Squeeze more tax mileage out of auto expenses

businessmanagementdaily.com writes: Small Business Tax Strategies receives several related inquiries and comments on this particular tax issue every year: Should you use the flat rate method for deducting business auto expenses or the actual cost method? The answer depends on your personal situation. Strategy: Do the math. But don’t be surprised if the extra record-keeping required for deducting your actual expenses provides a much bigger deduction—even if you switch to the actual expense method partway through the year. This can provide a five-digit depreciation deduction for some vehicles. The actual expense method may be especially beneficial in 2013 due to the restoration of the 50% “bonus depreciation” tax break for vehicles placed in service this year.

Here’s the whole story: When you use a vehicle for business driving, you may deduct out-of-pocket expenditures—such as gas, oil, repairs, insurance, registration fees, tires, etc.—attributable to the business use of the vehicle, plus a generous depreciation allowance based on the percentage of business use. Although depreciation deductions are limited by special rules for “luxury cars,” thanks to the 50% bonus depreciation a business driver can effectively add up to $8,000 to the regular first-year limit for new (not used) vehicles placed in service in 2013 (see box below).

Similarly, if you lease the vehicle you use for business, you can write off the portion of the lease payments attributable to business use. The tax law requires you to report an “inclusion amount,” which effectively imposes the luxury car limits on lessees.

Tax shortcut: In lieu of deducting actual expenses, business drivers can claim the standard mileage deduction, which includes a built-in depreciation component. In this case, you don’t have to keep track of all your operating expenses, but the date, place, business relationship and business purpose of each trip still must be documented. The standard mileage rate for 2013 is 56.5 cents per mile.

Generally—but not always—you’ll come out way ahead deducting your actual expenses.

Example: Say you buy a new auto on July 1 for $40,000. You drive 1,000 business miles a month and your business-use percentage is 80%. For simplicity, let’s assume that the actual cost of operating the car works out to 70 cents a mile.

If you use the standard mileage rate, your deduction for this vehicle is limited to $3,390 (6,000 miles × 56.5 cents). Conversely, if you use the actual expense method, you can deduct $4,200 (6,000 miles × 70 cents), plus a first-year depreciation allowance of $8,928 (80% of $11,160). The total deduction comes to $13,128—over three times the deduction with the standard mileage rate!

What happens if you can’t claim a depreciation allowance for the vehicle? It’s probably a closer call, but it still may make sense to switch to the actual expense method, especially if you reconstruct your expenses from earlier in the year. In our example above, the actual expense deduction is $810 more. But if you can’t reconstruct expenses or your actual operating costs are lower, it might not be worth the record-keeping hassle. This may occur if you drive significantly more during the year than the 6,000 business miles used in the example.  

Can you do the reverse: Switch from the actual cost method to the standard mileage rate? Not usually. For instance, if you claimed an accelerated depreciation method for the vehicle in a prior tax year, you can’t change to the standard mileage deduction in a subsequent year.

Tip: Once a taxpayer begins using the standard mileage rate for a leased car, the method can’t be changed during the lease term.

Your number is up

Assuming you claim 50% bonus depreciation for a new (not used) vehicle placed in service in 2013, the maximum annual deduction limits are shown below. (The numbers must be scaled back if business-use percentage is less than 100%.)

What’s New in Withholding on Foreign Taxpayers?

Foreign persons such as non-resident aliens and foreign corporations are generally taxed in the same manner as a U.S. citizen or domestic corporation on all income that is effectively connected with the conduct of a trade or business in the United States. If any U.S. source income received by a foreign person is not effectively connected with a U.S. trade or business, then it will be taxed at a flat 30-percent rate or a lower rate permitted under a tax treaty.

Comment

U.S. source income received by a foreign person that is not effectively connected with a U.S. trade or business is generally fixed, determinable, annual, or periodical income. This can include interest, dividends, rents, salaries, wages, or other items of annual or periodic income, profit, or gain.  Since the foreign person is outside of U.S. jurisdiction, the IRS collects federal income tax by requiring withholding on payments made to the foreign taxpayer. This article focuses on recent changes to foreign taxpayer withholding and reporting requirements, including withholding under the Foreign Account Tax Compliance Act.

Interest Paid to Non-Resident Aliens

The IRS issued final regulations in 2012 that impose new reporting requirements for commercial banks, savings institutions, credit unions, securities brokerages, and insurance companies. Beginning on or after January 1, 2013, the entities are required to report on Form 1042-S any deposit interest of $10 or more paid to certain non-resident aliens. The regulations require reporting even though the interest income is not subject to U.S. taxes and there is no withholding requirement.

Under prior regulations, there was no reporting required for interest paid on a deposit maintained at a bank’s U.S. office, if the income was not effectively connected with a U.S. trade or business. There was an exception for deposit interest of $10 or more paid to a Canadian resident who is not a U.S. citizen. The final regulations have extended reporting to interest earned by residents of other foreign countries.

Reporting of deposit interest is required if the recipient is a non-resident alien who resides in a foreign country that has agreed to exchange tax information with the United States under a tax treaty or tax information exchange agreement. For administrative convenience, a financial institution may elect to report interest paid to all non-resident aliens, so that it will not have to determine whether a non-resident alien lives in a country with a tax agreement.

Comment : Rev. Proc. 2012-24, 2012-20 IRB 913, lists 78 countries that have TIEAs with the U.S. There is also one country that exchanges information automatically with the IRS: Canada.

Comment  : The final regulations are extremely controversial. Banks and other financial institutions have told the IRS that the reporting requirement will cost them business and will discourage foreign individuals from making U.S. deposits. The IRS, however, has long contemplated this reporting and finalized the regulations after FATCA was enacted. Under FATCA, foreign institutions, assisted by foreign governments, will be required to report to the IRS information about their accounts belonging to U.S. taxpayers. To encourage cooperation by foreign governments, the IRS wanted to be able to exchange corresponding information about the accounts of foreign taxpayers with their home governments.

Portfolio Interest

Interest from U.S. sources paid to foreign persons is generally subject to withholding. Thus, withholding agents must withhold interest on bonds, debentures, notes, government obligations, and other debt of U.S. obligors. Withholding is based on the gross amount of stated interest payable, even if a portion of the payment is a return of capital.

Interest and original issue discount that qualify as portfolio interest, however, are not subject to withholding. To qualify as portfolio interest, the interest must be paid to a foreign person on obligations issued after July 18, 1984, and be otherwise subject to withholding.

The rules for determining whether interest is portfolio interest have changed for obligations issued after March 18, 2012. Before March 19, 2012, exempt portfolio interest included interest on certain registered and non-registered (bearer) bonds. For obligations issued after March 18, 2012, exempt portfolio interest does not include interest paid on debt that is not in registered form.

An obligation is considered in registered form if either (1) the beneficial owner has provided the withholding agent with Form W-8 or other statement certifying that the beneficial owner is not a U.S. person, or (2) the IRS has determined that such statement is not required. A registered bond issued after March 18, 2012, and before January 1, 2014, is also in registered form if it is targeted to foreign markets.

Comment

An obligation is not in registered form if it can be converted at any time into a non-registered obligation.

U.S. Real Property Interest

The gain or loss derived by a non-resident alien or foreign corporation from the sale, exchange, or other disposition of a U.S. real property interest is treated as gain or loss effectively connected with a conduct of a U.S. trade or business. In order to ensure that a foreign investor will pay taxes on gain realized on the sale or disposition of a U.S. real property interest, the transferee is generally required to withhold and deduct a tax equal to 10 percent of the amount realized on the disposition. The withholding rate may be as high as 35 percent, however, in the case of a distribution made by a qualified investment entity.

A qualified investment entity for this purposes includes any real estate investment trust, and any regulated investment company (mutual fund) that is a U.S. real property holding company. The look-through rule for a RIC was slated to expire at the end of 2011 but has been extended through 2013 by the American Taxpayer Relief Act of 2012, P.L. 112-240.

