Tax News

CCH (cch.taxgroup.com) reports:

A rule has been proposed that will mandate participation by certain tax return preparers in the electronic filing of 2008 returns for the Maine individual income tax and the sales, use, and service provider tax. Electronic filing mandates will also apply to certain employers and pass-through entities that are subject to 2008 income tax withholding requirements.
Electronic filing of 85% of 2008 individual income tax returns will be required by tax return preparers that prepared 200 or more original Maine individual income tax returns in calendar year 2007. Electronic filing of sales, use, or service provider tax returns for the 2008 tax year will be required if tax liability on any original return prepared for any one tax for the 12-month period ending September 30, 2007, was $200,000 or more.
Employers, third party filers, or payroll processors with 75 or more employees in 2008 that are subject to Maine income tax withholding will be required to electronically file all original 2008 quarterly and annual reconciliation returns. Pass-through entities with 75 or more nonresident members in 2008 that are subject to pass-through withholding on Maine source income will be required to electronically file all original 2008 quarterly and annual reconciliation returns.
The thresholds for mandatory electronic filing will be reduced for calendar years beginning after 2008. The proposed rule also provides guidance on requesting a waiver and on penalties that may be imposed for noncompliance.
A public hearing on the rule is scheduled for January 9, 2008. The deadline for comments is January 21, 2008.
Subscribers to CCH Tax Research NetWork can view the complete text of the proposed rule, information on the public hearing, and other details.
Rule 104 , Maine Department of Administrative & Financial Services, Bureau of Revenue Services, December 19, 2007.

CCH (cch.taxgroup.com) reports:

The IRS has announced that it will issue regulations under Code Sec. 367 to clarify how the two exceptions in Reg. §1.367(a)-3(d)(2)(vi)( (the "coordination rule") apply to certain outbound reorganization transactions. The first exception will be modified to require that a basis adjustment for unrecognized gain be made to the stock of the foreign acquiring corporation. Any unrecognized gain that is not preserved in the basis will be subject to Code Sec. 367(a) and (d). The second exception will be modified to limit Code Sec. 351 transfers that also qualify as Code Sec. 361 exchanges so that they are eligible for only the first exception.
The announcement of the planned issuance of regulations is in response to certain transactions designed to avoid U.S. income tax. The regulations will be effective for transactions on or after December 28, 2007. However, the IRS reserves the right to challenge transactions undertaken prior to this announcement where appropriate under appropriate provisions and judicial doctrines.
Specifically, the first exception, contained in Reg. §1.367(a)-3(d)(2)(vi)((1)(i), will be modified to clarify that the basis adjustment required by Code Sec. 367(a)(5) must be made to the stock of the foreign requiring corporation received by domestic corporate shareholders of the U.S. transferror in the reorganization such that the appropriate amount of unrecognized gain in the U.S. transferror's property is reflected in such stock. The result is that the basis adjustment requirement cannot be satisfied by adjusting the basis of the stock of the foreign acquiring corporation held by such shareholders prior to the reorganization. Further, the regulations will clarify that, to the extent the appropriate amount of unrecognized gain in the U.S. transferror's property cannot be preserved in the stock of the foreign acquiring corporation, the U.S. transferror's transfer of property to the foreign acquiring corporation will be subject to Code Sec. 367(a) and (d).
The second exception, found in Reg. §1.367(a)-3(d)(2)(vi)((2), will be modified to clarify that the exception will not apply to a Code Sec. 351 transfer that also qualifies as a Code Sec. 361 exchange. Thus, a Code Sec. 351 transfer that is also a Code Sec. 361 exchange may only qualify, if at all, for the first exception.
Notice 2008-10, 2008FED ¶46,225
Other References:
Code Sec. 367
CCH Reference - 2007FED ¶16,667.01
CCH Reference - 2007FED ¶16,667.021
CCH Reference - 2007FED ¶16,667.024
CCH Reference - 2007FED ¶16,667.028
CCH Reference - 2007FED ¶16,667.28
CCH Reference - 2007FED ¶16,667.57
Tax Research Consultant
CCH Reference - TRC INTL: 30,000
CCH Reference - TRC INTL: 30,056
CCH Reference - TRC INTL: 30,352.05
CCH Reference - TRC INTL: 30,354
 

CCH (cch.taxgroup.com) reports:

The IRS has issued proposed, temporary and final regulations concerning deductions for contributions to trusts maintained for decommissioning nuclear power plants. The new rules, which affect taxpayers that own interests in nuclear power plants, reflect changes made to Code Sec. 468A by the Energy Policy Act of 2005 (P.L. 109-58). The text of the temporary regulations also serves as the text of the proposed regulations.
Under Code Sec. 468A, all decommissioning costs of both unregulated and regulated nuclear power plants can be funded by deductible contributions to a qualified nuclear decommissioning fund. A plant's pre-1984 decommissioning costs can be funded by increasing the annual deductible contributions over the remaining useful life of the plant. Further, a taxpayer can contribute, in a single year, all or any portion of the amount needed to fund pre-1984 costs that were not previously funded. Such a special transfer is not deductible in full in the year of the contribution, but is allowed ratably over the remaining useful life of the plant.
Useful Life
Under the temporary regulations, for plants that were regulated by a public utility commission (PUC) before 2006, the useful life of the plant begins on the first day of the tax year that includes the date the plan began commercial operations and ends on the last day of the tax year that includes the estimated date on which the plant will no longer be included in the taxpayer's rate base for ratemaking purposes. For other plants, any reasonable method may be used to determine the end of the estimated useful life. The temporary regulations eliminate the requirement that adjustments must be made to the estimated useful life to reflect changes in PUC assumptions regarding useful life.
Special Transfers
The temporary regulations provide rules for calculating the maximum special transfer amount. In addition, rules are provided concerning transfers of property other than cash and transfers of qualified nuclear decommissioning funds to related persons. Where a fund is transferred to a related person, the regulations provide that the transferee's ruling amounts will be adjusted to offset any inappropriate benefit provided by the resultant acceleration of deductions.
Schedules of Ruling Amounts
The temporary regulations provide that, for a plant that is subject to PUC regulation, the assumptions used by the PUC in determining decommissioning costs must be provided in the submission of the proposed schedule of ruling amounts. However, the PUC's assumptions need not be used in calculating the proposed schedule. The taxpayer bears the burden of establishing that the requested schedule is based on reasonable assumptions. A taxpayer that owns an interest in a deregulated nuclear plant may submit assumptions used by a PUC that formerly had jurisdiction over the plant or other industry standards as alternative means of demonstrating the proposed schedule of ruling amounts was calculated on a reasonable basis.
Effective Date
The temporary regulations apply beginning on December 31, 2007, with respect to tax years ending on or after that date. For the period from January 1, 2006, to December 31, 2007, taxpayers may use any reasonable method that is consistent with Code Sec. 468A to determine the schedule of ruling amounts or the schedule of deduction amounts.
Comments and Hearing
Written or electronic comments and requests for a public hearing on the proposed regulations must be received by March 31, 2008.
T.D. 9374, 2008FED ¶47,011
Proposed Regulations, NPRM REG-147290-05, 2008FED ¶49,784
Other References:
Code Sec. 468A
CCH Reference - 2007FED ¶21,931
CCH Reference - 2007FED ¶21,932
CCH Reference - 2007FED ¶21,933
CCH Reference - 2007FED ¶21,934
CCH Reference - 2007FED ¶21,935
CCH Reference - 2007FED ¶21,936
CCH Reference - 2007FED ¶21,937
CCH Reference - 2007FED ¶21,938
CCH Reference - 2007FED ¶21,939
CCH Reference - 2007FED ¶21,939C
Tax Research Consultant
CCH Reference - TRC ACCTNG: 12,208
 

