CONTENTS Installment Tax Correction Community Renewal Medical Savings Account Corporate Computer Donations Environmental Remediation We have answers

The recently enacted Installment Tax Correction Act of 2000 and the Community Renewal Tax Relief Act of 2000 include a variety of tax law changes. You may want to consider whether - and how - the changes might affect you.

INSTALLMENT TAX CORRECTION
Under a 1999 tax law change, capital gains taxes on the sale of business assets had to be paid in the year of sale even if the accrual-basis seller received the payments from the buyer in multi-year installments. Small business sellers were outraged because this meant that they might have to borrow money to pay taxes on their sales.

Various IRS announcements and Tax Court rulings in 2000 helped remove some of the sting of the 1999 change by making it easier to walify a business for the cash method of accounting for tax purposes, which allowed installment sellers to avoid the up-front tax payments. However, these patchwork efforts could not help all of the affected business owners.

The Installment Tax Correction Act of 2000 repealed the 1999 tax law change, retroactive to the time of the 1999 tax law. Thus, if you were subject to the 1999 changes and sold your business - and have paid tax upfront - you should see us to discuss yoru options.

COMMUNITY RENEWAL
The marquee provision of the Community Renewal Tax Relief of 2000 establishes 40 renewal communities where investment is eligible for certain tax benefits, including a zero capital gains tax on qualifying assets held for more than five years. (Qualifying assets include tangible property purchased after 2001 and before 2010 and used in a renewal community business).

Business operations in nine new empowerment zones have also become eligible for favorable tax treatment, including a 20% wage credit.

This law also expanded the low-income housing tax credit by increasing each state's credit amount from $1.25 to $1.50 per capita in 2001 and to $1.75 per capita for 2002, up to a $2 million maximum credit. The credit, which is allocated to taxpayers by state housing credit agencies, will be adjusted for inflation beginning in 2003.

MEDICAL SAVINGS ACCOUNTS
The Community Renewal Tax Relief Act also extended the ability to open tax-favored medical savings accounts (MSAs) for two more years. (Originally, MSAs were a pilot program due to close to a new accounts after 2000.) With an MSA, self-employed pepole and employees of small businesses can eat aside tax-deductible funds to pay their uninsured medical bills.

Withdrawals from an MSA to pay for medical expenses are tax free. MSA funds not used for medical expenses can grow tax deferred and be rolled over into retirement savings at age 65.

CORPORATE COMPUTER DONATIONS
Enhanced deductions (worth more than those for regular charitable contributions) for non-S corporations' donations of computers to schools had been due to expire at the end of 2000. These deductions have been extended through 2003 and their applicability has been expanded.

The enhanced deduction is the lesser of (a) the basis of the contributed computers plus one half of the ordinary income that would have been reported if they had been sold for their fair market value on the contribution date or (b) twice the basis of the computers. The regular deduction amount for charitable contributions is the fair market value of the property.

Previously, the computer donation had to be made within two years after the donee had acquired the computer. Now, computers held up to three years are eligible for the enhanced deduction. Also, computer donations to public libraries now qualify in addition to donations to schools.

ENVIRONMENTAL REMEDIATION
More good news: More businesses may expense currently (instead of capitalize and expense over time) their environmental remediation costs because a previously specialized deduction is no longer limited to remediation in targeted areas. See us for more details.

The recent change also adds two more years to the availability of this favorable tax treatment. The old law offered environmental remediation expensing only through the end of the 2001.

WE HAVE ANSWERS
We at Lawson, Rescinio, Schibell hope that you can take advantage of some of these tax law changes. Let us know if you would like to discuss these or other opportunities in more detail. Contact us at lrscpa@lrscpa.com