Health Care Reform:
In March, President Obama signed comprehensive health care reform legislation (the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act). The health care reform package does not mandate employer-provided coverage but beginning in 2014 large employers that do not offer coverage will pay a penalty. Large employers that offer coverage but the coverage fails to meet minimum essential standards will also pay a penalty. Tax credits for small employers are available immediately for 2010 tax years. Individuals must obtain minimum essential coverage after 2013 unless they are treated as exempt; otherwise they will pay a penalty. Starting in 2013, the new law broadens the Medicare tax base for higher income taxpayers, including amounts paid on investment income and, after 2017, imposes an excise tax on high-dollar health insurance plans.

HIRE Act:
President Obama signed the Hiring Incentives to Restore Employment (HIRE) Act in March, providing businesses with payroll tax relief, a worker retention tax credit and enhanced Code Sec. 179 expensing. Payroll tax forgiveness applies to wages paid to covered workers who are on the employer's payroll after March 18, 2010 and before January 1, 2011. The covered employee must begin employment after February 3, 2010 and before January 1, 2011. The HIRE Act also allows employers to claim a worker retention credit for qualified employees.

Estate Tax:
The federal estate tax does not apply to decedents dying after December 31, 2009 and before January 1, 2011. Also, beginning in 2010, the stepped up basis at death rules are replaced with modified carryover basis at death rules applicable to estates holding assets with unrealized capital gains of more than $1.3 million. In December 2009, the House passed the Permanent Estate Tax Relief Act, which would permanently extend the top federal estate tax rate of 45 percent with a $3.5 million exclusion ($7 million for married couples). The Senate, however, has failed to take up the House bill. Some action this year is expected.

Homebuyer Credit:
In January, the IRS issued an updated version of Form 5405, First-Time Homebuyer Credit and Repayment of the Credit. Because of documentation requirements for claiming the credit, taxpayers who claim the credit on their 2009 return must file a paper return and attach Form 5405 and a properly executed copy of a settlement statement used to complete the purchase. The IRS noted that settlement documents can vary from one location to another. For a newly constructed home where a settlement statement is unavailable, a copy of the certificate of occupancy generally will be accepted, the IRS advised.   

Audit Rates:
IRS statistics released in March indicate that the examination rate for individual taxpayers between FY 2008 and FY 2009 remained generally static at an overall audit rate of one percent for individuals. The audit rate was 1.86 percent for taxpayers with adjusted gross incomes (AGI) between $200,000 and $500,000 and 5.35 percent for taxpayers with AGI between $1 million and $5 million.

Housing Allowances:
The IRS issued its table of adjusted limitations in March on housing expenses for 2010, adding new foreign locations and slightly raising the housing allowance for most locations. Code Sec. 911 allows U.S. taxpayers living abroad to exclude their foreign earned income and housing costs from gross income. The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) allows the IRS to adjust the standard formula limitation for determining the amount of employer-paid housing excluded from foreign earned income, based on geographic differences in housing costs relative to housing costs in the U.S.

Return Preparers:
The IRS announced in January the results of a study of its oversight of tax return preparers. All paid signing preparers will be required to register with the IRS. Unenrolled preparers will be required to successfully complete continuing education classes and competency testing.