Subject: A Summary and Forecast Of Tax Developments 
Date: Published: 9/18/91 (117 lines)
Source:  Wall Street Journal.  Copyright Dow Jones & Co. Inc. 

    Tax Report:
    A Special Summary and Forecast
    Of Federal and State Tax
    Developments
    ----
    By Scott R. Schmedel

    EVERY LITTLE BIT HELPS:  Exemptions and deductions rise for
 1992.
    With August inflation figures out, certain tax benefits
 may be indexed for 1992, says Prof.  James Young of Grand
 Valley State University, Grand Rapids, Mich.  His unofficial
 calculations show the personal exemption rising to $2,300
 from 1991's $2,150.  Standard deductions will rise by $200 for
 a single person, $300 on a joint return, and $250 for a head
 of household, he says.  Also to rise are the thresholds for
 rate brackets and for phasing out exemptions and itemized
 deductions for upper-income taxpayers.
    On a joint return, taxable 1992 income faces a 28% rate
 after reaching $35,800 and a 31% rate after $86,500; this
 year, those thresholds are $34,000 and $82,150.  A couple will
 begin to lose the benefit of exemptions when their 1992
 adjusted gross income exceeds $157,900, up from $150,000 in
 1991, Young figures.  For a single person, the threshold for
 exemption phase-out will rise to $105,250 from $100,000, he
 says.
    Generally, itemized deductions will be trimmed after 1992
 adjusted gross income hits $105,250, up from $100,000.
    CORPORATE LOSSES on selling subsidiaries' stock aren't
 deductible.
    So say final rules on an issue that has had companies
 grumbling for 18 months.  "The Treasury essentially rejected
 all proposals to ameliorate the harshness" of its prior
 drafts, says Gilbert Bloom of KPMG Peat Marwick, CPAs.  To
 block abusive schemes to avoid tax on asset dispositions, the
 rules (T. D. 8364) deny deduction of a loss on a disposition
 of stock in a unit with which the seller files a consolidated
 return.  The rules are effective as of last Feb. 1.
    Companies claim the rules are over-simplified and
 arbitrarily deny deductions of real economic losses.  A
 50-page preamble rejecting taxpayers' suggested revisions
 isn't convincing, Lawrence Axelrod of Deloitte & Touche,
 CPAs, protests.  He predicts many companies will contest the
 new rules and that the issue ultimately will be decided in a
 "landmark" court case.
    MULTISTATE CONCERNS must act soon to ease effects of state
 tax increases.
    Pressed for cash, many states changed radically the way
 they tax business.  Texas, despite its avowed scorn for income
 taxes, enacted what critics call a disguised corporate income
 tax.  Businesses should analyze the new laws now, says Philip
 Tatarowicz of Ernst & Young, CPAs, for action is required in
 many states as early as Sept. 30.  Texas also is suspending
 Oct. 1 its phase-in of a sales-tax exemption for
 manufacturing equipment, so companies must decide whether to
 accelerate purchase plans.
    Ohio enacted sweeping rules to remove incentives to use
 holding companies based in tax havens Delaware and Nevada to
 reduce Ohio taxes; other states are watching the results with
 interest.  Certain concerns can minimize the effect with a
 limited credit, Tatarowicz says, but they must notify Ohio
 tax authorities by certified mail by Sept. 30 that they plan
 to take the credit.
    Pennsylvania concerns have until Oct. 3 to make catch-up
 tax payments to reflect retroactive rate increases and
 disallowances of loss carry-forwards.
    OIL, GAS, AND MINERAL developers have firm grounds for
 refunds of some alternative minimum taxes, Coopers & Lybrand
 says:  Federal-circuit appeals judges upheld a controversial
 Claims Court ruling and let William F. Hill allow for costs
 of equipment such as oil rigs in figuring depletion
 allowances permitted by minimum-tax rules.
    CHECKING ON CHECKOFFS:  Illinois filers will be able to
 contribute to eight causes on their 1991 state returns, up
 from three this year.  The new funds are to help drug-abuse
 prevention, victims of AIDS or domestic violence, persons
 with disabilities, and Olympic athletes.
    FINE-TUNING efforts to collect over $1 billion in unpaid
 fines for driving and other offenses, California legislators
 passed a bill to enable the state to skim the cash off state
 tax refunds claimed by the delinquents.  Gov. Wilson is
 expected to sign it soon.
    ESTATE-FREEZE RULES can tax trust beneficiaries unfairly,
 a lawyer says.
    The IRS plans a hearing Friday on proposed rules
 restricting efforts to cut estate and gift taxes by freezing
 values of interests in a family-owned business.  An owner may
 try to accomplish a freeze by retaining fixed-value preferred
 stock and, before dying, giving appreciable common stock to
 children or grandchildren.  But the proposed rules can create
 unfair taxes on trust transactions when there is no attempt
 to freeze an estate, Mark J. Silverman of the law firm
 Steptoe & Johnson in Washington, plans to testify.
    Wealthy families often place business interests in trust
 for tax and non-tax reasons; a trust may even set up a
 business with a beneficiary.  The problem lies in the way the
 rules attribute the benefits of trust assets for tax
 purposes, Silverman says.  The effect is that a beneficiary
 who isn't involved in a venture with a trust may be treated
 as having made a taxable gift to a younger family member who
 is involved in the venture or who is a trust beneficiary.
    The "involuntary gift" occurs even though the person
 doesn't control the trust and won't include it in his estate.
    BRIEFS:  IRS Revenue Procedure 91-52 clarifies that a
 company's overpayment of taxes for one period won't be
 applied automatically to the next period's liability unless
 the taxpayer elects that treatment....  A House Ways and
 Means panel plans another hearing Sept. 25 on safeguards for
 taxpayers' rights.

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