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IRS Revenue Procedure 2011-14 Energy efficiency and claiming the 179D deduction

The 179D tax deduction came about as part of the Energy Policy Act of 2005 (EPAct). Congress wanted to incentivize the utilization of energy-efficiency components in a building to one of the following parties:

1.The owner of the building
2.The tenant
3.The primary designer of an energy-efficient government building. (Architect, engineer, contractor etc.)

The deduction available is up to $.60 per sq./ft. for lighting, HVAC and building envelope, creating potential for $1.80 per sq./ft. if all three components qualify. These deductions are applicable to buildings that were either built or retrofitted after 12/31/2005.

Since EPAct came into effect, the IRS has provided interim guidance on EPAct deductions through several additional notices. IRS Notice 2006-52 describes in detail the rules and how to ensure a building qualifies if it was a new build or a retrofit. It requires the taxpayer to obtain certification that the property satisfies the energy efficiency requirements of 179D and specifies the software that must be used to calculate energy and power consumption. To further the cause, the IRS issued Notice 2008-40, which allowed a government building (non-taxpaying entity) to pass the deduction to the “primary designer” of the qualifying assets.

Until recently, taxpayers looking to claim the 179D deduction were limited by the three year statute of limitations for filing amended income tax returns for a particular tax year. That has changed with the issuance of Revenue Procedure 2011-14, which will allow some taxpayers to bypass this statute of limitations and claim this deduction all the way back to 1/1/2006 without filing one single amended income tax return. Taxpayers who wish to take the deduction without amending any returns will file a Form 3115 (Application for Change in Accounting Method) and will get to take the entire “catch up” deduction on the return that is being filed. This means that a taxpayer could potentially claim deductions from 2006-2010 (or 2011) all on one return and significantly reduce their tax burden, if not eliminate it altogether.

Deciding whether or not to amend returns or file for a Change in Accounting Method (Form 3115) is entirely dependent upon each taxpayers situation. If taxable income was higher in open years and therefore the taxpayer was in a higher tax bracket, it still may make sense to amend those returns. The impact of Revenue Procedure 2011-14 will also depend on whether or not any deductions have already been claimed or returns have been amended. A thorough analysis of each taxpayers scenario by an advisor experienced in 179D is advantageous to determining the best approach and claiming the maximum deduction allowed under the law.

Capital Review Group Publishes White Papers On Tax Savings And Energy Efficiency Incentives

Phoenix, AZ Phoenix-based consulting firm, Capital Review Group (CRG), has released a series of white papers designed to help educate business owners and accounting professionals on some of CRGs most sought after service offerings. White paper titles include:

Benefits of the Cost Segregation Study for Commercial Property Owners
Are you Ready to Take Advantage of the New Green Tax Incentives for Commercial Property Owners?
When is an Energy Audit Indicated?
Passive Activity and Cost Segregation

CRG Founder, Marky Moore, says that the White Papers offer valuable insights into the specialized work that CRG does for their clients. This is an area of growing interest for commercial property and business owners, says Moore. We want to give interested individuals more information on tax savings and incentives they could be applying, as well as how CRG develops strategies – with them- to maximize savings and apply discovered capital to high-value energy projects.

Combining expertise in areas of engineering, architecture, and IRS methodology, CRG is an innovator in identifying tax effects that create dramatic financial advantages for clients, as well as maximizing the positive impact of energy efficiency projects. Moore says, Many business owners, non-profit organizations and even builders and designers have limited knowledge of how to wade through complicated tax codes and develop strategies that combine energy efficiency, tax savings and future financial planning.
Moore hopes that by downloading the new white papers, interested parties will start to gain an understanding of the scope of the potential savings available to them, as well as ways they may experience an enhanced return on investment in energy efficiency projects. We are really hoping to generate some excitement by making this information available, Moore says. We want to build awareness of the kinds of dramatic financial advantages that are possible using our services, as well as the positive impact energy strategies can have on businesses and facilities.
Capital Review Group is a specialized consulting firm combining facility engineering with tax accounting to discover and develop high-value projects related to energy efficiency and Capital Discovery solutions for government, commercial and not-for-profit facilities. The companys team of professionals has a thorough understanding of
green tax incentives, energy tax credit deductions, IRS compliance regulations and energy strategies, including renewables. CRG offers 179d analysis and financial recommendations for energy-related federal tax incentives, as well as providing the required third-party certification to claim those deductions.

Most of CRG’s services begin with a preliminary review and analysis at no cost to clients. For more information, visit Life Support for the Goose

The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.” Jean Baptiste Colbert

You’ve heard about the goose that lays the golden eggs? You know, the eggs we’ve been spending faster than they’ve been appearing for the past forty years.

Birds and eggs aside, real wealth rises from our ability and willingness as a country and a people to create genuinely useful products, adding to the general prosperity. Wealth creation has been having a bad day for the last forty years, and we’ve finally gotten to the point where it’s on the endangered species list. Insufficient wealth creation means a dim future for us all.

America was built on some basic ideas, a number of which were intended to facilitate wealth creation, and thus a prosperous society. For example, the idea that you should be able to own or have things without them being taken away arbitrarily. The idea that you should be able to have and enjoy the results of your hard work. The idea that people could be free and could govern themselves. The idea that the role of government should be limited, and mostly oriented toward supporting those things which facilitate a free and prosperous society. These are all part of the American tradition which allowed those geese to lay all those wonderful golden eggs, the same geese now on life support.

Certainly you’ve noticed oddities in the financial world recently, such as unfathomable sums of “new money” created out of thin air and added to the national debt in what was promoted as an attempt to hold off a collapse of the banking system. There’s also the utter bankruptcy of many state and local governments, California being a prime example. I’ve mentioned and commented about these things before. Here’s a new one; a recent report from the trustees of the Social Security system reveals that total federal income and payroll taxes will need to almost double, and do it now, in order to pay for all the promises we’ve made with the Social Security system. Doubling all income and payroll taxes now.

It’s painfully obvious that tax revenues are going to have to increase mightily to even begin to come close to covering the debt we’ve created. Well, that introduces a couple of problems. For one, income taxation, especially heavy income taxation, tends to drive profitable productive activities out of business. Anyone doubtful can look at what happened to the industrial base of this country, most recently exemplified by GM and Chrysler. They couldn’t afford to run their plants, pay their staff, provide a decent return to their shareholders, pay their corporate income taxes and invest heavily in new facilities, new technologies, and such. The money which a successful business would have used to replace old facilities or invest in new facilities or technologies went to tax. Thus, we got stuck with old plants and old technologies which could not compete on the world stage, and which have now been, or are being, abandoned. We have a whole wide area of America that used to be alive and vital but is gradually turning into an economic desert where the only remaining jobs are low paid, or in the “health care” (actually sick care) business. Look at Detroit, or any of the other manufacturing centers of the Northeast or Midwest; we’re changing from a nation that was the engine of the world to a nation of enfeebled, drug-using hypochondriacs who depend on the reserves of foreigners to sustain our lifestyles.

Another unhappy fact is that most folks really don’t want their taxes to double, and might even revolt if this were done. So your representatives are working hard to find a way to get more juicy revenue without having to raise your taxes too much, or too obviously. How to do this? Well, they’re starting to implement something similar to “sin taxes,” except that we’ll all be sinners now. The general idea is to impose a heavy, complex, and convoluted tax structure, then penalize anyone who fails to comply with some dark corner of this sticky mess. The PR idea is that you can assess these heavy penalties because, after all, that person failed to comply with the law. That’s the sin; failing to comply. Of course, the fact that it’s incredibly difficult to comply with every single rule out there is overlooked. So, the government gets to raise lots of new revenue in the form of penalties and interest on the penalties (and penalties on the penalties, and interest on the penalties on the penalties, ad nauseam). Even better, if anyone protests, they can trot out their spokesmen to talk about stamping out the “underground economy,” making sure that everyone pays their fair share, and so forth. After all, they say, you were wrong; you failed to comply; you deserved to be penalized.
Unfortunately, if you penalize the goose too heavily, take away too much of its feed, pluck too many of those feathers, the goose may just roll over and give up. Without some help, the future looks dim.

We handle a lot of tax audits, and that’s how we observe things going. Would you be willing to state that you understand all the laws, regulations, rulings, procedures, and doctrines of tax law as it has to do with you and have applied them in full? Anyone? Well then, I guess you deserve to be penalized. Once the IRS contacts you, you may find yourself answering questions like, “How does total penalties equal to 50% of your total tax burden sound? If you don’t like that, maybe 75% would be more like it….” Believe it or not, your government, in its haste to raise revenue, is taking on the color of an enemy.

How You Can Protect Yourself

The news is not all bad. Fortunately, this tax system is built on a foundation laid many years ago, back when ideas like fairness, due process under law, and protecting the rights of each citizen were given more than just lip service. As such, there are protections imbedded in the system that you can use if you know about them and know how to use them.

While there’s way too much tax law (and regulation, and case law, and doctrine, and procedures) to expect any one citizen/goose to actually know, there are some basic principles which you should always follow, because if you do, it puts you in a position where you can take advantage of those protections. To the degree you don’t do these things, you open yourself up to trouble as regards taxes, interest, penalties, interest on penalties, penalties on interest….oops, sorry. You open yourself up to getting a really huge bill from IRS.

Here’s what you must do.

File your tax returns on time. “On time” is considered to include valid extensions. But don’t forget to file or extend, because the penalty for late filing gets really big, really fast. And don’t blow off filing just because you don’t have the money to pay. The penalty for late filing is ten times as high as the penalty for late payment. We can almost always work out some sort of payment arrangement, but a late return is usually not fixable.

Always report any and all your income, whether reported to you or not. Even if the report is incorrect, it can be corrected on the tax return. The IRS computer system is set up to crosscheck all income reported to your social security number from all sources against your tax return. Any errors or omissions on the return start a ball rolling which will probably end up costing you money to handle or pay or both. Also, if you omit substantial amounts of income, or even worse, omit income with bad intent, you lose much of the protection offered by the statute of limitations.

Be able to document it all. Keep your records. Keep those bank statements, copies of canceled checks, credit card bills, and so forth. Make sure your records can be clearly understood by someone other than yourself. One of the interesting characteristics of this tax system is that the IRS is presumed correct in its determinations unless you can prove them wrong. Get that? Whatever they say, no matter how outrageous, is right unless you can prove it wrong. And the word “prove” in that use means just exactly that. It doesn’t mean “say” or even “say really sincerely” or even “show.” It means prove with clear and convincing evidence. Oh, and your word isn’t worth much as evidence because citizens, well, have been known to lie when it comes to taxes. Only documents really count, and they have to show pretty clearly what happened.

Not all expenses were created equal. Some expenses, the sort that people actually like to spend money on, require more documentation than usual. The most notable examples are use of a vehicle for business, travel expenses, meal or entertainment expenses, and charitable donations. For vehicle use, you have to be able to show the total number of miles driven in a year, and of these, how many were related to business. That’s all. A day book or computer calendar program showing the number of business miles driven daily is adequate to prove business mileage. For business travel, be able to show that the primary purpose of the trip was for business. If you travel in the U.S. that, and the proof of the expense itself, is all you need to show to make the travel expenses deductible. With meals and entertainment expenses, you have to be able to show not only proof of the expense, but also who you saw and what business was discussed. For charitable donations, you need an annual acknowledgment letter or statement or receipt from the recipient organization. A canceled check or credit card bill alone is not enough for donations. Donations for which some return benefit was received (like a service, or participation in a golf tournament, or a fundraising dinner) require a special kind of letter. Without all this extra data, these kind of expenses can be disallowed.

Keep the sort of records the IRS expects from you. If you have or run a business, the presumption is that you’re going to be a bit more professional in your record keeping than Joe Average. In fact, they might even expect you to keep “books.” If you don’t know how to keep books, get a decent bookkeeper, or get some help sorting it out. Lack of adequate records (or poorly kept records) is probably the single largest reason folks lose tax cases.

Don’t ignore mail from the tax man. They are required to give you warning before taking certain (unfriendly) actions. If you ignore the warnings, bad things can happen. Tax collectors in this society are very powerful and can take almost everything you have if you give them a reason, so don’t. If you don’t know what to do about the notices, get a competent professional to assist. They can help you navigate through the situation.

Don’t lie or cheat on your tax returns. It’s one thing to take a position in good faith which might be controversial, it’s another to just lie. It’s the 21st century, and they have ways. Lying or cheating might work for a while, but sooner or later you might get “that” notice in the mail, and your life goes to hell.

