Tax News

CCH (cch.taxgroup.com) reports:

Senate Finance Committee Chairman (SFC) Max Baucus, D-Mont., is planning a markup of a small business tax incentives bill the week of January 15, with the intent of adding it to a bill that would increase the minimum wage or moving it as a standalone measure. Baucus claims that the $10 billion over 10 years cost of the measure will be fully offset. In the House, lawmakers passed a bill to raise the minimum wage but the measure did not include any tax breaks for small businesses or health care. Eighty-two Republicans joined with Democrats to pass the measure. Finally, the IRS is developing a new Schedule M-3 for foreign corporations having $10 million or more in U.S. assets.
Congress
Senate. SFC Chairman Baucus plans to mark up a small business tax incentives bill on January 17 in preparation for the Senate taking up minimum wage hike legislation the following week. "This package of tax incentives will help to keep small businesses running strong and employing American workers, and we should do it in a fiscally responsible way," Baucus said.
It is expected that the measure will be offered as an amendment to the House bill increasing the minimum wage, which may doom the entire bill. House Ways and Means Committee Chairman Charles Rangel, D-N.Y., says he plans to exercise his right to "blue slip" any tax legislation that does not originate in the House, which would effectively kill the bill.
Baucus has said that he does not care if the bill moves with a minimum wage hike; rather he believes the package of small business tax incentives is warranted as a standalone or as an amendment. There is concern among Senate Democrat leaders however, that the minimum wage bill will not garner enough Republican votes in that chamber if there are no tax sweeteners tacked on.
Baucus has proposed accelerating the depreciation costs for new restaurant construction, extending Code Sec. 179 expensing limits for small businesses, expanding the allowable use of the cash method of accounting, and small business regulatory reform as a starting point. In addition, Baucus and committee member Sen. Olympia Snowe, R-Maine, introduced legislation on January 10 that would permanently extend and expand the work opportunity tax credit (WOTC). The WOTC is currently scheduled to expire on December 31, 2007.
The final cost of the bill has yet to be determined, although it is estimated that it will be in the range of $10 billion over 10 years. With an eye on maintaining fiscal discipline, Baucus said the cost of the measure will be fully offset although it has not been determined which offsets are under consideration. Ranking member of the committee Sen. Charles E. Grassley, R-Iowa, told reporters that they will use offsets considered in the past, with the exception of codification of the economic substance doctrine. Grassley said that coupling a higher federal minimum wage with tax incentives will "help preserve jobs" of employees who work for small businesses. Baucus and Grassley released the text of the bill on January 12.
In another legislative development, Sen. George V. Voinovich, R-Ohio, sent a letter to Senate leadership on January 12 outlining his intention to focus on tax code reform and entitlement programs as a means of bringing the government's fiscal imbalance under control. In the 109th Congress, Rep. Frank R. Wolf, R-Va., and Voinovich introduced parallel legislation, the Securing America's Future Economy (SAFE) Commission Act (Sen 3491 and HR 5552), which would have established a national commission to present long-term solutions for reform of the tax code and ensure the solvency of entitlement programs. The two lawmakers plan to re-introduce the legislation on January 16.
House. House Democrats disregarded the wishes of their Republican colleagues and passed a bill to raise the federal minimum wage to $7.25 per hour over two years, without adding any GOP-favored tax breaks for small businesses or health care. By a vote of 315-116 on January 10, the House approved the Fair Minimum Wage Act of 2007 (HR 2), which was introduced on January 5 by House Education and Labor Committee Chairman George Miller, D-Calif. Eighty-two Republicans voted with Democrats to send the measure to the Senate.
Meanwhile, House Ways and Means Committee Democrats plan to name the lawmakers who will head the panel's subcommittees in the 110th Congress on January 17. Democrats appear likely to choose Rep. Pete Stark, D-Calif., to lead the Subcommittee on Health, Rep. Richard Neal, D-Mass., to lead the Subcommittee on Select Revenue Measures, Rep. Michael McNulty, D-N.Y., to lead the Subcommittee on Social Security, Rep. Jim McDermott, D-Wash., to head the Subcommittee on Human Resources, Rep. John Lewis, D-Ga., to head the Subcommittee on Oversight, and Rep. Sander Levin, D-Mich., to lead the Subcommittee on Trade.
As part of their first "100 Hours" Agenda for the 110th Congress, Ways and Means Chairman Rangel and Natural Resources Committee Chairman Nick J. Rahall, D-W.Va., introduced legislation on January 12 to eliminate the tax benefits and federal oil and gas leasing provisions in the Energy Policy Act of 2005 (P.L. 109-58).
Rangel said the elimination of the tax breaks for oil companies is justified by the excessive profits that the industry reported last year. He said the revenues will be invested in developing alternative energy sources for the nation. The measure, the Creating Long-Term Energy Alternatives for the Nation Bill of 2007 (HR 6), will be voted on by the House on January 18, according to House Majority Leader Steny Hoyer, D-Md.
Rangel said the legislation would also reduce the tax benefits that very large, integrated oil companies receive. The bill would cut the tax breaks available for geological and geophysical costs, such as the cost of discovering new oil and gas reserves in the Gulf of Mexico.
According to the legislation, any federal revenues raised from the energy bill would be held in a separate federal account to be called the "Strategic Energy Efficiency and Renewables Reserve." The funds would be used to accelerate the use of clean domestic renewable energy resources and alternative fuels; promote the utilization of energy-efficient products and practices and conservation; and increase research, development, and deployment of clean renewable energy and efficiency technologies.
IRS
Schedule M-3. A new Schedule M-3 is being developed for taxpayers filing Form 1120-F, U.S. Income Tax Return of a Foreign Corporation, having $10 million or more in U.S. assets. The IRS made the announcement on its website on January 11. Schedule M-3 requires a transaction-by-transaction approach to accumulating and identifying book-tax differences.
The IRS predicted that the changes will enhance transparency and better enable the Service to identify high-risk taxpayers. New Schedule M-3 will be for tax years ending on or after December 31, 2007. A draft of the new schedule will be released by the end of March.
At the same time, the IRS announced it is revising Form 1120-F. The revised form will include three new schedules for interest allocation, home office allocation and partnership interests.
Cost of audits. Pressure to quickly close audits of big corporations is costing the government billions of dollars, The New York Times reported on January 12. "Auditors were told to limit questioning to only those specific issues that the IRS and the companies had agreed in advance to examine. When other questionable deductions emerged in the course of the audit...additional taxes were ignored," the Times
reported.
The Times interviewed approximately 50 IRS auditors. Only one agreed with the IRS policy, "arguing that it was better to audit more companies lightly than a few thoroughly as a strategy to improve compliance with the tax laws."
An IRS spokesperson told CCH that the Service "had nothing to add" to what the Times reported and referred CCH to a November 2006 statement by Commissioner Mark Everson. In that statement, Everson said, "There are a lot of different ways to look at numbers. But no matter how you look at our results, they show a strong rebound in our enforcement efforts. Our enforcement activity is up from the low points following the IRS Restructuring and Reform Act of 1998 (P.L. 105-206) and it has climbed significantly since I became Commissioner three-and-a-half years ago. The bottom line for our enforcement efforts shows that dollars collected rose again last year. There's a strong trend line going up."
Colleen Kelley, president of the National Treasury Employees Union (NTEU), which represents IRS employees, told the Times
that the union "has been hearing complaints since the IRS started the policies of short cycle time and limited-scope audits."
CPA pleads guilty. A California CPA has pleaded guilty to participating in a conspiracy to defraud the U.S. Treasury, evade taxes and file false tax returns; evading his own taxes; and obstructing an IRS investigation, the U.S. Attorney for the Southern District of New York, announced on January 11. The charges relate to the larger tax fraud conspiracy alleged in the pending criminal case of U.S. v. Stein , involving 16 former KPMG employees.
In a written statement, the accountant relayed that a former KPMG partner approached him in 2000 about marketing and implementing tax shelters. "He asked me if I would pose as the independent investment advisor for clients who entered into tax shelter transactions." The accountant also acknowledged that he was instructed to provide "false and misleading statements" to the IRS special agent regarding the tax shelter transactions under investigation.
Sentencing is scheduled for January 16. The accountant faces a maximum sentence of 16 years' incarceration on the charges to which he pleaded guilty.
By Jeff Carlson, Stephen K. Cooper, and George Yaksick, CCH News Staff