Tax News

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