CCH (cch.taxgroup.com) reports:

The IRS and Treasury Department have issued temporary and proposed regulations adding an additional item of tax return information, concerning total qualified research expenses, which the Treasury Secretary may disclose to the Bureau of the Census (Bureau) for use in the latter's annual Survey of Industrial Research and Development. The regulation permits disclosure of such data from the taxpayers' Forms 6765, Credit for Increasing Research Activities.
The amendment to the regulation is effective on December 31, 2007 and is applicable to disclosures to the Bureau on or after that date. The applicability of the amendment expires on or before December 28, 2010.
The text of the temporary regulation also serves as the text of the proposed regulation. Written or electronic comments regarding the proposed regulation have been requested, and must be received by March 31, 2008.
T.D. 9373, 2008FED ¶47,010
T.D. 9373, FINH ¶43,115
Proposed Regulations, NPRM REG-147832-07, 2008FED ¶49,783
Proposed Regulations, NPRM REG-147832-07, FINH ¶41,130
Other References:
Code Sec. 6103
CCH Reference - 2007FED ¶36,886B
CCH Reference - 2007FED ¶36,886C
CCH Reference - FINH ¶20,435.30
Tax Research Consultant
CCH Reference - TRC IRS: 9,254
 

CCH (cch.taxgroup.com) reports:

The Internal Revenue Service has certified five 2008 model year General Motors Corp. vehicles as meeting the requirements of the Alternative Motor Vehicle Credit for qualified hybrid motor vehicles. The credit amount for each vehicle is:
--Chevrolet Tahoe Hybrid (2WD) --$2,200;
--Chevrolet Tahoe Hybrid (4WD) --$2,200;
--GMC Yukon Hybrid (2WD) --$2,200;
--GMC Yukon Hybrid (4WD) --$2,200; and
--Saturn Vue Green Line --$1,550
This brings the total number of GM certified hybrid vehicles for the 2008 model year to seven. The Chevrolet Malibu Hybrid ($1,300.00) and the Saturn Aura Hybrid ($1,300.00) were previously certified.
IR-2007-210, 2008FED ¶46,222
Other References:
Code Sec. 30B
CCH Reference - 2007FED ¶4059E.0265
CCH Reference - 2007FED ¶4059E.10
Tax Research Consultant
CCH Reference - TRC INDIV: 57,708
 

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The members of a taxpayer's affiliated group may elect to use the Missouri single-factor method of apportionment to determine the portion of the affiliated group's Missouri taxable income that is derived from sources within Missouri for Missouri corporate income tax purposes. Furthermore, in determining the affiliated group's Missouri apportionment percentage, the receipts from any intercompany transactions between the one group member domiciled in Missouri and the taxpayer-owned Missouri-domiciled single member limited liability company (LLC) that acts as an administrator for each member of the group are properly included as wholly within Missouri because those intercompany transactions are conducted completely within Missouri.
The receipts arising from transactions between the LLC and the out-of-state group members are properly treated as partly within and partly without Missouri. Because the brains of the LLC's operations are located within Missouri, lending Missouri effort to all of the LLC's business transactions, none of the receipts from any intercompany transactions involving the LLC would be classified as wholly without Missouri. Amounts paid to a Missouri organization by the state of Missouri for the benefit of Missouri beneficiaries and for the provision of services to those beneficiaries wholly within Missouri are included as sales transacted wholly within Missouri, while amounts paid to a non-Missouri organization by a state other than Missouri for the benefit of non-Missouri beneficiaries and for the provision of services to those beneficiaries wholly outside Missouri are included as sales transacted wholly without Missouri.
Letter Ruling No. LR4124, Missouri Department of Revenue, October 5, 2007, ¶202-797
Other References:
Explanations at ¶11-520
 

CCH (cch.taxgroup.com) reports:

The exclusion of adult entertainment cabarets from the City of Chicago's and Cook County's amusement tax exemptions for small-venue live performances was a content-based regulation on speech that did not serve a compelling state interest and, therefore, violated the First Amendment of the U.S. Constitution.
Both the City and the County allowed an exemption from their respective amusement taxes for live performances that took place in a space with a maximum capacity of not more than 750 people (small-venue exemption), but excluded from the exemption performances conducted at adult entertainment cabarets.

