Michael Gray, CPA's Tax and Business Insight

October 8, 2007

© 2007 by Michael C. Gray

ISSN 1539-395X

A monthly report to help you prepare for your financial future, keep more of what you earn by minimizing your taxes, and build an extraordinary business!

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Trick! The year is 3/4 over!

Hope you and your family have a happy and safe Halloween!

Janet and I will be out of town on our vacation for a Polar Bear expedition!

The end of the year will soon be here, so make your year-end planning appointments now! Call Dawn Siemer at 408-918-3162 on weekday afternoons.

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October 15 deadline approaches. Are you ready?

The final extended due date for calendar year 2006 income tax returns for individuals, trusts, estates, and partnerships is October 15. We might be able to "squish in" one more return. For an appointment, call Dawn Siemer weekday afternoons at 408-918-3162.

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Welcome Leticia!

Leticia Lopez has joined our firm as a student administrative assistant. Leticia actually worked for many years at Foothill College before deciding to return to school to prepare for a career as a paralegal. She is currently enrolled at West Valley College.

Leticia’s favorite pastime is walking her two dogs, KitKat, a Shar Pei-Beagle mix, and Snickers, a Chihuahua.

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Notes from the Glazer-Kennedy Sales Seminar.

Michael Gray and Thi Nguyen went to a seminar put on by Dan Kennedy and Bill Glazer in Washington D.C. Janet Gray tagged along to see some sights. Here are two messages we got from the seminar. (1) Look at your business like a prospective client, patient or customer. Are there any "broken windows" – items needing attention – that turn off prospective customers? (Unshined shoes? Uninviting reception area? Messy restrooms?) Little things can destroy your entire selling process. (2) The sales process is too important to leave to chance. The process should be documented and every person involved should be trained about their role, and what should be said. Likewise, telephone greetings should be scripted and the sales presentation should be scripted and practiced. Think of choreographing a performance – the experience of the customer – and you’ll have the right idea.

After the seminar, a relation of Thi’s took us to the Great Falls Park near Georgetown, and then we had lunch and shopped in Alexandria.

Michael and Janet Gray at Great Falls Park
Here are Michael and Janet Gray at Great Falls Park

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October family celebrations and news.

Janet Gray’s birthday was October 4. We had a family celebration of September and October birthdays on September 23.

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IRS proposes to conform practice guidelines to new law.

The IRS has issued proposed regulations that would modify Circular 230, the rules of practice for tax return preparers and advisors, to conform with new penalties enacted as part of the Small Business and Work Opportunity Tax Act. Under the new standards, a penalty applies when a tax return preparer takes a position on a tax return unless (1) the preparer has a reasonable belief that the position is "more likely than not" to be upheld if challenged, or (2) there is a reasonable basis for the position and it is adequately disclosed on the tax return. The penalties have also been extended to all tax returns, when they formerly only applied to income tax returns.

The proposed regulations would be effective when finalized, but no earlier than January 1, 2008.

(Proposed regulations § 10.34, 9/24/2007.)

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Proposed regulations would require special disclosure of "patented transactions".

Some tax advisors have been applying for patents for tax planning strategies. A proposal in Congress (H.R. 1908, approved in the House of Representatives) would make tax planning strategies ineligible for patents. The IRS has issued proposed regulations that would require special disclosure of "patented transactions" on income tax returns as "reportable transactions." Under these rules, material advisors are also required to keep lists of the persons who have participated in the arrangement.

Once finalized proposed regulations would be effective for transactions entered after September 25, 2007.

(Proposed Regulations §§ 1.6011-4, 301.6011-3.)

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IRS can instantly issue Employer Identification Numbers.

The IRS has announced that taxpayers can receive taxpayer identifications instantly when the application is processed through its web site at www.irs.gov. The IRS has updated the application process to make it more interactive, so the software leads the taxpayer through the application process in a question and answer format. (IR 2007-161.)

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Deadline for updating written plans under Section 409A extended.

The previous January 1, 2008 deadline for updating written plans covered by Section 409A, the nonqualified deferred compensation rules (including employee stock option plans) have been extended to December 31, 2008.

Many attorneys will be relieved with this extension.

However, the plans must still be operated in compliance with Section 409A to avoid tax penalties.

(Notice 2007-78, 2007-41 IRB,; IR 2007-157, 9/10/2007.)

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IRS explains rules for cafeteria plans.

Some employers let their employees choose to receive cash compensation or to receive alternative benefits, such as family medical insurance coverage, child care, life insurance, or disability insurance. The value of nontaxable qualified benefits is not includable in income. These plans are called cafeteria plans or Section 125 plans.

The IRS has issued proposed regulations explaining the requirements for these plans, including flexible spending arrangements (FSAs).

The proposed regulations are generally effective after 2008, but taxpayers may rely on them until final regulations are issued.

If you are responsible for maintaining a cafeteria plan or are considering one, you should discuss these proposed regulations with your tax advisor. (REG-142695-05 72 FR 43937 (8/6/07).)

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IRS National Office explains UNICAP rules for car dealership.

The IRS National Office has issued a technical advice memorandum about how the uniform capitalization rules apply to a new-car dealership. Tax advisors to auto dealers should study this ruling. (Letter Ruling 200736026.)

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House passes tax relief for mortgage crunch.

The House of Representatives has passed proposed legislation, the Mortgage Forgiveness Debt Relief Act of 2007, to provide tax relief for individuals who would otherwise have cancellation of indebtedness income relating to their principal residence. The relief would apply to "qualified principal residence indebtedness" (defined according to the rules for deducting interest for acquisition indebtedness on a principal residence) effective for debt cancellations after January 1, 2007. The relief would be permanent. The maximum exclusion would be $2,000,000, or $1,000,000 for married persons filing a separate return.

In order to qualify, the debt cancellation would have to relate to the decline in the value of the residence or to the financial condition of the taxpayer.

To offset the revenue loss, the proposed legislation would make it more difficult to get the exclusion for sale of a residence when the residence was converted from a vacation home to a principal residence.

Remember this legislation is not the law, yet. It still must be passed by the Senate and approved by President Bush.

(H.R. 3648.)

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Are you shopping for a new home?

Yes, some people are actually buying homes! Remember that we can help the mortgage financing to buy a new home. Call Mike Gray at 408-918-3161 for details.

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Is your interest-only mortgage going to start amortizing?

Yes, mortgage interest rates have increased from a few years ago. But you can have often have a lower mortgage payment by refinancing with a new interest-only mortgage. We can help. Call Mike Gray at 408-918-3161 for details.

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If you have employee stock options, have you subscribed to Michael Gray, CPA's Option Alert at no charge or obligation?

To learn more, visit stockoptionadvisors.com/subscribe.shtml.

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Real estate investors, have you subscribed to Michael Gray, CPA’s Real Estate Tax Letter at no charge or obligation?

For details, visit www.realestatetaxletter.com.

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Visit our new article!

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If you have employee stock options, have you subscribed to Michael Gray, CPA's Option Alert at no charge or obligation?

To learn more, visit stockoptionadvisors.com/subscribe.shtml.

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Real estate investors, have you subscribed to Michael Gray, CPA’s Real Estate Tax Letter at no charge or obligation?

For details, visit www.realestatetaxletter.com.

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P.S. Still a few months left of great weather to enjoy outdoor patio dining at Marché Aux Fleurs and AVA!

My daughter and her husband, Holly and Dan Baker, have a Southern French Restaurant at 23 Ross Common, Ross, California, about 15 minutes north of the Golden Gate Bridge. The name of the restaurant is Marché Aux Fleurs and their website address is marcheauxfleursrestaurant.com. For the best meal of your life, call 415-925-9200 for a reservation and give them a try! For directions, visit our website at www.taxtrimmers.com/directions.shtml.

They also have a second restaurant, AVA, at 636 San Anselmo Ave., San Anselmo, California. AVA serves food and drinks produced in California. For reservations, call 415-453-3407. The web site is avamarin.com.

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Michael Gray, CPA
2190 Stokes St. Ste. 102
San Jose, CA 95128
(408) 918-3162
FAX: (408) 998-2766
Hours: 8am - 5pm PDT Monday - Friday

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