Tax News

CCH (cch.taxgroup.com) reports:

  A multistate corporation correctly apportioned interest expense deductions on its 1993 and 1994 Alabama corporate income tax returns using the gross income ratio formula. The specific language of the statute setting forth the gross income ratio formula for out-of-state corporations was valid and in effect for the tax years at issue and prevailed over the more general language of the regulations, which directed an out-of-state corporation to apportion its deductions to Alabama using the standard three-factor formula. The provisions of a statute will prevail in any case of a conflict between a statute and an agency regulation, and the Department of Revenue is not authorized to subvert a statute.

Alabama Department of Revenue v. Jim Beam Brands Co., Inc., Alabama Court of Civil Appeals, No. 2070768, December 19, 2008, ¶201-352

  Other References:

  Explanations at ¶11-520

CCH (cch.taxgroup.com) reports:

  An individual was not entitled to an alimony deduction for amounts paid to his ex-spouse pursuant to a divorce decree because he owed child support for the same period for which the deduction was claimed. Under
Code Sec. 71, the individual's payments had to be allocated to child support and related obligations before any amount could be allocated to alimony. Since the taxpayer's total payments for the tax year at issue were less than the amount he owed for child support, child support arrears and medical reimbursement no portion of the amount paid could be allocated to alimony.

G.H. Haubrich, TC Memo. 2008-299, Dec. 57,636(M)

Other References:

 
Code Sec. 71

  CCH Reference - 2008FED ¶6094.027

  CCH Reference - 2008FED ¶6094.15

 
Code Sec. 215

  Tax Research Consultant

  CCH Reference - TRC INDIV: 21,450

CCH (cch.taxgroup.com) reports:

  A corporation's cross-chain sales of stock in its subsidiaries to brother-sister corporations within the affiliated group qualified as redemptions in complete termination of the corporation's interest in the subsidiaries and were properly taxed as distributions in exchange for stock, rather than as dividends. In an opinion supplementing
Merrill Lynch & Co., Inc. & Subs. (Dec. 55,017, 120 TC 12, affirmed in part and remanded from the U.S. Court of Appeals for the Second Circuit (2005-1 USTC ¶50,243, 386 F3d 464), the Tax Court determined that, since the corporation owned all of the subsidiaries's stock prior to the cross-chain sales, only its ownership interest in the subsidiaries had to be considered when applying the Code Sec. 302(b)(3) test for complete termination. The continuing constructive ownership interest of the affiliated group's parent in the subsidiaries through its ownership of the acquiring brother-sister corporations did not have to be considered in determining whether there had been a complete termination. Under Code Sec. 304(a), only the ownership interest of the person who actually receives property in exchange for the stock is considered, not that of a person who indirectly or constructively holds stock but neither transferred the stock nor received the proceeds of the stock sale.

  Supplementing Tax Court decision Dec. 55,017, 120 TC 12, affirmed in part and remanded CA-2, 2005-1 USTC ¶50,243, 386 F3d 464.

Merrill Lynch & Co., Inc. & Subsidiaries, 131 TC No. 19, Dec. 57,635

Other References:

 
Code Sec. 301

  CCH Reference - 2008FED ¶15,305.10

 
Code Sec. 302

  CCH Reference - 2008FED ¶15,330.1394

  CCH Reference - 2008FED ¶15,330.1628

 
Code Sec. 304

  CCH Reference - 2008FED ¶15,378.22

 
Code Sec. 318

  CCH Reference - 2008FED ¶15,906.42

  Tax Research Consultant

  CCH Reference - TRC CCORP: 21,202

  CCH Reference - TRC CCORP: 24,058

  CCH Reference - TRC CCORP: 24,202.05

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  President-elect Barack Obama intends to move forward immediately on a middle-income tax cut once he takes office on January 20 but he has not decided whether to propose a repeal of the 2001 and 2003 tax cuts benefiting upper income taxpayers or simply let them expire, according to Obama's chief strategist David Axelrod. Continuing tax cuts for the wealthiest taxpayers is "something that we plainly can't afford moving forward." Axelrod noted in an interview on NBC News' "Meet the Press" on December 28.

  Axelrod noted that the upcoming economic recovery package will include a portion of the middle-income tax cut and that it will be made permanent in Obama's upcoming budget plan. The economic recovery package to be considered by Congress in early January could cost between $675 billion to $775 billion, Axelrod estimated in an interview on CBS News' "Face the Nation" on December 28.

  Obama repeatedly has called for bold action on a large stimulus package. National Economic Council Director-designate Larry Summers is among Obama's top economic advisors who maintain that a stimulus package must be large to have a positive effect on the U.S. economy and to avoid a double-digit unemployment rate. "We want to do it in a way that leaves a lasting footprint, by investing in energy and health care projects" and by repairing schools and transportation infrastructure, Axelrod said. The Obama administration's employment goal is to create three million jobs or save three million in an effort to turn around the U.S. economy, Axelrod said.

  By Paula Cruickshank, CCH News Staff

CCH (cch.taxgroup.com) reports:

  The IRS has identified a transaction wherein a U.S. taxpayer owns a controlled foreign corporation (CFC) that holds stock of a lower tier CFC through a domestic partnership that takes a position that subpart F income of a lower tier CFC does not result in income inclusion as another type of transaction that has potential for tax avoidance or evasion for purposes of Reg. §1.6011-4(b)(6) and Code Secs. 6111 and 6112. The U.S. taxpayer takes the position that the subpart F income of a lower tier CFC was already included in the domestic partnership's income, which is not subject to U.S. tax and, thus, should not be included in the income of the U.S. taxpayer. Without the interposition of the domestic partnership, the subpart F income of the lower tier CFC would be taxable to the U.S. taxpayer.

  The IRS is concerned that taxpayers are taking the position that the structures describedresult in no income inclusion under Code Sec. 951. Therefore, the IRS has identified these structures and other substantially similar transactions as transactions of interest that are contrary to the purpose and intent of the provisions of subpart F.

  Persons who entered into these transactions on or after November 2, 2006, must disclose the transactions. Material advisors who make tax statements on or after November 2, 2006, must comply with disclosure and list maintenance obligation. Otherwise, penalties under Code Sec. 6707(a), 6707A or 6708(a) and accuracy-related penalties will be imposed.

Notice 2009-7,
2009FED ¶46,215

Other References:

 
Code Sec. 951

  CCH Reference - 2008FED ¶28,474.021

 
Code Sec. 6011

  CCH Reference - 2008FED ¶35,141.06

  CCH Reference - 2008FED ¶35,141.78

 
Code Sec. 6111

  CCH Reference - 2008FED ¶37,002.156

 
Code Sec. 6112

  CCH Reference - 2008FED ¶37,022.157

  Tax Research Consultant

  CCH Reference - TRC FILEBUS: 9,450.10
CCH Reference - TRC FILEBUS: 9,454.05
 

CCH (cch.taxgroup.com) reports:

  The IRS has released a fact sheet highlighting recent tax law changes made by the Heartland Disaster Tax Relief Act of 2008, which is part of the Emergency Economic Stabilization Act of 2008 (P.L. 110-343).
P.L. 110-343 provides certain tax breaks to victims of the severe storms, flooding and tornadoes that occurred in Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Missouri, Minnesota, Nebraska and Wisconsin (the Midwestern disaster area) where the government declared a disaster during the period beginning May 20, 2008, and ending July 31, 2008.

  The law changes are intended to help individuals who suffered losses as a result of the Midwestern disasters and make it easier for individuals and businesses to engage in charity to benefit those affected by the severe storms, flooding and tornadoes. Taxpayers located in the counties listed in Table 1 are generally eligible for all portions of the relief, while taxpayers located in the counties listed in Table 2 are eligible only for certain of the special tax provisions. The IRS will provide an explanation of the recently enacted legislation in Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas, which will be available in January 2009.

  Generally, for individuals affected by the Midwestern disasters, P.L. 110-343 eliminates the limitations on claiming casualty or theft losses of personal-use property and permits certain earned income tax credit and refundable child tax credit recipients to choose either tax year 2008 or 2007 to determine their earned income and use the more beneficial result. P.L. 110-343 also expands the Hope and Lifetime Learning educational credits to provide assistance to students enrolled and paying tuition at eligible educational institutions located in the Midwestern disaster area.

  In addition, the new law allows certain taxpayers who provided housing to individuals displaced by the Midwestern disasters to claim an additional $500 exemption, and provides tax-favored treatment for early distributions and loans from retirement accounts. P.L. 110-343 further allows affected individuals to exclude from income certain cancellations of debt and extends, from two years to five years, the replacement period for converted properties. Finally, the new law suspends the limits on certain charitable contributions, increases the standard mileage rate for charitable use of vehicles and excludes from gross income mileage reimbursements to charitable volunteers.

FS-2008-27,
2009FED ¶46,214

Other References:

 
Code Sec. 24

  CCH Reference - 2008FED ¶3770.35

 
Code Sec. 25A

  CCH Reference - 2008FED ¶3830.20

 
Code Sec. 32

  CCH Reference - 2008FED ¶4082.11

 
Code Sec. 108

  CCH Reference - 2008FED ¶7010.25

 
Code Sec. 151

  CCH Reference - 2008FED ¶8005.01

 
Code Sec. 165

  CCH Reference - 2008FED ¶10,005.041

  CCH Reference - 2008FED ¶10,101.023

 
Code Sec. 170

  CCH Reference - 2008FED ¶11,670.01

  CCH Reference - 2008FED ¶11,680.01

 
Code Sec. 408

  CCH Reference - 2008FED ¶18,922.0325

  Tax Research Consultant

  CCH Reference - TRC INDIV: 51,250
CCH Reference - TRC INDIV: 54,200
CCH Reference - TRC INDIV: 57,058
CCH Reference - TRC INDIV: 57,262
CCH Reference - TRC FILEIND: 6,050
CCH Reference - TRC RETIRE: 66,450

CCH (cch.taxgroup.com) reports:

  The IRS has issued procedures for eligible small employers to elect out of filing Form 944, Employers ANNUAL Federal Tax Return, but instead to continue to file Form 941, Employer's QUARTERLY Federal Tax Return. Guidance is also provided on how employers can contact the IRS to receive notification of their eligibility for Form 944. The guidance is effective as of January 1, 2009.

Form 944

  Generally, employers are required to file returns quarterly on Form 941 to report income and employment taxes withheld from employee wages. Certain exceptions to the reporting requirement exist for agricultural employers and for wages paid for domestic service. To alleviate the reporting burden on eligible small employers, the IRS issued rules in 2006 that permit eligible employers to file annual employment tax returns on Form 944, rather than quarterly returns. Revised temporary and proposed regulations relating to Form 944 were released by the IRS on December 29, 2008 (T.D. 9440;
NPRM REG-148568-04; TAXDAY, 2008/12/29, I.8). Under the regulations, an employer is eligible for file Form 944 beginning in 2009 if its estimated annual tax liability is $1,000 or less. Once notified, the employer is required to file Form 944 for the tax year. However, temporary regulations permit an employer to elect out of filing Form 944 after notification from the IRS and to continue to file Form 941 quarterly.

Election Out

  Effective for tax year 2009, an employer is eligible to opt out of filing Form 944 if it timely notifies the IRS that it either: (1) anticipates that its employment tax liability for the year will be more than $1,000; or (2) it wants to file electronically quarterly Form 941 for the year. An employer who satisfies one of these conditions must notify the IRS by either calling or writing the IRS before an applicable due date. In the case of an employer who filed a Form 941 or Form 944 for a tax year prior to 2009, a call to opt-out of filing Form 944 must be made on or before April 1, 2009. A written notification by such an employer must be postmarked on or before March 15, 2009.

  In the case of a new employer or an employer who was not previously required to file Form 941 or Form 944 prior to 2009, a telephone call to the IRS to elect out of filing Form 944 for the 2009 tax year must be made before the first day of the month that its first required Form 941 is due (i.e., April 1, July 1, October 1, 2009, or January 1, 2010). A written notification by a new employer must be postmarked on or before the 15th day of the month before its first required Form 941 would be due (i.e., March 15, June 15, September 15, or December 15, 2009).

Requests for Notification

  Beginning in 2009, the IRS will send notification of eligibility to file Form 944 only upon request by a qualified employer. The employer may request to receive the notification by calling the IRS at the telephone numbers identified in procedure. An employer who previously received notification of qualification to file Form 944 must continue to file Form 944 unless an election out is filed.

Rev. Proc. 2009-13, 2009FED ¶46,213

Other References:

 
Code Sec. 6011

  CCH Reference - 2008FED ¶35,141.51

 
Code Sec. 6302

  CCH Reference - 2008FED ¶38,070.115

  Tax Research Consultant

  CCH Reference - TRC PAYROLL: 3,352.05

  CCH Reference - TRC PAYROLL: 3,352.15

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Individual partners of a Missouri limited liability limited partnership that derives substantially all of its income through its ownership interest in a limited partnership will be allowed to claim the Missouri personal income tax credit for tax paid to another state for their proportionate shares of the Texas margin tax (TMT) and Michigan business tax (MBT) paid directly by the limited partnership.

  The Missouri Supreme Court has previously applied two tests, the "based on" test and the "object" test, to determine whether another state's tax is an income tax for which Missouri residents can take the credit for tax paid to another state. The "based on" test analyzes whether the tax was based on federal taxable income. The "object" test analyzes whether the object of the tax is that of an income tax, to compensate the state for benefits received, or that of a franchise tax, to pay for the privilege of doing business in the state.

CCH (cch.taxgroup.com) reports:

  Sixty-one members of Congress are displeased with the Treasury Department's recent decision not to provide relief from required minimum distributions from IRAs and similar arrangements for 2008 (TAXDAY, 2008/12/22, T.1). The bipartisan group of lawmakers asked President Bush to use his executive authority to suspend RMDs for 2008 and, moreover, to allow individuals to recontribute RMDs already taken for 2008.

Lower Account Balances

  Generally, RMDs are calculated by dividing the prior December 31 balance of the IRA or retirement plan account by a life expectancy factor provided by the IRS. RMDs for 2008 are based on account balances as of December 31, 2007, which were typically higher than today's account balances because of the steep decline in the stock market during 2008. Some individuals have near-worthless investments, Cindy Hockenberry, EA, tax analyst, National Association of Tax Professionals (NATP), told CCH.

  Several bills were introduced in Congress in recent weeks to suspend RMDs for 2008 and beyond. One proposal would have suspended RMDS for 2008, 2009 and 2010. Ultimately, Congress voted to suspend RMDs only for 2009 as part of the Worker, Retiree and Employer Recovery Act of 2008 (P.L. 110-458), which President Bush signed into law on December 23.

No Relief for 2008

  On December 17, a senior Treasury official revealed that the government would not suspend RMDs for 2008. "Because Congress has provided broad and direct relief [for 2009]...the Treasury and the IRS have determined that any further change to the RMD rules should not be undertaken," Kevin I. Fromer, Treasury assistant secretary for legislative affairs, told House Education and Labor Committee Chairman George Miller, D-Calif.

Executive Action

  "We respectfully request that you use your executive authority to direct the Secretary of the Treasury to use the flexibility provided by statute to immediately waive the (RMD) rules for the 2008 tax year," the lawmakers wrote to President Bush on December 19. According to the lawmakers, the Treasury Department and the IRS could act without legislation.

  "Furthermore, we ask that you use the same authority to allow retirees who have already withdrawn in 2008 to make recontributions to their accounts," the lawmakers wrote. Recontribution would help individuals who have already taken 2008 RMDs.

  By George L. Yaksick, Jr., CCH News Staff

Lawmakers' RMD Letter to President Bush
 

CCH (cch.taxgroup.com) reports:

  The IRS announced on December 24 that it has released the final versions of the 2008 Form 990, Return of Organization Exempt From Income Tax, Form 990-EZ, Short Form Return, schedules and instructions. The release is the culmination of a redesign project that began in June 2007, when the IRS first issued a draft of the redesigned form.

  The redesigned Form 990 must be filed in 2009 for the 2008 tax year. Form 990-EZ generally was not changed, although schedules from the Form 990 redesign must be used with the Form 990-EZ. Form 990 must be filed by May 15 for a calendar year taxpayer. An automatic three-month extension is available, and another three-month extension may be requested.

  Form 990 must be filed by all tax-exempt organizations that exceed the filing threshold for Form 990-EZ. For 2008, the thresholds for using Form 990-EZ are gross receipts under $1 million and total assets under $2.5 million. The IRS has reported that it receives 500,000 Form 990 and Form 990-EZ returns, and has identified approximately 1.3 million public charities and noncharitable exempt organizations.

  Form 990 had not been substantially redesigned in 30 years. The new form has an 11-page, 11-part core form that must be completed by all organizations, and 16 schedules to be filed by organizations satisfying the schedule's requirements. The revised instructions are 75 pages long.

  The IRS website (www.irs.gov) for charities and nonprofit organizations has copies of the forms and instructions plus online courses, interactive workshops, frequently asked questions and background papers describing the redesigned form. The revised instructions also explain the features of the new form and instructions.

By Brant Goldwyn, CCH News Staff

CCH (cch.taxgroup.com) reports:

  The IRS has issued temporary and proposed regulations relating to the federal employment tax return filing requirements under
Code Sec. 6011 and to the employment tax deposit requirements under Code Sec. 6302. These temporary regulations amend the current regulations issued under Code Secs. 6011 and 6302 and are part of the IRS's effort to reduce taxpayer burden by permitting certain employers to file one return annually to report their employment tax liabilities instead of four quarterly returns. The temporary regulations affect taxpayers that file Form 941, "Employer's QUARTERLY Federal Tax Return," Form 944, "Employer's ANNUAL Federal Tax Return," and any related Spanish-language returns or returns for U.S. possessions.

Form 944 Program

  The temporary regulations allow certain employers to file an annual employment tax return, Form 944, to report their social security, Medicare, and withheld Federal income taxes rather than the quarterly Form 941. For these employers, Form 944 will replace Form 941, reducing the number of returns they are required to file each year. Most participating employers can also pay their employment taxes annually with their Form 944, rather than making monthly or bi-weekly deposits. Generally, Form 944 is due January 31 of the year following the year for which the return is filed. If the employer timely deposits all accumulated employment taxes on or before this due date, the employer will have 10 extra calendar days to file Form 944 pursuant to Reg. §31.6071(a)-1.

  Caution: Although some agricultural and domestic employers may also file annual employment tax returns, Form 944 does not replace Form 943, Employer's Annual Tax Return for Agricultural Employees, or the Form 1040 Schedule H, Household Employment Taxes. However, if an employer files Form 944, the employer may choose to report wages with respect to household employees on Form 944, instead of reporting such wages on Schedule H (Form 1040).

  Eligibility for the Form 944 Program is generally limited to employers with an annual estimated employment tax liability of $1,000 or less. The IRS will notify employers it believes are eligible; however, the temporary regulations provide that the Form 944 program is voluntary. The IRS will issue guidance informing employers how they can contact the IRS to participate in the Form 944 Program and how they can elect out if they later decide that they want to file Forms 941 instead of Form 944. Because the program is being made voluntary, beginning in tax year 2010, employers will be able to opt out for any reason if they follow procedures to be provided in future guidance.

  The temporary regulations also clarify that, for most employers, the look back period for determining deposit frequency is the 12 month period ending on the preceding June 30. For employers in the Form 944 Program, however, the look back period is the second calendar year preceding the current calendar year. For instance, the look back period for 2009 is calendar year 2007.

Deposit Rule Safe Harbor

  These temporary regulations also incorporate the safe harbor for employers who file Forms 941 that was included in the 2006 proposed regulations. The safe harbor helps small employers who file Form 941 and have an unexpected increase in their deposit liability for a quarterly return period. The temporary regulations also provide an alternate method for determining whether the taxpayer's employment tax obligations are de minimis , which is based on the employment taxes due for the prior return period. This special rule does not apply to employers who file Form 944.

  Also employers may pay their employment taxes when they timely file their quarterly returns if the taxes due for the current quarter or for the prior quarter is less than $2,500. Modifying the de minimis deposit rule to allow employers to base the determination on the employment taxes due for the immediately preceding quarter provides a safe harbor for employers regarding their deposit obligations. However, these regulations have no application to the One-Day rule, which requires employers to make a deposit on the next banking day if they accumulate $100,000 or more of employment taxes on any day during a deposit period. Due to the programming changes necessary to implement this safe harbor, the safe harbor will be available for deposit periods beginning on or after January 1, 2010.

Comments Requested

  The text of the temporary regulations also serves as the text for the proposed regulations. The IRS requests comments on the substance of the proposed regulations. Written or electronic comments must be received by March 30, 2009. Submissions should be sent to: CCA:LPDR (REG-148568-04), Room 5203, IRS, P.O. Box 7604, Ben Franklin Station, Washington, DC, 20044. Submissions may also be hand-delivered Monday through Friday between the hours of 8:00 a.m. and 4:00 p.m. to: CCA:LPDR (REG-148568-04), Courier's Desk, IRS, 1111 Constitution Avenue NW., Washington, DC, or sent electronically via the Federal eRulemaking Portal at www.regulations.gov (referencing IRS-REG-148568-04).

T.D. 9440, 2009FED ¶47,009

Proposed Regulations, NPRM REG-148568-04, 2009FED ¶49,410

Other References:

 
Code Sec. 6011

  CCH Reference - 2008FED ¶35,130B

  CCH Reference - 2008FED ¶35,130BA

  CCH Reference - 2008FED ¶35,131

  CCH Reference - 2008FED ¶35,131C

 
Code Sec. 6302

  CCH Reference - 2008FED ¶38,055A

  CCH Reference - 2008FED ¶38,055AB

  CCH Reference - 2008FED ¶38,055B

  CCH Reference - 2008FED ¶38,055BB

  Tax Research Consultant

  CCH Reference - TRC PAYROLL: 3,352.05

  CCH Reference - TRC PAYROLL: 3,352.15

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Legislation has been enacted that amends New Jersey sales and use tax laws to conform with various changes to the Streamlined Sales and Use Tax (SST) Agreement.

CCH (cch.taxgroup.com) reports:

  A taxpayer was denied a Code Sec. 213 medical expense deduction for in vitro fertilization (IVF) expenses incurred in fathering two children. The taxpayer was a fertile man who used IVF for non-medical reasons. He had no physical or mental condition that prevented him from procreating without the use of IVF technologies. The expenses were not, therefore, incurred for the treatment of a medical condition or for the purpose of affecting any structure or function of the body. Under Code Sec. 262, they constituted non-deductible personal expenses.

W. Magdalin, TC Memo. 2008-293, Dec. 57,629(M)

Other References:

 
Code Sec. 213

  CCH Reference - 2008FED ¶12,543.42

 
Code Sec. 262

  CCH Reference - 2008FED ¶13,603.945

  Tax Research Consultant

  CCH Reference - TRC INDIV: 39,052
CCH Reference - TRC INDIV: 42,074.20
CCH Reference - TRC INDIV: 42,074.40
 

CCH (cch.taxgroup.com) reports:

  President Bush on December 23 signed the Worker Retiree and Employee Recovery Act of 2008 (HR 7327). The bill provides temporary relief to businesses from pension funding requirements under the Pension Protection Act of 2006 (P.L. 109-280). The Bush administration had raised concerns about delaying pension funding requirements on the premise that it would increase the cost of near-term claims on the Pension Benefit Guaranty Corporation, according to a White House spokesman. Despite concerns about the bill, White House Deputy Press Secretary Tony Fratto said the administration concluded that "the benefits of the legislation outweighed our objections," particularly given current economic conditions.

  The House and Senate on December 10 and December 11, respectively, approved the pension technical corrections bill by unanimous consent (TAXDAY, 2008/12/12, C.1). Passage of the measure came as House leadership dropped objectionable tax breaks advanced by Senate Democrats, forcing the Senate to approve a clean bill.

  Provisions in the bill change current law to provide tax relief for seniors age 70-1/2 or older who are required to take distributions from their retirement plans during the current market crisis. Another measure gives generally healthy multi-employer pension plans that were hurt by the decline in the stock market the ability to avoid drastic contribution increases and cutbacks in worker benefits.

  Additional provisions in the bill will allow single-employer pension plans to account for expected and unexpected earnings in addition to contributions and distributions when determining the value of the plan's assets. Those plans that fall below the set target funding percentage for a particular year will be required to fund up to the specified funding percentage for that year, instead of 100 percent. Other provisions in the bill were also included in the Pension Protection Technical Corrections Act of 2008 (HR 6382), originally passed by the Senate in December 2007, and the House in March and July of 2008.

  By Paula Cruickshank, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  As part of his job creation and economic development proposals for the upcoming 2009 legislative session, Colorado Gov. Bill Ritter, Jr. has proposed the creation of a new corporate and personal income tax credit program as an incentive for businesses to create jobs in Colorado. A company would be eligible for a tax credit of up to 50% of its annual FICA taxes on new employees under the Job Growth Incentive Program, if it applies to the Economic Development Commission and meets specific criteria.

  Subscribers to CCH Tax Research NetWork can view the governor's press release.

   
Press Release , Colorado Gov. Bill Ritter, Jr., December 18, 2008

CCH (cch.taxgroup.com) reports:

  The Tax Court has upheld the validity of Temporary Reg. §301.6221-1T(c) and (d), which provide that a partner may only assert a partner-level defense to a penalty, addition to tax or additional amount that relates to an adjustment to a partnership item at a partnership-level proceeding through a refund action following assessment and payment of the penalty. Accordingly, a limited partner was not allowed to raise a reasonable cause defense at partnership-level proceedings, even though the penalties imposed by the IRS were the result of the conduct of the limited partner.

  According to the Tax Court, when read in conjunction, Code Secs. 6221 and
6230(c)(1)(C) and (c)(4) make clear that Congress intended that a partner may only raise partner-level defenses in a refund action filed after the close of the partnership-level proceedings. The regulations, therefore, do not impermissibly strip the court of its jurisdiction. Rather, they implement the statutory jurisdictional scheme. Furthermore, the definition of partner-level defenses in Temporary Reg. §301.6221-1T(d) as those that are personal to the partner or are dependant upon the partner's separate return does not place an impermissible limit on the types of defenses that may be raised by a partner.

New Millennium Trading, L.L.C., Dec. 57,620

Other References:

 
Code Sec. 6221

  CCH Reference - 2008FED ¶37,569.12

  Tax Research Consultant

  CCH Reference - TRC PART: 60,060

CCH (cch.taxgroup.com) reports:

  The IRS's enforcement revenues declined by $2.8 billion in fiscal year (FY) 2008, statistics released on December 22 revealed. The IRS collected $56.4 billion from collection activities, audits and document matching, down almost 5 percent from FY 2007 revenue of $59.2 billion.

  Deputy Commissioner Linda Stiff attributed the drop to a number of factors. Enforcement personnel declined by 2.2 percent, to 20,722 agents and officers, because of retirements and a flat budget, she indicated. To administer the economic stimulus program, the IRS shifted enforcement personnel to taxpayer service to deliver 117 million checks and respond to a "crush" of phone calls. She noted that 2007 was a record year, because of closings of large corporate audits and heavy tax shelter activity, such as Son of BOSS settlements.

  According to Stiff, the IRS held steady on key service and enforcement results. Correspondence audits of individuals increased to 1.08 million and face-to-face audits remained at 310,000. Some other measures of enforcement activity declined; others stayed even or increased. Audits of individuals increased by 7,000 (one-half of 1 percent), based on the increase in correspondence audits, but audit coverage of individuals declined from 1.03 percent to 1.01 percent. Audits of individuals with income under $200,000 declined by 11,000, or 1 percent, but audits of individuals with income of $200,000 and higher increased over 15 percent.

  Business audits essentially held steady, but business filings increased by almost 460,000, primarily in the partnership and S corporation categories. Overall corporate audits increased slightly, to 30,000, and audit coverage of large corporations ($10 million or more in assets) was over 15 percent. However, audit coverage of partnerships and S corporations was less than one-half of 1 percent. Audits of tax-exempts increased by 4 percent, to almost 7,900, while filings increased to 890,000 returns.

  Stiff said there will be continued emphasis on high-income individuals and the largest corporations. Priorities for 2009 will also include international transactions and employment taxes. Audit coverage of smaller corporations (under $50 million in assets) is not likely to increase, she indicated.

  The IRS needs to be sensitive to taxpayers in distress situations and strike the right balance in the collection area, Stiff said. She noted that the IRS recently provided relief on lien discharges, to facilitate taxpayer housing sales, and has provided additional training to IRS employees on the exclusion of cancellation of debt income. The IRS increased lien filings 85,000, to 768,000, but levies of taxpayer property declined 30 percent, to 2.6 million. Seizures of taxpayer assets dropped 10 percent, from 676 to 610.

  In the taxpayer service area, the IRS statistics indicated that the electronic filing rate increased from 57 to 58 percent and web page visits to IRS.gov increased 65 percent, to 348 million. The level of accuracy for toll-free assistance remained at 91 percent, and customer satisfaction ratings held at 93 percent. However, the toll-free assistance level of service rating dropped to 53 percent.

  By Brant Goldwyn, CCH News Staff

CCH (cch.taxgroup.com) reports:

  The IRS is changing the lockbox payment addresses for individual taxpayers in five states and business taxpayers in 23 states. Individuals who live in Kentucky, Louisiana, Mississippi, Tennessee or Texas who sent payments to the Dallas lockbox facility should now send payments to the new Charlotte, N.C., lockbox addresses. Business taxpayers who sent payments to the Charlotte lockbox facility should now sent payments to the new Cincinnati, Ohio, lockbox addresses. This change affects business taxpayers in Connecticut, Delaware, Georgia, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, West Virginia and Wisconsin.

Changes to Lockbox Addresses Could Affect the Clients You Serve
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The sale of agricultural machinery capable of simultaneously harvesting grain and crops as well as biomass to a person engaged in a business enterprise is exempt from Michigan use tax. Machinery used to harvest biomass is also exempt. “Biomass” is crop residue used to produce energy or crops grown specifically for the production of energy.

Subscribers to CCH Tax Research NetWork can view the legislation.

Act 314 (H.B. 5877), Laws 2008, effective December 18, 2008
 
 

CCH (cch.taxgroup.com) reports:

  The IRS has published tables showing the amount of an individual's income that is exempt from a notice of levy used to collect delinquent tax in 2009. This information is the same as that found in Publication 1494, Table for Figuring Amount Exempt from Levy on Wages, Salary, and Other Income (Forms 668-W(c), 688-W(c)(DO) & 688-W(ICS)).

Notice 2008-114, 2009FED ¶46,207

Other References:

 
Code Sec. 6334

  CCH Reference - 2008FED ¶38,225.101

  Tax Research Consultant

  CCH Reference - TRC IRS: 51,060.05
CCH Reference - TRC IRS: 51,060.052

CCH (cch.taxgroup.com) reports:

  The IRS has issued proposed regulations under Code Sec. 6707 concerning the failure of material advisors to timely file a return or filing a return with false or incomplete information regarding reportable transactions under
Code Sec. 6111. The regulations are proposed to apply to a return the due date of which is after the date a final version of the regulations is published in the Federal Register.

Disclosure Requirement

  Under Code Sec. 6111, each material advisor is required to timely file an information return with respect to a reportable transaction (including a listed transaction). A material advisor is any person who provides any material aid, assistance, or advice with respect to the reportable transaction, as well as any individual who receives (directly or indirectly) a certain threshold of gross income from the transaction. The threshold is $50,000 in the case of a reportable transaction with substantially all tax benefits provided to a natural person ($10,000 in the case of a listed transaction). The threshold is increased to $250,000 in any other case ($25,000 in the case of a listed transaction).

  Form 8918, Material Advisor Disclosure Statement, is used by the material advisor to make the disclosure. Generally, the return must be filed by the last day of the month that follows the end of the calendar quarter in which the person became a material advisor. To be considered complete, the information disclosed must meet the requirements of Reg. §301.6111-3. A penalty is imposed under Code Sec. 6707 on any material advisor who fails to timely file the return or files a false of incomplete return under Code Sec. 6111. The penalty with respect to any reportable transaction other than a listed transaction is $50,000. For a listed transaction, the penalty is the greater of $200,000 or 50 percent of the gross income derived by the material advisor with respect to the transaction before the return is filed. In the case of a failure or action with respect to a listed transaction that is intentional, the penalty is the greater of $200,000 or 75 percent of the gross income derived by the material advisor with respect to the transaction before the return is filed.

Liability for Penalty

  Under the newly issued proposed regulations, the penalty may be assessed against each material advisor required to file Form 8918. Thus, if more than one material advisor is responsible for filing a return with respect to the same reportable transaction, a separate penalty may be assessed under Code Sec. 6707 against each material advisor who fails to file the return timely or files the return with false or incomplete information. In addition, if a group of material advisors enter into an agreement designating one material advisor to file the required return on behalf of all parties to the agreement, then the penalty may still be imposed on each party to the agreement if the designated material advisor fails to timely file the return or files the return with false or incomplete information.

Intentional Failures

  In the case of listed transactions, material advisors are considered to have acted intentionally, subjecting them to an increased penalty, if they knew of the obligation to file a return under Code Sec. 6111, and knowingly did not timely file a return with the IRS or filed a return knowing that it was false or incomplete. Thus, in the case of a material advisor under designation agreement, a nondesignated material advisor of the agreement will not be considered to have intentionally failed to meet the requirements of
Code Sec. 6111 unless the nondesignated material advisor knew or should have known that the designated material advisor would fail to timely file a true and complete return.

  Moreover, to encourage material advisors to correct material defects, the proposed regulations provide that any failure to file a timely return or filing a return with false or incomplete information will be considered unintentional if the material advisor remedies the failure by filing a true and complete return with the IRS prior to the earlier of the date that: (1) any taxpayer files Form 8886 identifying the material advisor with respect to the reportable transaction in question; or (2) the IRS contacts the material advisor concerning the reportable transaction.

False or Incomplete Information

  A return is considered to contain false information if any information on the return is untrue or incorrect when Form 8918 is filed. Information will not be considered false if it contains untrue or incorrect information by mistake or accident after the exercise of reasonable care by the material advisor or the information is immaterial. Incomplete information on a return means that the return does not provide the information required under Reg. §301.6111-3. A return will not be considered incomplete when the required information not provided is immaterial or was not provided due to mistake or accident after the exercise of reasonable care.

  In addition, material advisors who complete Form 8918 to the best of their ability and knowledge after the exercise of reasonable efforts to obtain the information will not be considered to have filed an incomplete return. However, in the case of a listed transaction, a Form 8918 will be considered intentionally incomplete and subject to an increased penalty if information required to be provided under Reg. §301.6111-3 is omitted and the form contains a statement that the omitted information will be provided upon request.

Rescission of Penalty

  Finally, the proposed regulations restate the procedures described in Rev. Proc. 2007-21, I.R.B. 2007-9, 613, for a material advisor to request a rescission of all or a portion of a penalty assessed under Code Sec. 6707 including: the deadline by which a person must request rescission; the information the person must provide in the rescission request; the factors that weigh in favor of and against granting rescission; where the person must submit the rescission request; and the rules governing requests for additional information from the person requesting rescission.

  The regulations note that the factors that weigh in favor of or against rescission do not represent an exclusive list, and no single factor will be determinative. Rather, all factors will be considered whether included in the list or not. However, the IRS will not take into consideration doubt as to liability for, or collectibility of, the penalty. In addition, the extent to which the penalty assessed is disproportionately larger than the tax benefit received will not be considered. The gross income threshold to be considered a material advisor ensures that any penalty imposed will not be disproportionate to the benefit received.

Comments

  Written or electronic comments and requests for a public hearing regarding the proposed regulations must be received by March 23, 2009.

Proposed Regulations, NPRM REG-160872-04, 2009FED ¶49,409

Other References:

 
Code Sec. 6707

  CCH Reference - 2008FED ¶40,086E

  Tax Research Consultant

  CCH Reference - TRC PENALTY: 3,252
CCH Reference - TRC PENALTY: 3,254
 

CCH (cch.taxgroup.com) reports:

  Under proposed regulations issued by the IRS, for purposes of determining whether a conduit financing arrangement exists, the term "person" includes a business entity that is disregarded as an entity separate from its single-member owner. In general, the IRS is allowed to disregard the participation of one or more intermediate entities in a financing arrangement where an entity is acting as a conduit entity and recharacterize the financing arrangement as a transaction directly between the remaining parties to the financing arrangement for purposes of imposing tax under Code Secs. 871, 881, 1441 and 1442.

  Questions have arisen regarding the proper treatment of a disregarded entity, an entity that is not classified as a corporation, that has a single owner and that has elected to be disregarded as an entity separate from its owner, The proposed regulations would make it clear that transactions into which a disregarded entity enters will be taken into account for purposes of determining whether a financing arrangement exists.

Proposed Regulations, NPRM REG-113462-08, 2009FED ¶49,408

Other References:

 
Code Sec. 881

  CCH Reference - 2008FED ¶27,485C

  Tax Research Consultant

  CCH Reference - TRC SALES: 3,166
CCH Reference - TRC EXPAT: 15,112
CCH Reference -
TRC INTL: 3,120

CCH (cch.taxgroup.com) reports:

  The Treasury Department and the IRS will not suspend 2008 required minimum distributions (RMDs) from IRAs, Code Sec. 401(k) plans and similar arrangements, according to a December 17 letter from a senior Treasury official to Congress obtained by CCH. "Individuals who are subject to RMDs for 2008 should take their distribution under existing rules," Kevin I. Fromer, Treasury assistant secretary for legislative affairs, told House Education and Labor Committee Chairman George Miller, D-Calif.

  CCH Comment. At least certain members of Congress did not press for suspension of 2008 RMDs in the Worker, Retiree, and Employer Recovery Act of 2008 (P.L. 110-343) under the assumption that the Treasury and IRS would take care of 2008 RMDs administratively. The Act suspends RMDs for 2009 only. Now, the Treasury and IRS, after considering the matter, have decided that they must pass on giving any 2008 relief. Whether Congress can provide relief retroactively in the stimulus bill slated for January remains questionable. Likely, this will remain a developing story that will not end with the Treasury letter. CCH asked the Treasury to elaborate on the letter but did not receive a response by press time.

Distributions

  Individuals must receive the entire balance of their IRA or similar arrangement or start receiving periodic distributions from it by April 1 of the year following the year in which they reach age 70-1/2. Individuals who turned 70-1/2 in 2008 have until April 1, 2009 to take their 2008 distribution. However, individuals who reached age 70-1/2 before 2008 must take their distributions by December 31, 2008. Individuals who fail to take a RMD risk a 50-percent excise tax.

  "2008 RMDs are based on plan balances from December 31, 2007, and the stock market has seen major declines in October and November of 2008," B. Janell Grenier, Law Office of B. Janell Grenier, West Chester, Pa., told CCH. "This may require seniors (if they have not already done so) to liquidate their assets in order to make the RMDs and take losses whereas holding on to those assets might bring recovery."

Administrative Relief

  After Congress suspended RMDs for 2009, many practitioners and taxpayers expected the Treasury and the IRS to provide some type of relief for 2008 RMDs. Administrative relief would not necessarily have to be suspension of RMDs for 2008, Edgar Adkins, partner, Grant Thornton, LLP, Washington, D.C., told CCH. "The Treasury and the IRS could have allowed taxpayers to use a date closer to today (rather than December 31, 2007) on which to calculate their distributions." This would result in a smaller RMD for many individuals.

Not for 2008

  Now, it appears that no relief of any kind for 2008 RMDs is forthcoming from the Treasury and the IRS. "Because Congress has provided broad and direct relief [for 2009]...the Treasury and the IRS have determined that any further change to the RMD rules should not be undertaken," Fromer wrote. He explained that any steps the Treasury could take would be substantially more limited than the relief enacted by Congress and could not be made available uniformly to all individuals subject to RMDs. "Such changes would be complicated and confusing for individuals and plan sponsors."

  "We are disappointed that the Treasury declined to act to help those seniors forced to take withdrawals from their depleted retirement accounts," Aaron Albright, a spokesperson for the House Education and Labor Committee, told CCH. "Congress acted to provide relief for seniors in 2009 with the understanding that the Treasury was actively working on a solution for this tax year."

Looking Ahead

  "Some people have asked whether the fact that RMDs are not required for 2009 will mean that people will have to make two RMDs for 2010," Grenier told CCH. "While regulations will likely be issued by IRS, it appears that the general consensus is that the RMD will be skipped for 2009 and that only one RMD will be required for 2010. However, because no RMD will be taken for 2009, the year-end balance will likely be higher (unless the individual has incurred losses), meaning that later RMD amounts will be greater in amount."

  By George G. Jones and George L. Yaksick, Jr., CCH News Staff

Treasury RMD Letter
 

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  For Massachusetts corporate excise tax purposes, pass-through entities subject to pass-through entity withholding are not required to withhold on members who submit certification, on a form approved by the Commissioner of Revenue, that the member is exempt from withholding. The new date by which members must file their Forms PTE-EX with the pass-through entity is the later of the last day of the fourth month of the entity's taxable year, or within 30 days of the member joining the entity. The due date for this exemption certificate, Form PTE-EX, previously was set as the last day of the first month of the entity's taxable year, or within 30 days of the member joining the entity. This requirement has been changed to allow more time for pass-through entities to comply. Additionally, the Commissioner no longer will require that a new Form PTE-EX be filed annually. Taxpayers who already have signed Form PTE-EX, but who wish to use the Form PTE-EX certification for future years should sign the revised Form PTE-EX. The previous version of Form PTE-EX is valid for the tax year beginning on or after January 1, 2009, but must be renewed, using the revised version, for the next tax year.

Rulings and Regulations , Massachusetts Department of Revenue, December 17, 2008

CCH (cch.taxgroup.com) reports:

  Gov. John Baldacci released his supplemental budget, which includes technical tax changes involving Maine personal income taxes and property taxes. Under the plan, individuals who experience "unusual events," such as a capital gain of $500,000 or more, would be required to make an estimated tax payment in the quarter after the event. In addition, the supplemental budget would eliminate the planned reduction of the telecommunications personal property tax, which was scheduled to drop from 22 mills to 21 mills in 2009 (the rate would still fall to 20 mills in 2010 as currently scheduled). The governor will present the 2010-2011 biennial budget to the state Legislature on January 9, 2009.

Press Release , Maine Governor John Baldacci, December 16, 2008
 

CCH (cch.taxgroup.com) reports:

  The IRS has provided tables of covered compensation under Code Sec. 401(l)(5)(E) for the 2009 plan year. Covered compensation with respect to an employee is defined as the average of the contribution and benefit bases in effect under section 230 of the Social Security Act for each year in the 35-year period ending with the year in which the employee attains social security retirement age. The covered compensation amounts from the tables are used in determining contributions to defined benefit plans and permitted disparities under plans that are integrated with Social Security. For purposes of determining covered compensation for the 2009 plan year, the taxable wage base is $106,800.

Rev. Rul. 2009-2, 2009FED ¶46,206

Other References:

 
Code Sec. 401

  CCH Reference - 2008FED ¶18,119.10

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 24,208

CCH (cch.taxgroup.com) reports:

  Various prescribed rates for federal income tax purposes for January 2009 have been provided by the IRS. The annual short-term, mid-term, and long-term applicable federal interest rates (AFRs) are 0.81 percent, 2.06 percent and 3.57 percent, respectively. The semiannual short-term, mid-term, and long-term AFRs are 0.81 percent, 2.05 percent and 3.54 percent, respectively. Quarterly short-term, mid-term and long-term AFRs are 0.81 percent, 2.04 percent and 3.52 percent, respectively. Finally, the monthly short-term, mid-term and long-term rates are 0.81 percent, 2.04 percent and 3.51 percent, respectively.

  The short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for January 2009 for purposes of Code Sec. 1288(b) are 1.81 percent, 3.45 percent, and 5.49 percent, respectively, when annual compounding is used.

  Additionally, the Code Sec. 382 adjusted federal long-term rate is 5.49 percent, as is the long-term tax-exempt rate. The Code Sec. 42(b)(2) appropriate percentage for the 70-percent present-value, low-income housing credit is 7.65 percent, and the appropriate percentage for the 30-percent present-value, low-income housing credit is 3.28 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 2.40 percent. Finally, the deemed rate of return for transfers during 2009 to pooled income funds that have been in existence for less than three taxable years is 4.8 percent.

Rev. Rul. 2009-1, 2009FED ¶46,205

Rev. Rul. 2009-1, FINH ¶30,609

Other References:

 
Code Sec. 42

  CCH Reference - 2008FED ¶173.02

  CCH Reference - 2008FED ¶176.01

  CCH Reference - 2008FED ¶4305.03

 
Code Sec. 382

  CCH Reference - 2008FED ¶17,115.28

 
Code Sec. 642

  CCH Reference - 2008FED ¶24,308.1885

  CCH Reference - FINH ¶16,801.11

 
Code Sec. 1274

  CCH Reference - 2008FED ¶31,310.05

 
Code Sec. 7520

  CCH Reference - 2008FED ¶42,785.40

  CCH Reference - FINH ¶22,630.05

 
Code Sec. 7872

  CCH Reference - FINH ¶18,950.05

  Tax Research Consultant

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 36,162.05

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The North Carolina Superior Court has dismissed an action that challenged the constitutionality of a sales and use tax exemption for eligible Internet data centers as well as the initial approval of a grant equal to 75% of the state personal income tax withholding derived from the creation of new jobs. The suit, filed by the North Carolina Institute for Constitutional Law (NCICL), challenged: (1) legislation enacted in 2006 that grants a sales and use tax exemption for sales of electricity used at an eligible Internet data center and eligible business property to be located and used at such a center; and (2) a Job Development Investment Grant (JDIG) initially approved for Google but never finalized, to facilitate the construction of a data center to support Google's online operations and create jobs. The suit claimed that these actions violated the state constitution in that the tax benefits and other economic incentives or subsidies accrued to Google's private financial benefit and that Google was provided these benefits merely for operating its own private business and not in exchange for any public service. The plaintiffs, who sued in their individual capacities as North Carolina residents and taxpayers, alleged that the legislation was enacted solely to encourage Google to construct an Internet data facility in Lenoir, in Caldwell County, North Carolina.

CCH (cch.taxgroup.com) reports:

  A remote seller has asked the U.S. Supreme Court whether New Mexico may impose its gross receipts tax on the seller's sales into the state based solely on the activities of a third-party contractor that provides post-sale services to New Mexico buyers. The seller has told the Court that an answer is needed to resolve a split of state court authority over the scope of Tyler Pipe, 483 U.S. 232 (1987) and Scripto, Inc., 362 U.S. 207 (1960).

  The Texas-based seller is an Internet- and mail-order retailer of computers. It offered service contracts to buyers for on-site repair of its computers in New Mexico by a third-party contractor. The New Mexico Taxation and Revenue Department audited the seller and imposed an assessment for gross receipts tax on sales of its computers to New Mexico residents. The seller challenged the assessment on the basis that it does not have a physical presence in New Mexico and, therefore, lacked the requisite substantial nexus with the state that would impose a collection obligation consistent with Commerce Clause requirements.

  The New Mexico Court of Appeals held that the third-party contractor's activities helped the seller establish and maintain a market in New Mexico. Therefore, the seller, through its relationship with the contractor and the contractor's activities in New Mexico, had a substantial nexus with the state and, consequently, the Department's imposition of gross receipts tax did not violate the Commerce Clause. (TAXDAY, 2008/06/09, S.12) The seller argued unsuccessfully that, under Tyler Pipe and Scripto, a third party must be engaged in sales-related activities in order to establish substantial nexus for a seller. The contractor in this case was not engaged in sales solicitations. However, the Court of Appeals held that the fact that the U.S. Supreme Court has not yet addressed the question of whether a third party's non-sales activities in the taxing state can create nexus does not mean that the high court has held that such activities cannot provide such nexus. The New Mexico Supreme Court denied review.

  Subscribers to CCH Tax Research NetWork can view the petition.
 
 
Dell Marketing L.P. v. New Mexico Taxation and Revenue Department, U.S. Supreme Court, Dkt. 08-770, petition for certiorari filed December 15, 2008
 

CCH (cch.taxgroup.com) reports:

  A tax aide to a Republican member of the Senate Finance Committee (SFC) predicted that the new Congress will act quickly in January 2009 to pass stimulus legislation and have it ready for President Barack Obama to sign when he takes office. The SFC could see a markup scheduled for as early as January 8, even before the committee finishes organizing itself, although it would be unusual to have legislation ready for the new president to sign. The aide spoke to practitioners on December 17 at a BNA Tax Management Luncheon held at Buchanan, Ingersoll & Rooney in Washington, D.C.

  With the new president not yet in office, there is a void in leadership, the aide said. SFC Chairman Max Baucus, D-Mont., aims for the committee to have a role in stimulus legislation and wants a tax element in it. House Speaker Nancy Pelosi, D-Calif., has predicted a stimulus package of $600 billion, including $200 million in tax provisions. Both Republicans and Democrats support tax aid to the states, infrastructure help and food stamp increases.

  The aide believes that a second round of stimulus checks is unlikely. There are proposals for a payroll tax holiday, but that might not help people looking for work. The Republicans would prefer that bonus depreciation be extended.

  Sen. Orrin Hatch, R-Utah, is supporting expanded net operating loss (NOL) relief, such as an increase in the carryback period from two years to at least four years. Some may propose a 10- to 15-year carryback period, to move the proposal. An increased carryback period would help companies that have already maximized their carrybacks and cannot benefit from carryforwards since they are operating at a loss. Similarly, tax credits for wind and other renewable energy development do not help companies with losses. One company has called for a refundable credit, the aide noted.