CCH (cch.taxgroup.com) reports:

An IRS settlement officer did not abuse her discretion when she issued a notice of determination without considering a married couple's offer-in-compromise (OIC) that was based only on doubt as to liability. Because the taxpayers received a notice of deficiency and had an opportunity to challenge the underlying tax liability before the Collection Due Process (CDP) hearing, but failed to do so, Code Sec. 6330 barred them from challenging the amount of the liability at the CDP hearing. Therefore, the settlement officer properly refused to consider the taxpayers' OIC that was based on doubt as to liability since such the OIC was a prohibited challenge to the underlying tax liability. The settlement officer exercised discretion in a reasonable way by issuing a notice of determination that sustained the lien but postponed the collection by levy until other IRS employees considered the OIC and various late-filed returns of the taxpayers.
P.P. Baltic, 129 TC No. 19, Dec. 57,213
Other References:
Code Sec. 6330
CCH Reference - 2007FED ¶38,184.12
Tax Research Consultant
CCH Reference - TRC IRS: 51,056
 

CCH (cch.taxgroup.com) reports:

In response to the December 26, 2007, signing of the alternative minimum tax patch legislation (AMT patch), the IRS has issued a series of announcements and reminders regarding the upcoming 2007 filing season.
Although the IRS expects the filing season to start on time, some 13.5 million taxpayers using AMT-related forms will have to wait until approximately February 11, 2008, to file. In particular, taxpayers filing any of the following forms (manually or electronically) must wait until February 11, 2008, to file:
--Form 8863, Education Credits.
--Form 5695, Residential Energy Credits.
--Form 1040A, Schedule 2, Child and Dependent Care Expenses for Form 1040A Filers.
--Form 8396, Mortgage Interest Credit.
--Form 8859, District of Columbia First-Time Homebuyer Credit.
Other AMT-related forms, including Form 6251, Alternative Minimum Tax - Individuals, will be processed beginning on January 14, 2008.
In addition, the IRS has provided the following related guidance:
--Taxpayers should update any personal return-preparation software for the AMT patch.
--Taxpayers with $54,000 or less in adjusted gross income can electronically file their returns for free.
--Tax packages from the IRS, which will begin arriving in the mail around New Year's Day, went to the printer in November before the AMT patch was enacted.
IR-2007-209, 2008FED ¶46,221
Other References:
Code Sec. 6011
CCH Reference - 2007FED ¶35,141.02
Tax Research Consultant
CCH Reference - TRC FILEIND: 30,000
 

CCH (cch.taxgroup.com) reports:

The IRS has announced 2008 inflation-adjusted tax rates for the airline ticket excise taxes. The Code Sec. 4261(b) excise tax on the amount paid for each domestic flight segment of taxable transportation increases to $3.50. The Code Sec. 4261(c) excise tax on amounts paid for international air travel beginning or ending in the United States is $15.40. For a domestic flight segment beginning or ending in Alaska or Hawaii, the Code Sec. 4261(c) tax on the use of international facilities applies to departures at the rate of $7.70.
These inflation adjustments were not included in Rev. Proc. 2007-66, I.R.B. 2007-45, 970, the ruling that generally provides the inflation-adjusted tax rates for 2008. This is because, under Code Sec. 4261(j)(1)(A)(ii), the airline ticket taxes --taxes that fund the Airport and Airway Trust Fund --were scheduled to expire after September 30, 2007. Several continuing resolutions extended the 2007 rates through December 21, 2007 (P.L. 110-92, P.L. 110-116 and P.L. 110-137). But 2008 inflation-adjusted figures were not necessary until the Consolidated Appropriations Act, 2008 (HR 2764) was signed by the president on December 26, 2007 (TAXDAY, 2007/12/27, W.2). The Department of Transportation Appropriations Act within the larger consolidated Act extends the airline ticket taxes to air transportation that begins or is paid for no later than February 29, 2008.
The airline ticket taxes are expected to be extended for a four-year period when Congress completes work on the FAA Reauthorization Bill of 2007 (HR 2881), which passed the House on September 20, 2007 (TAXDAY, 2007/09/21, C.1), and has been placed on the Senate's calendar.
The IRS says that Rev. Proc. 2007-66 will soon be modified to include the 2008 inflation adjustments pertaining to airline ticket taxes.
IR-2007-208, ETR ¶66,842
Other References:
Code Sec. 4261
CCH Reference - ETR ¶19,305.014
CCH Reference - ETR ¶19,305.02
CCH Reference - ETR ¶19,305.495
Tax Research Consultant
CCH Reference - TRC EXCISE: 9,102.05
CCH Reference - TRC EXCISE: 9,104.05

CCH (cch.taxgroup.com) reports:

The IRS has released proposed regulations implementing the provisions of Code Sec. 411(a)(13) and (b)(5)
relating to cash balance and other hybrid defined benefit plans. The provisions, which were enacted as part of the Pension Protection Act of 2006 (P.L. 109-280), include rules under which cash balance and pension equity plans will be deemed not to violate age discrimination requirements and impose limits on the calculation of hypothetical account balances in such plans. The proposed regulations generally incorporate and expand on the provisions of Notice 2007-6, I.R.B. 2007-3, 272.
The proposed regulations generally apply to defined benefit plans under which any or all of a participant's accrued benefit is based on the balance of a hypothetical account maintained for the participant or an accumulated percentage of the participant's final average compensation (applicable defined benefit plans). They describe a safe harbor protecting such plans from liability for age discrimination in the calculation of accumulated benefits. If each individual's accumulated benefits can never be less than that of a similarly situated, younger participant, the safe harbor is satisfied.
The proposals also would implement the requirement that participants whose benefits are affected by the conversion of a traditional defined benefit plan into such a plan must be provided a benefit equal to at least the sum of the benefit accrued through the date of the conversion and the benefits earned after the conversion, with no "wearaway" or other interaction between the amounts. In addition, they would implement the requirement that the rate at which interest is credited to participants' hypothetical accounts under such plans cannot exceed a market rate of interest.
The regulations are proposed to be effective for plan years beginning on or after January 1, 2009 (later for some collectively bargained plans). Plans may rely on the proposed regulations for earlier periods. Written or electronic public comments will be considered, and the IRS and the Treasury Department specifically request comments both on the clarity of the proposed regulations and on a number of specific issues, including some beyond the scope of these provisions.
Proposed Regulations, NPRM REG-104946-07, 2008FED ¶49,781
Other References:
Code Sec. 411
CCH Reference - 2007FED ¶19,064C
CCH Reference - 2007FED ¶19,066E
Tax Research Consultant
CCH Reference - TRC RETIRE: 39,058
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

A defunct company and its president were barred by comity and the Tax Injunction Act from maintaining all but one of their federal 42 U.S.C. §1983 claims based on allegations that Illinois county officials placed obstacles in the company's path to make it difficult to collect property tax refunds for its clients. The remaining claim involving an allegedly retaliatory criminal investigation of the company and the president also failed due to the prosecutor's absolute immunity.

CCH (cch.taxgroup.com) reports:

Alaska Governor Sarah Palin signed legislation revising the petroleum profits tax (PPT) on December 19. As previously reported, the Legislature passed the bill, entitled Alaska's Clear and Equitable Share (ACES), on November 16, the final day of the special session called by the governor to address oil taxation. (TAXDAY, 2007/11/20, S.1) The general effective date of the legislation is December 20, 2007, but many provisions apply retroactively.
The base tax rate is increased from 22.5% to 25% of the annual production tax value of taxable oil and gas. When a producer's average monthly production tax value per BTU equivalent barrel of taxable oil and gas is between $30 and $92.50, an additional tax of 0.4% is imposed on the difference between the average monthly production tax value and $30. Formerly, the additional tax was 0.25%. When a producer's average monthly production tax value exceeds $92.50, the additional tax is 0.1% of the difference between the monthly production tax value and $92.50. The new tax rates are effective July 1, 2007.
Credits allowed for qualified exploration expenditures are increased from 20% to 30%. In addition, the law is amended to provide that exploration credits may not be taken for costs associated with repairs and replacements, fraud, negligence, or violations of law, including the federal Clean Water Act. These provisions are effective July 1, 2008.
Another amendment provides that a producer or explorer may elect to take a credit of 25% (formerly, 20%) of a carried-forward annual loss. "Carried-forward annual loss" is the amount of the producer's or explorer's adjusted lease expenditures that were not deductible in the calendar year in which they were incurred because their deduction would have caused a production tax value less than zero. A statutory amendment provides that only the amount of adjusted lease expenditures remaining after the specified accounting procedure may be used to establish a carried-forward annual loss. These provisions are effective July 1, 2007.
A new provision allows a credit of 5% of an eligible expenditure for seismic exploration performed before July 1, 2003, provided the claim is filed before January 1, 2016. This provision takes effect July 1, 2008.
Effective April 1, 2006, the law is amended to provide that deductible lease expenditures do not include costs arising from violations of law or failure to comply with an obligation under a lease, permit, or license issued by the state or federal government. Lease expenditures also do not include costs incurred for repair, replacement, or deferred maintenance of a facility, pipeline, or other equipment, other than a well, that is related to a failure or event that results in disruption of oil and gas production. Similarly, lease expenditures do not include repair costs related to an unpermitted release of a hazardous substance or gas.
Effective July 1, 2007, lease expenditures generally do not include costs associated with construction, acquisition, or operation of a refinery or crude oil topping plant, nor do they include costs of lobbying and public relations.
Reporting requirements applicable to producers are amended to require additional information, and a new penalty of up to $1,000 per day may be imposed for each day a person fails to file a report at the time required. These provisions are effective December 20, 2007.
The Department of Revenue has issued an advisory bulletin regarding Sec. 71 of the legislation, which requires taxpayers to pay any additional production taxes arising from the retroactive application of certain provisions before April 1, 2008. The Department states that it believes the intended due date for those additional production taxes is March 31, 2008, and interest will not be owed if the taxes are paid by that date.
Subscribers to CCH Tax Research NetWork can view the legislation.
H.B. 2001, Laws 2007, Second Special Session, effective as noted; Advisory Bulletin, Alaska Department of Revenue, December 20, 2007.

CCH (cch.taxgroup.com) reports:

Married taxpayers were required to include qualified dividends in the calculation of their alternative minimum tax (AMT). The taxpayers reported their qualified dividends but computed the tax on them separately and did not include them in their taxable income; thereby excluding them for purposes of the AMT. However, although qualified dividends receive special treatment under which the amount of AMT is capped by reference to the capital gains rates in the regular tax regime, they may not be disregarded in the calculation of AMT. Moreover, even if Form 1040 is ambiguous with respect to qualified dividends, the form is not an authoritative source of law and does not affect the taxpayers' obligations under the IRC.
T. Weiss, 129 TC No. 18, Dec. 57,206
Other References:
Code Sec. 55
CCH Reference - 2008FED ¶5101.14
Tax Research Consultant
CCH Reference - TRC FILEIND: 30,400
 

CCH (cch.taxgroup.com) reports:

President Bush on December 26 signed an omnibus fiscal year (FY) 2008 appropriations bill, the Consolidated Appropriations Act, 2008 (HR 2764), funding federal government operations through the end of the fiscal year on September 30, 2008. The president, in a written statement, said the appropriations package funds the federal government with the spending levels he requested in his fiscal year 2008 budget but he was critical of the number of spending projects that were slipped into the final measure.
The president noted that Congress included nearly 9,800 earmarks totaling $10 billion in the appropriations package. "These projects are not funded through a merit-based process and provide a vehicle for wasteful federal spending," the president said. Bush recently directed Office of Management and Budget (OM Director Jim Nussle to look into ways the executive branch could take action to eliminate specific earmarks from appropriations bills.
The new law includes FY 2008 funding for the Treasury and the IRS. Funding for the Treasury Department totals $12 billion, of which $10.9 billion is allocated for the IRS. The IRS funding for FY 2008 exceeds its previous year budget by $300 million. The IRS budget includes: $4.8 billion for enforcement activities, $2.2 billion for taxpayer services, $3.7 billion for operations support of enforcement, taxpayer service, and other functions and $267 million for business systems modernization
By Paula Cruickshank, CCH News Staff
 