Don’t try to hide, they have computers. It might work for a while, but there’s a good chance they’ll catch up, and when they do….

Don’t wait until it’s too late. Don’t show up at your tax advisor’s office urgently seeking help the day before a deadline. Tax agencies are notoriously slow to respond to communication, and you might not have time to do what’s needed and get the government to notice that before your assets start disappearing (or even worse, criminal charges start appearing). Sometimes it just takes time to get your data and strategy together and to get the government to understand that you really want to comply. Try to get the jump on a tax problem before it jumps on you.

Don’t try to resolve any but the simplest of tax issues with tax agencies on your own. I hate to say it, but sometimes tax agencies seem to attract and hold onto the antisocial as personnel. There’s nothing some of these boys like better than to rip up a defenseless citizen who doesn’t know the rules of the game. There are lots and lots (and lots) of rules (some of which make great traps for the unwary), so be willing to get and pay for a competent professional to represent you and your interests if the situation goes anywhere past “easy.”

Not all tax professionals are the same. There are all sorts out there just plain (unenrolled) tax preparers, CPAs (certified public accountants), enrolled agents, tax attorneys. Each tends to specialize in something different (with exceptions, of course). The level of experience of any one practitioner can also make a huge difference. Tax law is ungodly complicated, and it takes years to get to know it passably well. Unenrolled preparers are at their best doing simple tax returns cheaply. CPAs are accountants, which is not the same as tax experts. They tend to specialize in handling books and financial statements, and do taxes as an “add-on.” Tax attorneys litigate, meaning they handle cases in court, or those which might end up in court. Enrolled agents tend to prepare somewhat more complex returns and handle the nuts and bolts of everyday representation before tax agencies (tax audits, collections, and such). They do nothing but taxes and work with tax agencies on a daily basis, and they tend to be the most experienced when it comes to knowing the ins and outs of dealing with tax agencies. Having said all this, every person is different. It’s up to you to size up what you need and see who’s right for the job.

The IRS is not always right. Our office sees lots of notices sent to taxpayers that are just plain wrong. Also, lots of times tax auditors will take stupid or aggressive positions on things because their bosses are pushing them to raise revenue. When these things happen, a firm and competent defense is needed to preserve your interests; otherwise, you’ll get run over by the bureaucracy. This principle also applies to what goes on a tax return. Sometimes, tax law is unclear as regards how it applies to a particular set of facts or circumstances. You could be justified in taking a position that the IRS might not agree with. However, it’s part of the job of your tax preparer to analyze and evaluate the position and advise you accordingly. Assuming the position is not frivolous and has a reasonable chance of success, the final decision is yours.

Don’t mess with payroll taxes. If you’re an employer, or in a position of responsibility for an employer, make sure the payroll taxes are paid. These things do not go away, are collected ruthlessly, and can be assessed personally against anyone involved who bore any responsibility for their payment (or lack thereof), even if that responsibility was only on paper. Also, the penalties for late payment of these taxes are just horrendous and can double a debt fairly quickly. Our suggestion is to just make it your policy to pay the taxes right along with the payroll each time payroll is issued, and make sure the returns are filed on time.

Don’t panic. If you’ve followed this advice, you should be defensible, even if you owe them some uncountable sum you can’t pay. Just get a good tax person to help you through the mess. There are numerous solutions and protections available to you and your tax advisor, and something should work to handle, or at least minimize, the damage. Having said this, you should not expect a tax advisor to work miracles; for example, if you forgot to report some income and the IRS spots it, you’re probably going to have to pay. However, a good advisor can not only minimize the penalties and fees, but can also help you get a payment deal you can actually live with.

Finally, the most important thing is, live! As long as you do these things, a good tax advisor can keep you out of most tax trouble. At that point you, Mr. or Ms. Goose, should feel free to go about your business without having to fear irrational demands for more and more of your feathers. Create jobs, create wealth, do whatever it is that you do, get back to laying a few golden eggs, and do it without trembling fear of the tax bogeyman. We all need you to do this. Otherwise, America will continue its downhill slide and take with it a substantial chunk of the light that this ol’ world depends on.