Tax News

CCH (cch.taxgroup.com) reports:

The Tennessee franchise tax jobs credit was not available to a taxpayer that acquired a paper plant and hired 615 former employees who had been terminated one day earlier by the plant's previous owner. The taxpayer argued that the 615 jobs constituted net new full-time employee jobs, as required under the credit statute, but that argument was rejected.
The taxpayer asserted that, because the previous owner was a separate entity, the number of workers employed at the plant prior to the sale should not be considered when determining whether the taxpayer was entitled to claim the credit. However, an analysis of the statutory language and legislative history showed that the general purpose of the statute was to provide an incentive for companies to create new jobs and increase employment in Tennessee by either expanding existing operations or locating new operations within the state. Therefore, for the general purpose to be met, an employer must prove that it created at least 25 net new jobs resulting in an increase in employment in Tennessee.
In this case, the plant's previous owner terminated 820 full-time employee jobs on the day that the taxpayer acquired the plant. The following day, the taxpayer hired 615 employees to fill positions that previously existed, resulting in a decrease in employment in Tennessee by 205 workers. Accordingly, allowing the taxpayer to claim the credit for the 615 employees would not be in accord with the general purpose of the statute.
The taxpayer also claimed that its massive training program changed the 615 jobs into new positions, but that claim was without merit. Investment in training employees and updating plant equipment did not entitle the taxpayer to the jobs credit.
Weyerhaeuser Co. v. Chumley , Tennessee Court of Appeals, No. M2005-00212-COA-R3-CV, September 7, 2007, ¶401-202
Other References:
Explanations at ¶5-525

CCH (cch.taxgroup.com) reports:

Communications services sold by communications services providers to Internet Service Providers (ISPs), which were used by ISPs to provide Internet access service, were subject to Florida's communications services tax. Florida was not barred from enforcing its communications services tax on these services by the Internet Tax Freedom Act (ITFA) because Florida satisfied the grandfather provision. The grandfather provision applied to Florida because, prior to 1998, the year in which the ITFA became law, Florida imposed tax on telecommunication services that were purchased, used, or sold by a provider of Internet access to provide Internet access.
Technical Assistance Advisement, No. 07A19-001 , Florida Department of Revenue, July 24, 2007, ¶205-087
Other References:
Explanations at ¶80-115
 

CCH (cch.taxgroup.com) reports:

Under a new safe harbor insurance companies will not have to take into account increases in policy cash values of certain life insurance contracts described in Code Sec. 264(f)(4)(A) ("I-COLI Contracts") for purposes of applying the insurance company proration rules. Under the proration rules set forth in Code Secs. 805(a)(4), 807(a)(2), 807(b)(1), 812
and 832(b)(5)
certain tax-favored income must be prorated between an insurance company and its policyholders to more clearly reflect income. This includes tax-exempt interest, intercorporate dividends, and increases in policy cash values of life insurance and endowment contracts to which Code Sec. 264(f) applies.
In response to questions concerning the interpretation of the phrase "contracts to which Code Sec. 264(f) applies", the safe harbor provides that the proration rules will not apply to increases in policy cash values of I-COLI contracts covering no more than 35 percent of the total aggregate number of individuals described in Code Sec. 264(f)(4)(A) at any time during the taxable year. However, such contracts remain subject to IRS challenge under other provisions and judicial doctrines, including the business purpose doctrine.
This procedure is effective September 11, 2007. The IRS is requesting comments by December 31, 2007, about the need for additional guidance in this area. If, in response to comments, additional guidance is published it will apply prospectively.
Rev. Proc. 2007-61, 2007FED ¶46,631
Other References:
Code Sec. 264
CCH Reference - 2007FED ¶14,008.01
Code Sec. 805
CCH Reference - 2007FED ¶25,780.027
Code Sec. 807
CCH Reference - 2007FED ¶25,821.01
Code Sec. 812
CCH Reference - 2007FED ¶25,913.10
Code Sec. 832
CCH Reference - 2007FED ¶26,157.35

CCH (cch.taxgroup.com) reports:

As the school year begins, the IRS is reminding taxpayers to begin planning for education-related deductions by saving all receipts and other documentation of deductible expenses. Among the various deductions and credits available is the educator expense deduction, which allows teachers, instructors, counselors and other educators to deduct the costs of books, supplies, software and other items used in the classroom. To be eligible for the deduction, the taxpayer has to work a minimum of 900 hours per school year in an elementary or secondary school. The deduction, worth up to $250, is available regardless of whether the taxpayer itemizes deductions, however, it is scheduled to expire at the end of 2007.
Other deductions and credits available regardless of itemization include the tuition and fees deduction, the Hope Credit and the lifetime learning credit, which apply to post-secondary education. The tuition and fees credit is, also, scheduled to expire at the end of the year. Taxpayers are cautioned that they cannot take both the tuition and fees deduction and an education credit for the same student in the same school year.
IR-2007-158, 2007FED ¶46,630
Other References:
Code Sec. 222
CCH Reference - 2007FED ¶12,772.01
Tax Research Consultant
CCH Reference - TRC INDIV: 36,364
CCH Reference - TRC INDIV: 60,064
CCH Reference - TRC FILEIND: 9,054.20
CCH Reference - TRC FILEIND: 9,086

CCH (cch.taxgroup.com) reports:

Senate Finance Committee Chairman Max Baucus, D-Mont., said on September 11 that the committee will act in the next few weeks on an $8-billion to $10-billion new agriculture-related tax measure. Baucus stated that his goals for the tax package include a permanent trust fund to help ranchers and farmers hurt by crop and livestock losses, conversion of a number of conservation payment programs into fully offset tax credit programs and offering additional incentives for rural economic development and energy-related tax relief to agricultural producers.
Baucus outlined the following elements included in the package: an ongoing program to offset farming income losses not covered by the crop insurance program and, as the fund would be paid for with various provisions under the jurisdiction of the Finance Committee, participants in certain conservation programs may choose to receive tax credits instead of cash payments for easements; a new category of tax credit bonds for projects such as rural electric and telemedicine, rural broadband and other rural economic development community projects; and tax incentives for wind energy and other alternative energy; and to encourage farmers to grow alternative crops that are used to make ethanol, biodiesel and cellulosic biofuels. Many of these provisions appeared in the Finance Committee-approved Energy Advancement and Investment Bill of 2007 (TAXDAY, 2007/06/20, C.1).
Separately, Baucus' bill would also clarify that Conservation Reserve Program payments made to certain farmers participating in mandatory conservation activities are rental income and not subject to self-employment taxes. Creating the disaster assistance trust fund and converting payment programs to tax credits will free up previously obligated spending funds for the Agriculture Committee to use elsewhere, said Baucus in a written statement.
By Jeff Carlson, CCH News Staff

Tax Analysts report: