The Bonus Depreciation.

The 2010 Tax Relief Act benefits businesses by increasing 50 percent bonus depreciation to 100 percent for qualified investments made after September 8, 2010 and before January 1, 2012 (before January 1, 2013 for certain longer-lived and transportation property).

This provision is especially beneficial for businesses because bonus depreciation, unlike Code Sec. 179 expensing, is not limited to smaller companies, or capped at a certain dollar level. However, only new property qualifies for the 100 percent bonus depreciation (unlike Code Sec. 179 expensing, which can be claimed for both new and used property).

How does this help the health care industry?

In January 2011, XYZ medical practice, a calendar year business, buys $1 million of qualifying property eligible for the 100 percent bonus depreciation deduction. Under the 2010 Tax Relief Act's enhanced 100 percent bonus depreciation provision, XYZ medical practice will be able to claim a $1 million depreciation deduction for the property on its 2011 Federal tax return. This provision can also apply to the nonstructural components of construction of a new facility, remodeling of an existing facility, or an addition. Most of the states did not couple with this legislation including Iowa.

Additional Assistance.

Although enhanced 100 percent bonus depreciation is not extended into 2012, the new law does provide 50 percent bonus depreciation for qualified property placed in service after December 31, 2011 and before January 1, 2013.

Code Section 179 Expensing.

Over the years, Congress has repeatedly increased dollar and investment limits under Code Sec. 179 to encourage spending by businesses. For tax years beginning in 2010 and 2011, the 2010 Small Business Jobs Act increased the Code Sec. 179 dollar and investment limits to $500,000 and $2 million, respectively. For tax years beginning in 2012, the new law provides for a $125,000 dollar limit and a $500,000 investment limit (both indexed for inflation). Without this provision, the dollar and investment limits would have reverted to $25,000 and $200,000, respectively, for tax years beginning after 2011. Amounts that are not eligible for expensing due to excess investments cannot be carried forward and expensed in a later year; they may only be recovered through depreciation.

Iowa recently passed legislation to couple with this legislation and allow the correction to be made on the 2011 tax return in lieu of amending 2010. This change will allow you to “double-up” your Sec. 179 claim on your 2011 Iowa return.

IRS Grants Filing Extension to Trucking Companies for Form 2290 Tax Returns

The Internal Revenue Service recently advised trucking companies and other business owners of heavy highway vehicles that their next federal highway use tax return, usually due August 31, will instead be due on November 30, 2011.

Because the highway use tax is currently scheduled to expire on September 30, 2011, this extension is designed to alleviate any confusion and possible multiple filings that could result if Congress reinstates or modifies the tax after that date.

Under temporary and proposed regulations, the November 30 filing deadline for Form 2290 -- Heavy Highway Vehicle Use Tax Return -- for the tax period that begins on July 1, 2011, applies to vehicles used during July, as well as those first used during August or September. Returns should not be filed and payments should not be made prior to November 1.

To aid trucking companies applying for state vehicle registration on or before November 30, the new regulations require states to accept as proof of payment the stamped Schedule 1 of the Form 2290 issued by the IRS for the prior tax year ending on June 30, 2011.

This is an adjustment as normally, after a taxpayer files the return and pays the tax, the Schedule 1 is stamped by the IRS and returned to filers for this purpose. A state ordinarily may accept a prior year's stamped Schedule 1 as a substitute proof of payment only through September 30.

For those acquiring and registering a new or used vehicle during the July-to-November period, the new regulations require a state to register the vehicle without proof that the highway use tax was paid if the person registering the vehicle presents a copy of the bill of sale or similar document showing that the owner purchased the vehicle within the previous 150 days.

Five Reasons Why Mandatory Firm Rotation Will Not Lead to Higher Audit Quality

From the American Institute of CPAs (AICPA)

The importance of audits of state and local government entities and nonprofit organizations is important to the success of our communities. It is always in our best interest to review new initiatives to increase effectiveness and quality of audits for these organizations, but mandatory firm rotation may lead to unintended and undesirable consequences.

1. Increase in audit failures. Studies found that audit failures are three times more likely in the first two years of an audit (Public Oversight Board, Commission on Auditor’s Responsibilities, and the National Commission on Fraudulent Financial Reporting). In addition, the Committee of Sponsoring Organizations of the Treadway Commission found that 26% of the organizations that released fraudulent financial statements changed auditors between the last clean financial statements and the last fraudulent financial statements, whereas only 12% of no-fraud organizations switched auditors during that time.

2. Increased start-up costs. Changing auditors results in more frequent start-up costs, both for the auditor and the organization.

3. Increased difficulties in timely reporting. Timely reporting becomes more difficult because audit firms need to meet a very short “learning curve” to perform a rigorous audit.

4. Loss of “institutional knowledge.” Over successive audits, firms increase institutional knowledge, including, for example, their knowledge of the client’s accounting and internal control systems. This benefit would be greatly diminished by mandatory rotation.

5. Reduced incentives to improve efficiency and audit quality. Mandatory rotations fail to fully reward firms that achieve greater efficiency and audit quality because rotation reduces potential demand. Auditors providing less efficient and quality services are likely to survive because there will constantly be organizations looking for new auditors. Conversely, quality firms no longer have the incentive to increase market share and profits since they lose clients after the maximum allowed duration.