Tax News

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