Introduction

This publication highlights tax law changes that take effect in 2000 and 2001. The chapters are divided into separate sections for each year.

During 2000, many changes to the tax law were considered by Congress. Several of our publications and instructions to tax forms contained Cautions about possible changes in the law. The changes to the law that Congress made are explained in this publication.

The changes discussed in this publication resulted from the Community Renewal Tax Relief Act of 2000, the FSC Repeal and Extraterritorial Income Exclusion Act of 2000, the Installment Tax Correction Act of 2000, and other legislative and administrative decisions. These changes include the following items.

• New method for extensions of time to file.
• Electronic payment options.
• Paid preparer authorization to handle certain tax return processing issues.
• Reduction of capital gains tax rate.
• Extension of the first-time homebuyer credit in the District of Columbia.
• Allowance of cash method of accounting for qualifying taxpayers.
• Allowance of the installment method of accounting for qualifying accrual method taxpayers.
• Repeal of the foreign sales corporation rules and new rules for excluding qualifying foreign trade income.

See the later discussion of each topic for more information.

Adjusting your withholding or estimated tax payments for 2001. If your tax for 2001 will be more or less than your 2000 tax, you may need to adjust your withholding or estimated tax payments accordingly. If your tax is decreasing, you can get the benefit of lower taxes throughout the year. If you will owe more tax, you can avoid a penalty when you file your tax return.

See the following table for forms and publications that will help you adjust your withholding or estimated tax payments. See chapter 8 for information on ordering forms and publications.

Note. Form 1040-ES, Estimated Tax for Individuals, for 2001 contained a Caution about the possibility that legislation enacted after December 8, 2000, could affect the computation of your 2001 estimated tax. For more information about this legislation and other changes that may impact your estimated tax, see 2001 Changes in chapter 1.

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.

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Internal Revenue Service
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