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Table of Contents

• Hooray! April 16 is behind us.
• Welcome to Ellen Nicoletti, CPA!
• Rental properties qualified for installment payment of estate tax.
• Bush's estate tax repeal proposal includes carryover basis.
• Court disallows IRS estimate of tips for employment taxes.
• Subscribe to the ESOAA Option Alert
• PS Marché Aux Fleurs.
• Visit our new articles.
• Subscribe/Unsubscribe from Michael Gray, CPA's Tax and Business Insight .

Hooray! April 16 is behind us.

We had a very challenging tax season this year. Thanks to our teamwork, we had a successful finish. My thanks go to our team members: interns Thi Nguyen and Kim Le, administrative assistant and web master Dawn Gray, and CPA Ellen Nicoletti. I couldn't have made it without the hard work of these people.

Here are some interesting developments this tax season.

On Friday, March 30, the hard disk containing our client files and tax preparation software died. With the help of our computer consultant (and client) Steve Negrete and our backup software, our system was up and running by that evening. (Do you have a reliable back up system for your computer? Our entire server system is backed up every night.)

USPS Express mail turned out to be unreliable. Items that we express mailed took four and five days for delivery. Next year we'll probably use Federal Express or UPS.

This is the first year we sent extension forms to some clients using PDF files (graphic files that can be read using Adobe Acrobat and printed from the client's computer.) Next year, our system will be upgraded with a faster internet connection, making this type of delivery more attractive and effective.

Thanks to those clients who got their information to us by March 1. It really helps us make consistent progress to completing returns when we receive the information early.

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Welcome to Ellen Nicoletti, CPA!

Effective May 1, Ellen has agreed to join our firm as a full-time CPA. Since Ellen and her husband, Charles, live in Pleasanton, she will be doing some telecommuting. (Ellen and Charles are newlyweds. They were married in Hawaii last October.) She is a graduate of New York University, and has worked at PricewaterhouseCoopers and Ernst and Young.

Ellen just completed her Masters of Science in Finance at Golden Gate University. She is pursuing additional certifications as a Certified Management Accountant and Certified Financial Management.

Ellen is also quite an athlete. She loves squash, tennis and swimming, and also practices T'ai Chi.

We are delighted to have Ellen join our firm, and we know you will enjoy working with her.

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Rental properties qualified for installment payment of estate tax.

The IRS examined the level of activity of a decedent relating to 82 rental units, including single and multiple family residences. He had worked four to five days per week as a manager or co-manager of the properties and was actively involved in maintaining the properties.

The IRS found his activity was significant enough to qualify the properties as a single trade or business, eligible for the installment payment of estate taxes. (PLR 200114005.)

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Bush's estate tax repeal proposal includes carryover basis.

The Bush administration recently released some details relating to its tax relief proposals. As part of the proposal for estate tax repeal for decedents dying after December 31, 2008, the tax basis for inherited property would generally be the lesser of the tax basis of the property for the decedent or the fair market value on the date of death. However, the executor could allocate up to $1.3 million of basis to the carryover basis of inherited property. In addition, the heirs could count the use of a principal residence by the decedent when the residence is sold within three years of the decedent's death.

This means that keeping good records for the investment in family assets will be critically important.

I have seen situations where the heirs have destroyed the decedent's records when "cleaning up" the decedent's residence. This could be a catastrophe under these new rules.

(General Explanations of the Administration's Fiscal Year 200 Tax Relief Proposals. Department of the Treasury. 4/9/2001.)

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Court disallows IRS estimate of tips for employment taxes.

The Ninth Circuit affirmed a district court in ruling that the IRS may not estimate the amount of tips to determine and assess employment taxes. In this case, the IRS determined tips based on a percentage of sales for a restaurant using credit card slips. Then the IRS applied the percentage to the total gross sales of the restaurant. The courts ruled the IRS exceeded its authority by applying this method. (Fior D'Italia, Inc. v. United States)

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If you have employee stock options, have you subscribed to the ESOAA Option Alert?

To subscribe, go to http://www.stockoptionadvisors.com. You can review past issues at www.stockoptionadvisors.com/optionalert/.

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P.S. Marché Aux Fleurs

My daughter and her husband, Holly and Dan Baker, have opened 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. For the best meal of your life, call 415-925-9200 for a reservation and give them a try soon!

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Visit our new articles!

• "Think And Grow Rich" Book Review
• The Power of "No!" article

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P.P.S.

To receive the next issue of Michael Gray, CPA's Tax & Business Insight with more tax developments, another book review, and upcoming deadlines automatically via email, subscribe by filling out the form below.

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IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this communication was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.