**Comments to Tax Advisory Panel Date: March 7, 2005**

From: Teresa L. Sunderman, Tax Manager, Lauren Davis & Co CPA\'s, P.C.

28 years experience in individual, corporate, partnership, trust, and
estate tax return preparation. Contact: 1/574-272-1680
<TSunderman@daviscocpa.com>, mailing address: Lauren Davis & Co CPA\'s,
P.C., 425 Park Place Circle, Suite 100, Mishawaka, Indiana 46545

The due date of your comments alone illustrates an aspect of the tax
system that creates a headache and a lack of understanding of the
enormity of the compliance burden. Professional tax preparers (who have
the most detailed understanding of the complexity and headaches, and who
would be in a position to provide the most relevant feedback) will not
have adequate time to develop intelligent comments for your review since
March 18 is the peak of the tax preparation nightmare we refer to as
"tax season".

Our firm is currently besieged with corrected 1099s from various
brokerage firms. The corrections of reporting errors appear to stem
primarily from the difficulty in categorizing dividends between
qualified and non-qualified, a distinction that came into law only
within the past couple of years.

The Wall Street Journal reported that Wachovia Securities sent a letter
to investors advising them to wait as long as possible before filing
their returns as they anticipated sending out corrected 1099s at least
once. This does not provide sufficient time for completing the
preparation of complex returns.

The filing deadline for REIT 1099s is March 15. The filing deadline for
flow-through S Corporations is March 15. The filing deadline for
flow-through partnerships is April 15. Investors in these entities have
an insufficient window of time in which to receive the necessary
reporting forms and then complete the preparation of their own returns
by the April 15 deadline.

The depreciation system has become overly complicated by too many
changes in the rules, allowances of special bonus depreciation and
expensing elections that have a myriad of special interest provisions.
Fixed asset schedules and state depreciation differences have to be
maintained by business taxpayers for the ***life of the asset***, even
if the bonus depreciation allowance has "sunsetted".

The retroactive change in the tax law to allow bonus depreciation was
signed into law in March, a few days before corporate returns were due
to be filed. The change was retroactive to the beginning of the year,
but software companies could not change their software fast enough to
comply with the retroactive change prior to the filing date. Preparers
were faced with manual depreciation calculations, revised and amended
tax returns, and forced entries on the tax preparation software. The
retroactivity provision of this law alone created unnecessary headaches
and complexity for business taxpayers.

Alternative Minimum Tax (AMT) creates many complexities and headaches
both for individual filers and for business taxpayers. It requires a
separate calculation of tax, using a different tax regime of allowable
deductions, and a recalculation of depreciation allowed. It serves to
make tax-exempt municipal interest taxable. Elderly people just do not
understand this and are not able to plan their investments.

The AMT was originally put into law in order to curb abuses and
discourage tax shelters, but it now traps ordinary people who least
expect it, such as elderly people investing in tax-free bonds,
two-earner families with vacation homes, large families, and taxpayers
living in high income tax states. The new law allowing a sales tax
deduction creates complexity and likely will be disallowed for many
taxpayers anyway since the deduction is not allowed against AMT.

The AMT was repealed for "small businesses" but the definition of small
business wasn't measured as of a certain point in time, but rather is
calculated based on a rolling historic average of gross receipts. So a C
Corporation must maintain parallel records of AMT depreciation, AMT
basis of assets, and a schedule of the AMT net operating loss deduction,
in the event that gross receipts will exceed the amount allowed to
qualify as a small business corporation, and the corporation will be
subject to AMT unexpectedly.

Our experience with IRS representatives leads us to believe that they do
not understand the AMT. The software that agents use for making
examination reports does not always calculate the AMT properly. We have
been advised by an agent to make sure we check the AMT calculation for
accuracy.

Schedule K-1s reporting "flow-through" items are virtually impossible to
decipher and report properly on the return. The new Schedule K-1 that
the IRS introduced this year appears more complex, not less.

The IRS does not appear to be able to correctly process returns that
have "unrecaptured §1250 gain". This gain is supposed to be taxed at a
25% rate. Our tax preparation software calculates the tax correctly. On
more than one occasion, the taxpayer, subsequent to filing the return,
received an IRS notice stating "We discovered an error on your income
tax return". The letter says they are due a refund. When we review the
correspondence, we find that the IRS has calculated the tax on
unrecaptured §1250 gain at 15% instead of the mandated 25%, and has
erroneously refunded the difference. The taxpayers generally do not want
to send back the incorrect refund, and they certainly do not wish to
incur professional fees to have us convince the IRS that our calculation
was correct and the IRS was incorrect.

Lack of proper guidance in all areas of the tax code continues to be a
problem. The regulations are issued too long after the law is passed.
Many times Congress delegates the authority for exceptions and special
rules to Treasury, instead of putting it into law. This appears to go
beyond Treasury's responsibility for interpretation, and puts an undue
burden on them, preventing them from issuing timely guidance on other
regulation projects.

The estate tax law as it now stands is preventing good business planning
as it is uncertain what will happen after 2010. Proposals on repeal plan
to bring back into law what is known as "carryover basis". As an
illustration, suppose you inherit property from your Great Aunt. She
acquired the property in a divorce from her second husband, who
predeceased her. The second husband's family is under no reporting
obligation to provide you with the original cost information. If the
cost basis is ascertainable at all, it would be *[**very**]{.underline}*
difficult to obtain. The administrative difficulties of "carryover
basis" should be studied in ***[great]{.underline}*** detail before it
is supported into legislation.

**[Suggestions:]{.underline}**

Do not use tax law to provide economic incentives, except through very
restricted "credits" that do not affect basis. (such as the child tax
credit) Avoid special interest provisions.

Avoid major tax legislation more than once every two or three years.
Never make major legislation retroactive in the middle of the filing
season.

Remove hidden "special" tax rates such as 15% for dividends, 25% for
unrecaptured §1250 gain, 28% on collectible gains, 26% AMT.

Repeal AMT.

Standardize definitions. Bring the "at-risk" limitation rules of §465 in
harmony with the "basis" rules for loss limitations on partnerships and
S Corporations. Give partnership and S Corporations similar rules for
computing "Basis".

Allow S Corporations to use a non-calendar fiscal year without imposing
such a high rate of tax (highest individual bracket, plus one) on the
historic "deferral".

Make no changes to the depreciation rules in the foreseeable future,
especially as a short term stimulation to the economy.

Raise the exemption amount on the Estate tax and do not require
carryover basis for inherited property.

Streamline necessary reporting information so broker information could
be issued faster and more accurately. Standardize broker reporting
forms.