Tax News

CCH (cch.taxgroup.com) reports:

The U.S. House of Representatives has joined the Senate in approving a seven-year extension of the moratorium on state and local Internet access taxes. The President is expected to sign the legislation once it reaches his desk. The moratorium was originally enacted in 1998 and, after having been renewed in 2001 and 2004, was set to expire on November 1, 2007. The House accepted unanimously the Senate amendments made to the bill that originally passed the House on October 16. Attempts to make the prohibition permanent were unsuccessful, despite support from many lawmakers and the Administration.
The legislation on its way to the President, the Internet Tax Freedom Act Amendments Act of 2007, includes the following provisions.
-- The moratorium on state and local taxes on Internet access and multiple or discriminatory taxes on electronic commerce that was originally enacted in October 1998 is extended until November 1, 2014.
-- The grandfather clause that permits Internet access taxes that were generally imposed and actually enforced prior to October 1, 1998, is also extended until November 1, 2014. However, the grandfather clause will not apply to any state that has, more than 24 months prior to the enactment of this legislation, repealed its tax on Internet access or issued a rule that it no longer applies such a tax.
-- State and local governments that continue to impose tax on telecommunications service purchased, used, or sold by a provider of Internet access have until June 30, 2008, to end these disputed taxes. However, this provision only operates if a public ruling applying such a tax was issued prior to July 1, 2007, or such a tax is the subject of litigation that was begun prior to July 1, 2007. Some states claim that taxes they impose on telecommunications service were grandfathered by Congress in the 2004 renewal of the moratorium. This provision and the revised definition of "Internet access" (discussed below) is intended to resolve these issues and end state and local taxation of telecommunications service purchased by Internet service providers to connect their customers to the Internet (so-called "backbone" services). According to the Congressional Budget Office, as many as eight states (Alabama, Florida, Illinois, Minnesota, Missouri, New Hampshire, Pennsylvania, and Washington) and several local governments in those states are currently collecting such taxes and will lose revenue as a result of this prohibition.
-- A new definition of "Internet access" is enacted. It means a service that enables users to connect to the Internet to access content, information, or other services. The definition includes the purchase, use, or sale of telecommunications by an Internet service provider to provide the service or otherwise enable users to access content, information, or other services offered over the Internet. It also includes incidental services such as home pages, electronic mail, instant messaging, video clips, and personal electronic storage capacity, whether or not packaged with service to access the Internet. However, "Internet access" does not include voice, audio or video programming, or other products and services using Internet protocol for which there is a charge, regardless of whether the charge is bundled with charges for "Internet access."
-- The moratorium is amended to clarify that it does not apply to state general business taxes, such as gross receipts taxes, that are structured in such a way as to be a substitute for or supplement the state corporate income tax. Therefore, Internet access providers may still be taxed on their receipts attributable to providing access under tax regimes such as the Michigan business tax, Ohio commercial activity tax, Texas margin tax, and Washington business and occupation tax.
Subscribers to CCH Tax Research NetWork can view the text of the legislation agreed to by the House.
H.R. 3678, as agreed to by the U.S. House of Representatives, October 30, 2007.

CCH (cch.taxgroup.com) reports:

The estate of a deceased taxpayer, which was allowed to substitute for the taxpayer in a Collection Due Process (CDP) appeal, did not establish abuse of discretion in the IRS' rejection of the taxpayer's installment agreement request, and could not challenge the underlying liability since that issue was never raised during the prior CDP hearing. The taxpayer was not current on his estimated tax payments which, under IRS guidelines, was required as a condition to entering into an installment agreement; therefore, the IRS Appeals officer did not abuse her discretion in rejecting the proposed installment agreement.
Although the taxpayer's wife, acting as executrix of his estate, claimed the taxpayer overstated his income and failed to deduct alleged payments in order to conceal unlawful activities, such issues were never raised in the CDP hearing. In accordance with Reg. §301.6320-1(f)(2), there was no authority or jurisdiction to consider these issues for the first time on appeal.
In a prior decision, R.B. Magana, Dec. 54,765, the possibility was left open in unusual cases of considering issues on appeal not raised during the CDP hearing. However, if the issue of the underlying liability is never considered by Appeals, there is no basis on which to conclude that Appeals' discretion has been abused and, therefore, no authority to consider the issue.
In one of three separate dissenting opinions, in which four judges concurred, the basis for applying an "abuse of discretion" standard of review was questioned because no such language appears in the code sections governing CDP appeals. This dissent argued in favor of retaining the latitude contemplated by Magana
to consider special circumstances, and concluded that, because of the unusual circumstances of the taxpayer's death, the underlying liability should have been considered.
J. Giamelli, 129 TC No. 14, Dec. 57,155
Other References:
Code Sec. 6320
CCH Reference - 2007FED ¶38,134.028
Code Sec. 6330
CCH Reference - 2007FED ¶38,184.50
CCH Reference - 2007FED ¶38,184.60
Tax Research Consultant
CCH Reference - TRC IRS: 51,056.25
CCH Reference - TRC LITIG: 6,136.25

CCH (cch.taxgroup.com) reports:

House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., is moving ahead with his plans to pass a bill that grants 23 million taxpayers relief from the alternative minimum tax (AMT) for one year. On October 30, Rangel introduced the Temporary Tax Relief Bill of 2007 (HR 3996), a bill that will be marked up by the committee on November 2 and is likely to move swiftly to the House floor for a vote. The measure also includes the extension of a host of expiring business and individual tax provisions known as the extenders.
"While this legislation provides critical tax relief to middle-class families, we must do so without adding to the deficit and forcing future generations to pay for the decisions we make today," said Rangel. The chairman plans to unveil the complete list of revenue offsets for the legislation at the committee markup.
The bill would provide AMT relief for nonrefundable personal credits, and it would increase the AMT exemption amount to $66,250 for joint filers and $44,350 for individuals. According to committee estimates, the AMT relief would cost $50.59 billion over 10 years.
The bill would also extend the research and development tax credit, the new markets tax credit and the deduction for state and local sales taxes. It would also provide mortgage forgiveness debt relief, extend the deduction for mortgage insurance, and repeal the authority of the IRS to use private debt collectors.
White House Response
President Bush lashed out at Congress for proposing "an endless series of tax increases" to pay for the AMT patch and other significant pieces of legislation, including the farm bill, energy tax legislation and a proposed expansion of the State Children's Health Insurance Program (SCHIP). Following a White House meeting with GOP congressional leaders on October 30, Bush strongly criticized federal lawmakers for failing to send him "a single appropriations bill," including the measure to provide fiscal year 2008 funding for the IRS and Treasury Department.
The continuing appropriations resolution (HJRes 52) temporarily funds all federal government operations and a short-term expansion of the SCHIP program through November 16. The stopgap measure funds the government at a pro-rated portion of the 2007 budget approved by Congress. The IRS's budget for fiscal year (FY) 2007 totaled $10.6 billion.
The IRS would operate at a pro-rated portion of this amount. The IRS's 2007 budget included $3.6 billion for taxpayer service; $4.66 billion for enforcement, $282 million for business systems modernization, and $116 million for tax research (TAXDAY, 2007/10/01, C.2).
By Stephen K. Cooper and Paula Cruickshank
Temporary Tax Relief Act of 2007, HR 3996
Temporary Tax Relief Act of 2007, Summary
House Ways and Means Committee Release: Ways And Means to Consider AMT Relief Bill
Statement by President Bush on Spending Bills

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The California Franchise Tax Board (FT has announced that taxpayers impacted by the October 2007 wildfires in any of the federally declared disaster areas in Santa Barbara, Ventura, Los Angeles, San Bernardino, Orange, Riverside, and San Diego counties who have California corporation franchise or income or personal income tax returns, payments, or other time sensitive acts due from October 21, 2007, through January 31, 2008, will be allowed an automatic postponement through January 31, 2008. This includes the estimated tax payment for the fourth quarter, normally due on January 15. This matches the postponement periods announced by the Internal Revenue Service (IRS) in IRS News Release IR-2007-178.
As previously reported (TAXDAY, 2007/10/25, S.4), taxpayers are also allowed to claim a disaster loss in the tax year the disaster occurred (on the 2007 tax returns that taxpayers will file next spring) or in the year before the disaster occurred (by amending 2006 tax returns). The advantage of claiming a disaster loss in the prior year is that FTB can quickly issue a refund.
If taxpayers impacted by the wildfires need copies of state tax returns to replace lost or damaged ones, they should complete Form FTB 3516, Request for Copy of Tax Return, and print "Southern California Wildfires 2007" in red at the top of the request. Disaster victims will receive free copies of their state tax returns.
Subscribers to CCH Tax Research NetWork can view the text of the new release.
News Release, California Franchise Tax Board, October 29, 2007.

CCH (cch.taxgroup.com) reports:

The IRS has changed its policy and provided interim guidance for estates making a Code Sec. 6166 election to pay all or part of the estate tax in installments. In order to protect the government's interest in the deferred estate tax, the IRS had required that, when making a Code Sec. 6166 election, an estate must post a surety bond or grant the IRS a Code Sec. 6324A special extended lien. However, the Tax Court in E. Roski, Sr. Est. , 128 TC 113 Dec. 56,896, determined that the IRS had abused its discretion by requiring that every estate provide a bond or special tax lien to qualify for the Code Sec. 6166 election. The court found that it was Congress's intent that the IRS would evaluate on a case-by-case basis whether the bond or special tax lien requirements were necessary.
Until the IRS and the Treasury Department establish criteria to identify the estates that are at risk of not making the deferred payments, the IRS will consider the following non-exclusive factors: (1) the duration and stability of the closely held business on which the estate tax is differed; (2) the estate's ability to pay installments of tax and interest timely; and (3) the estate's compliance history. The notice applies to each estate: (1) that timely elects to pay the estate tax in installments and timely files a return on or after November 13, 2007; (2) whose return was being classified, surveyed or audited by the IRS as of April 12, 2007; or (3) that is currently in the deferral period but has not yet provided a bond or special lien if the general estate tax lien will expire within two years from November 13, 2007 or there is a reasonable belief that the collection of the tax and interest is sufficiently at risk to require a bond or special lien.
The Treasury Department and the IRS plan to issue regulations concerning the appropriate standards to be applied by the IRS and invite comments regarding such standards. Specifically, comments are requested concerning the following: (1) what additional factors the IRS should use in determining whether an estate should be required to provide a bond or special lien; (2) how frequently should the IRS reevaluate whether the estate poses a significant credit risk to the government's collection; (3) which facts are likely to be accurate predictors of future default of the differed tax payments and related interest; (4) what additional financial information the IRS should request from the estate in order to make its determination; and (5) whether the IRS should define surety bond to include other forms of security and what forms should be added.
Written and electronic comments are encouraged to be submitted by January 14, 2008. Written comments should be sent to IRS CC PA LPD PR (Notice 2007-90), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20224. They may also be hand-delivered to the IRS Courier's Desk. Electronic comments can be submitted to notice.comments@irscounsel.treas.gov (indicate Notice 2007-90).
Notice 2007-90, FINH ¶30,565
Other References:
Code Sec. 6165
CCH Reference - FINH ¶20,642.20
Code Sec. 6166
CCH Reference - FINH ¶20,665.70
Code Sec. 6324A
CCH Reference - FINH ¶21,085.40
Tax Research Consultant
CCH Reference - TRC ESTGIFT: 51,166
CCH Reference - TRC ESTGIFT: 51,210

CCH (cch.taxgroup.com) reports:

The IRS has extended tax return filing and payment deadlines for victims of the Southern California wildfires. Taxpayers in the presidentially declared disaster area consisting of Los Angeles, Orange, Riverside, San Bernardino, San Diego, Santa Barbara and Ventura counties will have until January 31, 2008, to file returns, pay taxes and perform other time-sensitive acts. The extended deadline applies to items due on or after October 21, 2007, when the fires began, and on or before January 31, 2008. This includes the federal withholding tax return, Form 941, normally due October 31, and the estimated tax payment for the fourth quarter, normally due January 15. In addition, the IRS is waiving the failure to deposit penalty for employment and excise deposits due on or after October 21, 2007, and on or before November 5, 2007, as long as the deposits are made by November 5, 2007.
Affected taxpayers who receive a penalty notice from the IRS should call the number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply during the period from October 21, 2007, to January 31, 2008, or October 21, 2007, through November 5, 2007, for failure to deposit penalties. No penalty or interest will be abated for taxpayers that do not have a filing, payment or deposit due date, including an extended filing or payment due date, during this period.
IRS computer systems automatically identify taxpayers located in the covered disaster area and apply automatic filing and payment relief. Thus, taxpayers within the covered disaster area do not need to identify themselves as affected by the wildfires by writing on their returns or using the disaster designation in their tax software. However, affected taxpayers who reside or have a business located outside the covered disaster area are required to call the IRS disaster hotline at 1-866-562-5227 to identify themselves as eligible for disaster relief.
Affected taxpayers also have the option of claiming disaster-related casualty losses on their federal income tax returns for either 2007 or 2006. In addition, affected taxpayers who claim the disaster loss on their 2006 returns should put the disaster designation "California Wildfires" at the top of the form so that the IRS can expedite the processing of the refund.
IR-2007-178, 2007FED ¶46,693
IR-2007-178, FINH ¶30,566
Other References:
Code Sec. 6081
CCH Reference - 2007FED ¶36,789.213
CCH Reference - FINH ¶20,345.75
CCH Reference - FINH ¶20,355.50
Code Sec. 6161
CCH Reference - FINH ¶20,585.35
Code Sec. 7508A
CCH Reference - 2007FED ¶42,687C.22
CCH Reference - FINH ¶22,560.30
Tax Research Consultant
CCH Reference - TRC FILEIND: 15,204.25
CCH Reference - TRC FILEBUS: 15,110

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The U.S. Senate has passed legislation that would extend for seven years the existing moratorium on state and local Internet access taxes, which is currently set to expire on November 1, 2007. The U.S. House of Representatives previously passed a four-year extension. (TAXDAY, 2007/10/17, S.2) The houses must now reconcile their differences before the legislation can go to the President for his expected signature.
The Senate passed the legislation it had received from the House after amending it in the following manner.
-- The moratorium on state and local taxes on Internet access and multiple or discriminatory taxes on electronic commerce that was originally enacted in October 1998 would be extended until November 1, 2014 (rather than until November 1, 2011, as in the House version). The grandfather clause for taxes in existence prior to October 1, 1998, would also be extended until 2014 (rather than 2011).
-- A state or local government that has imposed a tax on telecommunications service purchased, used, or sold by a provider of Internet access would be held harmless until June 30, 2008 (rather than until November 1, 2007, as in the House version). Similarly to the House version, the hold harmless provision would only operate if a public ruling applying such a tax was issued prior to July 1, 2007, or such a tax is the subject of litigation that was begun prior to July 1, 2007.
-- The definition of "Internet access" would be amended to shield from taxation a home page, electronic mail, instant messaging, video clips, and personal electronic storage capacity that are provided independently or not packaged with Internet access. The House version would only protect these services from tax when they are furnished as part of a service to connect to the Internet.
-- The grandfather clause that permits Internet access taxes in force prior to October 1, 1998, would not apply to any state that has, more than 24 months prior to the enactment of this legislation, repealed its tax on Internet access or issued a rule that it no longer applies such a tax. The House version does not contain a similar provision.
Subscribers to CCH Tax Research NetWork can view the text of the legislation passed by the Senate.
H.R. 3678, as amended and passed by the U.S. Senate, October 25, 2007.

CCH (cch.taxgroup.com) reports:

Congress has passed a new SCHIP bill, but President Bush has issued a veto threat because it is funded by an increase in federal tax on tobacco products. Other new legislation includes the Tax Reduction and Reform Bill of 2007 (HR 3970), which would cut corporate tax rates, eliminate the alternative minimum tax (AMT) and lower the standard deduction. In addition, Ways and Means Chairman Charles B. Rangel, D-N.Y., plans to pass, in separate legislation, the provisions in HR 3970 that would provide a one year patch for the AMT and extend a group of expiring tax provision. At the IRS two developments dominated the news: the extension of transition relief for the final 409A
regulations and the as yet undetermined relief for victims of the California wildfires. Other IRS developments included final regulations regarding corporate reorganizations, tip reporting guidance and requests for a charter safe-harbor for the entertainment use of a business aircraft.
Congress
President Bush promised to veto a new bill expanding the State Children's Health Insurance Program (SCHIP), in part because it would raise the federal tax on tobacco products. The House passed the new legislation (HR 3963) on October 24 by a 265-to-142 vote (TAXDAY, 2007/10/26, C.4). But that tally is short of the two-thirds that would be needed to override a presidential veto. Bush vetoed a similar bill (HR 976) in early October (TAXDAY, 2007/10/04, W.1). The House later that month failed to override the veto (TAXDAY, 2007/10/19, C.1).
The new bill mirrors the version vetoed by Bush, but contains a number of changes made by Democratic leaders to attract broader support for the measure. Like the vetoed bill, the new bill would add $35 billion to the program over five years to insure more children whose parents do not qualify for Medicaid but cannot afford private insurance. Total funding for SCHIP would be $60 billion.
The extra funding contained in the bill would be raised by a federal tax increase on tobacco products. Most significantly, the bill would increase the tax on cigarettes by 61 cents --to $1 per pack. It would impose additional tax increases on other tobacco products. In promising to veto the bill, the administration cited several objections, including a statement that the new bill "still raises taxes to move 2 million children from private health insurance to a government-run program."
House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., introduced sweeping tax overhaul legislation on October 25 (TAXDAY, 2007/10/26, C.1). The Tax Reduction and Reform Bill of 2007 (HR 3970), would cut corporate tax rates, eliminate the alternative minimum tax (AMT) and lower the standard deduction. Rangel said he plans to pass, in separate legislation, the provisions in HR 3970 that would provide a one year patch for the AMT and extend a group of expiring tax provision. The House will pass that smaller legislation before Congress adjourns in November, Rangel predicted. The other provisions in the larger comprehensive tax reform measure might see action in 2008. Republican lawmakers like ranking Ways and Means member Jim McCrery, R-La., agreed that the House will likely pass legislation patching the AMT for one year as well as the extenders. However, Republicans do not support Rangel's plan to pay for tax relief by imposing higher taxes on hedge fund managers, S corporations and a wide range of other businesses.
Senate Finance Committee ranking member Charles E. Grassley, R-Iowa told reporters on October 23 that a "vast majority" of Republicans were willing to help the Democrats pass a one-year patch of the AMT without revenue offsets, under the condition that Democrats also enact tax policy which aids the economy. According to one GOP senator, his party is looking at an extension of the rate cuts for capital gains, dividends and the estate tax as well.
A bipartisan majority of the House Ways and Means Committee on October 24 passed HR 3920, the Trade and Globalization Assistance Bill of 2007 by a vote of 26 to 14 and the House could begin considering the legislation as soon as October 29 (TAXDAY, 2007/10/26, C.3). The $5.8 billion revenue raising provision included in the House version of trade adjustment assistance legislation would delay tax relief for multinational corporations by three years, but the measure faces strong resistance in the Senate where one senior tax writer has vowed to strip the language when the bill hits the Senate floor. Senate Finance Committee Chairman Max Baucus, D-Mont.,) on October 24 filed the committee report (SRepNo 110-205) for the land conservation bill (Sen 2223) and the committee report (SRepNo 110-206) for the agriculture tax bill (Sen 2242)) on October 25.
IRS
Two developments dominated IRS news during the week of October 22: the extension of transition relief for the final 409A
regulations and the wildfires in California. As we go to press, the IRS has indicated it will be issuing special relief for victims of the California fires but no official announcement has yet been made.
Extended 409A Transition Relief. The IRS responded favorably to calls by practitioners and employee plans for more time to adapt to the final Code Sec. 409A regulations. The Service extended transition relief for an additional year (TDNR HP-631; Notice 2007-86; TAXDAY, 2007/10/23, I.3).
The news was immediately greeted with relief by practitioners. "The Notice is well received. It helps alleviate much of the pressure to make final decisions by year end and the December 31, 2008 effective date will allow employers to more fully consider their options and make better plan design decisions," Catherine Creech of Davis & Harman LLP, Washington, D.C. told CCH. "This is useful and helps us to get over the hump," Fred Oliphant of Miller & Chevalier in Washington, D.C. added.
Reporting requirements. At the same time, the IRS also granted payroll professionals more time to comply with the reporting requirements of Code Sec. 409A (Notice 2007-89; TAXDAY, 2007/10/24, I.1). The American Payroll Association had asked the IRS to waive the requirement to report deferrals and earnings under Code Sec. 409A for the 2007 tax year (TAXDAY, 2007/10/17, M.2).
California Wildfires. Late on October 25, the IRS announced on its website late that help for victims would be issued very soon (TAXDAY, 2007/10/26, I.4). The IRS is expected to offer individuals and businesses extended time to file returns and make payments as it has done in past disasters. The Service also posted frequently asked questions (FAQs) for disaster victims on its website. The California Franchise Tax Board has already granted special relief to taxpayers in Santa Barbara, Ventura, Los Angeles, San Bernardino, Orange, Riverside and San Diego Counties.
More Developments
Corporate Reorganizations. The IRS finalized, with some modifications, proposed regulations (NPRM REG-130863-04) concerning the continuing tax-free status of a reorganization when assets or stock of the acquired corporation are distributed to a corporation or partnership following the reorganization (T.D. 9361; TAXDAY, 2007/10/25, I.1).
Business aircraft. Witnesses at an October 25 IRS hearing in Washington, D.C., urged the Service to create a charter rate safe harbor under the regulations for the business use of aircraft for entertainment (NPRM REG-147171-05, I.R.B. 2007-32, 334; TAXDAY, 2007/10/26, I.2). A charter rate safe harbor would reduce the burden on taxpayers when complying with the proposed regulations. Witnesses also asked the IRS to clarify the rules governing charitable use of an aircraft.
Tip Income. Underreporting of tip income is a "severe compliance problem in the tip reporting area," an IRS official said during a phone forum sponsored by the Service on October 24 (TAXDAY, 2007/10/25, I.3). Many taxpayers think that if they report eight percent of their tips, they have satisfied the reporting requirements under Code Sec. 6053(a), the official said. Form 8027 was meant to be a "floor, not a ceiling." Employees must report 100 percent of tips received.
Withholding Agents. An official from the IRS Large and Mid-Size Division (LMS said on October 25 in Arlington, Va. that a recent voluntary compliance initiative for withholding agents was a success but indicated that the IRS is unlikely to offer a similar program in the future (TAXDAY, 2007/10/26, I.3). "It is always better to come forward voluntarily than address issues on audit," Kathy Robbins, LMSB director of field operations for financial services, cautioned.
By Jeff Carlson, Stephen K. Cooper, John Scorza and George L. Yaksick, Jr., CCH News Staff
 

CCH (cch.taxgroup.com) reports:

IRS officials and practitioners discussed the proposed changes to Forms W-8BEN and 1042-S, as well as the proposed regulations regarding Code Sec. 1441 Withholding on Redemptions during the Executive Enterprise Institute's (EEI) 22nd Annual Withholding and Information Reporting Conference on October 26.
Form W-8BEN Proposed Changes
Drafts of revised Forms W-8BEN and 1042-S were released to the public on June 7, 2007, and July 13, 2007 respectively. According to John Prisco, technical advisor, IRS USWA program, the proposed changes to these forms were made to address uncertainties among practitioners as to what precisely the IRS would accept or require in connection with Form W-8BEN. Prisco highlighted some of the proposed changes to Form W-8BEN, including the following:
--Abbreviated country names will be permitted;
--Foreign tax identifying numbers must be provided;
--Joint account owners may be required to file separate Forms W-8BEN, including a husband and wife;
--Entering only a trust's name, and not the name of the trustee, will be allowed (on the other hand, if only a trustee's name is given, the name of the trust may not be entered); and
--A power of attorney may be authorized to sign in case of accident or injury, or if the IRS grants permission for "other good cause."
1441 Withholding
Philip Gartlett, partner, Burt, Staples & Maner, LLP, discussed the proposed regulations regarding Code Sec. 1441 withholding on redemptions during another session of the EEI conference on October 26. According to Gartlett, the proposed regulations (NPRM REG-140206-06; TAXDAY2007/10/17, I.2), in general, would apply to distributions made after December 31, 2008, although the preamble states that the proposed regulations may apply before then. Gartlett regarded the date as a "far out effective date." Gartlett highlighted the following rules regarding escrow procedures under the proposed regulations:
--Escrow procedures can only be used by an intermediary that is a U.S. financial institution and, according to Gartlett, "U.S. banks and brokers for the most part"; and
--Escrow procedures can only be used for documented foreign beneficial owners (distinguishable from the current regulations, which do not require documentation).
Gartlett also discussed various proposed rules on Code Sec. 302 Payment Certification under the same proposed regulations as well as provisions affecting qualified intermediaries. According to Gartlett, qualified intermediaries are prohibited from using escrow procedures directly under the proposed regulations.
Form 1042 Examinations
Todd Larsen, IRS USWA program manager, reminded practitioners that the IRS continues to increase its focus on the nonresident alien (NRA) withholding and reporting compliance of U.S. withholding agents. According to Larsen, the IRS is "expanding the focus and depth" of audit. Larsen also explained that all types of companies are subject to examination, and that a Form 1042 examination (Form 1042, Withholding Tax Return for U.S. Source Income) will also "look at payments to vendors" and all types of payments "subject to Code Sec. 1441 withholding."
By Hilary Goehausen, CCH News Staff
 

CCH (cch.taxgroup.com) reports:

The IRS has proposed an increase in the initial enrollment and renewal fees paid by enrolled actuaries to $250. The new fees represent the IRS's costs to administer the program.
Comment Request
The IRS is requesting comments on the proposal before the scheduled hearing at 10:00 a.m. on November 26, 2007. Interested parties should submit comments (an original and eight copies) by November 19, 2007, to the Internal Revenue Service, CCA:LPDR (REG-134923-07), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044. Comments also may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CCA:LPDR (REG-134923-07), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue NW., Washington, D.C. Alternatively, submissions may be sent electronically via the Federal eRulemaking Portal at www.regulations.gov (IRS REG-134923-07).
Proposed Regulations, NPRM REG-134923-07, 2007FED ¶49,770
Other References:
31 CFR Part 10
CCH Reference - 2007FED ¶37,180BE
CCH Reference - 2007FED ¶37,180DB
CCH Reference - 2007FED ¶37,180DD
Tax Research Consultant
CCH Reference - TRC IRS: 3,204.15
 

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Ohio Governor Ted Strickland has released new personal income tax withholding tables resulting in a 4.2% decrease in income tax withholding rates for 2008. This cut is another step in the phase-in of a 21% across-the-board income tax cut that will be completed by the 2009 tax year.
Overall, the 2008 withholding rates will be 16.8% lower than they were in 2004, in line with income tax rates that will also be 16.8% lower than 2004. The new income tax withholding tables will take effect for pay periods ending on or after January 1, 2008. They replace the tables previously issued by the Ohio Department of Taxation, effective October 1, 2006.
The Governor also announced that Ohio employers will receive information about the new withholding tables in the mail beginning this week. The new tables are also available online at http://tax.ohio.gov/divisions/employer_withholding/.
Release, Ohio Governor Ted Strickland, October 24, 2007.

CCH (cch.taxgroup.com) reports:

The IRS announced that purchasers of qualified Ford and GMC hybrid vehicles may continue to claim the alternative motor vehicle tax credit.
The qualified Ford models and corresponding credit amounts are:
--Ford Escape 2WD Hybrid Model Year 2008, $3,000;
--Ford Escape 2WD Model Years 2005, 2006 and 2007, $2,600;
--Ford Escape 4WD Hybrid Model Year 2008, $2,200;
--Ford Escape 4WD Model Years 2005, 2006 and 2007, $1,950;
--Mercury Mariner 4WD Hybrid Model year 2008, $2,200;
--Mercury Mariner 4WD Model Years 2006 and 2007, $1,950; and
--Mercury Mariner 2WD Hybrid Model Year 2008, $3,000.
The qualified GMC models and corresponding credit amounts are:
--Chevrolet Silverado Hybrid 2WD, model years 2006 and 2007: $250;
--Chevrolet Silverado Hybrid 4WD, model years 2006 and 2007: $650;
--GMC Sierra Hybrid 2WD, model years 2006 and 2007: $250;
--GMC Sierra Hybrid 4WD, model years 2006 and 2007: $650;
--Saturn Vue Green Line, model year 2007: $650; and
--Saturn Aura Hybrid, model year 2007; $1,300.
GMC sold 123 qualifying vehicles to retail dealers in the quarter ending September 30, 2007, bringing its cumulative number of qualified GMC hybrid vehicles sold as of that date to 9,577. Ford sold 5,196 qualifying vehicles to retail dealers in the quarter ending September 30, 2007, bringing its cumulative number of qualified Ford hybrid vehicles sold as of that date to 38,743.
IR-2007-174, 2007FED ¶46,688
IR-2007-175, 2007FED ¶46,689
Other References:
Code Sec. 30B
CCH Reference - 2007FED ¶4059E.026
CCH Reference - 2007FED ¶4059E.10
Tax Research Consultant
CCH Reference - TRC INDIV: 57,708

CCH (cch.taxgroup.com) reports:

Reaction to sweeping tax overhaul legislation unveiled by House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., on October 25 was swift and critical from GOP lawmakers, who predicted the bill would never make it to the White House. Although Rangel's Tax Reduction and Reform Bill of 2007 (HR 3970) would cut corporate tax rates, eliminate the alternative minimum tax and lower the standard deduction, GOP lawmakers took issue with the revenue offsets for those tax breaks.
Republican lawmakers like ranking Ways and Means member Jim McCrery, R-La., agreed that the House will likely pass legislation patching the AMT for one year and extending a group of expiring tax provisions, like the research and development credit tax credit. However, Republicans drew the line at paying for that tax relief by imposing higher taxes on hedge fund managers, S corporations and a wide range of other businesses.
McCrery also faulted Democrats for not agreeing to extend the tax cuts signed into law by President Bush in 2001 and 2003, which expire in 2010. Instead, Democrats plan to use the tax revenue generated by letting those tax provisions expire, which will subject American taxpayers to the largest tax hike in American history, GOP lawmakers said.
Rangel down-played the criticism, noting that the tax code is littered with provisions that unnecessarily provide targeted benefits to corporations. "It has been more than 21 years since Congress and the administration rolled up their sleeves to discuss tax reform and during that time, the tax code has become a jumbled mess of outdated and inequitable provisions that cry out for simplification," Rangel said.
According to Rangel, passing a massive tax cut bill without paying for it would not help the economy but, instead, would force the country deeper into debt. He suggested that corporate taxpayers would be willing to forgo tax deductions and incentives in order to receive a lower corporate tax rate. Corporate support exists for the trade-off, Rangel said, unless a specific industry is currently benefiting from one of the tax loopholes being eliminated.
Dorothy Coleman, vice president for Tax and Domestic Economic Policy for the Washington-based National Association of Manufacturers, offered only guarded support for the lower corporate rates included in the tax package. "We are extremely concerned about the tax increases that will impact manufacturers of all sizes," she said in a written statement. "Based on our initial review, for many manufacturers, the proposed tax increases could well exceed the benefits of the proposed tax relief."
Rangel said he plans to remove the one-year AMT patch and the extenders provisions from HR 3970 and pass them as a separate tax bill before Congress adjourns in November. However, if Senate lawmakers insist on not raising revenues to pay for the cost of AMT relief, then he plans on passing a separate extenders bill and a separate AMT bill. Rangel said those bills would be paid for by provisions to tax carried interest as ordinary income and by preventing hedge fund managers from using offshore tax havens.
Treasury Secretary Henry M. Paulson, Jr., applauded Rangel's commitment to discussing tax reform, but urged the chairman to speedily pass a one-year AMT patch that does not raise taxes to pay for it. "The legislation unveiled today would dramatically raise taxes in ways that, in my judgment, would hinder America's ability to compete in the global economy," Paulson said.
House Majority Leader Steny Hoyer, D-Md., has pledged to bring AMT legislation to the House floor for a vote just as soon as the Ways and Means panel is ready. He said that Democrats are "determined to enact a fiscally responsible AMT bill that respects our pledge to follow pay-as-you-go rules."
Although Rangel has asked for assistance from GOP lawmakers to fine-tune the tax legislation, McCrery said Republicans are unlikely to offer their help in 2007.
Senate Response
Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, while cautiously praising Rangel for getting rid of the AMT, said the tax reform measure "looks like warmed-over AMT," if it is not indexed for inflation. "The replacement tax will still hit millions of families," he said. Regarding corporate tax reform, Grassley agreed on the need to lower the rate and broaden the tax base, but noted that most small businesses are not corporations. "They're sole proprietorships, subchapter S corporations, or partnerships... their rates won't go down. If that's the case, the "mother of all tax bills "could become a political orphan," he said.
By Jeff Carlson and Stephen K. Cooper, CCH News Staff
Tax Reduction and Reform Act of 2007, HR 3970
Ways and Means Summary of Tax Reduction and Reform Bill of 2007
Ways and Means Release: Chairman Rangel Introduces Tax Reduction and Reform Act of 2007
SFC Release: Grassley on Chairman Rangel's Tax Reform Proposal
Very Preliminary JCT Estimated Revenue Effects of Proposals Contained in the Tax Reduction and Reform Act of 2007
Treasury Department News Release, TDNR HP-646.

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Texas Comptroller has announced that the 2005 decision Home Interiors & Gifts, Inc. v. Strayhorn , 175 S.W.3d 856 (Tex. App.--Austin 2005, pet. denied) that ruled that the throwback rule for the earned surplus component of the franchise tax was unconstitutional as applied to Home Interiors is now final because all appeals have been exhausted. The Texas Court of Appeals held that the throwback provision of the earned surplus component of the Texas franchise tax as applied to the home decor company lacked internal consistency and therefore, was unfairly apportioned in violation of the Commerce Clause of the U.S. Constitution.
The Comptroller has issued information that explains how potentially affected franchise taxpayers may file a refund claim based on the Home Interiors decision. A taxpayer would qualify for a refund if it:
-- sold tangible personal property that was shipped from Texas to purchasers in one or more other states;
-- was protected by P.L. 86-272 (from a tax on net income in those states); and
-- reported sales to those states as throwback sales to Texas for apportioning earned surplus.
The following criteria will be examined to evaluate claims for refunds: (1) refunds are applicable to the earned surplus component only; (2) simply holding a certificate of authority in another state is not sufficient evidence of nexus in another state; (3) proof of payment of taxes paid to another state is not sufficient evidence of nexus in another state because tax may be voluntarily paid without having nexus there; (4) if solicitation under P.L. 86-272 guidelines occurred in other states, supporting documentation must exist and be presented to substantiate solicitation in another state (specifically, actual documentation for expenses and receipts are required, not just the reimbursement of said expenses); (5) the supporting documentation of the selling corporation or limited liability company must have occurred during the accounting year upon which the report year tax is based; and (6) if no nexus exists in other states, sales will continue to be reported as Texas receipts (thrown back to Texas) using the same criteria as used for taxable capital.
Taxpayers are required to include a written statement of grounds with any amended report and note that the refund claim is based on the Home Interiors decision. More information on filing for a refund is available on the Comptroller's Web site at http://window.state.tx.us/taxinfo/refunds/refunds_franchise.html.
Tax Policy News , Vol. XVII, Issue 109, Texas Comptroller of Public Accounts, October 2007.

CCH (cch.taxgroup.com) reports:

On October 23, 2007, Indiana Governor Mitch Daniels proposed a property tax relief plan that would permanently cap property tax bills and provide the average homeowner with an overall property tax cut of about one-third.

CCH (cch.taxgroup.com) reports:

The IRS has finalized, with some modifications, proposed regulations (NPRM REG-130863-04) concerning the continuing tax-free status of a reorganization when assets or stock of the acquired corporation are distributed to a corporation or partnership following the reorganization. The IRS and Treasury continue to be mindful of the continuity of interest and continuity of business enterprise (COBE) principles by focusing on the link between the former target corporation (T) shareholders and the T business assets following the reorganization. The regulations apply to transactions occurring on or after October 25, 2007, but do not apply to any transaction that occurs pursuant to a written agreement that is binding before October 25, 2007, and at all times after that date.
Qualified Group
The definition of a qualified group is expanded to permit qualified group members to aggregate their direct stock ownership of a corporation in determining whether they own the requisite Code Sec. 368(c) control (80%) in such corporation. The issuing corporation must own directly stock meeting such control requirement in at least one other corporation.
Continuity of Business Enterprise Requirement
The COBE regulations are expanded to provide that if members of the qualified group own interests in a partnership that meets requirements equivalent to the control definition in Code Sec. 368(c), any stock owned by such partnership is treated as owned by members of the qualified group. For example, the former target corporation remains a member of the qualified group after a reorganization under Code Sec. 368(a)(1)( (stock-for-stock acquisition or "B" reorganization) if the former target corporation stock is transferred to a partnership that is owned exclusively by members of the qualified group.
Distributions and Other Transfers
A reorganization transaction under Code Sec. 368(a) is not disqualified or recharacterized by subsequent transfers of assets or stock if the COBE requirement is satisfied and the transfers qualify as distributions or other transfers. The proposed regulations provided that distributions by the acquiring corporation would not affect the characterization of the reorganization as long as no distributee received substantially all of the acquired assets. The final regulations abandon the "substantially all" standard and provide that the reorganization will not be disqualified or recharacterized if the distributions do not result in a liquidation of the distributing corporation under Federal income tax law. Assets held by the acquiring corporation, or the merged corporation in the case of a reorganization under Code Sec. 368(a)(1)(A) (statutory merger or "A" reorganization) by reason of recapitalization prior to the transaction, are disregarded in determining if a liquidation occurred. In addition, certain indirect distributions are treated as direct distributions.
If only stock is distributed, two requirements must be met to preclude the reorganization from being disqualified or recharacterized. First, the distributions must equal less than all of the stock of the acquired corporation. Second, the distributions cannot cause the acquired corporation to cease being a member of the qualified group.
A reorganization is not disqualified or recharacterized because of one or more transfers of assets, stock, or both, of the acquired corporation, the acquiring corporation or the surviving corporation if the COBE requirement is satisfied and the acquired corporation, the acquiring corporation, or the surviving corporation does not terminate its corporate existence as part of the transfer. If only stock of the acquired corporation, the acquiring corporation, or the surviving corporation is transferred, the reorganization is protected against recharacterization or reclassification if the transfers do not result in the corporation ceasing to be a member of the qualified group.
T.D. 9361, 2007FED ¶47,070
Other References:
Code Sec. 368
CCH Reference - 2007FED ¶16,751
CCH Reference - 2007FED ¶16,752
Tax Research Consultant
CCH Reference - TRC CCORP: 24,060
CCH Reference - TRC REORG: 9,062.05

CCH (cch.taxgroup.com) reports:

House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., plans to unveil sweeping tax reform legislation on October 25, setting the stage for the passage in 2008 of what he hopes will be the most significant change to the Internal Revenue Code since the Tax Reform Act of 1986 (P.L. 99-514). The measure will provide tax relief to more than 90 million families by permanently repealing the individual alternative minimum tax (AMT), Rangel said. The bill will also include significant tax relief designed to boost the competitiveness of American businesses.
According to a partial staff summary of the legislation obtained by CCH, the Tax Reduction and Reform Bill of 2007 will include billions of dollars in individual and corporate tax relief. Rangel and his staff have been discussing specifics of the bill with lawmakers and staff during the past week, prompting some groups to begin voicing their support for maintaining the industry-specific tax breaks in current law. Rangel said he foresees a trade-off of lower corporate tax rates in exchange for eliminating some corporate tax incentives and deductions.
According to the summary, the reform bill would permanently eliminate the AMT beginning in 2008. Rangel has estimated the cost of this repeal at more than $800 million. The bill would also expand the earned income tax credit, the standard tax deduction and the child tax credit. The cost of those provisions would be offset by a four-percent surtax on upper income taxpayers who have adjusted gross income of $150,000 for single taxpayers, and $200,000 for married taxpayers.
The bill may include legislation to provide a one-year patch for the AMT for 2007, as well as a one-year extension of the business tax breaks known as extenders that expire in 2007, according to the informal summary. Those provisions would be offset by provisions that affect carried interest, offshore hedge funds, securities firms and S corporations. Although the summary lists this as part of the reform bill, Rangel has said that he plans to introduce a separate, one-year AMT patch bill that would pass the House before adjournment in November.
The reform bill will also reportedly propose lowering the corporate tax rate to 30.5 percent, repealing the Code Sec. 199 manufacturing deduction and repealing the last-in, first-out (LIFO) accounting method, according to the summary. The bill would also defer deductions for some expenses of U.S. corporate subsidiaries that operate overseas.
By Stephen K. Cooper, CCH News Staff.

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Wisconsin Committee of Conference on Senate Bill 40 offered a substitute budget bill on October 23, 2007, that would make numerous changes to corporation franchise and income, personal income, sales and use, property, cigarette, and other taxes. At press time, the bill had not yet been passed by either the Assembly or the Senate. Wisconsin Governor Jim Doyle has indicated that he will sign the bill, but may veto certain provisions. Highlights of the bill are discussed below.

CCH (cch.taxgroup.com) reports:

Maryland Governor Martin O'Malley has released a budget that reflects more than $1.7 billion in cuts that will have to be made to balance the fiscal year 2009 budget if the General Assembly is unable to reach a consensus during the special session that is scheduled to begin on October 29. The Cost of Delay budget outlines more than $850 million in cuts that impact local jurisdictions and an additional $800 million in cuts to state agencies and programs.
During the past several weeks, the Governor has outlined plans to close Maryland's structural deficit by reforming Maryland's income tax structure, closing corporate tax "loopholes" so that all businesses pay their fair share, reducing the state property tax and reducing spending growth by more than $1 billion. The Governor has also proposed expanding the sales tax. Under the Governor's proposed reforms to the state income tax, reductions in the state property tax and sales tax proposals, the Maryland Department of Budget and Management estimates that 83% of Marylanders will pay less overall.
Subscribers to CCH Tax Research NetWork can view the details of the budget reductions and their impact on counties.
Press Release, Office of Governor Martin O'Malley, October 23, 2007.