CCH (cch.taxgroup.com) reports:

President Bush on December 26 signed a one-year extension of the alternative minimum tax (AMT) patch, effective January 1, 2007. Absent enactment of the temporary fix, the administration predicted that an estimated 25 million taxpayers would pay on average an additional $2,000 in taxes for the 2007 tax year.
The Tax Increase Prevention Act of 2007 (HR 3996) increases the AMT exemption amount for 2007 to $44,350 for single taxpayers and heads of households, $66,250 for married couples filing jointly, and $33,125 for married couples filing separately. The new law allows taxpayers to use most nonrefundable personal tax credits to offset AMT liability. These include the dependent care, HOPE and lifetime learning education credits and the District of Columbia first-time homebuyer's credit.
By Paula Cruickshank, CCH News Staff
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Ohio Department of Taxation has issued an information release that is a draft rule regarding credits for the commercial activity tax (CAT). Prior to adopting a rule to explain the different types of CAT credits, the Department is seeking public comment on the draft. Comments must be received by the end of the business day on January 11, 2008.
The Department explains that the rule is intended to identify the different credits available to taxpayers for CAT purposes and to explain the proper method for taxpayers to claim those credits against their CAT liability. For purposes of the CAT, the law provides for five different credits taxpayers may apply against their tax liability: (1) a nonrefundable jobs retention credit; (2) a nonrefundable credit for qualified research expenses; (3) a nonrefundable credit for a borrower's qualified research and development loan payments; (4) a credit for unused franchise tax net operating loss deductions; and (5) a refundable jobs creation credit.
The release is available on the Department's Web site at http://tax.ohio.gov/divisions/communications/information_releases/cat_2007_03.stm.
CAT Information Release 2007-03 , Ohio Department of Taxation, December 21, 2007.

CCH (cch.taxgroup.com) reports:

A Kentucky circuit court has amended and restated its order that concluded an out-of-state corporation had sufficient nexus with Kentucky for corporation income tax purposes, but also concluded that an incorrect apportionment formula had been used in the assessment of the tax against the corporation (see TAXDAY, 2007/07/06, S.16). According to the court, it was incorrect to order remand of the case for determination of the amount of the corporation's refund after prevailing on the apportionment argument. The amount of the refund, applying the correct apportionment formula, was stipulated by the parties and, consequently, the corporation was entitled to immediate payment with interest.
The amended order also determined that it was appropriate to review U.S. Constitutional issues, specifically Commerce and Due Process Clause arguments, that were raised by the corporation and not addressed in the original order. Even though the corporation had no physical presence in Kentucky, the corporation's derivation of income from ownership interests in partnerships doing business within the state satisfied the substantial nexus requirement of the Commerce Clause. Therefore, the corporation was subject to corporation income tax on its distributive share of income.
The Due Process Clause requirement of a definite link or minimum connection was satisfied by the corporation's interest in partnerships doing business in Kentucky that resulted in a substantial amount of distributive income from in-state activities. In addition, the corporation had purposefully directed activities at Kentucky through the corporation's interest in the partnerships.
Kentucky Revenue Cabinet v. Swarth Corp. , Franklin Circuit Court, Kentucky, No. 06-CI-00288, December 4, 2007, ¶202-810
Other References:
Explanations at ¶10-075
Explanations at ¶89-224

CCH (cch.taxgroup.com) reports:

The IRS has provided transitional relief and filing procedures for certain charitable trusts that fail the responsiveness test for Type III supporting organizations. These procedures apply to charitable trusts that do not qualify as supporting organizations under the significant voice test, but that did qualify as supporting organizations under the charitable trust test. The elimination of the charitable trust test for tax years beginning after August 16, 2007, may cause these trusts to be classified as private foundations.
A trust that becomes a private foundation during 2007 because of the elimination of the charitable trust test may continue to file Form 990, Return of Organization Exempt from Income Tax, for tax years beginning before January 1, 2008. The trust is not required to file an information return on Form 990-PF, Return of a Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust ; or pay the Code Sec. 4940 excise tax on investment income, until its first tax year beginning after December 31, 2007. Normal due dates and submission rules apply to Form 990.
For its first tax year beginning after 2007, a trust that becomes a private foundation because of the elimination of the charitable trust test must file a paper Form 990-PF, and write "Notice 2008-6 status change" across the top. Otherwise, normal due dates and submission rules for Form 990-PF apply.
For tax years beginning after 2007, charitable trusts can continue to file Form 990 if they meet the significant voice test for Type III supporting organizations, or if they can establish that they meet the requirements for a Type I or Type II supporting organization. These trusts do not have to file Form 990-PF.
Notice 2008-6, 2008FED ¶46,219
Other References:
Code Sec. 509
CCH Reference - 2007FED ¶22,812.65
Tax Research Consultant
CCH Reference - TRC EXEMPT: 21,208.15

CCH (cch.taxgroup.com) reports:

The IRS has provided effective date relief with respect to proposed regulations, issued in January 2007, that provide rules for consolidated group members on the transfer of a loss share of subsidiary stock (NPRM REG-157711-02, TAXDAY, 2007/01/17, I.3). The proposed effective date would have made the regulations applicable to all transfers on or after the date that the regulations are published as final regulations in the Federal Register . Comments received by practitioners regarding the proposed effective date, however, expressed concerns regarding a significant burden on taxpayers attempting to negotiate transactions prior to the publication of the final regulations.
Accordingly, while the regulations will generally apply to transfers on or after the date they are published as final regulations, they will not apply to a transfer to an unrelated party if the transfer is pursuant to an agreement that is binding prior to the date the regulations are published as final regulations and at all times thereafter. The IRS and Treasury Department anticipate that the rule will incorporate the provisions of Code Sec. 267(b) in determining whether parties are related for this purpose.
Notice 2008-9, 2008FED ¶46,217
Other References:
Code Sec. 267
CCH Reference - 2007FED ¶14,161.01
Code Sec. 337
CCH Reference - 2007FED ¶16,242.01
Code Sec. 358
CCH Reference - 2007FED ¶16,553.041
Code Sec. 597
CCH Reference - 2007FED ¶23,811.025
Code Sec. 1502
CCH Reference - 2007FED ¶33,168.0236
Tax Research Consultant
CCH Reference - TRC CCORP: 45,410
CCH Reference - TRC CCORP: 45,414

CCH (cch.taxgroup.com) reports:

The IRS has issued temporary and proposed regulations providing guidance for calculating and apportioning the Code Sec. 11(b)(1) additional tax and the reduction in the alternative minimum tax (AMT) exemption amount among component members of controlled groups. The regulations also update and clarify the allocation of tax benefit items where a component member has a short tax year not including a December 31 date. The temporary rules further explain the concepts of a group's testing date and a member's testing period for purposes of determining which members and which tax years of those members are subject to the controlled group rules. The temporary regulations take effect on December 26, 2007.
Temporary Regulations
Two methods for apportioning the amount of additional tax under Code Sec. 11(b)(1) are provided under the temporary regulations --the proportionate method and the first-in-first-out (FIFO) method.
Under the proportionate method, the additional tax is allocated to any component member to which a tax bracket amount was apportioned in the same proportion as the portion of the tax benefit from the tax bracket that was allocated to that member bears to the total tax benefit amount provided to all members from the use of that tax bracket. The regulations set forth the steps for applying the method. Under the FIFO method, the first dollars of the additional tax are to be allocated proportionately to each member to which a tax bracket amount was apportioned, starting with the lowest tax bracket and continuing on successively to each next higher tax bracket until the entire amount of the additional tax has been fully apportioned among the members.
In addition, the temporary regulations provide guidance in calculating and apportioning the reduction in the AMT exemption amount. In particular, any reduction to the AMT exemption amount is apportioned to the component members in the same manner as the exemption amount. The current rules for allocating tax benefit items where a component member has a short tax year not including a December 31 date are also updated and clarified.
The temporary regulations further provide explanations of two concepts --a group's testing date and a member's testing period. A testing date is defined as the date that a controlled group is required to use in determining which of its members and which of their tax years will be subject to the controlled group rules. Generally, a group's testing date is the December 31 date included within all the members' tax years, whether such corporations are on a calendar or fiscal year. However, if a component member has a short tax year that does not include a December 31 date, then the last day of its short tax year serves as the member's testing date.
A testing period is the period of time that a controlled group member uses to determine its status as either a component member or an excluded member. The testing period begins on the first day of a member's tax year that ends on the day before its testing date. Thus, in the case of a member on a fiscal tax year, the portion of its tax year beginning after December 31 and ending on the last day of its tax year is not taken into account in determining its status as a component member or an excluded member.
Finally, the temporary regulations republish Temporary Reg. §1.1502-47T(s), which provides rules for life-nonlife consolidated groups to calculate their consolidated taxable income. This temporary regulation was inadvertently removed by T.D. 9342, I.R.B. 2007-35, 451, when other portions of Temporary Reg. §1.1502-47T were published as final regulations.
Proposed Regulations
The text of the temporary regulations also serves as the text of proposed regulations. Written or electronic comments and a request for public hearing must be received by March 25, 2008.
T.D. 9369, 2008FED ¶47,008
Proposed Regulations, NPRM REG-104713-07, 2008FED ¶49,780
Other References:
Code Sec. 1502
CCH Reference - 2007FED ¶33,193A
Code Sec. 1561
CCH Reference - 2007FED ¶33,341
CCH Reference - 2007FED ¶33,344
CCH Reference - 2007FED ¶33,344C
Code Sec. 1563
CCH Reference - 2007FED ¶33,361C
Tax Research Consultant
CCH Reference - TRC CCORP: 42,050
CCH Reference - TRC CCORP: 42,200
CCH Reference - TRC CCORP: 45,268
CCH Reference - TRC CONSOL: 7,106

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Wisconsin Department of Revenue has issued a notice explaining certain new disclosure requirements applicable to individual income and corporation franchise and income tax taxpayers. Specifically, under the 2007 budget act, requirements were enacted for taxpayers and material advisors to disclose reportable transactions, including listed transactions, to the Department. The law requires taxpayers and material advisors to provide the Department with copies of reportable transaction disclosure forms whenever those forms are required by the IRS. The requirement is retroactive to reportable transactions that affected a taxpayer's Wisconsin income or franchise tax liability for any period beginning on or after January 1, 2001. Wisconsin has also adopted penalties for failure to disclose reportable transactions, similar to those that exist for federal purposes.

CCH (cch.taxgroup.com) reports:

In a case involving issues similar to those examined by the U.S. Supreme Court in its DaimlerChrysler Corp. v. Cuno
decision (126 S. Ct. 1854 (2006)), taxpayers lacked standing to challenge Minnesota corporate income, personal income, property, and sales and use tax credits, exemptions, and other incentives under the Job Opportunity Building Zones (JOBZ) Program and the Biotechnology and Health Sciences Industry Zone Program, as affirmed by the Minnesota Court of Appeals. Specifically, the complaint was dismissed because the taxpayers showed no evidence of actual injury-in-fact. The taxpayers provided no indication that the programs were likely to increase the overall tax burden to themselves or the general public or that the programs constituted illegal expenditures or the waste of tax monies. Without evidence of some direct injury, the taxpayers' claims did not meet the threshold for standing.
Olson v. Minnesota, Minnesota Court of Appeals, No. A06-2324, December 18, 2007, ¶203-328
Other References:
Explanations at ¶12-070b
Explanations at ¶15-630
Explanations at ¶20-170
Explanations at ¶60-360
 

CCH (cch.taxgroup.com) reports:

CCH's Tax Briefing analyzing tax law changes made by the Tax Increase Prevention Act of 2007 (HR 3996), Mortgage Forgiveness Debt Relief Act of 2007 (HR 3648), Energy Independence and Security Act of 2007 (HR 6; P.L. 110-140), and several other measures, is now available. In a flurry of last-minute voting, the House and Senate passed a number of bills that impact the Internal Revenue Code, including:
(1) The Energy Independence and Security Act of 2007 (HR 6; P.L. 110-140) was passed by both the House and Senate and was signed into law by President Bush on December 19, 2007 (TAXDAY, 2007/12/20, W.1). The original bill's tax title was dropped, but the Act contains two tax provisions: an extension of the additional 0.2 percent FUTA surtax to sunset December 31, 2008, and seven-year amortization of certain geological costs of certain oil companies.
(2) The Virginia Tech Victims and Family Assistance Act (HR 4118; P.L. 110-141) was passed by both the House and Senate and was signed into law by President Bush on December 19, 2007 (TAXDAY, 2007/12/20, W.2). The Act excludes from income payments from a special memorial fund to victims of the Virginia Tech tragedy in April 2007.
(3) The Mortgage Forgiveness Debt Relief Act of 2007 (HR 3648) was passed by both the House and Senate. President Bush signed the bill into law on December 20, 2007 (TAXDAY, 2007/12/21, W.1). The measure contains approximately six tax provisions, including tax relief for debt forgiveness and mortgage insurance payments.
(4) The Tax Increase Prevention Act of 2007 (HR 3996) was passed by the House (TAXDAY, 2007/12/20, C.1). The Senate previously passed the measure on December 6, 2007. The measure contains three provisions that are collectively referred to as an AMT patch. President Bush is expected to sign the bill.
(5) The Technical Corrections Act of 2007 (HR 4839) was passed by both the House and Senate (TAXDAY, 2007/12/20, C.1). The language in this bill was originally part of the Heroes Earnings Assistance and Relief Tax Act of 2007 (HRes 884, HR 3997) (a/k/a the Military Bill). The House and Senate, however, failed to agree on and pass one version of the Military Bill. As a result, the technical corrections were split off into a separate measure. The president is expected to sign the measure. There are approximately 27 provisions impacting nine prior Acts.
(6) The Consolidated Appropriations Act, 2008 (HR 2764) was passed by both the House and Senate (TAXDAY, 2007/12/20, C.3). The bill includes the budget for the Treasury Department.
(7) An untitled Senate bill (Sen 2436) was passed by both the House and Senate (TAXDAY, 2007/12/20, C.3). The bill clarifies the term of the IRS Commissioner.
CCH's award-winning Tax Briefing analyses the changes enacted by these new laws. The CCH Tax Briefing can be found at http://tax.cchgroup.com/Tax-Briefings/default.
 

CCH (cch.taxgroup.com) reports:

Final and temporary regulations have been issued relating to the recapture of overall domestic losses under Code Sec. 904(g). The regulations also provide updated guidance with respect to overall foreign losses and separate limitation losses for individuals and corporations claiming foreign tax credits.
CCH Comment: The domestic loss regulations implement the policy underscoring Code Sec. 904(g) which is to mitigate the mismatch which can occur when U.S. source loss is allocated to foreign source income, resulting in excess foreign tax credits which are then carried forward. Such losses cannot offset U.S. source taxable income in a subsequent year, nor can the carried forward foreign tax credits offset the tax on such income. Instead, Code Sec. 904(g) recharacterizes a portion of the taxpayer's U.S.-source income for each succeeding tax year as foreign-source income in an amount equal to the lesser of: (1) the amount of the unrecharacterized overall domestic losses for years prior to such succeeding year; or (2) 50 percent of the taxpayer's U.S.-source income for such succeeding tax year.
The temporary regulations provide for the establishment, maintenance and recapture of a separate domestic loss account for each separate category of foreign source income offset by a domestic loss, and determine when an overall domestic loss is treated as having been sustained. Overall domestic losses are recaptured by treating up to 50 percent of a taxpayer's U.S. source taxable income as foreign source income until the overall domestic loss account has been reduced to zero.
The temporary regulations also include new provisions regarding the establishment and recapture of separate limitation loss accounts implementing the separate loss provisions of Code Sec. 904(f)(5). Such accounts are required with respect to a separate category to the extent a foreign source loss in that category offsets foreign source income in another separate category. Finally, the temporary regulations update existing regulations governing the determination and maintenance of overall foreign loss accounts, as well as the recapture of overall foreign losses and the allocation of net operating and capital losses. Ordering rules are provided for the allocation of net operating losses, net capital losses, U.S. source losses, and separate limitation losses, as well as the recapture of separate limitation losses, overall foreign losses and overall domestic losses.
The regulations are effective as of December 31, 2007, and generally apply to taxable years beginning after that date. Taxpayers may choose to apply the overall domestic loss provisions in other taxable years beginning after December 31, 2006, or use any reasonable method consistently applied to those years including a method based on the ordering rules contained in Notice 89-3, 1989-1 CB 622.
The text of the temporary regulations also serves as the text of proposed regulations. Written or electronic comments regarding the proposed regulations have been requested, and must be received by March 20, 2007. A public hearing on the proposed regulations has been scheduled for April 10, 2008.
T.D. 9371, 2008FED ¶47,007
Proposed Regulations, NPRM REG-141399-07, 2008FED ¶49,779
Other References:
Code Sec. 904
CCH Reference - 2007FED ¶27,881
CCH Reference - 2007FED ¶27,888G
CCH Reference - 2007FED ¶27,892
CCH Reference - 2007FED ¶27,893
CCH Reference - 2007FED ¶27,894
CCH Reference - 2007FED ¶27,894C
CCH Reference - 2007FED ¶27,895
CCH Reference - 2007FED ¶27,895C
CCH Reference - 2007FED ¶27,896
CCH Reference - 2007FED ¶27,899C
CCH Reference - 2007FED ¶27,899D
CCH Reference - 2007FED ¶27,899G
CCH Reference - 2007FED ¶27,899H
CCH Reference - 2007FED ¶27,900AA
CCH Reference - 2007FED ¶27,900AB
CCH Reference - 2007FED ¶27,900AC
CCH Reference - 2007FED ¶27,900AD
CCH Reference - 2007FED ¶27,900AE
CCH Reference - 2007FED ¶27,900AF
CCH Reference - 2007FED ¶27,900AG
CCH Reference - 2007FED ¶27,900B
CCH Reference - 2007FED ¶27,900EA
Code Sec. 1502
CCH Reference - 2007FED ¶33,154
CCH Reference - 2007FED ¶33,154C
Tax Research Consultant
CCH Reference - TRC INTLOUT:6,262
CCH Reference - TRC CONSOL:45,250

CCH (cch.taxgroup.com) reports:

The IRS has released final, temporary and proposed regulations that reflect the two new categories of income for purposes of limitations on the foreign tax credit: passive category income and general category income. For tax years beginning after 2006, these two categories replace the eight "buckets" that were previously used for the credit (the "separate categories"). The text of the temporary regulations also serves as the text for the proposed regulations.
Excess credits carried over from a pre-2007 tax year to a post-2006 tax year are assigned to the two new categories based on where the related income would have been assigned if the foreign taxes were paid or accrued in a post-2006 tax year. Thus, the excess taxes are assigned to the appropriate post-2006 category as if the taxes had been paid in a post-2006 tax year. For example, taxes related to income that would have been treated as high-taxed income under pre-2007 law are assigned to the post-2006 category for general category income. Since taxpayers may have trouble reconstructing excess taxes accounts, a safe harbor allows the taxpayer to assign excess taxes in the pre-2007 passive category to post-2006 passive category income; excess taxes in any other pre-2007 category are assigned to post-2006 general category income.
The regulations adopt the statutory definitions for passive category income, as well as passive income and specified passive category income. Since specified passive category income includes dividends from DISCs, distributions from FSCs. and foreign trade income (FTI), these types of income can never qualify as financial services income that can be treated as general category income. The regulations also clarify that gain on the sale of a partnership interest by a 25-percent partner is assigned to general category income, to the extent that the gain is not classified as foreign personal holding company income. With respect to the separate category for financial services income, the regulations provide a general definition, an exclusive list of items that are treated as active financing income, and rules for determining when a person is predominantly engaged in the active financing business.
The separate category for shipping income continues to exist through the end of tax years beginning before 2007, and the subpart F shipping regulations continue to apply. Regulations are reserved for the definitions of high withholding tax interest and shipping income, and the treatment of dividends from a certain noncontrolled corporations. Other definitions and rules are revised to reflect the statutory reduction of the categories.
When a dividend is paid, or an amount is included in gross income of a U.S. shareholder out of post-1986 undistributed earnings (or pre-1987 accumulated profits) of a foreign corporation attributable to more than one separate category, the amount of foreign income taxes deemed paid by the domestic shareholder or upper tier corporation is computed separately with respect to those earnings or profits in each category out of which the dividend is paid or to which the subpart F inclusion is attributable. The temporary regulations implement the reduction of the separate categories by recharacterizing the foreign corporation's pools of post-1986 undistributed earnings and foreign income taxes in those categories as pools in passive category income and general category income on the first day of the foreign corporation's first post-2006 tax year. The temporary regulations also address CFCs and noncontrolled corporations with such pools, related substantiation rules, and the assignment of previously taxed earnings and profits, accumulated deficits, and pre-1987 accumulated profits in separate categories. A reasonable approximation of the amounts properly included in the new categories, based on available records obtained through the taxpayer's reasonable good-faith efforts, adequately substantiate any reconstruction of a foreign corporation's historical accumulated earnings and taxes accounts. Two safe harbors are also provided for such reconstructions.
Finally, the temporary regulations provide transition rules for recapture in a post-2006 tax year of an overall foreign loss or separate limitation loss in a pre-2007 separate category that offset U.S. source income or income in another pre-2007 separate category, respectively, in a pre-2007 tax year.
Effective Date
The final regulations are effective on December 21, 2007. The temporary regulations apply to tax years of U.S. taxpayers beginning after December 31, 2006, and ending on or after December 21, 2007; and to tax years of a foreign corporation that end with or within a tax year of its domestic corporate shareholder beginning after December 31, 2006, and ending on or after December 21, 2007.
Comments Requested
The IRS has also requested comments on the proposed regulations. Written or electronic comments must be received by March 20, 2008. Outlines of topics to be discussed at the public hearing scheduled for 10 a.m. on April 22, 2008, must be received by April 1, 2008.
T.D. 9368, 2008FED ¶47,006
Proposed Regulations, NPRM REG-114126-07, 2008FED ¶49,778
Other References:
Code Sec. 904
CCH Reference - 2007FED ¶27,881
CCH Reference - 2007FED ¶27,883
CCH Reference - 2007FED ¶27,883A
CCH Reference - 2007FED ¶27,885
CCH Reference - 2007FED ¶27,885A
CCH Reference - 2007FED ¶27,886
CCH Reference - 2007FED ¶27,886D
CCH Reference - 2007FED ¶27,888
CCH Reference - 2007FED ¶27,888D
CCH Reference - 2007FED ¶27,900
CCH Reference - 2007FED ¶27,900A
Tax Research Consultant
CCH Reference - TRC INTLOUT: 6,112
 

CCH (cch.taxgroup.com) reports:

Responding to the growing subprime mortgage crises, President Bush on December 20 signed legislation to help homeowners who are facing foreclosure. The new law, the Mortgage Forgiveness Debt Relief Act of 2007 (HR 3648) creates a three-year exception to current law so that certain taxpayers do not have to pay federal taxes for debt forgiveness on their troubled loans.
"Clearly it is unfair to tax people on income that doesn't exist. This is particularly true at a time when they have experienced a substantial economic loss on the most significant asset they own and have no way to pay the tax," noted Sen, George V. Voinovich, R-Ohio, a bill co-sponsor attending the White House signing ceremony.
Bush called HR 3648 "a tax reform" bill because it allows homeowners to secure lower mortgage payments without facing higher taxes. The new law also extends a provision allowing homeowners to deduct mortgage insurance payments from their taxable income and eases restrictions on cooperative housing corporations.
Other provisions include tax relief for volunteer firefighters and emergency medical technicians and tax protection for homeowners after the death of a spouse. The new law is fully offset by increased penalties for failure to file S corporation or partnership returns and new requirements for corporate estimated tax payments.
By Paula Cruickshank, CCH News Staff