and administrators of Tribal plans.

Fishing rights-related income is exempt from federal income tax and employment tax under Code Sec. 7873. However, proposed reliance regulations would allow contributions to be made to qualified retirement plans based on fishing rights-related income. Also, plans that accept contributions of fishing rights-related income may still use safe harbor definitions of compensation. The IRS finalized this rule as proposed without material modification.

Although the final rule is somewhat limited in scope, the IRS addressed additional issues in the preamble. The IRS clarified that plan contributions attributable to a Tribal employee's fishing rights-related activiity is treated as investment in the contract under Code Sec. 72 . Thus, distributions of the amount contributed would generally be tax-free (subject to basis recovery rules) and distributions attributable to earnings would be taxable. The IRS also indicated that plans that permit designated Roth contributions may allow contributions attributable to fishing rights-related activity to be made on a Roth basis.

T.D. 10046

The IRS has introduced a streamlined option allowing taxpayers to extend the time to challenge disallowed Employee Retention Credit (ERC) claims, reducing the need for immediate refund litigation. The measure applies to taxpayers who received Letter 105-C or 106-C, are awaiting review by the IRS Independent Office of Appeals and have six months or less remaining in the statutory two-year period.

The IRS has introduced a streamlined option allowing taxpayers to extend the time to challenge disallowed Employee Retention Credit (ERC) claims, reducing the need for immediate refund litigation. The measure applies to taxpayers who received Letter 105-C or 106-C, are awaiting review by the IRS Independent Office of Appeals and have six months or less remaining in the statutory two-year period.

Taxpayers generally have two years from the disallowance notice to resolve the claim or file a refund suit, but an administrative appeal does not suspend this deadline. Once the period expires, the IRS cannot issue a refund even if the taxpayer later prevails. To address this, eligible taxpayers may execute Form 907, Agreement to Extend the Time to Bring Suit, provided it is signed by both parties before the limitation period ends.

The IRS now permits submission of Form 907 through its Document Upload Tool, with qualifying requests reviewed and confirmed in writing. While the IRS is issuing notices to eligible taxpayers, others meeting the criteria may also apply. The agency indicated that the initiative is intended to preserve taxpayer rights and facilitate administrative resolution of ERC disputes.

The IRS has established a significant issue ruling program for cerain corporate transactions (Rev. Proc. 2026-21). This program would not diminish the availability of letter rulings under existing programs. This procedure modifies and amplifies the ruling procedures provided in Rev. Proc. 2026-1, I.R.B. 2026-1, 1, and Rev. Proc. 2026-3, I.R.B. 2026-1, 143.

The IRS has established a significant issue ruling program for cerain corporate transactions (Rev. Proc. 2026-21). This program would not diminish the availability of letter rulings under existing programs. This procedure modifies and amplifies the ruling procedures provided in Rev. Proc. 2026-1, I.R.B. 2026-1, 1, and Rev. Proc. 2026-3, I.R.B. 2026-1, 143.

The significant issue ruling program allows taxpayers to request rulings on one or more issues that:

• are solely under the jurisdiction of the Associate Chief Counsel (Corporate);
• are significant issues, as defined in section 4.02 of Rev. Proc. 2026-21; and
• involve the tax consequences or characterization of a transaction (or part of a transaction) that is described in Code Sec. 332, 351, 355, 368, or 1036.

Significant Issue Ruling Program

Taxpayers may request, and the IRS may issue, a ruling on part of an integrated transaction described in the above provisions, or a ruling on a particular legal issue under a section of the Code or regulations with respect to a transaction (or part thereof) rather than a ruling that addresses all aspects of that section (or any other section) with respect to the transaction (or part thereof).

In addition, the IRS may rule on the tax consequences resulting from integrated transactions described in the above provisions to the extent that a significant issue is presented under related Code sections that address such tax consequences.

A significant issue generally is a germane and specific issue of law, provided that a ruling on the issue would not be a comfort ruling or the conclusion in such a ruling otherwise would not be essentially free from doubt.

The requests for ruling must contain (1) narrative description of the transaction that puts the significant issue in context; (2) statement identifying the issue; (3) analysis of the solvability of issue; and more.

Effect on Other Documents

Rev. Proc. 2026-1 and Rev. Proc. 2026-3 are modified and amplified.

Effective Date

The significant issue ruling program applies to all letter ruling requests described in section 4.01 of Rev. Proc. 2026-21 postmarked or, if not mailed, received by the IRS after May 5, 2026.

Rev. Proc. 2026-21

Other References:

• Code Sec. 332
• CCH Reference - FED ¶16,052.188

Other References:

• Code Sec. 351
• CCH Reference - FED ¶16,405.48

Other References:

• Code Sec. 355
• CCH Reference - FED ¶16,466.923

Other References:

• Code Sec. 368
• CCH Reference - FED ¶16,753.53

Other References:

• Code Sec. 1036
• CCH Reference - FED ¶29,702.11

The IRS has announced a new time-limited settlement opportunity for eligible taxpayers involved in conservation easement and historic preservation easement disputes with the IRS. The program aims to resolve cases faster and on terms that are generally more favorable than recent Tax Court decisions.

The IRS has announced a new time-limited settlement opportunity for eligible taxpayers involved in conservation easement and historic preservation easement disputes with the IRS. The program aims to resolve cases faster and on terms that are generally more favorable than recent Tax Court decisions. Since 2020, the IRS has settled 405 cases through earlier initiatives, although taxpayers still had to pay penalties and were allowed only limited deductions for certain out-of-pocket costs. More than 1,100 conservation easement cases currently remain pending before the IRS and the Tax Court. Under the new initiative, many eligible partnerships will not have to make an upfront payment to participate. In addition, taxpayers whose earlier settlement offers expired or were rejected may now have another chance to resolve their cases, while some partnerships that were not previously eligible may also qualify. IRS Chief Executive Officer Frank J. Bisignano said Congress created the conservation easement deduction to encourage legitimate preservation efforts rather than tax shelters based on inflated property values.

The IRS said partnerships that accept the offer during the initial 90-day period generally will not be allowed a charitable contribution deduction, but they may qualify for a limited deduction tied to certain out-of-pocket expenses. Those partnerships generally would face a 10 percent gross valuation misstatement penalty, while partnerships settling during an additional 45-day period generally would face a 20 percent penalty. Interest also will continue to accrue as required by law. At the same time, the IRS noted that courts have repeatedly reduced claimed deductions and upheld significant penalties in conservation easement disputes. Certain cases, such as those already tried or currently under appeal, will not qualify for the initiative. The IRS added that eligibility will depend on the status and specific facts of each case.

Following a 2026 tax filing season that was consistent with the 2025 season, the American Institute of CPAs offered legislators a series of recommendations to help improve filing season in the future.

Following a 2026 tax filing season that was consistent with the 2025 season, the American Institute of CPAs offered legislators a series of recommendations to help improve filing season in the future.

“Based on limited and anecdotal information, many practitioners noted that the IRS appeared to operating consistently compared with the prior year’s service,” AICPA said in a recent letter to the Senate Finance Committee’s top leadership following a hearing on the 2026 tax filing season, adding that data currently available shows “tax return processing remained relatively consistent, though the quality of telephone services appeared to vary depending on the hotline.”

AICPA did observe that while Internal Revenue Service modernization efforts have allowed for consistent customer service levels compared to recent prior years, “IRS customer service has not returned to pre-COVID-19 pandemic levels according to IRS data and the AICPA’s most recent annual membership survey.”

With that, the industry organization offered recommendations in the areas of governance and oversight, taxpayer services, and dedicated practitioner services.

In the area of IRS governance and oversight, AICPA recommended the following:

• Requiring a Government Accountability Office review to determine whether a private sector board with sufficient authority to hold the IRS accountable and oversee implementation of key recommendations from advisory groups;
• Re-establish the annual joint hearing review to focus on strategic and business plans, taxpayer service and compliance, technology and modernization, and the filing season; and
• The Joint Committee on Taxation should provide a bi-annual report on the overall state of the Federal tax system.

In the area of taxpayer service, the following recommendations were offered:

• Hire more qualified and experienced professionals from the private sector, adequately train all agency employees, skillfully manage IRS resources, and ensure organizational alignment between Congress, the executive branch, and the IRS;
• Congress should determine what the appropriate level of service is and then ensure that the appropriate resources are allocated to achieve that level;
• Continue to improve the technology infrastructure modernization; and
• Effectively utilize customer satisfaction surveys to assess IRS performance, improve the taxpayer experience, and effectuate modernization efforts or process improvement.

AICPA pushed for the passage of the Taxpayer Assistance and Services Act, which it states “would significantly improve IRS services, reinforce fairness and transparency in our tax system, and reduce tax administrative burdens on taxpayers and practitioners, including many critical tax provisions for which AICPA has previously advocated.”

In the area of dedicated practitioner services, AICPA recommended:

• Create consolidated dedicated “executive-level” practitioner services comparable to private sector services that are implemented and adapted based on practitioner feedback solicited periodically; and
• Continue to expand the functionality of a robust and enhanced tax professional account as part of the IRS’s online portal with account access to all of a practitioner’s client information, allowing for IRS to communicate directly with authorized practitioners, enable a centralized login system, and prioritize the protection and privacy of user identities and data;
• Provide practitioners with a robust practitioner priority hotline with high-skilled employees capable of resolving complex technical and procedural issues; and
• Assign customer service representatives to each geographic area to address unusual or complex issues that practitioners were unable to resolve through the priority hotlines.

The letter to the Senate Finance Committee leadership and other AICPA 2026 tax policy and advocacy comment letter can be found here.

During economic downturns, many people often look for ways to supplement their regular employment compensation. Or, you may be engaging in an activity - such as gambling or selling items on an online auction - that is actually earning you income: taxable income. Many individuals may not understand the tax consequences of, and reporting requirements for, earning these types of miscellaneous income. This article discusses how you report certain types of miscellaneous income.

Reporting your miscellaneous taxable income

For most people, gambling winnings and hobby income are uncommon types of taxable income. Gambling winnings and hobby income, as well as prizes and awards, represent "miscellaneous income" and are reported on Line 21 of your Form 1040 as "other income."

Hobby income

Hobbies are generally considered under the tax law as activities that are not pursued "for profit." However, the tax law provides that if your hobby shows a profit in at least three of the last five tax years, including the current year, you are assumed to be trying to make money. However, you can rebut the assumption -- that you are not out to run a profitable business even if you regularly have losses -- with evidence to the contrary. Just because you love what you are doing in a sideline business does not mean it's a hobby for tax law purposes. In fact, one secret to business success is often enjoying your work. Profits you receive from an activity that is a hobby and not a for-profit business are reported as "other income" on Line 21 of your Form 1040.

Hobby losses and expenses

You cannot deduct your hobby expenses in excess of income you derived from the hobby, and you can only deduct qualifying expenses if you itemize your deductions. Expenses that you incurred in generating hobby income are generally deductible as miscellaneous itemized deductions, subject to the two-percent floor, on Schedule A. If you incurred losses in connection with your hobby activities, you may generally be able to deduct these "hobby losses" but only to the extent of income produced by the activity.

However, some expenses that are deductible whether or not they are incurred in connection with a hobby (such as taxes, interest and casualty losses) are deductible even if they exceed hobby income. These expenses, however, will reduce the amount of your hobby income against which your hobby expenses can be offset. Your hobby expenses then offset the reduced income in the following order:

1. Operating expenses, generally;

2. Depreciation and other basis adjustment items.

As mentioned above, your itemized deduction for hobby expenses is subject to the two-percent floor on miscellaneous itemized deductions.

Gambling winnings

Gambling winnings, whether legal or illegal, are included in your gross income. If you have winnings from a lottery, raffle, or other types of gambling activities, you must report the full amount of your winnings on Line 21 of your Form 1040 as "other income." The taxable gains are the amount by which your winnings exceed the amount you wagered. If any taxes were withheld from your winnings, you should receive a Form W-2G showing the total paid to you in Box 1, and the amount of income taxes withheld in Box 2. You need to include the amount in Box 2 in the amount of taxes paid on Line 59 of your 1040.

Gambling losses

You can deduct your gambling losses as an itemized deduction for the year on Schedule A (Form 1040), line 28. However, you cannot deduct gambling losses that exceed your winnings. Thus, you can deduct losses from gambling up to the amount of your gambling winnings. You cannot reduce your gambling winnings by your gambling losses and report the difference. You must report the full amount of your winnings as income and claim your losses (up to the amount of winnings) as an itemized deduction. Therefore, your records should show your winnings separately from your losses.

You can reduce your gambling winnings by your wagering losses regardless of whether the underlying transactions are legal or illegal. Moreover, gambling losses may be offset against all gains arising out of wagering transactions, and not merely against gambling winnings. However, gambling losses can only be used to offset gambling gains during the same year.

Moreover, you cannot use your gambling losses to reduce taxable income from non-gambling sources, and they cannot be used as a carryover or carryback to reduce gambling income from other years. For example, the value of complimentary goods you might receive from a casino as an inducement to gamble are gains from which gambling losses can be deducted.

Casinos, lotteries and other payers of gambling winnings of $600 or more ($1,200 for bingo or slot machines and $1,500 for keno) report the winnings on Form W-2G, Certain Gambling Winnings.

If you have any questions about tax and reporting requirements in connection with hobby activities and other sources of income, please call our office.

The saver's credit is a retirement savings tax credit that can save eligible individuals up to $1,000 in taxes just for contributing up to $2,000 to their retirement account. The saver's credit is an additional tax benefit on top of any other benefits available for your retirement contribution. It is a nonrefundable personal credit. Therefore, like other nonrefundable credits, it can be claimed against your combined regular tax liability and alternative minimum tax (AMT) liability.

Who qualifies for the saver's credit

To qualify for the credit, you must be 18 years old (as of the close of the tax year of the contribution), not a full-time student, and not claimed as a dependent on another's return. The calculation of the credit amount depends on a percentage of your adjusted gross income (AGI).

The credit can be claimed for contributions or deferrals made to a number of retirement plans, including: traditional and Roth IRAs (other then rollover contributions), voluntary "after-tax" employee contributions to Section 403(b) annuities and qualified retirement plans, qualified cash or deferred arrangements, including elective contributions made to 401(k) plans, tax sheltered annuities, SIMPLE plans, simplified employee pensions (SEPs), and eligible deferred compensation plans of governmental employers.

Determining your credit amount

IRS Form 8880, Credit for Qualified Retirement Savings Contributions, is used to calculate the amount of the saver's credit, which is then reported on Line 51 of Form 1040. The credit is determined as a percentage of your "qualifying contribution." A taxpayer's qualifying contribution is limited to $2,000 per year. The percent varies depending on your adjusted gross income (AGI).

For 2009, the credit is 50 percent of the maximum $2,000 ceiling for married couples filing jointly with a combined AGI of $33,000 or less. For example, if each spouse makes the maximum $2,000 contribution for the credit, for a total of $4,000, they can claim a total saver's credit of $2,000 ($4,000 x 50 percent) on their joint return). If AGI for 2009 is above $33,000 but not over $36,000, the credit is 20 percent of qualifying contributions ($800 in the above example: $4,000 x 20 percent). If AGI for 2009 is above $36,000 but not over $55,500, the credit is 10 percent of qualifying contributions.

For single taxpayers, if AGI for 2009 is $16,500 or less, the percentage is 50 percent. If AGI for 2009 is above $16,500 but not over $18,000, the credit is 20 percent of qualifying contributions. If AGI for 2009 is above $18,000 but not over $27,750, the credit is 10 percent of qualifying contributions. For 2009, the credit is phased out when AGI exceeds $55,000 for joint return filers, $41,625 for heads of households, and $27,750 for single and married filing separately.

Contribution reductions

The amount of contributions to be taken into account in determining the credit, however, must be reduced by any distributions from such qualified retirement plans over a "test period." The test period includes the current tax year, two preceding tax years, and the following tax year up to the due date of the return including extensions. A qualifying contribution is also reduced by nontaxable distributions received from Roth IRAs during the testing period (unless you roll them over). The contribution reduction rule even applies to "special" distributions, such as those taken to pay first-time homebuyer expenses or higher education costs.

Exceptions apply for certain distributions, such as trustee-to-trustee transfers or rollover distributions to other qualified retirement accounts (for example, a rollover from a traditional IRA to a Roth IRA).

Example. Jenny contributes $2,500 to her 401(k) during Year 4, but took a $1,000 taxable IRA withdrawal during Year 2. Her qualifying contribution for purposes of computing her saver's credit for Year 4 is $1,500 ($2,500-$1,000).

The saver's credit is available in addition to other benefits you receive contributing to a retirement plan. For example, if you make a $1,000 deductible contribution to a traditional IRA, you may also qualify to take the saver's credit for that contribution. In fact, since your deduction for the IRA contribution reduces AGI, you may even qualify for a higher credit percentage.

A consequence of the economic downturn for many investors has been significant losses on their investments in retirement accounts, including traditional and Roth individual retirement accounts (IRAs). This article discusses when and how taxpayers can deduct losses suffered in Roth IRAs and traditional IRAs ...and when no deduction will be allowed.

Traditional IRAs

Losses on investments held in a traditional IRA, funded only by contributions that you deducted when you made them, are never deductible. Even when you cash out the IRA after retirement, losses cannot be deducted. The theory behind this rule is that you already received a tax benefit in your deduction for making contributions and any loss lowers the amount of taxable income you must realize when you make retirement withdrawals. The technical explanation is that you are presumed to have a zero basis in your account.

On the other hand, if you make nondeductible traditional IRA contributions, and liquidate all of the investments in your traditional IRA, a loss can be recognized if the amounts distributed are less than the remaining unrecovered basis in the traditional IRA. You claim a loss in a traditional IRA on Schedule A, Form 1040, as a miscellaneous itemized deduction subject to the two percent AGI floor.

Example. During 2008, you made $2,000 in nondeductible contributions to a traditional IRA. Your basis in the IRA at the end of 2008 is $2,000. During 2008, the IRA earned $400 in dividend income and you withdrew $600 from the account. As a result, at the end of 2008 the value of your IRA was $1,800 ($2,000 contributed plus $400 dividends minus $600 withdrawal). You compute and report the taxable portion of your $600 withdrawal and your remaining basis on Form 8606, Nondeductible IRA.

In 2009, the year you retired, your IRA lost $500 in value. At the end of 2009, your IRA balance was $1,300 ($1,800 balance at the end of 2008 minus the $500 loss). Your remaining basis at that time in your IRA is $1,500 ($2,000 nondeductible contributions minus the $500 basis in the prior withdrawal). You withdraw the $1,300 balance remaining in the IRA. You can claim a loss of $200 (your $1,500 basis minus the $1,300 withdrawn) on Form 1040, Schedule A. The allowable loss is further subject to the two percent adjusted gross income (AGI) floor on miscellaneous itemized deductions.

If you made significant nondeductible contributions to an IRA over the last few years, and may be considering withdrawing the entire balance in all of your traditional IRAs before the end of the year in order to recognize a loss, keep in mind doing so will mean losing the opportunity to defer gain if the value of your investments in the accounts increases. Those withdrawn amounts cannot be recontributed at a later date.

Roth IRA losses

When you experience losses on Roth IRA investments, you can only recognize the loss for income tax purposes, if and when all the amounts in the Roth IRA accounts have been distributed and the total distributions are less than your basis (e.g. regular and conversion contributions).

To report a loss in a Roth IRA, all the investments held in your Roth IRA (but not traditional IRAs) must be liquidated. Moreover, the loss is an ordinary loss for income tax purposes, not a capital loss, and can only be claimed as a miscellaneous itemized deduction subject to the two percent of AGI floor that applies to miscellaneous itemized deductions on Form 1040, Schedule A.

Since all Roth IRAs must be completely liquidated to generate a loss deduction, it generally provides only a small comfort to investments gone sour. Closing all your Roth IRAs generally forgoes future appreciation on that amount.

You may have done some spring cleaning and found that you have a lot of clothes that you no longer wear or want, and would like to donate to charity. Used clothing that you want to donate to charity and take a charitable deduction for, however, is subject to a few rules and requirements.

Under IRS guidelines, clothing, furniture, and other household items must be in good used condition or better, to be deductible. Shirts with stains or pants with frayed hems just won't cut it. Furthermore, if the item(s) of used clothing are not in good used condition or better, and you wish to deduct more than $500 for a single piece of clothing, the IRS requires a professional appraisal.

For donations of less than $250, you must obtain a receipt from the charity, reflecting the donor's name, date and location of the contribution, and a reasonably detailed description of the donation. It is your responsibility to obtain this written acknowledgement of your donation.

Used clothing contributions worth more than $500

If you are deducting more than $500 with respect to one piece of used clothing you donate, you must file Form 8283, Noncash Charitable Contributions, with the IRS. For donated items of used clothing worth more than $500 each, you must attach a qualified appraisal report is to your tax return. The Form 8283 asks you to include information such as the date you acquired the item(s) and how you acquired the item(s) (for example, were the clothes a holiday gift or did you buy the items at the store).

Determining the fair market value of used clothing

You may also need to include the method you used to determine the value of the used clothing. According to the IRS, the valuation of used clothing does not necessarily lend itself to the use of fixed formulas or methods. Typically, the value of used clothing that you donate, is going to be much less than you when first paid for the item. A rule of thumb, is that for items such as used clothing, fair market value is generally the price at which buyers of used items pay for used clothing in consignment or thrift stores, such as the Salvation Army.

To substantiate your deduction, ask for a receipt from the donor that attests to the fact that the clothing you donated with in good, used condition, or better. Moreover, you may want to take pictures of the clothing.

If you need have questions about valuing and substantiating your charitable donations, please contact our office.

Employers commonly use per-diem allowance arrangements to reimburse employees for business expenses incurred while traveling away from home on business. Each year, the IRS publishes per-diem rates for travel within the continental U.S. The per-diem rates for meals, lodging and incidental expenses can be used instead of using your actual expenses. There are two approved methods for substantiating your per-diem expenses, including the "high-low" method (found in IRS Publication 1542). This article is intended to help you calculate your per-diem travel expenses under the "high-low" method.

What is required under a per-diem plan?

Per diems require only that your employee substantiate the time, place, and business purpose of these expenses. When you use the "high-low" method for calculating the per-diem rate allowance, your expenses under this method will be deemed substantiated as long as it does not exceed IRS-established federal per diem rates for two categories:

1. Lodging; and

2. Meals.

The federal per-diem rates for these two categories are listed in IRS Publication 1542.

The high-low method

As mentioned, one of the two approved methods for using the per-diem rates is the "high-low" method. The high-low method is a simplified method for figuring your lodging, meals and incidental expenses. This method requires employers to use only two per-diem rates to reimburse employee travel expenses--one for high-cost locations and one for low-cost locations. For 2009, the per-diem rate for travel to a "high-cost" locality is $296 ($198 for lodging and $58 for meals and incidental expenses). The 2009 per-diem rate for travel to "low-cost" areas is $158 ($113 for lodging and $45 for meals and incidental expenses).

Under the high-low method, there are a significant number of localities (published n Publication 1542) that qualify for a "high" 2009 per diem rate of $296. Any locality not listed as "high" is automatically considered "low cost" and qualifies for a per diem rate of $158. The federal per-diem rates are deemed substantiated as long as they do not exceed the high or low cost set by the IRS for the area.

While the past year has not been stellar for most investors, the tax law in many instances can step in to help salvage some of your losses by offsetting both present and future taxable gains and other income. Knowing how net capital gains and losses are computed, and how carryover capital losses may be used to maximum tax advantage, should form an important part of an investor's portfolio management program during these challenging times.

Net capital losses

Capital assets yield short-term gains or losses if the holding period is one year or less, and long-term gains or losses if the holding period exceeds one year. The excess of net long-term gains over net short-term losses is net capital gain.

Short-term capital losses, including short-term capital loss carryovers, are applied first against short-term capital gains. If the losses exceed the gains the net short-term capital loss is applied first against any net long-term capital gain from the 28-percent group (collectibles), then against the 25-percent group (recapture property), and last against the 15- (or zero) percent group. Long-term capital losses are similarly netted and then applied against the most highly taxed net gains that a taxpayer has.

If an investor's capital losses exceed capital gains for the year, he or she may offset losses against ordinary income to the extent of the lesser of: the excess capital loss; or $3,000 ($1,500 for married persons filing separate returns). Although several bills have been introduced to raise these dollar levels, which have not been adjusted for inflation for decades, none has yet to see the light of day.

Carryovers

Individuals may carry net capital losses to future tax years but not back to prior years. There is no limit on the number of years to which net capital losses may be carried over as there is with corporate taxpayers. Short-term and long-term capital losses are carried forward and retain their character. Capital loss carryovers that originate in several years are applied in the order in which incurred.

Dividend offsets. While qualified dividends are taxed at the net capital gains rate, they do not take part in the general computation of net capital gains and, therefore, are not reduced by capital losses, either in the same year or in carried forward years. Although your overall portfolio may have experienced a loss for the year, you must still pay tax on your dividend income.

If you need any advice on how to structure your portfolio over the next year to take advantage of current losses while protecting future gains from as much income tax as possible, please do not hesitate to call this office.