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2002 Tax Help Archives |
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Tax Prep Help > 2002 > Publications > Publication 3991
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Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Comments and suggestions. We welcome your comments about this publication. You can e-mail us while visiting our web site at
You can write to us at the following address:
We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in
your correspondence.
Tax Changes for Individuals 2001 Changes New 5-Year Carryback Rule for Net Operating Losses (NOLs) If you have an NOL from a tax year ending during 2001 or 2002, you must generally carry back the entire amount of the NOL to the 5 tax years before
the NOL year (the carryback period). However, you can still choose to use the previous carryback period. You also can choose not to carry back an NOL
and only carry it forward.
Individuals, estates, and trusts can file Form 1045, Application for Tentative Refund. The instructions for this form will be
revised to reflect the new law.
Wash Sale Rules Do Not Apply to Section 1256 Contracts The wash sale rules that generally apply to losses from the sale of stock or securities, do not apply to any loss arising from a section 1256
contract.
A section 1256 contract is any:
Wash sales and section 1256 contracts are explained in detail in Publication 550, Investment Income and Expenses.
Other 2001 Changes Other changes are discussed in the following chapters.
2002 Changes Deduction for Educator Expenses If you are an eligible educator, you can deduct as an adjustment to income up to $250 in qualified expenses. You can deduct these expenses even if
you do not itemize deductions on Schedule A (Form 1040). This adjustment to income is for expenses paid or incurred in tax years beginning during 2002
or 2003. Previously, these expenses were deductible only as a miscellaneous itemized deduction subject to the 2% of adjusted gross income limit.
Eligible educator.
You are an eligible educator if, for the tax year, you meet the following requirements.
Qualified expenses.
These are unreimbursed expenses you paid or incurred for books, supplies, computer equipment (including related software and services), other
equipment, and supplementary materials that you use in the classroom. For courses in health and physical education, expenses for supplies are
qualified expenses only if they are related to athletics.
To be deductible as an adjustment to income, the qualified expenses must be more than the following amounts for the tax year.
Personal Credits Still Allowed Against Alternative Minimum Tax The provision that allowed certain nonrefundable personal credits to reduce both your regular tax and any alternative minimum tax (AMT) has been
extended and will be in effect for 2002 and 2003. This provision, as it applies to the AMT, was originally scheduled to expire after 2001. Without the
extension, these credits could not have been used to reduce any AMT in 2002 or 2003.
Later Change Child and Dependent Care Expenses For the purpose of figuring the child and dependent care credit, your spouse is treated as having at least a minimum amount of earned income for
any month that he or she is a full-time student or not able to care for himself or herself. Beginning in 2003, this amount is increased to $250 a
month if there is one qualifying person and to $500 a month if there are two or more qualifying persons. Before 2003, the amounts were $200 and $400.
The same rule applies for the exclusion of employer-provided dependent care benefits. For more information about the credit and exclusion, see
Publication 503, Child and Dependent Care Expenses.
Tax Changes for Businesses 2001 Changes New 5-Year Carryback Rule for Net Operating Losses (NOLs) If you have an NOL from a tax year ending during 2001 or 2002, you must generally carry back the entire amount of the NOL to the 5 tax years before
the NOL year (the carryback period). However, you can still choose to use the previous carryback period. You also can choose not to carry back an NOL
and only carry it forward.
Individuals, estates, and trusts can file Form 1045, Application for Tentative Refund. Corporations can file Form 1139,
Corporation Application for Tentative Refund. The instructions for these forms will be revised to reflect the new law.
Electronic Form 1099 For tax years ending after March 9, 2002, most Forms 1099 can be furnished electronically if the recipient consents, according to IRS regulations,
to receive it that way.
Tax Incentives for New York Liberty Zone New tax benefits are provided for the parts of New York City damaged in the terrorist attacks on September 11, 2001. These benefits apply to the
newly created New York Liberty Zone, which is the area located on or south of Canal Street, East Broadway (east of its intersection with Canal
Street), or Grand Street (east of its intersection with East Broadway), in the Borough of Manhattan.
Tax benefits for the New York Liberty Zone include the following.
In addition, for 2002 and 2003, the work opportunity credit is expanded by creating a new targeted group, consisting generally of employees who
work in the Liberty Zone or, in certain cases, in New York City outside the Liberty Zone. For more information, see Work Opportunity Credit
Expanded in New York Liberty Zone under 2002 Changes, later.
For more information about the 30% special depreciation allowance, Liberty Zone leasehold improvement property, or increased section 179 deduction,
see New York Liberty Zone Benefits, in chapter 5. In addition, the tax benefits for the Liberty Zone will be covered in a new edition of
Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities, available later in 2002.
Other 2001 Changes Other changes are discussed in the following chapters.
2002 Changes Nonaccrual-Experience Method Under current law, if you perform services and use an accrual method of accounting, you do not accrue income which, based on experience, you expect
to be uncollectible. Beginning in 2002, this rule only applies if you perform services in the fields of health, law, engineering, architecture,
accounting, actuarial science, performing arts, and consulting, or your average annual gross receipts for the 3 prior tax years does not exceed
$5,000,000. As under current law, the nonaccrual-experience method will not apply to amounts on which you charge interest or a late payment penalty.
For more information, see Nonaccrual-Experience Method in chapter 11 of Publication 535, Business Expenses.
Issuance of Qualified Zone Academy Bonds State and local governments issue qualified zone academy bonds to raise funds for the use of qualified zone academies. The amount of bonds that may
be issued was limited to $400 million each year for 1998, 1999, 2000, and 2001. This provision has been extended to provide for an additional $400
million of bonds to be issued each year for 2002 and 2003. For more information about qualified zone academy bonds, see Publication 954, Tax
Incentives for Empowerment Zones and Other Distressed Communities.
Depletion The suspension of the taxable income limit on percentage depletion from the marginal production of oil and natural gas that was scheduled to expire
for tax years beginning after 2001 has been extended to tax years beginning before 2004. For more information on marginal production, see section
613A(c) of the Internal Revenue Code.
Work Opportunity Credit Expanded in New York Liberty Zone The work opportunity credit is expanded to include a new targeted group consisting generally of employees who perform substantially all their
services:
The credit is available to employers for wages paid to new employees and existing employees for work performed during 2002 or 2003. Certain
limits apply. For more information about the work opportunity credit, see Publication 954, Tax Incentives for Empowerment Zones and Other
Distressed Communities.
Credit For Pension Plan Startup Costs The credit for pension plan startup costs is now allowed for plans that become effective after December 31, 2001. Previously, the credit
was only allowed for plans established after December 31, 2001. For more information on the credit, see Important Changes for
2002 in Publication 560, Retirement Plans for Small Business.
Welfare-to-Work Credit Extended The welfare-to-work credit that was scheduled to expire for wages paid to individuals who began working for you after 2001 has been extended to
include wages paid to qualified individuals who begin work for you in 2002 or 2003. For more information on the welfare-to-work credit, see
Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities.
Work Opportunity Credit Extended The work opportunity credit that was scheduled to expire for wages paid to individuals who began working for you after 2001 has been extended to
include wages paid to qualified individuals who begin work for you in 2002 or 2003. For more information about the work opportunity credit, see
Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities.
Electric and Clean-Fuel Vehicles The maximum clean-fuel vehicle deduction and qualified electric vehicle credit were scheduled to be 25% lower for 2002 and both were scheduled to
be phased out completely by 2005. The full deduction and credit are now allowed for qualified property placed in service in 2002 and 2003. The
phaseout of the deduction and the credit will begin in 2004, and no deduction or credit will be allowed for property placed in service after 2006. For
more information about electric and clean-fuel vehicles, see chapter 12 in Publication 535, Business Expenses.
Renewable Electricity Production Credit The renewable electricity production credit is extended to include electricity produced by facilities placed in service after 2001 and before 2004.
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