Tax News

CCH (cch.taxgroup.com) reports:

The income from an out-of-state corporation's distributive share of a limited partnership was subject to apportionment for Massachusetts corporate excise tax purposes and not subject to a 100% allocation of the income to the state. The corporation was entitled to an abatement of tax after the apportionment of the income from the limited partnership interest because the business activities of the limited partnership were closely related to that of the corporation and served an operational not passive investment function. Because other jurisdictions in which the corporation conducted business operations were entitled to tax an apportioned share of the limited partnership interest, a 100% allocation of the income to Massachusetts was improper.
Sasol North America v. Commissioner of Revenue , Massachusetts Appellate Tax Board, No. C273084, September 5, 2007, ¶401-101
Other References:
Explanations at ¶11-520

CCH (cch.taxgroup.com) reports:

California Governor Arnold Schwarzenegger has called a special session of the state Legislature beginning September 11, 2007, to consider and act upon health care reform legislation, for which the Governor previously had proposed funding relating to, among other things, state corporate and personal income taxes. Earlier this year the Governor had called for health care reform and proposed tax-related funding provisions, including increased payroll taxes, a dividend based on a percentage of gross revenues received by hospitals and physicians, and corporate and personal income tax conformity to federal law in the area of health savings accounts and cafeteria plans. (TAXDAY 2007/01/10, S.8)
In an announcement on his home page (http://gov.ca.gov/index.php?/press-release/7384/), the Governor noted that great strides had been made in the regular legislative session in the area of health care reform. However, he noted, budget negotiations took two months longer than was expected and time ran out.
The proclamation calling the special session, along with another proclamation for a simultaneous special session to consider and act upon legislation to ensure a reliable water supply for the state, can be accessed from the announcement Web site.
Release , California Governor Arnold Schwarzenegger, September 11, 2007.

CCH (cch.taxgroup.com) reports:

A corporation was entitled to deductions for compensation paid to its sole executive and shareholder in the amounts determined by the Tax Court for two tax years. The executive was the driving force behind the corporation's success and was underpaid in years during which the company was not profitable. The corporation retained the executive's compensation to further develop and expand its business and promised to reimburse the executive for past underpayment and to pay him bonuses for extraordinary services when it became more profitable.
Moreover, the corporation was entitled to deduct advertising expenses for one tax year. The expenses related to a detailed advertising campaign that resulted in an drastic increase in the corporation's profits. Therefore, the corporation showed a sufficient connection between the amount paid in advertising expenses and its business of producing and selling suntan lotion products. Finally, the corporation was not entitled to a depreciation deduction for certain floating structures. The structures were under construction during one of the tax years at issue and the corporation failed to provide any evidence that the structures were used primarily, or at all, for business in the second tax year at issue.
Related case, Reeves, at TC Memo. 2007-273, Dec. 57,096(M) (TAXDAY, 2007/09/13, J.3).
Vitamin Village, Inc., TC Memo. 2007-272, Dec. 57,095(M)
Other References:
Code Sec. 162
CCH Reference - 2007FED ¶8637.733
CCH Reference - 2007FED ¶8851.173
Code Sec. 167
CCH Reference - 2007FED ¶11,007.464
Tax Research Consultant
CCH Reference - TRC BUSEXP: 3,054
CCH Reference - TRC BUSEXP: 3,106
CCH Reference - TRC COMPEN: 9,100

CCH (cch.taxgroup.com) reports:

A settlement award payment was includible in an individual's income, even though it was subject to a creditor's claim in the individual's bankruptcy proceeding. The taxpayer argued that she did not exercise dominion and control over the award because it was placed in a trust account and could not be accessed without a court order. However, her argument ignored the fact that she volunteered to place the award in the bankruptcy trustee's custody. Thus, while she did not "constructively receive" the award in the year at issue; she "actually" received it. Further, the doctrine of constructive receipt generally addresses when, not whether, income is realized by a cash basis taxpayer. Finally, the taxpayer was entitled to a miscellaneous itemized deduction in an amount equal to the amount includible in her income.
CCH Comment. The taxpayer actually reported the income on her tax return for the year at issue on line 21 and subtracted it on the same line with the explanation that the amount was not "constructively received." The IRS, however, proceeded as if the income was not reported.
S.J. Burns, TC Memo. 2007-271, Dec. 57,094(M)
Other References:
Code Sec. 61
CCH Reference - 2007FED ¶5504.2642
Code Sec. 451
CCH Reference - 2007FED ¶21,005.743
Tax Research Consultant
CCH Reference - TRC INDIV: 33,164
 

CCH (cch.taxgroup.com) reports:

The Bush administration's economic, tax and financial policy shops are keeping a close eye on the effect of the tightening credit and housing markets on U.S. economic growth, according to a Treasury spokesman. Treasury Secretary Henry M. Paulson, Jr., recently noted that the current housing downturn will exact a "penalty" on economic growth, but the White House has not yet set a deadline for the President's Working Group on Financial Markets to complete its review of the role played by credit rating agencies and mortgage loan originators in the current housing downturn and credit crunch, according to Jennifer Zuccarelli, a Treasury spokeswoman. The next forecast on federal revenue and deficit estimates that would reflect any changes in the economic growth rate will be completed in December by the Office of Tax Analysis, noted Treasury spokesman, Andrew DeSouza.
Meanwhile, the Treasury Department continues to consider measures, such as lowering the U.S. corporate tax rate, to increase U.S. competitiveness abroad. "We live in a competitive economic environment globally" that requires the U.S. to reexamine its business tax and regulatory schemes, noted White House Press Secretary Tony Snow at a press briefing on September 12. There is no deadline yet for completing the Treasury review of U.S. competitiveness initiatives, confirmed DeSouza.
A top priority item on the administration's tax agenda in 2007 is to pass legislation extending relief from the alternative minimum tax (AMT). "We need a patch right now so that millions of Americans don't have to pay the AMT" before the current extension expires, DeSouza said. "What contributes to economic growth and strengthens it (is) low taxes, low regulations, and rewarding people who work hard and also generate value for the economy," Snow noted at his final briefing before stepping down as White House Press Secretary on September 14.
By Paula Cruickshank, CCH News Staff
 

Tax Analysts report: