Flush with a federal budget surplus, Congress is entering into a new era of pro-taxpayer legislation. In 1997, it enacted the historic Taxpayer Relief Act of 1997 (TRA '97), the largest tax-cut legislation in 16 years. In 1998, even before it turned to the annual budget, Congress quickly passed the extensive IRS and Reform Act of 1998. This Act not only reorganizes the IRS and arms taxpayers with valuable rights to assert against IRS audits and collections, but, equally as important, it improves and fine-tunes capital gains relief, Roth IRAs, child credits, education tax incentives, estate tax reductions and dozens of other provisions originally enacted in TRA '97. In 1999, Congress again made significant changes. The Tax Relief Extension Act of 1999 provides an estimated 4 million taxpayers with $15 billion in tax relief over the next five years, while burdening others with a $2.5 billion tax increase. In 2000, still further tax changes were considered by Congress and a modest $25 billion tax-cut was passed despite an election year. In 2001, the Bush Administration has promised to follow through on campaign promises for a substantial, across-the-board tax cut.

This letter is intended to alert you to some of the most important changes that have taken place over the past several years. By recognizing which tax breaks apply to you, you may be better prepared to maximize their benefits. Some of the major changes are:

* The 18-month holding period for long-term capital assets eligible for the lower capital gain rates set by TRA '97 has been eliminated. Instead, property held for more than one year now qualifies for the favorable rates.

* Congress has clarified that the complicated netting process for capital gains and losses can result in an increase or decrease of up to 8% in tax liability depending upon how a taxpayer times the recognition of gains and losses. Investors who take the time to do some careful tax planning in this area can be amply rewarded.

* Roth Conversion IRAs (Roth IRAs set up with funds from regular IRAs) will be made available to more people who retire and receive distributions from existing retirement plans. Under the new rules, starting with the 2005 tax year, an individual over age 70 1/2 can exclude minimum required distributions from the amount of income used to determine whether a taxpayer meets the $100,000 adjusted gross income eligibility limit for Roth Conversion IRAs. This provision affects individuals planning for their future retirement as well as those who are presently retired.

* Roth Conversion IRA owners also need to watch more carefully how they withdraw money from their Roth IRAs for emergencies and other needs. The new law imposes penalties on some, but not all, early withdrawals. Planning can help preserve an extra degree of the flexibility for the Roth IRA owner. …