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
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Enactment of the Illinois alternative general homestead exemption from property tax did not violate the state constitutional provisions relating to separation of powers, uniformity of taxation, exemptions, equal protection, or due process, according to the state appellate court. Although the challenge was aimed at the exemption as enacted in 2004, the court noted that the exemption subsequently was substantially reenacted. (TAXDAY, 2007/10/15, S.11)
Initially, the court noted that complaining taxpayers' multiple instances of noncompliance with rules of appellate procedure could have made dismissal an appropriate consideration. However, the issues raised were of significant public interest, the incomplete record was sufficient to allow evaluation of the taxpayers' claims, and the manifest efforts of the parties otherwise demonstrated serious thought and treatment. The issues raised were considered on their merits.
The Illinois General Assembly did not violate the state's constitutional separation of powers principle by permitting each county in the state to elect whether to adopt the exemption. The General Assembly's authority to incrementally delegate its own authority in furtherance of its enacted legislation was part and parcel of its ability to pass any law on any given subject. There was no designation of any rule-making authority, i.e., authority to formulate and draft a rule. Rather, the delegation was only a "take it or leave it option" of a fully drafted and fully formulated piece of legislation. The local option gave full reflection of the design and intent of the legislature with regard to the exercise of its constitutional authority to provide homestead exemptions. There was no reason to expect that allowing the local option for the exemption would permit the legislature to make further delegations of an unconstitutional nature. Finally, a county's selection of the alternative general homestead exemption would not impermissibly have extraterritorial effect in the form of resulting different tax rates in other counties.

CCH (cch.taxgroup.com) reports:

The Hawaii Department of Taxation has announced that taxpayers affected by the high winds, heavy rains, and flooding that occurred from December 4, 2007, to December 14, 2007, in the Counties of Hawaii, Kauai, Kalawao, and Maui and the City and County of Honolulu may be eligible for corporate income, personal income, withholding, general excise, and other tax relief. Returns filed under the provisions of this announcement should be clearly marked "December 2007 Storm Relief" on the top center of the returns.

CCH (cch.taxgroup.com) reports:

The IRS has provided the dollar amounts, increased by the 2008 inflation adjustment, for Code Sec. 1274A debt instruments arising out of sales or exchanges. The 2008 inflation-adjusted amount is $4,913,400 for Code Sec. 1274A(b) qualified debt instruments and $3,509,600 for Code Sec. 1274A(c)(2)(A) cash method debt instruments. Rev. Rul. 2007-4, I.R.B. 2007-4, 351, is supplemented and superseded.
Rev. Rul. 2008-3, 2008FED ¶46,210
Other References:
Code Sec. 61
CCH Reference - 2007FED ¶1201.55
CCH Reference - 2007FED ¶5704.027
Code Sec. 483
CCH Reference - 2007FED ¶22,299.04
CCH Reference - 2007FED ¶22,299.05
Code Sec. 1274
CCH Reference - 2007FED ¶31,310.05
Code Sec. 1274A
CCH Reference - 2007FED ¶31,322.021
CCH Reference - 2007FED ¶31,322.073
CCH Reference - 2007FED ¶31,322.30
Tax Research Consultant
CCH Reference - TRC ACCTNG: 36,154.65
CCH Reference - TRC ACCTNG: 36,256.20

CCH (cch.taxgroup.com) reports:

The IRS has provided interim guidance with respect to the Code Sec. 6039
information reporting requirements of stock option transfers. The IRS intends to issue regulations that prescribe rules relating to the information return requirements contained in Code Sec. 6039, as amended by the Tax Relief and Health Care Act of 2006 (P.L. 109-432). The IRS expects that the forthcoming regulations generally will retain the existing rules contained in Reg. §1.6039-1, relating to the information statements to be provided to employees, and generally will require that the same information be included in the information returns made to the IRS.
The IRS also expects that the new Code Sec. 6039 regulations will be effective retroactively to January 1, 2007. Because regulations under Code Sec. 6039 have not yet been issued, the IRS is waiving the obligation to make an information return for 2007 stock transfers governed by Code Sec. 6039. However, corporations should continue to furnish to employees the information required by, and in accordance with, existing Reg. §1.6039-1, with respect to such stock transfers.
Notice 2008-8, 2008FED ¶46,209
Other References:
Code Sec. 6039
CCH Reference - 2007FED ¶35,606.021
Tax Research Consultant
CCH Reference - TRC PAYROLL: 3,356
 

CCH (cch.taxgroup.com) reports:

The IRS has issued interim guidance regarding filing claims with the Whistleblower Office pursuant to Code Sec. 7623, in light of the changes brought by the Tax Relief and Healthcare Act of 2006 (P.L. 109-432), which added Code Sec. 7623(b). The existing regulations, which address only the provisions of Code Sec. 7623(a), are inconsistent with Code Sec. 7623(b). Today's guidance clarifies that these regulations will not apply to the award program authorized by Code Sec. 7623(b).
Under Code Sec. 7623(b), individuals are eligible for awards based on the amount collected by the IRS and the total amount in dispute must exceed $2,000,000 and, if the noncompliant person is an individual, that individual's gross income must exceed $200,000. The amount of the award will be a minimum of 15 percent and a maximum of 30 percent of the collected proceeds. Individuals should complete IRS Form 211, Application for Award for Original Information. The guidance also includes examples of grounds under which claims will not be processed, information regarding confidentiality and IRS processes for evaluating the claim, tax treatment of the awards and rights of appeal.
Claims that do not qualify under Code Sec. 7623(b) may still qualify under Code Sec. 7623(a). This guidance is effective as of January 14, 2008. Comments are requested, and should be submitted on or before February 13, 2008.
IR-2007-201, 2008FED ¶46,207
Notice 2008-4, 2008FED ¶46,208
Other References:
Code Sec. 7623
CCH Reference - 2007FED ¶42,957.021
CCH Reference - 2007FED ¶42,957.12
CCH Reference - 2007FED ¶42,957.15
CCH Reference - 2007FED ¶42,957.30
Tax Research Consultant
CCH Reference - TRC IRS: 63,060.05
 

CCH (cch.taxgroup.com) reports:

The IRS has extended the transition guidance and relief provided under Notice 2006-107, I.R.B. 2006-51, 1114, to certain defined contribution plans holding publicly traded employer securities until the regulations issued under Code Sec. 401(a)(35) become effective. The new regulations are not expected to become effective before plan years beginning on or after January 1, 2009. Except as otherwise provided in the regulations, plans must continue to apply Notice 2006-107 until the regulations go into effect.
Under Code Sec. 401(a)(35), which was added by the Pension Protection Act of 2006 (P.L. 109-280), applicable individuals have the right to divest employer securities in their accounts and reinvest the amounts in certain diversified investments. The diversification requirements are generally effective for plan years beginning after December 31, 2006. The transition guidance in Notice 2006-107 fleshes out and provides details for meeting the diversification requirements. Notice 2006-107 is modified.
Notice 2008-7, 2008FED ¶46,206
Other References:
Code Sec. 401
CCH Reference - 2007FED ¶17,507.15
CCH Reference - 2007FED ¶17,925G.01
CCH Reference - 2007FED ¶17,925G.30
CCH Reference - 2007FED ¶17,929.65
Tax Research Consultant
CCH Reference - TRC RETIRE: 3,214.40

CCH (cch.taxgroup.com) reports:

Various prescribed rates for federal income tax purposes for January 2008 have been provided by the IRS. The annual short-term, mid-term, and long-term applicable federal interest rates (AFRs) are 3.18 percent, 3.58 percent and 4.46 percent, respectively. The semiannual short-term, mid-term, and long-term AFRs are 3.16 percent, 3.55 percent and 4.41 percent, respectively. Quarterly short-term, mid-term and long-term AFRs are 3.15 percent, 3.53 percent and 4.39 percent, respectively. Finally, the monthly short-term, mid-term and long-term rates are 3.14 percent, 3.52 percent and 4.37 percent, respectively.
The short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFRs) for January 2008 for purposes of Code Sec. 1288(b) are 3.05 percent, 3.39 percent and 4.25 percent, respectively, when annual compounding is used.
The Code Sec. 382 adjusted federal long-term rate is 4.25 percent, and the long-term tax-exempt rate is 4.34 percent. The Code Sec. 42(b)(2) appropriate percentage for the 70-percent present-value, low-income housing credit is 7.93 percent, and the appropriate percentage for the 30-percent present-value low-income housing credit is 3.40 percent. The Code Sec. 7520 AFR for determining the present value of an annuity, an interest for life or a term of years, or a remainder or reversionary interest is 4.4 percent. Finally, the deemed rate for transfers during 2008 to new pooled income funds, as described in Code Sec. 642(c)(5), that have been in existence for less than three tax years, is 4.8 percent.
Rev. Rul. 2008-4, 2008FED ¶46,205
Rev. Rul. 2008-4, FINH ¶30,569
Other References:
Code Sec. 42
CCH Reference - 2007FED ¶173.02
CCH Reference - 2007FED ¶176.01
CCH Reference - 2007FED ¶4305.03
Code Sec. 280G
CCH Reference - 2007FED ¶15,152.85
Code Sec. 382
CCH Reference - 2007FED ¶17,115.28
Code Sec. 642
CCH Reference - 2007FED ¶24,308.1885
CCH Reference - FINH ¶16,801.11
Code Sec. 807
CCH Reference - 2007FED ¶25,821.15
Code Sec. 846
CCH Reference - 2007FED ¶26,331.07
Code Sec. 1274
CCH Reference - 2007FED ¶31,310.05
CCH Reference - 2007FED ¶31,310.11
Code Sec. 7520
CCH Reference - 2007FED ¶42,785.40
CCH Reference - FINH ¶22,630.05
Code Sec. 7872
CCH Reference - FINH ¶18,950.05
Tax Research Consultant
CCH Reference - TRC ACCTNG: 36,162.05
 

CCH (cch.taxgroup.com) reports:

The House on December 19 abandoned its commitment to pay-as-you-go (PAYGO) budget rules and passed an alternative minimum tax (AMT) bill that will provide tax relief to 23 million Americans in 2008. Senate and House GOP lawmakers, with the backing of President Bush, forced Democrats to forgo their promises to offset the $50-billion cost of AMT relief.
By a vote of 352-64, the House passed the Tax Increase Prevention Act of 2007 (HR 3996), which is the tax-free version of AMT relief that the Senate approved by an 88-5 margin on December 6 (TAXDAY, 2007/12/07, C.1). HR 3996 would extend AMT relief for nonrefundable personal credits and increase the AMT exemption amount to $66,250 for joint filers and $44,350 for individuals, for tax years beginning after December 31, 2006.
House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., said Democrats chose to protect taxpayers from the AMT even though it will cause the federal budget deficit to grow. "Forget the loopholes, forget the revenue losses, forget the indebtedness --at least for now --because we do not want those hardworking families to wake up in the morning and find that there is a feud between Republicans and Democrats that would cause them to carry this burden," he said. Rangel added that, in 2008, Democrats will try to pass a permanent repeal that is fully offset.
Ways and Means ranking member Jim McCrery, R-La., said House Democrats gave up on their stubborn and irrational insistence on applying flawed PAYGO rules that would have added tens of billions of dollars in unrelated tax increases to the AMT patch legislation. "House Democrats persisted in pursuing this quixotic quest even though the Senate had little interest in passing such tax increases, and it was obvious that President Bush would never sign them into law," McCrery said.
House Majority Leader Steny Hoyer, D-Md., shot back, "Republican lectures on fiscal responsibility are simply not credible or believable. They have voted again and again to charge billions to the nation's credit card, rather than paying for what they buy." Mike Ross, D-Ark., said the group of fiscally conservative Democrats known as the Blue Dog Coalition voted against HR 3996. In 2008, the group hopes to turn the PAYGO rules into a law that would affect all legislation passed by Congress.
White House Support
The administration applauded passage of an AMT bill that does not include any new tax offsets to pay for the measure. White House Press Secretary Dana Perino, in a written statement, noted, "The AMT was never intended to hit these middle-class taxpayers, and the last thing they or the U.S. economy needs is a tax increase." Perino added that passing the measure so near the end of the year will make it difficult for the IRS to prepare the appropriate forms on time. "We know that the IRS will do everything possible to prevent delays," Perino stated.
IRS Systems
Treasury Secretary Henry M. Paulson, Jr., acknowledged that the late passage of the AMT patch will probably lead to delays in the IRS's processing of returns. "The IRS is doing all it can to have a fully successful filing season. However, it is likely that there will be some delays, including delays of some refunds." He said that the Treasury and the IRS will keep taxpayers informed during the filing season. Paulson thanked the House for passing the patch.
The IRS announced it will immediately begin the final reprogramming of its processing systems to prepare for the upcoming filing season. "Our people will do everything they can to quickly update our systems for this major change," said Acting IRS Commissioner Linda Stiff. The IRS is continuing to explore options to minimize the impact of processing delays. To help tax professionals and software companies, revised copies of the 12 forms impacted by the AMT will be posted on the IRS website within 72 hours after the patch is signed into law.
Technical Corrections
In other action, both the House and Senate passed the Tax Technical Corrections Act of 2007 (HR 4839), which contains language that was originally included in the Heroes Earnings Assistance and Relief Tax Act of 2007 (HRes 884, HR 3997), which passed the House on December 18 ( TAXDAY, 2007/12/19, C.4). After the military tax bill was amended by the House, Senate lawmakers failed to approve it by unanimous consent before adjournment (TAXDAY, 2007/12/20, C.2), thus necessitating action on the standalone corrections measure.
By Jeff Carlson, Stephen K. Cooper, Paula Cruickshank and Brant Goldwyn, CCH News Staff
Tax Technical Corrections Act of 2007, HR 4839
Treasury Department News Release, TDNR HP-746

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

House lawmakers voted unanimously to approve the Mortgage Forgiveness Debt Relief Act of 2007 (HR 3648) clearing the measure for President Bush's expected signature. The measure creates a three-year exception to current law so that homeowners caught in the current subprime mortgage crisis do not have to pay taxes for debt forgiveness on their troubled home loans.
House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., said the legislation was needed to protect homeowners. "Current law treats forgiven mortgage debt as income, but it is simply unfair and unconscionable that families would have to suffer through a foreclosure only to be dealt a second blow in the form of a tax bill when their net worth has not increased," he said.
The bill would also extend a provision allowing homeowners to deduct mortgage insurance payments from their taxable income. The bill would also ease restrictions for qualifying as a housing cooperative corporation.
Other provisions included in the bill provide tax relief for volunteer firefighters and emergency medical technicians; protection of tax relief for homeowners after the death of a spouse; and flexibility to help co-op tenant/owners deduct real estate taxes and mortgage insurance. The bill is fully offset by increased penalties for failure to file S corporation or partnership returns and new requirements for corporate estimated tax payments.
White House Support
President Bush plans to sign the White House-backed mortgage tax relief bill "because he believes it is good policy," White House Press Secretary Dana Perino said. The bill will "protect homeowners from having to pay extra taxes when they refinance their mortgages on the difference," she noted.
Praise from Treasury
In a statement issued immediate after passage, Treasury Secretary Henry M. Paulson, Jr., hailed the legislation as an important part of the president's overall plan to help homeowners. He stated, "Homeowners who restructure their mortgages to avoid foreclosure should not be hit with a tax bill as a result. This legislation will temporarily exclude homeowners who have restructured their mortgage loans from having to pay taxes on the mortgage debt forgiven."
In addition to praising Congress for its quick action, Paulson asked, as part of the president's larger plan, that they take final action on GSE and FHA reform, and approve legislation allowing state and local governments more tax-exempt bond authority to help homeowners refinance their existing loans. The administration's overall plan has been criticized lately by many groups from both sides of the aisle as being too little, too late to blunt the impact the mortgage crisis has had on the financial markets.
By Stephen K. Cooper, Paula Cruickshank and George Jones, CCH News Staff
JCT Estimated Revenue Effects of HR 3648, the Mortgage Forgiveness Debt Relief Act of 2007, as Amended and Passed by the Senate on December 14, 2007, JCX-118-07.  

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Arkansas Department of Finance and Administration has promulgated a rule to implement and administer the corporate and personal income tax credit for geotourism investment in the lower Mississippi River delta region. Details of the credit were reported earlier. (TAXDAY, 2007/04/05, S.5)
To claim the credit, a geotourism-supporting business must apply to the Department on the prescribed form and include information regarding the amount invested and adequate documentary proof ( e.g. , invoices, contracts, bank statements). A copy of the form is included with the rule. The Arkansas Department of Parks and Tourism will determine if the investment meets the statutory criteria. If the investment qualifies, written certification will be provided to the Department. The Department will provide taxpayers with an "Income Tax Credit Memorandum" based on the investment; this memorandum should be attached to the tax return when the credit is first claimed.
Owners of pass-through entities (PTEs) may claim the credit. If the PTE is an S corporation, Ark. Code Sec. 26-51-409, as in effect for the taxable year in which the credit is earned, will apply to allocate the credit. If the PTE is a partnership or limited liability company, then the entity agreement will determine the taxpayer's distributive share of the credit. However, if the agreement does not have a substantial economic effect or does not provide for credit allocation, then the credit will be allocated according to the partner's or member's interest, pursuant to IRC §704(b), as in effect January 1, 1995. When completing the application, PTEs are requested to provide the names, addresses, and ownership percentages of all owners.
The Act creating and authorizing the credit expires at the end of 2011. However, if a business is approved into the program before December 31, 2011, then the investment may be made after 2011. The taxpayer would be eligible for the credit provided that all the other requirements are met.
The regulation also provides new definitions for "invest," "RV parks," "transient lodging facilities," and "transient guests." The definition of "geotourism-supporting business" includes examples of pumpkin patches or crop mazes. Finally, the definition of "economically distressed area" is enhanced to list the specific Arkansas counties of Chicot, Desha, Lee, Phillips, and St. Francis.
Subscribers to CCH Tax Research NetWork may view the regulation.
Rule 2007-9, Arkansas Department of Finance and Administration, effective December 17, 2007; Arkansas State Revenue Tax Quarterly, Volume XIII, No. 4, Arkansas Department of Finance & Administration, Revenue Division, October --December 2007.

CCH (cch.taxgroup.com) reports:

All federal tax lien documents filed in public records offices will contain partially redacted taxpayer Social Security numbers (SSNs) as of January 6, 2008, the IRS has announced on its website. The Service is redacting taxpayer SSNs to help prevent identity theft.
Liens
The IRS files liens publicly to give notice that a lien exists. The IRS generally must file a notice of lien on real property in one office in the state, county or other government subdivision designated by state law for filing. If state law does not designate only one office for filing federal tax liens, the IRS must file the notice with the U.S. district court for the judicial district in which the property is located.
Similarly, the IRS must file the notice as to personal property, whether tangible or intangible, in one office, as designated by the laws of the state in which the property is situated. In some jurisdictions, the IRS uses an automated lien filing system that permits electronic filing.
Last Four Digits
Only the last four digits of the taxpayer's SSN will appear on all federal tax lien documents, effective January 6, 2008. SSNs will appear as "XXX-XX-NNNN." The redacted format will appear on lien documents issued electronically and on documents issued to taxpayers and their representatives, the Service explained. However, the new policy will not apply to employer identification numbers (EINs).
The IRS frequently uses taxpayer SSNs as an identifier. The Service predicted that the switch to a redacted format will not hinder its customer services.
Previous Action
The latest move follows a similar one where the IRS began partially redacting taxpayer SSNs for notices of federal tax lien recorded after January 1, 2006. The IRS subsequently surveyed various recording offices and discovered that they could accommodate partial redactions of taxpayer SSNs on tax lien documents.
Identity Theft
The dangers of identity theft prompted the IRS to take these steps. "The increasing problem of identity theft poses significant privacy concerns for public documents that include a social security number," the Service explained.
"A Social Security number is the key to getting an individual's personal information," Scott Myers, CPA, president of the Pittsburgh chapter of the Pennsylvania Institute of Certified Public Accountants (PICPA), told CCH. "Once a thief has that number, it's easy to get the person's name, address and name of employer. With that information, a thief can secure a credit card." The Federal Trade Commission estimates that nine million Americans have been victims of identity theft. "Frankly, I am surprised it's so low," Myers added.
By George L. Yaksick, Jr., CCH News Staff
IRS to Partially Redact All Federal Tax Lien Document SSNs Effective January 6, 2008

CCH (cch.taxgroup.com) reports:

For the first time, the Senate on December 14 approved income tax treaties that would require mandatory binding arbitration. The arbitration provisions were included in the U.S.-Belgium Income Tax Treaty and a protocol to the U.S.-Germany income tax treaty. Both the Bush administration and the U.S. business community support the binding arbitration process. Some senators on the Foreign Relations Committee initially had opposed it. Binding arbitration will come up again in 2008 in a new protocol with Canada. The provision is not yet part of Treasury's 2006 model income tax treaty.
The binding arbitration process takes effect automatically after two years if the countries' competent authorities cannot reach agreement. Each side picks an arbitrator, who then pick a third arbitrator. The panel must choose one side's offer or the other; it cannot compromise them. The panel's decision will not be precedent.
Oren Penn of PricewaterhouseCoopers told CCH that it is not intended that the provision will be used. The all-or-nothing nature of a decision is designed to encourage countries to come to an agreement.
By Brant Goldwyn, CCH News Staff
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Streamlined Sales Tax (SST) Governing Board has approved a compromise allowing Texas and other sales tax-dependent states to continue taxing intrastate sales at the rate in effect at the seller's location (origin sourcing), but to tax interstate sales at the rate in effect where the merchandise is delivered (destination sourcing). (TAXDAY, 2007/12/14, S.1)
The original SST plan required destination sourcing for both interstate and intrastate sales. The destination sourcing requirement for intrastate sales had been a major barrier preventing Texas from supporting the plan. As a result of the compromise, Texas is a major step closer to joining the SST Agreement.

CCH (cch.taxgroup.com) reports:

The North Carolina Supreme Court has ruled that its initial discretionary grant of review of an appellate court's decision upholding class certification in an action challenging North Carolina's personal income and corporate income taxation of interest earned on out-of-state bonds was improvidently allowed (see TAXDAY, 2007/05/14, S.19). The case will now be returned to the Superior Court for further proceedings.
Dunn v. State of North Carolina , North Carolina Supreme Court, No. 605PA06, December 7, 2007.

CCH (cch.taxgroup.com) reports:

An out-of-state financial services processing company had nexus with Florida for corporate income tax purposes even though its only contact with the state was through unrelated authorized vendors. The taxpayer did not maintain real or tangible personal property or employ personnel or agents in Florida. However, the taxpayer was licensed, as required, with the Office of Financial Regulation of the Florida Department of Financial Services as a payment instrument seller and, under this license, the taxpayer had registered locations (authorized vendors) in the state. For nexus purposes, "doing business "in Florida means actively engaging in any transaction for the purpose of financial gain. Following decisions from other state supreme courts, and in light of the fact that the U.S. Supreme Court has declined to review the issue, the Florida Department of Revenue's position is that physical presence is not required to impose the state's corporate income tax. The taxpayer's unrelated authorized vendors were licensed agents of the taxpayer who operated on the taxpayer's behalf within Florida. The activities of these vendors were sufficient to create corporate income tax nexus, because without them, the taxpayer could not operate its business in Florida.
Technical Assistance Advisement, No. 07C1-007 , Florida Department of Revenue, October 17, 2007, ¶205-125
Other References:
Explanations at ¶10-075
 

CCH (cch.taxgroup.com) reports:

The Senate on December 14 approved legislation offering tax relief to homeowners caught in the sub-prime mortgage crisis. The bill was approved as an amendment to the Mortgage Forgiveness Debt Relief Bill of 2007 (HR 3648) and creates a three-year exception for debt forgiveness on home loans. When debt is forgiven on a home loan, the homeowner usually must count the amount forgiven as income and pay taxes on it. The measure also extends a provision allowing homeowners to deduct mortgage insurance payments from their taxable income.
"Homeowners who are already in trouble on the mortgage certainly can't afford a big hit from the tax man too," said Senate Finance Committee Chairman Max Baucus, D-Mont., in a prepared statement. "This mortgage tax bill will help to ease the burdens of homeowners who are hurting today," he added.
In addition to tax relief for debt forgiveness and mortgage insurance payments, the bill includes: tax relief for volunteer firefighters and emergency medical technicians; protection of tax relief for homeowners after the death of a spouse; and flexibility to help co-op tenant/owners deduct real estate taxes and mortgage insurance. The bill is fully offset by increased penalties for failure to file S corporation or partnership returns and new requirements corporate estimated tax payments. It is now necessary for the House to pass the updated legislation and send it to the president for signature.
Farm Bill Passes
Also on December 14, the Senate approved a comprehensive farm bill (the Farm, Nutrition, and Bioenergy Bill of 2007, HR 2419) that includes a tax title providing for codification of the economic substance doctrine as a means to offset most of the $17 billion-plus price tag. The final vote was 79-14. Codification of the economic substance doctrine raises about $10 billion over ten years as a revenue offset and would apply to transactions entered into after the date of enactment. The measure would convert a number of conservation payment programs into fully offset tax credit programs and offer additional incentives for rural economic development and energy-related tax relief to aid agricultural producers. In addition, it would create a disaster assistance trust fund and convert payment programs to tax credits in order to free up previously obligated spending funds for the Senate Agriculture Committee. The measure needs full approval by the House before President Bush can sign it into law.
By Jeff Carlson, CCH News Staff
SFC Release: Senate Passes Mortgage Tax Relief For Families In Crisis
Baucus Amendment to Mortgage Forgiveness Debt Relief Act of 2007, HR 3648
JCT Very Preliminary Estimated Revenue Effects of a Possible Amendment to HR 3648, the Mortgage Forgiveness Debt Relief Act of 2007
SFC Release: Baucus Wins on Agriculture Tax Package as Senate Approves Comprehensive Farm Bill

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

In the most significant course change since its launch, the Streamlined Sales Tax (SST) Governing Board has amended the SST Agreement to allow states that meet specified requirements to become full members while continuing to source sales on an origin basis. The unanimous vote by the full members of the Board came at the end of three days of meetings in Dallas, December 10-12, 2007. The Board and its predecessor organizations rejected repeated attempts in the past to change the Agreement to allow origin sourcing, most recently at its meeting in Kansas City, Kansas. (TAXDAY, 2007/09/24, S.1) However, the Board relented when confronted with the impending loss of at least two associate member states, uncertain prospects for adding further states, pressure from local governments, and a divided business community.
The only other significant action taken by the Board in Dallas was its acceptance of Nevada's petition to become a full member, effective April 1, 2008.

CCH (cch.taxgroup.com) reports:

A closing agreement with the IRS entered into by a law firm was set aside because the agreement was induced by fraud or malfeasance. The IRS agents' conduct amounted to fraud and malfeasance when they left the law firm with no choice but to accept the closing agreement and pay a penalty or subject the firm's clients to evaluations of their employee benefit plans because they allegedly did not timely amend their plans to comply with new law.
However, the amended plan documents were timely submitted to the IRS within the extended remedial amendment period. Since the amended plans' initial submissions were substantially correct and were made in good faith, the IRS could not request minor corrections, then declare the plans late when the IRS-requested corrections were submitted and demand payment of a penalty. Therefore, an attorney whose clients were covered by the closing agreement was entitled to a refund of the penalty he paid for the allegedly late submissions.
B.J. Jewell, DC Ark., 2007-2 USTC ¶50,838
Other References:
Code Sec. 401
CCH Reference - 2007FED ¶17,929.67
Code Sec. 7121
CCH Reference - 2007FED ¶41,090.336
Tax Research Consultant
CCH Reference - TRC RETIRE: 51,052.20
CCH Reference - TRC IRS: 39,158

CCH (cch.taxgroup.com) reports:

The House on December 13 passed a third continuing resolution for fiscal 2008 (HJRes 69) that will keep the federal government operating at current levels through December 21, 2007. The continuing resolution provides fiscal year FY 2008 funding on a pro-rata basis for federal government operations and activities, including the IRS, the State Children's Health Insurance Program (SCHIP) and existing aviation fuel and air transportation ticket taxes. The House passed the measure by a vote of 385 to 27.
House Majority Leader Steny Hoyer, D-Md., told lawmakers that the House would likely consider an omnibus appropriations bill on the evening of December 17. That timetable depends on the House and Senate settling their differences over spending priorities in a way that does not generate a veto threat from the White House, said House Appropriation Committee Chairman David Obey, D-Wisc. He noted that lawmakers were making progress on the spending bills, so the first session of the 110th Congress might not have to extend beyond Christmas. House Speaker Nancy Pelosi, D-Calif., had set an adjournment date of December 14, but work on energy, tax and war spending will keep lawmakers in Washington until at least December 19, Hoyer said.
By Stephen K. Cooper, CCH News Staff
House Joint Resolution Making Continuing Appropriations for Fiscal Year 2008, HJRes 69

CCH (cch.taxgroup.com) reports:

Senate Republicans on December 13 effectively stripped a $21.8-billion tax title from a comprehensive energy bill (HR 6) by thwarting Senate Democratic Leader Harry Reid's, D-Nev., attempt to limit debate on the provisions in order to prevent a filibuster. The cloture vote, which requires 60 votes for approval, fell short by one vote, 59 to 40. The Senate plans to take up the energy bill immediately without the tax provisions. It is expected to pass by an overwhelming margin and House Speaker Nancy Pelosi, D-Calif., has indicated her chamber will follow suit.
President Bush and Senate Republicans primarily opposed the tax package because of revenue offsets affecting the oil and gas industry that would repeal the domestic manufacturing incentive for the top five integrated producers and tighten rules governing the payment of taxes by oil and gas producers on foreign-earned income. While there are no stated plans to revive the tax provisions before the session ends, Senate Finance Committee Chairman Max Baucus, D-Mont., and ranking member Charles E. Grassley, R-Iowa have previously indicated that such measures could reappear as a stand-alone measure or attached to must-pass legislation.
Reid said on the Senate floor prior to the cloture vote that, by eliminating the tax breaks for the oil industry, Congress would have funds to invest in clean energy and provide for the Secure Rural Schools program, as well as at least one-year full funding for the Payments in Lieu of Taxes program. Sen. Pete Domenici, R-N.M., ranking member on the Senate Committee on Environment and Natural Resources, saw the outcome differently."By rejecting the nearly $22 billion in tax increases added to this bill, the Senate will instead go back to work on a package that contains the right priorities and can be signed into law," he said in a prepared statement.
President Bush on December 13 said he would sign energy legislation if the Senate version reaches his desk. Bush, in a written statement, said the Senate energy plan would improve U.S. economic and energy security. The plan contains stricter CAFE standards than the administration wanted but the provision was not a deal breaker. What remains to be seen is the final House version and whether it will contain tax offsets. The White House remains firmly opposed to any tax increase to fund tax cut provisions. To date any bills that raise taxes have drawn a veto threat.
By Jeff Carlson and Paula Cruickshank, CCH News Staff
Joint Committee on Taxation Estimated Budget Effects of Titles I and XV of a Proposed Amendment to HR 6, the Clean Renewable Energy and Conservation Act of 2007, JCX-115-07
Statement of Administration Policy on HR 6

CCH (cch.taxgroup.com) reports:

The Senate late on December 12 approved by unanimous consent a $1.2-billion tax relief measure, but the bill differs from similar House-approved legislation (HR 3997) and requires approval by that chamber before it can be sent to President Bush for him to sign it into law. The Defenders of Freedom Tax Relief Bill of 2007 (Sen 1593), first introduced by Senate Finance Committee Chairman Max Baucus, D-Mont., in June and later modified, includes tax cuts for members of the military who are receiving combat pay, saving for retirement, or purchasing homes. It also provides benefits for employers of military reservists and for members of the National Guard who provide assistance to employees who are called to active duty.
Some of the tax benefits in the bill
include a permanent allowance for soldiers to count their nontaxable combat pay when figuring their eligibility for the earned income tax credit; a refundable federal income tax credit; a tax cut for small businesses when they continue paying some salary to members of the National Guard and Reserve who are called to duty; and the ability for active duty troops to withdraw money from retirement plans, with two years to replace the funds without tax penalty.
The unanimous consent agreement fully offsets the cost of the military tax relief with four provisions. The bill makes certain that individuals who relinquish their U.S. citizenship or long-term U.S. residency pay the same federal taxes for appreciation of assets, such as stocks or bonds, that they would pay if they sold them as U.S. citizens or residents. It also increases the penalty for people who fail to file their tax returns. Another offset allows reservists returning from a tour of duty to opt back into a civilian employer's health insurance plan. Finally, the package allows the Social Security Administration and the Veterans' Administration to work together to verify low-income status when distributing veteran's benefits.
The Bush administration does not plan to issue a policy statement on HR 3997 until it reaches the House floor. As a general rule, President Bush has threatened to veto any measure that funds tax cuts with higher taxes. The White House has not indicated whether the tax provisions in the Senate-passed measure are tax revenues that would face a presidential veto or tax loophole-closers acceptable to the president.
By Jeff Carlson and Paula Cruickshank, CCH News Staff
Defenders of Freedom Tax Relief Act of 2007, as Amended and Passed by the Senate on December 12, 2007, HR 3997
Joint Committee on Taxation Estimated Revenue Effects of HR 3997, the Defenders of Freedom Tax Relief Act of 2007, as Amended and Passed by the Senate on December 12, 2007, JCX-116-07
Senate Finance Committee Release: Baucus, Grassley Win Tax Relief for America's Military Men and Women
Senate Finance Committee Release: Summary of Costs of Defenders of Freedom Tax Relief Bill of 2007

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Arkansas Department of Finance and Administration has released the personal income tax brackets for tax year 2007. The amounts are as follows:
-- If net income is at least $0, but not more than $3,699, the tax rate is 1%;
-- If net income is at least $3,700, but not more than $7,399, the tax rate is 2.5% minus $55.49;
-- If net income is at least $7,400, but not more than $11,099, the tax rate is 3.5% minus $129.48;
-- If net income is at least $11,100, but not more than $18,599, the tax rate is 4.5% minus $240.47;
-- If net income is at least $18,600, but not more than $30,999, the tax rate is 6% minus $519.45; and
-- If net income is $31,000 or more, the tax rate is 7% minus $829.44.
2007 Individual Income Tax Brackets , Arkansas Department of Finance and Administration, December 2007.

CCH (cch.taxgroup.com) reports:

Senate Finance Chairman Max Baucus, D-Mont., and ranking member Charles E. Grassley, R-Iowa, unveiled a $21.8-billion modified package of energy tax legislation planned for consideration by Congress on December 13, but the measure faces a certain veto by President Bush, despite indications that some Senate Republicans plan to vote for the package. The legislation would provide tax incentives to advance the development of advanced electricity infrastructure, mitigate carbon emissions, promote the production of alternative energy and the use of alternative vehicles, and encourage energy savings and efficiency.
Baucus and Grassley said on December 12 that the modest changes they made should allow the legislation to move forward to passage by the full Senate as part of the larger energy bill. Senate Republicans on December 7 defeated a motion to invoke cloture on the initial energy bill compromise package, the Clean Renewable Energy and Conservation Tax Bill of 2007 (HR 6), that also included $21 billion in tax credits and other incentives. The cloture motion was not agreed to by a vote of 53-42. The revised bill calls for offsets of $12.7 billion, all of which is derived from rolling back tax breaks for the oil and gas industry.
"If America's really going to make a change in terms of energy policy, encouraging new energy strategies in the tax code must be part and parcel of that effort," said Baucus in a prepared statement. "An important component of the Senate version of this legislation is that it restores the wind-energy tax credit to current law and rolls back the misdirected limitation on the credit that was in the House bill, "added Grassley.
Changes from the version of HR 6 unveiled the week beginning December 3 by Baucus and House Ways and Means Chairman Charles B. Rangel, D-N.Y., include: extension of the renewable energy production tax credit for two years without changing the current-law structure of the credit; creation of a new category of tax-exempt bonds for electric transmission facilities; change of the effective date of a provision regarding biodiesel that is imported and sold for export to the date of enactment, rather than a retroactive date; extension for two years of the current refinery expensing provision; creation of a 20-percent consumer tax credit for conversion of hybrid vehicles to plug-in hybrids; repeal of the Code Sec. 199 tax deduction for domestic oil and gas production that now applies only to major integrated oil producers; elimination of a proposal repealing favorable depreciation for natural gas distribution lines; addition of a provision repealing suspension of certain tax penalties and interest; addition of an option to treat elective deferrals as after-tax contributions; and removal of Davis-Bacon requirements in a tax credit bond provision.
The tax package still includes revenue-raising provisions affecting the oil and gas industry, repeal of the domestic manufacturing incentive for the top five integrated producers and a tightening of rules governing the payment of taxes by oil and gas producers on foreign-earned income. But the lawmakers said they rewrote the provisions to prevent any retroactive effect on the industry and to avoid negative impacts on production that may cause increased consumer prices.
By Jeff Carlson, CCH News Staff
SFC Release: Baucus, Grassley Unveil Modified Energy Tax Package
JEC Release: The Proposed Modification of Internal Revenue Code Section 199 Will Not Increase Consumer Energy Prices
JCT Technical Explanation of the Revenue Provisions Contained in Title XV of HR 6, the Clean Renewable Energy And Conservation Tax Act of 2007, as Passed by the House of Representatives on December 6, 2007, JCX-111-07
JCT Estimated Budget Effects of the Revenue Provisions Contained in Titles I and XV of HR 6, the Clean Renewable Energy And Conservation Tax Act of 2007, as Passed by the House of Representatives on December 6, 2007, JCX-112-07

CCH (cch.taxgroup.com) reports:

House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., succeeded in his promised effort to pass an alternative minimum tax (AMT) relief bill on December 12, but the new measure contains more than $50 billion in revenue increases that critics believe are unlikely to win support in the Senate. Rangel said that he introduced the AMT Relief Bill of 2007 (HR 4351) in hopes that GOP lawmakers would agree to pay for a one-year AMT patch, rather than forcing the federal government to borrow money to offset the cost. The bill passed the House on a party-line vote of 226 to 193.
According to the committee, the bill would extend AMT relief for nonrefundable personal credits and increase the AMT exemption amount to $66,250 for joint filers and $44,350 for individuals. The bill would also provide relief for AMT taxpayers who have exercised incentive stock options and would make changes to the refundable AMT credit. The measure also includes a provision to increase the eligibility of the refundable child tax credit, which Rangel estimated would help more than 12 million children nationwide, the committee release said.
Rangel said the revenue increases in the new bill might be more acceptable to the Senate lawmakers, who rejected a House version (HR 3996) that was laden with tax loophole closers as a means of offsetting the cost. Instead, the Senate voted 88 to 5 to approve an AMT relief bill that did not include any tax increases (TAXDAY, 2007/12/07, C.1).
"This new bill removes those controversial pay-fors, and incorporates provisions that have been suggested to receive broad support in the Congress," Rangel said. The new bill will give the Senate one more chance to do the right thing and pass this critical tax relief without adding to the deficit, Rangel said.
The new bill would raise $23.7 billion over 10 years by taxing hedge fund mangers on a current basis if they receive deferred compensation from certain offshore entities. The bill would also raise $26.2 billion over 10 years by delaying for eight years the implementation of a new rule that allows a liberalized method for allocating interest expense between United States sources and foreign sources for purposes of determining a taxpayer's foreign tax credit limitation.
Ways and Means ranking member Jim McCrery, R-La., predicted the Rangel bill would not survive a Senate vote. "We've been down this road before," McCrery said. Eventually House Democrats would be forced to accept an offset-free AMT bill. "Until that happens, considering AMT legislation with unnecessary tax increases does nothing-nothing except contribute to chaos in our tax filing season and delay tax returns for tens of millions of taxpayers," he said.
White House Position
The White House is standing firm in its veto threat against any tax cut package that is paid for by raising taxes elsewhere. White House Press Secretary Dana Perino, at a press briefing on December 12, reaffirmed that President Bush will veto the AMT patch and the proposed energy tax title if they are offset by tax increases.
Perino pressed for another continuing funding resolution to avoid a federal government shutdown after the current stopgap measure expires on December 14. The stopgap funding measure is also necessary to continue the States' Children Health Insurance Program (SCHIP) and aviation and ticket excise taxes.
SCHIP Veto
As promised, on December 12 the president vetoed a $35 billion package to expand the State Children's Health Insurance Program (SCHIP) (HR 3963). Bush, in a written statement, said the Children's Health Insurance Program Reauthorization Act of 2007 would not provide health insurance first to all poor children before extending coverage to families with higher incomes. The current law covers families with incomes at twice the federal poverty level.
Bush's veto threat extends to the proposed 61-cent hike in tobacco taxes that would be used to fund the expanded program. The president's budget supported a five-year reauthorization of the SCHIP program and a 20-percent increase in funding for the health insurance program.
The SCHIP program covers families who earn too much to be eligible for Medicaid. Under current law, children in these families qualify for coverage if their income does not exceed 200 percent of the federal poverty level.
By Stephen K. Cooper and Paula Cruickshank, CCH News Staff
Ways and Means Release: House Will Give Senate Another Chance to Pass AMT Relief Without Adding to the National Debt
AMT Relief Act of 2007, HR 4351
Summary of HR 4351, the AMT Relief Act of 2007
JCT Technical Explanation of the AMT Relief Act of 2007, JCX-113-07
JCT Estimated Revenue Effects of HR 4351, the AMT Relief Act of 2007, JCX-114-07
SAP on HR 4351

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

An individual who received an erroneous refund, which was later recouped by the IRS via levy and wage garnishment, was not bound by the Code Sec. 7422
refund procedures, or the Code Sec. 6532 limitations period, in seeking recovery of the seized funds. The individual's tax liability was extinguished through withholding credits prior to receiving the erroneous refund and, therefore, the refund did not represent a payment of tax requiring the individual to follow refund procedures. The IRS was, however, required to use proper erroneous refund procedures to recoup the overpayment and its failure to do so entitled the individual to proceed on an illegal exaction theory in the Court of Federal Claims.
L.D. Pennoni, FedCl, 2007-2 USTC ¶50,834
Other References:
Code Sec. 6511
CCH Reference - 2007FED ¶39,080.3255
Code Sec. 6532
CCH Reference - 2007FED ¶39,280.21
Code Sec. 7422
CCH Reference - 2007FED ¶41,688.543
Tax Research Consultant
CCH Reference - TRC LITIG: 9,052
CCH Reference - TRC IRS: 45,162

CCH (cch.taxgroup.com) reports:

With several temporary tax provisions scheduled to expire by December 31, 2007, prospects for passage in 2007 are dimming; however, a small window of opportunity remains, according to Senate Finance Committee Chairman Max Baucus, D-Mont. As the Senate awaits a revised alternative minimum tax (AMT) bill from the House, Baucus expressed hope that his Democratic counterpart in that chamber, House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., includes an extenders package to accompany a one-year patch for the AMT. Baucus said that would be the only way to renew several expiring tax provisions in 2007; otherwise they will be "pushed off until next year."
The prospects for passage in 2007 are not good, as President Bush has vowed to veto any legislation that includes what he terms tax increases, and House Democrats appear, at least for the moment, determined to pay for all tax cuts through the use of revenue offsets. So far, Senate Republicans have remained steadfast in their allegiance to the White House directive to oppose the use of offsets, but at this time of year, as lawmakers rush to move legislation before heading home for the holidays, anything is possible. Baucus planned to meet with Rangel later in the day on December 12 to discuss the AMT package and the inclusion of extenders. "It's all fluid," he told CCH.
In the 110th Congress, several extenders have already been included in legislation. Specifically, the Temporary Tax Relief Bill of 2007 (HR 3996), which was passed in the House on November 9 (TAXDAY, 2007/11/12, C.1), and the Tax Reduction and Reform Bill of 2007 (HR 3970), propose one-year extensions of several temporary provisions. The Mortgage Forgiveness Debt Relief Bill of 2007 (HR 3648) includes a provision to extend the deduction of qualified mortgage insurance premiums through December 31, 2014. None of those measures have cleared the Senate. The Work Opportunity Tax Credit (WOTC) however, was extended through August 31, 2011, by the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007, which includes the Small Business and Work Opportunity Act of 2007 (P.L. 110-28). That legislation also established a new targeted group of eligible employees for the credit. Whether Congress would renew certain expired tax credits retroactively in 2008, or hold off until that body coalesces around a plan to reform the tax code and make many of them permanent, remains to be seen.
The extenders include the Welfare-to-Work Tax Credit (WWTC), an election to include combat pay as earned income for purposes of the earned income credit, the tax credit for holders of qualified zone academy bonds, the tax credit for first-time homebuyers in the District of Columbia, the tax credits for research and experimentation expenses, the New Markets Tax Credit, the possession tax credit with respect to American Samoa and a credit for certain expenditures for maintaining railroad tracks. The extenders also include deductions for elementary and secondary school teachers, tuition expenses, mortgage insurance premiums, corporate charitable contributions of computer technology, food inventory and books, contributions of capital gain real property made for conservation, and state and local sales taxes. Also included are depreciation allowances for qualified leasehold and restaurant improvements, for property on Indian reservations and a seven-year recovery period for motor sports entertainment complexes.
Other temporary tax provisions that expired included tax incentives for investment in the District of Columbia, an increased "cover over" of tax on distilled spirits from Puerto Rico and the U.S. Virgin Islands, an excise tax to induce parity in the application of certain mental health benefits, penalty-free withdrawals from individual retirement plans (IRAs) for individuals called to active duty or for charitable giving and mortgage revenue bonds for veterans.
By Jeff Carlson, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

An auto manufacturer was barred by sovereign immunity from pursuing its claim for a refund of Connecticut sales taxes it had refunded to consumers who had purchased cars that were found defective under the state's lemon law. The manufacturer alleged, among other claims, that its rights to due process and equal protection under the state and federal constitutions were violated when the Commissioner of Revenue Services did not grant its claim for refund of the sales taxes it had paid. The Connecticut Supreme Court ruled, however, that the manufacturer was not an aggrieved taxpayer and did not fall within the class of persons entitled to a refund under the applicable statute because the manufacturer failed to allege that (1) it was the purchaser of the vehicles subject to the sales tax, and (2) it was responsible for payment of the original sales tax at the time of the original purchase that gave rise to the sales tax. The manufacturer was ineligible for the refund because it neither qualified as a "taxpayer" as that term is contemplated in the Sales and Use Taxes Act nor as that term is commonly understood.
Moreover, there was nothing either expressly or by implication in the language of the statute that imposed upon the manufacturer the obligation to refund the tax to the consumer to show that the Legislature statutorily waived the state's sovereign immunity, according to the court. There was no express indication that the Legislature intended to permit the manufacturer to recover any of the collateral charges such as sales tax required to be refunded to the consumer by the manufacturer upon the consumer's return of a defective vehicle. Although there are exceptions to the state's sovereign immunity, there must exist a proper factual basis in a complaint to support the applicability of those exceptions. The lemon law was intended to protect consumers of new automobiles. Consequently, sovereign immunity deprived the trial court of subject matter jurisdiction to consider the manufacturer's claim that the statutory obligation under the state's lemon law to refund sales taxes to consumers who return defective vehicles resulted in violations of the manufacturer's constitutional rights.
It was irrelevant to the court that it was the Commissioner's decision denying the refund that gave rise to the constitutional claims. The manufacturer sought money damages from the state for those alleged violations but had not received permission from the claims commissioner to bring the action and also had not pleaded a valid exception to the doctrine of sovereign immunity. As a result, the trial court had properly granted the Commissioner's motion to dismiss because the manufacturer's claims were barred by sovereign immunity.
Subscribers to CCH Tax Research NetWork may view the opinion in its entirety.
DaimlerChrysler Corp. v. Law, Connecticut Supreme Court, No. SC 17892, officially released December 18, 2007.

CCH (cch.taxgroup.com) reports:

Efforts in Congress broke down over the weekend of December 8 to reach agreement on a budget package acceptable to President Bush. Office of Management and Budget (OM Director Jim Nussle called the proposal fiscally irresponsible and warned that the president would veto the measure if Congress sends it to him.
"If Congress insists on sending the president a budget-busting bill they know he will veto and that will not become law, they should also pass a continuing resolution that keeps the government running and provides the troops in the field the funds they need," Nussle said in a written statement issued on December 8.
The current continuing resolution expires on December 14. Without another stopgap spending measure, federal government operations will shut down, something that is not anticipated. An additional temporary appropriations measure that is prorated at fiscal year 2007 spending levels would continue funding of the State Children Health Insurance Program and aviation fuel and ticket excise taxes that otherwise would have expired.
The omnibus spending bill under consideration reportedly includes $18 billion in additional domestic and emergency spending above the president's budget. The spending above the administration's request includes $2 billion for the State Department and $3 billion for a homeland security initiative.
Senate Appropriations Committee Chairman Robert C. Byrd, D-W.Va, said on December 10 that the White House veto threat on the still-developing omnibus appropriations bill reflects the president's skewed priority against domestic spending compared to war funding. "It is extraordinary that the president would request an 11-percent increase for the Department of Defense, a 12-percent increase for foreign aid, and $195 billion of emergency funding for the war, while asserting that a 4.7-percent increase for domestic programs is fiscally irresponsible," Byrd said in a written statement.
House lawmakers hope to bring an omnibus appropriations bill to the House floor for a vote during the week of December 10, clearing it for Senate action just before Congress adjourns on December 14. Byrd called on the president to stop political posturing and work with Congress to quickly complete the appropriations process. He said the administration claims that domestic spending is wasteful and economically damaging, but Democrats are fighting to provide veterans health care, lower the rate of violent crime and educate children.
By Stephen K. Cooper and Paula Cruickshank, CCH News Staff
White House Release: Statement by White House OMB Director Jim Nussle

CCH (cch.taxgroup.com) reports:

The IRS is investigating whether the Mexican single rate business tax (IETU), to be effective beginning January 1, 2008, is a creditable income tax under Article 24 of the Convention Between the Government of the United States of America and the Government of the United Mexican States for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (Treaty). Article 24 of the Treaty allows for a credit for income tax paid to Mexico by or for a U.S. citizen. Pending the outcome of the investigation, the IRS will not challenge a taxpayer's assertion that the Mexican single rate business tax qualifies under Article 24 of the Treaty.
Notice 2008-3, 2007FED ¶46,748
Notice 2008-3, TRET ¶26,282
Other References:
Code Sec. 894
CCH Reference - 2007FED ¶27,642.11
Code Sec. 901
CCH Reference - 2007FED ¶27,826.032
CCH Reference - 2007FED ¶27,826.259
Tax Research Consultant
CCH Reference - TRC INTL: 18,058
CCH Reference - TRC INTL: 18,058.10

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Income from a parent company's sale of its subsidiaries' stock and its sale of its minority interests in several partnerships constituted apportionable business income for Idaho corporate income tax purposes. The taxpayer failed to overcome the Idaho statutory presumptions that a sale of a subsidiary's stock is business income and that an Idaho State Tax Commission's (Commission) business versus nonbusiness income determination is correct. The evidence demonstrated that the various subsidiaries enabled the parent company to provide integrated service packages to its customers and expand its markets, and that the service subsidiaries provided installation and maintenance services, material and supplies, managerial, technical, accounting, and administrative services to the parent company's operating subsidiaries. All of these factors demonstrated that a unitary relationship existed and that the subsidiaries served an operational rather than an investment function, the income from which would constitute apportionable business income. Also, the taxpayer had previously included the subsidiaries in its combined reports filed in previous years and gave no justification why the unitary business status had changed.
Futhermore, there was nothing in Idaho law that would support the taxpayer's assertion that its sale of its partnership interests was nonbusiness income, because it was not a general partner in the partnerships and its ownership interest was less than 50%. Rather, income from the sale of a partnership interest is treated as apportionable business income if the sale served an operational function. Furthermore, the taxpayer had classified prior sales of its minority interests in partnerships as apportionable business income. Because the taxpayer failed to rebut the Commission's determination that the income from the sale of the partnership interest was business income, the Commission's determination was upheld.
Decision No. 19311 , Idaho State Tax Commission, July 30, 2007, received December 4, 2007, ¶400-556
Other References:
Explanations at ¶11-510
Explanations at ¶11-520
 

CCH (cch.taxgroup.com) reports:

On Dec. 6, the U.S. House Judiciary Subcommittee on Commercial and Administrative Law heard testimony on the Sales Tax Fairness and Simplification Act of 2007 (H.R. 3396), which would confer collection authority over remote sales on states that have conformed their laws to the requirements of the Streamlined Sales and Use Tax (SST) Agreement, as well as made certain additional changes. (TAXDAY, 2007/08/10, S.1)
Chairman Linda Sanchez, D-Calif., said states are collecting less tax revenues as consumers go online to purchase items without paying the appropriate state sales taxes. "State and local governments have voiced their concerns that increasing online sales and the resulting loss in collection of sales taxes are affecting an ever larger portion of their revenues," Sanchez said.
According to Illinois State Sen. Steven Rauschenberger, speaking on behalf of the National Conference of State Legislatures (NCSL), many states are in danger of losing their revenue base as a result of uncollected tax on electronic commerce transactions and a shift away from an economy based on the sale of tangible goods to a service-based economy. States are concerned about the future viability of the sales tax and the ability of state governments to fund essential services such as education, homeland security, and public safety, he said. Rauschenberger added that passage of H.R. 3396 is Congress' opportunity "to ensure that the simplified system that the states have developed for the seamless collection of transactional taxes in the new economy is not impeded by those who merely are trying to avoid paying legally imposed taxes."
By Stephen K. Cooper, CCH News Staff
Hearing, U.S. House Judiciary Subcommittee on Commercial and Administrative Law, December 6, 2007.

CCH (cch.taxgroup.com) reports:

The Senate approved a one-year patch for the alternative minimum tax (AMT) without offsets even as House Democratic leaders declared their opposition to passing such legislation because it would add to the federal debt and budget deficit. Senate Republicans on December 7 defeated a motion to invoke cloture on an energy measure. President Bush, meanwhile, has threatened to veto any fiscally irresponsible appropriations bills that reach his desk, including a fiscal year 2008 omnibus spending package. The president and Treasury Secretary Henry M. Paulson, Jr., also announced a new initiative to address the growing subprime mortgage default crisis, and the IRS released guidance addressing transition relief on the correction of certain failures of nonqualified deferred compensation plans to comply with the operational requirements of Code Sec. 409A.
Congress
The Senate, by a vote of 88-5, on December 6 approved a one-year patch AMT patch without offsets (TAXDAY, 2007/12/07, C.1). Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, later said on the Senate floor that they would likely have to defer until 2008 any action on an extension of expiring tax provisions commonly referred to as extenders. The House must now approve the amended version of its bill before President Bush can sign it into law. However, passage in that chamber is by no means assured.
House Democratic leaders say they are adamantly opposed to passing an AMT patch without revenue offsets because it would add to the federal debt and budget deficit. House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., plans to craft a new AMT relief bill that is paid for by tax increases that Senate Republicans find less objectionable. Appearing on Bloomberg TV on December 7, Rangel said that Senate GOP lawmakers and the president are being irresponsible in their insistence on not paying for AMT tax relief.
"It's hard for me to tell the Democrats from the Republicans in the Senate," said Rangel, following the overwhelming Senate vote to pass AMT relief without an offset and cause the federal government to borrow billions of dollars. He hinted that Democrats might use budget rules to force a filibuster-proof vote on the AMT in the Senate that only requires 51 votes to win passage. Meanwhile, members of the influential Blue Dog Coalition in the House have promised House Speaker Nancy Pelosi, D-Calif., to vote down any AMT legislation that is not paid for.
Ways and Means ranking member Jim McCrery, R-La., said tax hikes were unnecessary to protect middle-class Americans from the AMT. If the House Democratic leadership fails to allow the House to vote on a clean AMT patch, or if not enough House Democrats support such a patch, "then the tax increase that will fall on 23 million taxpayers will clearly lie at the doorstep of House Democrats," McCrery said.
Senate Republicans on December 7 defeated a motion to invoke cloture on an energy bill compromise package, the Clean Renewable Energy and Conservation Tax Bill of 2007 (HR 6) that includes $21 billion in tax credits and other incentives. The cloture motion was not agreed to by a vote of 53-42. Leaders of the Senate Energy and Natural Resources Committee planned to re-write the bill over the weekend and possibly jettison the tax package.
Meanwhile, Pelosi expressed disappointment that the Senate failed to support the House energy bill, HR 6 (TAXDAY, 2007/12/07, C.2). "The House will work with the Senate on a bipartisan basis to pass a strong energy bill and send it to the president's desk for his signature," she said in a statement following the Senate vote.
The bill, which also includes a host of alternative energy tax incentives to taper the U.S. need for foreign oil, would cost approximately $21 billion to be raised from higher taxes on big domestic oil and gas companies. The Democrats' bill would require more efficient appliances, plug-in electric vehicles and greener buildings, while expanding the use of cellulosic ethanol by the year 2022.
Democrats said the measure would also provide incentives for carbon capture and sequestration coal demonstration projects. The bill would promote the development of an advanced electricity infrastructure that requires utilities to use renewable fuels. Those incentives would be paid for by repealing billions of dollars in oil and gas tax breaks that Democrats believe are no longer necessary with the price of oil at nearly $100 per barrel.
Grassley reported on December 5 that he had received responses to his inquiries from five of six media-based ministries under investigation for abuses of their tax-exempt status. The senior lawmaker said that his actions were necessary after hearing allegations of wrongdoing, including excessive compensation, extravagant housing allowances, personal use of assets, lax board governance and unreported income.
White House Position
Earlier in the week of December 3, President Bush had threatened to veto any fiscally irresponsible appropriations bills that reached his desk, including a fiscal year 2008 omnibus spending package (TAXDAY, 2007/12/05, W.1). White House Press Secretary Dana Perino asserted that the president wants "clean and full funding for the troops" and an appropriations bill that Bush can sign.
The president is opposed to any tax offsets to pay for an AMT patch or the energy bill. Deputy Press Secretary Tony Fratto said that it would be "costly and wasteful" for Congress to delay passage of a clean AMT patch. Failure to pass a temporary AMT fix by the end of 2007 will delay the delivery of about $75 billion worth of tax refund checks in 2008, Bush warned.
On the energy bill, the Office of Management and Budget (OM argued that the tax code should not be used to single out specific industries, such as oil and gas companies, to fund tax incentives for greater use of alternative and renewable energy sources and tougher fuel-efficient standards. A White House spokesman said that rolling back any of the existing oil and gas tax breaks would create business uncertainty. The administration also opposes the provision to require utilities to generate 15 percent of its electrical power from renewable energy sources by 2020.
IRS
The IRS issued guidance and transition relief on the correction of certain failures of nonqualified deferred compensation plans to comply with the operational requirements of Code Sec. 409A (Notice 2007-100; TAXDAY, 2007/12/04, I.2). Relief is provided for certain failures that are corrected in the same year and for other small-dollar failures that are corrected in a subsequent year but before 2010.
The IRS has modified Q&A-23 of Notice 2007-7, I.R.B. 2007-5, 395, to provide that health insurance premiums paid to self-insured accident or health plans are eligible for the Code Sec. 402(l) exclusion (Notice 2007-99; TAXDAY, 2007/12/04, I.1). The exclusion applies to certain distributions from an eligible governmental plan that are used to pay health insurance premiums of a retired public safety officer and family. Congress is looking at legislation to authorize the change.
The State Department released a list of maximum per diem travel allowances for travel in foreign countries, beginning December 1, 2007 (TAXDAY, 2007/12/04, I.4).
The IRS issued a list of qualified alternative fuel motor vehicles, which can have a credit of up to $32,000, and qualified heavy hybrid vehicles, which can have a credit of up to $12,000 (IR-2007-96; TAXDAY, 2007/12/06, I.1).
The IRS and Treasury are aware of the many problems created by the new return preparer standards, Tax Legislative Counsel Michael Desmond declared on an American Bar Association webcast (TAXDAY, 2007/12/06, T.1). New rules under Code Sec. 6694 impose a heightened standard and tougher penalty on return preparers. Guidance will be forthcoming, Desmond stated.
Speakers at an IRS hearing said that proposed regulations (NPRM REG-148393-06, I.R.B. 2007-39, 714; TAXDAY, 2007/08/20, I.6) will discourage employers from developing long-term disability insurance coverage for defined contribution plans (TAXDAY, 2007/12/07, I.5). The proposed regulations treat a payment from the defined benefit plan for an accident or health insurance premium as a taxable distribution.
The IRS Office of Professional Responsibility (OPR) announced it had settled allegations under Circular 230 in connection with a $31 million municipal bond issue (IR-2007-197; TAXDAY, 2007/12/07, I.1). It was the first announced OPR action involving bond attorneys. Under the settlement, two attorneys agreed to follow certain procedures in the exercise of due diligence.
The IRS's Tax Exempt Bonds unit issued its Fiscal Year 2008 Work Plan (TAXDAY, 2007/12/07, I.4). The TEB will devote substantial resources to arbitrage-motivated transactions and will continue its focus on post-bond issuance compliance and monitoring. It will also expand its voluntary compliance program and start to look at student loan bonds.
A report by the Treasury Inspector General for Tax Administration (TIGTA) found that the IRS still struggles to fulfill its stated performance objectives (TAXDAY, 2007/12/07, T.1). The slow pace of modernization is a leading problem. Other problems are the need to improve the quality of its human capital, develop systems that provide accurate and timely financial and operating data, and improve analysis of the tax gap.
The Treasury will soon release a study on reforming the U.S. international tax system, Assistant Secretary for Tax Policy Eric Solomon indicated at PricewaterhouseCoopers' Global Tax Symposium 2007 (TAXDAY, 2007/12/04, T.1). The study is looking at many approaches, including worldwide inclusion, deferral of deductions, and a territorial system.
President Bush and Treasury Secretary Henry M. Paulson, Jr., announced a new initiative to address the growing subprime mortgage default crisis (TAXDAY, 2007/12/07, W.1). The initiative will be financed by the private sector but requires that the government approve certain tax breaks. These include preservation of the qualified status of a real estate mortgage investment conduit (REMIC) when certain changes are made. The IRS resolved this problem in Rev. Proc. 2007-72 (TAXDAY, 2007/12/07, I.2). Congress also must approve legislation that would exempt mortgage workouts from forgiveness of indebtedness income. HR 3648 is before the Senate and would accomplish this. In addition, the administration has proposed that tax-exempt bonds be available for refinancing existing loans. Under current law, they can only finance new mortgages for first-time homebuyers. This last issue is not needed to proceed with the administration's initiative.
By Jeff Carlson, Stephen K. Cooper, Paula Cruickshank and Brant Goldwyn, CCH News Staff
 

CCH (cch.taxgroup.com) reports:

The IRS and the Treasury Department have requested comments from the public regarding issues that arise with respect to certain financial transactions often referred to, in the marketplace, as "prepaid forward contracts," or, in other circumstances, as "exchange traded notes." These transactions are similar to typical forward contracts, which are bilateral, executory contracts in which one party agrees to buy an asset on a future date for a specific forward purchase price, payable at that future time. However, in "prepaid forward contract" transactions, the purchase price is paid in advance of future delivery or cash settlement. Therefore, these transactions usually involve an initial payment by one party in exchange for a promise of either (1) a future delivery of a particular asset or group of assets (such as stocks or commodities) or (2) a future payment determined solely by reference to the value of such assets.
The IRS provided a list of issues associated with "prepaid forward contract" transactions. In particular, the IRS and the Treasury Department are looking for comments regarding whether the parties to these types of transactions should be required to accrue income/expense during the term of the transaction, in the event the transaction is not otherwise indebtedness for U.S. federal income tax purposes. With respect to this issue, the IRS referred to Rev. Rul. 2008-1, I.R.B. 2008-2, released in conjunction with Notice 2008-2, in which an instrument resembling, in form, a prepaid forward contract, was determined to be debt.
Comments regarding the enumerated issues pertaining to "prepaid forward contract" transactions must be submitted by May 13, 2008.
Notice 2008-2, 2007FED ¶46,747
Other References:
Code Sec. 988
CCH Reference - 2007FED ¶28,907.60
Code Sec. 1260
CCH Reference - 2007FED ¶31,145.01
Tax Research Consultant
CCH Reference - TRC SALES: 45,500
CCH Reference - TRC INTLOUT: 21,104.05

CCH (cch.taxgroup.com) reports:

A debt instrument providing an economic return by reference to the euro (and market interest rates in respect of the euro) was a euro-denominated indebtedness of the issuer despite being both issued and redeemed for U.S. dollars. The acquisition of --or becoming an obligor under --a debt instrument is a Code Sec. 988 transaction if the amount a taxpayer is either required to pay or entitled to receive is determined by reference to a nonfunctional currency. Neither the translation of dollars into euros and euros back into dollars, nor the fact that intervening currency fluctuations might result in the holder receiving less at maturity than was originally paid for the instrument, are relevant to the characterization of the instrument as debt. It is also irrelevant to its characterization whether the instrument is privately offered, publicly offered or traded via an exchange.
Rev. Rul. 2008-1, 2007FED ¶46,746
Other References:
Code Sec. 988
CCH Reference - 2007FED ¶28,907.60
Tax Research Consultant
CCH Reference - TRC INTLOUT: 21,104.05
 

CCH (cch.taxgroup.com) reports:

The IRS has issued guidance regarding the deductibility of amounts paid by individuals for diagnostic and similar procedures, including certain devices, not compensated by insurance or otherwise, as medical care expenses under Code Sec. 213(a). In each of the three scenarios presented, the amounts paid by taxpayers were expenses for medical care deductible under Code Sec. 213(a), subject to the limitations of that section including the seven and a half percent floor on deductibility.
Under Code Sec. 213(d)(1)(A), medical care expenses include amounts paid related to the diagnosis, mitigation, treatment, cure or prevention of disease, or any condition affecting any structure or function of the body, including obstetrical services. Diagnosis includes the determination of the absence of disease, and may involve testing for changes in the function of the body unrelated to disease. The guidance clarifies that (1) Code Sec. 213 does not limit the deduction to amounts paid for the least expensive form of medical care applicable, and (2) a physician's recommendation, while often important to determine whether certain expenses are for medical or personal reasons, is unnecessary when the expenditures are for items wholly medical in nature and that serve no other function.
In the first scenario, money spent for an annual physical examination qualified as an expense for medical care, even though the taxpayer was not experiencing any symptoms of illness. In the second scenario, a taxpayer who was not experiencing any symptoms of illness paid for a full-body electronic scan at a clinic without having obtained a physician's recommendation for this procedure. Because the procedure served no non-medical purpose, it, too, qualified as an expense for medical care. In addition, neither the high cost of the procedure nor the possibility of less expensive alternative diagnostic tests barred the deductibility of the expense. Finally, in the third scenario, the expense of a self-administered pregnancy test kit qualified as an expense for medical care, even though it tested the healthy functioning of the body rather than attempted to detect disease.
Rev. Rul. 2007-72, 2007FED ¶46,744
Other References:
Code Sec. 213
CCH Reference - 2007FED ¶12,543.023
CCH Reference - 2007FED ¶12,543.132
CCH Reference - 2007FED ¶12,543.136
Tax Research Consultant
CCH Reference - TRC INDIV: 42,052
 

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

In his fiscal year 2008 preliminary budget proposal, New York City Mayor Michael R. Bloomberg announced his intention to provide $1 billion in business, sales, and property tax relief. The Mayor proposed eliminating New York City sales taxes on all clothing and shoes, and providing five job-creating tax breaks for small businesses and S corporations in New York City. He also proposed a temporary, one-year property tax rate reduction, which would be in addition to the extended $400 property tax rebates for homeowners.
Press Release , Office of New York City Mayor Michael R. Bloomberg, January 25, 2007.

CCH (cch.taxgroup.com) reports:

In regard to California sales and use, personal income, and corporate income taxes, the State Board of Equalization, the Franchise Tax Bureau, and the Employment Development Department could take a number of short-term and long-term steps to improve information and data collection and exchange, according to the Legislative Analyst's Office (LAO). Under the terms of the Supplemental Report of the 2005 Budget , the LAO was directed to report to the Legislature regarding the characteristics and various issues associated with the state's existing tax information and data systems.
Roughly over the past 20 years, several reports regarding the three agencies primarily have concerned themselves with two aspects of tax collection and administration, specifically (1) transparency and accessibility to taxpayers and (2) fiscal and budgetary impacts. Unlike those reports, the focus of this report is related to the compliance and enforcement advantages of increased cooperation and information sharing among the agencies.
According to the LAO, compliance and enforcement issues recently have become of increasing concern to California, as well as to other states and the federal government. The concerns have arisen due to a number of trends and factors, including
-- "abusive" tax shelters, which have led to increased underreporting of income for tax purposes;
-- the growth of the Internet and other forms of remote sales, which has led to noncompliance with the state's use tax; and
-- the growth in nonwage income, which has led to less withholding and a greater reliance on third-party reporting.
Coupled with other features of today's economy --such as new and different business ownership structures, information transactions, and the large cash economy --these factors have led to increased concern about the "tax gap," which is the difference between taxes legally owed and taxes actually paid to the state. The collection, sharing, and accessibility of tax-related information among the agencies are primary methods of dealing with the tax gap, the LAO said.

CCH (cch.taxgroup.com) reports:

The IRS has updated its Internet-based calculator to help taxpayers determine whether they owe the alternative minimum tax (AMT). The online AMT Assistant, available at www.irs.gov, is an automated version of Worksheet to see if you should fill in Form 6251, Alternative Minimum Tax . The worksheet, contained in the Form 1040 Instruction Booklet, is used to determine how much AMT, if any, a taxpayer owes. The IRS projects that most taxpayers using the online AMT Assistant will find that the AMT does not apply to them, and that after they enter their data, they can get an answer in five to 10 minutes.
The AMT Assistant is aimed at individual taxpayers and can be used by individuals, tax practitioners and community or public service organizations. All entries are anonymous. Taxpayers filing paper returns benefit the most from the AMT Assistant, since electronic filing software generally computes AMT liability automatically. Taxpayers can find the tool by entering "AMT Assistant" in the www.irs.gov search box. To use the AMT Assistant, taxpayers must complete a draft Form 1040 through line 44 and have that information at hand.
IR-2007-18, 2007FED ¶46,288
Other References:
Code Sec. 55
CCH Reference - 2007FED ¶5101.03
CCH Reference - 2007FED ¶5101.10
Code Sec. 6011
CCH Reference - 2007FED ¶35,141.04
Tax Research Consultant
CCH Reference - TRC FILEIND: 30,400
 

CCH (cch.taxgroup.com) reports:

The IRS has issued an updated revenue procedure that provides that, for purposes of the tax shelter disclosure rules under Reg. §1.6011-4, certain transactions are not reportable as transactions with contractual protection. As noted in the procedure, Reg. §1.6011-4(b)(4), which pertains to transactions with contractual protection, does not apply to transactions in which refundable or contingent fees are based on the taxpayer's liability for taxes other than federal income taxes.
Eight transactions are excepted from the rules regarding transactions with contractual protection. Those transactions are transactions in which the refundable or contingent fee is related to:
--the work opportunity credit under Code Sec. 51;
--the welfare-to-work credit under Code Sec. 51A;
--the Indian employment credit under Code Sec. 45A(a);
--the low-income housing credit under Code Sec. 42(a);
--the new markets tax credit under Code Sec. 45D(a);
--the empowerment zone employment credit under Code Sec. 1396(a);
--the renewal community employment credit under Code Sec. 1400H; and
--the employee retention credit under Code Sec. 1400R(a), (b)
or (c).
CCH Comment. Although the transactions listed above are excepted from the disclosure rules under Reg. §§1.6011-4(b)(4), they may be reportable transactions for disclosure purposes under Reg. §§1.6011-4(b)(2) (listed transactions), (b)(3)
(confidential transactions), (b)(5)
(loss transactions), (b)(6)
(transactions with significant book-tax difference) or (b)(7)
(transactions involving a brief asset holding period).
The revenue procedure is effective January 26, 2007. The exceptions under section 4.02(1) through (3) of the procedure (exceptions (1) through (3), above) apply to transactions that are entered into on or after January 1, 2003. The exceptions under section 4.02(4) through (8) of the procedure (exceptions (4) through (8), above) apply to all transactions, regardless of when the transaction was entered into, that otherwise would have to have been disclosed under Reg. §1.6011-4(b)(4) on or after January 1, 2006.
Rev. Proc. 2004-65, 2004 2 C.B. 965, is modified and superseded.
Rev. Proc. 2007-20, 2007FED ¶46,286
Other References:
Code Sec. 6011
CCH Reference - 2007FED ¶35,141.78
Code Sec. 6111
CCH Reference - 2007FED ¶37,002.1789
Code Sec. 6112
CCH Reference - 2007FED ¶37,022.70
Tax Research Consultant
CCH Reference - TRC FILEBUS: 3,052.25
 

CCH (cch.taxgroup.com) reports:

The week of January 21 saw President Bush face the nation in his State of the Union address. During the speech the president revealed his plan to raise individual standard deductions while imposing a corresponding tax on certain individuals. Both the Senate and the House addressed minimum wage legislation, and the Congressional Budget Office released its projections for the fiscal year 2007 deficit. Legislation to stop IRS privatization initiatives was introduced in the House, while Senators addressed issues with respect to the IRS's treatment of Conservation Reserve Program payments.
White House
President Bush proposed a new health care standard deduction in his State of the Union address (TAXDAY, 2007/01/24, W.1). To pay for the new tax break, the president's plan would impose a new tax on individuals whose employers provided them with excessively generous, or so-called gold-plated, health insurance plans. The president's plan aims to level the playing field for those who are insured by their employers and individuals who buy their own insurance. Individuals would be entitled to a $7,500 standard deduction for the purchase of a single policy and $15,000 for family health coverage. Administration officials acknowledged that the proposal could speed up the trend of employers dropping health care coverage for their workers. Those who lose coverage, however, are more likely to be able to afford their own health insurance because of the new tax benefit, reasoned White House officials.
Looking Ahead. The White House plans to focus on the economy during the week of January 29. The White House Council of Economic Advisers is due to release its annual report, and the president will send his fiscal year 2008 budget plan to Congress on February 5.
Congress
Senate. The Senate on January 24 narrowly defeated a motion to end debate on a clean minimum wage bill, clearing the way for that body to pass a minimum wage hike along with an $8.3 billion package of small business tax incentives TAXDAY, 2007/01/25, C.1. Senate Majority Leader Harry Reid, D-Nev., filed a motion on January 26 to limit debate on the measure. Senate Finance Committee (SFC) Chairman Max Baucus, D-Mont., said he expected the Senate to reach final passage on the substitute amendment to HR 2, which includes the tax breaks, by January 30. The bill would then be laid aside until leaders in both the House and Senate agree on how to proceed with the measure. Baucus and others believe the failure of the cloture vote sent a clear message to the House that minimum wage legislation can only move with the tax package. Senators also defeated by a vote of 49 to 48, a cloture motion on a line-item veto amendment proposed by Senate Budget Committee ranking member Judd Gregg, R-N.H.
Baucus on January 25 announced plans to extend and enhance the college tuition deduction and move a number of other education incentives through the SFC in 2007 (TAXDAY, 2007/01/26, C.1). He plans to introduce a new Education Competitiveness Bill soon and some tax initiatives to be considered by the SFC that will likely mirror elements of his 2006 bill. Provisions in that legislation included a federal deduction for state and local property taxes that go to support local schools and tax relief for repayment of student loans. Baucus also introduced an amendment on the Senate floor January 25 reiterating his decision to move education tax incentives through the SFC.
CBO. The Congressional Budget Office (CBO) on January 24 revised its forecast of the fiscal year 2007 deficit down to $172 billion, a $114 billion drop from earlier projections made in August 2006 (TAXDAY, 2007/01/25, C.2). The CBO credited the change to slightly higher than expected revenues and decreased federal spending on Medicare entitlement costs.
House. House lawmakers are not any closer to accepting the need to merge their minimum wage bill with additional small business tax breaks, said Rep. John Lewis, D-Ga. Lewis, who chairs the House Ways and Means Committee Subcommittee on Oversight TAXDAY, 2007/01/24, C.1. Lewis told CCH that the minimum wage bill passed the House as "clean" legislation, and Democratic leaders so far, have not changed their position.
House Bill Would End IRS Privatization Initiative. Two long-time opponents of outsourcing tax collection, Reps. Steven R. Rothman, D-N.J., and Chris Van Hollen, D-Md., introduced legislation on January 24 to terminate the IRS's privatization initiative TAXDAY, 2007/01/26, C.2. Their bill, HR 695, would repeal the IRS's authority to contract with private debt collectors. Rothman and Van Hollen predicted at a news conference sponsored by the National Treasury Employees Union on January 25 in Washington, D.C., that the new Democratic-controlled Congress will vote to end the controversial privatization initiative. Similar legislation, Sen 335, has been introduced in the Senate.
IRS
Farm State Senators upset about Tax Treatment of Conservation Payments. Nineteen senators are urging Treasury Secretary Henry Paulson and IRS Commissioner Mark Everson to back off from a proposal to treat Conservation Reserve Program (CRP) rental payments as income subject to Self-Employment Contributions Act (SECA) taxes. Farmers who participate in the CRP receive annual rental payments and cost-share assistance in exchange for conserving cropland and pastureland. Generally, farmers enroll in the program for 10 to 15 years.
"The IRS's tax treatment of CRP payments is not what Congress intended, nor is it supportable in law," the senators told Paulson and Everson in a January 19 letter. The senators noted that the IRS lost on this issue in the Tax Court but won on appeal ( Wuebker, CA-6, 2000-1 USTC ¶50,254). Nonetheless, they urged the IRS to change its position, or they would work to pass legislation to do so.
The controversy has flared recently because the IRS is claiming that retired farmers owe SECA taxes on their CRP rental payments (Notice 2006-108, I.R.B. 2006-51, 1118; TAXDAY, 2006/12/06, I.3). The IRS had taken this position in the past, but now appears more determined to enforce it.
IRS Describes New issues for Issue Management Resolution System. The IRS has announced new issues for its Issue Management Resolution System (IMRS). IMRS identifies and responds to "significant national and local stakeholder issues," according to the IRS. On January 22, the IRS released the IMRS Monthly Overview for December 2006.
Among the issues discussed in the December IMRS Monthly Overview are requests for
--A penalty and interest calculator on the IRS website;
--Clarification of the split refund initiative;
--A fact sheet addressing income and expenses unique to family farming operations.
The IRS also reported its progress on some older issues. In response to requests, the IRS added an option for Form 944, Employer's Annual Federal Tax Return, on the Electronic Federal Tax Payment System (EFTPS). The IRS also created a link for Subscription Services to the Tax Professionals page on its website. Additionally, the IRS reported that Chief Counsel is considering requests to expand the automatic six-month extension procedures to the entire Form 990 series.
IRS Highlights Revisions to 2006 Forms 990.
The IRS reminded exempt organizations on January 24 that 2006 Forms 990, Return of Organization Exempt From Income Tax, 990-EZ and Schedule A have been changed to reflect the Pension Protection Act of 2006 (P.L. 109-280). On its Charities and Nonprofits page on its website, the IRS highlighted new reporting requirements for:
--Organizations maintaining donor advised funds;
--Organizations with conservation easements;
--Supporting organizations;
--Organizations paying travel and entertainment expenses for government officials and their families.
Looking Ahead --DC Tax Practice and Policy Symposium. IRS Commissioner Mark Everson and Large and Mid-Size Business Division (LMS Commissioner Deborah Nolan are among the IRS officials on the schedule of the 8th Annual Tax Practice and Policy Symposium sponsored by the Tax Council Policy Institute, February 1 and 2 in Washington, D.C. The symposium will discuss global tax enforcement trends, tax disclosures in financial statements and other issues. Mark Olson, chair of the Public Company Accounting Oversight Board (PCAO is scheduled to deliver the keynote address on February 2. CCH will bring you complete coverage of the symposium.
By Jeff Carlson, Stephen K. Cooper, Paula Cruickshank and George L. Yaksick, Jr., CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Pennsylvania Department of Agriculture has issued new guidelines and an application form for the resource enhancement and protection tax credit program (REAP). Under the REAP program, farmers and businesses that implement best management practices (BMPs) that will enhance farm production and protect natural resources may claim a credit against the corporate net income tax, the personal income tax, the capital stock/franchise tax, the bank and financial company shares tax, and the insurance gross premiums tax.
Eligible applicants may receive credits equal to 25% and 75% of project costs up to $150,000 per agricultural operation. In addition, farmers interested in purchasing no-till planting equipment may qualify for a 50% tax credit. The tax credit must be returned if the practice is not maintained for the life span of the practice.
Applications will be accepted by the State Conservation Commission on a first-come, first-served basis beginning January 2, 2008. Applications may be delivered in person, via U.S. Postal Service, or via a private carrier. Applications must be postmarked after December 26, 2007.
A project will be reviewed by the Commission and a determination on eligibility made within 60 days after receipt of a complete application. The first round of tax credits will be issued no later than June 30, 2008.
The guidelines provide additional information on general eligibility requirements, eligible project costs, steps that may be taken prior to the application period, and various program reminders.
The Agriculture Department has also announced that an educational meeting on no-till equipment purchases is scheduled for December 18, at the Pennsylvania Farm Show Complex & Expo Center in Harrisburg. Farmers, equipment dealers and manufacturers, county conservation district staff, and others interested in the no-till equipment requirements should make reservations for the meeting.
Subscribers to CCH Tax Research NetWork can view the Agriculture Department press release, credit application form, additional credit guidelines, and educational meeting reservation information.
Resource Enhancement and Protection Program Guidelines, Pennsylvania Department of Agriculture, December 2007, ¶203-734
Other References:
Explanations at ¶7-344
Explanations at ¶12-129
Explanations at ¶15-547
Explanations at ¶29-532
Explanations at ¶88-407

CCH (cch.taxgroup.com) reports:

The IRS has issued guidance allowing certain asset securitization vehicles to avoid a challenge to their tax status in the event disqualifying modifications are made to subprime mortgage loans held by the vehicle. Aimed at aiding current attempts to curtail the economic fallout of the subprime mortgage crisis, the revenue procedure's emphasis is on Real Estate Mortgage Investment Conduits (REMICs) which are widely used as securitization vehicles for mortgages.
Rev. Proc. 2007-72 relies on the recent publication by the American Securitization Forum entitled, "Statement of Principles, Recommendations and Guidelines for a Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans" (the Framework). The Framework provides a fast track mechanism whereby certain adjustable rate mortgages will be modified so that the interest on the loan will remain fixed for a period of time.
Under current law, the Framework's modifications to loans held by a securitization vehicles could affect the vehicle's tax status. Therefore, the IRS will not challenge the tax status of certain securitization vehicles if certain criteria are met. First, Rev. Proc. 2007-72 only applies where the following transactions occur on or before July 31, 2010:
A fast track modification of an applicable loan pursuant to the Framework.
A second-lien holder's action of subordinating its lien to any new lien that may arise under an applicable loan as the result of a fast track modification.
If either of these two transactions occur:
The IRS will not challenge a securitization vehicle's qualification as a REMIC on the grounds that the transactions are not among the exceptions listed in Code Sec. 1.860G-2(b)(3).
The IRS will not contend that the transactions are prohibited transactions under Code Sec. 860F(a)(2) on the grounds that the transactions are not among the exceptions listed in Code Secs. 860F(a)(2)(A)(i) through (iv).
The IRS will not challenge a securitization vehicle's classification as a trust on the grounds that the transactions manifest a power to vary the investment of the certificate holders.
The IRS will not challenge a securitization vehicle's qualification as a REMIC on the grounds that the transactions resulted in a deemed reissuance of the REMIC regular interests.
Rev. Proc. 2007-72 is effective December 6, 2007. If, however, the Framework is materially modified after December 6, 2007, the revenue procedure does not necessarily apply to fast track modifications under the revised Framework or to second-lien subordinations to accommodate those modifications.
Rev. Proc. 2007-72, 2007FED ¶46,742
Other References:
Code Sec. 860D
CCH Reference - 2007FED ¶26,662.01
CCH Reference - 2007FED ¶26,662.021
Code Sec. 7701
CCH Reference - 2007FED ¶43,091.68
Tax Research Consultant
CCH Reference - TRC RIC: 9,300
CCH Reference - TRC ESTTRST: 3,150

CCH (cch.taxgroup.com) reports:

Legislation to revise the controversial more-likely-than-not standard in Code Sec. 6694(a) was introduced in the House on December 6. The bill, introduced by Reps. Joseph Crowley, D-N.Y., and Jim Ramstad, R-Minn., would jettison the more-likely-than-not standard in favor of substantial authority. The bill, which had not been assigned a number as of press time, comes on the eve of the expiration of transitional relief.
Substantial Authority
Thomas Ochsenschlager, vice president-taxation for the American Institute of Certified Public Accountants (AICPA), told CCH that the proposed bill will equalize the return preparer and the taxpayer standards at substantial authority. "Historically, the return preparer standard was realistic possibility of success and the taxpayer standard was substantial authority," he explained.
The Small Business and Work Opportunity Tax Act of 2007 (P.L. 110-28) changed the realistic possibility of success standard in Code Sec. 6694(a) to more-likely-than-not. The 2007 Small Business Tax Act also significantly increased the penalties for violating Code Sec. 6694 and made Code Sec. 6694 applicable to all return preparers and not just income tax return preparers.
Unintended Consequences
Immediately after the 2007 Small Business Tax Act was passed, the AICPA, the National Association of Enrolled Agents (NAEA), the National Association of Tax Professionals (NATP) and other professional groups, warned that the more-likely-than-not standard would change the role of practitioners from advocate to advisor. They also cautioned that practitioners encounter many issues for which there is no guidance from the IRS, making the determination of the proper treatment of an item far from clear.
Retroactive
The bill is retroactive to May 25, 2007, the effective date of the 2007 Small Business Tax Act. The retroactive provision effectively negates the more-likely-than-not standard, Ochsenschlager explained.
The bill would also provide a reasonable cause exception. No penalty would be imposed if the practitioner acted in good faith and there was reasonable cause for the understatement.
Tax Shelters
The bill also equalizes the standards for tax shelters and reportable transactions. Taxpayers would be subject to a more-likely-than-not standard as would practitioners. "The AICPA supports this change," Ochsenschlager said.
Non-Signing Preparers
The bill does not create an exception for non-signing preparers from the definition of return preparer under Code Sec. 6694. The American Bar Association (ABA) Section of Taxation recently urged the Treasury Department and the IRS to exclude non-signing preparers from the scope of Code Sec. 6694 (TAXDAY, 2007/11/19, M.3) in regulations, which are expected to be issued before the end of the year.
Transitional Relief
Transitional relief from the IRS will expire soon (IR-2007-115, Notice 2007-54; TAXDAY, 2007/06/12, I.4). For income tax returns, amended returns and refund claims due on or before December 31, 2007 (determined with regard to any extension of time for filing), the pre-2007 Small Business Tax Act standards and the current regulations will be applied when determining whether the IRS will impose a penalty under Code Sec. 6694(a).
For all other returns, amended returns and claims for refund, including estate, gift and generation-skipping transfer tax returns, employment tax returns and excise tax returns, the reasonable basis standard set forth in regulations issued under Code Sec. 6662, without regard to the disclosure requirements contained therein, will be applied when determining whether the IRS will impose a penalty under Code Sec. 6694(a).
By George L. Yaksick, Jr., CCH News Staff
Legislation to Modify the Penalty on the Understatement of Taxpayer's Liability by Tax Return Preparer's

CCH (cch.taxgroup.com) reports:

The Senate on December 6 approved a one-year patch without offsets for the alternative minimum tax (AMT) but not until after Senate Republicans rejected a House version (HR 3996) that was laden with tax loophole closers as a means of offsetting the cost. The cloture motion to limit debate on the House bill fell by 46-48 margin, 14 votes shy of the necessary 60 votes to block a filibuster by Republicans.
Following the failed cloture vote, a visibly exasperated Senate Majority Leader Harry Reid, D-Nev., offered to hold a unanimous consent vote on a one-year AMT patch (Baucus amendment No. 3804) without offsets, and without addressing expiring tax provisions commonly referred to as "extenders". Senate Budget Committee ranking member Judd Gregg, R-NH, however, lodged an objection, which under Senate rules immediately blocks a unanimous consent agreement. Gregg had earlier attempted to introduce a finite number of tax-related amendments into the debate over the House bill but was thwarted by Democratic leaders. Regarding extenders, Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, later said on the Senate floor that they would have to defer until 2008 any action on the extenders package.
Minutes after Gregg objected to the first unanimous consent agreement, Reid told reporters he would attempt another unanimous consent agreement in the afternoon, but that never materialized. He then told reporters: "The way things are going, I don't know if the patch will be put in place." Senate leaders, however, worked out an agreement early in the evening and held a roll call vote on the patch. The measure passed by an 88-5 margin.
The House must now approve the amended version of its bill before President Bush can sign it into law. However, passage in that chamber is by no means assured. On December 5, the 31 House members of the fiscally conservative Democratic Blue Dog Coalition publicly reinforced their commitment to pay-as-you-go (PAYGO) budget rules enacted by lawmakers at the start of the 110th Congress. In a letter to Senate Democratic leaders, Rep. Mike Ross, D-Ark., told the lawmakers that waiving PAYGO in the face of political pressure was fiscally reckless. "We made a commitment to the American people to reinstitute PAYGO budget rules and restore fiscal responsibility to government and we will stand by that commitment," said the Blue Dog co-chair for communications.
Blue Dog Coalition members have promised to vote against any legislation that is not fully offset and they called on Senate Democrats to follow suit. "We will not pass the burden of unmanageable debt on to our children and grandchildren just so we can avoid the difficult decisions that Americans expect their government to make," said Ross.
House Democrats Call for AMT Offsets
House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., also reiterated House Democrats' intent to pay for the measure. "We had hoped the Senate would support House-passed legislation to provide AMT relief without adding to the deficit," said Rangel in a statement following the Senate vote. "As I outlined earlier today, I am drafting amendments to the legislation passed by the Senate tonight to address the political opposition in their body. The House will consider these amendments so that we may give the Senate another chance to do the right thing and pass responsible AMT relief."
House Democratic leaders are still hoping for legislation that would provide relief from the AMT that meets PAYGO budget rules and includes a tax increase to cover the cost of the bill. In comments to reporters on December 6, House Speaker Nancy Pelosi, D-Calif., said Democrats would use any revenue offsets passed by the Senate to offset the cost of AMT relief. Pelosi's comments came in response to some GOP senators' reported willingness to approve a tax increase to pay for a group of extenders that expire in 2007.
"It is reported that the president and the Republicans in the House and Senate, while they speak about removing the burden of the AMT, do not suggest how we avoid borrowing the money to do so," Rangel said. "They have not offered any solutions to raise the money or cut spending to cover the cost of this critical tax relief. They do not suggest anything and as a result, we are getting nothing."
Rangel said that he would pursue a revenue offset that would change the rules for offshore nonqualified deferred compensation for hedge fund managers. "At this time, we are looking to close a loophole where billions of dollars in offshore funds have escaped taxation," he said. "Closing this loophole has already been accepted by the House and it is my understanding that it will be received favorably in the Senate as well."
At an AMT panel discussion hosted by the Committee for a Responsible Federal Budget and the New America Foundation, House Majority Leader Steny Hoyer, D-Md., said lawmakers have "plenty of blame to go around for letting this AMT problem fester. But the bottom line is that we need a solution --not finger-pointing." He rejected Republican efforts to pass AMT relief and add the costs of the $50 billion cost to the deficit and national debt.
According to Hoyer, GOP lawmakers are being fiscally dishonest in their balanced budget projections by calling for AMT relief without an offset, while still using the increased revenues from AMT to make their other tax cuts appear more affordable. "If we are going to reduce the revenues from the AMT that were assumed in the plans to balance the budget by 2012, we need to either replace those revenues or reduce spending if we are serious about balancing the budget," he said.
By Jeff Carlson and Stephen K. Cooper, CCH News Staff
CRS Report --Alternative Minimum Taxpayers By State: 2003, 2004, and Projections for 2007, Updated October 17, 2007
AMT Returns by State Comparison of 2005 to 2007

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

An integrated business application software system that had to be significantly modified before it could be used by the purchaser was exempt from Wisconsin sales and use tax as custom software, according to a Wisconsin Court of Appeals. The court of appeals upheld a Wisconsin Tax Appeals Commission determination that, under a rule defining "custom programs" and "prewritten programs," the distinction between custom and prewritten software programs hinges on the amount of effort necessary to make the software operational for a particular customer's needs.

CCH (cch.taxgroup.com) reports:

Some early filing taxpayers have requested "large and apparently improper amounts for the special telephone tax refund," according to the IRS. The IRS is investigating abuses and promises to take quick action against the involved taxpayers and their preparers. IRS Commissioner Mark W. Everson stated that "audit letters will be sent out soon and, when appropriate, [IRS] investigators will visit tax preparers who have been preparing questionable telephone tax refunds." A correct refund claim will only be for the amount of the 3-percent tax imposed on long distance and bundled telephone services during the 41-month period from March 2003 to July 2006. In the alternative, a taxpayer may claim a refund in the standard amount set by the IRS, which ranges from $30 to $60, based on the number of exemptions claimed on the taxpayer's return.
IR-2007-16, 2007FED ¶46,283
IR-2007-16, ETR ¶66,815
Other References:
Code Sec. 4251
CCH Reference - ETR ¶18,135.04
CCH Reference - ETR ¶18,135.68
Code Sec. 4252
CCH Reference - ETR ¶18,375.03
CCH Reference - ETR ¶18,375.25
Code Sec. 6402
CCH Reference - 2007FED ¶38,519.415
Code Sec. 7804
CCH Reference - 2007FED ¶43,266.18
Tax Research Consultant
CCH Reference - TRC PENALTY: 3,258
CCH Reference - TRC EXCISE: 9,056

CCH (cch.taxgroup.com) reports:

Senate Finance Committee Chairman Max Baucus, D-Mont., on January 25 announced plans to extend and enhance the college tuition deduction and move a number of other education incentives through the committee in 2007. Baucus said that he will soon introduce a new Education Competitiveness Bill and some tax initiatives to be considered by the Finance Committee that will likely mirror elements of his 2006 bill. Provisions in that legislation included a federal deduction for state and local property taxes that go to support local schools, and tax relief for repayment of student loans (TAXDAY, 2006/09/15, C.1).
Baucus also introduced an amendment on the Senate floor on January 25 reiterating his decision to move education tax incentives through the Finance Committee. Moreover, he refused to support an amendment, unpaid for and introduced outside the committee process, to make a limited number of changes to education tax incentives.
"The Finance Committee finished 2006 with a focus on education tax incentives, and that commitment will continue under my chairmanship this year," said Baucus in a statement. "Working together, the Finance Committee will craft a strong and fiscally responsible education incentives package and bring it to the full Senate."
By Jeff Carlson, CCH News Staff
SFC Release: Baucus Outlines Education Tax Objectives

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

In a January 23 statement, Texas Governor Rick Perry said he strongly supports the property appraisal reform plan submitted by the Task Force on Appraisal Reform. The governor said the plan would improve the accuracy of appraisals, prevent future unfunded state mandates on local government, and ensure that taxpayers are not powerless to stop large tax and spending increases.
The Task Force's report contains recommendations for five statutory changes and two constitutional changes. The following statutory changes are recommended:
-- require voter approval for any local taxing entity, excluding schools, to tax in excess of the approved prior year's budgeted tax revenue plus 5%;
-- implement measures to improve fairness and consistency in the appraisal process, including new options for taxpayers to challenge property valuations;
-- change the comptroller's property valuation study and provide uniformity in local property appraisal practices;
-- prohibit the state from passing unfunded mandates to local governments in the future; and
-- require sales price disclosure.
The following constitutional changes are recommended:
-- allow taxpayers the option of calculating their property taxes using a five-year rolling average of the property's appraised value; and
-- lower the residential appraisal cap on city and county taxes from 10% to 5%, double the local property tax homestead exemption to $6,000, and allow local governments the option of conducting an election to enact a half-cent countywide sales tax constitutionally dedicated to property tax reduction. The appraisal cap could be lowered to 5% only in counties that vote for the half-cent sales tax increase.
The governor's press release may be viewed at http://www.governor.state.tx.us/.

CCH (cch.taxgroup.com) reports:

The Ohio Department of Taxation has issued an information release that explains the rule-based estimation procedure and the statutory-based estimation procedure for the commercial activity tax. CAT taxpayers are required to calculate their taxable gross receipts and pay the tax due within 40 days of the end of a calendar quarter. Ohio Adm. Code Sec. 5703-29-09 provides an estimation procedure that allows taxpayers that check the "rule estimation" box on the CAT return to estimate taxable gross receipts for the current quarter using 95% of taxable gross receipts from the previous quarter. The statutory-based estimation procedure allows a taxpayer to estimate taxable gross receipts for a calendar quarter and then reconcile actual taxable gross receipts at the end of the year. The release discusses the differences between the two procedures and provides spreadsheets that can be used to calculate taxable gross receipts under each method. Taxpayers utilizing the statutory-based estimation procedure must complete and print or e-mail the corresponding spreadsheet when filing their annual reconciliation return.
CAT Information Release 2007-01 , Ohio Department of Taxation, January 2007, ¶403-687
Other References:
Explanations at ¶14-105

CCH (cch.taxgroup.com) reports:

CCH is hosting a live, 100-minute audio seminar, Navigating Schedule M-3; Bridging the Gap Between Financial Accounting and Tax Accounting,
on Thursday, February 1, at 1:00 p.m. Eastern, noon Central. Schedule M-3 has been very controversial since first introduced, and numerous questions have arisen regarding a variety of implementation and compliance issues. Our panel, consisting of John O. Everett, Ph.D., DPA; Cherie Hennig, Ph.D., CPA, M.B.A.; and William A. Raabe, Ph.D., CPA, will:
--Explain the requirements for filing Schedule M-3 for large corporations;
--Discuss and walk through comprehensive examples of both a simple and a more complex Schedule M-3;
--Determine the appropriate financial accounting income figure to be used in the book/tax reconciliation portion;
--Discuss the importance of the determination of the determination of deferred tax liabilities and deferred tax assets under FASB 109 and FIN 48, and how these financial accounting concepts tie into a book/tax reconciliation on Schedule M-3;
--Analyze the reporting of various income and deduction items by walking through a comprehensive case study;
--Focus on the special reporting problems encountered in preparing Schedule M-3 for an affiliated group of corporations;
--Examine the unique reporting issues applicable to the newly required Schedules M-3 for flow-through entities;
--Analyze current developments regarding Schedule M-3 reporting; and
--Answer your questions.
Registration can be completed online at https://www.krm.com/cch or by calling 1-800-775-7654. Participants can earn three hours of CPE credit. In addition, firms registering for this audio seminar will receive a copy of CCH's Practical Guide to Schedule M-3 Compliance, written by the panelists.

CCH (cch.taxgroup.com) reports:

Following the narrow defeat of a motion to end debate on a clean minimum wage bill, the Senate is ready to pass a minimum wage hike along with an $8.3 billion package of small business tax incentives. Senate Finance Committee Chairman Max Baucus, D-Mont., said that he expects the Senate to reach final passage on a substitute amendment to the Fair Minimum Wage Bill (HR 2), which includes the tax breaks, by January 30. The bill would then be laid aside until leaders in both the House and Senate agree on how to proceed with the measure. The House passed a clean minimum wage bill and House Democrats remain adamantly opposed to attaching the tax breaks. However, Baucus believes that the failure of the cloture vote sends a clear message to the House that minimum wage legislation can only move with his tax package.
The Senate defeated the clean bill cloture motion, which required 60 votes, by a 54-43 margin. Senators also narrowly defeated a cloture motion on a line-item veto amendment proposed by Senate Budget Committee ranking member Judd Gregg, R-N.H., by a vote of 49-48.
Baucus said that there were 20 amendments filed on the minimum wage/tax package measure, of which only three or four are legitimate. However, according to Baucus, those are not expected to move, as none are paid for. "That's a sure death sentence," he said.
By Jeff Carlson, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The West Virginia Supreme Court of Appeals has issued a separate dissenting and concurring opinion in Tax Commissioner v. MBNA America Bank, N.A. . The majority opinion issued on November 21, 2006 (see TAXDAY, 2006/11/22, S.18) concluded that it was not a violation of the Commerce Clause of the U.S. Constitution for the state to impose the corporate net income and the business franchise tax against an out-of-state bank that provided credit card services to West Virginia customers because the bank's business activity in the state constituted a significant economic presence sufficient to meet the substantial nexus standard. The majority found that the physical presence requirement established by the United States Supreme Court in Quill Corp. v. North Dakota , 504 U.S. 298 (1992), for showing a substantial nexus under the Commerce Clause, applies only to use and sales taxes and not to business franchise and corporation net income taxes.
The dissenting opinion criticizes the majority for relying on "thinly veiled state-favoring taxing agendas", a "strained and inaccurate reading" of Quill , and a "unilateral restatement of the important policy considerations" underlying the inclusion of the Commerce Clause, while ignoring "bedrock constitutional principles" and established legal precedent. The majority's economic nexus approach merges Due Process and Commerce Clause nexus requirements, the dissent argues, and effectively returns to the nexus jurisprudence that was rejected by the U.S. Supreme Court in National Bellas Hess, Inc. v. Illinois Revenue Dept. , 386 U.S. 753 (1967). The dissent also contends that the majority's effort to differentiate Quill's substantial nexus standard based on tax types and differences in the complexity of collection is speculation absent precedential support or clear doctrinal foundation. Finally, the majority is accused by the dissent of engaging in legislative activism by applying economic nexus approach based on the rationale that the framers of the U.S. Constitution could not have foreseen the significant changes to the way businesses conduct commercial activities.
A concurring opinion by the West Virginia Court's Chief Justice "responds to several misconceptions" contained in the dissenting opinion. The opinion emphasizes that the majority performed a critical analysis of Quill and correctly recognized the legal differences between the Due Process Clause and the Commerce Clause, the finer distinctions between the application of sales and use taxes as opposed to business franchise and corporation net income taxes, as well as taking into account the" realism of today's world" in which a business does not need a physical presence anywhere. The dissent's lengthy discussion regarding the physical presence component and the minimum contacts required under the Due Process Clause is described by the concurring opinion as "unwarranted," "prone to create confusion," and "wholly irrelevant" to the Commerce Clause issue before the court. In a final point, the concurring opinion questions the dissent's rigid adherence to the physical presence requirement for all tax types and asks why small businesses with a physical presence in West Virginia should pay business franchise and corporate income taxes, while large corporations without a physical presence should be exempt from such taxes.
Subscribers to CCH Tax Research NetWork can view the complete text of the opinions.
Tax Commissioner v. MBNA America Bank, N.A. , West Virginia Supreme Court of Appeals, No. 33049, dissenting opinion January 2, 2007, concurring opinion January 8, 2007

CCH (cch.taxgroup.com) reports:

A medical center was not entitled to recover a refund of employment taxes it paid for its resident doctors. The medical residents continued to be subject to Federal Insurance Contribution Act (FICA) taxes because they did not qualify for the student exception under Code Sec. 3121. When Congress ended the medical intern exception and the exemption for self-employed physicians, it did not intend interns and residents to qualify for the student exception. Rather, the amendments were made with the intent of providing nearly universal coverage with limited exceptions. Congress explicitly considered the need of "young doctors" to start building up survivor and disability benefits. Moreover, the specific intern exception that existed from 1939 to 1964 would have been superfluous if residents and interns qualified for the broad student exception.
Albany Medical Center, DC N.Y., 2007-1 USTC ¶50,168
Other References:
Code Sec. 3401
CCH Reference - 2007FED ¶33,533.23
Tax Research Consultant
CCH Reference - TRC PAYROLL: 3,122

CCH (cch.taxgroup.com) reports:

President Bush in his State of the Union address to a new Democrat majority in Congress declared that a divided government can work through its differences and find common ground on issues that are important to the nation. "Our citizens don't much care which side of the aisle we sit on --as long as we are willing to cross that aisle when there is work to be done," the president asserted in the January 23 address.
The president limited his domestic policy remarks to issues that he believes can garner bipartisan support in Congress. He called for measures to balance the federal budget by 2012 and urged Congress to work with him on entitlement reform. The president outlined proposals to increase the number of insured individuals and families and to lessen dependence on foreign energy sources.
The president proposed a health care standard deduction of $7,500 for individuals and $15,000 for families who purchase private health insurance (TAXDAY, 2007/01/23, W.1). At the same time, Bush's proposal would tax those covered by excessively generous health plans on that portion of the cost that exceeds these thresholds.
The plan is designed to level the playing field for those who purchase their own health insurance and those whose coverage is provided by their employers. According to the president, "more than 100 million men, women, and children who are now covered by employer-provided insurance will benefit from lower tax bills."
The proposed changes would simplify the tax code, noted White House Deputy Chief of Staff for Policy Joel Kaplan. "People understand a standard deduction. When everybody gets the same standard deduction, whatever the source of their insurance and whatever the cost, that ultimately is a more simple tax system," Kaplan said.
White House officials anticipate that the number of health savings accounts (HSAs) will grow if the president's proposal is enacted since it is biased toward the purchase of lower premium, high-deductible health insurance and HSAs are paired with these types of plans. The plan also is likely to lead to an acceleration in the trend of employers to drop health care coverage for employees, but more workers would be able to buy insurance in the individual market since the president's plan would provide "a substantial tax benefit," Kaplan observed.
Reaction from Congress
Senate. Senate Finance Committee (SFC) ranking member Charles E. Grassley, R-Iowa said that Bush has correctly identified a flaw in health care tax policy. Citing estimates from the Joint Committee on Taxation that over the next decade Americans will receive more than $1 trillion in tax benefits for health care under current tax law, Grassley declared: "We need to make sure those benefits are being directed wisely, get the most bang for the taxpayer's buck, and help to meet the needs of the millions of Americans without health insurance."
The senior lawmaker said that the president's proposal could help level the playing field by extending the tax incentives for purchasing health coverage to the self-employed and those who purchase health coverage on their own. "I'll study the details of this plan and work with Senator Baucus in the Finance Committee to work to address these issues and expand health insurance coverage," said Grassley.
The SFC Chairman Max Baucus, D-Mont., agreed, saying the president was right to recognize that Congress has to start reforming health care now. "To get traction, his proposals need to meet two tests: getting new health coverage to people who have none, and better coverage to those who don't have enough," said Baucus.
House. House Majority Leader Steny Hoyer, D-Md., said Bush's first move to demonstrate fiscal responsibility should be to present an honest, balanced budget to Congress in February. Hoyer called on Democrats and Republicans to come together to work to lower the federal budget deficit.
Rep. Phil Hare, D-Ill, rejected the president's health care proposals. "Unfortunately, the president's new health care proposal would raise taxes on those middle-class workers fortunate enough to have good plans while doing little to reduce the number of uninsured," Hare said.
House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., said Bush should realize that the domestic problems cited in his speech require bipartisan solutions. "Whether we're talking about expanding health care for the uninsured, ensuring Social Security for generations to come, or promoting fair tax policy, we're not talking about Democratic or Republican problems," Rangel said. He called on Bush to reach across the aisle to find solutions.
House Ways and Means Committee ranking member Jim McCrery, R-La., gave a thumbs up to the president's health care ideas, which he said would level the playing field between employer-sponsored insurance and individual insurance. "I think the president's proposal to extend tax incentives for health insurance to people who work for small businesses or are self-employed is a bold and creative approach to a complex problem," McCrery said.
The opposite reaction came from Rep. Fortney Pete Stark, D-Calif., who chairs the Ways and Means Subcommittee on Health. "The president's so-called health care proposal won't help the uninsured, most of whom have limited incomes and are already in low tax brackets," he said. Bush's plan would hurt middle-income Americans, whose employers will shift even more cost and risk to their employees.
Treasury
The president's health care proposal received more scrutiny at an afternoon briefing by two Treasury officials. The administration has not calculated exact figures on how much the proposal would reduce tax revenue in the first five years or how much revenue would be generated in the next five years. The numbers will be included with the president's fiscal year 2008 budget, they explained. The administration also plans to release numbers in the next few days on the average tax cut and increase.
The Treasury Department did release a chart showing that the proposed standard deduction for health insurance would make the tax code more progressive. Taxpayers in the first quintile of income (to $13,309) would have their taxes drop by about 0.3 percent of their income. Those in the second quintile (to $28,506) would get a tax cut of 0.4 percent of their incomes. Those in the third quintile (to $50,447) would pay fewer taxes by about 0.6 percent of their incomes, while those in the fourth quintile (to $87,757) would pay less by 0.1% of their incomes. The quintile earning $87,758 or more would see a tax hike of around 0.1 percent of their incomes.
By Jeff Carlson, Stephen K. Cooper, Paula Cruickshank and Dave Hansen, CCH News Staff
2007 State of the Union Address
State of the Union 2007 State of the Union Policy Initiatives: Overview Fact Sheet
White House Energy Fact Sheet: Twenty In Ten: Strengthening America's Energy Security
White House Health Fact Sheet: Affordable, Accessible, And Flexible Health Coverage
White House Spending Fact Sheet: Reforms To Spend Tax Dollars Wisely
Treasury Department News Release, Administration's Proposal for Affordable, Accessible, and Flexible Health Coverage, TDNR HP-228

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The U.S. Supreme Court has accepted a request by the foreign missions of India and Mongolia to consider whether federal courts have jurisdiction in a lawsuit brought by New York City involving tax liens imposed on the missions' real property for failure to pay property taxes. The city asked the courts to declare its liens valid, maintaining that those portions of the missions' property that are used to house lower-level diplomatic personnel are subject to property taxation. The missions sought to have the city's lawsuit dismissed on the basis that they have sovereign immunity from suit.
The U.S. Court of Appeals for the Second Circuit, without reaching the merits of the dispute in this interlocutory appeal, affirmed the district court's judgement that it had jurisdiction under the "immovable property" exception in the Foreign Sovereign Immunity Act, 28 U.S.C. Secs. 1602-1611. (TAXDAY, 2006/05/16, S.10) The Court of Appeals remanded the case to the district court for further proceedings, prompting the missions' petition to the high court. Prior to granting the missions' request for review, the U.S. Supreme Court invited the U.S. Solicitor General to file a brief expressing the views of the United States. That brief was filed on December 22, 2006.
Subscribers to CCH Tax Research NetWork can view the petition.
Permanent Mission of India to the United Nations v. City of New York,
U.S. Supreme Court, Dkt. 06-134, petition for certiorari granted January 19, 2007

CCH (cch.taxgroup.com) reports:

New and amended regulations have been adopted on the reporting of New Jersey gross income tax by owners of S corporations and partnerships. The new S corporation rules explain what constitutes a shareholder's pro rata share of income or losses, reporting of liquidating and nonliquidating distributions, computing a shareholder's initial and adjusted New Jersey basis, determining a shareholder's New Jersey accumulated adjustments account, and classifying earnings and profits in an S corporation prior to the New Jersey S corporation election. The regulations also provide guidance, clarification, and examples on the reporting of gains or losses from the complete liquidation of pass-through entities.

CCH (cch.taxgroup.com) reports:

The California Supreme Court will not review a lower court ruling that the city and county of San Francisco were not required to provide a full refund of a discriminatory local business tax, but only the amount sufficient to negate the discriminatory effect of the tax. The lower court also had determined that the refund was subject to the state's 7% prejudgment interest rate, rather than the variable rate of interest that applied under local law. (TAXDAY, 2006/10/20, S.1)
Macy's Department Stores v. City and County of San Francisco, California Supreme Court, No. S148342, review denied January 17, 2007

CCH (cch.taxgroup.com) reports:

An individual could not exclude income earned for services rendered in Antarctica from his gross income because Antarctica is not a "foreign country" as that term is employed in Reg. §1.911-2(h). The definition of foreign country in the regulation is reasonable and consistent with the congressional purpose underlying the exclusion. An essential component of the definition of a foreign country is the requirement that the territory be under the sovereignty of a government that is not the United States government.
The regulation should not be read to include the limitless class of sovereign-less territory, such as Antarctica, in the definition of "foreign country" Although there have been changes in the tax code to the precise treatment of foreign earned income, the regulations defining a foreign country have remained largely unchanged. Thus, Antarctica does not fall within the definition of a foreign country.
Affirming the Tax Court, CCH Dec. 56,415, 126 TC 89.
D. Arnett, CA-7, 2007-1 USTC ¶50,162
Other References:
Code Sec. 911
CCH Reference - 2007FED ¶28,049.1035
Tax Research Consultant
CCH Reference - TRC INTL: 3,060

CCH (cch.taxgroup.com) reports:

For the first time since taking office, President Bush plans to propose a targeted tax increase aimed at insured workers who are covered by high-cost health plans provided by their employers. The president's plan would establish a standard deduction for the purchase of health insurance. Under the president's plan, families who purchase health insurance would qualify for an automatic, above-the-line deduction of $15,000. Individuals purchasing single policies would not pay income or payroll taxes on the first $7,500 in compensation.
The plan aims to provide a level playing field for those who are insured by their employers and those who purchase health care insurance themselves, noted Katherine Baicker from the White House Council of Economic Advisers at a press briefing on January 22
Bush plans to unveil the standard health care deduction proposal in his State of the Union address to a joint session of Congress on January 23. The president first made reference to the proposal in a radio address on January 20. Bush described the new proposal as a "tax reform designed to help make basic private health insurance more affordable --whether you get it through your job or on your own."
The president contended that the current tax code "unfairly penalizes people who do not get health insurance through their job ... (and) unwisely encourages workers to choose overly expensive, gold-plated plans." Workers who receive these costly health insurance plans through their employers would be taxed on the cost of the benefit above the proposed threshold for the tax break. That means, for example, an employee taking a $7,500 health care standard deduction and covered by an $8,500 health plan, must pay taxes on the $1,000 difference.
On the other hand, the proposal could make health care coverage affordable for many uninsured taxpayers who take advantage of the standard deduction. For example, a family earning $60,000 in the 15-percent income tax bracket and 15-precent payroll tax bracket, currently would pay an estimated $5,200 for coverage, noted Baicker.
Under the president's plan, the same family would be eligible for a $15,000 standard deduction. Assuming a 30-percent marginal tax rate, the family would have $4,500 to put toward a health plan. "That's a huge chunk of the cost of an insurance policy out there so it makes insurance much more affordable for those people," Baicker asserted.
There are currently an estimated 30 million employer-provided policies that exceed the cost threshold, noted the officials. Unless an insured worker chooses a compensation package with health care plan costs below the amount of the health care standard deduction, the employee would be taxed on the difference, starting in 2009 under the plan. Because the proposed deduction would not take effect until 2009, insured workers with generous plans would have two years to change the mix of their compensation package to avoid taxation, noted Baicker. In addition, the standard deduction would be adjusted for inflation in future years.
The number of Health Savings Accounts is expected to grow under the president's health care deduction plan since the proposal is biased toward the purchase of lower premium, high-deductible plans and HSAs are paired with high-deductible health insurance, acknowledged Baicker.
The cost of the proposal over ten years is revenue-neutral. The first five years are expected to be revenue-losers but those costs are expected to be offset in the next five years, according to Baicker.
Those who cannot afford private insurance due to pre-existing medical conditions or income levels that are too high to qualify for Medicaid benefits could benefit from another proposal called the "Affordable Choices Initiative," noted Special Assistant to the President for Economic Policy Julie Goon. This proposal would redirect certain federal heath care funding that could be more effectively spent by states in helping the poor and hard-to-insure access affordable private insurance, according to Goon.
Democrats' Reaction
Senate Democrat leaders on January 22 harshly criticized President Bush's proposal to create a standard deduction for health insurance, saying it is tantamount to a tax increase for the middle-class. Democrat leadership also charged that the proposal would encourage the uninsured to purchase health coverage on their own. Moreover, they cited studies that found that roughly 90 percent of applicants in what is known as less-than-perfect health were unable to buy individual policies at standard rates, while 37 percent were rejected outright.
"Individual health insurers may deny you coverage based on your medical history or put you in such a high-risk category that it makes health coverage too expensive," according to Karen Pollitz, a Georgetown University researcher who co-authored a 2001 study on the individual health-insurance market for the Kaiser Family Foundation.
Democrats likened the health care deduction to the president's health savings account (HAS) proposal in his 2006 State of the Union address. Again, Democrats cited a study that downplayed the benefit of HSAs. The Employee Benefit Research Institute found significant levels of dissatisfaction among people covered by the high-deductible, HSA style plans --also known as consumer-driven health plans (CDHP) --that form the basis of Bush's health care proposal.
House Democrat leaders said that they had hoped President Bush would offer bipartisan solutions to the nation's problems. Majority Leader Steny Hoyer, D-Md., said Bush must go beyond words and demonstrate his willingness to deal with energy independence and global warming. House Majority Whip James Clyburn, D-S.C., called on the president to come to the Capitol prepared to debate, rather than dictate the road ahead.
"The President reportedly has repackaged his tax break gift for America's wealthiest, only this time it's wrapped up to look like a break on health care costs," said House Energy and Commerce Chairman John Dingell, D-Mich. "We need to get health care coverage to Americans who need it; not give more tax breaks to the wealthiest."
Democrats said they would prefer to expand successful programs like the State Children's Health Insurance Program or fully fund the historic No Child Left Behind education law. "I would like to hear him address the need for fairness in our economic policy where economic growth benefits everyone and not just a few," said House Financial Services Committee Chairman Barney Frank, D-Mass.
By Jeff Carlson, Steven K. Cooper and Paula Cruickshank, CCH News Staff
White House Fact Sheet: Affordable, Accessible, And Flexible Health Coverage
White House Press Release --SOTU Preview:
White House Press Release --Setting The Record Straight

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Hawaii Governor Linda Lingle has announced a comprehensive package of personal income tax, general excise tax, and motor vehicle tax and registration fee relief proposals that would provide $346 in tax relief over two years. The personal income tax proposals include automatic adjustments to certain tax amounts to account for inflation, raising the standard deduction, providing additional tax exemptions and credits to families with children or aging parents, and providing a one-time tax refund to resident taxpayers because of the large general fund surplus over the past two years. The general excise tax proposals include eliminating the tax on certain essential foods, reinstating the tax exemption for gasoline blended with ethanol, and extending the exemption for ethanol-blended fuels to all biofuels. The motor vehicle tax and registration fee proposals include exempting non-commercial vehicles owned by National Guard and Reserve members from state and county tax and registration fees.

CCH (cch.taxgroup.com) reports:

President Bush, in his State of the Union address on January 23, is expected to highlight domestic issues on which the White House and the new Congress could find common ground, including energy, immigration, health care and education. The House, meanwhile, approved the Clean Energy Bill of 2007 (HR 6) on January 18, although the legislation, which would strip tax breaks and increase royalty payments from big oil companies, is expected to face opposition in the Senate. Conversely, a bill approved by the Senate Finance Committee that would provide tax incentives for small business and will be offered as an amendment when the full Senate takes up minimum wage legislation (HR 2) during the week beginning January 22, faces opposition in the House.
White House
In his State of the Union address on January 23, President Bush will highlight domestic issues on which the White House and the new Congress could find common ground. Those issues include energy, immigration, health care and education. The White House plans to use a "carrot and stick approach" to address the growing concern over global warming, according to presidential spokesman Tony Snow. This approach is expected to include tax incentives to encourage the use of alternative fuels that do not cause greenhouse gas emissions but no mandatory controls. That approach rules out proposing a cap on greenhouse gas emissions or any form of carbon emissions tax.
Congress
House. House Democrats concluded their agenda for the first 100 hours of the 110th Congress on January 18, but gave few details about their legislative plans for the remainder of 2007.
House Majority Leader Steny H. Hoyer, D-Md., told reporters that the president's fiscal year 2008 budget would establish whether the administration is intent of fixing the alternative minimum tax (AMT). Hoyer said that he is waiting to see whether Bush will honestly project the cost of AMT relief in his budget.
Meanwhile, the House Ways and Means Committee adopted a plan to hold oversight hearings on the economy, federal budget, the Treasury Department and IRS administration of federal tax laws. Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., and ranking member Jim McCrery, R-La., pledged to work in a bipartisan manner to pass noncontroversial tax legislation that can win Senate and White House support.
Privately, both old and new members of the tax panel told CCH that the current spirit of bipartisanship in the committee will likely fray once lawmakers begin dealing with substantive tax policy on which the political parties disagree. Rep. Phil English, R-Pa., speculated that Democrats might accomplish limited AMT relief in 2007, but a total repeal would likely be part of a larger tax reform effort.
As expected, House lawmakers approved the Clean Energy Bill of 2007 (HR 6) by a vote of 264 to 163 (TAXDAY, 2007/01/19, C.1). The legislation, which faces a difficult time in the Senate, would strip tax breaks for and increase royalty payments from big oil companies. Democrats said that the bill's $14 billion in revenues would be invested in clean, renewable energy and energy efficiency.
Senate. The Senate Finance Committee on January 17 approved an $8.3 billion package of tax incentives for small business that will be offered as an amendment when the full Senate takes up minimum wage legislation (HR 2) during the week beginning January 22 (TAXDAY, 2007/01/18, C.1). The measure faces a potential uphill battle in the House, however, where Rangel has stated his opposition to adding tax incentives to the wage bill. The noncontroversial tax provisions, most of which only extend existing provisions for several months, were overshadowed, however, by an $806 million revenue- raiser that would cap at $1 million the amount of executive compensation that can be deferred annually. Highlights of the package include an extension of Code Sec. 179 expensing, accelerated depreciation for new restaurant construction, increased flexibility in the use of the cash-balance method of accounting, extension and expansion of the work opportunity tax credit (WOTC) and increased flexibility for small businesses to qualify for tax preferences as S corporations.
Testifying before the Senate Budget Committee on January 18, Federal Reserve Chairman Ben S. Bernanke said that tax rate hikes may be necessary if the federal government is to sustain its major entitlement programs, primarily Medicare and Social Security, at current levels (TAXDAY, 2007/01/19, C.2). Bernanke said that, because of demographic changes and rising medical costs, federal expenditures for entitlement programs are projected to rise sharply over the next few decades. He also warned that, if early and meaningful action is not taken, the U.S. economy could be seriously weakened.
Also on January 18, the IRS's private tax-collection initiative came under fire in Congress. Sens. Byron Dorgan, D-N.D, and Patty Murray, D-Wash., have introduced a bill to terminate the program. "I'm deeply concerned that the plan to outsource debt collection would neither adequately protect privacy nor guarantee any cost savings," Murray said in a statement.
The Dorgan-Murray bill would end phase one of the initiative, which is currently underway, and prohibit any future appropriated funds from being used for privatization. According to the National Taxpayer Advocate, the IRS intends to assign roughly 40,000 taxpayer accounts to private debt collectors in phase one (TAXDAY, 2007/01/10, I.2).
The Tax Fairness Coalition (TFC), which supports privatization, responded to Murray's concerns about cost-saving on January 19, reporting that the initiative is "exceeding expectations." Private debt agencies collected more than $8.4 million in the first 10 weeks of the initiative, according to the coalition.
On Monday, January 22, Sen. George V. Voinovich, R-Ohio, plans to introduce a compromise bill that raises the minimum wage to $7.25 an hour and includes targeted business tax relief and corresponding budget offsets. Primarily, the bill would expand the WOTC to apply to teenagers who work in restaurants where tipping is not customary and who earn at least the minimum wage, offer tax relief designed to assist small businesses, such as restaurants, for building improvements, and codify the current regulatory option for small businesses to use cash accounting.
IRS
Late in 2006, the IRS announced that it was lifting the moratorium on determination letter applications for conversions from traditional defined benefit plans to cash balance plans (IR-2006-193, Notice 2007-6, I.R.B. 2007-3, 272; TAXDAY, 2006/12/22, I.4). The IRS has received questions on whether the cash balance moratorium plans that are in Cycle A under Rev. Proc. 2005-66, I.R.B. 2005-37, 509, should be submitted for determination letters by January 1, 2007.
Sponsors of individually designed plans generally submit applications for determination letters once every five years, under a staggered system of five-year cycles. In most cases, the cycle that applies to a plan depends on the last digit of the sponsoring employer's identification number (EIN). The first five-year period for plans falling into Cycle A (EINs ending in 1 or 6) ends on January 31, 2007. The initial submission period also ends on that date.
On January 16, in a special edition of Employee Plans News, the IRS confirmed that cash balance moratorium plans that are in cycle A must be submitted for determination letters by January 31, 2007, in accordance with Rev. Proc. 2005-66. "The Cycle A determination letter application will be reviewed at the same time and by the same person that is assigned the cash balance moratorium plan," the IRS indicated. Plan sponsors should note in a cover letter that the plan has been subject to the moratorium on cash balance plans, the IRS indicated.
News about IRS agents being pressured to close large business audits quickly is still making waves (TAXDAY, 2007/01/17, C.2). Reps. Rahm Emanuel, D-Ill., and Richard Neal, D-Maine, told IRS Commissioner Mark W. Everson in a January 16 letter that the House Ways and Means Subcommittee on Select Revenue Measures will look into these reports. Emanuel and Neal expressed concern that IRS officials and large companies are "handcuffing auditors by prematurely declaring certain areas of inquiry off limits."
An IRS spokesperson told CCH that the Service will not comment on letters from members of the Congress before the Commissioner has replied and, normally, the Service leaves it up to the lawmaker to disclose the reply if he or she wishes.
By Jeff Carlson, Stephen K. Cooper, Paula Cruickshank and George L. Yaksick, Jr., CCH News Staff

CCH (cch.taxgroup.com) reports:

The IRS has updated a revenue procedure that provides guidance on the information reporting requirements for a sale or exchange of a principal residence. The new procedure, like the one it supersedes, describes the written assurances (certification) that a real estate reporting person must obtain from the seller of a principal residence to except the sale or exchange from the information reporting requirements for real estate transactions. The updated procedure includes assurances that take into account the effects of a like-kind exchange. Rev. Proc. 98-20,, 98-1 CB 549, is superseded.
Effective for the sale or exchange of a principal residence occurring after January 22, 2007, the updated procedure requires a seller to certify that during the five-year period ending on the date of the reported sale or exchange of the residence, the seller did not acquire the residence in an exchange to which Code Sec. 1031 applies. Further, if the seller's basis in the residence is determined by reference to the basis in the hands of a person who acquired the residence in a Code Sec. 1031 exchange, the seller must provide assurance that the exchange occurred more than 5 years prior to the date of the reported sale or exchange of the residence. The updated guidance also requires that the seller certify that the sellers spouse (and not just the seller) did not use any portion of the residence for business or rental purposes.
As with the prior guidance, the new guidance provides a suggested sample form for sellers to fill out. The new guidance also continues to require that a seller certify that: (1) the seller owned and used the residence as a principal residence for periods aggregating two or more years during the five years preceding the sale or exchange; (2) the seller did not sell or exchange another principal residence during the two years preceding the sale or exchange; (3) the seller did not use any portion of the residence for business or rental purposes; (4) the sale or exchange is of the entire residence for $250,000 or less; or, if the seller is married, the sale or exchange is of the entire residence for less than $500,000 and the sellers gain is $250,000 or less; or, if the seller is married and the sale or exchange is for $500,000 or less, the seller intends to file a joint return, the residence was also the principal residence of the seller's spouse for at least two of the five years preceding the sale and the seller's spouse also has not sold or exchanged a principal residence for two years preceding the sale or exchange. As with the prior guidance, a sample form using suggested language is provided.
Rev. Proc. 2007-12, 2007FED ¶46,279
Other References:
Code Sec. 6045
CCH Reference - 2007FED ¶35,930.26
Tax Research Consultant
CCH Reference - TRC REAL: 15,162

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Illinois Supreme Court affirmed an Illinois Court of Appeals decision holding that retaliatory tax on a Canadian insurance company was not unconstitutional under either a state or federal theory.
Under the provisions of the tax, if a foreign or alien insurance company would pay less for the privilege of doing business in the foreign or alien company's home state or country, Illinois will retaliate by requiring the foreign or alien company to make up the difference. Although Canada does not impose a premium tax on life insurance companies, the Illinois law permits the state to apply the law as if the alien corporation had a similar insurance operation in its state of domicile, which could mean the alien company's port or state of entry. In this case, the alien company's state of entry was Michigan, which imposes higher taxes and fees on Illinois companies doing business in Michigan than Illinois charges on Michigan companies doing the same insurance business in Illinois.
The alien company questioned whether the tax violates the Illinois Uniformity Clause, whether the federal McCarran-Ferguson Act authorizes Illinois to impose the retaliatory tax on an alien corporation, and if not, whether the tax violates the so-called Dormant Commerce Clause of the U.S. Constitution.
The tax did not violate the Illinois uniformity clause. Instead, the tax constituted a permissible incidental intrusion on foreign affairs. Imposition of the tax necessarily involved a monetary impact on the alien insurer and a resultant monetary impact on the insurer's funds in Canada. However, the impact applied to all alien insurers equally; the tax did not constitute a boycott of alien insurers; and it was not intended to keep them from doing business in Illinois because of Canada's political or social policies. The retaliatory tax's legitimate purpose of equalizing tax burdens between states barred the alien company's challenge.
The federal Foreign Commerce Clause claim also failed because the plain language of the federal McCarran-Ferguson Act, as interpreted by the U.S. Supreme Court, demonstrates that Congress did not provide any limit to the states ability to impose retaliatory taxes, including those on alien corporations. Additionally, the plain language of the Act does not impose any limitations on the imposition of a retaliatory tax on an alien insurer.
Because the McCarran-Ferguson Act allows states to regulate alien insurers, the court did not consider the issue of whether the tax violates the Dormant Commerce Clause.
Subscribers to CCH Tax Research NetWork can view the decision.
Sun Life Assurance Co. of Canada v. Manna , Illinois Supreme Court, No. 103849, November 29, 2007.

CCH (cch.taxgroup.com) reports:

A limited liability company (LLC), which is treated as a partnership for federal tax purposes may file a single aggregate composite Alabama 2007 personal income tax return on behalf of all of its nonresident partners/owners, including corporations and flow-through entities as well as"upper tier owner" individuals and entities. Ala. Code, §40-18-24.1(a) permits a subchapter K entity with income apportioned to Alabama to file a composite income tax return and make a composite tax payment on behalf of its nonresident owners and defines a "nonresident owner" to include an "owner other than an individual". Therefore, the statute clearly allows corporations and other pass-through entities to be included in a composite return. In addition, the statute does not distinguish between "direct" and "indirect" ownership of an entity as a condition for filing a composite return. Accordingly, an "indirect"upper-tier nonresident owner of a subchapter K entity may be included in the entity's composite return.
Revenue Ruling No. #07-001 , Alabama Department of Revenue, October 15, 2007, ¶201-242
Other References:
Explanations at ¶89-102
 

CCH (cch.taxgroup.com) reports:

Code Sec. 481(a) adjustments attributable to a corporation's change in accounting method were subject to the built-in gains tax following its S corporation election because the adjustments resulted from a deduction claimed before the S corporation election was made. The deduction was the item to be considered in determining whether the built-in gain tax applied, not the Code Sec. 481(a) adjustments. Since the deduction arose prior to the 10-year S corporation recognition period, the adjustment was recognized built-in gain.
The corporation's change of accounting method to the mark-to-market method resulted in a significant deduction for the tax year of the change. A change in the law, however, required the corporation to change back to its original cost basis method of accounting, which resulted in Code Sec. 481 adjustments that were required to be included, ratably, in the corporation's income over a four-year period. Prior to the conclusion of the four-year period, the corporation made an election to be treated as an S corporation. Although it reported the adjustments as income on the S corporation returns for the two tax years at issue, it did not report the adjustments as built-in gain pursuant to Code Sec. 1374.
The corporation's argument that the Code Sec. 481 adjustments were not built-in gains under the accrual method because the corporation, as an accrual-method taxpayer, could not have included the adjustments prior to its S corporation election, was rejected. The adjustments constituted built-in gain because they related to an item attributable to a period prior to the election, i.e., the deduction realized from the first change in accounting method.
MMC Corp., TC Memo. 2007-354, Dec. 57,188(M)
Other References:
Code Sec. 481
CCH Reference - 2007FED ¶22,277.58
Code Sec. 1374
CCH Reference - 2007FED ¶32,203.023
CCH Reference - 2007FED ¶32,203.025
CCH Reference - 2007FED ¶32,203.20
Tax Research Consultant
CCH Reference - TRC SCORP: 356
CCH Reference - TRC SCORP: 356.05
CCH Reference - TRC SCORP: 356.20

CCH (cch.taxgroup.com) reports:

The IRS has published the 2007 Cumulative List of Changes in Plan Qualification Requirements (2007 Cumulative List). The 2007 Cumulative List informs plan sponsors and practitioners of issues the IRS has specifically identified for review in determining whether individually designed single employer plans filing in Cycle C and Code Sec. 414(d) governmental plans have been properly updated. The 2007 Cumulative List reflects changes made by a number of recent laws, including the the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), (P.L. 107-16) and the Pension Protection Act of 2006 (P.L. 109-280), and by miscellaneous IRS guidance published in the last five years.
In order to be qualified, a plan must comply with all relevant qualification requirements, not just those on the 2007 Cumulative List. The IRS will not review plan language for guidance issued after October 1, 2007, statutes enacted after October 1, 2007, qualification requirements first effective in 2009 or later, or statutory provisions first effective in 2008, for which no guidance is identified in the 2007 Cumulative List. Thus, sponsors of pre-approved plans may not rely on opinion or advisory letters with respect to any guidance issued after October 1, 2007, unless that guidance is on the 2007 Cumulative List. The 2007 Cumulative List does not extend the deadline by which a plan must be amended to comply with any statutory, regulatory or guidance changes.
Notice 2007-94, 2007FED ¶46,734
Other References:
Code Sec. 401
CCH Reference - 2007FED ¶17,507.041
CCH Reference - 2007FED ¶17,507.15
CCH Reference - 2007FED ¶17,507.2531
CCH Reference - 2007FED ¶17,929.024
CCH Reference - 2007FED ¶17,929.06
Tax Research Consultant
CCH Reference - TRC RETIRE: 51,052.20
CCH Reference - TRC RETIRE: 51,100
CCH Reference - TRC RETIRE: 66,058.10

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Pennsylvania Department of Revenue (DOR) has issued a tax update that discusses the voluntary disclosure program, changes in the corporation net income tax settlement process, unclaimed property, and the property tax/rent rebate deadline.

CCH (cch.taxgroup.com) reports:

The IRS has issued proposed regulations under Code Sec. 6045(e), pertaining to information reporting requirements applicable to sales or exchanges of standing timber in return for lump-sum or "outright" payments. The proposed regulations require information reporting of lump-sum payments received by landowners in sales of standing timber. This would bring the reporting requirements for lump-sum sales of standing timber in line with the reporting requirements applicable to pay-as-cut timber sales.
Background
Payments related to the harvesting of timber may be on either a lump sum or a "pay-as-cut" basis. In lump-sum timber contracts, payments do not depend on the amount of timber harvested; rather, a pre-set, fixed and noncontingent payment is made to the landowner in exchange for the right to cut and remove designated trees. Under lump-sum contracts, the sellers do not retain an economic interest in the timber and do not bear any risk of loss in the timber-harvesting operations. Pay-as-cut, or contingent, timber contracts allow purchasers to cut designated trees in exchange for a payment which varies with the amount of timber harvested by the payor. Sellers who receive contingent payments retain an economic interest in the timber and bear an economic risk of loss until the trees are actually cut and harvested.
The difference in the economic nature of lump-sum and pay-as-cut timber sales has resulted in differing characterization for tax purposes. Proceeds from pay-as-cut timber sales are considered royalties (because the sellers retain an economic interest in the timber) and are reported under the rules of Code Sec. 6050N. Sales of timber in exchange for lump-sum payments, on the other hand, are considered sales of real estate and are reported in accordance with the rules of Code Sec. 6045(e). Currently, no information reporting requirement applies to sales of timber in exchange for a lump-sum payment. The new proposed regulations are intended to provide that such sales are subject to the same reporting requirements as sales of timber under pay-as-cut contracts.
Proposed Regulations, NPRM REG-155669-04, 2007FED ¶49,777
Other References:
Code Sec. 6045
CCH Reference - 2007FED ¶35,929A
Tax Research Consultant
CCH Reference - TRC FILEBUS: 9,156.10
 

CCH (cch.taxgroup.com) reports:

The IRS has announced that the interest rates for the calendar quarter beginning January 1, 2008, will drop to 7 percent for overpayments (6 percent in the case of a corporation), 7 percent for underpayments, and 9 percent for large corporate underpayments. The interest rate for the portion of a corporate overpayment exceeding $10,000 will drop to 4.5 percent. The interest rates are computed by using the federal short-term rate based on daily compounding determined during October 2007.
Code Sec. 6621 provides that the rate of interest is to be determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus three percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus three percentage points, and the overpayment rate is the federal short-term rate plus two percentage points. The rate for large corporate underpayments is the federal short-term rate plus five percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half of a percentage point.
IR-2007-193, 2007FED ¶46,729
Rev. Rul. 2007-68, 2007FED ¶46,730
Rev. Rul. 2007-68, FINH ¶30,568
Rev. Rul. 2007-68, ETR ¶66,841
Other References:
Code Sec. 6601
CCH Reference - 2007FED ¶174.01
CCH Reference - 2007FED ¶175.01
CCH Reference - 2007FED ¶175.30
CCH Reference - ETR ¶102
CCH Reference - ETR ¶50,615.01
Code Sec. 6621
CCH Reference - 2007FED ¶39,455.01
CCH Reference - 2007FED ¶39,455.51
CCH Reference - FINH ¶21,685.01
CCH Reference - FINH ¶21,685.30
Code Sec. 6622
CCH Reference - 2007FED ¶39,465.01
Tax Research Consultant
CCH Reference - TRC ACCTNG: 33,204.15
CCH Reference - TRC PENALTY: 9,152

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Maryland S.B. 2 has created numerous additional reporting requirements for Maryland corporate income tax taxpayers and other changes affecting corporate and personal income taxes. These reporting requirements could force many corporations to file information returns with the state that had not previously been required to file returns. Furthermore, the willful failure to file a required statement or the filing of a false statement is subject to a fine not exceeding $10,000, imprisonment not exceeding five years, or both.
Effective for tax years beginning after December 31, 2005, Maryland corporate taxpayers are required to file detailed information returns including, but not limited to, (1) statements identifying each member of the corporate group and affiliated groups, as defined by IRC §§ 1504 or 1563, (2) statements identifying whether each member filed a Maryland return and in which states they filed a return, (3) the total sales worldwide and within Maryland, and (4) a list of members included in combined or consolidated reports for states that require such reporting.
Publicly traded corporations are required to include the name of any corporation owning (directly or not) at least 50% of its voting stock as well as information reported on or used to prepare the corporation's tax returns. If a publicly traded corporation is not required to file a return in Maryland, it still may be required to provide the information that would be required to be reported on or used in preparing the tax return if one were required. In lieu of providing the information that would be required to be reported on or used in preparing the tax return, publicly traded corporations that are not required to file a return may provide (1) an explanation as to why the corporation is not required to file a return and (2) a statement detailing its total gross receipts from sales to purchasers in Maryland.
Publicly traded corporations with worldwide gross receipts greater than $100,000,000 must also provide information regarding (1) how much would be owed if water's edge combined reporting were required, (2) throwback sales calculations if they were to be required, (3) where income was allocated that is not apportionable if the corporation's principal executive office is not in Maryland, and (4) the profits before tax reported on SEC Form 10-K for the corporation or corporation group.
Additionally, effective January 1, 2008, individuals who are required to file a Maryland income tax return or estimated income tax declaration or return and are reporting income or loss from a sole proprietorship (Schedule C of federal Form 1040) or income or loss from rental real estate and royalties, partnerships and S Corporations, estates and trusts, or real estate mortgage investment conduits (Schedule E of federal Form 1040), will be required to attach a copy of the federal income tax return.
A prior story covered other corporate and personal income tax changes under S.B. 2. (TAXDAY, 2007/11/20, S.12)
S.B. 2 Laws 2007, First Special Session, effective as noted above.

CCH (cch.taxgroup.com) reports:

A married couple was entitled to deduct payments for health insurance premiums and medical expenses under Code Sec. 162(a) that were made under an "employee benefits program" within the meaning of Code Sec. 105(b), on Schedule F, Profit or Loss From Farming. The taxpayers established that these were ordinary and necessary expenses of the farming business, and that the husband/employer reimbursed the wife/employee for the insurance premiums that she paid to the insurers, pursuant to the medical reimbursement plan. This case was distinguished from D.J. Albers , Dec. 56,960(M) (TAXDAY, 2007/06/08, J.1), where the taxpayers failed to establish that the husband/employer had reimbursed the wife/employee.
R.E. Frahm, TC Memo 2007-351, Dec. 57,185(M)
Other References:
Code Sec. 105
CCH Reference - 2007FED ¶6702.37
CCH Reference - 2007FED ¶6702.52
Code Sec. 162
CCH Reference - 2007FED ¶8522.405
CCH Reference - 2007FED ¶8752.57
Tax Research Consultant
CCH Reference - TRC INDIV: 33,408.05
CCH Reference - TRC BUSEXP: 18,220.15
CCH Reference - TRC COMPEN: 45,154.05
CCH Reference - TRC LITIG: 3,200

CCH (cch.taxgroup.com) reports:

The IRS has provided model plan language that may be used by public schools and by certain eligible employers that are tax-exempt organizations in order to comply with the requirements of Code Sec. 403(b) and the final regulations that were issued under that section on July 26, 2007. Under Code Sec. 403(b), contributions made for employees who are performing services for a public school of a state or local government or for employees of certain tax-exempt employers are excludable from gross income only if the contributions are made to certain funding arrangements. These arrangements include: (1) contracts issued by an insurance company qualified to issue annuities in a state that includes payment in the form of an annuity; (2) custodial accounts that are exclusively invested in stock of a regulated investment company; or (3) a retirement income account for employees of a church-related organization. Such contracts must be maintained under a written plan.
Public school employers that amend their plans to adopt this model plan language on a word-for-word basis or adopt an amendment that is substantially similar in all material respects can rely on the language as meeting the requirements of Code Sec. 403(b). Employers that adopt any portion of the model plan language must also operate the plan in accordance with such language and must continue to satisfy all of the other Code Sec. 403(b) requirements in order to maintain Code Sec. 403(b) status for the plan. Public school employers that do not use the model plan language or substantially similar language and request a private letter ruling from the IRS regarding the qualification of the written plan must clearly highlight and describe how the plan provisions differ from the model language.
Public school employers that do not have a written Code Sec. 403(b) plan may adopt the entire model plan language. Adoption of the entire model plan language on a word-for-word basis or use of language that is substantially similar in all material respects has the same status as a private letter ruling that provides that the written form of the plan satisfies Code Sec. 403(b). Employers that adopt the entire model plan language must also operate the plan in accordance with such language and must continue to satisfy all of the other Code Sec. 403(b) requirements in order to maintain Code Sec. 403(b) status for the plan.
An eligible employer, such as certain tax-exempt organizations, that is not a public school but maintains a Code Sec. 403(b) plan may also use the model plan language. However, the employer must determine the extent to which the model plan language is appropriate for its use. Additional or modified provisions may be necessary or appropriate to comply with Code Sec. 403(b) and the 2007 regulations. However, adoption of the model plan language by an eligible employer that is not a public school does not have the same status as a private letter ruling with respect to the adopted language.
Pre-2009 Contracts. In addition to the model plan language for public school employers, the IRS has provided guidance on the application of Code Sec. 403(b) to certain contracts issued before 2009. In the case of a contract issued after 2004 and before January 1, 2009, by an issuer that does not receive contributions under the plan in a year after the contract was issued, the contract will not fail to satisfy Code Sec. 403(b) for the year merely because the contract is not part of a written plan if the employer makes a reasonable, good-faith effort to include the contract as part of the employer's plan that satisfies the 2007 regulations. An issuer might not receive contributions under the plan in a year after the contract was issued in situations where the issuer was discontinued as an issuer under the plan or the issuer became an issuer under the plan due to the contract having been issued in a post-September 24, 2007, exchange that is permitted under Rev. Rul. 90-24 (1990-1 CB 97).
Special rules also apply to a contract that was issued before January 1, 2009, under a Code Sec. 403(b) plan that is held on behalf of a participant who, on January 1, 2009, is a former employee of the employer, or for a beneficiary. In the case of an issuer that holds Code Sec. 403(b) contracts under a Code Sec. 403(b) plan but that ceases to receive contributions before January 1, 2009, those contracts continue to be subject to the requirements of Code Sec. 403(b) and the 2007 regulations. An issuer might cease receiving contributions in situations where the issuer was discontinued as an issuer under the plan, the employer ceased to exist, or the issuer became an issuer under the plan due to the contract having been issued in a post-September 24, 2007, exchange that is permitted under Rev. Rul. 90-24 (1990-1 CB 97). However, a plan will not be treated as failing to satisfy the requirements of Reg. §1.403(b)-3(b)(3) if the plan does not include terms relating to those contracts.
Effective Date. The revenue procedure providing the model plan language and other guidance is effective as of December 17, 2007. In general, a Code Sec. 403(b) plan will be treated as having been amended in a timely manner to reflect a requirement of the 2007 regulations if: (1) an amendment that satisfies that requirement, such as an amendment that uses the model language, is adopted no later than the first day of the first tax year beginning after December 31, 2008, (2) the amendment is effective as of the applicable effective date of the requirement under the 2007 regulations, and (3) the written plan is operated as if that amendment is in effect.
Comments Requested. The IRS is requesting comments on the provided model language and on any other model language that interested parties believe should be added. Comments should be sent to: Internal Revenue Service, Attn: CCA:LPDR (Rev. Proc. 2007-71), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044. Written comments may be hand-delivered Monday through Friday between 8 a.m. and 4 p.m. to: Internal Revenue Service, Courier's Desk, Attn: CCA:RU (Section 403(b) Plans), 1111 Constitution Avenue NW., Washington, D.C. 20224. Alternatively, written comments may be submitted electronically via the Internet to notice.comments@irscounse.treas.gov (Rev. Proc. 2007-71). Comments should be received by March 16, 2008.
Rev. Proc. 2007-71, 2007FED ¶46,727
Treasury Department News Release, TDNR HP-798, 2007FED ¶46,728
Other References:
Code Sec. 403
CCH Reference - 2007FED ¶18,103.40
CCH Reference - 2007FED ¶18,282.01
CCH Reference - 2007FED ¶18,282.0405
CCH Reference - 2007FED ¶18,282.11
CCH Reference - 2007FED ¶18,282.33
CCH Reference - 2007FED ¶18,282.76
CCH Reference - 2007FED ¶29,682.104
Tax Research Consultant
CCH Reference - TRC RETIRE: 69,050
CCH Reference - TRC RETIRE: 69,060

CCH (cch.taxgroup.com) reports:

The IRS has released the 2008 optional standard mileage rates to be used by employees, self-employed individuals, and other taxpayers to compute deductible costs of operating an automobile (including vans, pickups and panel trucks) for business, medical, moving and charitable purposes.
Business Mileage Rate
The standard mileage rate for business mileage will be 50.5 cents per mile, an increase of two cents over the 2007 rate. When the standard business mileage rate of 50.5 cents is used for automobiles owned by the taxpayer, depreciation will be considered to have been allowed at a rate of 21 cents per mile. Such depreciation reduces the taxpayer's basis in the automobile.
The standard business mileage rate may not be used for automobiles used for hire (e.g., taxicabs), or when five or more automobiles are owned or leased and used simultaneously by the taxpayer (e.g., fleet operations). Rules providing for substantiation of an employee's ordinary and necessary expenses for local travel or transportation away from home are also provided. Such expenses will be deemed substantiated when the employer, its agent or a third-party provider provides a mileage allowance under a reimbursement or other expense allowance arrangement.
Medical and Moving Mileage Rate
The standard mileage rate for medical and moving expenses has been decreased to 19 cents per mile from 20 cents per mile in 2007.
Charitable Mileage Rate
The standard mileage rate for charitable purposes remains at 14 cents per mile.
CCH Comment. Many businesses have been waiting for the IRS to release the 2008 standard mileage rates so they can finalize their budgets for next year, managing member, Kossler Jones & Company, LLC, Fairfax, Va., and a member of the Virginia Society of Certified Public Accountants, told CCH. "It's a key number in their daily operations." Employers use the rate to reimburse employees for business miles driven and to learn the amount of their tax deduction.
"It would not surprise me if we have another mid-year change (in the rates) in 2008," Kossler added. He based his prediction on the steady increase in gasoline prices over 2007. "If gasoline hits $5 a gallon, we could see a mid-year change. "The last time the IRS made a mid-year change to the mileage rates was after Hurricane Katrina in 2005. Rev. Proc. 2006-49, I.R.B. 2006-47, 936, is superseded.
Rev. Proc. 2007-70, 2007FED ¶46,724
IR-2007-192, 2007FED ¶46,725
Other References:
Code Sec. 61
CCH Reference - 2007FED ¶1090.11
CCH Reference - 2007FED ¶5907.0325
Code Sec. 62
CCH Reference - 2007FED ¶6006.0324
Code Sec. 162
CCH Reference - 2007FED ¶8590.021
CCH Reference - 2007FED ¶8590.55
Code Sec. 170
CCH Reference - 2007FED ¶11,620.029
CCH Reference - 2007FED ¶11,620.6744
Code Sec. 213
CCH Reference - 2007FED ¶12,543.82
Code Sec. 217
CCH Reference - 2007FED ¶12,623.021
CCH Reference - 2007FED ¶12,623.11
Code Sec. 274
CCH Reference - 2007FED ¶14,417.043
CCH Reference - 2007FED ¶14,417.045
CCH Reference - 2007FED ¶14,417.046
CCH Reference - 2007FED ¶14,417.047
CCH Reference - 2007FED ¶14,417.048
CCH Reference - 2007FED ¶14,417.05
CCH Reference - 2007FED ¶14,417.051
CCH Reference - 2007FED ¶14,417.052
CCH Reference - 2007FED ¶14,417.053
CCH Reference - 2007FED ¶14,417.50
Code Sec. 1016
CCH Reference - 2007FED ¶29,412.385
Tax Research Consultant
CCH Reference - TRC INDIV: 36,056.15
CCH Reference - TRC INDIV: 36,164
CCH Reference - TRC INDIV: 39,106.10
CCH Reference - TRC INDIV: 42,158
CCH Reference - TRC INDIV: 51,056.15
CCH Reference - TRC BUSEXP: 24,506.05
CCH Reference - TRC BUSEXP: 24,506.10
CCH Reference - TRC BUSEXP: 24,510
CCH Reference - TRC BUSEXP: 24,906.25
CCH Reference - TRC BUSEXP: 24,912.10
CCH Reference - TRC DEPR: 3252.15
CCH Reference - TRC FARM: 9074

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Michigan Senate has passed a bill that would impose an annual surcharge to the Michigan business tax. The surcharge would be based on a percentage of the taxpayer's liability before credits. For all taxpayers, other than financial institutions, the surcharge would be 14% for tax years ending after December 31, 2007 and before January 1, 2011. The surcharge would be capped at $7.5 million per year.
For financial institutions taxpayers, subject to the franchise tax, the surcharge would be:
-- 27.7% for tax years ending after 2007 and before 2009; and
-- 23.4% for tax years ending after 2008 and before 2011.
The surcharge would not apply to insurance companies subject to the gross direct premiums tax.
The statutory percentage limitations on the compensation tax credit, research and development tax credit, and the investment tax credit would apply only to the Michigan business tax and not to the surcharge. The bill also would allow financial institutions to claim the compensation tax credit.
The bill would be effective January 1, 2008, and would apply to all business activity occurring after December 31, 2007. The bill would be tied to another bill (S.B. 838) which would repeal the new use tax on selected services.
Subscribers to CCH Tax Research NetWork may view H.B. 5408.
 
H.B. 5408, as passed by Michigan Senate, November 20, 2007.

CCH (cch.taxgroup.com) reports:

CCH (cch.taxgroup.com) reports:

The IRS Oversight Board urged Congress "to take quick action" to adopt legislation to provide an alternative minimum tax (AMT) "patch." The Board "is gravely concerned about the serious risks to the 2008 filing season if legislation to change the AMT is delayed. A delay threatens the IRS's ability to process returns and issue refunds in a timely manner and imposes significant burden on taxpayers," the Board wrote in a November 26 letter to the leaders of the congressional tax-writing committees. The letter was signed by Paul Cherecwich, chairman of the IRS Oversight Board.
The 2008 filing season is scheduled to begin January 14, 2008. The Board estimated that a two-week delay in the start of the filing season could delay the processing of 6.7 million returns and $17 billion in refunds. Another three-week delay, to February 18, 2008, could delay a total of 37.7 million returns and $87.7 million in refunds. The IRS and the White House have previously indicated that delays could affect 50 million returns and $75 billion in refunds.
Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, responded that the "Board --created to look out for taxpayers' interests --has weighed in on the filing fiasco that's fast approaching, thanks to Congress' failure to act ... Bottom line, this letter ... should be a splash of cold water for Congressional leaders that fixing the AMT should be the first item on next week's agenda. The message is clear. Delay at taxpayers' peril."
IRS Implementation
The Board said that the IRS is acting so that it can implement the AMT patch as quickly as possible. It expects to reach that point of readiness in mid-December. But the IRS must process returns under current law. The Service now estimates that it will need seven weeks to begin processing returns after AMT legislation is enacted.
In the meantime, the IRS may not be able to open the filing season and process tax returns. It may not be able to accept returns until it completes programming and testing of its processing systems. One possible consequence is that electronic filers will revert to paper filing. The IRS can shut down its systems for accepting electronic returns, but it cannot stop the receipt of paper returns.
Severe Impacts
The Board highlighted other impacts of the delay:
(1) IRS submission processing costs will increase;
(2) the IRS will owe additional interest because it will be less likely to meet the 45-day limit for issuing refunds;
(3) the error rate will increase because of greater paper processing, increasing costs and burdens of error correction for both the IRS and taxpayers;
(4) the demand for Refund Anticipation Loans will increase for former electronic filers;
(5) telephone volume will increase on toll-free customer service lines, possibly leading to worse service; and
(6) a difficult filing season may lead to decreased voluntary compliance.
The Board urged Congress to take quick action in order to mitigate the risks of AMT changes for taxpayers.
By Brant Goldwyn, CCH News Staff
IRS Oversight Board Names New Chairman; Tax Preparer Regulation, Privacy Protection, and Filing Season Also Discussed
IRS Oversight Board Voices Grave Concerns over AMT Delay
IRS Oversight Board Letter to SFC Regarding AMT
IRS Oversight Board Issue Paper: Impact of Late AMT Legislative Changes on 2008 Filing Season
SFC Release: Grassley Comments Regarding IRS Oversight Board on AMT Delay

CCH (cch.taxgroup.com) reports:

The IRS has announced minor changes in the electronic filing specifications for Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding. The new specifications apply for tax year 2007 returns filed in 2008. The changes add some explanatory notes to the instructions in Publication 1187, Specifications for Filing Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, Electronically or Magnetically (Rev. Proc. 2006-34, I.R.B. 2006-38, 460), and add one additional field in the Recipient "Q" Record portion of the form. The changes all affect the reporting of income paid to nonqualified intermediaries or flow-through entities.
Announcement 2007-110, 2007FED ¶46,723
Other References:
Code Sec. 1461
CCH Reference - 2007FED ¶32,828.157
Code Sec. 6011
CCH Reference - 2007FED ¶35,141.47
CCH Reference - 2007FED ¶35,141.57
Tax Research Consultant
CCH Reference - TRC FILEBUS: 12,302.20
CCH Reference - TRC EXPAT: 15,056

CCH (cch.taxgroup.com) reports:

Senate Finance Committee member Trent Lott, R-Miss., announced on November 26 that he plans to retire from the Senate by the end of 2007. Speaking at the LaFont Inn in Pascagoula, Miss., Lott said he might pursue a teaching career now that his time in politics is ending. Lott, who also serves on the Senate Commerce, Science and Transportation Committee, said his desire to leave was not politically motivated or brought on by the stress of working in the minority party.
"I don't like some of the negativism that we're dealing with now, but that's life and that's the role, I guess, of politics sometimes. But I don't have any problem," Lott said. "This is not a negative thing. There's no malice, no anger, there's nothing but happiness and pride at the job that I've been allowed to do by the people of Mississippi and by my colleagues in the House and Senate."
Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, called Lott a leader and a maverick for his ability to manipulate the legislative process and help his constituents."He's fought for legislation that respects the principles of less government and more freedom," Grassley said in a written statement. Those sentiments were echoed by Sen. Kay Bailey Hutchison, R-Texas, who noted Lott's extensive legislative career since 1973 that included winning election to the House eight times and the Senate four times. Lott served as Republican Whip in both houses of Congress and as Senate Majority Leader for almost six years.
She called Lott "a trusted confidant, a wise counselor, a reliable colleague, a valuable mentor, and a personal friend." The White House joined in on heaping accolades on Lott for his work in Congress. In a written statement, President Bush said Lott enjoyed bipartisan respect because of his reverence for the institutions of Congress and because Republicans and Democrats knew they could count on him to keep his commitments and his word.
By Stephen K. Cooper, CCH News Staff
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

A husband and wife were liable for income tax and the additional tax on early distributions from a rollover IRA because they did not introduce evidence that the brokerage account they established was not an IRA, or that the distributions from it were attributable to the husband's being disabled; the couple was also liable for late-filing and accuracy-related penalties.
Although the husband claimed that he did not intend to roll over his balance in an employee stock ownership plan (ESOP) into the IRA, the paperwork he executed was consistent with an intent to make a rollover, rather than take a distribution, and satisfied the requirements for establishing an IRA rollover account. The husband's heart problems, while serious, did not constitute a disability that would have avoided the additional tax on premature IRA distributions.
The taxpayers were also liable for the late-filing and accuracy-related penalties because, despite the husband's health problems, and their ongoing correspondence with both the IRS and their financial institutions concerning the ESOP rollover and IRA distributions, they did not establish that their failure to file a return, or report the IRA distributions, were due to reasonable cause. Finally, the taxpayers could not raise computational error issues in their post-trial brief that were not raised in their petition or at trial.
R.M. Kopty, TC Memo. 2007-33, Dec. 57,177(M)
Other References:
Code Sec. 72
CCH Reference - 2007FED ¶6114.67
Code Sec. 408
CCH Reference - 2007FED ¶18,922.757
CCH Reference - 2007FED ¶18,922.79
Code Sec. 6651
CCH Reference - 2007FED ¶39,475.23
Code Sec. 6662
CCH Reference - 2007FED ¶39,651G.305
Tax Research Consultant
CCH Reference - TRC RETIRE: 42,554.206
CCH Reference - TRC RETIRE: 66,454
CCH Reference - TRC RETIRE: 66,700
TRC PENALTY: 3,060.10
TRC PENALTY: 3,116.05

State Headlines

Florida --Property Tax: Tax Reform Bill Signed, Subject to Voter Approval
Legislation signed by Florida Governor Charlie Crist on November 13, 2007, would amend Florida property tax law with respect to assessment and exemption provisions, provided voters approve a series of constitutional amendments in 2008 elections.
The legislation would increase the homestead exemption amount under specified circumstances, add personal property tax exemptions, revise reporting requirements for appraisers, modify the provisions regarding homestead property after a change in ownership, limit the increase in the assessed value of nonhomestead and nonresidential real property, and make several procedural amendments relating to reassessment requests.
The property tax provisions outlined above are contingent upon voter approval of constitutional revisions contained in Senate Joint Resolution 2-D or House Joint Resolution 7001-D. If the constitutional amendments are approved in a special election held on January 29, 2008, the property tax reform legislation will apply beginning in the 2008 and 2009 tax roll years, but if the constitutional amendments are not approved until the November 2008 general election, the amended property tax laws will take effect beginning with the 2009 and 2010 tax roll.
Ch. 2007-339 (
S.B. 4-D), Special Session D, Laws 2007, effective as noted.

CCH (cch.taxgroup.com) reports:

Ending months of speculation, President Bush announced on November 21 his intention to nominate Douglas H. Shulman, a securities regulator, to be the 47th Commissioner of the Internal Revenue Service. Shulman's name had been floated as a possible candidate in October and, if he is confirmed, he will take charge of an agency that has been without a permanent leader since the departure of Mark W. Everson in May (TAXDAY, 2007/05/04, I.3). Depending on how quickly confirmation hearings are scheduled and if he is confirmed, Shulman could start at the IRS during what is projected to be one of the most challenging filing seasons in recent history.
CCH Comment. CCH contacted the top tax-writers in Congress about the president's nomination but, by press time, only received a response from Sen. Charles E. Grassley, R-Iowa, ranking member of the powerful Senate Finance Committee. "The position of IRS Commissioner is critical and shouldn't be vacant at all. At least 50 million taxpayers are looking at a filing fiasco next spring because Congress has not acted in a responsible time frame to protect them from an unintended liability from the alternative minimum tax. Any patch that's passed now may be too late to avoid delays in refunds that are due and a lot of other paperwork confusion. The next IRS commissioner needs to be ready to get on top of these problems and provide whatever leadership is possible for taxpayers, in the absence of Congress getting its job done." Grassley said. "I'll be reviewing this nomination closely as ranking member of the Senate Committee on Finance," he stated.
CCH Comment. CCH asked the IRS if Linda Stiff, the current acting commissioner, will continue in that role until the Senate confirms the president's nominee. An IRS spokesperson told CCH that the Service had "no comment." It is unclear from the president's announcement if Shulman would serve only the remainder of Everson's term, which ends in 2008, or a full five-year term.
Securities Regulator
Shulman is currently vice chair of the Financial Industry Regulatory Authority (FINRA), which oversees all securities firms doing business in the U.S. FINRA is a new entity formed in July by the merger of the National Association of Securities Dealers (NASD) and the member regulation, enforcement and arbitration functions of the New York Stock Exchange. At FINRA, Shulman directs technology, registration and disclosure, industry testing, and continuing education. He also leads strategic planning and international efforts for the organization.
Shulman began his career at NASD as executive vice president in 2000. He was quickly promoted to a succession of top leadership positions, culminating in his appointment as vice chair of FINRA.
In addition, Shulman co-founded FoundryOne, Inc., a technology and innovation advisory and consulting firm. In a written statement, Treasury Secretary Henry M. Paulson, Jr., praised Shulman's "extensive management experience and proven ability to provide innovative leadership to a large organization."
IRS Reform
Shulman is familiar with the IRS. He was senior policy advisor and later chief of staff of the bipartisan National Commission on Restructuring the IRS. The commission was formed in the late 1990s after public outcry about alleged heavy-handed tactics by IRS agents. Congress ultimately passed the IRS Restructuring and Reform Act of 1998 (P.L. 105-206) to correct many of the abuses uncovered by the commission.
Immediate Challenges
If Shulman is confirmed quickly, he may have a baptism by fire at the IRS dealing the 2008 filing season. Stiff and other senior IRS officials have been warning for weeks that the Service will need 10 weeks to reprogram its computer systems for the expected AMT patch (TAXDAY, 2007/11/06, I.4). Return processing and refunds could be significantly delayed while the IRS reprograms its systems (TAXDAY, 2007/11/19, M.2).
Robert Kerr, senior director of government relations for the National Association of Enrolled Agents, told CCH that enrolled agents are preparing for the likely challenges in the upcoming filing season stemming from the lateness of the AMT patch. "The enrolled agents look forward to working with the new commissioner once he is confirmed," Kerr said.
Shulman will be under intense pressure from Congress to close the tax gap, the $300-billion difference between what taxpayers owe and what they pay. Under Everson, the Service switched its focus from customer service to enforcement. Everson spearheaded a number of high-profile enforcement initiatives, especially in the tax shelter arena, that recovered billions of dollars in lost revenue (TAXDAY, 2007/03/21, C.1). The IRS has also pledged to step-up audits of high-risk taxpayers (TAXDAY, 2007/08/03, C.1).
Shulman also must address an aging workforce and the recruitment of new talent (TAXDAY, 2007/08/29, I.3). A large number of the Service's employees, especially managers, are or will soon be eligible to retire. The Service is expected to unveil a human capital strategic plan in early 2008.
Additionally, the Service must deal with a rise in cyber-crime (TAXDAY, 2007/11/12, M.4). Criminals world-wide are targeting individuals and businesses with emails purporting to be from the IRS. The IRS's computer and information systems, which are decades old in some cases, must be updated and protected from cyber criminals.
Legal Background
Shulman, unlike the past two commissioners, is an attorney. He received his law degree from the Georgetown University Law Center in Washington, D.C. He did his undergraduate work at Williams College, Williamstown, Mass., and earned a master's degree from the John F. Kennedy School of Government at Harvard University.
By George L. Yaksick, Jr., CCH News Staff
Treasury Department News Release, TDNR HP-693
SFC Release: Grassley Comments on IRS Commissioner Selection

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The IRS has provided tables of covered compensation under Code Sec. 401(l)(5)(E) for the 2008 plan year. Covered compensation with respect to an employee is defined as the average of the contribution and benefit bases in effect under section 230 of the Social Security Act for each year in the 35-year period ending with the year in which the employee attains social security retirement age.
The tables are developed by rounding the actual amounts of covered compensation for different years of birth. For purposes of determining covered compensation for the 2008 plan year, the taxable wage base is $102,000.
Rev. Rul. 2007-71, 2007FED ¶46,722
Other References:
Code Sec. 401
CCH Reference - 2007FED ¶18,119.10
Tax Research Consultant
CCH Reference - TRC RETIRE: 24,208
 

CCH (cch.taxgroup.com) reports:

Various prescribed rates for federal income tax purposes for December 2007 have been provided by the IRS. The annual short-term, mid-term, and long-term applicable federal interest rates (AFRs) are 3.88 percent, 4.13 percent and 4.72 percent, respectively. The semiannual short-term, mid-term, and long-term AFRs are 3.84 percent, 4.09 percent and 4.67 percent, respectively. Quarterly short-term, mid-term and long-term AFRs are 3.82 percent, 4.07 percent and 4.64 percent, respectively. Finally, the monthly short-term, mid-term and long-term rates are 3.81 percent, 4.06 percent and 4.63 percent, respectively.
The short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for December 2007 for purposes of Code Sec. 1288(b) are 3.40 percent, 3.67 percent, and 4.34 percent, respectively, when annual compounding is used.
The Code Sec. 382 adjusted federal long-term rate is 4.34 percent, and the long-term tax-exempt rate is 4.49 percent. The Code Sec. 42(b)(2) appropriate percentage for the 70-percent present-value, low-income housing credit is 8.03 percent, and the appropriate percentage for the 30-percent present-value, low-income housing credit is 3.44 percent. TheCode Sec. 7520 AFR for determining the present value of an annuity, an interest for life or a term of years, or a remainder or reversionary interest is 5.0 percent. Finally, the applicable rate of interest in 2008 for purposes of Code Secs. 807 and 846
is 4.06 percent.
Rev. Rul. 2007-70, 2007FED ¶46,721
Rev. Rul. 2007-70, FINH ¶30,567
Other References:
Code Sec. 42
CCH Reference - 2007FED ¶173.02
CCH Reference - 2007FED ¶176.01
CCH Reference - 2007FED ¶4305.03
Code Sec. 382
CCH Reference - 2007FED ¶17,115.28
Code Sec. 642
CCH Reference - 2007FED ¶24,308.1885
Code Sec. 807
CCH Reference - 2007FED ¶25,821.15
Code Sec. 846
CCH Reference - 2007FED ¶26,331.07
Code Sec. 1274
CCH Reference - 2007FED ¶31,310.05
CCH Reference - 2007FED ¶31,310.11
Code Sec. 7520
CCH Reference - 2007FED ¶42,785.40
Tax Research Consultant
CCH Reference - TRC ACCTNG: 36,162.05

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Maryland Governor Martin O'Malley has signed legislation that, effective January 3, 2008, increases the state sales and use tax rate from 5% to 6% for each exact dollar on a taxable price of $1 or more. For that part of a dollar in excess of an exact dollar, the rate on a taxable price of $1 or more is increased as follows:
-- 1 cent if the excess over an exact dollar is at least 1 cent but less than 17 cents;
-- 2 cents if the excess over an exact dollar is at least 17 cents but less than 34 cents;
-- 3 cents if the excess over an exact dollar is at least 34 cents but less than 51 cents;
-- 4 cents if the excess over an exact dollar is at least 51 cents but less than 67 cents;
-- 5 cents if the excess over an exact dollar is at least 67 cents but less than 84 cents; and
-- 6 cents if the excess over an exact dollar is at least 84 cents.
Currently, the sales and use tax rate on a taxable price of $1 or more is 5 cents for each exact dollar and 1 cent for each 20 cents or part of 20 cents in excess of an exact dollar.
In addition, the sales and use tax rate on a taxable price of less than $1 is:
-- 1 cent if the taxable price is 20 cents;
-- 2 cents if the taxable price is at least 21 cents but less than 34 cents;
-- 3 cents if the taxable price is at least 34 cents but less than 51 cents;
-- 4 cents if the taxable price is at least 51 cents but less than 67 cents;
-- 5 cents if the taxable price is at least 67 cents but less than 84 cents; and
-- 6 cents if the taxable price is at least 84 cents.

