CCH can assist you with stories, including interviews with CCH subject experts. Also, the 2007
CCH Whole Ball of Tax is available in print. Please contact:
 
Leslie Bonacum
(847) 267-7153
mediahelp@cch.com
 
Neil Allen
(847) 267-2179
neil.allen@wolterskluwer.com

Link to special CCH Tax Briefings on key topics from 2006:
 

• Tax Increase Prevention and Reconciliation Act
  
  
• Pension Protection Act of 2006
  
  
• Tax Relief and Health Care Act of 2006
  

Taxpayers Beware: 2006 Brought Many Tax Changes

(RIVERWOODS, ILL., January 2007) – Although the word “stalemate” was used time and time again to describe attempts at passing tax legislation last year, 2006 nevertheless produced a large crop of tax changes, according to CCH, a Wolters Kluwer business and a leading provider of tax and accounting law information, software and services (CCHGroup.com). Some eight acts, with over 500 amendments to the Internal Revenue Code, were signed into law.

“Many big issues, such as the fate of the estate tax and the extension of current rates beyond 2010, were not addressed,” said Mark Luscombe, JD, LLM, CPA and principal federal tax analyst for CCH. “Other issues were addressed but for a year or two only, and will have to be revisited or else they will fall back out of the tax code.”

Nevertheless, individuals and their tax advisors will be hard pressed to keep track of all the changes that did find their way into law. Here are the highlights of 2006 tax legislation that affect individuals:

• The alternative minimum tax (AMT) exemption amounts for 2006 were increased to $62,550 for joint filers and $42,250 for single taxpayers. But as things stand today, the exemptions for 2007 will fall back to the levels of seven years ago: $45,000 for joint filers and surviving spouses; $33,750 for single taxpayers.
• A provision allowing nonrefundable credits (except for the new alternative fuel vehicle credits) to be claimed against the AMT was extended for 2006.
• Members of the military will be able to count combat pay as “earned income” for the purposes of earned income credit and eligibility for making IRA contributions.
• Members of the military can also take advantage of favorable rules for hardship withdrawals from 401(k) and similar plans.
• The Code Sec. 179 small business expensing election has been extended for 2006 and 2007.
• Income limits on eligibility to convert from an IRA to a Roth IRA will disappear as of 2010.
• The age for taxation of passive income of minors at their parents' rate has been increased to minors under age 18.
• For charitable deduction purposes, substantiation via bank records or written statements from the donee organization are required for all cash contributions beginning in 2007.
• For donations of used clothing and household goods, the items generally must be in “good used condition” or better to qualify for deductibility beginning August 17, 2006.
• Those 70 ½ years old and older can make tax-free distributions from IRAs for charitable purposes – in 2006 and 2007 only.
• The rules allowing for Sec. 529 qualified tuition programs have been made permanent.
• The pension and IRA provisions of current tax law, which were to “sunset” in 2011, were made permanent.
• The saver’s credit, initially set to expire after 2006, was made permanent.
• The reduced rates on dividends and capital gains (15 percent and 0 percent) have been extended through 2010.
• Offers-in-compromise requirements have been tightened.
• Several modifications to the foreign earned income and employer-provided housing exclusion rules will take affect for U.S. citizens living abroad.
• Changes in the alternative minimum tax calculation of the refundable credit amount may benefit people who paid alternative tax due to stock options.
• A new deduction, treating mortgage insurance premiums as mortgage interest, has been created for 2007 only.
• Penalties for frivolous returns have been increased.
• A program permitting states to subsidize mortgages for first-time homeowners has been expanded to include veterans who have previously bought homes.
• As a result of a court case, taxpayers can recoup some of the federal telephone tax they’ve paid since February, 2003 in the form of a credit or refund on their 2006 returns.

Too Late for the Printer

Three expired deductions affecting individuals were retroactively reinstated for 2006 and extended for 2007: the state and local sales tax deduction; the above-the-line deduction for higher education tuition and fees; and the above-the-line deduction for out-of-pocket teachers’ expenses. Unfortunately, by the time the law passed, tax forms and instructions had already been sent to the printer, without any provision for them. Here’s how to claim them:

• For the State and Local Sales Tax Deduction: Enter “ST” on the dotted line to the left of line 5, “State and local income taxes,” on Schedule A (Form 1040);
• For the Higher Education Tuition and Fees Deduction:Enter “T” on the dotted line to the left of line 35, “Domestic production activities deduction” on Form 1040; except if claiming both the tuition and the domestic production activities deduction, enter “B” and attach a breakdown showing the amounts claimed for each deduction.
• For the Educator Expense Adjustment to Income: Enter “E” on the dotted line to the left of line 23, “Archer MSA Deduction,” on Form 1040 (not Form 1040A); except if claiming both an Archer MSA deduction and the educator deduction, enter “B” and attach a breakdown showing the amounts claimed for each deduction.

“Stalemate” in 2007?

“Stalemate” is a word that may be frequently used again in 2007 to describe the prospects for tax legislation. Democrats have indicated an interest in a “permanent” solution to the alternative minimum tax and a return to a “pay-as-you-go” approach to spending and taxes. “Paying” for an end to the alternative minimum tax would be costly, and might endanger some of the tax cuts of the Bush administration.

“Democrats now control both houses of Congress, but their hold on the Senate is a slim one, and the President holds the veto pen,” Luscombe noted. “This means that compromise will probably be necessary to get anything significant enacted into law.”

About CCH, a Wolters Kluwer business

CCH, a Wolters Kluwer business (CCHGroup.com) is a leading provider of tax and accounting law information, software and services. It has served tax, accounting and business professionals and their clients since 1913. Among its market-leading products are The ProSystem fx® Office, CCH® Tax Research Network™, Accounting Research Manager® and the U.S. Master Tax Guide®. CCH is based in Riverwoods, Ill.

Wolters Kluwer is a leading global information services and publishing company. The company provides products and services for professionals in the health, tax, accounting, corporate, financial services, legal and regulatory, and education sectors. Wolters Kluwer has annual revenues (2005) of €3.4 billion, employs approximately 18,400 people worldwide and maintains operations across Europe, North America, and Asia Pacific. Wolters Kluwer is headquartered in Amsterdam, the Netherlands. Its shares are quoted on the Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. For more information, visit www.wolterskluwer.com.

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