Tax News

CCH (cch.taxgroup.com) reports:

A rule has been proposed that will mandate participation by certain tax return preparers in the electronic filing of 2008 returns for the Maine individual income tax and the sales, use, and service provider tax. Electronic filing mandates will also apply to certain employers and pass-through entities that are subject to 2008 income tax withholding requirements.
Electronic filing of 85% of 2008 individual income tax returns will be required by tax return preparers that prepared 200 or more original Maine individual income tax returns in calendar year 2007. Electronic filing of sales, use, or service provider tax returns for the 2008 tax year will be required if tax liability on any original return prepared for any one tax for the 12-month period ending September 30, 2007, was $200,000 or more.
Employers, third party filers, or payroll processors with 75 or more employees in 2008 that are subject to Maine income tax withholding will be required to electronically file all original 2008 quarterly and annual reconciliation returns. Pass-through entities with 75 or more nonresident members in 2008 that are subject to pass-through withholding on Maine source income will be required to electronically file all original 2008 quarterly and annual reconciliation returns.
The thresholds for mandatory electronic filing will be reduced for calendar years beginning after 2008. The proposed rule also provides guidance on requesting a waiver and on penalties that may be imposed for noncompliance.
A public hearing on the rule is scheduled for January 9, 2008. The deadline for comments is January 21, 2008.
Subscribers to CCH Tax Research NetWork can view the complete text of the proposed rule, information on the public hearing, and other details.
Rule 104 , Maine Department of Administrative & Financial Services, Bureau of Revenue Services, December 19, 2007.

CCH (cch.taxgroup.com) reports:

The IRS has announced that it will issue regulations under Code Sec. 367 to clarify how the two exceptions in Reg. §1.367(a)-3(d)(2)(vi)( (the "coordination rule") apply to certain outbound reorganization transactions. The first exception will be modified to require that a basis adjustment for unrecognized gain be made to the stock of the foreign acquiring corporation. Any unrecognized gain that is not preserved in the basis will be subject to Code Sec. 367(a) and (d). The second exception will be modified to limit Code Sec. 351 transfers that also qualify as Code Sec. 361 exchanges so that they are eligible for only the first exception.
The announcement of the planned issuance of regulations is in response to certain transactions designed to avoid U.S. income tax. The regulations will be effective for transactions on or after December 28, 2007. However, the IRS reserves the right to challenge transactions undertaken prior to this announcement where appropriate under appropriate provisions and judicial doctrines.
Specifically, the first exception, contained in Reg. §1.367(a)-3(d)(2)(vi)((1)(i), will be modified to clarify that the basis adjustment required by Code Sec. 367(a)(5) must be made to the stock of the foreign requiring corporation received by domestic corporate shareholders of the U.S. transferror in the reorganization such that the appropriate amount of unrecognized gain in the U.S. transferror's property is reflected in such stock. The result is that the basis adjustment requirement cannot be satisfied by adjusting the basis of the stock of the foreign acquiring corporation held by such shareholders prior to the reorganization. Further, the regulations will clarify that, to the extent the appropriate amount of unrecognized gain in the U.S. transferror's property cannot be preserved in the stock of the foreign acquiring corporation, the U.S. transferror's transfer of property to the foreign acquiring corporation will be subject to Code Sec. 367(a) and (d).
The second exception, found in Reg. §1.367(a)-3(d)(2)(vi)((2), will be modified to clarify that the exception will not apply to a Code Sec. 351 transfer that also qualifies as a Code Sec. 361 exchange. Thus, a Code Sec. 351 transfer that is also a Code Sec. 361 exchange may only qualify, if at all, for the first exception.
Notice 2008-10, 2008FED ¶46,225
Other References:
Code Sec. 367
CCH Reference - 2007FED ¶16,667.01
CCH Reference - 2007FED ¶16,667.021
CCH Reference - 2007FED ¶16,667.024
CCH Reference - 2007FED ¶16,667.028
CCH Reference - 2007FED ¶16,667.28
CCH Reference - 2007FED ¶16,667.57
Tax Research Consultant
CCH Reference - TRC INTL: 30,000
CCH Reference - TRC INTL: 30,056
CCH Reference - TRC INTL: 30,352.05
CCH Reference - TRC INTL: 30,354
 

CCH (cch.taxgroup.com) reports:

The IRS has issued proposed, temporary and final regulations concerning deductions for contributions to trusts maintained for decommissioning nuclear power plants. The new rules, which affect taxpayers that own interests in nuclear power plants, reflect changes made to Code Sec. 468A by the Energy Policy Act of 2005 (P.L. 109-58). The text of the temporary regulations also serves as the text of the proposed regulations.
Under Code Sec. 468A, all decommissioning costs of both unregulated and regulated nuclear power plants can be funded by deductible contributions to a qualified nuclear decommissioning fund. A plant's pre-1984 decommissioning costs can be funded by increasing the annual deductible contributions over the remaining useful life of the plant. Further, a taxpayer can contribute, in a single year, all or any portion of the amount needed to fund pre-1984 costs that were not previously funded. Such a special transfer is not deductible in full in the year of the contribution, but is allowed ratably over the remaining useful life of the plant.
Useful Life
Under the temporary regulations, for plants that were regulated by a public utility commission (PUC) before 2006, the useful life of the plant begins on the first day of the tax year that includes the date the plan began commercial operations and ends on the last day of the tax year that includes the estimated date on which the plant will no longer be included in the taxpayer's rate base for ratemaking purposes. For other plants, any reasonable method may be used to determine the end of the estimated useful life. The temporary regulations eliminate the requirement that adjustments must be made to the estimated useful life to reflect changes in PUC assumptions regarding useful life.
Special Transfers
The temporary regulations provide rules for calculating the maximum special transfer amount. In addition, rules are provided concerning transfers of property other than cash and transfers of qualified nuclear decommissioning funds to related persons. Where a fund is transferred to a related person, the regulations provide that the transferee's ruling amounts will be adjusted to offset any inappropriate benefit provided by the resultant acceleration of deductions.
Schedules of Ruling Amounts
The temporary regulations provide that, for a plant that is subject to PUC regulation, the assumptions used by the PUC in determining decommissioning costs must be provided in the submission of the proposed schedule of ruling amounts. However, the PUC's assumptions need not be used in calculating the proposed schedule. The taxpayer bears the burden of establishing that the requested schedule is based on reasonable assumptions. A taxpayer that owns an interest in a deregulated nuclear plant may submit assumptions used by a PUC that formerly had jurisdiction over the plant or other industry standards as alternative means of demonstrating the proposed schedule of ruling amounts was calculated on a reasonable basis.
Effective Date
The temporary regulations apply beginning on December 31, 2007, with respect to tax years ending on or after that date. For the period from January 1, 2006, to December 31, 2007, taxpayers may use any reasonable method that is consistent with Code Sec. 468A to determine the schedule of ruling amounts or the schedule of deduction amounts.
Comments and Hearing
Written or electronic comments and requests for a public hearing on the proposed regulations must be received by March 31, 2008.
T.D. 9374, 2008FED ¶47,011
Proposed Regulations, NPRM REG-147290-05, 2008FED ¶49,784
Other References:
Code Sec. 468A
CCH Reference - 2007FED ¶21,931
CCH Reference - 2007FED ¶21,932
CCH Reference - 2007FED ¶21,933
CCH Reference - 2007FED ¶21,934
CCH Reference - 2007FED ¶21,935
CCH Reference - 2007FED ¶21,936
CCH Reference - 2007FED ¶21,937
CCH Reference - 2007FED ¶21,938
CCH Reference - 2007FED ¶21,939
CCH Reference - 2007FED ¶21,939C
Tax Research Consultant
CCH Reference - TRC ACCTNG: 12,208
 

CCH (cch.taxgroup.com) reports:

The IRS and Treasury Department have issued temporary and proposed regulations adding an additional item of tax return information, concerning total qualified research expenses, which the Treasury Secretary may disclose to the Bureau of the Census (Bureau) for use in the latter's annual Survey of Industrial Research and Development. The regulation permits disclosure of such data from the taxpayers' Forms 6765, Credit for Increasing Research Activities.
The amendment to the regulation is effective on December 31, 2007 and is applicable to disclosures to the Bureau on or after that date. The applicability of the amendment expires on or before December 28, 2010.
The text of the temporary regulation also serves as the text of the proposed regulation. Written or electronic comments regarding the proposed regulation have been requested, and must be received by March 31, 2008.
T.D. 9373, 2008FED ¶47,010
T.D. 9373, FINH ¶43,115
Proposed Regulations, NPRM REG-147832-07, 2008FED ¶49,783
Proposed Regulations, NPRM REG-147832-07, FINH ¶41,130
Other References:
Code Sec. 6103
CCH Reference - 2007FED ¶36,886B
CCH Reference - 2007FED ¶36,886C
CCH Reference - FINH ¶20,435.30
Tax Research Consultant
CCH Reference - TRC IRS: 9,254
 

CCH (cch.taxgroup.com) reports:

The Internal Revenue Service has certified five 2008 model year General Motors Corp. vehicles as meeting the requirements of the Alternative Motor Vehicle Credit for qualified hybrid motor vehicles. The credit amount for each vehicle is:
--Chevrolet Tahoe Hybrid (2WD) --$2,200;
--Chevrolet Tahoe Hybrid (4WD) --$2,200;
--GMC Yukon Hybrid (2WD) --$2,200;
--GMC Yukon Hybrid (4WD) --$2,200; and
--Saturn Vue Green Line --$1,550
This brings the total number of GM certified hybrid vehicles for the 2008 model year to seven. The Chevrolet Malibu Hybrid ($1,300.00) and the Saturn Aura Hybrid ($1,300.00) were previously certified.
IR-2007-210, 2008FED ¶46,222
Other References:
Code Sec. 30B
CCH Reference - 2007FED ¶4059E.0265
CCH Reference - 2007FED ¶4059E.10
Tax Research Consultant
CCH Reference - TRC INDIV: 57,708
 

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The members of a taxpayer's affiliated group may elect to use the Missouri single-factor method of apportionment to determine the portion of the affiliated group's Missouri taxable income that is derived from sources within Missouri for Missouri corporate income tax purposes. Furthermore, in determining the affiliated group's Missouri apportionment percentage, the receipts from any intercompany transactions between the one group member domiciled in Missouri and the taxpayer-owned Missouri-domiciled single member limited liability company (LLC) that acts as an administrator for each member of the group are properly included as wholly within Missouri because those intercompany transactions are conducted completely within Missouri.
The receipts arising from transactions between the LLC and the out-of-state group members are properly treated as partly within and partly without Missouri. Because the brains of the LLC's operations are located within Missouri, lending Missouri effort to all of the LLC's business transactions, none of the receipts from any intercompany transactions involving the LLC would be classified as wholly without Missouri. Amounts paid to a Missouri organization by the state of Missouri for the benefit of Missouri beneficiaries and for the provision of services to those beneficiaries wholly within Missouri are included as sales transacted wholly within Missouri, while amounts paid to a non-Missouri organization by a state other than Missouri for the benefit of non-Missouri beneficiaries and for the provision of services to those beneficiaries wholly outside Missouri are included as sales transacted wholly without Missouri.
Letter Ruling No. LR4124, Missouri Department of Revenue, October 5, 2007, ¶202-797
Other References:
Explanations at ¶11-520
 

CCH (cch.taxgroup.com) reports:

The exclusion of adult entertainment cabarets from the City of Chicago's and Cook County's amusement tax exemptions for small-venue live performances was a content-based regulation on speech that did not serve a compelling state interest and, therefore, violated the First Amendment of the U.S. Constitution.
Both the City and the County allowed an exemption from their respective amusement taxes for live performances that took place in a space with a maximum capacity of not more than 750 people (small-venue exemption), but excluded from the exemption performances conducted at adult entertainment cabarets.

CCH (cch.taxgroup.com) reports:

An IRS settlement officer did not abuse her discretion when she issued a notice of determination without considering a married couple's offer-in-compromise (OIC) that was based only on doubt as to liability. Because the taxpayers received a notice of deficiency and had an opportunity to challenge the underlying tax liability before the Collection Due Process (CDP) hearing, but failed to do so, Code Sec. 6330 barred them from challenging the amount of the liability at the CDP hearing. Therefore, the settlement officer properly refused to consider the taxpayers' OIC that was based on doubt as to liability since such the OIC was a prohibited challenge to the underlying tax liability. The settlement officer exercised discretion in a reasonable way by issuing a notice of determination that sustained the lien but postponed the collection by levy until other IRS employees considered the OIC and various late-filed returns of the taxpayers.
P.P. Baltic, 129 TC No. 19, Dec. 57,213
Other References:
Code Sec. 6330
CCH Reference - 2007FED ¶38,184.12
Tax Research Consultant
CCH Reference - TRC IRS: 51,056
 

CCH (cch.taxgroup.com) reports:

In response to the December 26, 2007, signing of the alternative minimum tax patch legislation (AMT patch), the IRS has issued a series of announcements and reminders regarding the upcoming 2007 filing season.
Although the IRS expects the filing season to start on time, some 13.5 million taxpayers using AMT-related forms will have to wait until approximately February 11, 2008, to file. In particular, taxpayers filing any of the following forms (manually or electronically) must wait until February 11, 2008, to file:
--Form 8863, Education Credits.
--Form 5695, Residential Energy Credits.
--Form 1040A, Schedule 2, Child and Dependent Care Expenses for Form 1040A Filers.
--Form 8396, Mortgage Interest Credit.
--Form 8859, District of Columbia First-Time Homebuyer Credit.
Other AMT-related forms, including Form 6251, Alternative Minimum Tax - Individuals, will be processed beginning on January 14, 2008.
In addition, the IRS has provided the following related guidance:
--Taxpayers should update any personal return-preparation software for the AMT patch.
--Taxpayers with $54,000 or less in adjusted gross income can electronically file their returns for free.
--Tax packages from the IRS, which will begin arriving in the mail around New Year's Day, went to the printer in November before the AMT patch was enacted.
IR-2007-209, 2008FED ¶46,221
Other References:
Code Sec. 6011
CCH Reference - 2007FED ¶35,141.02
Tax Research Consultant
CCH Reference - TRC FILEIND: 30,000
 

CCH (cch.taxgroup.com) reports:

The IRS has announced 2008 inflation-adjusted tax rates for the airline ticket excise taxes. The Code Sec. 4261(b) excise tax on the amount paid for each domestic flight segment of taxable transportation increases to $3.50. The Code Sec. 4261(c) excise tax on amounts paid for international air travel beginning or ending in the United States is $15.40. For a domestic flight segment beginning or ending in Alaska or Hawaii, the Code Sec. 4261(c) tax on the use of international facilities applies to departures at the rate of $7.70.
These inflation adjustments were not included in Rev. Proc. 2007-66, I.R.B. 2007-45, 970, the ruling that generally provides the inflation-adjusted tax rates for 2008. This is because, under Code Sec. 4261(j)(1)(A)(ii), the airline ticket taxes --taxes that fund the Airport and Airway Trust Fund --were scheduled to expire after September 30, 2007. Several continuing resolutions extended the 2007 rates through December 21, 2007 (P.L. 110-92, P.L. 110-116 and P.L. 110-137). But 2008 inflation-adjusted figures were not necessary until the Consolidated Appropriations Act, 2008 (HR 2764) was signed by the president on December 26, 2007 (TAXDAY, 2007/12/27, W.2). The Department of Transportation Appropriations Act within the larger consolidated Act extends the airline ticket taxes to air transportation that begins or is paid for no later than February 29, 2008.
The airline ticket taxes are expected to be extended for a four-year period when Congress completes work on the FAA Reauthorization Bill of 2007 (HR 2881), which passed the House on September 20, 2007 (TAXDAY, 2007/09/21, C.1), and has been placed on the Senate's calendar.
The IRS says that Rev. Proc. 2007-66 will soon be modified to include the 2008 inflation adjustments pertaining to airline ticket taxes.
IR-2007-208, ETR ¶66,842
Other References:
Code Sec. 4261
CCH Reference - ETR ¶19,305.014
CCH Reference - ETR ¶19,305.02
CCH Reference - ETR ¶19,305.495
Tax Research Consultant
CCH Reference - TRC EXCISE: 9,102.05
CCH Reference - TRC EXCISE: 9,104.05

CCH (cch.taxgroup.com) reports:

The IRS has released proposed regulations implementing the provisions of Code Sec. 411(a)(13) and (b)(5)
relating to cash balance and other hybrid defined benefit plans. The provisions, which were enacted as part of the Pension Protection Act of 2006 (P.L. 109-280), include rules under which cash balance and pension equity plans will be deemed not to violate age discrimination requirements and impose limits on the calculation of hypothetical account balances in such plans. The proposed regulations generally incorporate and expand on the provisions of Notice 2007-6, I.R.B. 2007-3, 272.
The proposed regulations generally apply to defined benefit plans under which any or all of a participant's accrued benefit is based on the balance of a hypothetical account maintained for the participant or an accumulated percentage of the participant's final average compensation (applicable defined benefit plans). They describe a safe harbor protecting such plans from liability for age discrimination in the calculation of accumulated benefits. If each individual's accumulated benefits can never be less than that of a similarly situated, younger participant, the safe harbor is satisfied.
The proposals also would implement the requirement that participants whose benefits are affected by the conversion of a traditional defined benefit plan into such a plan must be provided a benefit equal to at least the sum of the benefit accrued through the date of the conversion and the benefits earned after the conversion, with no "wearaway" or other interaction between the amounts. In addition, they would implement the requirement that the rate at which interest is credited to participants' hypothetical accounts under such plans cannot exceed a market rate of interest.
The regulations are proposed to be effective for plan years beginning on or after January 1, 2009 (later for some collectively bargained plans). Plans may rely on the proposed regulations for earlier periods. Written or electronic public comments will be considered, and the IRS and the Treasury Department specifically request comments both on the clarity of the proposed regulations and on a number of specific issues, including some beyond the scope of these provisions.
Proposed Regulations, NPRM REG-104946-07, 2008FED ¶49,781
Other References:
Code Sec. 411
CCH Reference - 2007FED ¶19,064C
CCH Reference - 2007FED ¶19,066E
Tax Research Consultant
CCH Reference - TRC RETIRE: 39,058
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

A defunct company and its president were barred by comity and the Tax Injunction Act from maintaining all but one of their federal 42 U.S.C. §1983 claims based on allegations that Illinois county officials placed obstacles in the company's path to make it difficult to collect property tax refunds for its clients. The remaining claim involving an allegedly retaliatory criminal investigation of the company and the president also failed due to the prosecutor's absolute immunity.

CCH (cch.taxgroup.com) reports:

Alaska Governor Sarah Palin signed legislation revising the petroleum profits tax (PPT) on December 19. As previously reported, the Legislature passed the bill, entitled Alaska's Clear and Equitable Share (ACES), on November 16, the final day of the special session called by the governor to address oil taxation. (TAXDAY, 2007/11/20, S.1) The general effective date of the legislation is December 20, 2007, but many provisions apply retroactively.
The base tax rate is increased from 22.5% to 25% of the annual production tax value of taxable oil and gas. When a producer's average monthly production tax value per BTU equivalent barrel of taxable oil and gas is between $30 and $92.50, an additional tax of 0.4% is imposed on the difference between the average monthly production tax value and $30. Formerly, the additional tax was 0.25%. When a producer's average monthly production tax value exceeds $92.50, the additional tax is 0.1% of the difference between the monthly production tax value and $92.50. The new tax rates are effective July 1, 2007.
Credits allowed for qualified exploration expenditures are increased from 20% to 30%. In addition, the law is amended to provide that exploration credits may not be taken for costs associated with repairs and replacements, fraud, negligence, or violations of law, including the federal Clean Water Act. These provisions are effective July 1, 2008.
Another amendment provides that a producer or explorer may elect to take a credit of 25% (formerly, 20%) of a carried-forward annual loss. "Carried-forward annual loss" is the amount of the producer's or explorer's adjusted lease expenditures that were not deductible in the calendar year in which they were incurred because their deduction would have caused a production tax value less than zero. A statutory amendment provides that only the amount of adjusted lease expenditures remaining after the specified accounting procedure may be used to establish a carried-forward annual loss. These provisions are effective July 1, 2007.
A new provision allows a credit of 5% of an eligible expenditure for seismic exploration performed before July 1, 2003, provided the claim is filed before January 1, 2016. This provision takes effect July 1, 2008.
Effective April 1, 2006, the law is amended to provide that deductible lease expenditures do not include costs arising from violations of law or failure to comply with an obligation under a lease, permit, or license issued by the state or federal government. Lease expenditures also do not include costs incurred for repair, replacement, or deferred maintenance of a facility, pipeline, or other equipment, other than a well, that is related to a failure or event that results in disruption of oil and gas production. Similarly, lease expenditures do not include repair costs related to an unpermitted release of a hazardous substance or gas.
Effective July 1, 2007, lease expenditures generally do not include costs associated with construction, acquisition, or operation of a refinery or crude oil topping plant, nor do they include costs of lobbying and public relations.
Reporting requirements applicable to producers are amended to require additional information, and a new penalty of up to $1,000 per day may be imposed for each day a person fails to file a report at the time required. These provisions are effective December 20, 2007.
The Department of Revenue has issued an advisory bulletin regarding Sec. 71 of the legislation, which requires taxpayers to pay any additional production taxes arising from the retroactive application of certain provisions before April 1, 2008. The Department states that it believes the intended due date for those additional production taxes is March 31, 2008, and interest will not be owed if the taxes are paid by that date.
Subscribers to CCH Tax Research NetWork can view the legislation.
H.B. 2001, Laws 2007, Second Special Session, effective as noted; Advisory Bulletin, Alaska Department of Revenue, December 20, 2007.