CCH (cch.taxgroup.com) reports:

The Alaska Legislature passed a comprehensive revision of the petroleum profits tax (PPT) on November 16, the final day of the special legislative session called by Governor Sarah Palin. The legislation, proposed by the Palin administration and called Alaska's Clear and Equitable Share (ACES), increases the rate of tax from 22.5% to 25% of the net value of oil. In addition, the bill applies a 0.4% charge for each dollar the price of oil rises above $52 per barrel.
Governor Palin said in a statement outlining the tax changes that ACES (1) allows for tax credits to encourage new development and reinvestment in existing infrastructure, (2) restricts capital expense deductions to scheduled maintenance, and (3) implements strong audit and information-sharing provisions. The governor noted that the legislation was developed following an evaluation of the PPT by the Department of Revenue, which showed the state is expected to receive $800 million less for the next fiscal year than originally projected when the PPT was enacted in 2006. As of November 16, the legislation was awaiting transmittal to the governor for her signature.
H.B. 2001, as passed by the Alaska Legislature, November 16, 2007; News Release, Governor Sarah Palin, November 16, 2007.

CCH (cch.taxgroup.com) reports:

A Final Partnership Administrative Adjustment issued by the IRS more than three years after the partnership filed its return, which included gain on the sale of a ranch and reflected an overstatement of its basis in the ranch, was not time-barred. The extended six-year statute of limitations under Code Sec. 6501(e)(1)(A) applied because the government established that the partnership's overstatement of its basis on disposition of the ranch was not an error but was an omission of income. The omitted income was in excess of 25 percent of the amount of gross income stated on the return and was not disclosed in a manner adequate to apprise the government of the nature and amount of the income. Further, the partnership did not qualify for the exception to the definition of gross income provided in the gross receipts provision because its sale of the ranch did not qualify for treatment as the sale of goods or services by a trade or business.
Although the partnership's tax return reflected the basis in the ranch and the net gain on the sale, information regarding the contribution to the partnership of the obligation to cover and close the partners' short sale of Treasury notes and the effect on the basis of the partnership's interest in the ranch was not adequately disclosed. Moreover, the individual partners' returns did not indicate that the partnership had any involvement in the short sale of the Treasury notes. The partners' inadequate reporting placed the IRS at a disadvantage in detecting errors because it was unable to determine the manner by which the partnership arrived at its basis figure.
Salman Ranch Ltd., FedCl, 2007-2 USTC ¶50,803
Other References:
Code Sec. 6501
CCH Reference - 2007FED ¶38,971.13
CCH Reference - 2007FED ¶38,971.40
Tax Research Consultant
CCH Reference - TRC IRS: 30,152
 

CCH (cch.taxgroup.com) reports:

The Social Security Administration has announced that the contribution and benefit base for remuneration paid in 2008 and self-employment income earned in tax years beginning in 2008 is $102,000. The "old law" contribution and benefit base for 2008 is $75,900. The "old law" base is used by the Railroad Retirement program to determine certain tax liabilities and tier II benefits, by the Pension Benefit Guaranty Corporation to determine the maximum amount of pension guaranteed under ERISA, and by the Social Security Administration to determine a year of coverage in computing certain benefits. Further, the minimum amount a domestic worker must earn so that such earnings are covered under Social Security or Medicare is $1,600 for 2008.
Notice 2007-92, 2007FED ¶46,720
Other References:
Code Sec. 408
CCH Reference - 2007FED ¶780.07
CCH Reference - 2007FED ¶18,922.0249
Code Sec. 1401
CCH Reference - 2007FED ¶32,543.01
CCH Reference - 2007FED ¶32,543.07
CCH Reference - 2007FED ¶32,543.26
Code Sec. 1402
CCH Reference - 2007FED ¶32,580.01
Code Sec. 3510
CCH Reference - 2007FED ¶33,828.01
CCH Reference - 2007FED ¶33,828.30
Code Sec. 6017
CCH Reference - 2007FED ¶35,203.01
Code Sec. 6041
CCH Reference - 2007FED ¶35,836.20
Tax Research Consultant
CCH Reference - TRC INDIV: 63,052
CCH Reference - TRC COMPEN: 27,056
CCH Reference - TRC PAYROLL: 3,106
CCH Reference - TRC PAYROLL: 3,180
CCH Reference - TRC PAYROLL: 3,358
CCH Reference - TRC PAYROLL: 9,052
CCH Reference - TRC PAYROLL: 9,158
CCH Reference - TRC PAYROLL: 9,204

CCH (cch.taxgroup.com) reports:

The IRS has announced that the American Honda Motor Company, Inc., has reported it has reached the 60,000-vehicle limit as of the quarter ending September 30, 2007, for purposes of the alternative motor vehicle credit; therefore, the credit phase-out for all new passenger vehicles and light trucks will begin on January 1, 2008. The allowable credit for vehicles purchased between January 1, 2008, and June 30, 2008, is 50 percent of the otherwise allowable amount; it is 25 percent of the otherwise allowable amount for vehicles purchased between July 1, 2008, and December 31, 2008. No credit is allowed for vehicles purchased on or after January 1, 2009.
For vehicles purchased between January 1, 2008, and June 30, 2008, the credit amounts are:
--Honda Accord Hybrid AT, Model Year 2007 --$650;
--Honda Accord Hybrid Navi AT, Model Year 2007 --$650;
--Honda Civic Hybrid CVT, Model Year 2007 --$1,050; and
--Honda Civic Hybrid CVT, Model Year 2008 --$1,050.
A complete table of credit amounts is provided for Honda models that have received an acknowledgement of certification from the IRS on or before November 19, 2007.
IR-2007-191, 2007FED ¶46,717
Notice 2007-98, 2007FED ¶46,718
Other References:
Code Sec. 30B
CCH Reference - 2007FED ¶4059E.026
CCH Reference - 2007FED ¶4059E.10
Tax Research Consultant
CCH Reference - TRC INDIV: 57,708
 

CCH (cch.taxgroup.com) reports:

Tax professionals around the country are receiving warning notices that their tax- planning strategies could be infringing on patented inventions and methods, Mark Peterson, vice president of Congressional and Political Affairs for the American Institute of Certified Public Accountants (AICPA), told CCH on November 19. The AICPA has endorsed new legislation proposed by the leaders of the Senate Finance Committee to ban the patenting of tax strategies (Sen 2369; TAXDAY, 2007/11/16, C.2). "Taxpayers should not have to worry about infringing patents when preparing their tax returns. Neither should the tax professionals who prepare millions of returns each year," AICPA President and CEO Barry Melancon, said after the Senate bill was introduced.
Warning Notices
"Warning notices (about patent infringement) have gone out to CPAs," Peterson explained. These notices purport to tell the practitioner that the tax-planning strategy he or she is using is protected by a patent. The patent holder claims the exclusive right to use the tax strategy. Some patent holders have even sent out news releases alerting practitioners that a tax strategy has been "patented."
Sixty tax strategy patents have been issued by U.S. Patent and Trade Mark Office, Eileen Sherr, technical manager - taxation, for the AICPA, told CCH. "One hundred and one applications for tax strategy patents are pending."
Patents granted and pending cover a wide variety of tax strategies. Some of the strategies that have been patented are not "new." However, the individual applying for the patent is the first person to claim it as an "invention." Among the inventions that have been patented or are awaiting approval from the Patent Office are strategies involving Code Sec. 1031 through Code Sec. 1033 exchanges; a method of converting delinquent assets to revenue or cash flow; a process for creating a financial plan to fund college education; and a method for controlling the cash growth value of an insurance policy.
Two Bills
The Senate bill is similar to a ban on the patenting of tax strategies that has already passed the House as part of a comprehensive patent reform bill (HR 1908; TAXDAY, 2007/09/10, C.3), Sherr explained. The Senate bill would prohibit the U.S. Patent and Trademark Office from issuing patents covering tax strategies. "It's a straight-up ban" Peterson said. "The Senate bill covers foreign taxes, as well," Sherr added.
Peterson predicted that Congress will ultimately ban the patenting of tax strategies. "The outreach we've done on the Hill, specifically in the Senate, shows a lot of support." Influential senators from both parties have indicated their support for the bill. The ban could be attached to another tax bill or could be part of the overall patent reform bill working its way through the Senate.
Software
Another important distinction between the House and Senate bills is the exception for tax-planning software, Sherr explained. The exception in the Senate bill is narrower that the exception in the House bill. "The Senate bill would not cover mechanical tools," Sherr said. However, tax-planning software would be protected.
By George L. Yaksick, Jr., CCH News Staff
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The New York Department of Taxation and Finance has withdrawn a memorandum (TSB-M-07(6)S, see TAXDAY, 2007/11/13, S.5) that stated the Department's sales tax registration requirement for out-of-state Internet-based businesses that solicit sales through representatives. The withdrawn memorandum explained the application of the sales tax law and regulations to e-commerce retailers who use independent contractors, agents, or other representatives within New York to solicit sales or to make or maintain a market for their products or services. The withdrawn memorandum further advised that the Department would not assess any prior sales taxes due or any civil or criminal penalties or interest for the failure to collect and remit any prior sales tax due if such businesses registered and began collecting sales tax by December 7, 2007.
Subscribers to CCH Tax Research NetWork may view the text of TSB-M-07(6.1)S.
TSB-M-07(6.1)S , New York Department of Taxation and Finance, November 15, 2007.

CCH (cch.taxgroup.com) reports:

The IRS has issued proposed regulations that would clarify and simplify current regulations regarding the accounting method or combination of methods to be used after corporate reorganizations and tax-free liquidations under Code Sec. 381 The proposed regulations would apply when issued as final regulations.
Background
The current regulations under Code Sec. 381(c)(4) and (c)(5)
provide that the accounting method to be used after a Code Sec. 381(a) transaction depends on whether the parties to the transaction used or did not use the same accounting method on the date of the transaction and whether the businesses of the parties are combined by the party that survives the transaction. If different methods are used by the parties and the combined corporations are operated as a single trade or business after the transaction, then the principal and special method (including the inventory method) rules apply. The parties to the transaction determine the principal method by applying various tests under the regulations. The applicable test depends on whether the method being considered is: (1) the overall accounting method, (2) the method for a particular type of goods for which the tax code or regulations provide a special method or methods or (3) an inventory method.
Proposed Regulations
The proposed regulations provide that, under both Code Sec. 381(c)(4) and (c)(5), the accounting method to be used after a Code Sec. 381(a) transaction by the acquiring corporation will depend on: (1) whether the businesses of the parties to the transaction are combined by the acquiring corporation after the transaction and (2) whether the method is permissible. As under current regulations, if the trades or businesses of the parties to the transaction are operated as separate trades or businesses after the transaction, an accounting method used by the parties prior to the transaction carries over and is used by the acquiring corporation if such method is permissible (carryover method). If the trades or businesses are not operated as separate trades or businesses, then the principal method must be determined and used.
There are two exceptions to the general rule that the principal method is the accounting method used by the acquiring corporation prior to the transaction. First, if the acquiring corporation does not have an accounting method for a particular item or type of goods, the principal method is the accounting method for the item or type of goods used by the distributor or transferror corporation before the transaction. Second, if the distributor or transferror corporation is larger than the acquiring corporation, the principal methods for the overall accounting method and for the accounting method for a particular item or type of goods are the methods used by the distributor or transferror corporation before the transaction. The principal method continues to be determined separately for the overall accounting method and for any special accounting methods, such as an accounting method used for a long-term contract.
Under the proposed regulations, whether the distributor or transferror corporation is larger than the acquiring corporation is determined using the test in Reg. §1.381(c)(4)-1, which compares their relative sizes in terms of total asset bases and gross receipts for both the overall accounting method and for special accounting methods. For inventory, it would be determined based on the value of the inventory using a test similar to the test in Reg. §1.381(c)(5)-1 of the current regulations. The principal method is the inventory method used by the party with the largest fair market value of a particular type of goods. The regulations provide a simplified election that allows the acquiring corporation to apply the principal method test by comparing the value of the entire inventories of the parties to the transaction rather than the value of each particular type of goods.
Under the proposed regulations, if the carryover method or principal method is an impermissible method, the acquiring corporation generally must file a request to change to a permissible accounting method. However, if the carryover method is impermissible solely because only a single accounting method with respect to a particular item may be used by the acquiring corporation on the date of the transaction regardless of the number of separate and distinct trades or businesses operated on that date, the acquiring corporation must use the principal method as determined under Proposed Reg. §1.381(c)(4)-1(c).
Accounting Method Change Request
Under the current regulations, if the acquiring corporation cannot use a principal method because it is impermissible, it is unclear whether an acquiring corporation may file a Form 3115, Application for Change in Accounting Method, to request permission or whether the acquiring corporation must file a request for a private letter ruling. The proposed regulations make it clear that a taxpayer must request an accounting method change consistent with the manner in which accounting method changes are requested pursuant to Code Sec. 446(e), that is, on a Form 3115. The form must be filed by the later of: (1) the last day of the tax year in which the distribution or transfer occurred, or (2) the earlier of: (a) the day that is 180 days after the transaction date, or (b) the day on which the acquiring corporation files its tax return for the tax year in which the distribution or transfer occurred.
Audit Protection
Audit protection is generally not warranted when either the carryover method or principal method, as applicable, is used in the context of voluntary compliance under Code Sec. 381(c)(4) and (c)(5). However, audit protection is warranted when an accounting method other than the carryover method or principal method is used in the context of voluntary compliance under Code Sec. 381(c)(4) and (c)(5). Under the proposed regulations, a taxpayer using an improper accounting method may request permission to change the method at any time before the end of its tax year. Thus, if the acquiring corporation is using an improper accounting method or would be required to use an improper accounting method because of the application of Proposed Reg. §§1.381(c)(4)-1 or (c)(5)-1, it can request consent to change to a proper accounting method. That change will be accorded the usual audit protection procedures provided in guidance issued under Code Sec. 446(e) for the requested change. Similarly, if another party to the Code Sec. 381(a) transaction is using an improper accounting method, it may request consent to change to a proper accounting method at any time prior to the Code Sec. 381(a)
transaction.
Proposed Regulations, NPRM REG-151884-03, 2007FED ¶49,776
Revision of Annual Information Return/Reports Final Rule
Notice of Adoption of Revisions to Annual Return/Report Forms
Other References:
Code Sec. 381
CCH Reference - 2007FED ¶17,003C
CCH Reference - 2007FED ¶17,009C
CCH Reference -2007FED ¶17,011C
Code Sec. 446
CCH Reference - 2007FED ¶20,608F
Tax Research Consultant
CCH Reference - TRC REORG: 33,158
 

CCH (cch.taxgroup.com) reports:

The IRS has ruled that payments made by the U.S. Department of Veterans Affairs under the Compensated Work Therapy (CWT) Program are exempt from federal income tax as veterans' benefits. The ruling reflects the IRS's acquiescence (TAXDAY, 2007/10/29, I.5) to the Tax Court's decision in R. Wallace , 128 TC 132, Dec. 56,899 (TAXDAY, 2007/04/17, J.1), that payments received under the CWT Program constitute nontaxable veterans' benefit under 38 U.S.C. §5301 (as cross-referenced in Code Sec. 140(a)(3)).
The IRS noted that the legislative history for Code Sec. 134, which provides an exclusion from gross income for qualified military benefits, indicates that veterans' benefits under 38 U.S.C. §3101 (now 38 U.S.C. §5301) constitute qualified military benefits. The IRS further ruled that, because payments made under the CWT Program are exempt from federal income tax, they are not required to be reported on an information return.
Rev. Rul. 65-18, 1965-1 CB 32, is revoked and Rev. Rul. 72-605, 1972-2 CB 35, is amplified.
Rev. Rul. 2007-69, 2007FED ¶46,715
Other References:
Code Sec. 61
CCH Reference - 2007FED ¶5504.027
CCH Reference - 2007FED ¶5504.74
CCH Reference - 2007FED ¶5504.785
CCH Reference - 2007FED ¶5507.2736
Code Sec. 134
CCH Reference - 2007FED ¶7501.01
Code Sec. 140
Code Sec. 3401
CCH Reference - 2007FED ¶33,538.5575
Code Sec. 6041
CCH Reference - 2007FED ¶35,836.52
Tax Research Consultant
CCH Reference - TRC INDIV: 33,360
CCH Reference - TRC COMPEN: 6,608

CCH (cch.taxgroup.com) reports:

Senate Finance Committee Chairman Max Baucus, D-Mont., and ranking member Charles E. Grassley, R-Iowa, on November 16 introduced the Tax Technical Corrections Bill of 2007 (Sen 2374). The measure contains technical corrections needed with respect to the Tax Relief and Health Care Act of 2006 (P.L. 109-432), Title XII of the Pension Protection Act of 2006 (Provisions Relating to Exempt Organizations) (P.L. 109-280), the Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222), the Energy Policy Act of 2005 (P.L. 109-58), the American Jobs Creation Act of 2004 (P.L. 108-357) and other tax legislation. House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., and ranking member Jim McCrery, R-La., introduced an identical measure in the House as HR 4195.
Technical corrections measures are routine for major tax acts and are necessary to ensure that the provisions of the acts are working consistently with congressional intent, or to provide clerical corrections. Because these measures carry out congressional intent, no revenue gain or loss is scored from them.
"By filing this bill, we hope interested parties and practitioners will comment and provide direction on further edits, additions, or deletions," said Baucus in a floor statement. The senior lawmaker said comments should be submitted in a timely manner as the committee hopes to move the corrections package in December, if possible.
The staffs of the Senate Finance and Ways and Means Committees, in consultation with the staffs of the Joint Committee on Taxation and the Treasury Department, continue to evaluate additional proposals for other technical corrections that may be necessary to achieve congressional intent with respect to other tax legislation, according to a release from the Finance Committee.
By Jeff Carlson, CCH News Staff
SFC Release: Baucus, Grassley Introduce Tax Technical Corrections Bill
Tax Technical Corrections Act of 2007, Sen 2374
Introduction to Tax Technical Corrections Act of 2007, Sen 2374
JCT Description of the Tax Technical Corrections Act of 2007, JCX-109-07

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

In addition to adding a new tax on bottled water, the City of Chicago has increased rates and/or made other changes to the hotel occupancy, personal property lease transaction, liquor, wheel, amusements, and gas use taxes, the wireless communications fee, emergency telephone system surcharge, and property tax limitation law. All changes reported here are effective January 1, 2008.
The tax on the retail sale of bottled water is imposed at the rate of $0.05 per bottle. The tax is paid by the purchaser, and it expressly is not a tax on the occupation of retail or wholesale bottled water dealer. The tax is to be collected and remitted by each wholesale bottled water dealer who sells bottles of water to a retail bottled water dealer located in the city.

CCH (cch.taxgroup.com) reports:

A married couple's outstanding federal income taxes were not discharged by a bankruptcy discharge order. The taxes related to a tax year that was within the three-year lookback period immediately before the filing of the bankruptcy petition. Moreover, Code Sec. 6503(h), not Code Sec. 6503(b), controlled and suspended the running of the collection period of limitations from the date the couple's bankruptcy petition was filed to a date six months after the bankruptcy court issued its order of discharge. Accordingly, the period of limitations for collecting the couple's outstanding federal income taxes had not expired at the time the couple requested an Appeals Office hearing. Finally, the Tax Court lacked jurisdiction over the IRS's decision letter relating to its notice of intent to make a second levy because the Tax Court cannot review IRS decision letters relating to equivalent hearings.
M.V. Severo, 129 TC No. 17, Dec. 57,173
Other References:
Code Sec. 6323
CCH Reference - 2007FED ¶38,160.87
Code Sec. 6330
CCH Reference - 2007FED ¶38,184.50
Code Sec. 6503
CCH Reference - 2007FED ¶39,032.16
Tax Research Consultant
CCH Reference - TRC IRS: 51,056
CCH Reference - TRC IRS: 57,054

CCH (cch.taxgroup.com) reports:

Senate Democratic leaders said on November 15 that they would attempt to pass the House-approved alternative minimum tax (AMT)/extenders bill (the Temporary Tax Relief Bill of 2007 (HR 3996)) by unanimous consent (UC) before recessing for the Thanksgiving holiday. If the UC fails as expected, the Senate plans to turn to an amendment offered by Senate Finance Committee Chairman Max Baucus, D-Mont., that would provide a one-year AMT patch without offsets and a two-year extension of expiring tax provisions with the cost offset.
The agreement represents a major shift for Democratic leaders who, up until now, had opposed moving an AMT bill without revenue offsets. Because of pay-as-you-go rules established earlier in the session, the vote on the AMT legislation and accompanying amendments requires 60 votes in order to waive the rules. The House measure includes revenue offsets for both the AMT patch and tax extenders and will most certainly fail to move in the Senate.
Under an agreement forged between Senate Majority Leader Harry Reid, D-Nev., and Senate Minority Leader Mitch McConnell, R-Ky., the Senate would allow two hours of debate prior to a cloture vote on the House bill which, if approved, would bar amendments to the bill. If the cloture vote fails, the Senate would first allow one hour of debate on an amendment offered by Senate Minority Whip Trent Lott, R-Miss., that would repeal the AMT and extend expiring provisions for one year. Assuming the Lott amendment fails to garner 60 votes, the Senate would turn to the Baucus amendment.
All may be for naught however, as the House plans to adjourn late on November 15 for the two-week recess and four Senate Democrats will be in Las Vegas, Nev., to participate in the Democratic presidential debate, pushing off until November 16 the chance to move the bill before Thanksgiving. The Senate is not expected to hold any roll call votes after 12:00 p.m. on November 16 until after the recess.
By Jeff Carlson, CCH News Staff
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Maryland Senate and House of Delegates passed a number of bills during a special session that would, if enacted, affect corporate and personal income taxes, sales and use taxes, cigarette taxes and the recordation tax.

CCH (cch.taxgroup.com) reports:

The Treasury Department and IRS have issued temporary and proposed regulations addressing the notification requirements for tax exempt entities not currently required to file information returns, in light of the amendments to Code Sec. 6033 by the Pension Protection Act of 2006 (P.L. 109-280). The regulations, which address the time and manner of submitting an annual electronic notice, are effective on November 15, 2007, and apply to tax years beginning after December 31, 2006.
Under Code Sec. 6033(i)(1), small exempt organizations are required to file an annual electronic notice that contains certain specified information. The temporary regulations allow for the IRS to request additional information, such as the tax year for which the notification has been submitted. Furthermore, an organization submitting an electronic notice acknowledges that it is not required to file an information return because its annual receipts do not exceed $25,000. The temporary regulations still require such organizations to notify the IRS, in writing, of any changes to the organization, as required by Reg. §1.6033-2(i).
While the temporary regulations contain no provision for paper submission of the annual notice, organizations may satisfy the notice requirement by filing a completed Form 990, Return of Organization Exempt From Income Tax, or 990EZ, Short Form Return of Organization Exempt From Income Tax. Annual notifications must be submitted on or before the 15th day of the fifth month following the close of the period for which notice is required. To help organizations comply with the notice requirement, the IRS has developed Form 990-N, Electronic Notification (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or 990EZ, which will be available for filing on-line.
Comments and requests for public hearings must be received by the IRS by February 13, 2008.
T.D. 9366, 2007FED ¶47,075
Proposed Regulations, NPRM REG-104942-07, 2007FED ¶49,775
Other References:
Code Sec. 6033
CCH Reference - 2007FED ¶35,424J
Tax Research Consultant
CCH Reference - TRC EXEMPT: 12,250
CCH Reference - TRC EXEMPT: 12,252.05
CCH Reference - TRC EXEMPT: 12,252.10
CCH Reference - TRC EXEMPT: 12,252.15

CCH (cch.taxgroup.com) reports:

At a November 14 Senate Finance Committee hearing, Republicans and Democrats, in rare agreement, said that the current estate tax situation is a quagmire and needs to be fixed. The only question is how. With total repeal out of the question, Committee Chairman Max Baucus, D-Mont., put the question to his committee and a panel of tax experts, including two family business owners whose heirs could be forced to choose between selling the family business or going deep into debt in order to settle with the IRS.
Lawmakers and panelists also agreed that, in addition to the costs, the uncertainty associated with the future of the tax creates havoc with estate planning, as small business owners find themselves constantly adjusting their wills to accommodate new family members and shifting tax rates included in the Economic Growth and Tax Relief Reconciliation Act of 2001 (P.L. 107-16). "Complicated trusts often have to be created to deal with the moving target estate tax exemption," testified attorney and law professor Conrad Teitell. "And we have to draft for the contingency that there won't be an estate tax in 2010," he said. "Families must have multiple estate plans," agreed Baucus. "And that costs money."
Teitell, who has published a number of articles on the topic of taxes, wills and estate planning, noted that life insurance planning to pay for estate taxes and provide liquidity is also difficult. Indeed, constant estate planning has become a necessity in these uncertain times, according to Teitell. "Putting off decisions until Congress acts can be hazardous to your wealth," he quipped.
With panelists and lawmakers basically on the same page, the focus of the hearing quickly moved to where to draw the line - how big of an estate should trigger the tax. While many felt full repeal was justified, a straw poll appeared to settle on a figure of around $4 million, indexed for inflation. For his part, Baucus said that current congressional dynamics are such that he must wait until 2008 to begin looking at adjustments to the estate tax, but he told reporters following the hearing that major changes would come either in 2009 or 2010.
While the hearing was ostensibly dedicated to exploring the problems associated with the current estate tax laws, the star power of one panelist, business magnate and philanthropist Warren Buffet, proved too tempting for some lawmakers to ignore. Ranking member Charles E. Grassley, R-Iowa, asked Buffet to digress from the estate tax topic and give his opinion on taxing carried interest, an issue that Grassley admitted he remained undecided on. Buffet acquiesced, telling Grassley that he once served as a hedge fund manager and that he regarded it an occupation like any other and should, therefore, be taxed as such.
Grassley then turned to the question of tax-exempt charities and college endowments, asking Buffet whether he thought the current laws on charitable spending requirements should be changed. Buffet again acquiesced, telling the senior lawmaker that charities and endowments were no different than private businesses when it came to federal requirements and that they would use their funds as they saw fit. "It's institutional economics", said Buffet. "Require them to spend 3 percent of their donations on charitable purposes and that's what they will spend. Require 5 percent and they'll spend that." Flat-tax advocate Ron Wyden, D-Ore., inquired of Buffet his views on the subject. "I'm with you in principle," responded Buffet."But, it should be progressive."
By Jeff Carlson, CCH News Staff
SFC Release: Baucus Statement at Federal Estate Tax Hearing
SFC Release: Grassley Statement at Federal Estate Tax Hearing

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Internal Revenue Service has certified the 2008 model year Nissan Altima as meeting the requirements of the Alternative Motor Vehicle Credit for qualified hybrid motor vehicles. The credit amount for the vehicle is $2,350. As of the quarter ending September 30, 2007, Nissan has sold 2,627 hybrid vehicles, bringing the total to 7,849 vehicles sold.
Original purchasers may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records the sale of its 60,000th vehicle. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. No credit is allowed after the fifth quarter.
IR-2007-188, 2007FED ¶46,712
Other References:
Code Sec. 30B
CCH Reference - 2007FED ¶4059E.0265
CCH Reference - 2007FED ¶4059E.10
Tax Research Consultant
CCH Reference - TRC INDIV: 57,708
CCH Reference - TRC INDIV: 57,708.20

CCH (cch.taxgroup.com) reports:

The IRS has issued interim guidance regarding suspension of interest under Code Sec. 6404(g) as amended by the Small Business and Work Opportunity Act of 2007 (P.L. 110-28). As of November 26, 2007, the 18-month period in Code Sec. 6404(1)(A) and (3)(A), after which the IRS must suspend penalties and interest if it does not issue a notice to a taxpayer regarding tax liability, has been changed to a 36-month period.
The guidance provides two rules the IRS will follow with respect to notices issued on or after November 26, 2007, that relate to a return that was timely filed before that date. If the 18-month period has expired without notice as of November 25, 2007, penalties and interest will be suspended beginning the day after the end of the 18-month period and ending 21 days after receipt of the notice from the IRS. Otherwise, the suspension will begin on the day after the close of the 36-month period and end 21 days after the notice is provided. Examples of applications of the rules have been included.
Notice 2007-93, 2007FED ¶46,713
Other References:
Code Sec. 6404
CCH Reference - 2007FED ¶38,580.037
CCH Reference - 2007FED ¶38,580.34
Tax Research Consultant
CCH Reference - TRC IRS: 33,400
CCH Reference - TRC IRS: 33,402

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Court of Common Pleas for Franklin County, Ohio, has ruled that the Ohio commercial activity tax (CAT) does not violate the state constitution. The court held the CAT is a franchise tax, which is a type of excise tax, which is imposed on the privilege of doing business in the state, and is not an excise tax that is "levied or collected upon the sale or purchase of food." A group of taxpayers, led by the Ohio Grocers Association, had challenged the CAT on the basis that it was really an excise tax imposed on the sale of food, food ingredients, and packaging, and thus violated Secs. 3(C) and 13 of Article XII of the Ohio Constitution.

CCH (cch.taxgroup.com) reports:

Partnership Program (Ann. 2007-106)
The IRS is continuing its efforts to establish e-file
partnerships with various entities for the 2008 filing season. The IRS is requesting applications to participate in the program from commercial businesses, nonprofit organizations and state or local governments. The annual program covers January 1, 2008, through October 15, 2008. All prior-year partners must reapply for the 2008 filing season. Hyperlinks to participants' websites will be available on the "Partners Page" on the IRS website at http://www.irs.gov. The IRS may review participants' websites at any time to ensure that the participation requirements are being met.
For 2008, the IRS will continue to focus on the 1040 series income tax returns covering "IRS e-file Using a Tax Preparer" and "IRS e-file Using a Personal Computer." Other features addressed include Federal/State e-file, electronic signature options and electronic payment options for balance due and estimated payment options. Participants are also encouraged to offer Spanish versions for online filing and/or downloadable software and to market their e-file services to the Hispanic population, which is the fastest growing minority segment in the U.S.
A major area of emphasis for participants in the 2008 program will be to reach taxpayers and especially paid preparers who continue to file computer-prepared paper returns in order to convert those taxpayers to e-filing. In addition, participants should reach those individuals eligible for the Earned Income Tax Credit (EITC). The IRS is encouraging the use of the "EITC Assistant," an interactive web-based tool designed to help tax professionals determine whether or not their clients are eligible for the EITC; the "EITC Assistant" is available at http://www.irs.gov/eitc.
The IRS is stressing the importance of security of taxpayer accounts and personal information and points out that tax professionals must implement safeguards to protect taxpayer data. Publication 4557, Safeguarding Taxpayer Data, A Guide for Your Business , describes the security provisions and rules that impact tax professionals and provides guidance to tax professionals in understanding their requirements for protecting the privacy and confidentiality of taxpayer data and how to implement security controls to satisfy those requirements.
Applications to participate in the program should be submitted as Microsoft Word documents through e-mail to *WIe-filepartners@irs.gov. Applications may also be sent to: Internal Revenue Service, 5000 Ellin Road, Lanham, MD 20706, Attn: Karen Bradley C4-132, SE:W:CAR:SPEC:FO:IMS. Applications must be submitted by December 13, 2007 to have a hyperlink(s) on the IRS e-file Partners Page for the start of electronic filing. The IRS cannot assure the acceptance of any application received after that date.
Announcement 2007-106, 2007FED ¶46,710
Other References:
Code Sec. 6011
CCH Reference - 2007FED ¶35,141.47
Tax Research Consultant
CCH Reference - TRC FILEBUS: 12,308
CCH Reference - TRC FILEBUS: 12,312

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Michigan House of Representatives has passed a bill that would impose an annual surcharge to the Michigan business tax. The surcharge would be based on a percentage of the taxpayer's liability before credits. For all taxpayers, other than financial institutions, the surcharge would be:
-- 32.9% for tax years ending after 2007 and before 2009; and
-- 27.3% for tax years ending after 2008.
For financial institutions taxpayers, subject to the franchise tax, the surcharge would be:
-- 27.7% for tax years ending after 2007 and before 2009; and
-- 23.4% for tax years ending after 2008.
The surcharge would be capped at $2 million per year and would not apply to insurance companies subject to the gross direct premiums tax. The bill also would allow financial institutions to claim the compensation and investment tax credits.
Finally, the bill would revise the provisions that authorize a tax refund if the state collects taxes above certain threshold amounts. Half of the excess taxes would no longer be deposited into the countercyclical budget and economic stabilization fund and taxpayers would be eligible for pro rata refunds based on the amount of the surcharge.
The bill would be effective January 1, 2008, and would apply to all business activity occurring after December 31, 2007. The bill would repeal the new use tax on selected services. The possible repeal of the use tax on selected services has been previously reported. (TAXDAY, 2007/11/09, S.8)
Subscribers to CCH Tax Research NetWork may view H.B. 5408.
H.B. 5408, as passed by the Michigan House of Representatives, November 8, 2007.  

CCH (cch.taxgroup.com) reports:

Congress passed a continuing resolution to fund the government through December 14, 2007, as part of the defense appropriations bill, while the House approved bills that provide an alternative minimum tax (AMT) patch as well as relief for active and retired military personnel. The AMT measure faces a veto from President Bush, although it is not expected to survive in the Senate. The IRS has started to brace for a busy tax filing season due to supplemental forms, instructions and computer reprogramming that must take place should Congress not decide on "AMT patch" legislation until mid-December. The IRS also continues to struggle to release much-needed guidance dealing with the Pension Protection Act of 2006 (PPA) (P.L. 109-280), while at the same time addressing concerns over the change in accounting procedures, whistle-blower rules, the foreign tax credit and REMICs.
Congress
House. By a vote of 216 to 193, the House passed the Temporary Tax Relief Bill of 2007 (HR 3996) on November 9 (TAXDAY, 2007/11/12, C.1). Although GOP lawmakers want the House to provide $50 billion in tax relief from the AMT, they do not want a corresponding increase in taxes to pay for it. The bill now heads to the Senate where Republican lawmakers have promised to kill the legislation and pursue AMT relief without a tax increase.
The House on November 6 approved a package of military tax breaks for active and retired military service members by a vote of 410 to 0 (TAXDAY, 2007/11/07, C.2). The Heroes Earnings Assistance and Relief Tax Bill of 2007 (HR 3997) would allow military personnel to treat combat pay as ordinary income for purposes of qualifying for the earned income tax credit program and would permanently extend the qualified mortgage bond program to allow more veterans to purchase their first homes. The cost of the measure would be offset by provisions that increase penalties on partnerships and S corporations that fail to file their tax returns. Senate Finance Committee Chairman Max Baucus, D-Mont., told reporters that the Senate could take up the measure as early as the week beginning November 12.
In addition, the House and Senate have approved a second continuing resolution as part of the conference report of the Department of Defense Appropriations Act, 2008 (HR 3222). The measure will fund the government through December 14, 2007.
Senate. Senate Finance Committee Ranking Member Charles E. Grassley, R-Iowa, in letters dated November 5, asked six media-based ministries for information regarding expenses, executive compensation, and amenities given to executives (TAXDAY, 2007/11/07, C.1). Grassley said that he is following up on complaints from the public and news coverage regarding possible misuse of donations at the ministries. Specifically, Grassley requested detailed explanations of compensation paid to ministry leaders, as well as details of the personal use of assets of the tax-exempt organizations, payments of any kind to the ministry leaders, credit card statements and a list of expenses paid by the organization for the purchase and maintenance of ministry residences.
President Bush on November 6 issued a veto threat over a $288 billion farm bill, which includes an agriculture tax title that codifies the economic substance doctrine as a means to offset most of the $16 billion price tag (TAXDAY, 2007/11/07, W.1). The White House said it could not support the measure because of what it termed the bill's use of tax increases and "budget gimmicks." The Senate, which began debate on the measure the same day, became mired over procedural issues and just as quickly laid the bill aside. No word on when that body may again take-up the bill.
Senate Finance Committee Member John Ensign, R-Nev., along with four GOP Committee members, introduced a broad tax bill on November 7 that would permanently repeal the AMT and extend the tax cuts on capital gains, dividends and marginal rates without accompanying revenue offsets (TAXDAY, 2007/11/08, C.1). Senate Majority Leader Harry Reid, D-Nev., told reporters on November 6 that the Senate would not take-up legislation for a one-year AMT patch until after Congress returns from its Thanksgiving recess on December 3. To date, the Senate Finance Committee remains divided on whether to offset an AMT fix or waive pay-go rules, which would require 60 votes to pass. Baucus has suggested that he might take an AMT bill directly to the Senate chamber if the Committee fails to reach accord on the issue.
IRS
Alternative Minimum Tax. Acting IRS Commissioner Linda Stiff has again warned that time is rapidly running out for the Service to program its computer systems for the so-called "AMT patch" being proposed on Capitol Hill for the 2008 filing season (TAXDAY, 2007/11/06, I.4). Stiff, who spoke at the American Institute of Certified Public Accountants (AICPA) National Conference on Federal Taxes in Washington, D.C., on November 5 also emphasized that Congress's expectations concerning closing the tax gap, the $300-billion difference between what taxpayers owe and what they actually pay, are increasing.
The IRS is bracing for slow processing of returns early in the 2008 filing season because of Congress's delay in passing an AMT patch, Richard Spires, IRS deputy commissioner for Operations Support, warned on November 8 (TAXDAY, 2007/11/09, I.6). Spires spoke at a conference sponsored by the Council for Electronic Revenue Communication Advancement (CERCA) in Alexandria, Va. As a result, individuals who file their 2007 federal income tax returns as soon as they receive their Forms W-2 may be surprised that their refunds will be delayed.
Proposed 401(k) Automatic Enrollment Regulations. The Treasury and IRS have issued proposed regulations governing automatic enrollment for cash or deferred compensation arrangements (401(k)
plans) reflecting changes made by the PPA
(NPRM REG-133300-07; TAXDAY, 2007/11/08, I.2). The proposed regulations would create an additional design-based safe harbor for qualified automatic contribution arrangements and require plans to provide notice to each eligible employee under such an arrangement within a reasonable amount of time before each plan year.
Change of Accounting Method Procedure. The IRS has issued changes to Rev. Proc. 97-27, 1997-1 CB 680, regarding procedures for obtaining IRS consent to change an accounting method where the filed Form 3115, Application for Change in Accounting Method, is pending in the national office (Rev. Proc. 2007-67; TAXDAY, 2007/11/07, I.2). The guidance also modifies the period for taking into account a net positive adjustment pursuant to Code Sec. 481(a) to four tax years. The period for taking into account net negative adjustments remains one year. This procedure also adds a new Section 12 toRev. Proc. 97-27
containing provisions allowing taxpayers, under certain circumstances, to change the year of the election while the Form 3115 is pending.
Plan Distributions. The IRS has issued the 2008 applicable mortality table and information related to the applicable interest rate for purposes of making certain plan distribution calculations (Rev. Rul. 2007-67; TAXDAY, 2007/11/07, I.5). The 2008 applicable mortality table, published in the appendix to the ruling, is based on a fixed blend of 50 percent of the static male combined mortality rates and 50 percent of the static female combined mortality rates published inProposed Reg. §1.430(h)(3)-1 for valuation dates occurring in 2008. The applicable mortality table for plan years beginning prior to January 1, 2008, is provided in Rev. Rul. 2001-62, 2001-2 CB 632.
Whistleblowers. The Office of the Chief Counsel has provided guidance relating to a new cause of action in the Tax Court for review of award determinations made by the IRS Whistleblower Office under Code Sec. 7623(Chief Counsel Notice CC-2008-001, TAXDAY, 2007/11/7, I.6). According to the guidance, if a petitioner raises the issue in a Tax Court case, the Office of Associate Chief Counsel (Procedure & Administration), Branch 7, and the Office of Associate Chief Counsel (General Legal Services, Public Contracts and Technology Law Branch, must be immediately contacted to discuss how the issue should be handled and coordinated.
Foreign Tax Redetermination Regulations.
Temporary and proposed regulations addressing foreign tax redeterminations have also been issued (NPRM REG- 209020-86; TAXDAY, 2007/11/07, I.3). Generally, Code Sec. 905(c) provides that taxpayers who claim the foreign tax credit must notify the IRS when there is a change in foreign taxes paid or accrued. Foreign tax redeterminations occur as a result of a change in the foreign tax liability that may effect the taxpayer's foreign tax credit. The new regulations provide exceptions to the rule requiring taxpayers to translate foreign currency into dollars using the average exchange rate to determine the amount of foreign taxes paid or accrued; additional tax liability denominated in foreign currency; taxes withheld in foreign currency; or estimated taxes paid in foreign currency.
Proposed REMIC Regulations. The IRS has issued proposed regulations that expand the list of permitted modifications to commercial mortgage loan obligations contributed to a real estate mortgage investment conduit (REMIC) (NPRM REG-127770-07; TAXDAY, 2007/11/09, I.2). The changes are designed to exempt certain modifications from triggering a deemed exchange of an original obligation for a modified obligation, which would violate the prohibited transaction rules of Code Sec. 860F(a)(2). The proposed regulations permit releases and substitutions of collateral, guarantees and credit enhancements, conversion of an obligation from recourse to nonrecourse, and partial lien releases on collateral, provided that in each case the obligation remains secured by real property with an appraised value equal to at least 80 percent of the modified obligation's adjusted issue price on the modification date.
FSLG Workplan. The Office of Federal, State and Local Governments (FSLG) has released its Fiscal Year 2008 (FY2008) Work Plan, which highlights the FSLG's commitment to improving its enforcement activity (FY2008 FSLG Work Plan; TAXDAY, 2007/11/07, I.7). The FSLG will continue both its Federal Agency and its Large Entity compliance initiatives in FY2008. It anticipates opening and closing 20 examinations of federal agencies or sub-agencies and it will continue to work to coordinate resolution of federal agencies' employment tax delinquencies. With respect to large entities, the FSLG anticipates opening 29 examinations and closing 30 examinations. The FSLG will also work on an National Research Program (NRP) project to develop data to help identify tax gap sources in its market segments.
E-mail Scam. A new e-mail scam, claiming to come from the IRS Taxpayer Advocate Service, has just appeared online, the Service announced on its website (TAXDAY, 11/07/09, I.8). The "From:" line of the newest scam reads, "IRS" and the "Subject:" line says "Notification - Taxpayer Advocate Service." The text of the e-mail includes a line that reads, "After several recalculations of your tax payments since 2005, IRS makes you eligible to receive a refund of 343.56 US Dollars." The IRS does not send taxpayers unsolicited e-mails and does not use e-mail to discuss a taxpayer's tax account information, such as refunds, with the taxpayer
By Jeff Carlson, Torie Cole, Stephen K. Cooper and Chantal Mahler, CCH News Staff.

CCH (cch.taxgroup.com) reports:

The IRS has issued final regulations requiring electronic filing of returns, pursuant to Code Sec. 6011(e), by corporations and organizations required to file returns under Code Sec. 6033. The final regulations, which were adopted as revised, remove the temporary regulations under Code Secs. 6011, 6033, and 6037. The regulations are effective and applicable November 13, 2007.
The final regulations apply to filers of the Form 1120, U.S. Corporation Income Tax Return, and Form 1120S, U.S. Income Tax Return for an S Corporation, series, as well as the Form 990, Return of Organization Exempt From Income Tax, series. At this time, the IRS is not ready to accept certain types of Forms 1120, 1120S and 990 but will announce when they have the capability to do so. Until that time, these types of filers are excluded from the requirement. The list of filers required to file electronically and those currently excluded from the requirement will be posted on the IRS's website and in various publications. Additionally, the proposed regulation, NPRM REG-130671-04, provided that the electronic filing requirement does not apply to corporations, S corporations and exempt organizations that file fewer than 250 returns during the calendar year. The final regulations further provide that, in the case of a short year return, a taxpayer is required to file electronically if, during the calendar year which includes the short taxable year, the taxpayer is required to file at least 250 returns of any type.
Furthermore, the final regulations did not incorporate the transitional rule included in as it was believed that compliance with the final regulations would not cause undue financial hardship to the affected taxpayers. However, Notice 2005-88, 2005-2 CB 1060, provides for a waiver of the requirement in the event of hardship, such as a technology problem. The decision whether to grant a waiver will be decided on a case-by-case basis.
T.D. 9363, 2007FED ¶47,072
Other References:
Code Sec. 6011
CCH Reference - 2007FED ¶35,125BC
CCH Reference - 2007FED ¶35,125CB
Code Sec. 6033
CCH Reference - 2007FED ¶35,423C
CCH Reference - 2007FED ¶35,424C
Code Sec. 6037
CCH Reference - 2007FED ¶35,521C
CCH Reference - 2007FED ¶35,522C
Tax Research Consultant
CCH Reference - TRC FILEBUS: 12,300
CCH Reference - TRC FILEBUS: 12,302

CCH (cch.taxgroup.com) reports:

Republican lawmakers were unsuccessful in their attempt to stop House passage of the Temporary Tax Relief Bill of 2007 (HR 3996) on November 9. GOP lawmakers said that they wanted the House to provide $50 billion in tax relief from the alternative minimum tax (AMT), but they did not want a corresponding increase in taxes to pay for it. However, House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., said that Democrats were committed to following House pay-as-you-go (PAYGO) rules that require that any tax cut be offset.
The AMT bill, which also extends a popular group of expiring tax provisions known as the extenders, passed the House by a vote of 216 to 193. The bill now heads to the Senate where Republican lawmakers have promised to kill the legislation and pursue AMT relief without a tax increase. Under the measure, the cost of the tax relief would be paid for by increasing the tax burden on super wealthy investment managers who currently pay taxes at the capital gains rate of 15 percent, rather than the ordinary income tax rate of 35 percent. This so-called carried interest provision has drawn the ire of House and Senate Republicans who said it would cripple America's economy, while instituting a permanent tax increase to pay for temporary AMT tax relief.
During debate on the House floor, Rangel chided GOP lawmakers for their lack of fiscal discipline. He noted that the president's fiscal year 2008 federal budget request calls for spending the roughly $50 billion in revenues generated by the AMT without offering a revenue-neutral way to repeal the AMT. Rangel said that Congress is obligated to replace that AMT revenue in the budget with either a tax increase or a decrease in federal spending. The other option, which Republicans favor, is to simply repeal the AMT and borrow the money, Rangel said. That would lead to higher federal budget deficits and increased federal debt on future generations, he said.
"I don't think the 23 million families facing a tax increase this year care who is right or wrong. They care that we did the right thing and gave them relief," Rangel said. "(Republicans) believe you can simply borrow the money and the problem disappears, but the fact of the matter is, any responsible budget office will tell you that if you're going to lose $50 billion, you have to make that up somewhere."
Charles E. Grassley, R-Iowa, Senate Finance Committee ranking member, urged the House and Senate leadership to put aside the House bill and work on a measure that President Bush would sign. He said that Republican lawmakers will not accept the tax increases in the Rangel bill and that time is running out before millions of taxpayers will be hit with the AMT. "We need to put the needs of 50 million hard-working, taxpaying American families and individuals above partisan politics," he said.
House Ways and Means Member Phil English, R-Pa., agreed with Grassley's assessment, noting that despite the House action, the bill will be dead on arrival in the Senate. "Despite the bleak future of this measure, the House Democratic leadership still moved forward with the bill, further delaying congressional action on the AMT," English said. "As a result, 50 million taxpayers could find their refunds delayed next year by up to 10 weeks."
By Stephen K. Cooper
SFC Release: Grassley Comments on AMT, Tax Extenders, Permanent Tax Relief

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Financial Accounting Standards Board (FAS decided on January 17, 2007, not to delay implementation of FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes. A delay had been sought by many preparers of financial statements and business organizations, including the Council On State Taxation (COST). (TAXDAY, 2007/01/10, S.1) COST had argued that implementation under the existing timeline would lead to reporting errors and fail to realistically reflect the taxpayers' state tax positions in their financial statements. However, during a board meeting in Norwalk, Connecticut, the FASB voted unanimously to retain the current effective date. Therefore, FIN 48 remains effective for fiscal years beginning after December 15, 2006.
FASB Board Meeting, Norwalk, Connecticut, January 17, 2007.

CCH (cch.taxgroup.com) reports:

House Democrats wrapped up their agenda for the first 100 hours of the 110th Congress on January 18, by passing energy legislation designed to strip tax breaks and increase royalty payments from big oil companies. The House overwhelmingly approved the Clean Energy Bill of 2007 (HR 6) by a vote of 264 to 163. The bill was introduced on January 12 by House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., and House Natural Resources Committee Chairman Nick Rahall, D-W.Va.
Ways and Means ranking member Jim McCrery, R-La., said the Democrat's bill would affect nearly every American either through higher gas and heating oil prices or lower returns on their pension accounts, which are invested heavily in American energy stocks. Fellow committee member Rep. Jim McDermott, D-Wash., however, rejected that claim, saying that Democrats were making relatively minor changes in the tax code and promised that Congress would take even stronger actions to combat global warming.
Democrats said the bill would repeal roughly $14 billion in subsidies given to oil companies and invest the funds in clean, renewable energy and energy efficiency.
The bill would eliminate the eligibility of oil and gas companies for a domestic manufacturing deduction, and it would roll back tax breaks for geological studies for oil exploration. The bill would also ensure that oil companies pay more royalties for leases awarded in 1998 and 1999.
House Speaker Nancy Pelosi, D-Calif., acknowledged that the House's Democratic priorities would have a more difficult time winning approval in the Senate and the White House. She pledged that the House would consider a more comprehensive energy bill by July 4, 2007.
By Stephen K. Cooper, CCH News Staff
 

CCH (cch.taxgroup.com) reports:

A taxpayer's expenses were deductible and were not required to be capitalized as startup expenditures. The taxpayer deducted initial expenses of operating a horse boarding and training facility under Code Sec. 212, claiming that they were ordinary and necessary expenses incurred in the production of income. The IRS's argument that the expenses had to be capitalized under Code Sec. 195 because the taxpayer anticipated that her income-producing activities would become a trade or business was rejected. Code Sec. 195 was not intended to override the deductibility of ordinary and necessary expenses, whether incurred in an ongoing Code Sec. 212 activity or an ongoing Code Sec. 162 activity. The taxpayer's expenses were due to activities engaged in for profit and were fully deductible under Code Sec. 212.
J.A. Toth, 128 TC No. 1, Dec. 56,801
Other References:
Code Sec. 212
CCH Reference - 2007FED ¶12,523.3584
Code Sec. 195
CCH Reference - 2007FED ¶12,371.45
Tax Research Consultant
CCH Reference - TRC BUSEXP: 15,254
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Wisconsin Department of Revenue has issued a personal income tax announcement regarding recent federal law changes that do not apply for Wisconsin purposes. For taxable years beginning in 2006, Wisconsin generally follows the Internal Revenue Code as of December 31, 2004. Unless adopted later by the Wisconsin Legislature, changes to federal law enacted after 2004 do not apply for Wisconsin purposes. Individuals must use 2006 Wisconsin Schedule I to adjust for Wisconsin and federal differences.
Schedule I provides a listing of the various items that must be adjusted, but an additional federal law was enacted after the 2006 Schedule I was sent to the printer. Accordingly, the announcement sets forth the following additional federal law changes that must be considered when completing Schedule I. These changes were made by the federal Tax Relief and Health Care Act of 2006 (P.L. 109-432), enacted December 20, 2006, and do not apply to Wisconsin for 2006:
-- extension of the deduction for tuition and fees;
-- extension of the deduction for educator expenses;
-- expensing of environmental remediation costs;
-- accelerated depreciation for Indian reservation property;
-- extension of 15-year recovery period for qualified leasehold improvement property and qualified restaurant property;
-- extension of the cut-off year for Archer medical savings accounts;
-- bonus depreciation for Gulf Opportunity Zone property;
-- treatment of energy-efficient commercial building property expenditures;
-- depreciation deduction for cellulosic biomass ethanol plant property;
-- treatment of rollovers from health flexible spending arrangements or health reimbursement arrangements to health savings accounts;
-- treatment of Puerto Rico as part of the United States for purposes of the domestic production activities deduction;
-- partial expensing for advanced mine safety equipment;
-- above-the-line deduction for attorneys' fees and costs paid in connection with any award for providing information to the IRS regarding violations of tax laws;
-- treatment of gain on the sale of a principal residence by certain employees of the intelligence community;
-- extension of taxable income limitation provision for purposes of percentage depletion from oil and natural gas producing property; and
-- postponement of gain on sale of property by certain officers or employees of the executive branch of the federal government.
For the text of the announcement, see http://www.dor.state.wi.us/taxpro/news.html#taxlaws2.
News for Tax Practitioners , Wisconsin Department of Revenue, January 16, 2007.

CCH (cch.taxgroup.com) reports:

Payment of proposed assessments of California corporation franchise and income taxes was not a prerequisite for filing a suit for refund of taxes involving the same tax years because the proposed assessments had not yet become final.

CCH (cch.taxgroup.com) reports:

CCH Tax and Accounting is hosting a live, 100-minute audio seminar, 1120S UPDATE: A Practical Review of Developments Impacting 2006 S Corporation Tax Returns, on Thursday, January 25, at 1:00 p.m. Eastern, noon Central. This timely audio seminar will cover the many new issues and developments that preparers of Form 1120S may encounter this tax season. Tax practitioners face a number of significant changes from recent tax legislation, as well as new cases and administrative developments that will affect tax return preparation for S corporations.
In this seminar, Jim Kehl, CPA, will present a practical walk-through of new developments and effective return-preparation tips to help practitioners be on top of their S corporation clients' compliance needs. Included is a review of changes for this year's 1120S and related schedules, as well as an update on new tax legislation and important cases and rulings that impact S corporations and filing 1120S returns.
Jim Kehl will discuss many important topics in the S corporation tax arena that will impact 1120S preparation for the 2006 tax year, including:
--Changes to Form 1120S and related schedules;
--2006 Form M-3;
--Form 8913, Credit for Federal Telephone Excise Tax Paid;
--Changes made by TIPRA and the Code Sec. 199
temporary regulations for determining W-2 wages for S corporations;
--Recent developments concerning the use of loans to create basis for S corporation shareholders to deduct S corporation losses;
--Tax issues when a shareholder uses his debt as part of basis in order to deduct losses;
--Reasonable compensation to S corporation shareholder-employees;
--Proposed amendments to Code Sec. 362 built-in loss rules;
--Review of basis rules for S corporations;
--Eligibility of S corporations to use the cash method of accounting;
--Rules for stock redemptions of S corporation stock; and
--Other significant recent developments impacting S corporations.
Registration can be completed online at https://www.krm.com/cch or by calling 1-800-775-7654. Participants can earn two hours of CPE credit. In addition, firms registering for this audio seminar will receive a copy of CCH's 600-page 1120S Express Answers (2007 Edition) .

CCH (cch.taxgroup.com) reports:

The Senate Finance Committee (SFC) on January 17 approved the Small Business and Work Opportunity Bill of 2007, an $8.3 billion package of tax incentives for small business that will most likely be offered as an amendment when the full Senate takes up minimum wage legislation (the Fair Minimum Wage Bill (HR 2)) in the next week or two. However, the measure faces a potential uphill battle in the House, where Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., has stated his opposition to adding tax incentives to the wage bill.
SFC Chairman Max Baucus, D-Mont., said that he has discussed the matter with Rangel on January 16, and the final decision remains in the hands of the Democratic leaders in the two chambers. Baucus reiterated that a minimum wage bill could not pass in the Senate without the small business provisions.
The noncontroversial tax provisions, most of which only extend existing provisions for several months, have been overshadowed, however, by an $806 million revenue raiser that would cap at $1 million the amount of executive compensation that can be deferred annually. A related provision modifies the definition of employees covered by the denial of deduction for excessive employee compensation. The first provision has been harshly criticized by leaders of the business community, but Baucus defended its inclusion, telling reporters that "it addresses the very basic issue of disparity of income in America ... it's good policy."
By far the largest revenue raiser is a $4.1 billion provision modifying the effective date of the sale-in, lease-out (SILO) transactions, effectively making present law retroactive to such arrangements made prior to March 2004. Another $1.15 billion would come from changes in the tax treatment of corporate inversion transactions under the American Jobs Creation Act of 2004 (P.L. 108-357).
The Chairman's Mark passed unanimously by voice vote and, although there were no amendments offered, Baucus agreed to work with Sen. Jon Kyl, R-Ariz., on his proposal to extend the tax benefits through 2010, when the bill reaches the Senate floor. Only one provision, expanding and extending the work opportunity tax credit, remains in effect for a five-year period.
Highlights of the package include an extension of Code Sec. 179 expensing, accelerated depreciation for new restaurant construction, increased flexibility in use of the cash balance method of accounting, extension and expansion of the work opportunity tax credit (WOTC) and increased flexibility for small businesses to qualify for tax preferences as S corporations. SFC ranking member Charles E. Grassley, R-Iowa, said that he and most Republicans would have preferred to see less focus on the WOTC benefits but acknowledged that many Democrats supported its inclusion.
House Reaction
Separately, Democratic House lawmakers reacted negatively to the Finance Committee's action. "I don't think they can send a tax bill over here. They can talk to people over here," quipped Rangel, who said that he has no plans to consider merging small business tax relief with an increase in the minimum wage.
House Majority Leader Steny Hoyer, D-Md., said that he was very disappointed by the SFC's passage of the tax package. "The choice to tie a bill raising the minimum wage to tax breaks for businesses will cost taxpayers $8 billion and complicate and delay the passage of an increase," Hoyer said.
White House Position
The White House supports legislation that pairs a federal minimum wage increase with small business tax breaks and regulatory relief. The administration opposes, in its current form, the clean minimum wage bill, HR 2, which is scheduled for a House floor vote on January 18.
President Bush has maintained that failure to provide relief to small business paying a higher federal minimum wage could result in the loss of jobs for low-wage earners. The administration, in a written policy statement, applauded provisions in the Working Families Wage and Access to Health Care Bill (HR 324), which would establish association health plans and increased expensing for small business.
By Jeff Carlson, Stephen K. Cooper and Paula Cruickshank, CCH News Staff
SFC Release: Package of Small Business Tax Incentives Wins Unanimous Approval of Senate Finance Committee
SFC Release: Baucus Opening Statement
SFC Release: Grassley Statement
SFC Release: Grassley Highlights Committee Passage of Tax Loophole Closers
JCT Description of the Chairman's Modification of the Provisions of the Small Business and Work Opportunity Act of 2007, JCX-5-07
JCT Estimated Revenue Effects of the Chairman's Modification to the Small Business and Work Opportunity Act of 2007, JCX-6-07
Working Families Wage and Access to Health Care Act, HR 324

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

In his January 16, 2007 State of the State Address, New Mexico Governor Bill Richardson proposed targeted income tax cuts and credits.
Specifically, the Governor proposed a Working Families Tax Credit, a drop the top rate of personal income tax from 5.3% to 5.1%, and the creation of a state tax credit to help pay for college. For those in the military, the Governor proposed the elimination of New Mexico income tax. For military retirees, the Governor believes that New Mexico should offer a 50% deduction of their earned income, up to $50,000.
Tax incentives for businesses were also proposed, including: (1) a tax cut for investment management firms; (2) a tax credit to encourage investment in New Mexico high-tech companies; and (3) reduction in tax pyramiding.
Subscribers to CCH Tax Research NetWork can view the address.
State of the State Address, New Mexico Governor Bill Richardson, January 16, 2007

CCH (cch.taxgroup.com) reports:

Legislation recently introduced in the Idaho Legislature would authorize the state's entry into the Streamlined Sales and Use Tax (SST) Agreement. The present bill, similar to legislation that failed to pass in three prior sessions, would not make the substantive changes to Idaho law necessary for the state to become a full member of the SST Governing Board. However, if enacted, it would give Idaho the status of an advisor state on the Board. The bill also would direct the Idaho Tax Commission to prepare and recommend to the next legislative session legislation to achieve conformity with the SST Agreement.
Former Idaho Governor Dirk Kempthorne signed an Executive Order on July 29, 2005, authorizing the state's participation in the SST Project, which has now been replaced by the State and Local Advisory Council (SLAC) to the Governing Board. Idaho has participated in SLAC discussions since that time.
H.B. 7, as introduced in the Idaho House of Representatives on January 15, 2007

CCH (cch.taxgroup.com) reports:

Proposed regulations have been released that provide rules for consolidated group members on the transfer of a loss share of subsidiary stock. The proposed regulations would implement aspects of the repeal of the General Utilities doctrine ( General Utilities & Operating Co. , SCt, 36-1 USTC ¶9012, 296 US 200, 56 SCt 185) by redetermining members' bases in subsidiary stock and requiring certain reductions in subsidiary stock basis on a transfer of the stock. The proposals would also promote the clear reflection of income by redetermining members' bases in subsidiary stock and reducing the subsidiary's attributes to prevent the duplication of loss. Finally, the proposed regulations would provide guidance on limiting the application of Code Sec. 362(e)(2) with respect to transactions between members of a consolidated group. The proposals would generally apply as of the date they are published as final regulations.
Background
In general, the repeal of the General Utilities
doctrine requires a corporation to recognize gain and pay tax when appreciated assets are sold or distributed by a corporation in a transaction that results in a stepped-up basis to the new owner. However, attempts were made by consolidated groups to circumvent the General Utilities repeal through use of the investment adjustment rules. A consolidated group member could acquire the stock of a corporation with appreciated assets and the assets could be sold at a gain before the consolidated group member sold the stock of the subsidiary. Increases to the parent's basis in the subsidiary stock that was attributable to the unrealized gain at the time that the subsidiary was acquired would create or increase a loss from the consolidated group member's subsequent sale of the subsidiary stock. This would offset the subsidiary's gain from the sale of the assets.
To address this problem, the loss disallowance rule in Reg. §1.1502-20
generally provided that no deduction was allowed for any loss recognized by a member of a consolidated group with respect to the disposition of stock of a subsidiary. However, certain aspects of the loss disallowance rule were invalidated by Rite Aid Corp. (CA-FC, 2001-2 USTC ¶50,516), which held that a parent of an affiliated group was not prevented from claiming a loss from a stock sale of a subsidiary and that the IRS exceeded its authority in changing the application of a code provision in the context of a consolidated group. Subsequently, the American Jobs Creation Act (P.L. 108-357) amended Code Sec. 1502
to expressly authorize the IRS to change the application of a code provision when necessary to clearly reflect the income tax liability of the group and each corporation in the group. Thus, the IRS could provide rules for consolidated groups that are different than those that would apply if the corporations filed separate returns.
Proposed Regulations
The proposed regulations provide three rules that would apply when a consolidated group member transfers a loss share of subsidiary stock. For purposes of the proposed regulations, a transfer of stock would include any event in which gain or loss would otherwise be recognized, the holder of a share and the subsidiary cease to be members of the same group, a nonmember acquires an outstanding share from a member, or the share is treated as worthless. The three rules would generally be applied in the following order.
(1) Basis redetermination rule --The first rule would redetermine members' bases in subsidiary stock by reallocatingReg. §1.1502-32
adjustments (to adjust for disproportionate reflection of gains and losses in the bases of members' shares).
(2) Basis reduction rule --The second rule would reduce members' bases in transferred loss shares (but not below value) by the net positive amount of all investment adjustments applied to the bases of those shares, but only to the extent of the shares's disconformity amount.
(3) Attribute reduction rule --The third rule would reduce the subsidiary's attributes to prevent the duplication of a loss recognized on, or preserved in the basis of, transferred stock.
Basis redetermination rule. Under the basis redetermination rule, investment adjustments (exclusive of distributions) that were previously applied to members' bases in the subsidiary's stock would generally be reallocated in a manner that, to the greatest extent possible, first eliminates loss on preferred shares and then eliminates basis disparity on all shares. Two safe harbors are provided so that taxpayers would not need to reallocate basis in situations in which redetermination is deemed unnecessary, such as where redetermination would have no ultimate effect on the basis of any share held by a member or where the group disposes of its entire interest in the subsidiary to an unrelated person in one or more fully taxable transactions.
Basis reduction rule. If, after the basis redetermination rule is applied, any member's transferred share is a loss share, the basis of that share is subject to reduction under the basis reduction rule. Under this rule, the basis of each transferred loss share is reduced (but not below value) by the lesser of the share's disconformity amount and its net positive adjustment. The purpose of the basis reduction rule is to eliminate stock loss that is presumed to be noneconomic. The basis reduction rule would be modified where the subsidiary holds stock of a lower-tier subsidiary that was not transferred in the transaction.
Attribute reduction rule. If any transferred shares remain a loss share after application of the basis reduction rule, the subsidiary's attributes (including the consolidated attributes attributable to the subsidiary) would be subject to reduction. The purpose of this attribute reduction rule is to ensure that the group does not recognize more than one loss with respect to a single economic loss regardless of whether the group chooses to dispose of the subsidiary stock before or after the subsidiary recognizes the loss with respect to its assets or operations. The attribute reduction rule would be modified where the subsidiary holds stock of lower tier subsidiaries in order to facilitate computation of the attribute reduction amount and also to prevent excessive reduction of attributes that might otherwise result. The attribute reduction rule also includes an elective provision which allows groups to reduce the potential for loss duplication and reduce or avoid attribute reduction under the proposed regulations.
Override provisions. The proposed regulations also contain two override provisions to ensure that the proposed rules are applied as intended. The first requires that the provisions of the proposed regulations be interpreted and applied in accordance with their stated purposes. The second is an anti-abuse and anti-avoidance rule that provides that appropriate adjustments will be made if a taxpayer acts with a view to avoid the purposes of the rules or use them to avoid another rule of law.
Comments and Hearing
Before the proposed regulations are adopted as final regulations, consideration will be given to any written (a signed original and eight copies) or electronic comments that are submitted in a timely manner to the IRS. The IRS and the Treasury Department request comments on the clarity of the proposed regulations and how they can be made easier to understand. Comments are specifically requested on:
--whether the approach taken in the proposed regulations with respect to both noneconomic and duplicated loss and other possible approaches;
--the circumstances under which gain duplication should be addressed and the mechanisms that could be adopted to do so;
--the limitations that may be necessary or appropriate to address concerns such as attribute churning and conversion;
--the noneconomic reduction of stock gain (i.e., the appropriateness of the continued use of a loss disallowance model) and the reduction of noneconomic stock gain (i.e., the reduction of basis through the absorption of built-in losses or net built-in losses) and the extent to which it would be appropriate to address gain duplication without addressing these issues;
--the general application of Code Sec. 362(e)(2) to intercompany transactions, as well as the administrability and appropriateness of the proposed rules suspending the application of Code Sec. 362(e)(2) to intercompany transactions and specially allocating items attributable to intercompany Code Sec. 362(e)(2) transactions; and
--the extent to which it would be appropriate and desirable to allow taxpayers to elect to apply the provisions in the proposed regulations retroactively to periods before the proposals are published as final regulations.
Written or electronic comments or a request for a public hearing must be received by April 23, 2007. Submissions should be sent to: CCA:LPSR (REG-157711-02), Room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, D.C. 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CCA:LPDR (REG-157711-02), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue NW., Washington, D.C., or sent electronically, via the IRS internet site at www.irs.gov/regs or via the Federal eRulemaking Portal at www.regulations.gov (IRS/REG-157711-02).
Proposed Regulations, NPRM REG-157711-02, 2007FED ¶49,729
Other References:
Code Sec. 267
CCH Reference - 2007FED ¶14,158
Code Sec. 337
CCH Reference - 2007FED ¶16,238
CCH Reference - 2007FED ¶16,240
Code Sec. 358
CCH Reference - 2007FED ¶16,552J
Code Sec. 597
CCH Reference - 2007FED ¶23,810DA
Code Sec. 1502
CCH Reference - 2007FED ¶33,156
CCH Reference - 2007FED ¶33,157F
CCH Reference - 2007FED ¶33,158AM
CCH Reference - 2007FED ¶33,162G
CCH Reference - 2007FED ¶33,168A
CCH Reference - 2007FED ¶33,169A
CCH Reference - 2007FED ¶33,169G
CCH Reference - 2007FED ¶33,179C
CCH Reference - 2007FED ¶33,180A
CCH Reference - 2007FED ¶33,181C
CCH Reference - 2007FED ¶33,181D
CCH Reference - 2007FED ¶33,183D
CCH Reference - 2007FED ¶33,185E
CCH Reference - 2007FED ¶33,186
CCH Reference - 2007FED ¶33,187
CCH Reference - 2007FED ¶33,204JA
CCH Reference - 2007FED ¶33,205AJ
Tax Research Consultant
CCH Reference - TRC CCORP: 45,410
CCH Reference - TRC CCORP: 45,414

CCH (cch.taxgroup.com) reports:

The IRS has held that the rule requiring the recognition of gain under Code Sec. 357(c)(1) will not apply to transactions that qualify as part of an Type A, C, D or G reorganization (provided the requirements of Code Sec. 354 are satisfied). Generally, Code Sec. 357(c)(1) requires that gain must be recognized by a corporation transferring liabilities to a controlled corporation in certain exchanges to the extent the liabilities exceed the adjusted basis of the all the property transferred by the corporate transferor.
The American Jobs Creation Act of 2004 (P.L. 108-357), however, limited application of this rule to exchanges to which Code Sec. 351 applies, as well as exchanges to which Code Sec. 361 applies by reason of a Type D reorganization with respect to which stock or securities of the transferee corporation are distributed in a Code Sec. 355 transaction. In other words, the gain recognition rule of Code Sec. 357(c)(1) does not apply to an acquisitive Type D reorganization because in such transactions the transferor ceases to exist and therefore cannot be enriched by the assumption of its liabilities.
The IRS notes that the intent of this change is to exclude all reorganizations from the application of Code Sec. 357(c)(1), except for divisive Type D reorganizations. Thus, for example, Code Sec. 357(c)(1) would not apply to a corporation's transfer of assets and liabilities to a controlled corporation, regardless of whether the exchange is part of a reorganization to which Code Sec. 351 applies (provided the requirements of Code Sec. 354 are recognized).
Rev. Rul. 75-161, 1975-1 C.B. 114, and Rev. Rul. 76-188, 1976-1 C.B. 99, are obsolete. Rev. Rul. 78-330, 1978-2 C.B. 147, is modified to the extent it holds that Code Sec. 357(c)(1) is applicable to a transaction that qualifies as a Type A or D reorganization (that satisfies the requirements of Code Sec. 354(b)(1)).
Rev. Rul. 2007-8, 2007FED ¶46,276
Other References:
Code Sec. 357
CCH Reference - 2007FED ¶16,522.33
CCH Reference - 2007FED ¶16,522.36
CCH Reference - 2007FED ¶16,522.37
CCH Reference - 2007FED ¶16,522.39
CCH Reference - 2007FED ¶16,522.71
Tax Research Consultant
CCH Reference - TRC CCORP: 39,252.15
CCH Reference - TRC CCORP: 39,302.20
CCH Reference - TRC REORG: 6,154
CCH Reference - TRC REORG: 6,158
CCH Reference - TRC REORG: 18,052
CCH Reference - TRC REORG: 18,054

CCH (cch.taxgroup.com) reports:

The IRS and the Free File Alliance (FFA) announced the opening of the Free File program for the 2007 tax season. Free File, a free tax preparation and electronic filing service for individual tax returns, is in its fifth year. The FFA is a group of private companies that partner with the IRS to offer the Free File program. Individuals with adjusted gross income of $52,000 or less (approximately 70 percent of U.S. taxpayers, or 95 million people) are eligible to use the program.
The changes and features of this year's Free File program include:
the program may be used to request the telephone excise tax refund;
Free File in Spanish will be available from two members of the FFA;
Free File providers will no longer offer refund anticipation loans or other ancillary products;
some FFA members will offer preparation of state tax returns for free; and
taxpayers may file Form 4868, Application for Automatic Extension of Time to File, using Free File.
Approximately 3.9 million individuals used Free File last year, an increase from 2.8 million users when the program debuted in 2003. According to a market research firm that conducts surveys for the IRS, Free File enjoys a high level of user satisfaction due to its convenience.
IR-2007-11, 2007FED ¶46,275
Other References:
Code Sec. 164
CCH Reference - 2007FED ¶9502.355
Code Sec. 4251
CCH Reference - ETR ¶18,135.68
Code Sec. 6011
CCH Reference - 2007FED ¶35,141.47
Code Sec. 6081
CCH Reference - 2007FED ¶36,789.1175
Tax Research Consultant
CCH Reference - TRC FILEIND: 15,204.05
CCH Reference - TRC FILEIND: 18,050
CCH Reference - TRC EXCISE: 9,056

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The New York Department of Taxation and Finance has issued a supplemental corporate franchise tax memorandum providing for an alternative method by which members of a federal consolidated group may fulfill the requirement to file New York tax returns with federal tax shelter disclosure statements attached. To file a consolidated disclosure, the New York filer that has been designated by the group members as the responsible corporation must do the following:
-- file with its New York return one copy of all disclosure information required by the state that applies to activities of the New York filers of the federal consolidated group;
-- write "Consolidated Disclosure" at the top of its completed Form DTF-686, Tax Shelter Reportable Transactions;
-- sign the waiver of Tax Law secrecy requirements on Form DTF-686;
-- attach a list of the names and tax identification numbers of the other New York state filers on whose behalf the consolidated disclosure is being made; and
-- notify the filers that such disclosure has been filed.
The other New York state filing members of the federal consolidated group may then file abbreviated disclosure statements, as follows:
-- write "Consolidated Disclosure" at the top of their Form DTF-686;
-- complete the information preceding lines 1 and 2 of Form DTF-686;
-- instead of completing lines 1 and 2 of Form DTF-686, enter below line 2 the name and tax identification number of the New York state filer that has filed the required federal disclosure with the state; and
-- sign the waiver of Tax Law secrecy requirements on Form DTF-686.
The memorandum also provides additional information regarding the disclosure requirements with respect to members of New York state combined returns.
TSB-M-07(1)C , Technical Services Bureau, Taxpayer Services Division, New York Department of Taxation and Finance, January 11, 2007, ¶405-584
Other References:
Explanations at ¶89-176

CCH (cch.taxgroup.com) reports:

An out-of-state corporation operating a multistate business in Illinois was required to treat the gain from its sale of an underlying business segment as apportionable business income, rather than as allocable nonbusiness income, for state corporate income tax purposes. Furthermore, the corporation could not include its gross receipts from the sale of interest-bearing financial instruments in computing its sales factor denominator.

CCH (cch.taxgroup.com) reports:

The IRS's assessment against a debtor for income taxes and interest was invalid under the principles of equitable estoppel. The debtor was entitled to a return of all refunds retained by the IRS, with interest. Further, the bankruptcy court had jurisdiction over the debtor's refund claim and claim for abatement of taxes and interest. The court was not barred by the Anti-Injunction Act and the Declaratory Judgment Act from determining that the debtor was entitled to refund. The debtor did not have an available remedy at law since he could not challenge the assessment in the Tax Court because it did not have jurisdiction. Tax Court litigation concerning a tax shelter partnership the debtor invested in adjudicated the proper treatment of certain partnership items but did not adjudicate the tax liability of the partners.
It was inequitable for the IRS to resolve the debtor's tax liability through a consent agreement in which a loss claimed in a prior tax year was allowed, receive payment in full satisfaction of the agreement, and then ignore its actions and proceed to assess the tax liability based on the disallowance of the same loss. The IRS violated its own policies and the express provisions of the tax code by assessing tax on an affected partnership item prior to the conclusion of the Tax Court litigation. The debtor demonstrated that the IRS falsely represented its position and induced him to pay the agreed-upon amount based on that representation.
Further, the debtor lacked knowledge and the ability to obtain the true facts. He had no knowledge that the IRS's true intentions were to double-tax him. He justifiably and reasonably relied on the IRS's agreement and settlement as a resolution of all tax issues in connection with his ownership interest in the partnership. It was evident that the inducement to enter into the consent agreement and to pay the taxes, by its nature, misled the debtor. His reliance on this misrepresentation was to his detriment because he lost time and money in the process of dealing with the audit, producing records and hiring an attorney.
Finally, the IRS's actions in issuing an assessment in a later year despite the ongoing Tax Court litigation constituted affirmative misconduct. The IRS made a deliberate decision to treat the partnership as a "burned-out" tax shelter partnership and issued an examination report instructing the IRS auditor to tax the debtor on gain in the partnership's final year. The IRS was held accountable for the actions of its agents and examination offices and for the instructions it provided.
In re D.L. Seay, BC-DC Ark., 2007-1USTC ¶50,147
Other References:
Code Sec. 6402
CCH Reference - 2007FED ¶38,519.385
Code Sec. 6871
CCH Reference - 2007FED ¶40,630.20
CCH Reference - 2007FED ¶40,630.275
Tax Research Consultant
CCH Reference - TRC IRS: 30,354.15
 

CCH (cch.taxgroup.com) reports:

The IRS has ruled that a fee charged by an issuer pursuant to a credit card agreement when it refuses to honor a demand instrument from a third party because the associated account is either overdrawn or would become overdrawn is not interest income to the issuer. Interest is an amount that is paid in compensation for the use or forbearance of money. In contrast, when the issuer refuses to honor the demand by the third party it is denying the user the use of the issuer's money. Therefore, the fee is not paid in compensation of the use or forbearance of money and does not constitute interest income.
Credit card issuers are normally accrual-basis taxpayers; therefore, they must include such NSF fee amounts in gross income when the NSF event occurs. Because the NSF event fixes the issuer's right to receive the income, and the amount is predetermined under the terms of the credit card agreement, all of the preconditions required for recognition underReg. §1.451-1(a) have been satisfied.
Rev. Rul. 2007-1, 2007FED ¶46,273
Other References:
Code Sec. 61
CCH Reference - 2007FED 5704.334
Code Sec. 451
CCH Reference - 2007FED ¶21,005.1115
Tax Research Consultant
CCH Reference - TRC ACCTNG: 9,050
CCH Reference - TRC INDIV: 12,052
CCH Reference - TRC RIC: 12,110.25

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Legislation has been introduced to conform Virginia law to the Streamlined Sales and Use Tax (SST) Agreement, effective July 1, 2008. Virginia has the status of an advisor state on the SST Governing Board. Previous attempts to enact conformity legislation, which would make Virginia a member state on the Board, have failed to pass the Legislature. [CCH Note: The recently introduced bill would enact destination-based sourcing for local tax for sales originating outside the state. However, it would mandate origin-based sourcing for in-state sales, which could preclude Virginia from being found to be in compliance with the Agreement's sourcing provisions.]
Subscribers to CCH Tax Research NetWork can view the bill.
S.B. 1206, as introduced in the Virginia Senate on January 10, 2007
International Home Foods, Inc. v. Department of Treasury , Michigan Supreme Court, Docket Nos. 130542, 130543, January 5, 2007.

CCH (cch.taxgroup.com) reports:

The IRS has published a table that sets forth the maximum face amount of Qualified Zone Academy Bonds that may be issued for each state, including the District of Columbia and U.S. possessions, during 2006 and 2007. Code Sec. 1397E
provides a credit to holders of such bonds under certain circumstances so that the bonds can generally be issued without discount or interest. Pursuant to the statute, 95 percent of the bond proceeds are to be used for qualified purposes with respect to a qualified zone academy. The aggregate amount of bonds that may be issued for the states is subject to a national limitation of $400 million for 2006 and 2007. That amount is to be allocated among the states on the basis of their respective populations below the poverty level, and is to be further allocated by the states to qualified zone academies. A limitation amount may be carried forward only to the first two years (three years for carryforwards from 1998 or 1999) following the unused limitation year.
Rev. Proc. 2007-18, 2007FED ¶46,271
Other References:
Code Sec. 1397E
CCH Reference - 2007FED ¶32,407.50
Tax Research Consultant
CCH Reference - TRC BUSEXP: 57,156

CCH (cch.taxgroup.com) reports:

Taxpayers may file their 2006 tax returns electronically beginning on January 12, 2007, as IRS e-file reopens following its most successful year to date. In 2006, more than 73 million tax returns (almost 54 percent of all returns) were filed electronically. IRS Free File, which will offer free tax preparation and e-filing for taxpayers with an adjusted gross income of $52,000 or less, will be available later this month. This year, refund anticipation loans, (RALs) as well as other ancillary offerings will be removed from the program.
Both paper and electronic returns that claim tax benefits enacted in December or include claims for "extender" provisions, including deductions for state and local sales taxes, higher education tuition and fees and educator expenses, will not be processed if they are submitted before February 3, 2007 (TAXDAY, 2007/01/10, I.1). Paper returns will be accepted, but will not be processed until after IRS processing systems are updated on February 3.
IR-2007-10, 2007FED ¶46,270
Other References:
Code Sec. 6011
CCH Reference - 2007FED ¶35,141.47
Tax Research Consultant
CCH Reference - TRC FILEIND: 18,054

CCH (cch.taxgroup.com) reports:

Senate Finance Committee Chairman (SFC) Max Baucus, D-Mont., is planning a markup of a small business tax incentives bill the week of January 15, with the intent of adding it to a bill that would increase the minimum wage or moving it as a standalone measure. Baucus claims that the $10 billion over 10 years cost of the measure will be fully offset. In the House, lawmakers passed a bill to raise the minimum wage but the measure did not include any tax breaks for small businesses or health care. Eighty-two Republicans joined with Democrats to pass the measure. Finally, the IRS is developing a new Schedule M-3 for foreign corporations having $10 million or more in U.S. assets.
Congress
Senate. SFC Chairman Baucus plans to mark up a small business tax incentives bill on January 17 in preparation for the Senate taking up minimum wage hike legislation the following week. "This package of tax incentives will help to keep small businesses running strong and employing American workers, and we should do it in a fiscally responsible way," Baucus said.
It is expected that the measure will be offered as an amendment to the House bill increasing the minimum wage, which may doom the entire bill. House Ways and Means Committee Chairman Charles Rangel, D-N.Y., says he plans to exercise his right to "blue slip" any tax legislation that does not originate in the House, which would effectively kill the bill.
Baucus has said that he does not care if the bill moves with a minimum wage hike; rather he believes the package of small business tax incentives is warranted as a standalone or as an amendment. There is concern among Senate Democrat leaders however, that the minimum wage bill will not garner enough Republican votes in that chamber if there are no tax sweeteners tacked on.
Baucus has proposed accelerating the depreciation costs for new restaurant construction, extending Code Sec. 179 expensing limits for small businesses, expanding the allowable use of the cash method of accounting, and small business regulatory reform as a starting point. In addition, Baucus and committee member Sen. Olympia Snowe, R-Maine, introduced legislation on January 10 that would permanently extend and expand the work opportunity tax credit (WOTC). The WOTC is currently scheduled to expire on December 31, 2007.
The final cost of the bill has yet to be determined, although it is estimated that it will be in the range of $10 billion over 10 years. With an eye on maintaining fiscal discipline, Baucus said the cost of the measure will be fully offset although it has not been determined which offsets are under consideration. Ranking member of the committee Sen. Charles E. Grassley, R-Iowa, told reporters that they will use offsets considered in the past, with the exception of codification of the economic substance doctrine. Grassley said that coupling a higher federal minimum wage with tax incentives will "help preserve jobs" of employees who work for small businesses. Baucus and Grassley released the text of the bill on January 12.
In another legislative development, Sen. George V. Voinovich, R-Ohio, sent a letter to Senate leadership on January 12 outlining his intention to focus on tax code reform and entitlement programs as a means of bringing the government's fiscal imbalance under control. In the 109th Congress, Rep. Frank R. Wolf, R-Va., and Voinovich introduced parallel legislation, the Securing America's Future Economy (SAFE) Commission Act (Sen 3491 and HR 5552), which would have established a national commission to present long-term solutions for reform of the tax code and ensure the solvency of entitlement programs. The two lawmakers plan to re-introduce the legislation on January 16.
House. House Democrats disregarded the wishes of their Republican colleagues and passed a bill to raise the federal minimum wage to $7.25 per hour over two years, without adding any GOP-favored tax breaks for small businesses or health care. By a vote of 315-116 on January 10, the House approved the Fair Minimum Wage Act of 2007 (HR 2), which was introduced on January 5 by House Education and Labor Committee Chairman George Miller, D-Calif. Eighty-two Republicans voted with Democrats to send the measure to the Senate.
Meanwhile, House Ways and Means Committee Democrats plan to name the lawmakers who will head the panel's subcommittees in the 110th Congress on January 17. Democrats appear likely to choose Rep. Pete Stark, D-Calif., to lead the Subcommittee on Health, Rep. Richard Neal, D-Mass., to lead the Subcommittee on Select Revenue Measures, Rep. Michael McNulty, D-N.Y., to lead the Subcommittee on Social Security, Rep. Jim McDermott, D-Wash., to head the Subcommittee on Human Resources, Rep. John Lewis, D-Ga., to head the Subcommittee on Oversight, and Rep. Sander Levin, D-Mich., to lead the Subcommittee on Trade.
As part of their first "100 Hours" Agenda for the 110th Congress, Ways and Means Chairman Rangel and Natural Resources Committee Chairman Nick J. Rahall, D-W.Va., introduced legislation on January 12 to eliminate the tax benefits and federal oil and gas leasing provisions in the Energy Policy Act of 2005 (P.L. 109-58).
Rangel said the elimination of the tax breaks for oil companies is justified by the excessive profits that the industry reported last year. He said the revenues will be invested in developing alternative energy sources for the nation. The measure, the Creating Long-Term Energy Alternatives for the Nation Bill of 2007 (HR 6), will be voted on by the House on January 18, according to House Majority Leader Steny Hoyer, D-Md.
Rangel said the legislation would also reduce the tax benefits that very large, integrated oil companies receive. The bill would cut the tax breaks available for geological and geophysical costs, such as the cost of discovering new oil and gas reserves in the Gulf of Mexico.
According to the legislation, any federal revenues raised from the energy bill would be held in a separate federal account to be called the "Strategic Energy Efficiency and Renewables Reserve." The funds would be used to accelerate the use of clean domestic renewable energy resources and alternative fuels; promote the utilization of energy-efficient products and practices and conservation; and increase research, development, and deployment of clean renewable energy and efficiency technologies.
IRS
Schedule M-3. A new Schedule M-3 is being developed for taxpayers filing Form 1120-F, U.S. Income Tax Return of a Foreign Corporation, having $10 million or more in U.S. assets. The IRS made the announcement on its website on January 11. Schedule M-3 requires a transaction-by-transaction approach to accumulating and identifying book-tax differences.
The IRS predicted that the changes will enhance transparency and better enable the Service to identify high-risk taxpayers. New Schedule M-3 will be for tax years ending on or after December 31, 2007. A draft of the new schedule will be released by the end of March.
At the same time, the IRS announced it is revising Form 1120-F. The revised form will include three new schedules for interest allocation, home office allocation and partnership interests.
Cost of audits. Pressure to quickly close audits of big corporations is costing the government billions of dollars, The New York Times reported on January 12. "Auditors were told to limit questioning to only those specific issues that the IRS and the companies had agreed in advance to examine. When other questionable deductions emerged in the course of the audit...additional taxes were ignored," the Times
reported.
The Times interviewed approximately 50 IRS auditors. Only one agreed with the IRS policy, "arguing that it was better to audit more companies lightly than a few thoroughly as a strategy to improve compliance with the tax laws."
An IRS spokesperson told CCH that the Service "had nothing to add" to what the Times reported and referred CCH to a November 2006 statement by Commissioner Mark Everson. In that statement, Everson said, "There are a lot of different ways to look at numbers. But no matter how you look at our results, they show a strong rebound in our enforcement efforts. Our enforcement activity is up from the low points following the IRS Restructuring and Reform Act of 1998 (P.L. 105-206) and it has climbed significantly since I became Commissioner three-and-a-half years ago. The bottom line for our enforcement efforts shows that dollars collected rose again last year. There's a strong trend line going up."
Colleen Kelley, president of the National Treasury Employees Union (NTEU), which represents IRS employees, told the Times
that the union "has been hearing complaints since the IRS started the policies of short cycle time and limited-scope audits."
CPA pleads guilty. A California CPA has pleaded guilty to participating in a conspiracy to defraud the U.S. Treasury, evade taxes and file false tax returns; evading his own taxes; and obstructing an IRS investigation, the U.S. Attorney for the Southern District of New York, announced on January 11. The charges relate to the larger tax fraud conspiracy alleged in the pending criminal case of U.S. v. Stein , involving 16 former KPMG employees.
In a written statement, the accountant relayed that a former KPMG partner approached him in 2000 about marketing and implementing tax shelters. "He asked me if I would pose as the independent investment advisor for clients who entered into tax shelter transactions." The accountant also acknowledged that he was instructed to provide "false and misleading statements" to the IRS special agent regarding the tax shelter transactions under investigation.
Sentencing is scheduled for January 16. The accountant faces a maximum sentence of 16 years' incarceration on the charges to which he pleaded guilty.
By Jeff Carlson, Stephen K. Cooper, and George Yaksick, CCH News Staff

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Michigan Supreme Court reversed an appellate court decision (see TAXDAY, 2005/10/12, S.17) holding that a Michigan taxpayer was entitled to rely on a single business tax (SBT) revenue administrative bulletin stating that P.L. 86-272 would apply in determining that the taxpayer did not have sufficient nexus with the state and was immune from taxation. In reinstating the trial court's decision, the Supreme Court relied on the reasons set forth in the appellate court's dissenting opinion that the Michigan Department of Revenue was not estopped from retroactively applying the decision in Gillette Co. v. Department of Treasury , 198 Mich. App. 303 (1993), holding that the SBT was not an income tax and, therefore, the protection of P.L. 86-272 was not applicable. According to the dissenting opinion, revenue administrative bulletins are only interpretations of the applicable statutes and do not have the force of law.
International Home Foods, Inc. v. Department of Treasury , Michigan Supreme Court, Docket Nos. 130542, 130543, January 5, 2007.

CCH (cch.taxgroup.com) reports:

Married taxpayers were required to calculate their income received in the form of stock purchased by exercising a nonstatutory employee stock option using the value of the stock at the time of the exercise. The taxpayers exercised an option to purchase stock in the husband's employer, using funds borrowed from his broker to make the purchase. The loan was repaid at the time the stock was sold. In the interim, the value of the stock had dropped significantly. The taxpayers asserted that they did not acquire a beneficial interest in the stock until they paid off the loan, and so that the income recognized should be determined by the difference between the exercise price and the value at the date the loan was repaid. The court found that the taxpayers did have beneficial ownership, the right to receive dividends and the right to vote the shares upon exercise, and that their capital was at risk under the margin agreement.
CCH Comment. The taxpayers' arguments have been rejected in a number of recent cases. See Racine , Dec. 56,583(M); Facq , Dec. 56,529(M); Hilen , Dec. 56,154(M); Tuff , CA-9, 2007-1 USTC ¶50,103.
Affirming an unreported DC Texas decision.
R. Cidale, CA-5, 2007-1 USTC ¶50,138
Other References:
Code Sec. 83
CCH Reference - 2007FED ¶6390.82
Code Sec. 421
CCH Reference - 2007FED ¶19,606.41
Tax Research Consultant
CCH Reference - TRC COMPEN: 18,106
CCH Reference - TRC COMPEN: 27,106.10

CCH (cch.taxgroup.com) reports:

The IRS has issued initial guidance providing an exception to the general rules of subpart F for certain types of passive income received by a controlled foreign corporation (CFC) from a related person that is also a CFC. In general, this exception provides that dividends, interest, rents, and royalties received or accrued by one CFC from a related CFC is not foreign personal holding company income, as defined in Code Sec. 954(c)(1)(A), to the extent such income is attributable or properly allocable to income of the distributing CFC that is neither subpart F income nor income treated as effectively connected with the conduct of a United States trade or business. The guidance defines the relevant terms (e.g., "dividends", "related person") for purposes of the exception, explains which types of distributions will qualify for the exception and provides anti-abuse rules. Specific rules are provided for partnerships that have one or more partners that are CFCs.
The majority of the rules are effective for taxable years of foreign corporations beginning after December 31, 2005; however, anti-abuse rules applicable to options (or similar instruments) and conduit entities are applicable for taxable years of foreign corporations beginning after December 31, 2006. The IRS and the Treasury Department intends to incorporate this guidance and any future guidance on these issues into formal regulations.
Notice 2007-9, 2007FED ¶46,268
Other References:
Code Sec. 952
CCH Reference - 2007FED ¶28,496.60
Code Sec. 954
CCH Reference - 2007FED ¶28,543.0252
Tax Research Consultant
CCH Reference - TRC INTLOUT: 9,106
CCH Reference - TRC INTLOUT: 9,106.30

CCH (cch.taxgroup.com) reports:

The IRS has ruled that an individual taxpayer who holds a variable annuity or life insurance contract is not treated as the owner of an interest in a regulated investment company (RIC) that funds the variable contract solely because interests in the RIC are also available to investors described in Reg. §1.817-5(f)(3). The individual purchased the variable contract from a life insurance company. All assets funding the variable contract were held in a segregated asset account that invested in the RIC, and all the beneficial interests in the RIC were held by one or more segregated asset accounts of the life insurance company, or by investors described in Reg. §1.817-5(f)(3). In addition, public access to the RIC was available exclusively either through the purchase of a variable contract, or to investors described in Reg. §1.817-5(f)(3).
Generally, in applying the Code Sec. 817(h)(4) look-through rule to determine whether the variable contract segregated account diversification requirements are met, interests held by Reg. §1.817-5(f)(3) investors are ignored. In Rev. Rul. 2003-92, 2003-2 CB 350, the IRS held that a taxpayer who purchased a variable annuity contract was considered the owner for federal tax purposes of partnership interests held by sub-accounts into which the variable contract segregated asset account was divided. The interests in the partnerships were sold in private placement offerings to qualified purchasers, and were, therefore, available for purchase by the general public. The same analysis applied in the case of a variable life insurance contract. In addition, Rev. Rul. 81-225, 1981-2 CB 12, which was clarified and amplified by Rev. Rul. 2003-92, also concluded that a policyholder was considered the owner of mutual fund shares that funded a variable annuity contract in the case where those shares were also available directly or indirectly to the general public.
Because, under the facts of the present ruling, the investors described in Reg. §1.817-5(f)(3) are not members of the general public, interests in the RIC are not available to the general public, and the taxpayer, therefore, is not considered the owner of such an interest.
Rev. Rul. 81-225 and Rev. Rul. 2003-92 are clarified and amplified.
Rev. Rul. 2007-7, 2007FED ¶46,266
Other References:
Code Sec. 61
CCH Reference - 2007FED ¶5704.345
CCH Reference - 2007FED ¶5704.358
Code Sec. 72
CCH Reference - 2007FED ¶6114.48
Code Sec. 816
CCH Reference - 2007FED ¶26,003.798
CCH Reference - 2007FED ¶26,003.80
Code Sec. 817
CCH Reference - 2007FED ¶26,015.15
Tax Research Consultant
CCH Reference - TRC INDIV: 30,068
CCH Reference - TRC INDIV: 30,410
CCH Reference - TRC RETIRE: 66,054

CCH (cch.taxgroup.com) reports:

The Michigan Supreme Court reversed an appellate court decision (see TAXDAY, 2005/10/12, S.17) holding that a Michigan taxpayer was entitled to rely on a single business tax (SBT) revenue administrative bulletin stating that P.L. 86-272 would apply in determining that the taxpayer did not have sufficient nexus with the state and was immune from taxation. In reinstating the trial court's decision, the Supreme Court relied on the reasons set forth in the appellate court's dissenting opinion that the Michigan Department of Revenue was not estopped from retroactively applying the decision in Gillette Co. v. Department of Treasury , 198 Mich. App. 303 (1993), holding that the SBT was not an income tax and, therefore, the protection of P.L. 86-272 was not applicable. According to the dissenting opinion, revenue administrative bulletins are only interpretations of the applicable statutes and do not have the force of law.
International Home Foods, Inc. v. Department of Treasury , Michigan Supreme Court, Docket Nos. 130542, 130543, January 5, 2007.

CCH (cch.taxgroup.com) reports:

Married taxpayers were required to calculate their income received in the form of stock purchased by exercising a nonstatutory employee stock option using the value of the stock at the time of the exercise. The taxpayers exercised an option to purchase stock in the husband's employer, using funds borrowed from his broker to make the purchase. The loan was repaid at the time the stock was sold. In the interim, the value of the stock had dropped significantly. The taxpayers asserted that they did not acquire a beneficial interest in the stock until they paid off the loan, and so that the income recognized should be determined by the difference between the exercise price and the value at the date the loan was repaid. The court found that the taxpayers did have beneficial ownership, the right to receive dividends and the right to vote the shares upon exercise, and that their capital was at risk under the margin agreement.
CCH Comment. The taxpayers' arguments have been rejected in a number of recent cases. See Racine , Dec. 56,583(M); Facq , Dec. 56,529(M); Hilen , Dec. 56,154(M); Tuff , CA-9, 2007-1 USTC ¶50,103.
Affirming an unreported DC Texas decision.
R. Cidale, CA-5, 2007-1 USTC ¶50,138
Other References:
Code Sec. 83
CCH Reference - 2007FED ¶6390.82
Code Sec. 421
CCH Reference - 2007FED ¶19,606.41
Tax Research Consultant
CCH Reference - TRC COMPEN: 18,106
CCH Reference - TRC COMPEN: 27,106.10

CCH (cch.taxgroup.com) reports:

The IRS has issued initial guidance providing an exception to the general rules of subpart F for certain types of passive income received by a controlled foreign corporation (CFC) from a related person that is also a CFC. In general, this exception provides that dividends, interest, rents, and royalties received or accrued by one CFC from a related CFC is not foreign personal holding company income, as defined in Code Sec. 954(c)(1)(A), to the extent such income is attributable or properly allocable to income of the distributing CFC that is neither subpart F income nor income treated as effectively connected with the conduct of a United States trade or business. The guidance defines the relevant terms (e.g., "dividends", "related person") for purposes of the exception, explains which types of distributions will qualify for the exception and provides anti-abuse rules. Specific rules are provided for partnerships that have one or more partners that are CFCs.
The majority of the rules are effective for taxable years of foreign corporations beginning after December 31, 2005; however, anti-abuse rules applicable to options (or similar instruments) and conduit entities are applicable for taxable years of foreign corporations beginning after December 31, 2006. The IRS and the Treasury Department intends to incorporate this guidance and any future guidance on these issues into formal regulations.
Notice 2007-9, 2007FED ¶46,268
Other References:
Code Sec. 952
CCH Reference - 2007FED ¶28,496.60
Code Sec. 954
CCH Reference - 2007FED ¶28,543.0252
Tax Research Consultant
CCH Reference - TRC INTLOUT: 9,106
CCH Reference - TRC INTLOUT: 9,106.30

CCH (cch.taxgroup.com) reports:

The IRS has ruled that an individual taxpayer who holds a variable annuity or life insurance contract is not treated as the owner of an interest in a regulated investment company (RIC) that funds the variable contract solely because interests in the RIC are also available to investors described in Reg. §1.817-5(f)(3). The individual purchased the variable contract from a life insurance company. All assets funding the variable contract were held in a segregated asset account that invested in the RIC, and all the beneficial interests in the RIC were held by one or more segregated asset accounts of the life insurance company, or by investors described in Reg. §1.817-5(f)(3). In addition, public access to the RIC was available exclusively either through the purchase of a variable contract, or to investors described in Reg. §1.817-5(f)(3).
Generally, in applying the Code Sec. 817(h)(4) look-through rule to determine whether the variable contract segregated account diversification requirements are met, interests held by Reg. §1.817-5(f)(3) investors are ignored. In Rev. Rul. 2003-92, 2003-2 CB 350, the IRS held that a taxpayer who purchased a variable annuity contract was considered the owner for federal tax purposes of partnership interests held by sub-accounts into which the variable contract segregated asset account was divided. The interests in the partnerships were sold in private placement offerings to qualified purchasers, and were, therefore, available for purchase by the general public. The same analysis applied in the case of a variable life insurance contract. In addition, Rev. Rul. 81-225, 1981-2 CB 12, which was clarified and amplified by Rev. Rul. 2003-92, also concluded that a policyholder was considered the owner of mutual fund shares that funded a variable annuity contract in the case where those shares were also available directly or indirectly to the general public.
Because, under the facts of the present ruling, the investors described in Reg. §1.817-5(f)(3) are not members of the general public, interests in the RIC are not available to the general public, and the taxpayer, therefore, is not considered the owner of such an interest.
Rev. Rul. 81-225 and Rev. Rul. 2003-92 are clarified and amplified.
Rev. Rul. 2007-7, 2007FED ¶46,266
Other References:
Code Sec. 61
CCH Reference - 2007FED ¶5704.345
CCH Reference - 2007FED ¶5704.358
Code Sec. 72
CCH Reference - 2007FED ¶6114.48
Code Sec. 816
CCH Reference - 2007FED ¶26,003.798
CCH Reference - 2007FED ¶26,003.80
Code Sec. 817
CCH Reference - 2007FED ¶26,015.15
Tax Research Consultant
CCH Reference - TRC INDIV: 30,068
CCH Reference - TRC INDIV: 30,410
CCH Reference - TRC RETIRE: 66,054

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Legislation has been introduced to conform Washington law to the requirements of the Streamlined Sales and Use Tax (SST) Agreement, effective July 1, 2008. Partial conformity was achieved several years ago with enactment of Ch. 168 (S.B. 5783), Laws 2003. However, that legislation failed to make several required changes, most significant of which was the switch to destination-based sourcing of sales. This change was opposed by some local governments that feared the revenue consequences, and by some small businesses that objected to the compliance costs. As a result, attempts to pass full conformity in subsequent years foundered. However, most commentators expect the attempt to succeed in the current session, and that Washington will become a member of the SST Governing Board thereafter.
In addition to making the required conforming changes to the state's sales tax laws, the legislation would create a mitigation account, funded from general revenues, from which distributions would be made to local taxing jurisdictions adversely affected by the change to destination-based sourcing. The legislation would also provide relief for small businesses making deliveries from the effect of the sourcing changes. These businesses would be absolved, for a period of four years, from interest or penalties for errors in collecting or remitting the correct amount of local sales tax arising from the sourcing changes. Furthermore, these businesses could use a certified service provider (CSP) at no cost to themselves for two years, or claim a credit, of up to $1,000, for the costs of complying with the changes in local tax sourcing.
The legislation was introduced in both houses in identical bills. The Senate Ways and Means Committee has already scheduled a public hearing for January 11, 2007, in anticipation of further action.
Subscribers to CCH Tax Research NetWork can view the House bill.
H.B. 1072, as introduced January 9, 2007; S.B. 5089, as introduced January 10, 2007

CCH (cch.taxgroup.com) reports:

The IRS has issued proposed regulations related to the release-of-lien and discharge-of -property rules for third-party owners under Code Secs. 6325, 6503 and 7426. The proposed regulations incorporate changes made by the IRS Restructuring and Reform Act of 1998 (P.L. 105-206) that provide a statutory mechanism for (1) a person other than the person against whom the underlying tax was assessed (i.e., a third-party owner) to obtain a discharge of a federal tax lien upon the furnishing of a deposit or bond, and (2) the IRS or the courts to determine the disposition of the deposit or bond amount. The proposed regulations contain procedures for processing a request for a certificate of discharge of a federal tax lien under Code Sec. 6325(b)(4). Additionally, the proposed regulations clarify the effect of these procedures on the collections limitations period tolling provisions of Code Sec. 6503(f)(2), and on the judicial remedy provisions of Code Sec. 7426(a)(4) and Code Sec. 7426(b)(5). The regulations are proposed to be effective for any release of lien or discharge of property that is requested after the date the regulations are published as final in the Federal Register.
The proposed regulations address the release of liens, the discharge of property, suspension of the running of the limitations period, civil actions, and the IRS's use of a deposit or bond if judicial action not filed.
Release of Lien
Under existing final regulations, the IRS "may" issue a certificate of release of lien within 30 days of the satisfaction of certain conditions. In keeping with the language of Code Sec. 6325(a), the proposed regulations change "may" to "shall."
Discharge of Property
The proposed regulations provide that a certificate of discharge must be issued if the third-party owner submits a proper request and either deposits an appropriate amount or furnishes an acceptable bond. The person seeking a certificate of discharge must submit an application in writing to the local IRS official responsible for collection of the tax at issue, and the application must contain any information the official may require.
Under the proposed regulations, a request for a certificate of discharge made by a third-party owner will be viewed as a request under Code Sec. 6325(b)(4), rather than Code Sec. 6325(b)(2), and any amount the IRS receives from a third-party owner following a discharge request will be viewed as a deposit made under Code Sec. 6325(b)(4), unless the owner requests otherwise. The advantage to the third-party owner if the certificate of discharged is granted under Code Sec. 6325(b)(4) is that the amount is treated as a deposit rather than a payment to be immediately credited to the taxpayer's account. Also, the third-party owner will have the right to pursue a civil action regarding the IRS's determination of the value of the lien to the United States.
The proposed regulations provide that, in valuing the interest of the United States, the appropriate official of the IRS may give consideration to the forced sale value of the property in appropriate cases.
Under Code Sec. 6325(b)(4)(, the IRS is to refund the amount deposited, with interest at the overpayment rate, and release the bond, to the extent the IRS determines that either: (1) the unsatisfied tax liability giving rise to the lien can be satisfied from a source other than the third-party owner's property; or (2) the value of the United States' interest in the property is less than the IRS' prior determination of such value. The proposed regulations specify that any request for a refund of a deposit or release of a bond must be in writing and must contain the information required by the appropriate IRS publication. The proposed regulations clarify that the phrase "unsatisfied tax liability giving rise to the lien" refers to the entire tax liability listed on the notice of federal tax lien, not just the portion of the liability equal to the value of the United States' interest in the third-party owner's property.
Civil Actions
Code Sec. 7426(a)(4) provides that a person to whom a certificate of discharge has been issued under Code Sec. 6325(b)(4) with respect to any property, may within 120 days after the day the certificate is issued, bring a civil action in federal district court for a determination of whether the value of the interest of the United States in such property is less than the value determined by the IRS. The proposed regulations clarify that the only allowable basis for a judicial determination is that the value of the interest of the United State in the property is less than the value as determined by the IRS. The proposed regulations emphasize that this is the exclusive judicial remedy available to a third-party owner. Further, the proposals provide that an administrative request for refund of a deposit or release of a bond made under Code Sec. 6325(b)(4)( does not affect the running of the 120-day period for bringing a civil suit.
Deposit of Bond
Under Code Sec. 6325(b)(4)(C), the IRS has 60 days after expiration of the 120-day limitation period for bringing a civil suit to apply the amount deposited (or collect on the bond furnished) to the extent necessary to satisfy the unsatisfied liability secured by the lien, and refund with interest any portion of the amount deposited that is not used to satisfy such liability. The proposed regulations enable the IRS to take these actions after this maximum time period has expired, although failure to act within the statutory timeframe results in the IRS not being able to charge the taxpayer interest and penalties on the amount, and the IRS will pay the third-party owner interest on any refund that should have been paid within the timeframe until it is paid.
Limitations Period
Under Code Sec. 6503(f)(2), in the case of any assessment for which a lien was filed on any property, the running of the period for collecting the assessed tax liability is suspended from the day any person becomes entitled to a certificate of discharge under Code Sec. 6325(b)(4), until the date that is 30 days after the earlier of the earliest date on which the IRS no longer holds any amount as a deposit or bond because the deposit or bond either has been used or refunded, or the date that a judgment obtained under Code Sec. 7426(b)(f) becomes final. The proposed regulations provide that, for these purposes, the deposit or bond is deemed processed no later than 60 days after the expiration of the 180-day period after the issuance of a certificate of discharge. Accordingly, if the deposit or bond is not processed within the 180-day period, the running of the collection statue ceases to be suspended as of 90 days (60 days, plus the 30 days afforded by Code Sec. 6503(f)(2) after the 120-day period ends). Thus, the period for collection resumes running 31 days after the 180 days have passed.
Comments and Hearing
Written or electronic comments and requests for a public hearing must be received by April 11, 2007. The IRS and Treasury Department request comments on the clarity or the proposed rules and how they may be made easier to understand. Send submissions to: CC: PA: LPD: PR (REG-159444-04), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044. They may also be delivered Monday through Friday between the hours of 8:00 a.m. and 4:00 p.m. to CC: PA: LPD: PR (REG-159444-04), courier's desk, Internal Revenue Service, 1111 Constitution Ave. NW., Washington, D.C. Comments can be sent electronically, via the IRS Internet site at http://www.irs.gov/regs or via the Federal eRulemaking Portal at http://www.regulations.gov.
Proposed Regulations, NPRM REG-159444-04, 2007FED ¶49,728
Proposed Regulations, NPRM REG-159444-04, FINH ¶41,122
Other References:
Code Sec. 6325
CCH Reference - 2007FED ¶38,166C
CCH Reference - FINH ¶21,127
Code Sec. 6503
CCH Reference - 2007FED ¶39,036C
CCH Reference - FINH ¶21,487
Code Sec. 7426
CCH Reference - 2007FED ¶41,712A
CCH Reference - FINH ¶22,347
Tax Research Consultant
CCH Reference - TRC IRS: 48,200

CCH (cch.taxgroup.com) reports:

The Treasury Department and the IRS issued a notice January 10 providing extensive guidance on several Pension Protection Act of 2006 (PPA) (P.L. 109-280) rules relating to distributions from tax-qualified retirement plans. The guidance addresses several questions on PPA
provisions, including: interest rate assumptions for lump sum distributions, hardship distributions from a Code Sec. 401(k) and similar plans, early distributions from qualified plans to terminated public safety employees, and rollovers from qualified plans to IRAs for non-spouse beneficiaries.
In addition, the guidance addresses distributions to pay for health insurance for retired public safety officers, earlier vesting of certain employer contributions and new rules for the notice and consent period for distributions. The notice also clarifies several issues concerning the provision permitting IRA owners age 70 1/2 or older to directly transfer tax-free, up to $100,000 per year to an eligible charity.
IR-2007-7, 2007FED ¶46,264
Notice 2007-7, 2007FED ¶46,265
Other References:
Code Sec. 72
CCH Reference - 2007FED ¶6140.0457
CCH Reference - 2007FED ¶6140.0682
Code Sec. 401
CCH Reference - 2007FED ¶17,509.63
Code Sec. 402
CCH Reference - 2007FED ¶18,207.185
Code Sec. 408
CCH Reference - 2007FED ¶18,922.0326
CCH Reference - 2007FED ¶18,922.0363
CCH Reference - 2007FED ¶18,922.745
Code Sec. 411
CCH Reference - 2007FED ¶19,076.026
Code Sec. 415
CCH Reference - 2007FED ¶19,218.13
Tax Research Consultant
CCH Reference - TRC RETIRE: 3,302
CCH Reference - TRC RETIRE: 18,100
CCH Reference - TRC RETIRE: 42,176.25
CCH Reference - TRC RETIRE: 42,554.20
CCH Reference - TRC RETIRE: 66,806

CCH (cch.taxgroup.com) reports:

Legislation has been introduced to conform Washington law to the requirements of the Streamlined Sales and Use Tax (SST) Agreement, effective July 1, 2008. Partial conformity was achieved several years ago with enactment of Ch. 168 (S.B. 5783), Laws 2003. However, that legislation failed to make several required changes, most significant of which was the switch to destination-based sourcing of sales. This change was opposed by some local governments that feared the revenue consequences, and by some small businesses that objected to the compliance costs. As a result, attempts to pass full conformity in subsequent years foundered. However, most commentators expect the attempt to succeed in the current session, and that Washington will become a member of the SST Governing Board thereafter.
In addition to making the required conforming changes to the state's sales tax laws, the legislation would create a mitigation account, funded from general revenues, from which distributions would be made to local taxing jurisdictions adversely affected by the change to destination-based sourcing. The legislation would also provide relief for small businesses making deliveries from the effect of the sourcing changes. These businesses would be absolved, for a period of four years, from interest or penalties for errors in collecting or remitting the correct amount of local sales tax arising from the sourcing changes. Furthermore, these businesses could use a certified service provider (CSP) at no cost to themselves for two years, or claim a credit, of up to $1,000, for the costs of complying with the changes in local tax sourcing.
The legislation was introduced in both houses in identical bills. The Senate Ways and Means Committee has already scheduled a public hearing for January 11, 2007, in anticipation of further action.
Subscribers to CCH Tax Research NetWork can view the House bill.
H.B. 1072, as introduced January 9, 2007; S.B. 5089, as introduced January 10, 2007

CCH (cch.taxgroup.com) reports:

The IRS has issued proposed regulations related to the release-of-lien and discharge-of -property rules for third-party owners under Code Secs. 6325, 6503 and 7426. The proposed regulations incorporate changes made by the IRS Restructuring and Reform Act of 1998 (P.L. 105-206) that provide a statutory mechanism for (1) a person other than the person against whom the underlying tax was assessed (i.e., a third-party owner) to obtain a discharge of a federal tax lien upon the furnishing of a deposit or bond, and (2) the IRS or the courts to determine the disposition of the deposit or bond amount. The proposed regulations contain procedures for processing a request for a certificate of discharge of a federal tax lien under Code Sec. 6325(b)(4). Additionally, the proposed regulations clarify the effect of these procedures on the collections limitations period tolling provisions of Code Sec. 6503(f)(2), and on the judicial remedy provisions of Code Sec. 7426(a)(4) and Code Sec. 7426(b)(5). The regulations are proposed to be effective for any release of lien or discharge of property that is requested after the date the regulations are published as final in the Federal Register.
The proposed regulations address the release of liens, the discharge of property, suspension of the running of the limitations period, civil actions, and the IRS's use of a deposit or bond if judicial action not filed.
Release of Lien
Under existing final regulations, the IRS "may" issue a certificate of release of lien within 30 days of the satisfaction of certain conditions. In keeping with the language of Code Sec. 6325(a), the proposed regulations change "may" to "shall."
Discharge of Property
The proposed regulations provide that a certificate of discharge must be issued if the third-party owner submits a proper request and either deposits an appropriate amount or furnishes an acceptable bond. The person seeking a certificate of discharge must submit an application in writing to the local IRS official responsible for collection of the tax at issue, and the application must contain any information the official may require.
Under the proposed regulations, a request for a certificate of discharge made by a third-party owner will be viewed as a request under Code Sec. 6325(b)(4), rather than Code Sec. 6325(b)(2), and any amount the IRS receives from a third-party owner following a discharge request will be viewed as a deposit made under Code Sec. 6325(b)(4), unless the owner requests otherwise. The advantage to the third-party owner if the certificate of discharged is granted under Code Sec. 6325(b)(4) is that the amount is treated as a deposit rather than a payment to be immediately credited to the taxpayer's account. Also, the third-party owner will have the right to pursue a civil action regarding the IRS's determination of the value of the lien to the United States.
The proposed regulations provide that, in valuing the interest of the United States, the appropriate official of the IRS may give consideration to the forced sale value of the property in appropriate cases.
Under Code Sec. 6325(b)(4)(, the IRS is to refund the amount deposited, with interest at the overpayment rate, and release the bond, to the extent the IRS determines that either: (1) the unsatisfied tax liability giving rise to the lien can be satisfied from a source other than the third-party owner's property; or (2) the value of the United States' interest in the property is less than the IRS' prior determination of such value. The proposed regulations specify that any request for a refund of a deposit or release of a bond must be in writing and must contain the information required by the appropriate IRS publication. The proposed regulations clarify that the phrase "unsatisfied tax liability giving rise to the lien" refers to the entire tax liability listed on the notice of federal tax lien, not just the portion of the liability equal to the value of the United States' interest in the third-party owner's property.
Civil Actions
Code Sec. 7426(a)(4) provides that a person to whom a certificate of discharge has been issued under Code Sec. 6325(b)(4) with respect to any property, may within 120 days after the day the certificate is issued, bring a civil action in federal district court for a determination of whether the value of the interest of the United States in such property is less than the value determined by the IRS. The proposed regulations clarify that the only allowable basis for a judicial determination is that the value of the interest of the United State in the property is less than the value as determined by the IRS. The proposed regulations emphasize that this is the exclusive judicial remedy available to a third-party owner. Further, the proposals provide that an administrative request for refund of a deposit or release of a bond made under Code Sec. 6325(b)(4)( does not affect the running of the 120-day period for bringing a civil suit.
Deposit of Bond
Under Code Sec. 6325(b)(4)(C), the IRS has 60 days after expiration of the 120-day limitation period for bringing a civil suit to apply the amount deposited (or collect on the bond furnished) to the extent necessary to satisfy the unsatisfied liability secured by the lien, and refund with interest any portion of the amount deposited that is not used to satisfy such liability. The proposed regulations enable the IRS to take these actions after this maximum time period has expired, although failure to act within the statutory timeframe results in the IRS not being able to charge the taxpayer interest and penalties on the amount, and the IRS will pay the third-party owner interest on any refund that should have been paid within the timeframe until it is paid.
Limitations Period
Under Code Sec. 6503(f)(2), in the case of any assessment for which a lien was filed on any property, the running of the period for collecting the assessed tax liability is suspended from the day any person becomes entitled to a certificate of discharge under Code Sec. 6325(b)(4), until the date that is 30 days after the earlier of the earliest date on which the IRS no longer holds any amount as a deposit or bond because the deposit or bond either has been used or refunded, or the date that a judgment obtained under Code Sec. 7426(b)(f) becomes final. The proposed regulations provide that, for these purposes, the deposit or bond is deemed processed no later than 60 days after the expiration of the 180-day period after the issuance of a certificate of discharge. Accordingly, if the deposit or bond is not processed within the 180-day period, the running of the collection statue ceases to be suspended as of 90 days (60 days, plus the 30 days afforded by Code Sec. 6503(f)(2) after the 120-day period ends). Thus, the period for collection resumes running 31 days after the 180 days have passed.
Comments and Hearing
Written or electronic comments and requests for a public hearing must be received by April 11, 2007. The IRS and Treasury Department request comments on the clarity or the proposed rules and how they may be made easier to understand. Send submissions to: CC: PA: LPD: PR (REG-159444-04), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044. They may also be delivered Monday through Friday between the hours of 8:00 a.m. and 4:00 p.m. to CC: PA: LPD: PR (REG-159444-04), courier's desk, Internal Revenue Service, 1111 Constitution Ave. NW., Washington, D.C. Comments can be sent electronically, via the IRS Internet site at http://www.irs.gov/regs or via the Federal eRulemaking Portal at http://www.regulations.gov.
Proposed Regulations, NPRM REG-159444-04, 2007FED ¶49,728
Proposed Regulations, NPRM REG-159444-04, FINH ¶41,122
Other References:
Code Sec. 6325
CCH Reference - 2007FED ¶38,166C
CCH Reference - FINH ¶21,127
Code Sec. 6503
CCH Reference - 2007FED ¶39,036C
CCH Reference - FINH ¶21,487
Code Sec. 7426
CCH Reference - 2007FED ¶41,712A
CCH Reference - FINH ¶22,347
Tax Research Consultant
CCH Reference - TRC IRS: 48,200

CCH (cch.taxgroup.com) reports:

The Treasury Department and the IRS issued a notice January 10 providing extensive guidance on several Pension Protection Act of 2006 (PPA) (P.L. 109-280) rules relating to distributions from tax-qualified retirement plans. The guidance addresses several questions on PPA
provisions, including: interest rate assumptions for lump sum distributions, hardship distributions from a Code Sec. 401(k) and similar plans, early distributions from qualified plans to terminated public safety employees, and rollovers from qualified plans to IRAs for non-spouse beneficiaries.
In addition, the guidance addresses distributions to pay for health insurance for retired public safety officers, earlier vesting of certain employer contributions and new rules for the notice and consent period for distributions. The notice also clarifies several issues concerning the provision permitting IRA owners age 70 1/2 or older to directly transfer tax-free, up to $100,000 per year to an eligible charity.
IR-2007-7, 2007FED ¶46,264
Notice 2007-7, 2007FED ¶46,265
Other References:
Code Sec. 72
CCH Reference - 2007FED ¶6140.0457
CCH Reference - 2007FED ¶6140.0682
Code Sec. 401
CCH Reference - 2007FED ¶17,509.63
Code Sec. 402
CCH Reference - 2007FED ¶18,207.185
Code Sec. 408
CCH Reference - 2007FED ¶18,922.0326
CCH Reference - 2007FED ¶18,922.0363
CCH Reference - 2007FED ¶18,922.745
Code Sec. 411
CCH Reference - 2007FED ¶19,076.026
Code Sec. 415
CCH Reference - 2007FED ¶19,218.13
Tax Research Consultant
CCH Reference - TRC RETIRE: 3,302
CCH Reference - TRC RETIRE: 18,100
CCH Reference - TRC RETIRE: 42,176.25
CCH Reference - TRC RETIRE: 42,554.20
CCH Reference - TRC RETIRE: 66,806

CCH (cch.taxgroup.com) reports:

The U.S. House of Representatives has joined the Senate in approving a seven-year extension of the moratorium on state and local Internet access taxes. The President is expected to sign the legislation once it reaches his desk. The moratorium was originally enacted in 1998 and, after having been renewed in 2001 and 2004, was set to expire on November 1, 2007. The House accepted unanimously the Senate amendments made to the bill that originally passed the House on October 16. Attempts to make the prohibition permanent were unsuccessful, despite support from many lawmakers and the Administration.
The legislation on its way to the President, the Internet Tax Freedom Act Amendments Act of 2007, includes the following provisions.
-- The moratorium on state and local taxes on Internet access and multiple or discriminatory taxes on electronic commerce that was originally enacted in October 1998 is extended until November 1, 2014.
-- The grandfather clause that permits Internet access taxes that were generally imposed and actually enforced prior to October 1, 1998, is also extended until November 1, 2014. However, the grandfather clause will not apply to any state that has, more than 24 months prior to the enactment of this legislation, repealed its tax on Internet access or issued a rule that it no longer applies such a tax.
-- State and local governments that continue to impose tax on telecommunications service purchased, used, or sold by a provider of Internet access have until June 30, 2008, to end these disputed taxes. However, this provision only operates if a public ruling applying such a tax was issued prior to July 1, 2007, or such a tax is the subject of litigation that was begun prior to July 1, 2007. Some states claim that taxes they impose on telecommunications service were grandfathered by Congress in the 2004 renewal of the moratorium. This provision and the revised definition of "Internet access" (discussed below) is intended to resolve these issues and end state and local taxation of telecommunications service purchased by Internet service providers to connect their customers to the Internet (so-called "backbone" services). According to the Congressional Budget Office, as many as eight states (Alabama, Florida, Illinois, Minnesota, Missouri, New Hampshire, Pennsylvania, and Washington) and several local governments in those states are currently collecting such taxes and will lose revenue as a result of this prohibition.
-- A new definition of "Internet access" is enacted. It means a service that enables users to connect to the Internet to access content, information, or other services. The definition includes the purchase, use, or sale of telecommunications by an Internet service provider to provide the service or otherwise enable users to access content, information, or other services offered over the Internet. It also includes incidental services such as home pages, electronic mail, instant messaging, video clips, and personal electronic storage capacity, whether or not packaged with service to access the Internet. However, "Internet access" does not include voice, audio or video programming, or other products and services using Internet protocol for which there is a charge, regardless of whether the charge is bundled with charges for "Internet access."
-- The moratorium is amended to clarify that it does not apply to state general business taxes, such as gross receipts taxes, that are structured in such a way as to be a substitute for or supplement the state corporate income tax. Therefore, Internet access providers may still be taxed on their receipts attributable to providing access under tax regimes such as the Michigan business tax, Ohio commercial activity tax, Texas margin tax, and Washington business and occupation tax.
Subscribers to CCH Tax Research NetWork can view the text of the legislation agreed to by the House.
H.R. 3678, as agreed to by the U.S. House of Representatives, October 30, 2007.

CCH (cch.taxgroup.com) reports:

The estate of a deceased taxpayer, which was allowed to substitute for the taxpayer in a Collection Due Process (CDP) appeal, did not establish abuse of discretion in the IRS' rejection of the taxpayer's installment agreement request, and could not challenge the underlying liability since that issue was never raised during the prior CDP hearing. The taxpayer was not current on his estimated tax payments which, under IRS guidelines, was required as a condition to entering into an installment agreement; therefore, the IRS Appeals officer did not abuse her discretion in rejecting the proposed installment agreement.
Although the taxpayer's wife, acting as executrix of his estate, claimed the taxpayer overstated his income and failed to deduct alleged payments in order to conceal unlawful activities, such issues were never raised in the CDP hearing. In accordance with Reg. §301.6320-1(f)(2), there was no authority or jurisdiction to consider these issues for the first time on appeal.
In a prior decision, R.B. Magana, Dec. 54,765, the possibility was left open in unusual cases of considering issues on appeal not raised during the CDP hearing. However, if the issue of the underlying liability is never considered by Appeals, there is no basis on which to conclude that Appeals' discretion has been abused and, therefore, no authority to consider the issue.
In one of three separate dissenting opinions, in which four judges concurred, the basis for applying an "abuse of discretion" standard of review was questioned because no such language appears in the code sections governing CDP appeals. This dissent argued in favor of retaining the latitude contemplated by Magana
to consider special circumstances, and concluded that, because of the unusual circumstances of the taxpayer's death, the underlying liability should have been considered.
J. Giamelli, 129 TC No. 14, Dec. 57,155
Other References:
Code Sec. 6320
CCH Reference - 2007FED ¶38,134.028
Code Sec. 6330
CCH Reference - 2007FED ¶38,184.50
CCH Reference - 2007FED ¶38,184.60
Tax Research Consultant
CCH Reference - TRC IRS: 51,056.25
CCH Reference - TRC LITIG: 6,136.25

CCH (cch.taxgroup.com) reports:

House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., is moving ahead with his plans to pass a bill that grants 23 million taxpayers relief from the alternative minimum tax (AMT) for one year. On October 30, Rangel introduced the Temporary Tax Relief Bill of 2007 (HR 3996), a bill that will be marked up by the committee on November 2 and is likely to move swiftly to the House floor for a vote. The measure also includes the extension of a host of expiring business and individual tax provisions known as the extenders.
"While this legislation provides critical tax relief to middle-class families, we must do so without adding to the deficit and forcing future generations to pay for the decisions we make today," said Rangel. The chairman plans to unveil the complete list of revenue offsets for the legislation at the committee markup.
The bill would provide AMT relief for nonrefundable personal credits, and it would increase the AMT exemption amount to $66,250 for joint filers and $44,350 for individuals. According to committee estimates, the AMT relief would cost $50.59 billion over 10 years.
The bill would also extend the research and development tax credit, the new markets tax credit and the deduction for state and local sales taxes. It would also provide mortgage forgiveness debt relief, extend the deduction for mortgage insurance, and repeal the authority of the IRS to use private debt collectors.
White House Response
President Bush lashed out at Congress for proposing "an endless series of tax increases" to pay for the AMT patch and other significant pieces of legislation, including the farm bill, energy tax legislation and a proposed expansion of the State Children's Health Insurance Program (SCHIP). Following a White House meeting with GOP congressional leaders on October 30, Bush strongly criticized federal lawmakers for failing to send him "a single appropriations bill," including the measure to provide fiscal year 2008 funding for the IRS and Treasury Department.
The continuing appropriations resolution (HJRes 52) temporarily funds all federal government operations and a short-term expansion of the SCHIP program through November 16. The stopgap measure funds the government at a pro-rated portion of the 2007 budget approved by Congress. The IRS's budget for fiscal year (FY) 2007 totaled $10.6 billion.
The IRS would operate at a pro-rated portion of this amount. The IRS's 2007 budget included $3.6 billion for taxpayer service; $4.66 billion for enforcement, $282 million for business systems modernization, and $116 million for tax research (TAXDAY, 2007/10/01, C.2).
By Stephen K. Cooper and Paula Cruickshank
Temporary Tax Relief Act of 2007, HR 3996
Temporary Tax Relief Act of 2007, Summary
House Ways and Means Committee Release: Ways And Means to Consider AMT Relief Bill
Statement by President Bush on Spending Bills

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The California Franchise Tax Board (FT has announced that taxpayers impacted by the October 2007 wildfires in any of the federally declared disaster areas in Santa Barbara, Ventura, Los Angeles, San Bernardino, Orange, Riverside, and San Diego counties who have California corporation franchise or income or personal income tax returns, payments, or other time sensitive acts due from October 21, 2007, through January 31, 2008, will be allowed an automatic postponement through January 31, 2008. This includes the estimated tax payment for the fourth quarter, normally due on January 15. This matches the postponement periods announced by the Internal Revenue Service (IRS) in IRS News Release IR-2007-178.
As previously reported (TAXDAY, 2007/10/25, S.4), taxpayers are also allowed to claim a disaster loss in the tax year the disaster occurred (on the 2007 tax returns that taxpayers will file next spring) or in the year before the disaster occurred (by amending 2006 tax returns). The advantage of claiming a disaster loss in the prior year is that FTB can quickly issue a refund.
If taxpayers impacted by the wildfires need copies of state tax returns to replace lost or damaged ones, they should complete Form FTB 3516, Request for Copy of Tax Return, and print "Southern California Wildfires 2007" in red at the top of the request. Disaster victims will receive free copies of their state tax returns.
Subscribers to CCH Tax Research NetWork can view the text of the new release.
News Release, California Franchise Tax Board, October 29, 2007.

CCH (cch.taxgroup.com) reports:

The IRS has changed its policy and provided interim guidance for estates making a Code Sec. 6166 election to pay all or part of the estate tax in installments. In order to protect the government's interest in the deferred estate tax, the IRS had required that, when making a Code Sec. 6166 election, an estate must post a surety bond or grant the IRS a Code Sec. 6324A special extended lien. However, the Tax Court in E. Roski, Sr. Est. , 128 TC 113 Dec. 56,896, determined that the IRS had abused its discretion by requiring that every estate provide a bond or special tax lien to qualify for the Code Sec. 6166 election. The court found that it was Congress's intent that the IRS would evaluate on a case-by-case basis whether the bond or special tax lien requirements were necessary.
Until the IRS and the Treasury Department establish criteria to identify the estates that are at risk of not making the deferred payments, the IRS will consider the following non-exclusive factors: (1) the duration and stability of the closely held business on which the estate tax is differed; (2) the estate's ability to pay installments of tax and interest timely; and (3) the estate's compliance history. The notice applies to each estate: (1) that timely elects to pay the estate tax in installments and timely files a return on or after November 13, 2007; (2) whose return was being classified, surveyed or audited by the IRS as of April 12, 2007; or (3) that is currently in the deferral period but has not yet provided a bond or special lien if the general estate tax lien will expire within two years from November 13, 2007 or there is a reasonable belief that the collection of the tax and interest is sufficiently at risk to require a bond or special lien.
The Treasury Department and the IRS plan to issue regulations concerning the appropriate standards to be applied by the IRS and invite comments regarding such standards. Specifically, comments are requested concerning the following: (1) what additional factors the IRS should use in determining whether an estate should be required to provide a bond or special lien; (2) how frequently should the IRS reevaluate whether the estate poses a significant credit risk to the government's collection; (3) which facts are likely to be accurate predictors of future default of the differed tax payments and related interest; (4) what additional financial information the IRS should request from the estate in order to make its determination; and (5) whether the IRS should define surety bond to include other forms of security and what forms should be added.
Written and electronic comments are encouraged to be submitted by January 14, 2008. Written comments should be sent to IRS CC PA LPD PR (Notice 2007-90), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20224. They may also be hand-delivered to the IRS Courier's Desk. Electronic comments can be submitted to notice.comments@irscounsel.treas.gov (indicate Notice 2007-90).
Notice 2007-90, FINH ¶30,565
Other References:
Code Sec. 6165
CCH Reference - FINH ¶20,642.20
Code Sec. 6166
CCH Reference - FINH ¶20,665.70
Code Sec. 6324A
CCH Reference - FINH ¶21,085.40
Tax Research Consultant
CCH Reference - TRC ESTGIFT: 51,166
CCH Reference - TRC ESTGIFT: 51,210

CCH (cch.taxgroup.com) reports:

The IRS has extended tax return filing and payment deadlines for victims of the Southern California wildfires. Taxpayers in the presidentially declared disaster area consisting of Los Angeles, Orange, Riverside, San Bernardino, San Diego, Santa Barbara and Ventura counties will have until January 31, 2008, to file returns, pay taxes and perform other time-sensitive acts. The extended deadline applies to items due on or after October 21, 2007, when the fires began, and on or before January 31, 2008. This includes the federal withholding tax return, Form 941, normally due October 31, and the estimated tax payment for the fourth quarter, normally due January 15. In addition, the IRS is waiving the failure to deposit penalty for employment and excise deposits due on or after October 21, 2007, and on or before November 5, 2007, as long as the deposits are made by November 5, 2007.
Affected taxpayers who receive a penalty notice from the IRS should call the number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply during the period from October 21, 2007, to January 31, 2008, or October 21, 2007, through November 5, 2007, for failure to deposit penalties. No penalty or interest will be abated for taxpayers that do not have a filing, payment or deposit due date, including an extended filing or payment due date, during this period.
IRS computer systems automatically identify taxpayers located in the covered disaster area and apply automatic filing and payment relief. Thus, taxpayers within the covered disaster area do not need to identify themselves as affected by the wildfires by writing on their returns or using the disaster designation in their tax software. However, affected taxpayers who reside or have a business located outside the covered disaster area are required to call the IRS disaster hotline at 1-866-562-5227 to identify themselves as eligible for disaster relief.
Affected taxpayers also have the option of claiming disaster-related casualty losses on their federal income tax returns for either 2007 or 2006. In addition, affected taxpayers who claim the disaster loss on their 2006 returns should put the disaster designation "California Wildfires" at the top of the form so that the IRS can expedite the processing of the refund.
IR-2007-178, 2007FED ¶46,693
IR-2007-178, FINH ¶30,566
Other References:
Code Sec. 6081
CCH Reference - 2007FED ¶36,789.213
CCH Reference - FINH ¶20,345.75
CCH Reference - FINH ¶20,355.50
Code Sec. 6161
CCH Reference - FINH ¶20,585.35
Code Sec. 7508A
CCH Reference - 2007FED ¶42,687C.22
CCH Reference - FINH ¶22,560.30
Tax Research Consultant
CCH Reference - TRC FILEIND: 15,204.25
CCH Reference - TRC FILEBUS: 15,110

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The U.S. Senate has passed legislation that would extend for seven years the existing moratorium on state and local Internet access taxes, which is currently set to expire on November 1, 2007. The U.S. House of Representatives previously passed a four-year extension. (TAXDAY, 2007/10/17, S.2) The houses must now reconcile their differences before the legislation can go to the President for his expected signature.
The Senate passed the legislation it had received from the House after amending it in the following manner.
-- The moratorium on state and local taxes on Internet access and multiple or discriminatory taxes on electronic commerce that was originally enacted in October 1998 would be extended until November 1, 2014 (rather than until November 1, 2011, as in the House version). The grandfather clause for taxes in existence prior to October 1, 1998, would also be extended until 2014 (rather than 2011).
-- A state or local government that has imposed a tax on telecommunications service purchased, used, or sold by a provider of Internet access would be held harmless until June 30, 2008 (rather than until November 1, 2007, as in the House version). Similarly to the House version, the hold harmless provision would only operate if a public ruling applying such a tax was issued prior to July 1, 2007, or such a tax is the subject of litigation that was begun prior to July 1, 2007.
-- The definition of "Internet access" would be amended to shield from taxation a home page, electronic mail, instant messaging, video clips, and personal electronic storage capacity that are provided independently or not packaged with Internet access. The House version would only protect these services from tax when they are furnished as part of a service to connect to the Internet.
-- The grandfather clause that permits Internet access taxes in force prior to October 1, 1998, would not apply to any state that has, more than 24 months prior to the enactment of this legislation, repealed its tax on Internet access or issued a rule that it no longer applies such a tax. The House version does not contain a similar provision.
Subscribers to CCH Tax Research NetWork can view the text of the legislation passed by the Senate.
H.R. 3678, as amended and passed by the U.S. Senate, October 25, 2007.

CCH (cch.taxgroup.com) reports:

Congress has passed a new SCHIP bill, but President Bush has issued a veto threat because it is funded by an increase in federal tax on tobacco products. Other new legislation includes the Tax Reduction and Reform Bill of 2007 (HR 3970), which would cut corporate tax rates, eliminate the alternative minimum tax (AMT) and lower the standard deduction. In addition, Ways and Means Chairman Charles B. Rangel, D-N.Y., plans to pass, in separate legislation, the provisions in HR 3970 that would provide a one year patch for the AMT and extend a group of expiring tax provision. At the IRS two developments dominated the news: the extension of transition relief for the final 409A
regulations and the as yet undetermined relief for victims of the California wildfires. Other IRS developments included final regulations regarding corporate reorganizations, tip reporting guidance and requests for a charter safe-harbor for the entertainment use of a business aircraft.
Congress
President Bush promised to veto a new bill expanding the State Children's Health Insurance Program (SCHIP), in part because it would raise the federal tax on tobacco products. The House passed the new legislation (HR 3963) on October 24 by a 265-to-142 vote (TAXDAY, 2007/10/26, C.4). But that tally is short of the two-thirds that would be needed to override a presidential veto. Bush vetoed a similar bill (HR 976) in early October (TAXDAY, 2007/10/04, W.1). The House later that month failed to override the veto (TAXDAY, 2007/10/19, C.1).
The new bill mirrors the version vetoed by Bush, but contains a number of changes made by Democratic leaders to attract broader support for the measure. Like the vetoed bill, the new bill would add $35 billion to the program over five years to insure more children whose parents do not qualify for Medicaid but cannot afford private insurance. Total funding for SCHIP would be $60 billion.
The extra funding contained in the bill would be raised by a federal tax increase on tobacco products. Most significantly, the bill would increase the tax on cigarettes by 61 cents --to $1 per pack. It would impose additional tax increases on other tobacco products. In promising to veto the bill, the administration cited several objections, including a statement that the new bill "still raises taxes to move 2 million children from private health insurance to a government-run program."
House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., introduced sweeping tax overhaul legislation on October 25 (TAXDAY, 2007/10/26, C.1). The Tax Reduction and Reform Bill of 2007 (HR 3970), would cut corporate tax rates, eliminate the alternative minimum tax (AMT) and lower the standard deduction. Rangel said he plans to pass, in separate legislation, the provisions in HR 3970 that would provide a one year patch for the AMT and extend a group of expiring tax provision. The House will pass that smaller legislation before Congress adjourns in November, Rangel predicted. The other provisions in the larger comprehensive tax reform measure might see action in 2008. Republican lawmakers like ranking Ways and Means member Jim McCrery, R-La., agreed that the House will likely pass legislation patching the AMT for one year as well as the extenders. However, Republicans do not support Rangel's plan to pay for tax relief by imposing higher taxes on hedge fund managers, S corporations and a wide range of other businesses.
Senate Finance Committee ranking member Charles E. Grassley, R-Iowa told reporters on October 23 that a "vast majority" of Republicans were willing to help the Democrats pass a one-year patch of the AMT without revenue offsets, under the condition that Democrats also enact tax policy which aids the economy. According to one GOP senator, his party is looking at an extension of the rate cuts for capital gains, dividends and the estate tax as well.
A bipartisan majority of the House Ways and Means Committee on October 24 passed HR 3920, the Trade and Globalization Assistance Bill of 2007 by a vote of 26 to 14 and the House could begin considering the legislation as soon as October 29 (TAXDAY, 2007/10/26, C.3). The $5.8 billion revenue raising provision included in the House version of trade adjustment assistance legislation would delay tax relief for multinational corporations by three years, but the measure faces strong resistance in the Senate where one senior tax writer has vowed to strip the language when the bill hits the Senate floor. Senate Finance Committee Chairman Max Baucus, D-Mont.,) on October 24 filed the committee report (SRepNo 110-205) for the land conservation bill (Sen 2223) and the committee report (SRepNo 110-206) for the agriculture tax bill (Sen 2242)) on October 25.
IRS
Two developments dominated IRS news during the week of October 22: the extension of transition relief for the final 409A
regulations and the wildfires in California. As we go to press, the IRS has indicated it will be issuing special relief for victims of the California fires but no official announcement has yet been made.
Extended 409A Transition Relief. The IRS responded favorably to calls by practitioners and employee plans for more time to adapt to the final Code Sec. 409A regulations. The Service extended transition relief for an additional year (TDNR HP-631; Notice 2007-86; TAXDAY, 2007/10/23, I.3).
The news was immediately greeted with relief by practitioners. "The Notice is well received. It helps alleviate much of the pressure to make final decisions by year end and the December 31, 2008 effective date will allow employers to more fully consider their options and make better plan design decisions," Catherine Creech of Davis & Harman LLP, Washington, D.C. told CCH. "This is useful and helps us to get over the hump," Fred Oliphant of Miller & Chevalier in Washington, D.C. added.
Reporting requirements. At the same time, the IRS also granted payroll professionals more time to comply with the reporting requirements of Code Sec. 409A (Notice 2007-89; TAXDAY, 2007/10/24, I.1). The American Payroll Association had asked the IRS to waive the requirement to report deferrals and earnings under Code Sec. 409A for the 2007 tax year (TAXDAY, 2007/10/17, M.2).
California Wildfires. Late on October 25, the IRS announced on its website late that help for victims would be issued very soon (TAXDAY, 2007/10/26, I.4). The IRS is expected to offer individuals and businesses extended time to file returns and make payments as it has done in past disasters. The Service also posted frequently asked questions (FAQs) for disaster victims on its website. The California Franchise Tax Board has already granted special relief to taxpayers in Santa Barbara, Ventura, Los Angeles, San Bernardino, Orange, Riverside and San Diego Counties.
More Developments
Corporate Reorganizations. The IRS finalized, with some modifications, proposed regulations (NPRM REG-130863-04) concerning the continuing tax-free status of a reorganization when assets or stock of the acquired corporation are distributed to a corporation or partnership following the reorganization (T.D. 9361; TAXDAY, 2007/10/25, I.1).
Business aircraft. Witnesses at an October 25 IRS hearing in Washington, D.C., urged the Service to create a charter rate safe harbor under the regulations for the business use of aircraft for entertainment (NPRM REG-147171-05, I.R.B. 2007-32, 334; TAXDAY, 2007/10/26, I.2). A charter rate safe harbor would reduce the burden on taxpayers when complying with the proposed regulations. Witnesses also asked the IRS to clarify the rules governing charitable use of an aircraft.
Tip Income. Underreporting of tip income is a "severe compliance problem in the tip reporting area," an IRS official said during a phone forum sponsored by the Service on October 24 (TAXDAY, 2007/10/25, I.3). Many taxpayers think that if they report eight percent of their tips, they have satisfied the reporting requirements under Code Sec. 6053(a), the official said. Form 8027 was meant to be a "floor, not a ceiling." Employees must report 100 percent of tips received.
Withholding Agents. An official from the IRS Large and Mid-Size Division (LMS said on October 25 in Arlington, Va. that a recent voluntary compliance initiative for withholding agents was a success but indicated that the IRS is unlikely to offer a similar program in the future (TAXDAY, 2007/10/26, I.3). "It is always better to come forward voluntarily than address issues on audit," Kathy Robbins, LMSB director of field operations for financial services, cautioned.
By Jeff Carlson, Stephen K. Cooper, John Scorza and George L. Yaksick, Jr., CCH News Staff
 

CCH (cch.taxgroup.com) reports:

IRS officials and practitioners discussed the proposed changes to Forms W-8BEN and 1042-S, as well as the proposed regulations regarding Code Sec. 1441 Withholding on Redemptions during the Executive Enterprise Institute's (EEI) 22nd Annual Withholding and Information Reporting Conference on October 26.
Form W-8BEN Proposed Changes
Drafts of revised Forms W-8BEN and 1042-S were released to the public on June 7, 2007, and July 13, 2007 respectively. According to John Prisco, technical advisor, IRS USWA program, the proposed changes to these forms were made to address uncertainties among practitioners as to what precisely the IRS would accept or require in connection with Form W-8BEN. Prisco highlighted some of the proposed changes to Form W-8BEN, including the following:
--Abbreviated country names will be permitted;
--Foreign tax identifying numbers must be provided;
--Joint account owners may be required to file separate Forms W-8BEN, including a husband and wife;
--Entering only a trust's name, and not the name of the trustee, will be allowed (on the other hand, if only a trustee's name is given, the name of the trust may not be entered); and
--A power of attorney may be authorized to sign in case of accident or injury, or if the IRS grants permission for "other good cause."
1441 Withholding
Philip Gartlett, partner, Burt, Staples & Maner, LLP, discussed the proposed regulations regarding Code Sec. 1441 withholding on redemptions during another session of the EEI conference on October 26. According to Gartlett, the proposed regulations (NPRM REG-140206-06; TAXDAY2007/10/17, I.2), in general, would apply to distributions made after December 31, 2008, although the preamble states that the proposed regulations may apply before then. Gartlett regarded the date as a "far out effective date." Gartlett highlighted the following rules regarding escrow procedures under the proposed regulations:
--Escrow procedures can only be used by an intermediary that is a U.S. financial institution and, according to Gartlett, "U.S. banks and brokers for the most part"; and
--Escrow procedures can only be used for documented foreign beneficial owners (distinguishable from the current regulations, which do not require documentation).
Gartlett also discussed various proposed rules on Code Sec. 302 Payment Certification under the same proposed regulations as well as provisions affecting qualified intermediaries. According to Gartlett, qualified intermediaries are prohibited from using escrow procedures directly under the proposed regulations.
Form 1042 Examinations
Todd Larsen, IRS USWA program manager, reminded practitioners that the IRS continues to increase its focus on the nonresident alien (NRA) withholding and reporting compliance of U.S. withholding agents. According to Larsen, the IRS is "expanding the focus and depth" of audit. Larsen also explained that all types of companies are subject to examination, and that a Form 1042 examination (Form 1042, Withholding Tax Return for U.S. Source Income) will also "look at payments to vendors" and all types of payments "subject to Code Sec. 1441 withholding."
By Hilary Goehausen, CCH News Staff
 

CCH (cch.taxgroup.com) reports:

The IRS has proposed an increase in the initial enrollment and renewal fees paid by enrolled actuaries to $250. The new fees represent the IRS's costs to administer the program.
Comment Request
The IRS is requesting comments on the proposal before the scheduled hearing at 10:00 a.m. on November 26, 2007. Interested parties should submit comments (an original and eight copies) by November 19, 2007, to the Internal Revenue Service, CCA:LPDR (REG-134923-07), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044. Comments also may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CCA:LPDR (REG-134923-07), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue NW., Washington, D.C. Alternatively, submissions may be sent electronically via the Federal eRulemaking Portal at www.regulations.gov (IRS REG-134923-07).
Proposed Regulations, NPRM REG-134923-07, 2007FED ¶49,770
Other References:
31 CFR Part 10
CCH Reference - 2007FED ¶37,180BE
CCH Reference - 2007FED ¶37,180DB
CCH Reference - 2007FED ¶37,180DD
Tax Research Consultant
CCH Reference - TRC IRS: 3,204.15
 

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Ohio Governor Ted Strickland has released new personal income tax withholding tables resulting in a 4.2% decrease in income tax withholding rates for 2008. This cut is another step in the phase-in of a 21% across-the-board income tax cut that will be completed by the 2009 tax year.
Overall, the 2008 withholding rates will be 16.8% lower than they were in 2004, in line with income tax rates that will also be 16.8% lower than 2004. The new income tax withholding tables will take effect for pay periods ending on or after January 1, 2008. They replace the tables previously issued by the Ohio Department of Taxation, effective October 1, 2006.
The Governor also announced that Ohio employers will receive information about the new withholding tables in the mail beginning this week. The new tables are also available online at http://tax.ohio.gov/divisions/employer_withholding/.
Release, Ohio Governor Ted Strickland, October 24, 2007.

CCH (cch.taxgroup.com) reports:

The IRS announced that purchasers of qualified Ford and GMC hybrid vehicles may continue to claim the alternative motor vehicle tax credit.
The qualified Ford models and corresponding credit amounts are:
--Ford Escape 2WD Hybrid Model Year 2008, $3,000;
--Ford Escape 2WD Model Years 2005, 2006 and 2007, $2,600;
--Ford Escape 4WD Hybrid Model Year 2008, $2,200;
--Ford Escape 4WD Model Years 2005, 2006 and 2007, $1,950;
--Mercury Mariner 4WD Hybrid Model year 2008, $2,200;
--Mercury Mariner 4WD Model Years 2006 and 2007, $1,950; and
--Mercury Mariner 2WD Hybrid Model Year 2008, $3,000.
The qualified GMC models and corresponding credit amounts are:
--Chevrolet Silverado Hybrid 2WD, model years 2006 and 2007: $250;
--Chevrolet Silverado Hybrid 4WD, model years 2006 and 2007: $650;
--GMC Sierra Hybrid 2WD, model years 2006 and 2007: $250;
--GMC Sierra Hybrid 4WD, model years 2006 and 2007: $650;
--Saturn Vue Green Line, model year 2007: $650; and
--Saturn Aura Hybrid, model year 2007; $1,300.
GMC sold 123 qualifying vehicles to retail dealers in the quarter ending September 30, 2007, bringing its cumulative number of qualified GMC hybrid vehicles sold as of that date to 9,577. Ford sold 5,196 qualifying vehicles to retail dealers in the quarter ending September 30, 2007, bringing its cumulative number of qualified Ford hybrid vehicles sold as of that date to 38,743.
IR-2007-174, 2007FED ¶46,688
IR-2007-175, 2007FED ¶46,689
Other References:
Code Sec. 30B
CCH Reference - 2007FED ¶4059E.026
CCH Reference - 2007FED ¶4059E.10
Tax Research Consultant
CCH Reference - TRC INDIV: 57,708

CCH (cch.taxgroup.com) reports:

Reaction to sweeping tax overhaul legislation unveiled by House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., on October 25 was swift and critical from GOP lawmakers, who predicted the bill would never make it to the White House. Although Rangel's Tax Reduction and Reform Bill of 2007 (HR 3970) would cut corporate tax rates, eliminate the alternative minimum tax and lower the standard deduction, GOP lawmakers took issue with the revenue offsets for those tax breaks.
Republican lawmakers like ranking Ways and Means member Jim McCrery, R-La., agreed that the House will likely pass legislation patching the AMT for one year and extending a group of expiring tax provisions, like the research and development credit tax credit. However, Republicans drew the line at paying for that tax relief by imposing higher taxes on hedge fund managers, S corporations and a wide range of other businesses.
McCrery also faulted Democrats for not agreeing to extend the tax cuts signed into law by President Bush in 2001 and 2003, which expire in 2010. Instead, Democrats plan to use the tax revenue generated by letting those tax provisions expire, which will subject American taxpayers to the largest tax hike in American history, GOP lawmakers said.
Rangel down-played the criticism, noting that the tax code is littered with provisions that unnecessarily provide targeted benefits to corporations. "It has been more than 21 years since Congress and the administration rolled up their sleeves to discuss tax reform and during that time, the tax code has become a jumbled mess of outdated and inequitable provisions that cry out for simplification," Rangel said.
According to Rangel, passing a massive tax cut bill without paying for it would not help the economy but, instead, would force the country deeper into debt. He suggested that corporate taxpayers would be willing to forgo tax deductions and incentives in order to receive a lower corporate tax rate. Corporate support exists for the trade-off, Rangel said, unless a specific industry is currently benefiting from one of the tax loopholes being eliminated.
Dorothy Coleman, vice president for Tax and Domestic Economic Policy for the Washington-based National Association of Manufacturers, offered only guarded support for the lower corporate rates included in the tax package. "We are extremely concerned about the tax increases that will impact manufacturers of all sizes," she said in a written statement. "Based on our initial review, for many manufacturers, the proposed tax increases could well exceed the benefits of the proposed tax relief."
Rangel said he plans to remove the one-year AMT patch and the extenders provisions from HR 3970 and pass them as a separate tax bill before Congress adjourns in November. However, if Senate lawmakers insist on not raising revenues to pay for the cost of AMT relief, then he plans on passing a separate extenders bill and a separate AMT bill. Rangel said those bills would be paid for by provisions to tax carried interest as ordinary income and by preventing hedge fund managers from using offshore tax havens.
Treasury Secretary Henry M. Paulson, Jr., applauded Rangel's commitment to discussing tax reform, but urged the chairman to speedily pass a one-year AMT patch that does not raise taxes to pay for it. "The legislation unveiled today would dramatically raise taxes in ways that, in my judgment, would hinder America's ability to compete in the global economy," Paulson said.
House Majority Leader Steny Hoyer, D-Md., has pledged to bring AMT legislation to the House floor for a vote just as soon as the Ways and Means panel is ready. He said that Democrats are "determined to enact a fiscally responsible AMT bill that respects our pledge to follow pay-as-you-go rules."
Although Rangel has asked for assistance from GOP lawmakers to fine-tune the tax legislation, McCrery said Republicans are unlikely to offer their help in 2007.
Senate Response
Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, while cautiously praising Rangel for getting rid of the AMT, said the tax reform measure "looks like warmed-over AMT," if it is not indexed for inflation. "The replacement tax will still hit millions of families," he said. Regarding corporate tax reform, Grassley agreed on the need to lower the rate and broaden the tax base, but noted that most small businesses are not corporations. "They're sole proprietorships, subchapter S corporations, or partnerships... their rates won't go down. If that's the case, the "mother of all tax bills "could become a political orphan," he said.
By Jeff Carlson and Stephen K. Cooper, CCH News Staff
Tax Reduction and Reform Act of 2007, HR 3970
Ways and Means Summary of Tax Reduction and Reform Bill of 2007
Ways and Means Release: Chairman Rangel Introduces Tax Reduction and Reform Act of 2007
SFC Release: Grassley on Chairman Rangel's Tax Reform Proposal
Very Preliminary JCT Estimated Revenue Effects of Proposals Contained in the Tax Reduction and Reform Act of 2007
Treasury Department News Release, TDNR HP-646.

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Texas Comptroller has announced that the 2005 decision Home Interiors & Gifts, Inc. v. Strayhorn , 175 S.W.3d 856 (Tex. App.--Austin 2005, pet. denied) that ruled that the throwback rule for the earned surplus component of the franchise tax was unconstitutional as applied to Home Interiors is now final because all appeals have been exhausted. The Texas Court of Appeals held that the throwback provision of the earned surplus component of the Texas franchise tax as applied to the home decor company lacked internal consistency and therefore, was unfairly apportioned in violation of the Commerce Clause of the U.S. Constitution.
The Comptroller has issued information that explains how potentially affected franchise taxpayers may file a refund claim based on the Home Interiors decision. A taxpayer would qualify for a refund if it:
-- sold tangible personal property that was shipped from Texas to purchasers in one or more other states;
-- was protected by P.L. 86-272 (from a tax on net income in those states); and
-- reported sales to those states as throwback sales to Texas for apportioning earned surplus.
The following criteria will be examined to evaluate claims for refunds: (1) refunds are applicable to the earned surplus component only; (2) simply holding a certificate of authority in another state is not sufficient evidence of nexus in another state; (3) proof of payment of taxes paid to another state is not sufficient evidence of nexus in another state because tax may be voluntarily paid without having nexus there; (4) if solicitation under P.L. 86-272 guidelines occurred in other states, supporting documentation must exist and be presented to substantiate solicitation in another state (specifically, actual documentation for expenses and receipts are required, not just the reimbursement of said expenses); (5) the supporting documentation of the selling corporation or limited liability company must have occurred during the accounting year upon which the report year tax is based; and (6) if no nexus exists in other states, sales will continue to be reported as Texas receipts (thrown back to Texas) using the same criteria as used for taxable capital.
Taxpayers are required to include a written statement of grounds with any amended report and note that the refund claim is based on the Home Interiors decision. More information on filing for a refund is available on the Comptroller's Web site at http://window.state.tx.us/taxinfo/refunds/refunds_franchise.html.
Tax Policy News , Vol. XVII, Issue 109, Texas Comptroller of Public Accounts, October 2007.

CCH (cch.taxgroup.com) reports:

On October 23, 2007, Indiana Governor Mitch Daniels proposed a property tax relief plan that would permanently cap property tax bills and provide the average homeowner with an overall property tax cut of about one-third.

CCH (cch.taxgroup.com) reports:

The IRS has finalized, with some modifications, proposed regulations (NPRM REG-130863-04) concerning the continuing tax-free status of a reorganization when assets or stock of the acquired corporation are distributed to a corporation or partnership following the reorganization. The IRS and Treasury continue to be mindful of the continuity of interest and continuity of business enterprise (COBE) principles by focusing on the link between the former target corporation (T) shareholders and the T business assets following the reorganization. The regulations apply to transactions occurring on or after October 25, 2007, but do not apply to any transaction that occurs pursuant to a written agreement that is binding before October 25, 2007, and at all times after that date.
Qualified Group
The definition of a qualified group is expanded to permit qualified group members to aggregate their direct stock ownership of a corporation in determining whether they own the requisite Code Sec. 368(c) control (80%) in such corporation. The issuing corporation must own directly stock meeting such control requirement in at least one other corporation.
Continuity of Business Enterprise Requirement
The COBE regulations are expanded to provide that if members of the qualified group own interests in a partnership that meets requirements equivalent to the control definition in Code Sec. 368(c), any stock owned by such partnership is treated as owned by members of the qualified group. For example, the former target corporation remains a member of the qualified group after a reorganization under Code Sec. 368(a)(1)( (stock-for-stock acquisition or "B" reorganization) if the former target corporation stock is transferred to a partnership that is owned exclusively by members of the qualified group.
Distributions and Other Transfers
A reorganization transaction under Code Sec. 368(a) is not disqualified or recharacterized by subsequent transfers of assets or stock if the COBE requirement is satisfied and the transfers qualify as distributions or other transfers. The proposed regulations provided that distributions by the acquiring corporation would not affect the characterization of the reorganization as long as no distributee received substantially all of the acquired assets. The final regulations abandon the "substantially all" standard and provide that the reorganization will not be disqualified or recharacterized if the distributions do not result in a liquidation of the distributing corporation under Federal income tax law. Assets held by the acquiring corporation, or the merged corporation in the case of a reorganization under Code Sec. 368(a)(1)(A) (statutory merger or "A" reorganization) by reason of recapitalization prior to the transaction, are disregarded in determining if a liquidation occurred. In addition, certain indirect distributions are treated as direct distributions.
If only stock is distributed, two requirements must be met to preclude the reorganization from being disqualified or recharacterized. First, the distributions must equal less than all of the stock of the acquired corporation. Second, the distributions cannot cause the acquired corporation to cease being a member of the qualified group.
A reorganization is not disqualified or recharacterized because of one or more transfers of assets, stock, or both, of the acquired corporation, the acquiring corporation or the surviving corporation if the COBE requirement is satisfied and the acquired corporation, the acquiring corporation, or the surviving corporation does not terminate its corporate existence as part of the transfer. If only stock of the acquired corporation, the acquiring corporation, or the surviving corporation is transferred, the reorganization is protected against recharacterization or reclassification if the transfers do not result in the corporation ceasing to be a member of the qualified group.
T.D. 9361, 2007FED ¶47,070
Other References:
Code Sec. 368
CCH Reference - 2007FED ¶16,751
CCH Reference - 2007FED ¶16,752
Tax Research Consultant
CCH Reference - TRC CCORP: 24,060
CCH Reference - TRC REORG: 9,062.05

CCH (cch.taxgroup.com) reports:

House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., plans to unveil sweeping tax reform legislation on October 25, setting the stage for the passage in 2008 of what he hopes will be the most significant change to the Internal Revenue Code since the Tax Reform Act of 1986 (P.L. 99-514). The measure will provide tax relief to more than 90 million families by permanently repealing the individual alternative minimum tax (AMT), Rangel said. The bill will also include significant tax relief designed to boost the competitiveness of American businesses.
According to a partial staff summary of the legislation obtained by CCH, the Tax Reduction and Reform Bill of 2007 will include billions of dollars in individual and corporate tax relief. Rangel and his staff have been discussing specifics of the bill with lawmakers and staff during the past week, prompting some groups to begin voicing their support for maintaining the industry-specific tax breaks in current law. Rangel said he foresees a trade-off of lower corporate tax rates in exchange for eliminating some corporate tax incentives and deductions.
According to the summary, the reform bill would permanently eliminate the AMT beginning in 2008. Rangel has estimated the cost of this repeal at more than $800 million. The bill would also expand the earned income tax credit, the standard tax deduction and the child tax credit. The cost of those provisions would be offset by a four-percent surtax on upper income taxpayers who have adjusted gross income of $150,000 for single taxpayers, and $200,000 for married taxpayers.
The bill may include legislation to provide a one-year patch for the AMT for 2007, as well as a one-year extension of the business tax breaks known as extenders that expire in 2007, according to the informal summary. Those provisions would be offset by provisions that affect carried interest, offshore hedge funds, securities firms and S corporations. Although the summary lists this as part of the reform bill, Rangel has said that he plans to introduce a separate, one-year AMT patch bill that would pass the House before adjournment in November.
The reform bill will also reportedly propose lowering the corporate tax rate to 30.5 percent, repealing the Code Sec. 199 manufacturing deduction and repealing the last-in, first-out (LIFO) accounting method, according to the summary. The bill would also defer deductions for some expenses of U.S. corporate subsidiaries that operate overseas.
By Stephen K. Cooper, CCH News Staff.

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Wisconsin Committee of Conference on Senate Bill 40 offered a substitute budget bill on October 23, 2007, that would make numerous changes to corporation franchise and income, personal income, sales and use, property, cigarette, and other taxes. At press time, the bill had not yet been passed by either the Assembly or the Senate. Wisconsin Governor Jim Doyle has indicated that he will sign the bill, but may veto certain provisions. Highlights of the bill are discussed below.

CCH (cch.taxgroup.com) reports:

Maryland Governor Martin O'Malley has released a budget that reflects more than $1.7 billion in cuts that will have to be made to balance the fiscal year 2009 budget if the General Assembly is unable to reach a consensus during the special session that is scheduled to begin on October 29. The Cost of Delay budget outlines more than $850 million in cuts that impact local jurisdictions and an additional $800 million in cuts to state agencies and programs.
During the past several weeks, the Governor has outlined plans to close Maryland's structural deficit by reforming Maryland's income tax structure, closing corporate tax "loopholes" so that all businesses pay their fair share, reducing the state property tax and reducing spending growth by more than $1 billion. The Governor has also proposed expanding the sales tax. Under the Governor's proposed reforms to the state income tax, reductions in the state property tax and sales tax proposals, the Maryland Department of Budget and Management estimates that 83% of Marylanders will pay less overall.
Subscribers to CCH Tax Research NetWork can view the details of the budget reductions and their impact on counties.
Press Release, Office of Governor Martin O'Malley, October 23, 2007.

CCH (cch.taxgroup.com) reports:

Acting IRS Commissioner Linda Stiff hosted a press briefing on October 23 discussing the potential tax administration issues and taxpayer refund delays that would result from Congress's late passage of an alternative minimum tax (AMT) legislative patch. Stiff confirmed much of the report given by Treasury Secretary Henry M. Paulson, Jr. to House Ways and Means Committee ranking member Jim McCrery, R-La., Rep. Thomas Reynolds, R-N.Y., and Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, regarding the problems that the IRS will face without immediate legislation.
Delayed Legislation, Delayed Refunds
According to Stiff, failure to enact a legislative patch to prevent the spread of the AMT by early November would negatively affect up to 50 million taxpayers nationwide. She explained that it would wreak great havoc both on the Service's ability to process returns in a timely manner and to issue timely refunds. Stiff explained that "this delay will affect lower-income, middle-income and upper-income taxpayers."
Stiff stated that these taxpayers fall into two different groups. An estimated 25 million taxpayers will become subject to the AMT without a legislative patch and will be adversely affected by late AMT legislation. "Last year there were 4 million taxpayers subject to the AMT," Stiff stated. "If we don't have a patch, 25 million will be subject. If we get a patch in late November or December, we will have to delay the refunds for the 25 million while we catch up."
The affected taxpayers are likely to see delays in refunds because they claim credits or deductions that are calculated differently under the AMT. Stiff explained that "a wide group of taxpayers, including taxpayers who claim the child tax credit, the child dependent care credit and education credits, are impacted by the AMT law. The AMT affects not only taxpayers who are subject to AMT, but it affects taxpayers who claim those credits, the order in which they claim them and the amounts to which they will be entitled."
Technical Problem
Stiff reported that the resulting delay from a late AMT legislative patch is largely a technological issue. With the expiration of the 2006 AMT patch, the IRS's computers defaulted to the current state of the law. Reprogramming the IRS computer systems to deal with new AMT legislation will require 12-to-13 weeks from the time the bill is signed into law. The project would require changing millions of lines of code in the Service's computer systems.
No Cut-Off Date Offered
However, Stiff declined to give a definitive cut-off date for passing of an AMT patch that would prevent these problems. "Given that we would need 12 weeks in order to accomplish the process and given that the filing season will start on January 14, if we want to start timely for all taxpayers, I think you can do that math," Stiff remarked.
Congressional Response
GOP members in both chambers see the AMT pay-as-you-go (PAYGO) conundrum as an opportunity to leverage further extension of the more popular provisions included in the 2001 and 2003 tax bills. At an October 23 press conference discussing the need to immediately pass a one-year patch for the AMT Grassley told reporters that a "vast majority "of Republicans were willing to help the Democrats pass a one-year patch of the AMT without revenue offsets, under one condition. "We would like to see some tax policy enacted, especially that which aids the economy," said Grassley. According to one GOP senator, his party is looking at an extension of the rate cuts for capital gains, dividends and the estate tax as well. Republican members are also reportedly anxious about approving a one-year AMT patch with offsets as they claim it is tantamount to a tax increase. Moreover, Grassley said that AMT relief would eat up approximately one-fourth of the available offsets which he said are desperately needed to help pay for other entitlement programs, particularly Medicare.
Grassley emphasized that time is of the essence. "The letter from Secretary Paulson makes it clear that further delays --delays past November --will cause incredible problems for taxpayers," he said. "The secretary makes it clear that we have to pass an AMT patch if we are not going to see 21 million additional taxpayers subject to the AMT."
McCrery, who, along with Grassley, had contacted Paulson on the matter, stressed the ripple effect that delays in approving an AMT patch could have on middle-income households. Referring to the Paulson letter, McCrery said: "They found that 25 million taxpayers --in addition to the 25 million that are subject to the AMT without a patch --could have their tax refunds delayed. In fact, Treasury estimates that 50 million taxpayers could have 75 billion worth of refunds delayed for up to 10 weeks."
House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., told reporters on October 17 to expect the introduction of two separate tax bills during the week of October 22 (TAXDAY, 2007/10/18, C.1). One measure, slated for introduction on October 25, which he called a "stop-gap" bill, would cost about $80 billion and extend a group of popular business and individual tax breaks known as the tax extenders. It would also provide a one-year patch to prevent the AMT from affecting about 23 million American families in 2008. The second piece of legislation Rangel promised, would be the "mother of all reform" bills that would include provisions to totally eliminate the AMT at a cost of roughly $800 billion. This second tax bill, which Rangel expects to see on the House floor sometime in 2008, would also cut taxes for about 90 million Americans, lower corporate tax rates and close many tax loopholes that businesses currently enjoy.
White House Response
The Bush administration "could support" individual components of the Rangel plan if they are ""revenue-neutral" and in the context of tax reform, according to White House Principal Deputy Press Secretary Tony Fratto on October 23.
By Jeff Carlson, Torie Cole and Paula Cruickshank, CCH News Staff
SFC Release: Grassley Statement at News Conference on AMT-Related Tax Problems
Treasury Letter to Grassley on AMT
Treasury Letter to McCrery on AMT
Treasury Letter to Reynolds on AMT
JCT Graphic of Taxpayers Affected by the AMT Under Present Law (2007)
JCT Graphic of Percent of Taxpayers Affected by AMT Under Present Law (2007)

CCH (cch.taxgroup.com) reports:

Interim guidance has been provided to employers and payers on their reporting and wage withholding requirements for calendar year 2007 with respect to deferrals of compensation and amounts includible in gross income under Code Sec. 409A. Interim rules have also been provided which employers and payers must use in computing amounts includible in gross income under Code Sec. 409A, and which service providers must use to satisfy their calendar year 2007 income tax reporting and tax payment requirements with respect to deferrals of compensation. Employers and payers who comply with the computation rules will not be liable for additional income tax withholding or penalties, or be required to file a corrected information return or furnish a corrected employee statement, as a result of future published guidance with respect to such computations.
Notice 2007-89, 2007FED ¶46,686
Other References:
Code Sec. 409A
CCH Reference - 2007FED ¶18,960.01
CCH Reference - 2007FED ¶18,960.025
CCH Reference - 2007FED ¶18,960.028
CCH Reference - 2007FED ¶18,960.042
CCH Reference - 2007FED ¶18,960.043
CCH Reference - 2007FED ¶18,960.046
CCH Reference - 2007FED ¶18,960.06
CCH Reference - 2007FED ¶18,960.061
CCH Reference - 2007FED ¶18,960.062
CCH Reference - 2007FED ¶18,960.075
CCH Reference - 2007FED ¶18,960.20
CCH Reference - 2007FED ¶18,960.22
Tax Research Consultant
CCH Reference - TRC COMPEN: 15,050
CCH Reference - TRC PLANRET: 3,206

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The IRS has announced its acquiescence to the tax court's decision in the case of R. Wallace, , 128 TC --, No. 11, Dec. 56,899. The Wallace court held that amounts received by an individual through his participation in a compensated work therapy program under the Special Therapeutic and Rehabilitation Fund of the Department of Veteran's Affairs, constituted veteran's benefits and, therefore, were not includible in the individual's gross taxable income. The IRS will no longer litigate the issue of payments received under this program.
AOD 2007-05, 2007FED ¶46,683
Other References:
Code Sec. 61
CCH Reference - 2007FED ¶5504.785
CCH Reference - 2007FED ¶5507.2736
Code Sec. 140
Tax Research Consultant
CCH Reference - TRC INDIV: 33,360
CCH Reference - TRC COMPEN: 6,608

CCH (cch.taxgroup.com) reports:

The IRS has extended for an additional year transition relief for compliance by nonqualified deferred compensation plans with the final regulations under Code Sec. 409A. Under previous guidance (Notice 2006-79, 2006-43 I.R.B. 307), nonqualified deferred compensation plans were required to comply with the final regulations beginning on January 1, 2008. The extended compliance date is now January 1, 2009. In addition, the IRS says it intends to issue guidance regarding a correction program as soon as possible.
In general, Code Sec. 409A, which is effective January 1, 2005, requires nonqualified deferred compensation plans to meet certain requirements. If those requirements are not met participants must include amounts deferred under the plan in income and pay additional taxes on the income.
As previously provided in Notice 2006-79, the plan must be operated in compliance with its terms to the extent consistent with Code Sec. 409A and Notice 2005-1. A taxpayer may rely on either Notice 2005-1 or the final regulations with respect to provisions in Notice 2005-1 that are inconsistent with the final regulations. If a provision is not addressed by Notice 2005-1 (or other applicable guidance with a pre-January 1, 2008, effective date other than the final regulations), the plan must be operated consistent with a good faith, reasonable interpretation of Code Sec. 409A.
For periods before January 1, 2008, compliance with the proposed or final regulations or the final regulations will be considered to constitute reasonable, good faith compliance. For periods after December 31, 2007, and before January 1, 2009, compliance with the final regulations (but not the proposed regulations) will constitute such good faith compliance. Compliance with the proposed and final regulations, however, are not the exclusive means to satisfy the good faith, reasonable interpretation standard.
Notice 2007-78 (I.R.B. 2007-41, TAXDAY, 2007/09/10, I.4) granted transition relief that was intended to facilitate compliance with written plan requirements set forth in Reg. §1.409A-1(c). Practitioners found the relief helpful but indicated that additional time was need to make informed changes to bring existing plans into compliance with the regulations. This latest notice addresses these concerns by extending the transition relief that was schedule to expire.
A one-year extension also applies to relief provided in section IV of Notice 2007-78 which relates to employment agreements.
Treasury Department News Release, TDNR HP-631, 2007FED ¶46,684
Notice 2007-86, 2007FED ¶46,685
Other References:
Code Sec. 409A
CCH Reference - 2007FED ¶18,960.01
CCH Reference - 2007FED ¶18,960.025
CCH Reference - 2007FED ¶18,960.028
CCH Reference - 2007FED ¶18,960.042
CCH Reference - 2007FED ¶18,960.043
CCH Reference - 2007FED ¶18,960.046
CCH Reference - 2007FED ¶18,960.05
CCH Reference - 2007FED ¶18.960.06
CCH Reference - 2007FED ¶18.960.061
CCH Reference - 2007FED ¶18,960.062
CCH Reference - 2007FED ¶18,960.075
CCH Reference - 2007FED ¶18.960.20
CCH Reference - 2007FED ¶18.960.22
Tax Research Consultant
CCH Reference - TRC COMPEN: 15,066

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

As previously announced (TAXDAY, 2007/10/08, S.5), due to confusion concerning the California personal income tax and corporation franchise and income tax disclosure requirements involving transactions with contractual protections, the Franchise Tax Board (FT is modifying FTB Notice 2007-3 (TAXDAY, 2007/08/01, S.9) by extending the deadline to file Form 8886, Reportable Transaction Disclosure Statement, with the FTB from October 1, 2007, to November 15, 2007. The FTB has also provided clarification regarding which transactions involving contractual protections must be disclosed.
Under both federal and California law, taxpayers are required to disclose their participation in six reportable transaction categories in order to avoid the imposition of specified penalties. One of these categories involves transactions with contractual protections. Generally, a transaction with contractual protection is any transaction for which the taxpayer or related party has a right to a full or partial refund of fees paid if all or a part of the intended tax consequences from the transaction are not sustained. It also includes a transaction for which fees are contingent upon the taxpayer's realization of tax benefits from the transaction.
These contractual protection transaction provisions apply only with respect to fees paid by or on behalf of a taxpayer or a related party to any person who makes or provides a written or oral statement to the taxpayer or related party as to the potential consequences that may result from the transaction. Furthermore, disclosure is only required if (1) the statement is made before the taxpayer has entered into the transaction and reported the consequences of the transaction on a filed tax return and (2) the person has not previously received fees from the taxpayer relating to the transaction.
For example, a taxpayer who had previously reported a wage expense on a tax return and subsequently files an amended tax return after receiving advice that the expenditure qualifies for a California-only enterprise zone credit would not have to disclose the transaction, even if the taxpayer has a right to a full or partial refund of fees paid for the advice if the credit is disallowed or if the fees are contingent upon the taxpayer's realization of the credit. Conversely, if the taxpayer received the advice prior to filing the original return but only claimed the credit on an amended return, the taxpayer would be required to disclose the transaction if the fee charged for the advice is refundable if the credit is disallowed or is contingent upon the taxpayer's realization of the credit. The transaction would not be considered a previously reported transaction under the governing federal regulations.
As before, taxpayers filing a disclosure statement in response to this notice need only file a statement with the FTB's Abusive Tax Shelter Unit (ATSU), and need not file an amended return to make the disclosure. These taxpayers should write "FTB Notice 2007-3" in red on the top of their Form 8866.
FTB Notice 2007-4, California Franchise Tax Board, October 18, 2007, ¶404-476
Other References:
Explanations at ¶89-176

CCH (cch.taxgroup.com) reports:

The IRS is requesting comments from the public regarding a proposal to change the process by which taxpayers obtain IRS consent to change a method of accounting for federal income tax purposes. The proposal suggests one possible approach; however, the IRS is interested in considering other possible approaches. Changes to the process, therefore, including any pilot program, will not become effective until the IRS considers public comments and suggestions received in response to this notice and publishes guidance announcing changes to the process. Written submissions must be received by January 18, 2008, to be considered.
Reasons for Change
The IRS is concerned that certain aspects of the existing accounting method change process make it a complex and inefficient means for taxpayers to obtain consent to change an accounting method. These complexities and inefficiencies often result in significant delays in the processing of accounting method change requests.
Standard Consent Process
The IRS anticipates that, under this proposal, the majority of accounting method change requests would be made through the standard consent process in a manner similar to the existing automatic consent process. The proposal contemplates that taxpayers would file Form 3115, Application for Change in Accounting Method, with their returns for the requested year of change. However, the IRS is considering an alternative approach, under which taxpayers would be required to file Form 3115 for changes to methods of accounting not specifically identified in Rev. Proc. 2002-9, 2002-1 CB 327, (or any successor) or other automatic guidance, by the last day of the ninth month of the requested tax year of change.
Under the proposal, the IRS would screen accounting method change requests for completeness and for compliance with the procedures governing the standard consent process. Requests that are not substantially complete would be denied and the taxpayer would be notified that consent to change accounting method is not granted.
Specific Consent Process
The specific consent process is proposed for only two categories of accounting method changes: (1) accounting method changes specifically identified in published guidance as required to be made under the specific consent process, and (2) changes that otherwise qualify under the standard consent process, but for which the taxpayer seeks different terms and conditions or a waiver of certain scope limitations that apply to the standard consent process. Under the proposal, a taxpayer that seeks a change in accounting method other than a change that is specifically identified in Rev. Proc. 2002-9 (or any successor), or other automatic consent guidance, may request a letter ruling under Rev. Proc. 2007-1, I.R.B. 2007-1, 1, (or its successor).
Pilot Program
The IRS intends to implement any modifications to the accounting method change process on a pilot basis before making permanent changes to the process. The IRS expects to open the pilot program to all taxpayers making an accounting method change within a specified pilot period.
Background
The proposals in Notice 2007-88 represent a change in the process that essentially has been in place since the early 1900s. Prior to 1954 by regulations and since then codified under Code Sec. 446(e), taxpayers have been required to obtain the consent of the IRS Commissioner to change a method of accounting. Prior to 1954, the primary reason for requiring the consent of the Commissioner was for the IRS to gain leverage in demanding certain compensating adjustments before granting consent. Since 1954, when most compensating adjustments were codified under Code Sec. 481, the process that required the Commissioner's consent was continued essentially for three reasons:
(1) To enforce uniform treatment in changes of accounting;
(2) To give the IRS notice that the taxpayer is changing a method of accounting; and
(3) To allow the IRS to check the taxpayer's Code Sec. 481 computations.
More Selectivity for More Efficiency
Since the 1950s, the IRS has continued to look at every change in accounting method in advance and worked each one. The Chief Counsel's Office is now reconsidering the process and has concluded that the past process may not have been the "smartest way to do things." It has tentatively concluded that the IRS can be more selective and look at more closely at the difficult ones; the request that raise the more novel and controversial tax issues.
The IRS has been finding that there are many cases in which it ends up granting consent to change without any modification. It has concluded that reviewing all change requests may not be the most efficient use of resources.
The Service also has admitted that spending its resources looking at all of these cases also creates delays that prevent taxpayers from getting the consent they need to use the new method on their earliest tax return.
IRS officials described the goal of the new proposal to CCH as twofold:
(1) To eliminate delays for taxpayers as best as possible; and
(2) To focus IRS resources to most efficiently obtain the most useful information to identify changes in accounting, identify whether the change is a novel and controversial; and then to follow up quickly with the taxpayer when appropriate.
Timetable
The intended goal of Notice 2007-88 is to modernize the change in accounting method program and make it more efficient for taxpayers while maintaining the IRS's confidence level regarding why taxpayers are changing accounting methods. Representatives from the Chief Counsel's Office emphasized to CCH that Notice 2007-88 is preliminary, a "thinking piece" about which they are anxious to hear from other experts. They want to hear whether practitioners and other stakeholders agree or have better ideas about how to structure the new process. Before requiring any change, the IRS emphasized that it would release detailed instructions in public notices for advance publication. It wants no one to be taken by surprise.
After the 90-day period for comments is over, the IRS plans to take "a close look" at its proposal and other suggestions before actually make the modifications to existing revenue procedures needed to implement the pilot program, the IRS does not anticipate a pilot launch earlier than the middle of 2008.
By Tom Cody and George Jones, CCH News Staff
Notice 2007-88, 2007FED ¶46,682
Other References:
Code Sec. 446
CCH Reference - 2007FED ¶20,620.284
Code Sec. 481
CCH Reference - 2007FED ¶22,277.40
Tax Research Consultant
CCH Reference - TRC ACCTNG: 21,100
 

CCH (cch.taxgroup.com) reports:

The IRS has established safe harbor requirements for partnerships claiming Code Sec. 45 wind energy production tax credits. The safe harbor applies to partnerships between a project developer and one or more investors with the partnership owning and operating the qualified energy facilities only if the developer, investors and partnership satisfy each requirement in section four of the procedure. Furthermore, the revenue procedure applies only to partners or partnerships with Code Sec. 45 production tax credits and does not apply to any other tax credits. The procedure is effective for transactions entered into on or after November 5, 2007.
In order to qualify for the safe harbor all of the following requirements must be met:
(1) The partners investment return is reasonably anticipated to be derived from both Code Sec. 45 credits and participation in operating cash flow.
(2) The developer must have a minimum one percent interest in each material item of partnership income, gain, loss, deduction and credit at all times during the existence of the partnership. During the period of ownership, each partner must have a minimum interest equal to 5 percent of his investment in partnership income and gain for the taxable year for which the investor's percentage share of income and gain will be the largest, as adjusted for sales, redemptions or dilution of its interest.
(3) A partner must make a minimum unconditional investment in the partnership on or before the later of (a) the date the facility is placed in service, or (b) the date an interest in the partnership is acquired.
(4) At least 75 percent of the sum of the fixed capital contributions, plus reasonably anticipated contingent capital contributions, to be invested in the partnership must be fixed and determinable obligations that are not contingent in amount or certainty of payment.
(5) No one connected with the partnership, including related parties, may have a contractual right to purchase the facility, any property included in the facility, or an interest in the partnership, at a price less than its fair market value determined at the time of exercise of the contractual right to purchase. In addition, the developer (or any related party) may not have a contractual right to purchase the facility or an interest in the partnership earlier than five years after the qualified facility is first placed into service.
(6) The partnership may not have a contractual right to require any party to purchase the facility or any property included in the facility, excluding electricity, from the partnership. A partner may not have a contractual right to require any party to purchase its partnership interest.
(7) No person may guarantee the partners the right to any allocation of the credit under Code Sec. 45. In addition, neither the developer, nor any related party, may lend a partner funds to acquire an interest in the partnership.
(8) The Code Sec. 45 credit must be allocated in accordance with Reg. §1.704-1(b)(4)(ii).
(9) For purposes of the passive activity loss rules, under Reg. §1.469-4(d)(4) each qualified facility will be treated as a separate activity and that activity may not be grouped with any other activity except other qualified wind facilities.
(10) For purposes of this revenue procedure, parties are related if they bear a relationship to each other that is specified in Code Secs. 267(b) or 707(b)(1).
Additional requirements, details and examples are provided in the revenue procedure.
Finally, because the revenue procedure is intended to provide guidance to taxpayers establishing or participating in wind energy partnerships in lieu of taxpayers requesting a letter ruling, the IRS will not rule on any issues under Subchapter K for partnerships claiming the credit under Code Sec. 45, as indicated in Notice 2006-88, I.R.B. 2006-42.
Rev. Proc. 2007-65, 2007FED ¶46,681
Other References:
Code Sec. 45
CCH Reference - 2007FED ¶4415.01
Code Sec. 704
CCH Reference - 2007FED ¶25,124.148
Tax Research Consultant
CCH Reference - TRC 54,554.05
 

CCH (cch.taxgroup.com) reports:

The IRS has issued a news release reminding poker tournament sponsors, including casinos, that they will be required to report most winnings to winners and the IRS starting on March 4, 2008. The new reporting requirement was first announced in September 2007 in Rev. Proc. 2007-57, I.R.B. 2007-36, 547 (TAXDAY, 2007/09/04, I.1). According to the IRS, the guidance was issued in order to clear up confusion among poker tournament sponsors and participants about withholding and information reporting obligations that apply with respect to tournament winnings.
Poker tournament sponsors will not be required to report winnings to the IRS with respect to tournaments that are completed during 2007 and prior to March 4, 2008. However, beginning March 4, 2008, tournament sponsors will be required to report winnings of more than $5,000 on Form W-2G, Certain Gambling Winnings.
According to the news release, tournament sponsors that comply with the new reporting requirement will not be required to withhold federal income tax at the end of the tournament. In the event that a sponsor fails to report the winnings, the IRS will not only enforce the reporting requirement but, in addition, will require the sponsor to pay any tax that would have been withheld from the winner had the withholding requirement been imposed. The withholding rate is normally 25 percent of the amount that should have been reported.
CCH Comment. The statement that poker tournament sponsors need not withhold federal income tax if they comply with the new reporting requirement was not contained in Rev. Proc. 2007-57. However, Rev. Proc. 2007-57 does state that "the IRS will not assert any liability for additional tax or additions to tax for violations of any withholding obligation with respect to amounts paid to winners of poker tournaments" if the tournament sponsor meets information reporting requirements.
Certain information to be used by the tournament sponsor for the purpose of completing the Form W-2G is to be supplied by the recipient of the winnings. Such information includes the winner's taxpayer identification number, which, for individuals, is usually his or her social security number. In the event that the winner fails to provide this information, the sponsor must withhold federal income tax at the rate of 28 percent.
Tournament winners are reminded that, by law, they are required to report all their winnings on their federal income tax return, regardless of the amount and regardless of whether or not they receive a Form W-2G or any other information return. This is true both before and after the new reporting requirement goes into effect.
IR-2007-173, 2007FED ¶46,680
Other References:
Code Sec. 61
CCH Reference - 2007FED ¶5504.22
Code Sec. 3402
CCH Reference - 2007FED ¶33,589.25
Tax Research Consultant
CCH Reference - TRC INDIV: 6,266
CCH Reference - TRC PAYROLL: 3,404.10

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

An out-of-state holding company's income from a North Carolina limited liability company (LLC) that was classified as a partnership was apportionable business income, and the holding company was required to use the LLC's payroll, sales, and property in determining its apportionment factors used to compute its North Carolina corporate income tax liability. In addition, the taxpayer's affiliated indebtedness was part of its capital includable in its corporation franchise tax base and the apportionment formula applied for apportioning its income for corporate income tax purposes was used to apportion its capital stock, surplus, and undivided profits to North Carolina for corporate franchise tax purposes.

CCH (cch.taxgroup.com) reports:

The IRS has released the inflation-adjusted tax rate tables for tax years beginning in 2008, as well as the 2008 standard deduction and personal exemption amounts. The 2008 standard deduction is $10,900 for surviving spouses and for married individuals who file joint returns, $8,000 for heads of households and $5,450 for unmarried individuals and married persons filing separate returns. The personal exemption for tax years beginning in 2008 has been increased to $3,500. The threshold amounts at which the phaseout of the tax benefit of the personal exemption begins and ends and the "applicable amount" for triggering the phaseout of itemized deductions have also been determined.
The standard deduction amount for individuals who may be claimed as dependents by other taxpayers for 2008 may not exceed the greater of $900, or the sum of $300 and the individual's earned income. The additional standard deduction amounts for the aged and for the blind are $1,050 for each, and increase to $1,350 if an individual is unmarried and is not a surviving spouse. Further, the amount used to reduce the net unearned income of certain minor children subject to the "kiddie tax" at their parents' marginal rate is $900. The maximum credit allowed in the case of the adoption of a child with special needs is $11,650; the maximum credit allowed with regard to other adoptions is the amount of qualified adoption expenses up to $11,650. The earned income limit for the maximum credit has increased to $8,580 for a qualifying individual with one child, $12,060 for a taxpayer with two or more children, and $5,720 for a taxpayer with no children. The EIC will be denied if the aggregate amount of certain investment income exceeds $2,950.
Changes
Proposed Reg. §1.148-3(d)(1)(iv) provides that on the last day of each bond year during which there are amounts allocated to gross proceeds of an issue that are subject to the rebate requirement, and on the final maturity date, there can be included as a payment a computation credit of $1,400 for any bond year ending in 2007. For bond years ending after 2007, this amount will be adjusted for inflation. For 2008, this amount is $1,430. Also, for 2008, inflation-adjusted items in Code Secs. 25B, 219 and 408A
will be included in a separate news release with other pension- and retirement-related items. In the future, these amounts will not be included in this annual guidance. In addition, inflation-adjusted items for health savings accounts under Code Sec. 223 are no longer published in this guidance.
Inflation adjustments for other items are also included, among those are the low-income housing credit, the overall limitation on itemized deductions, the qualified transportation fringe exclusion and long-term care premiums. These changes apply to tax years beginning in 2008 and to certain transactions or events that are deemed to have occurred in calendar year 2008.
IR-2007-172, 2007FED ¶46,677
Rev. Proc. 2007-66, 2007FED ¶46,678
Rev. Proc. 2007-66, FINH ¶30,564
Rev. Proc. 2007-66, ETR ¶66,837
Other References:
Code Sec. 1
CCH Reference - 2007FED ¶107B
CCH Reference - 2007FED ¶660.05
CCH Reference - 2007FED ¶660.055
CCH Reference - 2007FED ¶1090.11
CCH Reference - 2007FED ¶1201.05
CCH Reference - 2007FED ¶1201.07
CCH Reference - 2007FED ¶1201.13
CCH Reference - 2007FED ¶1201.28
CCH Reference - 2007FED ¶1201.33
CCH Reference - 2007FED ¶1201.34
CCH Reference - 2007FED ¶1201.51
CCH Reference - 2007FED ¶1201.525
CCH Reference - 2007FED ¶1201.53
CCH Reference - 2007FED ¶1201.565
CCH Reference - 2007FED ¶1201.57
CCH Reference - 2007FED ¶1201.575
CCH Reference - 2007FED ¶1201.58
CCH Reference - 2007FED ¶1201.585
CCH Reference - 2007FED ¶1201.59
CCH Reference - 2007FED ¶3270.30
CCH Reference - 2007FED ¶3280.01
CCH Reference - 2007FED ¶3280.025
CCH Reference - 2007FED ¶3280.07
CCH Reference - 2007FED ¶3280.073
CCH Reference - 2007FED ¶3290.01
Code Sec. 23
CCH Reference - 2007FED ¶3725.04
CCH Reference - 2007FED ¶3725.06
CCH Reference - 2007FED ¶3725.07
CCH Reference - 2007FED ¶3725.25
Code Sec. 24
CCH Reference - 2007FED ¶3770.03
CCH Reference - 2007FED ¶3770.07
CCH Reference - 2007FED ¶3770.25
Code Sec. 25A
CCH Reference - 2007FED ¶3830.024
CCH Reference - 2007FED ¶3830.031
CCH Reference - 2007FED ¶3830.035
CCH Reference - 2007FED ¶3830.07
CCH Reference - 2007FED ¶3830.25
Code Sec. 25B
CCH Reference - 2007FED ¶3838.03
CCH Reference - 2007FED ¶3838.07
CCH Reference - 2007FED ¶3838.10
CCH Reference - 2007FED ¶3838.25
Code Sec. 32
CCH Reference - 2007FED ¶4082.032
CCH Reference - 2007FED ¶4082.048
CCH Reference - 2007FED ¶4082.07
CCH Reference - 2007FED ¶4082.45
Code Sec. 42
CCH Reference - 2007FED ¶4385.05
CCH Reference - 2007FED ¶4385.07
CCH Reference - 2007FED ¶4385.83
Code Sec. 55
CCH Reference - 2007FED ¶5101.045
Code Sec. 59
CCH Reference - 2007FED ¶5411.01
Code Sec. 61
CCH Reference - 2007FED ¶5504.025
Code Sec. 62
CCH Reference - 2007FED ¶6006.0324
CCH Reference - 2007FED ¶6006.0325
CCH Reference - 2007FED ¶6006.106
Code Sec. 63
CCH Reference - 2007FED ¶6023.023
CCH Reference - 2007FED ¶6023.034
CCH Reference - 2007FED ¶6023.036
CCH Reference - 2007FED ¶6023.07
CCH Reference - 2007FED ¶6023.10
Code Sec. 68
CCH Reference - 2007FED ¶6081.01
CCH Reference - 2007FED ¶6081.20
Code Sec. 132
CCH Reference - 2007FED ¶7438.054
CCH Reference - 2007FED ¶7438.07
CCH Reference - 2007FED ¶7438.77
Code Sec. 135
CCH Reference - 2007FED ¶7551.021
CCH Reference - 2007FED ¶7551.20
Code Sec. 137
CCH Reference - 2007FED ¶7625.01
CCH Reference - 2007FED ¶7625.021
CCH Reference - 2007FED ¶7625.025
CCH Reference - 2007FED ¶7625.027
CCH Reference - 2007FED ¶7625.10
Code Sec. 146
CCH Reference - 2007FED ¶7854.07
CCH Reference - 2007FED ¶7854.75
Code Sec. 148
CCH Reference - 2007FED ¶7889.036
CCH Reference - 2007FED ¶7889.105
Code Sec. 151
CCH Reference - 2007FED ¶8005.037
CCH Reference - 2007FED ¶8005.12
CCH Reference - 2007FED ¶8005.145
Code Sec. 163
CCH Reference - 2007FED ¶9402.09
Code Sec. 170
CCH Reference - 2007FED ¶11,620.021
CCH Reference - 2007FED ¶11,620.041
CCH Reference - 2007FED ¶11,620.512
CCH Reference - 2007FED ¶11,700.026
Code Sec. 179
CCH Reference - 2007FED ¶12,126.03
CCH Reference - 2007FED ¶12,126.031
CCH Reference - 2007FED ¶12,126.07
Code Sec. 213
CCH Reference - 2007FED ¶12,543.051
CCH Reference - 2007FED ¶12,543.69
Code Sec. 219
CCH Reference - 2007FED ¶12,662.01
Code Sec. 220
CCH Reference - 2007FED ¶12,675.045
Code Sec. 221
CCH Reference - 2007FED ¶12,695.25
Code Sec. 408A
CCH Reference - 2007FED ¶18,930.197
Code Sec. 501
CCH Reference - 2007FED ¶22,613.20
Code Sec. 512
CCH Reference - 2007FED ¶22,837.051
CCH Reference - 2007FED ¶22,837.153
Code Sec. 513
CCH Reference - 2007FED ¶22,846.027
CCH Reference - 2007FED ¶22,846.4999
Code Sec. 641
CCH Reference - 2007FED ¶24,267.023
CCH Reference - 2007FED ¶24,267.07
Code Sec. 685
CCH Reference - 2007FED ¶24,897.021
Code Sec. 877
CCH Reference - 2007FED ¶27,425.027
CCH Reference - 2007FED ¶27,425.03
CCH Reference - 2007FED ¶27,425.175
Code Sec. 2032A
CCH Reference - FINH ¶4240.71
Code Sec. 2503
CCH Reference - FINH ¶9842.23
Code Sec. 2523
CCH Reference - FINH ¶11,884.25
Code Sec. 4161
CCH Reference - ETR ¶13,105.05
CCH Reference - ETR ¶13,105.39
Code Sec. 4261
CCH Reference - ETR ¶19,305.014
CCH Reference - ETR ¶19,305.02
CCH Reference - ETR ¶19,305.495
Code Sec. 6012
CCH Reference - 2007FED ¶35,150.021
Code Sec. 6033
CCH Reference - 2007FED ¶35,425.025
CCH Reference - 2007FED ¶35,425.39
Code Sec. 6039F
CCH Reference - 2007FED ¶35,690.01
CCH Reference - 2007FED ¶35,690.10
Code Sec. 6323
CCH Reference - 2007FED ¶38,160.032
CCH Reference - 2007FED ¶38,160.038
CCH Reference - ETR ¶45,675.02
CCH Reference - ETR ¶45,675.165
Code Sec. 6334
CCH Reference - 2007FED ¶38,225.01
Code Sec. 6601
CCH Reference - 2007FED ¶39,415.025
CCH Reference - 2007FED ¶39,415.1897
CCH Reference - FINH ¶21,640.20
CCH Reference - FINH ¶21,640.30
Code Sec. 7430
CCH Reference - 2007FED ¶41,743.16
CCH Reference - FINH ¶22,440.50
Code Sec. 7702B
CCH Reference - 2007FED ¶43,168.01
CCH Reference - 2007FED ¶43,168.03
CCH Reference - 2007FED ¶43,168.35
Tax Research Consultant
CCH Reference - TRC INDIV: 12,162
CCH Reference - TRC INDIV: 18,154.05
CCH Reference - TRC INDIV: 18,154.10
CCH Reference - TRC INDIV: 18,156.15
CCH Reference - TRC INDIV: 18,158
CCH Reference - TRC INDIV: 27,102
CCH Reference - TRC INDIV: 30,356.10
CCH Reference - TRC INDIV: 39,126.05
CCH Reference - TRC INDIV: 42,114.05
CCH Reference - TRC INDIV: 42,408
CCH Reference - TRC INDIV: 42,452.05
CCH Reference - TRC INDIV: 42,452.15
CCH Reference - TRC INDIV: 42,454.05
CCH Reference - TRC INDIV: 42,506
CCH Reference - TRC INDIV: 51,052.15
CCH Reference - TRC INDIV: 51,052.156
CCH Reference - TRC INDIV: 57,260.10
CCH Reference - TRC INDIV: 57,262.05
CCH Reference - TRC INDIV: 57,352
CCH Reference - TRC INDIV: 57,356
CCH Reference - TRC INDIV: 57,358
CCH Reference - TRC INDIV: 57,454.10
CCH Reference - TRC INDIV: 57,552
CCH Reference - TRC INDIV: 60,054.05
CCH Reference - TRC INDIV: 60,058
CCH Reference - TRC INDIV: 60,152
CCH Reference - TRC INDIV: 60,160
CCH Reference - TRC INDIV: 63,306
CCH Reference - TRC INDIV: 66,066.05
CCH Reference - TRC FILEIND: 6,050
CCH Reference - TRC FILEIND: 6,052
CCH Reference - TRC FILEIND: 12,056
CCH Reference - TRC FILEIND: 12,102
CCH Reference - TRC FILEIND: 12,102.05
CCH Reference - TRC FILEIND: 12,104
CCH Reference - TRC FILEIND: 12,106
CCH Reference - TRC FILEIND: 15,052.05
CCH Reference - TRC FILEIND: 15,052.15
CCH Reference - TRC FILEIND: 15,054
CCH Reference - TRC FILEIND: 15,054.05
CCH Reference - TRC FILEIND: 15,152.25
CCH Reference - TRC FILEIND: 18,052.05
CCH Reference - TRC FILEIND: 18,052.054
CCH Reference - TRC FILEIND: 30,406
CCH Reference - TRC CCORP: 42,060
CCH Reference - TRC BUSEXP: 9,102.25
CCH Reference - TRC BUSEXP: 18,220.15
CCH Reference - TRC BUSEXP: 24,906.10
CCH Reference - TRC BUSEXP: 24,906.102
CCH Reference - TRC BUSEXP: 54,220.10
CCH Reference - TRC BUSEXP: 57,306.05
CCH Reference - TRC DEPR: 12,104
CCH Reference - TRC DEPR: 12,112.05
CCH Reference - TRC FILEBUS: 9,106
CCH Reference - TRC COMPEN: 36,350
CCH Reference - TRC COMPEN: 36,352
CCH Reference - TRC COMPEN: 36,354
CCH Reference - TRC COMPEN: 36,356
CCH Reference - TRC COMPEN: 36,654
CCH Reference - TRC COMPEN: 45,060.25
CCH Reference - TRC COMPEN: 45,064
CCH Reference - TRC COMPEN: 45,064.10
CCH Reference - TRC COMPEN: 45,064.15
CCH Reference - TRC COMPEN: 45,066
CCH Reference - TRC COMPEN: 45,066.15
CCH Reference - TRC PAYROLL: 6,060.25
CCH Reference - TRC RETIRE: 66,204
CCH Reference - TRC RETIRE: 66,752
CCH Reference - TRC SALES: 6,364.20
CCH Reference - TRC SALES: 51,154.10
CCH Reference - TRC SALES: 51,612.30
CCH Reference - TRC ESTGIFT: 3,300
CCH Reference - TRC ESTGIFT: 6,050
CCH Reference - TRC ESTGIFT: 6,052
CCH Reference - TRC ESTGIFT: 6,052.20
CCH Reference - TRC ESTGIFT: 6,054
CCH Reference - TRC ESTGIFT: 6,056
CCH Reference - TRC ESTGIFT: 6,060.10
CCH Reference - TRC ESTGIFT: 12,050
CCH Reference - TRC ESTGIFT: 12,054.10
CCH Reference - TRC ESTGIFT: 18,604.15
CCH Reference - TRC ESTGIFT: 36,204
CCH Reference - TRC ESTGIFT: 42,050
CCH Reference - TRC ESTGIFT: 42,064
CCH Reference - TRC ESTGIFT: 45,360
CCH Reference - TRC ESTGIFT: 51,150
CCH Reference - TRC ESTGIFT: 51,160
CCH Reference - TRC ESTGIFT: 60,104
CCH Reference - TRC ESTGIFT: 60,106.05
CCH Reference - TRC ESTTRST: 100
CCH Reference - TRC ESTTRST: 12,052
CCH Reference - TRC ESTTRST: 21,252
CCH Reference - TRC ESTTRST: 39,350
CCH Reference - TRC EXPAT: 100
CCH Reference - TRC EXPAT: 3,302
CCH Reference - TRC EXPAT: 12,000
CCH Reference - TRC EXPAT: 12,100
CCH Reference - TRC EXPAT: 12,102
CCH Reference - TRC EXPAT: 12,604
CCH Reference - TRC INTL: 100
CCH Reference - TRC INTLOUT: 100
CCH Reference - TRC INTLOUT: 6454
CCH Reference - TRC IRS: 48,152.10
CCH Reference - TRC IRS: 48,160.35
CCH Reference - TRC LITIG: 7,200
CCH Reference - TRC EXEMPT: 12,306.15
CCH Reference - TRC EXEMPT: 12,256
CCH Reference - TRC EXEMPT: 12,306.15
CCH Reference - TRC EXEMPT: 15,118
CCH Reference - TRC EXEMPT: 15,168
CCH Reference - TRC EXEMPT: 12,306.15
CCH Reference - TRC EXCISE: 3,114.05
CCH Reference - TRC EXCISE: 6,156.05
CCH Reference - TRC EXCISE: 9,104.05
CCH Reference - TRC PLANIND: 3,052
CCH Reference - TRC PLANIND: 3,058.10
CCH Reference - TRC PLANIND: 3,060.10
CCH Reference - TRC PLANIND: 3,064.15
CCH Reference - TRC PLANIND: 3,204
CCH Reference - TRC PLANIND: 3,362.05
CCH Reference - TRC PLANIND: 9,304.10
CCH Reference - TRC PLANIND: 9,350.15
CCH Reference - TRC PLANIND: 15,154
CCH Reference - TRC PLANIND: 15,254
CCH Reference - TRC PLANIND: 15,302

CCH (cch.taxgroup.com) reports:

The IRS has announced inflation-adjusted 2008 dollar amounts affecting employer-sponsored retirement and fringe benefit plans, traditional and Roth IRAs, and the retirement savings contribution credit. Some amounts will remain the same as in 2007, most notably:
--the $15,500 limit on elective deferrals to 401(k)
plans, 403(b)
plans, certain 457
plans and the federal government's Thrift Savings Plan;
--the $10,500 limit on elective contributions to SIMPLE retirement accounts;
--the $5,000 and $2,500 limits on catch-up contributions to employer plans; and
--the $500 minimum compensation amount for participation in SEP plans.
The limit on contributions to traditional and Roth IRAs for 2008 is $5,000, plus $1,000 in catch-up contributions for taxpayers who have attained age 50 by the end of the year. The $5,000 limit will be adjusted for inflation beginning in 2009; the $1,000 catch-up limit will not be adjusted for cost of living increases under the current law.
Effective January 1, 2008:
--the beginning of the phaseout range for deductible IRA contributions increases from $83,000 to $85,000 for active participants in an employer plan filing a joint return, from $52,000 to $53,000 for other active participants (other than married individuals filing separately), and from $156,000 to $159,000 for taxpayers who are not active participants but are married to an active participant;
--the beginning of the phaseout range for allowable Roth IRA contributions increases from $156,000 to $159,000 for joint filers, and from $99,000 to $101,000 for other taxpayers (other than married individuals filing separately);
--the limit on annual additions to a defined contribution plan increases from $45,000 to $46,000;
--the limit on annual benefits under a defined benefit plan increases from $180,000 to $185,000;
--the limit on compensation that can be taken into account for most purposes increases from $225,000 to $230,000;
--the amount in the definition of "key employee" for top-heavy plan purposes increases from $145,000 to $150,000;
--the amount in the definition of "highly compensated employee" increases from $100,000 to $105,000;
--the amount for determining the maximum ESOP account subject to a five-year distribution period increases from $915,000 to $935,000, while the dollar amount used to determine the lengthening of the five-year distribution period increases from $180,000 to $185,000;
--the special annual compensation limit for eligible participants in certain governmental plans increases from $335,000 to $345,000; and
--the adjusted gross income limitations on eligibility for various levels of the retirement savings contribution credit increase slightly.
For fringe benefit valuation purposes, the compensation amount that makes a corporate officer a "control employee" remains $90,000 for 2008. The compensation that makes any other employee a "control employee" increases from $180,000 to $185,000.
IR-2007-171, 2007FED ¶46,676
Other References:
Code Sec. 25B
CCH Reference - 2007FED ¶3838.03
CCH Reference - 2007FED ¶3838.07
CCH Reference - 2007FED ¶3838.25
Code Sec. 61
CCH Reference - 2007FED ¶5907.032
CCH Reference - 2007FED ¶5907.044
CCH Reference - 2007FED ¶5907.27
Code Sec. 401
CCH Reference - 2007FED ¶17,903.01
CCH Reference - 2007FED ¶17,903.025
CCH Reference - 2007FED ¶17,903.03
CCH Reference - 2007FED ¶17,903.105
CCH Reference - 2007FED ¶17,903.15
CCH Reference - 2007FED ¶18,112.0245
CCH Reference - 2007FED ¶18,112.0265
CCH Reference - 2007FED ¶18,112.036
CCH Reference - 2007FED ¶18,112.048
Code Sec. 402
CCH Reference - 2007FED ¶18,221.022
CCH Reference - 2007FED ¶18,221.10
Code Sec. 404
CCH Reference - 2007FED ¶18,347.01
CCH Reference - 2007FED ¶18,347.025
CCH Reference - 2007FED ¶18,348.028
CCH Reference - 2007FED ¶18,348.107
CCH Reference - 2007FED ¶18,349.022
Code Sec. 408
CCH Reference - 2007FED ¶18,922.0249
CCH Reference - 2007FED ¶18,922.0253
CCH Reference - 2007FED ¶18,922.0264
CCH Reference - 2007FED ¶18,922.1068
Code Sec. 408A
CCH Reference - 2007FED ¶18,930.024
CCH Reference - 2007FED ¶18,930.197
Code Sec. 409
CCH Reference - 2007FED ¶18,951.031
CCH Reference - 2007FED ¶18,951.20
Code Sec. 414
CCH Reference - 2007FED ¶19,173.25
CCH Reference - 2007FED ¶19,195.023
CCH Reference - 2007FED ¶19,198.01
CCH Reference - 2007FED ¶19,198.25
Code Sec. 415
CCH Reference - 2007FED ¶19,218.022
CCH Reference - 2007FED ¶19,218.023
CCH Reference - 2007FED ¶19,218.0235
CCH Reference - 2007FED ¶19,218.03
CCH Reference - 2007FED ¶19,218.034
CCH Reference - 2007FED ¶19,218.27
Code Sec. 416
CCH Reference - 2007FED ¶19,253.024
Code Sec. 457
CCH Reference - 2007FED ¶21,536.035
CCH Reference - 2007FED ¶21,536.036
CCH Reference - 2007FED ¶21,536.0365
CCH Reference - 2007FED ¶21,536.037
CCH Reference - 2007FED ¶21,536.07
Tax Research Consultant
CCH Reference - TRC COMPEN: 15,152
CCH Reference - TRC COMPEN: 33,156
CCH Reference - TRC COMPEN: 39,100
CCH Reference - TRC RETIRE: 9,050
CCH Reference - TRC RETIRE: 21,102.05
CCH Reference - TRC RETIRE: 24,210
CCH Reference - TRC RETIRE: 27,102.05
CCH Reference - TRC RETIRE: 33,202.05
CCH Reference - TRC RETIRE: 36,050
CCH Reference - TRC RETIRE: 36,200
CCH Reference - TRC RETIRE: 36,350
CCH Reference - TRC RETIRE: 36,352
CCH Reference - TRC RETIRE: 36,354
CCH Reference - TRC RETIRE: 63,114
CCH Reference - TRC RETIRE: 66,204
CCH Reference - TRC RETIRE: 69,058.154
CCH Reference - TRC RETIRE: 74,104.05
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The North Carolina Court of Appeals has upheld a superior court's dismissal of an action that challenged the constitutionality of corporate income, corporate franchise, sales and use, and property tax benefits and other economic incentives and subsidies granted to Dell, Inc., a private-sector computer manufacturing corporation.
Although the Court of Appeals reversed the trial court's ruling that the plaintiffs lacked standing to bring their claims under the Public Purpose and Exclusive Emoluments Clauses, it upheld the trial court's finding that the plaintiffs had failed to state a claim for relief. In Maready v. City of Winston-Salem , 342 N.C. 708, 467 S.E.2d 615 (1996), the North Carolina Supreme Court held that economic incentives offered by governmental entities to a private business for the purposes of job creation and economic development fulfills a public purpose. In addition, the offering of such incentives does not constitute a prohibited exclusive emolument even though a private company might benefit from the incentives. As the plaintiffs failed to distinguish this case from Maready , the holding in Maready
controls.
The Court of Appeals also upheld the trial court's decision that the plaintiffs lacked standing under the state Uniformity of Taxation Clauses and the federal Dormant Commerce Clause as the plaintiffs failed to demonstrate that they belonged to a class that was prejudiced by the challenged statute.
Subscribers to CCH Tax Research NetWork may view the decision.
Blinson v. State of North Carolina , North Carolina Court of Appeals, NO. COA06-1258, October 16, 2007.

CCH (cch.taxgroup.com) reports:

Social Security and Supplemental Security Income (SSI) benefits will increase by 2.3 percent in 2008, according to the Social Security Administration (SSA). The rates for Old-Age, Survivors and Disability Insurance (OASDI) and Medicare Hospital Insurance (HI) taxes will remain unchanged at a combined 7.65 percent in 2008, but the maximum taxable earnings for OASDI purposes will rise from $97,500 to $102,000.
The SSA increases are based on the rise in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the third quarter of 2006 through the third quarter of 2007. For Social Security beneficiaries, the average monthly benefit amount for all retired workers will rise from $1,055 to $1,079, and the maximum monthly benefit will increase from $2,116 to $2,185. The monthly SSI federal payment standard for an individual will rise from $623 to $637; for a couple, the payment will increase from $934 to $956.
The retirement earnings test exempt amount (the point at which retirees begin to lose benefits in conjunction with their receipt of additional earnings) was eliminated for individuals age 65 through 69 as of January 2000. However, it remains in effect for individuals under full retirement age, and a modified test applies for the year in which an individual reaches full retirement age. "Full retirement age" is 65 and 8 months for individuals born in 1941, 65 and 10 months for those born in 1942.
For the year in which an individual attains full retirement age, the retirement earnings test exempt amount will rise from $34,440 a year to $36,120 a year. This test applies only to earnings for months prior to reaching full retirement age. One dollar in benefits will be withheld for every $3 in earnings above the limit. No limit on earnings will be imposed beginning in the month in which the individual reaches full retirement age.
For retirees under full retirement age, the retirement earnings test exempt amount will rise from $12,960 a year to $13,560 a year, with $1 withheld for every $2 in earnings above the limit.
Social Security Administration News Release, 2007FED ¶46,674
Social Security Administration Fact Sheet, 2007FED ¶46,675
SFC Release: Baucus Comments on Social Security Cost-of-Living Adjustment
Other References:
Code Sec. 1401
CCH Reference - 2007FED ¶32,543.01
CCH Reference - 2007FED ¶32,543.07
CCH Reference - 2007FED ¶32,543.26
Code Sec. 1402
CCH Reference - 2007FED ¶32,580.01
Tax Research Consultant
CCH Reference - TRC INDIV: 63,050
CCH Reference - TRC INDIV: 63,052
CCH Reference - TRC INDIV: 63,054
CCH Reference - TRC INDIV: 63,060
CCH Reference - TRC INDIV: 63,100
CCH Reference - TRC INDIV: 63,108
CCH Reference - TRC INDIV: 63,500

CCH (cch.taxgroup.com) reports:

Cost-of-living adjustments (COLAs) for pension plans for the 2008 tax year are expected to be released on October 18 or 19, an IRS Employee Plans (EP) official predicted on October 17. The release is slightly delayed because the Service is consolidating all of the pension information into one release, Martin L. Pippins, a technical guidance expert with EP, told the Society of Actuaries Annual Meeting in Washington, D.C.
Dollar Limitations
Contributions and benefits for qualified retirement plans are subject to dollar limitations under Code Sec. 415. The IRS annually publishes cost-of-living adjustments applicable to pension plans and other items for the following year. These limitations affect how much a defined benefit plan may pay a participant each year and how much a participant may contribute to a defined contribution plan each year.
User-Friendly Approach
On October 17, the Social Security Administration released the 2008 inflation-adjusted wage base for determining the maximum amount of earnings subject to Social Security tax (TAXDAY, 2007/10/18, M.1). Many observers anticipated that the 2008 IRS pension COLAs would be released the same day.
Publication of the 2008 pension COLAs was delayed because the IRS is making the presentation of the material more "user friendly," Pippins said. He briefly highlighted some of the provisions that generate the most questions from taxpayers and practitioners. These include limitations impacting Roth IRAs and the Saver's Credit.
By George L. Yaksick, Jr., CCH News Staff
 

CCH (cch.taxgroup.com) reports:

The IRS has issue three pieces of guidance with regard to certain trust arrangements that are being sold to business owners as welfare benefit funds, and has identified some of those arrangements as listed transactions. The arrangements typically involve a trust wherein cash-value insurance policies on the lives of the owner and/or key employees are purchased with the owner's contribution. Other arrangements involve purported welfare benefit funds that, in form, provide post-retirement medical and life insurance benefits to employees on a nondiscriminatory basis but, in operation, primarily benefit the owners or other key employees of the business.
Notice 2007-83
Some of the arrangements identified by the IRS involve a trust wherein cash-value insurance policies on the lives of the owner and/or key employees, are purchased with the owners contribution. The proceeds are then distributed to participants when the plan is terminated. Advocates of such arrangements are telling business owners that, under such arrangements, the contributions being used to purchase the life insurance policies are deductible as qualified costs without a corresponding inclusion in the employer's income. Business owners are warned by the IRS that such transactions are subject to the disclosure requirements of Code Sec. 6111 and could be listed transactions, subjecting the employer to penalties.The IRS has warned investors that it intends to challenge these types of transactions.
Notice 2007-84
The tax treatment of certain trust arrangements involving purported welfare benefit funds may vary from the claimed tax treatment. The arrangements involve purported welfare benefit funds that, in form, provide post-retirement medical and life insurance benefits to employees on a nondiscriminatory basis but, in operation, will primarily benefit the owners or other key employees of the business. Advocates of these plans claim that employer's contributions for the post-retirement medical and life benefits are deductible under Code Secs. 419 and 419A
as additions to a qualified asset account and that the business owners or key employees receive the economic benefits from the contributions with little or no inclusion in income.
Caution: According to the IRS, taxpayers should not assume that any further IRS guidance addressing these arrangements will be applied prospectively only.
The arrangements are being promoted to and used by small businesses to avoid federal income and employment taxes. Usually, they are sold to the business as a way to provide post-retirement medical benefits, post-retirement life insurance, and cash and other property to the business owners or key employees on a tax-favored basis through the use of a trust. They may involve either a taxable trust or a tax-exempt trust, i.e., a voluntary employee's beneficiary association (VEBA) that has received a determination letter from the IRS that it is described in Code Sec. 501(c)(9). Often, employer's contributions will be used by the trust to purchase cash value life insurance policies on the lives of owner-employees or, sometimes, other key employees. Also, the employer's deduction for contributions is frequently based on calculation of a reserve associated with each of the plan participants that may be based on an unreasonable assumption or other actuarial assumptions that either are not reasonable or may not be reflected in the reserve calculations for purposes of Code Secs. 419 and 419A.
The plan documents of some arrangements may indicate that post-retirement benefits will be provided on a nondiscriminatory basis, even though only a few employees will ever, in fact, receive those benefits. Further, the owner will receive a substantial portion of the excess assets not needed to pay the original benefits. This may be accomplished under some arrangements by the use of a "loan" to the owners. Under some arrangements, the plan will be amended to provide plan benefits other than the original post-retirement medical or life insurance benefits. In others, the timing of a plan termination and method of allocating the remaining assets are structured so that a substantial portion of trust assets is received, directly or indirectly, by owners and other key employees.
The IRS may challenge the claimed tax benefits of these arrangements for various reasons:
--Contributions on behalf of an owner-employee may be characterized as dividends or as nonqualified deferred compensation subject to Code Sec. 404(a)(5) or Code Sec. 409A or both, depending on the facts and circumstances.
--The arrangement may be subject to the rules for split-dollar arrangements, depending on the facts and circumstances.
--An employer's deductions for contributions to an arrangement that is properly characterized as a welfare benefit fund are subject to the limitations and requirements of the rules in Code Secs. 419 and 419A, including the use of reasonable actuarial assumptions and the satisfaction of nondiscrimination requirements. Further, a taxpayer cannot obtain a deduction for reserves for post-retirement medical or life benefits unless the employer actually intends to use the contributions for that purpose.
--Under the tax benefit rule, some or all of an employer's deductions in an earlier year may have to be included in income in a later year if an event occurs that is fundamentally inconsistent with the premise on which the deduction was based.
--Whenever the property distributed from a trust has not been properly valued by the taxpayer, the IRS intends to challenge the value of the distributed property, including life insurance policies.
--Some of all of the benefits or distributions provided to or for the benefit of owner-employees or key employees may be disqualified benefits for purposes of the 100-percent excise tax under Code Sec. 4976.
The IRS may impose penalties on persons involved in these or similar arrangements, and, as applicable, on persons who participate in the promotion or reporting of these or similar arrangements. These include:
--the accuracy-related penalty under Code Sec. 6662.
--the return preparer penalty under Code Sec. 6694.
--the promoter penalty under Code Sec. 6700.
--the aiding and abetting penalty under Code Sec. 6701.
Finally, the IRS states that, even if a trust has received a determination letter from the IRS that it is exempt under Code Sec. 501(c)(9), this type of letter does not address the tax deductibility of contributions with respect to an employer or the inclusion of income with respect to employees.
Rev. Rul. 2007-65
The IRS ruled that a welfare benefit fund's qualified direct cost under Code Sec. 419 does not include premium amounts paid by the fund for cash value life insurance policies if the fund is directly or indirectly a beneficiary under the policy as determined under Code Sec. 264(a). This holding applies regardless of whether the plan benefits are provided through a taxable trust, an exempt Voluntary Employees' Beneficiary Association, or any other type of welfare benefit fund.
CCH Comment. Like Notice 2007-83 and Notice 2007-84, this ruling is aimed at promoted arrangements under which the fund trustee purchases cash value life insurance policies on the lives of the employees who are owners of the business (and sometimes key employees), while purchasing term insurance polices on the lives of other employees covered under the plan. These plans anticipate that the plan will be terminated and the cash value policies will be distributed to the owners or key employees with very little distributed to other employees. The promoters claim the insurance premiums are currently deductible by the business, and the distributed insurance policies are virtually tax-free to the owners. The ruling makes clear that, going forward, a business cannot deduct the cost of premiums paid through a welfare benefit plan for cash value life insurance on the lives of its employees. Some arrangements described by this ruling may qualify as a listed transaction under Notice 2007-83.
The ruling involved welfare benefit funds that purchased cash value life insurance policies to fund their obligations. In situation 1, the fund was only obligated to provide group-term life insurance to employees. The fund purchased policies on each employee, with the death benefits payable to the beneficiary named by the employee and the fund retaining all other policy rights. In situation 2, the fund was obligated to provide disability benefits to current employees. The fund was the owner and named beneficiary of these policies. The fund paid out $X during the tax year in disability benefits.
Costs of providing employee welfare benefits are deductible by an employer only if they are qualified direct costs of the fund. Costs are qualified direct costs only if they would be deductible by the employer if: (1) the employer paid them directly rather than through a welfare benefits fund, and (2) the employer used a cash method of accounting. The employer in both situations 1 and 2 could not deduct these premiums under these circumstances because under Code Sec. 264(a), a taxpayer cannot deduct premiums for life insurance if it is a direct or indirect beneficiary of the policies. In these situations, the employer is either a direct (situation 2) or indirect (situation 1) beneficiary. (The employer in situation 2, however, could deduct the $X paid out to employees during the tax year, and, hence, the fund could treat that amount as a qualified direct cost.)
An employer can deduct contributions to a welfare benefits fund that are set aside in a qualified asset account under Code Sec. 419A that are reasonably and actuarially necessary to fund claims for benefits incurred but unpaid as of the close of the tax year. In situation 1, all the benefits provided by the plan are fully insured, so no amounts are needed to fund unpaid claims. Hence, the employer in situation 1 could not deduct any of its contributions to the fund on that basis. In contrast, the obligations of the fund in situation 2 were not insured and could generate incurred but unpaid claims. The employer in situation 2 could, therefore, deduct funds set aside to satisfy these unpaid obligations, as long as the amounts were otherwise deductible. Nevertheless, if the fund had purchased the life insurance to accumulate assets to pay uninsured disability benefits, the employer could not deduct the contribution since the employer would not have been able to deduct the insurance premiums.
The rule disallowing a deduction if the employer could not deduct the amount under Code Sec. 264 is to be applied prospectively. For any tax year of an employer ending before November 5, 2007, if a deduction is otherwise allowable, a deduction for contributions to a welfare benefit fund under an arrangement that is not subject to the split-dollar life insurance arrangements will not be disallowed merely because the deduction would have been disallowed under Code Sec. 264 had the employer provided the benefits directly.
IR-2007-170, 2007FED ¶46,670
Notice 2007-83, 2007FED ¶46,671
Notice 2007-84, 2007FED ¶46,672
Rev. Rul. 2007-65, 2007FED ¶46,673
Other References:
Code Sec. 264
CCH Reference - 2007FED ¶14,008.135
Code Sec. 419
Code Sec. 419A
CCH Reference - 2007FED ¶19,301.25
CCH Reference - 2007FED ¶19,301.60
Code Sec. 6111
CCH Reference - 2007FED ¶37,002.156
Code Sec. 6112
CCH Reference - 2007FED ¶37,022.023
CCH Reference - 2007FED ¶37,022.09
CCH Reference - 2007FED ¶37,022.156
Tax Research Consultant
CCH Reference - TRC FILEBUS: 3,052.20
CCH Reference - TRC FILEBUS: 9,454
CCH Reference - TRC COMPEN: 42,000
CCH Reference - TRC COMPEN: 42,106
CCH Reference - TRC COMPEN: 48,054
CCH Reference - TRC PENALTY: 3,252

CCH (cch.taxgroup.com) reports:

House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., told reporters on October 17 to expect the introduction of two separate tax bills during the week of October 22. One measure, which he called a "stop-gap" bill, would cost about $80 billion and extend a group of popular business and individual tax breaks known as the tax extenders. It would also provide a one-year patch to prevent the alternative minimum tax (AMT) from affecting about 23 million American families in 2008. That bill will reach the House floor before adjournment in mid-November, he said.
The second piece of legislation to expect, Rangel promised, would be the "mother of all reform" bills that would include provisions to totally eliminate the AMT at a cost of roughly $800 billion. This second tax bill, which Rangel expects to see on the House floor sometime in 2008, would also cut taxes for about 90 million Americans, lower corporate tax rates and close many tax loopholes that businesses currently enjoy.
Rangel said that he has met with House Speaker Nancy Pelosi, D-Calif., as well as members of his committee, and determined that the larger bill should not be rushed to the House floor. Instead, Rangel plans to visit business and consumer groups in 2008 to drum up support for the measure.
Both bills will be revenue-neutral, according to Rangel, who downplayed any suggestion that lawmakers should waive the House's pay-as-you-go rules that require spending and tax cut bills to be fully offset. He said that changing the tax code to require that hedge fund operators be taxed at ordinary income rates, rather than capital gains rates, is just one possibility out of many that lawmakers are considering to raise revenues.
Rangel also suggested that cutting corporate tax rates and closing tax loopholes might be seen as a tax increase by businesses since, under the current tax system, those loopholes result in many corporations avoiding all taxes. Rangel said that he and Treasury Secretary Henry M. Paulson, Jr., are "close to reading from the same page" on corporate-tax changes.
Republican Response
Rangel's proposals come amid calls from House and Senate GOP lawmakers to take quick action on the AMT. In a letter to Paulson, Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, and House Ways and Means Committee ranking member Jim McCrery, R-La., asked for a detailed analysis of the impact on taxpayers of the Democratic-led Congress' failure to extend the AMT in 2007 (TAXDAY, 2007/10/17, C.2).
McCrery told CCH that Rangel's plan to eliminate the AMT by raising taxes on wealthier Americans is unlikely to succeed. He predicted that Rangel will end up passing a one- or two-year AMT patch that does not solve the problem. The AMT should be eliminated as part of an overall plan for comprehensive reform, he said.
Fellow Ways and Means member Paul Ryan, R-Wis., recently introduced the Taxpayer Choice Bill of 2007 (HR 3818), which would eliminate the AMT and impose a new simplified tax system to replace the current income tax system (TAXDAY, 2007/10/11, C.3). Rangel noted Ryan's plan, saying that he had encouraged GOP lawmakers to come forward with AMT proposals. However, Rangel did not express support for the Ryan bill.
By Stephen K. Cooper, CCH News Staff
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The U.S. House of Representatives has passed legislation that would extend for four years the existing moratorium on state and local Internet access taxes, which is currently set to expire on November 1, 2007. The legislation, which was passed by the House Judiciary Committee on October 10, 2007, was considered by the full House under a suspension of the rules, which prevented any amendments from being offered. This procedure prevented proponents of a permanent ban, who believed they had sufficient votes to pass their alternative, from bringing it up for a vote. The U.S. Senate has yet to act to extend the moratorium. Administration officials continue to press for a permanent ban. The details of the House legislation were reported previously. (TAXDAY, 2007/10/12, S.1)
H.R. 3678, as passed by the U.S. House of Representatives, October 16, 2007.

CCH (cch.taxgroup.com) reports:

The Tax Court lacked jurisdiction to consider an individual's request for deficiency redeterminations and innocent spouse relief with respect to adjustments related to his participation in a partnership with his former wife. A joint notice of deficiency was sent to the couple after a TEFRA partnership proceeding was brought in the federal district court by a non-tax matters partner. Because the adjustments set forth in the notice of deficiency were attributable to partnership items that were the subject of that on-going proceeding, the notice of deficiency was invalid. Accordingly, the Tax Court lacked jurisdiction to redetermine the deficiency.
In addition, the taxpayer's request for innocent spouse relief was not a valid stand-alone petition for relief. The request was premature because a deficiency had not been asserted against him. The parties' attempts to settle their tax liabilities, the issuance of an FPAA and the invalid notice of deficiency taken together did not demonstrate that the IRS asserted a deficiency. The taxpayer's entitlement to relief was an affected item that could be determined only after the partnership-level proceeding concluded. Thus, the taxpayer could not seek relief until the underlying partnership-level proceeding was final and the IRS issued either a notice of computational adjustment or a valid affected items notice of deficiency to the taxpayer.
P.D. Adkison, 129 TC No. 13, Dec. 57,144
Other References:
Code Sec. 6015
CCH Reference - 2007FED ¶35,192.66
Code Sec. 6230
CCH Reference - 2007FED ¶32,769.30
Tax Research Consultant
CCH Reference - TRC PART: 60,312
 

CCH (cch.taxgroup.com) reports:

Various prescribed rates for federal income tax purposes for November 2007 have been provided by the IRS. The annual short-term, mid-term, and long-term applicable federal interest rates (AFRs) are 4.11 percent, 4.39 percent and 4.89 percent, respectively. The semiannual short-term, mid-term, and long-term AFRs are 4.07 percent, 4.34 percent and 4.83 percent, respectively. Quarterly short-term, mid-term and long-term AFRs are 4.05 percent, 4.32 percent and 4.80 percent, respectively. Finally, the monthly short-term, mid-term and long-term rates are 4.04 percent, 4.30 percent and 4.78 percent, respectively.
The short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for November 2007 for purposes of Code Sec. 1288(b) are 3.40 percent, 3.61 percent, and 4.30 percent, respectively, when annual compounding is used.
Additionally, the Code Sec. 382 adjusted federal long-term rate is 4.30 percent, and the long-term tax-exempt rate is 4.49 percent. The Code Sec. 42(b)(2) appropriate percentage for the 70-percent present-value, low-income housing credit is 8.08 percent, and the appropriate percentage for the 30-percent present-value, low-income housing credit is 3.46 percent. Finally, the Code Sec. 7520 AFR for determining the present value of an annuity, an interest for life or a term of years, or a remainder or reversionary interest is 5.2 percent.
Rev. Rul. 2007-66, 2007FED ¶46,669
Rev. Rul. 2007-66, FINH ¶30,563
Other References:
Code Sec. 42
CCH Reference - 2007FED ¶173.02
CCH Reference - 2007FED ¶176.01
CCH Reference - 2007FED ¶4385.03
Code Sec. 382
CCH Reference - 2007FED ¶17,115.28
Code Sec. 642
CCH Reference - 2007FED ¶24,308.1885
Code Sec. 1274
CCH Reference - 2007FED ¶31,310.05
CCH Reference - 2007FED ¶31,310.11
Code Sec. 7520
CCH Reference - 2007FED ¶42,785.40
CCH Reference - FINH ¶22,630.05
Code Sec. 7872
CCH Reference - FINH ¶18,950.05
Tax Research Consultant
CCH Reference - TRC ACCTNG: 36,162.05
 

CCH (cch.taxgroup.com) reports:

Newly proposed regulations would provide guidance on the determination of the source of compensation for labor or personal services, particularly in regard to artists and athletes, through the application of a new "events basis" rule. Under the "events basis" rule, the source of the compensation, whether within or without the U.S., can usually be determined by considering, under the facts and circumstances of the case, the location of the event for which the person is compensated. Thus, under the proposal, the source of the compensation is the location where the event is held. Additional guidance is provided regarding whether or not the individual is compensated as an employee and for circumstances involving services performed in multiple locations.
The IRS has requested comments and requests for a public hearing on the proposed regulations. Written and electronic comments and requests for a hearing must be received by January 15, 2008.
Proposed Regulations, NPRM REG-114125-07, 2007FED ¶49,769
Other References:
Code Sec. 861
CCH Reference - 2007FED ¶27,129.105
CCH Reference - 2007FED ¶27,129.14
Tax Research Consultant
CCH Reference - TRC INTL: 3,200
CCH Reference - TRC INTL: 3,202

CCH (cch.taxgroup.com) reports:

The IRS has issued proposed regulations regarding withholding procedures for distributions of the stock of a corporation that is actively traded on an established financial market. Specifically, the proposed regulations would provide an escrow procedure that a withholding agent must apply while making the determination under Code Sec. 302 as to whether the distribution in redemption of the stock held by a foreign shareholder is treated as a dividend subject to withholding, or a distribution in part or full payment in exchange for stock.
The withholding agent would be required to set aside in an escrow account, 30 percent (or the applicable dividend rate provided under a treaty) of the amount of the Code Sec. 302 payment. The withholding agent would also be required to provide information to the foreign beneficial owner regarding the distribution, including the total number of the distributing corporation's shares outstanding before and after the distribution.
In the written explanation, the withholding agent would request that the beneficial owner provide a written certification within 60 days as to whether the distribution is either a dividend or a payment in exchange for stock. The withholding agent would be able to generally rely on a certification received from a foreign beneficial owner in determining its Code Sec. 1441 obligations with respect to payments for such beneficial owner's stock.
The proposed regulations would apply for redemptions of stock that are made after December 31, 2008. However, a withholding agent would be able to rely on the proposals for a redemption of stock that occurs before January 1, 2009.
Comments are requested with respect to these regulations. Written or electronic comments must be received by January 16, 2008. A public hearing is scheduled for February 6, 2008.
Proposed Regulations, NPRM REG-140206-06, 2007FED ¶49,768
Other References:
Code Sec. 1441
CCH Reference - 2007FED ¶32,706D
Tax Research Consultant
CCH Reference - TRC INTLIN: 6,112.10
 

CCH (cch.taxgroup.com) reports:

Senate Finance Committee Chairman Max Baucus, D-Mont., plans to hold a member's meeting on October 17 to begin preparation for a tax extenders package that could be marked up as early as the week beginning October 22. In conjunction with the meeting, committee member Orrin G. Hatch, R-Utah, is expected to introduce a research tax credit bill that would gradually eliminate the traditional credit calculation and also gradually increase the alternative simplified credit (ASC) calculation established by the 2006 tax extenders bill.
Several temporary tax provisions expired in 2005 and were retroactively extended through December 31, 2007. The provisions were originally enacted with expiration dates that have subsequently been extended, in some cases, numerous times. The extenders include tax credits, including the work opportunity tax credit (WOTC), the welfare-to-work tax credit (WWTC), the New York WOTC, the credit for holders of qualified zone academy bonds, the research and experimentation tax credit, the credit for first-time homebuyers in the District of Columbia, the new markets tax credit and the possession tax credit with respect to American Samoa.
The extenders also include deductions for expenditures by elementary and secondary school teachers, corporate contributions of computer technology, costs of remediation of brownfields, contributions to Archer Medical Savings Accounts, capital investment in oil and gas produced from marginal wells, state and local sales taxes and several depreciation allowances. The depreciation allowances include an accelerated provision for property on Indian reservations, qualified leasehold improvements and qualified restaurant improvements. Other temporary tax provisions that expired included tax incentives for investment in the District of Columbia Enterprise Zone, an increased "cover over" of tax on distilled spirits from Puerto Rico and the U.S. Virgin Islands, and an excise tax to induce parity in the application of certain mental health benefits.
Most recently, Congress approved several extenders in legislation associated with the minimum wage and the enactment of tax benefits to offset potential higher wage costs for small businesses. When the Small Business and Work Opportunity Tax Act of 2006 became law (P.L. 110-28) in May 2007, one of the temporary tax provisions, the WOTC, was extended through August 31, 2011. Currently, the Mortgage Forgiveness Debt Relief Bill (HR 3648), includes a provision to extend the deduction of qualified mortgage insurance premiums through December 31, 2014.
By Jeff Carlson, CCH News Staff
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Wisconsin Governor Jim Doyle's compromise budget bill, which includes corporation franchise and income, personal income, sales and use, property, cigarette, and other tax changes, was introduced in the Senate during a special session on October 15, 2007. At press time, the bill had not yet been passed by the Senate. Highlights of the bill are discussed below.

CCH (cch.taxgroup.com) reports:

An IRS Appeals officer abused her discretion by including the full amount of an individual's dissipated assets in his net realizable equity (NRE) during her evaluation of his offer-in-compromise. The court concluded that the individual's NRE should not have included amounts paid for: attorney's fees incurred in the representation in his tax case; attorney's fees incurred in a civil lawsuit he filed for unpaid wages; an estimated tax payment made for one of the tax years at issue; and a lump-sum payment of delinquent child support. The case was remanded to Appeals for 60 days, during which time the individual had the opportunity to amend his offer based on the revised amount of his tax liability and in consideration of his available monthly income.
D.L. Samuel, TC Memo. 2007-312, Dec. 57,141(M)
Other References:
Code Sec. 7122
CCH Reference - 2007FED ¶41,130.175
Tax Research Consultant
CCH Reference - TRC IRS: 42,120
CCH Reference - TRC IRS: 51,056.25

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

California Governor Arnold Schwarzenegger vetoed legislation that would have repealed the interest offset provision under California corporation franchise and income tax law. The proposed repeal was intended to reflect the U.S. Supreme Court's decision in Hunt-Wesson, Inc. v. Franchise Tax Board , 528 U.S. 458 (2000), and to remove grounds for constitutional challenges to the provision as discriminatory in favor of corporations domiciled in California. However, the Governor claimed that the bill went beyond the holding in Hunt-Wesson , which applied to non-California domiciliary corporations, and would have negatively impacted California-based corporations.
In Hunt-Wesson, the U.S. Supreme Court held that the interest offset provision was unconstitutional as applied to a non-California domiciliary corporation because the provision unreasonably assigned interest expense on a dollar-for-dollar basis to nonbusiness interest and dividends, resulting in the taxation of extraterritorial income in violation of both the Commerce Clause and the Due Process Clause of the U.S. Constitution. Under the interest offset provision, interest expense was deducted in the following order:
(1) interest expense was deducted from business interest income;
(2) interest expense in excess of business interest income was deducted from nonbusiness interest and dividend income; and
(3) any remaining interest expense was allowed as a deduction in computing net business income.
The FTB has adopted a narrow interpretation of the Hunt-Wesson
decision and continues to apply the interest offset provision to corporations domiciled in California, but uses a direct tracing or proration method for assigning interest expense to business income and nonbusiness income for corporations domiciled outside California. However, the California Legislative Counsel offered an opinion that the portion of the interest offset provision that was invalidated by the U.S. Supreme Court was not severable and, therefore, the entire provision was void and could not be applied to California domiciled corporations or corporations domiciled outside of California.
A.B. 1618, as returned to the California General Assembly by Governor Schwarzenegger; Veto Message , Governor Arnold Schwarzenegger, October 11, 2007; Bill Analysis , Senate Floor, July 12, 2007; Analysis of Original Bill , California Franchise Tax Board, May 1, 2007.

CCH (cch.taxgroup.com) reports:

The effective date of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), should be delayed for private companies, Judith H. O'Dell, chair of the Private Company Financial Reporting Committee (PCFRC), told CCH on October 12. The PCFRC recently wrote to the FASB urging a delay, cautioning that many private businesses and financial statement preparers are unsure about FIN 48's implications for pass-through entities. FASB members will likely address the PCFRC's concerns at a board meeting sometime in 2007.
CCH Comment. The FASB has previously declined to delay the effective date of FIN 48. In January, FASB members voted unanimously to leave unchanged the original effective date for fiscal years beginning after December 15, 2006 (TAXDAY, 2007/01/18, M.1).
Recognition and Measurement
FIN 48 is designed to clarify the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. Evaluating a tax position under FIN 48 is a two-step process. First, the enterprise determines if it is more likely than not that a tax position will be sustained upon examination. A tax position that meets the more-likely-than-not recognition threshold is then measured to determine the amount of benefit to recognize in the financial statements.
Immediate Action Needed
O'Dell noted that most private companies are confronted with FIN 48 for the first time in preparing year-end financial statements. Therefore, the FASB should act quickly to delay the effective date of FIN 48 for private companies so they can get up to speed with the requirements and implications of FIN 48.
Pass-Through Entities
O'Dell explained that the implications of FIN 48 are especially important for private businesses because many operate as pass-through entities, such as S corporations or limited liability companies. FASB Statement 109 does not directly address pass-through entities. Many private company financial statement preparers are unaccustomed to accounting for income taxes if the private company operates as a pass-through entity.
The PCFRC has identified several issues arising from FIN 48's implications to pass-through entities. These include the level at which taxes are assessed (owner or entity) and the ramifications of FIN 48's requirements on acquisitions and tax indemnification. O'Dell used the example of a pass-through entity with a research credit on its return. "Under FIN 48, the entity has to assume that the IRS will look at it."
Education
"Some private companies are just learning about the implications of FIN 48," O'Dell noted. Unlike many large public companies, small private companies frequently do not have the resources to follow FASB proceedings. They often learn about new requirements like FIN 48 at continuing education sessions after the effective date. The PCFRC is engaged in educational outreach and is contacting constituent groups to determine what other issues they are confronting in implementing FIN 48.
FASB Meeting
O'Dell told CCH that the PCFRC's concerns will be placed on the FASB's agenda. However, she had not yet heard when FASB members will discuss the issue.
By George L. Yaksick, Jr., CCH News Staff
PCFRC Letter Re: FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes

CCH (cch.taxgroup.com) reports:

Electronic return originators (EROs) have been authorized to use alternative methods to sign the following forms: (1) Form 8453, U.S. Individual Income Tax Declaration for an IRS e-file Return; (2) Form 8878, IRS e-file Signature Authorization for Form 4868 or Form 2350; and (3) Form 8879, IRS e-file Signature Authorization. Applicable to any Form 8453, 8878 or 8879 filed on or after October 15, 2007, signatures may be affixed by means of rubber stamp, mechanical device (for example, a signature pen), or computer software program.
Any of these alternative methods must include either a facsimile of the individual ERO's signature or the ERO's printed name. EROs who use any of the alternative methods are personally liable for affixing their signatures to the return or extension request.
Use of these alternative signature methods is limited to EROs that sign Forms 8453, 8878 or 8879, and does not affect the requirement that the taxpayer for whom the tax return or extension request is being filed sign the document manually or by any other authorized means. The alternative methods may not be used with any other type of document for which manual signatures are currently required, including elections, applications for changes in accounting method, powers of attorney or consent forms.
Notice 2007-79, 2007FED ¶46,666
Other References:
Code Sec. 6061
CCH Reference - 2007FED ¶36,605.101
CCH Reference - 2007FED ¶36,605.16
CCH Reference - 2007FED ¶36,605.20
Tax Research Consultant
CCH Reference - TRC FILEBUS: 12,308.15

CCH (cch.taxgroup.com) reports:

The IRS has certified the 2008 Honda Civic Hybrid CVT as eligible for the alternative motor vehicle credit under Code Sec. 30B. The credit amount for the vehicle is $2,100. The total number of qualifying Honda hybrid vehicles reported sold as of June 30, 2007, was 58,872. Therefore, purchasers of Honda's qualified vehicles may continue to rely on the previously issued IRS certifications.
IR-2007-168, 2007FED ¶46,665
Other References:
Code Sec. 30B
CCH Reference - 2007FED ¶4059E.026
CCH Reference - 2007FED ¶4059E.10
Tax Research Consultant
CCH Reference - TRC INDIV: 57,700
CCH Reference - TRC INDIV: 57,708
CCH Reference - TRC INDIV: 57,708.10

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

For taxable years beginning after 2006, legislative amendments revise the calculation of the annual fee payable by a limited liability company (LLC) organized, doing business, or registered in California so that the fee will be determined on the basis of the LLC's total income from all sources derived from or attributable to the state. "Total income from all sources derived from or attributable to the state" will be determined by applying the existing allocation and apportionment rules for assigning the sales of an entity doing business within and outside the state. The Legislature has stated its intent that no inference be drawn in connection with the legislative amendments for any taxable year beginning before 2007.
Previously, the annual LLC fee was based on an LLC's total income from all sources reportable to the state. "Total income" was defined as gross income from whatever source derived, plus the cost of goods sold that was paid or incurred in connection with a trade or business. However, the law lacked a definition for the term "from all sources reportable to the state." The Franchise Tax Board (FT interpreted this term to mean worldwide total income without apportionment.

CCH (cch.taxgroup.com) reports:

The Judiciary Committee of the U.S. House of Representatives has approved legislation that would extend for four years the existing moratorium on state and local Internet access taxes currently set to expire on November 1, 2007. The legislation, the Internet Tax Freedom Act Amendments Act of 2007, was offered by the Committee's chair Rep. John Conyers, Jr., D-Mich, and has the support of various industry groups and state government organizations. It has been reported by the Committee to the full House for a floor vote that may occur next week.
Specifically, the legislation would do the following:
-- The moratorium on state and local taxes on Internet access and multiple or discriminatory taxes on electronic commerce that was originally enacted in October 1998 would be extended until November 1, 2011. Also, the grandfather clause that permits Internet access taxes that were generally imposed and actually enforced prior to October 1, 1998, would be extended until November 1, 2011, as well.
-- A state or local government would be held harmless until November 1, 2007, if it has imposed a tax on telecommunications service purchased, used, or sold by a provider of Internet access. However, the hold harmless would only operate if a public ruling applying such a tax was issued prior to July 1, 2007, or such a tax is the subject of litigation that was begun prior to July 1, 2007. In its last set of amendments to the moratorium, Congress had attempted to prohibit, as of November 1, 2005, certain taxes on telecommunications services, including digital subscriber line (DSL) service and services used by access providers over the so-called Internet backbone. However, some states, including Minnesota and Missouri, have taken the position that the 2004 amendments did not have the purported effect. The Committee legislation attempts to clarify the intent of Congress and eliminate any inconsistent interpretations.
-- A new definition of "Internet access" would be enacted. The stated purpose is to define it as a service that enables a user to connect to the Internet. "Internet access" would include the purchase, use, or sale of telecommunications by an Internet service provider to provide the service, and incidental services such as home pages, electronic mail, instant messaging, video clips, and personal storage capacity. However, "Internet access" would not include voice, audio, video programming, or other products and services using Internet protocol for which there is a charge, regardless of whether the charge is bundled with charges for "Internet access."
-- The moratorium would be amended to clarify that it does not apply to state general business taxes, such as gross receipts taxes, that are structured in such a way as to be a substitute for or supplement the state corporate income tax. Therefore, Internet access providers could still be taxed on their receipts attributable to providing access under tax regimes such as the Michigan business tax, Ohio commercial activity tax, Texas margin tax, and Washington business and occupation tax.
Subscribers to CCH Tax Research NetWork can view the legislation passed by the House Judiciary Committee.
H.R. 3678, as amended and approved by the U.S. House Judiciary Committee, October 10, 2007; Press Release, Office of Rep. John Conyers, Jr., October 10, 2007.

CCH (cch.taxgroup.com) reports:

The Government Accountability Office (GAO) has issued a report addressing the need for improvement by the IRS in handling its paper case files. The study, prompted by the IRS's inability to locate files requested by the GAO, showed the IRS lacks an effective process for locating paper case files. The GAO noted that the IRS does not track whether files requested have been located and, if not, the reason for the inability to locate the file. Consequently, the IRS lacks sufficient data to evaluate its file management processes. The report further noted that missing files can result in lost revenue, as well as undue taxpayer burden.
Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, in a written statement criticized the IRS's lost paperwork, stating, "If the tables were turned, and it was the taxpayer losing his records, the IRS would have zero tolerance." He went on to say that the findings of the GAO are made worse by the fact that they are coming, "... a day after the House voted against private contractors assisting the IRS in its work on debt collection." According to the senator, the IRS may need more, not fewer, private contractors to assist with its work.
The GAO recommends the IRS take measures to ensure management of paper case files are in accordance with the Federal Records Act (FRA) and internal control standards and that it establish a tracking system for lost files. Moreover, the IRS should develop performance measures to assess needed improvements. In addition to other recommendations that would require IRS evaluation to determine their feasibility, the GAO recommended monitoring of case file performance across internal compliance programs. The IRS agreed, and has outlined actions to take in response to the recommendations.
GAO Report: Tax Administration --The Internal Revenue Service Can Improve Its Management of Paper Case Files (GAO-07-1160)
SFC Release on Grassley's Comments on GAO Report

CCH (cch.taxgroup.com) reports:

The government was not entitled to raise a setoff claim after judgment had been entered in favor of an insurance company that sought a tax refund and only the parties' computations of the correct refund amount remained to be submitted to the court. The government had the opportunity to plead its setoff claim earlier and the evidence showed that it was not unable to do so.
Although the government contended that Tax Court Rule 155 allows for the introduction of new issues during the recalculation of deficiencies, that rule was not adopted in whole by the Court of Federal Claims. Rather, a procedure loosely based on the rule was adopted for purposes of the computation of the refund due. The cases cited by the government showed that, absent the explicit warnings contained in Rule 155, a taxpayer would proceed at his risk if he agrees to propose, jointly with the government, a judgment amount following a decision on tax liability.
Related decision at 2006-1 USTC ¶50,240.
Principal Life Insurance Company, FedCl, 2007-2 USTC ¶50,719
Other References:
Code Sec. 7422
CCH Reference - 2007FED ¶41,688.21
Tax Research Consultant
CCH Reference - TRC LITIG: 9,106
 

CCH (cch.taxgroup.com) reports:

The Treasury Department and the Office of Management and Budget (OM on October 11 released data showing the budget deficit for fiscal year (FY) 2007 stood at $163 billion. That amount is $42 billion lower than had been forecast in July in the Mid-Session Review (TAXDAY, 2007/07/12, W.1).
"We have told the American people that, by keeping taxes low, we can grow the economy, and by working with Congress to set priorities we can be fiscally responsible and we can head toward balance. And that's exactly where we're headed," President Bush said following release of the data.
Treasury Secretary Henry M. Paulson, Jr., said the deficit figure showed that "we must keep taxes low and restrain federal spending to continue the economic expansion in the wake of credit market disruptions and the housing market downturn." OMB Director Jim Nussle added that the unsustainable growth in Social Security, Medicare and Medicaid posed a "huge budgetary challenge ... Congress should begin to take action to prevent this fiscal train wreck."
By Sarah Borchersen-Keto, CCH News Staff
White House Press Release --FY07 Results: Deficit Declining Towards 2012 Surplus
Treasury Department News Release, TDNR HP-603

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

An Illinois Appellate Court has issued answers to six certified questions in connection with a lawsuit alleging that numerous retailers with out-of-state operations failed to collect and remit Illinois use tax on goods sold to Illinois residents over the Internet and/or through catalogs.

CCH (cch.taxgroup.com) reports:

A retired serviceman was not entitled to deduct child-support payments as alimony; however, he could deduct as alimony the portion of his military retirement pay that was paid to his ex-wife. The individual, pursuant to court order, paid a certain amount to his former spouse during the tax year at issue, which he deducted on his tax return. A portion of the payment was reimbursement of child-related expenses. No deduction was allowed for the child-related expenses because they constituted child support pursuant to Code Sec. 71(c)(3).
The portion paid to his former spouse for her interest in his retirement plan, however, was deductible because it was considered alimony, as opposed to a property settlement. The payments met the requirements of Code Sec. 71(b)(1)(A) through (D)
in that they were received pursuant to a divorce decree; the parties were living in separate households; the divorce decree did not state that the payments were not includible in the recipient's gross income or specify that the payments were not to be treated as alimony; and the payments would terminate, by operation of law, upon the death of the former spouse.
N.J. Proctor, 129 TC No. 12, Dec. 57,135
Other References:
Code Sec. 71
CCH Reference - 2007FED ¶6094.15
CCH Reference - 2007FED ¶6094.345
CCH Reference - 2007FED ¶6094.38
Code Sec. 215
Tax Research Consultant
CCH Reference - TRC INDIV: 21,106
CCH Reference - TRC INDIV: 21,204
CCH Reference - TRC INDIV: 21,452.10

CCH (cch.taxgroup.com) reports:

For pension plan years beginning in October 2007, the IRS has released the corporate bond weighted average interest rate, the permissible range of interest rates used to calculate current plan liability and to determine the required contribution under Code Sec. 412(l) for plan years through 2007, and the current corporate bond yield curve and related segment rates for the purpose of establishing a plan's funding target under Code Sec. 430(h)(2).
The corporate bond weighted average interest rate for plan years beginning in October 2007 is 5.88 percent; the 90-percent to 100-percent permissible range is 5.29 percent to 5.88 percent. The annual rate of interest on 30-year Treasury securities for September 2007, used to determine the minimum present value of a participant's benefit under Code Sec. 417(e)(1) and (2), is 4.79 percent.
For plans electing not to use the transitional rule under Code Sec. 430(h)(2)(G), or for plans whose first year begins after 2007, the 24-month average segments rates for October 2007 are: 5.29 for the first segment, 5.86 for the second segment and 6.40 for the third segment.
For plan years beginning in 2008, the funding transitional segment rates for October 2007 are: 5.68 for the first segment, 5.87 for the second segment and 6.05 for the third segment.
For plan years beginning in 2008, the minimum present value transitional segment rates for September 2007 are: 4.89 for the first segment, 5.06 for the second segment and 5.14 for the third segment.
Notice 2007-82, 2007FED ¶46,664
Other References:
Code Sec. 401
CCH Reference - 2007FED ¶17,730.40
Code Sec. 412
CCH Reference - 2007FED ¶19,125.505
Code Sec. 417
Code Sec. 430
CCH Reference - 2007FED ¶20,161.03
Tax Research Consultant
CCH Reference - TRC RETIRE: 15,304.05
CCH Reference - TRC RETIRE: 15,304.10
CCH Reference - TRC RETIRE: 30,170
CCH Reference - TRC RETIRE: 30,556

CCH (cch.taxgroup.com) reports:

Private debt collectors would be barred from collecting unpaid tax debts on behalf of the IRS under the Tax Collection Responsibility Bill of 2007 (HR 3056) approved by the House on October 10. Support for the measure fell predictably along partisan lines, with Democrats complaining that private collection agencies (PCAs) are not nearly as efficient as IRS employees. Republican lawmakers noted that PCAs have been successful while never violating the rights of American taxpayers under the Fair Debt Collection Practices Act (P.L. 104-208). The measure was approved by a vote of 232 to 173.
House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., said the bill is intended to stop so-called "bounty hunters" from earning a commission by harassing taxpayers for money owed to the Treasury. IRS employees collect unpaid taxes at a much faster pace than PCAs, or about $20 collected for every $1 spent on collections, Democrats said. Rangel's committee passed the debt collection bill in mid July (TAXDAY, 2007/07/19, C.1).
Committee member Kevin Brady, R-Texas, said that the successful partnership between the IRS and PSAs would raise $1 billion over a 10-year period. Democrats would have to raise taxes on other Americans in order to stop PSAs from collecting unpaid tax debts, opponents of the measure said. Meanwhile, the Service is understaffed and unable to collect money from these hard-to-reach taxpayers, they added. In response, House Majority Leader Steny Hoyer, D-Md., said Democrats believe it is not good public policy to turn over taxpayer's Social Security numbers and other private identification information to private agencies. He said Democrats believe that the collection of taxes is a core government function that should ensure that all taxpayers pay their fair share of taxes.
The White House has issued a veto threat against the bill, saying that terminating the PCA program would result in a loss of significant revenue over the next 10 years. These are tax dollars that are legally owed to the government and that are otherwise not likely to be collected by the IRS, the administration said.
Senate Response
Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, said that the House bill to terminate the IRS's private debt collection program was "dead on arrival in the Senate" because it attempts to stop a program that is new, yet already working. "Opponents raise the fear of rogue private operators treading all over taxpayers' rights," said Grassley in a prepared statement. "But the program has multiple layers of scrutiny to make sure taxpayers' rights are fully protected." He noted that the House bill would allow the IRS to impose penalties and interest indefinitely on a taxpayer even if the person has not received formal notice from the Service. "If that's not anti-taxpayer, I don't know what is," said Grassley.
By Jeff Carlson and Stephen K. Cooper, CCH News Staff
SFC Release: Sen. Grassley's Comments on the IRS's Private Debt Collection Program
Statement of Administration Policy on HR 3056-To Repeal the Authority of the IRS to Use Private Debt Collection Companies, to Delay Implementation of Withholding Taxes on Government Contractors, to Revise the Tax Rules on Expatriation, and for Other Purposes

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The enhanced interest imposed by the IRS under Code Sec. 6621(c) on a couple involved in a limited partnership was not a partnership item that could be treated as a computational adjustment. The Tax Court's dismissal of the partnership proceeding for failure to prosecute could not be read as a determination that the partnership engaged in a tax-motivated transaction that would cause the enhanced interest to become a computational adjustment on the partner's returns. Therefore, the couple's claim for refund of the interest was not barred by the six-month limitation period under Code Sec. 6230.
The taxpayers argued that the enhanced interest was not a tax liability and, therefore, was not a computational adjustment to which the Code Sec. 6230
six-month limitations period for claiming a refund could apply. However, the interest was held to be a "tax" as that term is used in the Internal Revenue Code. Although the rate of interest was governed by Code Sec. 6621, the interest itself was imposed by Code Sec. 6601.
Moreover, neither the Form 4549A, Income Tax Examination Changes, nor the notice issued to the couple showing the balance due provided adequate notice that the IRS was imposing interest at the enhanced rate. The form indicated that no enhanced interest was being imposed and the notice listed only the standard underpayment interest rates. Thus, the communications were not sufficient to trigger the six-month limitations period.
T.H. McGann, FedCl, 2007-2USTC ¶50,703
Other References:
Code Sec. 6230
CCH Reference - 2007FED ¶37,769.025
Code Sec. 6601
CCH Reference - 2007FED ¶39,415.323
Code Sec. 6621
CCH Reference - 2007FED ¶39,455.605
Tax Research Consultant
CCH Reference - TRC PENALTY: 9,052
CCH Reference - TRC IRS: 27,154
CCH Reference - TRC IRS: 36,052.05

CCH (cch.taxgroup.com) reports:

The Treasury Department and the IRS have released guidance on the current corporate bond yield curve and related segment rates, as well as the methodology for determining the rates, for the purpose of establishing a plan's funding target under Code Sec. 430(h)(2). The Treasury Department, Pursuant to the Pension Protection Act of 2006 (P.L. 109-280) (PPA), is to produce a yield curve and simplified segment rates for investment-quality corporate bonds for the purpose of assisting private pension plans in determining their funding obligations and lump-sum payouts to participants. As required by the PPA, monthly updates to the rates will be released.
For plans electing not to use the transitional rule under Code Sec. 430(h)(2)(G), or for plans whose first year begins after 2007, the 24-month average segments rates for September of 2007 are: 5.26 for the first segment; 5.82 for the second segment; and, 6.38 for the third segment.
For plan years beginning in 2008, the funding transitional segment rates, taking into account the corporate bond weighted average of 5.86, for September 2007 are: 5.66 for the first segment; 5.85 for the second segment; and, 6.03 for the third segment.
For plan years beginning in 2008, the minimum present value transitional segment rates for August 2007, taking into account the 30-year Treasury rate of 4.93, are: 5.02 for the first segment; 5.18 for the second segment; and, 5.28 for the third segment.
IR-2007-167, 2007FED ¶46,661
Treasury Department News Release TDNR HP-594, 2007FED ¶46,662
Notice 2007-81, 2007FED ¶46,663
Other References:
Code Sec. 417
CCH Reference - 2007FED ¶17,730.40
Code Sec. 430
CCH Reference - 2007FED ¶20,161.30
Tax Research Consultant
CCH Reference - TRC RETIRE: 15,304.15

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Guidance regarding the application of North Carolina sales and use taxes to bundled transactions effective October 1, 2007, is provided. Tax applies to the sales price of a bundled transaction unless one of the following applies:
-- all of the products in the bundle are tangible personal property, the bundle includes one or more of the exempt products listed (food, drugs, or medical devices, equipment, or supplies), and the price of the taxable products in the bundle does not exceed 50% of the price of the bundle;
-- the bundle includes a service and the retailer determines an allocated price for each product in the bundle based on a reasonable allocation of revenue that is supported by the retailer's business records kept in the ordinary course of business (in such a circumstance, tax is applicable to the allocated price of each taxable product in the bundle); or
-- the price of the taxable products in the bundle does not exceed 10% of the price of the bundle and none of the other two options (specified immediately above) apply.

CCH (cch.taxgroup.com) reports:

A taxpayer that disposes of a qualified low-income building or interest therein can defer or avoid recapture of the low-income housing credit by furnishing a bond to the IRS. A table published by the IRS provides the bond factor amounts for calculating the amount of bond considered satisfactory under Code Sec. 42(j)(6) or the amount of U.S. Treasury securities to pledge in a Treasury Direct Account under Rev. Proc. 99-11, 1999-1 CB 275. These amounts are to be used by taxpayers that disposed of qualified low-income buildings or interests therein during the months of October, November and December 2007.
For buildings or interests placed in service in 1993 through 2007 and disposed of in October, the bond factor amounts are: 1993, 17.39 percent; 1994, 32.44 percent; 1995, 45.52 percent; 1996, 56.97 percent; 1997, 66.95 percent; 1998, 67.90 percent; 1999, 70.48 percent; 2000, 73.28 percent; 2001, 76.53 percent; 2002, 80.11 percent; 2003, 83.90 percent; 2004, 87.64 percent; 2005, 91.05 percent; 2006, 94.22 percent; and 2007, 97.21 percent.
For buildings or interests placed in service in 1993 through 2007 and disposed of in November, the bond factor amounts are: 1993, 17.39 percent; 1994, 32.44 percent; 1995, 45.52 percent; 1996, 56.97 percent; 1997, 66.95 percent; 1998, 67.77 percent; 1999, 70.34 percent; 2000, 73.14 percent; 2001, 76.37 percent; 2002, 79.94 percent; 2003, 83.73 percent; 2004, 87.45 percent; 2005, 90.87 percent; 2006, 94.07 percent; and 2007, 97.21 percent.
For buildings or interests placed in service in 1993 through 2007 and disposed of in December, the bond factor amounts are: 1993, 17.39 percent; 1994, 32.44 percent; 1995, 45.52 percent; 1996, 56.97 percent; 1997, 66.95 percent; 1998, 67.63 percent; 1999, 70.20 percent; 2000, 73.00 percent; 2001, 76.22 percent; 2002, 79.78 percent; 2003, 83.56 percent; 2004, 87.27 percent; 2005, 90.69 percent; 2006, 93.92 percent; and 2007, 97.21 percent.
Rev. Rul. 2007-62, 2007FED ¶46,658
Other References:
Code Sec. 42
CCH Reference - 2007FED ¶177.01
CCH Reference - 2007FED ¶4385.05
CCH Reference - 2007FED ¶4385.72
Tax Research Consultant
CCH Reference - TRC BUSEXP: 54,222
 

CCH (cch.taxgroup.com) reports:

The IRS has provided simplified methods for obtaining relief for late corporation and S corporation classification elections. if the entity meets the qualifications provided in the procedure, these simplified methods may be used in lieu of requesting a letter ruling from the IRS.
Late S corporation elections . Relief under this procedure is available to entities filing late S corporation elections provided: the failure to qualify was due to a failure to timely file the election at the appropriate location; the entity can show reasonable cause for the failure to timely file the election; no tax return has yet been filed for the first election year; the request for relief pursuant to this procedure is requested no more than six months after the tax return due date; and no one whose tax liability would be affected by the election has reported inconsistently for the first election year.
Relief under this procedure requires the filing of Form 2553, Election by a Small Business Corporation, and Form 1120S, U.S. Income Tax Return for an S Corporation, for the first tax year the entity intended to be an S corporation. The forms must be filed no later than six months, excluding extensions, after the tax return due date.
Late S corporation election and late corporate classification election . Relief under this procedure is available provided: the entity is eligible within the meaning of Reg. §301.7701-3(a); the entity intended to be classified as a corporation as of the intended effective date of the S corporation status; the failure to qualify as a corporation was due to a failure to timely file the election and the failure to qualify as an S corporation was due to a failure to timely file the election; the entity can show reasonable cause for the failure to timely file Form 2553 and Form 1120S; no tax return has yet been filed for the first election year; the request for relief pursuant to this procedure is requested no more than six months after the tax return due date; and no one whose tax liability would be affected by the election has reported inconsistently for the first election year.
Similarly, relief under this procedure requires the filing of Form 2553 and Form 1120S for the first tax year the entity intended to be an S corporation. The forms must be filed no later than six months, excluding extensions, after the tax return due date.
Form 2553 must include a statement explaining the reason the entity failed to timely file the elections. Rev. Procs. 2003-43, 2003-1 CB 998, and 2004-48, 2004-2 CB 172, are supplemented.
Rev. Proc. 2007-62, 2007FED ¶46,657
Other References:
Code Sec. 1361
CCH Reference - 2007FED ¶32,026.40
Code Sec. 1362
CCH Reference - 2007FED ¶32,053.027
CCH Reference - 2007FED ¶32,053.054
CCH Reference - 2007FED ¶32,053.10
CCH Reference - 2007FED ¶32,053.41
CCH Reference - 2007FED ¶32,053.65
Tax Research Consultant
CCH Reference - TRC PART: 45,256
CCH Reference - TRC SCORP: 204.15

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Because of the confusion among taxpayers regarding their obligation to file IRS Form 8886 for California corporation franchise and income and personal income tax purposes, the Franchise Tax Board (FT is giving taxpayers an additional 45 days to file. The FTB will soon issue a notice to advise taxpayers of the extended due date of November 15, 2007, and clarify disclosure requirements with respect to reportable transactions.
As previously reported, FTB Notice 2007-3 gave taxpayers 60 days from the date of the Notice to file an IRS Form 8886, Reportable Transaction Disclosure Statement, for each year that they participated in a reportable transaction. (TAXDAY, 2007/08/01, S.9; TAXDAY, 2007/10/05, S.3) There has been some confusion among taxpayers over the categories of reportable transactions and whether they had a requirement to disclose their transactions. In particular, taxpayers have been confused about the "Transactions with Contractual Protection" category of reportable transactions found under Treasury Reg. 1.6011-4(b)(4). A transaction with contractual protection is any transaction where the taxpayer has a right to a full or partial refund of fees paid in the event the tax treatment is not sustained, or where the fee is contingent upon the realization of tax benefits from the transaction.
News Release , California Franchise Tax Board, October 3, 2007.

CCH (cch.taxgroup.com) reports:

Notice 88-108, 1988-2 CB 445, continues to apply to Code Sec. 956(a)(1) after its amendment by the Omnibus Budget Reconciliation Act of 1993 (P.L.103-66), and will exclude certain obligations determined on a quarterly basis. Accordingly, if a domestic corporation borrows funds from its wholly owned controlled foreign corporation (CFC) five days prior to the end of each quarter in order to pay off the outstanding balance of its revolving debt and subsequently repays the debt to the CFC within five days after the end of the quarter, such debt obligation would not constitute an investment in U.S. property under Code Sec. 956(a)(1). The requirements of Notice 88-108 are met as long as the domestic parent's debt held by the CFC at the end of each quarter is repaid within 30 days of issuance, and the total number of days outstanding that the parent's debt is held by the CFC for the taxable year is less than 60 days.
IRS Advice Memorandum AM 2007-0016
Other References:
Code Sec. 956
CCH Reference - 2007FED ¶ 28,576.35
Tax Research Consultant
CCH Reference - TRC INTLOUT: 9,256.15

CCH (cch.taxgroup.com) reports:

The IRS reminds taxpayers preparing their tax returns for the October 15 tax-filing extension deadline to double check their returns for often-overlooked tax breaks and to file their returns electronically using IRS e-file or the Free File system. The IRS e-file is fast, accurate and secure, and is an ideal option for those rushing to meet the October 15 deadline because the IRS verifies receipt of an e-filed return. According to the IRS, a record 58 percent of the 135.3 million returns received so far this year have been filed electronically and those filing electronically make fewer mistakes.
Taxpayers with incomes at or below $52,000 are urged to file their returns for free using the Free File link on the IRS's website IRS.gov. According to the IRS, seven in 10 taxpayers qualify to use the software and electronic-filing services made available through the Free File Alliance. Telephone customers can also use Free File to request this year's one-time telephone excise tax refund.
Extended filers are also urged to pay using an electronic funds withdrawal or by making a credit card payment. While there is no fee for processing an electronic funds withdrawal, credit-card payments are subject to convenience fees charged by the authorized service providers. Paper filers, as well as electronic filers, who are unable to pay what they owe may be able to set up a payment agreement with the IRS (see the Online Payment Agreement section on IRS.gov for more information). Taxpayers expecting a refund are also urged to choose direct deposit in order to receive the refund sooner.
Taxpayers are reminded to check their returns for the following, often-overlooked, tax breaks:
Telephone Excise Tax Refund:
A one-time refund of long-distance excise taxes available on tax year 2006 income-tax returns. The refund applies to charges billed from March 2003 through July 2006. The government offers a standard refund amount of $30 to $60, or taxpayers can base their refund request on the actual amount of tax paid. Even if a taxpayer does not normally have to file a return, Form 1040EZ-T (also available through Free File) can be used to request this refund;
Earned Income Tax Credit:
Earned income of less than $38,348 in 2006 may qualify a taxpayer to claim the earned income tax credit. This credit, worth up to $4,536, is available to low and moderate-income workers and working families. A special interactive "EITC Assistant" is available on IRS.gov to help taxpayers determine whether they are eligible;
Savers Credit: Low-and moderate income workers who contributed to a retirement plan, such as an IRA or 401(k), may be able to take the savers credit. This credit is available in addition to any other tax savings that apply. Use Form 8880 to claim the credit;
Extender Tax Breaks:
Several popular tax breaks were renewed too late to be included on 2006 federal income tax forms. Accordingly, many taxpayers need to follow special instructions to claim the deduction for state and local sales taxes, the tuition and fees deduction, as well as the educator expense deduction. In addition, many who qualify for the tuition and fees deduction may reap greater tax savings by, instead, claiming the Hope credit or the lifetime learning credit for a particular student.
Finally, some taxpayers, including those serving in Iraq, Afghanistan or other combat zone localities and people affected by several recent natural disasters, can wait until after October 15 to file.
IR-2007-165, 2007FED ¶46,656
Other References:
Code Sec. 25B
CCH Reference - 2007FED ¶3838.10
Code Sec. 32
CCH Reference - 2007FED ¶4082.048
Code Sec. 164
CCH Reference - 2007FED ¶9502.002
CCH Reference - 2007FED ¶9502.355
Code Sec. 6011
CCH Reference - 2007FED ¶35,141.47
Tax Research Consultant
CCH Reference - TRC FILEIND:15,200
CCH Reference - TRC FILEIND: 15,204
CCH Reference - TRC INDIV: 57,550
CCH Reference - TRC EXCISE: 9,056

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Following a tax deed sale of property for failure to pay Illinois property taxes, the former owner of the property was not equitably entitled to an award from the county's tax deed indemnity fund, because the owner simply was not diligent in paying his taxes, according to the Illinois Supreme Court. A lower ruling denying the owner's indemnity request was affirmed.

CCH (cch.taxgroup.com) reports:

In its October issue of Tax News, the California Franchise Tax Board (FT discusses the requirements that must be met to defer recognition of gain from the sale of qualified small business stock for California personal income tax purposes. In addition, the FTB warns taxpayers that they may be subject to stiff corporate franchise or income or personal income tax penalties if they failed to file or filed incomplete disclosure statements for listed or reportable transactions.

CCH (cch.taxgroup.com) reports:

Despite GOP objections to the length of tax relief included in the Mortgage Forgiveness Debt Relief Bill of 2007 (HR 3648), the measure won overwhelming bipartisan support in the House on October 4. The bill, which passed by a vote of 386 to 27, would provide permanent tax relief for homeowners facing foreclosure due to high-interest, adjustable rate mortgage loans. Some GOP lawmakers said the measure should have only granted a three-year window for tax relief, which would have been long enough for homeowners to ride out the current crisis in the subprime lending market.
According to House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., the bill would provide tax relief to approximately 2 million families by permanently excluding mortgage debt that is forgiven or renegotiated from tax liability. Under current law, such debt is considered taxable income to borrowers. "It is just not right or fair that families struggling through a foreclosure would then face a tax bill, in addition to losing their homes, when they have seen no increase in their net worth," Rangel said.
To pay for the tax relief, the bill would restrict taxpayers from excluding some gains from the sale of vacation homes or rental properties. The measure now heads to the Senate, where lawmakers are considering a similar proposal, the Mortgage Cancellation Relief Bill of 2007 (Sen 1394), offered by Sen. George V. Voinovich, R-Ohio, and Sen. Debbie Stabenow, D-Mich.
By Stephen K. Cooper, CCH News Staff