Guidance for Special Types of Businesses
Special Rules for Businesses in Certain Industries/Farming
Important Changes for 2000 and 2001, Affecting Farmers

ALERT!
Problem: Due to a processing error, IRS improperly denied the EarnedIncome Tax Credit (EITC) to some taxpayers with investment income exceeding $2,350. IRS sent erroneous error notices in response to certain 1999 returns witha combination of Form4797 Sales of Business Property and EITC.
Who's affected: A relatively small number of taxpayers who filed returnsclaiming EITC and who sold investment property including culled cows, farmingequipment and other business assets in 1999.
What IRS is doing about the problem: Service Centers have takencorrective steps to prevent improper EITC denials involving Form4797. IRS employees who process returns have been directed to manuallycompute taxpayers' investment income to ensure these EITC claims will not berejected. In addition, taxpayers and tax practitioners are being alerted to EITCproblems.
What affected taxpayers should do: Taxpayers who used Form4797 and subsequently received notice that their investment incomedisqualified them from EITC should notify the contact person or office listed onthe error notice to correct the problem. If the taxpayer otherwise qualifies forEITC, the IRS assistor may be able to make an on-line adjustment to thetaxpayer's account and issue a notice that the correction has been made and arefund is being issued. Individuals can also contact the IRS toll-free help lineat 1-800-829-1040 and say they are calling about disqualified income on Form4797 for EITC purposes.

Farm income averaging. You can now use a negativetaxable income amount for any base year to figure your tax on ScheduleJ (Form 1040). See Farm IncomeAveraging (Publication 225).

Important Changes for 2000

The following items highlight a number of administrativeand tax law changes for 2000.
They are discussed in more detail throughout the publication. More informationon these
and other changes can be found in Publication 553, Highlights of 2000 TaxChanges.

Depreciation limits on business cars. The totalsection 179 deduction and depreciation
you can take on a car you use in your business and first place in service in2000 is
$3,060. Special rules apply to certain clean-fuel vehicles. See chapter8.

discount hotels in LillehammerEarned income credit. The maximum earned incomecredit has been increased for
2000. To claim the credit, you must have earned income (including net earningsfrom
self-employment) and modified adjusted gross income of less than $31,152 andmeet
certain other requirements. For more information, including what counts asearned in-come,
see Publication 596, Earned Income
Credit (EIC).

Farm income averaging. You may be able to use anegative taxable income amount for
a base year when figuring your tax on Schedule J (Form1040). See chapter 4.

Paid preparer authorization. Beginning with yourreturn for 2000, you can check a box and
authorize the IRS to discuss your tax return with the paid preparer who signedit. If you
check the "Yes" box in the signature area of your return, the IRS cancall your paid
preparer to answer any questions that may arise during the processing of yourreturn.
Also, you are authorizing your paid preparer to perform certain actions. Seeyour income
tax package for details.

Section 179 deduction. For 2000, the total cost youcan elect to deduct under section
179 of the Internal Revenue Code is increased to $20,000. See chapter8.

Self-employed health insurance deduction. The partof your self-employed
health insurance premiums you can deduct as an adjustment to income is 60% for2000.
See chapter5.

Standard mileage rate. The standard mile-age ratefor the cost of operating your car,
van, pickup, or panel truck in 2000 is 32 1 /2 cents a mile for all businessmiles. See
chapter 5.

Tax rates and maximum net earnings for self-employmenttax. The maximum net
self-employment earnings subject to the social security part (12.4%) of theself-employment
tax increased to $76,200 for 2000. There is no maximum limit on earnings subject
to the Medicare part (2.9%). See chapter15.

Marginal production of oil and gas. The suspensionof the taxable income limit on
percentage depletion from the marginal production of oil and natural gas thatwas
scheduled to expire for tax years beginning after 1999 has been extended to taxyears
black jack onlinebeginning before 2002. For more information on marginal production, see section613A(c)
of the Internal Revenue Code.

Photographs of missing children. The InternalRevenue Service is a proud partner
with the National Center for Missing and Exploited Children. Photographs ofmissing
children selected by the Center may appear in this publication on pages thatwould other-wise
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 achild.

Important Changes for 2001

The following items highlight a number of administrativeand tax law changes for 2001.
More information on these and other changes can be found in Publication 553,Highlights
of 2000 Tax Changes.

Standard mileage rate. The standard mile-age ratefor the cost of operating your car,
van, pickup, or panel truck in 2001 is 34 1 /2 cents a mile for all businessmiles. See
chapter 5.

Electronic deposits of taxes. You must use theElectronic Federal Tax Payment System
(EFTPS) to make electronic deposits of all depository tax liabilities you incurafter 2000
if you meet either of the following conditions.
o You had to make electronic deposits in 2000.
o You deposited more than $200,000 in federal depository taxes in 1999.
If you do not meet these conditions, electronic
deposits are voluntary. See chapter16.

Section 179 deduction.Spana hotel For 2001, the total cost youcan elect to deduct under section
179 of the Internal Revenue Code is increased to $24,000. See chapter8.

Maximum net earnings for self-employment tax. Themaximum net self-employment
earnings subject to the social security part of the self-employment tax for 2001will
be published in Publications 533. There is no maximum limit on earningssubject
to the Medicare part.

Wage limits for social security and Medicare taxes. Themaximum wages subject to
the social security tax for 2001 will be published in Publication 51, CircularA, Agricultural
Employer's Tax Guide. There is no limit on wages subject to the Medicare tax.

Important References:

Publication 225                              Farmer'sTax Guide
Publication 553                                Highlights of Tax Changes