Money Matters: Taxation committee looks at household debt

By James W. Rahmlow The Daily Record Newswire In conjunction with an economic analysis of various portions of the Internal Revenue Code, the Joint Committee on Taxation looked at various aspects of business debt and household debt. The household debt portion was in conjunction with an analysis of the home mortgage interest deduction taken by taxpayers on Schedule A as an itemized deduction. For these purposes, household debt included primarily the home mortgage debt but also consumer credit. Putting substance to the belief that the American consumer is overleveraged, the Joint Committee on Taxation indicated that the ratio of total credit market debt outstanding in the household sector to disposable personal income is roughly 20 percent higher in 2010 than 2000, 40 percent higher than in 1990 and twice the level that existed in 1960. Applicable Federal Interest Rates for 2011 -- (Rev. Rul. 2011-16) These rates won't be low forever, but they remain at unusually low levels for August 2011 according to Revenue Ruling 2011-16. Below is a summary of the monthly rates. Short- term Mid- term Long- term Applicable 0.32 % 1.88 % 3.79 % Federal Rates (AFR) Adjusted 0.44 % 1.60 % 3.75 % AFRs Tax Scams -- (IR-2011-73) The IRS often has publicized tax scams in or around early April to alert taxpayers of potential problem situations in connection with the filing of their personal tax returns. In light of the increase in tax scams, the IRS has recently issued an informational release attempting to expose a number of programs that often target lower-income individuals and senior citizens. Directly from the IRS website at www.irs.gov, here is a listing of those scams: 1. Fictitious claims for refunds or rebates based on excess or withheld Social Security Benefits; 2. Claims that Treasury Form 1080 can be used to transfer funds from the Social Security Administration to the IRS enabling a payout from the IRS. 3. Unfamiliar for-profit tax services teaming up with local churches; 4. Home-made flyers and brochures implying credits or refunds are available without proof of eligibility; 5. Offers of free money with no documentation required; 6. Promises of refunds for "Low Income -- No Documents Tax Returns"; 7. Claims for the expired Economic Recovery Credit Program or Recovery Rebate Credit; and 8. Advice on claiming the Earned Income Tax Credit based on exaggerated reports of self-employment income. Certain Payments for Dementia Related Long-Term Care are Deductible -- (Estate of Baral, 137 T.C. No. 1) In a recent tax court case, it was determined that amounts paid for long-term care of an elderly individual with dementia were deductible under Code Sec 7702B(c). While the care was provided under a doctor's plan of care, the interesting consideration here was that the caregivers were not licensed healthcare providers. In general, expenses that benefit an individual's general health and well-being, even including housekeeping as recommended by a doctor, are not deductible. In the case at hand, an elderly person was diagnosed by a doctor with dementia. Because of the severity of the illness, she required assistance and supervision 24 hours a day both for her safety and for medical reasons. The individuals (who were not related to her) provided a variety of care including trips to doctor, medications and wheelchair use as well as bathing and dressing. The court held that while the caregivers were not licensed healthcare givers and the payments were not made to treat a disease, the fact that the doctor diagnosed her with severe dementia determined that she needed 24-hour-a-day care. The caregivers provided the services indicated by the doctor and thus the long term care services were deductible as an itemized deduction on Schedule A. Taxpayers with questions may go to the IRS website, call the IRS toll-free at 1 (800) 829-1040 or visit the nearest IRS Taxpayer Assistance Center. Internal Revenue Service Fresh Start Initiative Information for the Internal Revenue Services' Fresh Start Program, which was announced on Feb. 24, by the Internal Revenue Service commissioner, has been updated on the IRS website (search "fresh start"). A key consideration of the Fresh Start program is that it doubles the lien filing threshold from $5,000 to $10,000. The IRS has not eliminated the ability to file a lien of less than $10,000, but certain circumstances would have to be in play for that to happen. Once the lien has been released and a taxpayer wants confirmation of such, the taxpayer must request the withdrawal in writing on form 12277 Application for Federal Tax Lien Withdrawl. Increased Mileage Rates for the Second Half of 2011 To reflect the increased gas prices that are hitting the economy, the IRS has announced in an informational release (IR-2011-69) that the 2011 optional mileage rates that were set last year will increase effective July 1 through Dec. 31 unless they are changed further. First, the standard business mileage rate, which was at 51 cents per mile, has been increased to 55.5 cents per mile. The medical and moving standard mileage rate has been increased to 23.5 cents per mile from its previous standard maximum of 19 cents per mile. The charitable standard mileage rate remains at 14 cents per mile, the same amount as for the first half of 2011. Currently the standard business mileage rate is available to business that has less than five automobiles owned or leased. The IRS is evaluating whether to retain this exception. ---------- James W. Rahmlow, a certified public accountant, is a partner with Mengel, Metzger, Barr & Co. He can be contacted at jrahmlow@mmb-co.com. Published: Tue, Aug 2, 2011