Tax News

CCH (cch.taxgroup.com) reports:

Guidance is issued regarding Texas franchise taxes and the transition to a business margin calculation. Specifically, the Office of the Comptroller provides guidance covering the filing requirements for entities that either started or stopped doing business in Texas during 2007.
All corporations and limited liability companies (LLCs) formed before October 4, 2006, that are (1) subject to the earned surplus component, and (2) not part of a combined group and that cease doing business in Texas (whether by withdrawal, dissolution, merger, etc.) at any time before November 2, 2007, must file a final franchise tax report using Form 05-139 based on the earned surplus component.
Corporations or LLCs that are a part of a combined group must include the final report information in the combined report. The corporation or LLC must file a final franchise tax report using Form 05-139 to identify the name and taxpayer number of the reporting entity for the combined group.
A newly taxable partnership that was doing business in Texas after June 30, 2007, and is not doing business in this state on January 1, 2008, must file a final report using Form 05-171 based on the margin calculation. The tax reported on the final report is based on the period beginning on the later of January 1, 2007, or the date the entity was organized in this state or began doing business in Texas and ending on the date the entity became no longer subject to the tax.
Corporations and LLCs that were formed on or after October 4, 2006, will have an initial report due on or after January 1, 2008, based on the margin calculation. If the corporation or LLC wishes to end its existence at any time prior to January 1, 2008, the entity must file a "premature" initial franchise tax report using Form 05-168 based on the margin calculation. Instead of using an accounting year end date on this report, the initial filer in this category will use the last day the entity is doing business in Texas. The entity will not be required to file a final report.
The guidance is available at the Comptroller's Web site at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2007/tpn708.html#issue1.
Tax Policy News, Vol. XVII, Issue 8 , Texas Comptroller of Public Accounts, August 2007.

CCH (cch.taxgroup.com) reports:

Kentucky Governor Ernie Fletcher has signed special session legislation (H.B. 1, Laws 2007) that creates and expands various alternative energy and fuel tax credits. Kentucky-based alternative fuel, gasification, or renewable energy facilities may claim credits against the corporation income tax, the limited liability entity tax, the personal income tax, the sales and use tax, and the severance tax. Companies that produce ethanol and cellulosic ethanol in Kentucky may claim credits against the corporation income tax, the limited liability entity tax, and the personal income tax. The legislation also increases the cap for the corporation income tax, limited liability entity tax, and personal income tax credit for biodiesel producers and blenders and extends the credit eligibility to renewable diesel producers; expands the corporation income tax, personal income tax, and public service corporation property tax credit for coal-fired electric generation plants to alternative fuel and gasification facilities; and provides a sales tax refund for manufacturers that invest in energy efficient machinery or equipment.

CCH (cch.taxgroup.com) reports:

President Bush on August 31 proposed temporary tax relief for homeowners with a good credit history who are facing foreclosure because the value of their homes is less than the worth of their mortgage. "I'm going to work with Congress to temporarily reform a key housing provision of the federal tax code, which will make it easier for homeowners to refinance their mortgages during this time of market stress," the president announced in the Rose Garden.
Under the president's proposal, if the value of a home declines and, for example, $20,000 of the homeowner's loan is forgiven, the tax code treats that $20,000 as taxable income. The Bush initiative, which requires the enactment of legislation to change the tax code, would temporarily change a key provision of the tax code to ensure that cancelled mortgage debt on a primary residence is not counted as income, according to a White House document.
The president pledged to work with Congress to enact the measure. He expressed support for a bipartisan House bill introduced by Reps. Rob Andrews, D-N.J., and Ron Lewis, R-Ky., and a Senate bill by Sens. Debbie A. Stabenow, D-Mich., and George Voinovich, R-Ohio, designed to protect homeowners from paying taxes on cancelled mortgage debt.
The president called on Congress to modernize the Federal Housing Administration (FHA) to help more homeowners qualify for FHA insurance by lowering down-payment requirements, raising loan limits and providing more flexibility in pricing. "These reforms would allow the FHA to reach families that need help, those with low incomes and less-than-perfect credit records or little savings," Bush asserted.
Current Law
Code Sec. 61 sets forth the general rule that, except as otherwise provided, "gross income means all income from whatever source derived." That section goes on to specify 15 items that must be included in gross income. An item found in Code Sec. 61(a)(12) is "income from discharge of indebtedness." Code Sec. 108 provides the only exceptions to the inclusion of "income from discharge of indebtedness." These exclusions cover four circumstances: (1) the discharge occurs in a title 11 [bankruptcy] case, (2) the discharge occurs when the taxpayer is insolvent (all indebtedness exceeds all assets), (3) the indebtedness discharged is qualified farm indebtedness or, (4) in the case of a taxpayer other than a C corporation, the indebtedness discharged is qualified real property business indebtedness.
Administration's Addition
The administration has not yet released proposed statutory language for the tax-relief portion of the president's plan to help homeowners. The president's own words, however, give some clues to --and raise some issues over --what he proposes. The president stated that:
--He will propose a revision to "a key housing provision of the federal tax code." It appears that the provision is Code Sec. 108.
--He is looking for "temporary" relief. However, whether he is referring to solving the current crisis that he believes will not repeat itself, giving relief only to those already overextended, or giving relief that is temporary only in the sense of being "paid back" by a lower tax break when the home is eventually sold are points that are unclear.
--He wants a change "to make it easier for people to refinance their homes." Whether he is limiting relief to refinancing for people who stay in their homes or will propose to extend relief to foreclosure situations as well is unclear. A White House "fact sheet" does describe the situation more broadly, however, referring to relief for "cancelled mortgage debt on a primary residence." In either case, the Bush proposal appears limited to mortgage indebtedness on a principal residence.
--He wants a provision close to that found in the Mortgage Cancellation Relief Act of 2007, which was introduced on April 17 in the House as HR 1876 and on May 15 in the Senate as Sen 1394. However, he does not wholly endorse the pending bills, saying, rather, that they are"onto a good idea" and "a positive step" and that "with a few changes in the Senate version and the House version, this administration can support these bills."
HR 1876/Sen 1394
would add a fifth exception to Code Sec. 108's list: "in the case of an individual, the indebtedness discharged is qualified residential indebtedness." "Qualified residential indebtedness" would be limited to the excess of the outstanding principal amount of the debt over the sum of the sales proceeds, plus the principal amount of any other indebtedness secured by such property. In turn, "qualified residential indebtedness" itself would be defined as indebtedness on real property used as a residence of the taxpayer and incurred to construct, reconstruct, or substantially improve it. Refinanced indebtedness would be included, but only to the extent the refinanced indebtedness does not exceed the amount of the indebtedness being refinanced.
Finally, HR 1876 and Sen 1394, as introduced, would only apply "to discharges after the date of the enactment." Unless that effective date is changed, homeowners with indebtedness income presently being recognized before passage would not qualify for relief.
By Paula Cruickshank and George Jones, CCH News Staff
White House Fact Sheet: New Steps to Help Homeowners Avoid Foreclosure

CCH (cch.taxgroup.com) reports:

The IRS has obsoleted Rev. Rul. 75-425, 1975-2 CB 291, since it is no longer determinative. Rev. Rul. 75-425 provided guidance regarding the effect of an alien individual, employed by a foreign government or international organization in the United States, signing a waiver under section 247(b) of the Immigration and Nationality Act. Generally, an alien individual employed by a foreign government or international organization who files the waiver is no longer entitled to exemption from income tax under Code Sec. 893 with respect to compensation received from such foreign government or international organization. However, the waiver has no effect on any income tax exemption derived from the provisions of an income tax treaty, consular agreement, or other international agreement to the extent the application of the exemption is not dependent upon the internal revenue laws of the United States. Rev. Rul. 75-425 also sets forth the application of the above rules with respect to a list of foreign countries with which the United States had an income tax treaty or consular agreement and a list of international organizations with respect to which the United States was a signatory to the international agreement creating the international organization(s) at the time of publication of the revenue ruling. Because many of those income tax treaties, consular agreements, and international agreements have been modified, superseded, or are no longer in force, and because the facts on which the ruling position was based no longer exist or are not sufficiently described to permit clear application of the currently applicable legal provisions and agreements, the IRS has concluded that Rev. Rul. 75-425 is no longer determinative with respect to foreign government and international organization employees of any foreign country.
Rev. Rul. 2007-60, 2007FED ¶46,616
Other References:
Code Sec. 893
CCH Reference - 2007FED ¶27,050.47
CCH Reference - 2007FED ¶27,622.1095
Tax Research Consultant
CCH Reference - TRC INTL: 12,150
 

CCH (cch.taxgroup.com) reports:

The IRS has informed poker tournament sponsors, including casinos, of their withholding and information reporting obligations under Code Sec. 3402(q) for amounts paid to tournament winners. Withholding is required where one or more tournament winners are paid in excess of $5,000 apiece over the entry and "buy-in" fees that participants are charged and that comprise a "wagering pool" from which the winnings are paid. The withholding rate is equal to the third lowest rate applicable to single filers, under Code Sec. 1(c), which currently is 25 percent.
A sponsor required to withhold on poker tournament winnings must file a Form W-2G, Certain Gambling Winnings, with the IRS on or before February 28 (March 31 if filed electronically) of the calendar year following the calendar year in which the winnings are paid. Certain information to be used by the sponsor for the when completing Form W-G must be supplied by the recipient of the winnings on Form W-2G or Form 5754, Statement by Person(s) Receiving Gambling Winnings, whichever is applicable.
CCH Comment. Form 5754 is used where the recipient of the tournament winnings is not the actual winner or is a member of a group of two or more winners on the same winning ticket.
Rev. Proc. 2007-57, 2007FED ¶46,613
Other References:
Code Sec. 3402
CCH Reference - 2007FED ¶33,589.25
Tax Research Consultant
CCH Reference - TRC PAYROLL: 3,404.10
 

Tax Analysts report: