Tax News

CCH (cch.taxgroup.com) reports:

Congress passed a continuing resolution to fund the government through December 14, 2007, as part of the defense appropriations bill, while the House approved bills that provide an alternative minimum tax (AMT) patch as well as relief for active and retired military personnel. The AMT measure faces a veto from President Bush, although it is not expected to survive in the Senate. The IRS has started to brace for a busy tax filing season due to supplemental forms, instructions and computer reprogramming that must take place should Congress not decide on "AMT patch" legislation until mid-December. The IRS also continues to struggle to release much-needed guidance dealing with the Pension Protection Act of 2006 (PPA) (P.L. 109-280), while at the same time addressing concerns over the change in accounting procedures, whistle-blower rules, the foreign tax credit and REMICs.
Congress
House. By a vote of 216 to 193, the House passed the Temporary Tax Relief Bill of 2007 (HR 3996) on November 9 (TAXDAY, 2007/11/12, C.1). Although GOP lawmakers want the House to provide $50 billion in tax relief from the AMT, they do not want a corresponding increase in taxes to pay for it. The bill now heads to the Senate where Republican lawmakers have promised to kill the legislation and pursue AMT relief without a tax increase.
The House on November 6 approved a package of military tax breaks for active and retired military service members by a vote of 410 to 0 (TAXDAY, 2007/11/07, C.2). The Heroes Earnings Assistance and Relief Tax Bill of 2007 (HR 3997) would allow military personnel to treat combat pay as ordinary income for purposes of qualifying for the earned income tax credit program and would permanently extend the qualified mortgage bond program to allow more veterans to purchase their first homes. The cost of the measure would be offset by provisions that increase penalties on partnerships and S corporations that fail to file their tax returns. Senate Finance Committee Chairman Max Baucus, D-Mont., told reporters that the Senate could take up the measure as early as the week beginning November 12.
In addition, the House and Senate have approved a second continuing resolution as part of the conference report of the Department of Defense Appropriations Act, 2008 (HR 3222). The measure will fund the government through December 14, 2007.
Senate. Senate Finance Committee Ranking Member Charles E. Grassley, R-Iowa, in letters dated November 5, asked six media-based ministries for information regarding expenses, executive compensation, and amenities given to executives (TAXDAY, 2007/11/07, C.1). Grassley said that he is following up on complaints from the public and news coverage regarding possible misuse of donations at the ministries. Specifically, Grassley requested detailed explanations of compensation paid to ministry leaders, as well as details of the personal use of assets of the tax-exempt organizations, payments of any kind to the ministry leaders, credit card statements and a list of expenses paid by the organization for the purchase and maintenance of ministry residences.
President Bush on November 6 issued a veto threat over a $288 billion farm bill, which includes an agriculture tax title that codifies the economic substance doctrine as a means to offset most of the $16 billion price tag (TAXDAY, 2007/11/07, W.1). The White House said it could not support the measure because of what it termed the bill's use of tax increases and "budget gimmicks." The Senate, which began debate on the measure the same day, became mired over procedural issues and just as quickly laid the bill aside. No word on when that body may again take-up the bill.
Senate Finance Committee Member John Ensign, R-Nev., along with four GOP Committee members, introduced a broad tax bill on November 7 that would permanently repeal the AMT and extend the tax cuts on capital gains, dividends and marginal rates without accompanying revenue offsets (TAXDAY, 2007/11/08, C.1). Senate Majority Leader Harry Reid, D-Nev., told reporters on November 6 that the Senate would not take-up legislation for a one-year AMT patch until after Congress returns from its Thanksgiving recess on December 3. To date, the Senate Finance Committee remains divided on whether to offset an AMT fix or waive pay-go rules, which would require 60 votes to pass. Baucus has suggested that he might take an AMT bill directly to the Senate chamber if the Committee fails to reach accord on the issue.
IRS
Alternative Minimum Tax. Acting IRS Commissioner Linda Stiff has again warned that time is rapidly running out for the Service to program its computer systems for the so-called "AMT patch" being proposed on Capitol Hill for the 2008 filing season (TAXDAY, 2007/11/06, I.4). Stiff, who spoke at the American Institute of Certified Public Accountants (AICPA) National Conference on Federal Taxes in Washington, D.C., on November 5 also emphasized that Congress's expectations concerning closing the tax gap, the $300-billion difference between what taxpayers owe and what they actually pay, are increasing.
The IRS is bracing for slow processing of returns early in the 2008 filing season because of Congress's delay in passing an AMT patch, Richard Spires, IRS deputy commissioner for Operations Support, warned on November 8 (TAXDAY, 2007/11/09, I.6). Spires spoke at a conference sponsored by the Council for Electronic Revenue Communication Advancement (CERCA) in Alexandria, Va. As a result, individuals who file their 2007 federal income tax returns as soon as they receive their Forms W-2 may be surprised that their refunds will be delayed.
Proposed 401(k) Automatic Enrollment Regulations. The Treasury and IRS have issued proposed regulations governing automatic enrollment for cash or deferred compensation arrangements (401(k)
plans) reflecting changes made by the PPA
(NPRM REG-133300-07; TAXDAY, 2007/11/08, I.2). The proposed regulations would create an additional design-based safe harbor for qualified automatic contribution arrangements and require plans to provide notice to each eligible employee under such an arrangement within a reasonable amount of time before each plan year.
Change of Accounting Method Procedure. The IRS has issued changes to Rev. Proc. 97-27, 1997-1 CB 680, regarding procedures for obtaining IRS consent to change an accounting method where the filed Form 3115, Application for Change in Accounting Method, is pending in the national office (Rev. Proc. 2007-67; TAXDAY, 2007/11/07, I.2). The guidance also modifies the period for taking into account a net positive adjustment pursuant to Code Sec. 481(a) to four tax years. The period for taking into account net negative adjustments remains one year. This procedure also adds a new Section 12 toRev. Proc. 97-27
containing provisions allowing taxpayers, under certain circumstances, to change the year of the election while the Form 3115 is pending.
Plan Distributions. The IRS has issued the 2008 applicable mortality table and information related to the applicable interest rate for purposes of making certain plan distribution calculations (Rev. Rul. 2007-67; TAXDAY, 2007/11/07, I.5). The 2008 applicable mortality table, published in the appendix to the ruling, is based on a fixed blend of 50 percent of the static male combined mortality rates and 50 percent of the static female combined mortality rates published inProposed Reg. §1.430(h)(3)-1 for valuation dates occurring in 2008. The applicable mortality table for plan years beginning prior to January 1, 2008, is provided in Rev. Rul. 2001-62, 2001-2 CB 632.
Whistleblowers. The Office of the Chief Counsel has provided guidance relating to a new cause of action in the Tax Court for review of award determinations made by the IRS Whistleblower Office under Code Sec. 7623(Chief Counsel Notice CC-2008-001, TAXDAY, 2007/11/7, I.6). According to the guidance, if a petitioner raises the issue in a Tax Court case, the Office of Associate Chief Counsel (Procedure & Administration), Branch 7, and the Office of Associate Chief Counsel (General Legal Services, Public Contracts and Technology Law Branch, must be immediately contacted to discuss how the issue should be handled and coordinated.
Foreign Tax Redetermination Regulations.
Temporary and proposed regulations addressing foreign tax redeterminations have also been issued (NPRM REG- 209020-86; TAXDAY, 2007/11/07, I.3). Generally, Code Sec. 905(c) provides that taxpayers who claim the foreign tax credit must notify the IRS when there is a change in foreign taxes paid or accrued. Foreign tax redeterminations occur as a result of a change in the foreign tax liability that may effect the taxpayer's foreign tax credit. The new regulations provide exceptions to the rule requiring taxpayers to translate foreign currency into dollars using the average exchange rate to determine the amount of foreign taxes paid or accrued; additional tax liability denominated in foreign currency; taxes withheld in foreign currency; or estimated taxes paid in foreign currency.
Proposed REMIC Regulations. The IRS has issued proposed regulations that expand the list of permitted modifications to commercial mortgage loan obligations contributed to a real estate mortgage investment conduit (REMIC) (NPRM REG-127770-07; TAXDAY, 2007/11/09, I.2). The changes are designed to exempt certain modifications from triggering a deemed exchange of an original obligation for a modified obligation, which would violate the prohibited transaction rules of Code Sec. 860F(a)(2). The proposed regulations permit releases and substitutions of collateral, guarantees and credit enhancements, conversion of an obligation from recourse to nonrecourse, and partial lien releases on collateral, provided that in each case the obligation remains secured by real property with an appraised value equal to at least 80 percent of the modified obligation's adjusted issue price on the modification date.
FSLG Workplan. The Office of Federal, State and Local Governments (FSLG) has released its Fiscal Year 2008 (FY2008) Work Plan, which highlights the FSLG's commitment to improving its enforcement activity (FY2008 FSLG Work Plan; TAXDAY, 2007/11/07, I.7). The FSLG will continue both its Federal Agency and its Large Entity compliance initiatives in FY2008. It anticipates opening and closing 20 examinations of federal agencies or sub-agencies and it will continue to work to coordinate resolution of federal agencies' employment tax delinquencies. With respect to large entities, the FSLG anticipates opening 29 examinations and closing 30 examinations. The FSLG will also work on an National Research Program (NRP) project to develop data to help identify tax gap sources in its market segments.
E-mail Scam. A new e-mail scam, claiming to come from the IRS Taxpayer Advocate Service, has just appeared online, the Service announced on its website (TAXDAY, 11/07/09, I.8). The "From:" line of the newest scam reads, "IRS" and the "Subject:" line says "Notification - Taxpayer Advocate Service." The text of the e-mail includes a line that reads, "After several recalculations of your tax payments since 2005, IRS makes you eligible to receive a refund of 343.56 US Dollars." The IRS does not send taxpayers unsolicited e-mails and does not use e-mail to discuss a taxpayer's tax account information, such as refunds, with the taxpayer
By Jeff Carlson, Torie Cole, Stephen K. Cooper and Chantal Mahler, CCH News Staff.