  Hatch supports a permanent research credit, which he believes would have a stimulus effect. There is no discussion of a capital loss carryback for individuals, but there is some support for increasing the current $3,000 limit on deductible losses.

  Because a stimulus bill probably will not be governed by pay-as-you-go (PAYGO) requirements for offsets, Senate members may want to expand the bill's scope to include middle-class tax cuts or estate tax relief, for example. Unlike the Senate, the aide pointed out, the House may be more deferential to the new president, since it is generally governed by majority rule, without requiring the support of 60 members.

Subsequent Measures

  As soon as the economy starts to improve, Congress will shift its focus to reining in deficits, the aide predicted. The congressional Blue Dogs want a statutory requirement for PAYGO, rather than just an in-house rule. The aide expects Congress to impose some discipline on tax bills, but Republicans and Democrats may debate whether spending cuts or raising taxes is the appropriate solution. At some point, Congress will be looking for more revenue, which could come from tax increases, changes to the carried interest rules or codification of the economic substance doctrine.

  Both sides support estate tax reform, although they may differ on the exemption level and the rates. The aide believes that Congress will want to address the estate tax in 2009, and he expects action to be taken.

  Obama supports both tax cuts and increases. His chief of staff, Rahm Emanuel, initially said that the new administration does not want to wait but, since then, Obama has backed off on imposing new increases while economic stimulus is a concern. It is an open question whether Congress will take action on the 2001 tax cuts that are set to expire at the end of 2010.

  Congress is ready to talk about health care reform, the aide stated. Both Baucus and Sen. Edward M. Kennedy, D-Mass., are very interested. Reform could include changes to the health insurance exclusion. One proposal for a cap would raise $350 billion over 10 years. This is viewed as a health care issue, not as tax reform. Republicans will insist that any savings be plowed back into health reform, rather than used to support other spending measures, the aide said.

  It is not clear that Congress is ready to move on broader tax reform, the aide indicated, even with reform proposals from the House Ways and Means Committee. The president must take the lead, but Obama has not said much on this subject. More education is also needed. There has been no talk of 1986-type reform, involving a broadening of the tax base.

  By Brant Goldwyn, CCH News Staff

CCH (cch.taxgroup.com) reports:

  A private, nonprofit Catholic school was denied a refund of penalties for failure to file federal employment tax returns, to make required tax deposits and to pay its federal employment taxes. The school failed to show that its failures were due to reasonable cause and not willful neglect.

  The school exercised ordinary business care and prudence by providing for its tax obligations to be discharged by an employee. However, it failed to show that it was unable to pay its taxes (due to lack of funds or disability) or that it would have suffered undue hardship if the taxes had been paid on the dates due. The individual responsible for filing returns and paying taxes was not the school's CEO or CFO, but was an employee subject to the authority of others who failed to adequately supervise her. Although the school was in financial trouble, it failed to contradict evidence that it had access to accounts with sufficient funds available during all the relevant periods to pay the taxes.

St. Paul Cathedral School, DC Wash., 2009-1 USTC ¶50,109

Other References:

 
Code Sec. 6651

  CCH Reference - 2008FED ¶39,475.455

  CCH Reference - 2008FED ¶39,475.57

 
Code Sec. 6656

  CCH Reference - 2008FED ¶39,585.27

  CCH Reference - 2008FED ¶39,585.62

  Tax Research Consultant

  CCH Reference - TRC PENALTY: 3,062
CCH Reference - TRC PENALTY: 3,304
 

CCH (cch.taxgroup.com) reports:

  The Tax Court upheld deficiency determinations against two brothers whose capital contributions to two S corporations did not increase or restore their tax bases in loans they had made to the S corporations. The capital contributions, instead, increased their tax bases in their stock in the S corporations, resulting in additional ordinary income to the brothers when they received loan repayments from the S corporations.

  The brothers had attempted to allocate the capital contributions such that they increased their tax bases in the loans in order to use the increased tax bases in the loans to offset ordinary income. However,
Reg. §1.118-1 specifically provides that capital contributions do not constitute income to an S corporation under Code Sec. 1366(a)(1) and, therefore, such contributions to capital may not be treated as items of income used in calculating any "net increase" (as defined in
Code Sec. 1367(b)(2)() to increase or restore a shareholder's tax basis in loans to an S corporation.

  The brothers also argued that the capital contributions were made to obtain a release of personal guarantees on bank loans and, as such, the contribution amounts should be deductible as ordinary losses under Code Sec. 165(c). The argument failed because the shareholders had not guaranteed the loans for the purpose of making a profit, nor was the release of the guarantees the sole purpose for which the capital contributions were made.

I. Nathel, 131 TC No. 17, Dec. 57,617

Other References:

 
Code Sec. 1366

  CCH Reference - 2008FED ¶32,084.22

  CCH Reference - 2008FED ¶32,084.325

 
Code Sec. 1367

  CCH Reference - 2008FED ¶32,101.25

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 48,108
CCH Reference - TRC SCORP: 402.05
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Illinois corporate and personal income tax legislation amends the Film Production Services Tax Credit Act of 2008. Specifically, the legislation repeals a section that provides that the law will sunset on January 1, 2009. Additionally, the bill amends the definition of "credit" to provide that, for an accredited production commencing on or after January 1, 2009, the amount of the credit is (i) 30% (instead of 20% for the previous years) of the Illinois production spending for the taxable year, plus (ii) 15% of the Illinois labor expenditures generated by the employment of residents from geographic areas of high poverty or high unemployment. The bill also places conditions on any rulemaking authority so that any rule must be adopted in accordance with standard procedure.

P.A. 95-1006 (S.B. 1981), Laws 2008, effective December 15, 2008
 

CCH (cch.taxgroup.com) reports:

  A married couple could not deduct as charitable contributions tuition and fees they paid to Orthodox Jewish day schools. The Tax Court correctly concluded that the couple failed to show that any part of the amount paid was subject to a dual payment analysis, because the couple did not have a charitable intent in paying their children's tuition and because they received a substantial benefit --education for their children --in exchange for the payments. Amendments to Code Secs. 170(f)(8) and
6115 in 1993 did not change the established rule that tuition paid to religious schools for religious education is not deductible as a charitable contribution. The exception to the charitable substantiation and disclosure requirements found in those provisions only applies where an organization is established exclusively for religious purposes.

  Moreover, the couple never intended to make a gift of the tuition payments. Instead, they paid tuition because the schools inculcated their children with their religion's lifestyle, heritage and values. They also failed to present evidence that their tuition payments exceeded the cost of a comparable secular education offered by other private schools. Therefore, the payments were a quid pro quo transaction even if part of the benefit received was religious in nature.

  Further, the Tax Court did not abuse its discretion in denying discovery regarding a closing agreement executed between the IRS and the Church of Scientology that purportedly allowed deductions for certain qualified religious services. The couple was not similarly situated to those who benefited from the Scientology closing agreement because tuition payments to schools that provide secular and religious education as part of one curriculum are quite different from payments to organizations that provide exclusively religious services. Moreover, even if similarly situated, an unlawful policy set forth in a closing agreement could not be extended to all religious organizations.

  Affirming the Tax Court, 125 TC 281, Dec. 56,225. Related case CA-9, 2002-1 USTC ¶50,210.

M. Sklar, CA-9, 2009-1 USTC ¶50,106

Other References:

 
Code Sec. 170

  CCH Reference - 2008FED ¶11,620.518

 
Code Sec. 6115

  CCH Reference - 2008FED ¶37,068.20

 
Code Sec. 6662

  CCH Reference - 2008FED ¶39,652.38

  CCH Reference - 2008FED ¶39,652.49

  Tax Research Consultant

  CCH Reference - TRC INDIV: 51,054
CCH Reference - TRC EXEMPT: 12,306
 

CCH (cch.taxgroup.com) reports:

  An Appeals officer did not abuse his discretion in cancelling an offer-in-compromise (OIC) agreement, reinstating a taxpayer's original tax bill and sustaining a levy, based on the taxpayer's breach of the OIC. As a condition for the OIC, the taxpayer agreed to file his tax returns and pay tax due for five years. However, the taxpayer failed to timely file returns for two years and pay tax for one of those years. Because the returns were never received by the IRS and there was no record of either a postmark, or certified or registered-mail receipt, the taxpayer could not rely on the presumption of delivery. Even assuming the Appeals officer had found the returns were timely filed, the IRS's evidence of nonreceipt was overwhelming. By not timely filing the returns and paying tax, the taxpayer was not in compliance with the express terms of the OIC. As a contract, the OIC was governed by general principles of federal common law.

  Clarifying its decision in J.M. Robinette , 123 TC 85, Dec. 55,698, the Tax Court stated that a national legal standard for construing OIC agreements was supported by three factors: federal government agency as litigant, contracts entered into under federal law and the need for nationwide uniformity in administration. Under general principles of the federal common law of contracts the taxpayer's obligation to file and pay taxes was an express condition of the contract that required strict compliance. The IRS used plain language to explain the terms and conditions of the OIC and the risk of forfeiture did not weigh against finding that the obligation to file and pay was an express condition of the OIC. Even without relying on principles of contract law, other federal courts have upheld the IRS's right to cancel an OIC when the taxpayer is in default because of the express language in the agreement. Finally, the IRS provided the taxpayer with several opportunities to become compliant and the only consideration for forgiveness of 95 percent of his tax debt was to timely file and pay his taxes for five years. Thus, the Appeal's officer's decision not to excuse the breach and reinstate the OIC was not an abuse of discretion.

D.W. Trout, 131 TC No. 16, Dec. 57,615

Other References:

 
Code Sec. 6330

  CCH Reference - 2008FED ¶38,184.62

 
Code Sec. 7122

  CCH Reference - 2008FED ¶41,130.20

 
Code Sec. 7502

  CCH Reference - 2008FED ¶45,625.10

  Tax Research Consultant

  CCH Reference - TRC IRS: 30,058

  CCH Reference - TRC IRS: 42,152

  CCH Reference - TRC IRS: 51,056.25

CCH (cch.taxgroup.com) reports:

  Citing "difficult times for the U.S. economy," IRS Commissioner Douglas H. Shulman has announced his commitment of IRS resources to an expedited process under which distressed homeowners can have federal tax liens subordinated or discharged. Although procedures already have been in place for lien subordination (in case of a refinancing) and discharge (in case of a sale) well before the current economic turmoil, the Commissioner's message to the media at IRS headquarters in Washington on December 16 covered three apparent changes:

  --An effort will be made to make more homeowners aware of this relief and facilitate applications;

  --The IRS will be shifting funds, personnel and other resources into expediting the process, thereby shortening the time it takes to obtain lien discharges and subordinations; and

  --By inference, the IRS will likely be more inclined to grant relief due to the current nationwide economic threat caused by foreclosures.

  "We don't want the IRS to be a barrier to people saving or selling their homes," Shulman stated, aware that a federal tax lien often blocks refinancing of mortgages or the sale of a home. To that end, Shulman promised that the IRS will work to speed requests for discharge or subordination of a tax lien so that liens would be lifted faster than the approximately 30 days it now takes after an application has been received.

  The IRS will consider the subordination of a tax lien to a secondary position when the mortgage lender is offering refinancing or a workout. The Service will also consider issuing a certificate of discharge of the lien to enable the short sale or other sale of a residence where proceeds would not cover both the mortgage and the lien.

  Procedures already in place cover the application process. The application process for a certificate of lien subordination may be found in IRS Publication 784, How to Prepare Application for Certificate of Subordination of Federal Tax Lien. Directions for applying for a tax lien discharge are contained in IRS Publication 783, Instructions on how to apply for Certificate of Discharge of Property from Federal Tax Lien. IR-2008-141, which accompanied Shulman's announcement, stressed that "taxpayers' representatives" also may apply for the subordination or discharge and that in the case of a subordination, the taxpayer's lender may assist in the application.

  Shulman concluded, but without elaboration, that the IRS's expedited lien process represents the first in a number of steps that the IRS will be taking over the next several months to assist taxpayers. He particularly stressed that the agency wants to make certain that taxpayers with a long history of compliance don't become noncompliant because of "these extraordinary times." He added that the IRS's mission of service to these taxpayers will be considered as much as its mission of enforcement.

  By George Jones, CCH News Staff

IR-2008-141,
2009FED ¶46,204

Other References:

 
Code Sec. 6323

  CCH Reference - 2008FED ¶38,160.825

 
Code Sec. 7425

  CCH Reference - 2008FED ¶41,708.26

  Tax Research Consultant

  CCH Reference - TRC IRS: 48,166
CCH Reference -
TRC IRS: 51,308
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  An Illinois corporate income tax ruling discusses the taxability of a company that will provide gaming lessons through the Internet. In addition to a "starter kit," which would be downloaded from the Internet, the company would offer different levels of training that a customer could purchase, with the highest level allowing a customer to receive payment for referring other people to the site. The Department of Revenue refused to issue a ruling regarding nexus with the state and instead determined the tax liability imposed on nonresidents under state law.

  For taxable years ending before December 31, 2008, annual fees from poker training were not assigned to Illinois in computing the sales factor. Nothing in the letter request identified any income producing activity of the taxpayer that was performed in Illinois.

  With respect to gross receipts from sales of the taxpayer's "starter kits," sales factor treatment depends on whether a "starter kit" is tangible personal property. Assuming that a starter kit is canned computer software, gross receipts from sales would be considered sales of tangible personal property and therefore allocable to Illinois if downloaded by a purchaser in Illinois. If, however, a starter kit is not canned computer software, gross receipts from sales would not be assigned to Illinois.

  For taxable years ending on and after December 31, 2008, annual fees from poker training must be assigned to Illinois in computing the sales factor if the training is received in the state. Assuming the training is provided to individuals, the training is considered to be received in the individual's state of residence. Unless the taxpayer has actual knowledge that the residence of an individual is different from the billing address of the individual at the time of the sale, the individual is deemed to be a resident of the state in which the billing address is located.

  With respect to gross receipts from sales of "starter kits," the analysis again depends on whether the kits are canned computer software and therefore treated as tangible personal property. Gross receipts from sales of "starter kits" are assigned to Illinois to the extent that sales are made to Illinois residents. Again, unless the taxpayer has actual knowledge of the residence of a customer during the taxable year, the customer is deemed a resident of Illinois if the customer's billing address is in Illinois.

General Information Letter IT 08-0031-GIL , Illinois Department of Revenue, October 8, 2008, released December 12, 2008, ¶401-931

  Other References:

  Explanations at ¶10-075.

CCH (cch.taxgroup.com) reports:

  Distributions from the disposable military retirement pay of an individual's former spouse pursuant to a qualified domestic relations order (QDRO) were includible in the taxpayer's taxable income. There was no proof that the taxpayer's disbursement was in any way subject to double taxation or that income taxes were withheld from her share of the retirement pay prior to its disbursement.

  Although the taxpayer's interest in the retirement pay was calculated based on the retirement pay less income tax withheld, the QDRO specifically provided that taxes could only be withheld from the former spouse's pay, not from the taxpayer's share of the pay. Moreover, the QDRO did not state that the taxpayer's share of the retirement pay was not taxable or that it was subject to tax prior to distribution.

  A concurring opinion addressed an issue of first impression that the majority opinion sidestepped --namely, whether Tax Court Summary decisions have collateral estoppel effect. The concurring opinion concluded that the fact that a summary decision is not subject to appeal should not preclude the decision in that case from collaterally estopping the relitigation of the same issue by the same parties. Here, the issue before the court in this case had been decided against the taxpayer for a prior tax year in a Tax Court Summary decision (Mitchell, T.C. Summary Opinion 2004-160). The majority opinion declined to consider the collateral estoppel argument because the case had already been tried and presented a legal issue on the basis of largely undisputed facts.

L.G. Mitchell, 131 TC No. 15, Dec. 57,611

Other References:

 
Code Sec. 61

  CCH Reference - 2008FED ¶5507.121

 
Code Sec. 402

  CCH Reference - 2008FED ¶17,733.60

  Tax Research Consultant

  CCH Reference - TRC INDIV: 21,056
CCH Reference - TRC INDIV: 24,062.15

CCH (cch.taxgroup.com) reports:

  The IRS has released a series of guidance items addressing tax returner penalties addressed in Code Sec. 6694.

T.D. 9436

  Regulations addressing return preparer penalties have been issued. The final regulations amend existing regulations defining tax return preparers. These final regulations are applicable to returns and claims for refund filed (and advice given) after December 31, 2008. The regulations were previously limited to income tax return preparers; however, the definition now includes preparers of estate, gift and generation skipping transfer tax returns, employment tax returns, excise tax returns, and returns of exempt organizations. The standards of conduct that must be met to avoid imposition of the Code Sec. 6694 tax return preparer penalty have been changed, as has the computation of that penalty. The final regulations also expand the scope of current regulations under the penalty provisions of Code Sec. 6695 beyond income tax returns.

  The final regulations require a signing tax return preparer to furnish a copy of the completed tax return to the taxpayer and also to retain a copy. The tax return preparer's identification number needs to be included only on the return that is filed with the IRS. The regulations clarify that the copy of the return filed with the IRS may be provided to the taxpayer in any medium, including electronic, that is acceptable to both the taxpayer and the return preparer. Furthermore, for purposes of complying with the requirements of Code Sec. 6107, a corporation, partnership or other organization that hires a signing tax return preparer shall be treated as the sole signing tax return preparer.

  An individual is a tax return preparer subject toCode Sec. 6694 if the individual is primarily responsible for the position on the return or claim for refund giving rise to the understatement. Only one person within a firm will be considered primarily responsible for each position giving rise to an understatement and, accordingly, be subject to the penalty. If there is no signing tax return preparer for the return or claim for refund within that firm or if it is concluded that the signing tax return preparer is not primarily responsible for the position, the nonsigning tax return preparer within the firm with overall supervisory responsibility for the position(s) giving rise to the understatement generally will be considered the tax return preparer who is primarily responsible for the position. If the information presented would support a finding that either the signing tax return preparer or a nonsigning tax return preparer within a firm is primarily responsible for the position(s) giving rise to the understatement, the IRS may, depending on the evidence presented, assess the penalty against either one of the individuals, but not both, as the primarily responsible tax return preparer.

  The final regulations clarify that a tax return preparer may rely on advice furnished by another advisor, another tax return preparer, or other party, even if the advisor or tax return preparer is within the tax return preparer's same firm. However, the tax return preparer must meet the diligence standards in order to rely properly on information and advice provided by taxpayers or other individuals.

  The final regulations define the "reasonable to believe that the position would more likely than not be sustained on its merits" standard that now applies to positions that are tax shelters and reportable transactions to which Code Sec. 6662A applies. While recent legislation includes this "reasonable to believe" standard rather than the "reasonable belief that the position would more likely than not be sustained on its merits" standard used in previous legislation, the IRS interprets the two standards to have the same meaning. The final regulations contain the more recent terminology.

  The final regulations also modified the definition of adequate disclosure, removed provisions addressing the burden of proof regarding whether a tax return preparer has willfully attempted to understate the liability for tax and clarified that while a tax return preparer may not endorse or negotiate a refund check relating to a return for which he or she is a preparer, the preparer may affix a taxpayer's name on a refund check to deposit the check into an account in the name of the taxpayer. Appraisers are included in the definition of both signing and non-signing preparers, though penalties against them may not be stacked. Finally, administrative appeal rights remain available to tax return preparers who are subject to penalty under Code Sec. 6694.

Notice 2009-5

  Updated interim guidance has been issued concerning the
Code Sec. 6694(a) tax return preparer penalty, as recently modified by the Tax Extenders and Alternative Minimum Tax Relief Act of 2008 (P.L. 110-343). Other than for tax shelters, the guidance is generally effective for advice rendered, and returns, amended returns, and claims for refund prepared after May 27, 2007.

  CCH Comment:
Code Sec. 6694 now divides the definition of "unreasonable position" into three categories --a general category, a disclosed positions category, and a tax shelters and reportable transactions category, each with its own standard to determine whether such position is an unreasonable position. A position is treated as unreasonable and the return preparer penalty can apply unless there is substantial authority for the position (general category) or the position is properly disclosed and has a reasonable basis (disclosed positions category). A "more likely than not" standard applies for tax shelters, as defined in Code Sec. 6662(d)(2)(C)(ii), and reportable transactions to which Code Sec. 6662A applies. Prior to this change, the "more likely than not" standard applied to positions which would now fall in both the general and tax shelters categories.

  Interim guidance was previously issued in Notice 2008-13, I.R.B. 2008-3, 282 (TAXDAY, 2008/01/02, I.1) concerning application of the "more likely than not" standard. The updated guidance provides that for disclosed positions other than those falling in the tax shelters and reportable transactions category, preparers can either apply the new substantial authority standard or rely on guidance provided by Notice 2008-13. However, because the provisions governing the new tax shelters and reportable transactions category were not made retroactive, the interim guidance contained in Notice 2008-13 will continue to apply to positions falling within this category.

  The new guidance also discusses the definition of "substantial authority" for positions falling in the general category. Until further guidance is issued for purposes of Code Sec. 6694(a), the phrase has the same meaning as in Reg. §1.6662-4(d)(2), the analysis prescribed by Reg. §1.6662-4(d)(3)(i) through (ii) applies in determining whether substantial authority is present, and the authorities described in Reg. §1.6662-4(d)(3)(iii) are considered in determining whether there is substantial authority for a position.

  For tax shelters, but not reportable transactions with a significant avoidance purpose or listed transactions, a position will not be deemed an unreasonable position if there is substantial authority for the position, the preparer advises the taxapayer, documenting such advice in the preparer's files, of the Code Sec. 6662 penalty standards applicable to the taxpayer in the event the transaction is deemed to have a significant purpose of federal tax evasion or avoidance and, if having such purpose, the taxpayer possesses a reasonable belief that the treatment was more likely than not the proper treatment. The updated interim guidance also provides guidance to non-signing preparers advising other preparers, including other preparers in the same firm as the non-signing preparer, regarding a position with respect to a tax shelter. The interim guidance with respect to such tax shelters and reportable transactions to which Code Sec. 6662A applies is effective for positions on tax returns for taxable years ending after October 3, 2008.

  The IRS requests written and electronic comments concerning Notice 2009-5 by March 16, 2009.

Rev. Proc. 2009-11

  The IRS has identified the categories of tax returns and refund claims for purposes of the Code Sec. 6694 tax return preparer penalty and the returns and refund claims required to be signed by a tax return preparer in order to avoid the Code Sec. 6695(b) penalty (Rev. Proc. 2009-11). The tax return preparer rules were amended by the Small Business and Work Opportunity Tax Act of 2007 (P.L. 110-28) to extend the application of the income tax return preparer penalties to all tax return preparers, heighten the standards for both disclosed and undisclosed positions to avoid the Code Sec. 6694(a) penalty, increase the Code Sec. 6694 penalty and impose a penalty under Code Sec. 6695(b) on preparers who fail to sign a return or refund claim when required to do so by regulations. To reflect these amendments, the IRS issued interim guidance (Notice 2008-13, I.R.B. 2008-3, 282, Notice 2008-12, I.R.B. 2008-3, 280, and Notice 2008-46, I.R.B. 2008-18, 868) and published proposed regulations (NPRM
REG-129243-07). The Tax Extenders and Alternative Minimum Tax Relief Act of 2008 (P.L. 110-343) later amended the standard for avoiding the Code Sec. 6694(a) penalty for undisclosed positions. This guidance implements these legislative changes and the final regulations. The IRS may choose to add or remove documents from any of the categories in this revenue procedure in future guidance as it gains experience in implementing the provisions of P.L. 110-343 and the final regulations. The procedure is effective January 1, 2009, for all forms, tax returns, amended tax returns, and claims for refund filed on or after that date.

Returns Subject to Code Sec. 6694 Penalty

  Solely for purposes of Code Sec. 6694, a return or claim for refund includes any of the income tax, estate and gift tax, employment tax or excise tax returns listed in Section 3.02, or a claim for refund with respect to any such return. A claim for refund of tax includes a claim for credit against any tax and a request for abatement. A person who for compensation prepares all or a substantial portion of any of the listed tax returns or a claim for refund with respect to any such tax return is a tax return preparer subject to Code Sec. 6694.

  In addition, solely for purposes of Code Sec. 6694, an information return listed in Section 3.03(2) including information that is or may be reported on a taxpayer's return or refund claim is a return to which Code Sec. 6694 could apply if the information reported constitutes a substantial portion of that taxpayer's tax return or claim for refund. A person who for compensation prepares such information returns that do not report a tax liability but affect an entry or entries on a tax return and constitute a substantial portion of the tax return or claim for refund that does report a tax liability is a tax return preparer subject to Code Sec. 6694. Other documents that include information that is or may be reported on a taxpayer's tax return or claim for refund may also be treated as returns under Code Sec. 6694 if the reported information constitutes a substantial portion of that taxpayer's tax return or claim for refund.

  Further, forms listed in Section 3.04 that include information that is or may be reported on a taxpayer's tax return or claim for refund, and that constitute a substantial portion of such tax return or claim for refund, will not subject the preparer to the Code Sec. 6694(a) penalty. Such forms, however, may subject the preparer to a willful or reckless conduct penalty under Code Sec. 6694(b) if the information reported on the document constitutes a substantial portion of the tax return or claim for refund and is prepared willfully in any manner to understate the liability of tax on a tax return or claim for refund, or in reckless or intentional disregard of rules or regulations.

Returns and Claims Subject to Code Sec. 6695(b) Penalty

  The guidance also identifies returns and claims for refund required to be signed by a signing tax return preparer defined in Reg. §301.7701-15(b)(1) in order to avoid the Code Sec. 6695(b) penalty. The tax return preparer must sign the return in the manner prescribed by the IRS in forms, instructions or other appropriate guidance. Information on the preparer signature requirement for electronically filed returns will be announced in IRS publications, instructions and information posted electronically on the IRS.gov website. In order to avoid the penalty, a signing tax return preparer must provide a signature on any tax returns or claims for refund of tax that are filed on or after January 1, 2009. A non-inclusive list of such returns and refund claims is provided in Section 4.02.Notice 2008-12, I.R.B. 2008-3, 280, and Notice 2008-46, I.R.B. 2008-18, 868, are obsoleted, and the list of forms in Notice 2008-13, I.R.B. 2008-3, 282, is modified and superseded.

T.D. 9436, 2009FED ¶47,006

T.D. 9436, FINH ¶41,123

Notice 2009-5,
2009FED ¶46,201

Notice 2009-5,
FINH ¶30,606

Rev. Proc. 2009-11, 2009FED ¶46,202

Rev. Proc. 2009-11, FINH ¶30,607

Other References:

 
Code Sec. 6060

  CCH Reference - 2008FED ¶36,561

  CCH Reference - 2008FED ¶36,561E

  CCH Reference - 2008FED ¶36,561G

  CCH Reference - 2008FED ¶36,561I

  CCH Reference - 2008FED ¶36,561K

  CCH Reference - 2008FED ¶36,561M

  CCH Reference - 2008FED ¶36,561O

  CCH Reference - 2008FED ¶36,561Q

  CCH Reference - FINH ¶22,228

  CCH Reference - FINH ¶22,229

  CCH Reference - FINH ¶22,230

  CCH Reference - FINH ¶22,231

 
Code Sec. 6107

  CCH Reference - 2008FED ¶36,921

  CCH Reference - 2008FED ¶36,921BE

  CCH Reference - 2008FED ¶36,921BG

  CCH Reference - 2008FED ¶36,921BI

  CCH Reference - 2008FED ¶36,921BK

  CCH Reference - 2008FED ¶36,921BM

  CCH Reference - 2008FED ¶36,921BO

  CCH Reference - 2008FED ¶36,921BQ

  CCH Reference - FINH ¶20,436A

  CCH Reference - FINH ¶20,436B

  CCH Reference - FINH ¶20,436C

  CCH Reference - FINH ¶20,436D

 
Code Sec. 6109

  CCH Reference - 2008FED ¶36,961BC

  CCH Reference - 2008FED ¶36,961BE

  CCH Reference - 2008FED ¶36,961BG

  CCH Reference - 2008FED ¶36,961BI

  CCH Reference - 2008FED ¶36,961BK

  CCH Reference - 2008FED ¶36,961BM

  CCH Reference - 2008FED ¶36,961BQ

  CCH Reference - 2008FED ¶36,961C

  CCH Reference - FINH ¶20,438A

  CCH Reference - FINH ¶20,438B

  CCH Reference - FINH ¶20,438C

  CCH Reference - FINH ¶20,438E

 
Code Sec. 6662

  CCH Reference - FINH ¶21,790.20

 
Code Sec. 6694

  CCH Reference - 2008FED ¶39,955A

  CCH Reference - 2008FED ¶39,956A.01

  CCH Reference - 2008FED ¶39,956A.02

  CCH Reference - 2008FED ¶39,956BE

  CCH Reference - 2008FED ¶39,956BG

  CCH Reference - 2008FED ¶39,956BI

  CCH Reference - 2008FED ¶39,956BK

  CCH Reference - 2008FED ¶39,956BM

  CCH Reference - 2008FED ¶39,956BO

  CCH Reference - 2008FED ¶39,956BQ

  CCH Reference - 2008FED ¶39,957

  CCH Reference - 2008FED ¶39,957A.01

  CCH Reference - 2008FED ¶39,957A.022

  CCH Reference - 2008FED ¶39,957A.023

  CCH Reference - 2008FED ¶39,957A.03

  CCH Reference - 2008FED ¶39,957BE

  CCH Reference - 2008FED ¶39,957BG

  CCH Reference - 2008FED ¶39,957BI

  CCH Reference - 2008FED ¶39,957BK

  CCH Reference - 2008FED ¶39,957BM

  CCH Reference - 2008FED ¶39,957BO

  CCH Reference - 2008FED ¶39,957BQ

  CCH Reference - 2008FED ¶39,956C

  CCH Reference - 2008FED ¶39,957E

  CCH Reference - 2008FED ¶39,957EE

  CCH Reference - 2008FED ¶39,957EG

  CCH Reference - 2008FED ¶39,957EI

  CCH Reference - 2008FED ¶39,957EK

  CCH Reference - 2008FED ¶39,957EM

  CCH Reference - 2008FED ¶39,957EO

  CCH Reference - 2008FED ¶39,957EQ

  CCH Reference - 2008FED ¶39,957H

  CCH Reference - 2008FED ¶39,957HE

  CCH Reference - 2008FED ¶39,957HG

  CCH Reference - 2008FED ¶39,957HI

  CCH Reference - 2008FED ¶39,957HK

  CCH Reference - 2008FED ¶39,957HM

  CCH Reference - 2008FED ¶39,957HO

  CCH Reference - 2008FED ¶39,957HQ

  CCH Reference - 2008FED ¶39,960.70

  CCH Reference - FINH ¶21,853

  CCH Reference - FINH ¶21,854A

  CCH Reference - FINH ¶21,854B

  CCH Reference - FINH ¶21,854C

  CCH Reference - FINH ¶21,854D

  CCH Reference - FINH ¶21,855.01

  CCH Reference - FINH ¶21,855.05

  CCH Reference - FINH ¶21,855.50

  CCH Reference - FINH ¶21,856A

  CCH Reference - FINH ¶21,856B

  CCH Reference - FINH ¶21,856C

  CCH Reference - FINH ¶21,856D

  CCH Reference - FINH ¶21,858A

  CCH Reference - FINH ¶21,858B

  CCH Reference - FINH ¶21,858C

  CCH Reference - FINH ¶21,858D

  CCH Reference - FINH ¶21,860A

  CCH Reference - FINH ¶21,860B

  CCH Reference - FINH ¶21,860C

  CCH Reference - FINH ¶21,860D

  CCH Reference - FINH ¶21,861.01

 
Code Sec. 6695

  CCH Reference - 2008FED ¶39,966

  CCH Reference - 2008FED ¶39,966BE

  CCH Reference - 2008FED ¶39,966BG

  CCH Reference - 2008FED ¶39,966BI

  CCH Reference - 2008FED ¶39,966BK

  CCH Reference - 2008FED ¶39,966BM

  CCH Reference - 2008FED ¶39,966BO

  CCH Reference - 2008FED ¶39,966BQ

  CCH Reference - 2008FED ¶39,968

  CCH Reference - 2008FED ¶39,970.60

  CCH Reference - 2008FED ¶39,970.75

  CCH Reference - FINH ¶21,863A

  CCH Reference - FINH ¶21,863B

  CCH Reference - FINH ¶21,863C

  CCH Reference - FINH ¶21,863D

  CCH Reference - FINH ¶21,864.01

 
Code Sec. 6696

  CCH Reference - 2008FED ¶39,976

  CCH Reference - 2008FED ¶39,977BE

  CCH Reference - 2008FED ¶39,977BG

  CCH Reference - 2008FED ¶39,977BI

  CCH Reference - 2008FED ¶39,977BK

  CCH Reference - 2008FED ¶39,977BM

  CCH Reference - 2008FED ¶39,977BO

  CCH Reference - 2008FED ¶39,977BQ

 
Code Sec. 7701

  CCH Reference - 2008FED ¶43,081BC

  CCH Reference - 2008FED ¶43,081BE

  CCH Reference - 2008FED ¶43,081BG

  CCH Reference - 2008FED ¶43,081BI

  CCH Reference - 2008FED ¶43,081BK

  CCH Reference - 2008FED ¶43,081BM

  CCH Reference - 2008FED ¶43,081BO

  CCH Reference - 2008FED ¶43,113

  CCH Reference - FINH ¶22,772

  CCH Reference - FINH ¶22,773

  CCH Reference - FINH ¶22,774

  CCH Reference - FINH ¶22,812

  CCH Reference - FINH ¶22,815.06

  CCH Reference - FINH ¶22,815.82

  Tax Research Consultant

  CCH Reference - TRC IRS: 6,156
CCH Reference -
TRC IRS: 6,104

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Florida Department of Revenue (DOR) has issued Emergency Rule 12CER08-31 along with guidance on the new rule, which, for corporate income tax purposes, governs Florida's decoupling from the bonus depreciation and IRC §179 expensing election enacted by the federal Economic Stimulus Act of 2008 (P.L. 110-185). Under the rule, taxpayers are required to add back any IRC §179 deduction that exceeds $125,000. Taxpayers must also add back an amount equal to the total depreciation claimed under IRC §167 and IRC §168 on the federal return, minus the amount of depreciation deduction that would have been allowable under IRC §167 and IRC §168, as in effect on January 1, 2007, if the taxpayers had not expensed any amounts in excess of $125,000 under IRC §179, or taken bonus depreciation under IRC §168(k). This rule applies to taxpayers who deducted more than $128,000 on their 2008 federal income tax returns under IRC §179 or claimed bonus depreciation on assets placed in service during the 2008 calendar year.

  In tax years beginning after 2008, taxpayers will be required to make an adjustment to their Florida taxable income by an amount equal to the amount of depreciation deduction that would have been allowable under IRC §167 and IRC §168, as in effect on January 1, 2007, if the taxpayers had not expensed any amounts in excess of $125,000 under IRC §179, or taken bonus depreciation under IRC §168(k), minus the amount of depreciation deduction taken under IRC §167 and IRC §168 on their related federal returns.

  Upon the sale or disposition of property for which an addback was required, the Florida gain will be the same as the federal gain. However, Florida taxable income will have to be adjusted by an amount equal to the Florida depreciation taken on the asset, minus the total federal depreciation taken on the asset. The total amount of adjustments claimed for property for all years cannot exceed the total additions for the same property. A schedule reflecting the additions and all subsequent adjustments must be attached to the Florida corporate income tax return.

  The guidance provided by the DOR contains extensive examples.

  Subscribers to CCH Tax Research NetWork can view the complete text of the emergency rule.

  Emergency Rule 12CER08-31, effective December 10, 2008; Tax Information Publication, No. 08C01-10 , Florida Department of Revenue, December 10, 2008, ¶205-283

 
Other References:

  Explanations at ¶10-670

CCH (cch.taxgroup.com) reports:

  The U.S. Supreme Court has granted a request by an operator of oil tankers to review whether an Alaska city's personal property tax on large vessels docking at private facilities violates the U.S. Constitution. The city of Valdez imposes a tax on 100% of a vessel's assessed value, times a ratio based on the number of days spent in Valdez divided by the total number of days spent in all ports, including Valdez, where the vessel has acquired a situs for taxation. The tanker operator challenged the tax in court, asserting that it violates the Due Process and Commerce Clauses of the U.S. Constitution because it creates a risk of multiple taxation, and the Constitution's Tonnage Clause, which prohibits taxes that "operate to impose a charge for the privilege of entering, trading in, or lying in a port."

  The Alaska Supreme Court rejected these challenges. The state high court held that the port-days formula is fair and does not create a risk of duplicative taxation. Furthermore, the court held that a fairly apportioned property tax is not a tonnage duty and, therefore, does not violate the Tonnage Clause. (TAXDAY, 2008/04/30, S.1)

  Subscribers to CCH Tax Research NetWork can view the petition that was granted.

  Polar Tankers, Inc. v. Valdez, U.S. Supreme Court, Dkt. 08-310, petition for certiorari granted December 12, 2008
 

CCH (cch.taxgroup.com) reports:

  The IRS has released final, temporary and proposed regulations to provide guidance concerning the distribution of stock of a controlled corporation acquired in a taxable transaction within five years of the distribution as described in Code Sec. 355(a)(3)(. The temporary regulations will affect corporations and their shareholders, and the text of the temporary regulations serves as the text of the proposed regulations.

  CCH Comment. The IRS has deemed its new regulations as "necesssary" due to amendments to Code Sec. 355(b) by the Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222), the Tax Relief and Health Care Act of 2006 (P.L. 109-432), and the Tax Technical Corrections Act of 2007 (P.L. 110-172.

  Under Code Sec. 355(a), a corporation may distribute stock in a corporation it controls to its shareholders without causing either the distributing corporation or its shareholders to recognize income, gain, or loss. Code Sec. 355(b)(1) requires that, immediately after the distribution, the distributing and controlled corporations must each be engaged in the active conduct of a trade or business. Code Sec. 355(b)(2) provides in part that a corporation is engaged in the active conduct of a trade or business if and only if it is engaged in the active conduct of a trade or business that has been actively conducted throughout the five-year period ending on the distribution date. It also provides that the trade or business must not have been acquired in a transaction in which gain or loss was recognized during the pre-distribution period.

  Under Code Sec. 355(b)(3)(A)-(C): (1) in determining whether a corporation meets the active business requirement, all members of the corporation's separate affiliated group (SAG) are treated as one corporation; (2) the term "SAG" means the affiliated group that would be determined under Code Sec. 1504(a) if the corporation were the common parent and the includible corporations provision under Code Sec. 1504(b) did not apply; and (3) if a parent corporation became a SAG member as a result of one or more taxable transactions, any trade or business conducted by such corporation at the time of SAG membership is treated as acquired in a taxable transaction.

  Under Code Sec. 355(a)(3)(, stock of a controlled corporation acquired by a distributing corporation in any transaction that is not a taxable transaction and that occurs within five years of the distribution of such stock is not treated as stock of the controlled corporation but, rather, as other property (also known as "hot stock"). Code Sec. 355(a)(3)( has been characterized as the "hot stock rule."

  The temporary regulations generally provide that controlled corporation stock acquired by the SAG of which the distributing corporation is the common parent within the pre-distribution period in a taxable transaction constitutes hot stock, except if the controlled corporation is a member of that SAG at any time after the acquisition but prior to the distribution. This provision renders obsolete Rev. Rul. 76-54, 1976-1 CB 96, and Rev. Rul. 65-286, 1965-2 CB 92. Transfers of controlled corporation stock owned by members of such SAG immediately before and immediately after the transfer are disregarded and not treated as acquisitions for purposes of the hot stock rule.

 
Reg. §1.355-2(g) generally exempted from the hot stock rule an acquisition of controlled corporation stock by the distributing corporation from a member of the affiliated group of which the distributing corporation was a member. The temporary regulations retain this affiliate exception, but the IRS will continue to study the impact that transfers between affiliates should have on satisfaction of the active trade or business requirement and application of the hot stock rule.

  The IRS is also considering issuing additional guidance under Code Sec. 355(a)(3)( on: (1) the effect of indirect acquisitions and the extent to which predecessor rules should apply for purposes of the hot stock rule; (2) the position that issuances of controlled stock by the controlled corporation to the distributing corporation in a taxable transaction do not give rise to hot stock; and (3) the effect of redemptions of controlled stock.

  Effective date. The final and temporary regulations are generally applicable for distributions occurring after December 15, 2008. However, unless taxpayers elect otherwise, the temporary regulations do not apply to any distribution occurring after December 15, 2008, pursuant to a transaction that is: (1) made under an agreement binding on December 15, 2008, and at all times thereafter; (2) described in a ruling request submitted to the IRS on or before such date; or (3) described on or before such date in a public announcement or in a filing with the Securities and Exchange Commission. Taxpayers may elect to apply the temporary regulations retroactively to distributions to which section 4(b) of the Tax Technical Corrections Act of 2007 (P.L. 110-172 applies (generally to distributions occurring after May 17, 2006).

  Public comments. The IRS requests comments on the clarity of the proposed rules and how they can be made easier to understand. Comments are also requested regarding:

  - the overall approach taken in the proposed rules, including the extent to which the definition of a taxable transaction should be the same under Code Sec. 355(a)(3)( and Code Sec. 355(b), and whether the exception for affiliate acquisitions should be the same under those sections;

  - the need for future guidance relating to predecessors of distributing corporations, acquisitions involving corporations that join the distributing corporation's SAG or the controlled corporation's SAG, predecessors of controlled corporations, the application of The E.L. Dunn Trust, 86 TC 745, Dec. 42,998 (Acq.), and the treatment of stock issuances by the controlled corporation to the distributing corporation; and

  - the potential application of the hot stock rule to redemptions of controlled corporation stock, specifically regarding the circumstances under which Code Sec. 355(a)(3)( should apply

  Written or electronic comments and requests for a public hearing must be received by March 16, 2009.

 
Rev. Ruls. 76-54, 1976-1 CB 96, and 65-286, 1965-2 CB 92, are obsoleted.

T.D. 9435, 2008FED ¶47,068

Proposed Regulations, NPRM REG-150670-07, 2008FED ¶49,842

Other References:

 
Code Sec. 355

  CCH Reference - 2008FED ¶16,461

  CCH Reference - 2008FED ¶16,461B

  CCH Reference - 2008FED ¶16,462

  CCH Reference - 2008FED ¶16,463

  CCH Reference - 2008FED ¶16,463D

  CCH Reference - 2008FED ¶16,466.27

  CCH Reference - 2008FED ¶16,466.855

 
Code Sec. 356

  CCH Reference - 2008FED ¶16,493.23

  Tax Research Consultant

  CCH Reference - TRC CCORP: 39,252.10
CCH Reference - TRC REORG: 30,104.05
CCH Reference - TRC REORG: 30,152.10
CCH Reference - TRC REORG: 30,154
 

CCH (cch.taxgroup.com) reports:

  The IRS has issued guidance that describes methodologies that it is considering publishing as safe harbors to be used in the determination of basis in stock that is acquired in a Code Sec. 368(a)(1)( ("B") reorganization or other transferred-basis transaction. The methodologies are intended to respond to issues raised as a result of substantial changes in market practice since the issuance of Rev. Proc. 81-70, 1981-2 CB 729. Comments are requested on the proposed methodologies, and, pending further guidance, taxpayers may rely on the safe harbors set forth in the guidance.

  A "B" reorganization is the acquisition by one corporation of the stock of a target corporation, solely in exchange for the voting stock of the acquiring corporation or its parent, if immediately after the exchange the acquiring corporation is in control of the target. Under Code Sec. 362, if a corporation acquires property in a transferred-basis transaction, including a B reorganization or a Code Sec. 351 transfer from controlling stockholders, the property so acquired keeps the same basis as it had in the hands of the transferor.

Background

  The IRS issued Rev. Proc. 81-70 to facilitate the determination of basis in B reorganizations due to two problems encountered by taxpayers in attempting to establish basis in acquired stock: (1) the acquisition of basis information from target corporation shareholders surrendering stock of widely held corporations was time-consuming, burdensome, and costly; and (2) not all surrendering shareholders were responding to requests for basis information. Rev. Proc. 81-70 provides guidelines for the use of statistical sampling techniques and estimation techniques to determine the basis of stock acquired in a B reorganization where the burden of obtaining the actual basis figures is unreasonable.

  At the time Rev. Proc. 81-70 was issued, most stock was registered stock, so that the name of the beneficial owner of the stock was recorded by the issuing corporation's stock transfer agent on its books. Today, however, stock of public companies is generally held in "street name," whereby the stock is held by a nominee (usually a clearinghouse or other financial institution holding stock on behalf of their members or customers) and the transfer agent's books list the nominee as the owner of the stock. Because there are often several tiers of nominee owners, each subject to confidentiality and other constraints that could bar the release of information, the identification of the beneficial owners of large portions of public companies, and their bases in those interests, can be nearly impossible to discover. Further, the information needed to identify the nominee holders tends to dissipate fairly quickly.

  The IRS, having studied the issues raised by nominee stock holdings and having received public comments on these issues, has concluded that the guidelines of Rev. Proc. 81-70 need to be expanded to address these issues. Expanded guidance (referred to by the IRS as "Expanded Rev. Proc. 81-70") will also apply, not only to B reorganizations but, also, to all transferred basis transactions.

Proposed Guidance

  In order to address the issues raised by nominee stock holdings and to simplify the determination of basis for small stock holdings, "Expanded Rev. Proc. 81-70" will include several safe harbor provisions. Each safe harbor will apply to a specified group of surrendering shareholders and will prescribe a methodology that can be used to determine those shareholders' bases in surrendered stock.

  In general, a determination of basis will be considered timely if it is completed within two years of the later of the date of the transferred basis transaction and the date that "Expanded Rev. Proc. 81-70" becomes effective. A previously completed basis determination will be considered timely if made compliant with the provisions of "Expanded Rev. Proc. 81-70" within two years of the date that "Expanded Rev. Proc. 81-70" becomes effective.

  Notwithstanding any safe harbor prescribed in "Expanded Rev. Proc. 81-70," if the acquiring corporation has, or acquires, actual knowledge of a surrendering shareholder's actual basis in a share of surrendered target stock, the acquirer's allowable basis in the share is equal to that of the surrendering shareholder's basis.

  If an acquiring corporation complies with the terms of a safe harbor, including those provisions that apply to all such safe harbors, the IRS will not assert an alternative method to determine a corporation's allowable basis in stock.

  Safe harbor for target stock surrendered by or on behalf of reporting shareholders. Under this safe harbor, the basis of stock surrendered by reporting shareholders must be determined by survey. In general, a survey must be done in accordance with guidelines set forth in Rev. Proc. 81-70.

  Safe harbor for target stock surrendered by or on behalf of registered nonreporting shareholders. Under this safe harbor, the basis of stock surrendered by registered, nonreporting shareholders must be determined by the certificate method, as described in the notice.

  Safe harbor for target stock surrendered by nominees on behalf of nonreporting shareholders. Under this safe harbor, the basis of all stock surrendered by nominees on behalf of nonreporting shareholders is determined under the basis modeling method, as described in the guidance.

  Reporting requirements. Corporations acquiring target stock in a transferred basis transaction will be treated as satisfying their reporting requirements under Reg. §§1.351-3 and 1.368-3 with respect to the return for the tax year in which the transaction is completed if the corporation includes a statement on or with the return stating that a basis study is pending with respect to the acquired stock.

  Interim use of safe harbor methodologies. "Expanded Rev. Proc. 81-70" will be effective for transferred-basis transactions on or after the date it is issued. Prior to the issuance of "Expanded Rev. Proc. 81-70," taxpayers may use the methodologies of any safe harbor described above to determine the basis of target stock acquired in any transferred-basis transaction that occurs prior to issuance. In such instances, the timeliness requirement will be treated as satisfied if the study is completed within two years of the later of the date of the transferred-basis transaction or January 12, 2009.

Request for Comments

  Comments are requested as to whether the approaches described in the notice should be adopted and to what extent, if any, the approaches should be further combined or modified to produce a set of rules that is both administrable and reflective of statutory intent. The IRS is especially interested in comments regarding whether a simpler methodology, such as one that would determine the basis of all surrendered shares by using a weighted average trading price, would be helpful to taxpayers and appropriate for the tax system. In addition, comments are specifically requested regarding the determination of basis in atypical transferred-basis transactions, such as acquisitions in bankruptcy reorganizations, acquisitions involving foreign transfer agents, and acquisitions involving foreign corporations that may be subject to the rules of Reg. §1.367(b)-13.

Notice 2009-4,
2008FED ¶46,695

Other References:

 
Code Sec. 351

  CCH Reference - 2008FED ¶16,405.01

 
Code Sec. 362

  CCH Reference - 2008FED ¶16,612.162

 
Code Sec. 368

  CCH Reference - 2008FED ¶16,753.21

  Tax Research Consultant

  CCH Reference - TRC CCORP: 39,304.10

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Oklahoma Supreme Court has decided that the Oklahoma State Board of Equalization and the Oklahoma Tax Commission (hereinafter, the state revenue authorities) erroneously classified a natural gas gathering facility as a public service corporation and, accordingly, these state revenue authorities were without jurisdiction to assess the facility for purposes of Oklahoma ad valorem taxation. Instead, only the local county assessor had the jurisdiction to assess the facility's property. Furthermore, the court determined that a state statute relied upon by the state revenue authorities in taxing the facility was unconstitutional.

CCH (cch.taxgroup.com) reports:

  In an Idaho corporate income tax case involving loans that were secured by Idaho real property, the Tax Commission affirmed a deficiency notice, despite the taxpayer's claim that the transfer of the loans to related companies for securitization removed the loans from the Idaho apportionment numerators. The taxpayer argued that the loans should be excluded because the companies did not transact business in Idaho and, therefore, were not subject to Idaho income tax. In examining the safe harbor allowed for corporations conducting certain limited financial activities within Idaho, the Tax Commission noted that it is possible for a corporation to be maintaining an office in the state, based on activity being conducted on its behalf by affiliates or representatives, provided that such activity is more than just de minimis . In this case, the activities conducted at affiliated offices in Idaho exceeded the de minimis exception.

  In addition, with respect to the property factor, the Tax Commission concluded that the intercompany transfer of the loans to related companies did not amount to a material change that would justify excluding the loans from the Idaho numerator. The taxpayer's exclusion of the loan interest from the Idaho sales factor numerator was also rejected.

  The taxpayer also failed to establish that it should be allowed to change the assignment of certain other loans, based on a cost of performance analysis. In addition to solicitation occurring in Idaho, the loans in question were secured by Idaho real property, assigned to Idaho on regular business records, and assigned to Idaho in returns filed with other states.

  Finally, although the taxpayer's substantive arguments were rejected, the Tax Commission recognized that the underlying legal issues were complex. Because the taxpayer acted in good faith and there was reasonable cause for the positions taken, the substantial understatement penalty was waived.

Decision No. 20555 , June 24, 2008, received October 23, 2008, ¶400-594

  Other References:

  Explanations at ¶11-540

CCH (cch.taxgroup.com) reports:

  For purposes of determining percentage depletion under
Code Sec. 613A(c) for oil and gas produced from marginal properties, the IRS has released a table of the applicable percentages for marginal production that covers tax years beginning in calendar years 1991 through 2008. The applicable percentages are: 15 percent for calendar year 1991; 18 percent for calendar year 1992; 19 percent for calendar year 1993; 20 percent for calendar year 1994; 21 percent for calendar year 1995; 20 percent for calendar year 1996; 16 percent for calendar year 1997; 17 percent for calendar year 1998; 24 percent for calendar year 1999; 19 percent for calendar year 2000; and 15 percent for calendar years 2001 through 2008.

Notice 2008-89, 2008FED ¶46,636

Other References:

 
Code Sec. 613A

  CCH Reference - 2008FED ¶23,988.044

  CCH Reference - 2008FED ¶23,988.35

  Tax Research Consultant

  CCH Reference - TRC FARM: 15,216.05

CCH (cch.taxgroup.com) reports:

  The IRS has issued the inflation adjustment factor for use in determining the enhanced oil recovery credit under Code Sec. 43. The inflation adjustment factor for calendar year 2008 is 1.4666. Because the reference price as determined under Code Sec. 45K(d)(2)(C) for 2007 ($66.52) exceeds $28 multiplied by the inflation adjustment factor for 2007 by $25.45, the enhanced oil recovery credit for qualified costs paid or incurred in 2008 is phased out completely. The GNP implicit price deflator to be used for calendar year 2008 is 119.656.

Notice 2008-72, 2008FED ¶46,635

Other References:

 
Code Sec. 43

  CCH Reference - 2008FED ¶4387.021

  CCH Reference - 2008FED ¶4387.07

  CCH Reference - 2008FED ¶4387.30

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 54,302.05

  CCH Reference - TRC BUSEXP: 54,554.15

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Ohio Tax Commissioner has issued a waiver of reporting requirements for certain real estate investment trusts (REITs), regulated investment companies (RICs), and real estate mortgage investment conduits (REMICs) for the corporate franchise tax year 2009 and the dealer in intangibles tax return year 2009. However, reporting requirements are not waived for any such entity if during the any portion of the calendar year 2008:

  -- at least 20% of the equity interest was owned by a person and/or by that person's related members, on a cumulative basis; and

  -- that person, or any of that person's related members, was an entity other than a publicly traded REIT or trust.

To be eligible for the waiver, the entities are required to submit to the Commissioner a list of the names, addresses, and Social Security or federal identification numbers of all investors, shareholders, and other similar investors who owned any interest or invested in the entity during the preceding calendar year.

  Subscribers to CCH Tax Research NetWork can view the waiver.

Administrative Journal Entry, Ohio Department of Taxation, October 15, 2008.
 

CCH (cch.taxgroup.com) reports:

  An individual who was the sole member of a limited liability company (LLC) was liable for the LLC's unpaid employment taxes. The court rejected the individual's argument that the Code Sec. 7701 regulations making the sole member of an LLC liable for the entity's employment taxes were invalid. The regulations at issue were a reasonable attempt by the IRS to fill in gaps left in the statute regarding the taxation of LLCs. Also, the IRS's decision to adopt an alternative approach did not strip the regulations of Chevron deference. Finally, a new regulation adopted by the IRS regarding a sole member's liability for an LLC's employment taxes did not apply because it was not in effect for the tax year at issue.

  Unpublished opinion affirming a DC Wash. decision, 2006-1 USTC ¶50,231.

E.A. Kandi, CA-9, 2008-2 USTC ¶50,599

Other References:

 
Code Sec. 7701

  CCH Reference - 2008FED ¶43,084.15

  CCH Reference - 2008FED ¶43,087.72

 
Code Sec. 7805

  CCH Reference - 2008FED ¶43,282.169

  Tax Research Consultant

  CCH Reference - TRC LLC: 9,050
 

CCH (cch.taxgroup.com) reports:

  The Tax Court had jurisdiction in a partnership-level proceeding to determine whether a taxpayer's purported partnership should be disregarded for tax purposes, whether the partners had any outside basis in their partnership interests, and whether the valuation misstatement penalty should apply. The partnership's alleged business purpose was to engage in foreign currency option trading on behalf of its partners; however, the taxpayer and his brother merely contributed pairs of offsetting long and short options and then, two months later, withdrew from the partnership, receiving cash and shares of corporate stock. The brothers increased their basis in their partnership interests to reflect their contributions of the long options, but did not reduce their basis to reflect the partnership's assumption of the short options they contributed. On the subsequent sale of the stock they had received from the partnership they claimed multimillion dollar losses. In its final partnership administrative adjustment (FPAA) for the year, the IRS determined that the partnership was not a partnership as a matter of fact, or if it was, that it had no business purpose other than tax avoidance and so was abusive, under Reg. §1.701-2, so that the partnership transactions should be treated as having been entered into by the partners directly, and neither the partners nor the partnership entered into the option or currency transactions with a profit motive. In challenging the FPAA, the taxpayer stipulated that he would not contest any items raised in the FPAA if the court determined that it had jurisdiction over them, except for the issue of whether valuation misstatement penalties applied. The IRS filed a motion for summary judgment on the grounds that the remaining issues raised in the FPAA all related to partnership issues.

  The taxpayer argued that the determination of the partnership's status is either not a partnership item or not an "item" at all. However, the court had jurisdiction over the status question under Temporary Reg. §301.6233-1T(a), which provides that whether a partnership existed should be determined in a partnership-level proceeding. Furthermore, the determination that a partnership should be disregarded under a sham or economic substance doctrine is indeed a partnership item since the definition of "item" is not limited to items of income, deduction, credit, gain, loss or basis or similar accounting entry, and the status of a partnership directly affects the calculation of all of those types of items. Though the listing of partnership items inReg. §301.6231(a)(3)-(1)(a) does not explicitly include the applicability of sham or economic substance doctrines, it does include "the legal and factual determinations that underlie the determination of the amount, timing, and characterization of items of income, credit, gain loss, deduction, etc."

  The taxpayer argued that the determination of the partners' outside bases in their partnership interests was not a partnership item, and so was beyond the court's jurisdiction in this case. The IRS conceded that position was generally the rule, but argued that where it is determined that the partnership should be disregarded, there can be no outside basis in it. The Tax Court adopted this view, noting that
Reg. §301.6231(a)(3)-1(c)(2) and
(3) recognize that the determination of partners' outside basis can sometimes be a partnership item. Once it has been determined that a partnership, or a particular partner's participation in a partnership should be disregarded, the Court may determine that the outside basis is zero.

  The Tax Court had jurisdiction to consider the imposition of penalties in this case. Even if the penalties were more directly related to affected items, and only indirectly related to partnership items, because they arose from the determination that the partnership should be disregarded, they were sufficiently related the vest the court with jurisdiction under Code Secs. 6221 and 6226(f). The taxpayer argued that the valuation misstatement penalty should not apply because the understatement was the result of the partnership's incorrect application of the law, not because of an erroneous valuation. Although there is a split among the Circuit Courts of Appeals on this issue, the court agreed with the majority of circuits in finding that the gross valuation misstatement penalty does apply in such a case, citing Reg. §1.6662-5(g), which provides that, when a taxpayer claims a basis in an item in which he has no basis, the gross valuation misstatement penalty will apply.

  The taxpayer also argued that the penalty should not apply because it would not be possible to determine why the partners' outside bases were disallowed. However, while a deduction or credit is or may have been disallowed for reasons other than the fact that the basis was inflated, and the penalty not imposed, in this case all of the IRS's alternative arguments resulted in a determination that a misstatement of the bases had occurred. Finally, the taxpayer argued that his stipulations did not prohibit him from arguing, with respect to the penalty, that the partnership was not a sham. The Tax Court rejected this claim, construing the stipulation to have preserved only the right to argue that sham and lack of economic substance are not partnership items, not the right to have challenge the sham determination on factual grounds.

Petaluma FX Partners, LLC, 131 TC No. 9, Dec. 57,562

Other References:

 
Code Sec. 6221

  CCH Reference - 2008FED ¶37,569.12

 
Code Sec. 6226

  CCH Reference - 2008FED ¶37,709.70

 
Code Sec. 6231

  CCH Reference - 2008FED ¶37,849.45

 
Code Sec. 6662

  CCH Reference - 2008FED ¶39,654.45

 
Code Sec. 7442

  CCH Reference - 2008FED ¶42,058.1535

  Tax Research Consultant

  CCH Reference - TRC PART: 60,060
CCH Reference -
TRC PART: 60,558
CCH Reference - TRC PENALTY: 3,110.05
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Qualified victims of Hurricane Ike may file a claim for refund of any Texas state and local hotel occupancy tax, including venue project hotel tax, paid during the period beginning September 8, 2008, and ending October 14, 2008. Texas Governor Rick Perry had originally suspended the collection of hotel tax on September 8, 2008, for 14 days and then extended the waiver to October 14, 2008.

CCH (cch.taxgroup.com) reports:

  The Michigan Department of Treasury has issued guidance, effective retroactively to January 1, 2008, regarding the nexus standard under the Michigan business tax (MBT). There are two alternative nexus standards under the MBT: (1) a taxpayer has physical presence in the state for more than one day during the tax year or (2) the person actively solicits sales in Michigan and has Michigan gross receipts of $350,000 or more. Once nexus is established, nexus lasts for the entire tax year. Furthermore, if one member of a unitary business group has nexus with Michigan, all group members must be included to calculate the tax bases and apportionment formulas.

  A taxpayer has physical presence in Michigan if it conducts business activities in Michigan, owns, rents, or leases tangible personal or real property, or delivers goods to Michigan in its own (or leased) vehicles. Nexus may be created, depending on the facts and circumstances, with these activities: meeting with suppliers or government officials, attending occasional meetings, holding hiring events, advertising, renting to or from a customer list, and attending trade shows. Corporations incorporated in Michigan have a physical presence in the state. Also, physical presence for a portion of a day establishes physical presence for the entire day. Active solicitation is the purposeful solicitation of persons in Michigan. The quality, nature, and magnitude of the activities are examined on a facts and circumstances basis to determine if active solicitation has been established.

  P.L. 86-272 protects taxpayers from the imposition of the business income tax portion of the MBT, but not the modified gross receipts tax portion. Only the solicitation to sell tangible personal property is immune. Therefore, leasing activities and activities regarding intangible property are not protected. Solicitation includes speech or conduct that explicitly or implicitly invites an order and activities entirely ancillary to requests for an order. Protection by P.L. 86-272 is determined on a tax year by tax year basis. Examples of protected and unprotected activities are provided. De minimis activities establish only a trivial connection. However, if they are conducted on a regular or systematic basis or pursuant to company policy, then the activities are not trivial.

Revenue Administrative Bulletin 2008-4 , Michigan Department of Treasury, October 21, 2008, ¶401-392

  Other References:

  Explanations at ¶10-075

CCH (cch.taxgroup.com) reports:

  Connecticut Governor M. Jodi Rell announced that she is calling the state Legislature into special session on November 24, 2008, to address her plan for eliminating Connecticut's 2009 fiscal year budget shortfall, which includes a proposed tax amnesty program expected to cover personal income taxes, corporate income taxes, sales and use taxes, and most other taxes administered by the Connecticut Department of Revenue Services.

  For the full text of the governor's announcement, go to
http://www.ct.gov/governorrell/cwp/view.asp?A=3293&Q=425462

Press Release , Connecticut Governor M. Jodi Rell, October 21, 2008.
 

CCH (cch.taxgroup.com) reports:

  Due to a conflict of interest, a limited partner was not bound by an extension of the assessment period signed by the partnership's tax matters partner (TMP). The TMP's plea agreement with the IRS for crimes unrelated to the partnership created a disabling conflict of interest that disqualified him from binding the partnership when he consented to extend the statute of limitations at the IRS's request. The TMP had pled guilty to structuring crimes in exchange for his agreement to cooperate fully with the IRS in order to resolve his tax liability and any tax liability and examination of the partnership. The plea agreement was a clear incentive for the TMP to ingratiate himself to the government, particularly since he would not be sentenced until almost a year later. The government knew that the TMP and the limited partner had conflicting interests when the TMP executed the requested consents, but continued to seek and secure the TMP's consents, without the limited partners' knowledge, until several years into the TMP's incarceration. Consequently, the consents executed by the TMP were rendered invalid, and the tax adjustments proposed by the IRS to the partnership's returns were time-barred.

  Unpublished opinion reversing the Tax Court, 92 TCM 106,
Dec. 56,585(M), TC Memo. 2006-164.

Leatherstocking 1983 Partnership, CA-2, 2008-2 USTC ¶50,597

Other References:

 
Code Sec. 6221

  CCH Reference - 2008FED ¶37,569.01

 
Code Sec. 6229

  CCH Reference - 2008FED ¶37,749.10

 
Code Sec. 6231

  CCH Reference - 2008FED ¶37,849.30

  CCH Reference - 2008FED ¶37,849.35

  Tax Research Consultant

  CCH Reference - TRC PART: 60,354

CCH (cch.taxgroup.com) reports:

  "The financial crisis is having an unprecedented impact on qualified retirement plans across the board at the employer, employee, and retiree levels," James Klein, president of the American Benefits Council (ABC), stated at a press briefing in Washington. DC on October 22. Unveiling ABC's "10-Point Plan to Help Employees and Retirees and to Strengthen the Economy and the Retirement System," Klein emphasized that existing tax law is standing in the way of an immediate solution, and that Congress needs to act quickly to remedy the situation. He added that it seemed plain that Congress never intended to hamstring employers, employees and retirees by application of certain provisions in existing tax law to unprecedented economic circumstances.

  Although retroactive relief is possible in certain circumstances if remedial legislation were to wait until January, Klein stated that a lame-duck session of Congress could prevent the irretrievable loss of certain benefits by making provisions immediately effective in 2008. He stressed that any new economic stimulus package should contain ABC's proposed relief - or a close variation - as essential to the nation's immediate economic health. Lynn Dudley, senior VP, Policy, at ABC, indicated that there already has been outreach to members of Congress about the 10-Point Plan, and that reception on the Hill to the need for legislative action "had been positive." Dudley stated that ABC's plan will be submitted to the various congressional committees over the next several weeks in conjunction of hearing that have been scheduled on the economic crisis.

  ABC's 10-Point Plan offers retirement plan-based solutions that address three major concerns: (1) how to help individuals weather the financial storm; (2) how to help businesses already in economic straits to meet what will be crushing funding obligations under existing law; and (3) how to encourage savings for the long term in the face of current market conditions.

  ABC's 10-Point Plan looks to the tax law to help individuals in three areas:

  (1) Help more middle-class taxpayers rebuild their retirement nest egg (or encourage them to start one) by expanding the income level at which the existing Saver's Credit would be available;

  (2) Allow retirees a chance to keep their retirement accounts whole while catching the market on the upswing by temporarily suspending required minimum distribution rules; and

  (3) Allow hard-strapped defined contribution plan and IRA participants to withdraw up to $10,000 with easy repayment terms.

Funding of Defined Benefit Plans

  "Current funding rules for defined benefit (D plans create enormous problems for both employers and employee," stated Kent Mason, partner, Davis & Harman LLP, counsel for ABC. According to ABC, current funding rules will precipitate widespread freezes of existing DB plans, will force companies to divert funds that could otherwise be used to help build their businesses, and will mean fewer jobs as companies cut back to meet their funding obligations.

  ABC's legislative proposals on the funding front all center around the need to delay certain of the additional requirements imposed on pension plans by the Pension Protection Act of 2006 (PPA) (P.L. 109-280). According to ABC, Congress never intended a quick transition from prior law to PPA rules to have such a draconian effect due to unanticipated "extreme market conditions." Mason emphasized that ABC was not proposing the repeal of the PPA but, rather, a slower transition of certain requirements. Specifically, as part of the 10-Point Plan, ABC recommends in connection with mandatory funding requirement:

  --To permit pension plans to smooth out unexpected asset losses for 36 months for 2009 through 2010;

  --To allow smoothing of asset losses, even in excess of 10-percent of the fair market value of assets;

  --To roll back for 2009 the phase-in of funding levels to 92-percent of full funding to pay projected benefits and removing cliff vesting at 100 percent for those companies with assets that miss the 92-percent target;

  --To permit 10-year amortization (rather than seven-year) of 2008 losses recognized in 2009; and

  --To permit a flexible interpretation of other PPA provisions on funding elections to avoid benefit restrictions and keep plans viable.

Encouragement of Future Participation

  ABC's 10-Point Plan also includes a recommendation to enhance financial education to encourage individuals to save for retirement. Dudley pointed to model notice that is being developed by the Department of Labor to help employers inform employees about the need to save for retirement, to diversify those savings and to continue to save even in a declining market. She mentioned that some employers have avoided giving employee/participants any investment advice over fears of being sued for incorrect recommendations. ABC also recommends that the Department of Education develop a five-year program to enhance financial literacy starting in the schools.

  Finally, in taking a long-range view to retirement savings, ABC recommends increasing the start-up tax credit for small business retirement plans. Under the recommendation, 75-percent of costs would be covered (rather than 50 percent), with a three year maximum credit increased from $500 to $2,000.

  By George Jones, CCH News Staff

CCH (cch.taxgroup.com) reports:

  "In these unprecedented times, it is important to get guidance out quickly," David Shapiro from the Treasury Department's Office of Tax Policy said on October 22, as the financial markets appear to be stabilizing after massive intervention by the federal government. Shapiro, who spoke at a program sponsored by the Taxation Section of the District of Columbia Bar Association, highlighted some of the Treasury's recent market-related guidance items, such as guidance for auction rate securities.

Auction Rate Securities

  Auction rate securities are municipal bonds, preferred stock or other items whose interest rates are reset every seven to 49 days through an auction process. When auctions for auction rate securities started to fail earlier this year, the Treasury and the IRS responded with guidance. Notice 2008-55, I.R.B. 2008-27, 11, was issued in June and addresses the effect of adding liquidity facilities to support certain auction rate preferred stock on the equity character of stock. In September, the Treasury Department and the IRS issued Rev. Proc. 2008-58 clarifying settlement offers related to auction rate litigation.

  Shapiro explained that the guidance was not necessarily issued to facilitate settlements, but to achieve some uniformity and consistency in the settlements. "Tens of thousands" of individuals could be affected by these settlements, Shapiro said.

  Under Rev. Proc. 2008-58, the IRS generally will not challenge the position that a taxpayer continues to own the auction rate security when receiving or accepting a settlement offer. Additionally, the IRS will not challenge the position that the taxpayer does not realize any income from receiving or accepting the settlement. These and other criteria generally apply to settlement offers received before June 30, 2009.

Crisis Easing

  On the same day that Shapiro spoke, the Association of Financial Professionals (AFP) reported strong support for the Treasury's Capital Purchase Program (CPP). In an AFP survey, 69 percent of financial professionals said that the CPP would improve corporate access to short-term credit. Under the CPP, the Treasury intends to purchase up to $250 billion of senior preferred shares in participating financial institutions. In exchange, the institutions must agree to caps on the deductibility of executive compensation and so-called golden parachutes.

  "While the economy appears to be shaken, credit looks to be stabilizing," Jim Kaitz, AFP president, said in a statement. "More than three weeks ago, we said that the most pressing issue for business is access to credit. Actions by policymakers have in recent days brought some measure of confidence back to the markets."

  By George L. Yaksick, Jr., CCH News Staff

CCH (cch.taxgroup.com) reports:

  Local ordinances that impose a Kentucky transient room tax on the rental of rooms were inapplicable to Internet businesses (i.e., online travel companies) that do not have ownership or physical control of the rooms they offer for rent. The ordinances impose a transient room tax on a percentage of the rent "...for every occupancy of a suite, room or rooms, charged by all persons, companies, corporations, or other like or similar persons, groups, or organizations, doing business as motor courts, motels, hotels, inns or like or similar accommodations businesses." A county alleged that the online travel companies (OTCs) negotiate with hotels for a discounted or wholesale price for rooms that they then purchase and resell to guests at a marked up or retail rate. The companies pay the transient room tax on the wholesale price but keep the difference between that amount and the amount of tax the guests pay on the retail price. The county claimed the travel companies should pay the tax on the higher retail price. The court found that the OTCs do not meet the definition of "like or similar accommodations businesses." Internet businesses that do not have ownership or physical control of the rooms they offer for rent are not like or similar to motor courts, motels, hotels, or inns. As such, the local taxing ordinances were inapplicable to the OTCs.

Louisville/Jefferson County Metro Government v. Hotels.com, LP , U.S. District Court, Western District of Kentucky, No. 3:06-CV-480-R, September 26, 2008,
¶202-848.

  Other References:

  Explanations at ¶60-480 .

CCH (cch.taxgroup.com) reports:

  Taxpayers have asked the U.S. Supreme Court whether the federal courts lack jurisdiction over the taxpayers' action challenging the District of Columbia unincorporated business tax. The taxpayers are nonresidents of the District who paid unincorporated business tax on their personal incomes as a result of their membership in real estate limited liability companies in the District. They filed an action in the U.S. District Court for the District of Columbia seeking a declaration that the tax violates federal law and the U.S. Constitution.

  The federal court dismissed the action, holding that challenges to District tax assessments, including the imposition of tax, are by federal statute not within federal jurisdiction because Congress granted exclusive jurisdiction over such cases to the District's courts. The court added that this result parallels the mandate of the federal Tax Injunction Act, 28 U.S.C. §1341. This result is not affected by the fact that the District's courts already have rejected an identical challenge in Bender, 906 A.2d 277 (D.C. 2006), cert. denied, 127 S. Ct. 1356 (2007). The U.S. Court of Appeals for the District of Columbia Circuit summarily affirmed the lower court.

  The taxpayers ask the high court whether the exclusive jurisdiction of the District's courts extends beyond challenges to the "assessment" of a tax to challenges to the imposition of a tax, where a tax refund is not sought.

Fernebok v. District of Columbia, U.S. Supreme Court, Dkt. 08-391, petition for certiorari filed September 22, 2008.

CCH (cch.taxgroup.com) reports:

  While the tax provisions of the recently enacted Emergency Economic Stabilization Act of 2008 (HR 1424) may have taken most of the spotlight during the week of September 29, the IRS and Treasury continued releasing guidance on other important tax issues. These topics included the financial markets, exempt organizations compliance, nonqualified deferred compensation and disaster relief.

  Financial Markets. The Treasury is making market-related guidance a priority in light of the present financial crisis. Newly released guidance toward that effort covered several areas:

  Banks and Code Sec. 382(h). For purposes of Code Sec. 382(h), the IRS has assured financial institutions that any deduction properly allowed after an ownership change of a banking corporation with respect to losses on loans or bad debts, or reasonable additions to its bad debt reserve, shall not be treated as a built-in loss or a deduction attributable to periods before the change date (Notice 2008-83).

  Government ownership and Code Sec. 382. The Treasury and the IRS have also announced that they will issue regulations providing that the closing date on which the U.S. government directly or indirectly owns a more-than-50-percent interest in a loss corporation will not be considered a testing date for purposes of Code Sec. 382 (Notice 2008-84).

  Bankruptcy default and Code Sec. 1058(a). The IRS has also provided guidance regarding the application of
Code Sec. 1058(a) to situations involving securities loan agreements where the borrower subsequently defaults as a result of its bankruptcy and the lender uses collateral provided pursuant to the agreement to purchase identical securities (Rev. Proc. 2008-63). Subject to several conditions, the purchase of the identical securities will not result in the loss of tax-free treatment under Code Sec. 1058(a) for the lender.

  Bail-out contributions and Code Sec. 382. The IRS announced it would issue regulations under Code Sec. 382(l)(1), to provide that a capital contribution is not part of a plan to purchase a corporation with net operating loss (NOL) carryforwards and use those carryforwards to offset the purchaser's other income solely because it was made within the two year period before the change of ownership (Notice 2008-78).

  Exempt Organizations Compliance. The IRS is sending compliance questionnaires focused on unrelated business income, endowments, and executive compensation practices to approximately 400 U.S. colleges and universities (IR-2008-112). The questionnaires are part of the IRS's effort to study the tax-exempt community.

  Ronald Schultz, IRS senior technical advisor, Tax Exempt and Government Entities Division (TE/GE), warned tax-exempt organizations and their advisors on October 1 that major changes to compensation reporting in the new 2008 Form 990 require answers to a whole new set of questions, as well as a fresh understanding of how to translate those answers into compliance.

  The IRS has issued guidance amending and supplementing
Notice 2008-41, I.R.B. 2008-15, 742, regarding reissuance standards for tax-exempt bonds (Notice 2008-88). The guidance expands the circumstances and time periods during which a state or local government may repurchase bonds it issued without resulting in a reissuance or retirement of such bonds under relevant tax code provisions.

  Nonqualified Deferred Compensation Although the IRS will continue not to issue advance rulings or determination letters on the income tax consequences of establishing, operating, or participating in a
Code Sec. 409A nonqualified deferred compensation plan, the agency has announced that it may issue rulings on the application of certain other tax provisions to participating taxpayers (Rev. Proc. 2008-61).

  Mortality Tables The IRS has updated the static mortality tables to be used under Code Secs. 417 and 430 for purposes of calculating the funding target and other items for valuation for defined benefit plans (Notice 2008-85).

  The IRS has provided guidance on the requirements of defined benefit plan sponsors wishing to use substitute mortality tables in determining the plan's minimum funding requirements, as allowed under Code Sec. 430(h)(3)(C) (Rev. Proc. 2008-62). This is an update of Rev. Proc. 2007-37, I.R.B. 2007-25, 1433, which was based on proposed regulations.

  Disaster relief. The IRS recently published a list of the counties and parishes in the United States that have suffered exceptional, severe or extreme drought during the 12 months ending August 31, 2007, sufficient to extend the livestock replacement period (Notice 2008-86). As authorized in Code Sec. 1033(e)(2)( and implemented in Notice 2006-82, I.R.B. 2006-39, 529, an extended replacement period is available for livestock sold on account of extreme weather conditions until the end of the first taxable year ending after the first drought-free year.

  Korb Departing. IRS Chief Counsel Donald L. Korb has announced his intention to leave his current position, effective January 19, 2009. Korb stated on October 2 that he was announcing his resignation at this time to give notice to "those many qualified individuals" who may wish to apply for the position as his successor. Korb will have served in the position of IRS Chief Counsel for four years and nine months at the time of his departure.

  By Torie Cole, CCH News Staff

CCH (cch.taxgroup.com) reports:

  President Bush on October 3 signed a massive financial rescue package, the Emergency Economic Stabilization Act of 2008, Energy Improvement and Extension Act of 2008 and Tax Extenders and Alternative Minimum Tax Relief Act of 2008 (HR 1424) that authorizes the Secretary of the Treasury to establish a troubled assets relief program, provides a temporary alternative minimum tax (AMT) fix, extension of expiring tax provisions and energy tax incentives. The president signed the Wall Street rescue package only a few hours after it was passed in the House by a vote of 263 to 171. The Senate passed the measure on October 1 (TAXDAY, 2008/10/02, C.1).

  The legislation grants the Treasury Department up to $700 billion to purchase assets from troubled financial companies in an effort to jump-start the flow of credit in the economy. However, the bill inserts greater congressional oversight over the flow of funds to the Treasury and includes greater protections for taxpayers. It also lifts the ceiling on the Federal Deposit Insurance Corporation's (FDIC) guarantee on bank deposits from $100,000 to $250,000. Other provisions of the bill limit the so-called "golden parachutes" that executives of failed institutions can receive if their firms take advantage of the Treasury bailout plan.

  The FDIC provision appeared to be a crucial component for garnering additional House votes after the chamber on September 29 rejected the Emergency Economic Stabilization Bill of 2008 (HR 3997) by a vote of 228 to 205 (TAXDAY, 2008/09/30, C.1). House Republicans voting against that measure totaled 133, with 95 Democrats joining them. The defeat of the original version was fueled by Republicans' anger over what they perceived as the overly-partisan nature of the bailout debate.

  The president, shortly after House passage of the rescue bill, commended congressional leaders for working together in a timely manner to pass the measure. "By coming together on this legislation, we have acted boldly to help prevent the crisis on Wall Street from becoming a crisis in communities across our country," Bush said in the Rose Garden. "We have shown the world that the United States of America will stabilize our financial markets and maintain a leading role in the global economy," Bush stated.

  Treasury Secretary Henry M. Paulson said the government will move rapidly, but also methodically, to implement the new authorities. "Transparency throughout this process will be important, and I look forward to providing regular updates as we move ahead to implement this strategy," he said.

  Paulson said the broad authorities in the legislation, combined with existing regulatory authorities and resources, "give us the ability to protect and recapitalize our financial system as we work through the stresses in our credit markets."

  From a tax administration perspective, IRS Commissioner Douglas H. Shulman praised Congress for passing the AMT patch and tax extenders in enough time for the IRS to handle the changes on its tax forms and computer systems. In 2007, AMT and extenders legislation retroactive to the start of 2007 was not enacted under December 26, 2007, putting the IRS behind in accepting and processes 2007 tax forms for many weeks into the 2008 filing season. In a written statement immediately after passage of the legislation, Shulman commented, "Timely passage of the AMT and extenders provisions is a great outcome for the nation's taxpayers. This gives the Internal Revenue Service enough time to prepare for the upcoming tax season."

  House Speaker Nancy Pelosi, D-Calif., called the measure a "much improved" version of the earlier draft. "Our eye now is to the future, to shine the bright light of accountability on what is happening in our financial markets so that it doesn't happen again." House Minority Leader John Boehner, R-Ohio, described the bill as an "imperfect product," but stressed that Congress had a responsibility to act.

  Despite repeated promises not to pass a tax extenders bill that was not fully offset by revenue increases or spending cuts, House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., cast his vote for the bailout bill. The bailout measure included the entire text of HR 6049, as amended by the Senate on September 23 (TAXDAY, 2008/09/24, C.1). Rangel and House Majority Leader Steny L. Hoyer, D-Md., said that they supported the clean energy tax incentives, AMT relief, extensions of expiring business and family tax cuts, disaster relief, mental health parity and other provisions in the bill, even though they did not meet the House pay-as-you-go budget rules.

  The combined cost for all the tax measures, energy, AMT, extenders and other provisions, is $150.496 billion, and the offsets in the package total $43.504 billion. Hoyer said that the addition of the tax provisions, combined with the stock market losses and state financial problems, prompted members to switch their votes to approve the bill. According to Hoyer's office, the 111th Congress will convene on January 6, 2009. However, several Democratic lawmakers said they would return to Capitol Hill in mid-November for party organization meetings.

  The American Bankers Association (ABA) said the legislation would provide "the financial backstop needed to unfreeze the financial markets and provide for greater transparency and accountability for firms that participate in the program."

  By Sarah Borchersen-Keto, Stephen K. Cooper, Paula Cruickshank and George Jones, CCH News Staff

SFC Release: Congress Approves Financial Rescue Plan with Baucus Protections for Taxpayers, Tax Relief to Promote Jobs, Energy, Families

SFC Release: Grassley Praises Signing of Bill to Shield Taxpayers from AMT, Offer Tax Relief for Iowa Disaster Recovery, Continue Tax Incentives for Wind Energy, Tax Relief for College Tuition

Ways and Means Release: Rangel Statement on Financial Rescue Bill

SAP on HR 1424 --Emergency Economic Stabilization Act of 2008, Energy Improvement and Extension Act of 2008, and Tax Extenders and Alternative Minimum Tax Relief Act of 2008

Statement by the President on the Emergency Economic Stabilization Act of 2008

White House Fact Sheet on Safeguarding the Financial Future of American Workers and Families

Treasury Department News Release, TDNR HP-1175
 

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Legislation subjects specified individuals to electronic California personal income tax payment requirements, accelerates the changes made to the nonresident group return requirements made earlier in the legislative session, expands the Franchise Tax Board's (FT collection authority, and increases various alcohol-related license fees.

CCH (cch.taxgroup.com) reports:

  Three challenges that an individual raised in connection with his deficiency were dismissed. The Tax Court lacked jurisdiction over penalties imposed under 31 U.S.C. sec. 5321 for the taxpayer's failure to file foreign bank account reports (FBARs) disclosing his Swiss bank accounts. While FBARs had to be filed with the IRS, penalties for failing to file them were not subject to the deficiency procedures that made up the foundation for most Tax Court jurisdiction. Additionally, even if the IRS could use a lien or levy to collect the penalties, and even if the court would have jurisdiction over a challenge to such a lien or levy, the taxpayer had not alleged that the IRS had taken any collection action with respect to the penalties.

  The court also lacked jurisdiction over a deficiency that arose in a year that was not included in the taxpayer's deficiency notice. Finally, it lacked jurisdiction over his challenge to deficiency interest that had not yet been assessed. Since there was no assessment, there was no IRS decision about abating the interest that would be subject to the court's review.

J.B. Williams III, 131 TC No. 6, Dec. 57,547

Other References:

 
Code Sec. 7442

  CCH Reference - 2008FED ¶42,058.122

  CCH Reference - 2008FED ¶42,058.139

  CCH Reference - 2008FED ¶42,058.151

  Tax Research Consultant

  CCH Reference - TRC LITIG: 6,112
CCH Reference -
TRC LITIG: 6,114
CCH Reference -
TRC LITIG: 6,116
 

CCH (cch.taxgroup.com) reports:

  The IRS, the Department of Labor's Employee Benefits Security Administration ("EBSA") and the Pension Benefit Guaranty Corporation ("PBGC") have provided additional relief to certain employee benefit plans because of damage caused by Hurricane Ike. This additional relief applies to plans located in the Texas counties of Brazoria, Chambers, Galveston, Harris, Jefferson, Liberty, Montgomery or Orange as of September 7, 2008.

Pre-Pension Protection Act Plans

  For plan years beginning before January 1, 2008, if the date for making a contribution or applying for a waiver falls within the period beginning on September 7, 2008, and ending on December 15, 2008, then the deadline for that contribution or application is postponed to December 15, 2008. In addition, for any plan with an extended contribution date, a contribution for any plan year before the premium payment year may be taken into account if it is made on or before the earlier of: (1) the extended date or (2) the date of the plan's variable-rate premium filing for the premium payment year.

Single Employer Plans

  For plan years beginning after December 31, 2007, if the date for making a contribution, applying for a waiver, or furnishing a required notice falls within the period beginning on September 7, 2008, and ending on December 15, 2008, then the date for making that contribution, application or notice is postponed to December 15, 2008. If the date for certification of the adjusted funded target attainment percentage falls within the period beginning on September 7, 2008, and ending on December 15, 2008, then the date by which such certification must be made is postponed to December 15, 2008. Moreover, a contribution for any plan year before the premium payment year may be taken into account if it is made on or before the earlier of: (1) the extended contribution due date or (2) the date of the plan's variable-rate premium filing for the premium payment year.

Multiemployer Defined Benefit Plans

  If the deadline by which a sponsor of an endangered or critical status plan must adopt a funding improvement plan or a rehabilitation plan falls within the period beginning on September 7, 2008, and ending on December 15, 2008, then that deadline is postponed to December 15, 2008. If the date by which the plan actuary must certify whether or not the plan is in endangered status for the plan year and whether or not the plan is or will be in critical status for the plan year falls within the period beginning on September 7, 2008, and ending on December 15, 2008, then the date by which that certification must be made is postponed to December 15, 2008. However, the date by which the sponsor of a plan that is in critical or endangered status must adopt a funding improvement plan or a rehabilitation plan continues to be determined based on the original deadline for the certification of the plan's status.

Notice 2008-87, 2008FED ¶46,601

Other References:

 
Code Sec. 6081

  CCH Reference - 2008FED ¶36,789.213

 
Code Sec. 7508A

  CCH Reference - 2008FED ¶42,687C.22

  Tax Research Consultant

  CCH Reference - TRC FILEIND: 15,204.25
CCH Reference - TRC FILEBUS: 15,110
 

CCH (cch.taxgroup.com) reports:

  The IRS has provided procedures for taxpayers on how to make the election to no longer maintain a surety bond or Treasury Direct Account (TDA) to avoid recapture of the low-income housing credit. The guidance is aimed at taxpayers who are maintaining a surety bond or TDA to satisfy the low-income housing tax credit recapture exception in Code Sec. 42(j)(6), as in effect on or before July 30, 2008. The procedures apply to all taxpayers that disposed of a qualified low-income building on or before July 30, 2008, for which the IRS has approved a Form 8693, Low-Income Housing Credit Disposition Bond. The election is allowed by section 3004(i)(2)((ii) of the Housing Tax Act of 2008 (P.L. 110-289).

  A taxpayer who seeks to make the election must submit a letter to the IRS containing the following information: (1) the taxpayer's name, address, and taxpayer identification number; (2) a statement affirming that the taxpayer reasonably expects that the building will continue to be operated as a qualified low-income building for the remainder of the building's compliance period; and (3) an "under penalties of perjury" declaration. The taxpayer must attach the signature page of an IRS-approved Form 8693 to the letter and mail to: Internal Revenue Service, Box 331, Attn: LIHC Unit, DP 607 South, Philadelphia Campus, Bensalem, Pa. 19020.

Rev. Proc. 2008-60, 2008FED ¶46,600

Other References:

 
Code Sec. 42

  CCH Reference - 2008FED ¶4385.72

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 54,222

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  For purposes of California corporation franchise and income, personal income, and property taxes, taxpayers affected by qualifying natural disasters during 2007 and 2008 will be given tax relief in the form of carrybacks or carryovers of specified losses and extension of property tax exemptions during a rebuilding process.

  For losses caused by the disasters in each of those years, qualifying taxpayers can elect to claim a corporation franchise or income tax or personal income tax deduction on the tax return for the preceding year. Excess disaster losses may be carried forward for 15 years. Persons whose homes were destroyed can retain the homeowners' exemption from property tax on their property while they are in the process of rebuilding.

  Qualifying disasters include:

  -- wildfires during the 2007 calendar year in Inyo, Los Angeles, Orange, Riverside, San Bernardino, San Diego, Santa Barbara, and Ventura counties;

  -- strong winds on October 2007 in Riverside County;

  -- wildfires during May, June, or July 2008 in the counties of Butte, Kern, Mariposa, Mendocino, Monterey, Plumas, Santa Clara, Santa Cruz, Shasta, and Trinity;

  -- wildfires in July 2008 in Santa Barbara County;

  -- severe rainstorms, floods, landslides, or accumulation of debris on July 12, 2008, in Inyo County; and

  -- wildfires during May 2008 in Humboldt County.

Ch. 386 (S.B. 1064), Laws 2008, effective September 27, 2008.
 

CCH (cch.taxgroup.com) reports:

  California Gov. Arnold Schwarzenegger has signed two bills that were enacted as part of the budget compromise deal that impact corporation franchise and income, personal income, and sales and use taxes.

  As reported earlier (TAXDAY, 2008/09/18, S.4), one of the budget trailer bills (A.B. 1452) limits corporation franchise and income tax and personal income tax business credits; allows unitary group members to assign corporation franchise and income tax credits to other members of the unitary group; temporarily suspends net operating losses (NOLs), but thereafter conforms to the federal NOL carryback and carryover provisions; authorizes an amnesty program for unpaid corporation franchise and income and personal income taxes; requires limited liability companies (LLCs) to make estimated LLC fee payments; and expands the existing rebuttable presumption that a vehicle shipped or brought into California within 90 days from the purchase date is subject to use tax to apply to vehicles, vessels, and aircraft purchased out of state within 12 months of the purchase date.

  However, as a result of the budget negotiations between the governor and key California legislative leaders entered into after the governor threatened to veto the budget bill passed by the California Legislature, the governor has also signed another bill (SBx1 28) that repeals the tax amnesty program enacted by A.B. 1452, accelerates the collection of estimated corporation franchise and income and personal income taxes, enacts a 20% underpayment penalty for businesses with corporation franchise and income tax underpayments exceeding $1 million, clarifies the business credit limitation enacted by A.B. 1452, and specifies an operative date for the LLC estimated tax payment provisions enacted by A.B. 1452.

  Below is a summary of the provisions contained in both A.B. 1452 and SBx1 28.

CCH (cch.taxgroup.com) reports:

  The IRS has issued guidance amending and supplementing
Notice 2008-41, I.R.B. 2008-15, 742 (TAXDAY, 2008/03/26, I.1), regarding reissuance standards for tax-exempt bonds. The guidance expands the circumstances and time periods during which a state or local government may repurchase bonds it issued without resulting in a reissuance or retirement of such bonds for purposes of the provisions of the tax code pertaining to the tax-exempt status of municipal bonds. The new, relaxed rules are intended to provide flexibility in order to facilitate liquidity and stability in the short-term sector of the tax-exempt bond market.

 
Notice 2008-41 provided a special, temporary rule allowing issuers to repurchase auction rate bonds without triggering a reissuance or retirement of the repurchased bonds. The special exemption applied only to bonds purchased before October 1, 2008, and held for not more than 180 days after purchase. Otherwise, the repurchase of a tax-exempt bond by its governmental issuer will generally cause a retirement of the bond and the resale of that bond will generally be considered a reissuance for purposes of the tax-exempt bond rules.

  The new guidance expands this exception in several ways. First, the exception is expanded so that it applies to qualified tender bonds and tax-exempt commercial paper, as well as auction rate bonds. Second, the exception's time frame has been expanded to apply to qualifying bonds purchased on or before December 31, 2009, and held no later than that date. Finally, the final date for purchase of bonds pursuant to qualified tender rights is extended from October 1, 2008, to December 31, 2009.

Notice 2008-88, 2008FED ¶46,599

Other References:

 
Code Sec. 103

  CCH Reference - 2008FED ¶6602.453

 
Code Sec. 148

  CCH Reference - 2008FED ¶7889.13

 
Code Sec. 150

  CCH Reference - 2008FED ¶7933.023

  CCH Reference - 2008FED ¶7933.40

  Tax Research Consultant

  CCH Reference - TRC SALES: 51,052.25

CCH (cch.taxgroup.com) reports:

  The IRS is sending compliance questionnaires that focus on unrelated business income, endowments, and executive compensation practices to approximately 400 U.S. colleges and universities. The questionnaires are part of the IRS's effort to study the tax-exempt community and are being sent to a cross-section of small, mid-sized, and large private and public four-year colleges and universities.

  The information requested includes: how the schools report revenues and expenses from trade or business activities; how they classify their activities as exempt or taxable; how they calculate and report income or losses on taxable activities; how they invest and use endowment funds; and how they determine the compensation of certain highly paid individuals. The information gathered will help the IRS identify issues that may need further scrutiny or more outreach and education.

  The IRS expects to receive responses within the next several months. It will analyze the results and conduct examinations of a sample number of organizations. It expects to issue a report on the project in 2009.

IR-2008-112,
2008FED ¶46,598

SFC Press Release: Sen. Grassley Comments on IRS Questionnaire of Colleges, Universities

Other References:

 
Code Sec. 501

  CCH Reference - 2008FED ¶22,609.1975

  Tax Research Consultant

  CCH Reference - TRC EXEMPT: 3,300

CCH (cch.taxgroup.com) reports:

  As previously established in Rev. Rul. 2008-47 (I.R.B. 2008-39, 760; TAXDAY, 2008/08/29, I.1), the IRS announced that the interest rates for the calendar quarter beginning October 1, 2008, will be six percent for overpayments (five percent in the case of a corporation), six percent for underpayments and eight percent for large corporate underpayments. The interest rate for the portion of a corporate overpayment exceeding $10,000 is 3.5 percent. The interest rates are computed by using the federal short-term rate based on daily compounding determined during August 2008.

  The Internal Revenue Code provides that the rate of interest is to be determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus three percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus three percentage points, and the overpayment rate is the federal short-term rate plus two percentage points. The rate for large corporate underpayments is the federal short-term rate plus five percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half of a percentage point.

IR-2008-111,
2008FED ¶46,597

Other References:

 
Code Sec. 6601

  CCH Reference - 2008FED ¶174.01

  CCH Reference - 2008FED ¶175.01

  CCH Reference - 2008FED ¶175.30

 
Code Sec. 6621

  CCH Reference - 2008FED ¶39,455.01

  CCH Reference - 2008FED ¶39,455.51

 
Code Sec. 6622

  CCH Reference - 2008FED ¶39,465.01

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 33,204.15
CCH Reference - TRC PENALTY: 9,152
 

CCH (cch.taxgroup.com) reports:

  By a vote of 74 to 25, the Senate on October 1 overwhelmingly approved a multi-billion dollar financial rescue package (HR 1424) consisting of the Emergency Economic Stabilization Bill of 2008, Senate-passed tax extenders and an increase in federal insurance of bank deposits to $250,000. However, House Democrats' resistance to revenue offsets could lead to defeat of the revised plan. The House defeated a previous version of the rescue package by a vote of 228 to 205 on September 29 (TAXDAY, 2008/09/30, C.1).

  President Bush, in a written statement, applauded passage of the rescue package and said the Senate amendments should help to win bipartisan support in the House. Bush said the bill will provide "financial security for all Americans," noting it will help those who need to borrow money to purchase a car or to pay for college education. The $700 billion measure also is designed to assist state and local governments that rely on the credit markets to fund basic services, the president said.

  House Republicans prefer the Senate tax package, which is only partially offset, to the one offered by House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y. His proposal calls for offsets for all but disaster tax relief and a one-year patch for the alternative minimum tax (AMT). Rangel charged that Senate leadership's decision to add their extenders package to the rescue bill was an "unprecedented gamble" that would most likely lead to failure in the House. House Majority Leader Steny L. Hoyer, D-Md., said that House leadership on both sides of the aisle would talk to members and, if there is bipartisan, majority support for the Senate package, they would most likely vote on the measure on October 3. If not, the House might vote over the weekend, he said.

  The Senate strategy for a revised rescue bill included an increase in FDIC insurance for bank account deposits from $100,000 to $250,000 plus the entire text of HR 6049, as amended by the Senate on September 23 (TAXDAY, 2008/09/24, C.1), including clean energy tax incentives, AMT relief, extensions of expiring business and family tax cuts, disaster relief, mental health parity and other provisions. The combined cost for all measures, energy, AMT, extenders and other provisions, is $150.496 billion, and the offsets in the package total $43.504 billion.

  Energy provisions are completely offset while extenders and other provisions are partially offset. The $64.1 billion cost of the AMT fix is not offset. Both the House and Senate have previously passed AMT relief without offsets in 2008.

  Senate Finance Committee Chairman Max Baucus, D-Mont., defended the addition of the tax legislation to the rescue plan, saying it would "ensure that regular working Americans get the financial help they need in this time of crisis." Senate Majority Leader Harry Reid, D-Nev., expressed optimism that the Senate's revised rescue plan, which was offered as a substitute amendment to a House-passed mental health parity bill (HR 1424), would ultimately garner the full support of all parties involved in the negotiations. "We are all committed to keeping the progress of the rescue package moving forward. I am hopeful and confident that all sides, the House, the Senate and the White House, will continue working together toward that goal," said Reid.

House Reaction to Senate Package

  Prior to the vote, Hoyer and Rangel criticized the Senate's attempt to pass the tax extenders bill by adding it to the economic bailout measure. The legislative strategy, while possibly gaining GOP votes in the House, will likely run afoul of the group of 49 fiscally conservative Democrats known as the Blue Dogs. That group has maintained that the House's pay-as-you-go budget rules require that tax cuts be offset by revenue increases or spending cuts. Hoyer told reporters that the decision to add extenders, AMT and energy tax provisions was controversial and could result in lower Democratic support.

  Rangel was blunter in his criticism of the Senate action. "Apparently, in the Senate, they just decide what can get 60 votes and insist the House follow suit," he said. "There is something wrong with this, not just for this Congress, but for those to follow." Rangel said House Democrats support the tax incentives, but do not want to increase the federal budget deficit. He hinted that the measure should be sweetened to win Democratic votes in the House by extending unemployment insurance benefits, food stamps and help for families facing higher fuel costs this winter.

  By Jeff Carlson, Stephen K. Cooper and Paula Cruickshank, CCH News Staff

Emergency Economic Stabilization Act of 2008, Senate Amendment in the Nature of a Substitute,
HR 1424

JCT Estimated Revenue Effects of the Tax Provisions Contained in an Amendment in the Nature of a Substitute to HR 1424, Scheduled for Consideration on the Senate Floor on October 1, 2008, JCX-78-08

SFC Staff Summary: Tax Proposals in Troubled Asset Relief Program (TARP)

SFC Press Release: Baucus Comments on Next Steps on Legislation Containing Energy Tax Incentives, AMT Relief, Extensions of Expiring Tax Cuts

House Ways and Means Committee Release: Rangel Statement on Senate Financial Rescue Bill

SAP on Senate Amendments to HR 1424, Emergency Economic Stabilization Act of 2008, Energy Improvement and Extension Act of 2008, and Tax Extenders and Alternative Minimum Tax Relief Act of 2008
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Legislation is enacted that makes several changes regarding the administration of the California sales and use tax law, the motor vehicle fuel tax law, and the diesel fuel tax law. The bill:

  -- authorizes the Department of Industrial Relations (DIR) to share information it collects as part of its normal investigative and enforcement efforts with the California State Board of Equalization (SBE);

  -- reinstates the voluntary use tax reporting program;

  -- deletes the January 1, 2009, sunset date of the Managed Audit Program; and

  -- makes a number of changes regarding train operators who transport fuel products.

CCH (cch.taxgroup.com) reports:

  A property owner has asked the U.S. Supreme Court whether the application of a California statute that makes property tax sales conclusively valid violated the owner's due process rights in the circumstances of the sale of the owner's property. The California Court of Appeal rejected the owner's objections to the method by which notice of the sale was given and held that the methods were not unreasonable. (TAXDAY, 2008/04/04, S.7) The California Supreme Court refused to review the matter.

  The same property owner has a separate petition arising from the same transaction and raising issues already pending with the U.S. Supreme Court. (TAXDAY, 2008/06/06, S.5)

  Subscribers to CCH Tax Research NetWork can view the new petition.

Indyway Investment v. Cooper, U.S. Supreme Court, Dkt. 08-392, petition for certiorari filed September 22, 2008.
 

CCH (cch.taxgroup.com) reports:

  The Alabama Supreme Court reversed a previously reported Court of Civil Appeals decision (TAXDAY, 2007/12/05, S.2) and held that a taxpayer claiming a refund of unconstitutional franchise taxes was entitled to summary judgment regarding the Department of Revenue's (DOR's) right to assert a reliance-hardship defense. Although the DOR asserted that it had relied on now overturned precedent and that granting a refund to the taxpayer and similarly situated foreign corporations would create an extreme hardship for the state, the DOR had abandoned its reliance on the overturned precedent before the taxpayer made its first franchise tax payment in 1999. Because the DOR could not satisfy the reliance portion of the reliance-hardship defense, the defense was inapplicable to the taxpayer's franchise tax refund claim as a matter of law.

  In addition, the Supreme Court affirmed the decision of the Court of Civil Appeals that reversed a summary judgment for the DOR denying the taxpayer a refund because it failed to identify a specific domestic competitor and thereby failed to prove that it had suffered any injury. Because the U.S. Supreme Court held in South Central Bell Telephone Co. v. Alabama , 526 U.S. 160 (1999) that, under the Commerce Clause, Alabama's former franchise tax scheme was unconstitutionally discriminatory against foreign corporations, the taxpayer was discriminated against as a matter of law. The Supreme Court also determined that, under McKesson Corp. v. Division of Alcoholic Beverages & Tobacco , 496 U.S. 18 (1990), the taxpayer was not required to name specific domestic entities that mirrored it in corporate structure and operation.

  Because numerous other legal and factual issues were raised, including the question of the amount of franchise taxes the taxpayer actually would have paid in 1999 had it been assessed as a domestic corporation, that have not been addressed by any court, the case was remanded to the Court of Civil Appeals for remand to the trial court for further proceedings consistent with the Supreme Court's decision.

Ex Parte Surtees (In re: Vulcan Lands, Inc. v. Surtees). , Alabama Supreme Court, No. 1070386, 1070399 , September 26, 2008, ¶201-330

  Other References:

  Explanations at ¶5-101

CCH (cch.taxgroup.com) reports:

  A non-profit teaching hospital was not precluded as a matter of law from claiming a refund of amounts paid under the Federal Insurance Contributions Act (FICA) on the grounds that the student exception applied to its medical residents. The government argued that the student exception does not apply to medical residents and that when Congress repealed the intern exception from FICA tax, it intended to make both interns and medical residents ineligible for the student exception. However,
Code Sec. 3121(b)(10) does not categorically exclude medical residents from eligibility for the student exception. Instead, a case-by-case analysis is required to determine the character of an employer as a school, college or university, and its relationship to an employee claiming student status. A teaching hospital could be regarded as part of the university with which it is affiliated for purposes of the student exception, and medical school graduates participating in postgraduate medical residencies at such university hospitals could be regarded as students even though they already possess a medical degree. Moreover, the repeal of the intern exception is irrelevant to the determination of whether medical residents qualify for the student exception.

  Affirming a DC Ill. decision, 2006-2 USTC ¶50,520.

University of Chicago Hospitals, CA-7, 2008-2 USTC ¶50,566

Other References:

 
Code Sec. 3401

  CCH Reference - 2008FED ¶33,533.23

  CCH Reference - 2008FED ¶33,538.558

  Tax Research Consultant

  CCH Reference - TRC PAYROLL: 3,122

CCH (cch.taxgroup.com) reports:

  An individual was not entitled to use the mark-to-market accounting method for trading losses he incurred for the tax year at issue because he did not make a timely mark-to-market election and did not qualify for a time extension under Reg. §301.9100-3 to file the election. He did not file his statement of election on the due date for his tax return, but filed it three years later with his amended return.

  His argument that he did not have a reasonable amount of time to file the election because of the short period of time between the date of issuance of Rev. Proc. 99-17, 1999-1 CB 503, and the due date for making the election was without merit. The individual could not have made a timely election, even if Rev. Proc. 99-17 had been issued earlier, because he admitted that he became aware of Code Sec. 475(f) almost three years after the due date for making the election.

  Further, the individual was not granted an extension of time to file the election because he used hindsight in filing the late election and, therefore, did not act reasonably and in good faith. He was not permitted to take advantage of his subsequently acquired knowledge that he incurred trading losses and, several years later, elect retroactively the most advantageous accounting method.

  Affirming a DC Calif. decision, 2006-2 USTC ¶50,529.

K.Z. Acar, CA-9, 2008-2 USTC ¶50,564

Other References:

 
Code Sec. 475

  CCH Reference - 2008FED ¶22,268.20

  CCH Reference - 2008FED ¶44,014B.10

  Tax Research Consultant

  CCH Reference - TRC SALES: 45,360
CCH Reference - TRC SALES: 45,360.10
CCH Reference - TRC SALES: 45,360.15
 

CCH (cch.taxgroup.com) reports:

  For purposes of Code Sec. 382(h), any deduction properly allowed after an ownership change of a corporation that is a bank with respect to losses on loans or bad debts, including any deduction for a reasonable addition to a reserve for bad debts, shall not be treated as a built-in loss or a deduction attributable to periods before the change date. This guidance does not affect the application of any provision of the IRC except
Code Sec. 382. Banks may rely on this guidance until further guidance is issued.

Notice 2008-83, 2008FED ¶46,596

Other References:

 
Code Sec. 382

  CCH Reference - 2008FED ¶17,115.40

  Tax Research Consultant

  CCH Reference - TRC NOL: 33,250

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The IRS has provided guidance on the requirements to be satisfied by a sponsor of a defined benefit plan wishing to use substitute mortality tables in determining the plan's minimum funding requirements, as allowed under Code Sec. 430(h)(3)(C). This is an update of Rev. Proc. 2007-37, I.R.B. 2007-25, 1433, which was based upon proposed regulations. The update is necessary due to the need to reflect final regulations published in the Federal Register on July 31, 2008 (T.D. 9419,
TAXDAY, 2008/07/31, I.1).

  The following changes were made to reflect the provisions of the final regulations:

  --guidance regarding the required experience study reflect the final regulation's grant of authority to use a period of up to five years and clarify that the experience study period used to develop unadjusted base tables must coincide with the experience study period used to demonstrate credible mortality experience;

  --reflection of the extended October 1, 2008 deadline for submitting requests to use substitute mortality tables to be used for plan years beginning in 2009;

  --reflection of the revised definition of "Base Year" used in the final regulations;

  --a new subsection allowing plans within a permissive group to use different experience study periods if the plans have different plan years;

  --reflection of the increased length of the period used to demonstrate lack of credible mortality experience if an experience study period is longer than four years;

  --guidance for demonstrating lack of credible mortality experience when different experience study periods are used by a permissive group;

  --permission to use alternative means of demonstrating lack of credible mortality experience;

  --elimination of one set of sample annuity values with respect to nonannuitant mortality tables;

  --adjustments to the date of birth used for annuity values; and

  --the term "newly acquired" was changed to "newly affiliated" throughout the procedure to reflect the change in the final regulation's language.

  This procedure applies to all requests to use substitute mortality tables submitted on or after December 1, 2008. Requests submitted prior to December 1, 2008 may choose to follow this procedure or that prescribed in Rev. Proc. 2007-37.

Rev. Proc. 2008-62, 2008FED ¶46,592

Other References:

 
Code Sec. 430

  CCH Reference - 2008FED ¶20,161.032

  CCH Reference - 2008FED ¶20,161.60

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 30,556

CCH (cch.taxgroup.com) reports:

  The IRS has provided the static mortality tables to be used under Code Sec. 430(h)(3)(A) for purposes of calculating the funding target and other items for valuation dates occurring during calendar years 2009 through 2013, and modified "unisex" mortality tables for use in determining minimum present value under Code Sec. 417(e)(3) for distributions with annuity starting dates that occur during stability periods beginning in calendar years 2009 through 2013.

  The mortality tables described in Code Sec. 430(h)(3)(A) are also used to determine current liability under Code Sec. 412(l)(7) of the Code for nondisabled participants. Furthermore, the same mortality assumptions that apply for purposes of Code Sec. 430(h)(3)(A) and Reg. §1.430(h)(3)-1(a)(2) are used to determine a multiemployer plan's current liability for purposes of applying the full-funding rules of Code Sec. 431(c)(6). For this purpose, a multiemployer plan is permitted to apply either the annually adjusted static mortality tables or the generational mortality tables.

Notice 2008-85, 2008FED ¶46,591

Other References:

 
Code Sec. 412

  CCH Reference - 2008FED ¶19,125.52

 
Code Sec. 417

  CCH Reference - 2008FED ¶17,730.41

 
Code Sec. 430

  CCH Reference - 2008FED ¶20,161.022

  CCH Reference - 2008FED ¶20,161.60

 
Code Sec. 431

  CCH Reference - 2008FED ¶20,181.033

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 30,556

CCH (cch.taxgroup.com) reports:

  The IRS has published a list of the counties and parishes in the United States that have suffered exceptional, severe or extreme drought during the 12 months ending August 31, 2007, sufficient to extend the livestock replacement period. As authorized in Code Sec. 1033(e)(2)( and implemented in Notice 2006-82, I.R.B. 2006-39, 529, an extended replacement period is available for livestock sold on account of extreme weather conditions until the end of the first taxable year ending after the first drought-free year. For this purpose, the 12-month period that ended on August 31, 2007, was not a drought-free year for a region that includes any county on the IRS list.

Notice 2008-86, 2008FED ¶46,589

Other References:

 
Code Sec. 1033

  CCH Reference - 2008FED ¶29,650.127

  Tax Research Consultant

  CCH Reference - TRC SALES: 27,064.25
CCH Reference - TRC FARM: 3,206.10
 

CCH (cch.taxgroup.com) reports:

  House lawmakers had planned to leave Washington, D.C., on September 29, thereby ending stalled negotiations with the Senate and forcing Senate lawmakers to accept their package of tax extenders, energy incentives and alternative minimum tax (AMT) relief bills. However, the failure of the House to pass the Emergency Economic Stabilization Bill of 2008 (HR 3997), will require lawmakers to return to Washington as early as October 1. Since work must continue on a bailout plan for the economy, House and Senate lawmakers might also get another chance to work out their difference on the tax bills.

  House Ways and Means Committee member Jim McDermott, D-Wash., said the Senate has "played all kinds of games with us, so we though we could get out of here without having to have another round." McDermott said the failure of the bailout bill means that House lawmakers could be back in Congress for another couple of weeks, thereby leaving lots of time for a continued standoff between the House and Senate.

  Two energy incentive and extender tax bills were unveiled by House Ways and Means Chairman Charles B. Rangel, D-N.Y., late on September 28, but Democratic leadership decided not to bring them up for a vote when it became clear that the Senate would reject them. Rangel had hoped that the Energy Improvement and Extension Bill of 2008 (HR 7201) and the Temporary Tax Relief Bill of 2008 (HR 7202) would generate support in the Senate because they include modified energy tax incentives and added rural schools provisions.

  Senate Finance Committee Chairman Max Baucus, D-Mont., said the 60 votes necessary to pass House tax legislation are not available, after another attempt failed on September 29. GOP lawmakers do not believe the tax extenders, energy incentives or disaster relief bills should be offset by tax increases, Baucus said. He told reporters that House and Senate lawmakers have not communicated with one another and that the gulf between the two legislative bodies is resulting in a lack of movement on the legislation.

  "The larger issue is the House and Senate just don't talk to one another and work out an understanding," Baucus said. "They're in their little world and we're in our little world, instead of just sitting down like adults, both sides --House and Senate, and working out solutions."

  House Majority Leader Steny H. Hoyer, D-Md., and the group of fiscally conservative House Democrats known as the Blue Dogs, expressed anger that the Senate sent its version of the energy, AMT and extenders tax bill, HR 6049, to the House on September 29 just as lawmakers were preparing to vote on the economic bailout bill. Hoyer said that did not give the House enough time to consider the tax bill since the House planned to adjourn following the bailout vote. Hoyer said the House would reject the Senate strategy to legislate by blunt force. "It is not our intention to come back in a lame-duck session and pass extenders," he said.

  Baucus also said the Senate would not be satisfied with simply approving the House-passed Alternative Minimum Tax (AMT) Relief Bill of 2008 (HR 7005), a $64.6-billion measure that does not include a revenue offset. The measure passed the House on September 24 by a bipartisan vote of 393 to 30 (TAXDAY, 2008/09/25, C.1). He said the Senate views their own bill, HR 6049, as a total package that should not be broken into individual pieces.

  By Stephen K. Cooper, CCH News Staff

Energy Improvement and Extension Act of 2008, HR 7201

Temporary Tax Relief Act of 2008, HR 7202

Renewable Energy and Job Creation Tax Act of 2008, as Passed by the House on September 26, 2008, HR 7060

Congressional Release: Summary of HR 7201 Energy Improvement and Extension Act of 2008

Congressional Release: Summary of HR 7202 Temporary Tax Relief Act of 2008

Senate Finance Committee Release: SFC Chairman Max Baucus Remarks on Extenders
 

CCH (cch.taxgroup.com) reports:

  The House on September 29 voted 228 to 205 to reject the Emergency Economic Stabilization Bill of 2008 (EESA) (HR 3997). House Republicans voting against the measure totaled 133, with 95 Democrats joining them. Treasury Secretary Henry M. Paulson, Jr., will be consulting with President Bush, Federal Reserve Board Chairman Ben Bernanke and congressional leaders as to the next steps, according to a statement released by the Treasury.

  " In the meantime, we stand ready to work with fellow regulators and use all the tools at our disposal, as we have over the last several months, to protect our financial markets and our economy," said Treasury Assistant Secretary for Public Affairs and Director of Policy Planning Michele Davis.

  Prior to the vote, President Bush described the EESA as "a bold bill that will help keep the crisis in our financial system from spreading throughout our economy."

  The bill would have given the Treasury $250 billion immediately, and would have required the president to certify if an additional $100 billion is necessary. The remaining $350-billion disbursement would have been subject to congressional approval. The Treasury would have been required to report on the use of the funds and progress made in addressing the crisis.

  Meanwhile, the EESA also called on the Treasury to modify troubled loans wherever possible to help families keep their homes. It also directed other federal agencies to modify loans that they own or control.

  The legislation also would require companies that sold some of their bad assets to the government to provide warrants so that taxpayers could benefit from any future growth these companies might experience as a result of participation in this program. The legislation would require the president to submit legislation to cover any losses to taxpayers resulting from this program by charging a small, broad-based fee to all financial institutions.

  The EESA provided that, in exchange for participation in the program, companies would lose certain tax benefits and, in some cases, would have to limit executive pay.

  In a September 28 letter from Office of Management and Budget (OM Director Jim Nussle to House Minority Leader John A. Boehner, R-Ohio, Nussle stated that the impact on the taxpayer would be "substantially less" than $700 billion. "No one knows just how much these assets will sell for, but since 90 percent of mortgages are currently being paid on time and in full, we can expect a substantial payback on our investment." He added that, in some cases, if a mortgage asset is purchased at a deep discount from its face value, taxpayers may even see a positive return on their investment.

  House Financial Service member Emanuel Cleaver II, D-Mo., said that his constituents believe the bailout bill would allow the federal government to spend tax dollars to bail out millionaires, or executives with lucrative golden parachutes. Rep. John Tanner, D-Tenn., said lawmakers did a poor job of communicating the seriousness of the economic problems that the bailout bill would address. "Nobody knew for sure what we were avoiding, and nobody knew for sure what we were alleviating," he said.

  Rep. Joseph Crowley, D-N.Y., said the bailout bill failed because of a lack of GOP support. "Outside of war and peace, this is the most important vote people will take in their lives." But Rep. Eric Cantor, R-Va., the GOP Chief Deputy Whip, said more Republicans would have voted for the bill, but a partisan speech given by House Speaker Nancy Pelosi, D-Calif., made at least 11 members vote against the bill.

  House leaders will either find the necessary votes to bring the same bill up in the same format, or they will negotiate a better piece of legislation that is more acceptable to House Republicans, predicted Rep. Chris Van Hollen, D-Md.

  By Sarah Borchersen-Keto and Stephen K. Cooper, CCH News Staff

Amendment to the Senate Amendment to HR 3997, Emergency Economic Stabilization Act of 2008, HR 3997

Congressional Release: Section-by-Section Analysis of the Legislation, Emergency Economic Stabilization Act of 2008, HR 3997

Congressional Release: Summary of the Emergency Economic Stabilization Act of 2008, HR 3997

White House Statement: A Strong Bipartisan Proposal To Stabilize Our Financial System

Statement of Administration Policy on HR 3997, Emergency Economic Stabilization Act of 2008

Letter from Office of Management and Budget Director Jim Nussle to Rep. John Boehner

Treasury Department News Release, TDNR HP-1167

Treasury Department News Release, TDNR HP-1168
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Legislation revises and clarifies the California corporation franchise and income tax intercompany dividend elimination provision and makes numerous other changes to corporation franchise and income tax and personal income tax provisions. These changes expand eligibility for filing nonresident group returns, subject partnerships to the nonresident realty withholding requirements, subject withholding agents who fail to remit withholding payments to the withholding penalty, increase the personal income estimated tax payment filing threshold, and extend the limitations period for filing a refund claim for taxes paid to another state. In addition, amendments authorize the Franchise Tax Board's (FT Taxpayers' Rights Advocate to abate penalties, interests, and additions to tax under specified conditions.

CCH (cch.taxgroup.com) reports:

  Legislation has been enacted that partially conforms California personal income tax law to federal amendments made by the Mortgage Forgiveness Debt Relief Act of 2007 (P.L. 110-142) allowing an exclusion from gross income for discharge of an individual's qualified principal residence indebtedness. However, the California exclusion is limited to indebtedness discharged in the 2007 and 2008 calendar years, while the federal exclusion applies to indebtedness discharged in 2007 through 2009. Also, the amount of the California exclusion is limited to $250,000 ($125,000 in the case of a married individual filing separately), and "qualified principal residence indebtedness" is defined for purposes of the California exclusion to mean an individual's qualified acquisition indebtedness of up to $800,000 ($400,000 in the case of a married individual filing separately) rather than the $2 million ($1 million in the case of a married individual filing separately) provided under federal law. Notwithstanding any other law to the contrary, no penalties or interest will be due with respect to the discharge of any qualified principal residence indebtedness during the 2007 taxable year, regardless of whether the taxpayer reports the discharge on his or her return for the 2007 taxable year.

Ch. 282 (S.B. 1055), Laws 2008, effective September 25, 2008, and applicable as noted above.
 

CCH (cch.taxgroup.com) reports:

  The IRS has provided guidance regarding the application of
Code Sec. 1058(a) to situations involving securities loan agreements where the borrower subsequently defaults under the agreement as a result of its bankruptcy (or that of an affiliate) and, as soon as it is commercially practicable (but in no event more than 30 days following the default), the lender uses collateral provided pursuant to the agreement to purchase identical securities. Pursuant to the guidance, the purchase of the identical securities will not result in the loss of tax-free treatment under Code Sec. 1058(a) for the lender, so long as the following conditions are met:

  (1) the securities loan agreement meets the requirements of Code Sec. 1058(b);

  (2) the agreement requires that the borrower transfer collateral as security for its obligations under the agreement;

  (3) the borrower defaults under the agreement as a direct or indirect result of its bankruptcy or that of an affiliate; and

  (4) as soon as it is commercially practicable (but in no event more than 30 days following the default), the lender applies collateral transferred under the agreement (or cash generated by the sale of the collateral) to the purchase of identical securities.

  The guidance is effective for tax years ending on or after January 1, 2008. No inference should be drawn as to whether similar consequences will result if a securities loan falls outside the scope of this guidance.

Rev. Proc. 2008-63, 2008FED ¶46,588

Other References:

 
Code Sec. 1058

  CCH Reference - 2008FED ¶30,003.01

  Tax Research Consultant

  CCH Reference - TRC SALES: 3,302.35

CCH (cch.taxgroup.com) reports:

  The IRS and Treasury Department will issue regulations providing that the date as of the close of which the U.S. government directly or indirectly owns a more-than-50-percent interest in a loss corporation will not be considered a testing date for purposes of determining whether the loss corporation is required to determine whether an ownership change has occurred under Code Sec. 382. In other words, the loss corporation will be required to determine whether there is a testing date (and, if so, whether there has been an ownership change) on any date as of the close of which the U.S. does not own a more-than-50-percent interest in the corporation. A "more-than-50-percent interest" is stock with more than 50 percent of the total value of all stock classes (excluding Code Sec. 1504(a)(4) preferred stock), or more than 50 percent of the combined voting power of all voting stock, or an option to acquire such stock. The regulations will address acquisitions not described in Notice 2008-76, I.R.B. 2008-39 (TAXDAY, 2008/09/09, I.1), and will apply for any tax year ending on or after September 26, 2008, unless and until the IRS issues additional guidance.

Notice 2008-84, 2008FED ¶46,587

Other References:

 
Code Sec. 382

  CCH Reference - 2008FED ¶17,115.40

  CCH Reference - 2008FED ¶17,115.45

  Tax Research Consultant

  CCH Reference - TRC NOL: 33,050

CCH (cch.taxgroup.com) reports:

  Although the IRS will continue not to issue advance rulings or determination letters on the income tax consequences of establishing, operating, or participating in a nonqualified deferred compensation plan, as described in Code Sec. 409A, the Service may issue rulings on the application of certain other tax provisions to taxpayers who participate in those plans. Specifically, for rulings and determination letters issued after September 25, 2008, the IRS may address issues such as the estate and gift tax consequences of proposed inter vivos or testamentary transfers of rights under nonqualified deferred compensation plans that may be covered by Code Sec. 409A, and issues arising under the Federal Insurance Contributions Act (FICA) with respect to nonqualified deferred compensation.

  CCH Comment.
Code Sec. 409A contains requirements that apply to nonqualified deferred compensation plans. If the plan does not meet specified requirements, a participant must immediately include amounts deferred under the plan in income and pay additional taxes on such income. The IRS prohibition against issuing rulings encompassed matters tangential to issues regarding the establishment and operation of nonqualified deferred compensation programs under Code Sec. 409A. On April 7, 2007, final regulations were issued under Code Sec. 409A that apply on January 1, 2009, and define "nonqualified deferred compensation plan" and "deferral of compensation" for purposes of Code Sec. 409A. Transitional relief, as well as guidance on the correction of certain failures of nonqualified deferred compensation plans, is provided in Notice 2007-100, I.R.B. 2007-52, 1243, issued on December 3, 2007. In light of this additional guidance, the IRS has determined that the existing no-rule policy unnecessarily restricts its ability to issue private letter rulings.

  Pursuant to Section 3.01 of Rev. Proc. 2008-3, as modified and amplified by Rev. Proc. 2008-61, the IRS will continue not to issue rulings with respect to:

  --the income tax consequences of establishing, operating, or participating in a nonqualified deferred compensation plan as defined in Reg. §1.409A-1(a);

  --whether a plan is a plan subject to a totalization agreement or similar plan;

  --whether a plan is a broad-based foreign retirement plan;

  --whether a plan is a bona fide vacation leave, sick leave, or compensatory time plan; and

  --whether a plan provides for the deferral of compensation under Reg. §1.409A-1(b).

 
Rev. Proc. 2008-3, I.R.B. 2008-1, 110, is modified and amplified.

Rev. Proc. 2008-61, 2008FED ¶46,586

Other References:

 
Code Sec. 409A

  CCH Reference - 2008FED ¶18,960.25

 
Statement of Procedural Rules Sec. 601.201

  CCH Reference - 2008FED ¶43,360.60

  Tax Research Consultant

  CCH Reference - TRC COMPEN: 15,050
CCH Reference - TRC IRS: 12,214.20
 

CCH (cch.taxgroup.com) reports:

  The IRS has designated the Indian tribal entities that appear on the annual lists published by the Bureau of Indian Affairs as Indian tribal governments for purposes of Code Sec. 7701(a)(40). The BIA published its list annually, with the most recent list appearing in the Federal Register on April 4, 2008. The list reflects the tribes eligible for programs and services provided to Indians by the federal government because of their status as Indians. Indians are treated as states for certain purposes under Code Sec. 7871(a).

Rev. Proc. 2008-55, 2008FED ¶46,582

Other References:

 
Code Sec. 103

  CCH Reference - 2008FED ¶6602.385

 
Code Sec. 7701

  CCH Reference - 2008FED ¶43,130.01

 
Code Sec. 7871

  CCH Reference - 2008FED ¶43,952.20

  CCH Reference - 2008FED ¶43,952.35

  Tax Research Consultant

  CCH Reference - TRC SALES: 51,056.15
CCH Reference -
TRC IRS: 12,216

CCH (cch.taxgroup.com) reports:

  The House passed HR 7083, the Charity Enhancement Bill of 2008, by voice vote on September 27 during an unusual weekend session. Introduced by House Ways and Means Committee Oversight Subcommittee Chairman John Lewis, D-Ga., the bill is intended "to fix unintended consequences of the Pension Protection Act of 2006 (PPA) P.L. 109-280), which failed to take into account unique and unforeseen situations in the charitable sector, such as the effect on scholarships and charitable giving," a Ways and Means press release announced after the vote. The bill is in response to a flood of written comments submitted to the Oversight Subcommittee by charitable institutions and foundations over the past year, complaining that certain PPA provisions have had the effect of hampering worthwhile charitable works.

  CCH Comment. While the Charity Enhancement Bill is a bi-partisan bill, its fate in the Senate before adjournment for the elections is uncertain based on the limited time available on the Senate calendar for pending bills other than the financial bailout legislation. The Charity Enhancement Bill is separate from the Pension Protection Technical Corrections Bill of 2008, HR 6382, passed by voice vote in the House on July 9, which primarily corrects non-charitable related PPA provisions. Its fate in the Senate is similarly dependent upon room on the Senate calendar before adjournment.

  The Charity Enhancement Bill of 2008 limits the extent to which certain PPA provisions should be applied, as well as rectifies other unintended restrictions on exempt organizations. HR 7083 would:

  --Remove from PPA's definition of "donor advised funds" those charitable funds created, funded and advised solely by one or more public charities or governmental entities;

  --Remove from PPA's restrictions on distributions from donor advised funds legitimate and carefully-monitored scholarship awards approved in advance by the charitable organization holding the donor advised fund;

  --Repeal the special written acknowledgment required for charitable contributions to donor advised funds stating that the sponsoring organization has exclusive legal control over the assets contributed;

  --Lift excess-benefit restrictions (and, thereby encourage voluntary boards) by allowing supporting organizations to pay substantial contributors reasonable compensation for services and reimburse reasonable and necessary expenses;

  --Except from holdings and payout requirements certain pre-1970 fully-funded Type III supporting organizations in which the original donors and family are no longer involved; and

  --Treat contributions by Indian tribal governments the same as contributions by states (i.e., as public support) in determining classification as a public charity or private foundation (and, thereby supporting their philanthropy).

  The Charity Enhancement Bill of 2008 also would tighten two provisions and raise $76 million in the process by:

  --Increasing e-filing (and, therefore, transparency) by exempt organizations by allowing the IRS to require e-filing of annual Form 990 information returns by organizations filing at least five returns with the IRS annually; and

  --Expanding the Code Sec. 6657 bad check penalty introduced by the Small Business and Work Opportunity Tax Act of 2007 (P.L. 110-28) so that the penalty also applies in cases of bed electronic payments.

  By George Jones, CCH News Staff

SFC Release: Grassley Statement on House Charity Bill
 

CCH (cch.taxgroup.com) reports:

  Frustration at the lack of Senate movement on the House-passed tax extenders and energy bill (HR 7060) prompted House Ways and Means Chairman Charles B. Rangel, D-N.Y., on September 28 to separate the measure into two tax bills. Rangel and House Majority Leader Steny Hoyer, D-Md., told reporters that the two new tax bills were being introduced in hopes of persuading the Senate to negotiate with the House. Rangel introduced the Energy Improvement and Extension Act of 2008 (HR 7201) and the Temporary Tax Relief Act of 2008 (HR 7202). The House could take up the two new tax bills on September 29.

  The new legislation comes on the heels of HR 7060, the Renewable Energy and Job Creation Tax Act of 2008, which passed the House on September 26. However, Senate lawmakers immediately refused to accept the measure. Instead, they insisted that House lawmakers accept the bipartisan Senate-passed bill HR 6049.

  Rangel said HR 7201 and HR 7202 are mostly similar to the provisions included in HR 7060, except they add rural school provisions and make minor changes to the energy provisions. HR 7060 passed the House by a vote of 257 to 166.

  Hoyer and Rangel expressed their frustration at the unwillingness of the Senate to compromise on the tax legislation. They said House lawmakers do not want to accept the Senate positions, or bow to the necessity of getting 60 votes to pass legislation in the Senate. Hoyer said the House pay-as-you-go (PAYGO) rules are important to uphold, despite the possibility of ending the 110th Congress without ultimately passing the tax legislation. Hoyer also threatened that the House might decide to slow its consideration of Senate legislation in retaliation.

  By Stephen K. Cooper, CCH News Staff

Ways and Means Release: House Passes Critical Tax Relief for Families and Businesses

Blue Dog Leaders Support Fiscally Responsible Tax-Break Extenders, Call on Senate Republicans to Do the Same

SFC Release: Baucus Statement on House Vote on Tax Extenders Legislation
 

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  A Wisconsin corrugate manufacturer could not recover from the municipality in which it resided the amount of personal property taxes it erroneously paid on manufacturing equipment based on either an unidentified city employee's error in providing a tax form or the city mayor's assurances that he was working to correct the problem. Dismissal of the manufacturer's equitable estoppel claim against the municipality for over $200,000 was affirmed.

  Initially, it was decided not to determine whether the manufacturer could use equitable estoppel as a basis to a claim, rather than as a defense to a claim. Instead, it was assumed that the theory applied and the case would be decided based on whether the manufacturer's reliance was reasonable.

CCH (cch.taxgroup.com) reports:

  The sales of downloadable copyrighted photographs over the Internet by a Web site based business are not subject to Missouri sales and use tax if there is not a transfer of tangible personal property from the business to its customers. The business does not provide hard copies of the pictures that are downloaded by its customers. Although telecommunications services used for transmission of messages and conversations are taxable, telecommunications service does not include access to the Internet or interactive computer or electronic publishing services.

Letter Ruling No. LR5058 , Missouri Department of Revenue, August 29, 2008,
¶202-993

  Other References:

  Explanations at ¶60-445

CCH (cch.taxgroup.com) reports:

  The 2009 annual interest rate drops from 11% to 8% on underpayments and nonpayments of Colorado taxes. In addition, the interest rate decreases from 8% to 5% if payment of the tax, or an agreement to pay, is made within 30 days of notice of underpayment or nonpayment, or if an underpayment or nonpayment is cured voluntarily without notification from the Department of Revenue.

  Subscribers to CCH Tax Research NetWork can view the notice.

FYI General 11 , Colorado Department of Revenue, September 2008.
 

CCH (cch.taxgroup.com) reports:

  The IRS announced that it will issue guidance under the Industry Issue Resolution (IIR) program regarding technical terminations of a publicly traded partnership (PTP) that result in multiple short tax years within one calendar year. These terminations occur when more than 50 percent of a PTP's capital and profits interest are sold or exchanged within a 12-month period (Code Sec. 708(b)) and result in the PTP having to file a Form 1065, U.S. Partnership Return of Income, for each short tax year. Taxpayers that follow this released guidance will be able ton avoid audits triggered by problems arising from the PTP's filing requirements.

  Business associations and taxpayers may submit business tax issues that they believe could be resolved through the IIR program at any time. IIR project selection criteria and submission procedures are outlined in Rev. Proc. 2003-36, 2003-1 CB 859. The IRS reviews submissions at least semi-annually, with the last review conducted for submissions received by Aug. 31, 2008.

IR-2008-110,
2008FED ¶46,581

Other References:

 
Code Sec. 708

  CCH Reference - 2008FED ¶25,202.03

 
Code Sec. 7704

  CCH Reference - 2008FED ¶43,182.01

 
Code Sec. 7804

  CCH Reference - 2008FED ¶43,266.3097

  Tax Research Consultant

  CCH Reference - TRC IRS: 12,384
CCH Reference -
TRC PART: 51,100
CCH Reference -
TRC PART: 3,250
 

CCH (cch.taxgroup.com) reports:

  The IRS has updated the rules for determining the amount of an employee's ordinary and necessary business expenses for lodging, meals, and incidental expenses incurred while traveling away from home that are deemed substantiated under Reg. §1.274-5. The new procedure provides transition rules for the last three months of calendar year 2008 and updates the simplified "high-low" per diem rates and the high-cost/low-cost localities.

Transition Rules

  CONUS rates. Taxpayers may continue to use the current CONUS rates for the first nine months of calendar year 2008 instead of the updated GSA rates; however, they must consistently use one or the other for the period of October 1, 2008, to December 31, 2008.

  Meal and incidental expenses. Taxpayers who used the federal meal and incidental expense rates for the first nine months of calendar year 2008, may not use the transportation industry rates provided in this procedure until January 1, 2009. Conversely, taxpayers who used the transportation industry rates for the first nine months, cannot use the federal meal and incidental expense rates until January 1, 2009.

  Substantiation method. Payors who used the substantiation method for the first nine months of calendar year 2008, may not use the high-low method until January 1, 2009, and vice versa. However, payors using the high-low method may use the rates and high-cost localities contained in Rev. Proc. 2006-41, I.R.B. 2006-43, 777, rather than the updated rates and localities contained in this procedure.

Per Diem Rates

  The update applies to per diem allowances paid for travel on or after October 1, 2008. The simplified "high-low" per diem rates have increased to $256 for high-cost localities and increased to $158 for low-cost localities. For purposes of applying the high-low substantiation methods and the 50-percent limitation on meal expenses, the federal meal and incidental expense rate is treated as $58 for a high-cost locality and $45 for any other locality within CONUS.

Locality Update

  Jackson/Pinedale, Wyoming, has been added to the list of high-cost localities.

  The portion of the year for which the following are high-cost localities has been changed: Phoenix/Scottsdale, Arizona; San Diego, California; Silverthorne/Breckenridge, Colorado; Steamboat Springs, Colorado; Vail, Colorado; Palm Beach, Florida; Cambridge/St. Michaels, Maryland; Ocean City, Maryland; Martha's Vineyard, Massachusetts; Nantucket, Massachusetts; Jamestown/Middletown/Newport, Rhode Island.

  The following localities have been removed from the list of high-cost localities: Palm Springs, California; Yosemite National Park, California; Stuart, Florida; Incline Village/Crystal Bay/Reno/Sparks, Nevada; Conway, New Hampshire; Providence, Rhode Island; Loudon County, Virginia; Virginia Beach, Virginia; Lake Geneva, Wisconsin.

 
Rev. Proc. 2007-63, I.R.B. 2007-42, 809, is superseded.

Rev. Proc. 2008-59, 2008FED ¶46,580

Other References:

 
Code Sec. 162

  CCH Reference - 2008FED ¶180.01

  CCH Reference - 2008FED ¶1070.11

  CCH Reference - 2008FED ¶8856.17

 
Code Sec. 274

  CCH Reference - 2008FED ¶14,417.002

  CCH Reference - 2008FED ¶14,417.035

  CCH Reference - 2008FED ¶14,417.037

  CCH Reference - 2008FED ¶14,417.038

  CCH Reference - 2008FED ¶14,417.039

  CCH Reference - 2008FED ¶14,417.04

  CCH Reference - 2008FED ¶14,417.041

  CCH Reference - 2008FED ¶14,417.421

  CCH Reference - 2008FED ¶14,417.62

  Tax Research Consultant

  CCH Reference - TRC INDIV: 36,054.05
CCH Reference - TRC INDIV: 36,056.10
CCH Reference - TRC INDIV: 36,056.15
CCH Reference - TRC BUSEXP: 24,808
CCH Reference - TRC BUSEXP: 24,904
CCH Reference - TRC BUSEXP: 24,906.10
CCH Reference - TRC BUSEXP: 24,906.25
CCH Reference - TRC BUSEXP: 24,912.05
CCH Reference - TRC BUSEXP: 24,912.15
CCH Reference - TRC BUSEXP: 24,912.20
 

CCH (cch.taxgroup.com) reports:

  House Ways and Means Chairman Charles B. Rangel, D-N.Y., introduced yet another tax extenders bill on September 25, but it failed to generate support from Senate Republicans who are sticking to their insistence that House lawmakers should accept the bipartisan, Senate-passed bill
HR 6049. The House took up the Renewable Energy and Job Creation Tax Bill of 2008 (HR 7060), but a drafting error caused lawmakers to pull the bill from House consideration.

  The Bush administration issued a veto threat against the Rangel bill, saying that the measure should be discarded in favor of the Senate tax bill, which combines alternative minimum tax relief, energy tax incentives and tax provisions for businesses and families. "The House is trying to play games with extenders and tax relief," said Senate Finance Committee ranking member Charles E. Grassley, R-Iowa. He said HR 6049 includes provisions that House members want and that the bill would definitely become law because the president supports it.

  The Rangel bill, which will likely reach the House floor on September 26, was modified from earlier House extender tax bills in hopes of winning support from Senate Republicans. "The Senate said they wanted two years; this bill gives them two years, paid for by offsets they have already blessed," said Rangel, who urged the Senate to accept a compromise, rather than insisting on their version of the legislation.

  According to a summary of HR 7060 provided by Rangel's office, the legislation would invest $15 billion in renewable energy, energy efficiency and conservation improvements, and carbon capture and sequestration demonstration projects. Another $42 billion would be invested in extending a group of expiring tax provisions through 2009. Those provisions include the research and development credit, special rules for active financing income, the state and local sales tax deduction, the deduction for out-of-pocket expenses for teachers, and the deduction for qualified tuition expenses. The bill also includes $3 billion for the refundable child tax credit.

  In order to pay for the bill, Rangel used tax offsets that already won support in the Senate. His bill would prevent the understatement of foreign oil and gas extraction income in calculating foreign tax credits and freeze the Code Sec. 199 deduction for oil and gas companies at six percent. According to the summary, the measure would also prevent hedge fund managers who work for offshore corporations from deferring tax on their compensation.

  The bill would also delay a tax benefit for multinational corporations operating overseas that has yet to take effect. HR 7060 would also provide for broker reporting of customer's basis in securities, extend the FUTA surtax for one year and extend and increase funding for the Oil Spill Liability Trust Fund.

  By Stephen K. Cooper and Paula Cruickshank, CCH News Staff

Ways and Means Release: Summary of Tax Provisions in HR 7060, the Renewable Energy and Job Creation Act of 2008

Statement of Administration Policy on HR 7060

JCT Technical Explanation of HR 7060, the Renewable Energy and Job Creation Tax Act of 2008, JCX-75-08

JCT Estimated Budget Effects of HR 7060, the Renewable Energy and Job Creation Tax Act of 2008, JCX-76-08

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  A Georgia superior court has issued an order compelling Expedia, Inc. to collect Columbus, Georgia, hotel occupancy taxes based on the prices its online consumers pay on Expedia.com rather than the wholesale prices it contracts for with hotels. Columbus filed the case in 2006 with respect to the collection of its 7% hotel occupancy tax. Though many cities and towns throughout the country have filed similar hotel occupancy tax cases against online travel companies, this order is the first substantive ruling.

CCH (cch.taxgroup.com) reports:

  A mechanical contractor that was expanding its business to serve the high-tech construction market was entitled to rental expense deductions for amounts paid to rent equipment from its controlling shareholders. The rental agreements entered into with the shareholders were hybrid arrangements that contained features of both long-term leases and short-term rental agreements.

  The taxpayer had a valid business reason for the arrangements. The taxpayer's management determined that incurring additional long-term debt or comparable commitments under a long-term lease was imprudent given the untested line of business. Additionally, short-term rentals were infeasible, given an increase in the construction business and a demand for construction equipment that exceeded its supply on the third-party rental market.

  The hybrid arrangements provided for exclusive control of the equipment, as well as actual usage features that precluded rental payments when the equipment was idle or in transit. The payments made under the hybrid arrangements were reasonable and not more than the taxpayer would have been required to pay as a result of an arm's-length bargain. Expert testimony confirmed that the hourly and monthly rates paid to the shareholders were generally consistent with or below rates in the short-term rental market in the area at the time the contracts were entered into.

  Further, amounts paid by the taxpayer and the shareholders to co-lease equipment under option to purchase agreements that were less than the amounts of the shareholders' subleases to the taxpayer did not indicate that the taxpayer paid above the fair market value. The taxpayer's financial condition supported the inference that the primary lessors of the equipment would not have entered into the leases without the shareholders as co-lessees and a rental amount over the rental value of the equipment was necessary to reflect guarantor risk.

  Because the taxpayer's financial condition prevented it from obtaining five-year leases for the equipment at issue, an arm's-length rate for the taxpayer's rent was not equal to the cost of these leases, but, rather, the cost was a rate above what would be paid for the five-year leasehold interest in order to compensate the shareholders for the risk that they might be unpaid as a result of the untested business.

  The taxpayer bore the burden of proof with respect to the original determination of deficiencies because it failed to meet the cooperation requirement. During pretrial proceedings, the taxpayer resisted producing necessary materials to substantiate the rental expense deductions, resulting in court-enforced discovery.

Yearout Mechanical & Engineering, Inc., TC Memo. 2008-217, Dec. 57,540(M)

Other References:

 
Code Sec. 162

  CCH Reference - 2008FED ¶8754.5587

 
Code Sec. 7491

  CCH Reference - 2008FED ¶42,520.10

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 3,152
CCH Reference -
TRC LITIG: 3,200
 

CCH (cch.taxgroup.com) reports:

  The House on September 24 approved a continuing appropriations resolution (an amendment to the Senate amendment to HR 2638) to fund the federal government at 2008 levels through March 6, 2009. Majorities in both parties, including 224 Democrats and 146 Republicans, voted 370-58 to approve the resolution, which was introduced by House Appropriations Committee Chairman David Obey, D-Wis. The government's fiscal year (FY) 2008 appropriations are set to expire on September 30, 2008.

  The resolution was part of a package that includes the FY 2009 appropriations for military construction and veterans affairs, defense and homeland security, as well as a disaster relief package. The resolution includes an additional $68 million to fund IRS taxpayer services needed to administer payments under the Economic Stimulus Act of 2008 (P.L. 110-185).

  The IRS budget for FY 2008 budget was $11.1 billion. The Service will receive a prorated amount for FY 2009. The Senate Appropriations Committee on July 10 approved an IRS budget of $11.5 billion for FY 2009; $163 million higher than the Bush administration's request (TAXDAY, 2008/07/11, C.3). The House Appropriations Committee on June 25 approved an IRS budget of $11.4 billion for FY 2009 (TAXDAY, 2008/06/30, C.1). Both bills would eliminate the IRS's use of private debt collectors.

  In other developments, the House and Senate approved the Fostering Connections to Success and Increasing Adoptions Act of 2008 (HR 6893), which would tighten the uniform definition of a child in Code Sec. 152 for claiming various tax benefits. The legislation would require that the child not have filed a joint return and that the child be younger than the taxpayer claiming the child. The bill also restricts claims for the child tax credit to the child's parents or to an individual whose income is higher than either parent's. The provisions would apply to tax years beginning in 2009 or later.

  By Brant Goldwyn, CCH News Staff

Fostering Connections to Success and Increasing Adoptions Act of 2008, Enrolled, HR 6893
 

CCH (cch.taxgroup.com) reports:

  President Bush warned that the U.S. is in the midst of a "serious financial crisis," with major sectors of the financial system at risk of shutting down unless action is taken on a $700-billion bailout proposal put forward in recent days by the administration. In a televised address to the nation, Bush said that the White House is working with Congress to address the root cause of the problem.

  Presidential candidates Sen. Barack Obama, D-Ill., and Sen. John McCain, R-Ariz., have been invited to the White House on Thursday to discuss the financial crisis, along with other congressional leaders, Bush said.

  "Our entire economy is in danger," Bush stressed. He noted that failure to act could result in bank failures, lost jobs, rising foreclosures and complete loss of retirement savings.

  Bush said that the proposal would remove the risk caused by troubled financial assets, while assuring that taxpayers are protected. In addition, the plan would put in place an oversight board to oversee implementation of the bailout, he said, adding that it would also prevent "failed executives" from receiving a windfall from taxpayer money.

  Meanwhile, "much, if not all," of the $700 billion will be paid back, Bush stated, noting that the government is the one institution with the patience and resources to buy assets at their current low prices and hold them until markets return to normal.

  By Sarah Borchersen-Keto, CCH News Staff

CCH (cch.taxgroup.com) reports:

  House lawmakers on September 24 approved the Alternative Minimum Tax (AMT) Relief Bill of 2008 (HR 7005) and the Disaster Tax Relief Bill of 2008 (HR 7006).

AMT Bill

 
HR 7005, a $64.6-billion measure authored by House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., does not include a revenue offset and passed the House by a bipartisan vote of 393 to 30. Ways and Means member Richard E. Neal, D-Mass., called HR 7005 a true, hold-harmless AMT patch but noted that the measure does not meet House pay-as-you-go (PAYGO) budget rules.

  The bill would provide AMT relief for nonrefundable personal credits and would increase the AMT exemption amount to $69,950 for joint filers and $46,200 for individuals. The legislation would also provide relief for AMT payors who have exercised incentive stock options and would make changes to the refundable AMT credit, according to a summary provided by Rangel. Rep.

  Thomas M. Reynolds, R-N.Y., said that, absent a long-term proposal, Congress has no choice but to pass HR 7005. Congress's inaction in 2008 has left many taxpayers hanging in the balance, he said.

  The Bush administration, in a written statement, praised the House for considering the AMT relief measure without including tax increases and urged Congress to send legislation to the president's desk as soon as possible in order to reduce the risk of a disruption in the 2009 tax filing season. Meanwhile, Senate Finance Committee Chairman Max Baucus, D-Mont., said the Senate-passed bill, HR 6049, includes an extension of expiring tax provisions, AMT relief and energy tax incentives.

  House lawmakers have not yet received that bill from the Senate and have signaled their displeasure with HR 6049 since the extenders provisions are not totally offset by corresponding tax increases or spending cuts. House passage of the Rangel AMT bill sets up a scenario where the AMT bill is cleared for the White House, while the extenders bill is delayed until 2009.

Disaster Bill

  The House also voted to pass the Disaster Tax Relief Act of 2008 (HR 7006) on September 24. Also introduced by Rangel, the measure passed by a 419 to 4 vote. He said the bill would provide a flexible package of economic recovery incentives to help families and businesses recover from the recent floods and hurricanes in the Midwest. The legislation would provide tax relief to taxpayers affected by federally declared disasters nationwide, between January 1, 2008, and December 31, 2011. According to a summary provided by Rangel, the measure would waive the income limitations on personal loss deductions, allow businesses to write off certain qualified disaster cleanup expenses and permit a five-year carryback for certain losses.

  The bill would also waive certain mortgage revenue bond requirements to allow bond proceeds to be used for rebuilding, provide additional low-income housing tax credits to communities with housing losses, add a new set of disaster private activity bonds for business reconstruction and waive certain limitations on charitable contributions for disaster relief, according to the summary.

  By Stephen K. Cooper and Paula Cruickshank, CCH News Staff

Alternative Minimum Tax Relief Act of 2008, HR 7005

Disaster Tax Relief Act of 2008, HR 7006

Ways and Means Release: House Passes Bipartisan AMT Relief Bill

Ways and Means Release: House Passes Nationwide Disaster Relief Tax Package

SFC Release: Senate Passes Baucus-Grassley Clean Energy Incentives, Extensions of Expiring Tax Cuts, Disaster Tax Relief and Protection from AMT

SFC Release: Grassley Statement on Tax Extenders, Disaster Tax Relief

SFC Release: Baucus Statement on Senate Legislation for Jobs, Energy, Families

SAP on HR 7005-Alternative Minimum Tax Relief Act of 2008

JCT Technical Explanation of HR 7005, the Alternative Minimum Tax Relief Act of 2008,
JCX-71-08

JCT Estimated Revenue Effects of HR 7005, the Alternative Minimum Tax Relief Act of 2008,
JCX-72-08

JCT Technical Explanation of HR 7006, the Disaster Tax Relief Act of 2008, JCX-73-08

JCT Estimated Revenue Effects of HR 7006, the Disaster Tax Relief Act of 2008, JCX-74-08
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The IRS has provided guidance regarding the treatment of taxpayers that accept certain settlements of potential legal claims relating to auction rate securities. The guidance applies to taxpayers who, before June 30, 2009, accept settlement offers from persons against whom the taxpayers may have legal claims due to the other persons' conduct related to auction rate securities. The settlement offers must include window periods that do not extend beyond December 31, 2012, and require that the taxpayer deliver an auction rate security that the taxpayer purchased prior to February 12, 2008. The procedure does not apply to taxpayers who (1) accept a settlement offer with respect to an auction rate security, (2) make an election to borrow the par amount of the auction rate security from the person making the offer either before or during the window period, and (3) take the position that they continue to own the auction rate security following the acceptance and election.

  The IRS stated that it will not challenge the following positions taken by taxpayers to whom the new guidance applies:

  --The taxpayer continues to own the auction rate security upon accepting the settlement offer.

  --The taxpayer does not realize any income as a result of accepting the settlement offer and does not reduce the basis of the auction rate security from its original purchase price.

  --The taxpayer's amount realized from the sale of the auction rate security during the window period to the person offering the settlement is the full amount of the cash proceeds received from that person.

Rev. Proc. 2008-58, 2008FED ¶46,579

Other References:

 
Code Sec. 385

  CCH Reference - 2008FED ¶17,351.12

  CCH Reference - 2008FED ¶17,351.15

  Tax Research Consultant

  CCH Reference - TRC CCORP: 3,300

CCH (cch.taxgroup.com) reports:

  The IRS has released proposed amendments to the new market tax credit regulations that provide rules on how an entity meets the requirements to be a qualified active low-income community business (QALIC when its activities involve certain targeted populations under Code Sec. 45D(e)(2). The new proposals generally follow earlier published rules in
Notice 2006-60 (I.R.B. 2006-29, 82), which can be relied upon until the proposed amendments are finalized.

Background

  The new markets tax credit is a credit for persons that have a qualified equity investment in a qualified community development entity (CDE) on the credit allowance date. Among the requirements for a qualified equity investment is that substantially all of the cash must be used by the CDE to make qualified low-income community investments. One type of qualified low-income community investment is an investment in a qualified active low-income community business.

 
Notice 2006-60 provides rules on how an entity meets the requirements to be a qualified active low-income community business when its activities involve targeted populations. The proposed amendments to the regulations follow the general definitions of targeted populations and low-income persons set forth in Notice 2006-60 and the Riegle Community Development and Regulatory Improvement Act of 1994 (12 U.S.C. § 4702(17), (20)). Targeted populations that will be treated as a low-income community are individuals, or an identifiable group of individuals, including an Indian tribe, who are low-income persons or who are individuals otherwise lacking adequate access to loans or equity investments.

QALICB Requirements for Low-Income Targeted Populations

  Individuals are considered low-income if the individual's family income, adjusted for family size, is not more than: (1) for metropolitan areas, 80 percent of the area median family income; or (2) for nonmetropolitan areas, the greater of 80 percent of the area median family income or 80 percent of the statewide nonmetropolitan area median family income. The proposed amendments to the regulations follow the general requirements for a qualified active low-income community business set forth in Notice 2006-60.

  In general, a qualified active low-income community business is a corporation, including a nonprofit corporation, or a partnership engaged in the active conduct of a qualified business if: (1) at least 50 percent of the entity's total gross income for any tax year is derived from sales, rentals, services or other transactions with individuals who are low-income persons; (2) at least 40 percent of the entity's employees are individuals who are low-income persons; or (3) at least 50 percent of the entity is owned by individuals who are low-income persons. Definitions of employee and owner for this purpose are also provided.

 
Notice 2006-60 and the proposed amendments provide a 120-percent income restriction. In general, under this restriction, an entity will not be treated as a qualified active low-income community business if the entity is located in a population census tract for which the median family income exceeds 120 percent of: (1) in the case of a tract not located within a metropolitan area, the statewide median family income; or (2) in the case of a tract located within a metropolitan area, the greater of statewide median family income or metropolitan area median family income. Other qualifications and restrictions also apply.

QALICB Requirements for GO Zone Targeted Populations

  Individuals are considered to lack adequate access to loans or equity investments if they are part of the GO Zone Targeted Population, meaning that the individual was displaced from his or her principal residence as a result of Hurricane Katrina and/or the individual lost his or her principal source of employment as a result of Hurricane Katrina. Notice 2006-60 and the proposed amendments provide special requirements for a qualified active low-income community business for the GO Zone Targeted Population.

  In general, an entity will not be treated as a qualified active low-income community business for the GO Zone Targeted Population unless: (1) at least 50 percent of the entity's total gross income for any tax year is derived from sales, rentals, services or other transactions with the GO Zone Targeted Population, low-income persons or some combination thereof; (2) at least 40 percent of the entity's employees consist of the GO Zone Targeted Population, low-income persons or some combination thereof; or (3) at least 50 percent of the entity is owned by the GO Zone Targeted Population, low-income persons or some combination thereof.

 
Notice 2006-60 and the proposed amendments provide a 200-percent income restriction qualified active low-income community businesses for GO Zone Targeted Populations. In general, under the 200-percent income restriction, an entity will not be treated as a qualified active low-income community business for GO Zone Targeted Populations if the entity is located in a population census tract for which the median family income exceeds 200 percent of: (1) in the case of a tract not located within a metropolitan area, the statewide median family income; or (2) in the case of a tract located within a metropolitan area, the greater of statewide median family income or metropolitan area median family income. Other qualifications and restrictions also apply.

Effective Date

  The rules in the regulations are proposed to apply to tax years ending on or after the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register. Until that time, taxpayers can rely on Notice 2006-60 for designations made after October 22, 2004.

Request for Comments and Public Hearing

  A public hearing is scheduled for January 22, 2009, beginning at 10:00 a.m. Written and electronic comments must be received by December 23, 2008.

  The IRS and the Treasury Department are particularly interested in receiving comments on the following issues: (1) the measure of income that should be used to determine an individual's income for purposes of the definition of low-income persons; (2) whether the gross income requirements should be modified to include the fair market value of goods and services provided to low-income persons at reduced fees; and (3) whether additional restrictions should be added to the employee requirements.

Proposed Regulations, NPRM REG-142339-05, 2008FED ¶49,835

Other References:

 
Code Sec. 45D

  CCH Reference - 2008FED ¶4488E

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 54,906.15

CCH (cch.taxgroup.com) reports:

  The Senate overwhelmingly voted to approve an alternative minimum tax (AMT) relief and extenders bill (HR 6049) on September 23, paving the way for House lawmakers to decide whether the partially offset tax measure will reach the president's desk before Congress adjourns later in September. The Senate bill, which also includes a package of clean energy tax incentives, passed by a vote of 93-to-2. Senate Budget Committee Chairman Kent Conrad, D-N.D., failed to win approval for revenue-raisers or spending cuts to offset the cost of HR 6049, noting that failing to meet the pay-as-you-go (PAYGO) budget rules will likely slow the bill in the House.

  Senate Majority Leader Harry Reid, D-N.D., questioned whether House Democrats could accept AMT relief that is not paid for, while rejecting the extenders because they were only partially offset. He said that, if Democratic leaders allow the Senate bill to come to the House floor, it would likely pass. The House has scheduled a vote on extenders tax legislation on September 24, but Democratic leaders and members of the House Ways and Means Committee said the Senate's partially paid-for package is unacceptable. Instead, Rep. Earl Pomeroy, D-N.D., said that the House might simply pass a smaller tax bill that only includes the provisions that can be paid for by the Senate-approved offsets.

  The Senate bill includes $18 billion in clean energy tax incentives, which are offset by a provision to delay the tax deduction for domestic manufacturing activities of major American oil and gas companies. The bill would also change rules for paying taxes on income earned overseas, according to a summary released by the Senate Finance Committee. The bill would also provide a one-year extension of the Federal Unemployment Tax Act surtax at the current level, and an increase in reporting requirements for brokers on stock sales. Meanwhile, the $64-billion cost of providing AMT relief would not be offset, under the Senate bill.

  The two-year extension of expiring tax provisions would be offset by requiring hedge fund managers to account for deferred compensation as it accrues, rather than avoiding appropriate and timely income taxes. The bill would provide tax relief for victims of natural disasters, expand the child tax credit and provide parity for mental health treatments. Other provisions included in the Senate bill would allow the deduction of state and local taxes, deduction for qualified tuition and teacher's expenses, and additional deductions for real property taxes. The bill would extend the research and development credit and the new markets tax credit.

  Late on September 23, House Ways and Means Chairman Charles B. Rangel, D-N.Y., introduced the Alternative Minimum Tax Relief Bill of 2008 (HR 7005) and the Disaster Tax Relief Bill of 2008 (HR 7006). Rangel said the two measures are ready to be considered on September 24 by House lawmakers. House Majority Leader Steny Hoyer, D-Md., said that the Senate action would be met with consideration of House legislation that meets PAYGO budget rules and does not add to the national debt.

White House Support

  The Bush administration supports passage of the Senate extenders legislation, "despite the inclusion of several provisions that the administration opposes." The administration raised numerous objections to tax provisions in HR 6049 but did not threaten to veto the extenders package because officials believe that delaying the AMT patch would be "very problematic for our economy" said White House Deputy Press Secretary Scott Stanzel. "The AMT relief is critically important, particularly at this time," Stanzel asserted on September 23.

  The administration remains "strongly opposed to provisions that would freeze the domestic manufacturing deduction for one industry, change the tax treatment of foreign income for American energy companies operating abroad, and eliminate the cap on the oil spill liability trust fund, raising the price of a barrel of oil," stated a written policy statement. The guidance, issued on September 23, contended that the tax provisions "will increase the costs of American oil production, give further advantages to foreign suppliers, and will likely result in higher prices at the pump."

  Other White House concerns include provisions related to deferred compensation and certain tax credit bonds. The administration also opposes new mandatory funding for Payments in Lieu of Taxes and believes that any extension of rural community payments should be phased out.

  By Stephen K. Cooper and Paula Cruickshank, CCH News Staff

Amendment to HR 6049

Summary of the Reid Amendment to the Substitute to HR 6049

SFC Very Preliminary Estimated Revenue Effects of an Individual AMT Proposal

Statement of Administration Policy on Senate Amendments to HR 6049 --Energy Improvement and Extension Act of 2008 and Tax Extenders and Alternative Minimum Tax Relief Act of 2008

Ways and Means Summary of Tax Provisions in AMT and Disaster Relief Tax Bills

Ways and Means Release: Rangel, Kind Introduce Disaster Relief Tax Package

Ways and Means Release: Chairman Rangel Introduces Renewable Energy and Job Creation Act of 2008

SFC Release: Baucus Floor Statement Regarding the Energy Tax Package

JCT Estimated Budget Effects of the Tax Extenders and Alternative Minimum Tax Relief Act of 2008, JCX-69-08R

JCT Estimated Budget Effects of the Energy Improvement and Extension Act of 2008,
JCX-70-08R
 
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Alabama Supreme Court has affirmed, and adopted in its entirety, a previously reported decision by the Court of Civil Appeals upholding the state's corporate income tax addback requirement for certain interest and intangible expenses. (TAXDAY, 2008/2/13, S.2) The Court of Civil Appeals had determined that the addback statute was reasonable and did not violate either the Commerce Clause or the Due Process Clause of the U.S. Constitution.

VFJ Ventures, Inc. v. Surtees, Alabama Supreme Court, No. 1070718 , September 19, 2008, ¶201-328

  Other References:

  Explanations at ¶10-620

CCH (cch.taxgroup.com) reports:

  In response to the recent credit market instability, the Treasury has made certain funds available from its Exchange Stabilization Fund on a temporary basis to money market funds that are regulated by the Security and Exchange Commission's Rule 2a-7 to enable such funds to maintain stable $1.00 per share net asset value. The program is available to both money market funds holding assets subject to federal income tax and to money market funds holding assets that include state and local governmental debt obligations the interest on which is excludable from gross income under
Code Sec. 103. The Treasury Department and the IRS will not assert that the program causes any violation of the restrictions against federal guarantees of tax-exempt bonds under Code Sec. 149(b) with respect to any tax-exempt bond assets held by tax-exempt money market funds participating in the program. In addition, the Treasury Department and the IRS will not assert that the program impairs the ability either of a money market fund participating in the program to designate exempt interest dividends under Code Sec. 852(b)(5) or of the shareholders of such a fund to claim the benefits of tax exemption with respect to such exempt interest dividends under Code Sec. 852(b)(5)(. The program will be limited to assets in money market funds as of the close of business on September 19, 2008, and to investors of record as of that date. Participating money market funds are required to make premium payments to participate in the program.

Notice 2008-81, 2008FED ¶46,577

Other References:

 
Code Sec. 149

  CCH Reference - 2008FED ¶7905.40

 
Code Sec. 852

  CCH Reference - 2008FED ¶26,433.26

  Tax Research Consultant

  CCH Reference - TRC IND: 12,104

  CCH Reference - TRC RIC: 3,304

  CCH Reference - TRC SALES: 51,064

CCH (cch.taxgroup.com) reports:

  The Federal Reserve said it has approved the applications of Goldman Sachs and Morgan Stanley to change their status from investment banks to bank holding companies under the Bank Holding Company Act. The move places the firms under the supervision of bank regulators, allows them to establish commercial banks, and exposes them to a wider availability of credit.

  Goldman Sachs, founded in 1869, said it views regulation by the Fed as "appropriate and in the best interests of protecting and growing our franchise across our diverse range of businesses." The company added that under Fed supervision, it will be regarded as an even more secure institution with an "exceptionally clean balance sheet" and a greater diversity of funding sources.

  Under the new arrangement, Goldman Sachs will move assets from a number of its strategic businesses, including its existing lending businesses, into GS Bank USA. The bank will have over $150 billion in assets and will be one of the ten largest banks in the U.S.

  Morgan Stanley, meanwhile, said it will pursue initiatives to expand the retail banking services it offers its retail clients, and build a stable base of core deposits. It noted that it has more than 3 million retail accounts and as of August 31 had $36 billion in bank deposits. It will also convert its Utah industrial bank to a national bank.

  Separately, Morgan Stanley also announced it has entered into a letter of intent to pursue a strategic alliance with Mitsubishi UFJ Financial Group Inc., Japan's largest banking group. The investment in Morgan Stanley would eventually reach 20 percent of its equity.

Congressional Package

  Meanwhile, President Bush on September 22 urged members of Congress to send him the emergency package without including "unrelated provisions." However, White House Press Secretary Dana Perino indicated that the administration is willing to consider additional provisions but would want to keep them to a minimum.

  "From our perspective, the cleaner the better and the quicker the better, and the way that you get a clean and quick bill is to make sure that it is clearly, narrowly targeted to giving the Treasury these authorities in order to help stabilize the market," Perino told reporters at a press briefing on September 22.

  Although the House initially planned to leave town on September 26, House Speaker Nancy Pelosi, D-Calif., on September 19 advised reporters that federal lawmakers would stay longer, if necessary, to finish work on the Wall Street rescue package. However, as details begin to emerge about the Paulson plan, it is meeting resistance on Capitol Hill.

  Several lawmakers warned against rushing legislation too quickly through Congress. Senate Majority Leader Harry Reid, D-Nev., in a written statement, said a final package must protect the taxpayers "who are footing the bill for this legislation. That begins with more oversight, more transparency, more accountability and more controls to prevent conflicts of interest," Reid said on September 22. He added that the legislation should provide aid to homebuyers at risk of losing their homes to foreclosure.

  Former House Speaker Newt Gingrich, R-Ga., in an interview with National Public Radio, strongly opposed rushing the complicated package through Congress without hearings or time "to catch your breath." He noted that Paulson for more than a year maintained that the housing and financial sectors were healthy enough to weather any correction to an overheated housing market. Calling it "Wall Street welfare," Gingrich criticized the size of the package and the risk to taxpayers.

  By Sarah Borchersen-Keto and Paula Cruickshank, CCH News Staff

Treasury Department News Release, TDNR HP-1150

Treasury Department News Release, TDNR HP-1151

SFC Release: Baucus Statement on Latest Developments in Financial Crisis

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  In a case of first impression, the Vermont Supreme Court applied the economic substance doctrine to disregard the existence of a taxpayer's holding companies and upheld the bank franchise assessment and substantial underpayment penalty that was imposed against the taxpayer. In addition, the Court affirmed the lower court's finding that the Department's actions to collect the erroneous refund were undertaken within the statute of limitations period and that the Tax Commissioner had the authority to independently impose the substantial underpayment penalty against the taxpayer during the taxpayer's administrative appeal.

CCH (cch.taxgroup.com) reports:

  On May 29, 2008, the California State Board of Equalization (SBE) approved a global settlement with Barnes & Noble.com that resolves all disputes between Barnes & Noble.com and the State of California for sales and use taxes, including pending litigation in the U.S. District Court for the Eastern District of California and the California Court of Appeal (First District). Under the settlement, two tax determinations against Barnes & Noble.com, plus all interest and penalties, were canceled by the SBE. In addition, the SBE waived all claims for sales and use taxes, interest, and penalties through November 1, 2005, the date on which Barnes & Noble.com voluntarily commenced collecting and remitting sales and use taxes to California. A final settlement agreement was entered into by the parties on August 19, 2008.

  Barnes & Noble.com had filed a complaint on December 21, 2007, in the U.S. District Court for the Eastern District of California for declaratory and injunctive relief against the members of the SBE and others. The complaint sought a declaration that the actions of the state in seeking to impose California sales and use tax on the sales of Barnes & Noble.com for the period of May 1, 2000, through March 31, 2004, plus interest and penalties, violated the Commerce Clause and the First Amendment of the U.S. Constitution, as well as the California Administrative Procedures Act. This assessment was also the subject of an administrative protest filed by Barnes & Noble.com. Barnes & Noble.com had also challenged another earlier assessment by the SBE for the period of November 15, 1999, through January 31, 2000. This earlier assessment was struck down by a decision of a California superior court on September 7, 2007 (see TAXDAY 2007/11/09, S.5) in favor of Barnes & Noble.com, and the SBE had filed an appeal in the California Court of Appeal (First District).

Form 10-Q Quarterly Report , Barnes & Noble, Inc., filed with the Securities and Exchange Commission on September 11, 2008.

CCH (cch.taxgroup.com) reports:

  The IRS has released the applicable terminal charge and the Standard Industry Fare Level (SIFL) mileage rates for determining the value of noncommercial flights on employer-provided aircraft in effect for the second half of 2008 for purposes of the taxation of fringe benefits. The value of a flight is determined under the base aircraft valuation formula by multiplying the SIFL cents-per-mile rates applicable for the period during which the flight was taken by the appropriate aircraft multiple provided in Reg. §1.61-21(g)(7) and then adding the applicable terminal charge.

  For flights taken during the period from July 1, 2008, through December 31, 2008, the terminal charge is $42.26, and the SIFL rates are: $.2312 per mile for the first 500 miles, $.1763 per mile for 501 through 1,500 miles, and $.1695 per mile for over 1,500 miles.

Rev. Rul. 2008-48, 2008FED ¶46,576

Other References:

 
Code Sec. 61

  CCH Reference - 2008FED ¶5907.04

  CCH Reference - 2008FED ¶5907.042

  CCH Reference - 2008FED ¶5907.50

  Tax Research Consultant

  CCH Reference - TRC COMPEN: 33.202.10

CCH (cch.taxgroup.com) reports:

  Treasury Secretary Henry M. Paulson, Jr., will ask Congress to take action as soon as the week of September 22 on legislation that would restore confidence in the financial system by removing illiquid mortgage assets from the balance sheets of financial institutions.

  Paulson said September 19 that the government will present a legislative proposal to Congress over the weekend, adding that, "until we get stability in the housing market, we're not going to get stability in our financial markets." He explained that illiquid mortgage assets, which have lost value as the housing correction has proceeded, are choking off the flow of credit in the economy and are "undermining the strength of our otherwise sound financial institutions."

  "This is a pivotal moment for America's economy," President Bush declared. "Given the precarious state of our financial markets and their vital importance to the daily lives of the American people, government intervention is not only warranted, it is essential." The president acknowledged that "a significant amount of taxpayer dollars" is on the line but he maintained that "this bold approach will cost American families far less than the alternative." Bush added, "Further stress on our financial markets would cause massive job losses, devastate retirement accounts, further erode housing values and dry up new loans for homes, cars and college tuitions."

  In words of reassurance to everyone concerned about their financial security, Bush said that every savings account, checking account and certificate of deposit that is insured by the Federal Deposit Insurance Corporation (FDIC) is protected by the federal government for up to $100,000. "The FDIC has been in existence for 75 years, and no one has ever lost a penny on an insured deposit. And this will not change," Bush said.

  Treasury spokesman Andrew DeSouza said that the administration is "not interested in tax increases" as it continues its discussions with Congress. "Our initial thinking is that issuing Treasuries is the simplest and least costly means of financing this," DeSouza said.

  National Economic Council (NEC) Director Keith Hennessey said separately that the administration is "very willing" to work with members of Congress to figure out the best way of dealing with the illiquid assets; however, "it has to be done quickly." He added that the administration has received "very positive signs" from congressional leaders and the relevant committees. "We're optimistic it will move as fast as it needs to," he said.

  Paulson stressed that the proposed asset relief program must protect taxpayers "to the maximum extent possible;" however, he noted that it would involve a "significant" investment of taxpayer money, which he estimated was "hundreds of billions." He noted that "this needs to be big enough to make a real difference and get at the heart of the problem."

  "The ultimate taxpayer protection," Paulson added, "will be the stability this troubled asset relief program provides to our financial system... I am convinced that this bold approach will cost American families far less than the alternative --a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion."

  Paulson told reporters that the government has acted on a case-by-case basis in recent weeks to help offset pressures in the financial markets, including placing Fannie Mae and Freddie Mac under government control and lending to American Insurance Group (AIG). Other measures taken include the Treasury's announcement that it would establish a temporary guaranty program for the money market mutual fund industry. For the coming year, the Treasury will insure the holdings of any publicly offered eligible money market mutual fund that pays a fee to participate in the program.

Congressional Reaction

  House Speaker Nancy Pelosi, D-Calif., who met with Paulson and administration officials earlier, called the meeting productive and said in a prepared statement that lawmakers were committed to quick, bipartisan action."Congress stands ready beyond the targeted adjournment date next week to consider legislative solutions and conduct necessary investigations to address this historic crisis," stated Pelosi. "Once Congress receives the Bush Administration's formal proposal, we will examine it expeditiously."

  Pelosi added that she had also directed House Financial Services Committee Chairman Barney Frank, D-Mass., and House Oversight and Government Reform Committee Chairman Henry Waxman, D-Calif., to hold hearings over the next two months to investigate the regulatory failures. Senate Majority Leader Harry Reid, D-Nev., said that he was anxious to see the administration's proposal as soon as possible. "I believe that to avoid a deepening crisis and turn this economy around, the proposal must not only address the broader, underlying structural issues in the financial markets, but also protect taxpayers and strengthen the middle class," stated Reid.

  By Sarah Borchersen-Keto, Jeff Carlson and Paula Cruickshank, CCH News Staff

Treasury Department News Release, Treasury Announces Guaranty Program for Money Market Funds, TDNR HP-1147

White House Release: Statement by the President on the Economy

White House Fact Sheet: Confronting Economic Challenges Head On
 

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Louisiana Department of Revenue will grant filing and payment extensions to those sales and use, severance, and excise taxpayers whose business or tax preparer is located in any of the disaster areas declared by President Bush due to Hurricane Ike. The declared disaster areas include 14 parishes in Louisiana and 29 counties in Texas. The extensions are available for sales tax, severance tax and excise taxes with original or extended due dates on or after September 13, 2008, and on or before September 30, 2008. The due date for qualifying tax returns and payments is extended to October 15, 2008. This relief applies to the following 14 parishes in Louisiana: Acadia, Beauregard, Calcasieu, Cameron, Iberia, Jefferson, Jefferson Davis, Lafourche, Plaquemines, Sabine, St. Mary, Terrebonne, Vermilion, and Vernon. The relief also applies to the following 29 counties in Texas: Angelina, Austin, Brazoria, Chambers, Cherokee, Fort Bend, Galveston, Grimes, Hardin, Harris, Houston, Jasper, Jefferson, Liberty, Madison, Matagorda, Montgomery, Nacogdoches, Newton, Orange, Polk, Sabine, San Augustine, San Jacinto, Trinity, Tyler, Walker, Waller, and Washington. Any additional parishes or counties that are declared Hurricane Ike disaster areas by President Bush will receive the same relief. The Department will waive any late filing penalties, late payment penalties, and interest that would otherwise apply. Any return or amount on which penalty or interest began accruing before September 13, 2008 will be ineligible for this relief. When filing a return that qualifies for the extension, taxpayers are instructed to write the words "Hurricane Ike" in black ink at the top of the return. The tax return filing extensions apply only to those taxpayers and businesses located in any of the disaster areas declared by the President.

  Subscribers to CCH Tax Research NetWork can view the bulletin in its entirety.

Revenue Information Bulletin, No. 08-029 , Louisiana Department of Revenue, September 17, 2008.
 

CCH (cch.taxgroup.com) reports:

  The IRS has provided tax relief for victims of Hurricane Ike who reside or have a business in the following Texas counties that constitute a presidentially declared disaster area: Angelina, Austin, Brazoria, Chambers, Cherokee, Fort Bend, Galveston, Grimes, Hardin, Harris, Houston, Jasper, Jefferson, Liberty, Madison, Matagorda, Montgomery, Nacogdoches, Newton, Orange, Polk, Sabine, San Augustine, San Jacinto, Trinity, Tyler, Walker, Waller and Washington. These taxpayers have until January 5, 2009, to file returns, pay taxes and perform other time-sensitive acts otherwise due on or after September 7, 2008, and before January 5, 2009, including individual estimated tax returns and corporate tax returns due September 15 and extended individual returns due October 15. The postponement extends to taxpayers who are not in the disaster area, but whose books and records, or tax professionals' offices are in the covered disaster area, as well as to relief workers affiliated with a recognized government or charitable organization assisting in the relief activities in the covered disaster area.

  The IRS will also waive the failure to deposit penalties for employment and excise deposits due on or after September 7 and before September 22, 2008, as long as the deposits are made on or before September 22. The IRS computer systems will automatically identify taxpayers located in the covered disaster area and apply automatic filing and payment relief. For taxpayers residing or having a business outside the disaster area, the tax relief must be requested by calling the IRS disaster hotline at 1-866-562-5227.

IR-2008-107,
2008FED ¶46,574

IR-2008-107, ETR ¶66,860

IR-2008-107,
FINH ¶30,600

Other References:

 
Code Sec. 6081

  CCH Reference - 2008FED ¶36,789.213

  CCH Reference - ETR ¶39,845.15

  CCH Reference - FINH ¶20,345.65

  CCH Reference - FINH ¶20,355.45

 
Code Sec. 6161

  CCH Reference - ETR ¶43,235.15

  CCH Reference - FINH ¶20,585.35

 
Code Sec. 6656

  CCH Reference - ETR ¶51,475.88

 
Code Sec. 7508A

  CCH Reference - 2008FED ¶42,687C.22

  CCH Reference - ETR ¶57,495.25

  CCH Reference - FINH ¶22,560.30

  Tax Research Consultant

  CCH Reference - TRC FILEIND: 15,204.25
CCH Reference - TRC FILEBUS: 15,110
 

CCH (cch.taxgroup.com) reports:

  The IRS has extended return filing and payment deadlines for victims of Hurricane Ike in the Louisiana parishes of Acadia, Beauregard, Calcasieu, Cameron, Iberia, Jefferson, Jefferson Davis, Lafourche, Plaquemines, Sabine, St. Mary, Terrebonne, Vermilion and Vernon. Taxpayers residing or having businesses in these presidentially declared disaster areas have until January 5, 2009, to file returns, pay taxes and perform other time-sensitive acts otherwise due on or after September 11, 2008, and before January 5, 2009. The extension includes individual estimated tax returns and corporate tax returns that were due on September 15 and extended individual returns due on October 15. The postponement of time to file an pay does not apply, however to information returns in the Form W-2, 1098, 1099 series or to Forms 1042-S or 8027.

  The IRS will waive the failure to deposit penalties for employment and excise deposits due on or after September 11, 2008, and before September 26, 2008, as long as the deposits are made on or before September 26, 2008. This includes failure to deposit penalties on employment and excise deposits that were waived under previous relief granted due to Hurricane Gustav. Taxpayers whose books, records or tax professionals' offices are in the covered disaster area are also entitled to relief. In addition, all relief workers affiliated with a recognized government or charitable organization assisting the relief activities in the covered disaster area are eligible for relief. Affected taxpayers claiming a disaster loss due to Ike on their returns for the 2007 tax years should write, "Louisiana/Hurricane Ike" at the top of their returns to receive expedited service.

IR-2008-108,
2008FED ¶46,575

IR-2008-108, ETR ¶66,861

IR-2008-108,
FINH ¶30,601

Other References:

 
Code Sec. 6081

  CCH Reference - 2008FED ¶36,789.213

  CCH Reference - ETR ¶39,845.15

  CCH Reference - FINH ¶20,345.65

  CCH Reference - FINH ¶20,355.45

 
Code Sec. 6161

  CCH Reference - ETR ¶43,235.15

  CCH Reference - FINH ¶20,585.35

 
Code Sec. 6656

  CCH Reference - ETR ¶51,475.88

 
Code Sec. 7508A

  CCH Reference - 2008FED ¶42,687C.22

  CCH Reference - ETR ¶57,495.25

  CCH Reference - FINH ¶22,560.30

  Tax Research Consultant

  CCH Reference - TRC FILEIND: 15,204.25
CCH Reference - TRC FILEBUS: 15,110
 

CCH (cch.taxgroup.com) reports:

  As the Senate on September 18 remained deadlocked on a motion to proceed to an approximately $150- billion tax extenders bill, a White House spokesman said that President Bush would veto tax extenders legislation that is funded by tax increases. Tax breaks for oil and gas companies would be eliminated or frozen to pay for more than a dozen expiring tax provisions contained in the Senate tax extension proposal. Since the beginning of the president's first term, Bush made clear he will not support tax increases and that the last thing taxpayers need to sustain a healthy U.S. economy is higher taxes, noted White House Deputy Press Secretary Scott Stanzel.

  White House Press Secretary Dana Perino declined to characterize current economic conditions when asked if they were in the worst shape since the Great Depression. A Wall Street Journal headline on September 17 declared the U.S. economy was in the "worst crisis since '30s with no end in sight." When asked about the financial newspaper's front-page headline, Perino told reporters at the daily press briefing she is "not in a position to be able to assess it. I would leave it to economists and historians and analysts ... to do that."

  In addition, when asked whether the U.S. is in a recession, Perino referred to the definition used by the National Bureau of Economic Research (NBER). Most of the recessions identified by NBER procedures consist of "two or more quarters of declining real GDP, but not all of them," according to the research bureau.

Senate Progress

  Meanwhile, two Texas senators blocked a unanimous consent agreement as the Senate remained deadlocked on a motion to proceed on extenders legislation. Sens. John Cornyn, R-Tex., and Kay Bailey Hutchison, R-Tex., are unhappy with the disaster relief provisions, which exclude hurricane-devastated parts of their home state. Senate Finance Committee leaders and staff are in the process of negotiating with the two senators with the intent of breaking the deadlock.

  The measure faces an uncertain future nonetheless. As Senate Majority Leader Harry Reid, D-Nev., plans to break up the package into three pieces and offer them as amendments to a larger, House-approved measure, the Renewable Energy and Job Creation Bill (HR 6049), House Democrats have reiterated their insistence on paying for all approved measures with corresponding offsets. Only the $18.3-billion energy tax incentives portion of the package is fully offset, while the alternative minimum tax patch and most of the other tax extenders and disaster relief portions of the Senate package are not offset. If the House, which would likely make minor changes, were to pass the energy tax incentives as a stand-alone measure, many Senate Republicans said they would vote against it when it returns to their chamber because they believe the tax extenders should be approved as a single package.

  Adding to the troubles with the Senate package are two revenue provisions that impact the oil industry and would undoubtedly lead to a presidential veto. Both of the proposals are compromises hammered out by Senate leaders that would affect the tax treatment of oil companies' profits. One provision would impact tax breaks for oil and gas companies' overseas operations by modifying the tax treatment of offshore nonqualified deferred compensation, raising $25 billion. The other provision would freeze at six percent the Code Sec. 199 deduction for income attributable to domestic production of oil and gas, raising nearly $5 billion in revenue.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

SFC Release: Baucus Floor Statement Regarding Energy Tax and Tax Extenders

JCT Estimated Revenue Effects of Title VIII of HR 6899, the Energy Tax Incentives Act of 2008, As Passed by the House, JCX-68-08

JCT Estimated Budget Effects of the Tax Extenders and Alternative Minimum Tax Relief Act of 2008, JCX-69-08

JCT Estimated Budget Effects of the Energy Improvement and Extension Act of 2008, JCX-70-08
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The California Legislature has passed a budget (A.B. 1781) and numerous trailer bills, including a budget trailer bill that would limit corporation franchise and income tax and personal income tax business credits; allow unitary group members to assign corporation franchise and income tax credits to other members of the unitary group; temporarily suspend net operating losses (NOLs), but thereafter conform to the federal NOL carryback and carryover provisions; authorize an amnesty program for unpaid corporation franchise and income tax and personal income taxes; require limited liability companies (LLCs) to make estimated LLC fee payments; and expand the existing rebuttable presumption that a vehicle shipped or brought into California within 90 days from the purchase date is subject to use tax to apply to vehicles, vessels, and aircraft purchased out of state within 12 months of the purchase date.

  Governor Schwarzenegger has stated that he would veto these bills, but legislative leaders contend that they have the votes necessary to override the veto. Below is a brief summary of the provisions contained in A.B. 1452, the budget trailer bill that contains many of the tax provisions included in the budget compromise package.

CCH (cch.taxgroup.com) reports:

  The IRS has proposed a revenue procedure that would contain additional eligibility requirements for tax-exempt-bond partnerships that wish to elect to close their books on a monthly basis, so that partners may take into account their distributive shares of partnership items on a monthly basis. The proposed revenue procedure aims to provide greater administrative certainty to investors in tax-exempt-bond partnerships. The proposed procedure, which would modify and supersede Rev. Proc. 2003-84, 2003-2 C.B. 1159, would provide more specific eligibility criteria for the monthly closing election. The IRS is seeking public comments on the proposed revenue procedure.

  Under the proposed procedure a tender or put option issued to partners, who were holders of partnership interests resembling variable-rate interest debt instruments ("variable-rate interest holders,") would be required terminate without notice upon the occurrence of one of four events with respect to a tax-exempt bond held by the partnership. These events include: (i) a bankruptcy filing by or against a tax-exempt bond issuer; (ii) a downgrade in the credit rating of a tax-exempt bond and a downgrade in the credit rating of any guarantor of the tax-exempt bond, if applicable, to a rating or ratings, as applicable, below investment grade; (iii) a payment default on a tax-exempt bond; or (iv) a final judicial determination or a final IRS administrative determination of taxability of a tax-exempt bond for federal income tax purposes under Code Sec. 103.

  The partnership would also be required to give the variable-rate interest holders a reasonable opportunity to share in appreciation in the value of the bonds. The membership interests of the variable-rate interest holders would be required to give them a right to share in at least five percent of the gain from the sale or other disposition of the partnership's bonds In addition, the partnership would be required to provide to the variable-rate interest holders a right to require a sale, redemption, or other disposition of its bonds, by a date that is no later than the date that represents 80 percent of the remaining weighted average maturity of the tax-exempt bonds held by the partnership (as measured from the date of the partnership's acquisition of the bonds), the so-called "80 percent WAM test."

Notice 2008-80, 2008FED ¶46,573

Other References:

 
Code Sec. 103

  CCH Reference - 2008FED ¶6602.025

 
Code Sec. 702

  CCH Reference - 2008FED ¶25,083.2954

 
Code Sec. 706

  CCH Reference - 2008FED ¶25,165.066

  CCH Reference - 2008FED ¶25,165.281

  CCH Reference - 2008FED ¶25,165.42

 
Code Sec. 707

  CCH Reference - 2008FED ¶25,183.408

 
Code Sec. 761

  CCH Reference - 2008FED ¶26,602.03

 
Code Sec. 851

  CCH Reference - 2008FED ¶26,408.565

 
Code Sec. 852

  CCH Reference - 2008FED ¶ 26,433.26

  CCH Reference - 2008FED ¶ 26,433.29

 
Code Sec. 6031

  CCH Reference - 2008FED ¶35,389.021

  Tax Research Consultant

  CCH Reference - TRC PART: 18,160

CCH (cch.taxgroup.com) reports:

  The IRS has provided guidance regarding several provisions of the Housing Assistance Tax Act of 2008 (P.L. 110-289) pertaining to tax-exempt bonds and the low-income housing credit. One provision, Act sec. 3021, provides a temporary $11 billion increase in the annual private activity bond volume cap under Code Sec. 146 for qualified housing issues and, under new Code Sec. 143(k)(12), temporarily allows the use of qualified mortgage bonds to refinance certain subprime mortgage loans. A second provision, Act sec. 3005, excludes basic housing allowances paid to military members at certain military bases for purposes of applicable low-income set-aside income limitations with respect to the low-income housing credit and exempt facility bonds. A third provision, Act sec. 3023, gives temporary authority to Federal Home Loan Banks to guarantee certain tax-exempt bonds.

Additional Bond Volume Cap

  Guidance is provided on allocations, carryforwards, information reporting, and uses of the additional $11 billion bond volume cap ("2008 Housing Act Volume Cap"). A list is provided of allocations of the 2008 Housing Act Volume Cap to the states, the District of Columbia, and possessions of the United States. These allocations, based on the 2008 Housing Act Volume Cap, were determined using the population figures provided in Notice 2008-22, I.R.B. 2008-8, 465 (TAXDAY, 2008/02/25, I.1), and reflecting the 2008 cost-of-living adjustments contained in
Rev. Proc. 2007-66, I.R.B. 2007-45, 970 (TAXDAY, 2007/10/19, I.2).

  New Code Sec. 146(f)(6) provides that any carryforwards of the 2008 Housing Act Volume Cap may be used only for qualified housing issues that are issued by the end of calendar year 2010. The IRS states that it will afford issuers of a qualified housing issue flexibility in their use of the 2008 Housing Act Volume Cap and in coordinating the use of this volume cap with the general volume cap under
Code Sec. 146. Thus, the 2008 Housing Act Volume Cap should be tracked and accounted for separately from the general volume cap. Further, an issuer may, at its discretion, utilize the 2008 Housing Act Volume Cap or carryforwards thereof either before or after the use of the general volume cap or carryforwards thereof. Also, issuers who file a proper carryforward election for the 2008 Housing Act Volume Cap may assign any portion of that cap to another eligible issuer in the state.

  Issuers of a qualified housing issue that use the 2008 Housing Act Volume Cap are provided a list of modifications to Form 8038, Information Return for Tax-Exempt Private Activity Bond Issues, subject to updated IRS information reporting forms or procedures. Issuers that have an unused 2008 Housing Act Volume Cap at the end of calendar year 2008 should elect this carryforward amount by filing a separate Form 8328, Carryforward Election of Unused Private Activity Bond Volume Cap, with modifications also provided in the guidance.

  The IRS also clarified that an issuer may elect to exchange unused authority to issue private activity bonds with the 2008 Housing Act Volume Cap under Code Sec. 146 for authority to issue mortgage credit certificates under Code Sec. 25. An exchange may be made only if the indebtedness to which the mortgage credit certificate relates is incurred within 12 months of the date of the election under
Code Sec. 25(c)(2)(A)(ii) not to issue an amount of private activity bonds that it may otherwise issued during the calendar year under Code Sec. 146.

Refinancing of Qualified Subprime Loans

  New Code Sec. 143(k)(12) temporarily allows the use of qualified mortgage bonds to refinance qualified subprime mortgage loans. A "qualified subprime mortgage loan" is defined as an adjustable rate single-family residential mortgage loan made in the years 2002 through 2007 that the bond issuer determines would be reasonably likely to cause financial hardship to the borrowers if not refinanced. According to the IRS, issuers may make a determination of the likelihood of financial hardship based on reasonable estimates made in good faith. Further details on this refinancing provision are provided in the guidance, including proper information reporting.

Exclusion of Military Basic Housing Allowances

  The IRS has provided a list identifying military bases that are presently considered to be qualified for purposes of the exclusion of basic housing allowances from applicable low-income set-aside income limitations with respect to the low-income housing credit and exempt facility bonds. Other bases that meet the necessary requirements in the future would also be eligible at such time.

Federal Home Loan Bank Guarantees

  Tax-exempt bonds issued by state and local governments after July 30, 2008 until December 31, 2010, are eligible for tax-exempt status if they are guaranteed, upon original issuance, by a Federal Home Loan Bank. The IRS has clarified that, for purposes of the "original issuance" requirement, any tax-exempt bond, including a bond for new money purposes or a bond that is part of a refunding issue (as defined in Reg. §1.150-1(d)) that is issued during the relevant period may be eligible for Federal Home Loan Bank guarantees.

 
Notice 88-80, 1988-2 CB 396, is modified.

Notice 2008-79, 2008FED ¶46,572

Other References:

 
Code Sec. 42

  CCH Reference - 2008FED ¶4385.025

  CCH Reference - 2008FED ¶4385.45

 
Code Sec. 142

  CCH Reference - 2008FED ¶7752.028

 
Code Sec. 143

  CCH Reference - 2008FED ¶7786.021

 
Code Sec. 146

  CCH Reference - 2008FED ¶7854.07

 
Code Sec. 149

  CCH Reference - 2008FED ¶7905.025

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 54,214

  CCH Reference - TRC SALES: 51,064.10

  CCH Reference - TRC SALES: 51,154.10

  CCH Reference - TRC SALES: 51,368.05

CCH (cch.taxgroup.com) reports:

  Various prescribed rates for federal income tax purposes for October 2008 have been provided by the IRS. The annual short-term, mid-term, and long-term applicable federal interest rates (AFRs) are 2.19 percent, 3.16 percent and 4.32 percent, respectively. The semiannual short-term, mid-term, and long-term AFRs are 2.18 percent, 3.14 percent and 4.27 percent, respectively. Quarterly short-term, mid-term and long-term AFRs are 2.17 percent, 3.13 percent and 4.25 percent, respectively. Finally, the monthly short-term, mid-term and long-term rates are 2.17 percent, 3.12 percent and 4.23 percent, respectively.

  The short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for October 2008 for purposes of Code Sec. 1288(b) are 1.75 percent, 2.97 percent, and 4.45 percent, respectively, when annual compounding is used.

  Additionally, the Code Sec. 382 adjusted federal long-term rate is 4.45 percent, and the long-term tax-exempt rate is 4.65 percent. The Code Sec. 42(b)(2) appropriate percentage for the 70-percent present-value, low-income housing credit is 7.87 percent, and the appropriate percentage for the 30-percent present-value, low-income housing credit is 3.37 percent. Finally, theCode 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 3.80 percent.

Rev. Rul. 2008-49, 2008FED ¶46,571

Rev. Rul. 2008-49, FINH ¶30,599

Other References:

 
Code Sec. 42

  CCH Reference - 2008FED ¶173.02

  CCH Reference - 2008FED ¶176.01

  CCH Reference - 2008FED ¶4305.03

 
Code Sec. 382

  CCH Reference - 2008FED ¶17,115.28

 
Code Sec. 642

  CCH Reference - 2008FED ¶24,308.1885

 
Code Sec. 1274

  CCH Reference - 2008FED ¶31,310.05

 
Code Sec. 7520

  CCH Reference - 2008FED ¶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 IRS has relaxed its restrictions on off-cycle submissions of applications for opinion and advisory letters by new plans if the plans are identical to mass submitter plans. The IRS was originally concerned about diverting resources from its determination letter program. However, the plans affected by the changes have, in effect, already been reviewed and approved by the IRS, so the IRS believes it can make the changes without compromising its determination letter program.

  The restrictions were originally included in Rev. Proc. 2007-44. Under that procedure, a sponsor or practitioner that submitted an application for an opinion or advisory letter within the submission period for an applicable six-year cycle could not also submit an off-cycle application for an opinion or advisory letter. Furthermore, the adopting employer of a new pre-approved plan had to submit the plan to the IRS for an opinion or advisory letter prior to the beginning of the announced adoption period for that cycle. Finally, the opinion or advisory letter with respect to an off-cycle application was not retroactive and could not be relied upon for the period prior to the date of submission of the application. Under this last rule, some Economic Growth and Tax Relief Reconciliation Act of 2001, P.L. 107-16 (EGTRRA) opinion and advisory letters include a caveat stating that the letter is not retroactive and may not be relied upon for the period prior to the date of submission of the application.

  These rules are now changed, effective June 13, 2007 (the effective date of Rev. Proc. 2007-44). Under the modifications, a sponsor or practitioner may submit an off-cycle application for an opinion or advisory letter even though it also submitted an on-cycle application, provided the new application is for a plan that is word-for-word identical to a mass submitter plan that has received a favorable EGTRRA opinion or advisory letter, or for which an application for such a letter is pending, as long as the normal procedures governing mass submitter plans are followed.

  Furthermore, adopting employers of a new pre-approved plan that is word-for-word identical to a mass submitter plan will not fail to be eligible for an applicable six-year cycle merely because the plan is submitted to the IRS for an opinion or advisory letter after the beginning of the announced adoption period for that cycle. Regardless of when the application is filed or when the opinion or advisory letter is issued, however, the announced adoption period for any applicable six-year cycle will not be extended.

  Finally, an otherwise eligible adopting employer may rely on a pre-approved plan's current opinion or advisory letter to retroactively amend its plan by adopting the pre-approved plan within the announced adoption period for the applicable six-year cycle, regardless of whether the opinion or advisory letter application for the plan was filed off-cycle (and regardless of whether the plan is word-for-word identical to a mass submitter plan). Thus, for example, an eligible employer may rely on a pre-approved plan's EGTRRA opinion or advisory letter to retroactively amend its plan for EGTRRA and the other qualification changes listed in the 2004 cumulative list of changes by adopting the pre-approved plan within the adoption period ending on April 30, 2010, even if the application for the opinion or advisory letter for the plan was submitted off-cycle. Any EGTRRA opinion or advisory letters that have been issued with a caveat prohibiting retroactive reliance will be reissued by the IRS to remove the caveat.

 
Rev. Proc. 2007-44, I.R.B. 2007-28, 54, is modified.

Rev. Proc. 2008-56, 2008FED ¶46,570

Other References:

 
Code Sec. 401

  CCH Reference - 2008FED ¶17,507.042

  CCH Reference - 2008FED ¶17,507.15

  CCH Reference - 2008FED ¶17,507.2531

  CCH Reference - 2008FED ¶17,507.0331

  CCH Reference - 2008FED ¶17,515.026

  CCH Reference - 2008FED ¶17,929.024

  CCH Reference - 2008FED ¶17,929.025

  CCH Reference - 2008FED ¶17,929.06

  CCH Reference - 2008FED ¶17,929.65

  CCH Reference - 2008FED ¶18,112.0242

 
Code Sec. 403

  CCH Reference - 2008FED ¶18,282.11

  CCH Reference - 2008FED ¶18,282.41

 
Code Sec. 410

  CCH Reference - 2008FED ¶18,997.25

 
Code Sec. 411

  CCH Reference - 2008FED ¶19,076.954

 
Code Sec. 412

  CCH Reference - 2008FED ¶19,125.60

 
Code Sec. 415

  CCH Reference - 2008FED ¶19,218.721

 
Code Sec. 501

  CCH Reference - 2008FED ¶22,604.10

 
Code Sec. 503

  CCH Reference - 2008FED ¶22,660.10

  CCH Reference - 2008FED ¶22,683.87

 
Code Sec. 507

  CCH Reference - 2008FED ¶22,780.15

 
Code Sec. 509

  CCH Reference - 2008FED ¶22,812.50

 
Code Sec. 511

  CCH Reference - 2008FED ¶22,825.101

 
Code Sec. 521

  CCH Reference - 2008FED ¶22,882.196

 
Statement of Procedural Rules Sec. 601

  CCH Reference - 2008FED ¶43,360.2112

  CCH Reference - 2008FED ¶43,360.2113

  CCH Reference - 2008FED ¶43,360.2116

  CCH Reference - 2008FED ¶43,360.212

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 51,100

CCH (cch.taxgroup.com) reports:

  White House Press Secretary Dana Perino on September 17 said that she does not expect Congress to reach agreement on a comprehensive energy bill acceptable to the president. The administration issued a veto threat against the House-passed energy measure (HR 6899) on September 16 strongly opposing several "poison pill" provisions in it, including one that would require multinational corporations to forgo Code Sec. 199 tax breaks in order to use the revenue to fund renewable energy and conservation measures.

  "We don't believe tax increases are the right way to move forward on an energy bill," Perino asserted at a press briefing on September 17. She added, "My worry is not that Congress is going to send a bill to the president that he would have to veto; I think our worry is that the Congress, after all of this debate and all of this rhetoric, they are not even going to produce a bill that they could pass."

  White House Deputy Press Secretary Scott Stanzel later noted that an anticipated bipartisan Senate agreement on tax extenders includes renewable energy incentives "without raising taxes in other places and it ... is not contingent on an energy bill passing." The tentative agreement would extend dozens of expired and expiring provisions, including tax incentives for renewable energy, and a one-year patch for the alternative minimum tax (TAXDAY, 2008/09/17, C.1).

  By Paula Cruickshank, CCH News Staff

Comprehensive American Energy Security and Consumer Protection Act of 2008, HR 6899

Legislative Text for the SFC Summary Amendment to the Substitute Amendment to HR 6049, the Energy Improvement and Extension Act of 2008

SFC Amendment in the Nature of a Substitute to HR 6049, the Energy Improvement and Extension Act of 2008

SFC Estimated Revenue Effects of the Tax Extenders and Alternative Minimum Tax Relief Act of 2008 (Very Preliminary)

SFC Estimated Revenue Effects of the Energy Improvement and Extension Act of 2008 (Very Preliminary)

SFC Summary --Amendment to the Substitute Amendment to HR 6049

SFC Summary --The Energy Improvement and Extension Act of 2008
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Legislation has been introduced and passed by the New Jersey Assembly Appropriations Committee that would conform New Jersey's sales and use tax laws to the provisions of the Streamlined Sales and Use Tax (SST) Agreement that it has not already conformed to. Among other things, the proposed amendments would include changes to telecommunications provisions and the taxation of fur clothing that have given rise to challenges to New Jersey's substantial compliance with the Agreement.

  Similar legislation (S.B. 1418) is awaiting action in the New Jersey Senate.

  Subscribers to CCH Tax Research NetWork can view A.B. 3111.
Subscribers to CCH Tax Research NetWork can view S.B. 1418.

A.B. 3111, as introduced and passed by the New Jersey Assembly Appropriations Committee on September 15, 2008.
 

CCH (cch.taxgroup.com) reports:

  As a service to our subscribers, CCH Tax & Accounting has prepared projected inflation-adjusted tax bracket numbers for the 2009 Tax Rate Schedules, the standard deduction and personal exemption for use in year-end and 2009 tax planning. The projected figures are based on the inflation-adjustment provisions of the Internal Revenue Code (IRC) as currently in force and the average of the Consumer Price Index for All Urban Consumers (CPI-U) published by the Department of Labor for each month in the 12-month period ending on August 31, 2008. Official IRS figures will not be released until later in 2008.

Tax Brackets

  Joint returns. For married taxpayers filing jointly and surviving spouses, the maximum taxable income subject to the 10-percent bracket will rise from $16,050 in 2008, to $16,700 in 2009; the top of the 15-percent tax bracket will increase from $65,100 to $67,900. The bracket amounts for the remaining tax rates show similarly proportionate increases: $137,050 as the maximum for the 25-percent bracket (up $5,600 from 2008); $208,850 for the 28-percent bracket (up $8,550 from 2008); and $372,950 for the 33-percent bracket (up $15,250 from 2008). Amounts above the $372,950 level will be taxed at the 35-percent rate.

  Unmarried filers. For single taxpayers, the maximum taxable income for the 10-percent bracket will increase to $8,350 for 2009 (up from $8,025 in 2008). The remainder of the rate brackets show inflation increases of: $1,400 for the top of the 15-percent bracket (to $33,950); $3,400 for the 25-percent bracket (to $82,250); $7,000 for the 28-percent bracket (to $171,550); and $15,250 for the top of the 33-percent bracket (to $372,950).

  Married filing separately. Married taxpayers filing separately will see a $325 increase for the upper limit of the 10-percent bracket (to $8,350) and a $1,400 increase for the 15-percent bracket (to $33,950). The top of the 25-percent bracket will increase by $2,800 (to $68,525); the 28-percent bracket will increase by $4,275 (to $104,425); and the 33-percent bracket will increase by $7,625 (to $186,475).

  Heads of household. For heads of households, the maximum taxable income for the 10-percent bracket will rise to $11,950 (from $11,450). The top of the remainder of the bracket amounts will also increase: up $1,850 from 2008 for the 15-percent bracket, to $45,500; up $4,800 from 2008 for the 25-percent bracket, to $117,450; up $7,800 from 2008 for the 28-percent bracket, to $190,200; and up $15,250 from 2008 for the top of the 33-percent bracket, to $372,950.

  Estates and trusts. For estates and nongrantor trusts, the maximum taxable income for the 15-percent bracket will increase by $100 over the 2008 level, to $2,300 (there is no 10-percent bracket for these taxpayers). For the 25-percent bracket, the maximum for the bracket will be $5,350 (up $200 from 2008); for the 28-percent bracket, $8,200 (up $350 from 2008); and, for the 33-percent bracket, $11,150 (up $450 from 2008).

Standard Deduction

  The 2009 standard deduction will rise by $250, to $5,700, for single taxpayers; by $350, to $8,350, for heads of households; by $500, to $11,400, for married taxpayers filing jointly and surviving spouses; and by $250, to $5,700, for married taxpayers filing separately. The standard deduction for dependents will rise to $950 (or earned income plus $300).

Personal Exemptions

  The amount of personal and dependency exemptions for 2009 will increase from the 2008 level by $150 to $3,650.

Gift Tax

  The gift tax annual exemption, which rose from a base of $10,000 to $11,000 in 2002 and to $12,000 in 2006, will rise to the $13,000 level for 2009. Pursuant to the IRC, the exemption can rise only when the inflation adjustment produces an increase of $1,000 or more.

Personal Exemption, Itemized Deduction

  Personal exemption phaseout. The 2009 personal exemption phaseout for married taxpayers filing jointly will increase by $10,250 over the 2008 level and will begin at adjusted gross income (AGI) of $250,200; for single taxpayers, the phaseout will increase by $6,850 over the 2008 level, to begin at AGI of $166,800; for heads of households, the increase over 2008 will be $8,550, to begin at AGI of $208,500; and for married taxpayers filing separately, the phaseout will begin at AGI of $125,100, representing an increase of $5,125 over the 2008 level.

  Itemized deductions phaseout. For higher income taxpayers, the amount of their otherwise allowable itemized deductions will be reduced when AGI exceeds a threshold amount. The reduction is equal to the lesser of three percent of AGI over the threshold amount or 80 percent of itemized deductions otherwise allowable. For 2009, the threshold amount at which the three-percent itemized deduction limitation takes effect will increase by $6,850, to AGI of $159,950 for married taxpayers filing jointly, single taxpayers and heads of household, and will increase by $3,425, to AGI of $83,400 for married taxpayers filing separately.

  CCH Comment. Continuing from the previous year, taxpayers only lose one-third of the amount otherwise required under the personal exemption and itemized deduction phaseouts, down from two-thirds in 2006 and 2007.

New for 2009

  Agricultural bonds. Section 15341 of the Food, Conservation, and Energy Act of 2008 (P.L. 110-234) amended Code Sec. 147(c)(2) to increase the portion of private activity bonds allowed for use by first-time farmers to acquire land. As a result, these amounts are now indexed for the first time for inflation for years after 2008. The amount for 2009 is $469,200.

  Expatriation. Section 301 of the Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART Act) (P.L. 110-245) added
Code Sec. 877A regarding tax penalties for U.S. citizens expatriating to foreign countries. The provision requires them to treat their property as sold on the day before the expatriation date for its fair market value, subject to a specified exclusion from gross income. As passed, this amount was $600,000. However, it is adjusted for inflation for calendar years after 2008. For 2009, the exclusion is $626,000.

  Retirement plan contribution. Deductions for qualified retirement plan contributions are increased and inflation-adjusted for the first time for tax years after 2008. The amount for 2009 remains at $5,000 because of a $500 rounding convention.

Other Tax Figures

  In addition to the projected tax figures for 2009 listed above, the IRC requires other adjustments based on the September 2007 through August 2008 CPI amounts. These additional amounts include:

  Roth IRAs . The AGI limits for maximum Roth IRA contributions are: married filing jointly, $166,000 (formerly $159,000); other filing statuses, other than married filing jointly or separately, $105,000 (formerly $101,000).

  IRAs. The AGI limits for maximum IRA contributions for individuals covered by a retirement plan are: married filing jointly, $89,000; head of household and single, $55,000.

  Education savings bond interest exclusion. When U.S. savings bonds are redeemed to pay expenses for higher education, the interest may be excluded from income if the taxpayer's income is below a certain range. For 2009, that phase-out range begins at $69,950 modified AGI ($104,900 for joint returns).

  Education credits. The HOPE and Lifetime Learning Credits for 2009 will be phased out for those taxpayers with modified adjusted gross income in 2009 starting at $48,000 ($96,000 for married joint filers). The $1,000 credit amount in 2009 goes up $100 to $1,200.

  Adoption expense credit. This $10,000 maximum credit was first subject to an inflation adjustment after 2002. For 2009, the amount will increase to $12,150, with the AGI phaseout beginning at $182,180.

  Student loan interest income phaseout. The $2,500 student loan interest deduction phaseout begins at $60,000 AGI for singles in 2009. The phase-out level for joint filers rises to $120,000.

  Gifts to noncitizen spouses. The first $133,000 of gifts in 2009 to a spouse who is not a U.S. citizen will not be included in taxable gifts, up $5,000 from 2008.

  Foreign gifts. A U.S. person receiving aggregate foreign gifts exceeding $14,139 in 2009 must file an information return.

  Transportation fringe benefits. The monthly cap on the exclusion of qualified parking expenses will be $230 in 2009 (up from $220 in 2008). Transit passes/commuter highway vehicle amounts will rise $5 to $120 per month.

  Child credit. The refundable child credit earned income threshold will be $12,550 (formerly $12,050).

  By George Jones and Torie Cole, CCH News Staff

CCH (cch.taxgroup.com) reports:

CCH (cch.taxgroup.com) reports:

  The IRS has provided initial guidance for claiming the new Code Sec. 36 first time home buyer tax credit. The credit was added by the Housing and Economic Recovery Act of 2008 (P.L. 110-289). The credit is only available for a U.S. home purchased after April 8, 2008, and before July 1, 2009. Vacation homes and rental property are not eligible for the credit. For newly built homes, the purchase date is the first date the taxpayer lives in the home. Only taxpayers who are first-time home buyers or those who have not owned a home in the three years prior to the relevant purchase qualify for the credit.

  The credit equals 10 percent of the purchase price of the home with a maximum available credit of: (1) $7,500 for either a single taxpayer or a married couple filing jointly; or, (2) $3,750 for a married person filing a separate return. Unlike most tax credits, this credit operates like an interest free loan and generally must be paid back over 15 years in equal annual installments. Repayment begins the second tax year after the year the credit is claimed and is included as an additional tax on the taxpayer's income tax return. Taxpayers may need to adjust their withholding or make quarterly estimated tax payments to meet the repayment requirements. Certain events (e.g., sale of the home) can cause the repayment amount to change or accelerate the due date.

  The credit is phased out for a married couple filing a joint return whose adjusted gross income plus various amounts excluded from income is $150,000 to $170,000. For other taxpayers, the phase out range is $75,000 to $95,000. The following individuals are not eligible for the credit: individuals who buy their home from a close relative; taxpayers who stop using the home as their main home (special rules apply for an involuntary conversion); individuals who sell the home before the end of the year; non-resident aliens; taxpayers who are or were eligible for the District of Columbia first-time home buyer credit for any taxable year; and individuals who obtain home financing from tax-exempt mortgage revenue bonds. The credit will be claimed on the soon to be released new form, IRS Form 5405. This form, along with further instructions, will be available later in 2008 on the IRS website at www.irs.gov.

IR-2008-106,
2008FED ¶46,569

Other References:

 
Code Sec. 36

  CCH Reference - 2008FED ¶4190.01

  Tax Research Consultant

  CCH Reference - TRC INDIV: 57,950

CCH (cch.taxgroup.com) reports:

  Senate leaders from both parties announced on September 16 that they had reached a tentative agreement on a series of tax extenders that would extend dozens of expired and expiring provisions, including incentives for renewable energy, and provide a one-year fix for the alternative minimum tax (AMT). Senate Majority Leader Harry Reid, D-Nev., told reporters that he expects to move to the tax extenders before turning to more controversial energy legislation. The Senate could act as quickly as September 17, said Reid.

  According to Reid, the Senate would likely break up the tax extenders into three separate votes if they could not assemble all the provisions into two packages. Under that scenario, the Senate would first address a roughly $18-billion package of energy tax incentives, then a one-year patch for the AMT and, finally, a package of nonenergy tax extenders. Reid said he would immediately send the approved bills to the House.

  While details have not been released, sources indicate that agreement is near on the energy provisions after settling on paying for the renewable energy tax incentives and dropping the most controversial revenue-raiser: an excise tax on crude oil and natural gas derived from the Gulf of Mexico if oil companies did not pay royalties on their leases. A roughly $100-billion package of tax extenders combined with a one-year fix for the AMT is near agreement after negotiators opted not to fully offset the nonenergy-related tax extenders. The AMT patch would not be paid for. A revenue-raising provision that would have delayed until 2019 a more tax favorable implementation of allocation of interest costs for multinational corporations was also dropped.

  Negotiators are also apparently looking into expanding many of the expired tax extenders, especially those aimed at business, by increasing their extensions from one year to two years. "I hope we can work something out with the Republicans to pass the other tax extenders for more than one year," said Reid. "We've got to get away from the one-year deal."

  By Jeff Carlson, CCH News Staff

SFC Release: Baucus, Grassley, Senate Leaders Agree to Move Clean Energy Incentives, Extend Expiring Tax Cuts, Offer Disaster Tax Relief, Protect Millions from Alternative Minimum Tax
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The ballot title and summary for a proposed amendment to the Florida Constitution that would eliminate the state-required school property tax and replace those revenues by, among other methods, repealing sales and use tax exemptions not specifically excluded and increasing the state sales and use tax rate up to 1% are misleading. As such, the amendment is fatally defective and must be removed from the November 2008 general election ballot.

CCH (cch.taxgroup.com) reports:

  The Alabama Department of Revenue has announced that it will follow federal filing extensions granted for Louisiana residents affected by Hurricane Gustav who cannot meet their Alabama corporate and individual income tax filing obligations. Taxpayers have until January 5, 2009, to file Alabama tax returns that have an original or extended due date between September 1, 2008, and January 5, 2009. Relief for other taxes will be handled on a case-by-case basis. Taxpayers should write "GUSTAV" in red ink at the top of any paper return filed with the Department.

  Subscribers to CCH Tax Research NetWork can view the announcement.

Information Release, Alabama Department of Revenue, September 12, 2008.
 

CCH (cch.taxgroup.com) reports:

  House Ways and Means Chairman Charles B. Rangel, D-N.Y., unveiled a comprehensive energy bill on September 15 that would provide $18 billion worth of incentives for renewable energy and energy conservation, while requiring big, multinational oil companies to forgo their tax breaks to pay for the measure. According to a summary of the Democratic legislation released by Rangel's office, the Energy Tax Incentives Bill of 2008 would also prevent the understatement of foreign oil and gas extraction income in calculating foreign tax credits.

  In May, the House passed the Renewable Energy and Job Creation Bill of 2008 (HR 6049) but the bill failed to win Senate support for passage. Meanwhile, House Republicans have spent the month of September pressuring the Democratic leadership to produce another piece of legislation that includes offshore drilling. However, the summary released by Rangel's office only includes energy tax provisions, such as extending the investment tax credit and residential tax credit for solar energy by eight years. It also seeks to encourage natural gas vehicles and to assist businesses that build ethanol pipelines.

  The measure is expected to be considered by House lawmakers during the week of September 15. House Republicans are unlikely to support the measure because the revenue offsets raise taxes on companies that drill for and refine oil and transport gasoline. In past debates on energy taxation bills, Republicans maintained that raising revenues by repealing Code Sec. 199 for oil companies will discourage investment and exploration of new energy sources and lead to higher prices at the pump.

  By Stephen K. Cooper, CCH News Staff

Ways and Means Release: Summary of Tax Provisions in the Comprehensive American Energy Security and Consumer Protection Act
 

CCH (cch.taxgroup.com) reports:

  Treasury Secretary Henry M. Paulson, Jr., speaking in the wake of a major shake-out of Wall Street investment firms Lehman Brothers and Merrill Lynch, stressed on September 15 that the public can remain confident in the "soundness and resilience" of the U.S. financial system. "The American people can be very, very confident about their accounts in our banking system," he said.

  Paulson stressed the need for balance between regulation and market discipline, and called for major regulatory changes in the intermediate and longer term. He also emphasized the need for additional authorities to deal with non-bank financial institutions. Such steps will require congressional action, Paulson said, adding, "Right now, we're working with the tools we have."

  When asked about the extent of future federal involvement in financial markets, Paulson replied that it is important that regulators remain vigilant. "We're very vigilant, but we do not take, and I don't take, lightly... putting the taxpayer on the line to support an institution," he said. Pressed on why the government did not intervene to support Lehman Brothers in the way that it helped Bear Stearns earlier in 2008, Paulson claimed the situations were "very, very different...I never once considered that it was appropriate to put taxpayer money on the line in resolving Lehman Brothers."

  Paulson reiterated that the root of the current problems in the financial sector lies in the housing correction. "Until we stem the housing correction, until the biggest part of that is behind us and we have more stability in housing prices, we're going to continue to have turmoil in the financial markets." He added that there is a "reasonable chance" the biggest part of the housing correction could be over within a number of months. "I'm not saying two to three months, but in months...as opposed to years," Paulson said.

  Meanwhile, President Bush expressed confidence that, over the long term, capital markets are flexible and resilient enough to deal with the current adjustments. Bush said his administration is working to reduce disruptions and minimize the impact of financial market developments on the broader economy.

Financial Markets Working Group

  Bush will be briefed on financial market conditions by members of the President's Working Group on Financial Markets on September 16. He will deliver a statement on current financial conditions following the meeting.

  The President's Working Group (PWG) is composed of Paulson, who chairs the group; Federal Reserve Board Chairman Ben Bernanke; Securities and Exchange Commission Chairman Christopher Cox; and Commodity Futures Trading Commission acting Chairman Walter Lukken. The PWG meets regularly to consider market issues and appropriate regulatory responses. It was created by Executive Order in 1987.

Second Stimulus Package

  As Congress considers the ramifications of the current turmoil on Wall Street, federal lawmakers are weighing the prospects of advancing a second stimulus package. White House Press Secretary Dana Perino on September 15 questioned whether any proposals under consideration would provide a short-term boost to the U.S. economy. She indicated that additional measures to stimulate the economy are not limited to a second, short-term growth bill.

  "It could come in the form of energy legislation and that's what we will be focusing on," Perino advised. She added that Democrats in Congress have not yet united behind a final economic growth package and what Republican members have seen so far "falls short of what we could do for this economy to actually stimulate in the area of energy."

  Perino did not specify how provisions in the energy bill could stimulate economic growth, create new jobs or increase short-term consumer spending. She maintained that legislative proposals to start and fund new infrastructure projects would not have "short-term, positive economic stimulus impacts on the economy."

  House Majority Leader Steny Hoyer, D-Md., has maintained that Democrats have no intention of allowing the federal government to shut down since the annual appropriations bills have not been passed for fiscal year 2009. Although the scheduled adjournment date for the 110th Congress is September 26, lawmakers will work with the Bush administration to craft a Continuing Resolution (CR) that funds the government beyond October 1. Hoyer said he does not favor calling a lame-duck session of Congress.

  Hoyer hinted that, since the CR is the only must-pass legislation that Congress must act on before it leaves Washington, lawmakers might consider including a second economic stimulus package in the measure. While he did not give a comprehensive list of items likely to be included, Hoyer mentioned spending on infrastructure, such as bridges and roads, help for low-income families facing high energy bills, unemployment insurance and hurricane and flood relief.

  By Sarah Borchersen-Keto, Stephen K. Cooper and Paula Cruickshank, CCH News Staff

Treasury Department News Release, TDNR HP-1134
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  In an action that arose after a parcel of residential property was foreclosed for failure to pay Michigan property taxes, the court held that a bank's mortgage interest in the property was foreclosed upon without due process because notice of the pending foreclosure proceedings was not mailed to the bank's trust beneficiary at its last known address. Although the bank's interest was not recorded until after the certificate of foreclosure was filed, the bank's trust beneficiary, which retained a properly recorded interest in the property when it became the beneficial holder of the mortgage, was entitled to notice. Because the bank's beneficiary was entitled to notice, the bank was entitled to bring suit on behalf of its beneficiary.

  The court did not agree with the argument that due process was satisfied because the forfeiture certificate was recorded before the mortgage was assigned from the trust beneficiary to the bank. Although a recorded interest in property takes priority over subsequent owners and encumbrances, it did not follow that recording a certificate of forfeiture was reasonably calculated to apprise the interested parties of the pending foreclosure. Rather, the onus was on the foreclosing governmental unit to provide notice. A party that records an instrument at the register of deeds is not required to determine whether anything has been filed regarding foreclosure. The court noted that had the bank received notice of the proceedings at the address recorded with the register of deeds, due process would have been satisfied.

First National Bank of Chicago v. Department of Treasury , Michigan Court of Appeals, No. 272431, September 9, 2008, ¶401-385

  Other References:

  Explanations at ¶89-176

CCH (cch.taxgroup.com) reports:

  The Kansas Department of Revenue has released corporate, personal, insurance premiums, and financial institutions privilege tax guidance, as well as policies and procedures, related to the declared disaster capital investment tax credit program. The tax credit program tax credit program was established for the purpose of assisting businesses in specific declared disaster areas. Taxpayers may apply for the declared disaster capital investment tax credit by completing and submitting the disaster application, available at
http://www.ksrevenue.org/pdf/forms/PR-Disaster.pdf.

  Applications should be submitted prior to November 30, 2008, to be considered for funding. Applications received after November 30, 2008, and before December 31, 2008, will be considered for tax credits if funding is available.

  Subscribers to the CCH Tax Research NetWork can view the guidance, policies, and procedures.

Release , Kansas Department of Revenue, September 12, 2008.
 

CCH (cch.taxgroup.com) reports:

  Taxpayers and preparers affected by Hurricane Ike have been granted an extension of seven days to file corporate returns and third-quarter estimated taxes otherwise due on September 15, 2008. Taxpayers impacted by the storm will have until midnight September 22, 2008, to meet their filing obligations without incurring penalties. A further postponement of the filing deadline by the IRS is likely, following damage assessments by the Federal Emergency Management Agency.

  Affected taxpayers should mark paper returns with the words "Hurricane Ike" and in the case of electronically filed returns, taxpayers can use their software's "disaster" feature, if available.

IR-2008-105,
2008FED ¶46,568

Other References:

 
Code Sec. 6081

  CCH Reference - 2008FED ¶36,789.213

 
Code Sec. 7508A

  CCH Reference - 2008FED ¶42,687C.22

  Tax Research Consultant

  CCH Reference - TRC FILESBUS: 15,110

CCH (cch.taxgroup.com) reports:

  The IRS has issued guidance that informs trustees and middlemen of widely held fixed investment trusts (WHFITs) that the IRS will not impose penalties under the reporting rules pursuant to Reg. §1.671-5(m) with respect to calendar year 2008. The guidance also informs trustees and middlemen of widely held mortgage trusts (WHMTs) that, pending future published guidance, certain modifications of mortgages held by a WHMT that has entered into a guarantee arrangement are not required to be reported under the WHFIT reporting rules. This guidance is effective September 12, 2008. Trustees and middlemen may apply the reporting exception for certain modifications of mortgages as of January 1, 2007.

  The IRS issued this guidance at the request of middlemen and trustees of WHFITs that require additional time to update their computer and information systems to fully comply with WHFIT reporting rules.

  The IRS requests comments regarding the scope and description of the reporting exception described in the guidance. Comments should be submitted on or before November 1, 2008, and should include a reference to Notice 2008-77.

Notice 2008-77, 2008FED ¶46,567

Other References:

 
Code Sec. 671

  CCH Reference - 2008FED ¶24,686.0525

  CCH Reference - 2008FED ¶24,686.86

  Tax Research Consultant

  CCH Reference - TRC ESTTRST:36,300

CCH (cch.taxgroup.com) reports:

  A list of organizations that have failed to establish or maintain their status as either public charities or operating foundations has been compiled by the IRS. Reclassification as private foundations does not indicate that the entities have lost their status as Code Sec. 501(c)(3) organizations eligible to receive deductible contributions. However, grantors and contributors may not rely on any rulings or designations predating September 15, 2008, the publication date of the Internal Revenue Bulletin containing this listing.

Announcement 2008-81
 

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The U.S. Court of Appeals for the Sixth Circuit has issued a ruling in consolidated cases challenging Kentucky's prohibition against identifying the 1.3% telecommunications provider tax imposed on the gross receipts of telecommunications providers as a line item on customer invoices, and challenging its prohibition against the direct collection of the tax from consumers. The actions, filed by telecommunications providers, also challenge the validity of penalties imposed on providers for failure to comply with the prohibitions. The tax applies to the provision of communications services billed on or after January 1, 2006. The appellate court affirmed the district court in finding that the federal Tax Injunction Act did not bar the lawsuits, and in finding that the clause prohibiting identifying the tax on invoices violates the First Amendment. It reversed the district court by finding that the clause prohibiting direct collection from consumers could be severed and that penalties could be imposed with respect to that clause.

  The district court opinions were previously reported in State Tax Day and can be found on CCH Tax Research NetWork as follows: AT&T Corp. et al. v. Rudolph et al. , U.S. District Court for the Eastern District of Kentucky, No. 06-16, February 27, 2007;
BellSouth Telecommunications, Inc. v. Farris et al. , U.S. District Court for the Eastern District of Kentucky, No. 3:06-39, February 27, 2007.

CCH (cch.taxgroup.com) reports:

  Friday, September 12, 2008, is the deadline to apply for the California corporation franchise and income tax and personal income tax penalty relief available to participants in "bogus optional basis" (BO or certain "employee stock ownership plan" (ESOP) transactions that was announced in Franchise Tax Board (FT Notice 2008-4.

  To participate, taxpayers must submit a signed and completed closing agreement by September 12, 2008 and pay all tax, penalties, and interest relating to the eligible BOB and ESOP transactions.

  The following relief is available to participating taxpayers:

  -- reduction of the 40% non-economic substance transaction (NEST) penalty to 20%;

  -- cancellation of the 100% interest based penalty if the assessment is not final; and

  -- for participants who have not yet received an assessment, the FTB will only assess the 20 percent accuracy-related penalty on the underpayment relating to the eligible BOB or ESOP transactions.

Press Release , California Franchise Tax Board, September 11, 2008.
 

CCH (cch.taxgroup.com) reports:

  An Alabama Circuit Court held that the state did not bear its burden of proving justification for the deduction provisions of the business privilege tax (BPT) and the former corporate shares tax (CST) that were determined by the Alabama Civil Court of Appeals to be facially discriminatory and violative of the Commerce Clause of the U. S. Constitution. Both taxes contain provisions allowing taxpayers to deduct the book value of an equity investment in another entity doing business in Alabama, but not investments in entities that are not doing business in Alabama. These deduction provisions were discriminatory on their face because they imposed a heavier tax burden if the entity in which the taxpayer had invested did not do business in Alabama.

  The Civil Court of Appeals held that the trial court erred in placing the burden on the taxpayer to overcome the presumption that the statutes were constitutional and remanded the case to determine whether the state met its burden of proving that the unconstitutional statutes were justified. None of the four justifications accepted by the U.S. Supreme Court, i.e., market-participation, health and safety, compensatory tax, and greater economic cost by out-of-state activity, were applicable to the BPT and the CST deduction provisions. Also, although the Circuit Court originally held that the deduction provisions were valid because they were necessary to eliminate double taxation of the taxpayer, on remand, it determined that elimination of double taxation was not sufficient legal justification for a facially discriminatory taxation statute. Therefore, the Circuit Court held that the state did not meet its burden of proving facts that could justify the facially discriminatory taxation scheme and ordered the Department of Revenue to issue a refund of the excess BPT and CST that the taxpayer paid for the tax years in question.

  On September 9, 2008, prior to entry of the final judgment, the case was dismissed without prejudice.

AT&T Corporation v. Surtees , Circuit Court of Jefferson County, No. CV 04-3356 JSV, September 3, 2008, ¶201-327

  Other References:

  Explanations at ¶5-325

CCH (cch.taxgroup.com) reports:

  Small business owners urged lawmakers on September 11 not to adjourn without passing a package of tax extenders. Jobs could be lost if Congress fails to renew some popular but temporary tax incentives, such as the research tax credit, enhanced depreciation for leasehold and restaurant improvements and energy tax breaks, they warned. The business owners testified before the House Small Business Committee.

Stalled Legislation

  Although the House has passed a package of extenders (the Renewable Energy and Job Creation Bill of 2008 (HR 6049)), similar legislation has stalled in the Senate (the Jobs, Energy, Families, and Disaster Relief Bill of 2008 (Sen 3335)). Congress is anticipated to recess at the end of September or in early October, leaving little time to pass the extenders before the November elections.

  If Congress does not return for a lame-duck session after the November elections, the extenders may have to wait until 2009, some lawmakers have predicted. "We've got to move on this (the extenders)," Senate Finance Committee Chairman Max Baucus, D-Mont., said later on September 11.

Job Losses

  The extenders can "galvanize" the job market, said House Small Business Committee Chairman Nydia M. Velazquez, D-N.Y. "With unemployment at its highest point in five years, we could use that boost."

  The extenders not only impact the businesses that claim them, but also their customers, suppliers and others, Joseph E. Clements, speaking on behalf of the National Restaurant Association, explained. "The restaurant industry is projected to spend $70 billion over the next 10 years for building construction and renovation. Every $1 spent in the construction industry creates more than 28 jobs in the overall economy."

  Congress has authorized accelerated depreciation for restaurant and leasehold property several times since 2000. The most recent extension was in the Tax Relief and Health Care Act of 2006 (TRHCA) (P.L. 109-432), which extended the 15-year MACRS recovery period for qualified leasehold improvement property and qualified restaurant property. "As of January 1, 2008, all schedules reverted back to 39-1/2 years," Clements explained. "Most restaurants remodel and update their buildings every six to eight years - a much shorter timeframe than is reflected in the current depreciation schedule," Clements, who owns several restaurants in Louisiana, said.

  Jobs could also be lost in the energy industry, Manning Feraci, vice president of federal affairs, National Biodiesel Board, told lawmakers. Since enactment of the biodiesel excise tax credit, production of biodiesel jumped from 25 million gallons in 2004 to 500 million gallons in 2007. "Expiration of the incentive would have a catastrophic impact on the U.S. biodiesel industry," Feraci warned. The incentive is set to expire at the end of 2008.

  Failure to renew the research tax credit could encourage businesses to move work out of the U.S., Leo Berlinghieri, speaking on behalf of Semiconductor Equipment and Materials International (SEMI), cautioned. "The U.S. used to have the best research tax credit, and now we are way down the list as other countries have made this a priority, and the U.S. has not. Many countries, such as Canada, China and Ireland, have more attractive research tax incentives luring research jobs away from the U.S." The research credit expired at the end of 2007.

  By George L. Yaksick, Jr., CCH News Staff

CCH (cch.taxgroup.com) reports:

  Senate Finance Committee Chairman Max Baucus, D-Mont., and ranking member Charles E. Grassley, R-Iowa, on September 11 unveiled a revised $40 billion energy tax package that is offset in part with reductions in tax breaks for the top five oil and gas companies. The measure includes approximately $8 billion in new energy tax policy and proposes two new revenue raisers: mandatory basis reporting measures to the IRS by brokers for transactions in publicly traded securities and expansion of the oil spill tax from 5 cents per barrel to 15 cents per barrel.

  Two new provisions propose tax credits for the capture and storage of carbon dioxide and tax incentives for smart meters, which provide real-time feedback on electricity use. Key provisions in the bill include long-term extensions of wind and solar energy tax credits, consumer credit of up to $7,500 for plug-in electric vehicles, extension of tax incentives for energy-efficiency including buildings, appliances and smart meters, long-term extensions of credits for alternative transportation fuels, and $2.5 billion in new credits for clean coal facilities. Additional provisions in the bill include an increase in the nuclear production tax credit and extensions for alternative fuels credits.

  The largest revenue raiser for the legislation is the modification to Code Sec. 199, which raises $13.9 billion over 10 years. In 2008, the Code Sec. 199 deduction is 6 percent, rising to 9 percent in 2009 and thereafter. The bill repeals the Code Sec. 199 manufacturing deduction for major integrated and state-owned oil and gas companies, while maintaining the 6-percent rate for other oil and gas companies. Another revenue raiser establishes an excise tax of 13 percent on the removal price of any taxable crude oil or natural gas produced from federal submerged lands on the Outer Continental Shelf (OCS) in the Gulf of Mexico pursuant to a federal OCS lease. Still another source of revenue comes from a modification of Code Sec. 907, which would eliminate the distinction between foreign oil and gas extraction income and foreign oil-related income.

  The two lawmakers said they hope to move the package when the Senate takes up legislation to address rising energy costs, including allowing offshore drilling, which has been banned to this point. Baucus said he believes that his latest proposal could gain traction as members of both parties feel the need to address consumer fears over increased energy costs, leaving open the possibility of much-needed compromise on both sides. "We know this bill can be a bipartisan solution for the entire Senate, because it reflects bipartisan success here on the tax-writing committee" said Baucus during a news conference introducing the bill. "Congress needs to put aside its differences and move this country toward new forms and sources of energy," he said.

  By Jeff Carlson, CCH News Staff

SFC Release: Baucus, Grassley Offer Tax Incentives for Clean Energy, Homegrown Jobs

Energy Independence and Investment Act of 2008

Very Preliminary SFC Estimated Revenue Effects of the Energy Independence and Investment Act of 2008

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Tax Court had no jurisdiction to hear an appeal from an equivalent hearing conducted by an IRS Appeals officer. The communication that IRS Appeals sent the taxpayer informing her of the appeals officer's decision was not a notice of determination. Therefore, the court had no jurisdiction to hear the taxpayer's appeal under Code Sec. 6330(d)(1).

  The taxpayer submitted Form 12153 after the 30-day deadline for her to request a collection due process (CDP) hearing. Accordingly, she was not granted a CDP hearing by IRS Appeals, but instead was granted an equivalent hearing. After the equivalent hearing, IRS Appeals sent her a form letter entitled "NOTICE OF DETERMINATION CONCERNING COLLECTION ACTION(S) UNDER SECTION 6320 AND/OR 6330" informing her that the IRS could sustain a collection action against her. The letter contained boilerplate language stating that it was a "notice of determination" and that the taxpayer had 30 days from the date of the letter to file a petition with the Tax Court if she wanted to dispute the determination in the letter. However, notwithstanding the language in the communication from IRS Appeals, the letter was not a valid notice of determination, because an equivalent hearing is not considered a hearing under Code Sec. 6330.

M.P. Wilson, 131 TC No. 5, Dec. 57,535

Other References:

 
Code Sec. 6330

  CCH Reference - 2008FED ¶38,184.025

  CCH Reference - 2008FED ¶38,184.027

  CCH Reference - 2008FED ¶38,184.67

  CCH Reference - 2008FED ¶38,184.69

  Tax Research Consultant

  CCH Reference - TRC IRS: 51,056.20

  CCH Reference - TRC IRS: 51,056.35

  CCH Reference - TRC LITIG: 6,136.25

CCH (cch.taxgroup.com) reports:

  A corporation was not entitled to deduct payments made to redeem stock held by its employee stock ownership plan (ESOP) that were subsequently distributed to employees, terminating their participation in the plan. Generally, distributions to redeem stock made from a corporation's earnings and profits are dividends. However, corporations may not claim a deduction for dividends paid to shareholders unless the amount distributed qualifies under Code Sec. 404(k), which allows a deduction for applicable cash dividends paid with respect to employer securities.

  The corporation based its argument on the decision reached by the Ninth Circuit in Boise Cascade Corp. , CA-9, 2003-1 USTC ¶50,472. In that case, the court concluded that the distributions at issue were essentially equivalent to a dividend under Code Sec. 302(b)(1); that the redemption did not result in a meaningful reduction in the ESOP's stock holdings, and that they qualified as dividends under Code Sec. 404(k)(2).

  The court here stated that the Boise Cascade result was not controlling and was incorrectly decided. The payments were "potentially" deductible as an applicable dividend under Code Sec. 404(k). The payment from the taxpayer to the ESOP and, then, to the departing employees was a statutorily integrated transaction. The two sides of the transaction were necessarily connected because the ESOP must distribute the same funds paid to it by the taxpayer. Once that connection was established, deduction under
Code Sec. 404(k) was possible. However, deduction was denied under Code Sec. 162(k) because the amounts were paid in connection with the corporation's reacquisition of its own stock.

Ralston Purina Co., 131 TC No. 4, Dec. 57,534

Other References:

 
Code Sec. 162

  CCH Reference - 2008FED ¶9052.23

 
Code Sec. 302

  CCH Reference - 2008FED ¶15,330.1394

 
Code Sec. 316

  CCH Reference - 2008FED ¶15,704.426

 
Code Sec. 404

  CCH Reference - 2008FED ¶18,371.30

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 75,204

CCH (cch.taxgroup.com) reports:

  The Treasury Department and IRS have released the 2008-2009 Priority Guidance Plan, which contains 314 projects to be completed from July 2008 through June 2009. An appendix to the plan also lists routine guidance that is published annually. The IRS intends to update and republish the plan periodically during the plan year to reflect additional guidance that will be published and to respond to developments arising during the year. The IRS invites comments and suggestions regarding the plan and future guidance throughout the plan year.

Practitioner's Comments

  Guidance under Code Sec. 382 on the transfer of net operating losses (Items 17-19 under "Corporations and Their Shareholders") "is definitely needed," Todd Reinstein of Pepper Hamilton LLP told CCH. "It's a very hot area. The need for understanding these rules has gone up considerably with the economy going down. You have these NOLs. The issue is can you use them? These rules are very complicated and the guidance out there is scarce. People need concrete answers."

  "[The] Treasury and the IRS have again created an ambitious Priority Guidance Plan. They've made a good attempt to pare down their annual plans to reflect more realistic goals, but still managed to fit 314 projects on this year's list," said Dave Auclair, managing principal of the Grant Thornton, LLP, National Tax Office, Washington, D.C. "Many of these projects would provide much-needed guidance in a number of complex areas. The aggressive list of 53 projects in the tax administration area could be particularly helpful, including much anticipated revisions to Circular 230 rules."

  "There are also a number of other topics of particular interest to taxpayers in certain industries as well as topics that affect taxpayers across industries," Auclair observed. "In the tax accounting area, for example, guidance regarding the treatment of post-production costs, such as sales-based royalties, is an important topic for manufacturers. The topic of inclusion of income from the sale or use of gift cards is of particular interest to retailers, and the documentation requirements related to success-based fees is a topic of interest that cuts across a number of industries."

  By Brant Goldwyn and George L. Yaksick, Jr., CCH News Staff

Office of Tax Policy and Internal Revenue Service 2008-2009 Priority Guidance Plan, 2008FED ¶46,565

Joint Statement Regarding the 2008-2009 Priority Guidance Plan

Office of Tax Policy and IRS Update to 2007-2008 Priority Guidance Plan

Other References:

 
Code Sec. 7804

  CCH Reference - 2008FED ¶43,266.49

  Tax Research Consultant

  CCH Reference - TRC IRS: 12,350

CCH (cch.taxgroup.com) reports:

  The IRS issued identical temporary and proposed regulations regarding the imposition of penalties under Code Sec. 6707A for a failure to include on any return or statement any information required to be disclosed under Code Sec. 6011 with respect to a reportable transaction. The temporary regulations apply to disclosure statements that are due after September 11, 2008, and they are set to expire on or before September 9, 2011. Written or electronic comments on the proposed regulations and requests for a public hearing must be received by December 10, 2008. Notice 2005-11, 2005-1 CB 493, which provided interim guidance, is superseded.

  Under Code Sec. 6011 and its regulations, a taxpayer must file a disclosure statement on Form 8886, Reportable Transaction Disclosure Statement, for each reportable transaction in which the taxpayer participated. The taxpayer also must send a copy to the IRS Office of Tax Shelter Analysis (OTSA) at the same time. Under Code Sec. 6707A, the IRS can impose a penalty for failure to comply with these requirements. The penalty is $10,000 for an individual, and $50,000 in any other case. These amounts are increased to $100,000 and $200,000 if the failure relates to a listed transaction. In Rev. Proc. 2007-21, 2007-1 CB 613, the IRS provided a procedure under which a taxpayer can seek to have the IRS rescind a Code Sec. 6707A penalty.

Separate Penalty for Each Failure

  As under the interim guidance, Temporary Reg. §301.6707A-1T(c) and Proposed Reg. §301.6707A-1(c) provide that a taxpayer incurs a separate penalty with respect to each reportable transaction that the taxpayer was required, but failed, to disclose within the time and in the form and manner required. A taxpayer who is required to disclose a reportable transaction on a Form 8886 filed with a return, amended return or application for tentative refund and who also is required to disclose the transaction on a Form 8886 with OTSA, is subject to only a single penalty for failure to make either one or both of those disclosures.

Rescinding the Penalty

  As under the interim guidance, Temporary Reg. §301.6707A-1T(d) and Proposed Reg. §301.6707A-1(d) provide that the IRS may rescind the penalty if: (i) the violation relates to a reportable transaction that is not a listed transaction, and (ii) rescinding the penalty would promote compliance with the requirements of the IRC and effective tax administration. The regulations adopt the factors listed in Rev. Proc. 2007-21 that the IRS will consider in deciding to rescind. The factors include the following:

  (1) The taxpayer, upon becoming aware that it failed to disclose a reportable transaction properly, filed a complete and proper, although untimely, Form 8886.

  (2) The failure arose from events beyond the taxpayer's control.

  (3) The taxpayer cooperates with the IRS by providing timely information with respect to the transaction at issue.

  (4) The failure was due to an unintentional mistake of fact that existed despite the taxpayer's reasonable attempts to ascertain the correct facts with respect to the transaction.

  (5) The taxpayer has an established history of properly disclosing other reportable transactions and complying with other tax laws.

  (6) The penalty weighs against equity and good conscience, including whether the penalty is disproportionate to the tax benefit and whether the taxpayer demonstrates reasonable cause (such as that the taxpayer informed the individual who prepared its tax returns that the taxpayer participated in the reportable transactions).

SEC Reporting

  Temporary Reg. §301.6707A-1T(e) and Proposed Reg. §301.6707A-1(e) provide that a taxpayer who is required to file periodic reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 (or is required to file consolidated reports with another person) must disclose in periodic reports filed with the SEC the requirement to pay certain penalties in a manner to be prescribed by the IRS. The IRS has done so in Rev. Proc. 2005-51, 2005-2 CB 296, amplified by Rev. Proc. 2007-25, 2007-12 I.R.B. 761.

T.D. 9425, 2008FED ¶47,059

Proposed Regulations, NPRM REG-160868-04, 2008FED ¶49,834

Other References:

 
Code Sec. 6707A

  CCH Reference - 2008FED ¶40,092

  Tax Research Consultant

  CCH Reference - TRC PENALTY: 3,252

CCH (cch.taxgroup.com) reports:

  The Treasury and IRS have issued final regulations that provide rules for determining the tax consequences of a member's transfer (including by deconsolidation and worthlessness) of loss shares of subsidiary stock (the Unified Loss Rule). The regulations apply to corporations filing consolidated returns and to corporations that enter into certain tax-free reorganizations. The Unified Loss Rule implements aspects of the repeal of the General Utilities Doctrine and addresses the duplication of loss by consolidated groups. Although proposed rules issued in January 2007 (NPRM REG-157711-02) were favorably received, concerns were expressed about the complexity of the rules. The final regulations attempt to simplify the rules, where possible.

  The Unified Loss Rule applies when a member transfers a share of subsidiary stock and, after taking into account the effect of all laws applicable as of the transfer, the share is a loss share. The Unified Loss Rule applies to non-intercompany transfers of loss shares at the time the stock is transferred, even if the loss recognized is subject to deferral. If, however, a member transfers a share of subsidiary stock to another member and the gain or loss is deferred under the intercompany transaction provisions of Reg. §1.1502-13, the Unified Loss Rule applies to the transfer or to a subsequent transfer of a share by a member when the intercompany item is taken into account.

  The Unified Loss Rule consists of the following three principal rules, which are applied in the following order:

  --a basis redetermination rule that reallocates investment adjustments to address both noneconomic and duplicate stock losses;

  --a basis reduction rule that addresses noneconomic stock loss; and

  --an attribute reduction rule that addresses duplicated loss.

Basis Redetermination Rule

  The basis redetermination rule addresses problems created when shares of stock are held with disparate bases. The investment adjustment system allocates a subsidiary's items of income, gain, deduction or loss, among the members of a group filing a consolidated return under the assumption that all items reflect economic accruals to all shares equally within a group. When members of the group have disparate bases, the general operation of the investment adjustment system can cause both noneconomic and duplicated losses.

  Under the basis redetermination rule, when a member transfers a share of subsidiary stock, and the share is a loss share, all members' shares of subsidiary stock are subject to redetermination. The redeterminations are made by reallocating investment adjustments (other than positive adjustments allocated to preferred shares and distributions) that were previously applied to members' bases in the stock in a manner that permits the reallocation of both positive and negative adjustments from common to preferred shares. The reallocation is intended to reduce or eliminate loss on transferred preferred shares and any gain on either transferred or nontransferred preferred shares.

  The basis redetermination rule will not apply if members' bases in shares of subsidiary common stock are equal (i.e., no disparity) and the members' bases in shares of subsidiary preferred stock reflect no gain or loss. An additional exception applies if members dispose of their entire interest in subsidiary stock to one or more nonmembers, if all members' shares of subsidiary stock become worthless, or if all members' shares of subsidiary stock are worthless or disposed of to one or more nonmembers, in one fully taxable transaction. An election may be made to apply the basis redetermination rule if the exception applies.

Basis Reduction Rule

  If, after basis redetermination, any member's transferred share is a loss share, the basis of the share is subject to reduction in order to eliminate any stock loss that is presumed noneconomic. The basis of each transferred loss share is reduced, but not below zero, by the lesser of the share's disconformity amount and its net positive adjustment. The disconformity amount is the excess of the share's basis over its allocable portion of the subsidiary's net inside attributes (i.e., sum of the subsidiary's loss carryovers, deferred deductions, cash and asset basis, reduced by the subsidiary's liabilities) determined at the time of the transfer.

  Loss carryovers mean losses that are attributable to the subsidiary, including losses apportioned to the subsidiary under Reg. §1.1502-21(b)(2) if the subsidiary had a separate return year. When applying the attribute reduction rule, discussed below, a subsidiary's loss carryovers do not include losses waived under Reg. §1.1502-32(b)(4). The disconformity amount identifies the amount of unrealized appreciation reflected in the basis of the shares. The share's positive adjustment is the greater of zero and the sum of all investment adjustments.

Attribution Reduction Rule

  If any transferred shares remain loss shares after the application of the basis reduction rule, the subsidiary's attributes are subject to reduction. The attribute reduction rule addresses the duplication of loss by members of a consolidated group. The rule is intended to prevent the group from recognizing more than one loss with respect to an economic loss, regardless of whether the stock is disposed of before or after the subsidiary recognizes loss with respect to its assets or operations.

  A subsidiary's attributes are reduced by the attribution reduction amount. The attribution reduction amount is the lesser of net stock loss and aggregate inside loss. This reflects the total unrecognized loss reflected in both the basis of the subsidiary stock and the subsidiary's attributes. Net stock loss is the excess of the sum of the bases of all the subsidiary's shares transferred by members in the same transaction over the value of the shares. The aggregate inside loss is the excess of the subsidiary's net inside attributes over the value of all of the subsidiary shares.

  The rules take into account both the basis in the lower tier subsidiary stock and the attributes of the lower tier subsidiaries. When duplication is not uniformly reflected in stock basis and attributes, there can be an overreduction in lower tier attributes (i.e., when loss duplication resides primarily in the lower tier stock basis) or in the lower tier stock basis (when loss duplication resides primarily in lower tier attributes). To prevent an overreduction of lower tier attributes, a conforming limitation on the lower tier attribute reduction limits the application of the tiered-down attribute reduction. A basis restoration rule reverses the reductions in lower tier stock basis made by the Unified Loss Rule. Taxpayers are permitted to elect not to apply the conforming limitation or the basis restoration rule if they decide the protection afforded is outweighed by the burden of applying the rules.

  After a taxpayer computes its attribution reduction amount, if the total attribution reduction amount is less than five percent of the aggregate value of the subsidiary shares that are transferred by members in the transaction, the attribute reduction rule does not apply to the transfer. Taxpayers may elect to apply the attribute reduction rule even if the total attribute reduction is less than five percent of the aggregate value of the shares transferred. If the election is made, it will apply with respect to the entire attribute reduction amount determined in the transaction, and so will apply with respect to all members transferring shares and all shares transferred in the transaction.

  Recognized losses (i.e., net operating loss (Category A), capital loss carryovers (Category and deferred deductions (Category C) are reduced before reducing asset basis. If the attribute reduction amount is less than total attributes in Category A, Category B and Category C, the taxpayer may specify the allocation of the subsidiary's attribute reduction amount among those categories. If no allocation is specified, the default allocation will reduce capital loss carryovers first (oldest to newest), NOL carryovers second (oldest to newest) and the deferred deductions (proportionately).

  When applying the attribute reduction amount to Category D, the amount remaining after reducing Category A, Category B and Category C attributes, asset basis is reduced in reverse order of the residual method of allocating consideration paid or received in a transaction under
Code Sec. 1060. Generally, the attribute reduction amount is applied to reduce the basis of assets in the asset classes in Reg. §1.338-6(b) other than Class I, but in the reverse order from the others specified in the section.

  Under this reverse residual method, any attribute reduction amount applied to reduce asset basis is generally applied first to reduce basis in assets Class VII (proportionately based on basis). Any remaining attribute reduction amount is then applied in the same manner to reduce the basis of assets in each succeeding lower asset class other than Class I.

  However, the portion of the attribute reduction amount that is not applied to Category A, Category B and Category C, is first allocated between the subsidiary's basis in the stock of the lower tier subsidiaries and the subsidiary's other assets. The allocation is made in proportion to the subsidiary's deemed basis in each single share of the lower tier subsidiary stock and the subsidiary's basis in the nonstock Category D assets. Only the portion of the attribute reduction not allocated to lower tier subsidiary stock is applied under the reverse residual method.

  Attribute reduction amounts in excess of reducible amounts are suspended and will reduce or eliminate attributes arising when all or part of the liability is paid or satisfied.

  The regulations allow a taxpayer to make a protective election to re-attribute attributes (other than asset basis) and/or reduce stock basis to avoid attribute reduction. The election will have no effect if it is ultimately determined that the subsidiary has no attribute reduction amount. Similarly, an election will have no effect to the extent that the election is made for an amount that exceeds the attribute reduction amount that is ultimately determined. Attributes may be re-attributed in the same amount, order and category that would otherwise be reduced under the attribute reduction rule.

  Taxpayers may reduce or not reduce stock basis or re-attribute or not re-attribute attributes (or any combination of these) in an amount that does not exceed the subsidiary's attribute reduction amount.

  The regulations provide special attribute elimination rules that apply to credits and built-in losses attributable to a subsidiary to prevent their use after the subsidiary either becomes worthless or is dissolved in a taxable transaction

Other Rules

  In general, transfers of loss shares of subsidiary stock on or after the publication of the final regulations, will be subject to the Unified Loss Rule and not Reg. §1.337(d)-1, Reg. §1.337(d)-2 or Reg. §1.1502-20.

  AlthoughReg. §1.1502-35 also specifically states that it does not apply to transfers subject to the Unified Loss Rule, several modifications were made to the rules. The loss suspension rule is revised to provide that it ceases to apply ten years after the stock disposition that gave rise to the suspended loss in order to conform the loss suspension rule and the anti-loss re-importation rule. The general rules of Reg. §1.1502-35 apply only to losses allowed within ten years of the date they are recognized. Additionally, if a member recognizes a loss on subsidiary stock and the loss was suspended, and if the member ceases to be a member of the group when the subsidiary remains a member immediately before the member ceases to be a member, the parent is treated as succeeding to the loss to which Code Sec. 381(c) applies This rule preserves the loss for the group that disposed of the loss stock and the location of the loss is specified

Intercompany Transactions

 
Code Sec. 362(e)(2), which provides for the limitation on transfer of built-in losses in a Code Sec. 351 transaction, is generally inapplicable to intercompany transactions so that the consolidated return provisions can address loss duplication. An anti-abuse rule provides for appropriate adjustments to be made to clearly reflect the income of the group if the taxpayer acts to prevent the consolidated return provisions from addressing loss duplication.

Miscellaneous Amendments

  The regulations adopt without substantive change a number of proposed modifications to the regulations that are unrelated to subsidiary stock loss issues. Further, various technical corrections to existing regulations or expansions of the January 2007 proposals are adopted.

Comments

  The Treasury and IRS will continue to accept comments on the need for a provision that would address the gain duplication that occurs when subsidiary stock is sold at a gain and that gain is attributable unrecognized net appreciation in the subsidiary's assets.

T.D. 9424, 2008FED ¶47,058

Partial Withdrawal of Proposed Regulations, NPRM REG-157711-02, 2008FED ¶49,833

Other References:

 
Code Sec. 267

  CCH Reference - 2008FED ¶14,156B

 
Code Sec. 337

  CCH Reference - 2008FED ¶16,238

  CCH Reference - 2008FED ¶16,240

 
Code Sec. 358

  CCH Reference - 2008FED ¶16,552

 
Code Sec. 362

  CCH Reference - 2008FED ¶16,611CE

 
Code Sec. 597

  CCH Reference - 2008FED ¶23,810D

 
Code Sec. 1502

  CCH Reference - 2008FED ¶33,155

  CCH Reference - 2008FED ¶33,157

  CCH Reference - 2008FED ¶33,158

  CCH Reference - 2008FED ¶33,162B

  CCH Reference - 2008FED ¶33,167

  CCH Reference - 2008FED ¶33,169B

  CCH Reference - 2008FED ¶33,179

  CCH Reference - 2008FED ¶33,180

  CCH Reference - 2008FED ¶33,181

  CCH Reference - 2008FED ¶33,183

  CCH Reference - 2008FED ¶33,185C

  CCH Reference - 2008FED ¶33,187

  CCH Reference - 2008FED ¶33,195

  CCH Reference - 2008FED ¶33,204

  CCH Reference - 2008FED ¶33,205A

  CCH Reference - 2008FED ¶33,205AF

  CCH Reference - 2008FED ¶33,205EC

  CCH Reference - 2008FED ¶33,205FC

  CCH Reference - 2008FED ¶33,205JL

  Tax Research Consultant

  CCH Reference - TRC CCORP: 45,410
CCH Reference - TRC CCORP: 45,414
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Chair of the State Board of Equalization (SBE) announced that more than 500,000 California retailers will be receiving information regarding a possible 1% sales and use tax increase currently under consideration by the Legislature to partially address the 2008-09 budget gap. If a rate increase is approved by the Legislature, retailers may have to file a supplemental return depending on its implementation date. Monthly and quarterly taxpayers will receive information this month about the possible increase and the possible need to file a supplemental sales and use tax return if the increase is imposed at any time other than the first day of a calendar quarter. Retailers may also need to reprogram cash registers and computers for the new sales tax rate.

  In the proposals under current consideration, there is no specific effective date for a sales and use tax rate increase, according to the SBE. If such an increase is approved, it may become effective quickly, depending on the exact language adopted by the Legislature.

  In addition to the information being mailed to retailers beginning this week, the SBE will officially notify registered retailers of the effective date of any tax rate increase, if and when information is available.

  Current proposals would exclude sales of gasoline, diesel, and jet fuel from the additional tax. If a tax rate increase goes into effect, the combined state, local, and county rate would be 8.25%. Sales would be subject to the combined statewide rate of 8.25% plus any applicable local district taxes. Sales tax rates in California currently vary from 7.25% to 8.75%. Under current proposals, the combined tax rate for sales of gasoline, diesel, and jet fuel would remain at 7.25%.

  CCH Tax Research NetWork subscribers can view the news release in its entirety.

News Release 70-08-C , California State Board of Equalization, September 9, 2008.
 

CCH (cch.taxgroup.com) reports:

  Various partnerships were entitled to discover documents and testimony regarding the IRS's interpretation and application of Code Sec. 752. The documents sought by the partnerships were not protected by the deliberative process privilege and were relevant to the partnerships' defenses to the accuracy-related penalties asserted by the IRS. The government did not properly invoke the deliberative process privilege because it was not asserted by the IRS Commissioner or by an official with delegated authority. Moreover, the government did not particularly state what information sought by the partnerships' request for deposition testimony was privileged or provided precise and certain reasons for maintaining the confidentiality of the requested information. Further, if the government produced the requested documents in another case; the government waived the privilege and was required to produce those documents to the partnerships.

Alpha I, L.P., FedCl, 2008-2 USTC ¶50,534

Other References:

 
Code Sec. 7402

  CCH Reference - 2008FED ¶41,605.2036

  Tax Research Consultant

  CCH Reference - TRC IRS: 9,502.15

CCH (cch.taxgroup.com) reports:

  A corporation, utilizing the accrual method of accounting, was entitled to claim a business expense deduction for the portion of a property's total purchase price attributable to buying out an excessive lease. The corporation established the fair market value of the property, that the lease was excessive and that the amount it paid to acquire the property in excess of its fair market value was attributable to buying out the onerous lease. Contrary to the government's argument, Code Sec. 167(c)(2) did not preclude the corporation from allocating any portion of the purchase price to its leasehold. The statute applied only if, upon acquisition, the property was subject to a lease. Since the leasehold was extinguished upon the taxpayer's acquisition, the property was not acquired subject to a lease and, therefore, Code Sec. 167(c)(2) did not apply.

  However, a genuine issue of material fact existed as to when the corporation could take the deduction because the facts did not clearly establish when the expense was incurred. Although the corporation argued that its liability became fixed in the year it took the deduction, the facts did not clearly establish whether the liability was fixed in the year the corporation offered to purchase the property or in the year title was transferred.

  Cleveland Allerton Hotel, Inc., CA-6, 48-1 USTC ¶9218, followed. Millinery Center Building Corp., SCt, 56-1 USTC ¶9391, 350 U.S. 456 distinguished.

ABC Beverage Corporation, DC Mich., 2008-2 USTC ¶50,533

Other References:

 
Code Sec. 162

  CCH Reference - 2008FED ¶8754.1312

 
Code Sec. 167

  CCH Reference - 2008FED ¶11,011.031

 
Code Sec. 263

  CCH Reference - 2008FED ¶13,709.391

 
Code Sec. 461

  CCH Reference - 2008FED ¶21,817.14

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 210

CCH (cch.taxgroup.com) reports:

  The IRS announced that it is not too late to obtain an economic stimulus check, but that analysis of submissions to date have indicated several common questions and errors that delay receipt of the check. The most frequently asked question is related to when will the check be received. The answer to this question, as well as the status of the payment and other payment related issues, can be found on the IRS website, www.irs.gov, by using the "Where's My Economic Stimulus Payment?" tool.

  The most frequent errors are:

  (1) Filing more than one return;

  (2) Failing to properly report qualifying income;

  (3) Failing to review one's tax liability;

  (4) Filing amended returns to increase the economic stimulus amount; and

  (5) Failing to use one's most current address.

  The IRS will be issuing checks thorough December 2008 for returns filed by October 15, 2008. Furthermore, those who failed to file a 2007 return in order to receive a stimulus check can claim the economic stimulus payment on their 2008 income tax return.

IR-2008-103,
2008FED ¶46,564

Other References:

 
Code Sec. 6428

  CCH Reference - 2008FED ¶38,869.021

  CCH Reference - 2008FED ¶38,869.60

  Tax Research Consultant

  CCH Reference - TRC INDIV: 57,900

CCH (cch.taxgroup.com) reports:

  The House is likely to consider comprehensive energy legislation before its target adjournment date of September 26, House Majority Leader Steny H. Hoyer, D-Md., said on September 10. In remarks to reporters during a press briefing, Hoyer said House Democrats would like to pass energy legislation that includes tax incentives for renewable energy such as wind power.

  According to Hoyer, the legislation could also include the so-called tax extenders, and those provisions would have to meet House pay-as-you-go budget rules. He added that the energy legislation could come to the House floor as early as the week of September 8, but House consideration is somewhat dependent on whether Senate lawmakers are able to reach an agreement on energy legislation.

  By Stephen K. Cooper, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The California Franchise Tax Board will postpone corporation franchise and income tax and personal income tax deadlines until January 5, 2009, for taxpayers affected by Hurricane Gustav to file returns, pay taxes, and perform other time-sensitive acts for deadlines falling between September 1, 2008, and January 5, 2009.

  The relief applies to taxpayers who live or have a business located in the following Louisiana parishes: Acadia, Allen, Ascension, Assumption, Avoyelles, Beauregard, Cameron, East Baton Rouge, East Feliciana, Evangeline, Iberia, Iberville, Jefferson, Jefferson Davis, Lafayette, Lafourche, Livingston, Orleans, Plaquemines, Pointe Coupee, Rapides, Sabine, St. Bernard, St. Charles, St. James, St. John the Baptist, St. Landry, St. Martin, St. Mary, Terrebonne, Vermilion, Vernon, West Baton Rouge, and West Feliciana. Taxpayers not living in the disaster area, but whose books, records, or tax professionals' offices are in the covered disaster area, are also entitled to relief. Relief is also available to relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area.

  Taxpayers needing copies of lost or damaged state returns should complete Form FTB 3516, Request for Copy of Tax Return. Disaster victims receive copies of tax returns for free. "Louisiana/Hurricane Gustav" should be printed in red at the top of the request.

Press Release , California Franchise Tax Board, September 5, 2008.
 

CCH (cch.taxgroup.com) reports:

  The Streamlined Sales Tax (SST) Governing Board agreed to let all sellers, including those not registered under the SST Agreement, file a simplified electronic return in member states by 2013. The vote came during the Board's 2008 annual meeting in Charleston, West Virginia, September 4-5. Commissioner Joan Wagnon of Kansas, the Board's departing president, said the action was required to prepare for a "huge influx" of returns if federal authorizing legislation passes, an eventuality about which she said she is "more optimistic every day." Business representatives echoed Wagnon's description of the action as "one of the most, if not the most, important simplifications" the group has approved.

  In other actions, the group continued to debate New Jersey's compliance with the Agreement and issues related to direct mail. Meanwhile, West Virginia State Del. John Doyle will replace Wagnon as president of the Board, effective October 1. Commissioner Jerry Johnson of Oklahoma becomes first vice-president (president-elect) and Indiana State Sen. Luke Kenley steps into the second vice-president slot. Richard Dobson of the Kentucky Department of Revenue continues as secretary/treasurer.

CCH (cch.taxgroup.com) reports:

  A widower was entitled to claim "married filing jointly" status for years prior to his wife's death because all of the requirements for claiming that status were met. The couple were not nonresident aliens, had the same taxable years, the wife had not filed returns for the tax years at issue and no authorized representative or executor was appointed for filing the return of the surviving spouse. Moreover, the record reflected the wife's intention to file joint tax returns. The government's argument that the husband could elect joint filing status only for the year of the spouse's death was rejected. Code Sec. 6013, which allows a surviving spouse to make the election if a return has not been filed for "the taxable year," refers not only to the year of the spouse's death, but to any tax year at issue.

D.J. Vidalier, DC La., 2008-2 USTC ¶50,532

Other References:

 
Code Sec. 6013

  CCH Reference - 2008FED ¶35,171.68

  Tax Research Consultant

  CCH Reference - TRC FILEIND: 18,056.25

CCH (cch.taxgroup.com) reports:

  Proposed regulations update, clarify and simplify the public notice and approval requirements for tax-exempt private activity bonds under Code Sec. 147(f).

  The proposals would require less specific information for public approvals of mortgage revenue bonds, qualified loan bonds, and qualified Code Sec. 501(c)(3) bonds than other types of private activity bonds. Issuers of these bonds that made a good-faith effort to comply with the public disclosure requirements of Code Sec. 147(f), taking into account congressional intent and the special characteristics of these types of financing, will not be subject to audit merely because the issuer did not include all of the information required to be included in the public notice and approval requirements contained in Reg. §5f.103-2(f)(2) of the existing regulations.

  The proposals provide that an issue will fail to meet the public approval requirements if there is a substantial deviation between the public notice and approval information required to be provided and the actual information provided.

  The determination of whether a deviation is substantial is based on all of the facts and circumstances. However, two safe harbors provide that the following are not substantial deviations: (1) a five-percent or less difference between the amount the public approval stated would be used for the facility and the actual amount used; and (2) a change in the initial owner or principal user of a project to a person related to the initial owner or principal user named in the public approval. In addition, if certain conditions are met, an issuer can cure a substantial deviation through a subsequent public approval if, as a result of unexpected events or unforeseen changes in circumstances after the issue date, it is not longer feasible to use the proceeds of the bonds in the manner set forth in the original public approval or it does not need to use the full amount of the proceeds.

  The proposals would allow a government unit to provide notice of a public hearing on its website if it offers an alternative method, such as a phone recording, for obtaining this information for residents without access to computers. The public would also be permitted to submit electronic comments to the governmental unit. The time required between public notice and a public hearing would be reduced from fourteen days to seven business days. A public hearing could be cancelled if no requests to participate are received.

Effective Date

  The regulations are proposed to apply to bonds sold on or after the date the regulations are published as final regulations in the federal register.

Comments and Public Hearing

  A public hearing is scheduled for January 26, 2009, beginning at 10:00 a.m. Written and electronic comments must be received by December 8, 2008.

Proposed Regulations, NPRM REG-128841-07, 2008FED ¶49,832

Other References:

 
Code Sec. 147

  CCH Reference - 2008FED ¶7860E

  Tax Research Consultant

  CCH Reference - TRC SALES: 51,100

CCH (cch.taxgroup.com) reports:

  The approval process for organizations seeking tax-exempt status as publicly supported charities has been streamlined by newly issued final and temporary regulations. The new regulations do away with advance rulings that granted public charity status for an initial five-year period, but required exempt organizations to demonstrate, after the initial period, that they in fact received a substantial part of their support from public sources to receive a final determination letter. The IRS was able to eliminate the advance rulings process because of the recent redesign of the Form 990, Return of Organization Exempt From Income Tax. Organizations that have already received an advance ruling, but are still in their first five years of existence, can use their advance ruling letter as their final determination letter. In addition to the streamlined approval process, the new regulations include other modifications necessary to implement the redesigned Form 990.

  Approximately 95 percent of exempt organizations that received advance rulings were later recognized as publicly supported charities at the end of the five-year period. "Given the high "recognition" rate and the redesigned Form 990, it makes sense to eliminate the burdensome advance ruling process," said Lois Lerner, Director of the IRS Exempt Organizations division. "Not only will the streamlined process aid exempt organizations, but it will also allow the IRS to redirect staffing to other program areas without compromising compliance."

  "The advance ruling procedures always seemed burdensome," Nancy Ortmeyer Kuhn of Caplin & Drysdale told CCH. "Five years is a remarkable grace period. It's a real gift to the charitable community."

  The temporary regulations make revisions to the regulations under Code Sec. 6033 and Code Sec. 6043 to allow for new threshold amounts for reporting compensation, to require that compensation be reported on a calendar year basis, and to modify the scope of organizations subject to information reporting requirements upon a substantial contraction. The temporary regulations also eliminate the substantial and material changes exception, which is made obsolete by the establishment of a general five-year computation period. Further, the temporary regulations add key employees to the list of persons who may be required to be reported on Form 990.

Elimination of Advance Ruling Process

  The temporary regulations eliminate advance rulings and the Form 8734, Support Schedule for Advance Ruling Period, filing requirement for all new Code Sec. 501(c)(3) organizations. Under the temporary regulations if, at the time of the initial application for exemption, an organization can establish to the satisfaction of the IRS that the organization can reasonably be expected to meet a public support test during its first five years, the organization qualifies as publicly supported for its first five years as a Code Sec. 501(c)(3) organization. The IRS will issue a determination letter stating that the organization is exempt under Code Sec. 501(c)(3) and is classified as a public charity. The organization will be a public charity for its first five years, regardless of the level of public support it in fact receives during this period. In addition, unlike a new organization's public charity status under an advance ruling, which was conditioned on its ultimate satisfaction of a public support test on a Form 8734 filed with the IRS, under the temporary regulations, a new organization that can show it can reasonably be expected to meet a public support test will be classified as a public charity for all purposes during its first five years. The organization will not owe any Code Sec. 4940 tax or Code Sec. 507 termination tax with respect to its first five years. Beginning with the organization's sixth year, if the organization cannot establish that it is not a private foundation, such as a public charity or a supporting organization under Code Sec. 509(a)(3), it will be liable for the Code Sec. 4940 excise tax and other Chapter 42 excise taxes applicable to private foundations for any year for which it cannot establish that it is not a private foundation.

Method of Accounting

  Under the temporary regulations, when a Code Sec. 501(c)(3) organization computes its public support and reports the information on Schedule A, it must use the same accounting method that it uses in keeping its books under Code Sec. 446 and that it otherwise uses to report on its Form 990. An organization that uses the accrual method will not be able to use the support information reported on Form 990 for prior years (because that support was reported using the cash method) to compute its public support for the current year, and instead must report all support for the computation period on the accrual method.

  Kuhn stated that "using the same [accrual] method is a positive step. It's one more welcome simplification."

Effective Date, Proposed Regulations

  The regulations apply to tax years beginning on or after January 1, 2008. The text of the temporary regulations also serves as the text of the proposed regulations. Written or electronic comments and requests for a public hearing must be received by November 10, 2008.

  By Brant Goldwyn and Larry Perlman, CCH News Staff

IR-2008-102,
2008FED ¶46,563

T.D. 9423, 2008FED ¶47,057

Proposed Regulations, NPRM REG-142333-07, 2008FED ¶49,831

Other References:

 
Code Sec. 170

  CCH Reference - 2008FED ¶11,662

  CCH Reference - 2008FED ¶11,662E

 
Code Sec. 507

  CCH Reference - 2008FED ¶22,773

  CCH Reference - 2008FED ¶22,773E

 
Code Sec. 509

  CCH Reference - 2008FED ¶22,803

  CCH Reference - 2008FED ¶22,803E

  CCH Reference - 2008FED ¶22,812.40

 
Code Sec. 6033

  CCH Reference - 2008FED ¶35,422

  CCH Reference - 2008FED ¶35,422C

 
Code Sec. 6034

  CCH Reference - 2008FED ¶35,885

  CCH Reference - 2008FED ¶35,885B

  Tax Research Consultant

  CCH Reference - TRC EXEMPT: 12,102
CCH Reference - TRC EXEMPT: 21,114
 

CCH (cch.taxgroup.com) reports:

  The IRS and Treasury have announced they will issue regulations that provide that the date (or any date after) the U.S. government purchases obligations of Fannie Mae and Freddie Mac will not be considered a testing date for purposes of determining whether a loss corporation is required to determine an ownership change has occurred under Code Sec. 382. The regulations will apply on or after September 7, 2008, unless the IRS issues further guidance.

Notice 2008-76, 2008FED ¶46,562

Other References:

 
Code Sec. 382

  CCH Reference - 2008FED ¶17,115.40

  CCH Reference - 2008FED ¶17,115.45

  Tax Research Consultant

  CCH Reference - TRC NOL: 33,050

CCH (cch.taxgroup.com) reports:

  Senate Majority Leader Harry Reid, D-Nev., told lawmakers on September 8 that he plans to take up energy legislation, which includes tax incentives, during the week beginning September 15 if the chamber can complete work by that time on a crucial defense spending bill. The move to energy legislation is also a high priority for Republicans who said Congress needs to act quickly on finding a solution to the energy crisis.

  Reid said he expects the Senate to vote on several comprehensive energy bills, including a measure offered earlier by Senate Finance Committee Chairman Max Baucus, D-Mont., that would extend renewable energy, energy efficiency and advanced vehicle tax incentives and offset the cost by eliminating oil company subsidies and closing royalty relief loopholes. A new bipartisan bill, the New Energy Reform Bill of 2008, which has already garnered 16 co-sponsors, also would extend and expand renewable energy and advanced alternative fuel vehicle tax incentives. The measure would provide consumer tax credits of up to $7,500 per vehicle to purchase advanced alternative fuel vehicles (primarily nonpetroleum fuels) and up to $2,500 to retrofit existing vehicles with advanced alternative fuel engines.

  Reid said he is also open to open to a vote on a Republican offering that would open up all coastal areas to drilling at the states' requests, except for the eastern Gulf of Mexico, which stays closed until 2022. It also would close the London loophole and requires index trader and swaps dealers to report their energy-commodity transactions. "So far, Congress has been unable to come together on a comprehensive solution to our nation's energy crisis, but the book hasn't closed yet on the 110th Congress," said Senate Minority Leader Mitch McConnell, R-Ky., on the Senate floor. "There is still time to act on this issue."

  By Jeff Carlson, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Georgia Governor Sonny Perdue has signed an executive order that suspends the collection of sales and use tax on prescription "controlled substances" and "dangerous drugs" distributed free of charge (prescription drug samples) on or after September 1, 2008, by pharmaceutical manufacturers or distributors to clinics, dentists, doctors, hospitals, or any person or entity located within the state. The order also applies to suspend the collection of sales and use tax on controlled substances and dangerous drugs distributed free of charge on or after September 1 for human clinical trials approved by an institutional review board accredited by the Association for the Accreditation of Human Research Protection Programs.

  The controlled substances and dangerous drugs impacted by the suspension are defined by reference in O.C.G.A. Sec. 16-13-1, a provision of the Criminal Code of Georgia. O.C.G.A. Sec. 16-13-1 is available on the state's Web site at
http://www.georgia.gov/. The suspension will remain in effect until acted upon by the General Assembly.

  Subscribers to CCH Tax Research NetWork can view guidance issued by the Georgia Department of Revenue as well as the governor's executive order.

Executive Order , Governor Sonny Perdue, August 29, 2008; Georgia Sales and Use Tax Informational Bulletin , Georgia Department of Revenue, September 2, 2008.
 

CCH (cch.taxgroup.com) reports:

  For pension plan years beginning in September 2008, the IRS has released the corporate bond weighted average interest rate, the permissible range of interest rates used to calculate current plan liability and to determine the required contribution under Code Sec. 412(l) for plan years through 2008, and the current corporate bond yield curve and related segment rates for the purpose of establishing a plan's funding target under
Code Sec. 430(h)(2).

  The corporate bond weighted average interest rate for plan years beginning in September 2008 is 6.10 percent; the 90-percent to 100-percent permissible range is 5.49 percent to 6.10 percent. The annual rate of interest on 30-year Treasury securities for August 2008, used to determine the minimum present value of a participant's benefit under Code Sec. 417(e)(1) and (2), is 4.50 percent.

  For plans electing not to use the transitional rule under Code Sec. 430(h)(2)(G), or for plans whose first year begins after 2008, the 24-month average segments rates for September 2008 are: 5.07 for the first segment; 6.09 for the second segment; and 6.56 for the third segment.

  For plan years beginning in 2008, the funding transitional segment rates for September 2008 are: 5.76 for the first segment, 6.10 for the second segment, and 6.25 for the third segment. For plan years beginning in 2009, the funding transitional segment rates are: 5.41 for the first segment, 6.09 for the second segment, and 6.41 for the third segment.

  For plan years beginning in 2008, the minimum present value transitional segment rates for September 2008 are: 4.64 for the first segment, 4.97 for the second segment, and 4.98 for the third segment. For plan years beginning in 2009, the minimum present value transitional segment rates are: 4.78 for the first segment, 5.45 for the second segment, and 5.46 for the third segment.

Notice 2008-75, 2008FED ¶46,561

Other References:

 
Code Sec. 401

  CCH Reference - 2008FED ¶17,730.40

 
Code Sec. 412

  CCH Reference - 2008FED ¶19,125.505

 
Code Sec. 417

 
Code Sec. 430

  CCH Reference - 2008FED ¶20,161.30

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 15,304.05
CCH Reference - TRC RETIRE: 15,304.10
CCH Reference - TRC RETIRE: 15,304.15
CCH Reference - TRC RETIRE: 30,170
CCH Reference - TRC RETIRE: 30,556
 

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Beginning with 2009 information returns, the Oregon Department of Revenue (DOR) will require electronic filing of W-2s to report wages for personal income tax purposes. The new requirement will apply to businesses with 250 or more employees and all payroll service providers. Electronic filing for smaller businesses will be phased in over time. The filing due date is the same as the federal filing deadline (March 31, 2010 for 2009 W-2s). The DOR is interested in working with the business community to gather input and develop standards and in obtaining employer input during the testing phase in 2009. Those interested in being part of the development group, a tester, or both, should contact Deanna Mack by e-mail at eanna.D.Mack@state.or.us">Deanna.D.Mack@state.or.us or by phone at 503-947-2082.

PayrollTax-News , Oregon Department of Revenue, August, 2008, ¶400-859

  Other References:

  Explanations at ¶89-106.

CCH (cch.taxgroup.com) reports:

  For the fourth quarter of 2008, the interest rate on underpayments of Massachusetts taxes administered by the Department of Revenue increased from 6% to 7% compounded daily, while the interest rate paid by the Department on tax overpayments increased from 4% to 5%.

Technical Information Release 08-14 , Massachusetts Department of Revenue, September 4, 2008, ¶401-190

  Other References:

  Explanations at ¶89-204

CCH (cch.taxgroup.com) reports:

  A limited liability company (LLC) was not entitled to contest the IRS's certificate of redemption because it failed to tender sufficient funds within the allotted time for redemption. Assuming that the IRS's redemption was invalid, the LLC was required under state (Minnesota) law to tender the amount paid by the foreclosure sale purchaser, plus interest calculated from the date of the sale to the date of its attempted redemption and any additional costs. Since the LLC failed to include interest from the date of the sale its tender was insufficient. Therefore, the LLC forfeited its interest in the property and its related right to contest the IRS's redemption of the property.

  Affirming a DC Minn. decision, 2007-1 USTC ¶50,413.

Real Estate Equity Strategies, LLC, CA-8, 2008-2 USTC ¶50,529

Other References:

 
Code Sec. 7425

  CCH Reference - 2008FED ¶41,708.27

  CCH Reference - 2008FED ¶41,708.28

  Tax Research Consultant

  CCH Reference - TRC IRS: 51,306

CCH (cch.taxgroup.com) reports:

  The latest fact sheet released by the IRS in its monthly International Tax Gap Series reminds partnerships with foreign partners of their withholding responsibilities with respect to partnership income. If a partnership is engaged in a U.S. trade or business, each foreign partner is treated as directly engaged in that business for federal income tax purposes. The partnership must pay a withholding tax based on foreign partners' allocable share of the partnership's effectively connected income, and each partner must file an appropriate U.S. income tax return. Withholding tax rates range from 15% to 35%, depending on the type of income.

IRS International Tax Gap Series: U.S. Tax Withholding on Effectively Connected Income Allocable to Foreign Partners
 

CCH (cch.taxgroup.com) reports:

  The IRS has announced that it surpassed its goal to hire at least 1,000 military veterans during the 2008 fiscal year. According to IRS Commissioner, Doug Shulman, the IRS will continue its effort to recruit from this talented pool of people who already have demonstrated their leadership, work ethic and dedication.

  As a part of this effort, the IRS Human Capital Office developed Veteran Hiring, Employment and Recruitment Opportunities (V-HERO) earlier this year and is partnering with veterans' organizations, other government agencies and job fairs to recruit veterans and transitional military personnel. The IRS has also developed partnerships with the Paralyzed Veterans of America, the American Legion, the Veterans of Foreign Wars and the Blinded Veterans of America to discuss employment opportunities.

IR-2008-101

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Ohio Court of Appeals determined that the Ohio commercial activity tax (CAT), when applied to gross receipts from the wholesale sale of food and from the retail sale of food for human consumption off premises where sold, operates as, and is, an excise tax levied or collected upon the sale or purchase of food, and therefore violates Secs. 3 and 13 of Article XII of the Ohio Constitution.

  The Court of Common Pleas for Franklin County, Ohio, had previously ruled that the CAT did not violate the state constitution because it ruled that the CAT was a franchise tax, which was a type of excise tax, imposed on the privilege of doing business in the state, and was not an excise tax "levied or collected upon the sale or purchase of food."

CCH (cch.taxgroup.com) reports:

  The Florida Supreme Court has affirmed the
opinion of the Leon County Circuit Court removing from the 2008
general election ballot a proposed state constitutional amendment
that would have eliminated the state required property tax. Under the proposal, the property tax revenues would be replaced by, among other methods, repealing sales and use tax exemptions not specifically excluded and increasing the state sales and use tax up to 1%.

  Subscribers to CCH Tax Research NetWork can view the Supreme Court order.

Florida Department of State v. Slough , No. SC08-1569, Florida Supreme Court, September 3, 2008.
 

CCH (cch.taxgroup.com) reports:

  The IRS has extended return filing and payment deadlines for victims of Hurricane Gustav in the Louisiana parishes of Acadia, Allen, Ascension, Assumption, Avoyelles, Beauregard, Cameron, East Baton Rouge, East Feliciana, Evangeline, Iberia, Iberville, Jefferson, Jefferson Davis, Lafayette, Lafourche, Livingston, Orleans, Plaquemines, Pointe Coupee, Rapides, Sabine, St. Bernard, St. Charles, St. James, St. John the Baptist, St. Landry, St. Martin, St. Mary, Terrebonne, Vermilion, Vernon, West Baton Rouge and West Feliciana. Taxpayers residing or having businesses in these presidentially declared disaster areas have until January 5, 2009, to file returns, pay taxes and perform other time-sensitive acts otherwise due between September 1, 2008 and January 5, 2009. The extended deadline applies to most tax returns, including individual and corporate income tax returns, but does not apply to information returns in the Forms W-2, 1098 and 1099 series, or to Forms 1042-S or 8027.

  The IRS will also waive penalties for the failure to deposit employment and excise taxes due on or after September 1, 2008, and on or before September 16, 2008, as long as the deposits are made by September 16, 2008. Taxpayers whose books, records or tax professionals' offices are in the covered disaster area are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area are eligible for relief. Affected taxpayers claiming a disaster loss due to Gustav on their returns for the 2007 tax year should write "Louisiana/Hurricane Gustav" at the top of their returns to receive expedited service.

IR-2008-100,
2008FED ¶46,560

IR-2008-100,
FINH ¶30,598

Other References:

 
Code Sec. 6081

  CCH Reference - 2008FED ¶36,789.213

  CCH Reference - FINH ¶20,345.65

  CCH Reference - FINH ¶20,355.45

 
Code Sec. 6161

  CCH Reference - FINH ¶20,585.35

 
Code Sec. 7508A

  CCH Reference - 2008FED ¶42,687C.22

  CCH Reference - FINH ¶22,560.30

  Tax Research Consultant

  CCH Reference - TRC FILEIND: 15,204.25

  CCH Reference - TRC FILEBUS: 15,110

CCH (cch.taxgroup.com) reports:

  The IRS has announced the expansion of transition relief for certain small single-employer defined benefit plans originally provided in Notice 2008-21, I.R.B. 2008-7, 431. Limitations on the accrual and payment of benefits of an underfunded single-employer defined benefit plan underCode Sec. 436 are applied based on a plan's adjusted funding target attainment percentage (AFTAP) for the plan year. The AFTAP is generally based on the plan's funding target attainment percentage (FTAP) for the plan year.

  A series of presumptions apply during the portion of the plan year that precedes the certification of the AFTAP. For example, plans subject to the benefit limitations for the preceding plan year are presumed to be subject to the limitations in the current year until the plan actuary certifies the actual AFTAP for the current year. For other than small plans with fewer than 100 participants, underCode Sec. 430(g), the valuation date for the plan year must be the first day of the plan year.

  The IRS issued Notice 2008-21 to provide a transition rule for small plans with end-of-the-year valuation dates. Under the transition rule, for a plan with an end-of-the-year valuation date for each of the plan years beginning in 2006, 2007 and 2008, for purposes of applying the benefit limitations for the plan year during 2008, the AFTAP for the 2007 plan year may be made by determining the FTAP for the 2007 plan year under special rules.

  Because Congress is considering, but has not yet enacted, technical corrections that would provide the IRS and Treasury Department with the authority to issue regulations addressing end-of-year valuation dates, many small plans may adopt beginning-of-the-year valuation dates. Plans that adopt a beginning-of-the-year valuation date for the 2008 plan year will be ineligible for the transition relief in Notice 2008-21 and will have difficulty in complying with the timing requirements for certifying the plan's AFTAP. Thus, the transition relief is expanded to apply with respect to any plan that has an end-of-year valuation date for both the 2006 and 2007 plan years, regardless of the plan's valuation date for 2008.

Notice 2008-73, 2008FED ¶46,559

Other References:

 
Code Sec. 430

  CCH Reference - 2008FED ¶20,161.60

 
Code Sec. 436

  CCH Reference - 2008FED ¶20,221.01

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 30,554
CCH Reference - TRC RETIRE: 30,556
CCH Reference - TRC RETIRE: 30,568
CCH Reference - TRC RETIRE: 30,604
CCH Reference - TRC RETIRE: 30,606
CCH Reference - TRC RETIRE: 30,608
CCH Reference - TRC RETIRE: 30,610
CCH Reference - TRC RETIRE: 30,612
CCH Reference - TRC RETIRE: 30,614
CCH Reference - TRC RETIRE: 30,616
CCH Reference - TRC RETIRE: 30,618
CCH Reference - TRC RETIRE: 30,622
 

CCH (cch.taxgroup.com) reports:

  The IRS has again delayed the effective date of Rev. Rul. 2006-57, 2006-2 CB 911, which provides guidance to employers on the use of smartcards, debit or credit cards, or other electronic media to provide qualified transportation fringe benefits under Code Secs. 132(a)(5) and
132(f). The guidance was originally scheduled to go into effect January 1, 2008, but that date was pushed back to January 1, 2009, by Notice 2007-76, 2007-40 I.R.B.
735, to provide relief for mass transit providers that found it difficult to update their systems to comply with the new rules. The IRS has now pushed the effective date back again, this time to January 1, 2010, for the same reason. Nevertheless, employers and employees may rely on Rev. Rul. 2006-57 with respect to transactions occurring prior to January 1, 2010.

Notice 2008-74, 2008FED ¶46,558

Other References:

 
Code Sec. 132

  CCH Reference - 2008FED ¶7438.054

  CCH Reference - 2008FED ¶7438.75

  Tax Research Consultant

  CCH Reference - TRC COMPEN: 36,354

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Buyers and sellers of computer software that
is not subject to sales and use tax under the Wisconsin Supreme Court's decision
in Wisconsin Department of Revenue v. Menasha Corp. may file a claim for refund with the Wisconsin Department of Revenue for periods that are still open to adjustment. In that decision, an integrated business application software system was ruled exempt as custom software. To help speed up processing, the Department requests that refund claims pertaining to the Menasha decision be filed separately from refund claims for other matters.

CCH (cch.taxgroup.com) reports:

  In two separate opinions, Illinois appellate court panels rejected property tax exemption claims by a hospital and a school district. One lower court opinion was reversed, and another was affirmed.

CCH (cch.taxgroup.com) reports:

  A federal district court's decision denying attorney's fees to an individual after the government voluntarily dismissed its petition to enforce IRS summonses was remanded. The district court implicitly treated the individual as a prevailing party by awarding him litigation costs, but denied his request for attorney's fees on the ground that he failed to show that the government acted in bad faith or vexatiously. However, to prevail on a claim for attorneys' fees under Code Sec. 7430, the individual was not required to show that the government acted in bad faith, but that he was a prevailing party and that the government's position was not substantially justified.

  The case was remanded for the district court to determine whether the individual was a prevailing party entitled to attorney's fees and whether the administrative-exhaustion requirement under Code Sec. 7430 was satisfied.

  Unpublished opinion vacating and remanding an unreported DC N.Y. decision.

C. Cathcart, CA-2, 2008-2 USTC ¶50,522

Other References:

 
Code Sec. 7430

  CCH Reference - 2008FED ¶41,743.68

  Tax Research Consultant

  CCH Reference - TRC LITIG: 3,150
CCH Reference - TRC LITIG: 3,154.05
 

CCH (cch.taxgroup.com) reports:

  31 C.F.R. 10.7(c)(1)(viii) is a valid regulation that did not unlawfully and arbitrarily limit an unenrolled tax return preparer's right to represent taxpayers before the IRS. In a case of first impression, CA-11 determined that 31 C.F.R. 10.7(c) (1)(viii), which limits the scope of representation by an unenrolled representative, was a reasonable legislative regulation and was not arbitrary, capricious or manifestly contrary to the statute. The provision balances the need for a taxpayer to have affordable representation and to be able to choose his representative with the need for competent representation that protects the taxpayer, the IRS and the general public.

  Although Code Sec. 7521 permits practitioners and certain other persons to represent taxpayers before the IRS in the context of a taxpayer interview, it did not define the persons permitted to practice before the IRS. Furthermore, while Congress has not set out anything directly on the question of whether an unenrolled representative could represent the taxpayers before the IRS under 31 C.F.R. 10.7(c) (1)(viii), it expressly delegated authority to the IRS to promulgate regulations governing who could practice before the IRS. Finally, the preparer could acquire the ability to fully represent clients by becoming an enrolled agent.

  Affirming, per curiam , an unreported DC Fla. decision.

P.H. Wright v. M.W. Everson, CA-11, 2008-2 USTC ¶50,521

Other References:

 
Code Sec. 7521

  CCH Reference - 2008FED ¶42,791.035

  31 CFR Part 10

  CCH Reference - 2008FED ¶43,808.154

  Tax Research Consultant

  CCH Reference - TRC IRS: 3,204.20
CCH Reference - TRC IRS: 6,252.30
 

CCH (cch.taxgroup.com) reports:

  The IRS has announced that it will temporarily suspend collection of incentive stock option (ISO) alternative minimum tax (AMT) liabilities through September 30, 2008. The suspension is intended to provide lawmakers with time to enact legislation related to the collection of this AMT liability, IRS Commissioner Douglas H. Shulman indicated in a just-released letter to Sen. Charles E. Grassley, R-Iowa, ranking member of the Senate Finance Committee.

Lawmakers' Request

  The IRS's decision to temporarily halt its collection activities involving ISO AMT liabilities is in response to a July request from Grassley and more than 20 other members of Congress. These lawmakers asked the IRS for the suspension in order to work on legislation aimed at providing relief to individuals and families affected by ISO AMT liability.

  "We are currently working to help these ISO AMT families through the enactment of AMT Credit Fairness and Relief Act of 2007 (HR 3861), and its companion bill (Sen 2389). These bills work off earlier legislation contained in the Tax Relief and Health Care Act of 2006 (P.L. 109-432) to increase the AMT refundable credit amount for families and individuals with long-term unused credits for prior-year minimum tax liability," the lawmakers told Shulman. "There is now a very broad bipartisan consensus to abate all interest and penalties attributable to ISO AMT liabilities and permit taxpayers to apply the full amount of their future refundable credits towards the entirety of the current ISO AMT liabilities," the lawmakers added.

  Under current law, taxpayers who exercise ISOs must realize income subject to the AMT upon exercise, rather than only at any subsequent sale. However, taxpayers are not subject to regular income tax upon exercise of an ISO.

Suspension

  Shulman reported that the IRS is taking steps to identify all collection cases involving ISO AMT liabilities. "To provide the Congress with an opportunity to enact the pending legislation, the IRS will not undertake any collection enforcement action through the end of this fiscal year (September 30, 2008) on these cases," said Shulman.

  By Hilary Goehausen, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  In its September 2008 issue of Tax News , the California Franchise Tax Board (FT discusses the use of offshore entities and financial arrangements to avoid corporation franchise and income and personal income tax obligations, noneconomic substance transaction understatement (NEST) penalties, adjusted interest rates for tax underpayments and overpayments, electronic payment options, and a new online service for lien payoff demand requests. In addition, the FTB announces that the California Tax Policy Conference is coming in November, and repeats previous announcements about free e-services workshops (TAXDAY, 2008/08/04, S.3), tax relief for wildfire victims (TAXDAY, 2008/07/25, S.4), its new same-sex married couples information page (TAXDAY, 2008/08/04, S.2), and its decision to postpone creation of a California Schedule M-3 (TAXDAY, 2008/08/26, S.2).

CCH (cch.taxgroup.com) reports:

  The IRS has announced transition relief for the effective date of Rev. Proc. 2008-52, I.R.B. 2008-36 (TAXDAY, 2008/08/19, I.3). The IRS updated the automatic change in accounting method procedures in Rev. Proc. 2008-52, incorporating Rev. Proc. 2002-9, 2002-1 CB 327 and subsequent guidance. Rev. Proc. 2008-52 describes the procedures taxpayers may use to obtain automatic consent for a change in method of accounting for more than 30 areas, including new areas. Its immediate effective date is August 18.

Transition Relief

  Under the transition relief, taxpayers may generally elect to apply the automatic change in accounting method procedures of
Rev. Proc. 2002-9 through September 15, 2008. If, prior to August 18, 2008, a taxpayer has not filed an application requesting consent to change a particular method of accounting for its first tax year ending on or before July 31, 2008, the taxpayer may elect to apply the provisions of Rev. Proc. 2002-9 with respect to the method of accounting for the tax year. However, the IRS expressly excluded certain changes from a hybrid method from the transitional relief.

