Tax News

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

A release lists more than 40 types of business activities and relationships that will or will not create sales and use tax nexus with South Carolina. Nexus would allow the state to impose its sales and use tax on a person, activity, property, or transaction.
The activities and relationships are listed under the categories (1) general activities, (2) property in South Carolina, (3) activities of an employee or third party (e.g., a sales representative, independent contractor, or affiliated company), (4) delivery, (5) transactions with South Carolina printers, and (6) advertising.
The lists represent the Department of Revenue's responses to questions contained in two nexus surveys issued by national publications.
Subscribers to CCH Tax Research NetWork can view this release.
Revenue Ruling 07-3, South Carolina Department of Revenue, September 25, 2007.

CCH (cch.taxgroup.com) reports:

The Department of Revenue has adopted a rule allowing discretionary penalty waivers for Oregon personal income tax, corporation excise and income tax, timber severance tax, and cigarette and tobacco products tax taxpayers who believe that a penalty was imposed improperly. The following penalties are eligible for waiver under this rule:
l
the 5% penalty for failure to file a report or return by the due date;
l
the 5% penalty for failure to pay a tax by the due date;
l
the additional 20% penalty for failure to file a report or return within three months after the due date;
l
the additional 25% penalty for failure to file a report or return more than three months after the due date and the taxpayer receives a Notice of Determination and Assessment; and
l
the 100% penalty for failure to file three consecutive reports or returns by the due date of the third year.
A waiver request is timely filed if the Department receives it any time before the tax, penalty, and interest are paid in full, or up to one year after the tax, penalty, and interest are paid in full. In order to qualify for the waiver, the taxpayer must:
l
make a written request explaining the reason for the failure to file or failure to pay the tax;
l
pay the balance of the account, other than an amount equal to the penalty amount that may be waived, for the tax period for which the waiver is requested; and
l
meet all filing requirements for the tax program that assessed the penalty.
The Department will waive any penalty listed above for any tax program if there are circumstances beyond the taxpayer's control that caused the failure to file or pay, and if the circumstances existed at the time the return or payment was due.
OAR 150-305.145(4), Oregon Department of Revenue, effective July 31, 2007.

CCH (cch.taxgroup.com) reports:

In an advance payment transaction (APT), a corporation overstated its foreign sales corporation's (FSC) exempt income by reporting costs using the annual accounting method instead of applying "total costs" as contemplated under the FSC administrative pricing rules. The corporation maintained that, under the annual accounting method embodied in Code Secs. 451 and 461, a matching of income and expenses was not required, and, therefore, its FSC did not have to include in its combined taxable income (CTI) calculation for the year at issue costs related to the transaction that were incurred in the following year. This had the effect of increasing the amount of the FSC's income on which the tax exemption was computed.
The IRS maintained that, in computing CTI under Temporary Reg. §1.925(a)-1T(c)(6), total costs attributable to the APT had to be included in the year at issue regardless of whether they were incurred in a later year. The IRS was granted summary judgment because the FSC exemption was designed to approximate arm's-length pricing and, therefore, the administrative pricing rules required that the transfer price not be reduced by omitting costs in computing CTI.
CCH Comment. The FSC Repeal and Extraterritorial Income Exclusion Act of 2000 ( P.L.106-519) repealed the law governing the taxation of FSCs generally effective for transactions after September 30, 2000. The rules governing the taxation of FSCs were replaced with an exclusion from gross income for extraterritorial income (ETI). The American Jobs Creation Act of 2004 (P.L.108-357
) repealed the ETI regime for post-2004 transactions subject to transitional rules in 2005 and 2006.
The Proctor & Gamble Company, DC Ohio, 2007-2 USTC ¶50,663
Other References:
Code Sec. 451
CCH Reference - 2007FED ¶21,017.80
Code Sec. 461
CCH Reference - 2007FED ¶21,817.166
Code Sec. 925
CCH Reference - 2007FED ¶28,163.50
Tax Research Consultant
CCH Reference - TRC INTLOUT: 15,350
CCH Reference - TRC INTLOUT: 15,354

CCH (cch.taxgroup.com) reports:

The IRS has modified the exclusive procedures that certain corporations must use to obtain automatic approval to change their annual accounting period under Code Sec. 442 and Reg. §1.442-1(b). The modifications apply to (1) a corporation leaving a consolidated group that wants to change its annual accounting period in the year the corporation ceases to be a member of the group; and (2) a controlled foreign corporation (CFC) that has a majority U.S. shareholder year and is properly applying to change to a one-month deferral year or to a 52-53-week tax year that references a one-month deferral year.
As modified, the procedures clarify that any corporation leaving a consolidated group is excluded from the automatic change procedures during the group's tax year in which the corporation ceases to be a group member, without regard to a change in the group's accounting period. The corporation must continue to use the group's annual accounting period unless the corporation receives approval under Rev. Proc. 2002-39, 2002-1 CB 1046, to change its accounting period, or is required to change its accounting period upon joining another consolidated group.
The modified procedures also provide that if a CFC changes to a one-month deferral year or to a 52-53-week tax year that references the one-month deferral year, it is not required to issue financial statements and reports to creditors on the basis of the requested year. However, the CFC must close its books and records as of the last day of the first effective year. In every year thereafter, the CFC must close its books and records as of the last day of the requested tax year, either a one-month deferral year or a 52-53-week tax year that references the deferral year. The CFC must also compute its income and its earnings and profits on the basis of the requested year.
Rev. Proc. 2006-45, I.R.B. 2006-45, 851, is modified and clarified.
Rev. Proc. 2007-64, 2007FED ¶46,647
Other References:
Code Sec. 442
CCH Reference - 2007FED ¶20,406.13
CCH Reference - 2007FED ¶20,406.17
Code Sec. 898
CCH Reference - 2007FED ¶27,725.20
Statement of Procedural Rules Sec. 602.204
CCH Reference - 2007FED ¶43,384.10
Tax Research Consultant
CCH Reference - TRC CONSOL: 15,052
CCH Reference - TRC CONSOL: 15,060
CCH Reference - TRC ACCTNG: 24,110
CCH Reference - TRC ACCTNG: 24,110.05
CCH Reference - TRC ACCTNG: 24,110.15
CCH Reference - TRC ACCTNG: 24,150
CCH Reference - TRC ACCTNG: 24,154
CCH Reference - TRC ACCTNG: 24,156

CCH (cch.taxgroup.com) reports:

