Tax News

CCH (cch.taxgroup.com) reports:

The Ohio Department of Taxation has issued a press release reminding all taxpayers liable for the commercial activity tax (CAT), who are required to file quarterly, that their quarterly return is due no later than August 9. Quarterly filers are required to file their returns online. This can be done through the Ohio Business Gateway at http://obg.ohio.gov/.
Release, Ohio Department of Taxation, July 27, 2007.

CCH (cch.taxgroup.com) reports:

The IRS has issued proposed regulations concerning the Code Sec. 817(h)
diversification requirements for variable annuity, endowment and life insurance contracts. The proposed regulations would expand the list of permitted investors underReg. §1.817-5(f)(3)
and would modify the rules for inadvertent nondiversification remedy. The proposed changes would affect insurance companies that issue variable contracts and policyholders who purchase these contracts, and would be effective on the date they are published as final.
Proposed Reg. §1.817-5(a)(2)
The proposed amendments would remove the sentence in Reg. §1.817-5(a)(2)
that provides that the payment required to remedy an inadvertent diversification failure must be based on the tax that would have been owed by the policyholders if they were treated as receiving the income on the contract (Proposed Reg. §1.817-5(a)(2)(iii)). Despite the proposed modification, the amount required to be paid to remedy an inadvertent failure to diversify remains the amount set forth in section 4.02 of Rev. Proc. 92-25, 1992-1 CB 741. The modification of Reg. §1.817-5(a)(2), however, will preserve the IRS's flexibility to modify this amount in response to any comments received on Notice 2007-15, 2007-7 I.R.B. 503.
Proposed Reg. §1.817-5(f)(3)
The proposed regulations would further expand the list of permitted investors in Reg. §1.817-5(f)(3) to include: (1) qualified tuition programs defined in Code Sec. 529; (2) trustees of pension or retirement plans established and maintained outside of the United States primarily for the benefit of individuals, substantially all of whom are nonresident aliens; and (3) accounts that, pursuant to Puerto Rican law or regulation, are segregated from the general asset accounts of the life insurance companies that own the accounts, provided the requirements of Code Secs. 817(d) and
(h) are satisfied (without regard to the requirement the accounts be segregated pursuant to state law or regulation).
The addition of the first two categories of holders, which were the subject of some of the comments received on 2003 proposed regulations under Code Sec. 817 (REG-163974-02), is consistent with the purpose and operation of Code Sec. 817(h). In addition, neither the qualified tuition programs nor the foreign pension plans described in the proposed regulations present the possibility of investment by the general public, as that term is used in Rev. Rul. 81-225, 1981-2 CB 12, and Rev. Rul. 2003-92, 2003-2 CB 350. The inclusion of qualified tuition programs in the list of permitted investors, however, will not relieve those programs of the need to satisfy all requirements of Code Sec. 529 and the regulations under that section.
The inclusion of the third category of holders in the list of permitted investors would ensure that a beneficial interest held by a Puerto Rican company in an investment company, partnership, or trust does not prevent look-through treatment for the other holders of an interest in the same investment, company, partnership, or trust under Reg. §1.817 5(f)(2). At the same time, this amendment would not implicate the interpretive question of what constitutes a "state" within the meaning of Code Secs. 817(d)
and 7701(a)(10).
Comments and Requests
Specific comments are requested on whether rules similar to those proposed to apply to accounts that are segregated pursuant to Puerto Rican law or regulation should apply to accounts that are segregated pursuant to the laws or regulations of other territories. All written and electronic comments and requests for a public hearing must be received by October 29, 2007.
Proposed Regulations, NPRM REG-118719-07, 2007FED ¶49,756
Other References:
Code Sec. 817
CCH Reference - 2007FED ¶26,011C
Tax Research Consultant
CCH Reference - TRC INDIV: 30,410
CCH Reference - TRC INDIV: 30,068

CCH (cch.taxgroup.com) reports:

The IRS has suspended the tax-exempt status of the Goodwill Charitable Organization, Inc., f/k/a Al-Shahid Social Association, f/k/a Education Development Organization, of Dearborn, Michigan under Code Sec. 501(p). The suspension, effective as of July 24, 2007, was imposed because the organization was designated under Executive Order 13224, Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten To Commit, or Support Terrorism, as supporting or engaging in terrorist activity or supporting terrorism. Contributions made to the organization during the period that exempt status is suspended are not deductible for federal income tax purposes. Further, due to the suspension, the organization is required to file federal income tax returns, rather than Form 990, Return of Organization Exempt from Income Tax, beginning with the tax period that began on the suspension date.
Announcement 2007-70, 2007FED ¶46,564
Other References:
Code Sec. 501
CCH Reference - 2007FED ¶22,604.052
CCH Reference - 2007FED ¶22,604.28
Tax Research Consultant
CCH Reference - TRC EXEMPT: 12,210
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Massachusetts House of Representatives has passed a bill that would create a sales tax holiday on August 11 and 12, 2007, for nonbusiness retail sales of tangible personal property costing up to $2,500 per item.
H.B. 2876, as passed by the Massachusetts House of Representatives on July 26, 2007.

CCH (cch.taxgroup.com) reports:

The IRS announced on July 27 that Deputy Commissioner for Operations Support Linda Stiff has been named deputy commissioner for Services and Enforcement and, in that capacity, will take over as acting IRS commissioner upon the departure of Kevin M. Brown, the current acting IRS commissioner. Brown, who also has been serving as deputy commissioner for Services and Enforcement, announced on July 26 that he will leave the IRS in mid-September to join the American Red Cross as chief operating officer (TAXDAY, 2007/07/27, I.3). Brown has been acting commissioner since May 4, when Mark W. Everson left the IRS to become head of the Red Cross.
In her current job, Stiff oversees the development of policy for IRS personnel services, technology and security. She has also served as deputy commissioner of the Small Business/Self-Employed Division and as director of compliance for the IRS Wage and Investment Division.
Richard Spires, who currently serves as IRS chief information officer, will replace Stiff as deputy commissioner for Operations Support. Spires has maintained overall responsibility for the IRS Modernization and Information Technology Services and will continue to oversee the IRS modernization effort.
By Brant Goldwyn, CCH News Staff
IRS Statement on Linda Stiff

CCH (cch.taxgroup.com) reports:

The IRS has notified owners of qualified low-income buildings and state housing credit agencies about an extension of time under section Code Sec. 42(j)(4)(E) for the restoration of low-income housing credit projects located within the Gulf Opportunity Zone (GO Zone) that were damaged by Hurricane Katrina.
For low-income buildings that qualify, a housing credit agency may determine what constitutes a reasonable restoration period for purposes of Code Sec. 42(j)(4)(E), ending no later than 48 months after the end of calendar year 2005. In order to qualify, the owner must have been engaged in the restoration of the building's qualified basis during the restoration period provided in section 7.01 of Rev. Proc. 95-28, 1995-1 CB 704. The term "engaged in the restoration of the building's qualified basis" means, with respect to the qualified low-income building:
(1) ongoing physical repairs;
(2) having entered into binding, written contracts for the repair or restoration to be completed within the restoration period; or
(3) active negotiation of contracts for the repair or restoration, including obtaining permits for construction.
If a building's qualified basis is restored within the determined period, the building will not be subject to recapture, and the building may continue to earn credit during that restoration period. However, if the building is not restored within the reasonable restoration period, the owner will lose all credit claimed during the restoration period and suffer recapture for any prior years of claimed credit under the provisions of Code Sec. 42(j)(1).
For purposes of Code Sec. 42(j)(4)(E), the reasonable restoration period provided in the Notice applies to qualified low-income buildings that are (1) beyond the first year of the credit period, and (2) that, because of Hurricane Katrina and its aftermath, suffered a reduction in qualified basis that would cause it to be subject to recapture and loss of credit.
Notice 2007-66, 2007FED ¶46,563
Other References:
Code Sec. 42
CCH Reference - 2007FED ¶4385.60
CCH Reference - 2007FED ¶4385.71
Tax Research Consultant
CCH Reference - TRC BUSEXP: 54,206
CCH Reference - TRC BUSEXP: 54,222

CCH (cch.taxgroup.com) reports:

Early on July 27, 2007, the House Ways and Means Committee approved, by a vote of 24-17, the Children's Health and Medicare Protection (CHAMP) Bill of 2007 (HR 3162), which would expand the State Children's Health Insurance Program (SCHIP) over five years to cover millions of additional children, provide reforms to the Medicare program and reduce overpayments to Medicare Advantage plans. However, the House Energy and Commerce Committee (E&C) adjourned its markup for lack of progress. The E&C committee is unlikely to take up the bill again; it is expected that the measure will be brought to the floor through the Rules Committee during the week of July 30.
The proposal also would finance SCHIP expansion in part with tobacco tax increases. The proposal differs in scope from the $35 billion expansion under consideration by the Senate, which contains a 61-cent cigarette tax increase. The House bill (HR 3162) includes a $50 billion expansion, and a 45-cent cigarette tax increase.
The measure faces a veto threat from President Bush; the administration opposes the cigarette tax increases that would help pay for the expansion. Instead, Bush favors a small expansion and various health tax benefits.
By Catherine Hubbard, CCH News Staff
JCT Description of an Amendment in the Nature of a Substitute to the Provisions of Title X of HR 3162, the Children's Health and Medicare Protection Act of 2007, JCX-56-07
JCT Estimated Revenue Effects of the Chairman's Amendment in the Nature of a Substitute to Title X of HR 3162, the Children's Health and Medicare Protection Act of 2007, JCX-57-07

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

S.B. 97 enacts credits against capital stock/franchise, corporate net income, or personal income taxes for film production expenses and against personal income, corporate net income, capital stock/franchise, bank shares, title insurance and trust company shares, insurance premium, or mutual thrift institution taxes for resource protection and enhancement. In addition, the law increases amounts for the neighborhood assistance credit against corporate net income, personal income, capital stock/franchise, and insurance premiums taxes. It also enacts changes to the bank shares tax calculation, nexus requirements for the corporate net income and capital stock/franchise taxes, and taxpayer notice requirements for assessments of corporate net income, personal income, and realty transfer taxes.

CCH (cch.taxgroup.com) reports:

A Delaware intangible holding company's receipt of royalty income from two affiliated entities for the licensing of its trademarks, trade names, and service marks, which the entities used for retail business activities in Massachusetts, constituted substantial nexus in the state within the limits of the Commerce Clause of the U.S. Constitution and, therefore, the company was not entitled to an abatement of the state's corporate excise tax and related penalties. In addition, the company failed to show that apportionment of the income using only a sales factor resulted in taxation of extraterritorial values, or that it was entitled to use an alternative apportionment formula.

CCH (cch.taxgroup.com) reports:

American corporations are willing to trade tax preferences for a lower corporate rate, business executives told Treasury Secretary Henry M. Paulson, Jr. on July 26. While businesses may be eager for a corporate tax cut, many lawmakers are not, Alan Greenspan, former Federal Reserve Board chairman, cautioned. The businesses leaders and Greenspan spoke at the U.S. Business Tax Competitiveness Conference, a one-day conference sponsored by the Treasury Department in Washington, D.C.
Second Highest
The combined U.S. federal-state corporate tax rate is currently 39 percent. It is the second highest in the industrialized world after Japan at 40 percent.
"The current business tax system is not optimal," Paulson said. While progress has been made in some areas, such as lowering individual marginal tax rates and reducing the tax on dividends, "it is time for a comprehensive look at our system for taxing business."
Many of the business provisions in the Tax Code were enacted nearly 50 years ago. "Subpart F dates from 1962, when the U.S. was the dominant manufacturing country in the world," Treasury Assistant Secretary For Tax Policy Eric Solomon noted. "Today, we are very much a service economy."
Preferences
"We would trade preferences like the research and development tax credit in a minute for a lower corporate tax rate," Safra Catz, president and CEO of the Oracle Corporation, said. Her comments were echoed by other business leaders, including Jim Owens, president and CEO of Caterpillar, Inc. Owens said that his company spends $40 million a year on tax planning and filing globally, which he called a "waste of resources."
According to the Treasury Department, eliminating all preferences would raise $5 billion over a 10-year period, assuming the same statutory tax rates as the current system. If the revenue from tax preferences were used to lower the corporate tax rate, the rate could be lowered from 35 percent to 27 percent while producing approximately the same revenue.
CCH Comment . Twenty-seven percent is the average corporate tax rate of member countries of the European Union, Scott Hodge, president of the Tax Foundation, told CCH. The average rate for member countries of the Organisation for Economic Co-Operation and Development (OECD) is slightly higher, at 31 percent.
Although Catz, Owens and other business leaders at the conference were enthusiastic about giving up preferences for a lower corporate tax rate, the National Association of Manufacturers (NAM) called for enhancing one preference. "When the research and development credit was created in 1981, the U.S. had one of the strongest credits in the world. Today, the U.S. has fallen further behind and, among our major trading partners, now provides one of the weakest research and development incentives," NAM said in a statement released before the start of the conference. The Financial Services Forum recommended extending or making permanent the active financing exception for Subpart F of the Tax Code in a July 25 letter to Paulson.
Globalization
Worldwide corporate tax rates play an important role in deciding where to invest, Nanci Palminterre, vice president Finance and Enterprise Services, Intel Corporation, said. "There are many places that can provide us with the infrastructure and workforce we need." Countries are aggressively competing for investments and offering incentives, such as Malaysia's 10-year tax holiday, she noted.
"Anyone who has been to Ireland knows what a difference a lower corporate tax rate makes," Catz said. Ireland's corporate tax rate of 12.5 percent is among the lowest in the industrialized world. Multi-national companies have flocked to Ireland since the country lowered its corporate tax rate.
CCH Comment . Investment also grew in some eastern European countries after they lowered their corporate tax rates, Hodge told CCH. "U.S. investment in those countries increased significantly."
Political Resistance
"Anything that is anti-competitive, which our corporate tax rate is, strikes me as something we should be concerned about," Greenspan said. However, lowering the corporate tax rate will run into political resistance, he predicted. He also expressed concern about protectionist policies gaining popularity.
No Specific Proposals
Paulson did not make any specific proposals, repeatedly emphasizing that the conference was the start of a discussion about the nation's business tax system and competitiveness in the global economy. He briefly mentioned three ideas: lowering the corporate tax rate and eliminating preferences; moving to a territorial regime; or taxing capital differently.
"The next step will be to put together what we heard today and identify themes," Solomon said. There is no specific deadline for developing any proposals, Solomon added.
By George L. Yaksick, Jr., CCH News Staff
Treasury Department News Release, TDNR HP-507
Treasury Department News Release, TDNR HP-508
Financial Services Forum Letter to Paulson
NAM Release: Lower Corporate Tax Rates and a Strengthened R&amp Incentive Are Critical

CCH (cch.taxgroup.com) reports:

The Treasury and the IRS have proposed regulations that would clarify the 2-percent floor for itemized deductions as applied to expenses paid by estates and non-grantor trusts. The regulations would apply to payments made after the date the final regulations are published in the Federal Register.
Under the proposed regulations, only costs incurred by estates and non-grantor trusts that are unique to an estate and trust are excluded from the two-percent floor that applies to miscellaneous itemized deductions. For this purpose, a cost is unique to an estate or trust if it cannot be incurred by an individual in connection with property that is not held in an estate or trust. Costs that are not unique to an estate or trust are subject to the 2-percent floor. If an estate or non-grantor trust pays a single fee that includes both unique and non-unique costs, the estate or trust must use a reasonable method to allocate that fee between the two types of cost. These rules do not apply to expenses that are otherwise excluded from the definition of miscellaneous itemized deduction, or to expenses related to a trade or business.
CCH Comment. Under the proposed regulations, whether costs are subject to the 2-percent floor depends on the type of services provided, rather than the taxpayer's characterization or label for the services. Thus, taxpayers cannot avoid the 2-percent floor by bundling investment advisory fees and trustee's fees into a single expense.
A non-exclusive list of products or services that are unique to estates and trusts includes those rendered in connection with fiduciary accountings; judicial or quasi-judicial filings required as part of the administration of the estate or trust; fiduciary income tax and estate tax returns; the division or distribution of income or corpus to or among beneficiaries; trust or will contests or construction; fiduciary bond premiums; and communication with beneficiaries regarding estate or trust matters. A non-exclusive list of products or services that are not unique to estates and trusts includes those rendered in connection with custody or management of property; advice on investing for total return; gift tax returns; the defense of claims by creditors of the decedent or grantor; and the purchase, sale, maintenance, repair, insurance or management of non-trade or business property.
CCH Comment. The proposed regulations adopt the view that the 2-percent floor applies to a trust expense that is commonly or customarily incurred by individuals ( Mellon Bank, N.A, CA-FC, 2001-2 USTC ¶50,621), and can be avoided only when the expense is peculiar to trusts ( W.L. Rudkin Testamentary Trust, CA-2, 2006-2 USTC ¶50,569). The regulations reject the view that trust expenses can be excluded if they are necessary to meet specific fiduciary obligations imposed by state law ( W.J. O'Neill, Jr. Irrevocable Trust, CA-6, 93-1 USTC ¶50,332).
Comments and Hearing
Comments on the proposed regulations must be received by the IRS by October 25, 2007. A public hearing is scheduled for November 14, 2007, in the IRS Auditorium in the Internal Revenue Building, 1111 Constitution Ave. NW., Washington, D.C. Outlines of topics to be discussed at the hearing must be received by October 24, 2007. Electronic submissions can be made via the Federal eRulemaking Portal at http://www/regulations/gov/ (indicate IRS and REG-128224-06). Other submissions can be sent to CCA:LPD: PR (REG-128224-06), Room 5203, IRS, PO Box 7604, Ben Franklin Station, Washington D.C. 20044; or hand-delivered to CCA:LPDR (REG-128224-05), Courier's Desk, IRS, 1111 Constitution Ave., NW., Washington, D.C.
Proposed Regulations, NPRM REG-128224-06, 2007FED ¶49,754
Other References:
Code Sec. 67
CCH Reference - 2007FED ¶6063AG
Tax Research Consultant
CCH Reference - TRC ESTTRST: 12,054
 

CCH (cch.taxgroup.com) reports:

A tax increase on foreign-owned U.S. corporations included in the Farm Bill Extension Act of 2007 (HR 2419) threatened to sideline the legislation on July 26. House lawmakers began debate on the measure late on July 26, but it was unclear whether GOP protests would force Democrats to delay floor consideration.
The farm bill had bipartisan support when it left the House Agriculture Committee; however, a $4 billion tax measure was included in the bill to pay for an increase in food stamps and other farm programs. The tax provision was authored by House Ways and Means Committee member Lloyd Doggett, D-Texas, and would tax the interest and royalties that foreign-owned U.S. companies pay to their foreign affiliates. Doggett said that his legislation would ensure that tax treaties, designed to eliminate double-taxation for true residents of foreign countries, are not exploited by foreign parent corporations that structure expenses and payments though low-tax jurisdictions to avoid taxes on income earned in the U.S.
The Bush administration has issued a veto threat on the farm bill because of this provision. According to a statement of administration policy issued on July 25, if the bill were presented to President Bush in its current form, White House senior advisors would recommend that he veto the bill. "The [a]dministration strongly opposes the provision that would raise taxes on payments by U.S. subsidiaries to foreign affiliates," the statement reads. "In addition to being a tax increase, this provision would discourage foreign investment in the U.S., override tax treaties the U.S. has with many nations, and raise questions under other international agreements."
Ways and Means ranking member Jim McCrery, R-La., said that Doggett's tax legislation would hurt U.S. competitiveness and violate a host of tax treaties. "It is bad policy and bad politics," he said. "Democrats are trying to sneak a far-reaching and potentially destructive proposal through the House without proper consideration."
By Stephen K. Cooper, CCH News Staff
Ways and Means Release --U.S. Business: Vote "NO" on the Surprise Farm Bill Tax Hike
Letter from the Association of International Automobile Manufacturers, Inc. (AIAM) Regarding the Farm Bill Extension Act of 2007
Letter from the Business Roundtable Regarding the Farm Bill Extension Act of 2007
Letter from U.S. Chamber of Commerce Regarding the Farm Bill Extension Act of 2007
Statement of Administration Policy on HR 2419

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

A marketing corporation could not be required to file a combined New York corporate franchise tax report with its parent company, even though substantial intercorporate transactions created a presumption of distortion, because the corporation demonstrated with a thorough transfer pricing report that its intercompany pricing with the parent was at arm's length.
In challenging the transfer pricing report, the Division of Taxation argued that the companies presented as comparable to the taxpayer were not truly comparable for several reasons (e.g., they were significantly smaller and had significantly different business functions). The Division also asserted that the taxpayer was not compensated for significant services performed for the parent and that the taxpayer's experts failed in numerous ways to follow the technical rules of the IRC Sec. 482 regulations.
However, the Tax Appeals Tribunal rejected the Division's arguments, finding that the taxpayer diligently sought to comply with the law as developed in prior decisions. The taxpayer engaged recognized experts to apply the methods required in the regulations, and the contemporaneous transfer pricing report applied those methods diligently and supported its conclusions persuasively. The principal author of the report testified in its defense at the hearing, and the taxpayer presented expert testimony that endorsed the report's conclusions and methods. Accordingly, the Tribunal found that the taxpayer carried its burden of rebutting the presumption of distortion.
In the absence of the presumption, it was the Division's burden to demonstrate the existence of distortion. However, much of the material presented by the Division consisted of a recitation of factual discrepancies appearing to have very limited significance or demonstrating only that the comparable companies used in the report were not identical to the taxpayer. The Division failed to find major defects in the methodology of the report. In addition, although it objected to the profit level indicator used in the report, the Division did not show what other profit level indicator should have been used. The Division also did not persuasively attack the functional analysis that was the beginning point for selecting the appropriate class of comparable companies, and it did not show that the statistical screens applied in the report were manipulated to produce a particular result.
The Tribunal noted that the IRC Sec. 482 regulations rely upon statistical methods that purport to find only ranges of acceptable answers, not mathematical precision. If the methods are applied in a random way that is faithful to the procedures set out in the regulations, then lack of precision does not invalidate the results.
Hallmark Marketing Corp. , New York Division of Tax Appeals, Tax Appeals Tribunal, DTA No. 819956, July 19, 2007, ¶405-793
Other References:
Explanations at ¶11-550

CCH (cch.taxgroup.com) reports:

The IRS was required to disclose e-mails containing legal advice, which it had withheld under its two-hour rule, sent by lawyers in the IRS Office of the Chief Counsel (OCC) to IRS field personnel because they fell within the statutory definition of "chief counsel advice" (CCA) and, therefore, must be made available for inspection under Code Sec. 6110.
The IRS's two-hour rule, which effectively shielded advice rendered in less than two hours from disclosure, was contrary to the statutory directive that a written determination, including, without exception, a CCA, must be open to public inspection. The statute did not distinguish between advice rendered in less than two hours and advice that takes longer to complete, nor did it require any particular form or formality.
The documents sought fell within the statutory description because they were written interpretations of revenue provisions prepared by lawyers in the OCC and sent to field personnel. The advice did not have to be formally issued as an official position to fall under the statutory definition of a CCA, which encompassed not only a formal position or policy concerning a revenue position but also any legal interpretation of a revenue position. Also, the statutory phrase that the advice be prepared by any national office "component" of the OCC included advice prepared by an individual OCC lawyer, whether she be considered a "component" of the OCC or simply a member of an institutional component who prepares the opinion on its behalf.
Affirming a DC D.C. decision, 2006-1 USTC ¶50,223.
Tax Analysts, CA-D.C., 2007-2 USTC ¶50,553
Other References:
Code Sec. 6110
CCH Reference - 2007FED ¶36,988.20
Tax Research Consultant
CCH Reference - TRC IRS: 9,052.05
CCH Reference - TRC IRS: 9,052.15
CCH Reference - TRC IRS: 12,382

CCH (cch.taxgroup.com) reports:

The IRS's denial of an individual's interest abatement request was not an abuse of discretion because none of the errors or delays he complained of were ministerial acts under Code Sec. 6404. The taxpayer had requested an abatement of interest that had accrued while the IRS conducted a criminal investigation of several tax-shelter partnerships in which he had invested.
The denial was not an abuse of discretion because the delay that occurred during the investigation was not a ministerial act as contemplated by Code Sec. 6404(e)(1). Furthermore, although the IRS included erroneous information regarding the status of the investigation in a letter to the taxpayer, that error did not contribute to the accrual of interest.
In addition, the IRS was not collaterally estopped by the case of another investor, Beall v. U.S. , 2006-2 USTC ¶50,615 (TAXDAY, 2006/12/08, J.3), from denying it lost some of the records it had confiscated and that others were returned in disarray. The issue of whether the IRS lost some of the records or returned some of them in disarray was not litigated in Beall and, therefore, collateral estoppel did not apply.
Related case at TC Memo. 2000-216, Dec. 53,954(M), 80 TCM 56
R. Howell, TC Memo. 2007-204, Dec. 57,022(M)
Other References:
Code Sec. 6404
CCH Reference - 2007FED ¶38,580.50
CCH Reference - 2007FED ¶38,580.38
Tax Research Consultant
CCH Reference - TRC LITIG: 3,054
CCH Reference - TRC PENALTY: 9,056.20

CCH (cch.taxgroup.com) reports:

The IRS has certified the Honda FCX as a qualified fuel cell vehicle. Purchasers of these vehicles, which is only capable of operating on hydrogen, may claim the alternative motor vehicle credit. The credit amount for model years 2005 and 2006 is $12,000.
IR-2007-133, 2007FED ¶46,560
Other References:
Code Sec. 30B
CCH Reference - 2007FED ¶4059E.30
Tax Research Consultant
CCH Reference - TRC INDIV: 57,700
CCH Reference - TRC INDIV: 57,704

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Indiana Department of Revenue explains the credit against personal income tax for contributions to College Choice 529 education savings plans, which first becomes effective for the 2007 tax year. The amount of the credit is the lesser of: (1) 20% of contributions, (2) $1,000, or (3) the amount of the taxpayer's adjusted gross income tax liability for the taxable year reduced by the amount of other credits. The credit may not be carried back or forward and a refund is not available for any unused credit.
Information Bulletin #98 , July 2007, ¶401-218
Other References:
Explanations at ¶15-599c

CCH (cch.taxgroup.com) reports:

A Tax Court action did not qualify for small case designation because the total amount of unpaid tax, interest and penalties exceeded the jurisdictional limit for small cases. Eligibility for such designation in Code Sec. 6015"stand-alone" innocent spouse cases is based on the aggregate unpaid tax and assessed interest for all years for which relief is sought in the petition, together with all accrued unassessed interest and penalties for such years, measured as of date of the petition. While the total amount of unpaid tax and assessed interest and penalties in the taxpayer's case was less than $50,000, when added to accrued unassessed interest and penalties, the total exceeded the jurisdictional limit for small case designation, even though each individual year's total fell below such threshold. Accordingly, the case had to be continued under regular case procedures.
G.A. Petrane, 129 TC No. 1, Dec. 57,018
Other References:
Code Sec. 6015
CCH Reference - 2007FED ¶35,192.815
Code Sec. 7463
CCH Reference - 2007FED ¶42,119.16
CCH Reference - 2007FED ¶42,119.20
Tax Research Consultant
CCH Reference - TRC LITIG: 7,006.10

CCH (cch.taxgroup.com) reports:

A government auditor told House lawmakers on July 24 that charitable organizations were responsible for nearly $1 billion in unpaid federal taxes in 2006. Gregory D. Kutz, managing director of the Government Accountability Office (GAO)'s Forensic Audits and Special Investigations Office, testified before the House Ways and Means Oversight Subcommittee that nearly 55,000 tax-exempt organizations were responsible for 85 percent of unpaid taxes.
"About 1,500 of these entities each had over $100,000 in federal tax debts, with some owing multi-million dollars in federal taxes," Kutz said. "The majority of this debt represented payroll taxes and associated penalties and interest dating as far back as the early 1980s."
According to Kutz, the GAO investigators found abusive and potentially criminal activity, including repeated failures to remit payroll taxes withheld from employees. Officials at tax-exempt organizations paid themselves salaries over $1 million and accumulated substantial assets, such as multimillion-dollar homes and luxury vehicles.
The subcommittee hearing was called to review the current state of the charitable sector, said Subcommittee Chairman John Lewis, D-Ga. He said that tax-exempt organizations have spent over $1 trillion on directly serving those in need.
According to the IRS, approximately 1.6 million exempt organizations operate in the U.S. IRS Tax Exempt and Government Entities (TE/GE) Division Commissioner Steven T. Miller said that 55,000 tax-exempt organization with unpaid federal taxes represent just a fraction of the charitable sector.
However, Miller acknowledged that unpaid taxes is only one of the typical problems confronting these 55,000 organizations. For example, the directors are typically involved in fraudulent activities with other federal programs, such as Medicare. They also have unpaid state and local taxes, suspicious cash transactions and excessive fees paid to companies controlled by the directors.
In response to questioning by Lewis, Miller said that, in general, charitable organizations are law-abiding. He said the incidence of wrongdoing is similar to the rate observed in the general small business sector.
Subcommittee ranking member Jim Ramstad, R-Minn., expressed surprise at the number of exempt organizations with unpaid federal taxes. Kutz told Ramstad that no change in federal law is needed to address the problem; rather, he said that the IRS needs a more aggressive seizure and levy system for tax-exempt organizations.
Miller responded that it would be a burden on the Service to complete background checks on key individuals in tax-exempt organizations. He said that it would slow down the determination letter process.
By Stephen K. Cooper, CCH News Staff
SFC Memo on Charitable Sector Tax Abuse
GAO Testimony: Tax Compliance --Thousands of Organizations Exempt from Federal Income Tax Owe Nearly $1 Billion in Payroll and Other Taxes (GAO-07-1090T)
GAO Report: Tax Compliance --Thousands of Organizations Exempt from Federal Income Tax Owe Nearly $1 Billion in Payroll and Other Taxes (GAO-07-563)

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

North Carolina provisions are amended to conform with recent changes to the Streamlined Sales and Use Tax (SST) Agreement.

CCH (cch.taxgroup.com) reports:

The IRS intends to issue guidance regarding nonqualified deferred compensation plans under Code Sec. 457 and is seeking comments regarding the definition of" bona fide severance pay plan" under Code Sec. 457(e)(11) and the definition of "substantial risk of forfeiture" under Code Sec. 457(f)(1)(. Furthermore, the guidance will include rules similar to the rules under Code Sec. 409A (T.D. 9321, TAXDAY, 2007/04/11, I.1). Comments are due by October 15, 2007.
Notice 2007-62, 2007FED ¶46,557
Other References:
Code Sec. 457
CCH Reference - 2007FED ¶21,536.21
Tax Research Consultant
CCH Reference - TRC COMPEN: 15,052.40
CCH Reference - TRC COMPEN: 15,150

CCH (cch.taxgroup.com) reports:

The IRS has issued final regulations under Code Sec. 403(b) and related provisions of Code Secs. 402(b), 402(g), 402A, and 414(c). The regulations update guidance on Code Sec. 403(b) contracts of public schools and tax-exempt organizations. They finalize proposed regulations (NPRM REG-155608-02, November 16, 2004). The regulations generally apply for tax years beginning on or after December 31, 2008.
Background
Retirement plans under Code Sec. 403(b) provide tax-favored treatment for public school employees, employees of Code Sec. 501(c)(3) tax-exempt organizations, and certain ministers. Funding arrangements can include insurance annuity contracts, custodial accounts holding only shares of mutual funds, and church retirement income accounts. Elective deferrals under these plans must be made universally available. Control group rules for tax-exempt entities apply.
CCH Comment. The existing regulations date from 1964. The final regulations outdate or supersede decades of rulings (see footnote 11 in the Preamble to the Treasury Decision for a complete list). Certain existing rules are retained such as the rules for determining when employees are performing services for a public school (Rev. Rul. 73-607, 1973-2 CB 145; Rev. Rul. 80-139, 1980-1 CB 88), and rules regarding the treatment of church entities and public schools for control group purposes (Notice 89-23, 1989-1 CB 564).
Final Regulations
The final regulations are a comprehensive update of the current regulations regarding the exclusion for contributions, contribution limits, nondiscrimination rules, distribution timing rules, taxation of distributions, funding and special rules for church plans. They require that a Code Sec. 403(b) contract satisfy the regulatory requirements both in form and operation. The final regulations provide rules under which tax-exempt entities are aggregated and treated as a single employer under Code Sec. 414(c).
The final regulations mostly track the proposed regulations, but the IRS has made modifications, particularly in the areas of most concern to commentators. The issues cited by the IRS for special attention include (1) the newly created written plan document requirements, (2) the elimination of previously allowable exclusions from the universal availability rules, (3) the elimination of previously allowable contract exchanges, and (4) requests to broaden the circumstances under which permissive aggregation is permitted under the controlled group rules.
Written Plan Documents
The final regulations retain the requirement under the proposed regulations that a Code Sec. 403(b) contract be issued pursuant to a written plan, which in both form and operation satisfies the requirements of Code Sec. 403(b) and the regulations. In response to concerns about the administrative burdens imposed by the written plan requirements, the final regulations clarify that the plan may allocate to the employer or another person the responsibility for performing administrative functions, including compliance functions with regard to Code Sec. 403(b), as long as the individual is identified who will be responsible for requirements that apply based on consolidated contracts issued to a participant. Also, the plan is permitted to incorporate by reference other documents for purposes of including all of the material provisions, including the insurance policy or custodial account which as result would become part of the plan. In response to concerns about the added cost to public schools of maintaining a written plan, the IRS intends to publish model plan provisions that may be used by public school employers.
CCH Comment. The written plan requirement brings the 403(b)
plan requirements closer to those that govern 401(k)
plans.
Contract Exchanges
Tax-free contract exchanges taking place outside of the plan have been permitted under Rev. Rul. 90-24, 1990-1 CB 97, as long as the successor contract included distribution restrictions that are the same or more stringent than the distribution restrictions in the contract that is being exchanged. This rule created complications, especially when a participant's benefits were held by numerous carriers. The proposed regulations would limit tax-free exchanges to situations in which the new contract is provided under the plan. In response to concerns that the proposed rules went too far in discouraging contract exchanges, the final regulations permit an exchange of one contract for another to constitute a mere change of investment within the same plan, if (1) the new distribution restrictions that are not less stringent than those imposed on the contract being exchanged, and (2) the employer enters into an agreement with the issuer of the other contract under which the employer and the issuer will from time to time in the future provide each other with certain information concerning the participant's employment as well as information that takes into account the participant's other plans. These rules do not apply to contracts issued before 60 days after the date of publication of the regulations in the Federal Register (assuming the exchange satisfies the pre-existing requirements). The IRS is authorized to issue guidance allowing exchanges in other cases in which the resulting contract has procedures that are reasonably designed to ensure compliance with requirements that depend on the participant's employment information or information that takes into account other Code Sec. 403(b) contracts or qualified plans.
CCH Comment. Contract exchanges outside the plan are not permitted for 401(k)
plans.
Universal Availability Rules.
Nondiscrimination rules apply to Code Sec. 403(b) plans and, historically, under Notice 89-23, 1989-1 CB 564, employers have been held to a good faith standard in satisfying these requirements. This standard will continue to apply to state and local public schools (and certain church entities) for purposes of determining controlled groups.
Certain previously allowable exclusions provided by Notice 89-23, 1989-1 CB 564, are not carried forward in the final regulations. A transition rule applies to 403(b)
plans that contain exclusions, under which the plan may continue the exclusions up until tax years beginning on or after January 1, 2010. The eligible exclusions include (1) employees who make a one-time election to participate in a governmental plan (Code Sec. 414(d)) instead of a 403(b)
plan, (2) professors who are providing services on a temporary basis to another school for up to one year and for whom 403(b)
plan contributions are being made at a rate no greater than the rate each such professor would receive under the 403(b)
plan of the original school, and (3) employees who are affiliated with a religious order and who have taken a vow of poverty where the religious order provides for the support of such employees in their retirement.
Tax-Exempt Entity Controlled Groups
Like the proposed regulations, the final regulations provide rules for determining controlled groups for entities that are tax-exempt. These rules are not limited to Code Sec. 403(b), but apply more broadly for purposes of determining when tax-exempt entities are treated as a single employer under Code Sec. 414(b), (c), (m) and (o). For example, these rules apply to plans maintained by a tax-exempt entity that are intended to be qualified under Code Sec. 401(a). For a Code Sec. 501(c)(3) employer that makes contributions to a Code Sec. 403(b) plan, the controlled group rules would be generally relevant for purposes of the nondiscrimination requirements, contribution limits, catch-up contributions, and minimum distributions. The proposed regulations provided that (subject to anti-abuse rules), tax-exempt organizations can choose to be aggregated for these purposes if they maintain a single plan covering one or more employees from each organization, and the organizations regularly coordinate their day-to-day exempt activities. In response to requests to broaden the permissive aggregation rules, the final regulations authorize the IRS to permit permissive aggregation under other circumstances as long as there are substantial business reasons for maintaining each entity in a separate trust, corporation, or other form, and under which common control treatment would be consistent with the anti-abuse standards in the regulations.
Dates and Transition Rules
The regulations generally apply for tax years beginning on or after December 31, 2008, and, because individuals will almost uniformly be on a calendar tax year, these regulations will generally apply on January 1, 2009. For a plan maintained pursuant to one or more collective bargaining agreements that were ratified and in effect as of the date of publication in the Federal Register, the regulations do not apply until the earlier of: (1) the date on which the last of such agreements terminates (determined without regard to extensions made after the date of publication in the Federal Register), or (2) three years after the date of publication in the Federal Register. For a plan maintained by a church-related organization for which the authority to amend the plan is held by a church convention, the regulations do not apply before the beginning of the first plan year following December 31, 2009. Other transition rules apply for particular provisions.
Treasury Department News Release, TDNR HP-501, 2007FED ¶46,558
T.D. 9340, 2007FED ¶47,051
Other References:
Code Sec. 101
CCH Reference - 2007FED ¶6502
Code Sec. 401
CCH Reference - 2007FED ¶17,723C
CCH Reference - 2007FED ¶17,925A
Code Sec. 402
CCH Reference - 2007FED ¶18,208
CCH Reference - 2007FED ¶18,210B
CCH Reference - 2007FED ¶18,217C
CCH Reference - 2007FED ¶18,220H
Code Sec. 402A
CCH Reference - 2007FED ¶18,230C
Code Sec. 403
CCH Reference - 2007FED ¶18,271
CCH Reference - 2007FED ¶18,276C
CCH Reference - 2007FED ¶18,277
CCH Reference - 2007FED ¶18,277AC
CCH Reference - 2007FED ¶18,277B
CCH Reference - 2007FED ¶18,278C
CCH Reference - 2007FED ¶18,278F
CCH Reference - 2007FED ¶18,278H
CCH Reference - 2007FED ¶18,278K
CCH Reference - 2007FED ¶18,278M
CCH Reference - 2007FED ¶18,278P
CCH Reference - 2007FED ¶18,278S
CCH Reference - 2007FED ¶18,278V
CCH Reference - 2007FED ¶18,279
CCH Reference - 2007FED ¶18,280
Code Sec. 414
CCH Reference - 2007FED ¶19,155B
CCH Reference - 2007FED ¶19,155C
Code Sec. 3405
CCH Reference - 2007FED ¶33,620A
Code Sec. 4974
CCH Reference - 2007FED ¶34,382A
Tax Research Consultant
CCH Reference - TRC RETIRE: 69,050
CCH Reference - TRC RETIRE: 69,100
CCH Reference - TRC RETIRE: 69,150
CCH Reference - TRC RETIRE: 69,200
CCH Reference - TRC RETIRE: 69,250

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

A qualified business may claim a credit against Texas franchise tax for a capital investment in an enterprise project designated as such by the Texas Department of Economic Development on or after September 1, 2001, and before September 1, 2003, or designated as an enterprise project by the Texas Development Bank on or after September 1, 2003, and before January 1, 2005. An enterprise project is not eligible for this credit if a credit was claimed for the project under the enterprise zone capital investment credit provision that is in effect until January 1, 2008. In addition, a taxable entity, other than a combined group, may not claim this credit unless the entity was subject to the franchise tax as it existed on May 1, 2006. A combined group may claim this credit for each member entity that was subject to the franchise tax as it existed on May 1, 2006.

CCH (cch.taxgroup.com) reports:

In a letter to motor vehicle dealers, the Ohio Department of Taxation explains the effect that the state budget bill has on the application of Ohio sales tax to purchases of motor vehicles by residents of specific states.
Following a line-item veto of certain motor vehicle provisions contained in the bill, the resulting law provides that effective August 1, 2007, Ohio motor vehicle dealers must collect Ohio sales tax on the sale of vehicles to out-of-state residents who reside in the eight states that charge sales tax to Ohio residents. The eight states are Arizona, California, Florida, Indiana, Massachusetts, Michigan, South Carolina, and Washington. Motor vehicle sales to residents of any other state are not subject to Ohio sales tax if the purchaser completes the affidavit for nonresident sales (Form STEC-NR) when applying for title. Motor vehicle leases to nonresidents continue not to be subject to Ohio sales tax.
The amount of tax to collect on sales to residents of the eight named states is the lesser of 6% of the sale price and the amount of sales tax the nonresident purchaser would pay in their home state, after taking into account any trade-in allowance to reduce the price before calculating the tax if permitted in that state. The letter provides the sales tax rates for the eight states and specifies whether trade-in allowances may be used to reduce the sales price before computing sales tax.
From August 1, 2007, through June 30, 2008, sales taxes collected on sales to nonresidents of the eight states are to be paid to the State of Ohio through the Ohio Business Gateway. Beginning July 1, 2008, the taxes on these sales are to be paid to the Ohio Clerk of Courts.
Taxes paid on these sales are due by the 10th of the month following the end of the month in which the sales took place. The newly-reduced vendor discount rate of 0.75% applies if the taxes are timely filed and paid. The decrease in the vendor discount rate was previously reported. (TAXDAY, 2007/07/02, S.22)
Subscribers to CCH Tax Research NetWork may view the letter.

Letter to Motor Vehicle Dealers , Ohio Department of Taxation, July 2007; H.B. 119, effective 90 days after filing with the Ohio Secretary of State.

CCH (cch.taxgroup.com) reports:

The California Assembly has passed two budget trailer bills that would (1) revise California's corporation franchise and income tax apportionment formula for qualified taxpayers; (2) increase the research and development alternative incremental credit against personal income and corporation franchise and income taxes and enact a sunset date for the credit; (3) enact a motion picture credit and a commercial production credit against personal income tax and corporation franchise and income taxes; (4) repeal the credentialed teacher retention credit beginning with the 2007 taxable year; (5) enact an exemption for sales of low-sulfur fuel products for use in a vessel's auxiliary engine; (6) enact an exemption for sales of low-sulfur fuel products for use in a vessel's main engine; (7) enact an exemption for fuel and petroleum products sold to or purchased by an air common carrier for consumption or shipment in the conduct of its business as an air common carrier on a domestic flight; and (8) establish property tax assessment procedures for fractionally owned aircraft. At the time this story went to press, the bills were being debated by the Senate, where their passage is uncertain.

CCH (cch.taxgroup.com) reports:

The IRS has issued a final regulation that gives the IRS the authority to designate a domestic member of a consolidated group as a substitute agent for the group where a foreign entity is the group's common parent. A domestic member of the consolidated group that is designated the substitute agent will continue to be the group's agent until its existence terminates. Under the new regulation, if a group with a domestic substitute agent continues in existence with a new common parent that is a domestic corporation during a consolidated return year, the substitute agent is the agent of the group for the year until the new common parent becomes the comment parent. After that time, the new common parent becomes the agent of the group. The new rules are effective as of July 23, 2007.
T.D. 9343, 2007FED ¶47,050
Other References:
Code Sec. 1502
CCH Reference - 2007FED ¶33,168.0232
Tax Research Consultant
CCH Reference - TRC CCORP: 45,152
CCH Reference - TRC CCORP: 45,154
CCH Reference - TRC CONSOL: 9,204.10

CCH (cch.taxgroup.com) reports:

The IRS has released specifications for filing 2007 Forms 1098, 1099, 5498 and W-2G electronically through the IRS FIRE System or magnetically, using IBM 3480, 3490, 3490E, 3590 or 3590E tape cartridges. The IRS Enterprise Computing Center --Martinsburg (IRS/ECC-MT no longer accepts 3.5-inch diskettes for the filing of information returns. These procedures, which will be reprinted as the next revision of IRS Publication 1220, Specifications for Filing Forms 1098, 1099, 5498, and W-2G Electronically or Magnetically, must be used for the preparation of 2007 tax year information returns and information returns for tax years prior to 2007 that will be filed beginning January 1, 2008. Tape cartridge files must be received by December 1, 2008, in order to be processed. After December 1, 2008, only electronic files are acceptable.
The IRS noted that tax year 2007 will be the last tax year that ECC-MTB will accept tape cartridges. Due to processing deadlines, tape cartridges must be received by December 1, 2008, in order to be processed for the current year. After December 1, 2008, the only acceptable method of filing information returns with ECC-MTB will be electronically through the FIRE system.
Rev. Proc. 2006-33, I.R.B. 2006-32, 140, is superseded.
Rev. Proc. 2007-51, 2007FED ¶46,555
Other References:
Code Sec. 6011
CCH Reference - 2007FED ¶35,141.03
CCH Reference - 2007FED ¶35,141.47
CCH Reference - 2007FED ¶35,141.57
Code Sec. 7513
CCH Reference - 2007FED ¶42,702.13
CCH Reference - 2007FED ¶42,702.15
Tax Research Consultant
CCH Reference - TRC FILEBUS: 12,302.05
CCH Reference - TRC FILEBUS: 12,302.10

CCH (cch.taxgroup.com) reports:

For pension plan years beginning in July 2007, the IRS has released the corporate bond weighted average interest rate and 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. The corporate bond weighted average interest rate for plan years beginning in July 2007 is 5.83 percent; and the 90-percent to 100-percent permissible range is 5.25 percent to 5.83 percent. The annual rate of interest on 30-year Treasury securities for June 2007, used to determine the minimum present value of a participant's benefit under Code Sec. 417(e)(1) and (2), is 5.20 percent.
Notice 2007-61, 2007FED ¶46,554
Other References:
Code Sec. 412
CCH Reference - 2007FED ¶19,125.50
Tax Research Consultant
CCH Reference - TRC RETIRE: 30,170
 

CCH (cch.taxgroup.com) reports:

The IRS has released a proposed revenue procedure that would supersede Rev. Proc. 2004-42, 2004-2 CB 121, which sets forth the process for a payment card organization to request a ruling that it is a Qualified Payment Card Agent (QPCA). Reg. §31.3406(g)-1(f) provides a limited exception from the backup withholding rules for payments made, by means of a payment card transaction, by payors (cardholders) to payees (merchants) through a QPCA. Regulations under Code Sec. 6724 relieve payors from certain taxpayer identification number (TIN) requirements for payments made through a QPCA.
A number of businesses subject to the payment card rules recommended changes to Rev. Proc. 2004-42 and Reg. §31.3406(g)-1(f) that would reflect modern electronic business operations of the payment card industry, as well as allow the use of payment cards by payees that elect out of the QPCA program. In response, the IRS recently issued proposed regulatory amendments (TAXDAY, 2007/07/13, I.2) and has now released proposed changes to Rev. Proc. 2004-42. Significant modifications would include the following:
(1) written notices that must be provided by payment card organizations to payors and payees (when obtaining authorizations to act on their behalf) may not only be mailed but may also be furnished electronically;
(2) the requirement that written notices inform payees that they will be treated as participants in the QPCA program if they continue to accept the organization's payment card is eliminated; instead, notices must inform payees that they may elect out of the program and continue to accept the organization's payment card;
(3) although QPCAs do not act on behalf of nonparticipating payees in furnishing payee data to payors, a QPCA, nevertheless, must furnish certain information to payors that use the QPCA's card to make reportable payments to nonparticipating payees; and
(4) specific authority is provided for furnishing payee data to payors electronically (including the posting of the information on a secure website) with the consent of both the payor and payee.
Comments on the proposed revenue procedure must be received by the IRS by September 24, 2007.
Notice 2007-59, 2007FED ¶46,553
Other References:
Code Sec. 3406
CCH Reference - 2007FED ¶33,654.63
CCH Reference - 2007FED ¶33,654.70
Code Sec. 6724
CCH Reference - 2007FED ¶40,285.01
Tax Research Consultant
CCH Reference - TRC FILEBUS: 18,106
 

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 January through September, 2007.
For buildings or interests placed in service in 1993 through 2007 and disposed of in January, 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, 69.23 percent; 1999, 71.86 percent; 2000, 74.74 percent; 2001, 78.09 percent; 2002, 81.82 percent; 2003, 85.82 percent; 2004, 89.79 percent; 2005, 93.41, 2006, 96.70 percent; and 2007, 97.21 percent.
For buildings or interests placed in service in 1993 through 2007 and disposed of in February, 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, 69.08 percent; 1999, 71.70 percent; 2000, 74.56 percent; 2001, 77.89 percent; 2002, 81.60 percent; 2003, 85.57 percent; 2004, 89.50 percent; 2005, 93.07, 2006, 96.27 percent; and 2007, 97.21 percent.
For buildings or interests placed in service in 1993 through 2007 and disposed of in March, 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, 68.92 percent; 1999, 71.53 percent; 2000, 74.39 percent; 2001, 77.71 percent; 2002, 81.40 percent; 2003, 85.33 percent; 2004, 89.22 percent; 2005, 92.75 percent; 2006, 95.89 percent; and 2007, 97.21 percent.
For buildings or interests placed in service in 1993 through 2007 and disposed of in April, 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, 68.77 percent; 1999, 71.37 percent; 2000, 74.22 percent; 2001, 77.52 percent; 2002, 81.19 percent; 2003, 85.11 percent; 2004, 88.96 percent; 2005, 92.46 percent; 2006, 95.57 percent; and 2007, 97.21 percent.
For buildings or interests placed in service in 1993 through 2007 and disposed of in May, 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, 68.62 percent; 1999, 71.22 percent; 2000, 74.05 percent; 2001, 77.35 percent; 2002, 81.00 percent; 2003, 84.89 percent; 2004, 88.72 percent; 2005, 92.18 percent; 2006, 95.28 percent; and 2007, 97.21 percent.
For buildings or interests placed in service in 1993 through 2007 and disposed of in June, 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, 68.47 percent; 1999, 71.06 percent; 2000, 73.89 percent; 2001, 77.17 percent; 2002, 80.81 percent; 2003, 84.68 percent; 2004, 88.48 percent; 2005, 91.93 percent; 2006, 95.02 percent; and 2007, 97.21 percent.
For buildings or interests placed in service in 1993 through 2007 and disposed of in July, 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, 68.32 percent; 1999, 70.91 percent; 2000, 73.74 percent; 2001, 77.01 percent; 2002, 80.63 percent; 2003, 84.47 percent; 2004, 88.25 percent; 2005, 91.69 percent; 2006, 94.79, percent; and 2007, 97.21 percent.
For buildings or interests placed in service in 1993 through 2007 and disposed of in August, 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, 68.18 percent; 1999, 70.76, percent; 2000, 73.58 percent; 2001, 76.84 percent; 2002, 80.45 percent; 2003, 84.28 percent; 2004, 88.04 percent; 2005, 91.46 percent; 2006, 94.58, percent; and 2007, 97.21 percent.
For buildings or interests placed in service in 1993 through 2007 and disposed of in September, 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, 68.04 percent; 1999, 70.62, percent; 2000, 73.43 percent; 2001, 76.68 percent; 2002, 80.27 percent; 2003, 84.09 percent; 2004, 87.83 percent; 2005, 91.25 percent; 2006, 94.39, percent; and 2007, 97.21 percent.
Rev. Rul. 2007-46, 2007FED ¶46,552
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: 54,200
 

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

A producer of oil recovered through an enhanced oil recovery project that qualifies for the Texas recovered oil production tax rate is entitled to an additional 50% reduction in that rate if in the process of oil recovery the project uses carbon dioxide that
-- is captured from an anthropogenic source in Texas;
-- would otherwise be released into the atmosphere as industrial emissions;
-- is measurable at the source of capture; and
-- is sequestered in one or more geological formations in Texas following the enhanced oil recovery process.
In the event a portion of the carbon dioxide used does not satisfy the above criteria because it is not anthropogenic, the tax reduction will be reduced to reflect the proportion of carbon dioxide that does satisfy the criteria.
Property tax incentive provisions regarding a limitation on appraised value of certain property are amended to include an advanced clean energy project rather than a gasification project for a coal and biomass mixture. An "advanced clean energy project" is a project for which a Texas Clean Air Act permit application has been received by the Texas Natural Resources Conservation Commission on or after January 1, 2008, and before January 1, 2020, and that meets specified environmental criteria.
Utility tax provisions of the legislation are covered in a related story. (TAXDAY, 2007/06/22, S.31)
H.B. 3732, Laws 2007, effective September 1, 2007.

CCH (cch.taxgroup.com) reports:

The Louisiana Quality Jobs Program is amended for corporation franchise and corporation income tax purposes to make various changes to the requirements, add certain criteria, and to extend the length of the program.
The required wage thresholds for the program are now calculated using formulas based on percentages of the federal minimum hourly wage and are changed to specific dollar amounts. "Full-time employee" now means an employee working 30 or more hours a week in new direct jobs (previously, 35 hours). Changes have also been made to the manner in which employers must offer health benefits to employees. A distressed region criteria has been added to the program and nonprofit organizations are now eligible for the program if the Department of Economic Development determines that the new direct jobs created by the organization would have a significant impact on Louisiana. Finally, new applications to receive incentive tax credits or rebates will be accepted up until January 1, 2012 (previously, 2008).
Act 387 (S.B. 285 ), Laws 2007, effective July 10, 2007.

CCH (cch.taxgroup.com) reports:

The IRS has finalized regulations for including insurance companies in a life-nonlife consolidated return, adopting the group's tax year, and electing to ratably allocate tax items between short tax years. The final regulations adopt, without modification, proposed and temporary regulations that eliminate the separation condition requirement from a life insurance company's five-year affiliation requirement (T.D. 9258, TAXDAY, 2006/04/25, I.1); and proposed and temporary regulations that simplify the process for adopting the group's tax year and for electing to allocate items between short tax years (T.D. 9264, TAXDAY, 2006/05/30, I.4).
Separation Condition
In general, a newly-formed life insurance company must be affiliated with a group for five tax years before it joins in filing a consolidated return (Code Sec. 1504(c)). A tacking rule, however, provides that if an existing member of a group transfers property to a new member of the group, the new member may apply the period during which the transferring corporation was affiliated with the group toward the five-year threshold if five conditions are satisfied. The final regulations remove one of these conditions, the "separation condition," which applies when both the transferor and the new corporation are life insurance companies. The separation condition was intended to prevent the companies from using the separation to reduce taxable income under a three-phase taxing system that was substantially eliminated in 1984. Thus, the separation condition is no longer necessary.
Tax Year
Before 1981, insurance companies generally had to use a calendar tax year. Since all members of a consolidated group had to use the tax year of the common parent, this meant that a fiscal-year group had to change its tax year to a calendar year if the group included an insurance company. In 1981, Code Sec. 843 was amended to allow an insurance company that joined in the filing of a consolidated return to adopt the fiscal year of the common parent. The final regulations provide that the consolidated group must use the common parent's tax year.
Allocation Between Short Tax Years
One tax year ends, and a new tax year begins, whenever an S corporation joins or leaves a consolidated group. Returns for these short tax years must be filed as if the S corporation ceased to exist upon joining the group, or first came into existence upon leaving the group. Tax items can generally be ratably allocated between the short tax years, if the S corporation is not required to change its accounting period or its accounting method as a result of its change in status, and if an irrevocable ratable allocation election is made. The final regulations provide the rules for making this election via a separate statement on or with the returns that include the items for the years ending and beginning with the S corporation's change in status.
Effective Dates
The final regulations removing the separation condition apply to original consolidated returns due (without extensions) after July 20, 2007. The temporary regulations apply to original consolidated returns due (without extensions) after April 25, 2006, and on or before July 20, 2007. The final regulations governing tax years and the election statement apply to original consolidated income tax returns due (without extensions) after July 20, 2007. The temporary regulations governing tax years apply to original consolidated income tax returns due (without extensions) after April 25, 2006, and on or before July 20, 2007. The temporary regulations governing the election statement apply to original consolidated income tax returns due after May 30, 2006, and on or before July 20, 2007.
T.D. 9342, 2007FED ¶47,049
Other References:
Code Sec. 1502
CCH Reference - 2007FED ¶33,185C
CCH Reference - 2007FED ¶33,193
CCH Reference - 2007FED ¶33,197
Tax Research Consultant
CCH Reference - TRC CONSOL: 7,106
CCH Reference - TRC CONSOL: 15,054
CCH Reference - TRC CONSOL: 15,104.10

CCH (cch.taxgroup.com) reports:

Regulations providing guidance as to where taxpayers should file notices of a nonjudicial sale of property subject to a federal tax lien (Code Sec. 7425(b)) and claims for return of improperly levied property (Code Sec. 6343) have been updated, by new temporary and proposed regulations, to refer to related IRS publications instead of specifying a job title within the IRS. The prior regulations called for such notices and claims to be sent to the district director of the district in which the sale was to be conducted or the levy was made. Since the district director position no longer exists, and to accommodate possible future changes in the IRS organization, the revised regulations require that notice of a nonjudicial sale of property be provided to the IRS as specified in Publication 786, Instructions for Preparing a Notice of Nonjudicial Sale of Property and Application for Consent to Sale. Notices should be sent to: IRS, Attn: Technical Services Advisory Group Manager, at the IRS office for the area in which the lien was filed.
Similarly, a written claim for the return of improperly levied property must be given to the IRS as specified in Publication 4528, Making an Administrative Wrongful Levy Claim Under Internal Revenue Code (IRC) Section 6343(b). The claim should be in the form of a letter, addressed to the IRS, Attn: Advisory Territory Manager, at the IRS office for the area where the taxpayer whose liability that is the basis for the levy resides.
The addresses for these IRS offices are listed in Publication 4235, Technical Services (Advisory) Group Addresses. The regulations are effective for any notice of sale filed or request for return made after August 20, 2007.
Comments and Hearing
The text of the temporary regulations also serves as the text of the proposed regulations. Written and electronic comments and requests for a public hearing must be received by October 18, 2007. Submissions should be sent to CCA:LPDR (REG-148951-05), Room 5203, IRS, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8:00 a.m. and 4:00 p.m. to CCA:LPDR (REG-148951-05), Courier's Desk, IRS, 1111 Constitution Avenue NW., Washington, D.C., or submitted electronically via the Federal eRulemaking Portal at www.regulations.gov (IRS-REG-148951-05).
T.D. 9344, 2007FED ¶47,048
Proposed Regulations, NPRM REG-148951-05, 2007FED ¶49,753
Other References:
Code Sec. 6343
CCH Reference - 2007FED ¶38,273
CCH Reference - 2007FED ¶38,273A
Code Sec. 7425
CCH Reference - 2007FED ¶41,703
CCH Reference - 2007FED ¶41,703C
Tax Research Consultant
CCH Reference - TRC IRS: 51,154.20
CCH Reference - TRC IRS: 51,308.05

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

For purposes of the New Jersey corporation business tax, receipts from the sale of tangible and intangible assets in a transaction pursuant to IRC §338(h)(10) (regarding nonrecognition of gain or loss by a target corporation together with the nonrecognition of gain or loss on the sale of stock by a selling consolidated group) are allocated and sourced to New Jersey by multiplying the gain by a three-year average of the allocation factors used by a target corporation for its three tax return periods immediately prior to the sale.
N.J.A.C. 18:7-8.12 , New Jersey Division of Taxation, effective July 16, 2007.

CCH (cch.taxgroup.com) reports:

For Connecticut corporation business tax, insurance company tax, and hospital and medical services corporation tax purposes, the tax credits allowed for film industry expenses have been expanded, applicable to income years commencing on or after January 1, 2007.

CCH (cch.taxgroup.com) reports:

As in past years, several states are offering sales and use tax holidays for a few days in August, during which back-to-school items such as clothing, footwear, school supplies, and computers may be purchased tax free. Local sales taxes may continue to be imposed in some places, however.

CCH (cch.taxgroup.com) reports:

Various prescribed rates for federal income tax purposes for August 2007 have been provided by the IRS. The annual short-term, mid-term, and long-term applicable federal interest rates (AFRs) are 5.00 percent, 5.09 percent and 5.31 percent, respectively. The semiannual short-term, mid-term, and long-term AFRs are 4.94 percent, 5.03 percent and 5.24 percent, respectively. Quarterly short-term, mid-term and long-term AFRs are 4.91 percent, 5.00 percent and 5.21 percent, respectively. Finally, the monthly short-term, mid-term and long-term rates are 4.89 percent, 4.98 percent and 5.18 percent, respectively.
The short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for August 2007 for purposes of Code Sec. 1288(b) are 3.75 percent, 3.97 percent, and 4.50 percent, respectively, when annual compounding is used.
Additionally, the Code Sec. 382 adjusted federal long-term rate is 4.50 percent, and the long-term tax-exempt rate is also 4.50 percent. The Code Sec. 42(b)(2) appropriate percentage for the 70-percent present-value, low-income housing credit is 8.21 percent, and the appropriate percentage for the 30-percent present-value, low-income housing credit is 3.52 percent. Finally, 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 6.20 percent.
Rev. Rul. 2007-50, 2007FED ¶46,549
Rev. Rul. 2007-50, FINH ¶30,558
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. 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 future of the IRS's controversial private tax collection initiative is in jeopardy after the House Ways and Means Committee approved a bill on July 18 to prohibit the Service from entering into any more contracts with private debt collectors. The IRS had planned to expand the initiative in 2008.
The committee also voted to impose an immediate tax on expatriates, delay, but not stop, implementation of three-percent government withholding and repeal the suspension of interest and penalties on certain deficiencies. These and other measures are part of the Chairman's Amendment in the Nature of a Substitute to the Tax Collection Responsibility Bill of 2007 (HR 3056), which was approved by the committee 23 to 18, along party lines.
All of the amendments to HR 3056 that Republicans offered were either defeated or withdrawn. They included amendments to permanently repeal the federal estate tax and make marriage penalty relief permanent. An amendment related to the alternative minimum tax (AMT) was defeated, but House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., said the committee will address AMT reform. An amendment to preserve and extend the Code Sec. 199 manufacturing deduction to Puerto Rico was withdrawn after Rangel indicated his support for adding it to future extenders' legislation.
CCH Comment. The Senate Appropriations Committee has already approved legislation that would limit funding for the privatization initiative to $1 million, which would effectively end it (TAXDAY, 2007/07/13, C.3).
Harassment Claims
Private collection agencies have made "endless calls" to individuals, Rep. John Lewis, D-Ga., said. "One elderly couple was called 150 times in 30 days." Lewis asked Michael Desmond, Tax Legislative Counsel in the Treasury Department's Office of Tax Policy, if he would prefer to have a private collection agency or an IRS representative call him if he owed taxes. "I'm not sure how to respond," Desmond told Lewis. "At the end of the day, it's not much of a difference."
Lewis' criticism was echoed by Rangel. "No one has contradicted (the claim by IRS officials) that given the resources, the IRS can do a better job," he said.
Billions in Potential Revenue
"Ending the privatization program would forego $1.1 billion in revenue," Rep. Jim Ramstad, R-N.M., predicted. Desmond said that the IRS has estimated the initiative could recover as much as $2.2 billion by 2017.
Desmond also reported that 77,000 cases had been placed with private collection agencies as of June 30, 2007. Two private collection agencies, the CBE Group, Inc., Waterloo, Iowa, and Pioneer Credit Recovery, Inc., Arcade, N.Y., are currently working taxpayer accounts. HR 3056 would not terminate the existing IRS contracts with these two firms.
"All funds collected by private collection agencies through the private debt collection initiative are sent directly to the U.S. Treasury. The IRS then pays the private collection agencies based on the amount they've collected," a spokesperson for the Tax Fairness Coalition told CCH. The two of the private collection agencies under contract with the IRS are members of the coalition. "Private collection agencies do not earn anything on those accounts that make payments to the IRS within 10 days of being contacted by the private collection agency. This results in an effective rate to private collection agencies of only about 17.3 cents on the dollar," the spokesperson explained.
Expatriation
HR 3056 would also crack down on individuals who expatriate for tax reasons. The bill would impose mark-to market tax treatment on any individual who relinquishes U.S. citizenship for tax reasons. Individuals would be able to elect to defer payment of the mark-to market tax imposed on the deemed sale of property. Election would be irrevocable and would be made on a property-by-property basis. Individuals making the election would be required to provide a bond.
Government Withholding
Besides terminating the private collection initiative, HR 3056
also would delay the effective date of the three-percent government withholding requirement in the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) (P.L. 109-222). Beginning in 2011, the federal government and state and local governments must withhold tax at the rate of three percent for persons providing any property or service. HR 3056
would delay the start of government withholding until 2012.
Rep. Wally Herger, R-Calif., urged the committee to repeal government withholding altogether. "Three-percent withholding should be considered on its own merits and not combined with debt collectors' legislation."
The committee rejected two amendments proposed by Herger. The first would have fully repealed government withholding. The second would have delayed its start date until 2016.
Suspension of Interest
If an individual timely files a federal income tax return and if the IRS does not timely provide a notice to him or her specifically stating his or her liability and the basis for that liability, the IRS generally must suspend any interest, penalty, addition to tax, or additional amount. Interest is suspended starting 18 months after the filing of the return. The period doubles to 36 months in the case of notices provided after November 25, 2007. HR 3056
would eliminate interest suspension in cases where the IRS has notified a taxpayer after 36 months.
AMT Reform
Rep. Phil English, R-Pa., proposed exempting individuals subject to AMT in 2007, but not in 2006 because of the so-called AMT patch, from penalties for failing to make estimated tax payments to satisfy AMT liability. Although English's amendment was defeated along party lines, Rangel affirmed that the Ways and Means Committee will address AMT reform. "Removing this unfair tax system is the highest priority," Rangel said.
By George L. Yaksick, Jr., CCH News Staff
Amendment in the Nature of a Substitute to Tax Collection Responsibility Act of 2007, as Approved by the House Ways and Means Committee, HR 3056
Tax Collection Responsibility Act of 2007, HR 3056
JCT Description of the Chairman's Amendment in the Nature of a Substitute to HR 3056, the Tax Collection Responsibility Act of 2007, JCX-52-07
House Ways and Means Committee Release: Democrats Vote to End Program that Helps Close "Tax Gap"
NTEU News Release: Ways and Means Committee Markup Includes "Concrete Step" Against IRS Tax Debt Program

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The regulation governing the sourcing of intangibles for California personal income tax purposes is amended to clarify that the source of gains and losses from the sale or other disposition of intangible personal property is determined at the time of the sale or disposition of that property.
Consequently, gain from an installment sale of intangible property made by a California resident taxpayer continues to be sourced to California even if the taxpayer subsequently becomes a nonresident. In addition, a California nonresident who sells intangible personal property that had a business situs in California at the time of the sale would be taxed by California on gain as it is recognized upon receipt of future installment payments.
Regulation 17952, California Franchise Tax Board, adopted July 2, 2007, effective August 1, 2007.

CCH (cch.taxgroup.com) reports:

The IRS and Treasury Department have issued final regulations under Code Sec. 1502 regarding basis determinations and adjustments for subsidiary stock in certain transactions involving members of a consolidated group and the determination of when subsidiary stock is treated as worthless under Code Sec. 165. The regulations affect affiliated groups of corporations filing consolidated returns and are effective on July 18, 2007.
The final regulations adopt, without modifications, proposed and temporary regulations under Reg. §1.1502-19 issued on January 26, 2006 (NPRM REG-138879-05; T.D. 9244) regarding treatment of excess loss accounts. Under the final regulations, when a member of a consolidated group has an excess loss account in stock shares of a class of a second member's stock at the time of a basis adjustment or determination under the tax code with respect to other shares of the same class of the second member's stock owned by the first member, the basis of the other shares is allocated first to equalize and eliminate the member's excess loss account. The final regulations eliminates prior reliance on the form of the transaction to determine whether an excess loss account would be reduced or eliminated.
The final regulations also adopt, without substantive modifications, proposed amendments to Reg. §1.1502-80 issued on January 23, 2007 (NPRM REG-157711-02) regarding when subsidiary stock is treated as worthless under Code Sec. 165. The final regulations provide that subsidiary stock is not treated as worthless before the earlier of the time that the subsidiary ceases to be a member of the group or the time that the stock is worthless within the meaning of Reg. §1.1502-19(c)(1)(iii). The regulation applies to tax years for which the consolidated return is due (without extensions) after July 18, 2007. However, taxpayers may apply the regulation to tax years beginning on or after January 1, 1995.
The preamble to the final regulations notes that Reg. §1.1502-19(c)(1)(iii)(A) applies when a subsidiary disposes of substantially all of its assets and the deferral of any worthless securities deduction until that time implements single-entity principles. An event identified in Reg. §1.1502-19(c)(1)(iii)( or Reg. §1.1502-19(c)(1)(iii)(C), generally dealing with debt cancellations, may occur independently of a subsidiary's disposal of substantially all of its assets. In light of the single-entity purpose of the regulations, the preamble invites comments regarding whether the regulations should refer only to the time stock is treated as worthless within the meaning of Reg. §1.1502-19(c)(1)(iii)(A).
T.D. 9341, 2007FED ¶47,047
Other References:
Code Sec. 1502
CCH Reference - 2007FED ¶33,167
CCH Reference - 2007FED ¶33,204
Tax Research Consultant
CCH Reference - TRC CONSOL: 5,204
CCH Reference - TRC CONSOL: 21,206.05
CCH Reference - TRC CONSOL: 23,154
CCH Reference - TRC CONSOL: 23,154.05
CCH Reference - TRC CONSOL: 23,202.15

CCH (cch.taxgroup.com) reports:

IRS Deputy Commissioner for Operations Support Linda Stiff testified before the House Budget Committee on July 17, discussing the program integrity cap adjustment to the IRS's fiscal year (FY) 2008 budget. According to Stiff, more resources will yield more revenue, increase voluntary compliance and reduce the tax gap, resulting in a significant return on investment.
FY 2008 Budget
Stiff reported that the FY 2008 budget proposes a program integrity cap adjustment of $406 million to assist the IRS. Of that amount, $115 million is intended to assist the IRS in maintaining its FY 2007 base enforcement levels, adjusting for pay increases and inflation. The remaining $291 million is intended to support the IRS's initiatives aimed at increasing taxpayers' voluntary compliance and reducing the tax gap. "This budget will allow us to continue to balance a strong taxpayer service program with an equally effective enforcement effort," Stiff stated, adding, "This balance is important for effective tax administration."
Enforcement Initiatives
The initiatives Stiff outlined are aimed at improving voluntary compliance by increasing "front-line" enforcement resources, implementing legislative and regulatory changes, and expanding the IRS's research program. Stiff's written statement described the following initiatives:
--Increased audits of high-risk tax returns, collecting unpaid taxes listed on tax returns and investigating tax evaders for possible criminal referral among small business and self-employed taxpayers;
--Increased examination coverage for large complex business returns, foreign residents and smaller corporations with significant international activity; and
--Increased coverage in the automated under-reporter program by minimizing revenue loss.
Return on Investment
Stiff estimated that these enhanced enforcement efforts would create a return of investment of $13 to $14 for every additional $1 invested, with the full benefits realized after three years. This does not include the amount of tax that will continued to be collected due to the deterrent effect the Service's efforts could have on potential tax evaders. "It is important that we have the resources to enforce the existing laws in ways that do not fundamentally change the manner in which we interact with taxpayers," Stiff emphasized.
By Torie Cole, CCH News Staff
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Legislation is enacted that creates a credit for the cost of purchase and installation of a wind energy system or solar energy system that may be applied to any Louisiana corporation franchise, corporation income, or personal income tax liability. The bill also creates a credit against personal income tax for homeowner, condominium owner, and tenant homeowner insurance policies and makes changes to the inheritance tax.
The credit for the energy systems will be equal to 50% of the first $25,000 of the cost of each energy system, including installation costs, that is purchased and installed on or after January 1, 2008. This credit may be used in addition to any federal tax credits earned for the same system.
The legislation also provides that for tax years beginning during 2008 only, there will be an individual income tax credit of 7% of the premium for a homeowners' insurance policy, condominium owners' insurance policy, or a tenant homeowners' insurance policy paid by the individual during the tax year for the primary residence of the individual.
Additionally, S.B. 211 made changes to the inheritance tax. Now, no inheritance tax will be due for deaths after June 30, 2004. Previously, for there to be no tax due a judgment of possession had to be rendered or succession had to be judicially opened no later than the last day of the ninth month following the death of the decedent. Taxpayers who paid the tax due on death occurring after June 30, 2004, will be able to apply for a refund between August 1, 2008, and December 31, 2009.
Act 371 (S.B. 90), Laws 2007, effective July 10, 2007, applicable as noted.

CCH (cch.taxgroup.com) reports:

A settlement has been reached in General Electric Co. v. Franchise Tax Board, a case challenging the threatened imposition of an amnesty penalty against a California corporation franchise and income tax taxpayer who had paid taxes under a protective claim rather than participating in California's amnesty program. The case was pending before the First Appellate District of the California Court of Appeals, after the taxpayer had appealed a California superior court decision that granted the FTB's demurrer to the taxpayer's complaint on the basis that the case was not ripe for judicial decision because the tax years at issue were still in protest status and the amnesty penalty had not yet been imposed (see TAXDAY, 2006/09/29, S.8).
The taxpayer's original complaint sought a declaratory judgment that the 50% interest penalty should not apply to tax liabilities that became final after the end of the amnesty period, as long as the taxpayer paid the full amount of the deficiency reflected in the NPAs within 15 days after receiving notice and demand for payment from the FTB. In the alternative, the taxpayer sought a declaration that the 50% interest penalty violated both substantive and procedural Due Process guarantees under the U.S. and California Constitutions.
The settlement of the case leaves unanswered the question of how the courts will resolve the statutory and constitutional challenges raised by the taxpayer.
General Electric Co. v. Franchise Tax Board, Dismissal Order Filed, California Court of Appeals, First Appellate District, No. A115530, July 13, 2007.

CCH (cch.taxgroup.com) reports:

The Last-In, First-Out (LIFO) Inventory Valuation Method continues to be used effectively by many businesses of all sizes --from small, closely held operations to large, publicly held enterprises. CCH Tax and Accounting has scheduled a two-hour audio seminar, LIFO: Concepts, Applications and Opportunities (PART 1) , that will focus on background and perspective for the use of LIFO and the requirements that taxpayers must satisfy in order to use LIFO. Presented by leading LIFO expert, Willard J. De Filipps, CPA, this seminar will be held on Thursday, July 26 beginning at 1 p.m. Eastern; noon Central. The seminar is Part 1 of a comprehensive three-part LIFO series.
Mr. De Filipps will provide a practical review of LIFO fundamentals, including eligibility requirements, financial statement conformity, consent requirements, documentation and recordkeeping, and much more. Professionals in public practice and in industry will benefit from this presentation and will gain a solid understanding of the basics of the LIFO inventory valuation method. The presentation time will include an opportunity to present questions to Mr. De Filipps.
Program topics include:
Background and Perspective
--LIFO overview: The basics in plain English;
--What is LIFO and what makes the LIFO method attractive;
--All you need to know about LIFO... On one page;
--Basic considerations in electing LIFO;
--Eligibility requirements vs. computational alternatives;
--Practicality: assumptions, risks and costs; and
--Coordinating LIFO with business agreements, bonuses, other documents, etc.
Cost Eligibility Requirement
--Inventory on LIFO must be at cost;
--Adjusting opening inventories where inventory has not been carried at cost;
--Form 970 questions highlighting cost requirement;
--What about parts inventories using replacement cost; and
--Other special situations.
Financial Statement Conformity Requirement
--Code and regulations prescribe conformity for tax purposes;
--GAAP and its interplay with the technical "conformity" requirements;
--Interim Financial Statements;
--Application of conformity requirement to unusual situations;
--Issuing financial statements before the LIFO computations can be completed; and
--Form 970 questions highlighting the conformity requirement.
Consent Requirement
--Just what is being "consented to";
--Form 970 must be filed for initial LIFO election year; and
--What if Form 970 is not filed or not filed on time.
Form 970: Proper Completion of the LIFO Election Form
--Attachments to Form 970 to complete disclosures, and
--A "pro forma" filing package for the first year.
Books and Records
--What "books and records" must be maintained to support a LIFO election;
--Rev. Proc. 98-25: IRS requirements for electronic recordkeeping;
--Audit issues when the taxpayer does not have adequate books and records; and
--The LIFO User's Bill of Rights: Rev. Proc. 79-23.
The learning objectives for this seminar are:
--Gain a comprehensive awareness of what LIFO is and the potential advantages it offers businesses;
--Understand the eligibility, cost and consent requirements for LIFO and how to properly complete the LIFO Election Form 970; and
--Know what books and records must be maintained to support a LIFO election.
About the Three-Part LIFO Series:
--Part 1 (scheduled for July 26, 2007) will focus on background and perspective for the use of LIFO and the requirements that taxpayers must satisfy in order to use LIFO.
--Part 2 (scheduled for September 13, 2007) will address the various methods available to taxpayers to choose from in setting out how they will approach their LIFO calculations. These methods will be discussed in detail and practical suggestions will be provided concerning which methods are relatively more attractive in certain situations and which methods should be avoided at all cost.
--Part 3 (scheduled for October 18, 2007) will address other areas not covered in Parts 1 and 2. These will include a discussion of the importance of understanding, reconciling and projecting LIFO reserve changes, typical IRS LIFO inventory audit issues, terminations of LIFO elections and other situations where LIFO reserves may be recaptured.
Registration can be completed online at https://www.krm.com/cch or by calling 1-800-775-7654. Participants can receive two hours of CPE credit. Each site that registers for this seminar will also receive an issue of CCH's Taxes: The Tax Magazine .
 

CCH (cch.taxgroup.com) reports:

The IRS has announced a new electronic PIN signature requirement for electronically filed returns beginning in 2008. In a move toward truly paperless filing, the IRS is eliminating the need for sending a paper signature document for e-filed returns by requiring the use of a self-selected PIN or a practitioner PIN. Taxpayers can select a five-digit PIN and Electronic Return Originators (EROs) can use a practitioner PIN when filing electronically. Practitioners will no longer send Form 8453, U.S. Individual Income Tax Declaration, for an e-filed return. Instead, EROs will use new Form 8879, IRS e-file Signature Authorization, which they are required to retain in their files. The IRS anticipates the new system will simplify e-filing for individuals, as well as IRS record keeping.
IR-2007-130, 2007FED ¶46,548
Other References:
Code Sec. 6011
CCH Reference - 2007FED ¶35,141.47
Code Sec. 7513
CCH Reference - 2007FED ¶42,702.13
CCH Reference - 2007FED ¶42,702.14
Tax Research Consultant
CCH Reference - TRC IRS: 6,050
CCH Reference - TRC IRS: 6,072

CCH (cch.taxgroup.com) reports:

Senate Finance Committee Chairman Max Baucus, D-Mont., ranking member Charles E. Grassley, R-Iowa, and Sens. John D. Rockefeller IV, D-W.Va., and Orrin G. Hatch, R-Utah, late on July 13 unveiled a $35-billion agreement to renew and improve the State Children's Health Insurance Program (CHIP). The cost would be paid for with a 61-cent increase in federal cigarette taxes, with proportional increases for other tobacco products. The committee is expected to consider the agreement during the week of July 16, with the expectation that the full Senate will take up legislation soon after.
The plan would maintain coverage for the 6.6 million children in the program, including 1.9 million who would have lost CHIP coverage without the additional funds, and it would provide coverage to an additional 3.3 million low-income, uninsured American children. The plan would also transition childless adults currently enrolled in CHIP into Medicaid. Grassley, who opposed covering childless adults, said that the proposal "tries to straighten out the mess created by all the waivers that have spent program resources on adults and higher income kids."
Grassley had wanted to hold the cost of the expansion to $35 billion above the baseline of $25 billion in funding over five years, rather than the $50 billion Baucus had wanted and that was included in the budget. "We held the line on spending at $35 billion above the baseline but $15 billion below the budget agreement," he said. Grassley noted that the $35 billion "accommodates costs that we inherited from the Bush administration waivers."
By Catherine Hubbard, CCH News Staff
Summary of Tobacco Excise Tax Proposals
JCT Description of the Revenue Provisions for Markup of the State Children's Health Insurance Program, JCX-43-07
JCT Estimated Revenue Effects of the Revenue Provisions Relating to the State Children's Health Insurance Program, JCX-44-07
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Recently enacted New York legislation modifies bank franchise tax transitional provisions related to the enactment and implementation of the federal Gramm-Leach-Bliley Act. The 2007 budget bill previously extended the transitional provisions through taxable years beginning before 2010. (TAXDAY, 2007/04/04, S.29)
The new legislation specifies that a corporation or banking corporation in existence before 2008 and subject to the Article 32 bank franchise tax for its last taxable year beginning before 2008 will continue to be subject to that tax for all taxable years beginning after 2007 and before 2010, unless a transaction or series of transactions occurring on or after January 1, 2008, results in the corporation no longer meeting the requirements to be a banking corporation or satisfying the requirements for a corporation to elect to be taxable under Article 32.
A similar provision applies for purposes of the New York City banking corporation tax.
However, a banking corporation in existence prior to 2010 and subject to the Article 32 bank franchise tax for its last taxable year beginning before 2010 may be taxable under Article 32 for taxable years beginning on or after January 1, 2010, only if the corporation, in that taxable year, meets the requirements to be a banking corporation or satisfies applicable requirements for a corporation to elect to be taxable under Article 32.
Ch. 96 (S.B. 6354), Laws 2007, effective June 29, 2007.

CCH (cch.taxgroup.com) reports:

A comprehensive tax bill, S.B. 94, that replaces the single business tax (SBT) with a new tax on business income and modified gross receipts, was signed by Michigan Governor Jennifer Granholm on July 12, 2007. The Michigan business tax (MBT) is effective January 1, 2008, after the SBT is repealed on December 31, 2007. Highlights of changes enacted by the MBT include an addition to taxable income for related party expenses, a single sales factor apportionment formula, combined filing for unitary business groups, an increased tax rate for insurance companies, and a franchise tax for financial institutions. The bill enacts many credits, some of which include credits for compensation, investment, and research and development.
A related story discusses the reduction of the personal property tax rate on businesses. (TAXDAY, 2007/07/16, S.12)

CCH (cch.taxgroup.com) reports:

The IRS has issued temporary and proposed regulations on qualified zone academy bonds ("QZABs"). The regulations provide guidance to state and local governments that issue QZABs and to banks, insurance companies and other taxpayers that hold such bonds. The regulations also provide guidance on the maximum term, permissible use of proceeds and remedial actions for QZABs. Previously proposed regulations that were published on March 26, 2004, have been withdrawn. The withdrawn proposals had been issued prior to the enactment of the Tax Relief and Health Care Act of 2006 (P.L. 109-432), which contained amendments to the QZAB provisions under Code Sec. 1397E.
The text of the temporary regulations also serves as the text of the proposed regulations. Final regulations are revised to provide cross references to the temporary regulations.
Background
Under Code Sec. 1397E, an eligible taxpayer (financial institutions, including banks, insurance companies and corporations actively engaged in the business of lending money) that holds a QZAB on a credit allowance date is entitled to a nonrefundable tax credit for each year in which the bond is held. A QZAB is a taxable bond that is issued by a state or local government, the proceeds of which are used to improve certain eligible public schools. Bond issues are subject to both maximum term limitations and maximum amount limitations. Subsequent to the issuance of the 2004 proposed QZAB regulations, the Tax Relief and Health Care Act of 2006 ("2006 Act") amended Code Sec. 1397E by adding certain requirements in order for a bond to be a QZAB.
Temporary Regulations
The new temporary regulations provide that the maximum term for a QZAB is determined based on the first day on which there is a binding contract in writing for the sale or exchange of the bond. The IRS also noted that, at the present time, the Treasury Department is going to continue its current practice of publishing the credit rate and maximum term for QZABs on the Bureau of Public Debt's website for State and Local Government Series securities at: http://www.publicdebt.treas.gov.
The temporary regulations also provide guidance with respect to the "95-percent test" in Code Sec. 1397E(d)(1). This test requires, in part, that at least 95 percent of the bond proceeds be used for a qualified purpose with respect to a qualified zone academy. The regulations also retain, with certain modifications relating to amendments contained in the 2006 Act, two remedial actions contained in the withdrawn proposals that may be taken in certain circumstances if the 95-percent test is not met.
In addition, the temporary regulations provide guidance regarding the arbitrage investment restrictions contained in Code Sec. 148 applicable to tax-exempt state or local governmental bonds under Code Sec. 103. These restrictions were made applicable to QZABs under the 2006 Act.
Finally, the temporary regulations, reflecting Code Sec. 1397E(h), require that issuers of QZABs file information returns with the IRS similar to those required under Code Sec. 149(e) regarding tax-exempt state or local bonds. The IRS will prescribe the forms to be used by QZAB issuers.
Proposed Regulations
Written or electronic comments and requests for a public hearing on the proposed regulations must be received by the IRS by October 15, 2007. Submissions should be sent to: CCA:LPDR (REG-121475-03), 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-121475-03), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue NW., Washington, DC., or sent electronically, via the Federal eRulemaking Portal at http://www.regulations.gov/(IRS REG-121475-03).
T.D. 9339, 2007FED ¶47,046
Proposed Regulations, NPRM REG-121475-03, 2007FED ¶49,752
Other References:
Code Sec. 1397E
CCH Reference - 2007FED ¶32,406
CCH Reference - 2007FED ¶32,406M
Tax Research Consultant
CCH Reference - TRC BUSEXP: 57,150
CCH Reference - TRC BUSEXP: 57,152
CCH Reference - TRC BUSEXP: 57,154
CCH Reference - TRC BUSEXP: 57,158

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Under the new Mentor-Protege Tax Credit Program to be implemented and administered by the Louisiana Department of Economic Development, a qualifying business mentor that fulfills the terms of a written mentor-protege agreement may be granted a refundable credit against its Louisiana corporation income, personal income, or corporation franchise tax liability for providing professional guidance and support to a qualifying business protege to facilitate the protege's own development and growth.
The credit amount, to be established by the Department and contained in the above agreement, may not exceed $50,000 per agreement. The credit is deemed earned on the date of the applicable investment and may be claimed in the tax year in which the investment is made.
Among other provisions, the Department-approved agreement between the mentor and the protege must include an assessment of the protege's needs, a description of the specific assistance that the mentor will provide to address those needs, the term of the agreement, and the parties' goals and objectives.
This Program is effective for all income tax years beginning after 2006, and all franchise tax years beginning after 2007. However, the Program expires on December 31, 2011.
Act 356 (H.B. 926), Laws 2007, effective as noted above.

CCH (cch.taxgroup.com) reports:

Effective August 15, 2007, legislation is enacted that increases from $750 to $1,500 the amount of the credit that may be used against Louisiana corporation income and corporation franchise tax liability related to the operations of a cottage industry within the Atchafalaya Trace Heritage Area Development Zone. The measure also extends the termination date of the program from January 1, 2007, to January 1, 2012.

CCH (cch.taxgroup.com) reports:

The IRS has issued final regulations regarding the information returns required under Code Secs. 6038 and 6038A
for certain related-party transactions of certain foreign corporations and certain foreign-owned domestic corporations. The new regulations adopt without change proposals issued on June 21, 2006 (NPRM REG-109512-05) and remove the temporary regulations issued at the same time (T.D. 9268, IRB 2006-30, 94). The final regulations are effective on July 13, 2007.
The final regulations expand the reporting requirements to include transactions between a foreign corporation and controlled partnerships. In addition, the final regulations now require the reporting of sales and purchases, rather than just purchases, of tangible property and to include the reporting of premiums paid, rather than just premiums received, for insurance or reinsurance (Reg. §1.6038-2(f)(11)). The final regulations also clarify that foreign corporations that use an accrual method of accounting must report the transactions described in Reg. §1.6038-2(f)(11) on an accrual basis.
Finally, the regulations have been updated to reflect changes to Code Sec. 6038(b), made by the Taxpayer Relief Act of 1997 (P.L. 105-34). Code Sec. 6038(b) imposes a $10,000 penalty for failure to furnish the required information returns within the time proscribed and provides for additional penalties when there is a continuing failure to file the required information returns. However, Code Sec. 6038(c)(4)( and Reg. §1.6038-2(k)(3) provide a reasonable cause exception for failure to furnish the required information.
T.D. 9338, 2007FED ¶47,045
Other References:
Code Sec. 6038
CCH Reference - 2007FED ¶35,543
CCH Reference - 2007FED ¶35,543B
CCH Reference - 2007FED ¶35,561B
Tax Research Consultant
CCH Reference - TRC FILEBUS: 9,100
CCH Reference - TRC IRS: 66,156

CCH (cch.taxgroup.com) reports:

The IRS has issued final regulations for determining when a controlled foreign corporation's (CFC) distributive share of partnership income is excluded from foreign personal holding company income under the exception contained in Code Sec. 954(i). These final regulations are effective July 13, 2007. The temporary regulations (T.D. 9240), issued on January 17, 2006, are removed.
Reg. §1.954-2(a)(5)(ii)(C) provides that a CFC's distributive share of partnership income will be excluded from foreign personal holding company income under the exception contained in Code Sec. 954(i) if: (1) the CFC is a qualifying insurance company, as defined in Code Sec. 953(e)(3) and, (2) the partnership generates qualified insurance income within the meaning of Code Sec. 954(i)(2) taking into account only the partnership's income. Thus, the determination of whether the CFC's distributive share of partnership income is qualified insurance income is made at the partner level.
T.D. 9326, 2007FED ¶47,044
Other References:
Code Sec. 954
CCH Reference - 2007FED ¶28,535B
Tax Research Consultant
CCH Reference - TRC INTLOUT: 6,200
CCH Reference - TRC INTLOUT: 9,100

CCH (cch.taxgroup.com) reports:

The Treasury and IRS have issued proposed regulations that would modify the backup withholding rules for payment card transactions that are made through a Qualified Payment Card Agent (QPCA) (Proposed Reg. §§31.3406(g)-1(f)(2)(vi)(A), (vii), (f)(3)
and 301.6724-1(e)(1)(vi)(H)). In general, a limited exception to the backup withholding rules applies for payments made by a payor (cardholder) through a QPCA to a qualified payee (the merchant) (Reg. §31.3406-1(f)). Under the general rules that apply, a payee is considered to be a qualified payee, with respect to a particular payment, if, at the time of the payment, the QPCA has validated the payee's TIN or the payment is made within a six-month grace period. A QPCA must notify the cardholder/payor of any merchant/payees that are not qualified payees. A cardholder or payee may establish good faith reliance on the QPCA to avoid penalties for failure to file information returns or furnish correct payee statements. In particular, a cardholder may rely on a QPCA to solicit, validate and furnish a payee's TIN (Reg. §301.6724-1(e)(1)(vi)(H)).
The proposed regulations introduce the concept of participating and nonparticipating payees. Under the proposed regulations, a qualified payee is a participating payee with respect to a reportable payment if (1) it has authorized the QPCA to act on its behalf in furnishing its name, TIN and corporate status or (2) the payment is made before January 1, 2008. Thus, for payments made before January 1, 2008, all payees are considered participating payees. The IRS states that it will be issuing rules for a merchant.payee to opt out of the QPCA program in a proposed revenue procedure. For those merchants that opt out of the QPCA program, payments will continue to be treated as made to a qualified payee for the six-month grace period. After that period, the QPCA is required to notify the payor that the payee is not a participating payee. The notification should also inform the payor that the IRS rules and regulations require the payor to solicit the payee's TIN if the payor has made a reportable payment to the payee (Proposed Reg. §31.3406(g)-1(f)(2)(vi)(A), (vii)).
The notification of payee status and participation may also be furnished in electronic format, provided certain requirements are met. In particular, the rules put in place requirements that assure consistency with the Electronic Signatures in Global and National Communications Act. For example, the payment card organization must obtain certain consents from, and make certain disclosures to cardholders/payors and merchant/payees Proposed Reg. §31.3406(g)-1(f)(3).
For purposes of establishing good faith reliance on the QPCA, the TIN solicitation requirements will be met with respect to nonparticipating payees as long as the the filer does not receive notification that the payee is not a participating payee more than 30 days before the last annual solicitation period (301.6724-1(e)(1)(vi)(H)).
Written or electronic comments on these proposed regulations must be received by October 9, 2007.
CCH Comment. The IRS estimates that there are 5,200,000 merchant/payees and 26,054,000 cardholder/payees that qualify as small entities and that the rules will have an impact, but not a significant impact, on a substantial number of these entities.
Proposed Regulations, NPRM REG-163195-05, 2007FED ¶49,751
Other References:
Code Sec. 3406
CCH Reference - 2007FED ¶33,641MC
Code Sec. 6724
CCH Reference - 2007FED ¶40,279E
Tax Research Consultant
CCH Reference - TRC FILBUS: 18,058
CCH Reference - TRC FILEBUS 18,106

CCH (cch.taxgroup.com) reports:

The Senate Appropriations Committee on July 12 approved an IRS budget of $11.1 billion for fiscal year (FY) 2008. The budget was approved as part of HR 2829, the Financial Services and General Government Appropriations legislation. HR 2829
was approved 15 to 14 on a straight party-line vote, because of controversy over the funding of the Office of the Vice President. The committee subsequently restored funding for the Vice President's office.
The bill retains a controversial provision to limit funding for the IRS's private collection of tax debts, effectively ending the program if adopted by Congress. The IRS would be allowed to continue the initiative, but new funding would be capped at $1 million, an amount considered inadequate to maintain the program. The House version of the bill does not place any limits on private tax collectors.
The IRS budget of $11.1 billion is $112.5 million above the president's budget request and $544.5 over the FY 2007 level. It includes $6.8 billion for enforcement, $2.1 billion for taxpayer service, and $282 million for business systems modernization. The taxpayer service appropriation is $46.1 million above the president's request.
Federal employees would receive a cost-of-living pay raise of 3.5 percent, an increase over the three percent requested by the Bush administration. The House bill has a comparable provision.
By Brant Goldwyn, CCH News Staff
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Insurance companies doing business both within and without Oregon must use a single sales factor apportionment formula in computing their state corporation excise (income) tax liability for tax years beginning after 2006. Except for a few special industries, other corporations have been required to use a single sales factor since July 1, 2005. Also, for apportionment purposes both before and after 2006, if the required apportionment method results in an apportionment that does not fairly and equitably represent the corporation's insurance business activity in Oregon, the taxpayer may petition the Department of Revenue for, and the Department may permit or require, an alternative method of apportionment.
S.B. 179, Laws 2007, effective September 27, 2007, applicable as noted.

CCH (cch.taxgroup.com) reports:

Although New York corporate franchise tax provisions were added earlier this year to require a controlled real estate investment trust (REIT) or regulated investment company (RIC) to file a combined report with its controlling corporation (TAXDAY, 2007/04/04, S.29), exceptions have now been enacted for REITs owning subsidiary REITs, as well as RICs owning subsidiary RICs.
In addition, a REIT or RIC is not required to be included in a combined report under Tax Law Article 9-A if more than 50% of its capital stock is owned by a bank holding company, as defined in Tax Law Sec. 1462(f)(1), or a banking corporation subject to the Article 32 bank franchise tax under Tax Law Sec. 1451.
Finally, with respect to recently enacted requirements under which certain corporations taxable under the corporate franchise tax will become taxable under the bank franchise tax, a new provision specifies that any acquisition that was completed on or before January 3, 2007, will be treated as an acquisition made before January 1, 2007.
Ch. 93 (S.B. 6335) and Ch. 94 (S.B. 6336), Laws 2007, effective June 29, 2007.

CCH (cch.taxgroup.com) reports:

Scheduled for Thursday, July 19, 2007
U.S. taxpayers generally do not have to pay tax on income earned by their foreign subsidiaries until cash is repatriated, typically in the form of a dividend. However, the subpart F controlled foreign corporation (CFC) and passive foreign investment company (PFIC) regimes end deferral on mobile/passive income earned by foreign corporations, regardless of whether the income has been distributed, which can present severe tax and cash-flow consequences to U.S. taxpayers.
CCH Tax and Accounting has scheduled a two-hour audio seminar that will address planning opportunities in connection with subpart F and PFICs. To be presented by experienced international tax and business practitioners, Robert J. Misey, Jr., and Adam Konrad on Thursday, July 19, at 1 p.m. Eastern; noon Central; 10 a.m. Pacific, the seminar will offer a nuts-and-bolts discussion on the subpart F rules designed to prevent U.S. taxpayers from avoiding U.S. tax by shifting passive or other highly mobile income through foreign subsidiaries in low-tax jurisdictions. The seminar also will provide ideas on how to avoid having a foreign corporation qualify as a CFC or PFIC. Professionals in public practice and in industry will benefit from this presentation and will come away with a practical understanding of the U.S. anti-deferral regime rules. The presentation time will include ample opportunity to ask questions of Mr. Misey and Mr. Konrad.
With respect to subpart F, Misey and Konrad will discuss:
--The definition of a controlled foreign corporation and how to avoid becoming a CFC;
--The inclusion for foreign base company income, including foreign personal holding company (FPHC) income, foreign base company sales income and foreign base company services income;
--Special exclusions and inclusions under subpart F;
--The inclusion for earnings invested in U.S. property; and
--Eliminating double taxation for subpart F inclusions.
With respect to PFICs, Misey and Konrad will discuss:
--The definition of a passive foreign investment company and how to avoid PFIC status;
--Taxation of PFICs under the excess-distribution regime; and
--Taxation of PFICs that make a qualifying electing fund (QEF) election.
The learning objectives for this seminar are:
--Identify the types of income that are considered subpart F income;
--Understand how CFCs and PFICs are defined and their tax treatment;
--Identify the mechanism to prevent double taxation of subpart F income; and
--Describe how the deemed paid foreign tax credit works in the context of subpart F income.
Registration can be completed online at https://www.krm.com/cch or by calling 1-800-775-7654. Participants can receive two hours of CPE credit. Each site that registers for this seminar will also receive an issue of CCH's Practical Guide to U.S. Taxation of International Transactions (Fifth Edition).
 

CCH (cch.taxgroup.com) reports:

Tax Analysts (www.taxanalysts.com) reports:

Texas House members voted overwhelmingly on May 2 to approve HB
3928, which would exempt an estimated additional 60,000 small
businesses from the state's new business tax by increasing the
exemption ceiling from $300,000 to $600,000.

Tax Analysts (www.taxanalysts.com) reports:

The Oregon House has rejected a plan by Gov. Ted Kulongoski (D)
to raise the state's cigarette tax by 84.5 cents to help pay for
children's health insurance.

Tax Analysts (www.taxanalysts.com) reports:

North Dakota Gov. John Hoeven (R) has signed bills offering tax
credits and other tax breaks for renewable energy production and use,
income tax credits for property tax payments, expansion of the
homestead tax credits for seniors and the disabled, and a $300 tax
credit intended to end or reduce the so-called marriage penalty.

Tax Analysts (www.taxanalysts.com) reports:

The North Carolina Court of Appeals is looking at taxpayer
standing and business incentive policy as it considers a case
challenging the state and local tax incentives provided to computer
manufacturer Dell.

Tax Analysts (www.taxanalysts.com) reports:

The North Carolina House has approved legislation (HB 257) that
would bring the state further into compliance with the Streamlined
Sales and Use Tax Agreement by adding a definition of bundled
transactions and amending the definition of sales price.

Tax Analysts (www.taxanalysts.com) reports:

Massachusetts officials have created a commission on corporate
taxation to look for ways to modernize and simplify the state's
business tax laws.

Tax Analysts (www.taxanalysts.com) reports:

The Kentucky Board of Tax Appeals has proposed significant
revisions to its regulations governing hearing procedures.

Tax Analysts (www.taxanalysts.com) reports:

The Kansas Legislature has approved an omnibus higher education
infrastructure and maintenance support measure (HB 2237) that
includes provisions authorizing significant new state tax credits for
some qualifying contributions.

Tax Analysts (www.taxanalysts.com) reports:

Florida Gov. Charlie Crist (R) has signed HB 211, ensuring
another sales tax holiday for hurricane preparedness supplies between
June 1 and 12 this year.

Tax Analysts (www.taxanalysts.com) reports:

A school finance bill passed the Colorado General Assembly on
May 1 and is now headed to Gov. Bill Ritter (D) for his expected
signature; SB 199 may also, however, be subject to a court challenge.

Tax Analysts (www.taxanalysts.com) reports:

The Arizona Senate on May 1 released a bipartisan $10.6 billion
budget proposal that includes $8 million in tax cuts.

Tax Analysts (www.taxanalysts.com) reports:

Arizona Gov. Janet Napolitano (D) signed SB 1233 on May 1,
clarifying the due dates for submitting amended state returns after
settling IRS disputes; the bill provides a statutory definition of
final determination for the purpose of adjusting Arizona gross income
due to changes in federal taxable income.

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

New Missouri legislation authorizes the automatic dissolution of a limited liability company (LLC) after the withdrawal of the last remaining member, unless there is an agreement by the personal representative of the last remaining member to continue the LLC or there is another member admitted to the LLC within 90 days of the withdrawal of the last remaining member. Under prior law, an LLC was automatically dissolved upon the withdrawal of the last remaining member.
H.B. 431, Laws 2007, effective August 28, 2007.

CCH (cch.taxgroup.com) reports:

The Tax Court correctly treated as a partnership item its determination that an LLC was a sham and lacked economic substance. The LLC's tax matters partner (TMP) and a bank sold to one another nearly identical "bonus coupons" payable if certain conditions were met. The TMP contributed cash and the bonus coupon to the LLC and assigned to it the burden of paying the redemption costs associated with the coupon he had sold to the bank. The TMP subsequently liquidated his interest in the LLC and reported a short-term capital loss representing the liquidation proceeds less his purported outside basis in the LLC. The IRS issued a notice of final partnership administrative adjustment (FPAA) to the LLC's return, seeking to declare the LLC a sham, zero out all entries on its return, and imposing penalties. The IRS's adjustments and penalties were sustained by the Tax Court which determined, as a partnership item, that the LLC was a sham, lacked economic substance and was formed and/or availed of to artificially overstate the basis of the TMP's interest.
The taxpayer's argument that the LLC's sham status cannot constitute a partnership item was rejected. Although the definition of partnership item in Code Sec. 6231(a)(3) includes items required to be taken into account under subtitle A, the statutory language provides room for partnership items that, even in the absence of an explicit subtitle A reference, are necessary for income tax calculation purposes. Further, other courts have applied a similarly broad reading of the partnership item definition in concluding that the TEFRA
statute of limitations is a partnership item, even through the statute of limitations is not governed by subtitle A. The taxpayer did not present a compelling reason to distinguish the partnership's status as a sham from the treatment of the statute of limitations. Moreover, the treatment of sham status as a partnership item was consistent with Congress's intent in enacting TEFRA.
The determination of sham status was also more appropriately determined at the partnership level. Under Reg. §301.6231(a)(3)-1(b), the determination of partnership items includes underlying legal and factual determinations including the partnership's method of accounting, its inventory method, and whether partnership activities have been engaged in with the intent to make a profit for purposes of Code Sec. 183. The status of a partnership as a sham is an underlying legal determination that falls within the definition of partnership item.
Affirming an unreported Tax Court decision.
RJT Investments X, CA-8, 2007-2 USTC ¶50,535
Other References:
Code Sec. 6221
CCH Reference - 2007FED ¶37,569.12
Code Sec. 6226
CCH Reference - 2007FED ¶37,709.70
Code Sec. 6231
CCH Reference - 2007FED ¶37,849.45
Tax Research Consultant
CCH Reference - TRC PART: 60,056
 

CCH (cch.taxgroup.com) reports:

The Financial Services and General Government Subcommittee of the Senate Appropriations Committee on July 10 approved a 2008 fiscal year (FY) IRS budget of $11.1 billion and, in a much more controversial move, voted to limit future funding for the Service's private debt collection initiative, effectively terminating it. The full Appropriations Committee is expected to take up the bill, the 2008 Financial Services and General Government Appropriations Bill, on July 12.
Treasury/IRS
Overall, the subcommittee appropriated $12.2 billion for the Treasury Department's FY 2008 budget, which includes $11.1 billion for the IRS. The subcommittee approved an increase of $112.5 million more than the White House requested for FY 2008. More than $6 billion would go for IRS enforcement, $2.1 billion for taxpayer services and $282 million for modernization of the Service's business and computer systems.
The $2.1 billion for taxpayer services represents $45.1 million more than the Administration's request. "Shortchanging resources available for taxpayer services sends the wrong signal and is inconsistent with the equation at the centerpiece of the IRS' strategic plan: Service + Enforcement = Compliance," Sen. Richard Durbin, D-Ill., said in a statement.
The Treasury Department and IRS funding provisions are part of a much larger spending bill. The bill funds the Office of the Vice President, the federal courts, the District of Columbia, and many federal agencies.
Private Tax Collection
Durbin was one of the chief architects of the anti-privatization language in the bill. The IRS would be allowed to continue the initiative but new funding would be capped at $1 million. Supporters of private tax collection have said in the past that $1 million would be inadequate to maintain the program. A similar proposal to limit future funding for the privatization program to $1 million failed in the House (TAXDAY, 2007/06/29, C.1).
Currently, two private collection agencies are working taxpayer accounts for the IRS. The IRS intends to expand the initiative in 2008 unless Congress restricts or cuts off funding.
CCH Comment. The Financial Services and General Government Subcommittee is a new committee in the 110th Congress. Durbin is chair and Sen. Sam Brownback, R-Kan., is the ranking member. The subcommittee oversees funding for the Treasury Department and the IRS.
By George L. Yaksick, Jr., CCH News Staff

Tax Analysts (www.taxanalysts.com) reports:

Texas House members voted overwhelmingly on May 2 to approve HB
3928, which would exempt an estimated additional 60,000 small
businesses from the state's new business tax by increasing the
exemption ceiling from $300,000 to $600,000.

Tax Analysts (www.taxanalysts.com) reports:

The Oregon House has rejected a plan by Gov. Ted Kulongoski (D)
to raise the state's cigarette tax by 84.5 cents to help pay for
children's health insurance.

Tax Analysts (www.taxanalysts.com) reports:

North Dakota Gov. John Hoeven (R) has signed bills offering tax
credits and other tax breaks for renewable energy production and use,
income tax credits for property tax payments, expansion of the
homestead tax credits for seniors and the disabled, and a $300 tax
credit intended to end or reduce the so-called marriage penalty.

Tax Analysts (www.taxanalysts.com) reports:

The North Carolina Court of Appeals is looking at taxpayer
standing and business incentive policy as it considers a case
challenging the state and local tax incentives provided to computer
manufacturer Dell.

Tax Analysts (www.taxanalysts.com) reports:

The North Carolina House has approved legislation (HB 257) that
would bring the state further into compliance with the Streamlined
Sales and Use Tax Agreement by adding a definition of bundled
transactions and amending the definition of sales price.

Tax Analysts (www.taxanalysts.com) reports:

Massachusetts officials have created a commission on corporate
taxation to look for ways to modernize and simplify the state's
business tax laws.

Tax Analysts (www.taxanalysts.com) reports:

The Kentucky Board of Tax Appeals has proposed significant
revisions to its regulations governing hearing procedures.

Tax Analysts (www.taxanalysts.com) reports:

The Kansas Legislature has approved an omnibus higher education
infrastructure and maintenance support measure (HB 2237) that
includes provisions authorizing significant new state tax credits for
some qualifying contributions.

Tax Analysts (www.taxanalysts.com) reports:

Florida Gov. Charlie Crist (R) has signed HB 211, ensuring
another sales tax holiday for hurricane preparedness supplies between
June 1 and 12 this year.

Tax Analysts (www.taxanalysts.com) reports:

A school finance bill passed the Colorado General Assembly on
May 1 and is now headed to Gov. Bill Ritter (D) for his expected
signature; SB 199 may also, however, be subject to a court challenge.

Tax Analysts (www.taxanalysts.com) reports:

The Arizona Senate on May 1 released a bipartisan $10.6 billion
budget proposal that includes $8 million in tax cuts.

Tax Analysts (www.taxanalysts.com) reports:

Arizona Gov. Janet Napolitano (D) signed SB 1233 on May 1,
clarifying the due dates for submitting amended state returns after
settling IRS disputes; the bill provides a statutory definition of
final determination for the purpose of adjusting Arizona gross income
due to changes in federal taxable income.

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Oregon has enacted legislation that, among other things, creates additional penalties for underpayments of corporate excise (income) or personal income taxes because of a taxpayer's use of an abusive tax shelter.

CCH (cch.taxgroup.com) reports:

The Michigan Senate and House of Representatives have passed a bill that would create a new business tax, taxing business income and modified gross receipts. The business income tax would be based on federal taxable income, except that taxpayers would be required to add back royalties, interest, and other expenses paid to related parties if the related party is not included in the taxpayer's unitary business group. The modified gross receipts base would be calculated on the taxpayer's gross receipts less purchases from other firms. Among other things, the bill would
-- create a business income tax at a rate of 4.95%;
-- add a modified gross receipts tax on every taxpayer with nexus in Michigan at a rate of 0.8%;
-- tax insurance companies at a rate of 1.25% of gross premiums;
-- levy a 0.235% franchise tax on net capital for financial institutions;
-- exempt taxpayers with less than $350,000 in gross receipts;
-- have a 100% sales factor for apportionment purposes;
-- require unitary business groups to file combined tax returns;
-- retain many credits, including the Michigan Economic Growth Authority and Renaissance Zone credits;
-- create new credits, including research and development as well as compensation in Michigan; and
-- create a credit for taxpayers with gross receipts between $350,000 and $700,000.
The bill would be effective January 1, 2008, and would be applicable to all business activity occurring after December 31, 2007.
Subscribers to CCH Tax Research NetWork may view S.B. 94.
S.B. 94, as passed by the Michigan Senate and House of Representatives, June 28, 2007.

CCH (cch.taxgroup.com) reports:

An individual could not recover income taxes she paid on the compensatory damages for emotional distress and loss of reputation she was awarded in an administrative action. She brought the action against her former employer that, in violation of various whistle-blower statutes, had "blacklisted" her and provided unfavorable references to potential employers after she had complained to state authorities of environmental hazards. Her compensation was not received on account of personal physical injuries, bruxism and other physical manifestations of stress and, thus, was not excludable from gross income under Code Sec. 104(a)(2). Further, gross income as defined by Code Sec. 61 includes compensatory damages for nonphysical injuries such as she received, regardless whether the award is an accession to wealth.
Moreover, the imposition of a tax upon such damages is within the Congress's power to tax. Taxing her award did not subject her to an unapportioned direct tax in violation of Article I, Section 9 of the Constitution of the United States. A tax on an award of damages for a nonphysical personal injury operates with the same force and effect throughout the United States and, therefore, satisfied the requirement of uniformity.
Affirming DC D.C., 2005-1 USTC ¶50,237. Related decisions at 2006-2 USTC ¶50,476 and 2007-1 USTC ¶50,228.
M. Murphy, CA-D.C., 2007-2 USTC ¶50,531
Other References:
Code Sec. 61
CCH Reference - 2007FED ¶2900.021
CCH Reference - 2007FED ¶5900.35
CCH Reference - 2007FED ¶5900.49
Code Sec. 104
CCH Reference - 2007FED ¶6662.04
CCH Reference - 2007FED ¶6662.528
Code Sec. 7402
CCH Reference - 2007FED ¶41,605.3406
Tax Research Consultant
CCH Reference - TRC INDIV: 6052
CCH Reference - TRC INDIV: 33,402
CCH Reference - TRC INDIV: 33,402.10

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

New Missouri legislation provides an expanded personal income tax deduction for Social Security benefits and other nonprivate retirement benefits, a new personal income tax deduction for qualified health insurance premiums paid, a new personal income tax addback for property taxes paid by nonresident individuals to another state, and a new personal income and corporate income tax checkoff for contributions to the After-School Retreat Reading and Assessment Grant Program Fund.

CCH (cch.taxgroup.com) reports:

An individual who is on full-time active duty as a member of the U.S. armed forces for a continuous, uninterrupted period of 120 consecutive days or more will continue to be eligible for an annual Louisiana personal income tax exemption of up to $30,000 in total compensation paid for services performed outside the state. Previously, this exemption was scheduled to expire for tax years beginning after 2007.
Act 160 (S.B. 5), Laws 2007, effective August 15, 2007.

CCH (cch.taxgroup.com) reports:

The IRS addressed the tax consequences under Code Sec. 83 when restrictions were imposed on substantially vested stock, causing that stock to become substantially nonvested. Analyzing three fact patterns, the IRS ruled that if the imposition of restrictions on substantially vested stock causes that stock to become substantially nonvested, but there was no exchange of stock, the substantially nonvested stock is not subject to Code Sec. 83. However, if substantially vested stock is exchanged for substantially nonvested stock, the nonvested stock is subject to Code Sec. 83.
In the first situation, the IRS determined that, in connection with a new investment, substantially vested shares of the stock owned by an individual were subjected to a restriction causing them to be "substantially nonvested". Because the substantially vested shares of the stock were already owned by the individual for purposes of Code Sec. 83, there was no "transfer" under Code Sec. 83. Therefore, the imposition of new restrictions on the substantially vested shares had no effect for purposes of Code Sec. 83, and when the substantially nonvested stock became substantially vested, the individual did not recognize compensation income or a rise in the basis.
In the second situation, an individual received shares of an acquiring corporation's stock with an exchanged basis in a tax-free reorganization. Because the substantially vested stock was exchanged for stock that was subjected to an employment restriction that caused the shares to be "substantially nonvested," the IRS ruled that substantially nonvested shares were transferred in connection with the performance of services, and were subject to Code Sec. 83. As a result of a Code Sec. 83(b) election, the individual became the owner of those shares. The "amount paid" for the stock under Code Sec. 83 on the transfer of the substantially nonvested shares was the fair market value of the substantially vested stock exchanged for the substantially nonvested stock on the exchange date. The individual did not include any amount in compensation income in the tax year when the stock became substantially vested because of the Code Sec. 83(b) election, and his basis in the stock remained as it was. Upon the sale of the shares, the individual recognized capital gain in the amount by which the fair market value of the stock exceeded the individual's basis in the shares.
In the third situation, the same facts as in Situation 2 were assumed except that the merger was fully taxable. The IRS determined that the individual held substantially vested stock at the time of the merger, and exchanged it for substantially nonvested stock. Because the individual disposed of the substantially vested stock in exchange for substantially nonvested stock in an exchange to which Code Sec. 1001 applied, the individual recognized capital gain on the disposition stock in the amount of the fair market value of substantially nonvested stock less his basis in vested stock. The substantially nonvested shares were transferred in connection with the performance of services, and, thus, were subject to Code Sec. 83.
Rev. Rul. 2007-49, 2007FED ¶46,545
Other References:
Code Sec. 83
CCH Reference - 2007FED ¶6390.029
CCH Reference - 2007FED ¶6390.465
Tax Research Consultant
CCH Reference - TRC COMPEN: 27,108.05

CCH (cch.taxgroup.com) reports:

A listing of the average annual effective interest rates on new loans under the Farm Credit System has been issued by the IRS. The rates are used in computing the special use value of farm real property for which an election is made under Code Sec. 2032A. The rates may be used by estates that value farmland under Code Sec. 2032A as of a date in 2007.
Rev. Rul. 2007-45, FINH ¶30,556
Other References:
Code Sec. 2032A
CCH Reference - FINH ¶4240.33
CCH Reference - FINH ¶4240.661
Tax Research Consultant
CCH Reference - TRC ESTGIFT: 36,200
 

CCH (cch.taxgroup.com) reports:

The IRS has issued final, temporary and proposed regulations relating to returns accompanying payment of excise taxes under Code Sec. 4965, as well as addressing filing and disclosure requirements related to these excise taxes under Code Secs. 6011, 6033
and 6071.
T.D. 9334
Code Sec. 4965, which was added by the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) (P.L. 109-222), imposed two new excise taxes that affect a broad array of tax-exempt entities. An entity-level tax is now imposed on nonplan entities that are parties to prohibited tax shelter transactions; this tax applies to each tax year during which the nonplan entity is a party to such a transaction and has net income or proceeds attributable to the transaction that are properly allocable to that tax year. The other excise tax, a manager-level tax, is imposed on entity managers who approve the tax-exempt entity as a party to a prohibited tax shelter transaction and know or have reason to know that the transaction is a prohibited tax shelter transaction.
T.D. 9334 provides that nonplan entities liable for Code Sec. 4965 excise taxes and entity managers of nonplan entities liable for those taxes are required to file a return on Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code, on or before the date the entity's annual return is due. If the entity is not required to file such a return, the entity return is due on or before the 15th day of the fifth month after the end of the nonplan entity's accounting period for which the liability under Code Sec. 4965 was incurred. Entity managers of plan entities who are liable for Code Sec. 4965 taxes are required to file a return on Form 5330, Return of Excise Taxes Related to Employee Benefit Plans, on or before the 15th day of the fifth month following the close of the manager's tax year during which the entity entered into a prohibited tax shelter transaction.
These regulations are generally effective/applicable on July 6, 2007, and will cease to apply on July 6, 2010. However, a transition rule states that returns of Code Sec. 4965 taxes that are or were due on or before October 4, 2007, will be deemed timely if the return is filed and the tax is paid before that date.
T.D. 9335
The IRS also issued temporary regulations under Code Sec. 6033(a)(2) that provide rules regarding the form, manner and timing of disclosure requirements with respect to prohibited tax shelter transactions to which tax-exempt entities are parties. These regulations require that every tax-exempt entity to which Code Sec. 4965 applies that is a party to a prohibited tax shelter transaction must disclose to the IRS that the entity is a party to a prohibited tax shelter transaction and the identity of any other party to the transaction known to the tax-exempt entity.
The temporary regulations issued in T.D. 9335 define a tax-exempt party to a prohibited tax shelter transaction, and provide guidance with respect to the frequency of disclosure, who is to make the disclosure and the time and place for making the disclosure on Form 8886-T, Disclosure by Tax-Exempt Entity Regarding Prohibited Tax Shelter Transaction. A transition rule is provided for tax-exempt entities that entered into a prohibited tax shelter transaction after May 17, 2006, and before January 1, 2007. Disclosure is not required for any prohibited tax shelter transaction entered into by a tax-exempt entity on or before May 17, 2006.
Proposed Regulations
The texts of the temporary regulations in T.D. 9334 and T.D. 9335
also serve as the texts of proposed regulations. Temporary regulations providing guidance under Code Sec. 4965 have also been released.
Background. Notice 2006-65, I.R.B. 2006-31, 102, and Notice 2007-18, I.R.B. 2007-9, 608 (TAXDAY, 2007/02/08, I.1) provided guidance regarding prohibited tax shelter transactions under Code Sec. 4965, and requested comments regarding these provisions and the guidance. After consideration of the comments received, the IRS has issued proposed regulations.
Proposed Regulations. The proposed regulations define the terms "tax-exempt entity," "prohibited tax shelter transactions," "net income" and "reportable transactions," and clarify that a tax-exempt entity does not become a party to a prohibited tax shelter transaction solely because it invests in an entity that becomes involved in such a transaction. Furthermore, the regulations address the definition of the term "entity manager," and provide guidance regarding persons who could be deemed entity managers pursuant to a delegation of authority. The regulations also define the term "approve or otherwise cause," limiting the definition to affirmative actions of persons who have the authority to commit the entity to a transaction.
The level of tax imposed under Code Sec. 4965 depends on whether the entity knew or had reason to know that it was becoming a party to a prohibited tax shelter transaction. Under the proposed regulations, receipt by an entity manager of a disclosure statement in advance of a transaction is a relevant factor but does not necessarily demonstrate that the entity or any of its managers knew or had reason to know that the transaction was a prohibited tax shelter transaction. The regulations also clarify that entity manager liability for these excise taxes is not joint and several.
Notice 2007-18 provided that allocation of net income and proceeds is determined according to normal tax accounting rules. This rule is included in the proposed regulations.
Effective Dates. When finalized the regulations under Code Sec. 4965are proposed to be applicable for tax years ending after July 6, 2007. Taxpayers may rely on these proposed regulations for periods ending on or before such date.
Comments Requested The IRS requests comments on these regulations, specifically regarding the clarity of the proposed rule and how it may be made easier to understand. A public hearing is not scheduled, but may be scheduled if requested in writing by a person who timely submits written comments. Comments and requests for a public hearing must be received by October 4, 2007. Submissions should be sent to CCA:LPDR (REG-142039-06; REG-139268-06), Room 5203, IRS, P.O. Box 7604, Ben Franklin Station, Washington, D.C., 20044. Submissions may also be hand-delivered between 8:00 a.m. and 4:00 p.m. to CCA:LPDR (REG-142039-06; REG-139268-06), Courier's Desk, IRS, 1111 Constitution Avenue, NW., Washington, D.C., or submitted electronically via the Federal eRulemaking Portal at http://www.regulations.gov (IRS-REG-142039-06; REG-139268-06).
T.D. 9334, 2007FED ¶47,041
T.D. 9335, 2007FED ¶47,042
Proposed Regulations, NPRM REG-142039-06, REG-139268-06, 2007FED ¶49,750
Other References:
Code Sec. 6011
CCH Reference - 2007FED ¶35,126
CCH Reference - 2007FED ¶35,127
CCH Reference - 2007FED ¶35,139B
CCH Reference - 2007FED ¶35,140
Code Sec. 6033
CCH Reference - 2007FED ¶35,424E
CCH Reference - 2007FED ¶35,424G
Code Sec. 6071
CCH Reference - 2007FED ¶36,703
CCH Reference - 2007FED ¶36,704
Tax Research Consultant
CCH Reference - TRC COMPEN: 42,452.20
CCH Reference - TRC RETIRE: 30,502
CCH Reference - TRC RETIRE: 69,110
CCH Reference - TRC EXEMPT: 6,106.30
CCH Reference - TRC EXEMPT: 9,310

Tax Analysts (www.taxanalysts.com) reports:

Texas House members voted overwhelmingly on May 2 to approve HB
3928, which would exempt an estimated additional 60,000 small
businesses from the state's new business tax by increasing the
exemption ceiling from $300,000 to $600,000.

Tax Analysts (www.taxanalysts.com) reports:

The Oregon House has rejected a plan by Gov. Ted Kulongoski (D)
to raise the state's cigarette tax by 84.5 cents to help pay for
children's health insurance.

Tax Analysts (www.taxanalysts.com) reports:

North Dakota Gov. John Hoeven (R) has signed bills offering tax
credits and other tax breaks for renewable energy production and use,
income tax credits for property tax payments, expansion of the
homestead tax credits for seniors and the disabled, and a $300 tax
credit intended to end or reduce the so-called marriage penalty.

Tax Analysts (www.taxanalysts.com) reports:

The North Carolina Court of Appeals is looking at taxpayer
standing and business incentive policy as it considers a case
challenging the state and local tax incentives provided to computer
manufacturer Dell.

Tax Analysts (www.taxanalysts.com) reports:

The North Carolina House has approved legislation (HB 257) that
would bring the state further into compliance with the Streamlined
Sales and Use Tax Agreement by adding a definition of bundled
transactions and amending the definition of sales price.

Tax Analysts (www.taxanalysts.com) reports:

Massachusetts officials have created a commission on corporate
taxation to look for ways to modernize and simplify the state's
business tax laws.

Tax Analysts (www.taxanalysts.com) reports:

The Kentucky Board of Tax Appeals has proposed significant
revisions to its regulations governing hearing procedures.

Tax Analysts (www.taxanalysts.com) reports:

The Kansas Legislature has approved an omnibus higher education
infrastructure and maintenance support measure (HB 2237) that
includes provisions authorizing significant new state tax credits for
some qualifying contributions.

Tax Analysts (www.taxanalysts.com) reports:

Florida Gov. Charlie Crist (R) has signed HB 211, ensuring
another sales tax holiday for hurricane preparedness supplies between
June 1 and 12 this year.

Tax Analysts (www.taxanalysts.com) reports:

A school finance bill passed the Colorado General Assembly on
May 1 and is now headed to Gov. Bill Ritter (D) for his expected
signature; SB 199 may also, however, be subject to a court challenge.

Tax Analysts (www.taxanalysts.com) reports:

The Arizona Senate on May 1 released a bipartisan $10.6 billion
budget proposal that includes $8 million in tax cuts.

Tax Analysts (www.taxanalysts.com) reports:

Arizona Gov. Janet Napolitano (D) signed SB 1233 on May 1,
clarifying the due dates for submitting amended state returns after
settling IRS disputes; the bill provides a statutory definition of
final determination for the purpose of adjusting Arizona gross income
due to changes in federal taxable income.

Tax Analysts report:

Tax Analysts (www.taxanalysts.com) reports:

Texas House members voted overwhelmingly on May 2 to approve HB
3928, which would exempt an estimated additional 60,000 small
businesses from the state's new business tax by increasing the
exemption ceiling from $300,000 to $600,000.

Tax Analysts (www.taxanalysts.com) reports:

The Oregon House has rejected a plan by Gov. Ted Kulongoski (D)
to raise the state's cigarette tax by 84.5 cents to help pay for
children's health insurance.

Tax Analysts (www.taxanalysts.com) reports:

North Dakota Gov. John Hoeven (R) has signed bills offering tax
credits and other tax breaks for renewable energy production and use,
income tax credits for property tax payments, expansion of the
homestead tax credits for seniors and the disabled, and a $300 tax
credit intended to end or reduce the so-called marriage penalty.

Tax Analysts (www.taxanalysts.com) reports:

The North Carolina Court of Appeals is looking at taxpayer
standing and business incentive policy as it considers a case
challenging the state and local tax incentives provided to computer
manufacturer Dell.

Tax Analysts (www.taxanalysts.com) reports:

The North Carolina House has approved legislation (HB 257) that
would bring the state further into compliance with the Streamlined
Sales and Use Tax Agreement by adding a definition of bundled
transactions and amending the definition of sales price.

Tax Analysts (www.taxanalysts.com) reports:

Massachusetts officials have created a commission on corporate
taxation to look for ways to modernize and simplify the state's
business tax laws.

Tax Analysts (www.taxanalysts.com) reports:

The Kentucky Board of Tax Appeals has proposed significant
revisions to its regulations governing hearing procedures.

Tax Analysts (www.taxanalysts.com) reports:

The Kansas Legislature has approved an omnibus higher education
infrastructure and maintenance support measure (HB 2237) that
includes provisions authorizing significant new state tax credits for
some qualifying contributions.

Tax Analysts (www.taxanalysts.com) reports:

Florida Gov. Charlie Crist (R) has signed HB 211, ensuring
another sales tax holiday for hurricane preparedness supplies between
June 1 and 12 this year.

Tax Analysts (www.taxanalysts.com) reports:

A school finance bill passed the Colorado General Assembly on
May 1 and is now headed to Gov. Bill Ritter (D) for his expected
signature; SB 199 may also, however, be subject to a court challenge.

Tax Analysts (www.taxanalysts.com) reports:

The Arizona Senate on May 1 released a bipartisan $10.6 billion
budget proposal that includes $8 million in tax cuts.

Tax Analysts (www.taxanalysts.com) reports:

Arizona Gov. Janet Napolitano (D) signed SB 1233 on May 1,
clarifying the due dates for submitting amended state returns after
settling IRS disputes; the bill provides a statutory definition of
final determination for the purpose of adjusting Arizona gross income
due to changes in federal taxable income.

Tax Analysts report:

Tax Analysts (www.taxanalysts.com) reports:

Texas House members voted overwhelmingly on May 2 to approve HB
3928, which would exempt an estimated additional 60,000 small
businesses from the state's new business tax by increasing the
exemption ceiling from $300,000 to $600,000.

Tax Analysts (www.taxanalysts.com) reports:

The Oregon House has rejected a plan by Gov. Ted Kulongoski (D)
to raise the state's cigarette tax by 84.5 cents to help pay for
children's health insurance.

Tax Analysts (www.taxanalysts.com) reports:

North Dakota Gov. John Hoeven (R) has signed bills offering tax
credits and other tax breaks for renewable energy production and use,
income tax credits for property tax payments, expansion of the
homestead tax credits for seniors and the disabled, and a $300 tax
credit intended to end or reduce the so-called marriage penalty.

Tax Analysts (www.taxanalysts.com) reports:

The North Carolina Court of Appeals is looking at taxpayer
standing and business incentive policy as it considers a case
challenging the state and local tax incentives provided to computer
manufacturer Dell.

Tax Analysts (www.taxanalysts.com) reports:

The North Carolina House has approved legislation (HB 257) that
would bring the state further into compliance with the Streamlined
Sales and Use Tax Agreement by adding a definition of bundled
transactions and amending the definition of sales price.

Tax Analysts (www.taxanalysts.com) reports:

Massachusetts officials have created a commission on corporate
taxation to look for ways to modernize and simplify the state's
business tax laws.

Tax Analysts (www.taxanalysts.com) reports:

The Kentucky Board of Tax Appeals has proposed significant
revisions to its regulations governing hearing procedures.

Tax Analysts (www.taxanalysts.com) reports:

The Kansas Legislature has approved an omnibus higher education
infrastructure and maintenance support measure (HB 2237) that
includes provisions authorizing significant new state tax credits for
some qualifying contributions.

Tax Analysts (www.taxanalysts.com) reports:

Florida Gov. Charlie Crist (R) has signed HB 211, ensuring
another sales tax holiday for hurricane preparedness supplies between
June 1 and 12 this year.

Tax Analysts (www.taxanalysts.com) reports:

A school finance bill passed the Colorado General Assembly on
May 1 and is now headed to Gov. Bill Ritter (D) for his expected
signature; SB 199 may also, however, be subject to a court challenge.

Tax Analysts (www.taxanalysts.com) reports:

The Arizona Senate on May 1 released a bipartisan $10.6 billion
budget proposal that includes $8 million in tax cuts.

Tax Analysts (www.taxanalysts.com) reports:

Arizona Gov. Janet Napolitano (D) signed SB 1233 on May 1,
clarifying the due dates for submitting amended state returns after
settling IRS disputes; the bill provides a statutory definition of
final determination for the purpose of adjusting Arizona gross income
due to changes in federal taxable income.

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Tennessee Governor Phil Bredesen has signed S.B. 2223, enacting various excise and franchise tax amendments, including provisions that expand a number of credits. The legislation also contains sales and use tax provisions, which are reported in a separate story. (TAXDAY, 2007/07/06, S. 26)
Industrial machinery credit:
Additional tiers are added to expand the industrial machinery credit. Previously, the credit amount was 1% of the purchase price of qualifying machinery. Under the new tiers, the following credit amounts are allowed: 10% for a capital investment exceeding $1 billion; 7% for a capital investment exceeding $500 million; 5% for a capital investment exceeding $250 million; and 3% for a capital investment exceeding $100 million. Credits under the new tiers are generally subject to the existing industrial machinery credit provisions, except that a taxpayer qualifying under the new provisions is entitled to the credit for certain items (i.e., computers, computer networks, computer software, computer systems, and any peripheral devices, including hardware, such as printers, plotters, external disc drives, modems, and telephone units) regardless of whether any of the requirements for the jobs credit are met.
Headquarters relocation expenses credit:
Additional tiers are added to expand the credit for headquarters facility relocation expenses. Previously, the credit was available only to taxpayers qualifying for the jobs tax credit in connection with a required capital investment exceeding $1 billion, and the credit amount could not exceed $50,000 multiplied by the number of relocated positions. Under the new tiers, the following maximum credit amounts are also available, based on the creation of full-time jobs that pay at least 150% of the Tennessee average occupational wage:
-- 100 --249 jobs, $10,000 per relocated position;
-- 250 --499 jobs, $20,000 per relocated position;
-- 500 --749 jobs, $30,000 per relocated position; and
-- 750 or more jobs, $40,000 per relocated position.
Rural Opportunity Fund credit: For financial institutions, a new credit is allowed, equal to 10% of contributions to the Tennessee Rural Opportunity Fund.
Jobs credit: An expanded jobs credit is provided for qualifying businesses located in certain economically distressed counties. Specifically, an additional credit is allowed on an annual basis for a period of three years if the business is located in a tier two economically distressed county, or five years if the business is located in a tier three economically distressed county. The additional annual credit equals $4,500 for each net new full-time employee job.
Under another amendment, if a business enterprise involves a required capital investment of $10 million and the creation of at least 100 net new full-time employee jobs (as defined for purposes of the sales and use tax qualified headquarters facility credit) paying at least 150% of the Tennessee average occupational wage, then the credit allowed is $5,000 for each such job created. An additional $5,000 credit is also allowed on an annual basis for a period of three years, beginning with the first tax year after the investment and job threshold criteria are met.
Refund for qualified production companies:
The legislation amends the provision previously allowing a 15% refund of certain qualified expenses related to the production of a movie in Tennessee. Under the amendment, the refund is also available with respect to the production of an episodic television program in Tennessee. In addition, the provision now specifies that qualified expenses must be incurred prior to July 1, 2012.
Apportionment for barges: The law governing special apportionment for common carriers is amended to include provisions for barges, applicable to tax years ending on or after July 1, 2007. Under the new provisions, the ratio for barges is obtained by taking the arithmetical average of the following two ratios: (A) revenue from the transportation of cargo loaded in Tennessee, as compared with entire revenue from the transportation of cargo loaded in and outside the state; and ( the ratio of total miles operated in Tennessee to total miles operated in and outside the state. "Miles operated in Tennessee" means 50% of miles operated on the Mississippi River adjacent to the Tennessee shoreline, plus all miles operated on inland waterways within Tennessee.
S corporations: Excise tax modifications are enacted for S corporations for any gain or loss that is attributable to an IRC §338(h)(10) election and that is not included in net earnings or losses. The modifications apply to transactions occurring on or after October 1, 2007.
Basis adjustment: With respect to sales of property having a higher basis for Tennessee excise tax purposes than for federal income tax purposes, the provision allowing a subtraction for part of the gain or loss is amended to specify that no adjustment may be taken as a result of the taxpayer not having been subject to the excise tax during any portion of the period during which the taxpayer took depreciation expense on the property for federal income tax purposes.
Joint and several liability for unitary businesses: For financial institutions required to file combined returns, although the law generally provides that each member subject to tax in Tennessee is jointly and severally liable for the tax imposed with regard to the unitary business, an exception is now available for certain limited liability companies, limited liability partnerships, and limited partnerships. For the exception from joint and several liability to apply, one of the following requirements must be met: (A) the member has pledged substantially all of its assets as security for third-party borrowings or securitized indebtedness acquired by third parties, and it was formed and operated for the primary purpose of acquiring notes, accounts receivable, installment sale contracts, or similar evidences of indebtedness from its owners; or ( substantially all of the member's assets consist of assets described in (A), above, or cash and cash equivalents, third-party debt securities, or equity interests in entities satisfying the requirements of (A).
Diversified investing funds: The exemption for diversified investing funds is expanded to include business trusts that otherwise meet the requirements for the exemption. Previously, the exemption applied only to limited liability companies, limited liability partnerships, and limited partnerships.
Subscribers to CCH Tax Research NetWork can view the amendments constituting the bill as enacted.
S.B. 2223, Laws 2007, effective June 28, 2007, or as noted.

CCH (cch.taxgroup.com) reports:

Kentucky Governor Ernie Fletcher has issued a proclamation calling for a special session of the Kentucky General Assembly to begin Thursday, July 5, that will address, among other issues, legislation exempting active duty and reserve military pay from the Kentucky personal income tax. According to a press release from the Governor's office, the primary purpose of the session is to provide incentives for energy companies seeking to build alternative fuels facilities.
Subscribers to CCH Tax Research NetWork can view the complete text of the press release and proclamation.
Press Release , Kentucky Governor Ernie Fletcher, July 2, 2007.

CCH (cch.taxgroup.com) reports:

Among other tax provisions, the District of Columbia Fiscal Year 2008 Budget Support Act of 2007 increases the standard deduction amount and the personal exemption amounts for District personal income tax purposes, provides a clarification regarding the definition of "taxable income" for unincorporated franchise tax purposes, and formally repeals the targeted historic housing property rehabilitation tax credit previously available to a nonprofit corporation or an individual for District corporation franchise or personal income tax purposes.

CCH (cch.taxgroup.com) reports:

A national accounting firm that was being investigated for marketing potentially abusive tax shelters did not waive the attorney-client privilege when it faxed a memorandum written by one of its partners to an attorney at a law firm that was assisting the accounting firm in providing tax services to its clients. The common interest doctrine applied to extend the protection afforded by the attorney-client privilege to the memorandum. Because one of the objectives of the privilege is assisting clients in conforming their conduct to the law, litigation need not be pending for the communication to be made in connection with the provision of legal services. The issue of whether the memorandum fell within the crime-fraud exception to the attorney-client privilege was waived by the IRS since the Service failed to raise the issue in the district court after the district court found that Document A-40 fell within the crime-fraud exception.
A customer-intervenor failed to rebut the evidence that Document A-40 came under the crime-fraud exception to the attorney-client privilege; therefore, the customer-intervenor could not invoke the privilege to prevent the disclosure of the document to the IRS pursuant to its civil subpoenas. There was no abuse of discretion by the district court in determining that the IRS provided sufficient evidence to support the conclusion that Document A-40 was a communication in furtherance of a crime or fraud; thus, the document fell within the crime-fraud exception to the attorney-client privilege. A prima facie showing of each element of a particular crime or common law fraud is not required to invoke the crime-fraud exception to the privilege.
The district court record was unclear as to whether the IRS provided sufficient facts to support a finding that the tax practitioner privilege, invoked by the intervenors, was eviscerated by the tax-shelter exception. The district court must re-examine the 266 documents at issue and determine which were covered by the attorney-client privilege, which by the tax practitioner privilege, and which by both. For those documents covered only by the tax practitioner privilege, the IRS is required to provide sufficient evidence to show that the tax-shelter exception applies in order to avoid invocation of the privilege, which would keep the documents from being disclosed. Since the tax-shelter exception is a true exception to the tax practitioner privilege, the party opposing invocation of the privilege must provide sufficient facts to show that the tax-shelter exception applies.
Affirming DC Ill. decisions 2004-2 USTC ¶50,288, 2005-1 USTC ¶50,273 and 2005-2 USTC ¶50,447; affirming in part and vacating and remanding in part 2005-1 USTC ¶50,264.
BDO Seidman, LLP, CA-7, 2007-2 USTC ¶50,530
Other References:
Code Sec. 6111
CCH Reference - 2007FED ¶37,002.16
Code Sec. 6112
CCH Reference - 2007FED ¶37,022.60
Code Sec. 7525
CCH Reference - 2007FED ¶42,816F.25
Code Sec. 7602
CCH Reference - 2007FED ¶42,827.33
CCH Reference - 2007FED ¶42,827.5027
CCH Reference - 2007FED ¶42,827.503
Tax Research Consultant
CCH Reference - TRC IRS: 21,402.20
CCH Reference - TRC IRS: 21,402.30

Tax Analysts (www.taxanalysts.com) reports:

Texas House members voted overwhelmingly on May 2 to approve HB
3928, which would exempt an estimated additional 60,000 small
businesses from the state's new business tax by increasing the
exemption ceiling from $300,000 to $600,000.

Tax Analysts (www.taxanalysts.com) reports:

The Oregon House has rejected a plan by Gov. Ted Kulongoski (D)
to raise the state's cigarette tax by 84.5 cents to help pay for
children's health insurance.

Tax Analysts (www.taxanalysts.com) reports:

North Dakota Gov. John Hoeven (R) has signed bills offering tax
credits and other tax breaks for renewable energy production and use,
income tax credits for property tax payments, expansion of the
homestead tax credits for seniors and the disabled, and a $300 tax
credit intended to end or reduce the so-called marriage penalty.

Tax Analysts (www.taxanalysts.com) reports:

The North Carolina Court of Appeals is looking at taxpayer
standing and business incentive policy as it considers a case
challenging the state and local tax incentives provided to computer
manufacturer Dell.

Tax Analysts (www.taxanalysts.com) reports:

The North Carolina House has approved legislation (HB 257) that
would bring the state further into compliance with the Streamlined
Sales and Use Tax Agreement by adding a definition of bundled
transactions and amending the definition of sales price.

Tax Analysts (www.taxanalysts.com) reports:

Massachusetts officials have created a commission on corporate
taxation to look for ways to modernize and simplify the state's
business tax laws.

Tax Analysts (www.taxanalysts.com) reports:

The Kentucky Board of Tax Appeals has proposed significant
revisions to its regulations governing hearing procedures.

Tax Analysts (www.taxanalysts.com) reports:

The Kansas Legislature has approved an omnibus higher education
infrastructure and maintenance support measure (HB 2237) that
includes provisions authorizing significant new state tax credits for
some qualifying contributions.

Tax Analysts (www.taxanalysts.com) reports:

Florida Gov. Charlie Crist (R) has signed HB 211, ensuring
another sales tax holiday for hurricane preparedness supplies between
June 1 and 12 this year.

Tax Analysts (www.taxanalysts.com) reports:

A school finance bill passed the Colorado General Assembly on
May 1 and is now headed to Gov. Bill Ritter (D) for his expected
signature; SB 199 may also, however, be subject to a court challenge.

Tax Analysts (www.taxanalysts.com) reports:

The Arizona Senate on May 1 released a bipartisan $10.6 billion
budget proposal that includes $8 million in tax cuts.

Tax Analysts (www.taxanalysts.com) reports:

Arizona Gov. Janet Napolitano (D) signed SB 1233 on May 1,
clarifying the due dates for submitting amended state returns after
settling IRS disputes; the bill provides a statutory definition of
final determination for the purpose of adjusting Arizona gross income
due to changes in federal taxable income.

Tax Analysts report:

Tax Analysts (www.taxanalysts.com) reports:

Texas House members voted overwhelmingly on May 2 to approve HB
3928, which would exempt an estimated additional 60,000 small
businesses from the state's new business tax by increasing the
exemption ceiling from $300,000 to $600,000.

Tax Analysts (www.taxanalysts.com) reports:

The Oregon House has rejected a plan by Gov. Ted Kulongoski (D)
to raise the state's cigarette tax by 84.5 cents to help pay for
children's health insurance.

Tax Analysts (www.taxanalysts.com) reports:

North Dakota Gov. John Hoeven (R) has signed bills offering tax
credits and other tax breaks for renewable energy production and use,
income tax credits for property tax payments, expansion of the
homestead tax credits for seniors and the disabled, and a $300 tax
credit intended to end or reduce the so-called marriage penalty.

Tax Analysts (www.taxanalysts.com) reports:

The North Carolina Court of Appeals is looking at taxpayer
standing and business incentive policy as it considers a case
challenging the state and local tax incentives provided to computer
manufacturer Dell.

Tax Analysts (www.taxanalysts.com) reports:

The North Carolina House has approved legislation (HB 257) that
would bring the state further into compliance with the Streamlined
Sales and Use Tax Agreement by adding a definition of bundled
transactions and amending the definition of sales price.

Tax Analysts (www.taxanalysts.com) reports:

Massachusetts officials have created a commission on corporate
taxation to look for ways to modernize and simplify the state's
business tax laws.

Tax Analysts (www.taxanalysts.com) reports:

The Kentucky Board of Tax Appeals has proposed significant
revisions to its regulations governing hearing procedures.

Tax Analysts (www.taxanalysts.com) reports:

The Kansas Legislature has approved an omnibus higher education
infrastructure and maintenance support measure (HB 2237) that
includes provisions authorizing significant new state tax credits for
some qualifying contributions.

Tax Analysts (www.taxanalysts.com) reports:

Florida Gov. Charlie Crist (R) has signed HB 211, ensuring
another sales tax holiday for hurricane preparedness supplies between
June 1 and 12 this year.

Tax Analysts (www.taxanalysts.com) reports:

A school finance bill passed the Colorado General Assembly on
May 1 and is now headed to Gov. Bill Ritter (D) for his expected
signature; SB 199 may also, however, be subject to a court challenge.

Tax Analysts (www.taxanalysts.com) reports:

The Arizona Senate on May 1 released a bipartisan $10.6 billion
budget proposal that includes $8 million in tax cuts.

Tax Analysts (www.taxanalysts.com) reports:

Arizona Gov. Janet Napolitano (D) signed SB 1233 on May 1,
clarifying the due dates for submitting amended state returns after
settling IRS disputes; the bill provides a statutory definition of
final determination for the purpose of adjusting Arizona gross income
due to changes in federal taxable income.

Tax Analysts report:

Tax Analysts (www.taxanalysts.com) reports:

Texas House members voted overwhelmingly on May 2 to approve HB
3928, which would exempt an estimated additional 60,000 small
businesses from the state's new business tax by increasing the
exemption ceiling from $300,000 to $600,000.

Tax Analysts (www.taxanalysts.com) reports:

The Oregon House has rejected a plan by Gov. Ted Kulongoski (D)
to raise the state's cigarette tax by 84.5 cents to help pay for
children's health insurance.

Tax Analysts (www.taxanalysts.com) reports:

North Dakota Gov. John Hoeven (R) has signed bills offering tax
credits and other tax breaks for renewable energy production and use,
income tax credits for property tax payments, expansion of the
homestead tax credits for seniors and the disabled, and a $300 tax
credit intended to end or reduce the so-called marriage penalty.

Tax Analysts (www.taxanalysts.com) reports:

The North Carolina Court of Appeals is looking at taxpayer
standing and business incentive policy as it considers a case
challenging the state and local tax incentives provided to computer
manufacturer Dell.

Tax Analysts (www.taxanalysts.com) reports:

The North Carolina House has approved legislation (HB 257) that
would bring the state further into compliance with the Streamlined
Sales and Use Tax Agreement by adding a definition of bundled
transactions and amending the definition of sales price.

Tax Analysts (www.taxanalysts.com) reports:

Massachusetts officials have created a commission on corporate
taxation to look for ways to modernize and simplify the state's
business tax laws.

Tax Analysts (www.taxanalysts.com) reports:

The Kentucky Board of Tax Appeals has proposed significant
revisions to its regulations governing hearing procedures.

Tax Analysts (www.taxanalysts.com) reports:

The Kansas Legislature has approved an omnibus higher education
infrastructure and maintenance support measure (HB 2237) that
includes provisions authorizing significant new state tax credits for
some qualifying contributions.

Tax Analysts (www.taxanalysts.com) reports:

Florida Gov. Charlie Crist (R) has signed HB 211, ensuring
another sales tax holiday for hurricane preparedness supplies between
June 1 and 12 this year.

Tax Analysts (www.taxanalysts.com) reports:

A school finance bill passed the Colorado General Assembly on
May 1 and is now headed to Gov. Bill Ritter (D) for his expected
signature; SB 199 may also, however, be subject to a court challenge.

Tax Analysts (www.taxanalysts.com) reports:

The Arizona Senate on May 1 released a bipartisan $10.6 billion
budget proposal that includes $8 million in tax cuts.

Tax Analysts (www.taxanalysts.com) reports:

Arizona Gov. Janet Napolitano (D) signed SB 1233 on May 1,
clarifying the due dates for submitting amended state returns after
settling IRS disputes; the bill provides a statutory definition of
final determination for the purpose of adjusting Arizona gross income
due to changes in federal taxable income.

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Governor Ted Strickland has signed budget legislation containing provisions that affect the imposition of Ohio sales and use tax.

CCH (cch.taxgroup.com) reports:

Legislation has been enacted as part of the Ohio budget making changes to Ohio corporation franchise (income) tax and personal income tax provisions relating to credits, deductions, and school district income tax issues.
Effective June 30, 2007, the bill:
-- expands eligibility for the job retention tax credit by allowing third parties' payments to count toward the taxpayer's required investment so long as the third parties' payments are a result of leasing the project site and the site has more than one of four specified uses;
-- requires pass-through entities desiring pass-through treatment of job creation and job retention tax credits to specifically elect that treatment;
-- requires construction activities to be included in the cost and benefit analysis that must be conducted in connection with existing law's tax credit for rehabilitating historic buildings;
-- allows taxpayers to claim an income tax deduction of up to $10,000 for expenses incurred in making an organ donation while alive;
-- authorizes school boards to levy a dual-purpose income tax; and
-- includes school district income tax proposals among the three ballot opportunities allowed for proposing school district taxes.
The bill authorizes (for 2008 and 2009) nonrefundable corporation franchise tax and income tax credits for retail service station dealers that sell and dispense E85 blend fuel and blended biodiesel through metered pumps, at the rate of 15¢ per gallon in 2008 and 13¢ per gallon in 2009. School boards are now permitted to reduce income taxes without voter approval. Additionally, municipal corporations may allow their tax administrators to publish income tax-related statistics in a manner that does not disclose information about particular taxpayers.
On and after January 1, 2005, any taxpayer subject to any municipal corporation's tax on the net profit from a business or profession that has received an extension to file the federal income tax return will not be required to notify the municipal corporation of the federal extension. Furthermore, such taxpayers will not be required to file any municipal income tax return until the last day of the month to which the due date for filing the federal return has been extended, provided that, on or before the date for filing the municipal income tax return, the person notifies the tax commissioner of the federal extension through the Ohio business gateway.
Related stories discuss Ohio sales and use tax changes (TAXDAY, 2007/07/03, S.31) and property tax, cigarette tax, and severance tax changes (TAXDAY, 2007/07/03, S.29) made by H.B. 119.
H.B. 119Laws 2007, effective on the 91st day after filing with the Ohio Secretary of State, except as otherwise noted above, applicable as noted above.

CCH (cch.taxgroup.com) reports:

The IRS has announced that it will follow the decision in Westpac Pacific Food , CA-9, 2006-2 USTC ¶50,369 and permit accrual-method taxpayers required to use an inventory method of accounting and maintaining inventories to use the Advance Trade Discount Method of accounting. The IRS has provided procedures to obtain its automatic consent to change to the Advance Trade Discount Method of accounting.
Method of Accounting
Under the Advance Trade Discount Method of accounting, an "advance trade discount" is not recognized as gross income upon receipt. Instead, the advance trade discount will generally be taken into account for federal income tax purposes in the same amount, manner and tax year, in which the taxpayer accounts for the discount in its applicable financial statement. For example, an advance trade discount treated as a reduction to the cost of specific inventory on its financial statement, is treated as a trade or other discount under Code Sec. 471 and reduces the cost of that inventory. Alternatively, a discount allocated to cost of goods sold on the taxpayer's financial statement, must be treated as a reduction to cost of goods sold for federal tax purposes.
An applicable financial statement includes any statement required to be filed with the SEC, any certified audit statement used for credit purposes or reporting to shareholders, or any other financial statement required to be filed with the federal or a state government or federal or state agency. If the taxpayer does not have any of these applicable financial statements, then it must reduce only the cost of the specific items of inventory to which the discount relates as the taxpayer purchases the inventory.
Advance Trade Discount
For this purpose, an advance trade discount is a:
--Payment received by the taxpayer from a seller in exchange for the purchase of certain volume of merchandise within a period not to exceed five years;
--The payment is intended to be a discount to the price of the merchandise to be purchased;
--The taxpayer is obligated in writing or through industry custom to repay an allocable portion of the payment if the purchase commitment is not met; and
--The taxpayer does not treat the payment as a payment of services in its applicable financial statements.
If only a portion of the payment the taxpayer receives from the seller is attributable to an advance trade discount, then the Advance Trade Discount Method of accounting can only be used with respect to that portion. For example, if any portion of a payment from the seller requires the taxpayer to perform or provide cooperative advertising, then the Advance Trade Discount Method can only be used for the portion attributable to the advance trade discount. For this purpose, amounts paid to the taxpayer under an exclusive supplier agreement and for shelving (slotting) allowances will be treated as advance trade discounts so long as the taxpayer is obligated to repay an allocable portion of these amounts if the taxpayer does not fulfill its purchase commitment.
Change in Accounting Method
A change in a taxpayer's method of accounting for advance trade discounts to the Advance Trade Discount Method is a change in method of accounting. Thus, a taxpayer that wants to change to this method for tax years ending on or after July 2, 2007, must obtain the consent of the IRS. A taxpayer may follow the an automatic consent by following the procedures in Rev. Proc. 2002-9, 2002-2 C.B. 327, except the taxpayer must include on Line 1a of Form 3115 the designated automatic accounting method change number "111." The IRS will not raise an issue if the taxpayer uses the Advance Trade Discount Method on a federal income tax return filed before July 2, 2007. Rev. Proc. 2002-9 is modified and amplified.
Rev. Proc. 2007-53, 2007FED ¶46,539
Other References:
Code Sec. 61
CCH Reference - 2007FED ¶5504.103
Code Sec. 446
CCH Reference - 2007FED ¶20,620.166
CCH Reference - 2007FED ¶20,620.289
Code Sec. 451
CCH Reference - 2007FED ¶21,005.72
Code Sec. 471
CCH Reference - 2007FED ¶22,208.76
Code Sec. 481
CCH Reference - 2007FED ¶22,277.40
CCH Reference - 2007FED ¶22,277.498
Tax Research Consultant
CCH Reference - TRC ACCTNG: 9,000
CCH Reference - TRC ACCTNG: 9,104
CCH Reference - TRC ACCTNG: 21,000

CCH (cch.taxgroup.com) reports:

The IRS has established a procedure for granting temporary relief from the carryover allocation provisions of Code Sec. 42(h)(1)(E), effective for major disaster declarations occurring after July 2, 2007. The procedure applies to low-income housing owners and housing credit agencies located in areas officially declared disaster areas. This procedure supersedes the relief provisions of Rev. Proc. 95-28, 1995-1 CB 704, and extends temporary relief in such situations to the carryover allocation provisions in light of recent amendments to Code Sec. 42 and modifies compliance monitoring as set forth in T.D. 8859. Additionally, the procedure allows for owners to provide temporary emergency housing to low-income displaced persons.
Pursuant to the procedure, owners with carryover allocations may be granted an extension to satisfy the 10 percent basis requirement of Code Sec. 42(h)(1)(E)(ii). Furthermore, the two year placed in service requirement of Code Sec. 42(h)(1)(E)(i) will be considered satisfied if the building is placed in service by the December 31 of the year following the end of the two year period. Owners receiving relief who fail to meet the 10 percent requirement, or who fail to satisfy the placed in service requirement, within the extension period will have their carryover allocation treated as a credit returned to the agency at the end of the extension period. Owners must first receive approval for the carryover allocation relief from the agency that issued the carryover allocation who has the discretion to determine the amount of the relief, if any, to grant to a particular owner or group of owners. Approval may only be granted to those owner's who cannot meet the deadlines because of a disaster leading to an official declaration. Agencies approving relief must file a Form 8610, Annual Low-Income Housing Credit Agencies Report.
The procedure allows for special consideration for buildings still in their first year of the credit period, as well as providing for a reasonable restoration period, not to exceed 24 months following the official declaration, during which an owner is granted time to restore the qualified basis of the building. Failure to restore within the restoration period will subject the owner to loss of the credit claimed during the restoration period, as well as recapture for any prior years of claimed credit and must be reported to the IRS by the agency. Regardless of whether of an owner receives relief, an owner must report any reduction in qualified basis to the agency. Moreover, owners cannot receive additional credit for costs incurred in the restoration process, however, the agency may allocate rehabilitation credits in excess of the eligible basis immediately prior to the disaster.
The procedure also has special provisions for owners of low-income housing units to provide emergency temporary housing for displaced persons. The procedure provides for a 4 month suspension of documentation requirements, allowing the owner to rely on the self-certification of the displaced person as regards their qualification for low-income housing. Owners, however, must still obtain approval from the agency to house the displaced person and must keep certain records made available to the IRS on demand. Additionally, the IRS may grant similar relief in situations not covered by the procedure.
Rev. Proc. 2007-54, 2007FED ¶46,536
Other References:
Code Sec. 42
CCH Reference - 2007FED ¶4385.01
CCH Reference - 2007FED ¶4385.27
CCH Reference - 2007FED ¶4385.65
Tax Research Consultant
CCH Reference - TRC BUSEXP: 54,212
CCH Reference - TRC REAL: 3,056.10

Tax Analysts (www.taxanalysts.com) reports:

Texas House members voted overwhelmingly on May 2 to approve HB
3928, which would exempt an estimated additional 60,000 small
businesses from the state's new business tax by increasing the
exemption ceiling from $300,000 to $600,000.

Tax Analysts (www.taxanalysts.com) reports:

The Oregon House has rejected a plan by Gov. Ted Kulongoski (D)
to raise the state's cigarette tax by 84.5 cents to help pay for
children's health insurance.

Tax Analysts (www.taxanalysts.com) reports:

North Dakota Gov. John Hoeven (R) has signed bills offering tax
credits and other tax breaks for renewable energy production and use,
income tax credits for property tax payments, expansion of the
homestead tax credits for seniors and the disabled, and a $300 tax
credit intended to end or reduce the so-called marriage penalty.

Tax Analysts (www.taxanalysts.com) reports:

The North Carolina Court of Appeals is looking at taxpayer
standing and business incentive policy as it considers a case
challenging the state and local tax incentives provided to computer
manufacturer Dell.

Tax Analysts (www.taxanalysts.com) reports:

The North Carolina House has approved legislation (HB 257) that
would bring the state further into compliance with the Streamlined
Sales and Use Tax Agreement by adding a definition of bundled
transactions and amending the definition of sales price.

Tax Analysts (www.taxanalysts.com) reports:

Massachusetts officials have created a commission on corporate
taxation to look for ways to modernize and simplify the state's
business tax laws.

Tax Analysts (www.taxanalysts.com) reports:

The Kentucky Board of Tax Appeals has proposed significant
revisions to its regulations governing hearing procedures.

Tax Analysts (www.taxanalysts.com) reports:

The Kansas Legislature has approved an omnibus higher education
infrastructure and maintenance support measure (HB 2237) that
includes provisions authorizing significant new state tax credits for
some qualifying contributions.

Tax Analysts (www.taxanalysts.com) reports:

Florida Gov. Charlie Crist (R) has signed HB 211, ensuring
another sales tax holiday for hurricane preparedness supplies between
June 1 and 12 this year.

Tax Analysts (www.taxanalysts.com) reports:

A school finance bill passed the Colorado General Assembly on
May 1 and is now headed to Gov. Bill Ritter (D) for his expected
signature; SB 199 may also, however, be subject to a court challenge.

Tax Analysts (www.taxanalysts.com) reports:

The Arizona Senate on May 1 released a bipartisan $10.6 billion
budget proposal that includes $8 million in tax cuts.

Tax Analysts (www.taxanalysts.com) reports:

Arizona Gov. Janet Napolitano (D) signed SB 1233 on May 1,
clarifying the due dates for submitting amended state returns after
settling IRS disputes; the bill provides a statutory definition of
final determination for the purpose of adjusting Arizona gross income
due to changes in federal taxable income.

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

With respect to New York corporate and personal income taxes, the Department of Taxation and Finance has issued an advisory opinion discussing the extension of the expiration date of reporting requirements and related administrative provisions concerning the disclosure of certain federal and New York State reportable transactions and related information regarding tax shelters. The provisions which were due to expire on July 1, 2007, will now expire July 1, 2009.
TSB-M-07(7)C and TSB-M-07(6)I , Technical Services Bureau, Taxpayer Services Division, New York Department of Taxation and Finance, June 28, 2007, ¶405-774
Other References:
Explanations at ¶89-176

CCH (cch.taxgroup.com) reports:

On June 28, 2007, New Jersey Governor Jon S. Corzine signed the $33.47 Fiscal Year 2008 Appropriations Act, which does not include any tax increases but funds property tax relief; provides an expansion of the state earned income tax credit; allows the alternative minimum assessment, net operating loss, and subchapter S provisions that were enacted as part of the 2002 corporation business tax reforms to expire; and repeals the sales tax on memberships at non-profit health clubs and certain parking services.
Related legislation regarding gross (personal) income (S.B. 2647) (TAXDAY, 2007/07/02, S.18) and sales and use taxes (S.B. 2269 and S.B. 2289) (TAXDAY, 2007/07/02, S.17), which are funded by the Appropriations Act, are covered in related stories.
S.B. 3000, Laws 2007, effective July 1, 2007; News Release , State of New Jersey Office of the Governor, June 28, 2007.

CCH (cch.taxgroup.com) reports:

The House on June 28 passed HR 2829, which includes an IRS budget of $11.1 billion for fiscal year (FY) 2008 (TAXDAY, 2007/06/29, C.1). In addition, a panel of tax experts told the Senate Finance Committee (SFC) on June 27 that repealing the alternative minimum tax (AMT) could be paid for by modifying or ending the deduction for state and local taxes (TAXDAY, 2007/06/28, C.1). On the IRS front, a Treasury official noted that the June 30 deadline for making the Treasury/IRS 2007 Fiscal Year Guidance Plan is measured by the date when proper executive sign off of a piece of guidance is given, rather than when it is actually released to the public, meaning additional guidance will be issued soon.
White House
Prior to House passage of HR 2829, the White House issued a veto threat if the bill were to include amendments to weaken current sanctions against Cuba or provide federal funding of abortions. The administration, in a written policy statement, strongly objected to the provision that would have ended funding of the private debt collection program, arguing that its termination would cost taxpayers an estimated $63 million in FY 2007 and $1.5 billion over 10 years. The administration also stated its support for the proposed increases in IRS funding, particularly for enforcement to help narrow the tax gap.
Separately, President Bush said that he would consider supporting a health care tax credit in addition to his proposal to establish a standard health care deduction for families and individuals who purchase their own medical insurance. Bush reasoned that both approaches aim to level the playing field between those whose health insurance is provided by their employers and those who do not receive any tax benefits for buying their own health care plans.
Congress
A June 27 SFC hearing was called to educate lawmakers who are considering ways to prevent an additional 23 million Americans from paying the AMT when they file returns for 2007. The White House has suggested a one-year patch for the AMT while encouraging lawmakers to come up with a permanent solution. Raising federal taxes to pay for AMT repeal is unlikely to win the support of Finance Committee ranking member Charles E. Grassley, R-Iowa. He maintained that revenues projected to be collected by the AMT are revenues the tax was never meant to collect. SFC Chairman Max Baucus, D-Mont., said that the committee plans to work on a two-year patch after the August recess, but a permanent solution will need a lot more time.
The Senate, meanwhile, killed its comprehensive immigration reform bill (Sen 1639) on June 28, ending a bitter partisan fight over the path to citizenship for millions of illegal aliens living in the U.S. Proponents of the legislation were unable to muster the 60 votes needed to limit debate and move to a final bill. Senate Majority Leader Harry Reid, D-Nev., pulled the measure from the floor, prompting speculation that immigration reform would not be revisited in 2007. The measure included a provision that would have required the disclosure of taxpayer information to assist in immigration enforcement. Under the provision, the Social Security Administration would provide certain taxpayer data to the Department of Homeland Security for purposes of immigration enforcement, subject to confidentiality safeguards.
Grassley clarified on June 26 that, although the recently introduced Baucus/Grassley legislation regarding the taxation of some publicly traded partnerships (Sen 1624) does not address the separate issue of carried interest, he could change his mind regarding inclusion of such language in the bill. Both lawmakers agree that publicly traded partnerships or entities that directly or indirectly derive income from investment adviser or asset management services are not entitled to the exemption from corporate tax that is available to firms whose income is at least 90 percent passive-derived from dividends or royalties.
On June 29, the two senior taxwriters also expressed concern over an audit finding computing errors in the commercial tax software currently provided through the IRS's Free File program (TAXDAY, 2007/07/02, I.5). Free File directs low-to-middle income taxpayers away from the IRS website to online tax preparation firms for tax assistance. The audit by the Office of the Treasury Inspector General for Tax Administration (TIGTA) identified multiple calculation errors made by the commercial software of Free File Alliance firms and recommended that the IRS test the software for tax law accuracy.
The Senate Finance Committee plans to markup a $20 billion education tax incentives package shortly after Congress returns from its July 4 recess on July 9.
IRS
Despite being the last week of the Treasury/IRS 2007 Fiscal Year Guidance Plan, the final week of June was not flooded with as much guidance as during the past few weeks. However, Treasury Benefits Tax Counsel Thomas Reeder hinted that more is soon on its way, revealing that the June 30 guidance plan deadline is measured by the date when proper executive sign off of a piece of guidance is given, rather than when it is actually released to the public (TAXDAY, 2007/06/28, M.1). Reeder indicated that final regulations under Code Sec. 403(b) were about to be released.
In other news, the Service's controversial outsourcing of private tax collection survived a procedural challenge in the House as part of the House's debate on the FY 2008 IRS budget. The House approved an IRS budget of $11.1 billion for FY 2008, which reflects a 4.7 percent increase over FY 2007 (HR 2829).
Highlights of guidance released during the week of June 25 include:
Sample Forms . Sample forms for inter vivos and testamentary charitable lead annuity trusts were published by the IRS (Rev. Proc. 2007-45, TAXDAY, 2007/06/25, I.5; Rev. Proc. 2007-46, TAXDAY, 2007/06/25, I.6). Conrad Teitell, a partner with Cummings & Lockwood LLC, Stamford, Conn., and a CCH author, told CCH that, while the guidance is welcomed, there are some important limitations. "The IRS has limited eligible grantors to one individual or a husband and wife," Teitell observed. This treatment excludes same-sex couples, domestic partners, siblings, friends and others, he noted.
Web Tools . The IRS launched for new web-based tools for exempt organizations on the IRS website (IR-2007-124, TAXDAY, 2007/06/29, I.2). The "life cycles" provide guidance to social welfare organizations, labor organizations, agricultural and horticultural organizations, and trade associations and other business leagues.
FIN 48 . Workpapers under FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, are tax accrual workpapers and are subject to the Service's policy of restraint, Deborah Nolan, commissioner of the IRS Large and Mid-Size Business (LMS Division, told LMSB employees in a memorandum posted on the IRS website (TAXDAY, 2007/06/29, I.6). However, the policy of restraint is being revaluated overall. "LMSB is evaluating its tax accrual workpaper policy to ensure it is still appropriate in today's environment," Nolan wrote. The IRS also released a new Field Examiners' Guide on FIN 48.
In related news, IRS Chief Counsel announced that tax reconciliation workpapers created under FASB 109, Accounting for Income Taxes, are not tax accrual workpapers (CC-2007-015, TAXDAY, 2007/06/26, I.1). Therefore, they do not fall under the Service's policy of restraint.
Announcement 2007-62 . Finally, the IRS is requesting comments on proposed Form 1118, Foreign Tax Credit --Corporations (Ann. 2007-62, TAXDAY, 2007/06/28, I.1). The IRS is specifically asking for comments on the ordering rules in proposed Schedule J.
By Jeff Carlson, Stephen K. Cooper, Paula Cruickshank, George G. Jones and George L. Yaksick, Jr., CCH News Staff
 

State Headlines

All States --Corporate Income Tax: Business Activity Tax Simplification Act Introduced in U.S. Senate
The protections of P.L. 86-272 would be expanded and a physical presence nexus standard would be codified for business activity taxes, under legislation introduced in the U.S. Senate on June 28, 2007. The Business Activity Tax Simplification Act of 2007 was introduced by Sens. Charles Schumer, D-N.Y., and Mike Crapo, R-Idaho. It is similar to legislation introduced in previous sessions of Congress. According to an accompanying press release, the legislation was introduced, in part, as a response to the U.S. Supreme Court's refusal to resolve the physical presence nexus controversy by accepting the Lanco and MBNA petitions for review. (TAXDAY, 2007/06/19, S.1)
Nexus standard: The legislation would prohibit a state from imposing a business activity tax on any taxpayer, unless the taxpayer has a physical presence in the state for 15 days or more during the year. Presence in a state "to conduct limited or transient business activity" would not establish physical presence.
P.L. 86-272: Since it was originally enacted in 1959, P.L. 86-272 has prohibited state and local governments from imposing a net income tax on a taxpayer whose business activities in the state are limited to certain protected activity. The proposed legislation would extend the prohibition of 86-272 to all business activity taxes, not just net income taxes as is currently the case. Also, it would include in protected activity solicitations with respect to any sale or transaction approved and fulfilled outside the state, including transactions involving intangible property and services. Currently, 86-272 only applies to solicitations for sales of tangible personal property. Furthermore, protected activity would include furnishing information, covering events, or gathering information in a state when the information is used or disseminated from outside the state, and include activities related to the purchase of goods or services in a state if the final decision to purchase is made outside the state.
Subscribers to CCH Tax Research NetWork can view the bill.
S. 1726, as introduced in the U.S. Senate on June 28, 2007.

CCH (cch.taxgroup.com) reports:

Despite learning that Free File Alliance software does not always compute taxes correctly, the IRS has declined to test the commercial tax preparation software provided through the program to determine its accuracy in applying federal tax law. Testing to determine accuracy in applying the tax law would be a "monumental challenge," the IRS told the Treasury Inspector General for Tax Administration (TIGTA). The Service's response is part of a TIGTA report, entitled "Additional Action is Needed to Expand the Use and Improve the Administration of the Free File Program," issued on June 28. TIGTA's report sparked immediate criticism from lawmakers questioning why the IRS has not provided taxpayers with a direct filing portal on the IRS website.
Free File offers no-cost electronic tax preparation and filing. It is accessed through, but is not part of, the IRS's website. Individuals generally must have adjusted gross incomes below $52,000 to qualify. The Free File Alliance is a partnership between the IRS and a group of tax software providers, including CCH.
CCH Comment. CCH contacted the Free File Alliance for reaction to TIGTA's report but did not receive a response by press time.
Tax Law Accuracy
TIGTA tested the software of participating providers and discovered that some software did not always calculate tax amounts accurately. TIGTA also reported problems with the earned income tax credit (EITC) and the dependency exemption, among other issues.
The IRS told TIGTA that it reviews the accuracy of members' software "to ensure it operates within the parameters of the Free File agreement." According to TIGTA, this is not a review for technical accuracy but ensures that electronic returns are compatible with IRS system requirements and that the software correctly calculates the entries on the return. These tests do not assess the accuracy of the software in applying the tax law, TIGTA discovered.
Rejecting TIGTA's recommendation for tax law accuracy testing, the IRS stated that: "Testing of commercial tax preparation software to determine its accuracy in applying the tax law would be a monumental challenge."
Lagging Participation
Only a small percentage of eligible taxpayers participate in Free File, TIGTA found. The program accounted for roughly 3 percent of all individual returns filed in calendar year 2006. TIGTA recommended that the IRS focus its marketing efforts on eligible nonusers who file paper returns. The IRS plans to develop a comprehensive marketing initiative and target paper filers.
CCH Comment. An IRS spokesperson told CCH that the most recent Free File statistics are from March. Through March 13, 2007, almost 2.6 million taxpayers filed their returns using Free File.
Criticism from Congress
The leaders of the powerful Senate Finance Committee urged the IRS to do more to ensure the accuracy of tax preparation offered through Free File. "At a minimum, the IRS needs to provide better assurance that Free File tax preparation software can handle the most basic tax scenarios," Committee Chairman Max Baucus, D-Mont., said in a statement. "Taxpayers have every reason to question whether they would be better off with a pencil and an abacus than using the current Free File program," added ranking member Charles E. Grassley, R-Iowa.
Baucus is a champion of universal free online filing. "This report underscores the need for a direct filing portal on the IRS website, where the agency makes certain that the tools supplied to taxpayers comply with the Tax Code," he said. TIGTA noted that, while the IRS is exploring other e-filing options, a direct filing portal is not one.
By George L. Yaksick, Jr., CCH News Staff
SFC Release: IRS Says It Cannot Verify Accuracy of Free File Tax Programs Offered Online
TIGTA Report: Additional Action Is Needed to Expand the Use and Improve the Administration of the Free File Program

Tax Analysts (www.taxanalysts.com) reports:

Texas House members voted overwhelmingly on May 2 to approve HB
3928, which would exempt an estimated additional 60,000 small
businesses from the state's new business tax by increasing the
exemption ceiling from $300,000 to $600,000.

Tax Analysts (www.taxanalysts.com) reports:

The Oregon House has rejected a plan by Gov. Ted Kulongoski (D)
to raise the state's cigarette tax by 84.5 cents to help pay for
children's health insurance.

Tax Analysts (www.taxanalysts.com) reports:

North Dakota Gov. John Hoeven (R) has signed bills offering tax
credits and other tax breaks for renewable energy production and use,
income tax credits for property tax payments, expansion of the
homestead tax credits for seniors and the disabled, and a $300 tax
credit intended to end or reduce the so-called marriage penalty.

Tax Analysts (www.taxanalysts.com) reports:

The North Carolina Court of Appeals is looking at taxpayer
standing and business incentive policy as it considers a case
challenging the state and local tax incentives provided to computer
manufacturer Dell.

Tax Analysts (www.taxanalysts.com) reports:

The North Carolina House has approved legislation (HB 257) that
would bring the state further into compliance with the Streamlined
Sales and Use Tax Agreement by adding a definition of bundled
transactions and amending the definition of sales price.

Tax Analysts (www.taxanalysts.com) reports:

Massachusetts officials have created a commission on corporate
taxation to look for ways to modernize and simplify the state's
business tax laws.

Tax Analysts (www.taxanalysts.com) reports:

The Kentucky Board of Tax Appeals has proposed significant
revisions to its regulations governing hearing procedures.

Tax Analysts (www.taxanalysts.com) reports:

The Kansas Legislature has approved an omnibus higher education
infrastructure and maintenance support measure (HB 2237) that
includes provisions authorizing significant new state tax credits for
some qualifying contributions.

Tax Analysts (www.taxanalysts.com) reports:

Florida Gov. Charlie Crist (R) has signed HB 211, ensuring
another sales tax holiday for hurricane preparedness supplies between
June 1 and 12 this year.

Tax Analysts (www.taxanalysts.com) reports:

A school finance bill passed the Colorado General Assembly on
May 1 and is now headed to Gov. Bill Ritter (D) for his expected
signature; SB 199 may also, however, be subject to a court challenge.

Tax Analysts (www.taxanalysts.com) reports:

The Arizona Senate on May 1 released a bipartisan $10.6 billion
budget proposal that includes $8 million in tax cuts.

Tax Analysts (www.taxanalysts.com) reports:

Arizona Gov. Janet Napolitano (D) signed SB 1233 on May 1,
clarifying the due dates for submitting amended state returns after
settling IRS disputes; the bill provides a statutory definition of
final determination for the purpose of adjusting Arizona gross income
due to changes in federal taxable income.

Tax Analysts report:

Tax Analysts (www.taxanalysts.com) reports:

Texas House members voted overwhelmingly on May 2 to approve HB
3928, which would exempt an estimated additional 60,000 small
businesses from the state's new business tax by increasing the
exemption ceiling from $300,000 to $600,000.

Tax Analysts (www.taxanalysts.com) reports:

The Oregon House has rejected a plan by Gov. Ted Kulongoski (D)
to raise the state's cigarette tax by 84.5 cents to help pay for
children's health insurance.

Tax Analysts (www.taxanalysts.com) reports:

North Dakota Gov. John Hoeven (R) has signed bills offering tax
credits and other tax breaks for renewable energy production and use,
income tax credits for property tax payments, expansion of the
homestead tax credits for seniors and the disabled, and a $300 tax
credit intended to end or reduce the so-called marriage penalty.

Tax Analysts (www.taxanalysts.com) reports:

The North Carolina Court of Appeals is looking at taxpayer
standing and business incentive policy as it considers a case
challenging the state and local tax incentives provided to computer
manufacturer Dell.

Tax Analysts (www.taxanalysts.com) reports:

The North Carolina House has approved legislation (HB 257) that
would bring the state further into compliance with the Streamlined
Sales and Use Tax Agreement by adding a definition of bundled
transactions and amending the definition of sales price.

Tax Analysts (www.taxanalysts.com) reports:

Massachusetts officials have created a commission on corporate
taxation to look for ways to modernize and simplify the state's
business tax laws.

Tax Analysts (www.taxanalysts.com) reports:

The Kentucky Board of Tax Appeals has proposed significant
revisions to its regulations governing hearing procedures.

Tax Analysts (www.taxanalysts.com) reports:

The Kansas Legislature has approved an omnibus higher education
infrastructure and maintenance support measure (HB 2237) that
includes provisions authorizing significant new state tax credits for
some qualifying contributions.

Tax Analysts (www.taxanalysts.com) reports:

Florida Gov. Charlie Crist (R) has signed HB 211, ensuring
another sales tax holiday for hurricane preparedness supplies between
June 1 and 12 this year.

Tax Analysts (www.taxanalysts.com) reports:

A school finance bill passed the Colorado General Assembly on
May 1 and is now headed to Gov. Bill Ritter (D) for his expected
signature; SB 199 may also, however, be subject to a court challenge.

Tax Analysts (www.taxanalysts.com) reports:

The Arizona Senate on May 1 released a bipartisan $10.6 billion
budget proposal that includes $8 million in tax cuts.

Tax Analysts (www.taxanalysts.com) reports:

Arizona Gov. Janet Napolitano (D) signed SB 1233 on May 1,
clarifying the due dates for submitting amended state returns after
settling IRS disputes; the bill provides a statutory definition of
final determination for the purpose of adjusting Arizona gross income
due to changes in federal taxable income.

Tax Analysts report: