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Department of Revenue: that was then, this is now

March 05, 2009

The Iowa Department of Revenue has reversed its position about claiming several federal "extender" tax breaks. The Department had said taxpayers should go ahead and take the breaks -- including the "educator expense" tax deduction, the student tuition and fees deduction, and the deduction for sales taxes -- on their Iowa returns, on the assumption that Iowa would adopt these breaks.

Now the Department isn't so sure that the breaks will be re-enacted by the current legislature, and we should therefore stop claiming them. From an e-mail from the Department:

As we explained in that prior message, the final determination on Iowa’s treatment of these items must be made by the Iowa Legislature. The Department made an assumption when printing the 2008 income tax booklet that Iowa would follow the federal treatment. As of March 4, 2009, there has been no action by the Iowa Legislature regarding coupling with the 2008 federal law changes.

In terms of filing Iowa income tax returns at this time, the returns must be filed based on current Iowa law that is not coupled with federal law. Therefore, the extenders must not be included in the Iowa return.

If the Iowa Legislature does pass an Internal Revenue Code (IRC) Update Bill this session, then an amended return can be filed to include any extender items not originally claimed on the return.

If an Iowa return has already been filed claiming the extenders, but the Iowa Legislature does not pass an IRC Update Bill, then an Iowa amended return must be filed to exclude any items originally claimed that would not qualify under Iowa law.

Shorter version: If you believed us the first time -- sor-ry!

Full text of the e-mail below.

On February 13, 2009, the Department sent an eList notice about what are commonly referred to as the federal “extenders” and whether or not the federal provisions will be adopted for Iowa tax purposes. The extenders include the deductions on line 24 of the IA 1040 for educator expenses and college tuition / fees, and the itemized deduction on Schedule A for state sales and use tax paid.

As we explained in that prior message, the final determination on Iowa’s treatment of these items must be made by the Iowa Legislature. The Department made an assumption when printing the 2008 income tax booklet that Iowa would follow the federal treatment. As of March 4, 2009, there has been no action by the Iowa Legislature regarding coupling with the 2008 federal law changes.

In terms of filing Iowa income tax returns at this time, the returns must be filed based on current Iowa law that is not coupled with federal law. Therefore, the extenders must not be included in the Iowa return.

If the Iowa Legislature does pass an Internal Revenue Code (IRC) Update Bill this session, then an amended return can be filed to include any extender items not originally claimed on the return.

If an Iowa return has already been filed claiming the extenders, but the Iowa Legislature does not pass an IRC Update Bill, then an Iowa amended return must be filed to exclude any items originally claimed that would not qualify under Iowa law.

The Department will continue to provide updates as information becomes available.

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