The IRS has updated the rules for determining the amount of an employee's ordinary and necessary business expenses for lodging, meals, and incidental expenses incurred while traveling away from home that are deemed substantiated under Reg. §1.274-5. The new procedure provides transition rules for the last three months of calendar year 2007 and updates the simplified "high-low" per diem rates and the high-cost/low-cost localities.
Transition Rules
CONUS rates. Taxpayers may continue to use the current CONUS rates for the first nine months of calendar year 2007 instead of the updated GSA rates; however, they must consistently use one or the other for the period of October 1, 2007, to December 31, 2007.
Meal and incidental expenses. Taxpayers who used the federal meal and incidental expense rates for the first nine months of calendar year 2007, may not use the transportation industry rates provided in this procedure until January 1, 2008. Conversely, taxpayers who used the transportation industry rates for the first nine moths, cannot use the federal meal and incidental expense rates until January 1, 2008.
Substantiation method. Payors who used the substantiation method for the first nine months of calendar year 2007, may not use the high-low method until January 1, 2008, and vice versa. However, payors using the high-low method may use the rates and high-cost localities contained in Rev. Proc. 2006-41, I.R.B. 2006-43, 777, rather than the updated rates and localities contained in this procedure.
Per Diem Rates
The update applies to per diem allowances paid for travel on or after October 1, 2007. The simplified "high-low" per diem rates have decreased to $237 for high-cost localities and increased to $152 for low-cost localities. For purposes of applying the high-low substantiation methods and the 50-percent limitation on meal expenses, the federal meal and incidental expense rate is treated as $58 for a high-cost locality and $45 for any other locality within CONUS.
Locality Update
The following localities have been added to the list of high-cost localities: Sedona, Arizona; Napa, California; Palm Springs, California; San Diego, California; Yosemite National Park, California; Silverthorne/Breckenridge, Colorado; Incline Village/Crystal Bay/Reno/Sparks, Nevada; Conway, New Hampshire; Tarrytown/White Plains/New Rochelle/Yonkers, New York; Loudon County, Virginia; Virginia Beach, Virginia; and Lake Geneva, Wisconsin.
The portion of the year for which the following are high-cost localities has been changed: Santa Barbara, California; Crested Butte/Gunnison, Colorado; Steamboat Springs, Colorado; Telluride, Colorado; Vail, Colorado; Fort Lauderdale, Florida; Miami, Florida; Palm Beach, Florida; Cambridge/St. Michaels, Maryland; Ocean City, Maryland; Nantucket, Massachusetts; Jamestown/Middletown/Newport, Rhode Island; and Park City, Utah.
The following localities have been removed from the list of high-cost localities: New Orleans, Louisiana, and Lake Placid, New York.
Rev. Proc. 2006-41, I.R.B. 2006-43, 777, is updated.
Rev. Proc. 2007-63, 2007FED ¶46,646
Other References:
Code Sec. 162
CCH Reference - 2007FED ¶180.01
CCH Reference - 2007FED ¶1070.11
CCH Reference - 2007FED ¶8856.17
Code Sec. 274
CCH Reference - 2007FED ¶14,417.002
CCH Reference - 2007FED ¶14,417.035
CCH Reference - 2007FED ¶14,417.037
CCH Reference - 2007FED ¶14,417.038
CCH Reference - 2007FED ¶14,417.039
CCH Reference - 2007FED ¶14,417.04
CCH Reference - 2007FED ¶14,417.041
CCH Reference - 2007FED ¶14,417.421
CCH Reference - 2007FED ¶14,417.62
Tax Research Consultant
CCH Reference - TRC INDIV: 36,054.05
CCH Reference - TRC INDIV: 36,056.10
CCH Reference - TRC INDIV: 36,056.15
CCH Reference - TRC BUSEXP: 24,808
CCH Reference - TRC BUSEXP: 24,904
CCH Reference - TRC BUSEXP: 24,906.10
CCH Reference - TRC BUSEXP: 24,906.25
CCH Reference - TRC BUSEXP: 24,912.05
CCH Reference - TRC BUSEXP: 24,912.15
CCH Reference - TRC BUSEXP: 24,912.20

CCH (cch.taxgroup.com) reports:

The IRS has issued proposed regulations that provide guidance regarding changes made to the rules governing S corporations under the American Jobs Creation Act of 2004 (P.L. 108-357) and the Gulf Opportunity Zone Act of 2005 (P.L. 109-135). Proposed amendments to the regulations were also issued to conform the regulations to changes made by the Small Business Job Protection Act of 1996 (P.L. 104-188). The proposed regulations are necessary to replace obsolete references in the current regulations and to allow taxpayers to make proper use of the provisions that made changes to prior law. In particular, the proposed regulations provide guidance on: 1) the S corporation family shareholder rules; 2) the definitions of "powers of appointment" and "potential current beneficiaries" (PCBs) with regard to electing small business trusts; (ESBTs), 3) the allowance of suspended losses to the spouse or former spouse of an S corporation shareholder; and 4) relief for inadvertently terminated or invalid qualified subchapter S subsidiary (QSub) elections.
The proposed regulations also remove or amend several references in the regulations under Code Sec. 1361 that cite a specific number of permissible S corporation shareholders and add conforming language to Reg. §1.1361-1(j)(8) regarding passive activity losses and at-risk amounts of qualified subchapter S trusts.
Family Shareholders
Code Sec. 1361(c)(1) treats a husband and wife (and their estates), and all members of a family (and their estates) as one shareholder for purposes of the 100 shareholder limitation. Notice 2005-91, 2005-2 CB 1164, informed taxpayers that the Treasury Department and the IRS intended to issue guidance regarding the family shareholder election under Code Sec. 1361(c)(1) and provided that taxpayers could rely on the provisions of Notice 2005-91 until the issuance of that guidance. Although the portions of Notice 2005-91 addressing the manner of making the family shareholder election are no longer relevant, and Notice 2005-91 will be obsoleted when these proposed regulations are adopted as final, the proposed regulations retain the provisions of Notice 2005-91 describing certain entities other than individuals that will be treated as members of the family.
The regulations also clarify that the "six generation" test is applied only at the date specified in Code Sec. 1361(c)(1)((iii) for determining whether an individual meets the definition of "common ancestor," has no continuing significance in limiting the number of generations of a family that may hold stock and be treated as a single shareholder and there is no adverse consequence to a person being a member of two families.
Disregard of Unexercised Powers of Appointment in ESBTs
Code Sec. 1361(e)(2) provides that in determining an ESBT's PCBs for any period, powers of appointment will be disregarded to the extent not exercised by the end of that period. This section also increases the period from 60 days to one year during which an ESBT may safely dispose of S corporation stock after an ineligible shareholder becomes a PCB. The proposed regulations remove and replace the sections of the regulation inconsistent with current law.
The definition of "potential current beneficiary" is amended to provide that all members of a class of unnamed charities permitted to receive distributions under a discretionary distribution power held by a fiduciary that is not a power of appointment, will be considered, collectively, to be a single PCB for purposes of determining the number of permissible shareholders under Code Sec. 1361(b)(1)(A) unless the power is actually exercised, in which case each charity that actually receives distributions will also be a PCB. The ESBT election requirements under Reg. §1.1361-1(m)(2)(ii)(A) are amended to require a trust containing such a power to indicate the presence of the power in the election statement. This amended PCB definition applies only to powers to distribute to one or more members of a class of unnamed charities which is unlimited in number. The amended PCB definition does not apply to a power to make distributions to or among particular named charities.
The proposed regulations further provide that a power to add beneficiaries, whether or not charitable, to a class of current permissible beneficiaries is generally a power of appointment; thus, it will be disregarded to the extent it is not exercised. However, if the power is exercised and an unlimited class of charitable beneficiaries is added to the class of current permissible beneficiaries, that class will count as a single PCB under the amended definition of PCB and, to the extent distributions are actually made to one or more charities, those charities will each count as PCBs.
Transfer of Stock Between Spouses or Incident to Divorce
Code Sec. 1366(d)(2) provides that if the stock of an S corporation is transferred between spouses or incident to divorce under Code Sec. 1041(a), any loss or deduction with respect to the transferred stock which cannot be taken into account by the transferring shareholder in the year of the transfer because of the basis limitation in Code Sec. 1366(d)(1) shall be treated as incurred by the corporation in the succeeding tax year with regard to the transferee. The proposed regulations amend the provisions of Reg. §1.1366-2(a)(5) to include this exception to the general rule of nontransferability of losses and deductions.
QSub Relief and Inadvertent Invalid Elections or Terminations
Code Sec. 1362(f) provides that QSubs are eligible for relief for an inadvertent invalid QSub election or termination under the same standards applied to an inadvertent invalid S corporation election or termination. The proposed regulations make conforming changes to Reg. §1.1362-4 and make additional changes to Reg. §1.1362-4 addressing the change to Code Sec. 1362(f), which provided relief for corporations with inadvertently invalid S corporation elections.
Comments are requested with respect to these regulations. Written or electronic comments must be received by December 27, 2007. A public hearing is scheduled for January 16, 2008.
Proposed Regulations, NPRM REG-143326-05, 2007FED ¶49,767
Other References:
Code Sec. 1361
CCH Reference - 2007FED ¶32,022C
CCH Reference - 2007FED ¶32,024C
CCH Reference - 2007FED ¶32,025E
CCH Reference - 2007FED ¶32,025K
Code Sec. 1362
CCH Reference - 2007FED ¶32,041C
CCH Reference - 2007FED ¶32,045C
Code Sec. 1366
CCH Reference - 2007FED ¶32,080D
CCH Reference - 2007FED ¶32,082A
CCH Reference - 2007FED ¶32,082H
Tax Research Consultant
CCH Reference - TRC SCORP: 156
CCH Reference - TRC SCORP: 158
CCH Reference - TRC SCORP: 160
CCH Reference - TRC SCORP: 166
CCH Reference - TRC SCORP: 404
CCH Reference - TRC SCORP: 550

CCH (cch.taxgroup.com) reports:

The IRS has issued proposed regulations relating to the treatment of transactions involving intercompany obligations and insurance payments from one member of a group to a captive insurance member.
On December 21, 1998, the IRS issued proposed regulations (NPRM REG-105964-98) clarifying the treatment of the transfer or the extinguishment of rights under intercompany obligations. After considering comments, the IRS is withdrawing the 1998 Proposed Regulations and issuing new proposals. However, for purposes of determining the tax treatment of transactions undertaken prior to the finalization of these proposed regulations, taxpayers may continue to rely upon the form and timing of the recast transaction, as clarified by the 1998 Proposed Regulations.
Revised Deemed Satisfaction-Reissuance Model
The current regulations and the 1998 proposed regulations generally provide that an obligation is treated as satisfied and, if the obligation remains outstanding, reissued as a new obligation. This is the deemed satisfaction-reissuance model. The new proposed regulations are intended to minimize the effects of intercompany obligations on a consolidated group's taxable income.
The proposed regulations adopt new and more precise mechanics for the application of the deemed satisfaction-reissuance model to certain intragroup and outbound transactions. In general, the new model deems the following sequence of events to occur immediately before, and independently of, the actual transaction: (1) the debtor is deemed to satisfy the obligation for a cash amount equal to the obligation's fair market value; and (2) the debtor is deemed to immediately reissue the obligation to the original creditor for that same cash amount. The parties are then treated as engaging in the actual transaction but with the new obligation.
For inbound transactions, the deemed satisfaction-reissuance model mirrors the mechanics and single-entity policies underlying the Code Sec. 108(e)(4) regulations. However, the deemed satisfaction-reissuance model also applies to obligations acquired for a premium and governs the treatment of the creditor as well as the debtor.
For outbound transactions, the deemed satisfaction-reissuance model furthers single-entity treatment by treating a consolidated group as a single issuer and an intercompany obligation acquired or assumed by a nonmember as newly-issued debt. The proposed regulations provide several exceptions to the application of the deemed satisfaction-reissuance model, discussed below.
The Deemed Satisfaction-Reissuance Amount
If a transaction is an intragroup exchange of an intercompany obligation for a newly issued intercompany obligation, the proposed regulations provide that the obligation would be deemed satisfied and reissued for its fair market value. In addition, for all intragroup debt exchanges, other than routine intragroup debt modifications, the newly issued obligation would be treated as having an issue price equal to its fair market value.
If a member's amount realized with respect to an intercompany obligation results from a mark to fair market value under Code Sec. 475, then the obligation will be treated as satisfied and reissued under these regulations but will not otherwise be marked to fair market value under Code Sec. 475
immediately thereafter.
Limitations on the Application of the Deemed Satisfaction-Reissuance Model
The proposed regulations apply the model upon a "triggering transaction," which is defined as any intercompany transaction in which a member realizes an amount, directly or indirectly, from the assignment or extinguishment of all or part of its remaining rights or obligations under an intercompany obligation (or from a comparable transaction). However, the proposed regulations provide a number of exceptions from the application of the deemed satisfaction and reissuance model. One exception involves certain transfers and assumptions of intercompany obligations in intragroup exchanges to which Code Sec. 332 or Code Sec. 361 apply. These proposed regulations also provide an exception to the application of the deemed satisfaction-reissuance model for taxable intragroup sales of assets where intercompany obligations are assumed as part of the transaction. Another exception involves an intragroup transactions in which an intercompany obligation is extinguished. Also excepted are routine intragroup modifications of intercompany obligations.
These proposed regulations retain the exceptions in the current regulations for transactions involving an obligation that became an intercompany obligation by reason of an event described in Reg. §1.108-2(e), and for amounts realized from reserve accounting under Code Sec. 585. However, consistent with the 1998 Proposed Regulations, the new proposals do not include the exception in the current regulations for transactions in which the deemed satisfaction and reissuance will not have a significant effect on any person's federal income tax liability for any year.
Material Tax Benefit Rule
In order to prevent distortions that may result from the shifting of built-in items from intercompany obligations, the proposed regulations include a special rule, the material tax benefit rule, that applies to intragroup transactions otherwise excepted from the deemed satisfaction-reissuance model under the exceptions for certain intragroup nonrecognition exchanges, taxable assumption transactions, extinguishment transactions, and routine debt modifications.
The material tax benefit rule generally applies to an intragroup assignment or extinguishment that would otherwise be excepted from the deemed satisfaction-reissuance model if, at the time of the transaction, it is reasonably foreseeable (regardless of intent) that the shifting of items of built-in gain, loss, income, or deduction from an intercompany obligation between members will secure a material tax benefit that would not otherwise be enjoyed.
Off-Market Issuance Rule
These proposed regulations also include a special rule, the off-market issuance rule, that generally applies if an intercompany obligation is issued at a rate of interest that is materially off-market, and at the time of issuance, it is reasonably foreseeable that the shifting of built-in items from the obligation from one member to another member will secure a material tax benefit.
Outbound Transactions
The new proposals retain the deemed satisfaction-reissuance model, with the new mechanics applied, as well as the current exception for outbound transactions involving an obligation that became intercompany obligation in an event described in Reg. §1.108-2(e). Two new exceptions have been added.
A new "subgroup" exception provides that the deemed satisfaction and reissuance model would not apply if the creditor and debtor to an intercompany obligation cease to be members of a consolidated group in a transaction in which neither member otherwise recognize an item with respect to the intercompany obligation and, immediately after the transaction, such creditor and debtor are members of another consolidated group.
A second exception would apply to an intercompany obligation that is newly issued in an intragroup reorganization and, pursuant to a plan of reorganization, is distributed to a nonmember shareholder or creditor in a transaction to which Code Sec. 361(c) applies.
Inbound Transactions
The proposed regulations retain the deemed satisfaction-reissuance model for inbound transactions, but also include a "subgroup" exception for certain of these transactions. The subgroup exception for inbound transactions is similar to the subgroup exception for outbound transactions discussed above. In addition, the proposed regulations provide a special rule that prevents inappropriate acceleration of a deduction for repurchase premium in certain inbound transactions.
Single Entity Treatment for Significant Insurance Members
The proposed regulations provide that when a significant portion (five percent or more) of the business of the insuring member arises from insuring the risks of other members, either by issuing insurance contracts directly to members or by reinsuring risks on contracts issued to members, it is appropriate to take into account the items from the intercompany transactions on a single entity basis. In such cases, the treatment of the members' items from the insurance transactions would be subject to the matching and acceleration rules of Reg. §1.1502-13. Under these rules, the insured member's deduction and the significant insurance member's income from the transaction would generally be taken into account currently. However, the effects of the intercompany transaction would otherwise be treated in a manner comparable to "self-insurance" by a single corporation.
The proposed regulations continue to except intercompany insurance transactions from single entity treatment where intercompany insurance represents less than five percent of the insuring member's business.
Comments
Before these proposals are adopted as final regulations, consideration will be given to any written or electronic comments that are submitted timely to the IRS. Comments are specifically requested on the following:
--whether it would be beneficial to eliminate any disparity between issue price and basis created upon the issuance of an obligation (for example, by treating such obligations as issued for fair market value);
--whether additional rules are needed for instruments intercompany obligations that are not debt instruments;
--whether some or all of these exceptions discussed above are appropriate, as well as suggestions for other exceptions;
--the relationship between the intragroup off-market issuance rule and the other limitations imposed by the code and regulations on lending transactions;
--whether the exclusion from the definition of intercompany obligation of executory obligations to purchase or provide goods or services is appropriate in all instances;
--whether special rules for the treatment of intercompany obligations transferred or assumed in transactions under Code Sec. 338
are needed;
--whether gross premiums written during the tax year less return premiums and premiums paid for reinsurance is an appropriate measure of an insuring member's business, as well as suggestions for alternatives;
--whether the status of an insuring member as a "significant insurance member" should be an annual determination and whether additional rules are needed when an insuring member's status changes; and
--whether any additional special rules are needed to accomplish single entity treatment for intercompany insurance transactions.
Written or electronic comments and requests for a public hearing must be received by December 27, 2007.
Proposed Regulations, NPRM REG-107592-00, 2007FED ¶49,766
Other References:
Code Sec. 1502
CCH Reference - 2007FED ¶33,159
Tax Research Consultant
CCH Reference - TRC CONSOL: 39,202.05
CCH Reference - TRC CONSOL: 39,304.10

CCH (cch.taxgroup.com) reports:

The Senate by a vote of 67 to 29 on September 27 passed the Children's Health Insurance Program Reauthorization Act of 2007 (HR 976), which President Bush has pledged to veto. The bill passed the House on September 25 (TAXDAY, 2007/09/27, C.4). The bill would add $35 billion to the State Children's Health Insurance Program (SCHIP) over five years --for a total of $60 billion. The additional funding would be raised by a 61-cent increase in the federal tax on cigarettes and tax increases on other tobacco products, including cigars and pipe tobacco. SCHIP insures children whose parents do not qualify for Medicaid but cannot afford private insurance.
Bush in a written statement urged Congress to send him a continuing resolution extending the SCHIP program through November 16. During the evening on September 27, the Senate by a vote of 94 to 1 passed HJRes 52, a continuing appropriations bill that would fund federal government operations through November 16 and contains the temporary SCHIP extension. The House passed the measure on September 26 (TAXDAY, 2007/09/27, C.2). "We should take this time to arrive at a more rational, bipartisan SCHIP reauthorization bill that focuses on children in poor families who don't currently have insurance, rather than raising taxes to cover people who already have private insurance," the president said.
By Paula Cruickshank, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Minnesota Governor Tim Pawlenty has proposed Strategic Entrepreneurial Economic Development (SEED), a new initiative designed to stimulate rural economic development. The new program would include a 25% tax credit for investment in regional funds that support emerging businesses and new technologies, as well extensions of the local and state tax exemptions created under JOBZ.
Full text of the Governor's press release may be found at http://www.governor.state.mn.us/mediacenter/pressreleases/PROD008317.html.
Press Release , Governor's Office, September 25, 2007.

CCH (cch.taxgroup.com) reports:

A new publication on the topic of Colorado sales and use tax exemptions for government purchases has been issued. The document discusses the use of government credit cards and diplomatic tax exemption cards.
FYI Sales 63 , Colorado Department of Revenue, September 20, 2007, ¶200-748
Other References:
Explanations at ¶60-420

CCH (cch.taxgroup.com) reports:

A final partnership administrative adjustment (FPAA) notice, sent to an individual who was identified as an indirect partner of a general partnership, met the notice requirements of Code Sec. 6223(c)(3). The individual was the sole beneficiary of a trust that owned an interest in the general partnership that was the subject of the FPAA. The IRS readily found his name and address, as well as that of the tax matters partner who resided at the same address, from the individual's return identifying him as the beneficiary of the trust; the trust's return that listed the ownership interest in the general partnership under question; and the partnership's return listing the trust as a general partner. The individual's argument that the notice should have been sent to the trust, and not directly to him, was rejected because the individual owned the interest in the partnership through a "pass-through partner", i.e., the trust, and Code Sec. 6223 requires notice to be sent to the indirect partner rather than the pass-through partner.
C.P. Murphy, 129 TC No. 10, Dec. 57,120
Other References:
Code Sec. 6223
CCH Reference - 2007FED ¶37,639.20
CCH Reference - 2007FED ¶37,639.22
Tax Research Consultant
CCH Reference - TRC PART: 60,152
CCH Reference - TRC PART: 60,310

CCH (cch.taxgroup.com) reports:

The IRS has finalized regulations providing guidance for taxpayers that continue to be subject to the passive foreign investment company (PFIC) excess distribution regime of Code Sec. 1291, even though the foreign corporation in which they own stock is no longer treated as a PFIC under Code Sec. 1297(a) or (e). The final regulations generally adopt the temporary regulations that were effective and applied on December 8, 2005, with one modification (T.D. 9232; NPRM REG-133446-03). The final regulations clarify that multiple late purging elections are allowed to the same extent that multiple purging elections could have been made if the elections were timely filed. The regulations are effective on September 27, 2007, and apply as of December 8, 2005.
A shareholder of a foreign corporation may purge the stock of PFIC taint by making a deemed sale or deemed dividend election under Code Sec. 1298(b)(1), provided Code Sec. 1297(e) applies to a portion of the holding period. These rules also provide that such shareholders (or shareholders of foreign corporations that no longer meet the income or asset tests of Code Sec. 1297(a)) may make late deemed sale or deemed dividend elections. The deemed sale and deemed dividend election rules generally conform to the provisions under the Code Sec. 1291 regulations that apply to shareholders making a purging election in connection with a qualified electing fund (QEF) election, except for the following differences:
--The deemed dividend or gain recognized on the deemed sale of QEF stock is taxed as an excess distribution received by the shareholder on the qualification date. This qualification date is defined as the first day of the PFIC's first taxable year as a QEF. The final regulations provide, however, that the deemed dividend or gain recognized on the deemed sale, is taxed as an excess distribution received on the "controlled foreign corporation (CFC) qualification date." The CFC qualification date is defined as the first day on which the qualified portion of the shareholder's holding period in the Code Sec. 1297(e) PFIC begins, as determined under Code Sec. 1297(e)(3).
--The Code Sec. 1291 regulations define the term "post-1986 earnings and profits" as certain undistributed earnings and profits as of the day before the qualification date. The final regulations contain a similar rule, whereby post-1986 earnings and profits means certain undistributed earnings as of the day before the CFC qualification date, which may be a day after the first day of the tax year. Thus, when the CFC qualification date is a day after the first day of the tax year, undistributed earnings and profits will be determined at the close of the tax year that includes the CFC qualification date.
--Since the "once a PFIC, always a PFIC" rule of Code Sec. 1298(b)(1) often leaves a shareholder no way of removing the PFIC taint, the final regulations include late election relief provisions. Shareholders of a Code Sec. 1297(e) PFIC or a former PFIC are allowed to make a late deemed dividend or deemed sale election with the consent of the IRS, provided certain requirements are met. If the purging election is made for a closed tax year, the taxpayer must enter into a closing agreement to eliminate any prejudice to the U.S. government's interests as a consequence of the taxpayer's inability to file an amended return. Multiple late purging elections are permitted with IRS consent.
Time for Making the Deemed Sale or Deemed Dividend Elections
A shareholder must make the deemed sale or deemed dividend election on an original or amended return for the tax year that includes the CFC qualification date. If the election is made on an amended return, the return must be filed within three years of the due date of the original return, as extended under Code Sec. 6081.
A shareholder may request the consent of IRS to make a late deemed sale or deemed dividend election for his tax year that includes the CFC qualification date if he requests consent prior to the PFIC status being raised on audit, he agrees in an IRS closing agreement to eliminate any prejudice to U.S. government interests as a result of his inability to file amended returns for the tax year in which the CFC qualification date falls or an earlier closed tax year in which he took an inconsistent position with the treatment of the foreign corporation as a PFIC, and he follows the procedural rules stated below.
Manner of Making the Deemed Sale or Deemed Dividend Election
The deemed sale or deemed dividend election is made by filing Form 8621, Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, with the shareholder's return for the election year. The gain or deemed dividend is reported as an excess distribution, and the associated tax and interest must be paid with the return. Where a shareholder makes the election after the return's due date, without regard to extensions, it must pay additional interest, as required by Code Sec. 6601, on the amount of the underpayment. Any realized loss is reported on Form 8621, although it is not recognized. The shareholder must attach a schedule to Form 8621 that demonstrates the calculation of the shareholder's pro rata share of the post-1986 earnings and profits of the PFIC that is treated as distributed on the CFC qualification date. If the shareholder claims an exclusion for amounts previously included in its income, the shareholder must include supporting information.
A late purging election is made by filing a completed Form 8621-A, Return by a Shareholder Making Certain Late Elections to End Treatment as a Passive Foreign Investment Company, and filing the form with the IRS, DP 8621-A, Ogden, UT 84201. In addition to the tax on the excess distribution, the shareholder is also liable for interest for the period beginning on the due date (without extensions) of his return for the year in which the CFC qualification date falls and ending on the date the late purging election is filed with the IRS.
Effect of Deemed Sale or Deemed Dividend Election
A shareholder making the deemed sale election is treated as having sold all of its PFIC stock for its fair market value on the CFC qualification date, which is subject to tax under Code Sec. 1291 as an excess distribution received on that date. A shareholder making the deemed dividend election must include in income as a dividend its pro rata share of the post-1986 earnings and profits of the PFIC attributable to all of the stock it held, directly or indirectly, on the termination date. Likewise, the deemed dividend is also taxed under Code Sec. 1291 as an excess distribution received on the termination date. Where a deemed sale election is made by an indirect shareholder, the amount of gain recognized and taxed is the amount of gain that the direct owner of the PFIC stock would have realized on an actual sale or disposition of the PFIC stock indirectly owned by the shareholder. Any loss realized on the deemed sale is not recognized. After the election, the shareholder's stock is no longer treated as PFIC stock. The shareholder is no longer subject to tax under Code Sec. 1291, unless the qualified portion of the shareholder's holding period ends under Code Sec. 1297(e)(2), and the foreign corporation later qualifies as a PFIC under Code Sec. 1297(a). A shareholder increases its basis of the PFIC stock owned directly by the amount of gain recognized on the deemed sale and by the amount of the deemed dividend. If it is an indirect shareholder, its adjusted basis is increased by the amount of the deemed dividend or gain recognized by the shareholder.
T.D. 9360, 2007FED ¶47,068
Other References:
Code Sec. 1291
CCH Reference - 2007FED ¶31,541K
Code Sec. 1297
CCH Reference - 2007FED ¶31,620F
CCH Reference - 2007FED ¶31,620J
Code Sec. 1298
CCH Reference - 2007FED ¶31,641D
CCH Reference - 2007FED ¶31,641J
Tax Research Consultant
CCH Reference - TRC INTLOUT: 18,200
CCH Reference - TRC INTLOUT: 18,202.20
CCH Reference - TRC INTLOUT: 18,202.25

CCH (cch.taxgroup.com) reports:

Homeowners affected by the nationwide subprime mortgage crisis would get $2 billion in tax relief, under the Mortgage Forgiveness Debt Relief Bill of 2007 (HR 3648), approved by the House Ways and Means Committee on September 26. The committee voted unanimously to approve the tax legislation, but some GOP lawmakers questioned the method of paying for the tax relief.
The legislation would permanently exclude from tax liability any mortgage debt on a principal residence that is forgiven following a foreclosure or renegotiation with lenders. Under current law, such debt forgiveness is considered income for tax purposes, resulting in tax liability for individuals and families. To pay for the tax relief, the bill would restrict taxpayers from excluding some gains from the sale of vacation homes or rental properties.
Rep. Sam Johnson, R-Texas, questioned why the tax relief for troubled homeowners would be permanent, rather than sunset after three years, as suggested by President Bush. Ranking committee member Jim McCrery, R-La., expressed dismay that tightening the capital gains rules on property used as vacation homes and rentals would cause the housing slump to worsen on the east and west coasts.
Rep. Kevin Brady, R-Texas, said that he wished the cost of paying for the relief was more tightly targeted to the lenders and real estate speculators who helped create the subprime lending crisis. Committee Chairman Charles B. Rangel, D-N.Y., brushed aside those concerns, however, saying that "it's so much easier to give the tax break than to pay for it." The legislation is expected to be voted on by the House in November, according to a committee aide.
By Stephen K. Cooper, CCH News Staff
Legislation to Exclude Discharges of Indebtedness on Principal Residences from Gross Income, HR 3648
JCT Description of an Amendment in the Nature of a Substitute to the Provisions of HR 3648, JCX-90-07.

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The U.S. Supreme Court has granted an Ohio corporation's request to decide if Illinois may require it to treat the gain from its sale of an underlying business segment as apportionable business income, for state corporate income tax purposes, on the basis that the asset served an operational function.
Since 1968, the corporation (Mead) had owned 100% of what became Lexis/Nexis. Lexis/Nexis changed several times between a division and a subsidiary of Mead. In 1994, Mead sold Lexis/Nexis for a gain of approximately $1 billion. Mead, which transacted business in many states including Illinois, excluded the gain from its 1994 Illinois corporate income tax return. However, the Illinois Department of Revenue issued a deficiency notice on the basis that the gain was apportionable business income.
Mead challenged the Department's action in court, asserting that its investment in and disposition of Lexis/Nexis served an investment, as opposed to an operational, function and, therefore, the gain was not apportionable. The trial court disagreed and the Illinois Appellate Court affirmed. (TAXDAY, 2007/01/16, S.11) The Appellate Court considered several factors in concluding that Lexis/Nexis served Mead in an operational rather than an investment function, including: Mead's capital investment in the early years of Lexis/Nexis, Mead's retention of various tax advantages, Mead's investment of Lexis/Nexis' excess cash, Mead's approval of all major capital expenditures, Mead's ability to change Lexis/Nexis from a division to a subsidiary, and Mead's description in its annual report of Lexis/Nexis as a key business component.
The Illinois Supreme Court denied Mead's subsequent petition for appeal, and Mead filed this petition with the U.S. Supreme Court that has now been granted. Mead asserts that all of the factors relied upon by the Illinois Appellate Court derive from the fact that Mead owned 100% of Lexis/Nexis, and reflect an ordinary relationship between a company and a 100% owned subsidiary. If the Illinois decision is allowed to stand, Mead argues that it would mean that all income received by non-domiciliary corporations from subsidiaries or divisions will be subject to apportionment, in direct conflict with Allied-Signal, Inc., 504 U.S. 768 (1992), F.W. Woolworth Co.,
458 U.S. 354 (1982), and ASARCO Inc., 458 U.S. 307 (1982), and the Due Process and Commerce Clauses of the U.S. Constitution. Oral argument probably will be in January 2008 and a decision will be issued prior to the end of the Court's term next summer.
Subscribers to CCH Tax Research NetWork can view the petition.
MeadWestvaco Corp. v. Illinois Department of Revenue, U.S. Supreme Court, Dkt. 06-1413, petition for certiorari granted September 25, 2007.

CCH (cch.taxgroup.com) reports:

A petition for review was granted in the following case:
M.H. Boulware , CA-9, 2007-1 USTC ¶50,516. --The lower court refused to admit evidence allegedly showing diverted funds were nontaxable returns of capital resulting in an individual's conviction for tax evasion and for filing a false tax return in connection with his failure to report funds diverted from his closely held corporation as income for the tax years at issue. The U.S. Supreme Court has granted a Writ of Certiorari on the issue of, "Whether the diversion of corporate funds to a shareholder of a corporation without earnings and profits automatically qualifies as a non-taxable return of capital up to the shareholder's stock basis...even if the diversion was not intended as a return of capital."
Other References:
Code Sec. 7206
CCH Reference - 2007FED ¶41,318.157
Tax Research Consultant
CCH Reference - TRC IRS: 66,102.05

CCH (cch.taxgroup.com) reports:

Final Circular 230 regulations governing unenrolled practice, eligibility for enrollment, practice by former government employees, contingent fees, conflicts of interest, sanctions and disciplinary proceedings, and proposed preparer penalty regulations, have been issued. The final Circular 230 regulations are effective September 26, 2007. The proposed preparer penalty regulations apply to returns filed, or advice provided, on or after final regulations are published in the Federal Register, but no earlier than January 1, 2009.
Proposed Circular 230 regulations were published in the Federal Register on February 8, 2006 (NPRM REG-122380-02). The final Circular 230 regulations make a number changes to the proposed regulations, based primarily on practitioner comments, as follows:
Definition of Practice Before the IRS
The final regulations provide that practice includes rendering written advice with respect to any entity, transaction, plan or arrangement, or other plan or arrangement having a potential for tax avoidance or evasion. This is consistent with title 31, sec. 330 of the American Jobs Creation Act of 2004 (P.L.108-357). The final regulations clarify that although such written advice constitutes practice before the IRS, attorneys and CPAs do not need to file a Form 2848, Power of Attorney, to issue such advice.
Who May Practice
The final regulations establish an enrolled retirement plan agent designation. These individuals will be entitled to represent taxpayers with respect to specified qualified retirement plan issues. Enrolled retirement plan agents will be subject to examination and continuing education requirements. Both enrolled retirement agents and enrolled agents will have to follow the applicable procedures, and pay the user fees, for enrollment and renewal of enrollment.
Limited Practice by Non-Practitioners
Unenrolled return preparers will continue to be allowed to represent taxpayers during examination of returns they prepared, negotiate with the IRS, and bind taxpayers to a position. However, they cannot represent taxpayers before Appeals or in any other capacity before the IRS, or execute closing agreements, claims for refund or waivers.
Contingent Fees
Because of concern about contingent fee arrangements, which may encourage taxpayers to file refund claims and take advantage of the "audit lottery," the final regulations limit such arrangements entered into after March 26, 2008, to representation in connection with the IRS examination of an original return, representation with respect to an amended return or claim for refund or credit filed within 120 days of the taxpayer receiving written notification of an examination or written challenge to the original return, or representation in certain interest and penalty reviews.
Conflicts of Interest
If a practitioner represents two or more clients with conflicting interests, the final regulations require the signed, written consent to such representation by each affected client within 30 days after the client expresses such consent to the practitioner. The requirement of signed consent is designed to protect settlements from future collateral attack. Furthermore, for a period of one year after their employment ends, government employees will be prohibited from appearing before, or communicating with the intent to influence, a Treasury employee with respect to a rule they were involved in developing.
Sanctions, Misconduct and Disciplinary Proceedings
The proposed regulations conform preparer penalties to those imposed under the Small Business and Work Opportunity Tax Act of 2007 (P.L.110-28). Under the proposed regulations a practitioner may not sign a return unless the practitioner either has a reasonable belief that the tax treatment of each position satisfies the "more likely than not" standard (greater than fifty percent likelihood that the tax treatment will be upheld if challenged by the IRS), or has a reasonable basis for each position, and each position is disclosed to the IRS.
The final regulations permit the Secretary of the Treasury to disqualify appraisers who violate Circular 230, in addition to imposing penalties against them. Practitioners can also be sanctioned for disreputable conduct. The final regulations clarify that failure to sign a return is not disreputable conduct if the failure is due to reasonable cause and not willful neglect.
In instances of alleged misconduct the Director of the Office of Professional Responsibility (OPR) is permitted to confer with a practitioner, employer, firm or other entity, by phone or in person, although the final regulations do not make such conference a right. If a complaint is served, the final regulations adopt the proposed regulation requirement that within 10 days thereafter copies of evidence in support of the complaint be served on the respondent. Upon notice, supplemental charges against the practitioner may be filed. In response to practitioner concerns that premature public disclosure of disciplinary proceedings might unfairly damage a practitioner's reputation, the final regulations require that public disclosure of such proceedings be delayed until after the decision in such proceedings becomes final, although the regulations contain a provision for expedited suspension against practitioners who advance frivolous or obstructionist positions, which does not include noncompliance with their own filing obligations.
Practitioner Reaction
"The National Association of Enrolled Agents (NAEA) is asking for consistency between the paid preparer standard and the self-preparer standard," Robert Kerr, senior director of government relations for NAEA, told CCH. The NAEA has urged Congress to equalize the more-likely-than-not standard for paid preparers and the substantial authority standard for self-preparers. The standard for tax avoidance items should remain more-likely-than not, the NAEA told Congress.
Frank Degen, EA, past president of the National Association of Enrolled Agents (NAEA), told CCH that he was disappointed the IRS did not eliminate limited practice. "We agreed with the IRS that it was inconsistent with the requirement that all individuals permitted to practice before the IRS demonstrate their qualifications to advise and assist persons in presenting their cases before the IRS." Degen also urged the IRS Office of Professional Responsibility to create an electronic database where a taxpayer could check if his or her Circular 230 tax professional is in good standing with the IRS.
By Sherri Morris and George L. Yaksick, CCH News Staff
T.D. 9359, 2007FED ¶47,067
T.D. 9359, FINH ¶43,114
Proposed Regulations, NPRM REG-138637-07, 2007FED ¶49,765
Proposed Regulations, NPRM REG-138637-07, FINH ¶41,128
Other References:
31 CFR Part 10
CCH Reference - 2007FED ¶43,504
CCH Reference - 2007FED ¶43,508
CCH Reference - 2007FED ¶43,512
CCH Reference - 2007FED ¶43,516
CCH Reference - 2007FED ¶43,520
CCH Reference - 2007FED ¶43,524
CCH Reference - 2007FED ¶43,528
CCH Reference - 2007FED ¶43,536
CCH Reference - 2007FED ¶43,544
CCH Reference - 2007FED ¶43,556
CCH Reference - 2007FED ¶43,564
CCH Reference - 2007FED ¶43,572
CCH Reference - 2007FED ¶43,576
CCH Reference - 2007FED ¶43,589
CCH Reference - 2007FED ¶43,589C
CCH Reference - 2007FED ¶43,600
CCH Reference - 2007FED ¶43,604
CCH Reference - 2007FED ¶43,609
CCH Reference - 2007FED ¶43,612
CCH Reference - 2007FED ¶43,640
CCH Reference - 2007FED ¶43,644
CCH Reference - 2007FED ¶43,648
CCH Reference - 2007FED ¶43,652
CCH Reference - 2007FED ¶43,656
CCH Reference - 2007FED ¶43,660
CCH Reference - 2007FED ¶43,664
CCH Reference - 2007FED ¶43,672
CCH Reference - 2007FED ¶43,676
CCH Reference - 2007FED ¶43,680
CCH Reference - 2007FED ¶43,684
CCH Reference - 2007FED ¶43,685
CCH Reference - 2007FED ¶43,688
CCH Reference - 2007FED ¶43,704
CCH Reference - 2007FED ¶43,708
CCH Reference - 2007FED ¶43,712
CCH Reference - 2007FED ¶43,716
CCH Reference - 2007FED ¶43,720
CCH Reference - 2007FED ¶43,724
CCH Reference - 2007FED ¶43,728
CCH Reference - 2007FED ¶43,760
CCH Reference - FINH ¶23,040
CCH Reference - FINH ¶23,045
CCH Reference - FINH ¶23,050
CCH Reference - FINH ¶23,055
CCH Reference - FINH ¶23,060
CCH Reference - FINH ¶23,065
CCH Reference - FINH ¶23,070
CCH Reference - FINH ¶23,090
CCH Reference - FINH ¶23,110
CCH Reference - FINH ¶23,120
CCH Reference - FINH ¶23,130
CCH Reference - FINH ¶23,135
CCH Reference - FINH ¶23,155
CCH Reference - FINH ¶23,170
CCH Reference - FINH ¶23,175
CCH Reference - FINH ¶23,180A
CCH Reference - FINH ¶23,185
CCH Reference - FINH ¶23,190
CCH Reference - FINH ¶23,195
CCH Reference - FINH ¶23,201
CCH Reference - FINH ¶23,210
CCH Reference - FINH ¶23,220
CCH Reference - FINH ¶23,235
CCH Reference - FINH ¶23,245
CCH Reference - FINH ¶23,250
CCH Reference - FINH ¶23,252
CCH Reference - FINH ¶23,255
CCH Reference - FINH ¶23,275
CCH Reference - FINH ¶23,280
CCH Reference - FINH ¶23,285
CCH Reference - FINH ¶23,310
CCH Reference - FINH ¶23,315
CCH Reference - FINH ¶23,340
CCH Reference - FINH ¶23,342
Tax Research Consultant
CCH Reference - TRC IRS: 3,200
CCH Reference - TRC IRS: 3,204.10
CCH Reference - TRC IRS: 3,206.05

CCH (cch.taxgroup.com) reports:

The IRS has issued proposed regulations relating to the disclosure of reportable transactions and maintenance of lists required to be kept by material advisors of such transactions. The proposed regulations would add a new category of reportable transaction under Code Sec. 6011 to address the patenting of tax advice or tax strategies.
The IRS previously issued proposed, temporary and final regulations under Code Secs. 6011, 6111
and 6112 in November 2006 (NPRM REG-103038-05, NPRM REG-103039-05, NPRM REG-103043-05, T.D. 9295; TAXDAY, 2006/11/02, I.1). In the preamble to the proposed regulations, the IRS expressed concern regarding the patenting of tax advice or tax strategies that have the potential for tax avoidance and requested comments regarding the creation of a new category of reportable transaction to address those concerns.
After consideration of the comments received, the IRS has issued proposed regulations that would add "patented transactions", a new category of reportable transaction, to the Code Sec. 6011 regulations. The proposed regulations are intended to assist the IRS and Treasury Department in obtaining disclosures of tax-avoidance transactions and in providing effective tax administration.
Under the proposed regulations, a patented transaction is any transaction for which a taxpayer pays a fee to a patent holder or the patent holder's agent for the legal right to use a tax-planning method that the taxpayer knows or has reason to know is the subject of the patent. A patented transaction is also a transaction for which a patent holder or the patent holder's agent has the right to payment for another person's use of a tax-planning method that is the subject of the patent. The proposed regulations would include as a tax-planning method any plan, strategy, technique or structure designed to affect federal income, estate, gift, generation-skipping transfer, employment or excise tax. However, the proposed regulations would exclude patents issued solely for tax-preparation software or other tools used to perform or model mathematical calculations or to provide mechanical assistance in the preparation of tax or information returns.
The proposed regulations provide that a taxpayer has participated in a patented transaction if the taxpayer's tax return reflects a tax benefit from the transaction (including a deduction for fees paid to the patent holder or patent holder's agent). If the taxpayer is the patent holder or patent holder's agent, the taxpayer has participated in a patented transaction if the taxpayer's tax return reflects a tax benefit in relation to obtaining a patent for a tax-planning method or reflects income from a payment received from another person for use of the tax-planning method.
The proposed regulations also describe when a person is a material advisor with respect to a patented transaction under Code Sec. 6111. Because of the nature of patented transactions and how those transactions are marketed, the proposed regulations would reduce the threshold amounts in Reg. §301.6111-3(b)(3)(i)(A) from $50,000 to $250 and from $250,000 to $500.
The IRS and Treasury Department request comments on the proposed regulations. Written or electronic comments must be received by December 26, 2007. A public hearing will be scheduled if requested in writing by any person that submits timely comments.
Proposed Regulations, NPRM REG-129916-07, 2007FED ¶49,764
Proposed Regulations, NPRM REG-129916-07, FINH ¶41,129
Other References:
Code Sec. 6011
CCH Reference - 2007FED ¶35,125BB
CCH Reference - FINH ¶20,062
Code Sec. 6111
CCH Reference - 2007FED ¶37,001G
Tax Research Consultant
CCH Reference - TRC FILEBUS: 3,052.20
CCH Reference - TRC FILEBUS: 9,450
CCH Reference - TRC FILEBUS: 9,452
CCH Reference - TRC FILEBUS: 9,454

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

In four separate measures, corporate income, personal income, and property tax relief has been extended to California taxpayers affected by specific natural disasters occurring between September 2006 and July 2007. Generally, the legislation applies to losses and damages sustained in
-- the counties of Riverside and Ventura as a result of wildfires that occurred during the 2006 calendar year;
-- the counties of El Dorado, Fresno, Imperial, Kern, Kings, Madera, Merced, Monterey, Riverside, Sand Bernardino, San Diego, San Luis Obispo, Santa Barbara, Santa Clara, Stanislaus, Tulare, Venture, and Yuba that were the subject of a proclamation by the Governor of a state of emergency for freezing conditions that occurred in January 2007;
-- the county of El Dorado as a result of June 2007 wildfires; and
-- the counties of Santa Barbara and Ventura as a result of the Zaca Fire during the 2007 calendar year.
For corporate and personal income taxes, excess disaster losses arising from the 2006-2007 disasters can be carried over to other taxable years. The carryover provisions themselves were not amended.

CCH (cch.taxgroup.com) reports:

Neither an IRS levy on a taxpayer's cash and other liquid assets nor the placement of these funds into an escrow account pending final resolution of a disputed tax liability constituted the payment of the liability that stopped the accrual of interest. The levy only gave the IRS a security interest in the property. Since it did not transfer ownership to the IRS, it was not a payment of the disputed tax. Likewise, the placement of the property into an escrow account was not a payment of the disputed tax because the terms of the escrow specifically provided that escrowed amounts did not constitute a payment.
Affirming FedCl, 2003-1 USTC ¶50,407.
LaRosa's International Fuel Co., Inc., CA-FC, 2007-2 USTC ¶50,657
Other References:
Code Sec. 6511
CCH Reference - 2007FED ¶39,080.30
Code Sec. 6601
CCH Reference - 2007FED ¶39,415.168
Tax Research Consultant
CCH Reference - TRC PENALTY: 9,056
 

CCH (cch.taxgroup.com) reports:

A new e-mail scam, which imitates the IRS's "Where's My Refund?" tool, has surfaced on the Internet, the Service is warning. Individuals are directed to a website called "Get Your Tax Refund!" where criminals steal the victims' identities and financial information.
Tracing Refunds
The real "Where's My Refund?" tool enables individuals to trace their refunds online. Individuals expecting a refund enter their Social Security number, filing status and exact amount of refund shown on their return. The "Where's My Refund?" tool searches for the individual's refund and advises the taxpayer of the status of his or her refund.
Information at Risk
According to the IRS, the "Get Your Tax Refund!" scam is appearing in e-mails that claim that the IRS has calculated the recipient's "fiscal activity" and he or she is eligible for a refund. The taxpayer is instructed to link to the "Get Your Tax Refund!" page.
"Get Your Tax Refund!" copies the appearance of "Where's My Refund?" However, unlike the real website, "Get Your Tax Refund!" asks for confidential personal financial information. Individuals are instructed to reveal their Social Security numbers along with credit card numbers. Instead of entering the amount of refund shown on their return, "Get Your Tax Refund!" asks individuals to enter their credit card numbers, which are then stolen by identity thieves.
Reporting Suspicious E-mails
Individuals receiving "Get Your Tax Refund!" e-mails or any suspicious e-mails claiming to be from the IRS should contact the Service or the Treasury Inspector General for Tax Administration (TIGTA). Individuals can forward suspicious e-mails to a special IRS mailbox, hishing@irs.gov.">phishing@irs.gov. TIGTA, which investigates groups or individuals impersonating the IRS, can be reached at (800) 366-4484.
CCH Comment. These emails are designed to trigger an emotional response, Edward Zollers, CPA, Phoenix, Ariz., told CCH. "They (scam artists) want taxpayers to react before they think." "If you get anything in an email that appears to be from the IRS, delete it," Charles Wold, CPA/PFS, chair of the financial planning section of the Arizona Society of CPAs, added. "The IRS will not contact you by email."
By George L. Yaksick, Jr., CCH News Staff
IRS Example of Phishing E-mail
IRS Website Sample

CCH (cch.taxgroup.com) reports:

The IRS has released proposed regulations on the arbitrage restrictions under Code Sec. 148 applicable to tax-exempt bonds issued by state and local governments. These proposed regulations are being issued in order to update existing regulations, address certain current market developments, simplify and correct certain provisions and to make existing regulations more administrable.
Hedges Based on Taxable Interest Rates
The proposed regulations make revisions to accommodate certain hedges in which floating payments under the hedge are based on a taxable interest rate and to clarify that bonds covered by such a hedge are ineligible for treatment as fixed yield bonds under the special hedging rule in Reg. §1.148-4(h)(4). The IRS has determined that taxable-index hedges based on widely-used taxable indices, such as LIBOR-based hedges, sufficiently improve the efficiency of the tax-exempt bond market to warrant accommodation. The regulations accommodate these hedges by modifying (1) the provisions for "yield reduction payments," which permit an issuer to reduce yield on an investment by making payments to the federal government in certain permitted circumstances to comply with yield restriction rules, and (2) the qualified hedge provisions.
The proposed regulations make clear, however, that while taxable-index hedges can be qualified hedges, and, therefore, eligible for simple integration, they are not eligible for super integration because there is an insufficient correlation between tax-exempt bond interest rates and taxable market interest rate indices. In addition, the regulations modify the yield reduction payment rules to permit issuers to make yield reduction payments on certain variable-yield advance refunding issues in which the issuer has entered into a qualified hedge in the form of a variable-to-fixed interest rate swap to hedge its interest rate risk.
Electronic GIC Bidding
The bidding safe harbor for establishing the fair market value of guaranteed investment contracts (GICs) to accommodate electronic bidding has been revised by the proposed regulations. The regulations amend the fair market value safe harbor for GICs to allow electronic bidding procedures by (1) permitting bid specifications to be sent electronically over the Internet or by fax, and (2) amending the last look rule to provide that there is not a prohibited last look if all bidders have an equal opportunity for a last look.
Other Provisions
The proposed regulations remove the provision in the existing regulations that permits the IRS Commissioner to authorize a single yield computation on multiple bond issues. The proposed regulations also clarify that the amount that an issuer is entitled to receive under a rebate refund claim is the excess of the total amount actually paid over the rebate amount.
Comments
Written or electronic comments must be received by December 24, 2007. Outlines of topics to be discussed at a public hearing scheduled for January 30, 2008, must be received by January 2, 2008.
Proposed Regulations, NPRM REG-106143-07, 2007FED ¶49,763
Other References:
Code Sec. 148
CCH Reference - 2007FED ¶7871C
CCH Reference - 2007FED ¶7874A
CCH Reference - 2007FED ¶7875B
CCH Reference - 2007FED ¶7876B
CCH Reference - 2007FED ¶7880C
CCH Reference - 2007FED ¶7888B
Tax Research Consultant
CCH Reference - TRC SALES: 51,050
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Streamlined Sales Tax (SST) Governing Board resolved one of its two most enduring controversies, the treatment of digital products, but failed to reach agreement on the other, an alternative to the current sourcing provisions, during its meeting in Kansas City, Kansas, September 19-20, 2007. The meeting also saw the admission of two more states to full membership and leadership changes in the key constituent organizations. Kansas Secretary of Revenue Joan Wagnon is the incoming President of the Governing Board and the Council on State Taxation's Stephen Kranz is the new President of the Business Advisory Council (BAC).
With her term coming to an end, Diane Hardt, Wisconsin Department of Revenue, stepped down as chair of the State and Local Advisory Council (SLAC). Wagnon will appoint her successor. Hardt, who also co-chaired the SLAC's predecessor, the Streamlined Sales Tax Project (SSTP), from its inception over seven years ago, said the group had "set an example" for similar efforts in state government and urged participants to "keep an eye on the big picture" as they continue their work. She will continue to be involved in the SLAC and the Board as a delegate from Wisconsin.

CCH (cch.taxgroup.com) reports:

Answers to frequently asked questions (FAQs) received by the IRS about the new reporting requirements for small tax-exempt organizations are now available on the Service's website (http://www.irs.gov/charities/article/0,,id=173864,00.html). The IRS admits within these FAQs that some small tax-exempts have been confused over the new reporting requirements imposed by the Pension Protection Act of 2006 (PPA) (P.L.109-280) effective for tax years ending after December 31, 2006. It stated that the new FAQs were released to help clarify the new requirements. The FAQs review those circumstances in which small tax-exempts are required to use new electronic Form 990-N, Electronic Notice (e-Postcard) For Tax-Exempt Organizations Not Required To File Form 990 or 990-EZ, as well as the consequences of failing to file.
New Requirement
Small tax-exempt organizations, for purposes of the new filing requirements, are those tax-exempts with gross receipts of $25,000 or less. Ordinarily, these organizations are not required to file a Form 990, Return of Organization Exempt From Income Tax, or Form 990-EZ, Short Form Return of Organization Exempt From Income Tax. However, subject to several exceptions, the PPA now requires them to file an electronic Form 990-N. The form must be filed electronically by the 15th day of the fifth month after the close of the organization's tax period. The IRS began mailing educational letters to over 650,000 small tax-exempts in July of this year to warn about this new requirement.
Exempt Status At Risk
The IRS warns small tax-exempts that the PPA
requires the Service to automatically revoke the tax-exempt status of any organization failing to meet its annual filing requirement for three consecutive years. Small tax-exempts may meet this requirement by filing the new Form 990-N or by filing either of the full-fledged Forms 990 or 990-EZ. The IRS further warns that failing to file under one of these options for three consecutive years will trigger the need for reinstatement of tax-exempt status. Reinstatement requires an application, as well as payment of user fees. The entity must make such application for reinstatement using Form 1024, Application For Exemption Under Section 501(a).
By Torie Cole, CCH News Staff