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Issue 4 – May, 2008

Helpful Information from the National Association of Estate Planners and Councils

Compiled by: John J. Scroggin, Editor of the NAEPC Journal

Facts, Figures & Forms

Social Security Wage Base Changes. Effective Jan. 1, 2008, the maximum earnings subject to Social Security (OASDI) tax increases to $102,000. The Medicare tax of 1.45% is still applied to all wages.

Automobile Expenses. The 2008 standard mileage rate for computing the deductible costs of operating a vehicle for business use is 50.5 cents per mile. It is 19 cents per mile driven for medical or moving purposes and 14 cents per mile driven in service of charitable organizations.

2007 Consumer Price Index: The 2007 Consumer Price Index for All Urban Consumers (CPI-U) was 4.1%. The CPI rate at the end of December was 210.036.

Audit Chances. In March of this year, the IRS issued its annual data book (IRS Publication 55B, available at The book provides statistical data on the IRS’s activities from October 2006 through September 2007. Included in the information were the following facts:

  • Roughly 1% of all individual income tax returns were audited (1,384,563 out of a total of 134.5 million returns that were filed). 36.5% were audited because of the earned income credit. 77.5% of all audits were by correspondence, meaning that agents conducted audits on about 0.225% of all filed returns. Only 12% of these agent conducted audits resulted in no changes.
  • For individual returns with income from $200,000 to $1 million, the audit rate was 2% for returns without business related items and 2.9% for returns with business related items. For returns with income of $1 million or more, the audit rate was 9.3%.
  • C Corporations with below $10 million of assets had an audit rate of 0.9%., while those with assets above $10 million had an audit rate of 16.8%. This compares to a 0.5% rate for S corporations and 0.4% for partnerships.
  • Fiduciary income tax returns had an audit rate of 0.1%.
  • Estate tax returns were audited 7.7% of the time, while gift tax returns were audited 0.6% of the time.
  • The IRS received roughly 46,000 offers in compromise and accepted roughly 12,000 (26%).
  • The IRS initiated 4,211 criminal investigations, with 2,837 referrals for prosecution and 2,155 convictions. Of those sentenced, 98.5% were given imprisoned, home confinement or electronic monitoring.

New Employment Forms. Effective as of December 26, 2007, the Federal Government has changed the I-9 Immigration Form. All employers, regardless of size are required to fill one out for each new employee. There is also a new Federal W-4 Forms for all new employees.

Notices & Forms from the IRS

IRS Penalties. The IRS has issued Fact Sheet 2008-19 which provides information to taxpayers on the imposition of civil penalties. It can be found at,,id=181068,00.html.

Filing Past-due Returns. The IRS has issued Fact Sheet 2008-12 which provides information to taxpayers on filing past due returns. The fact sheet can be found at,,id=178194,00.html.

Defining Independent Contractors. The IRS has issued Fact Sheet 2008-27 which provides information to businesses in correctly determining whether someone is an employee or independent contractor. The IRS cited three areas of review in making the determination: behavioral control, financial control, and type of relationship. The fact sheet also clarifies that being a part time worker or a worker who earns less than $600 is not generally relevant to the question of whether the worker is an independent contractor or employee. Finally, the report notes that even if the employer out sources its payroll (e.g., through a payroll reporting company), the employer remains liable if the third party provider does not make the required employment tax deposits. A copy of the report can be found,,id=177092,00.html

If you or a client has made a mistake in classification, go to to find instructions on how to correct past classification mistakes.

Employer Owned Life Insurance. IRS has created Form 8925, Report of Employer-Owned Life Insurance Contracts. The form is a result of the Pension Protection Act of 2006’s enactment of Code Sections 6039I and 101(j), which provides for new rule on taxing employer owned life insurance issued after August 17, 2006, unless certain conditions are meet. Generally, every employer owning life insurance policies issued after Aug. 17, 2006, must file this form for each tax year the contract is owned. Unless there is a material change to the policy, employers are not required to complete the form for a life insurance contract issued after Aug. 17, 2006, if it is issued as part of a Code Sec. 1035 exchange of a policy issued on or before Aug. 17, 2006.

Trust IRA Form. The IRS has created Form 5305 – an IRS approved form for trust held IRAs. They also have created IRS Form 5305A which is their sample document for the “custodial” type IRAs.

Helpful Websites

Ever Wonder about the Efficiency of a Charity? There is a website that shows how much of a charity’s income goes to charitable programs as opposed to overhead and administrative costs. See:

Charitable Information Source. provides comprehensive resources for professionals on charitable planning. Included on the site are current news, commentary and articles on charitable planning subjects, a table of contents with links to rulings and cases impacting charities and planned giving ideas. The website includes calculators for various types of charitable trusts.

Wondering about that IRS Refund? Use the IRS’s “Where’s My Refund” tool at,,id=96596,00.html. You can check on electronically filed returns in 7 days and mailed returns in 4 weeks.

Wondering About your Life Expectancy? Try for the expectations – down to the second. A potentially depressing place to go.

Wondering about Relative Tax Costs in that Retirement State? Go to find a detailed comparison of the all of the taxes imposed by states.

State Law Comparisons. As a service to our members, NAEPC affiliated estate planning councils can access Steve Leimberg’s website for a substantially reduced cost. If your council does not provide this benefit, talk to your council officers. One example of the benefit of access is a series of tables prepared by Dick Nenno (for subscribers, go and click on the blue state law tab). The topics include:

  • A Comparison of 6 DAPT Acts
  • State Liability Systems Ranking
  • State Perpetuities Laws
  • State Power to Adjust and UniTrust Statutes,
  • State Self-Settled Spendthrift Trust Statutes,
  • State Third-Party Spendthrift Trust Statutes,
  • Uniform Trust Code State Citations,
  • State Law Forum Shopping Creditor Remedy Table for LLCs and FLPs

Looking for Estate Planning, Business and Tax Forms? Try for innovative forms. There is a charge, but the forms are excellent.

Links to Tax Policy Resources. The Tax Foundation provides an excellent list of links to other tax resources. Go to A another excellent source of tax related links is Steve Leimberg’s website at

Social Security, Pensions & Retirement

Taking your Social Security Benefits. A lead article in USA Today on January 14, 2008 discussed when retirees should begin taking their social security benefits. Among the article’s conclusions:

  • The 79 million baby boomers are expected to live longer than any previous American generation.
  • Most baby boomers intend to start taking smaller benefits as early as possible (at age 62) rather then waiting for full benefits after age 65 or 66.
  • According to the American Academy of Actuaries, the longer you expect to live, the more you should delay your benefits. It noted that someone expecting to live to their mid-90s would loose $150,000 in benefits by taking them at age 62. The Social Security Administration indicates that the number is around $54,000.
  • The Social Security Administration has projected that the average “break-even” age for social security benefits is age 72. Thus, if you expect to live beyond age 72, a deferral may provide you more benefits in the long term.

Among the factors the article says need to be considered are:

  • Your health and expectation of living a long life
  • The health and life expectancy of your spouse because taking benefits early may reduce the spouse’s survivor benefits.
  • Whether you intend to work after you reach the full retirement age, because benefits are cut $1 for each $2 of earned income over the base (in 2008 $13,560) until you reach your normal retirement age.
  • Taxes may be imposed on 50-85% of your social security benefits if you have other sources of income.
  • How badly you want to retire and how much you need social security benefits to do so.
  • The fear that if Social Security benefits are cut in the future, the cut will not affect those receiving current benefits.

VA Aid and Attendance Benefit. An often overlooked pension benefit is the Veteran’s Aid and Attendance Benefit which can provide benefits (up to $1,554 for single veterans and $1,842 for married veterans) for poorer disabled Veterans who served during a war. Benefits are in addition to any other VA benefits the person may be receiving. For more information, see:

Trends Worth Knowing

Baby Boomers. See this Journal’s Editor’s Column on the Unexpected Consequences of the Baby Boomers.

US Growth will be Impacted by Immigration. In a February 2008 report, the Pew Research Center projected that the US population will increase to 438 million in 2050 (up from 296 million in 2005), with 82% of the increase being from immigrants who arrived after 2005 and their descendants. The full report can be found at

Do you have some Information which might be Helpful to other Estate Planners? Send an email to the Editor at