For this purpose, a U.S. real property interest includes an interest, other than as a creditor, in real property (including an interest in a natural deposit) located in the United States or the U.S. Virgin Islands. It includes personal property associated with the use of the real property, such as farm machinery. It also means an interest in a U.S. corporation, unless the corporation was not a U.S. real property holding corporation for a specified period (five years or the holding period for the interest in the corporation, whichever is less).

Dividends Paid to Foreign Persons

A regulated investment company (mutual fund) can designate all or part of a dividend paid to a non-resident alien or foreign corporation as an interest-related dividend. As such, the dividend is exempt from 30-percent withholding. An interest-related dividend is limited to the RIC’s qualified net interest income. This income is the RIC’s U.S. source income from bank deposits, exempt short-term OID, interest on an obligation in registered form, and interest-related dividends from another RIC.

The RIC can also report all or part of the dividend as a short-term capital gain dividend. The amount designated as a short-term capital gain dividend cannot exceed the qualified short-term capital gain for the year, equal to the excess of the RIC’s net short-term capital gain over its net long-term capital loss. Short-term gains include short-term capital gain dividends from another RIC.

The American Taxpayer Relief Act of 2012, P.L. 112-240, extended the exemption from 30-percent withholding for two years, through 2013, for RIC dividends that are paid to non-resident aliens or foreign corporations and are interest-related or short-term capital gain dividends. The dividends must be reported by the company in a written statement to its shareholders. The exemption does not apply if the non-resident alien is present in the United States for 183 days or more during the tax year.

Partnership Withholding Rate

A foreign or domestic partnership that has income effectively connected with a U.S. trade or business must pay a withholding tax on the effectively connected income that is allocable to foreign partners. A partnership that must pay the withholding tax but fails to do so may be liable for the payment of the tax and any penalties and interest.

For 2013, the rate of withholding on non-corporate partners has increased to 39.6 percent. For corporate partners, the rate remains at 35 percent. The partnership may, however, withhold at the highest rate that applies to a particular type of income, if properly documented.

Comment

This withholding rate does not apply to income that is not effectively connected income. That income (for example, FDAP) is subject to withholding tax on non-resident aliens and foreign corporations.

The partnership must determine whether the partner is a foreign partner. A foreign partner can be a non-resident alien individual, foreign corporation, foreign partnership, foreign estate or trust, foreign tax-exempt organization, or foreign government. A partner that is a foreign person should provide the appropriate Form W-8 to the partnership.
Reference: PTE §37,301

How To Use A Roth IRA To Boost Your Retirement Savings

Ann G. Schnorrenberg for  U.S. News & World Report writes: Many companies are starting to offer employees the choice of Roth 401(k)s as well as traditional 401(k)s. Both are tax-favored accounts. A traditional 401(k) invests pretax money and is taxed upon withdrawal, while the Roth 401(k) invests post-tax money and is not taxed upon withdrawal. Which is a better way to invest?

If tax rates are constant, then a traditional 401(k) is technically the same as a Roth IRA. That is, it does not matter whether the account is taxed at the beginning or the end. Since tax is deferred in a traditional account, more money is invested and the total earnings are greater than in a Roth account. However, when taxes are paid upon withdrawal, it turns out that the tax on the extra earnings is exactly equal to the lost earnings from the tax paid in the Roth account. The taxes and extra earnings cancel each other out, leaving the Roth and traditional accounts with the same amount of after tax money.

This does not, however, mean that Roth and traditional accounts are equivalent. We assumed above that taxes are constant and that the investor can save the same amount of money in either type of account. However, not only is the individual likely to face a different tax rate upon retirement than when earning the money, but also, it turns out that more money can implicitly be saved in a Roth account than a traditional account.

The change in tax rates is straightforward. If you expect the government to raise tax rates, then a Roth 401(k) would be the better investment vehicle because you would be paying less tax at the lower, earlier rate. On the other hand, if you expect to drop to a lower tax bracket upon retirement, then a traditional 401(k) is the better way to go.

What is less commonly understood is that a Roth account allows you to save more money in a tax preferred manner. In 2013, the maximum contribution to a 401(k) is $17,500. This is the same whether you use pre-tax dollars for a traditional 401(k) or post-tax dollars for a Roth 401(k). However, tax has already been paid on the Roth account. Implicitly, this means you are saving more money in a tax-deferred manner using a Roth than a traditional once you approach the investment limits. Each account may start out with $17,500, but once money is withdrawn, the traditional account will be taxed, meaning it has less money.

As always, the optimal strategy will vary from individual to individual and is very dependent upon their expectations for the future. One possible strategy would be to combine traditional and Roth 401ks. Having both creates a hedge, allowing the individual to prepare for either rising or falling tax rates. Mixing in some Roth with the traditional account will also serve to lower the retirement tax rate. In this case, it generally is best to invest in the Roth in early years and traditional 401(k) later. There are two reasons for doing so. First, the individual's tax is almost certain to be lower in early earning years. Secondly, it is best for those early investments, which will experience the greatest compound growth, to grow in a retirement account and minimize the capital gains tax.

In the end, the most important decision is to invest. Whether you use a Roth, a traditional 401(k) or both, it is important to make that commitment early on and to maximize your investment.

CCH Launches Axcess Suite: Cloud-based Tax, Portals, Workflow, Document & Practice Management - With One Database

TAIJA JENKINS for CPa practice advisor writes: CCH, a Wolters Kluwer business announced the launch of its newest cloud-based solution CCH Axcess, the only cloud-based tax preparation, compliance and firm management solution. The new solution is designed to help professionals grow their firm while optimizing firm operations and workflow. CCH provides tax, accounting and audit information, software and services to tax, accounting and business professionals.

“Firms with CCH Axcess are firms with a clear competitive advantage,” said Karen Abramson, CCH President and CEO. “No one else can offer what CCH does today. With groundbreaking technology, tight tax workflow integration, common data and an open platform, CCH Axcess alone offers firms the highest levels of integration, confidence and speed.”

CCH Axcess features an integrated central database, allowing users to manage the entire tax process from return preparation and compliance to file storage and practice. Through the database, users have access to a centralized dashboard and can set up permissions and access document management and firm management tools. In addition, CCH Axcess also integrates with CCH Mobile solutions and apps to deliver content throughIntelliConnect. Users can also use apps from approved third-party partners through CCH’s Open Platform.

CCH Axcess is designed to help firms grow, manage and protect their business by redefining how firms operate, maximizing efficiency and providing support 24/7. The new solution helps professionals provide a new level of service by enhancing communication between professional and client and better supporting collaboration. The solution also seamlessly integrates using a centralized database, eliminating the need for manual data entry. Professionals can also use CCH Axcess to access up-to-date information regarding changing tax laws and regulations.

“Now is the time for firms to move ahead,” said Teresa Mackintosh, CCH Software Executive Vice President and General Manager. “CCH Axcess is the only modern, expandable CPA solution built from the ground up with a core database that unifies the accounting firm’s practice. With integrated modules in a single solution with a single database, customers leveraging CCH Axcess will save thousands of hours of time on routine tasks, enabling them to offer new services and value to clients.”

CCH Axcess modules include CCH Axcess Tax, CCH Axcess Document, CCH Axcess Portal, CCH Axcess Practice and CCH Axcess Workstream. Features of the new modules include:

• CCH Axcess Tax streamlines the digital tax process by supporting thousands of automatically calculated forms and schedules for federal, state, county and city entities; robust diagnostics; and a state-of-the-art electronic filing system.
• CCH Axcess Document is a document management solution that helps professionals electronically organize and store client source documents.
• CCH Axcess Portal provides 24/7 collaboration and access client financial documents for both firms and their clients.
• CCH Axcess Practice allows professionals to monitor staff time, produce invoices and handle all aspects of managing firm operations.
• CCH Axcess Workstream helps firms streamline administrative tasks, making it easier to track due dates, identify key milestones and monitor project status.

“Firms today know that it’s not just about completing client work. It’s about building relationships, enhancing services, standardizing processes and always increasing productivity  - that’s where new growth and success will come from,” said Mackintosh. “With CCH, they have a partner who understands that, who is investing in their success and who has delivered an advanced solution they alone can put to work and move forward with right now.”

2014 Fiscal Year Estate Tax Proposals

Miles C. Padgett and Donald D. Kozusko for WealthManagement.com write:  Few, if any, taxes create more complications and fundamental risks for successful families, family firms and individuals than the estate, gift and generation-skipping transfer taxes (transfer taxes). Unlike the income tax, these transfer taxes take a share of principal value, regardless of whether one’s assets are liquid or illiquid.  Worse yet, they apply at unpredictable times (at death) and in hidden ways (on indirect gifts and estate freezes). 

Generational transfer in a family or family business is a long-term process that requires a stable tax system, and the uncertainty of the last 12 years precluded such stability.  Fortunately, lawmakers in Washington recognized late last year that the time had come for stability in the transfer tax system, and on Jan. 1, 2013 the White House and Congress reached a “permanent” agreement on a new estate tax law that prevented the rates and exemption level from returning to their pre-2001 levels. Yet, within just a few short months, the White House has already proposed to undercut that “permanent” agreement by substantially altering the rules for transfer tax planning.

The Obama Administration Budget for Fiscal Year 2014 (budget) seeks to raise revenue from the estate tax system from three primary sources:¹

·       In the future, increasing the top estate tax rate from the current 40 to 45 percent and lowering the exemption from the current $5 million with inflation indexing to $3.5 millionwithout inflation indexing.

·      A de facto prohibition of sales to grantor trusts.

·      A de facto prohibition of grantor retained annuity trusts (GRATs).

Apparently, It’s About “Fairness”

The revenue increase from the proposed change in rates and exemptions is by far the biggest revenue raiser for estate-related changes, projected to yield about $71.6 billion out of the estimated total of $78.5 billion to be raised over 10 years by such changes.  Returning to 2009 tax rate and exemption levels wouldn’t take effect until 2018.  While that timing is a bit puzzling—likely designed to avoid criticism for back peddling on a heavily negotiated compromise supposed to be a permanent fix—it’s clear that these changes support a major theme in the revenue side of the budget: that it’s fair to ask the wealthiest to pay more.  Why is the fairness rationale so noteworthy?  Because it’s hard to justify these three transfer tax changes on any other grounds.²

The budget’s proposed transfer tax changes address, among other things, “estate freeze” strategies.  These strategies involve an owner dividing an asset (whether a family business or otherwise and whether pursuant to a trust vehicle or a financial instrument) into: (1) interests whose economic returns are limited (such as preferred shares or debt) and which is retained by the owner, and (2) interests whose economic characteristics are subordinate to the interests described in (1), yet have practically unlimited upside potential.

For at least 50 years, estate freezes have been used in estate planning to control estate tax costs. While they’ve always been subject to judge-made law dealing with concrete cases, Congress began an effort 25 years ago to provide more specific rules to distinguish between legitimate and abusive freezes.  Once enacted, the first set of those rules had to be repealed and replaced because they were completely unworkable; later efforts were then studied by experts,  amended several times and spelled out in 40 pages of regulations (also amended several times).  Despite tremendous effort by Congress and tax authorities, and hundreds of pages of published commentaries by experts, the rules in force today remain an enigma to most tax advisors and are believed in some quarters to be beyond the resources of the Internal Revenue Service to adequately and evenly enforce. 

If the issue is fairness to taxpayers, it is affirmatively unfair to taxpayers (even wealthy ones) to further complicate and expand these “freeze” rules, which are already practically incomprehensible in complexity.

The Proposed Grantor Trust Sale Rule

As noted, the budget proposes a broad rule that would apply whenever there’s a sale or exchange or “comparable transaction” between a grantor and a grantor trust.  Ordinarily, such a transaction is disregarded under the income tax and that rule wouldn’t change.  However, there would be a new rule for estate and gift tax purposes:  a grantor would be treated as still owning (for estate and gift purposes) that “portion of the trust” attributable to such a transaction (including increases in value, changes in form, etc.).  Thus, that portion of the trust would be included in the grantor’s estate at death (or treated as a taxable gift if paid out earlier). 

Most family trusts funded by gifts are grantor trusts by operation of law.  Accordingly, families would be forced to scrutinize everyday transactions and estate plans to avoid falling into this rule. If it applied, someone would have to track the trust as if it were two separate trusts, governed by two sets of tax rules and books for estate tax purposes and another set for income tax purposes. This would reach far beyond deliberate tax planning events, and one can scarcely imagine the number of families that will trip over these rules.  This type of compliance activity (even if successful) would be a terrible waste of our society’s resources.  To whom is that fair?

Equally important, sales and exchanges of property are common in estate and succession planning as the only practical avenue for rearranging illiquid assets within a family.  That’s a real and legitimate need and shouldn’t be foreclosed.

The Proposed GRAT Rule

The budget also proposes to require that a GRAT have a minimum 10- year term.  In a GRAT freeze, a grantor funds a trust that pays him a fixed dollar amount each year for a specified term, say two years, and passes what’s left at the end of that term to the next generation.  The amount of the gift under current law is the present value of that remainder after all payments are made. However, these annual payments are made large enough to reduce the projected remaining value to almost zero, and thus the taxable portion of the gift is almost zero.  The strategy will be successful if the grantor survives the trust term and if the trust assets grow faster than indicated by the projected tax valuation, so that after all fixed dollar payments are made, value is left to pass to the next generation.

A 10-year minimum term (in contrast to the 2- or 3-year terms that are commonly used today) will virtually repeal the use of GRATs because: (1) it would usually be impractical to do more than one GRAT and (2) the likelihood of the grantor dying before the GRAT term ends is significantly increased.  This is particularly true in the context of succession planning for family businesses because senior family owners tend to wait longer in life before passing ownership of the business.

If the Treasury wants to discourage the use of GRATs as estate freezes, then it should employ a scalpel, not a hammer.  For example, a minimum gift could be imposed on a GRAT, such as 5 percent of the assets funding the GRAT (in contrast to today’s ability to have a zero taxable gift GRAT), rather than requiring a minimum 10-year term.  In cases in which one or more GRATs are necessary to get certain assets into the proper hands, this would allows families to chose, if the need is sufficient, to move forward even if there’s a gift tax cost.  This would preserve the integrity of the transfer tax system while allowing taxpayers precious flexibility.

What’s Really Happening?

We believe what’s really happening here is that the Administration and Treasury officials view estate freezes (like GRATs and sales to grantor trusts) as “bad” tax-dodges and erosions of the transfer tax system.  If so, then the Administration and Treasury should address that issue in a more precise manner that preserves taxpayer flexibility and system predictability, rather than increase uncertainty and compliance burdens for successful families and family businesses. 

Restyled as Real Estate Trusts, Varied Businesses Avoid Taxes

Nathaniel Popper for The New York Times & CNBC writes: A small but growing number of American corporations, operating in businesses as diverse as private prisons, billboards and casinos, are making an aggressive move to reduce — or even eliminate — their federal tax bills.

They are declaring that they are not ordinary corporations at all. Instead, they say, they are something else: special trusts that are typically exempt from paying federal taxes.

The trust structure has been around for years but, until recently, it was generally used only by funds holding real estate. Now, the likes of the Corrections Corporation of America, which owns and operates 44 prisons and detention centers across the nation, have quietly received permission from the Internal Revenue Service to put on new corporate clothes and, as a result, save many millions on taxes.

The Corrections Corporation, which is making the switch, expects to save $70 million in 2013. Penn National Gaming, which operates 22 casinos, including the M Resort Spa Casino in Las Vegas, recently won approval to change its tax designation, too.

Changing from a standard corporation to a real estate investment trust, or REIT — a designation signed into law by President Dwight D. Eisenhower — has suddenly become a hot corporate trend. One Wall Street analyst has characterized the label as a "golden ticket" for corporations.

"I've been in this business for 30 years, and I've never seen the interest in REIT conversions as high as it is today," said Robert O'Brien, the head of the real estate practice at Deloitte & Touche, the big accounting firm.

At a time when deficits and taxes loom large in Washington, some question whether the new real estate investment trusts deserve their privileged position.

When they were created in 1960, they were meant to be passive investment vehicles, like mutual funds, that buy up a broad portfolio of real estate — whether shopping malls, warehouses, hospitals or even timberland — and derive almost all of their income from those holdings.

One of the bedrock principles — and the reason for the tax exemption — was that the trusts do not do any business other than owning real estate.

But bit by bit, especially in recent years, that has changed as the I.R.S., in a number of low-profile decisions, has broadened the definition of real estate, and allowed companies to split off parts of their business that are unrelated to real estate.

For example, prison companies like the Corrections Corporation and the Geo Group successfully argued that the money they collect from governments for holding prisoners is essentially rent. Companies that operate cellphone towers have said that the towers themselves are real estate.

The conversions generally do not require the companies to change their underlying business. The chief executive of the Corrections Corporation, Damon T. Hininger, told investors in February that the new structure should help in the company's aim of "housing more and more population for federal, state and local levels as they grow or deal with overcrowding."

The I.R.S. released its latest decision, allowing a data and document storage company to convert, on April 5. The letter did not include the name of the company, but several data storage companies, including Iron Mountain and Equinix, are in the process of converting.

A few days later, a strategist at the Wall Street firm Jefferies wrote in a report: "It is not a far stretch to envision REITs concentrated in railroads, highways, mines, landfills, vineyards, farmland or any other 'immovable' structure that generates revenues."

Today, there are more than 1,000 real estate investment trusts, about 10 percent of them traded publicly on the stock market. Investors like them because, by law, they must distribute at least 90 percent of their taxable income to their shareholders — a particularly alluring prospect today, given the low interest rates paid by many other basic investments.

The benefits of converting are obvious for stockholders and corporate insiders as well. The conversion typically drives up a company's stock price. Investors are drawn by the prospect of lucrative dividends under the new structure. The mere rumor that a company might convert has been enough to send its stock price soaring.

The trend has been a concern to advocates of the traditional trusts, who fear that the newcomers may eventually jeopardize the tax status of older funds that do not do any business other than owning real estate.

"I worry that in a world where Congress is very sensitive to taxes, that a lot of these structures could end up attracting a lot of attention that might not be entirely positive," said Ross L. Smotrich, an analyst at Barclays.

Steven Rosenthal, a staff member at the Joint Committee on Taxation during the 1990s and now a visiting fellow at the nonpartisan Tax Policy Center, said that the trend raises questions about the purpose of corporate income taxes at a time when there are so many ways around them. The conversions are one of many strategies that businesses use to avoid paying the corporate tax rate of 35 percent.

"What is there about a business owning real estate that suggests we should not tax them?" Mr. Rosenthal said.

Some Congressional staff members said they had noticed the recent conversions and were monitoring the issue.

This is not the first wave of companies seeking out a new type of corporate status to avoid taxes. In the 1980s, dozens of companies, including Sahara Resorts and the Boston Celtics, became master limited partnerships, another corporate form that is tax-exempt. After the practice attracted notice, Congress passed laws that limited the industries that could use the structure. In the 1990s, hotel companies took advantage of the laws, but a change to the laws in 1999 soon snuffed that out.

It is too soon to tell how far the current round of conversions will spread. PricewaterhouseCoopers recently counted 20 companies that are at some stage in the process of converting, and there has been a steady stream of suggestions for what industry might next secure I.R.S. approval.

Lawyers have also been finding creative ways to follow the letter of the law by splitting off parts of a company into subsidiaries that can be taxed. In the legal world, the most controversial such effort is being undertaken by Penn National, the casino company. It won approval from the I.R.S. late last year to turn itself into a real estate holding company. In the process, it created a tax-paying subsidiary that holds the casino operations and pays rent to the parent company.

Mr. O'Brien, at Deloitte & Touche, said he has been talking with other casino operators that are looking at making similar moves. The ruling could also open the door for restaurant companies like McDonald's and retailers like J. C. Penney to follow a similar route, though neither company has indicated it is considering such a move.

For now, companies like the Corrections Corporation are quickly moving through the process.

"The good news about this is that we are going to be able to enjoy a full year of tax savings for 2013," Mr. Hininger, the chief executive, said in February. Last week, the company's share price hit its highest level in over a decade.

Ten Facts on Filing an Amended Tax Return

What should you do if you already filed your federal tax return and then discover a mistake? Don’t worry; you have a chance to fix errors by filing an amended tax return. This year you can use the new IRS tool, ‘Where's My Amended Return?’ to easily track the status of your amended tax return. Here are 10 facts you should know about filing an amended tax return.

1. Use Form 1040X, Amended U.S. Individual Income Tax Return, to file an amended tax return. An amended return cannot be e-filed. You must file it on paper.
2. You should consider filing an amended tax return if there is a change in your filing status, income, deductions or credits.
3. You normally do not need to file an amended return to correct math errors. The IRS will automatically make those changes for you. Also, do not file an amended return because you forgot to attach tax forms, such as W-2s or schedules. The IRS normally will send a request asking for those.
4. Generally, you must file Form 1040X within three years from the date you filed your original tax return or within two years of the date you paid the tax, whichever is later. Be sure to enter the year of the return you are amending at the top of Form 1040X.
5. If you are amending more than one tax return, prepare a 1040X for each return and mail them to the IRS in separate envelopes. You will find the appropriate IRS address to mail your return to in the Form 1040X instructions.
6. If your changes involve the need for another schedule or form, you must attach that schedule or form to the amended return.
7. If you are filing an amended tax return to claim an additional refund, wait until you have received your original tax refund before filing Form 1040X. Amended returns take up to 12 weeks to process. You may cash your original refund check while waiting for the additional refund.
8. If you owe additional taxes with Form 1040X, file it and pay the tax as soon as possible to minimize interest and penalties.
9. You can track the status of your amended tax return three weeks after you file with the IRS’s new tool called, ‘Where’s My Amended Return?’ The automated tool is available on IRS.gov and by phone at 866-464-2050. The online and phone tools are available in English and Spanish. You can track the status of your amended return for the current year and up to three prior years.
10. To use either ‘Where’s My Amended Return’ tool, just enter your taxpayer identification number (usually your Social Security number), date of birth and zip code. If you have filed amended returns for more than one year, you can select each year individually to check the status of each. If you use the tool by phone, you will not need to call a different IRS phone number unless the tool tells you to do so.  

Additional IRS Resources:

• Form 1040X, Amended U.S. Individual Income Tax Return
• Where's My Amended Return? tool
• Tax Topic 308 - Amended Returns
• Q&A about amended returns and Form 1040X

Six Facts on Tax Refunds and Offsets

Certain financial debts from your past may affect your current federal tax refund. The law allows the use of part or all of your federal tax refund to pay other federal or state debts that you owe.

Here are six facts from the IRS that you should know about tax refund ‘offsets.’

1. A tax refund offset generally means the U.S. Treasury has reduced your federal tax refund to pay for certain unpaid debts.
2. The Treasury Department’s Financial Management Service is the agency that issues tax refunds and conducts the Treasury Offset Program.
3. If you have unpaid debts, such as overdue child support, state income tax or student loans, FMS may apply part or all of your tax refund to pay that debt.
4. You will receive a notice from FMS if an offset occurs. The notice will include the original tax refund amount and your offset amount. It will also include the agency receiving the offset payment and that agency’s contact information.
5. If you believe you do not owe the debt or you want to dispute the amount taken from your refund, you should contact the agency that received the offset amount, not the IRS or FMS.
6. If you filed a joint tax return, you may be entitled to part or all of the refund offset. This rule applies if your spouse is solely responsible for the debt. To request your part of the refund, file Form 8379, Injured Spouse Allocation. Form 8379 is available on IRS.gov or by calling 1-800-829-3676.

Additional IRS Resources:

• Tax Topic 203 - Refund Offsets
• Form 8379, Injured Spouse Allocation
• Treasury Offset Program - U.S. Treasury Financial Management Service website