CCH (cch.taxgroup.com) reports:

Acting IRS Commissioner Linda Stiff hosted a press briefing on October 23 discussing the potential tax administration issues and taxpayer refund delays that would result from Congress's late passage of an alternative minimum tax (AMT) legislative patch. Stiff confirmed much of the report given by Treasury Secretary Henry M. Paulson, Jr. to House Ways and Means Committee ranking member Jim McCrery, R-La., Rep. Thomas Reynolds, R-N.Y., and Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, regarding the problems that the IRS will face without immediate legislation.
Delayed Legislation, Delayed Refunds
According to Stiff, failure to enact a legislative patch to prevent the spread of the AMT by early November would negatively affect up to 50 million taxpayers nationwide. She explained that it would wreak great havoc both on the Service's ability to process returns in a timely manner and to issue timely refunds. Stiff explained that "this delay will affect lower-income, middle-income and upper-income taxpayers."
Stiff stated that these taxpayers fall into two different groups. An estimated 25 million taxpayers will become subject to the AMT without a legislative patch and will be adversely affected by late AMT legislation. "Last year there were 4 million taxpayers subject to the AMT," Stiff stated. "If we don't have a patch, 25 million will be subject. If we get a patch in late November or December, we will have to delay the refunds for the 25 million while we catch up."
The affected taxpayers are likely to see delays in refunds because they claim credits or deductions that are calculated differently under the AMT. Stiff explained that "a wide group of taxpayers, including taxpayers who claim the child tax credit, the child dependent care credit and education credits, are impacted by the AMT law. The AMT affects not only taxpayers who are subject to AMT, but it affects taxpayers who claim those credits, the order in which they claim them and the amounts to which they will be entitled."
Technical Problem
Stiff reported that the resulting delay from a late AMT legislative patch is largely a technological issue. With the expiration of the 2006 AMT patch, the IRS's computers defaulted to the current state of the law. Reprogramming the IRS computer systems to deal with new AMT legislation will require 12-to-13 weeks from the time the bill is signed into law. The project would require changing millions of lines of code in the Service's computer systems.
No Cut-Off Date Offered
However, Stiff declined to give a definitive cut-off date for passing of an AMT patch that would prevent these problems. "Given that we would need 12 weeks in order to accomplish the process and given that the filing season will start on January 14, if we want to start timely for all taxpayers, I think you can do that math," Stiff remarked.
Congressional Response
GOP members in both chambers see the AMT pay-as-you-go (PAYGO) conundrum as an opportunity to leverage further extension of the more popular provisions included in the 2001 and 2003 tax bills. At an October 23 press conference discussing the need to immediately pass a one-year patch for the AMT Grassley told reporters that a "vast majority "of Republicans were willing to help the Democrats pass a one-year patch of the AMT without revenue offsets, under one condition. "We would like to see some tax policy enacted, especially that which aids the economy," said Grassley. According to one GOP senator, his party is looking at an extension of the rate cuts for capital gains, dividends and the estate tax as well. Republican members are also reportedly anxious about approving a one-year AMT patch with offsets as they claim it is tantamount to a tax increase. Moreover, Grassley said that AMT relief would eat up approximately one-fourth of the available offsets which he said are desperately needed to help pay for other entitlement programs, particularly Medicare.
Grassley emphasized that time is of the essence. "The letter from Secretary Paulson makes it clear that further delays --delays past November --will cause incredible problems for taxpayers," he said. "The secretary makes it clear that we have to pass an AMT patch if we are not going to see 21 million additional taxpayers subject to the AMT."
McCrery, who, along with Grassley, had contacted Paulson on the matter, stressed the ripple effect that delays in approving an AMT patch could have on middle-income households. Referring to the Paulson letter, McCrery said: "They found that 25 million taxpayers --in addition to the 25 million that are subject to the AMT without a patch --could have their tax refunds delayed. In fact, Treasury estimates that 50 million taxpayers could have 75 billion worth of refunds delayed for up to 10 weeks."
House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., told reporters on October 17 to expect the introduction of two separate tax bills during the week of October 22 (TAXDAY, 2007/10/18, C.1). One measure, slated for introduction on October 25, which he called a "stop-gap" bill, would cost about $80 billion and extend a group of popular business and individual tax breaks known as the tax extenders. It would also provide a one-year patch to prevent the AMT from affecting about 23 million American families in 2008. The second piece of legislation Rangel promised, would be the "mother of all reform" bills that would include provisions to totally eliminate the AMT at a cost of roughly $800 billion. This second tax bill, which Rangel expects to see on the House floor sometime in 2008, would also cut taxes for about 90 million Americans, lower corporate tax rates and close many tax loopholes that businesses currently enjoy.
White House Response
The Bush administration "could support" individual components of the Rangel plan if they are ""revenue-neutral" and in the context of tax reform, according to White House Principal Deputy Press Secretary Tony Fratto on October 23.
By Jeff Carlson, Torie Cole and Paula Cruickshank, CCH News Staff
SFC Release: Grassley Statement at News Conference on AMT-Related Tax Problems
Treasury Letter to Grassley on AMT
Treasury Letter to McCrery on AMT
Treasury Letter to Reynolds on AMT
JCT Graphic of Taxpayers Affected by the AMT Under Present Law (2007)
JCT Graphic of Percent of Taxpayers Affected by AMT Under Present Law (2007)

CCH (cch.taxgroup.com) reports:

Interim guidance has been provided to employers and payers on their reporting and wage withholding requirements for calendar year 2007 with respect to deferrals of compensation and amounts includible in gross income under Code Sec. 409A. Interim rules have also been provided which employers and payers must use in computing amounts includible in gross income under Code Sec. 409A, and which service providers must use to satisfy their calendar year 2007 income tax reporting and tax payment requirements with respect to deferrals of compensation. Employers and payers who comply with the computation rules will not be liable for additional income tax withholding or penalties, or be required to file a corrected information return or furnish a corrected employee statement, as a result of future published guidance with respect to such computations.
Notice 2007-89, 2007FED ¶46,686
Other References:
Code Sec. 409A
CCH Reference - 2007FED ¶18,960.01
CCH Reference - 2007FED ¶18,960.025
CCH Reference - 2007FED ¶18,960.028
CCH Reference - 2007FED ¶18,960.042
CCH Reference - 2007FED ¶18,960.043
CCH Reference - 2007FED ¶18,960.046
CCH Reference - 2007FED ¶18,960.06
CCH Reference - 2007FED ¶18,960.061
CCH Reference - 2007FED ¶18,960.062
CCH Reference - 2007FED ¶18,960.075
CCH Reference - 2007FED ¶18,960.20
CCH Reference - 2007FED ¶18,960.22
Tax Research Consultant
CCH Reference - TRC COMPEN: 15,050
CCH Reference - TRC PLANRET: 3,206

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The IRS has announced its acquiescence to the tax court's decision in the case of R. Wallace, , 128 TC --, No. 11, Dec. 56,899. The Wallace court held that amounts received by an individual through his participation in a compensated work therapy program under the Special Therapeutic and Rehabilitation Fund of the Department of Veteran's Affairs, constituted veteran's benefits and, therefore, were not includible in the individual's gross taxable income. The IRS will no longer litigate the issue of payments received under this program.
AOD 2007-05, 2007FED ¶46,683
Other References:
Code Sec. 61
CCH Reference - 2007FED ¶5504.785
CCH Reference - 2007FED ¶5507.2736
Code Sec. 140
Tax Research Consultant
CCH Reference - TRC INDIV: 33,360
CCH Reference - TRC COMPEN: 6,608

CCH (cch.taxgroup.com) reports:

The IRS has extended for an additional year transition relief for compliance by nonqualified deferred compensation plans with the final regulations under Code Sec. 409A. Under previous guidance (Notice 2006-79, 2006-43 I.R.B. 307), nonqualified deferred compensation plans were required to comply with the final regulations beginning on January 1, 2008. The extended compliance date is now January 1, 2009. In addition, the IRS says it intends to issue guidance regarding a correction program as soon as possible.
In general, Code Sec. 409A, which is effective January 1, 2005, requires nonqualified deferred compensation plans to meet certain requirements. If those requirements are not met participants must include amounts deferred under the plan in income and pay additional taxes on the income.
As previously provided in Notice 2006-79, the plan must be operated in compliance with its terms to the extent consistent with Code Sec. 409A and Notice 2005-1. A taxpayer may rely on either Notice 2005-1 or the final regulations with respect to provisions in Notice 2005-1 that are inconsistent with the final regulations. If a provision is not addressed by Notice 2005-1 (or other applicable guidance with a pre-January 1, 2008, effective date other than the final regulations), the plan must be operated consistent with a good faith, reasonable interpretation of Code Sec. 409A.
For periods before January 1, 2008, compliance with the proposed or final regulations or the final regulations will be considered to constitute reasonable, good faith compliance. For periods after December 31, 2007, and before January 1, 2009, compliance with the final regulations (but not the proposed regulations) will constitute such good faith compliance. Compliance with the proposed and final regulations, however, are not the exclusive means to satisfy the good faith, reasonable interpretation standard.
Notice 2007-78 (I.R.B. 2007-41, TAXDAY, 2007/09/10, I.4) granted transition relief that was intended to facilitate compliance with written plan requirements set forth in Reg. §1.409A-1(c). Practitioners found the relief helpful but indicated that additional time was need to make informed changes to bring existing plans into compliance with the regulations. This latest notice addresses these concerns by extending the transition relief that was schedule to expire.
A one-year extension also applies to relief provided in section IV of Notice 2007-78 which relates to employment agreements.
Treasury Department News Release, TDNR HP-631, 2007FED ¶46,684
Notice 2007-86, 2007FED ¶46,685
Other References:
Code Sec. 409A
CCH Reference - 2007FED ¶18,960.01
CCH Reference - 2007FED ¶18,960.025
CCH Reference - 2007FED ¶18,960.028
CCH Reference - 2007FED ¶18,960.042
CCH Reference - 2007FED ¶18,960.043
CCH Reference - 2007FED ¶18,960.046
CCH Reference - 2007FED ¶18,960.05
CCH Reference - 2007FED ¶18.960.06
CCH Reference - 2007FED ¶18.960.061
CCH Reference - 2007FED ¶18,960.062
CCH Reference - 2007FED ¶18,960.075
CCH Reference - 2007FED ¶18.960.20
CCH Reference - 2007FED ¶18.960.22
Tax Research Consultant
CCH Reference - TRC COMPEN: 15,066

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

As previously announced (TAXDAY, 2007/10/08, S.5), due to confusion concerning the California personal income tax and corporation franchise and income tax disclosure requirements involving transactions with contractual protections, the Franchise Tax Board (FT is modifying FTB Notice 2007-3 (TAXDAY, 2007/08/01, S.9) by extending the deadline to file Form 8886, Reportable Transaction Disclosure Statement, with the FTB from October 1, 2007, to November 15, 2007. The FTB has also provided clarification regarding which transactions involving contractual protections must be disclosed.
Under both federal and California law, taxpayers are required to disclose their participation in six reportable transaction categories in order to avoid the imposition of specified penalties. One of these categories involves transactions with contractual protections. Generally, a transaction with contractual protection is any transaction for which the taxpayer or related party has a right to a full or partial refund of fees paid if all or a part of the intended tax consequences from the transaction are not sustained. It also includes a transaction for which fees are contingent upon the taxpayer's realization of tax benefits from the transaction.
These contractual protection transaction provisions apply only with respect to fees paid by or on behalf of a taxpayer or a related party to any person who makes or provides a written or oral statement to the taxpayer or related party as to the potential consequences that may result from the transaction. Furthermore, disclosure is only required if (1) the statement is made before the taxpayer has entered into the transaction and reported the consequences of the transaction on a filed tax return and (2) the person has not previously received fees from the taxpayer relating to the transaction.
For example, a taxpayer who had previously reported a wage expense on a tax return and subsequently files an amended tax return after receiving advice that the expenditure qualifies for a California-only enterprise zone credit would not have to disclose the transaction, even if the taxpayer has a right to a full or partial refund of fees paid for the advice if the credit is disallowed or if the fees are contingent upon the taxpayer's realization of the credit. Conversely, if the taxpayer received the advice prior to filing the original return but only claimed the credit on an amended return, the taxpayer would be required to disclose the transaction if the fee charged for the advice is refundable if the credit is disallowed or is contingent upon the taxpayer's realization of the credit. The transaction would not be considered a previously reported transaction under the governing federal regulations.
As before, taxpayers filing a disclosure statement in response to this notice need only file a statement with the FTB's Abusive Tax Shelter Unit (ATSU), and need not file an amended return to make the disclosure. These taxpayers should write "FTB Notice 2007-3" in red on the top of their Form 8866.
FTB Notice 2007-4, California Franchise Tax Board, October 18, 2007, ¶404-476
Other References:
Explanations at ¶89-176

CCH (cch.taxgroup.com) reports:

The IRS is requesting comments from the public regarding a proposal to change the process by which taxpayers obtain IRS consent to change a method of accounting for federal income tax purposes. The proposal suggests one possible approach; however, the IRS is interested in considering other possible approaches. Changes to the process, therefore, including any pilot program, will not become effective until the IRS considers public comments and suggestions received in response to this notice and publishes guidance announcing changes to the process. Written submissions must be received by January 18, 2008, to be considered.
Reasons for Change
The IRS is concerned that certain aspects of the existing accounting method change process make it a complex and inefficient means for taxpayers to obtain consent to change an accounting method. These complexities and inefficiencies often result in significant delays in the processing of accounting method change requests.
Standard Consent Process
The IRS anticipates that, under this proposal, the majority of accounting method change requests would be made through the standard consent process in a manner similar to the existing automatic consent process. The proposal contemplates that taxpayers would file Form 3115, Application for Change in Accounting Method, with their returns for the requested year of change. However, the IRS is considering an alternative approach, under which taxpayers would be required to file Form 3115 for changes to methods of accounting not specifically identified in Rev. Proc. 2002-9, 2002-1 CB 327, (or any successor) or other automatic guidance, by the last day of the ninth month of the requested tax year of change.
Under the proposal, the IRS would screen accounting method change requests for completeness and for compliance with the procedures governing the standard consent process. Requests that are not substantially complete would be denied and the taxpayer would be notified that consent to change accounting method is not granted.
Specific Consent Process
The specific consent process is proposed for only two categories of accounting method changes: (1) accounting method changes specifically identified in published guidance as required to be made under the specific consent process, and (2) changes that otherwise qualify under the standard consent process, but for which the taxpayer seeks different terms and conditions or a waiver of certain scope limitations that apply to the standard consent process. Under the proposal, a taxpayer that seeks a change in accounting method other than a change that is specifically identified in Rev. Proc. 2002-9 (or any successor), or other automatic consent guidance, may request a letter ruling under Rev. Proc. 2007-1, I.R.B. 2007-1, 1, (or its successor).
Pilot Program
The IRS intends to implement any modifications to the accounting method change process on a pilot basis before making permanent changes to the process. The IRS expects to open the pilot program to all taxpayers making an accounting method change within a specified pilot period.
Background
The proposals in Notice 2007-88 represent a change in the process that essentially has been in place since the early 1900s. Prior to 1954 by regulations and since then codified under Code Sec. 446(e), taxpayers have been required to obtain the consent of the IRS Commissioner to change a method of accounting. Prior to 1954, the primary reason for requiring the consent of the Commissioner was for the IRS to gain leverage in demanding certain compensating adjustments before granting consent. Since 1954, when most compensating adjustments were codified under Code Sec. 481, the process that required the Commissioner's consent was continued essentially for three reasons:
(1) To enforce uniform treatment in changes of accounting;
(2) To give the IRS notice that the taxpayer is changing a method of accounting; and
(3) To allow the IRS to check the taxpayer's Code Sec. 481 computations.
More Selectivity for More Efficiency
Since the 1950s, the IRS has continued to look at every change in accounting method in advance and worked each one. The Chief Counsel's Office is now reconsidering the process and has concluded that the past process may not have been the "smartest way to do things." It has tentatively concluded that the IRS can be more selective and look at more closely at the difficult ones; the request that raise the more novel and controversial tax issues.
The IRS has been finding that there are many cases in which it ends up granting consent to change without any modification. It has concluded that reviewing all change requests may not be the most efficient use of resources.
The Service also has admitted that spending its resources looking at all of these cases also creates delays that prevent taxpayers from getting the consent they need to use the new method on their earliest tax return.
IRS officials described the goal of the new proposal to CCH as twofold:
(1) To eliminate delays for taxpayers as best as possible; and
(2) To focus IRS resources to most efficiently obtain the most useful information to identify changes in accounting, identify whether the change is a novel and controversial; and then to follow up quickly with the taxpayer when appropriate.
Timetable
The intended goal of Notice 2007-88 is to modernize the change in accounting method program and make it more efficient for taxpayers while maintaining the IRS's confidence level regarding why taxpayers are changing accounting methods. Representatives from the Chief Counsel's Office emphasized to CCH that Notice 2007-88 is preliminary, a "thinking piece" about which they are anxious to hear from other experts. They want to hear whether practitioners and other stakeholders agree or have better ideas about how to structure the new process. Before requiring any change, the IRS emphasized that it would release detailed instructions in public notices for advance publication. It wants no one to be taken by surprise.
After the 90-day period for comments is over, the IRS plans to take "a close look" at its proposal and other suggestions before actually make the modifications to existing revenue procedures needed to implement the pilot program, the IRS does not anticipate a pilot launch earlier than the middle of 2008.
By Tom Cody and George Jones, CCH News Staff
Notice 2007-88, 2007FED ¶46,682
Other References:
Code Sec. 446
CCH Reference - 2007FED ¶20,620.284
Code Sec. 481
CCH Reference - 2007FED ¶22,277.40
Tax Research Consultant
CCH Reference - TRC ACCTNG: 21,100
 

CCH (cch.taxgroup.com) reports:

The IRS has established safe harbor requirements for partnerships claiming Code Sec. 45 wind energy production tax credits. The safe harbor applies to partnerships between a project developer and one or more investors with the partnership owning and operating the qualified energy facilities only if the developer, investors and partnership satisfy each requirement in section four of the procedure. Furthermore, the revenue procedure applies only to partners or partnerships with Code Sec. 45 production tax credits and does not apply to any other tax credits. The procedure is effective for transactions entered into on or after November 5, 2007.
In order to qualify for the safe harbor all of the following requirements must be met:
(1) The partners investment return is reasonably anticipated to be derived from both Code Sec. 45 credits and participation in operating cash flow.
(2) The developer must have a minimum one percent interest in each material item of partnership income, gain, loss, deduction and credit at all times during the existence of the partnership. During the period of ownership, each partner must have a minimum interest equal to 5 percent of his investment in partnership income and gain for the taxable year for which the investor's percentage share of income and gain will be the largest, as adjusted for sales, redemptions or dilution of its interest.
(3) A partner must make a minimum unconditional investment in the partnership on or before the later of (a) the date the facility is placed in service, or (b) the date an interest in the partnership is acquired.
(4) At least 75 percent of the sum of the fixed capital contributions, plus reasonably anticipated contingent capital contributions, to be invested in the partnership must be fixed and determinable obligations that are not contingent in amount or certainty of payment.
(5) No one connected with the partnership, including related parties, may have a contractual right to purchase the facility, any property included in the facility, or an interest in the partnership, at a price less than its fair market value determined at the time of exercise of the contractual right to purchase. In addition, the developer (or any related party) may not have a contractual right to purchase the facility or an interest in the partnership earlier than five years after the qualified facility is first placed into service.
(6) The partnership may not have a contractual right to require any party to purchase the facility or any property included in the facility, excluding electricity, from the partnership. A partner may not have a contractual right to require any party to purchase its partnership interest.
(7) No person may guarantee the partners the right to any allocation of the credit under Code Sec. 45. In addition, neither the developer, nor any related party, may lend a partner funds to acquire an interest in the partnership.
(8) The Code Sec. 45 credit must be allocated in accordance with Reg. §1.704-1(b)(4)(ii).
(9) For purposes of the passive activity loss rules, under Reg. §1.469-4(d)(4) each qualified facility will be treated as a separate activity and that activity may not be grouped with any other activity except other qualified wind facilities.
(10) For purposes of this revenue procedure, parties are related if they bear a relationship to each other that is specified in Code Secs. 267(b) or 707(b)(1).
Additional requirements, details and examples are provided in the revenue procedure.
Finally, because the revenue procedure is intended to provide guidance to taxpayers establishing or participating in wind energy partnerships in lieu of taxpayers requesting a letter ruling, the IRS will not rule on any issues under Subchapter K for partnerships claiming the credit under Code Sec. 45, as indicated in Notice 2006-88, I.R.B. 2006-42.
Rev. Proc. 2007-65, 2007FED ¶46,681
Other References:
Code Sec. 45
CCH Reference - 2007FED ¶4415.01
Code Sec. 704
CCH Reference - 2007FED ¶25,124.148
Tax Research Consultant
CCH Reference - TRC 54,554.05
 

CCH (cch.taxgroup.com) reports:

The IRS has issued a news release reminding poker tournament sponsors, including casinos, that they will be required to report most winnings to winners and the IRS starting on March 4, 2008. The new reporting requirement was first announced in September 2007 in Rev. Proc. 2007-57, I.R.B. 2007-36, 547 (TAXDAY, 2007/09/04, I.1). According to the IRS, the guidance was issued in order to clear up confusion among poker tournament sponsors and participants about withholding and information reporting obligations that apply with respect to tournament winnings.
Poker tournament sponsors will not be required to report winnings to the IRS with respect to tournaments that are completed during 2007 and prior to March 4, 2008. However, beginning March 4, 2008, tournament sponsors will be required to report winnings of more than $5,000 on Form W-2G, Certain Gambling Winnings.
According to the news release, tournament sponsors that comply with the new reporting requirement will not be required to withhold federal income tax at the end of the tournament. In the event that a sponsor fails to report the winnings, the IRS will not only enforce the reporting requirement but, in addition, will require the sponsor to pay any tax that would have been withheld from the winner had the withholding requirement been imposed. The withholding rate is normally 25 percent of the amount that should have been reported.
CCH Comment. The statement that poker tournament sponsors need not withhold federal income tax if they comply with the new reporting requirement was not contained in Rev. Proc. 2007-57. However, Rev. Proc. 2007-57 does state that "the IRS will not assert any liability for additional tax or additions to tax for violations of any withholding obligation with respect to amounts paid to winners of poker tournaments" if the tournament sponsor meets information reporting requirements.
Certain information to be used by the tournament sponsor for the purpose of completing the Form W-2G is to be supplied by the recipient of the winnings. Such information includes the winner's taxpayer identification number, which, for individuals, is usually his or her social security number. In the event that the winner fails to provide this information, the sponsor must withhold federal income tax at the rate of 28 percent.
Tournament winners are reminded that, by law, they are required to report all their winnings on their federal income tax return, regardless of the amount and regardless of whether or not they receive a Form W-2G or any other information return. This is true both before and after the new reporting requirement goes into effect.
IR-2007-173, 2007FED ¶46,680
Other References:
Code Sec. 61
CCH Reference - 2007FED ¶5504.22
Code Sec. 3402
CCH Reference - 2007FED ¶33,589.25
Tax Research Consultant
CCH Reference - TRC INDIV: 6,266
CCH Reference - TRC PAYROLL: 3,404.10

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

An out-of-state holding company's income from a North Carolina limited liability company (LLC) that was classified as a partnership was apportionable business income, and the holding company was required to use the LLC's payroll, sales, and property in determining its apportionment factors used to compute its North Carolina corporate income tax liability. In addition, the taxpayer's affiliated indebtedness was part of its capital includable in its corporation franchise tax base and the apportionment formula applied for apportioning its income for corporate income tax purposes was used to apportion its capital stock, surplus, and undivided profits to North Carolina for corporate franchise tax purposes.

CCH (cch.taxgroup.com) reports:

The IRS has released the inflation-adjusted tax rate tables for tax years beginning in 2008, as well as the 2008 standard deduction and personal exemption amounts. The 2008 standard deduction is $10,900 for surviving spouses and for married individuals who file joint returns, $8,000 for heads of households and $5,450 for unmarried individuals and married persons filing separate returns. The personal exemption for tax years beginning in 2008 has been increased to $3,500. The threshold amounts at which the phaseout of the tax benefit of the personal exemption begins and ends and the "applicable amount" for triggering the phaseout of itemized deductions have also been determined.
The standard deduction amount for individuals who may be claimed as dependents by other taxpayers for 2008 may not exceed the greater of $900, or the sum of $300 and the individual's earned income. The additional standard deduction amounts for the aged and for the blind are $1,050 for each, and increase to $1,350 if an individual is unmarried and is not a surviving spouse. Further, the amount used to reduce the net unearned income of certain minor children subject to the "kiddie tax" at their parents' marginal rate is $900. The maximum credit allowed in the case of the adoption of a child with special needs is $11,650; the maximum credit allowed with regard to other adoptions is the amount of qualified adoption expenses up to $11,650. The earned income limit for the maximum credit has increased to $8,580 for a qualifying individual with one child, $12,060 for a taxpayer with two or more children, and $5,720 for a taxpayer with no children. The EIC will be denied if the aggregate amount of certain investment income exceeds $2,950.
Changes
Proposed Reg. §1.148-3(d)(1)(iv) provides that on the last day of each bond year during which there are amounts allocated to gross proceeds of an issue that are subject to the rebate requirement, and on the final maturity date, there can be included as a payment a computation credit of $1,400 for any bond year ending in 2007. For bond years ending after 2007, this amount will be adjusted for inflation. For 2008, this amount is $1,430. Also, for 2008, inflation-adjusted items in Code Secs. 25B, 219 and 408A
will be included in a separate news release with other pension- and retirement-related items. In the future, these amounts will not be included in this annual guidance. In addition, inflation-adjusted items for health savings accounts under Code Sec. 223 are no longer published in this guidance.
Inflation adjustments for other items are also included, among those are the low-income housing credit, the overall limitation on itemized deductions, the qualified transportation fringe exclusion and long-term care premiums. These changes apply to tax years beginning in 2008 and to certain transactions or events that are deemed to have occurred in calendar year 2008.
IR-2007-172, 2007FED ¶46,677
Rev. Proc. 2007-66, 2007FED ¶46,678
Rev. Proc. 2007-66, FINH ¶30,564
Rev. Proc. 2007-66, ETR ¶66,837
Other References:
Code Sec. 1
CCH Reference - 2007FED ¶107B
CCH Reference - 2007FED ¶660.05
CCH Reference - 2007FED ¶660.055
CCH Reference - 2007FED ¶1090.11
CCH Reference - 2007FED ¶1201.05
CCH Reference - 2007FED ¶1201.07
CCH Reference - 2007FED ¶1201.13
CCH Reference - 2007FED ¶1201.28
CCH Reference - 2007FED ¶1201.33
CCH Reference - 2007FED ¶1201.34
CCH Reference - 2007FED ¶1201.51
CCH Reference - 2007FED ¶1201.525
CCH Reference - 2007FED ¶1201.53
CCH Reference - 2007FED ¶1201.565
CCH Reference - 2007FED ¶1201.57
CCH Reference - 2007FED ¶1201.575
CCH Reference - 2007FED ¶1201.58
CCH Reference - 2007FED ¶1201.585
CCH Reference - 2007FED ¶1201.59
CCH Reference - 2007FED ¶3270.30
CCH Reference - 2007FED ¶3280.01
CCH Reference - 2007FED ¶3280.025
CCH Reference - 2007FED ¶3280.07
CCH Reference - 2007FED ¶3280.073
CCH Reference - 2007FED ¶3290.01
Code Sec. 23
CCH Reference - 2007FED ¶3725.04
CCH Reference - 2007FED ¶3725.06
CCH Reference - 2007FED ¶3725.07
CCH Reference - 2007FED ¶3725.25
Code Sec. 24
CCH Reference - 2007FED ¶3770.03
CCH Reference - 2007FED ¶3770.07
CCH Reference - 2007FED ¶3770.25
Code Sec. 25A
CCH Reference - 2007FED ¶3830.024
CCH Reference - 2007FED ¶3830.031
CCH Reference - 2007FED ¶3830.035
CCH Reference - 2007FED ¶3830.07
CCH Reference - 2007FED ¶3830.25
Code Sec. 25B
CCH Reference - 2007FED ¶3838.03
CCH Reference - 2007FED ¶3838.07
CCH Reference - 2007FED ¶3838.10
CCH Reference - 2007FED ¶3838.25
Code Sec. 32
CCH Reference - 2007FED ¶4082.032
CCH Reference - 2007FED ¶4082.048
CCH Reference - 2007FED ¶4082.07
CCH Reference - 2007FED ¶4082.45
Code Sec. 42
CCH Reference - 2007FED ¶4385.05
CCH Reference - 2007FED ¶4385.07
CCH Reference - 2007FED ¶4385.83
Code Sec. 55
CCH Reference - 2007FED ¶5101.045
Code Sec. 59
CCH Reference - 2007FED ¶5411.01
Code Sec. 61
CCH Reference - 2007FED ¶5504.025
Code Sec. 62
CCH Reference - 2007FED ¶6006.0324
CCH Reference - 2007FED ¶6006.0325
CCH Reference - 2007FED ¶6006.106
Code Sec. 63
CCH Reference - 2007FED ¶6023.023
CCH Reference - 2007FED ¶6023.034
CCH Reference - 2007FED ¶6023.036
CCH Reference - 2007FED ¶6023.07
CCH Reference - 2007FED ¶6023.10
Code Sec. 68
CCH Reference - 2007FED ¶6081.01
CCH Reference - 2007FED ¶6081.20
Code Sec. 132
CCH Reference - 2007FED ¶7438.054
CCH Reference - 2007FED ¶7438.07
CCH Reference - 2007FED ¶7438.77
Code Sec. 135
CCH Reference - 2007FED ¶7551.021
CCH Reference - 2007FED ¶7551.20
Code Sec. 137
CCH Reference - 2007FED ¶7625.01
CCH Reference - 2007FED ¶7625.021
CCH Reference - 2007FED ¶7625.025
CCH Reference - 2007FED ¶7625.027
CCH Reference - 2007FED ¶7625.10
Code Sec. 146
CCH Reference - 2007FED ¶7854.07
CCH Reference - 2007FED ¶7854.75
Code Sec. 148
CCH Reference - 2007FED ¶7889.036
CCH Reference - 2007FED ¶7889.105
Code Sec. 151
CCH Reference - 2007FED ¶8005.037
CCH Reference - 2007FED ¶8005.12
CCH Reference - 2007FED ¶8005.145
Code Sec. 163
CCH Reference - 2007FED ¶9402.09
Code Sec. 170
CCH Reference - 2007FED ¶11,620.021
CCH Reference - 2007FED ¶11,620.041
CCH Reference - 2007FED ¶11,620.512
CCH Reference - 2007FED ¶11,700.026
Code Sec. 179
CCH Reference - 2007FED ¶12,126.03
CCH Reference - 2007FED ¶12,126.031
CCH Reference - 2007FED ¶12,126.07
Code Sec. 213
CCH Reference - 2007FED ¶12,543.051
CCH Reference - 2007FED ¶12,543.69
Code Sec. 219
CCH Reference - 2007FED ¶12,662.01
Code Sec. 220
CCH Reference - 2007FED ¶12,675.045
Code Sec. 221
CCH Reference - 2007FED ¶12,695.25
Code Sec. 408A
CCH Reference - 2007FED ¶18,930.197
Code Sec. 501
CCH Reference - 2007FED ¶22,613.20
Code Sec. 512
CCH Reference - 2007FED ¶22,837.051
CCH Reference - 2007FED ¶22,837.153
Code Sec. 513
CCH Reference - 2007FED ¶22,846.027
CCH Reference - 2007FED ¶22,846.4999
Code Sec. 641
CCH Reference - 2007FED ¶24,267.023
CCH Reference - 2007FED ¶24,267.07
Code Sec. 685
CCH Reference - 2007FED ¶24,897.021
Code Sec. 877
CCH Reference - 2007FED ¶27,425.027
CCH Reference - 2007FED ¶27,425.03
CCH Reference - 2007FED ¶27,425.175
Code Sec. 2032A
CCH Reference - FINH ¶4240.71
Code Sec. 2503
CCH Reference - FINH ¶9842.23
Code Sec. 2523
CCH Reference - FINH ¶11,884.25
Code Sec. 4161
CCH Reference - ETR ¶13,105.05
CCH Reference - ETR ¶13,105.39
Code Sec. 4261
CCH Reference - ETR ¶19,305.014
CCH Reference - ETR ¶19,305.02
CCH Reference - ETR ¶19,305.495
Code Sec. 6012
CCH Reference - 2007FED ¶35,150.021
Code Sec. 6033
CCH Reference - 2007FED ¶35,425.025
CCH Reference - 2007FED ¶35,425.39
Code Sec. 6039F
CCH Reference - 2007FED ¶35,690.01
CCH Reference - 2007FED ¶35,690.10
Code Sec. 6323
CCH Reference - 2007FED ¶38,160.032
CCH Reference - 2007FED ¶38,160.038
CCH Reference - ETR ¶45,675.02
CCH Reference - ETR ¶45,675.165
Code Sec. 6334
CCH Reference - 2007FED ¶38,225.01
Code Sec. 6601
CCH Reference - 2007FED ¶39,415.025
CCH Reference - 2007FED ¶39,415.1897
CCH Reference - FINH ¶21,640.20
CCH Reference - FINH ¶21,640.30
Code Sec. 7430
CCH Reference - 2007FED ¶41,743.16
CCH Reference - FINH ¶22,440.50
Code Sec. 7702B
CCH Reference - 2007FED ¶43,168.01
CCH Reference - 2007FED ¶43,168.03
CCH Reference - 2007FED ¶43,168.35
Tax Research Consultant
CCH Reference - TRC INDIV: 12,162
CCH Reference - TRC INDIV: 18,154.05
CCH Reference - TRC INDIV: 18,154.10
CCH Reference - TRC INDIV: 18,156.15
CCH Reference - TRC INDIV: 18,158
CCH Reference - TRC INDIV: 27,102
CCH Reference - TRC INDIV: 30,356.10
CCH Reference - TRC INDIV: 39,126.05
CCH Reference - TRC INDIV: 42,114.05
CCH Reference - TRC INDIV: 42,408
CCH Reference - TRC INDIV: 42,452.05
CCH Reference - TRC INDIV: 42,452.15
CCH Reference - TRC INDIV: 42,454.05
CCH Reference - TRC INDIV: 42,506
CCH Reference - TRC INDIV: 51,052.15
CCH Reference - TRC INDIV: 51,052.156
CCH Reference - TRC INDIV: 57,260.10
CCH Reference - TRC INDIV: 57,262.05
CCH Reference - TRC INDIV: 57,352
CCH Reference - TRC INDIV: 57,356
CCH Reference - TRC INDIV: 57,358
CCH Reference - TRC INDIV: 57,454.10
CCH Reference - TRC INDIV: 57,552
CCH Reference - TRC INDIV: 60,054.05
CCH Reference - TRC INDIV: 60,058
CCH Reference - TRC INDIV: 60,152
CCH Reference - TRC INDIV: 60,160
CCH Reference - TRC INDIV: 63,306
CCH Reference - TRC INDIV: 66,066.05
CCH Reference - TRC FILEIND: 6,050
CCH Reference - TRC FILEIND: 6,052
CCH Reference - TRC FILEIND: 12,056
CCH Reference - TRC FILEIND: 12,102
CCH Reference - TRC FILEIND: 12,102.05
CCH Reference - TRC FILEIND: 12,104
CCH Reference - TRC FILEIND: 12,106
CCH Reference - TRC FILEIND: 15,052.05
CCH Reference - TRC FILEIND: 15,052.15
CCH Reference - TRC FILEIND: 15,054
CCH Reference - TRC FILEIND: 15,054.05
CCH Reference - TRC FILEIND: 15,152.25
CCH Reference - TRC FILEIND: 18,052.05
CCH Reference - TRC FILEIND: 18,052.054
CCH Reference - TRC FILEIND: 30,406
CCH Reference - TRC CCORP: 42,060
CCH Reference - TRC BUSEXP: 9,102.25
CCH Reference - TRC BUSEXP: 18,220.15
CCH Reference - TRC BUSEXP: 24,906.10
CCH Reference - TRC BUSEXP: 24,906.102
CCH Reference - TRC BUSEXP: 54,220.10
CCH Reference - TRC BUSEXP: 57,306.05
CCH Reference - TRC DEPR: 12,104
CCH Reference - TRC DEPR: 12,112.05
CCH Reference - TRC FILEBUS: 9,106
CCH Reference - TRC COMPEN: 36,350
CCH Reference - TRC COMPEN: 36,352
CCH Reference - TRC COMPEN: 36,354
CCH Reference - TRC COMPEN: 36,356
CCH Reference - TRC COMPEN: 36,654
CCH Reference - TRC COMPEN: 45,060.25
CCH Reference - TRC COMPEN: 45,064
CCH Reference - TRC COMPEN: 45,064.10
CCH Reference - TRC COMPEN: 45,064.15
CCH Reference - TRC COMPEN: 45,066
CCH Reference - TRC COMPEN: 45,066.15
CCH Reference - TRC PAYROLL: 6,060.25
CCH Reference - TRC RETIRE: 66,204
CCH Reference - TRC RETIRE: 66,752
CCH Reference - TRC SALES: 6,364.20
CCH Reference - TRC SALES: 51,154.10
CCH Reference - TRC SALES: 51,612.30
CCH Reference - TRC ESTGIFT: 3,300
CCH Reference - TRC ESTGIFT: 6,050
CCH Reference - TRC ESTGIFT: 6,052
CCH Reference - TRC ESTGIFT: 6,052.20
CCH Reference - TRC ESTGIFT: 6,054
CCH Reference - TRC ESTGIFT: 6,056
CCH Reference - TRC ESTGIFT: 6,060.10
CCH Reference - TRC ESTGIFT: 12,050
CCH Reference - TRC ESTGIFT: 12,054.10
CCH Reference - TRC ESTGIFT: 18,604.15
CCH Reference - TRC ESTGIFT: 36,204
CCH Reference - TRC ESTGIFT: 42,050
CCH Reference - TRC ESTGIFT: 42,064
CCH Reference - TRC ESTGIFT: 45,360
CCH Reference - TRC ESTGIFT: 51,150
CCH Reference - TRC ESTGIFT: 51,160
CCH Reference - TRC ESTGIFT: 60,104
CCH Reference - TRC ESTGIFT: 60,106.05
CCH Reference - TRC ESTTRST: 100
CCH Reference - TRC ESTTRST: 12,052
CCH Reference - TRC ESTTRST: 21,252
CCH Reference - TRC ESTTRST: 39,350
CCH Reference - TRC EXPAT: 100
CCH Reference - TRC EXPAT: 3,302
CCH Reference - TRC EXPAT: 12,000
CCH Reference - TRC EXPAT: 12,100
CCH Reference - TRC EXPAT: 12,102
CCH Reference - TRC EXPAT: 12,604
CCH Reference - TRC INTL: 100
CCH Reference - TRC INTLOUT: 100
CCH Reference - TRC INTLOUT: 6454
CCH Reference - TRC IRS: 48,152.10
CCH Reference - TRC IRS: 48,160.35
CCH Reference - TRC LITIG: 7,200
CCH Reference - TRC EXEMPT: 12,306.15
CCH Reference - TRC EXEMPT: 12,256
CCH Reference - TRC EXEMPT: 12,306.15
CCH Reference - TRC EXEMPT: 15,118
CCH Reference - TRC EXEMPT: 15,168
CCH Reference - TRC EXEMPT: 12,306.15
CCH Reference - TRC EXCISE: 3,114.05
CCH Reference - TRC EXCISE: 6,156.05
CCH Reference - TRC EXCISE: 9,104.05
CCH Reference - TRC PLANIND: 3,052
CCH Reference - TRC PLANIND: 3,058.10
CCH Reference - TRC PLANIND: 3,060.10
CCH Reference - TRC PLANIND: 3,064.15
CCH Reference - TRC PLANIND: 3,204
CCH Reference - TRC PLANIND: 3,362.05
CCH Reference - TRC PLANIND: 9,304.10
CCH Reference - TRC PLANIND: 9,350.15
CCH Reference - TRC PLANIND: 15,154
CCH Reference - TRC PLANIND: 15,254
CCH Reference - TRC PLANIND: 15,302

CCH (cch.taxgroup.com) reports:

The IRS has announced inflation-adjusted 2008 dollar amounts affecting employer-sponsored retirement and fringe benefit plans, traditional and Roth IRAs, and the retirement savings contribution credit. Some amounts will remain the same as in 2007, most notably:
--the $15,500 limit on elective deferrals to 401(k)
plans, 403(b)
plans, certain 457
plans and the federal government's Thrift Savings Plan;
--the $10,500 limit on elective contributions to SIMPLE retirement accounts;
--the $5,000 and $2,500 limits on catch-up contributions to employer plans; and
--the $500 minimum compensation amount for participation in SEP plans.
The limit on contributions to traditional and Roth IRAs for 2008 is $5,000, plus $1,000 in catch-up contributions for taxpayers who have attained age 50 by the end of the year. The $5,000 limit will be adjusted for inflation beginning in 2009; the $1,000 catch-up limit will not be adjusted for cost of living increases under the current law.
Effective January 1, 2008:
--the beginning of the phaseout range for deductible IRA contributions increases from $83,000 to $85,000 for active participants in an employer plan filing a joint return, from $52,000 to $53,000 for other active participants (other than married individuals filing separately), and from $156,000 to $159,000 for taxpayers who are not active participants but are married to an active participant;
--the beginning of the phaseout range for allowable Roth IRA contributions increases from $156,000 to $159,000 for joint filers, and from $99,000 to $101,000 for other taxpayers (other than married individuals filing separately);
--the limit on annual additions to a defined contribution plan increases from $45,000 to $46,000;
--the limit on annual benefits under a defined benefit plan increases from $180,000 to $185,000;
--the limit on compensation that can be taken into account for most purposes increases from $225,000 to $230,000;
--the amount in the definition of "key employee" for top-heavy plan purposes increases from $145,000 to $150,000;
--the amount in the definition of "highly compensated employee" increases from $100,000 to $105,000;
--the amount for determining the maximum ESOP account subject to a five-year distribution period increases from $915,000 to $935,000, while the dollar amount used to determine the lengthening of the five-year distribution period increases from $180,000 to $185,000;
--the special annual compensation limit for eligible participants in certain governmental plans increases from $335,000 to $345,000; and
--the adjusted gross income limitations on eligibility for various levels of the retirement savings contribution credit increase slightly.
For fringe benefit valuation purposes, the compensation amount that makes a corporate officer a "control employee" remains $90,000 for 2008. The compensation that makes any other employee a "control employee" increases from $180,000 to $185,000.
IR-2007-171, 2007FED ¶46,676
Other References:
Code Sec. 25B
CCH Reference - 2007FED ¶3838.03
CCH Reference - 2007FED ¶3838.07
CCH Reference - 2007FED ¶3838.25
Code Sec. 61
CCH Reference - 2007FED ¶5907.032
CCH Reference - 2007FED ¶5907.044
CCH Reference - 2007FED ¶5907.27
Code Sec. 401
CCH Reference - 2007FED ¶17,903.01
CCH Reference - 2007FED ¶17,903.025
CCH Reference - 2007FED ¶17,903.03
CCH Reference - 2007FED ¶17,903.105
CCH Reference - 2007FED ¶17,903.15
CCH Reference - 2007FED ¶18,112.0245
CCH Reference - 2007FED ¶18,112.0265
CCH Reference - 2007FED ¶18,112.036
CCH Reference - 2007FED ¶18,112.048
Code Sec. 402
CCH Reference - 2007FED ¶18,221.022
CCH Reference - 2007FED ¶18,221.10
Code Sec. 404
CCH Reference - 2007FED ¶18,347.01
CCH Reference - 2007FED ¶18,347.025
CCH Reference - 2007FED ¶18,348.028
CCH Reference - 2007FED ¶18,348.107
CCH Reference - 2007FED ¶18,349.022
Code Sec. 408
CCH Reference - 2007FED ¶18,922.0249
CCH Reference - 2007FED ¶18,922.0253
CCH Reference - 2007FED ¶18,922.0264
CCH Reference - 2007FED ¶18,922.1068
Code Sec. 408A
CCH Reference - 2007FED ¶18,930.024
CCH Reference - 2007FED ¶18,930.197
Code Sec. 409
CCH Reference - 2007FED ¶18,951.031
CCH Reference - 2007FED ¶18,951.20
Code Sec. 414
CCH Reference - 2007FED ¶19,173.25
CCH Reference - 2007FED ¶19,195.023
CCH Reference - 2007FED ¶19,198.01
CCH Reference - 2007FED ¶19,198.25
Code Sec. 415
CCH Reference - 2007FED ¶19,218.022
CCH Reference - 2007FED ¶19,218.023
CCH Reference - 2007FED ¶19,218.0235
CCH Reference - 2007FED ¶19,218.03
CCH Reference - 2007FED ¶19,218.034
CCH Reference - 2007FED ¶19,218.27
Code Sec. 416
CCH Reference - 2007FED ¶19,253.024
Code Sec. 457
CCH Reference - 2007FED ¶21,536.035
CCH Reference - 2007FED ¶21,536.036
CCH Reference - 2007FED ¶21,536.0365
CCH Reference - 2007FED ¶21,536.037
CCH Reference - 2007FED ¶21,536.07
Tax Research Consultant
CCH Reference - TRC COMPEN: 15,152
CCH Reference - TRC COMPEN: 33,156
CCH Reference - TRC COMPEN: 39,100
CCH Reference - TRC RETIRE: 9,050
CCH Reference - TRC RETIRE: 21,102.05
CCH Reference - TRC RETIRE: 24,210
CCH Reference - TRC RETIRE: 27,102.05
CCH Reference - TRC RETIRE: 33,202.05
CCH Reference - TRC RETIRE: 36,050
CCH Reference - TRC RETIRE: 36,200
CCH Reference - TRC RETIRE: 36,350
CCH Reference - TRC RETIRE: 36,352
CCH Reference - TRC RETIRE: 36,354
CCH Reference - TRC RETIRE: 63,114
CCH Reference - TRC RETIRE: 66,204
CCH Reference - TRC RETIRE: 69,058.154
CCH Reference - TRC RETIRE: 74,104.05
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The North Carolina Court of Appeals has upheld a superior court's dismissal of an action that challenged the constitutionality of corporate income, corporate franchise, sales and use, and property tax benefits and other economic incentives and subsidies granted to Dell, Inc., a private-sector computer manufacturing corporation.
Although the Court of Appeals reversed the trial court's ruling that the plaintiffs lacked standing to bring their claims under the Public Purpose and Exclusive Emoluments Clauses, it upheld the trial court's finding that the plaintiffs had failed to state a claim for relief. In Maready v. City of Winston-Salem , 342 N.C. 708, 467 S.E.2d 615 (1996), the North Carolina Supreme Court held that economic incentives offered by governmental entities to a private business for the purposes of job creation and economic development fulfills a public purpose. In addition, the offering of such incentives does not constitute a prohibited exclusive emolument even though a private company might benefit from the incentives. As the plaintiffs failed to distinguish this case from Maready , the holding in Maready
controls.
The Court of Appeals also upheld the trial court's decision that the plaintiffs lacked standing under the state Uniformity of Taxation Clauses and the federal Dormant Commerce Clause as the plaintiffs failed to demonstrate that they belonged to a class that was prejudiced by the challenged statute.
Subscribers to CCH Tax Research NetWork may view the decision.
Blinson v. State of North Carolina , North Carolina Court of Appeals, NO. COA06-1258, October 16, 2007.

CCH (cch.taxgroup.com) reports:

Social Security and Supplemental Security Income (SSI) benefits will increase by 2.3 percent in 2008, according to the Social Security Administration (SSA). The rates for Old-Age, Survivors and Disability Insurance (OASDI) and Medicare Hospital Insurance (HI) taxes will remain unchanged at a combined 7.65 percent in 2008, but the maximum taxable earnings for OASDI purposes will rise from $97,500 to $102,000.
The SSA increases are based on the rise in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the third quarter of 2006 through the third quarter of 2007. For Social Security beneficiaries, the average monthly benefit amount for all retired workers will rise from $1,055 to $1,079, and the maximum monthly benefit will increase from $2,116 to $2,185. The monthly SSI federal payment standard for an individual will rise from $623 to $637; for a couple, the payment will increase from $934 to $956.
The retirement earnings test exempt amount (the point at which retirees begin to lose benefits in conjunction with their receipt of additional earnings) was eliminated for individuals age 65 through 69 as of January 2000. However, it remains in effect for individuals under full retirement age, and a modified test applies for the year in which an individual reaches full retirement age. "Full retirement age" is 65 and 8 months for individuals born in 1941, 65 and 10 months for those born in 1942.
For the year in which an individual attains full retirement age, the retirement earnings test exempt amount will rise from $34,440 a year to $36,120 a year. This test applies only to earnings for months prior to reaching full retirement age. One dollar in benefits will be withheld for every $3 in earnings above the limit. No limit on earnings will be imposed beginning in the month in which the individual reaches full retirement age.
For retirees under full retirement age, the retirement earnings test exempt amount will rise from $12,960 a year to $13,560 a year, with $1 withheld for every $2 in earnings above the limit.
Social Security Administration News Release, 2007FED ¶46,674
Social Security Administration Fact Sheet, 2007FED ¶46,675
SFC Release: Baucus Comments on Social Security Cost-of-Living Adjustment
Other References:
Code Sec. 1401
CCH Reference - 2007FED ¶32,543.01
CCH Reference - 2007FED ¶32,543.07
CCH Reference - 2007FED ¶32,543.26
Code Sec. 1402
CCH Reference - 2007FED ¶32,580.01
Tax Research Consultant
CCH Reference - TRC INDIV: 63,050
CCH Reference - TRC INDIV: 63,052
CCH Reference - TRC INDIV: 63,054
CCH Reference - TRC INDIV: 63,060
CCH Reference - TRC INDIV: 63,100
CCH Reference - TRC INDIV: 63,108
CCH Reference - TRC INDIV: 63,500

CCH (cch.taxgroup.com) reports:

Cost-of-living adjustments (COLAs) for pension plans for the 2008 tax year are expected to be released on October 18 or 19, an IRS Employee Plans (EP) official predicted on October 17. The release is slightly delayed because the Service is consolidating all of the pension information into one release, Martin L. Pippins, a technical guidance expert with EP, told the Society of Actuaries Annual Meeting in Washington, D.C.
Dollar Limitations
Contributions and benefits for qualified retirement plans are subject to dollar limitations under Code Sec. 415. The IRS annually publishes cost-of-living adjustments applicable to pension plans and other items for the following year. These limitations affect how much a defined benefit plan may pay a participant each year and how much a participant may contribute to a defined contribution plan each year.
User-Friendly Approach
On October 17, the Social Security Administration released the 2008 inflation-adjusted wage base for determining the maximum amount of earnings subject to Social Security tax (TAXDAY, 2007/10/18, M.1). Many observers anticipated that the 2008 IRS pension COLAs would be released the same day.
Publication of the 2008 pension COLAs was delayed because the IRS is making the presentation of the material more "user friendly," Pippins said. He briefly highlighted some of the provisions that generate the most questions from taxpayers and practitioners. These include limitations impacting Roth IRAs and the Saver's Credit.
By George L. Yaksick, Jr., CCH News Staff
 

CCH (cch.taxgroup.com) reports:

The IRS has issue three pieces of guidance with regard to certain trust arrangements that are being sold to business owners as welfare benefit funds, and has identified some of those arrangements as listed transactions. The arrangements typically involve a trust wherein cash-value insurance policies on the lives of the owner and/or key employees are purchased with the owner's contribution. Other arrangements involve purported welfare benefit funds that, in form, provide post-retirement medical and life insurance benefits to employees on a nondiscriminatory basis but, in operation, primarily benefit the owners or other key employees of the business.
Notice 2007-83
Some of the arrangements identified by the IRS involve a trust wherein cash-value insurance policies on the lives of the owner and/or key employees, are purchased with the owners contribution. The proceeds are then distributed to participants when the plan is terminated. Advocates of such arrangements are telling business owners that, under such arrangements, the contributions being used to purchase the life insurance policies are deductible as qualified costs without a corresponding inclusion in the employer's income. Business owners are warned by the IRS that such transactions are subject to the disclosure requirements of Code Sec. 6111 and could be listed transactions, subjecting the employer to penalties.The IRS has warned investors that it intends to challenge these types of transactions.
Notice 2007-84
The tax treatment of certain trust arrangements involving purported welfare benefit funds may vary from the claimed tax treatment. The arrangements involve purported welfare benefit funds that, in form, provide post-retirement medical and life insurance benefits to employees on a nondiscriminatory basis but, in operation, will primarily benefit the owners or other key employees of the business. Advocates of these plans claim that employer's contributions for the post-retirement medical and life benefits are deductible under Code Secs. 419 and 419A
as additions to a qualified asset account and that the business owners or key employees receive the economic benefits from the contributions with little or no inclusion in income.
Caution: According to the IRS, taxpayers should not assume that any further IRS guidance addressing these arrangements will be applied prospectively only.
The arrangements are being promoted to and used by small businesses to avoid federal income and employment taxes. Usually, they are sold to the business as a way to provide post-retirement medical benefits, post-retirement life insurance, and cash and other property to the business owners or key employees on a tax-favored basis through the use of a trust. They may involve either a taxable trust or a tax-exempt trust, i.e., a voluntary employee's beneficiary association (VEBA) that has received a determination letter from the IRS that it is described in Code Sec. 501(c)(9). Often, employer's contributions will be used by the trust to purchase cash value life insurance policies on the lives of owner-employees or, sometimes, other key employees. Also, the employer's deduction for contributions is frequently based on calculation of a reserve associated with each of the plan participants that may be based on an unreasonable assumption or other actuarial assumptions that either are not reasonable or may not be reflected in the reserve calculations for purposes of Code Secs. 419 and 419A.
The plan documents of some arrangements may indicate that post-retirement benefits will be provided on a nondiscriminatory basis, even though only a few employees will ever, in fact, receive those benefits. Further, the owner will receive a substantial portion of the excess assets not needed to pay the original benefits. This may be accomplished under some arrangements by the use of a "loan" to the owners. Under some arrangements, the plan will be amended to provide plan benefits other than the original post-retirement medical or life insurance benefits. In others, the timing of a plan termination and method of allocating the remaining assets are structured so that a substantial portion of trust assets is received, directly or indirectly, by owners and other key employees.
The IRS may challenge the claimed tax benefits of these arrangements for various reasons:
--Contributions on behalf of an owner-employee may be characterized as dividends or as nonqualified deferred compensation subject to Code Sec. 404(a)(5) or Code Sec. 409A or both, depending on the facts and circumstances.
--The arrangement may be subject to the rules for split-dollar arrangements, depending on the facts and circumstances.
--An employer's deductions for contributions to an arrangement that is properly characterized as a welfare benefit fund are subject to the limitations and requirements of the rules in Code Secs. 419 and 419A, including the use of reasonable actuarial assumptions and the satisfaction of nondiscrimination requirements. Further, a taxpayer cannot obtain a deduction for reserves for post-retirement medical or life benefits unless the employer actually intends to use the contributions for that purpose.
--Under the tax benefit rule, some or all of an employer's deductions in an earlier year may have to be included in income in a later year if an event occurs that is fundamentally inconsistent with the premise on which the deduction was based.
--Whenever the property distributed from a trust has not been properly valued by the taxpayer, the IRS intends to challenge the value of the distributed property, including life insurance policies.
--Some of all of the benefits or distributions provided to or for the benefit of owner-employees or key employees may be disqualified benefits for purposes of the 100-percent excise tax under Code Sec. 4976.
The IRS may impose penalties on persons involved in these or similar arrangements, and, as applicable, on persons who participate in the promotion or reporting of these or similar arrangements. These include:
--the accuracy-related penalty under Code Sec. 6662.
--the return preparer penalty under Code Sec. 6694.
--the promoter penalty under Code Sec. 6700.
--the aiding and abetting penalty under Code Sec. 6701.
Finally, the IRS states that, even if a trust has received a determination letter from the IRS that it is exempt under Code Sec. 501(c)(9), this type of letter does not address the tax deductibility of contributions with respect to an employer or the inclusion of income with respect to employees.
Rev. Rul. 2007-65
The IRS ruled that a welfare benefit fund's qualified direct cost under Code Sec. 419 does not include premium amounts paid by the fund for cash value life insurance policies if the fund is directly or indirectly a beneficiary under the policy as determined under Code Sec. 264(a). This holding applies regardless of whether the plan benefits are provided through a taxable trust, an exempt Voluntary Employees' Beneficiary Association, or any other type of welfare benefit fund.
CCH Comment. Like Notice 2007-83 and Notice 2007-84, this ruling is aimed at promoted arrangements under which the fund trustee purchases cash value life insurance policies on the lives of the employees who are owners of the business (and sometimes key employees), while purchasing term insurance polices on the lives of other employees covered under the plan. These plans anticipate that the plan will be terminated and the cash value policies will be distributed to the owners or key employees with very little distributed to other employees. The promoters claim the insurance premiums are currently deductible by the business, and the distributed insurance policies are virtually tax-free to the owners. The ruling makes clear that, going forward, a business cannot deduct the cost of premiums paid through a welfare benefit plan for cash value life insurance on the lives of its employees. Some arrangements described by this ruling may qualify as a listed transaction under Notice 2007-83.
The ruling involved welfare benefit funds that purchased cash value life insurance policies to fund their obligations. In situation 1, the fund was only obligated to provide group-term life insurance to employees. The fund purchased policies on each employee, with the death benefits payable to the beneficiary named by the employee and the fund retaining all other policy rights. In situation 2, the fund was obligated to provide disability benefits to current employees. The fund was the owner and named beneficiary of these policies. The fund paid out $X during the tax year in disability benefits.
Costs of providing employee welfare benefits are deductible by an employer only if they are qualified direct costs of the fund. Costs are qualified direct costs only if they would be deductible by the employer if: (1) the employer paid them directly rather than through a welfare benefits fund, and (2) the employer used a cash method of accounting. The employer in both situations 1 and 2 could not deduct these premiums under these circumstances because under Code Sec. 264(a), a taxpayer cannot deduct premiums for life insurance if it is a direct or indirect beneficiary of the policies. In these situations, the employer is either a direct (situation 2) or indirect (situation 1) beneficiary. (The employer in situation 2, however, could deduct the $X paid out to employees during the tax year, and, hence, the fund could treat that amount as a qualified direct cost.)
An employer can deduct contributions to a welfare benefits fund that are set aside in a qualified asset account under Code Sec. 419A that are reasonably and actuarially necessary to fund claims for benefits incurred but unpaid as of the close of the tax year. In situation 1, all the benefits provided by the plan are fully insured, so no amounts are needed to fund unpaid claims. Hence, the employer in situation 1 could not deduct any of its contributions to the fund on that basis. In contrast, the obligations of the fund in situation 2 were not insured and could generate incurred but unpaid claims. The employer in situation 2 could, therefore, deduct funds set aside to satisfy these unpaid obligations, as long as the amounts were otherwise deductible. Nevertheless, if the fund had purchased the life insurance to accumulate assets to pay uninsured disability benefits, the employer could not deduct the contribution since the employer would not have been able to deduct the insurance premiums.
The rule disallowing a deduction if the employer could not deduct the amount under Code Sec. 264 is to be applied prospectively. For any tax year of an employer ending before November 5, 2007, if a deduction is otherwise allowable, a deduction for contributions to a welfare benefit fund under an arrangement that is not subject to the split-dollar life insurance arrangements will not be disallowed merely because the deduction would have been disallowed under Code Sec. 264 had the employer provided the benefits directly.
IR-2007-170, 2007FED ¶46,670
Notice 2007-83, 2007FED ¶46,671
Notice 2007-84, 2007FED ¶46,672
Rev. Rul. 2007-65, 2007FED ¶46,673
Other References:
Code Sec. 264
CCH Reference - 2007FED ¶14,008.135
Code Sec. 419
Code Sec. 419A
CCH Reference - 2007FED ¶19,301.25
CCH Reference - 2007FED ¶19,301.60
Code Sec. 6111
CCH Reference - 2007FED ¶37,002.156
Code Sec. 6112
CCH Reference - 2007FED ¶37,022.023
CCH Reference - 2007FED ¶37,022.09
CCH Reference - 2007FED ¶37,022.156
Tax Research Consultant
CCH Reference - TRC FILEBUS: 3,052.20
CCH Reference - TRC FILEBUS: 9,454
CCH Reference - TRC COMPEN: 42,000
CCH Reference - TRC COMPEN: 42,106
CCH Reference - TRC COMPEN: 48,054
CCH Reference - TRC PENALTY: 3,252

CCH (cch.taxgroup.com) reports:

House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., told reporters on October 17 to expect the introduction of two separate tax bills during the week of October 22. One measure, which he called a "stop-gap" bill, would cost about $80 billion and extend a group of popular business and individual tax breaks known as the tax extenders. It would also provide a one-year patch to prevent the alternative minimum tax (AMT) from affecting about 23 million American families in 2008. That bill will reach the House floor before adjournment in mid-November, he said.
The second piece of legislation to expect, Rangel promised, would be the "mother of all reform" bills that would include provisions to totally eliminate the AMT at a cost of roughly $800 billion. This second tax bill, which Rangel expects to see on the House floor sometime in 2008, would also cut taxes for about 90 million Americans, lower corporate tax rates and close many tax loopholes that businesses currently enjoy.
Rangel said that he has met with House Speaker Nancy Pelosi, D-Calif., as well as members of his committee, and determined that the larger bill should not be rushed to the House floor. Instead, Rangel plans to visit business and consumer groups in 2008 to drum up support for the measure.
Both bills will be revenue-neutral, according to Rangel, who downplayed any suggestion that lawmakers should waive the House's pay-as-you-go rules that require spending and tax cut bills to be fully offset. He said that changing the tax code to require that hedge fund operators be taxed at ordinary income rates, rather than capital gains rates, is just one possibility out of many that lawmakers are considering to raise revenues.
Rangel also suggested that cutting corporate tax rates and closing tax loopholes might be seen as a tax increase by businesses since, under the current tax system, those loopholes result in many corporations avoiding all taxes. Rangel said that he and Treasury Secretary Henry M. Paulson, Jr., are "close to reading from the same page" on corporate-tax changes.
Republican Response
Rangel's proposals come amid calls from House and Senate GOP lawmakers to take quick action on the AMT. In a letter to Paulson, Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, and House Ways and Means Committee ranking member Jim McCrery, R-La., asked for a detailed analysis of the impact on taxpayers of the Democratic-led Congress' failure to extend the AMT in 2007 (TAXDAY, 2007/10/17, C.2).
McCrery told CCH that Rangel's plan to eliminate the AMT by raising taxes on wealthier Americans is unlikely to succeed. He predicted that Rangel will end up passing a one- or two-year AMT patch that does not solve the problem. The AMT should be eliminated as part of an overall plan for comprehensive reform, he said.
Fellow Ways and Means member Paul Ryan, R-Wis., recently introduced the Taxpayer Choice Bill of 2007 (HR 3818), which would eliminate the AMT and impose a new simplified tax system to replace the current income tax system (TAXDAY, 2007/10/11, C.3). Rangel noted Ryan's plan, saying that he had encouraged GOP lawmakers to come forward with AMT proposals. However, Rangel did not express support for the Ryan bill.
By Stephen K. Cooper, CCH News Staff
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The U.S. House of Representatives has passed legislation that would extend for four years the existing moratorium on state and local Internet access taxes, which is currently set to expire on November 1, 2007. The legislation, which was passed by the House Judiciary Committee on October 10, 2007, was considered by the full House under a suspension of the rules, which prevented any amendments from being offered. This procedure prevented proponents of a permanent ban, who believed they had sufficient votes to pass their alternative, from bringing it up for a vote. The U.S. Senate has yet to act to extend the moratorium. Administration officials continue to press for a permanent ban. The details of the House legislation were reported previously. (TAXDAY, 2007/10/12, S.1)
H.R. 3678, as passed by the U.S. House of Representatives, October 16, 2007.

CCH (cch.taxgroup.com) reports:

The Tax Court lacked jurisdiction to consider an individual's request for deficiency redeterminations and innocent spouse relief with respect to adjustments related to his participation in a partnership with his former wife. A joint notice of deficiency was sent to the couple after a TEFRA partnership proceeding was brought in the federal district court by a non-tax matters partner. Because the adjustments set forth in the notice of deficiency were attributable to partnership items that were the subject of that on-going proceeding, the notice of deficiency was invalid. Accordingly, the Tax Court lacked jurisdiction to redetermine the deficiency.
In addition, the taxpayer's request for innocent spouse relief was not a valid stand-alone petition for relief. The request was premature because a deficiency had not been asserted against him. The parties' attempts to settle their tax liabilities, the issuance of an FPAA and the invalid notice of deficiency taken together did not demonstrate that the IRS asserted a deficiency. The taxpayer's entitlement to relief was an affected item that could be determined only after the partnership-level proceeding concluded. Thus, the taxpayer could not seek relief until the underlying partnership-level proceeding was final and the IRS issued either a notice of computational adjustment or a valid affected items notice of deficiency to the taxpayer.
P.D. Adkison, 129 TC No. 13, Dec. 57,144
Other References:
Code Sec. 6015
CCH Reference - 2007FED ¶35,192.66
Code Sec. 6230
CCH Reference - 2007FED ¶32,769.30
Tax Research Consultant
CCH Reference - TRC PART: 60,312
 

CCH (cch.taxgroup.com) reports:

Various prescribed rates for federal income tax purposes for November 2007 have been provided by the IRS. The annual short-term, mid-term, and long-term applicable federal interest rates (AFRs) are 4.11 percent, 4.39 percent and 4.89 percent, respectively. The semiannual short-term, mid-term, and long-term AFRs are 4.07 percent, 4.34 percent and 4.83 percent, respectively. Quarterly short-term, mid-term and long-term AFRs are 4.05 percent, 4.32 percent and 4.80 percent, respectively. Finally, the monthly short-term, mid-term and long-term rates are 4.04 percent, 4.30 percent and 4.78 percent, respectively.
The short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for November 2007 for purposes of Code Sec. 1288(b) are 3.40 percent, 3.61 percent, and 4.30 percent, respectively, when annual compounding is used.
Additionally, the Code Sec. 382 adjusted federal long-term rate is 4.30 percent, and the long-term tax-exempt rate is 4.49 percent. The Code Sec. 42(b)(2) appropriate percentage for the 70-percent present-value, low-income housing credit is 8.08 percent, and the appropriate percentage for the 30-percent present-value, low-income housing credit is 3.46 percent. Finally, the Code Sec. 7520 AFR for determining the present value of an annuity, an interest for life or a term of years, or a remainder or reversionary interest is 5.2 percent.
Rev. Rul. 2007-66, 2007FED ¶46,669
Rev. Rul. 2007-66, FINH ¶30,563
Other References:
Code Sec. 42
CCH Reference - 2007FED ¶173.02
CCH Reference - 2007FED ¶176.01
CCH Reference - 2007FED ¶4385.03
Code Sec. 382
CCH Reference - 2007FED ¶17,115.28
Code Sec. 642
CCH Reference - 2007FED ¶24,308.1885
Code Sec. 1274
CCH Reference - 2007FED ¶31,310.05
CCH Reference - 2007FED ¶31,310.11
Code Sec. 7520
CCH Reference - 2007FED ¶42,785.40
CCH Reference - FINH ¶22,630.05
Code Sec. 7872
CCH Reference - FINH ¶18,950.05
Tax Research Consultant
CCH Reference - TRC ACCTNG: 36,162.05
 

CCH (cch.taxgroup.com) reports:

Newly proposed regulations would provide guidance on the determination of the source of compensation for labor or personal services, particularly in regard to artists and athletes, through the application of a new "events basis" rule. Under the "events basis" rule, the source of the compensation, whether within or without the U.S., can usually be determined by considering, under the facts and circumstances of the case, the location of the event for which the person is compensated. Thus, under the proposal, the source of the compensation is the location where the event is held. Additional guidance is provided regarding whether or not the individual is compensated as an employee and for circumstances involving services performed in multiple locations.
The IRS has requested comments and requests for a public hearing on the proposed regulations. Written and electronic comments and requests for a hearing must be received by January 15, 2008.
Proposed Regulations, NPRM REG-114125-07, 2007FED ¶49,769
Other References:
Code Sec. 861
CCH Reference - 2007FED ¶27,129.105
CCH Reference - 2007FED ¶27,129.14
Tax Research Consultant
CCH Reference - TRC INTL: 3,200
CCH Reference - TRC INTL: 3,202

CCH (cch.taxgroup.com) reports:

The IRS has issued proposed regulations regarding withholding procedures for distributions of the stock of a corporation that is actively traded on an established financial market. Specifically, the proposed regulations would provide an escrow procedure that a withholding agent must apply while making the determination under Code Sec. 302 as to whether the distribution in redemption of the stock held by a foreign shareholder is treated as a dividend subject to withholding, or a distribution in part or full payment in exchange for stock.
The withholding agent would be required to set aside in an escrow account, 30 percent (or the applicable dividend rate provided under a treaty) of the amount of the Code Sec. 302 payment. The withholding agent would also be required to provide information to the foreign beneficial owner regarding the distribution, including the total number of the distributing corporation's shares outstanding before and after the distribution.
In the written explanation, the withholding agent would request that the beneficial owner provide a written certification within 60 days as to whether the distribution is either a dividend or a payment in exchange for stock. The withholding agent would be able to generally rely on a certification received from a foreign beneficial owner in determining its Code Sec. 1441 obligations with respect to payments for such beneficial owner's stock.
The proposed regulations would apply for redemptions of stock that are made after December 31, 2008. However, a withholding agent would be able to rely on the proposals for a redemption of stock that occurs before January 1, 2009.
Comments are requested with respect to these regulations. Written or electronic comments must be received by January 16, 2008. A public hearing is scheduled for February 6, 2008.
Proposed Regulations, NPRM REG-140206-06, 2007FED ¶49,768
Other References:
Code Sec. 1441
CCH Reference - 2007FED ¶32,706D
Tax Research Consultant
CCH Reference - TRC INTLIN: 6,112.10
 

CCH (cch.taxgroup.com) reports:

Senate Finance Committee Chairman Max Baucus, D-Mont., plans to hold a member's meeting on October 17 to begin preparation for a tax extenders package that could be marked up as early as the week beginning October 22. In conjunction with the meeting, committee member Orrin G. Hatch, R-Utah, is expected to introduce a research tax credit bill that would gradually eliminate the traditional credit calculation and also gradually increase the alternative simplified credit (ASC) calculation established by the 2006 tax extenders bill.
Several temporary tax provisions expired in 2005 and were retroactively extended through December 31, 2007. The provisions were originally enacted with expiration dates that have subsequently been extended, in some cases, numerous times. The extenders include tax credits, including the work opportunity tax credit (WOTC), the welfare-to-work tax credit (WWTC), the New York WOTC, the credit for holders of qualified zone academy bonds, the research and experimentation tax credit, the credit for first-time homebuyers in the District of Columbia, the new markets tax credit and the possession tax credit with respect to American Samoa.
The extenders also include deductions for expenditures by elementary and secondary school teachers, corporate contributions of computer technology, costs of remediation of brownfields, contributions to Archer Medical Savings Accounts, capital investment in oil and gas produced from marginal wells, state and local sales taxes and several depreciation allowances. The depreciation allowances include an accelerated provision for property on Indian reservations, qualified leasehold improvements and qualified restaurant improvements. Other temporary tax provisions that expired included tax incentives for investment in the District of Columbia Enterprise Zone, an increased "cover over" of tax on distilled spirits from Puerto Rico and the U.S. Virgin Islands, and an excise tax to induce parity in the application of certain mental health benefits.
Most recently, Congress approved several extenders in legislation associated with the minimum wage and the enactment of tax benefits to offset potential higher wage costs for small businesses. When the Small Business and Work Opportunity Tax Act of 2006 became law (P.L. 110-28) in May 2007, one of the temporary tax provisions, the WOTC, was extended through August 31, 2011. Currently, the Mortgage Forgiveness Debt Relief Bill (HR 3648), includes a provision to extend the deduction of qualified mortgage insurance premiums through December 31, 2014.
By Jeff Carlson, CCH News Staff
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Wisconsin Governor Jim Doyle's compromise budget bill, which includes corporation franchise and income, personal income, sales and use, property, cigarette, and other tax changes, was introduced in the Senate during a special session on October 15, 2007. At press time, the bill had not yet been passed by the Senate. Highlights of the bill are discussed below.

CCH (cch.taxgroup.com) reports:

An IRS Appeals officer abused her discretion by including the full amount of an individual's dissipated assets in his net realizable equity (NRE) during her evaluation of his offer-in-compromise. The court concluded that the individual's NRE should not have included amounts paid for: attorney's fees incurred in the representation in his tax case; attorney's fees incurred in a civil lawsuit he filed for unpaid wages; an estimated tax payment made for one of the tax years at issue; and a lump-sum payment of delinquent child support. The case was remanded to Appeals for 60 days, during which time the individual had the opportunity to amend his offer based on the revised amount of his tax liability and in consideration of his available monthly income.
D.L. Samuel, TC Memo. 2007-312, Dec. 57,141(M)
Other References:
Code Sec. 7122
CCH Reference - 2007FED ¶41,130.175
Tax Research Consultant
CCH Reference - TRC IRS: 42,120
CCH Reference - TRC IRS: 51,056.25

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

California Governor Arnold Schwarzenegger vetoed legislation that would have repealed the interest offset provision under California corporation franchise and income tax law. The proposed repeal was intended to reflect the U.S. Supreme Court's decision in Hunt-Wesson, Inc. v. Franchise Tax Board , 528 U.S. 458 (2000), and to remove grounds for constitutional challenges to the provision as discriminatory in favor of corporations domiciled in California. However, the Governor claimed that the bill went beyond the holding in Hunt-Wesson , which applied to non-California domiciliary corporations, and would have negatively impacted California-based corporations.
In Hunt-Wesson, the U.S. Supreme Court held that the interest offset provision was unconstitutional as applied to a non-California domiciliary corporation because the provision unreasonably assigned interest expense on a dollar-for-dollar basis to nonbusiness interest and dividends, resulting in the taxation of extraterritorial income in violation of both the Commerce Clause and the Due Process Clause of the U.S. Constitution. Under the interest offset provision, interest expense was deducted in the following order:
(1) interest expense was deducted from business interest income;
(2) interest expense in excess of business interest income was deducted from nonbusiness interest and dividend income; and
(3) any remaining interest expense was allowed as a deduction in computing net business income.
The FTB has adopted a narrow interpretation of the Hunt-Wesson
decision and continues to apply the interest offset provision to corporations domiciled in California, but uses a direct tracing or proration method for assigning interest expense to business income and nonbusiness income for corporations domiciled outside California. However, the California Legislative Counsel offered an opinion that the portion of the interest offset provision that was invalidated by the U.S. Supreme Court was not severable and, therefore, the entire provision was void and could not be applied to California domiciled corporations or corporations domiciled outside of California.
A.B. 1618, as returned to the California General Assembly by Governor Schwarzenegger; Veto Message , Governor Arnold Schwarzenegger, October 11, 2007; Bill Analysis , Senate Floor, July 12, 2007; Analysis of Original Bill , California Franchise Tax Board, May 1, 2007.

CCH (cch.taxgroup.com) reports:

The effective date of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), should be delayed for private companies, Judith H. O'Dell, chair of the Private Company Financial Reporting Committee (PCFRC), told CCH on October 12. The PCFRC recently wrote to the FASB urging a delay, cautioning that many private businesses and financial statement preparers are unsure about FIN 48's implications for pass-through entities. FASB members will likely address the PCFRC's concerns at a board meeting sometime in 2007.
CCH Comment. The FASB has previously declined to delay the effective date of FIN 48. In January, FASB members voted unanimously to leave unchanged the original effective date for fiscal years beginning after December 15, 2006 (TAXDAY, 2007/01/18, M.1).
Recognition and Measurement
FIN 48 is designed to clarify the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. Evaluating a tax position under FIN 48 is a two-step process. First, the enterprise determines if it is more likely than not that a tax position will be sustained upon examination. A tax position that meets the more-likely-than-not recognition threshold is then measured to determine the amount of benefit to recognize in the financial statements.
Immediate Action Needed
O'Dell noted that most private companies are confronted with FIN 48 for the first time in preparing year-end financial statements. Therefore, the FASB should act quickly to delay the effective date of FIN 48 for private companies so they can get up to speed with the requirements and implications of FIN 48.
Pass-Through Entities
O'Dell explained that the implications of FIN 48 are especially important for private businesses because many operate as pass-through entities, such as S corporations or limited liability companies. FASB Statement 109 does not directly address pass-through entities. Many private company financial statement preparers are unaccustomed to accounting for income taxes if the private company operates as a pass-through entity.
The PCFRC has identified several issues arising from FIN 48's implications to pass-through entities. These include the level at which taxes are assessed (owner or entity) and the ramifications of FIN 48's requirements on acquisitions and tax indemnification. O'Dell used the example of a pass-through entity with a research credit on its return. "Under FIN 48, the entity has to assume that the IRS will look at it."
Education
"Some private companies are just learning about the implications of FIN 48," O'Dell noted. Unlike many large public companies, small private companies frequently do not have the resources to follow FASB proceedings. They often learn about new requirements like FIN 48 at continuing education sessions after the effective date. The PCFRC is engaged in educational outreach and is contacting constituent groups to determine what other issues they are confronting in implementing FIN 48.
FASB Meeting
O'Dell told CCH that the PCFRC's concerns will be placed on the FASB's agenda. However, she had not yet heard when FASB members will discuss the issue.
By George L. Yaksick, Jr., CCH News Staff
PCFRC Letter Re: FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes

CCH (cch.taxgroup.com) reports:

Electronic return originators (EROs) have been authorized to use alternative methods to sign the following forms: (1) Form 8453, U.S. Individual Income Tax Declaration for an IRS e-file Return; (2) Form 8878, IRS e-file Signature Authorization for Form 4868 or Form 2350; and (3) Form 8879, IRS e-file Signature Authorization. Applicable to any Form 8453, 8878 or 8879 filed on or after October 15, 2007, signatures may be affixed by means of rubber stamp, mechanical device (for example, a signature pen), or computer software program.
Any of these alternative methods must include either a facsimile of the individual ERO's signature or the ERO's printed name. EROs who use any of the alternative methods are personally liable for affixing their signatures to the return or extension request.
Use of these alternative signature methods is limited to EROs that sign Forms 8453, 8878 or 8879, and does not affect the requirement that the taxpayer for whom the tax return or extension request is being filed sign the document manually or by any other authorized means. The alternative methods may not be used with any other type of document for which manual signatures are currently required, including elections, applications for changes in accounting method, powers of attorney or consent forms.
Notice 2007-79, 2007FED ¶46,666
Other References:
Code Sec. 6061
CCH Reference - 2007FED ¶36,605.101
CCH Reference - 2007FED ¶36,605.16
CCH Reference - 2007FED ¶36,605.20
Tax Research Consultant
CCH Reference - TRC FILEBUS: 12,308.15

CCH (cch.taxgroup.com) reports:

The IRS has certified the 2008 Honda Civic Hybrid CVT as eligible for the alternative motor vehicle credit under Code Sec. 30B. The credit amount for the vehicle is $2,100. The total number of qualifying Honda hybrid vehicles reported sold as of June 30, 2007, was 58,872. Therefore, purchasers of Honda's qualified vehicles may continue to rely on the previously issued IRS certifications.
IR-2007-168, 2007FED ¶46,665
Other References:
Code Sec. 30B
CCH Reference - 2007FED ¶4059E.026
CCH Reference - 2007FED ¶4059E.10
Tax Research Consultant
CCH Reference - TRC INDIV: 57,700
CCH Reference - TRC INDIV: 57,708
CCH Reference - TRC INDIV: 57,708.10

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

For taxable years beginning after 2006, legislative amendments revise the calculation of the annual fee payable by a limited liability company (LLC) organized, doing business, or registered in California so that the fee will be determined on the basis of the LLC's total income from all sources derived from or attributable to the state. "Total income from all sources derived from or attributable to the state" will be determined by applying the existing allocation and apportionment rules for assigning the sales of an entity doing business within and outside the state. The Legislature has stated its intent that no inference be drawn in connection with the legislative amendments for any taxable year beginning before 2007.
Previously, the annual LLC fee was based on an LLC's total income from all sources reportable to the state. "Total income" was defined as gross income from whatever source derived, plus the cost of goods sold that was paid or incurred in connection with a trade or business. However, the law lacked a definition for the term "from all sources reportable to the state." The Franchise Tax Board (FT interpreted this term to mean worldwide total income without apportionment.

CCH (cch.taxgroup.com) reports:

The Judiciary Committee of the U.S. House of Representatives has approved legislation that would extend for four years the existing moratorium on state and local Internet access taxes currently set to expire on November 1, 2007. The legislation, the Internet Tax Freedom Act Amendments Act of 2007, was offered by the Committee's chair Rep. John Conyers, Jr., D-Mich, and has the support of various industry groups and state government organizations. It has been reported by the Committee to the full House for a floor vote that may occur next week.
Specifically, the legislation would do the following:
-- The moratorium on state and local taxes on Internet access and multiple or discriminatory taxes on electronic commerce that was originally enacted in October 1998 would be extended until November 1, 2011. Also, the grandfather clause that permits Internet access taxes that were generally imposed and actually enforced prior to October 1, 1998, would be extended until November 1, 2011, as well.
-- A state or local government would be held harmless until November 1, 2007, if it has imposed a tax on telecommunications service purchased, used, or sold by a provider of Internet access. However, the hold harmless would only operate if a public ruling applying such a tax was issued prior to July 1, 2007, or such a tax is the subject of litigation that was begun prior to July 1, 2007. In its last set of amendments to the moratorium, Congress had attempted to prohibit, as of November 1, 2005, certain taxes on telecommunications services, including digital subscriber line (DSL) service and services used by access providers over the so-called Internet backbone. However, some states, including Minnesota and Missouri, have taken the position that the 2004 amendments did not have the purported effect. The Committee legislation attempts to clarify the intent of Congress and eliminate any inconsistent interpretations.
-- A new definition of "Internet access" would be enacted. The stated purpose is to define it as a service that enables a user to connect to the Internet. "Internet access" would include the purchase, use, or sale of telecommunications by an Internet service provider to provide the service, and incidental services such as home pages, electronic mail, instant messaging, video clips, and personal storage capacity. However, "Internet access" would not include voice, audio, video programming, or other products and services using Internet protocol for which there is a charge, regardless of whether the charge is bundled with charges for "Internet access."
-- The moratorium would be amended to clarify that it does not apply to state general business taxes, such as gross receipts taxes, that are structured in such a way as to be a substitute for or supplement the state corporate income tax. Therefore, Internet access providers could still be taxed on their receipts attributable to providing access under tax regimes such as the Michigan business tax, Ohio commercial activity tax, Texas margin tax, and Washington business and occupation tax.
Subscribers to CCH Tax Research NetWork can view the legislation passed by the House Judiciary Committee.
H.R. 3678, as amended and approved by the U.S. House Judiciary Committee, October 10, 2007; Press Release, Office of Rep. John Conyers, Jr., October 10, 2007.

CCH (cch.taxgroup.com) reports:

The Government Accountability Office (GAO) has issued a report addressing the need for improvement by the IRS in handling its paper case files. The study, prompted by the IRS's inability to locate files requested by the GAO, showed the IRS lacks an effective process for locating paper case files. The GAO noted that the IRS does not track whether files requested have been located and, if not, the reason for the inability to locate the file. Consequently, the IRS lacks sufficient data to evaluate its file management processes. The report further noted that missing files can result in lost revenue, as well as undue taxpayer burden.
Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, in a written statement criticized the IRS's lost paperwork, stating, "If the tables were turned, and it was the taxpayer losing his records, the IRS would have zero tolerance." He went on to say that the findings of the GAO are made worse by the fact that they are coming, "... a day after the House voted against private contractors assisting the IRS in its work on debt collection." According to the senator, the IRS may need more, not fewer, private contractors to assist with its work.
The GAO recommends the IRS take measures to ensure management of paper case files are in accordance with the Federal Records Act (FRA) and internal control standards and that it establish a tracking system for lost files. Moreover, the IRS should develop performance measures to assess needed improvements. In addition to other recommendations that would require IRS evaluation to determine their feasibility, the GAO recommended monitoring of case file performance across internal compliance programs. The IRS agreed, and has outlined actions to take in response to the recommendations.
GAO Report: Tax Administration --The Internal Revenue Service Can Improve Its Management of Paper Case Files (GAO-07-1160)
SFC Release on Grassley's Comments on GAO Report

CCH (cch.taxgroup.com) reports:

The government was not entitled to raise a setoff claim after judgment had been entered in favor of an insurance company that sought a tax refund and only the parties' computations of the correct refund amount remained to be submitted to the court. The government had the opportunity to plead its setoff claim earlier and the evidence showed that it was not unable to do so.
Although the government contended that Tax Court Rule 155 allows for the introduction of new issues during the recalculation of deficiencies, that rule was not adopted in whole by the Court of Federal Claims. Rather, a procedure loosely based on the rule was adopted for purposes of the computation of the refund due. The cases cited by the government showed that, absent the explicit warnings contained in Rule 155, a taxpayer would proceed at his risk if he agrees to propose, jointly with the government, a judgment amount following a decision on tax liability.
Related decision at 2006-1 USTC ¶50,240.
Principal Life Insurance Company, FedCl, 2007-2 USTC ¶50,719
Other References:
Code Sec. 7422
CCH Reference - 2007FED ¶41,688.21
Tax Research Consultant
CCH Reference - TRC LITIG: 9,106
 

CCH (cch.taxgroup.com) reports:

The Treasury Department and the Office of Management and Budget (OM on October 11 released data showing the budget deficit for fiscal year (FY) 2007 stood at $163 billion. That amount is $42 billion lower than had been forecast in July in the Mid-Session Review (TAXDAY, 2007/07/12, W.1).
"We have told the American people that, by keeping taxes low, we can grow the economy, and by working with Congress to set priorities we can be fiscally responsible and we can head toward balance. And that's exactly where we're headed," President Bush said following release of the data.
Treasury Secretary Henry M. Paulson, Jr., said the deficit figure showed that "we must keep taxes low and restrain federal spending to continue the economic expansion in the wake of credit market disruptions and the housing market downturn." OMB Director Jim Nussle added that the unsustainable growth in Social Security, Medicare and Medicaid posed a "huge budgetary challenge ... Congress should begin to take action to prevent this fiscal train wreck."
By Sarah Borchersen-Keto, CCH News Staff
White House Press Release --FY07 Results: Deficit Declining Towards 2012 Surplus
Treasury Department News Release, TDNR HP-603

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

An Illinois Appellate Court has issued answers to six certified questions in connection with a lawsuit alleging that numerous retailers with out-of-state operations failed to collect and remit Illinois use tax on goods sold to Illinois residents over the Internet and/or through catalogs.

CCH (cch.taxgroup.com) reports:

A retired serviceman was not entitled to deduct child-support payments as alimony; however, he could deduct as alimony the portion of his military retirement pay that was paid to his ex-wife. The individual, pursuant to court order, paid a certain amount to his former spouse during the tax year at issue, which he deducted on his tax return. A portion of the payment was reimbursement of child-related expenses. No deduction was allowed for the child-related expenses because they constituted child support pursuant to Code Sec. 71(c)(3).
The portion paid to his former spouse for her interest in his retirement plan, however, was deductible because it was considered alimony, as opposed to a property settlement. The payments met the requirements of Code Sec. 71(b)(1)(A) through (D)
in that they were received pursuant to a divorce decree; the parties were living in separate households; the divorce decree did not state that the payments were not includible in the recipient's gross income or specify that the payments were not to be treated as alimony; and the payments would terminate, by operation of law, upon the death of the former spouse.
N.J. Proctor, 129 TC No. 12, Dec. 57,135
Other References:
Code Sec. 71
CCH Reference - 2007FED ¶6094.15
CCH Reference - 2007FED ¶6094.345
CCH Reference - 2007FED ¶6094.38
Code Sec. 215
Tax Research Consultant
CCH Reference - TRC INDIV: 21,106
CCH Reference - TRC INDIV: 21,204
CCH Reference - TRC INDIV: 21,452.10

CCH (cch.taxgroup.com) reports:

For pension plan years beginning in October 2007, the IRS has released the corporate bond weighted average interest rate, the permissible range of interest rates used to calculate current plan liability and to determine the required contribution under Code Sec. 412(l) for plan years through 2007, and the current corporate bond yield curve and related segment rates for the purpose of establishing a plan's funding target under Code Sec. 430(h)(2).
The corporate bond weighted average interest rate for plan years beginning in October 2007 is 5.88 percent; the 90-percent to 100-percent permissible range is 5.29 percent to 5.88 percent. The annual rate of interest on 30-year Treasury securities for September 2007, used to determine the minimum present value of a participant's benefit under Code Sec. 417(e)(1) and (2), is 4.79 percent.
For plans electing not to use the transitional rule under Code Sec. 430(h)(2)(G), or for plans whose first year begins after 2007, the 24-month average segments rates for October 2007 are: 5.29 for the first segment, 5.86 for the second segment and 6.40 for the third segment.
For plan years beginning in 2008, the funding transitional segment rates for October 2007 are: 5.68 for the first segment, 5.87 for the second segment and 6.05 for the third segment.
For plan years beginning in 2008, the minimum present value transitional segment rates for September 2007 are: 4.89 for the first segment, 5.06 for the second segment and 5.14 for the third segment.
Notice 2007-82, 2007FED ¶46,664
Other References:
Code Sec. 401
CCH Reference - 2007FED ¶17,730.40
Code Sec. 412
CCH Reference - 2007FED ¶19,125.505
Code Sec. 417
Code Sec. 430
CCH Reference - 2007FED ¶20,161.03
Tax Research Consultant
CCH Reference - TRC RETIRE: 15,304.05
CCH Reference - TRC RETIRE: 15,304.10
CCH Reference - TRC RETIRE: 30,170
CCH Reference - TRC RETIRE: 30,556

CCH (cch.taxgroup.com) reports:

Private debt collectors would be barred from collecting unpaid tax debts on behalf of the IRS under the Tax Collection Responsibility Bill of 2007 (HR 3056) approved by the House on October 10. Support for the measure fell predictably along partisan lines, with Democrats complaining that private collection agencies (PCAs) are not nearly as efficient as IRS employees. Republican lawmakers noted that PCAs have been successful while never violating the rights of American taxpayers under the Fair Debt Collection Practices Act (P.L. 104-208). The measure was approved by a vote of 232 to 173.
House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., said the bill is intended to stop so-called "bounty hunters" from earning a commission by harassing taxpayers for money owed to the Treasury. IRS employees collect unpaid taxes at a much faster pace than PCAs, or about $20 collected for every $1 spent on collections, Democrats said. Rangel's committee passed the debt collection bill in mid July (TAXDAY, 2007/07/19, C.1).
Committee member Kevin Brady, R-Texas, said that the successful partnership between the IRS and PSAs would raise $1 billion over a 10-year period. Democrats would have to raise taxes on other Americans in order to stop PSAs from collecting unpaid tax debts, opponents of the measure said. Meanwhile, the Service is understaffed and unable to collect money from these hard-to-reach taxpayers, they added. In response, House Majority Leader Steny Hoyer, D-Md., said Democrats believe it is not good public policy to turn over taxpayer's Social Security numbers and other private identification information to private agencies. He said Democrats believe that the collection of taxes is a core government function that should ensure that all taxpayers pay their fair share of taxes.
The White House has issued a veto threat against the bill, saying that terminating the PCA program would result in a loss of significant revenue over the next 10 years. These are tax dollars that are legally owed to the government and that are otherwise not likely to be collected by the IRS, the administration said.
Senate Response
Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, said that the House bill to terminate the IRS's private debt collection program was "dead on arrival in the Senate" because it attempts to stop a program that is new, yet already working. "Opponents raise the fear of rogue private operators treading all over taxpayers' rights," said Grassley in a prepared statement. "But the program has multiple layers of scrutiny to make sure taxpayers' rights are fully protected." He noted that the House bill would allow the IRS to impose penalties and interest indefinitely on a taxpayer even if the person has not received formal notice from the Service. "If that's not anti-taxpayer, I don't know what is," said Grassley.
By Jeff Carlson and Stephen K. Cooper, CCH News Staff
SFC Release: Sen. Grassley's Comments on the IRS's Private Debt Collection Program
Statement of Administration Policy on HR 3056-To Repeal the Authority of the IRS to Use Private Debt Collection Companies, to Delay Implementation of Withholding Taxes on Government Contractors, to Revise the Tax Rules on Expatriation, and for Other Purposes

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The enhanced interest imposed by the IRS under Code Sec. 6621(c) on a couple involved in a limited partnership was not a partnership item that could be treated as a computational adjustment. The Tax Court's dismissal of the partnership proceeding for failure to prosecute could not be read as a determination that the partnership engaged in a tax-motivated transaction that would cause the enhanced interest to become a computational adjustment on the partner's returns. Therefore, the couple's claim for refund of the interest was not barred by the six-month limitation period under Code Sec. 6230.
The taxpayers argued that the enhanced interest was not a tax liability and, therefore, was not a computational adjustment to which the Code Sec. 6230
six-month limitations period for claiming a refund could apply. However, the interest was held to be a "tax" as that term is used in the Internal Revenue Code. Although the rate of interest was governed by Code Sec. 6621, the interest itself was imposed by Code Sec. 6601.
Moreover, neither the Form 4549A, Income Tax Examination Changes, nor the notice issued to the couple showing the balance due provided adequate notice that the IRS was imposing interest at the enhanced rate. The form indicated that no enhanced interest was being imposed and the notice listed only the standard underpayment interest rates. Thus, the communications were not sufficient to trigger the six-month limitations period.
T.H. McGann, FedCl, 2007-2USTC ¶50,703
Other References:
Code Sec. 6230
CCH Reference - 2007FED ¶37,769.025
Code Sec. 6601
CCH Reference - 2007FED ¶39,415.323
Code Sec. 6621
CCH Reference - 2007FED ¶39,455.605
Tax Research Consultant
CCH Reference - TRC PENALTY: 9,052
CCH Reference - TRC IRS: 27,154
CCH Reference - TRC IRS: 36,052.05

CCH (cch.taxgroup.com) reports:

The Treasury Department and the IRS have released guidance on the current corporate bond yield curve and related segment rates, as well as the methodology for determining the rates, for the purpose of establishing a plan's funding target under Code Sec. 430(h)(2). The Treasury Department, Pursuant to the Pension Protection Act of 2006 (P.L. 109-280) (PPA), is to produce a yield curve and simplified segment rates for investment-quality corporate bonds for the purpose of assisting private pension plans in determining their funding obligations and lump-sum payouts to participants. As required by the PPA, monthly updates to the rates will be released.
For plans electing not to use the transitional rule under Code Sec. 430(h)(2)(G), or for plans whose first year begins after 2007, the 24-month average segments rates for September of 2007 are: 5.26 for the first segment; 5.82 for the second segment; and, 6.38 for the third segment.
For plan years beginning in 2008, the funding transitional segment rates, taking into account the corporate bond weighted average of 5.86, for September 2007 are: 5.66 for the first segment; 5.85 for the second segment; and, 6.03 for the third segment.
For plan years beginning in 2008, the minimum present value transitional segment rates for August 2007, taking into account the 30-year Treasury rate of 4.93, are: 5.02 for the first segment; 5.18 for the second segment; and, 5.28 for the third segment.
IR-2007-167, 2007FED ¶46,661
Treasury Department News Release TDNR HP-594, 2007FED ¶46,662
Notice 2007-81, 2007FED ¶46,663
Other References:
Code Sec. 417
CCH Reference - 2007FED ¶17,730.40
Code Sec. 430
CCH Reference - 2007FED ¶20,161.30
Tax Research Consultant
CCH Reference - TRC RETIRE: 15,304.15

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Guidance regarding the application of North Carolina sales and use taxes to bundled transactions effective October 1, 2007, is provided. Tax applies to the sales price of a bundled transaction unless one of the following applies:
-- all of the products in the bundle are tangible personal property, the bundle includes one or more of the exempt products listed (food, drugs, or medical devices, equipment, or supplies), and the price of the taxable products in the bundle does not exceed 50% of the price of the bundle;
-- the bundle includes a service and the retailer determines an allocated price for each product in the bundle based on a reasonable allocation of revenue that is supported by the retailer's business records kept in the ordinary course of business (in such a circumstance, tax is applicable to the allocated price of each taxable product in the bundle); or
-- the price of the taxable products in the bundle does not exceed 10% of the price of the bundle and none of the other two options (specified immediately above) apply.

CCH (cch.taxgroup.com) reports:

A taxpayer that disposes of a qualified low-income building or interest therein can defer or avoid recapture of the low-income housing credit by furnishing a bond to the IRS. A table published by the IRS provides the bond factor amounts for calculating the amount of bond considered satisfactory under Code Sec. 42(j)(6) or the amount of U.S. Treasury securities to pledge in a Treasury Direct Account under Rev. Proc. 99-11, 1999-1 CB 275. These amounts are to be used by taxpayers that disposed of qualified low-income buildings or interests therein during the months of October, November and December 2007.
For buildings or interests placed in service in 1993 through 2007 and disposed of in October, the bond factor amounts are: 1993, 17.39 percent; 1994, 32.44 percent; 1995, 45.52 percent; 1996, 56.97 percent; 1997, 66.95 percent; 1998, 67.90 percent; 1999, 70.48 percent; 2000, 73.28 percent; 2001, 76.53 percent; 2002, 80.11 percent; 2003, 83.90 percent; 2004, 87.64 percent; 2005, 91.05 percent; 2006, 94.22 percent; and 2007, 97.21 percent.
For buildings or interests placed in service in 1993 through 2007 and disposed of in November, the bond factor amounts are: 1993, 17.39 percent; 1994, 32.44 percent; 1995, 45.52 percent; 1996, 56.97 percent; 1997, 66.95 percent; 1998, 67.77 percent; 1999, 70.34 percent; 2000, 73.14 percent; 2001, 76.37 percent; 2002, 79.94 percent; 2003, 83.73 percent; 2004, 87.45 percent; 2005, 90.87 percent; 2006, 94.07 percent; and 2007, 97.21 percent.
For buildings or interests placed in service in 1993 through 2007 and disposed of in December, the bond factor amounts are: 1993, 17.39 percent; 1994, 32.44 percent; 1995, 45.52 percent; 1996, 56.97 percent; 1997, 66.95 percent; 1998, 67.63 percent; 1999, 70.20 percent; 2000, 73.00 percent; 2001, 76.22 percent; 2002, 79.78 percent; 2003, 83.56 percent; 2004, 87.27 percent; 2005, 90.69 percent; 2006, 93.92 percent; and 2007, 97.21 percent.
Rev. Rul. 2007-62, 2007FED ¶46,658
Other References:
Code Sec. 42
CCH Reference - 2007FED ¶177.01
CCH Reference - 2007FED ¶4385.05
CCH Reference - 2007FED ¶4385.72
Tax Research Consultant
CCH Reference - TRC BUSEXP: 54,222
 

CCH (cch.taxgroup.com) reports:

The IRS has provided simplified methods for obtaining relief for late corporation and S corporation classification elections. if the entity meets the qualifications provided in the procedure, these simplified methods may be used in lieu of requesting a letter ruling from the IRS.
Late S corporation elections . Relief under this procedure is available to entities filing late S corporation elections provided: the failure to qualify was due to a failure to timely file the election at the appropriate location; the entity can show reasonable cause for the failure to timely file the election; no tax return has yet been filed for the first election year; the request for relief pursuant to this procedure is requested no more than six months after the tax return due date; and no one whose tax liability would be affected by the election has reported inconsistently for the first election year.
Relief under this procedure requires the filing of Form 2553, Election by a Small Business Corporation, and Form 1120S, U.S. Income Tax Return for an S Corporation, for the first tax year the entity intended to be an S corporation. The forms must be filed no later than six months, excluding extensions, after the tax return due date.
Late S corporation election and late corporate classification election . Relief under this procedure is available provided: the entity is eligible within the meaning of Reg. §301.7701-3(a); the entity intended to be classified as a corporation as of the intended effective date of the S corporation status; the failure to qualify as a corporation was due to a failure to timely file the election and the failure to qualify as an S corporation was due to a failure to timely file the election; the entity can show reasonable cause for the failure to timely file Form 2553 and Form 1120S; no tax return has yet been filed for the first election year; the request for relief pursuant to this procedure is requested no more than six months after the tax return due date; and no one whose tax liability would be affected by the election has reported inconsistently for the first election year.
Similarly, relief under this procedure requires the filing of Form 2553 and Form 1120S for the first tax year the entity intended to be an S corporation. The forms must be filed no later than six months, excluding extensions, after the tax return due date.
Form 2553 must include a statement explaining the reason the entity failed to timely file the elections. Rev. Procs. 2003-43, 2003-1 CB 998, and 2004-48, 2004-2 CB 172, are supplemented.
Rev. Proc. 2007-62, 2007FED ¶46,657
Other References:
Code Sec. 1361
CCH Reference - 2007FED ¶32,026.40
Code Sec. 1362
CCH Reference - 2007FED ¶32,053.027
CCH Reference - 2007FED ¶32,053.054
CCH Reference - 2007FED ¶32,053.10
CCH Reference - 2007FED ¶32,053.41
CCH Reference - 2007FED ¶32,053.65
Tax Research Consultant
CCH Reference - TRC PART: 45,256
CCH Reference - TRC SCORP: 204.15

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Because of the confusion among taxpayers regarding their obligation to file IRS Form 8886 for California corporation franchise and income and personal income tax purposes, the Franchise Tax Board (FT is giving taxpayers an additional 45 days to file. The FTB will soon issue a notice to advise taxpayers of the extended due date of November 15, 2007, and clarify disclosure requirements with respect to reportable transactions.
As previously reported, FTB Notice 2007-3 gave taxpayers 60 days from the date of the Notice to file an IRS Form 8886, Reportable Transaction Disclosure Statement, for each year that they participated in a reportable transaction. (TAXDAY, 2007/08/01, S.9; TAXDAY, 2007/10/05, S.3) There has been some confusion among taxpayers over the categories of reportable transactions and whether they had a requirement to disclose their transactions. In particular, taxpayers have been confused about the "Transactions with Contractual Protection" category of reportable transactions found under Treasury Reg. 1.6011-4(b)(4). A transaction with contractual protection is any transaction where the taxpayer has a right to a full or partial refund of fees paid in the event the tax treatment is not sustained, or where the fee is contingent upon the realization of tax benefits from the transaction.
News Release , California Franchise Tax Board, October 3, 2007.

CCH (cch.taxgroup.com) reports:

Notice 88-108, 1988-2 CB 445, continues to apply to Code Sec. 956(a)(1) after its amendment by the Omnibus Budget Reconciliation Act of 1993 (P.L.103-66), and will exclude certain obligations determined on a quarterly basis. Accordingly, if a domestic corporation borrows funds from its wholly owned controlled foreign corporation (CFC) five days prior to the end of each quarter in order to pay off the outstanding balance of its revolving debt and subsequently repays the debt to the CFC within five days after the end of the quarter, such debt obligation would not constitute an investment in U.S. property under Code Sec. 956(a)(1). The requirements of Notice 88-108 are met as long as the domestic parent's debt held by the CFC at the end of each quarter is repaid within 30 days of issuance, and the total number of days outstanding that the parent's debt is held by the CFC for the taxable year is less than 60 days.
IRS Advice Memorandum AM 2007-0016
Other References:
Code Sec. 956
CCH Reference - 2007FED ¶ 28,576.35
Tax Research Consultant
CCH Reference - TRC INTLOUT: 9,256.15

CCH (cch.taxgroup.com) reports:

The IRS reminds taxpayers preparing their tax returns for the October 15 tax-filing extension deadline to double check their returns for often-overlooked tax breaks and to file their returns electronically using IRS e-file or the Free File system. The IRS e-file is fast, accurate and secure, and is an ideal option for those rushing to meet the October 15 deadline because the IRS verifies receipt of an e-filed return. According to the IRS, a record 58 percent of the 135.3 million returns received so far this year have been filed electronically and those filing electronically make fewer mistakes.
Taxpayers with incomes at or below $52,000 are urged to file their returns for free using the Free File link on the IRS's website IRS.gov. According to the IRS, seven in 10 taxpayers qualify to use the software and electronic-filing services made available through the Free File Alliance. Telephone customers can also use Free File to request this year's one-time telephone excise tax refund.
Extended filers are also urged to pay using an electronic funds withdrawal or by making a credit card payment. While there is no fee for processing an electronic funds withdrawal, credit-card payments are subject to convenience fees charged by the authorized service providers. Paper filers, as well as electronic filers, who are unable to pay what they owe may be able to set up a payment agreement with the IRS (see the Online Payment Agreement section on IRS.gov for more information). Taxpayers expecting a refund are also urged to choose direct deposit in order to receive the refund sooner.
Taxpayers are reminded to check their returns for the following, often-overlooked, tax breaks:
Telephone Excise Tax Refund:
A one-time refund of long-distance excise taxes available on tax year 2006 income-tax returns. The refund applies to charges billed from March 2003 through July 2006. The government offers a standard refund amount of $30 to $60, or taxpayers can base their refund request on the actual amount of tax paid. Even if a taxpayer does not normally have to file a return, Form 1040EZ-T (also available through Free File) can be used to request this refund;
Earned Income Tax Credit:
Earned income of less than $38,348 in 2006 may qualify a taxpayer to claim the earned income tax credit. This credit, worth up to $4,536, is available to low and moderate-income workers and working families. A special interactive "EITC Assistant" is available on IRS.gov to help taxpayers determine whether they are eligible;
Savers Credit: Low-and moderate income workers who contributed to a retirement plan, such as an IRA or 401(k), may be able to take the savers credit. This credit is available in addition to any other tax savings that apply. Use Form 8880 to claim the credit;
Extender Tax Breaks:
Several popular tax breaks were renewed too late to be included on 2006 federal income tax forms. Accordingly, many taxpayers need to follow special instructions to claim the deduction for state and local sales taxes, the tuition and fees deduction, as well as the educator expense deduction. In addition, many who qualify for the tuition and fees deduction may reap greater tax savings by, instead, claiming the Hope credit or the lifetime learning credit for a particular student.
Finally, some taxpayers, including those serving in Iraq, Afghanistan or other combat zone localities and people affected by several recent natural disasters, can wait until after October 15 to file.
IR-2007-165, 2007FED ¶46,656
Other References:
Code Sec. 25B
CCH Reference - 2007FED ¶3838.10
Code Sec. 32
CCH Reference - 2007FED ¶4082.048
Code Sec. 164
CCH Reference - 2007FED ¶9502.002
CCH Reference - 2007FED ¶9502.355
Code Sec. 6011
CCH Reference - 2007FED ¶35,141.47
Tax Research Consultant
CCH Reference - TRC FILEIND:15,200
CCH Reference - TRC FILEIND: 15,204
CCH Reference - TRC INDIV: 57,550
CCH Reference - TRC EXCISE: 9,056

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Following a tax deed sale of property for failure to pay Illinois property taxes, the former owner of the property was not equitably entitled to an award from the county's tax deed indemnity fund, because the owner simply was not diligent in paying his taxes, according to the Illinois Supreme Court. A lower ruling denying the owner's indemnity request was affirmed.

CCH (cch.taxgroup.com) reports:

In its October issue of Tax News, the California Franchise Tax Board (FT discusses the requirements that must be met to defer recognition of gain from the sale of qualified small business stock for California personal income tax purposes. In addition, the FTB warns taxpayers that they may be subject to stiff corporate franchise or income or personal income tax penalties if they failed to file or filed incomplete disclosure statements for listed or reportable transactions.

CCH (cch.taxgroup.com) reports:

Despite GOP objections to the length of tax relief included in the Mortgage Forgiveness Debt Relief Bill of 2007 (HR 3648), the measure won overwhelming bipartisan support in the House on October 4. The bill, which passed by a vote of 386 to 27, would provide permanent tax relief for homeowners facing foreclosure due to high-interest, adjustable rate mortgage loans. Some GOP lawmakers said the measure should have only granted a three-year window for tax relief, which would have been long enough for homeowners to ride out the current crisis in the subprime lending market.
According to House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., the bill would provide tax relief to approximately 2 million families by permanently excluding mortgage debt that is forgiven or renegotiated from tax liability. Under current law, such debt is considered taxable income to borrowers. "It is just not right or fair that families struggling through a foreclosure would then face a tax bill, in addition to losing their homes, when they have seen no increase in their net worth," Rangel said.
To pay for the tax relief, the bill would restrict taxpayers from excluding some gains from the sale of vacation homes or rental properties. The measure now heads to the Senate, where lawmakers are considering a similar proposal, the Mortgage Cancellation Relief Bill of 2007 (Sen 1394), offered by Sen. George V. Voinovich, R-Ohio, and Sen. Debbie Stabenow, D-Mich.
By Stephen K. Cooper, CCH News Staff
 

CCH (cch.taxgroup.com) reports:

The Senate Finance Committee (SFC) on October 4 approved an agriculture tax title that includes codification of the economic substance doctrine as a means to offset most of the measure's $16 billion price tag. The Heartland, Habitat, Harvest, and Horticulture Act of 2007 was approved by a 17 to 4 vote.
The Chairman's mark would convert a number of conservation payment programs into fully-offset tax credit programs and offer additional incentives for rural economic development and energy-related tax relief to aid agricultural producers. In addition, it would create a disaster assistance trust fund and convert payment programs to tax credits in order to free up previously obligated spending funds for the Senate Agriculture Committee.
Codification of the economic substance doctrine raises approximately $10 billion as a revenue offset and would apply to transactions entered into after the date of enactment. A description provided by the Joint Committee on Taxation (JCT), states that the SFC measure clarifies and enhances the application of the economic substance doctrine to provide a uniform definition of economic substance that does not alter the flexibility of the courts in other respects. According to the JCT description, the measure provides that after a court determines the economic substance doctrine applies to a transaction, that transaction has economic substance only if the taxpayer establishes that the transaction changes the taxpayer's economic position in a meaningful way (apart from federal income tax consequences) and the taxpayer has a substantial non-federal-tax purpose for entering into the transaction.
In addition to the codification, the SFC approved four amendments totaling approximately $1 billion during the markup. An amendment by Sen. Jim Bunning, R-Ky., would extend the alternative fuels tax credit (Code Sec. 6426) until December 31, 2010, with a 50 percent carbon capture standard on date of enactment. An amendment by Sen. Ken Salazar, D-Colo., would further increase the value of the cellulosic ethanol credit from $1.11 per gallon to $1.28. An amendment by Sen.Debbie Stabenow, D-Mich., would extend the length of the cellulosic ethanol credit subject to available funds, and an amendment by Sen. Blanche L. Lincoln, D-Ark., would provide a five-year depreciation period.
The House on July 27 approved its farm bill, the Farm, Nutrition, and Bio-energy Bill of 2007 (HR 2419) by a 231 to 191 margin (TAXDAY, 2007/07/30, C.1). The measure includes a controversial tax on foreign-owned U.S. firms, which Senate Republicans are expected to attempt to strip out when the bill is taken up in that chamber.
By Jeff Carlson, CCH News Staff
SFC Release: Grassley Statement on Finance Committee Markup of Tax Title to Farm Bill, Peru Trade Agreement
JCT Release: Economic Substance Doctrine
JCT Description of the Chairman's Modification to the Provisions of the Heartland, Habitat, Harvest and Horticulture Act of 2007, JCX-96-07
JCT Estimated Revenue Effects of the Chairman's Mark, as Modified, of the Heartland, Habitat, Harvest and Horticulture Act of 2007, Schedule for Markup by the Senate Finance Committee on October 4, 2007, JCX-97-07

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Legislative changes have been enacted regarding bad debt deductions for Michigan sales and use tax purposes. The changes are intended to be curative to express the original intent of the Legislature that a deduction for a bad debt for a seller is available exclusively to those persons with legal liability to remit the taxes on the transaction for which the bad debt is recognized for federal income tax purposes. Both bills, H.B. 5096 (applying to use tax) and H.B. 5097 (applying to sales tax), state that each is intended to correct any misinterpretation of the term "seller" caused by the court's decision in Daimler Chrysler Services North America LLC v. Department of Treasury, Michigan Court of Appeals, No. 264323, July 25, 2006.

CCH (cch.taxgroup.com) reports:

An individual was denied a deduction for suspended passive losses on his S corporation stock because the stock became worthless, resulting in a complete disposition of the passive activity, two years prior to the year asserted by the taxpayer. The taxpayer claimed that the stock became worthless in the year a lawsuit filed by the corporation was settled with no recovery for the corporation. However, the corporation became insolvent and the stock became worthless in a prior year since it had neither liquidated nor potential value. The corporation did not engage in any business activity subsequent to that year and there was insufficient evidence that there was a reasonable expectation the lawsuit would result in a substantial recovery allowing it to resume its business activities. Accordingly, any suspended passive losses under Code Sec. 469 were not available to offset the taxpayer's ordinary income in the year the lawsuit was settled.
A. Bilthouse, DC Ill., 2007-2 USTC ¶50,680
Other References:
Code Sec. 165
CCH Reference - 2007FED ¶10,001.103
CCH Reference - 2007FED ¶10,001.43
Code Sec. 469
CCH Reference - 2007FED ¶21,966.60
Code Sec. 1366
CCH Reference - 2007FED ¶32,084.425
Tax Research Consultant
CCH Reference - TRC SCORP: 410.05
CCH Reference - TRC STAGES: 9,176

CCH (cch.taxgroup.com) reports:

A few hours after vetoing the Children's Health Insurance Program Reauthorization Act of 2007 (HR 976), President Bush said that he is willing to consider a compromise bill containing additional funding for the State Children's Health Insurance Program (SCHIP). On October 3, the president told a business group in Lancaster, Pa., that he wants to work in a bipartisan fashion with both chambers to reach a compromise. "If they need a little more money in the bill to help us meet the objective of getting help for poor children, I'm more than willing to sit down with the leaders and find a way to do so," Bush stated.
The president proposed to increase SCHIP funding by 20 percent, or $5 billion, over five years. The measure vetoed by Bush would have increased SCHIP funding by $35 billion over the same period and would have been funded by an increase in tobacco taxes. White House Counselor Ed Gillespie told reporters that if it can be determined that a 20-percent increase in SCHIP funding is not enough to cover all children eligible for the program, Bush is "open to talking about how much more it would take to do that." Health and Human Services Secretary Mike Leavitt and National Economic Council Director Allan Hubbard will take the lead in negotiations on Capitol Hill, Gillespie noted.
One possible compromise proposed by Sen. Trent Lott, R-Miss., would extend SCHIP for 18 months. The SCHIP Extension Bill of 2007, introduced on September 25, would fund the program through the beginning of fiscal year (FY) 2009 by providing $6.5 billion for the 2008 fiscal year and $3.6 billion for the first half of the 2009 fiscal year.
The proposed extension adds an additional $1.5 billion for FY 2008 and an additional $1.1 billion for the first six months of FY 2009, amounting to an overall 33-percent increase in the program's baseline, according to a release from Lott's office. The proposed funding increase is designed to ensure that no state would have to reduce their benefits package or change their current eligibility standards due to a lack of federal funding for the entire 18-month extension, according to the written release.
The president, in his October 3 remarks, urged Congress to support several incremental steps to increase access to affordable health care. They include the proposed $15,000 standard health care deduction Bush announced in his State of the Union address that was aimed at leveling the playing field between employer-insured workers and uninsured individuals seeking coverage in the marketplace. The president in recent months indicated he is also open to supporting a refundable health tax credit to increase access to health care.
Senate Finance Committee Chairman Max Baucus, D-Mont., on October 3 swiftly condemned Bush's veto of the measure, saying that Congress would return to the legislation immediately in an attempt to override the veto. "Thankfully, a strong, bipartisan majority in both chambers of Congress sees what is at stake," said Baucus in a statement. "In the coming days, we will do what the president has not done: we will stand up for American children in need. "
Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, however, gave faint praise to Bush for offering to supply additional funds in order to insure impoverished children. A spokesperson for the senior lawmaker said that it was "a step in the right direction," although she pointed out that what Grassley really wanted was for the president to engage with Congress in negotiating the contents of the bill. "It [additional funding] might be helpful... if he [Bush] is offering enough to do any good," said the spokesperson.
By Jeff Carlson and Paula Cruickshank, CCH News Staff
 

CCH (cch.taxgroup.com) reports:

The Senate Finance Committee plans to mark up the tax title to a major farm bill on October 4, but lawmakers are still scrambling to find revenue offsets for the $12-billion package and members are now looking at economic substance codification as a means to fill the approximately $8-billion gap. Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, told reporters on October 2 during his weekly agriculture news conference that a final decision on offsets, including the economic substance doctrine, would most likely be made during the markup.
The Heartland, Habitat, Harvest, and Horticulture Bill of 2007 would create a trust fund to help ranchers and farmers hurt by crop and livestock losses, convert a number of conservation payment programs into fully offset tax credit programs, and offer additional incentives for rural economic development and energy-related tax relief to aid agricultural producers. Specifically, the agricultural tax package includes a new residential wind credit, a new production tax credit for cellulosic ethanol, the extension of the small ethanol producer credit through 2012 and the extension of biodiesel tax credits through 2010.
"Congress needs to come through for America's farmers and ranchers with disaster assistance, tax relief, and other provisions that make sense for the agriculture sector today "said Finance Committee Chairman Max Baucus, D-Mont., in a written statement. "The hard work and sacrifice of our agricultural producers should not go unnoticed or unrewarded, and this package of tax provisions aims to recognize the realities farming folks face today." He also noted that, by creating the disaster assistance trust fund and converting payment programs to tax credits, the measure would free up previously obligated funds for the Agriculture Committee to use elsewhere in farm bill spending.
Revenue offsets for the energy portion of the legislation include a five-cent reduction in the ethanol credit, extension of a tariff on ethanol, the elimination of certain refunds of duties imposed on ethanol, exclusion of denaturant from the alcohol fuels credit, and redefining alcohol and biodiesel as taxable fuel.
The agricultural bond improvements, or "aggie bonds" provisions, are tax-exempt bonds that provide low-interest loans for first-time ranchers and farmers. The chairman's mark updates the structure of aggie bonds for the first time in 26 years by increasing the loan limit from $250,000 to $450,000, and indexing the limit amount for inflation. It would also eliminate the dollar limitation in the definition of substantial farmland.
The measure also would give farmers a tax option on what tax law refers to as installment sale modification for single-purpose agricultural property: Farmers who have taken significant amounts of accelerated depreciation on single-purpose agricultural property may be reluctant or unable to sell or exchange the agricultural property due to the large amount of ordinary income tax due at the time of the sale or exchange. The proposal would allow a taxpayer to pay recapture obligations in installments over a period of time, rather than all at once in the year of the sale.
Provisions in the mark also would give farmers tax credits for conservation programs, including; wetlands and grasslands, endangered species, timberland and rural heritage preservation. Energy tax credits would be made available for residential wind property, transmission poles, ethanol and biodiesel production along with other alternative fuels.
By Jeff Carlson, CCH News Staff
SFC Release: Grassley Comments on Agriculture Tax Package
SFC Release: Finance to Consider Agriculture Tax Measures Thursday
JCT Estimated Revenue Effects of the Chairman's Mark of the Heartland, Habitat, Harvest and Horticulture Act of 2007, JCX-95-07

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Ohio retailers who source their delivery sales by origin for sales tax purposes will not be required to switch to destination-based sourcing for delivery sales on January 1, 2008. The January 1st requirement was dependent upon certification that the Streamlined Sales and Use Tax (SST) Governing Board had adopted amendments to, or an interpretation of, the Agreement that allowed an exception from the Agreement's destination-based sourcing provisions for Ohio retailers with less than $500,000 in delivery sales in the previous calendar year. The Ohio Tax Commissioner has determined that the required certification will not happen and, consequently, all vendors currently permitted to source delivery sales on an origin basis may continue to do so. Vendors who have previously changed to destination-based sourcing voluntarily, and vendors who are currently required to use destination-based sourcing for having made $30 million in Ohio delivery sales in calendar year 2005, must continue to use destination-based sourcing for delivery sales.
Vendors who voluntarily opt to change to destination-based sourcing for their delivery sales may do so irrevocably at any time without providing formal notice to the Ohio Department of Taxation. The change should be made at the beginning of the retailer's monthly or semi-annual tax return period.
Telecommunications service providers that source their sales under Sec. 5739.034, Ohio R.C. must continue to do so. Out-of-state sellers who collect Ohio sales tax must continue to do so on a destination basis.
Ohio is currently an associate member of the Agreement through the end of 2007. A shift from origin-based sourcing to destination-based sourcing on January 1st was necessary to make Ohio a full member of the Streamlined Sales and Use Tax (SST) Agreement.
For more Tax Day coverage of the Ohio sourcing issue, see TAXDAY, 2007/09/24, S.1; TAXDAY, 2007/08/16, S.1; TAXDAY, 2007/08/14, S.12; TAXDAY, 2007/07/03, S.31; TAXDAY, 2007/06/26, S.1; TAXDAY, 2007/06/22, S.18; TAXDAY, 2007/04/27, S.21; and TAXDAY, 2007/02/06, S.11.
Subscribers to CCH Tax Research NetWork may view the Department's Information Release and News Release on the sourcing issue.
Sales and Use Tax Information Release ST 2007-03 , Ohio Department of Taxation, October 2007; News Release , Ohio Department of Taxation, October 1, 2007; E-mail , Ohio Department of Taxation, October 1, 2007.

CCH (cch.taxgroup.com) reports:

Audit letters are in the mail and individuals nationwide will begin receiving letters in October from the IRS informing them they have been selected for a special audit project, Mark Mazur, director, research, analysis and statistics for the IRS, tells CCH. Mazur also reported that the Service's special audit study of S corporations is almost finished and preliminary data should be released in 2008.
Identifying Noncompliance
Under pressure from Congress to close the $300 billion tax gap --the difference between what taxpayers owe and what they pay --the IRS is taking a closer look at returns to identify noncompliance and update its audit selection formulas. The current trend of auditing special segments of the taxpaying public began a few years ago with a special study of S corporation returns (TAXDAY, 2007/06/07, I.1).
Roughly 13,000 individual returns from the 2006 tax year and future tax years will be selected for audit. The study of Form 1040 series returns is rolling, Mazur explained. It will begin with individual returns from the 2006 tax year and continue into the foreseeable future, he indicated.
"The sample size is as small as we could credibly make it to minimize the burden on taxpayers" Mazur said. A similar study several years ago involved 45,000 individuals, he noted (TAXDAY, 2007/06/15, I.5). The 13,000 returns represent less than one-tenth of one percent of the 135 million individual returns the IRS receives annually.
The IRS anticipates discovering what types of income individuals are misreporting, Mazur noted. The study is also likely to confirm that third-party reporting, such as third-party reporting of wages and pensions, guarantees higher compliance.
Taxpayer Contact
Some individuals will not even know they are part of the project. If the item on the return in question can be verified by IRS records, the individual will not be contacted. The percentage of individuals who will not be contacted will be small, Mazur predicted.
Individuals selected for correspondence or face-to-face audits will receive letters informing them they are part of the special study. "Taxpayers cannot opt-out," Mazur said. The letters are being sent from IRS field offices and not from the National Office in Washington, D.C., he explained. The IRS aims to make the entire process as minimally intrusive as possible, he emphasized.
S Corporations
A special audit project of S corporations is nearing completion, Mazur reported. The examination phase of the study of roughly 5,000 S corporation returns from the 2003 and 2004 tax years ended on September 30. "We are very far along; 95 percent completed," he said. Preliminary findings will likely be announced early next year, he added.
More Projects Possible
If Congress provides funding, the IRS could engage in more than one audit project at a time. President Bush has recommended increased funding for these initiatives (TAXDAY, 2007/05/10, C.2).
By George L. Yaksick, Jr., CCH News Staff

CCH (cch.taxgroup.com) reports:

A nonelecting spouse's right to intervene in an innocent spouse relief case was held to survive his death. The Tax Court, in a case of first impression, held that, under Code Sec. 6015(e)(4), the right to intervene and, therefore, the right to notice that a petition has been filed, survived the nonelecting spouse's death and passed to his estate. The Court followed its reasoning in Jonson , 118 TC 106, Dec. 54,641, where it held that a decedent's estate was entitled to request innocent spouse relief.
S.V. Fain, 129 TC No. 11, Dec. 57,127
Other References:
Code Sec. 6015
CCH Reference - 2007FED ¶35,192.77
Tax Research Consultant
CCH Reference - TRC INDIV: 18,052.15
CCH Reference - TRC LITIG: 6,130.10

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Michigan Governor Jennifer Granholm has signed into law a bill that expands the use tax to 23 services. The services subject to tax include the following:
-- business service center services;
-- consulting services;
-- investment advice services;
-- janitorial and landscaping services;
-- warehousing and storage services;
-- packaging and labeling services;
-- document preparation services; and
-- many personal services, such as concierge and psychic services.
Taxpayers should source the services in the same manner as products.
Subscribers to CCH Tax Research NetWork may view the enrolled bill.
Act 93 (H.B. 5198), Laws 2007, effective December 1, 2007.

CCH (cch.taxgroup.com) reports:

Michigan Governor Jennifer Granholm has signed into law a bill that increases the personal income tax rate from 3.9% to 4.35%, effective October 1, 2007. Effective October 1, 2011, the rate is reduced by 0.1% each year for the next four years until the tax rate is 3.95%. Then, beginning October 1, 2015, the rate is reduced to 3.9%.
Applicable to tax years beginning after 2007, a personal income exemption of $250 is created for qualified disabled veterans. Qualified taxpayers and their dependents may claim the exemption.
Subscribers to CCH Tax Research NetWork may view the enrolled bill.
Act 94 (H.B. 5194), Laws 2007, effective and applicable as noted.  

CCH (cch.taxgroup.com) reports:

The IRS has issued the 2007 allowable living expense standards. Allowable living expense standards, also known as collection financial standards, are used to determine the ability of a taxpayer to pay a delinquent tax liability. The standards are effective October 1, 2007. For bankruptcy purposes, the effective date for the new standards will be January 1, 2008.
The standards have been redesigned to incorporate:
--a new category for out-of-pocket health-care expenses;
--the elimination of income ranges for national standards for food, clothing and other items;
--a nationwide set of tables for national standard expenses, eliminating separate tables for Alaska and Hawaii;
--an expanded number of household categories for housing and utilities;
--an allowance for cell phone costs in housing and utilities;
--equal allowances for first and second vehicles under transportation expenses;
--fewer Metropolitan Statistical Areas for vehicle operating costs; and
--a separate nationwide public transportation allowance.
IR-2007-163, 2007FED ¶46,652
Other References:
Code Sec. 7122
CCH Reference - 2007FED ¶41,130.29
CCH Reference - 2007FED ¶43,352.56
Tax Research Consultant
CCH Reference - TRC IRS: 45,112
 

CCH (cch.taxgroup.com) reports:

President Bush on September 29 signed HJRes 52, a continuing resolution for fiscal year (FY) 2008, which extends appropriations for the federal government through November 16 while congress considers the 12 regular appropriations bills. The measure also extends the State Children's Health Insurance Program (SCHIP), which would have expired on October 1. The president has pledged to veto the Children's Health Insurance Program (CHIP) Reauthorization Act of 2007 (HR 976). The bill is expected to reach the White House on October 2, according to a White House spokesman.
Bush proposed to increase SCHIP funding by $5 billion over five years and said any additional funding beyond that amount would overstep the original intent of the legislation. SCHIP was established to cover children whose parents do not qualify for Medicaid but do not earn enough to buy private insurance.
The president contends that SCHIP expansion would encourage privately insured families to switch to the federally run program, a charge that has been challenged by the health care industry and many leading Republican members of Congress. According to White House Press Secretary Dana Perino, the Congressional Budget Office estimates 2.1 million privately insured parents would switch to CHIP over five years if the program were expanded.
The CHIP package would be funded by a 61-cent-per-pack increase in the cigarette tax and higher levies on other tobacco products. The president opposes higher taxes to pay for the program, White House officials said.
By Paula Cruickshank, CCH News Staff
Children's Health Insurance Program Reauthorization Act of 2007, Enrolled, HR 976
House Joint Resolution Making Continuing Appropriations for Fiscal Year 2008, Enrolled, HJRes 52

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

In a New York corporate franchise tax case, the Tax Appeals Tribunal has reversed an administrative law judge (ALJ) determination that had held that a taxpayer was entitled to use certain net operating losses (NOLs) generated by its subsidiary.
The taxpayer had filed an election to reattribute the NOLs to itself on its federal corporation income tax return. The ALJ had ruled that the reattributed NOLs should be treated the same as the taxpayer's other losses, i.e. they were includible as part of its separate company losses for federal purposes and, accordingly, part of the starting point for calculating its New York NOL.
In reversing the ALJ determination, the Tribunal held that under the relevant regulations, corporations filing separate New York returns must compute their NOL deductions as if they had filed their Federal returns on a separate basis. Thus, in order to place the taxpayer in the same position as if it did not file consolidated Federal income tax returns, its use of the NOLs of its subsidiary should be denied. Instead, the NOLs should stay with the subsidiary as they would have if the subsidiary had filed separate Federal income tax returns.
Univisa, Inc. , New York Division of Tax Appeals, Tax Appeals Tribunal, DTA No. 820289, September 20, 2007, ¶405-846
Other References:
Explanations at ¶10-805

CCH (cch.taxgroup.com) reports:

A wholly-owned subsidiary of an energy company was not entitled to a personal property tax replacement credit against Illinois corporate income tax for investments in qualified property because electricity did not qualify as tangible personal property.
The court noted that although it had previously recognized electricity as personal property, it had at no point held electricity to be tangible personal property. To include electricity within the classification of tangible personal property, for the purposes of the credit, would be inconsistent with Illinois precedent. Thus, the court was bound by stare decisis to adhere to the decisions of the Illinois Supreme Court and rule that electricity was not tangible personal property. The court also rejected the argument that the subsidiary qualified for the credit as a retailer upon finding that the subsidiary did not, as a matter of law, engage in "retailing."
The court also disallowed the subsidiary's contention that the credit statute violated the uniformity clause of the Illinois Constitution by allowing credits to gas companies, but not to electric companies. However, the uniformity clause merely required that a credit be "reasonable." Because the subsidiary did not claim the credit was unreasonable, but rather claimed that it was entitled to a credit, the subsidiary's argument was rejected.
Exelon Corp. v. Illinois Department of Revenue , Illinois Appellate Court, First District, No. 1-06-3388, September 24, 2007, ¶401-808
Other References:
Explanations at ¶12-055b
 

CCH (cch.taxgroup.com) reports:

The IRS has published a list of the counties and parishes in the United States that have suffered exceptional, severe or extreme drought during the 12 months ending August 31, 2007. As authorized in Code Sec. 1033(e)(2)( and implemented in Notice 2006-82, I.R.B. 2006-39, 529, an extended replacement period is available for livestock sold on account of extreme weather conditions until the end of the first taxable year ending after the first drought-free year. For this purpose, the 12-month period that ended on August 31, 2007, was not a drought-free year for a region that includes any county on the IRS list.
Notice 2007-80, 2007FED ¶46,651
Other References:
Code Sec. 1033
CCH Reference - 2007FED ¶29,650.127
Tax Research Consultant
CCH Reference - TRC SALES: 27,164
CCH Reference - TRC FARM: 3,206.10

CCH (cch.taxgroup.com) reports:

The IRS has delayed the effective date of Rev. Rul. 2006-57, I.R.B. 2006-47, 911 (TAXDAY, 2006/11/20, I.1), which describes circumstances in which an employer may use smartcards, debit or credit cards, and other electronic media to provide employees with qualified transportation fringe benefits that are excludable from gross income. The original effective date, January 1, 2008, is now delayed to January 1, 2009. Employers and employees may, however, continue to rely on Rev. Rul. 2006-57 with respect to transactions occurring prior to January 1, 2009. The delay was granted due to concerns that certain transit systems may need extra time to modify their technology in order to make it compatible with the voucher requirements provided in Rev. Rul. 2006-57.
Notice 2007-76, 2007FED ¶46,648
Other References:
Code Sec. 132
CCH Reference - 2007FED ¶7438.75
Tax Research Consultant
CCH Reference - TRC COMPEN: 36,354
 

Tax Analysts report: