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A New Bank Product Alliance Hybrid and Alternative Car Update Long-Distance Telephone Tax Dropped Free File Goes RAL-Free Interest Rates Steady for the First Quarter of 2007 | A New Bank Product Alliance
Cary Shields, President of Refund Advantage
Hybrid and Alternative Car Update
Tax credits available to purchasers of certain hybrid and alternative motor cars have been reduced in some cases due to high sales of those vehicles. The tax credit is only available to the original purchaser of a new car with either a hybrid or a clean-fuel burning engine. The amount of the tax credit is reduced in stages through the year in which the manufacturer of the vehicle sells 60,000 such vehicles. The current tax credit was established by the Energy Policy Act of 2005, which replaced the clean-fuel burning car tax deduction with a tax credit that also applied to many hybrid cars with both combustion engines and rechargeable batteries. The credit is only available to the original purchaser of a new, qualifying vehicle. If a qualifying vehicle is leased to a consumer, the leasing company may claim the credit. The tax credit for hybrid vehicles applies to vehicles purchased or placed in service on or after January 1, 2006. Taxpayers may claim the full amount of the allowable tax credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th hybrid or advance lean burn technology car. For the second and third calendar quarters after that, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters afterwards, taxpayers may claim 25 percent of the credit. No tax credit is allowed after the fifth quarter. The car models listed below have been certified for the tax credit in the following amounts, some of which reflect a decrease in the credit amount due to the sale of 60,000 qualified cars. Model Year 2007
Model Year 2006
* 2006 Honda Accord Hybrid AT and Navi AT without updated calibration qualify for a credit of $650. Model Year 2005
Toyota Motor Sales, U.S.A., Inc., has submitted quarterly reports indicating that its cumulative sales of qualified vehicles to retail dealers has reached the 60,000-vehicle limit during the calendar quarter ending June 30, 2006. Effective Oct. 1, 2006, the tax credit amounts for certified Toyota models will be reduced. The models and allowable credits may be found in news releases IR-2006-145, Toyota Hybrids Begins Phaseout on October 1and IR-2006-154, Additional Toyota and Lexus Vehicles Certified for the Energy Tax Credit. More detailed information may be found in the Summary of the Credit for Qualified Hybrid Vehicles
The IRS announced that it will stop collecting the federal excise tax on long-distance telephone service. The tax on telephone services was first imposed in 1898. The current rate is 3% of the charges billed for these services. The IRS announcement follows decisions in five federal appeals courts holding that the tax does not apply to long-distance service as it is billed today. Taxpayers will be eligible to file for refunds—with interest—of all excise tax they have paid on long-distance service billed to them after Feb. 28, 2003. Taxpayers can claim the refund on their 2006 tax returns. In order to minimize burden, the IRS will announce a simplified method that individuals may use. “So taxpayers won’t have to spend time digging through old telephone bills, we’re designing a straightforward process that taxpayers may use when they file their tax returns next year,” said IRS Commissioner Mark W. Everson. “Claiming a refund will be simple and fair.” The federal excise tax on local telephone service remains in effect. Likewise, various state and local taxes and fees paid by telephone customers are also unaffected. More information can be found in IRS Notice 2006-50 and Internal Revenue Bulletin 2006-25, dated June 19, 2006.
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Free File Goes RAL-Free
The successful and innovative Free File program launches its fifth year in January—without Refund Anticipation Loans (RALs). The change was made possible by an agreement among private sector partners to remove ancillary offerings such as RALS from the program. According to a 2006 taxpayer survey, only 6 percent of Free File users purchased an ancillary product from a software provider, but half of those said that their purchase was not intended. Also, IRS’s own data reveal that only 0.5 percent of Free File users requested a RAL. Free File Alliance Executive Director Tim Hugo said: "Each year, the Free File Alliance has sought to improve a program that is now eligible to over 93 million Americans. Today, with the voluntary elimination of RALs and ancillary products, the Free File Alliance takes another giant leap forward on behalf of the taxpaying public." Some Alliance members also will provide free access to Form 1040EZ-T for those people who have no legal obligation to file a tax return but who can request the one-time telephone excise tax refund, and some Alliance members are offering free state tax returns as well. In addition, taxpayers can use Free File to file a Form 4868, Application for Automatic Extension of Time to File. Some Alliance members even offer their Free File software in Spanish. The latest agreement to remove ancillary product offers improves on an already solid foundation for the Free File program. More than 15.4 million tax returns have been prepared and submitted through Free File since it debuted during the 2003 filing season. For 2007, taxpayers who earn $52,000 or less will be eligible for Free File. That’s 70 percent of all taxpayers who could use this free service. Russell Research, a market research firm contracted by the IRS, conducted a telephone survey of 1,800 taxpayers who used Free File during 2006. The poll was conducted during May and June of this year. According to the survey, 94 percent said they intend to use Free File again next year, 94 percent said they found Free File very easy or somewhat easy to use, and 97 percent said they would recommend Free File to others. Convenience, not the free cost, was the most appealing factor of Free File. The survey also found that the typical Free File user was a 40-year-old woman (57 percent female/43 percent male) who prepared both federal and state tax returns with Free File and had used Free File the previous tax year.“This survey confirms what we’ve known anecdotally for four years: taxpayers like Free File. This level of public satisfaction with Free File is just astounding,” Everson said. “This innovative program combines the best of the private and public sectors to provide real value to the taxpayers. With this latest agreement, we’ve made a great program even better.”
The IRS confirmed there will be no change in interest rates for the calendar quarter beginning January 1, 2007. The interest rates are as follows: Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point. The interest rates that will apply to the first quarter of 2007 are computed from the federal short-term rate based on daily compounding determined during October 2006.Rev. Rul. 2006-63, announcing the new rates of interest, will appear in Internal Revenue Bulletin No. 2006-52, dated December 26, 2006. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Business Returns Have Never Cost So Little
Interest Rates Steady for the First Quarter of 2007