CCH (cch.taxgroup.com) reports:

Married taxpayers were required to include qualified dividends in the calculation of their alternative minimum tax (AMT). The taxpayers reported their qualified dividends but computed the tax on them separately and did not include them in their taxable income; thereby excluding them for purposes of the AMT. However, although qualified dividends receive special treatment under which the amount of AMT is capped by reference to the capital gains rates in the regular tax regime, they may not be disregarded in the calculation of AMT. Moreover, even if Form 1040 is ambiguous with respect to qualified dividends, the form is not an authoritative source of law and does not affect the taxpayers' obligations under the IRC.
T. Weiss, 129 TC No. 18, Dec. 57,206
Other References:
Code Sec. 55
CCH Reference - 2008FED ¶5101.14
Tax Research Consultant
CCH Reference - TRC FILEIND: 30,400
 

CCH (cch.taxgroup.com) reports:

President Bush on December 26 signed an omnibus fiscal year (FY) 2008 appropriations bill, the Consolidated Appropriations Act, 2008 (HR 2764), funding federal government operations through the end of the fiscal year on September 30, 2008. The president, in a written statement, said the appropriations package funds the federal government with the spending levels he requested in his fiscal year 2008 budget but he was critical of the number of spending projects that were slipped into the final measure.
The president noted that Congress included nearly 9,800 earmarks totaling $10 billion in the appropriations package. "These projects are not funded through a merit-based process and provide a vehicle for wasteful federal spending," the president said. Bush recently directed Office of Management and Budget (OM Director Jim Nussle to look into ways the executive branch could take action to eliminate specific earmarks from appropriations bills.
The new law includes FY 2008 funding for the Treasury and the IRS. Funding for the Treasury Department totals $12 billion, of which $10.9 billion is allocated for the IRS. The IRS funding for FY 2008 exceeds its previous year budget by $300 million. The IRS budget includes: $4.8 billion for enforcement activities, $2.2 billion for taxpayer services, $3.7 billion for operations support of enforcement, taxpayer service, and other functions and $267 million for business systems modernization
By Paula Cruickshank, CCH News Staff
 

CCH (cch.taxgroup.com) reports:

President Bush on December 26 signed a one-year extension of the alternative minimum tax (AMT) patch, effective January 1, 2007. Absent enactment of the temporary fix, the administration predicted that an estimated 25 million taxpayers would pay on average an additional $2,000 in taxes for the 2007 tax year.
The Tax Increase Prevention Act of 2007 (HR 3996) increases the AMT exemption amount for 2007 to $44,350 for single taxpayers and heads of households, $66,250 for married couples filing jointly, and $33,125 for married couples filing separately. The new law allows taxpayers to use most nonrefundable personal tax credits to offset AMT liability. These include the dependent care, HOPE and lifetime learning education credits and the District of Columbia first-time homebuyer's credit.
By Paula Cruickshank, CCH News Staff
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Ohio Department of Taxation has issued an information release that is a draft rule regarding credits for the commercial activity tax (CAT). Prior to adopting a rule to explain the different types of CAT credits, the Department is seeking public comment on the draft. Comments must be received by the end of the business day on January 11, 2008.
The Department explains that the rule is intended to identify the different credits available to taxpayers for CAT purposes and to explain the proper method for taxpayers to claim those credits against their CAT liability. For purposes of the CAT, the law provides for five different credits taxpayers may apply against their tax liability: (1) a nonrefundable jobs retention credit; (2) a nonrefundable credit for qualified research expenses; (3) a nonrefundable credit for a borrower's qualified research and development loan payments; (4) a credit for unused franchise tax net operating loss deductions; and (5) a refundable jobs creation credit.
The release is available on the Department's Web site at http://tax.ohio.gov/divisions/communications/information_releases/cat_2007_03.stm.
CAT Information Release 2007-03 , Ohio Department of Taxation, December 21, 2007.

CCH (cch.taxgroup.com) reports:

A Kentucky circuit court has amended and restated its order that concluded an out-of-state corporation had sufficient nexus with Kentucky for corporation income tax purposes, but also concluded that an incorrect apportionment formula had been used in the assessment of the tax against the corporation (see TAXDAY, 2007/07/06, S.16). According to the court, it was incorrect to order remand of the case for determination of the amount of the corporation's refund after prevailing on the apportionment argument. The amount of the refund, applying the correct apportionment formula, was stipulated by the parties and, consequently, the corporation was entitled to immediate payment with interest.
The amended order also determined that it was appropriate to review U.S. Constitutional issues, specifically Commerce and Due Process Clause arguments, that were raised by the corporation and not addressed in the original order. Even though the corporation had no physical presence in Kentucky, the corporation's derivation of income from ownership interests in partnerships doing business within the state satisfied the substantial nexus requirement of the Commerce Clause. Therefore, the corporation was subject to corporation income tax on its distributive share of income.
The Due Process Clause requirement of a definite link or minimum connection was satisfied by the corporation's interest in partnerships doing business in Kentucky that resulted in a substantial amount of distributive income from in-state activities. In addition, the corporation had purposefully directed activities at Kentucky through the corporation's interest in the partnerships.
Kentucky Revenue Cabinet v. Swarth Corp. , Franklin Circuit Court, Kentucky, No. 06-CI-00288, December 4, 2007, ¶202-810
Other References:
Explanations at ¶10-075
Explanations at ¶89-224

CCH (cch.taxgroup.com) reports:

The IRS has provided transitional relief and filing procedures for certain charitable trusts that fail the responsiveness test for Type III supporting organizations. These procedures apply to charitable trusts that do not qualify as supporting organizations under the significant voice test, but that did qualify as supporting organizations under the charitable trust test. The elimination of the charitable trust test for tax years beginning after August 16, 2007, may cause these trusts to be classified as private foundations.
A trust that becomes a private foundation during 2007 because of the elimination of the charitable trust test may continue to file Form 990, Return of Organization Exempt from Income Tax, for tax years beginning before January 1, 2008. The trust is not required to file an information return on Form 990-PF, Return of a Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust ; or pay the Code Sec. 4940 excise tax on investment income, until its first tax year beginning after December 31, 2007. Normal due dates and submission rules apply to Form 990.
For its first tax year beginning after 2007, a trust that becomes a private foundation because of the elimination of the charitable trust test must file a paper Form 990-PF, and write "Notice 2008-6 status change" across the top. Otherwise, normal due dates and submission rules for Form 990-PF apply.
For tax years beginning after 2007, charitable trusts can continue to file Form 990 if they meet the significant voice test for Type III supporting organizations, or if they can establish that they meet the requirements for a Type I or Type II supporting organization. These trusts do not have to file Form 990-PF.
Notice 2008-6, 2008FED ¶46,219
Other References:
Code Sec. 509
CCH Reference - 2007FED ¶22,812.65
Tax Research Consultant
CCH Reference - TRC EXEMPT: 21,208.15

CCH (cch.taxgroup.com) reports:

The IRS has provided effective date relief with respect to proposed regulations, issued in January 2007, that provide rules for consolidated group members on the transfer of a loss share of subsidiary stock (NPRM REG-157711-02, TAXDAY, 2007/01/17, I.3). The proposed effective date would have made the regulations applicable to all transfers on or after the date that the regulations are published as final regulations in the Federal Register . Comments received by practitioners regarding the proposed effective date, however, expressed concerns regarding a significant burden on taxpayers attempting to negotiate transactions prior to the publication of the final regulations.
Accordingly, while the regulations will generally apply to transfers on or after the date they are published as final regulations, they will not apply to a transfer to an unrelated party if the transfer is pursuant to an agreement that is binding prior to the date the regulations are published as final regulations and at all times thereafter. The IRS and Treasury Department anticipate that the rule will incorporate the provisions of Code Sec. 267(b) in determining whether parties are related for this purpose.
Notice 2008-9, 2008FED ¶46,217
Other References:
Code Sec. 267
CCH Reference - 2007FED ¶14,161.01
Code Sec. 337
CCH Reference - 2007FED ¶16,242.01
Code Sec. 358
CCH Reference - 2007FED ¶16,553.041
Code Sec. 597
CCH Reference - 2007FED ¶23,811.025
Code Sec. 1502
CCH Reference - 2007FED ¶33,168.0236
Tax Research Consultant
CCH Reference - TRC CCORP: 45,410
CCH Reference - TRC CCORP: 45,414

CCH (cch.taxgroup.com) reports:

The IRS has issued temporary and proposed regulations providing guidance for calculating and apportioning the Code Sec. 11(b)(1) additional tax and the reduction in the alternative minimum tax (AMT) exemption amount among component members of controlled groups. The regulations also update and clarify the allocation of tax benefit items where a component member has a short tax year not including a December 31 date. The temporary rules further explain the concepts of a group's testing date and a member's testing period for purposes of determining which members and which tax years of those members are subject to the controlled group rules. The temporary regulations take effect on December 26, 2007.
Temporary Regulations
Two methods for apportioning the amount of additional tax under Code Sec. 11(b)(1) are provided under the temporary regulations --the proportionate method and the first-in-first-out (FIFO) method.
Under the proportionate method, the additional tax is allocated to any component member to which a tax bracket amount was apportioned in the same proportion as the portion of the tax benefit from the tax bracket that was allocated to that member bears to the total tax benefit amount provided to all members from the use of that tax bracket. The regulations set forth the steps for applying the method. Under the FIFO method, the first dollars of the additional tax are to be allocated proportionately to each member to which a tax bracket amount was apportioned, starting with the lowest tax bracket and continuing on successively to each next higher tax bracket until the entire amount of the additional tax has been fully apportioned among the members.
In addition, the temporary regulations provide guidance in calculating and apportioning the reduction in the AMT exemption amount. In particular, any reduction to the AMT exemption amount is apportioned to the component members in the same manner as the exemption amount. The current rules for allocating tax benefit items where a component member has a short tax year not including a December 31 date are also updated and clarified.
The temporary regulations further provide explanations of two concepts --a group's testing date and a member's testing period. A testing date is defined as the date that a controlled group is required to use in determining which of its members and which of their tax years will be subject to the controlled group rules. Generally, a group's testing date is the December 31 date included within all the members' tax years, whether such corporations are on a calendar or fiscal year. However, if a component member has a short tax year that does not include a December 31 date, then the last day of its short tax year serves as the member's testing date.
A testing period is the period of time that a controlled group member uses to determine its status as either a component member or an excluded member. The testing period begins on the first day of a member's tax year that ends on the day before its testing date. Thus, in the case of a member on a fiscal tax year, the portion of its tax year beginning after December 31 and ending on the last day of its tax year is not taken into account in determining its status as a component member or an excluded member.
Finally, the temporary regulations republish Temporary Reg. §1.1502-47T(s), which provides rules for life-nonlife consolidated groups to calculate their consolidated taxable income. This temporary regulation was inadvertently removed by T.D. 9342, I.R.B. 2007-35, 451, when other portions of Temporary Reg. §1.1502-47T were published as final regulations.
Proposed Regulations
The text of the temporary regulations also serves as the text of proposed regulations. Written or electronic comments and a request for public hearing must be received by March 25, 2008.
T.D. 9369, 2008FED ¶47,008
Proposed Regulations, NPRM REG-104713-07, 2008FED ¶49,780
Other References:
Code Sec. 1502
CCH Reference - 2007FED ¶33,193A
Code Sec. 1561
CCH Reference - 2007FED ¶33,341
CCH Reference - 2007FED ¶33,344
CCH Reference - 2007FED ¶33,344C
Code Sec. 1563
CCH Reference - 2007FED ¶33,361C
Tax Research Consultant
CCH Reference - TRC CCORP: 42,050
CCH Reference - TRC CCORP: 42,200
CCH Reference - TRC CCORP: 45,268
CCH Reference - TRC CONSOL: 7,106

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Wisconsin Department of Revenue has issued a notice explaining certain new disclosure requirements applicable to individual income and corporation franchise and income tax taxpayers. Specifically, under the 2007 budget act, requirements were enacted for taxpayers and material advisors to disclose reportable transactions, including listed transactions, to the Department. The law requires taxpayers and material advisors to provide the Department with copies of reportable transaction disclosure forms whenever those forms are required by the IRS. The requirement is retroactive to reportable transactions that affected a taxpayer's Wisconsin income or franchise tax liability for any period beginning on or after January 1, 2001. Wisconsin has also adopted penalties for failure to disclose reportable transactions, similar to those that exist for federal purposes.

CCH (cch.taxgroup.com) reports:

In a case involving issues similar to those examined by the U.S. Supreme Court in its DaimlerChrysler Corp. v. Cuno
decision (126 S. Ct. 1854 (2006)), taxpayers lacked standing to challenge Minnesota corporate income, personal income, property, and sales and use tax credits, exemptions, and other incentives under the Job Opportunity Building Zones (JOBZ) Program and the Biotechnology and Health Sciences Industry Zone Program, as affirmed by the Minnesota Court of Appeals. Specifically, the complaint was dismissed because the taxpayers showed no evidence of actual injury-in-fact. The taxpayers provided no indication that the programs were likely to increase the overall tax burden to themselves or the general public or that the programs constituted illegal expenditures or the waste of tax monies. Without evidence of some direct injury, the taxpayers' claims did not meet the threshold for standing.
Olson v. Minnesota, Minnesota Court of Appeals, No. A06-2324, December 18, 2007, ¶203-328
Other References:
Explanations at ¶12-070b
Explanations at ¶15-630
Explanations at ¶20-170
Explanations at ¶60-360
 

CCH (cch.taxgroup.com) reports:

CCH's Tax Briefing analyzing tax law changes made by the Tax Increase Prevention Act of 2007 (HR 3996), Mortgage Forgiveness Debt Relief Act of 2007 (HR 3648), Energy Independence and Security Act of 2007 (HR 6; P.L. 110-140), and several other measures, is now available. In a flurry of last-minute voting, the House and Senate passed a number of bills that impact the Internal Revenue Code, including:
(1) The Energy Independence and Security Act of 2007 (HR 6; P.L. 110-140) was passed by both the House and Senate and was signed into law by President Bush on December 19, 2007 (TAXDAY, 2007/12/20, W.1). The original bill's tax title was dropped, but the Act contains two tax provisions: an extension of the additional 0.2 percent FUTA surtax to sunset December 31, 2008, and seven-year amortization of certain geological costs of certain oil companies.
(2) The Virginia Tech Victims and Family Assistance Act (HR 4118; P.L. 110-141) was passed by both the House and Senate and was signed into law by President Bush on December 19, 2007 (TAXDAY, 2007/12/20, W.2). The Act excludes from income payments from a special memorial fund to victims of the Virginia Tech tragedy in April 2007.
(3) The Mortgage Forgiveness Debt Relief Act of 2007 (HR 3648) was passed by both the House and Senate. President Bush signed the bill into law on December 20, 2007 (TAXDAY, 2007/12/21, W.1). The measure contains approximately six tax provisions, including tax relief for debt forgiveness and mortgage insurance payments.
(4) The Tax Increase Prevention Act of 2007 (HR 3996) was passed by the House (TAXDAY, 2007/12/20, C.1). The Senate previously passed the measure on December 6, 2007. The measure contains three provisions that are collectively referred to as an AMT patch. President Bush is expected to sign the bill.
(5) The Technical Corrections Act of 2007 (HR 4839) was passed by both the House and Senate (TAXDAY, 2007/12/20, C.1). The language in this bill was originally part of the Heroes Earnings Assistance and Relief Tax Act of 2007 (HRes 884, HR 3997) (a/k/a the Military Bill). The House and Senate, however, failed to agree on and pass one version of the Military Bill. As a result, the technical corrections were split off into a separate measure. The president is expected to sign the measure. There are approximately 27 provisions impacting nine prior Acts.
(6) The Consolidated Appropriations Act, 2008 (HR 2764) was passed by both the House and Senate (TAXDAY, 2007/12/20, C.3). The bill includes the budget for the Treasury Department.
(7) An untitled Senate bill (Sen 2436) was passed by both the House and Senate (TAXDAY, 2007/12/20, C.3). The bill clarifies the term of the IRS Commissioner.
CCH's award-winning Tax Briefing analyses the changes enacted by these new laws. The CCH Tax Briefing can be found at http://tax.cchgroup.com/Tax-Briefings/default.
 

CCH (cch.taxgroup.com) reports:

Final and temporary regulations have been issued relating to the recapture of overall domestic losses under Code Sec. 904(g). The regulations also provide updated guidance with respect to overall foreign losses and separate limitation losses for individuals and corporations claiming foreign tax credits.
CCH Comment: The domestic loss regulations implement the policy underscoring Code Sec. 904(g) which is to mitigate the mismatch which can occur when U.S. source loss is allocated to foreign source income, resulting in excess foreign tax credits which are then carried forward. Such losses cannot offset U.S. source taxable income in a subsequent year, nor can the carried forward foreign tax credits offset the tax on such income. Instead, Code Sec. 904(g) recharacterizes a portion of the taxpayer's U.S.-source income for each succeeding tax year as foreign-source income in an amount equal to the lesser of: (1) the amount of the unrecharacterized overall domestic losses for years prior to such succeeding year; or (2) 50 percent of the taxpayer's U.S.-source income for such succeeding tax year.
The temporary regulations provide for the establishment, maintenance and recapture of a separate domestic loss account for each separate category of foreign source income offset by a domestic loss, and determine when an overall domestic loss is treated as having been sustained. Overall domestic losses are recaptured by treating up to 50 percent of a taxpayer's U.S. source taxable income as foreign source income until the overall domestic loss account has been reduced to zero.
The temporary regulations also include new provisions regarding the establishment and recapture of separate limitation loss accounts implementing the separate loss provisions of Code Sec. 904(f)(5). Such accounts are required with respect to a separate category to the extent a foreign source loss in that category offsets foreign source income in another separate category. Finally, the temporary regulations update existing regulations governing the determination and maintenance of overall foreign loss accounts, as well as the recapture of overall foreign losses and the allocation of net operating and capital losses. Ordering rules are provided for the allocation of net operating losses, net capital losses, U.S. source losses, and separate limitation losses, as well as the recapture of separate limitation losses, overall foreign losses and overall domestic losses.
The regulations are effective as of December 31, 2007, and generally apply to taxable years beginning after that date. Taxpayers may choose to apply the overall domestic loss provisions in other taxable years beginning after December 31, 2006, or use any reasonable method consistently applied to those years including a method based on the ordering rules contained in Notice 89-3, 1989-1 CB 622.
The text of the temporary regulations also serves as the text of proposed regulations. Written or electronic comments regarding the proposed regulations have been requested, and must be received by March 20, 2007. A public hearing on the proposed regulations has been scheduled for April 10, 2008.
T.D. 9371, 2008FED ¶47,007
Proposed Regulations, NPRM REG-141399-07, 2008FED ¶49,779
Other References:
Code Sec. 904
CCH Reference - 2007FED ¶27,881
CCH Reference - 2007FED ¶27,888G
CCH Reference - 2007FED ¶27,892
CCH Reference - 2007FED ¶27,893
CCH Reference - 2007FED ¶27,894
CCH Reference - 2007FED ¶27,894C
CCH Reference - 2007FED ¶27,895
CCH Reference - 2007FED ¶27,895C
CCH Reference - 2007FED ¶27,896
CCH Reference - 2007FED ¶27,899C
CCH Reference - 2007FED ¶27,899D
CCH Reference - 2007FED ¶27,899G
CCH Reference - 2007FED ¶27,899H
CCH Reference - 2007FED ¶27,900AA
CCH Reference - 2007FED ¶27,900AB
CCH Reference - 2007FED ¶27,900AC
CCH Reference - 2007FED ¶27,900AD
CCH Reference - 2007FED ¶27,900AE
CCH Reference - 2007FED ¶27,900AF
CCH Reference - 2007FED ¶27,900AG
CCH Reference - 2007FED ¶27,900B
CCH Reference - 2007FED ¶27,900EA
Code Sec. 1502
CCH Reference - 2007FED ¶33,154
CCH Reference - 2007FED ¶33,154C
Tax Research Consultant
CCH Reference - TRC INTLOUT:6,262
CCH Reference - TRC CONSOL:45,250

CCH (cch.taxgroup.com) reports:

The IRS has released final, temporary and proposed regulations that reflect the two new categories of income for purposes of limitations on the foreign tax credit: passive category income and general category income. For tax years beginning after 2006, these two categories replace the eight "buckets" that were previously used for the credit (the "separate categories"). The text of the temporary regulations also serves as the text for the proposed regulations.
Excess credits carried over from a pre-2007 tax year to a post-2006 tax year are assigned to the two new categories based on where the related income would have been assigned if the foreign taxes were paid or accrued in a post-2006 tax year. Thus, the excess taxes are assigned to the appropriate post-2006 category as if the taxes had been paid in a post-2006 tax year. For example, taxes related to income that would have been treated as high-taxed income under pre-2007 law are assigned to the post-2006 category for general category income. Since taxpayers may have trouble reconstructing excess taxes accounts, a safe harbor allows the taxpayer to assign excess taxes in the pre-2007 passive category to post-2006 passive category income; excess taxes in any other pre-2007 category are assigned to post-2006 general category income.
The regulations adopt the statutory definitions for passive category income, as well as passive income and specified passive category income. Since specified passive category income includes dividends from DISCs, distributions from FSCs. and foreign trade income (FTI), these types of income can never qualify as financial services income that can be treated as general category income. The regulations also clarify that gain on the sale of a partnership interest by a 25-percent partner is assigned to general category income, to the extent that the gain is not classified as foreign personal holding company income. With respect to the separate category for financial services income, the regulations provide a general definition, an exclusive list of items that are treated as active financing income, and rules for determining when a person is predominantly engaged in the active financing business.
The separate category for shipping income continues to exist through the end of tax years beginning before 2007, and the subpart F shipping regulations continue to apply. Regulations are reserved for the definitions of high withholding tax interest and shipping income, and the treatment of dividends from a certain noncontrolled corporations. Other definitions and rules are revised to reflect the statutory reduction of the categories.
When a dividend is paid, or an amount is included in gross income of a U.S. shareholder out of post-1986 undistributed earnings (or pre-1987 accumulated profits) of a foreign corporation attributable to more than one separate category, the amount of foreign income taxes deemed paid by the domestic shareholder or upper tier corporation is computed separately with respect to those earnings or profits in each category out of which the dividend is paid or to which the subpart F inclusion is attributable. The temporary regulations implement the reduction of the separate categories by recharacterizing the foreign corporation's pools of post-1986 undistributed earnings and foreign income taxes in those categories as pools in passive category income and general category income on the first day of the foreign corporation's first post-2006 tax year. The temporary regulations also address CFCs and noncontrolled corporations with such pools, related substantiation rules, and the assignment of previously taxed earnings and profits, accumulated deficits, and pre-1987 accumulated profits in separate categories. A reasonable approximation of the amounts properly included in the new categories, based on available records obtained through the taxpayer's reasonable good-faith efforts, adequately substantiate any reconstruction of a foreign corporation's historical accumulated earnings and taxes accounts. Two safe harbors are also provided for such reconstructions.
Finally, the temporary regulations provide transition rules for recapture in a post-2006 tax year of an overall foreign loss or separate limitation loss in a pre-2007 separate category that offset U.S. source income or income in another pre-2007 separate category, respectively, in a pre-2007 tax year.
Effective Date
The final regulations are effective on December 21, 2007. The temporary regulations apply to tax years of U.S. taxpayers beginning after December 31, 2006, and ending on or after December 21, 2007; and to tax years of a foreign corporation that end with or within a tax year of its domestic corporate shareholder beginning after December 31, 2006, and ending on or after December 21, 2007.
Comments Requested
The IRS has also requested comments on the proposed regulations. Written or electronic comments must be received by March 20, 2008. Outlines of topics to be discussed at the public hearing scheduled for 10 a.m. on April 22, 2008, must be received by April 1, 2008.
T.D. 9368, 2008FED ¶47,006
Proposed Regulations, NPRM REG-114126-07, 2008FED ¶49,778
Other References:
Code Sec. 904
CCH Reference - 2007FED ¶27,881
CCH Reference - 2007FED ¶27,883
CCH Reference - 2007FED ¶27,883A
CCH Reference - 2007FED ¶27,885
CCH Reference - 2007FED ¶27,885A
CCH Reference - 2007FED ¶27,886
CCH Reference - 2007FED ¶27,886D
CCH Reference - 2007FED ¶27,888
CCH Reference - 2007FED ¶27,888D
CCH Reference - 2007FED ¶27,900
CCH Reference - 2007FED ¶27,900A
Tax Research Consultant
CCH Reference - TRC INTLOUT: 6,112
 

CCH (cch.taxgroup.com) reports:

Responding to the growing subprime mortgage crises, President Bush on December 20 signed legislation to help homeowners who are facing foreclosure. The new law, the Mortgage Forgiveness Debt Relief Act of 2007 (HR 3648) creates a three-year exception to current law so that certain taxpayers do not have to pay federal taxes for debt forgiveness on their troubled loans.
"Clearly it is unfair to tax people on income that doesn't exist. This is particularly true at a time when they have experienced a substantial economic loss on the most significant asset they own and have no way to pay the tax," noted Sen, George V. Voinovich, R-Ohio, a bill co-sponsor attending the White House signing ceremony.
Bush called HR 3648 "a tax reform" bill because it allows homeowners to secure lower mortgage payments without facing higher taxes. The new law also extends a provision allowing homeowners to deduct mortgage insurance payments from their taxable income and eases restrictions on cooperative housing corporations.
Other provisions include tax relief for volunteer firefighters and emergency medical technicians and tax protection for homeowners after the death of a spouse. The new law is fully offset by increased penalties for failure to file S corporation or partnership returns and new requirements for corporate estimated tax payments.
By Paula Cruickshank, CCH News Staff
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Enactment of the Illinois alternative general homestead exemption from property tax did not violate the state constitutional provisions relating to separation of powers, uniformity of taxation, exemptions, equal protection, or due process, according to the state appellate court. Although the challenge was aimed at the exemption as enacted in 2004, the court noted that the exemption subsequently was substantially reenacted. (TAXDAY, 2007/10/15, S.11)
Initially, the court noted that complaining taxpayers' multiple instances of noncompliance with rules of appellate procedure could have made dismissal an appropriate consideration. However, the issues raised were of significant public interest, the incomplete record was sufficient to allow evaluation of the taxpayers' claims, and the manifest efforts of the parties otherwise demonstrated serious thought and treatment. The issues raised were considered on their merits.
The Illinois General Assembly did not violate the state's constitutional separation of powers principle by permitting each county in the state to elect whether to adopt the exemption. The General Assembly's authority to incrementally delegate its own authority in furtherance of its enacted legislation was part and parcel of its ability to pass any law on any given subject. There was no designation of any rule-making authority, i.e., authority to formulate and draft a rule. Rather, the delegation was only a "take it or leave it option" of a fully drafted and fully formulated piece of legislation. The local option gave full reflection of the design and intent of the legislature with regard to the exercise of its constitutional authority to provide homestead exemptions. There was no reason to expect that allowing the local option for the exemption would permit the legislature to make further delegations of an unconstitutional nature. Finally, a county's selection of the alternative general homestead exemption would not impermissibly have extraterritorial effect in the form of resulting different tax rates in other counties.

CCH (cch.taxgroup.com) reports:

The Hawaii Department of Taxation has announced that taxpayers affected by the high winds, heavy rains, and flooding that occurred from December 4, 2007, to December 14, 2007, in the Counties of Hawaii, Kauai, Kalawao, and Maui and the City and County of Honolulu may be eligible for corporate income, personal income, withholding, general excise, and other tax relief. Returns filed under the provisions of this announcement should be clearly marked "December 2007 Storm Relief" on the top center of the returns.

CCH (cch.taxgroup.com) reports:

The IRS has provided the dollar amounts, increased by the 2008 inflation adjustment, for Code Sec. 1274A debt instruments arising out of sales or exchanges. The 2008 inflation-adjusted amount is $4,913,400 for Code Sec. 1274A(b) qualified debt instruments and $3,509,600 for Code Sec. 1274A(c)(2)(A) cash method debt instruments. Rev. Rul. 2007-4, I.R.B. 2007-4, 351, is supplemented and superseded.
Rev. Rul. 2008-3, 2008FED ¶46,210
Other References:
Code Sec. 61
CCH Reference - 2007FED ¶1201.55
CCH Reference - 2007FED ¶5704.027
Code Sec. 483
CCH Reference - 2007FED ¶22,299.04
CCH Reference - 2007FED ¶22,299.05
Code Sec. 1274
CCH Reference - 2007FED ¶31,310.05
Code Sec. 1274A
CCH Reference - 2007FED ¶31,322.021
CCH Reference - 2007FED ¶31,322.073
CCH Reference - 2007FED ¶31,322.30
Tax Research Consultant
CCH Reference - TRC ACCTNG: 36,154.65
CCH Reference - TRC ACCTNG: 36,256.20

CCH (cch.taxgroup.com) reports:

The IRS has provided interim guidance with respect to the Code Sec. 6039
information reporting requirements of stock option transfers. The IRS intends to issue regulations that prescribe rules relating to the information return requirements contained in Code Sec. 6039, as amended by the Tax Relief and Health Care Act of 2006 (P.L. 109-432). The IRS expects that the forthcoming regulations generally will retain the existing rules contained in Reg. §1.6039-1, relating to the information statements to be provided to employees, and generally will require that the same information be included in the information returns made to the IRS.
The IRS also expects that the new Code Sec. 6039 regulations will be effective retroactively to January 1, 2007. Because regulations under Code Sec. 6039 have not yet been issued, the IRS is waiving the obligation to make an information return for 2007 stock transfers governed by Code Sec. 6039. However, corporations should continue to furnish to employees the information required by, and in accordance with, existing Reg. §1.6039-1, with respect to such stock transfers.
Notice 2008-8, 2008FED ¶46,209
Other References:
Code Sec. 6039
CCH Reference - 2007FED ¶35,606.021
Tax Research Consultant
CCH Reference - TRC PAYROLL: 3,356
 

CCH (cch.taxgroup.com) reports:

The IRS has issued interim guidance regarding filing claims with the Whistleblower Office pursuant to Code Sec. 7623, in light of the changes brought by the Tax Relief and Healthcare Act of 2006 (P.L. 109-432), which added Code Sec. 7623(b). The existing regulations, which address only the provisions of Code Sec. 7623(a), are inconsistent with Code Sec. 7623(b). Today's guidance clarifies that these regulations will not apply to the award program authorized by Code Sec. 7623(b).
Under Code Sec. 7623(b), individuals are eligible for awards based on the amount collected by the IRS and the total amount in dispute must exceed $2,000,000 and, if the noncompliant person is an individual, that individual's gross income must exceed $200,000. The amount of the award will be a minimum of 15 percent and a maximum of 30 percent of the collected proceeds. Individuals should complete IRS Form 211, Application for Award for Original Information. The guidance also includes examples of grounds under which claims will not be processed, information regarding confidentiality and IRS processes for evaluating the claim, tax treatment of the awards and rights of appeal.
Claims that do not qualify under Code Sec. 7623(b) may still qualify under Code Sec. 7623(a). This guidance is effective as of January 14, 2008. Comments are requested, and should be submitted on or before February 13, 2008.
IR-2007-201, 2008FED ¶46,207
Notice 2008-4, 2008FED ¶46,208
Other References:
Code Sec. 7623
CCH Reference - 2007FED ¶42,957.021
CCH Reference - 2007FED ¶42,957.12
CCH Reference - 2007FED ¶42,957.15
CCH Reference - 2007FED ¶42,957.30
Tax Research Consultant
CCH Reference - TRC IRS: 63,060.05
 

CCH (cch.taxgroup.com) reports:

The IRS has extended the transition guidance and relief provided under Notice 2006-107, I.R.B. 2006-51, 1114, to certain defined contribution plans holding publicly traded employer securities until the regulations issued under Code Sec. 401(a)(35) become effective. The new regulations are not expected to become effective before plan years beginning on or after January 1, 2009. Except as otherwise provided in the regulations, plans must continue to apply Notice 2006-107 until the regulations go into effect.
Under Code Sec. 401(a)(35), which was added by the Pension Protection Act of 2006 (P.L. 109-280), applicable individuals have the right to divest employer securities in their accounts and reinvest the amounts in certain diversified investments. The diversification requirements are generally effective for plan years beginning after December 31, 2006. The transition guidance in Notice 2006-107 fleshes out and provides details for meeting the diversification requirements. Notice 2006-107 is modified.
Notice 2008-7, 2008FED ¶46,206
Other References:
Code Sec. 401
CCH Reference - 2007FED ¶17,507.15
CCH Reference - 2007FED ¶17,925G.01
CCH Reference - 2007FED ¶17,925G.30
CCH Reference - 2007FED ¶17,929.65
Tax Research Consultant
CCH Reference - TRC RETIRE: 3,214.40

CCH (cch.taxgroup.com) reports:

Various prescribed rates for federal income tax purposes for January 2008 have been provided by the IRS. The annual short-term, mid-term, and long-term applicable federal interest rates (AFRs) are 3.18 percent, 3.58 percent and 4.46 percent, respectively. The semiannual short-term, mid-term, and long-term AFRs are 3.16 percent, 3.55 percent and 4.41 percent, respectively. Quarterly short-term, mid-term and long-term AFRs are 3.15 percent, 3.53 percent and 4.39 percent, respectively. Finally, the monthly short-term, mid-term and long-term rates are 3.14 percent, 3.52 percent and 4.37 percent, respectively.
The short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFRs) for January 2008 for purposes of Code Sec. 1288(b) are 3.05 percent, 3.39 percent and 4.25 percent, respectively, when annual compounding is used.
The Code Sec. 382 adjusted federal long-term rate is 4.25 percent, and the long-term tax-exempt rate is 4.34 percent. The Code Sec. 42(b)(2) appropriate percentage for the 70-percent present-value, low-income housing credit is 7.93 percent, and the appropriate percentage for the 30-percent present-value low-income housing credit is 3.40 percent. 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 4.4 percent. Finally, the deemed rate for transfers during 2008 to new pooled income funds, as described in Code Sec. 642(c)(5), that have been in existence for less than three tax years, is 4.8 percent.
Rev. Rul. 2008-4, 2008FED ¶46,205
Rev. Rul. 2008-4, FINH ¶30,569
Other References:
Code Sec. 42
CCH Reference - 2007FED ¶173.02
CCH Reference - 2007FED ¶176.01
CCH Reference - 2007FED ¶4305.03
Code Sec. 280G
CCH Reference - 2007FED ¶15,152.85
Code Sec. 382
CCH Reference - 2007FED ¶17,115.28
Code Sec. 642
CCH Reference - 2007FED ¶24,308.1885
CCH Reference - FINH ¶16,801.11
Code Sec. 807
CCH Reference - 2007FED ¶25,821.15
Code Sec. 846
CCH Reference - 2007FED ¶26,331.07
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:

The House on December 19 abandoned its commitment to pay-as-you-go (PAYGO) budget rules and passed an alternative minimum tax (AMT) bill that will provide tax relief to 23 million Americans in 2008. Senate and House GOP lawmakers, with the backing of President Bush, forced Democrats to forgo their promises to offset the $50-billion cost of AMT relief.
By a vote of 352-64, the House passed the Tax Increase Prevention Act of 2007 (HR 3996), which is the tax-free version of AMT relief that the Senate approved by an 88-5 margin on December 6 (TAXDAY, 2007/12/07, C.1). HR 3996 would extend AMT relief for nonrefundable personal credits and increase the AMT exemption amount to $66,250 for joint filers and $44,350 for individuals, for tax years beginning after December 31, 2006.
House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., said Democrats chose to protect taxpayers from the AMT even though it will cause the federal budget deficit to grow. "Forget the loopholes, forget the revenue losses, forget the indebtedness --at least for now --because we do not want those hardworking families to wake up in the morning and find that there is a feud between Republicans and Democrats that would cause them to carry this burden," he said. Rangel added that, in 2008, Democrats will try to pass a permanent repeal that is fully offset.
Ways and Means ranking member Jim McCrery, R-La., said House Democrats gave up on their stubborn and irrational insistence on applying flawed PAYGO rules that would have added tens of billions of dollars in unrelated tax increases to the AMT patch legislation. "House Democrats persisted in pursuing this quixotic quest even though the Senate had little interest in passing such tax increases, and it was obvious that President Bush would never sign them into law," McCrery said.
House Majority Leader Steny Hoyer, D-Md., shot back, "Republican lectures on fiscal responsibility are simply not credible or believable. They have voted again and again to charge billions to the nation's credit card, rather than paying for what they buy." Mike Ross, D-Ark., said the group of fiscally conservative Democrats known as the Blue Dog Coalition voted against HR 3996. In 2008, the group hopes to turn the PAYGO rules into a law that would affect all legislation passed by Congress.
White House Support
The administration applauded passage of an AMT bill that does not include any new tax offsets to pay for the measure. White House Press Secretary Dana Perino, in a written statement, noted, "The AMT was never intended to hit these middle-class taxpayers, and the last thing they or the U.S. economy needs is a tax increase." Perino added that passing the measure so near the end of the year will make it difficult for the IRS to prepare the appropriate forms on time. "We know that the IRS will do everything possible to prevent delays," Perino stated.
IRS Systems
Treasury Secretary Henry M. Paulson, Jr., acknowledged that the late passage of the AMT patch will probably lead to delays in the IRS's processing of returns. "The IRS is doing all it can to have a fully successful filing season. However, it is likely that there will be some delays, including delays of some refunds." He said that the Treasury and the IRS will keep taxpayers informed during the filing season. Paulson thanked the House for passing the patch.
The IRS announced it will immediately begin the final reprogramming of its processing systems to prepare for the upcoming filing season. "Our people will do everything they can to quickly update our systems for this major change," said Acting IRS Commissioner Linda Stiff. The IRS is continuing to explore options to minimize the impact of processing delays. To help tax professionals and software companies, revised copies of the 12 forms impacted by the AMT will be posted on the IRS website within 72 hours after the patch is signed into law.
Technical Corrections
In other action, both the House and Senate passed the Tax Technical Corrections Act of 2007 (HR 4839), which contains language that was originally included in the Heroes Earnings Assistance and Relief Tax Act of 2007 (HRes 884, HR 3997), which passed the House on December 18 ( TAXDAY, 2007/12/19, C.4). After the military tax bill was amended by the House, Senate lawmakers failed to approve it by unanimous consent before adjournment (TAXDAY, 2007/12/20, C.2), thus necessitating action on the standalone corrections measure.
By Jeff Carlson, Stephen K. Cooper, Paula Cruickshank and Brant Goldwyn, CCH News Staff
Tax Technical Corrections Act of 2007, HR 4839
Treasury Department News Release, TDNR HP-746

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

House lawmakers voted unanimously to approve the Mortgage Forgiveness Debt Relief Act of 2007 (HR 3648) clearing the measure for President Bush's expected signature. The measure creates a three-year exception to current law so that homeowners caught in the current subprime mortgage crisis do not have to pay taxes for debt forgiveness on their troubled home loans.
House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., said the legislation was needed to protect homeowners. "Current law treats forgiven mortgage debt as income, but it is simply unfair and unconscionable that families would have to suffer through a foreclosure only to be dealt a second blow in the form of a tax bill when their net worth has not increased," he said.
The bill would also extend a provision allowing homeowners to deduct mortgage insurance payments from their taxable income. The bill would also ease restrictions for qualifying as a housing cooperative corporation.
Other provisions included in the bill provide tax relief for volunteer firefighters and emergency medical technicians; protection of tax relief for homeowners after the death of a spouse; and flexibility to help co-op tenant/owners deduct real estate taxes and mortgage insurance. The bill is fully offset by increased penalties for failure to file S corporation or partnership returns and new requirements for corporate estimated tax payments.
White House Support
President Bush plans to sign the White House-backed mortgage tax relief bill "because he believes it is good policy," White House Press Secretary Dana Perino said. The bill will "protect homeowners from having to pay extra taxes when they refinance their mortgages on the difference," she noted.
Praise from Treasury
In a statement issued immediate after passage, Treasury Secretary Henry M. Paulson, Jr., hailed the legislation as an important part of the president's overall plan to help homeowners. He stated, "Homeowners who restructure their mortgages to avoid foreclosure should not be hit with a tax bill as a result. This legislation will temporarily exclude homeowners who have restructured their mortgage loans from having to pay taxes on the mortgage debt forgiven."
In addition to praising Congress for its quick action, Paulson asked, as part of the president's larger plan, that they take final action on GSE and FHA reform, and approve legislation allowing state and local governments more tax-exempt bond authority to help homeowners refinance their existing loans. The administration's overall plan has been criticized lately by many groups from both sides of the aisle as being too little, too late to blunt the impact the mortgage crisis has had on the financial markets.
By Stephen K. Cooper, Paula Cruickshank and George Jones, CCH News Staff
JCT Estimated Revenue Effects of HR 3648, the Mortgage Forgiveness Debt Relief Act of 2007, as Amended and Passed by the Senate on December 14, 2007, JCX-118-07.  

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Arkansas Department of Finance and Administration has promulgated a rule to implement and administer the corporate and personal income tax credit for geotourism investment in the lower Mississippi River delta region. Details of the credit were reported earlier. (TAXDAY, 2007/04/05, S.5)
To claim the credit, a geotourism-supporting business must apply to the Department on the prescribed form and include information regarding the amount invested and adequate documentary proof ( e.g. , invoices, contracts, bank statements). A copy of the form is included with the rule. The Arkansas Department of Parks and Tourism will determine if the investment meets the statutory criteria. If the investment qualifies, written certification will be provided to the Department. The Department will provide taxpayers with an "Income Tax Credit Memorandum" based on the investment; this memorandum should be attached to the tax return when the credit is first claimed.
Owners of pass-through entities (PTEs) may claim the credit. If the PTE is an S corporation, Ark. Code Sec. 26-51-409, as in effect for the taxable year in which the credit is earned, will apply to allocate the credit. If the PTE is a partnership or limited liability company, then the entity agreement will determine the taxpayer's distributive share of the credit. However, if the agreement does not have a substantial economic effect or does not provide for credit allocation, then the credit will be allocated according to the partner's or member's interest, pursuant to IRC §704(b), as in effect January 1, 1995. When completing the application, PTEs are requested to provide the names, addresses, and ownership percentages of all owners.
The Act creating and authorizing the credit expires at the end of 2011. However, if a business is approved into the program before December 31, 2011, then the investment may be made after 2011. The taxpayer would be eligible for the credit provided that all the other requirements are met.
The regulation also provides new definitions for "invest," "RV parks," "transient lodging facilities," and "transient guests." The definition of "geotourism-supporting business" includes examples of pumpkin patches or crop mazes. Finally, the definition of "economically distressed area" is enhanced to list the specific Arkansas counties of Chicot, Desha, Lee, Phillips, and St. Francis.
Subscribers to CCH Tax Research NetWork may view the regulation.
Rule 2007-9, Arkansas Department of Finance and Administration, effective December 17, 2007; Arkansas State Revenue Tax Quarterly, Volume XIII, No. 4, Arkansas Department of Finance & Administration, Revenue Division, October --December 2007.

