Both the terrorist attack on the World Trade Center and the Economic Growth and Tax Relief Reconciliation Act of 2001 have spawned current changes to the tax law as well as proposed legislation.

2001 Estimated Tax Payments

On Friday, the Internal Revenue Service delayed the deadline for the payment of the 2001 3rd quarter estimated tax payment by individuals and certain corporations from September 17 to September 24.

Further, taxpayers directly affected by the attacks, particularly those in the disaster areas, will have until January 15, 2002 to pay estimates income taxes. Penalties and enforcement activities are also suspended for 6 months.

Taxpayers who are entitled to the above relief should write in red ink on the top of their returns: “Sept. 11, 2001 Terrorist Attack”

2001 Tax Refunds

A great deal of confusion still abounds as to who is entitled to a 2001 tax refund. While the term “tax refund” is commonly used, taxpayers are actually receiving what is technically known as an “advance payment check”. To reflect the new 10% tax rate for all individuals, Congress decided to initiate the new reduced tax rate by way of a tax credit, to be refunded immediately.

Checks are being sent over 10 weeks and will be processed by the last two digits of your social security number. The current schedule is as follows:

Who Is Eligible To Receive A Check?

You will only receive an advance payment check if you paid income tax in 2000, and filed your tax return by April 15. If you filed your tax return after April 15, 2001, you will receive your advance payment check later in the year. If you will not file your 2000 tax return until January 30, 2002, you will not receive a refund check, but will be able to claim a credit on your 2001 tax return.

What If I Did Not Owe Tax in 2000?

If you did not pay tax in 2000, but will have a tax liability in 2001, you will be able to claim the credit on your 2001 tax return.

A common misconception is that the advance payment check will reduce your 2001 tax withholdings or estimated tax payments. The advance payment check is a credit and will not affect taxes withheld or estimated tax payments.

What If I Did Owe Tax in 2000 But Will Not In 2001?

If you had a tax liability in 2000 and received an advance payment check, but will have no tax liability in 2001, Santa Claus arrived early. You do not have to return the check to the Internal Revenue Service. However, you may want to consider donating the windfall to funds set up for the children of New York City firefighters and police officers who will be without a mother or father this upcoming holiday season.

Proposed Tax Legislation

Major tax changes to the alternative minimum tax were not made by the Economic Growth and Tax Relief Reconciliation Act of 2001. Legislation will soon be introduced to change the interaction of the alternative minimum tax and the exercise of stock options. Currently, the alternative minimum tax is imposed at the date of exercise, which has resulted in catastrophic results for individuals in the technology industry. These individuals will owe income and alternative minimum tax on the gain realized from the purchase of employer stock, that in many cases is now worthless stock.

The proposed legislation will impose the alternative minimum tax at the time of sale, and not on the date of purchase.

The tax advice given by this column is, by necessity, general in nature. You should, of course, check with your own US tax consultant as to how specific transactions affect you since tax advice varies with individual circumstances.

James Paul Sabo, CPA, is the President of ETS Ltd. Questions should be sent to: jsabo@expatriatetaxservices.com.