Hurricane Katrina Emergency Tax Relief

The IRS has announced special relief for taxpayers in the Presidential Disaster Areas struck by Hurricane Katrina. These taxpayers generally will have until Oct. 31, 2005, to file tax returns and submit tax payments. IRS will abate interest and any late filing or late payment penalties that would otherwise apply. This relief includes the Sept. 15 due date for estimated taxes and for calendar-year corporate returns with automatic extensions.

Summary of Energy Tax Incentives Act of 2005

This recently passed law provides tax incentives to make energy saving improvements to homes and offices. Interestingly, the incentives generally come in form of tax credits (which are more valuable than tax deductions) and do not phase out for higher-income taxpayers.

Some of the key credits include:

-For purchase of hybrid, fuel cell, advanced lean-burn and other alternative power vehicles

-For purchase of qualifying residential solar water heating, photovoltaic equipment, and fuel cell property

-For energy efficient improvements to existing homes

-Credit for contractors that construct new energy efficient homes

There is also a deduction for energy efficient commercial buildings that are placed in service.

Springing Value Life Insurance Planning Attacked by IRS

The IRS has issued final regulations that seek to shut down "abusive" transactions involving life insurance policies designed to have a low cash surrender value when transferred from an Code Sec. 412(i) retirement plan or an employer to an employee. The general tax planning that the IRS was attacking generally involved:

a. Funds are transferred by an employer to purchase a life insurance policy on an employee in a retirement plan, with a deduction for the full amount of the contribution.

b. The retirement plan purchases a life insurance policy. The policy is structured to temporarily have a low cash surrender value - much lower than the premiums paid. The policy is distributed to the employee, and the employee is taxed on the low cash surrender value. The cash surrender value of the policy then increases under the terms of the policy.

The net effect - the employer gets a full deduction, but when the insurance policy is distributed to the employee, the income picked up by the employee is less than the deduction allowed the employer.

The new regulations aim to prevent this result by having the employee include income at the full fair market value of the life insurance contract transferred to him from the Code Sec. 412(i) retirement plan or the employer. Preamble to TD 08/26/2005 ; Reg. § 1.79-1 , Prop Reg § 1.83-3 ; Reg. § 1.402(a)-1 , Reg. § 1.402(a)-1(a)(2) .