CCH (cch.taxgroup.com) reports:

All federal tax lien documents filed in public records offices will contain partially redacted taxpayer Social Security numbers (SSNs) as of January 6, 2008, the IRS has announced on its website. The Service is redacting taxpayer SSNs to help prevent identity theft.
Liens
The IRS files liens publicly to give notice that a lien exists. The IRS generally must file a notice of lien on real property in one office in the state, county or other government subdivision designated by state law for filing. If state law does not designate only one office for filing federal tax liens, the IRS must file the notice with the U.S. district court for the judicial district in which the property is located.
Similarly, the IRS must file the notice as to personal property, whether tangible or intangible, in one office, as designated by the laws of the state in which the property is situated. In some jurisdictions, the IRS uses an automated lien filing system that permits electronic filing.
Last Four Digits
Only the last four digits of the taxpayer's SSN will appear on all federal tax lien documents, effective January 6, 2008. SSNs will appear as "XXX-XX-NNNN." The redacted format will appear on lien documents issued electronically and on documents issued to taxpayers and their representatives, the Service explained. However, the new policy will not apply to employer identification numbers (EINs).
The IRS frequently uses taxpayer SSNs as an identifier. The Service predicted that the switch to a redacted format will not hinder its customer services.
Previous Action
The latest move follows a similar one where the IRS began partially redacting taxpayer SSNs for notices of federal tax lien recorded after January 1, 2006. The IRS subsequently surveyed various recording offices and discovered that they could accommodate partial redactions of taxpayer SSNs on tax lien documents.
Identity Theft
The dangers of identity theft prompted the IRS to take these steps. "The increasing problem of identity theft poses significant privacy concerns for public documents that include a social security number," the Service explained.
"A Social Security number is the key to getting an individual's personal information," Scott Myers, CPA, president of the Pittsburgh chapter of the Pennsylvania Institute of Certified Public Accountants (PICPA), told CCH. "Once a thief has that number, it's easy to get the person's name, address and name of employer. With that information, a thief can secure a credit card." The Federal Trade Commission estimates that nine million Americans have been victims of identity theft. "Frankly, I am surprised it's so low," Myers added.
By George L. Yaksick, Jr., CCH News Staff
IRS to Partially Redact All Federal Tax Lien Document SSNs Effective January 6, 2008

CCH (cch.taxgroup.com) reports:

For the first time, the Senate on December 14 approved income tax treaties that would require mandatory binding arbitration. The arbitration provisions were included in the U.S.-Belgium Income Tax Treaty and a protocol to the U.S.-Germany income tax treaty. Both the Bush administration and the U.S. business community support the binding arbitration process. Some senators on the Foreign Relations Committee initially had opposed it. Binding arbitration will come up again in 2008 in a new protocol with Canada. The provision is not yet part of Treasury's 2006 model income tax treaty.
The binding arbitration process takes effect automatically after two years if the countries' competent authorities cannot reach agreement. Each side picks an arbitrator, who then pick a third arbitrator. The panel must choose one side's offer or the other; it cannot compromise them. The panel's decision will not be precedent.
Oren Penn of PricewaterhouseCoopers told CCH that it is not intended that the provision will be used. The all-or-nothing nature of a decision is designed to encourage countries to come to an agreement.
By Brant Goldwyn, CCH News Staff
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Streamlined Sales Tax (SST) Governing Board has approved a compromise allowing Texas and other sales tax-dependent states to continue taxing intrastate sales at the rate in effect at the seller's location (origin sourcing), but to tax interstate sales at the rate in effect where the merchandise is delivered (destination sourcing). (TAXDAY, 2007/12/14, S.1)
The original SST plan required destination sourcing for both interstate and intrastate sales. The destination sourcing requirement for intrastate sales had been a major barrier preventing Texas from supporting the plan. As a result of the compromise, Texas is a major step closer to joining the SST Agreement.

CCH (cch.taxgroup.com) reports:

The North Carolina Supreme Court has ruled that its initial discretionary grant of review of an appellate court's decision upholding class certification in an action challenging North Carolina's personal income and corporate income taxation of interest earned on out-of-state bonds was improvidently allowed (see TAXDAY, 2007/05/14, S.19). The case will now be returned to the Superior Court for further proceedings.
Dunn v. State of North Carolina , North Carolina Supreme Court, No. 605PA06, December 7, 2007.

CCH (cch.taxgroup.com) reports:

An out-of-state financial services processing company had nexus with Florida for corporate income tax purposes even though its only contact with the state was through unrelated authorized vendors. The taxpayer did not maintain real or tangible personal property or employ personnel or agents in Florida. However, the taxpayer was licensed, as required, with the Office of Financial Regulation of the Florida Department of Financial Services as a payment instrument seller and, under this license, the taxpayer had registered locations (authorized vendors) in the state. For nexus purposes, "doing business "in Florida means actively engaging in any transaction for the purpose of financial gain. Following decisions from other state supreme courts, and in light of the fact that the U.S. Supreme Court has declined to review the issue, the Florida Department of Revenue's position is that physical presence is not required to impose the state's corporate income tax. The taxpayer's unrelated authorized vendors were licensed agents of the taxpayer who operated on the taxpayer's behalf within Florida. The activities of these vendors were sufficient to create corporate income tax nexus, because without them, the taxpayer could not operate its business in Florida.
Technical Assistance Advisement, No. 07C1-007 , Florida Department of Revenue, October 17, 2007, ¶205-125
Other References:
Explanations at ¶10-075
 

CCH (cch.taxgroup.com) reports:

The Senate on December 14 approved legislation offering tax relief to homeowners caught in the sub-prime mortgage crisis. The bill was approved as an amendment to the Mortgage Forgiveness Debt Relief Bill of 2007 (HR 3648) and creates a three-year exception for debt forgiveness on home loans. When debt is forgiven on a home loan, the homeowner usually must count the amount forgiven as income and pay taxes on it. The measure also extends a provision allowing homeowners to deduct mortgage insurance payments from their taxable income.
"Homeowners who are already in trouble on the mortgage certainly can't afford a big hit from the tax man too," said Senate Finance Committee Chairman Max Baucus, D-Mont., in a prepared statement. "This mortgage tax bill will help to ease the burdens of homeowners who are hurting today," he added.
In addition to tax relief for debt forgiveness and mortgage insurance payments, the bill includes: tax relief for volunteer firefighters and emergency medical technicians; protection of tax relief for homeowners after the death of a spouse; and flexibility to help co-op tenant/owners deduct real estate taxes and mortgage insurance. The bill is fully offset by increased penalties for failure to file S corporation or partnership returns and new requirements corporate estimated tax payments. It is now necessary for the House to pass the updated legislation and send it to the president for signature.
Farm Bill Passes
Also on December 14, the Senate approved a comprehensive farm bill (the Farm, Nutrition, and Bioenergy Bill of 2007, HR 2419) that includes a tax title providing for codification of the economic substance doctrine as a means to offset most of the $17 billion-plus price tag. The final vote was 79-14. Codification of the economic substance doctrine raises about $10 billion over ten years as a revenue offset and would apply to transactions entered into after the date of enactment. The measure 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. The measure needs full approval by the House before President Bush can sign it into law.
By Jeff Carlson, CCH News Staff
SFC Release: Senate Passes Mortgage Tax Relief For Families In Crisis
Baucus Amendment to Mortgage Forgiveness Debt Relief Act of 2007, HR 3648
JCT Very Preliminary Estimated Revenue Effects of a Possible Amendment to HR 3648, the Mortgage Forgiveness Debt Relief Act of 2007
SFC Release: Baucus Wins on Agriculture Tax Package as Senate Approves Comprehensive Farm Bill

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

In the most significant course change since its launch, the Streamlined Sales Tax (SST) Governing Board has amended the SST Agreement to allow states that meet specified requirements to become full members while continuing to source sales on an origin basis. The unanimous vote by the full members of the Board came at the end of three days of meetings in Dallas, December 10-12, 2007. The Board and its predecessor organizations rejected repeated attempts in the past to change the Agreement to allow origin sourcing, most recently at its meeting in Kansas City, Kansas. (TAXDAY, 2007/09/24, S.1) However, the Board relented when confronted with the impending loss of at least two associate member states, uncertain prospects for adding further states, pressure from local governments, and a divided business community.
The only other significant action taken by the Board in Dallas was its acceptance of Nevada's petition to become a full member, effective April 1, 2008.

CCH (cch.taxgroup.com) reports:

A closing agreement with the IRS entered into by a law firm was set aside because the agreement was induced by fraud or malfeasance. The IRS agents' conduct amounted to fraud and malfeasance when they left the law firm with no choice but to accept the closing agreement and pay a penalty or subject the firm's clients to evaluations of their employee benefit plans because they allegedly did not timely amend their plans to comply with new law.
However, the amended plan documents were timely submitted to the IRS within the extended remedial amendment period. Since the amended plans' initial submissions were substantially correct and were made in good faith, the IRS could not request minor corrections, then declare the plans late when the IRS-requested corrections were submitted and demand payment of a penalty. Therefore, an attorney whose clients were covered by the closing agreement was entitled to a refund of the penalty he paid for the allegedly late submissions.
B.J. Jewell, DC Ark., 2007-2 USTC ¶50,838
Other References:
Code Sec. 401
CCH Reference - 2007FED ¶17,929.67
Code Sec. 7121
CCH Reference - 2007FED ¶41,090.336
Tax Research Consultant
CCH Reference - TRC RETIRE: 51,052.20
CCH Reference - TRC IRS: 39,158

CCH (cch.taxgroup.com) reports:

The House on December 13 passed a third continuing resolution for fiscal 2008 (HJRes 69) that will keep the federal government operating at current levels through December 21, 2007. The continuing resolution provides fiscal year FY 2008 funding on a pro-rata basis for federal government operations and activities, including the IRS, the State Children's Health Insurance Program (SCHIP) and existing aviation fuel and air transportation ticket taxes. The House passed the measure by a vote of 385 to 27.
House Majority Leader Steny Hoyer, D-Md., told lawmakers that the House would likely consider an omnibus appropriations bill on the evening of December 17. That timetable depends on the House and Senate settling their differences over spending priorities in a way that does not generate a veto threat from the White House, said House Appropriation Committee Chairman David Obey, D-Wisc. He noted that lawmakers were making progress on the spending bills, so the first session of the 110th Congress might not have to extend beyond Christmas. House Speaker Nancy Pelosi, D-Calif., had set an adjournment date of December 14, but work on energy, tax and war spending will keep lawmakers in Washington until at least December 19, Hoyer said.
By Stephen K. Cooper, CCH News Staff
House Joint Resolution Making Continuing Appropriations for Fiscal Year 2008, HJRes 69

CCH (cch.taxgroup.com) reports:

Senate Republicans on December 13 effectively stripped a $21.8-billion tax title from a comprehensive energy bill (HR 6) by thwarting Senate Democratic Leader Harry Reid's, D-Nev., attempt to limit debate on the provisions in order to prevent a filibuster. The cloture vote, which requires 60 votes for approval, fell short by one vote, 59 to 40. The Senate plans to take up the energy bill immediately without the tax provisions. It is expected to pass by an overwhelming margin and House Speaker Nancy Pelosi, D-Calif., has indicated her chamber will follow suit.
President Bush and Senate Republicans primarily opposed the tax package because of revenue offsets affecting the oil and gas industry that would repeal the domestic manufacturing incentive for the top five integrated producers and tighten rules governing the payment of taxes by oil and gas producers on foreign-earned income. While there are no stated plans to revive the tax provisions before the session ends, Senate Finance Committee Chairman Max Baucus, D-Mont., and ranking member Charles E. Grassley, R-Iowa have previously indicated that such measures could reappear as a stand-alone measure or attached to must-pass legislation.
Reid said on the Senate floor prior to the cloture vote that, by eliminating the tax breaks for the oil industry, Congress would have funds to invest in clean energy and provide for the Secure Rural Schools program, as well as at least one-year full funding for the Payments in Lieu of Taxes program. Sen. Pete Domenici, R-N.M., ranking member on the Senate Committee on Environment and Natural Resources, saw the outcome differently."By rejecting the nearly $22 billion in tax increases added to this bill, the Senate will instead go back to work on a package that contains the right priorities and can be signed into law," he said in a prepared statement.
President Bush on December 13 said he would sign energy legislation if the Senate version reaches his desk. Bush, in a written statement, said the Senate energy plan would improve U.S. economic and energy security. The plan contains stricter CAFE standards than the administration wanted but the provision was not a deal breaker. What remains to be seen is the final House version and whether it will contain tax offsets. The White House remains firmly opposed to any tax increase to fund tax cut provisions. To date any bills that raise taxes have drawn a veto threat.
By Jeff Carlson and Paula Cruickshank, CCH News Staff
Joint Committee on Taxation Estimated Budget Effects of Titles I and XV of a Proposed Amendment to HR 6, the Clean Renewable Energy and Conservation Act of 2007, JCX-115-07
Statement of Administration Policy on HR 6

CCH (cch.taxgroup.com) reports:

The Senate late on December 12 approved by unanimous consent a $1.2-billion tax relief measure, but the bill differs from similar House-approved legislation (HR 3997) and requires approval by that chamber before it can be sent to President Bush for him to sign it into law. The Defenders of Freedom Tax Relief Bill of 2007 (Sen 1593), first introduced by Senate Finance Committee Chairman Max Baucus, D-Mont., in June and later modified, includes tax cuts for members of the military who are receiving combat pay, saving for retirement, or purchasing homes. It also provides benefits for employers of military reservists and for members of the National Guard who provide assistance to employees who are called to active duty.
Some of the tax benefits in the bill
include a permanent allowance for soldiers to count their nontaxable combat pay when figuring their eligibility for the earned income tax credit; a refundable federal income tax credit; a tax cut for small businesses when they continue paying some salary to members of the National Guard and Reserve who are called to duty; and the ability for active duty troops to withdraw money from retirement plans, with two years to replace the funds without tax penalty.
The unanimous consent agreement fully offsets the cost of the military tax relief with four provisions. The bill makes certain that individuals who relinquish their U.S. citizenship or long-term U.S. residency pay the same federal taxes for appreciation of assets, such as stocks or bonds, that they would pay if they sold them as U.S. citizens or residents. It also increases the penalty for people who fail to file their tax returns. Another offset allows reservists returning from a tour of duty to opt back into a civilian employer's health insurance plan. Finally, the package allows the Social Security Administration and the Veterans' Administration to work together to verify low-income status when distributing veteran's benefits.
The Bush administration does not plan to issue a policy statement on HR 3997 until it reaches the House floor. As a general rule, President Bush has threatened to veto any measure that funds tax cuts with higher taxes. The White House has not indicated whether the tax provisions in the Senate-passed measure are tax revenues that would face a presidential veto or tax loophole-closers acceptable to the president.
By Jeff Carlson and Paula Cruickshank, CCH News Staff
Defenders of Freedom Tax Relief Act of 2007, as Amended and Passed by the Senate on December 12, 2007, HR 3997
Joint Committee on Taxation Estimated Revenue Effects of HR 3997, the Defenders of Freedom Tax Relief Act of 2007, as Amended and Passed by the Senate on December 12, 2007, JCX-116-07
Senate Finance Committee Release: Baucus, Grassley Win Tax Relief for America's Military Men and Women
Senate Finance Committee Release: Summary of Costs of Defenders of Freedom Tax Relief Bill of 2007

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Arkansas Department of Finance and Administration has released the personal income tax brackets for tax year 2007. The amounts are as follows:
-- If net income is at least $0, but not more than $3,699, the tax rate is 1%;
-- If net income is at least $3,700, but not more than $7,399, the tax rate is 2.5% minus $55.49;
-- If net income is at least $7,400, but not more than $11,099, the tax rate is 3.5% minus $129.48;
-- If net income is at least $11,100, but not more than $18,599, the tax rate is 4.5% minus $240.47;
-- If net income is at least $18,600, but not more than $30,999, the tax rate is 6% minus $519.45; and
-- If net income is $31,000 or more, the tax rate is 7% minus $829.44.
2007 Individual Income Tax Brackets , Arkansas Department of Finance and Administration, December 2007.

CCH (cch.taxgroup.com) reports:

Senate Finance Chairman Max Baucus, D-Mont., and ranking member Charles E. Grassley, R-Iowa, unveiled a $21.8-billion modified package of energy tax legislation planned for consideration by Congress on December 13, but the measure faces a certain veto by President Bush, despite indications that some Senate Republicans plan to vote for the package. The legislation would provide tax incentives to advance the development of advanced electricity infrastructure, mitigate carbon emissions, promote the production of alternative energy and the use of alternative vehicles, and encourage energy savings and efficiency.
Baucus and Grassley said on December 12 that the modest changes they made should allow the legislation to move forward to passage by the full Senate as part of the larger energy bill. Senate Republicans on December 7 defeated a motion to invoke cloture on the initial energy bill compromise package, the Clean Renewable Energy and Conservation Tax Bill of 2007 (HR 6), that also included $21 billion in tax credits and other incentives. The cloture motion was not agreed to by a vote of 53-42. The revised bill calls for offsets of $12.7 billion, all of which is derived from rolling back tax breaks for the oil and gas industry.
"If America's really going to make a change in terms of energy policy, encouraging new energy strategies in the tax code must be part and parcel of that effort," said Baucus in a prepared statement. "An important component of the Senate version of this legislation is that it restores the wind-energy tax credit to current law and rolls back the misdirected limitation on the credit that was in the House bill, "added Grassley.
Changes from the version of HR 6 unveiled the week beginning December 3 by Baucus and House Ways and Means Chairman Charles B. Rangel, D-N.Y., include: extension of the renewable energy production tax credit for two years without changing the current-law structure of the credit; creation of a new category of tax-exempt bonds for electric transmission facilities; change of the effective date of a provision regarding biodiesel that is imported and sold for export to the date of enactment, rather than a retroactive date; extension for two years of the current refinery expensing provision; creation of a 20-percent consumer tax credit for conversion of hybrid vehicles to plug-in hybrids; repeal of the Code Sec. 199 tax deduction for domestic oil and gas production that now applies only to major integrated oil producers; elimination of a proposal repealing favorable depreciation for natural gas distribution lines; addition of a provision repealing suspension of certain tax penalties and interest; addition of an option to treat elective deferrals as after-tax contributions; and removal of Davis-Bacon requirements in a tax credit bond provision.
The tax package still includes revenue-raising provisions affecting the oil and gas industry, repeal of the domestic manufacturing incentive for the top five integrated producers and a tightening of rules governing the payment of taxes by oil and gas producers on foreign-earned income. But the lawmakers said they rewrote the provisions to prevent any retroactive effect on the industry and to avoid negative impacts on production that may cause increased consumer prices.
By Jeff Carlson, CCH News Staff
SFC Release: Baucus, Grassley Unveil Modified Energy Tax Package
JEC Release: The Proposed Modification of Internal Revenue Code Section 199 Will Not Increase Consumer Energy Prices
JCT Technical Explanation of the Revenue Provisions Contained in Title XV of HR 6, the Clean Renewable Energy And Conservation Tax Act of 2007, as Passed by the House of Representatives on December 6, 2007, JCX-111-07
JCT Estimated Budget Effects of the Revenue Provisions Contained in Titles I and XV of HR 6, the Clean Renewable Energy And Conservation Tax Act of 2007, as Passed by the House of Representatives on December 6, 2007, JCX-112-07

CCH (cch.taxgroup.com) reports:

House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., succeeded in his promised effort to pass an alternative minimum tax (AMT) relief bill on December 12, but the new measure contains more than $50 billion in revenue increases that critics believe are unlikely to win support in the Senate. Rangel said that he introduced the AMT Relief Bill of 2007 (HR 4351) in hopes that GOP lawmakers would agree to pay for a one-year AMT patch, rather than forcing the federal government to borrow money to offset the cost. The bill passed the House on a party-line vote of 226 to 193.
According to the committee, the bill would extend AMT relief for nonrefundable personal credits and increase the AMT exemption amount to $66,250 for joint filers and $44,350 for individuals. The bill would also provide relief for AMT taxpayers who have exercised incentive stock options and would make changes to the refundable AMT credit. The measure also includes a provision to increase the eligibility of the refundable child tax credit, which Rangel estimated would help more than 12 million children nationwide, the committee release said.
Rangel said the revenue increases in the new bill might be more acceptable to the Senate lawmakers, who rejected a House version (HR 3996) that was laden with tax loophole closers as a means of offsetting the cost. Instead, the Senate voted 88 to 5 to approve an AMT relief bill that did not include any tax increases (TAXDAY, 2007/12/07, C.1).
"This new bill removes those controversial pay-fors, and incorporates provisions that have been suggested to receive broad support in the Congress," Rangel said. The new bill will give the Senate one more chance to do the right thing and pass this critical tax relief without adding to the deficit, Rangel said.
The new bill would raise $23.7 billion over 10 years by taxing hedge fund mangers on a current basis if they receive deferred compensation from certain offshore entities. The bill would also raise $26.2 billion over 10 years by delaying for eight years the implementation of a new rule that allows a liberalized method for allocating interest expense between United States sources and foreign sources for purposes of determining a taxpayer's foreign tax credit limitation.
Ways and Means ranking member Jim McCrery, R-La., predicted the Rangel bill would not survive a Senate vote. "We've been down this road before," McCrery said. Eventually House Democrats would be forced to accept an offset-free AMT bill. "Until that happens, considering AMT legislation with unnecessary tax increases does nothing-nothing except contribute to chaos in our tax filing season and delay tax returns for tens of millions of taxpayers," he said.
White House Position
The White House is standing firm in its veto threat against any tax cut package that is paid for by raising taxes elsewhere. White House Press Secretary Dana Perino, at a press briefing on December 12, reaffirmed that President Bush will veto the AMT patch and the proposed energy tax title if they are offset by tax increases.
Perino pressed for another continuing funding resolution to avoid a federal government shutdown after the current stopgap measure expires on December 14. The stopgap funding measure is also necessary to continue the States' Children Health Insurance Program (SCHIP) and aviation and ticket excise taxes.
SCHIP Veto
As promised, on December 12 the president vetoed a $35 billion package to expand the State Children's Health Insurance Program (SCHIP) (HR 3963). Bush, in a written statement, said the Children's Health Insurance Program Reauthorization Act of 2007 would not provide health insurance first to all poor children before extending coverage to families with higher incomes. The current law covers families with incomes at twice the federal poverty level.
Bush's veto threat extends to the proposed 61-cent hike in tobacco taxes that would be used to fund the expanded program. The president's budget supported a five-year reauthorization of the SCHIP program and a 20-percent increase in funding for the health insurance program.
The SCHIP program covers families who earn too much to be eligible for Medicaid. Under current law, children in these families qualify for coverage if their income does not exceed 200 percent of the federal poverty level.
By Stephen K. Cooper and Paula Cruickshank, CCH News Staff
Ways and Means Release: House Will Give Senate Another Chance to Pass AMT Relief Without Adding to the National Debt
AMT Relief Act of 2007, HR 4351
Summary of HR 4351, the AMT Relief Act of 2007
JCT Technical Explanation of the AMT Relief Act of 2007, JCX-113-07
JCT Estimated Revenue Effects of HR 4351, the AMT Relief Act of 2007, JCX-114-07
SAP on HR 4351

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

An individual who received an erroneous refund, which was later recouped by the IRS via levy and wage garnishment, was not bound by the Code Sec. 7422
refund procedures, or the Code Sec. 6532 limitations period, in seeking recovery of the seized funds. The individual's tax liability was extinguished through withholding credits prior to receiving the erroneous refund and, therefore, the refund did not represent a payment of tax requiring the individual to follow refund procedures. The IRS was, however, required to use proper erroneous refund procedures to recoup the overpayment and its failure to do so entitled the individual to proceed on an illegal exaction theory in the Court of Federal Claims.
L.D. Pennoni, FedCl, 2007-2 USTC ¶50,834
Other References:
Code Sec. 6511
CCH Reference - 2007FED ¶39,080.3255
Code Sec. 6532
CCH Reference - 2007FED ¶39,280.21
Code Sec. 7422
CCH Reference - 2007FED ¶41,688.543
Tax Research Consultant
CCH Reference - TRC LITIG: 9,052
CCH Reference - TRC IRS: 45,162

CCH (cch.taxgroup.com) reports:

With several temporary tax provisions scheduled to expire by December 31, 2007, prospects for passage in 2007 are dimming; however, a small window of opportunity remains, according to Senate Finance Committee Chairman Max Baucus, D-Mont. As the Senate awaits a revised alternative minimum tax (AMT) bill from the House, Baucus expressed hope that his Democratic counterpart in that chamber, House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., includes an extenders package to accompany a one-year patch for the AMT. Baucus said that would be the only way to renew several expiring tax provisions in 2007; otherwise they will be "pushed off until next year."
The prospects for passage in 2007 are not good, as President Bush has vowed to veto any legislation that includes what he terms tax increases, and House Democrats appear, at least for the moment, determined to pay for all tax cuts through the use of revenue offsets. So far, Senate Republicans have remained steadfast in their allegiance to the White House directive to oppose the use of offsets, but at this time of year, as lawmakers rush to move legislation before heading home for the holidays, anything is possible. Baucus planned to meet with Rangel later in the day on December 12 to discuss the AMT package and the inclusion of extenders. "It's all fluid," he told CCH.
In the 110th Congress, several extenders have already been included in legislation. Specifically, the Temporary Tax Relief Bill of 2007 (HR 3996), which was passed in the House on November 9 (TAXDAY, 2007/11/12, C.1), and the Tax Reduction and Reform Bill of 2007 (HR 3970), propose one-year extensions of several temporary provisions. The Mortgage Forgiveness Debt Relief Bill of 2007 (HR 3648) includes a provision to extend the deduction of qualified mortgage insurance premiums through December 31, 2014. None of those measures have cleared the Senate. The Work Opportunity Tax Credit (WOTC) however, was extended through August 31, 2011, by the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007, which includes the Small Business and Work Opportunity Act of 2007 (P.L. 110-28). That legislation also established a new targeted group of eligible employees for the credit. Whether Congress would renew certain expired tax credits retroactively in 2008, or hold off until that body coalesces around a plan to reform the tax code and make many of them permanent, remains to be seen.
The extenders include the Welfare-to-Work Tax Credit (WWTC), an election to include combat pay as earned income for purposes of the earned income credit, the tax credit for holders of qualified zone academy bonds, the tax credit for first-time homebuyers in the District of Columbia, the tax credits for research and experimentation expenses, the New Markets Tax Credit, the possession tax credit with respect to American Samoa and a credit for certain expenditures for maintaining railroad tracks. The extenders also include deductions for elementary and secondary school teachers, tuition expenses, mortgage insurance premiums, corporate charitable contributions of computer technology, food inventory and books, contributions of capital gain real property made for conservation, and state and local sales taxes. Also included are depreciation allowances for qualified leasehold and restaurant improvements, for property on Indian reservations and a seven-year recovery period for motor sports entertainment complexes.
Other temporary tax provisions that expired included tax incentives for investment in the District of Columbia, an increased "cover over" of tax on distilled spirits from Puerto Rico and the U.S. Virgin Islands, an excise tax to induce parity in the application of certain mental health benefits, penalty-free withdrawals from individual retirement plans (IRAs) for individuals called to active duty or for charitable giving and mortgage revenue bonds for veterans.
By Jeff Carlson, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

An auto manufacturer was barred by sovereign immunity from pursuing its claim for a refund of Connecticut sales taxes it had refunded to consumers who had purchased cars that were found defective under the state's lemon law. The manufacturer alleged, among other claims, that its rights to due process and equal protection under the state and federal constitutions were violated when the Commissioner of Revenue Services did not grant its claim for refund of the sales taxes it had paid. The Connecticut Supreme Court ruled, however, that the manufacturer was not an aggrieved taxpayer and did not fall within the class of persons entitled to a refund under the applicable statute because the manufacturer failed to allege that (1) it was the purchaser of the vehicles subject to the sales tax, and (2) it was responsible for payment of the original sales tax at the time of the original purchase that gave rise to the sales tax. The manufacturer was ineligible for the refund because it neither qualified as a "taxpayer" as that term is contemplated in the Sales and Use Taxes Act nor as that term is commonly understood.
Moreover, there was nothing either expressly or by implication in the language of the statute that imposed upon the manufacturer the obligation to refund the tax to the consumer to show that the Legislature statutorily waived the state's sovereign immunity, according to the court. There was no express indication that the Legislature intended to permit the manufacturer to recover any of the collateral charges such as sales tax required to be refunded to the consumer by the manufacturer upon the consumer's return of a defective vehicle. Although there are exceptions to the state's sovereign immunity, there must exist a proper factual basis in a complaint to support the applicability of those exceptions. The lemon law was intended to protect consumers of new automobiles. Consequently, sovereign immunity deprived the trial court of subject matter jurisdiction to consider the manufacturer's claim that the statutory obligation under the state's lemon law to refund sales taxes to consumers who return defective vehicles resulted in violations of the manufacturer's constitutional rights.
It was irrelevant to the court that it was the Commissioner's decision denying the refund that gave rise to the constitutional claims. The manufacturer sought money damages from the state for those alleged violations but had not received permission from the claims commissioner to bring the action and also had not pleaded a valid exception to the doctrine of sovereign immunity. As a result, the trial court had properly granted the Commissioner's motion to dismiss because the manufacturer's claims were barred by sovereign immunity.
Subscribers to CCH Tax Research NetWork may view the opinion in its entirety.
DaimlerChrysler Corp. v. Law, Connecticut Supreme Court, No. SC 17892, officially released December 18, 2007.

CCH (cch.taxgroup.com) reports:

Efforts in Congress broke down over the weekend of December 8 to reach agreement on a budget package acceptable to President Bush. Office of Management and Budget (OM Director Jim Nussle called the proposal fiscally irresponsible and warned that the president would veto the measure if Congress sends it to him.
"If Congress insists on sending the president a budget-busting bill they know he will veto and that will not become law, they should also pass a continuing resolution that keeps the government running and provides the troops in the field the funds they need," Nussle said in a written statement issued on December 8.
The current continuing resolution expires on December 14. Without another stopgap spending measure, federal government operations will shut down, something that is not anticipated. An additional temporary appropriations measure that is prorated at fiscal year 2007 spending levels would continue funding of the State Children Health Insurance Program and aviation fuel and ticket excise taxes that otherwise would have expired.
The omnibus spending bill under consideration reportedly includes $18 billion in additional domestic and emergency spending above the president's budget. The spending above the administration's request includes $2 billion for the State Department and $3 billion for a homeland security initiative.
Senate Appropriations Committee Chairman Robert C. Byrd, D-W.Va, said on December 10 that the White House veto threat on the still-developing omnibus appropriations bill reflects the president's skewed priority against domestic spending compared to war funding. "It is extraordinary that the president would request an 11-percent increase for the Department of Defense, a 12-percent increase for foreign aid, and $195 billion of emergency funding for the war, while asserting that a 4.7-percent increase for domestic programs is fiscally irresponsible," Byrd said in a written statement.
House lawmakers hope to bring an omnibus appropriations bill to the House floor for a vote during the week of December 10, clearing it for Senate action just before Congress adjourns on December 14. Byrd called on the president to stop political posturing and work with Congress to quickly complete the appropriations process. He said the administration claims that domestic spending is wasteful and economically damaging, but Democrats are fighting to provide veterans health care, lower the rate of violent crime and educate children.
By Stephen K. Cooper and Paula Cruickshank, CCH News Staff
White House Release: Statement by White House OMB Director Jim Nussle

CCH (cch.taxgroup.com) reports:

The IRS is investigating whether the Mexican single rate business tax (IETU), to be effective beginning January 1, 2008, is a creditable income tax under Article 24 of the Convention Between the Government of the United States of America and the Government of the United Mexican States for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (Treaty). Article 24 of the Treaty allows for a credit for income tax paid to Mexico by or for a U.S. citizen. Pending the outcome of the investigation, the IRS will not challenge a taxpayer's assertion that the Mexican single rate business tax qualifies under Article 24 of the Treaty.
Notice 2008-3, 2007FED ¶46,748
Notice 2008-3, TRET ¶26,282
Other References:
Code Sec. 894
CCH Reference - 2007FED ¶27,642.11
Code Sec. 901
CCH Reference - 2007FED ¶27,826.032
CCH Reference - 2007FED ¶27,826.259
Tax Research Consultant
CCH Reference - TRC INTL: 18,058
CCH Reference - TRC INTL: 18,058.10

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Income from a parent company's sale of its subsidiaries' stock and its sale of its minority interests in several partnerships constituted apportionable business income for Idaho corporate income tax purposes. The taxpayer failed to overcome the Idaho statutory presumptions that a sale of a subsidiary's stock is business income and that an Idaho State Tax Commission's (Commission) business versus nonbusiness income determination is correct. The evidence demonstrated that the various subsidiaries enabled the parent company to provide integrated service packages to its customers and expand its markets, and that the service subsidiaries provided installation and maintenance services, material and supplies, managerial, technical, accounting, and administrative services to the parent company's operating subsidiaries. All of these factors demonstrated that a unitary relationship existed and that the subsidiaries served an operational rather than an investment function, the income from which would constitute apportionable business income. Also, the taxpayer had previously included the subsidiaries in its combined reports filed in previous years and gave no justification why the unitary business status had changed.
Futhermore, there was nothing in Idaho law that would support the taxpayer's assertion that its sale of its partnership interests was nonbusiness income, because it was not a general partner in the partnerships and its ownership interest was less than 50%. Rather, income from the sale of a partnership interest is treated as apportionable business income if the sale served an operational function. Furthermore, the taxpayer had classified prior sales of its minority interests in partnerships as apportionable business income. Because the taxpayer failed to rebut the Commission's determination that the income from the sale of the partnership interest was business income, the Commission's determination was upheld.
Decision No. 19311 , Idaho State Tax Commission, July 30, 2007, received December 4, 2007, ¶400-556
Other References:
Explanations at ¶11-510
Explanations at ¶11-520
 

CCH (cch.taxgroup.com) reports:

On Dec. 6, the U.S. House Judiciary Subcommittee on Commercial and Administrative Law heard testimony on the Sales Tax Fairness and Simplification Act of 2007 (H.R. 3396), which would confer collection authority over remote sales on states that have conformed their laws to the requirements of the Streamlined Sales and Use Tax (SST) Agreement, as well as made certain additional changes. (TAXDAY, 2007/08/10, S.1)
Chairman Linda Sanchez, D-Calif., said states are collecting less tax revenues as consumers go online to purchase items without paying the appropriate state sales taxes. "State and local governments have voiced their concerns that increasing online sales and the resulting loss in collection of sales taxes are affecting an ever larger portion of their revenues," Sanchez said.
According to Illinois State Sen. Steven Rauschenberger, speaking on behalf of the National Conference of State Legislatures (NCSL), many states are in danger of losing their revenue base as a result of uncollected tax on electronic commerce transactions and a shift away from an economy based on the sale of tangible goods to a service-based economy. States are concerned about the future viability of the sales tax and the ability of state governments to fund essential services such as education, homeland security, and public safety, he said. Rauschenberger added that passage of H.R. 3396 is Congress' opportunity "to ensure that the simplified system that the states have developed for the seamless collection of transactional taxes in the new economy is not impeded by those who merely are trying to avoid paying legally imposed taxes."
By Stephen K. Cooper, CCH News Staff
Hearing, U.S. House Judiciary Subcommittee on Commercial and Administrative Law, December 6, 2007.

CCH (cch.taxgroup.com) reports:

The Senate approved a one-year patch for the alternative minimum tax (AMT) without offsets even as House Democratic leaders declared their opposition to passing such legislation because it would add to the federal debt and budget deficit. Senate Republicans on December 7 defeated a motion to invoke cloture on an energy measure. President Bush, meanwhile, has threatened to veto any fiscally irresponsible appropriations bills that reach his desk, including a fiscal year 2008 omnibus spending package. The president and Treasury Secretary Henry M. Paulson, Jr., also announced a new initiative to address the growing subprime mortgage default crisis, and the IRS released guidance addressing transition relief on the correction of certain failures of nonqualified deferred compensation plans to comply with the operational requirements of Code Sec. 409A.
Congress
The Senate, by a vote of 88-5, on December 6 approved a one-year patch AMT patch without offsets (TAXDAY, 2007/12/07, C.1). Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, later said on the Senate floor that they would likely have to defer until 2008 any action on an extension of expiring tax provisions commonly referred to as extenders. The House must now approve the amended version of its bill before President Bush can sign it into law. However, passage in that chamber is by no means assured.
House Democratic leaders say they are adamantly opposed to passing an AMT patch without revenue offsets because it would add to the federal debt and budget deficit. House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., plans to craft a new AMT relief bill that is paid for by tax increases that Senate Republicans find less objectionable. Appearing on Bloomberg TV on December 7, Rangel said that Senate GOP lawmakers and the president are being irresponsible in their insistence on not paying for AMT tax relief.
"It's hard for me to tell the Democrats from the Republicans in the Senate," said Rangel, following the overwhelming Senate vote to pass AMT relief without an offset and cause the federal government to borrow billions of dollars. He hinted that Democrats might use budget rules to force a filibuster-proof vote on the AMT in the Senate that only requires 51 votes to win passage. Meanwhile, members of the influential Blue Dog Coalition in the House have promised House Speaker Nancy Pelosi, D-Calif., to vote down any AMT legislation that is not paid for.
Ways and Means ranking member Jim McCrery, R-La., said tax hikes were unnecessary to protect middle-class Americans from the AMT. If the House Democratic leadership fails to allow the House to vote on a clean AMT patch, or if not enough House Democrats support such a patch, "then the tax increase that will fall on 23 million taxpayers will clearly lie at the doorstep of House Democrats," McCrery said.
Senate Republicans on December 7 defeated a motion to invoke cloture on an energy bill compromise package, the Clean Renewable Energy and Conservation Tax Bill of 2007 (HR 6) that includes $21 billion in tax credits and other incentives. The cloture motion was not agreed to by a vote of 53-42. Leaders of the Senate Energy and Natural Resources Committee planned to re-write the bill over the weekend and possibly jettison the tax package.
Meanwhile, Pelosi expressed disappointment that the Senate failed to support the House energy bill, HR 6 (TAXDAY, 2007/12/07, C.2). "The House will work with the Senate on a bipartisan basis to pass a strong energy bill and send it to the president's desk for his signature," she said in a statement following the Senate vote.
The bill, which also includes a host of alternative energy tax incentives to taper the U.S. need for foreign oil, would cost approximately $21 billion to be raised from higher taxes on big domestic oil and gas companies. The Democrats' bill would require more efficient appliances, plug-in electric vehicles and greener buildings, while expanding the use of cellulosic ethanol by the year 2022.
Democrats said the measure would also provide incentives for carbon capture and sequestration coal demonstration projects. The bill would promote the development of an advanced electricity infrastructure that requires utilities to use renewable fuels. Those incentives would be paid for by repealing billions of dollars in oil and gas tax breaks that Democrats believe are no longer necessary with the price of oil at nearly $100 per barrel.
Grassley reported on December 5 that he had received responses to his inquiries from five of six media-based ministries under investigation for abuses of their tax-exempt status. The senior lawmaker said that his actions were necessary after hearing allegations of wrongdoing, including excessive compensation, extravagant housing allowances, personal use of assets, lax board governance and unreported income.
White House Position
Earlier in the week of December 3, President Bush had threatened to veto any fiscally irresponsible appropriations bills that reached his desk, including a fiscal year 2008 omnibus spending package (TAXDAY, 2007/12/05, W.1). White House Press Secretary Dana Perino asserted that the president wants "clean and full funding for the troops" and an appropriations bill that Bush can sign.
The president is opposed to any tax offsets to pay for an AMT patch or the energy bill. Deputy Press Secretary Tony Fratto said that it would be "costly and wasteful" for Congress to delay passage of a clean AMT patch. Failure to pass a temporary AMT fix by the end of 2007 will delay the delivery of about $75 billion worth of tax refund checks in 2008, Bush warned.
On the energy bill, the Office of Management and Budget (OM argued that the tax code should not be used to single out specific industries, such as oil and gas companies, to fund tax incentives for greater use of alternative and renewable energy sources and tougher fuel-efficient standards. A White House spokesman said that rolling back any of the existing oil and gas tax breaks would create business uncertainty. The administration also opposes the provision to require utilities to generate 15 percent of its electrical power from renewable energy sources by 2020.
IRS
The IRS issued guidance and transition relief on the correction of certain failures of nonqualified deferred compensation plans to comply with the operational requirements of Code Sec. 409A (Notice 2007-100; TAXDAY, 2007/12/04, I.2). Relief is provided for certain failures that are corrected in the same year and for other small-dollar failures that are corrected in a subsequent year but before 2010.
The IRS has modified Q&A-23 of Notice 2007-7, I.R.B. 2007-5, 395, to provide that health insurance premiums paid to self-insured accident or health plans are eligible for the Code Sec. 402(l) exclusion (Notice 2007-99; TAXDAY, 2007/12/04, I.1). The exclusion applies to certain distributions from an eligible governmental plan that are used to pay health insurance premiums of a retired public safety officer and family. Congress is looking at legislation to authorize the change.
The State Department released a list of maximum per diem travel allowances for travel in foreign countries, beginning December 1, 2007 (TAXDAY, 2007/12/04, I.4).
The IRS issued a list of qualified alternative fuel motor vehicles, which can have a credit of up to $32,000, and qualified heavy hybrid vehicles, which can have a credit of up to $12,000 (IR-2007-96; TAXDAY, 2007/12/06, I.1).
The IRS and Treasury are aware of the many problems created by the new return preparer standards, Tax Legislative Counsel Michael Desmond declared on an American Bar Association webcast (TAXDAY, 2007/12/06, T.1). New rules under Code Sec. 6694 impose a heightened standard and tougher penalty on return preparers. Guidance will be forthcoming, Desmond stated.
Speakers at an IRS hearing said that proposed regulations (NPRM REG-148393-06, I.R.B. 2007-39, 714; TAXDAY, 2007/08/20, I.6) will discourage employers from developing long-term disability insurance coverage for defined contribution plans (TAXDAY, 2007/12/07, I.5). The proposed regulations treat a payment from the defined benefit plan for an accident or health insurance premium as a taxable distribution.
The IRS Office of Professional Responsibility (OPR) announced it had settled allegations under Circular 230 in connection with a $31 million municipal bond issue (IR-2007-197; TAXDAY, 2007/12/07, I.1). It was the first announced OPR action involving bond attorneys. Under the settlement, two attorneys agreed to follow certain procedures in the exercise of due diligence.
The IRS's Tax Exempt Bonds unit issued its Fiscal Year 2008 Work Plan (TAXDAY, 2007/12/07, I.4). The TEB will devote substantial resources to arbitrage-motivated transactions and will continue its focus on post-bond issuance compliance and monitoring. It will also expand its voluntary compliance program and start to look at student loan bonds.
A report by the Treasury Inspector General for Tax Administration (TIGTA) found that the IRS still struggles to fulfill its stated performance objectives (TAXDAY, 2007/12/07, T.1). The slow pace of modernization is a leading problem. Other problems are the need to improve the quality of its human capital, develop systems that provide accurate and timely financial and operating data, and improve analysis of the tax gap.
The Treasury will soon release a study on reforming the U.S. international tax system, Assistant Secretary for Tax Policy Eric Solomon indicated at PricewaterhouseCoopers' Global Tax Symposium 2007 (TAXDAY, 2007/12/04, T.1). The study is looking at many approaches, including worldwide inclusion, deferral of deductions, and a territorial system.
President Bush and Treasury Secretary Henry M. Paulson, Jr., announced a new initiative to address the growing subprime mortgage default crisis (TAXDAY, 2007/12/07, W.1). The initiative will be financed by the private sector but requires that the government approve certain tax breaks. These include preservation of the qualified status of a real estate mortgage investment conduit (REMIC) when certain changes are made. The IRS resolved this problem in Rev. Proc. 2007-72 (TAXDAY, 2007/12/07, I.2). Congress also must approve legislation that would exempt mortgage workouts from forgiveness of indebtedness income. HR 3648 is before the Senate and would accomplish this. In addition, the administration has proposed that tax-exempt bonds be available for refinancing existing loans. Under current law, they can only finance new mortgages for first-time homebuyers. This last issue is not needed to proceed with the administration's initiative.
By Jeff Carlson, Stephen K. Cooper, Paula Cruickshank and Brant Goldwyn, CCH News Staff
 

CCH (cch.taxgroup.com) reports:

The IRS and the Treasury Department have requested comments from the public regarding issues that arise with respect to certain financial transactions often referred to, in the marketplace, as "prepaid forward contracts," or, in other circumstances, as "exchange traded notes." These transactions are similar to typical forward contracts, which are bilateral, executory contracts in which one party agrees to buy an asset on a future date for a specific forward purchase price, payable at that future time. However, in "prepaid forward contract" transactions, the purchase price is paid in advance of future delivery or cash settlement. Therefore, these transactions usually involve an initial payment by one party in exchange for a promise of either (1) a future delivery of a particular asset or group of assets (such as stocks or commodities) or (2) a future payment determined solely by reference to the value of such assets.
The IRS provided a list of issues associated with "prepaid forward contract" transactions. In particular, the IRS and the Treasury Department are looking for comments regarding whether the parties to these types of transactions should be required to accrue income/expense during the term of the transaction, in the event the transaction is not otherwise indebtedness for U.S. federal income tax purposes. With respect to this issue, the IRS referred to Rev. Rul. 2008-1, I.R.B. 2008-2, released in conjunction with Notice 2008-2, in which an instrument resembling, in form, a prepaid forward contract, was determined to be debt.
Comments regarding the enumerated issues pertaining to "prepaid forward contract" transactions must be submitted by May 13, 2008.
Notice 2008-2, 2007FED ¶46,747
Other References:
Code Sec. 988
CCH Reference - 2007FED ¶28,907.60
Code Sec. 1260
CCH Reference - 2007FED ¶31,145.01
Tax Research Consultant
CCH Reference - TRC SALES: 45,500
CCH Reference - TRC INTLOUT: 21,104.05

CCH (cch.taxgroup.com) reports:

A debt instrument providing an economic return by reference to the euro (and market interest rates in respect of the euro) was a euro-denominated indebtedness of the issuer despite being both issued and redeemed for U.S. dollars. The acquisition of --or becoming an obligor under --a debt instrument is a Code Sec. 988 transaction if the amount a taxpayer is either required to pay or entitled to receive is determined by reference to a nonfunctional currency. Neither the translation of dollars into euros and euros back into dollars, nor the fact that intervening currency fluctuations might result in the holder receiving less at maturity than was originally paid for the instrument, are relevant to the characterization of the instrument as debt. It is also irrelevant to its characterization whether the instrument is privately offered, publicly offered or traded via an exchange.
Rev. Rul. 2008-1, 2007FED ¶46,746
Other References:
Code Sec. 988
CCH Reference - 2007FED ¶28,907.60
Tax Research Consultant
CCH Reference - TRC INTLOUT: 21,104.05
 

CCH (cch.taxgroup.com) reports:

The IRS has issued guidance regarding the deductibility of amounts paid by individuals for diagnostic and similar procedures, including certain devices, not compensated by insurance or otherwise, as medical care expenses under Code Sec. 213(a). In each of the three scenarios presented, the amounts paid by taxpayers were expenses for medical care deductible under Code Sec. 213(a), subject to the limitations of that section including the seven and a half percent floor on deductibility.
Under Code Sec. 213(d)(1)(A), medical care expenses include amounts paid related to the diagnosis, mitigation, treatment, cure or prevention of disease, or any condition affecting any structure or function of the body, including obstetrical services. Diagnosis includes the determination of the absence of disease, and may involve testing for changes in the function of the body unrelated to disease. The guidance clarifies that (1) Code Sec. 213 does not limit the deduction to amounts paid for the least expensive form of medical care applicable, and (2) a physician's recommendation, while often important to determine whether certain expenses are for medical or personal reasons, is unnecessary when the expenditures are for items wholly medical in nature and that serve no other function.
In the first scenario, money spent for an annual physical examination qualified as an expense for medical care, even though the taxpayer was not experiencing any symptoms of illness. In the second scenario, a taxpayer who was not experiencing any symptoms of illness paid for a full-body electronic scan at a clinic without having obtained a physician's recommendation for this procedure. Because the procedure served no non-medical purpose, it, too, qualified as an expense for medical care. In addition, neither the high cost of the procedure nor the possibility of less expensive alternative diagnostic tests barred the deductibility of the expense. Finally, in the third scenario, the expense of a self-administered pregnancy test kit qualified as an expense for medical care, even though it tested the healthy functioning of the body rather than attempted to detect disease.
Rev. Rul. 2007-72, 2007FED ¶46,744
Other References:
Code Sec. 213
CCH Reference - 2007FED ¶12,543.023
CCH Reference - 2007FED ¶12,543.132
CCH Reference - 2007FED ¶12,543.136
Tax Research Consultant
CCH Reference - TRC INDIV: 42,052
 

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

In his fiscal year 2008 preliminary budget proposal, New York City Mayor Michael R. Bloomberg announced his intention to provide $1 billion in business, sales, and property tax relief. The Mayor proposed eliminating New York City sales taxes on all clothing and shoes, and providing five job-creating tax breaks for small businesses and S corporations in New York City. He also proposed a temporary, one-year property tax rate reduction, which would be in addition to the extended $400 property tax rebates for homeowners.
Press Release , Office of New York City Mayor Michael R. Bloomberg, January 25, 2007.

CCH (cch.taxgroup.com) reports:

In regard to California sales and use, personal income, and corporate income taxes, the State Board of Equalization, the Franchise Tax Bureau, and the Employment Development Department could take a number of short-term and long-term steps to improve information and data collection and exchange, according to the Legislative Analyst's Office (LAO). Under the terms of the Supplemental Report of the 2005 Budget , the LAO was directed to report to the Legislature regarding the characteristics and various issues associated with the state's existing tax information and data systems.
Roughly over the past 20 years, several reports regarding the three agencies primarily have concerned themselves with two aspects of tax collection and administration, specifically (1) transparency and accessibility to taxpayers and (2) fiscal and budgetary impacts. Unlike those reports, the focus of this report is related to the compliance and enforcement advantages of increased cooperation and information sharing among the agencies.
According to the LAO, compliance and enforcement issues recently have become of increasing concern to California, as well as to other states and the federal government. The concerns have arisen due to a number of trends and factors, including
-- "abusive" tax shelters, which have led to increased underreporting of income for tax purposes;
-- the growth of the Internet and other forms of remote sales, which has led to noncompliance with the state's use tax; and
-- the growth in nonwage income, which has led to less withholding and a greater reliance on third-party reporting.
Coupled with other features of today's economy --such as new and different business ownership structures, information transactions, and the large cash economy --these factors have led to increased concern about the "tax gap," which is the difference between taxes legally owed and taxes actually paid to the state. The collection, sharing, and accessibility of tax-related information among the agencies are primary methods of dealing with the tax gap, the LAO said.

CCH (cch.taxgroup.com) reports:

The IRS has updated its Internet-based calculator to help taxpayers determine whether they owe the alternative minimum tax (AMT). The online AMT Assistant, available at www.irs.gov, is an automated version of Worksheet to see if you should fill in Form 6251, Alternative Minimum Tax . The worksheet, contained in the Form 1040 Instruction Booklet, is used to determine how much AMT, if any, a taxpayer owes. The IRS projects that most taxpayers using the online AMT Assistant will find that the AMT does not apply to them, and that after they enter their data, they can get an answer in five to 10 minutes.
The AMT Assistant is aimed at individual taxpayers and can be used by individuals, tax practitioners and community or public service organizations. All entries are anonymous. Taxpayers filing paper returns benefit the most from the AMT Assistant, since electronic filing software generally computes AMT liability automatically. Taxpayers can find the tool by entering "AMT Assistant" in the www.irs.gov search box. To use the AMT Assistant, taxpayers must complete a draft Form 1040 through line 44 and have that information at hand.
IR-2007-18, 2007FED ¶46,288
Other References:
Code Sec. 55
CCH Reference - 2007FED ¶5101.03
CCH Reference - 2007FED ¶5101.10
Code Sec. 6011
CCH Reference - 2007FED ¶35,141.04
Tax Research Consultant
CCH Reference - TRC FILEIND: 30,400
 

CCH (cch.taxgroup.com) reports:

The IRS has issued an updated revenue procedure that provides that, for purposes of the tax shelter disclosure rules under Reg. §1.6011-4, certain transactions are not reportable as transactions with contractual protection. As noted in the procedure, Reg. §1.6011-4(b)(4), which pertains to transactions with contractual protection, does not apply to transactions in which refundable or contingent fees are based on the taxpayer's liability for taxes other than federal income taxes.
Eight transactions are excepted from the rules regarding transactions with contractual protection. Those transactions are transactions in which the refundable or contingent fee is related to:
--the work opportunity credit under Code Sec. 51;
--the welfare-to-work credit under Code Sec. 51A;
--the Indian employment credit under Code Sec. 45A(a);
--the low-income housing credit under Code Sec. 42(a);
--the new markets tax credit under Code Sec. 45D(a);
--the empowerment zone employment credit under Code Sec. 1396(a);
--the renewal community employment credit under Code Sec. 1400H; and
--the employee retention credit under Code Sec. 1400R(a), (b)
or (c).
CCH Comment. Although the transactions listed above are excepted from the disclosure rules under Reg. §§1.6011-4(b)(4), they may be reportable transactions for disclosure purposes under Reg. §§1.6011-4(b)(2) (listed transactions), (b)(3)
(confidential transactions), (b)(5)
(loss transactions), (b)(6)
(transactions with significant book-tax difference) or (b)(7)
(transactions involving a brief asset holding period).
The revenue procedure is effective January 26, 2007. The exceptions under section 4.02(1) through (3) of the procedure (exceptions (1) through (3), above) apply to transactions that are entered into on or after January 1, 2003. The exceptions under section 4.02(4) through (8) of the procedure (exceptions (4) through (8), above) apply to all transactions, regardless of when the transaction was entered into, that otherwise would have to have been disclosed under Reg. §1.6011-4(b)(4) on or after January 1, 2006.
Rev. Proc. 2004-65, 2004 2 C.B. 965, is modified and superseded.
Rev. Proc. 2007-20, 2007FED ¶46,286
Other References:
Code Sec. 6011
CCH Reference - 2007FED ¶35,141.78
Code Sec. 6111
CCH Reference - 2007FED ¶37,002.1789
Code Sec. 6112
CCH Reference - 2007FED ¶37,022.70
Tax Research Consultant
CCH Reference - TRC FILEBUS: 3,052.25
 

CCH (cch.taxgroup.com) reports:

The week of January 21 saw President Bush face the nation in his State of the Union address. During the speech the president revealed his plan to raise individual standard deductions while imposing a corresponding tax on certain individuals. Both the Senate and the House addressed minimum wage legislation, and the Congressional Budget Office released its projections for the fiscal year 2007 deficit. Legislation to stop IRS privatization initiatives was introduced in the House, while Senators addressed issues with respect to the IRS's treatment of Conservation Reserve Program payments.
White House
President Bush proposed a new health care standard deduction in his State of the Union address (TAXDAY, 2007/01/24, W.1). To pay for the new tax break, the president's plan would impose a new tax on individuals whose employers provided them with excessively generous, or so-called gold-plated, health insurance plans. The president's plan aims to level the playing field for those who are insured by their employers and individuals who buy their own insurance. Individuals would be entitled to a $7,500 standard deduction for the purchase of a single policy and $15,000 for family health coverage. Administration officials acknowledged that the proposal could speed up the trend of employers dropping health care coverage for their workers. Those who lose coverage, however, are more likely to be able to afford their own health insurance because of the new tax benefit, reasoned White House officials.
Looking Ahead. The White House plans to focus on the economy during the week of January 29. The White House Council of Economic Advisers is due to release its annual report, and the president will send his fiscal year 2008 budget plan to Congress on February 5.
Congress
Senate. The Senate on January 24 narrowly defeated a motion to end debate on a clean minimum wage bill, clearing the way for that body to pass a minimum wage hike along with an $8.3 billion package of small business tax incentives TAXDAY, 2007/01/25, C.1. Senate Majority Leader Harry Reid, D-Nev., filed a motion on January 26 to limit debate on the measure. Senate Finance Committee (SFC) Chairman Max Baucus, D-Mont., said he expected the Senate to reach final passage on the substitute amendment to HR 2, which includes the tax breaks, by January 30. The bill would then be laid aside until leaders in both the House and Senate agree on how to proceed with the measure. Baucus and others believe the failure of the cloture vote sent a clear message to the House that minimum wage legislation can only move with the tax package. Senators also defeated by a vote of 49 to 48, a cloture motion on a line-item veto amendment proposed by Senate Budget Committee ranking member Judd Gregg, R-N.H.
Baucus on January 25 announced plans to extend and enhance the college tuition deduction and move a number of other education incentives through the SFC in 2007 (TAXDAY, 2007/01/26, C.1). He plans to introduce a new Education Competitiveness Bill soon and some tax initiatives to be considered by the SFC that will likely mirror elements of his 2006 bill. Provisions in that legislation included a federal deduction for state and local property taxes that go to support local schools and tax relief for repayment of student loans. Baucus also introduced an amendment on the Senate floor January 25 reiterating his decision to move education tax incentives through the SFC.
CBO. The Congressional Budget Office (CBO) on January 24 revised its forecast of the fiscal year 2007 deficit down to $172 billion, a $114 billion drop from earlier projections made in August 2006 (TAXDAY, 2007/01/25, C.2). The CBO credited the change to slightly higher than expected revenues and decreased federal spending on Medicare entitlement costs.
House. House lawmakers are not any closer to accepting the need to merge their minimum wage bill with additional small business tax breaks, said Rep. John Lewis, D-Ga. Lewis, who chairs the House Ways and Means Committee Subcommittee on Oversight TAXDAY, 2007/01/24, C.1. Lewis told CCH that the minimum wage bill passed the House as "clean" legislation, and Democratic leaders so far, have not changed their position.
House Bill Would End IRS Privatization Initiative. Two long-time opponents of outsourcing tax collection, Reps. Steven R. Rothman, D-N.J., and Chris Van Hollen, D-Md., introduced legislation on January 24 to terminate the IRS's privatization initiative TAXDAY, 2007/01/26, C.2. Their bill, HR 695, would repeal the IRS's authority to contract with private debt collectors. Rothman and Van Hollen predicted at a news conference sponsored by the National Treasury Employees Union on January 25 in Washington, D.C., that the new Democratic-controlled Congress will vote to end the controversial privatization initiative. Similar legislation, Sen 335, has been introduced in the Senate.
IRS
Farm State Senators upset about Tax Treatment of Conservation Payments. Nineteen senators are urging Treasury Secretary Henry Paulson and IRS Commissioner Mark Everson to back off from a proposal to treat Conservation Reserve Program (CRP) rental payments as income subject to Self-Employment Contributions Act (SECA) taxes. Farmers who participate in the CRP receive annual rental payments and cost-share assistance in exchange for conserving cropland and pastureland. Generally, farmers enroll in the program for 10 to 15 years.
"The IRS's tax treatment of CRP payments is not what Congress intended, nor is it supportable in law," the senators told Paulson and Everson in a January 19 letter. The senators noted that the IRS lost on this issue in the Tax Court but won on appeal ( Wuebker, CA-6, 2000-1 USTC ¶50,254). Nonetheless, they urged the IRS to change its position, or they would work to pass legislation to do so.
The controversy has flared recently because the IRS is claiming that retired farmers owe SECA taxes on their CRP rental payments (Notice 2006-108, I.R.B. 2006-51, 1118; TAXDAY, 2006/12/06, I.3). The IRS had taken this position in the past, but now appears more determined to enforce it.
IRS Describes New issues for Issue Management Resolution System. The IRS has announced new issues for its Issue Management Resolution System (IMRS). IMRS identifies and responds to "significant national and local stakeholder issues," according to the IRS. On January 22, the IRS released the IMRS Monthly Overview for December 2006.
Among the issues discussed in the December IMRS Monthly Overview are requests for
--A penalty and interest calculator on the IRS website;
--Clarification of the split refund initiative;
--A fact sheet addressing income and expenses unique to family farming operations.
The IRS also reported its progress on some older issues. In response to requests, the IRS added an option for Form 944, Employer's Annual Federal Tax Return, on the Electronic Federal Tax Payment System (EFTPS). The IRS also created a link for Subscription Services to the Tax Professionals page on its website. Additionally, the IRS reported that Chief Counsel is considering requests to expand the automatic six-month extension procedures to the entire Form 990 series.
IRS Highlights Revisions to 2006 Forms 990.
The IRS reminded exempt organizations on January 24 that 2006 Forms 990, Return of Organization Exempt From Income Tax, 990-EZ and Schedule A have been changed to reflect the Pension Protection Act of 2006 (P.L. 109-280). On its Charities and Nonprofits page on its website, the IRS highlighted new reporting requirements for:
--Organizations maintaining donor advised funds;
--Organizations with conservation easements;
--Supporting organizations;
--Organizations paying travel and entertainment expenses for government officials and their families.
Looking Ahead --DC Tax Practice and Policy Symposium. IRS Commissioner Mark Everson and Large and Mid-Size Business Division (LMS Commissioner Deborah Nolan are among the IRS officials on the schedule of the 8th Annual Tax Practice and Policy Symposium sponsored by the Tax Council Policy Institute, February 1 and 2 in Washington, D.C. The symposium will discuss global tax enforcement trends, tax disclosures in financial statements and other issues. Mark Olson, chair of the Public Company Accounting Oversight Board (PCAO is scheduled to deliver the keynote address on February 2. CCH will bring you complete coverage of the symposium.
By Jeff Carlson, Stephen K. Cooper, Paula Cruickshank and George L. Yaksick, Jr., CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Pennsylvania Department of Agriculture has issued new guidelines and an application form for the resource enhancement and protection tax credit program (REAP). Under the REAP program, farmers and businesses that implement best management practices (BMPs) that will enhance farm production and protect natural resources may claim a credit against the corporate net income tax, the personal income tax, the capital stock/franchise tax, the bank and financial company shares tax, and the insurance gross premiums tax.
Eligible applicants may receive credits equal to 25% and 75% of project costs up to $150,000 per agricultural operation. In addition, farmers interested in purchasing no-till planting equipment may qualify for a 50% tax credit. The tax credit must be returned if the practice is not maintained for the life span of the practice.
Applications will be accepted by the State Conservation Commission on a first-come, first-served basis beginning January 2, 2008. Applications may be delivered in person, via U.S. Postal Service, or via a private carrier. Applications must be postmarked after December 26, 2007.
A project will be reviewed by the Commission and a determination on eligibility made within 60 days after receipt of a complete application. The first round of tax credits will be issued no later than June 30, 2008.
The guidelines provide additional information on general eligibility requirements, eligible project costs, steps that may be taken prior to the application period, and various program reminders.
The Agriculture Department has also announced that an educational meeting on no-till equipment purchases is scheduled for December 18, at the Pennsylvania Farm Show Complex & Expo Center in Harrisburg. Farmers, equipment dealers and manufacturers, county conservation district staff, and others interested in the no-till equipment requirements should make reservations for the meeting.
Subscribers to CCH Tax Research NetWork can view the Agriculture Department press release, credit application form, additional credit guidelines, and educational meeting reservation information.
Resource Enhancement and Protection Program Guidelines, Pennsylvania Department of Agriculture, December 2007, ¶203-734
Other References:
Explanations at ¶7-344
Explanations at ¶12-129
Explanations at ¶15-547
Explanations at ¶29-532
Explanations at ¶88-407

CCH (cch.taxgroup.com) reports:

The IRS has issued guidance allowing certain asset securitization vehicles to avoid a challenge to their tax status in the event disqualifying modifications are made to subprime mortgage loans held by the vehicle. Aimed at aiding current attempts to curtail the economic fallout of the subprime mortgage crisis, the revenue procedure's emphasis is on Real Estate Mortgage Investment Conduits (REMICs) which are widely used as securitization vehicles for mortgages.
Rev. Proc. 2007-72 relies on the recent publication by the American Securitization Forum entitled, "Statement of Principles, Recommendations and Guidelines for a Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans" (the Framework). The Framework provides a fast track mechanism whereby certain adjustable rate mortgages will be modified so that the interest on the loan will remain fixed for a period of time.
Under current law, the Framework's modifications to loans held by a securitization vehicles could affect the vehicle's tax status. Therefore, the IRS will not challenge the tax status of certain securitization vehicles if certain criteria are met. First, Rev. Proc. 2007-72 only applies where the following transactions occur on or before July 31, 2010:
A fast track modification of an applicable loan pursuant to the Framework.
A second-lien holder's action of subordinating its lien to any new lien that may arise under an applicable loan as the result of a fast track modification.
If either of these two transactions occur:
The IRS will not challenge a securitization vehicle's qualification as a REMIC on the grounds that the transactions are not among the exceptions listed in Code Sec. 1.860G-2(b)(3).
The IRS will not contend that the transactions are prohibited transactions under Code Sec. 860F(a)(2) on the grounds that the transactions are not among the exceptions listed in Code Secs. 860F(a)(2)(A)(i) through (iv).
The IRS will not challenge a securitization vehicle's classification as a trust on the grounds that the transactions manifest a power to vary the investment of the certificate holders.
The IRS will not challenge a securitization vehicle's qualification as a REMIC on the grounds that the transactions resulted in a deemed reissuance of the REMIC regular interests.
Rev. Proc. 2007-72 is effective December 6, 2007. If, however, the Framework is materially modified after December 6, 2007, the revenue procedure does not necessarily apply to fast track modifications under the revised Framework or to second-lien subordinations to accommodate those modifications.
Rev. Proc. 2007-72, 2007FED ¶46,742
Other References:
Code Sec. 860D
CCH Reference - 2007FED ¶26,662.01
CCH Reference - 2007FED ¶26,662.021
Code Sec. 7701
CCH Reference - 2007FED ¶43,091.68
Tax Research Consultant
CCH Reference - TRC RIC: 9,300
CCH Reference - TRC ESTTRST: 3,150

CCH (cch.taxgroup.com) reports:

Legislation to revise the controversial more-likely-than-not standard in Code Sec. 6694(a) was introduced in the House on December 6. The bill, introduced by Reps. Joseph Crowley, D-N.Y., and Jim Ramstad, R-Minn., would jettison the more-likely-than-not standard in favor of substantial authority. The bill, which had not been assigned a number as of press time, comes on the eve of the expiration of transitional relief.
Substantial Authority
Thomas Ochsenschlager, vice president-taxation for the American Institute of Certified Public Accountants (AICPA), told CCH that the proposed bill will equalize the return preparer and the taxpayer standards at substantial authority. "Historically, the return preparer standard was realistic possibility of success and the taxpayer standard was substantial authority," he explained.
The Small Business and Work Opportunity Tax Act of 2007 (P.L. 110-28) changed the realistic possibility of success standard in Code Sec. 6694(a) to more-likely-than-not. The 2007 Small Business Tax Act also significantly increased the penalties for violating Code Sec. 6694 and made Code Sec. 6694 applicable to all return preparers and not just income tax return preparers.
Unintended Consequences
Immediately after the 2007 Small Business Tax Act was passed, the AICPA, the National Association of Enrolled Agents (NAEA), the National Association of Tax Professionals (NATP) and other professional groups, warned that the more-likely-than-not standard would change the role of practitioners from advocate to advisor. They also cautioned that practitioners encounter many issues for which there is no guidance from the IRS, making the determination of the proper treatment of an item far from clear.
Retroactive
The bill is retroactive to May 25, 2007, the effective date of the 2007 Small Business Tax Act. The retroactive provision effectively negates the more-likely-than-not standard, Ochsenschlager explained.
The bill would also provide a reasonable cause exception. No penalty would be imposed if the practitioner acted in good faith and there was reasonable cause for the understatement.
Tax Shelters
The bill also equalizes the standards for tax shelters and reportable transactions. Taxpayers would be subject to a more-likely-than-not standard as would practitioners. "The AICPA supports this change," Ochsenschlager said.
Non-Signing Preparers
The bill does not create an exception for non-signing preparers from the definition of return preparer under Code Sec. 6694. The American Bar Association (ABA) Section of Taxation recently urged the Treasury Department and the IRS to exclude non-signing preparers from the scope of Code Sec. 6694 (TAXDAY, 2007/11/19, M.3) in regulations, which are expected to be issued before the end of the year.
Transitional Relief
Transitional relief from the IRS will expire soon (IR-2007-115, Notice 2007-54; TAXDAY, 2007/06/12, I.4). For income tax returns, amended returns and refund claims due on or before December 31, 2007 (determined with regard to any extension of time for filing), the pre-2007 Small Business Tax Act standards and the current regulations will be applied when determining whether the IRS will impose a penalty under Code Sec. 6694(a).
For all other returns, amended returns and claims for refund, including estate, gift and generation-skipping transfer tax returns, employment tax returns and excise tax returns, the reasonable basis standard set forth in regulations issued under Code Sec. 6662, without regard to the disclosure requirements contained therein, will be applied when determining whether the IRS will impose a penalty under Code Sec. 6694(a).
By George L. Yaksick, Jr., CCH News Staff
Legislation to Modify the Penalty on the Understatement of Taxpayer's Liability by Tax Return Preparer's

CCH (cch.taxgroup.com) reports:

The Senate on December 6 approved a one-year patch without offsets for the alternative minimum tax (AMT) but not until after Senate Republicans rejected a House version (HR 3996) that was laden with tax loophole closers as a means of offsetting the cost. The cloture motion to limit debate on the House bill fell by 46-48 margin, 14 votes shy of the necessary 60 votes to block a filibuster by Republicans.
Following the failed cloture vote, a visibly exasperated Senate Majority Leader Harry Reid, D-Nev., offered to hold a unanimous consent vote on a one-year AMT patch (Baucus amendment No. 3804) without offsets, and without addressing expiring tax provisions commonly referred to as "extenders". Senate Budget Committee ranking member Judd Gregg, R-NH, however, lodged an objection, which under Senate rules immediately blocks a unanimous consent agreement. Gregg had earlier attempted to introduce a finite number of tax-related amendments into the debate over the House bill but was thwarted by Democratic leaders. Regarding extenders, Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, later said on the Senate floor that they would have to defer until 2008 any action on the extenders package.
Minutes after Gregg objected to the first unanimous consent agreement, Reid told reporters he would attempt another unanimous consent agreement in the afternoon, but that never materialized. He then told reporters: "The way things are going, I don't know if the patch will be put in place." Senate leaders, however, worked out an agreement early in the evening and held a roll call vote on the patch. The measure passed by an 88-5 margin.
The House must now approve the amended version of its bill before President Bush can sign it into law. However, passage in that chamber is by no means assured. On December 5, the 31 House members of the fiscally conservative Democratic Blue Dog Coalition publicly reinforced their commitment to pay-as-you-go (PAYGO) budget rules enacted by lawmakers at the start of the 110th Congress. In a letter to Senate Democratic leaders, Rep. Mike Ross, D-Ark., told the lawmakers that waiving PAYGO in the face of political pressure was fiscally reckless. "We made a commitment to the American people to reinstitute PAYGO budget rules and restore fiscal responsibility to government and we will stand by that commitment," said the Blue Dog co-chair for communications.
Blue Dog Coalition members have promised to vote against any legislation that is not fully offset and they called on Senate Democrats to follow suit. "We will not pass the burden of unmanageable debt on to our children and grandchildren just so we can avoid the difficult decisions that Americans expect their government to make," said Ross.
House Democrats Call for AMT Offsets
House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., also reiterated House Democrats' intent to pay for the measure. "We had hoped the Senate would support House-passed legislation to provide AMT relief without adding to the deficit," said Rangel in a statement following the Senate vote. "As I outlined earlier today, I am drafting amendments to the legislation passed by the Senate tonight to address the political opposition in their body. The House will consider these amendments so that we may give the Senate another chance to do the right thing and pass responsible AMT relief."
House Democratic leaders are still hoping for legislation that would provide relief from the AMT that meets PAYGO budget rules and includes a tax increase to cover the cost of the bill. In comments to reporters on December 6, House Speaker Nancy Pelosi, D-Calif., said Democrats would use any revenue offsets passed by the Senate to offset the cost of AMT relief. Pelosi's comments came in response to some GOP senators' reported willingness to approve a tax increase to pay for a group of extenders that expire in 2007.
"It is reported that the president and the Republicans in the House and Senate, while they speak about removing the burden of the AMT, do not suggest how we avoid borrowing the money to do so," Rangel said. "They have not offered any solutions to raise the money or cut spending to cover the cost of this critical tax relief. They do not suggest anything and as a result, we are getting nothing."
Rangel said that he would pursue a revenue offset that would change the rules for offshore nonqualified deferred compensation for hedge fund managers. "At this time, we are looking to close a loophole where billions of dollars in offshore funds have escaped taxation," he said. "Closing this loophole has already been accepted by the House and it is my understanding that it will be received favorably in the Senate as well."
At an AMT panel discussion hosted by the Committee for a Responsible Federal Budget and the New America Foundation, House Majority Leader Steny Hoyer, D-Md., said lawmakers have "plenty of blame to go around for letting this AMT problem fester. But the bottom line is that we need a solution --not finger-pointing." He rejected Republican efforts to pass AMT relief and add the costs of the $50 billion cost to the deficit and national debt.
According to Hoyer, GOP lawmakers are being fiscally dishonest in their balanced budget projections by calling for AMT relief without an offset, while still using the increased revenues from AMT to make their other tax cuts appear more affordable. "If we are going to reduce the revenues from the AMT that were assumed in the plans to balance the budget by 2012, we need to either replace those revenues or reduce spending if we are serious about balancing the budget," he said.
By Jeff Carlson and Stephen K. Cooper, CCH News Staff
CRS Report --Alternative Minimum Taxpayers By State: 2003, 2004, and Projections for 2007, Updated October 17, 2007
AMT Returns by State Comparison of 2005 to 2007

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

An integrated business application software system that had to be significantly modified before it could be used by the purchaser was exempt from Wisconsin sales and use tax as custom software, according to a Wisconsin Court of Appeals. The court of appeals upheld a Wisconsin Tax Appeals Commission determination that, under a rule defining "custom programs" and "prewritten programs," the distinction between custom and prewritten software programs hinges on the amount of effort necessary to make the software operational for a particular customer's needs.

CCH (cch.taxgroup.com) reports:

Some early filing taxpayers have requested "large and apparently improper amounts for the special telephone tax refund," according to the IRS. The IRS is investigating abuses and promises to take quick action against the involved taxpayers and their preparers. IRS Commissioner Mark W. Everson stated that "audit letters will be sent out soon and, when appropriate, [IRS] investigators will visit tax preparers who have been preparing questionable telephone tax refunds." A correct refund claim will only be for the amount of the 3-percent tax imposed on long distance and bundled telephone services during the 41-month period from March 2003 to July 2006. In the alternative, a taxpayer may claim a refund in the standard amount set by the IRS, which ranges from $30 to $60, based on the number of exemptions claimed on the taxpayer's return.
IR-2007-16, 2007FED ¶46,283
IR-2007-16, ETR ¶66,815
Other References:
Code Sec. 4251
CCH Reference - ETR ¶18,135.04
CCH Reference - ETR ¶18,135.68
Code Sec. 4252
CCH Reference - ETR ¶18,375.03
CCH Reference - ETR ¶18,375.25
Code Sec. 6402
CCH Reference - 2007FED ¶38,519.415
Code Sec. 7804
CCH Reference - 2007FED ¶43,266.18
Tax Research Consultant
CCH Reference - TRC PENALTY: 3,258
CCH Reference - TRC EXCISE: 9,056

CCH (cch.taxgroup.com) reports:

Senate Finance Committee Chairman Max Baucus, D-Mont., on January 25 announced plans to extend and enhance the college tuition deduction and move a number of other education incentives through the committee in 2007. Baucus said that he will soon introduce a new Education Competitiveness Bill and some tax initiatives to be considered by the Finance Committee that will likely mirror elements of his 2006 bill. Provisions in that legislation included a federal deduction for state and local property taxes that go to support local schools, and tax relief for repayment of student loans (TAXDAY, 2006/09/15, C.1).
Baucus also introduced an amendment on the Senate floor on January 25 reiterating his decision to move education tax incentives through the Finance Committee. Moreover, he refused to support an amendment, unpaid for and introduced outside the committee process, to make a limited number of changes to education tax incentives.
"The Finance Committee finished 2006 with a focus on education tax incentives, and that commitment will continue under my chairmanship this year," said Baucus in a statement. "Working together, the Finance Committee will craft a strong and fiscally responsible education incentives package and bring it to the full Senate."
By Jeff Carlson, CCH News Staff
SFC Release: Baucus Outlines Education Tax Objectives

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

In a January 23 statement, Texas Governor Rick Perry said he strongly supports the property appraisal reform plan submitted by the Task Force on Appraisal Reform. The governor said the plan would improve the accuracy of appraisals, prevent future unfunded state mandates on local government, and ensure that taxpayers are not powerless to stop large tax and spending increases.
The Task Force's report contains recommendations for five statutory changes and two constitutional changes. The following statutory changes are recommended:
-- require voter approval for any local taxing entity, excluding schools, to tax in excess of the approved prior year's budgeted tax revenue plus 5%;
-- implement measures to improve fairness and consistency in the appraisal process, including new options for taxpayers to challenge property valuations;
-- change the comptroller's property valuation study and provide uniformity in local property appraisal practices;
-- prohibit the state from passing unfunded mandates to local governments in the future; and
-- require sales price disclosure.
The following constitutional changes are recommended:
-- allow taxpayers the option of calculating their property taxes using a five-year rolling average of the property's appraised value; and
-- lower the residential appraisal cap on city and county taxes from 10% to 5%, double the local property tax homestead exemption to $6,000, and allow local governments the option of conducting an election to enact a half-cent countywide sales tax constitutionally dedicated to property tax reduction. The appraisal cap could be lowered to 5% only in counties that vote for the half-cent sales tax increase.
The governor's press release may be viewed at http://www.governor.state.tx.us/.

CCH (cch.taxgroup.com) reports:

The Ohio Department of Taxation has issued an information release that explains the rule-based estimation procedure and the statutory-based estimation procedure for the commercial activity tax. CAT taxpayers are required to calculate their taxable gross receipts and pay the tax due within 40 days of the end of a calendar quarter. Ohio Adm. Code Sec. 5703-29-09 provides an estimation procedure that allows taxpayers that check the "rule estimation" box on the CAT return to estimate taxable gross receipts for the current quarter using 95% of taxable gross receipts from the previous quarter. The statutory-based estimation procedure allows a taxpayer to estimate taxable gross receipts for a calendar quarter and then reconcile actual taxable gross receipts at the end of the year. The release discusses the differences between the two procedures and provides spreadsheets that can be used to calculate taxable gross receipts under each method. Taxpayers utilizing the statutory-based estimation procedure must complete and print or e-mail the corresponding spreadsheet when filing their annual reconciliation return.
CAT Information Release 2007-01 , Ohio Department of Taxation, January 2007, ¶403-687
Other References:
Explanations at ¶14-105

CCH (cch.taxgroup.com) reports:

CCH is hosting a live, 100-minute audio seminar, Navigating Schedule M-3; Bridging the Gap Between Financial Accounting and Tax Accounting,
on Thursday, February 1, at 1:00 p.m. Eastern, noon Central. Schedule M-3 has been very controversial since first introduced, and numerous questions have arisen regarding a variety of implementation and compliance issues. Our panel, consisting of John O. Everett, Ph.D., DPA; Cherie Hennig, Ph.D., CPA, M.B.A.; and William A. Raabe, Ph.D., CPA, will:
--Explain the requirements for filing Schedule M-3 for large corporations;
--Discuss and walk through comprehensive examples of both a simple and a more complex Schedule M-3;
--Determine the appropriate financial accounting income figure to be used in the book/tax reconciliation portion;
--Discuss the importance of the determination of the determination of deferred tax liabilities and deferred tax assets under FASB 109 and FIN 48, and how these financial accounting concepts tie into a book/tax reconciliation on Schedule M-3;
--Analyze the reporting of various income and deduction items by walking through a comprehensive case study;
--Focus on the special reporting problems encountered in preparing Schedule M-3 for an affiliated group of corporations;
--Examine the unique reporting issues applicable to the newly required Schedules M-3 for flow-through entities;
--Analyze current developments regarding Schedule M-3 reporting; and
--Answer your questions.
Registration can be completed online at https://www.krm.com/cch or by calling 1-800-775-7654. Participants can earn three hours of CPE credit. In addition, firms registering for this audio seminar will receive a copy of CCH's Practical Guide to Schedule M-3 Compliance, written by the panelists.

CCH (cch.taxgroup.com) reports:

Following the narrow defeat of a motion to end debate on a clean minimum wage bill, the Senate is ready to pass a minimum wage hike along with an $8.3 billion package of small business tax incentives. Senate Finance Committee Chairman Max Baucus, D-Mont., said that he expects the Senate to reach final passage on a substitute amendment to the Fair Minimum Wage Bill (HR 2), which includes the tax breaks, by January 30. The bill would then be laid aside until leaders in both the House and Senate agree on how to proceed with the measure. The House passed a clean minimum wage bill and House Democrats remain adamantly opposed to attaching the tax breaks. However, Baucus believes that the failure of the cloture vote sends a clear message to the House that minimum wage legislation can only move with his tax package.
The Senate defeated the clean bill cloture motion, which required 60 votes, by a 54-43 margin. Senators also narrowly defeated a cloture motion on a line-item veto amendment proposed by Senate Budget Committee ranking member Judd Gregg, R-N.H., by a vote of 49-48.
Baucus said that there were 20 amendments filed on the minimum wage/tax package measure, of which only three or four are legitimate. However, according to Baucus, those are not expected to move, as none are paid for. "That's a sure death sentence," he said.
By Jeff Carlson, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The West Virginia Supreme Court of Appeals has issued a separate dissenting and concurring opinion in Tax Commissioner v. MBNA America Bank, N.A. . The majority opinion issued on November 21, 2006 (see TAXDAY, 2006/11/22, S.18) concluded that it was not a violation of the Commerce Clause of the U.S. Constitution for the state to impose the corporate net income and the business franchise tax against an out-of-state bank that provided credit card services to West Virginia customers because the bank's business activity in the state constituted a significant economic presence sufficient to meet the substantial nexus standard. The majority found that the physical presence requirement established by the United States Supreme Court in Quill Corp. v. North Dakota , 504 U.S. 298 (1992), for showing a substantial nexus under the Commerce Clause, applies only to use and sales taxes and not to business franchise and corporation net income taxes.
The dissenting opinion criticizes the majority for relying on "thinly veiled state-favoring taxing agendas", a "strained and inaccurate reading" of Quill , and a "unilateral restatement of the important policy considerations" underlying the inclusion of the Commerce Clause, while ignoring "bedrock constitutional principles" and established legal precedent. The majority's economic nexus approach merges Due Process and Commerce Clause nexus requirements, the dissent argues, and effectively returns to the nexus jurisprudence that was rejected by the U.S. Supreme Court in National Bellas Hess, Inc. v. Illinois Revenue Dept. , 386 U.S. 753 (1967). The dissent also contends that the majority's effort to differentiate Quill's substantial nexus standard based on tax types and differences in the complexity of collection is speculation absent precedential support or clear doctrinal foundation. Finally, the majority is accused by the dissent of engaging in legislative activism by applying economic nexus approach based on the rationale that the framers of the U.S. Constitution could not have foreseen the significant changes to the way businesses conduct commercial activities.
A concurring opinion by the West Virginia Court's Chief Justice "responds to several misconceptions" contained in the dissenting opinion. The opinion emphasizes that the majority performed a critical analysis of Quill and correctly recognized the legal differences between the Due Process Clause and the Commerce Clause, the finer distinctions between the application of sales and use taxes as opposed to business franchise and corporation net income taxes, as well as taking into account the" realism of today's world" in which a business does not need a physical presence anywhere. The dissent's lengthy discussion regarding the physical presence component and the minimum contacts required under the Due Process Clause is described by the concurring opinion as "unwarranted," "prone to create confusion," and "wholly irrelevant" to the Commerce Clause issue before the court. In a final point, the concurring opinion questions the dissent's rigid adherence to the physical presence requirement for all tax types and asks why small businesses with a physical presence in West Virginia should pay business franchise and corporate income taxes, while large corporations without a physical presence should be exempt from such taxes.
Subscribers to CCH Tax Research NetWork can view the complete text of the opinions.
Tax Commissioner v. MBNA America Bank, N.A. , West Virginia Supreme Court of Appeals, No. 33049, dissenting opinion January 2, 2007, concurring opinion January 8, 2007

CCH (cch.taxgroup.com) reports:

A medical center was not entitled to recover a refund of employment taxes it paid for its resident doctors. The medical residents continued to be subject to Federal Insurance Contribution Act (FICA) taxes because they did not qualify for the student exception under Code Sec. 3121. When Congress ended the medical intern exception and the exemption for self-employed physicians, it did not intend interns and residents to qualify for the student exception. Rather, the amendments were made with the intent of providing nearly universal coverage with limited exceptions. Congress explicitly considered the need of "young doctors" to start building up survivor and disability benefits. Moreover, the specific intern exception that existed from 1939 to 1964 would have been superfluous if residents and interns qualified for the broad student exception.
Albany Medical Center, DC N.Y., 2007-1 USTC ¶50,168
Other References:
Code Sec. 3401
CCH Reference - 2007FED ¶33,533.23
Tax Research Consultant
CCH Reference - TRC PAYROLL: 3,122

CCH (cch.taxgroup.com) reports:

President Bush in his State of the Union address to a new Democrat majority in Congress declared that a divided government can work through its differences and find common ground on issues that are important to the nation. "Our citizens don't much care which side of the aisle we sit on --as long as we are willing to cross that aisle when there is work to be done," the president asserted in the January 23 address.
The president limited his domestic policy remarks to issues that he believes can garner bipartisan support in Congress. He called for measures to balance the federal budget by 2012 and urged Congress to work with him on entitlement reform. The president outlined proposals to increase the number of insured individuals and families and to lessen dependence on foreign energy sources.
The president proposed a health care standard deduction of $7,500 for individuals and $15,000 for families who purchase private health insurance (TAXDAY, 2007/01/23, W.1). At the same time, Bush's proposal would tax those covered by excessively generous health plans on that portion of the cost that exceeds these thresholds.
The plan is designed to level the playing field for those who purchase their own health insurance and those whose coverage is provided by their employers. According to the president, "more than 100 million men, women, and children who are now covered by employer-provided insurance will benefit from lower tax bills."
The proposed changes would simplify the tax code, noted White House Deputy Chief of Staff for Policy Joel Kaplan. "People understand a standard deduction. When everybody gets the same standard deduction, whatever the source of their insurance and whatever the cost, that ultimately is a more simple tax system," Kaplan said.
White House officials anticipate that the number of health savings accounts (HSAs) will grow if the president's proposal is enacted since it is biased toward the purchase of lower premium, high-deductible health insurance and HSAs are paired with these types of plans. The plan also is likely to lead to an acceleration in the trend of employers to drop health care coverage for employees, but more workers would be able to buy insurance in the individual market since the president's plan would provide "a substantial tax benefit," Kaplan observed.
Reaction from Congress
Senate. Senate Finance Committee (SFC) ranking member Charles E. Grassley, R-Iowa said that Bush has correctly identified a flaw in health care tax policy. Citing estimates from the Joint Committee on Taxation that over the next decade Americans will receive more than $1 trillion in tax benefits for health care under current tax law, Grassley declared: "We need to make sure those benefits are being directed wisely, get the most bang for the taxpayer's buck, and help to meet the needs of the millions of Americans without health insurance."
The senior lawmaker said that the president's proposal could help level the playing field by extending the tax incentives for purchasing health coverage to the self-employed and those who purchase health coverage on their own. "I'll study the details of this plan and work with Senator Baucus in the Finance Committee to work to address these issues and expand health insurance coverage," said Grassley.
The SFC Chairman Max Baucus, D-Mont., agreed, saying the president was right to recognize that Congress has to start reforming health care now. "To get traction, his proposals need to meet two tests: getting new health coverage to people who have none, and better coverage to those who don't have enough," said Baucus.
House. House Majority Leader Steny Hoyer, D-Md., said Bush's first move to demonstrate fiscal responsibility should be to present an honest, balanced budget to Congress in February. Hoyer called on Democrats and Republicans to come together to work to lower the federal budget deficit.
Rep. Phil Hare, D-Ill, rejected the president's health care proposals. "Unfortunately, the president's new health care proposal would raise taxes on those middle-class workers fortunate enough to have good plans while doing little to reduce the number of uninsured," Hare said.
House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., said Bush should realize that the domestic problems cited in his speech require bipartisan solutions. "Whether we're talking about expanding health care for the uninsured, ensuring Social Security for generations to come, or promoting fair tax policy, we're not talking about Democratic or Republican problems," Rangel said. He called on Bush to reach across the aisle to find solutions.
House Ways and Means Committee ranking member Jim McCrery, R-La., gave a thumbs up to the president's health care ideas, which he said would level the playing field between employer-sponsored insurance and individual insurance. "I think the president's proposal to extend tax incentives for health insurance to people who work for small businesses or are self-employed is a bold and creative approach to a complex problem," McCrery said.
The opposite reaction came from Rep. Fortney Pete Stark, D-Calif., who chairs the Ways and Means Subcommittee on Health. "The president's so-called health care proposal won't help the uninsured, most of whom have limited incomes and are already in low tax brackets," he said. Bush's plan would hurt middle-income Americans, whose employers will shift even more cost and risk to their employees.
Treasury
The president's health care proposal received more scrutiny at an afternoon briefing by two Treasury officials. The administration has not calculated exact figures on how much the proposal would reduce tax revenue in the first five years or how much revenue would be generated in the next five years. The numbers will be included with the president's fiscal year 2008 budget, they explained. The administration also plans to release numbers in the next few days on the average tax cut and increase.
The Treasury Department did release a chart showing that the proposed standard deduction for health insurance would make the tax code more progressive. Taxpayers in the first quintile of income (to $13,309) would have their taxes drop by about 0.3 percent of their income. Those in the second quintile (to $28,506) would get a tax cut of 0.4 percent of their incomes. Those in the third quintile (to $50,447) would pay fewer taxes by about 0.6 percent of their incomes, while those in the fourth quintile (to $87,757) would pay less by 0.1% of their incomes. The quintile earning $87,758 or more would see a tax hike of around 0.1 percent of their incomes.
By Jeff Carlson, Stephen K. Cooper, Paula Cruickshank and Dave Hansen, CCH News Staff
2007 State of the Union Address
State of the Union 2007 State of the Union Policy Initiatives: Overview Fact Sheet
White House Energy Fact Sheet: Twenty In Ten: Strengthening America's Energy Security
White House Health Fact Sheet: Affordable, Accessible, And Flexible Health Coverage
White House Spending Fact Sheet: Reforms To Spend Tax Dollars Wisely
Treasury Department News Release, Administration's Proposal for Affordable, Accessible, and Flexible Health Coverage, TDNR HP-228

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The U.S. Supreme Court has accepted a request by the foreign missions of India and Mongolia to consider whether federal courts have jurisdiction in a lawsuit brought by New York City involving tax liens imposed on the missions' real property for failure to pay property taxes. The city asked the courts to declare its liens valid, maintaining that those portions of the missions' property that are used to house lower-level diplomatic personnel are subject to property taxation. The missions sought to have the city's lawsuit dismissed on the basis that they have sovereign immunity from suit.
The U.S. Court of Appeals for the Second Circuit, without reaching the merits of the dispute in this interlocutory appeal, affirmed the district court's judgement that it had jurisdiction under the "immovable property" exception in the Foreign Sovereign Immunity Act, 28 U.S.C. Secs. 1602-1611. (TAXDAY, 2006/05/16, S.10) The Court of Appeals remanded the case to the district court for further proceedings, prompting the missions' petition to the high court. Prior to granting the missions' request for review, the U.S. Supreme Court invited the U.S. Solicitor General to file a brief expressing the views of the United States. That brief was filed on December 22, 2006.
Subscribers to CCH Tax Research NetWork can view the petition.
Permanent Mission of India to the United Nations v. City of New York,
U.S. Supreme Court, Dkt. 06-134, petition for certiorari granted January 19, 2007

CCH (cch.taxgroup.com) reports:

New and amended regulations have been adopted on the reporting of New Jersey gross income tax by owners of S corporations and partnerships. The new S corporation rules explain what constitutes a shareholder's pro rata share of income or losses, reporting of liquidating and nonliquidating distributions, computing a shareholder's initial and adjusted New Jersey basis, determining a shareholder's New Jersey accumulated adjustments account, and classifying earnings and profits in an S corporation prior to the New Jersey S corporation election. The regulations also provide guidance, clarification, and examples on the reporting of gains or losses from the complete liquidation of pass-through entities.

CCH (cch.taxgroup.com) reports:

The California Supreme Court will not review a lower court ruling that the city and county of San Francisco were not required to provide a full refund of a discriminatory local business tax, but only the amount sufficient to negate the discriminatory effect of the tax. The lower court also had determined that the refund was subject to the state's 7% prejudgment interest rate, rather than the variable rate of interest that applied under local law. (TAXDAY, 2006/10/20, S.1)
Macy's Department Stores v. City and County of San Francisco, California Supreme Court, No. S148342, review denied January 17, 2007

CCH (cch.taxgroup.com) reports:

An individual could not exclude income earned for services rendered in Antarctica from his gross income because Antarctica is not a "foreign country" as that term is employed in Reg. §1.911-2(h). The definition of foreign country in the regulation is reasonable and consistent with the congressional purpose underlying the exclusion. An essential component of the definition of a foreign country is the requirement that the territory be under the sovereignty of a government that is not the United States government.
The regulation should not be read to include the limitless class of sovereign-less territory, such as Antarctica, in the definition of "foreign country" Although there have been changes in the tax code to the precise treatment of foreign earned income, the regulations defining a foreign country have remained largely unchanged. Thus, Antarctica does not fall within the definition of a foreign country.
Affirming the Tax Court, CCH Dec. 56,415, 126 TC 89.
D. Arnett, CA-7, 2007-1 USTC ¶50,162
Other References:
Code Sec. 911
CCH Reference - 2007FED ¶28,049.1035
Tax Research Consultant
CCH Reference - TRC INTL: 3,060

CCH (cch.taxgroup.com) reports:

For the first time since taking office, President Bush plans to propose a targeted tax increase aimed at insured workers who are covered by high-cost health plans provided by their employers. The president's plan would establish a standard deduction for the purchase of health insurance. Under the president's plan, families who purchase health insurance would qualify for an automatic, above-the-line deduction of $15,000. Individuals purchasing single policies would not pay income or payroll taxes on the first $7,500 in compensation.
The plan aims to provide a level playing field for those who are insured by their employers and those who purchase health care insurance themselves, noted Katherine Baicker from the White House Council of Economic Advisers at a press briefing on January 22
Bush plans to unveil the standard health care deduction proposal in his State of the Union address to a joint session of Congress on January 23. The president first made reference to the proposal in a radio address on January 20. Bush described the new proposal as a "tax reform designed to help make basic private health insurance more affordable --whether you get it through your job or on your own."
The president contended that the current tax code "unfairly penalizes people who do not get health insurance through their job ... (and) unwisely encourages workers to choose overly expensive, gold-plated plans." Workers who receive these costly health insurance plans through their employers would be taxed on the cost of the benefit above the proposed threshold for the tax break. That means, for example, an employee taking a $7,500 health care standard deduction and covered by an $8,500 health plan, must pay taxes on the $1,000 difference.
On the other hand, the proposal could make health care coverage affordable for many uninsured taxpayers who take advantage of the standard deduction. For example, a family earning $60,000 in the 15-percent income tax bracket and 15-precent payroll tax bracket, currently would pay an estimated $5,200 for coverage, noted Baicker.
Under the president's plan, the same family would be eligible for a $15,000 standard deduction. Assuming a 30-percent marginal tax rate, the family would have $4,500 to put toward a health plan. "That's a huge chunk of the cost of an insurance policy out there so it makes insurance much more affordable for those people," Baicker asserted.
There are currently an estimated 30 million employer-provided policies that exceed the cost threshold, noted the officials. Unless an insured worker chooses a compensation package with health care plan costs below the amount of the health care standard deduction, the employee would be taxed on the difference, starting in 2009 under the plan. Because the proposed deduction would not take effect until 2009, insured workers with generous plans would have two years to change the mix of their compensation package to avoid taxation, noted Baicker. In addition, the standard deduction would be adjusted for inflation in future years.
The number of Health Savings Accounts is expected to grow under the president's health care deduction plan since the proposal is biased toward the purchase of lower premium, high-deductible plans and HSAs are paired with high-deductible health insurance, acknowledged Baicker.
The cost of the proposal over ten years is revenue-neutral. The first five years are expected to be revenue-losers but those costs are expected to be offset in the next five years, according to Baicker.
Those who cannot afford private insurance due to pre-existing medical conditions or income levels that are too high to qualify for Medicaid benefits could benefit from another proposal called the "Affordable Choices Initiative," noted Special Assistant to the President for Economic Policy Julie Goon. This proposal would redirect certain federal heath care funding that could be more effectively spent by states in helping the poor and hard-to-insure access affordable private insurance, according to Goon.
Democrats' Reaction
Senate Democrat leaders on January 22 harshly criticized President Bush's proposal to create a standard deduction for health insurance, saying it is tantamount to a tax increase for the middle-class. Democrat leadership also charged that the proposal would encourage the uninsured to purchase health coverage on their own. Moreover, they cited studies that found that roughly 90 percent of applicants in what is known as less-than-perfect health were unable to buy individual policies at standard rates, while 37 percent were rejected outright.
"Individual health insurers may deny you coverage based on your medical history or put you in such a high-risk category that it makes health coverage too expensive," according to Karen Pollitz, a Georgetown University researcher who co-authored a 2001 study on the individual health-insurance market for the Kaiser Family Foundation.
Democrats likened the health care deduction to the president's health savings account (HAS) proposal in his 2006 State of the Union address. Again, Democrats cited a study that downplayed the benefit of HSAs. The Employee Benefit Research Institute found significant levels of dissatisfaction among people covered by the high-deductible, HSA style plans --also known as consumer-driven health plans (CDHP) --that form the basis of Bush's health care proposal.
House Democrat leaders said that they had hoped President Bush would offer bipartisan solutions to the nation's problems. Majority Leader Steny Hoyer, D-Md., said Bush must go beyond words and demonstrate his willingness to deal with energy independence and global warming. House Majority Whip James Clyburn, D-S.C., called on the president to come to the Capitol prepared to debate, rather than dictate the road ahead.
"The President reportedly has repackaged his tax break gift for America's wealthiest, only this time it's wrapped up to look like a break on health care costs," said House Energy and Commerce Chairman John Dingell, D-Mich. "We need to get health care coverage to Americans who need it; not give more tax breaks to the wealthiest."
Democrats said they would prefer to expand successful programs like the State Children's Health Insurance Program or fully fund the historic No Child Left Behind education law. "I would like to hear him address the need for fairness in our economic policy where economic growth benefits everyone and not just a few," said House Financial Services Committee Chairman Barney Frank, D-Mass.
By Jeff Carlson, Steven K. Cooper and Paula Cruickshank, CCH News Staff
White House Fact Sheet: Affordable, Accessible, And Flexible Health Coverage
White House Press Release --SOTU Preview:
White House Press Release --Setting The Record Straight

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Hawaii Governor Linda Lingle has announced a comprehensive package of personal income tax, general excise tax, and motor vehicle tax and registration fee relief proposals that would provide $346 in tax relief over two years. The personal income tax proposals include automatic adjustments to certain tax amounts to account for inflation, raising the standard deduction, providing additional tax exemptions and credits to families with children or aging parents, and providing a one-time tax refund to resident taxpayers because of the large general fund surplus over the past two years. The general excise tax proposals include eliminating the tax on certain essential foods, reinstating the tax exemption for gasoline blended with ethanol, and extending the exemption for ethanol-blended fuels to all biofuels. The motor vehicle tax and registration fee proposals include exempting non-commercial vehicles owned by National Guard and Reserve members from state and county tax and registration fees.

CCH (cch.taxgroup.com) reports:

President Bush, in his State of the Union address on January 23, is expected to highlight domestic issues on which the White House and the new Congress could find common ground, including energy, immigration, health care and education. The House, meanwhile, approved the Clean Energy Bill of 2007 (HR 6) on January 18, although the legislation, which would strip tax breaks and increase royalty payments from big oil companies, is expected to face opposition in the Senate. Conversely, a bill approved by the Senate Finance Committee that would provide tax incentives for small business and will be offered as an amendment when the full Senate takes up minimum wage legislation (HR 2) during the week beginning January 22, faces opposition in the House.
White House
In his State of the Union address on January 23, President Bush will highlight domestic issues on which the White House and the new Congress could find common ground. Those issues include energy, immigration, health care and education. The White House plans to use a "carrot and stick approach" to address the growing concern over global warming, according to presidential spokesman Tony Snow. This approach is expected to include tax incentives to encourage the use of alternative fuels that do not cause greenhouse gas emissions but no mandatory controls. That approach rules out proposing a cap on greenhouse gas emissions or any form of carbon emissions tax.
Congress
House. House Democrats concluded their agenda for the first 100 hours of the 110th Congress on January 18, but gave few details about their legislative plans for the remainder of 2007.
House Majority Leader Steny H. Hoyer, D-Md., told reporters that the president's fiscal year 2008 budget would establish whether the administration is intent of fixing the alternative minimum tax (AMT). Hoyer said that he is waiting to see whether Bush will honestly project the cost of AMT relief in his budget.
Meanwhile, the House Ways and Means Committee adopted a plan to hold oversight hearings on the economy, federal budget, the Treasury Department and IRS administration of federal tax laws. Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., and ranking member Jim McCrery, R-La., pledged to work in a bipartisan manner to pass noncontroversial tax legislation that can win Senate and White House support.
Privately, both old and new members of the tax panel told CCH that the current spirit of bipartisanship in the committee will likely fray once lawmakers begin dealing with substantive tax policy on which the political parties disagree. Rep. Phil English, R-Pa., speculated that Democrats might accomplish limited AMT relief in 2007, but a total repeal would likely be part of a larger tax reform effort.
As expected, House lawmakers approved the Clean Energy Bill of 2007 (HR 6) by a vote of 264 to 163 (TAXDAY, 2007/01/19, C.1). The legislation, which faces a difficult time in the Senate, would strip tax breaks for and increase royalty payments from big oil companies. Democrats said that the bill's $14 billion in revenues would be invested in clean, renewable energy and energy efficiency.
Senate. The Senate Finance Committee on January 17 approved an $8.3 billion package of tax incentives for small business that will be offered as an amendment when the full Senate takes up minimum wage legislation (HR 2) during the week beginning January 22 (TAXDAY, 2007/01/18, C.1). The measure faces a potential uphill battle in the House, however, where Rangel has stated his opposition to adding tax incentives to the wage bill. The noncontroversial tax provisions, most of which only extend existing provisions for several months, were overshadowed, however, by an $806 million revenue- raiser that would cap at $1 million the amount of executive compensation that can be deferred annually. Highlights of the package include an extension of Code Sec. 179 expensing, accelerated depreciation for new restaurant construction, increased flexibility in the use of the cash-balance method of accounting, extension and expansion of the work opportunity tax credit (WOTC) and increased flexibility for small businesses to qualify for tax preferences as S corporations.
Testifying before the Senate Budget Committee on January 18, Federal Reserve Chairman Ben S. Bernanke said that tax rate hikes may be necessary if the federal government is to sustain its major entitlement programs, primarily Medicare and Social Security, at current levels (TAXDAY, 2007/01/19, C.2). Bernanke said that, because of demographic changes and rising medical costs, federal expenditures for entitlement programs are projected to rise sharply over the next few decades. He also warned that, if early and meaningful action is not taken, the U.S. economy could be seriously weakened.
Also on January 18, the IRS's private tax-collection initiative came under fire in Congress. Sens. Byron Dorgan, D-N.D, and Patty Murray, D-Wash., have introduced a bill to terminate the program. "I'm deeply concerned that the plan to outsource debt collection would neither adequately protect privacy nor guarantee any cost savings," Murray said in a statement.
The Dorgan-Murray bill would end phase one of the initiative, which is currently underway, and prohibit any future appropriated funds from being used for privatization. According to the National Taxpayer Advocate, the IRS intends to assign roughly 40,000 taxpayer accounts to private debt collectors in phase one (TAXDAY, 2007/01/10, I.2).
The Tax Fairness Coalition (TFC), which supports privatization, responded to Murray's concerns about cost-saving on January 19, reporting that the initiative is "exceeding expectations." Private debt agencies collected more than $8.4 million in the first 10 weeks of the initiative, according to the coalition.
On Monday, January 22, Sen. George V. Voinovich, R-Ohio, plans to introduce a compromise bill that raises the minimum wage to $7.25 an hour and includes targeted business tax relief and corresponding budget offsets. Primarily, the bill would expand the WOTC to apply to teenagers who work in restaurants where tipping is not customary and who earn at least the minimum wage, offer tax relief designed to assist small businesses, such as restaurants, for building improvements, and codify the current regulatory option for small businesses to use cash accounting.
IRS
Late in 2006, the IRS announced that it was lifting the moratorium on determination letter applications for conversions from traditional defined benefit plans to cash balance plans (IR-2006-193, Notice 2007-6, I.R.B. 2007-3, 272; TAXDAY, 2006/12/22, I.4). The IRS has received questions on whether the cash balance moratorium plans that are in Cycle A under Rev. Proc. 2005-66, I.R.B. 2005-37, 509, should be submitted for determination letters by January 1, 2007.
Sponsors of individually designed plans generally submit applications for determination letters once every five years, under a staggered system of five-year cycles. In most cases, the cycle that applies to a plan depends on the last digit of the sponsoring employer's identification number (EIN). The first five-year period for plans falling into Cycle A (EINs ending in 1 or 6) ends on January 31, 2007. The initial submission period also ends on that date.
On January 16, in a special edition of Employee Plans News, the IRS confirmed that cash balance moratorium plans that are in cycle A must be submitted for determination letters by January 31, 2007, in accordance with Rev. Proc. 2005-66. "The Cycle A determination letter application will be reviewed at the same time and by the same person that is assigned the cash balance moratorium plan," the IRS indicated. Plan sponsors should note in a cover letter that the plan has been subject to the moratorium on cash balance plans, the IRS indicated.
News about IRS agents being pressured to close large business audits quickly is still making waves (TAXDAY, 2007/01/17, C.2). Reps. Rahm Emanuel, D-Ill., and Richard Neal, D-Maine, told IRS Commissioner Mark W. Everson in a January 16 letter that the House Ways and Means Subcommittee on Select Revenue Measures will look into these reports. Emanuel and Neal expressed concern that IRS officials and large companies are "handcuffing auditors by prematurely declaring certain areas of inquiry off limits."
An IRS spokesperson told CCH that the Service will not comment on letters from members of the Congress before the Commissioner has replied and, normally, the Service leaves it up to the lawmaker to disclose the reply if he or she wishes.
By Jeff Carlson, Stephen K. Cooper, Paula Cruickshank and George L. Yaksick, Jr., CCH News Staff

CCH (cch.taxgroup.com) reports:

The IRS has updated a revenue procedure that provides guidance on the information reporting requirements for a sale or exchange of a principal residence. The new procedure, like the one it supersedes, describes the written assurances (certification) that a real estate reporting person must obtain from the seller of a principal residence to except the sale or exchange from the information reporting requirements for real estate transactions. The updated procedure includes assurances that take into account the effects of a like-kind exchange. Rev. Proc. 98-20,, 98-1 CB 549, is superseded.
Effective for the sale or exchange of a principal residence occurring after January 22, 2007, the updated procedure requires a seller to certify that during the five-year period ending on the date of the reported sale or exchange of the residence, the seller did not acquire the residence in an exchange to which Code Sec. 1031 applies. Further, if the seller's basis in the residence is determined by reference to the basis in the hands of a person who acquired the residence in a Code Sec. 1031 exchange, the seller must provide assurance that the exchange occurred more than 5 years prior to the date of the reported sale or exchange of the residence. The updated guidance also requires that the seller certify that the sellers spouse (and not just the seller) did not use any portion of the residence for business or rental purposes.
As with the prior guidance, the new guidance provides a suggested sample form for sellers to fill out. The new guidance also continues to require that a seller certify that: (1) the seller owned and used the residence as a principal residence for periods aggregating two or more years during the five years preceding the sale or exchange; (2) the seller did not sell or exchange another principal residence during the two years preceding the sale or exchange; (3) the seller did not use any portion of the residence for business or rental purposes; (4) the sale or exchange is of the entire residence for $250,000 or less; or, if the seller is married, the sale or exchange is of the entire residence for less than $500,000 and the sellers gain is $250,000 or less; or, if the seller is married and the sale or exchange is for $500,000 or less, the seller intends to file a joint return, the residence was also the principal residence of the seller's spouse for at least two of the five years preceding the sale and the seller's spouse also has not sold or exchanged a principal residence for two years preceding the sale or exchange. As with the prior guidance, a sample form using suggested language is provided.
Rev. Proc. 2007-12, 2007FED ¶46,279
Other References:
Code Sec. 6045
CCH Reference - 2007FED ¶35,930.26
Tax Research Consultant
CCH Reference - TRC REAL: 15,162

Tax Analysts report: