Tax Update Seminars Keep CPAs Informed
Changes in New York State, Federal Taxation Featured

By Stephanie R. Myers

New York state tax updates and federal tax updates were the name of the game at the Strategic Planning for Your High-Net-Worth Clients Conference, held July 26 at the New York Helmsley Hotel in Manhattan.

Mark Klein, partner at Hodgson Russ LLP, spoke about New York state tax updates.

“One of the biggest issues raised is that New York seems a bit schizophrenic when it comes to tax law,” Klein said.

Klein discussed investment tax credits for banks and insurance companies for qualified property placed in service between Jan. 1, 2002, and Oct. 1, 2008. The credit, Klein said, applies to the activities of the bank or insurance company acting as a broker or dealer in connection with the purchase or sale of stocks, bonds or other activities, or other commodities, or in lending, loan arrangement or loan origination services.

He also discussed S corporations/LLCs and noted that taxpayers must be diligent in making a New York state S election on their form. If a federal S corporation is doing business in New York, Klein said, it has to elect New York S status; otherwise, it is a New York C corporation.

Also, rules regarding withholding taxes in New York state (and, separately, New York City taxes) have become stricter, Klein said.

New withholding tax audit guidelines were issued on April 5, 2005, and “New York is looking very aggressively at companies” to enforce them, Klein said.

Klein also emphasized the importance of paying attention to domicile regulations when it comes to how individuals are taxed. Residency audit guidelines, Klein said, look at the following factors when they audit: housing, business ties, “near and dear,” and time. He added that within an audit, auditors will look at active business connections and home versus business time to determine where the client spends most of her time. With the use of the “near and dear” rule, Klein said, the auditors will check to see where a client keeps most of her possessions.

New York Gov. George Pataki, Klein added, has not extended the 2003 personal income tax surcharge past 2005.

“The surcharge will sunset at the end of this year,” Klein said.

Klein also covered New York state and New York City resident taxes. In the past, Klein said, there has been confusion regarding what constitutes a New York resident who is eligible to be taxed as such. But if an individual works—or is determined to be living—in New York for more than 183 days of the year, they will have to “pay tax on everything,” Klein said.

Resident trusts are also coming under new guidelines, Klein said. Resident trusts won’t be subjected to tax if all of the trustees are domiciled outside of New York state, the entire corpus of the trust is located outside of New York state and all income and gains of the trust are derived from or connected with non–New York state sources.

Robert Katz presented the Federal Tax Update segment, which covered everything from tax rates to the Working Family Tax Relief Act of 2004 and the new definition of a qualifying child.

Katz also spoke about the Bankruptcy Abuse and Consumer Protection Act, which allows a $1 million bankruptcy exemption for IRA accounts. The Supreme Court, Katz said, held in April 2005 that the Federal Bankruptcy Exemption applies to IRAs. Before this ruling, bankruptcy exemptions weren’t uniform.

“(In the past), the status of the protection afforded an IRA account depended on which state you lived in,” Katz said.

Katz also talked about the deduction for U.S. manufacturing activities. The maximum deduction, Katz said, is 9% for income from domestic production activities and is phased in over five years.

Charity deductions also have new directives. For taxpayers who donated a car to charity, Katz said, there are new regulations in place for claiming value.

Katz said that a taxpayer cannot use the value from a car pricing book when claiming the car donation. What typically happens, he said, is that a charity will sell the car at an auction through a third party. The price that the automobile fetches there is the price that can be claimed for a charitable deduction.

The conference was sponsored by the NYSSCPA’s Taxation of Individuals Committee, which is chaired by Alan Dlugash. The conference was cochaired by William Henry Jones, Stephanie Keating and Israel Keller.

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