Practitioner Concerns

  On August 29, the American Institute of Certified Public Accountants (AICPA) warned that the immediate effective date of Rev. Proc. 2008-52 would cause hardship for practitioners and their clients. According to the AICPA, many practitioners are bracing for October 15 filing deadlines. Additionally, the AICPA expressed concern that some practitioners may not be aware of the immediate effective date of Rev. Proc. 2008-52

Announcement 2008-84, 2008FED ¶46,556

AICPA Comments on Rev. Proc. 2008-52

Other References:

 
Code Sec. 77

  CCH Reference - 2008FED ¶530

  CCH Reference - 2008FED ¶6304.20

 
Code Sec. 162

  CCH Reference - 2008FED ¶8526.024

  CCH Reference - 2008FED ¶8610.01

  CCH Reference - 2008FED ¶8610.143

  CCH Reference - 2008FED ¶8630.025

  CCH Reference - 2008FED ¶8630.027

  CCH Reference - 2008FED ¶8630.1242

  CCH Reference - 2008FED ¶8630.45

  CCH Reference - 2008FED ¶8754.1695

 
Code Sec. 163

  CCH Reference - 2008FED ¶9104.0442

  CCH Reference - 2008FED ¶9104.62

  CCH Reference - 2008FED ¶9303.0668

  CCH Reference - 2008FED ¶9303.10

 
Code Sec. 166

  CCH Reference - 2008FED ¶10,690.155

 
Code Sec. 167

  CCH Reference - 2008FED ¶11,009.046

  CCH Reference - 2008FED ¶11,009.135

  CCH Reference - 2008FED ¶11,037.675

  CCH Reference - 2008FED ¶11,043.01

  CCH Reference - 2008FED ¶11,043.015

  CCH Reference - 2008FED ¶11,043.021

  CCH Reference - 2008FED ¶11,043.283

  CCH Reference - 2008FED ¶11,043.285

  CCH Reference - 2008FED ¶11,043.288

  CCH Reference - 2008FED ¶11,043.40

  CCH Reference - 2008FED ¶11,043.45

 
Code Sec. 168

  CCH Reference - 2008FED ¶11,279.051

  CCH Reference - 2008FED ¶11,279.0516

  CCH Reference - 2008FED ¶11,279.0545

  CCH Reference - 2008FED ¶11,279.058

  CCH Reference - 2008FED ¶11,279.073

  CCH Reference - 2008FED ¶11,279.18

  CCH Reference - 2008FED ¶11,279.19

  CCH Reference - 2008FED ¶11,279.55

  CCH Reference - 2008FED ¶11,279.68

  CCH Reference - 2008FED ¶11,279.70

 
Code Sec. 171

  CCH Reference - 2008FED ¶11,855.073

  CCH Reference - 2008FED ¶11,855.65

 
Code Sec. 174

  CCH Reference - 2008FED ¶12,047.035

  CCH Reference - 2008FED ¶12,047.037

  CCH Reference - 2008FED ¶12,047.046

  CCH Reference - 2008FED ¶12,047.057

  CCH Reference - 2008FED ¶12,047.10

  CCH Reference - 2008FED ¶12,047.115

 
Code Sec. 179B

  CCH Reference - 2008FED ¶12,136.20

 
Code Sec. 194

  CCH Reference - 2008FED ¶12,335.073

  CCH Reference - 2008FED ¶12,335.25

 
Code Sec. 197

  CCH Reference - 2008FED ¶12,455.30

 
Code Sec. 199

  CCH Reference - 2008FED ¶12,476.0235

  CCH Reference - 2008FED ¶12,476.0334

  CCH Reference - 2008FED ¶12,476.0386

  CCH Reference - 2008FED ¶12,476.0387

 
Code Sec. 263

  CCH Reference - 2008FED ¶13,709.017

  CCH Reference - 2008FED ¶13,709.03

  CCH Reference - 2008FED ¶13,709.033

  CCH Reference - 2008FED ¶13,709.035

  CCH Reference - 2008FED ¶13,709.037

  CCH Reference - 2008FED ¶13,709.105

  CCH Reference - 2008FED ¶13,709.385

  CCH Reference - 2008FED ¶13,709.469

  CCH Reference - 2008FED ¶13,709.564

 
Code Sec. 263A

  CCH Reference - 2008FED ¶13,815.037

  CCH Reference - 2008FED ¶13,815.044

  CCH Reference - 2008FED ¶13,815.24

  CCH Reference - 2008FED ¶13,815.63

  CCH Reference - 2008FED ¶13,822.05

  CCH Reference - 2008FED ¶13,822.30

  CCH Reference - 2008FED ¶13,822.80

  CCH Reference - 2008FED ¶13,848.01

  CCH Reference - 2008FED ¶13,848.04

  CCH Reference - 2008FED ¶13,848.045

  CCH Reference - 2008FED ¶13,848.10

  CCH Reference - 2008FED ¶13,848.15

  CCH Reference - 2008FED ¶13,850.01

  CCH Reference - 2008FED ¶13,850.28

  CCH Reference - 2008FED ¶13,850.50

 
Code Sec. 280F

  CCH Reference - 2008FED ¶15,108.042

 
Code Sec. 404

  CCH Reference - 2008FED ¶18,352.18

 
Code Sec. 446

  CCH Reference - 2008FED ¶20,620.0257

  CCH Reference - 2008FED ¶20,620.026

  CCH Reference - 2008FED ¶20,620.027

  CCH Reference - 2008FED ¶20,620.0274

  CCH Reference - 2008FED ¶20,620.0312

  CCH Reference - 2008FED ¶20,620.0314

  CCH Reference - 2008FED ¶20,620.054

  CCH Reference - 2008FED ¶20,620.055

  CCH Reference - 2008FED ¶20,620.075

  CCH Reference - 2008FED ¶20,620.076

  CCH Reference - 2008FED ¶20,620.102

  CCH Reference - 2008FED ¶20,620.111

  CCH Reference - 2008FED ¶20,620.143

  CCH Reference - 2008FED ¶20,620.144

  CCH Reference - 2008FED ¶20,620.166

  CCH Reference - 2008FED ¶20,620.20

  CCH Reference - 2008FED ¶20,620.217

  CCH Reference - 2008FED ¶20,620.222

  CCH Reference - 2008FED ¶20,620.226

  CCH Reference - 2008FED ¶20,620.236

  CCH Reference - 2008FED ¶20,620.238

  CCH Reference - 2008FED ¶20,620.239

  CCH Reference - 2008FED ¶20,620.241

  CCH Reference - 2008FED ¶20,620.2412

  CCH Reference - 2008FED ¶20,620.242

  CCH Reference - 2008FED ¶20,620.243

  CCH Reference - 2008FED ¶20,620.2432

  CCH Reference - 2008FED ¶20,620.247

  CCH Reference - 2008FED ¶20,620.248

  CCH Reference - 2008FED ¶20,620.249

  CCH Reference - 2008FED ¶20,620.2505

  CCH Reference - 2008FED ¶20,620.2507

  CCH Reference - 2008FED ¶20,620.251

  CCH Reference - 2008FED ¶20,620.258

  CCH Reference - 2008FED ¶20,620.259

  CCH Reference - 2008FED ¶20,620.284

  CCH Reference - 2008FED ¶20,620.285

  CCH Reference - 2008FED ¶20,620.286

  CCH Reference - 2008FED ¶20,620.292

  CCH Reference - 2008FED ¶20,620.304

  CCH Reference - 2008FED ¶20,620.311

  CCH Reference - 2008FED ¶20,620.323

  CCH Reference - 2008FED ¶20,620.3235

  CCH Reference - 2008FED ¶20,620.625

  CCH Reference - 2008FED ¶20,620.627

  CCH Reference - 2008FED ¶20,620.6275

  CCH Reference - 2008FED ¶20,620.6305

  CCH Reference - 2008FED ¶20,620.641

 
Code Sec. 448

  CCH Reference - 2008FED ¶20,803.03

  CCH Reference - 2008FED ¶20,803.032

  CCH Reference - 2008FED ¶20,803.50

  CCH Reference - 2008FED ¶20,803.75

 
Code Sec. 451

  CCH Reference - 2008FED ¶21,005.027

  CCH Reference - 2008FED ¶21,005.7035

  CCH Reference - 2008FED ¶21,005.7043

  CCH Reference - 2008FED ¶21,005.9327

  CCH Reference - 2008FED ¶21,005.933

  CCH Reference - 2008FED ¶21,005.946

  CCH Reference - 2008FED ¶21,030.073

 
Code Sec. 454

  CCH Reference - 2008FED ¶21,503.075

  CCH Reference - 2008FED ¶21,503.35

 
Code Sec. 455

  CCH Reference - 2008FED ¶21,517.075

  CCH Reference - 2008FED ¶21,517.35

 
Code Sec. 461

  CCH Reference - 2008FED ¶21,817.0285

  CCH Reference - 2008FED ¶21,817.029

  CCH Reference - 2008FED ¶21,817.128

  CCH Reference - 2008FED ¶21,817.163

  CCH Reference - 2008FED ¶21,817.2345

  CCH Reference - 2008FED ¶21,817.235

  CCH Reference - 2008FED ¶21,817.2377

  CCH Reference - 2008FED ¶21,817.287

  CCH Reference - 2008FED ¶21,817.3215

  CCH Reference - 2008FED ¶21,817.704

 
Code Sec. 467

  CCH Reference - 2008FED ¶21,911.01

 
Code Sec. 471

  CCH Reference - 2008FED ¶22,206.021

  CCH Reference - 2008FED ¶22,206.5075

  CCH Reference - 2008FED ¶22,208.50

  CCH Reference - 2008FED ¶22,208.76

  CCH Reference - 2008FED ¶22,210.24

  CCH Reference - 2008FED ¶22,218.01

  CCH Reference - 2008FED ¶22,218.35

 
Code Sec. 472

  CCH Reference - 2008FED ¶22,240.027

  CCH Reference - 2008FED ¶22,240.03

  CCH Reference - 2008FED ¶22,240.037

  CCH Reference - 2008FED ¶22,240.04

  CCH Reference - 2008FED ¶22,240.041

  CCH Reference - 2008FED ¶22,240.047

  CCH Reference - 2008FED ¶22,240.25

  CCH Reference - 2008FED ¶22,240.33

  CCH Reference - 2008FED ¶22,240.55

  CCH Reference - 2008FED ¶22,240.70

  CCH Reference - 2008FED ¶22,241.04

  CCH Reference - 2008FED ¶22,241.45

 
Code Sec. 475

  CCH Reference - 2008FED ¶22,268.023

  CCH Reference - 2008FED ¶22,268.20

 
Code Sec. 481

  CCH Reference - 2008FED ¶22,277.027

  CCH Reference - 2008FED ¶22,277.029

  CCH Reference - 2008FED ¶22,277.38

  CCH Reference - 2008FED ¶22,277.40

  CCH Reference - 2008FED ¶22,277.493

  CCH Reference - 2008FED ¶22,277.498

  CCH Reference - 2008FED ¶22,277.50

  CCH Reference - 2008FED ¶22,277.502

  CCH Reference - 2008FED ¶22,277.51

  CCH Reference - 2008FED ¶22,277.58

  CCH Reference - 2008FED ¶22,277.595

  CCH Reference - 2008FED ¶22,277.70

 
Code Sec. 585

  CCH Reference - 2008FED ¶23,662.10

 
Code Sec. 811

  CCH Reference - 2008FED ¶25,900.20

 
Code Sec. 832

  CCH Reference - 2008FED ¶26,157.021

 
Code Sec. 846

  CCH Reference - 2008FED ¶26,331.105

 
Code Sec. 860D

  CCH Reference - 2008FED ¶26,662.65

 
Code Sec. 861

  CCH Reference - 2008FED ¶27,131.128

  CCH Reference - 2008FED ¶27,146.49

 
Code Sec. 904

  CCH Reference - 2008FED ¶27,901.82

 
Code Sec. 985

  CCH Reference - 2008FED ¶28,848.028

  CCH Reference - 2008FED ¶28,848.032

 
Code Sec. 986

  CCH Reference - 2008FED ¶28,861.25

 
Code Sec. 1273

  CCH Reference - 2008FED ¶31,283.45

  CCH Reference - 2008FED ¶31,283.50

  CCH Reference - 2008FED ¶31,283.60

 
Code Sec. 1276

  CCH Reference - 2008FED ¶31,361.40

 
Code Sec. 1281

  CCH Reference - 2008FED ¶31,421.04

  CCH Reference - 2008FED ¶31,421.35

 
Code Sec. 1363

  CCH Reference - 2008FED ¶32,062.035

  CCH Reference - 2008FED ¶32,062.20

  CCH Reference - 2008FED ¶32,062.40

 
Code Sec. 1400J

  CCH Reference - 2008FED ¶32,472.10

 
Code Sec. 1400L

  CCH Reference - 2008FED ¶32,477.026

 
Code Sec. 1400N

  CCH Reference - 2008FED ¶32,487.031

 
Code Sec. 7121

  CCH Reference - 2008FED ¶41,090.115

 
Statement of Procedural Rules Sec. 601.20

  CCH Reference - 2008FED ¶43,384.10

 
Statement of Procedural Rules 601.201

  CCH Reference - 2008FED ¶43,360.16

 
Statement of Procedural Rules 601.204

  CCH Reference - 2008FED ¶43,384.031

  CCH Reference - 2008FED ¶43,384.45

  Tax Research Consultant

  CCH Reference - TRC DEPR: 15,304
CCH Reference - TRC ACCTNG: 21,100
CCH Reference - TRC ACCTNG: 21,200
 

CCH (cch.taxgroup.com) reports:

  The IRS has provided guidance on business-related provisions of the Economic Stimulus Act of 2008 (P.L. 110-185) (Stimulus Act) that: (1) amended Code Sec. 179 by increasing the dollar limitations that apply to taxpayers who elect to expense certain depreciable assets under that section for tax years beginning in 2008 (Act sec. 102 of the Stimulus Act); and (2) allowed a 50-percent additional first year depreciation for certain new property acquired and placed in service during 2008 (Act sec. 103). The guidance provides clarification in several areas, as described below.

Partnerships and S Corporations

  For tax years beginning in 2008, the Code Sec. 179(b)(1) limitation under the Stimulus Act is $250,000. For tax years beginning in 2009, the limitation will be $125,000 as adjusted for annual inflation ("2009 Code Sec. 179(b)(1) dollar limitation.") A passthrough entity (a partnership or an S corporation) with a tax year beginning in 2007 and ending in 2008 is subject to the $125,000 limitation for property placed in service by the passthrough entity during that tax year. A passthrough entity with a tax year beginning in 2008 and ending in 2009 is subject to the $250,000 limitation for property placed in service by the passthrough entity during that tax year.

  Pursuant to Reg. §1.179-2(b)(3)(iv), and as clarified by the new guidance, a partner or an S corporation shareholder that is a calendar-year taxpayer is subject to the $250,000 limitation for property placed in service by the partner or shareholder during 2008, and its allocable share of the Code Sec. 179 deduction from any partnership or S corporation with a tax year ending in 2008. A similar rule for 2009 applies with respect to the 2009 Code Sec. 179(b)(1) dollar limitation. An example is provided to illustrate these rules.

30-Percent Additional First Year Depreciation

  Prior to the enactment of the Stimulus Act, Code Sec. 168(k)(1) provided a 30-percent additional first year depreciation deduction for qualified property acquired after September 10, 2001, and before January 1, 2005. Act sec. 103 of the Stimulus Act amended that provision to allow a taxpayer to claim the Stimulus additional first year depreciation deduction for certain new property acquired after 2007 and placed in service before 2009 (before 2010 for property described in Code Sec. 168(k)(2)( (property having longer production periods) or Code Sec. 168(k)(2)(C) (certain aircraft)). The Stimulus Act also raises the additional first year deprecation deduction from 30 percent to 50 percent.

  With the exception of the increased amount and the revised dates, the same operative rules that applied to the expired additional first year depreciation under Code Sec. 168(k)(1) apply to the Stimulus additional first year depreciation. However, the new guidance provides that, in applying Reg. §1.168(k)-1(d)(1)(i), the computation of the allowable Stimulus additional first year depreciation deduction is made in accordance with the rules for 50-percent bonus depreciation property. The guidance also clarifies the nonrefundable deposit requirement under Code Sec. 168(k)(2)(C)(iii) with respect to aircraft described in Code Sec. 168(k)(2)(C).

Interaction of Stimulus Act with GO Zone and Kansas Disaster Area Incentives

 
Code Sec. 1400N(d) provides a 50-percent additional first year depreciation deduction (GO Zone additional first year depreciation deduction) for qualified Gulf Opportunity Zone property placed in service on or before December 31, 2007 (December 31, 2008, for nonresidential real property and residential rental property (GO Zone property). The placed-in-service date is extended to December 31, 2010, for any specified GO Zone extension property. GO Zone extension property does not include any property to whichCode Sec. 168(k) applies.

  Act section 15345 of the Food, Conservation, and Energy Act of 2008 (P.L. 110-246) (Farm Bill) provides a 50-percent additional first year depreciation deduction for certain property substantially used in the Kansas disaster area. The increased Code Sec. 179 amounts provided for
Code Sec. 179 GO Zone property is also extended to certain property substantially used in the Kansas disaster area.

  The new guidance clarifies:

  --how the Stimulus Code Sec. 179 deduction interacts with the increased Code Sec. 179 amounts (a) provided under Code Sec. 1400N(e) for certain GO Zone property placed in service during 2008, and (b) applicable to the Kansas disaster area; and

  --how the Stimulus additional first year depreciation deduction interacts with (a) GO Zone first year additional depreciation deduction for GO Zone property, including GO Zone extension property, placed in service during 2008, and (b) the 50-percent additional first year depreciation deduction applicable to the Kansas disaster area.

Making Code Sec. 179 Elections by Amended Returns

  The guidance clarifies that, for any tax year beginning after 2007, and before the last year provided in Code Sec. 179(c)(2) for revoking a Code Sec. 179 election by a taxpayer with respect to any property, the taxpayer will be allowed to make a
Code Sec. 179 election on an amended federal tax return for that tax year, without the consent of the IRS. Currently, the last year provided in Code Sec. 179(c)(2) is 2011. Treasury and the IRS intend to amend Reg. §1.179-5(c) to incorporate this rule.

  Section 3.20 of Rev. Proc. 2007-66, I.R.B. 2007-45, 970, is modified and superseded. Section 4.01(4)(b) of
Notice 2007-36, I.R.B. 2007-17, 1000, is clarified, modified, and amplified.

Rev. Proc. 2008-54, 2008FED ¶46,554

Other References:

 
Code Sec. 168

  CCH Reference - 2008FED ¶11,279.058

 
Code Sec. 179

  CCH Reference - 2008FED ¶12,126.001

  CCH Reference - 2008FED ¶12,126.03

  CCH Reference - 2008FED ¶12,126.031

  CCH Reference - 2008FED ¶12,126.07

  CCH Reference - 2008FED ¶12,126.54

 
Code Sec. 1400N

  CCH Reference - 2008FED ¶32,487.001

  CCH Reference - 2008FED ¶32,487.054

  Tax Research Consultant

  CCH Reference - TRC DEPR: 3,600

  CCH Reference - TRC DEPR: 3,650

  CCH Reference - TRC DEPR: 12,104

  CCH Reference - TRC DEPR: 12,112

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The New York Department of Taxation and Finance has issued a memorandum concerning changes to procedures for obtaining guidance from the Department for all taxes. In place of the Taxpayer Guidance Division, the Office of Counsel will now issue advisory opinions. Effective August 8, 2008, the Department will no longer accept advisory opinion petitions from any person or entity acting on behalf of unidentified persons or entities, and all identifying information of petitioners will be redacted from advisory opinions before publication. In addition, a petitioner may elect, when submitting the petition, to reserve the right to apply for the Voluntary Disclosure and Compliance (VDC) program with respect to the subject of the advisory opinion request.

CCH (cch.taxgroup.com) reports:

  A federal district court properly dismissed conspiracy and tax evasion charges against 13 former employees of a major accounting firm stemming from their alleged involvement in abusive tax shelters. The government's actions in pressuring the accounting firm, which was an unindicted co-conspirator, to limit and then to cut off payment of the defendants' legal fees deprived them of their Sixth Amendment right to counsel.

  The district court's ultimate finding of fact that, absent a government memorandum and the prosecutors' conduct, the accounting firm would have advanced the fees without condition or cap, was not clearly erroneous. The government stipulated that the accounting firm had a long standing voluntary practice of advancing and paying employees' legal fees without regard to economic costs or considerations and without a preset cap or condition of cooperation with the government in any civil, criminal or regulatory proceeding arising from activities within the scope of their employment.

  Moreover, the district court properly rejected the government's argument that it cured the Constitutional violation and, therefore, dismissal of the charges was improper. The accounting firm had entered into a deferred prosecution agreement (DPA) with the government that required it to cooperate fully with the prosecution. Under the DPA, payment of the defendants' attorneys' fees could have been considered noncooperation sufficient to subject the accounting firm to criminal prosecution. Furthermore, the firm remained subject to the DPA throughout the criminal proceedings. Thus, the accounting firm's adoption and enforcement of the new fees policy amounted to "state action."

  Further, while the defendants' Sixth Amendment rights attached only upon indictment, the district court properly considered pre-indictment state action that affected the defendants post-indictment. When the government, prior to indictment, acted to impair the defendants' relationship with counsel post-indictment, the pre-indictment actions ripened into cognizable Sixth Amendment deprivations upon indictment. Furthermore, the government failed to establish any legitimate justification for interfering in the firm's advancement of legal fees to the defendants.

  Affirming a DC N.Y. decision 2007-2 USTC ¶50,549. Related cases at 2003-1 USTC ¶50,174, 2003-2 USTC ¶50,691, 2004-1 USTC ¶50,281, 2007-1 USTC ¶50,514, 2007-2 USTC ¶50,567, 2007-2 USTC ¶50,723 and 2008-1 USTC ¶50,308.

J. Stein, CA-2, 2008-2 USTC ¶50,518

Other References:

 
Code Sec. 7202

  CCH Reference - 2008FED ¶2900.41

  CCH Reference - 2008FED ¶41,318.272

 
Code Sec. 7525

  CCH Reference - 2008FED ¶42,816F.25.

  Tax Research Consultant

  CCH Reference - TRC IRS:21,402.20

CCH (cch.taxgroup.com) reports:

  The Tax Court was ordered to vacate its earlier determination that an executive participated in a complicated kickback scheme that resulted in unreported income, and to reinstate the original special trial judge's report absolving the taxpayer from additional deficiencies and penalties. The Tax Court was bound by the special trial judge's report as long as it was supported by the record and was not manifestly unreasonable. Equivocal evidence that the taxpayer may have received unreported kickback income was insufficient to overturn the special trial judge's findings. C.M. Ballard , CA-11, 2008-1 USTC ¶50,270 (TAXDAY, 2008/04/11, J.6), followed.

  Vacating and remanding the Tax Court, 93 TCM 721; Dec. 56,822(M); TC Memo. 2007-21.

R.W. Lisle Est., CA-5, 2008-2 USTC ¶50,517

Other References:

 
Code Sec. 46

  CCH Reference - 2008FED ¶2300.58

  CCH Reference - 2008FED ¶2900.31

  CCH Reference - 2008FED ¶4580.665

 
Code Sec. 61

  CCH Reference - 2008FED ¶5504.133

  CCH Reference - 2008FED ¶5504.198

  CCH Reference - 2008FED ¶5504.20

  CCH Reference - 2008FED ¶5507.126

  CCH Reference - 2008FED ¶5507.15

 
Code Sec. 162

  CCH Reference - 2008FED ¶8520.1426

  CCH Reference - 2008FED ¶8520.5179

  CCH Reference - 2008FED ¶8636.433

 
Code Sec. 163

  CCH Reference - 2008FED ¶9104.378

  CCH Reference - 2008FED ¶9104.73

 
Code Sec. 164

  CCH Reference - 2008FED ¶9502.422

 
Code Sec. 165

  CCH Reference - 2008FED ¶9804.155

  CCH Reference - 2008FED ¶9900.80

  CCH Reference - 2008FED ¶10,001.103

 
Code Sec. 166

  CCH Reference - 2008FED ¶10,650.286

  CCH Reference - 2008FED ¶10,650.598

  CCH Reference - 2008FED ¶10,650.599

  CCH Reference - 2008FED ¶10,650.6565

  CCH Reference - 2008FED ¶10,650.825

 
Code Sec. 167

  CCH Reference - 2008FED ¶11,007.70

  CCH Reference - 2008FED ¶11,011.1976

 
Code Sec. 170

  CCH Reference - 2008FED ¶11,620.6918

  CCH Reference - 2008FED ¶11,660.31

  CCH Reference - 2008FED ¶11,680.12

 
Code Sec. 174

  CCH Reference - 2008FED ¶12,047.1805

 
Code Sec. 183

  CCH Reference - 2008FED ¶12,177.235

 
Code Sec. 212

  CCH Reference - 2008FED ¶12,523.3594

 
Code Sec. 267

  CCH Reference - 2008FED ¶14,161.30

  CCH Reference - 2008FED ¶14,161.80

 
Code Sec. 357

  CCH Reference - 2008FED ¶16,522.75

 
Code Sec. 446

  CCH Reference - 2008FED ¶20,620.396

 
Code Sec. 453

  CCH Reference - 2008FED ¶21,406.68

 
Code Sec. 482

  CCH Reference - 2008FED ¶22,283.21

  CCH Reference - 2008FED ¶22,283.26

 
Code Sec. 674

  CCH Reference - 2008FED ¶24,726.11

 
Code Sec. 675

  CCH Reference - 2008FED ¶24,742.10

 
Code Sec. 1211

  CCH Reference - 2008FED ¶30,392.15

 
Code Sec. 6015

  CCH Reference - 2008FED ¶35,192.76

 
Code Sec. 6231

  CCH Reference - 2008FED ¶37,849.40

 
Code Sec. 6501

  CCH Reference - 2008FED ¶38,967.28

  CCH Reference - 2008FED ¶38,967.30

  CCH Reference - 2008FED ¶38,967.706

 
Code Sec. 6621

  CCH Reference - 2008FED ¶39,455.66

 
Code Sec. 6651

  CCH Reference - 2008FED ¶39,475.505

 
Code Sec. 6662

  CCH Reference - 2008FED ¶39,651G.195

  CCH Reference - 2008FED ¶39,651G.30

  CCH Reference - 2008FED ¶39,651G.305

  CCH Reference - 2008FED ¶39,651G.31

  CCH Reference - 2008FED ¶39,651G.81

  CCH Reference - 2008FED ¶39,651G.833

  CCH Reference - 2008FED ¶39,652.103

  CCH Reference - 2008FED ¶39,652.34

  CCH Reference - 2008FED ¶39,652.38

  CCH Reference - 2008FED ¶39,652.72

  CCH Reference - 2008FED ¶39,654.30

  CCH Reference - 2008FED ¶39,654.35

 
Code Sec. 6663

  CCH Reference - 2008FED ¶39,658.475

  CCH Reference - 2008FED ¶39,658.48

  CCH Reference - 2008FED ¶39,658.71

 
Code Sec. 7443A

  CCH Reference - 2008FED ¶42,061.021

 
Tax Court Rule 155

  CCH Reference - 2008FED ¶42,315.76

 
Tax Court Rule 183

  CCH Reference - 2008FED ¶42,343.75

  Tax Research Consultant

  CCH Reference - TRC LITIG: 6,808

CCH (cch.taxgroup.com) reports:

  An individual's conviction for tax evasion was reversed because the indictment was constructively amended at trial. The grand jury indictment of the individual specifically charged her with willful failure to pay a medical clinic's employment taxes. However, at trial, the government's own witness testified that the individual was not the employer and was not responsible for paying the employment taxes. In order to save its case, the government argued that the term "employment taxes" included the trust fund recovery penalty (TFRP), which had been assessed against the individual personally and that she had failed to pay.

  The government's argument unconstitutionally broadened the basis for convicting the individual because the government never obtained a grand jury indictment of the individual for failure to pay the TFRP. Contrary to the government's argument the terms employment taxes and TFRP were not interchangeable terms. Liability for employment taxes extends only to employers, while liability for the TFRP extends to any responsible person. Therefore, absent a proper amendment to the indictment by the grand jury, the government was not free to prove any other tax liability at trial.

  Reversing and remanding an unreported DC Okla. decision.

S.T. Farr, CA-10, 2008-2 USTC ¶50,516

Other References:

 
Code Sec. 7203

  CCH Reference - 2008FED ¶2900.35

  CCH Reference - 2008FED ¶41,318.247

  Tax Research Consultant

  CCH Reference - TRC IRS: 66,060.10
CCH Reference - TRC IRS: 66,108.10
 

CCH (cch.taxgroup.com) reports:

  The IRS has announced that the interest rates for the calendar quarter beginning October 1, 2008, will be 6 percent for overpayments (5 percent in the case of a corporation), 6 percent for underpayments and 8 percent for large corporate underpayments. The interest rate for the portion of a corporate overpayment exceeding $10,000 is 3.5 percent. The interest rates are computed by using the federal short-term rate based on daily compounding determined during August 2008.

  The Internal Revenue Code provides that the rate of interest is to be determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus three percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus three percentage points, and the overpayment rate is the federal short-term rate plus two percentage points. The rate for large corporate underpayments is the federal short-term rate plus five percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half of a percentage point.

Rev. Rul. 2008-47, 2008FED ¶46,553

Rev. Rul. 2008-47, FINH ¶30,597

Rev. Rul. 2008-47, ETR ¶66,857

Other References:

 
Code Sec. 6601

  CCH Reference - 2008FED ¶174.01

  CCH Reference - 2008FED ¶175.01

  CCH Reference - 2008FED ¶175.30

  CCH Reference - ETR ¶102

  CCH Reference - ETR ¶50,615.01

 
Code Sec. 6621

  CCH Reference - 2008FED ¶39,455.01

  CCH Reference - 2008FED ¶39,455.51

  CCH Reference - FINH ¶21,685.01

  CCH Reference - FINH ¶21,685.30

 
Code Sec. 6622

  CCH Reference - 2008FED ¶39,465.01

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 33,204.15
CCH Reference - TRC PENALTY: 9,152
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  A former IRS auditor was not entitled to deduct expenses incurred in his greyhound racing activities to the extent they exceeded his income from the activity. The taxpayer failed to establish that he engaged in the greyhound activity with the predominant, primary or principle objective of making a profit because most of the factors to be considered in making the determination weighed against him. The taxpayer failed to carry on the activity in a businesslike manner because he neither kept complete and accurate records nor maintained a business plan or budget for the activity. While the taxpayer may have had some knowledge about the mechanics of greyhound breeding and racing, he failed to demonstrate that he either consulted with economic experts or acquired his own personal economic expertise about the activity. Further, the taxpayer was a full-time employee while engaged in the activity and did breed enough litters of pups annually to be profitable. The value of the greyhounds generally depreciated over the years, a number of which did not survive training or were euthanized at the end of their racing lives. Finally, the taxpayer had 10 straight years of losses and never realized a profit from the activity, which was partially recreational for him.

  The taxpayer failed to present evidence that he had reasonable cause and acted in good faith to avoid the accuracy-related penalty for a substantial understatement of tax. Any defense could have been problematic, however, given the taxpayer's former employment.

R.T. Whitecavage, TC Memo 2008-203, Dec. 57,524(M)

Other References:

 
Code Sec. 183

  CCH Reference - 2008FED ¶12,177.29

CCH (cch.taxgroup.com) reports:

  The IRS has released on its website more details about the recently announced settlement initiative for sale-in, lease-out (SILO) and lease-in, lease-out (LILO) tax shelters. On August 7, 2008, the Service announced a settlement initiative to more than 45 corporations to end SILO and LILO transactions that it considers abusive (TAXDAY, 2008/08/07, I.3). On August 21 the IRS extended the time to accept the settlement (TAXDAY, 2008/08/25, I.8), and promised to provide more details about the offer.

Offers and Appeals

  The Service reminded taxpayers of its recent push-back of the due date for acceptance of the SILO and LILO settlement offer to 60 days after the date of the IRS's offer letter. Taxpayers had criticized the IRS's prior 30-day deadline as too short for companies to sufficiently evaluate the IRS's settlement offer.

  Should a taxpayer refuse to participate in the initiative, the IRS assured taxpayers that they may pursue their matters with the IRS Appeals Division. Yet, similar to the terms of the SILO and LILO settlement initiative, taxpayers using the Appeals process would be required to terminate all leases, both deemed and actual. The Service explained that this move was for consistency of tax administration and finality of its decision process.

Procedures

  The IRS also clarified the procedure taxpayers must follow in order to participate in the initiative; including, terminating any leases used in the SILO or LILO transactions, accepting the settlement offer, calculating the basis of property involved, and computing original issue discount (OID).

Lease Termination

  According to the settlement terms, if taxpayers are not able to actually terminate the leases by December 31, 2008, despite "good-faith efforts," then they will be allowed to deem the leases terminated. Later, they may claim an ordinary deduction equal to any excess gain recognized in the deemed termination in 2008 over the actual gain recognized in subsequent terminations actually occurring before January 1, 2011.

  Taxpayers must provide the IRS with a list of steps that they took to terminate the leases in order to show good faith. The Service will then examine the documentation to determine if the taxpayer used its "best efforts." Once the taxpayer accepts the offer and provides "best efforts" documentation, the IRS will deem a lease terminated, even if a lessee does not want to unwind the transaction or acts to delay the actual termination. This documentation requirement applies to all of the SILOs or LILOs in which a taxpayer may have engaged.

  The IRS clarified that leases involved in the SILO or LILO transaction cannot be sold to a third party in order to be considered actually terminated. It explained that an "actual termination" of a SILO or LILO transaction cannot be unwound.

Acceptance

  In addition, taxpayers must accept the settlement terms in writing and the agreement must be received by the IRS by mail or fax. The terms may not be accepted subject to negotiating a closing agreement and replying to the settlement offer with an expression of understanding regarding undefined terms does not constitute acceptance. The IRS specified that such a response would be considered a counterproposal to the settlement offer. Instead, the IRS advised asking questions about undefined terms in order to understand their meaning before attempting to accept the offer.

Basis

  The guidance reported that, before January 1, 2011, transaction costs associated with closing the leases underlying a SILO or LILO tax shelter may be included in the calculation of their basis, rather than as a reduction of proceeds. To substantiate these transaction costs, taxpayers must provide documentation, including all contracts, agreements and a breakdown of costs by amount, nature and recipient.

OID

  Finally, the IRS stated that taxpayers must recognize 100 percent of the OID that accrued annually in the SILO or LILO transaction if there is a deemed termination of the lease, until the actual termination of the lease, which must occur before January 1, 2011.

  By Torie Cole, CCH News Staff

LILO/SILO Initiative Frequently Asked Questions

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The government properly withheld documents responsive to a corporation's Freedom of Information Act (FOIA) request because they were protected by attorney work-product privilege. However, the IRS was required to segregate and disclose the factual portions of documents withheld under the deliberative process privilege. Therefore, the IRS was required to submit affidavits detailing the withheld portions of documents to enable the district court and the corporation to evaluate the government's claims of exemption. Moreover, the district court was required to conduct an in camera review of the documents if sufficiently specific affidavits were not provided. Further, the district court's decision that the IRS properly applied the tax convention information exemption was remanded because the decision was made without the benefit of thorough briefing by the parties.

  Affirming in part, reversing and remanding in part in part a DC Wash. decision, 2006-2 USTC ¶50,607.

Pacific Fisheries Inc., CA-9, 2008-2 USTC ¶50,510

Other References:

 
Code Sec. 6103

  CCH Reference - 2008FED ¶36,894.802

  CCH Reference - 2008FED ¶36,894.8046

  CCH Reference - 2008FED ¶36,894.825

  Tax Research Consultant

  CCH Reference - TRC IRS: 9,502
CCH Reference - TRC IRS: 9,502.15
CCH Reference -
TRC IRS: 9,550
 

CCH (cch.taxgroup.com) reports:

  The General Services Administration (GSA) has updated the maximum per diem rates for locations within the continental United States (CONUS). The list increases or decreases the maximum lodging and meals and incidental expenses amounts in certain existing per diem localities, adds new per diem localities and removes some previously designated per diem localities. The list is effective for fiscal year (FY) 2009.

  The Governmentwide Per Diem Advisory Board was established in May 2002 by the GSA in order to review the federal per diem rate setting process and the governmentwide lodging program. Effective for FY 2009, the standard CONUS lodging rate is $70.

Maximum Per Diem Rates for Continental U.S.

Other References:

 
Code Sec. 274

  CCH Reference - 2008FED ¶14,417.421

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  A regulation has been adopted that explains the application of Illinois retailers' occupation (sales) tax, service occupation tax, and use tax to seminar materials. "Seminar materials" mean educational or informational material and any other item prepared, compiled, or obtained for distribution to seminar customers, such as books, practice guides, tapes, and compact discs. "Seminar" means any presentation, conference, training program, or continuing education course designed for educational, informational, professional, or recreational purposes.

CCH (cch.taxgroup.com) reports:

  An IRS Appeals Officer correctly concluded that the ten-year statute of limitations on collection of an individual's unpaid Federal income tax liabilities did not expire before the IRS filed its notice of Federal tax lien. Prior to expiration of the limitations period, the taxpayer agreed to extend the period for collection until December 31, 2011. Although the taxpayer asserted that the extension only applied to employment taxes, the Form 900, Tax Collection Waiver, signed by the taxpayer in connection with a defaulted installment agreement, clearly showed that the unpaid tax liabilities related to Form 1040 individual income tax liabilities.

H. Joy, TC Memo. 2008-197, Dec. 57,518(M)

Other References:

 
Code Sec. 6330

  CCH Reference - 2008FED ¶38,184.63

 
Code Sec. 6502

  CCH Reference - 2008FED ¶39,020.65

  Tax Research Consultant

  CCH Reference - TRC IRS: 45,204.25

  CCH Reference - TRC IRS: 48,056.25

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  As part of his latest budget compromise proposal, California Governor Arnold Schwarzenegger is proposing a three-year temporary one cent sales and use tax rate increase (excluding diesel, gasoline and jet fuel); a two-year suspension of the corporation franchise and income tax net operating loss (NOL) deduction, which would be followed by a phased-in conformity to the federal NOL carryback and carryover periods; and enactment of a modified tax amnesty, a runaway Hollywood production tax credit, and provisions that better align accrual of revenues and accrual of spending.

  If enacted as proposed, the one cent sales tax rate increase would be followed by a permanent 11/4 -cent reduction beginning in the fourth year. Conformity to the federal NOL deduction would be phased-in over three years starting in 2010 and would allow taxpayers to claim a two-year NOL carryback and a 20-year NOL carryover. Currently, California does not allow NOL carrybacks and limits the carryover period to 10 years. The Governor's press release does not provide any further details regarding his tax amnesty proposal, the alignment of revenue and expense accruals, or the runaway Hollywood production tax credit.

  A fact sheet outlining the Governor's proposed budget compromise is available on the Governor's Web site at:
http://gov.ca.gov/index.php?/fact-sheet/10443/.

Fact Sheet , Governor Schwarzenegger's Office, August 20, 2008.
 

CCH (cch.taxgroup.com) reports:

  The IRS violated a discharge injunction with respect to a debtor whose tax liability was not discharged in bankruptcy. The liability was not discharged because a period of three years, not including periods of equitable tolling, had not run between the date of filing of the debtor's income tax return and the date of filing of the bankruptcy petition.

  Although the IRS believed its collection activity was done in good faith, it nevertheless knowingly and willfully violated the discharge injunction and, therefore, was subject to damages arising from the violation. While the IRS acted within its discretion to establish a policy of adding an additional six months to the three-year look-back period, the law changed, and any action subsequently taken by the IRS to collect the discharged debt, although in good faith and in conformance with the IRS policy, was contrary to the law. Consequently, the IRS was liable for damages arising from the violation.

  Because the IRS affirmatively pleaded sovereign immunity and because the government had not waived sovereign immunity, the debtor could not be awarded punitive damages. The debtor was, however, entitled to monetary damages for any losses proximately caused by the violation of the discharge injunction. Finally, because the debtor only alleged a violation that had occurred in the past, and not a continuing violation, coercive sanctions against the IRS were not required.

In re S.L. Distad, BC-DC Utah, 2008-2 USTC ¶50,500

Other References:

 
Code Sec. 6503

  CCH Reference - 2008FED ¶39,032.15

 
Code Sec. 6871

  CCH Reference - 2008FED ¶40,630.15

  CCH Reference - 2008FED ¶40,630.175

  CCH Reference - 2008FED ¶40,630.38

  Tax Research Consultant

  CCH Reference - TRC IRS: 57,054.15
CCH Reference -
TRC IRS: 30,200
CCH Reference -
TRC IRS: 45,118
CCH Reference -
TRC IRS: 57,158
 

CCH (cch.taxgroup.com) reports:

  A federal district court properly denied an individual and a corporation's (taxpayers) request for disclosure of an IRS officer's time records under the Freedom of Information Act (FOIA). The officer's time records were similar to "personnel and medical" files and were exempt from disclosure. Contrary to the taxpayers' argument, the officer's privacy interest outweighed any public interest and disclosure would not have contributed significantly to the public's understanding of IRS operations. Further, because the records were created in connection with the conditions of the officer's employment, and not her investigation of the taxpayers, the records could not be released under the Privacy Act without her consent. Moreover, the district the court did not abuse its discretion when it denied the taxpayers' request to conduct an in camera review of the remaining withheld documents because the IRS's declarations and the Vaughn index set out in detail which documents were withheld and the reasons for withholding them and the taxpayers failed to show that the IRS acted in bad faith.

  Unpublished opinion affirming a DC N.J. decision, 2008-2 USTC ¶50,498.

L.S. Berger, CA-3, 2008-2 USTC ¶50,499

Other References:

 
Code Sec. 6103

  CCH Reference - 2008FED ¶36,894.804

  CCH Reference - 2008FED ¶36,894.8044

  CCH Reference - 2008FED ¶36,894.8046

  CCH Reference - 2008FED ¶36,894.809

  CCH Reference - 2008FED ¶36,894.825

 
Code Sec. 7852

  CCH Reference - 2008FED ¶43,840.60

  Tax Research Consultant

  CCH Reference - TRC IRS: 9,500
CCH Reference - TRC IRS: 9,502.15
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Two different types of bundled transactions that involve the sale of equipment along with the sale of wireless Internet service are subject to Louisiana sales and use tax. In both types of transactions, the provider bundles a taxable transaction (i.e., the sale of equipment) with a nontaxable transaction (i.e., the sale of wireless Internet service).

CCH (cch.taxgroup.com) reports:

  The Florida Department of Revenue has released advisory comments regarding the changes to the administrative and judicial review of property taxes enacted by H.B. 909, including changes to the Value Adjustment Board ("Board"). The enactment of H.B. 909 was reported previously. (TAXDAY, 2008/06/20, S.9)

CCH (cch.taxgroup.com) reports:

  A bill passed by the California Legislature would conform California personal income tax law to federal amendments made by the Mortgage Forgiveness Debt Relief Act of 2007 (Public Law 110-142) that allow a personal income taxpayer to exclude from his or her gross income the discharge of the individual's qualified principal residence indebtedness in the 2007 through 2009 calendar years. However, if enacted , the bill would limit the California exclusion to indebtedness discharged in the 2007 and 2008 calendar years only. Additional provisions would limit the amount of the exclusion to $250,000 ($125,000 in the case of a married individual filing separate) and would define "qualified principal residence indebtedness" for purposes of the exclusion to mean an individual's qualified acquisition indebtedness of up to $800,000 ($400,000 in the case of a married individual filing separately), rather than the $2 million ($1 million in the case of a married individual filing separately) limitation provided under federal law. The exclusion would be applicable for California personal income tax purposes beginning with the 2007 taxable year.

S.B. 1055, as enrolled, August 19, 2008
 

CCH (cch.taxgroup.com) reports:

  An individual could not bring an action against his employer to recover federal taxes withheld from his wages and paid over to the IRS. His allegations that the employer was required to establish a statutory employer-employee relationship and secure a determination of worker status before withholding taxes consisted primarily of legal conclusions without authority or factual support. Withholding federal income tax and making payments to the IRS are mandatory duties for employers. Moreover, the exclusive remedy for a tax refund is an action against the United States, not against an employer.

H. Nino v. Ford Motor Company, DC Mich., 2008-2 USTC ¶50,497

Other References:

 
Code Sec. 3403

  CCH Reference - 2008FED ¶33,593.1635

 
Code Sec. 7422

  CCH Reference - 2008FED ¶41,688.362

  Tax Research Consultant

  CCH Reference - TRC FILEIND: 15,306

CCH (cch.taxgroup.com) reports:

  The government's letter to an individual did not constitute an acceptance of the individual's settlement offer and did not create a valid and binding settlement of the parties' dispute. The letter did not mirror the terms of the offer because it made no reference to the interest that would accrue if he failed to pay the settlement amount within 120 days of the government's acceptance.

  Instead, it provided that the offer would be accepted on condition that payment is made within 120 days, with the understanding that the settlement did not constitute a compromise of the individual's income tax liability. Since the letter altered the terms of the individual's offer, it was construed as a counteroffer by the government.

  Related decision at 2006-2 USTC ¶50,555.

E.A. Brinskele, FedCl, 2008-2 USTC ¶50,493

Other References:

 
Code Sec. 7122

  CCH Reference - 2008FED ¶41,130.175

  Tax Research Consultant

  CCH Reference - TRC IRS: 42,116

CCH (cch.taxgroup.com) reports:

  The IRS has released a fact sheet to help taxpayers determine whether an activity is engaged in for profit or merely as a hobby. The fact sheet discusses the hobby loss rules and lists several non-inclusive factors to be considered when making this determination, including:

  --Does the time and effort put into the activity indicate an intention to make a profit?

  --Do you depend on income from the activity?

  --If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?

  --Have you changed methods of operation to improve profitability?

  --Do you have the knowledge needed to carry on the activity as a successful business?

  --Have you made a profit in similar activities in the past?

  --Does the activity make a profit in some years?

  --Do you expect to make a profit in the future from the appreciation of assets used in the activity?

  If an activity is not for profit, losses from that activity may not be used to offset other income and deductions cannot exceed the gross receipts from the not for profit activity. Further, hobby deductions are claimed as itemized deductions in the following order and only to the extent stated in each of three categories:

  --Deductions that a taxpayer may claim for certain personal expenses, such as home mortgage interest and taxes, may be taken in full.

  --Deductions that do not result in an adjustment to the basis of property, such as advertising, insurance premiums and wages, may be taken next, to the extent gross income for the activity is more than the deductions from the first category.

  --Deductions that reduce the basis of property, such as depreciation and amortization, are taken last, but only to the extent gross income for the activity is more than the deductions taken in the first two categories.

IRS Fact Sheet FS-2008-23, 2008FED ¶46,549

Other References:

 
Code Sec. 183

  CCH Reference - 2008FED ¶12,177.169

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 3,052

  CCH Reference - TRC BUSEXP: 15,250

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  A California sales and use tax regulation regarding cell phones and other wireless telecommunication devices provided a safe harbor from unfair competition claims filed by a taxpayer against a provider. The provider advertised a cellular phone for sale at half the retail price if the purchaser also enrolled in a calling plan package. The California Code of Regulations requires that sales tax must be computed on the non-sale price of the product. The regulation permits, but does not require, that the charge be passed on to the customer. The provider did so without informing the customer prior to sale that the tax would be based on the full price of the cell phone. The amount of tax is shown on the sales invoice furnished to the customer at the time of sale. The taxpayer alleged that the provider engaged in unfair competition and misleading advertising by failing to inform the consumer that the tax would be imposed on the full price of the cell phone. The unfair competition law prohibits any unlawful, unfair, or fraudulent business act or practice, but its scope is limited. Specific legislation may limit the judiciary's power to declare conduct unfair. If the Legislature has permitted certain conduct, courts may not override that determination. When specific legislation provides a safe harbor, plaintiffs may not use the general unfair competition law to assault that harbor. The sales invoice the provider gave to the taxpayer stated the amount of the sales tax imposed on the sale. It provided the taxpayer notice of the amount of sales tax that would be imposed and it constituted a contract of sale between the provider and the taxpayer. As with any other contract, the taxpayer had the right to refuse to enter into the contract for the price stated. The taxpayer's unfair competition and misleading advertising claims failed because the provider complied with all applicable regulations.

  CCH Tax Research NetWork subscribers can view the opinion in its entirety.

  Yabsley v. Cingular Wireless, LLC , California Court of Appeal, Second Appellate District, Division Six, 2d Civil No. B198827, August 18, 2008.
 

CCH (cch.taxgroup.com) reports:

  The phrase "items of ordinary income" contained in an agreement entered into between a partnership and a venture capital firm did not include short-term capital gains. The interpretation of the phrase was based on the definition of "ordinary income" in the Internal Revenue Code (IRC), which unambiguously does not include capital gains. Therefore, the agreement, which provided a special allocation of ordinary income to the firm, did not provide an allocation of short-term capital gains.

  The agreement used the term "items of ordinary income" without actually defining that term and there was no indication that the parties intended to distinguish the definition of ordinary income from that in the IRC. The partnership's claim that the term "ordinary income" included all income taxed at ordinary income tax rates was unreasonable. In addition, the terms "ordinary income" and "capital gains" are defined in Black's Law Dictionary based on the source of the income rather than the tax rate, which was consistent with Code Sec. 702.

  Further, a settlement agreement entered between the partnership and the venture capital firm in a state court lawsuit did not bar the firm from joining the partnership-level proceeding seeking readjustment of certain partnership items as a participating partner under Code Sec. 6226(c)(2). The mutual release in the settlement agreement specified that the firm released its rights and claims against the partners; the parties did not intend the release to also include claims against the United States.

Imprimis Investors LLC, FedCl, 2008-2 USTC ¶50,489

Other References:

 
Code Sec. 61

  CCH Reference - 2008FED ¶5504.04

 
Code Sec. 702

  CCH Reference - 2008FED ¶25,083.2683

 
Code Sec. 1222

  CCH Reference - 2008FED ¶30,442.40

 
Code Sec. 6226

  CCH Reference - 2008FED ¶37,709.70

  Tax Research Consultant

  CCH Reference - TRC PART: 15,056.05
CCH Reference -
TRC PART: 60,554
 

CCH (cch.taxgroup.com) reports:

  Revised instructions to be used by tax-exempt organizations in completing the redesigned Form 990, Return of Organization Exempt From Income Tax, have been released by the IRS. The IRS released the redesigned Form 990 in December 2007, to be used for reporting tax year 2008 information in 2009. The redesigned form consists of a core form to be completed by all organizations and 16 schedules to be completed depending on the organization's type and activities. Transition rules, however, are in place so small organizations have time to adjust to the new form.

  For the 2008 tax year, most organizations with gross receipts less than $1.0 million and total assets less than $2.5 million may chose to use Form 990-EZ, Short Form Return of Organization Exempt From Income Tax (not redesigned for 2008), or the updated Form 990. For the 2009 tax year, entities can chose between Form 990-EZ or Form 990 if gross receipts are less than $500,000 and total assets less than $1.25 million. The filing thresholds will be set permanently at $200,000 gross receipts and $500,000 total assets beginning with the 2010 tax year. Organizations that generally have gross receipts of less than $25,000 will file Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or 990-EZ, for tax years 2007-2009. The gross receipts threshold is raised to $50,000 for tax years 2010 and later.

  The IRS released an initial draft of the instructions on April 7, 2008. With the latest release, the IRS has provided a description of changes from the April draft instructions. Many changes are intended to provide greater clarity regarding the specific information sought. The revised instructions provide additional examples, reduce the reporting burden, and establish or revise definitions and standards in certain areas. For example, the instructions define key employee for reporting compensation on Part VII of the core form and Schedule J (Compensation Information), Transactions With Interested Persons on Schedule L, and governance, management and disclosure on the core form. There are also significant changes to the instructions for many of the schedules, including Schedule H, Hospitals; Schedule J, Schedule K, Tax-Exempt Bonds; and Schedule L.

  The revised Form 990 instructions have a sequencing list that is particularly useful in determining the order to use in completing the various portions of the form (Parts I-XI) and any of the sixteen schedules that might be required (General Instruction C). Terms that are bolded in the instructions appear in alphabetical order in the Glossary. A compensation table is provided to aid in determining where and how to report various types of compensation paid to officers, directors, trustees, key employees and highest compensated employees (Specific Instructions for Part VII). Appendix E provides guidance relative to group returns and Appendix F explains how to report activities conducted indirectly through joint ventures and disregarded entities. Public inspection guidance is available in Appendix D. A properly completed Form 990 requires an organization to complete Parts I through XI of the Form 990, and any schedules for which a "Yes" response is indicated in Part IV of Form 990.

  Although the latest instructions are identified as a draft, the IRS indicated there will be no significant changes in content when the final version of the instructions is released later in 2008, although the wording and format may change. The Service stated that it was releasing the instructions now so that organizations and practitioners can review the content and prepare for the 2009 filing season (for 2008 tax returns).

  Practitioners commended the IRS for a huge effort and for releasing the instructions before 2009. At the same time, they noted the burdens placed on exempt organizations to meet the new reporting requirements.

  "The IRS has worked tirelessly to satisfy all stakeholders who often have very conflicting interests and opinions," Jane Searing, a shareholder with Clark Nuber in Bellevue, Washington told CCH. "It is really helpful that they are releasing the final instructions before the third quarter ends for calendar year organizations. This helps organizations and their service providers complete the work necessary to implement systems for collecting the information required on the new form. Although we have not had time to fully digest this latest version, we are hopeful this set of instructions will help clear up some of the outstanding questions and concerns over the version issued in April."

  "The revised form presents a huge burden for public charities," Nancy Ortmeyer Kuhn of Caplin & Drysdale in Washington, D.C. told CCH. "The expanded Form 990 requires a lot more information from charities that file the form. Many [organizations] will have to redo their accounting systems and they're still working on it. It's a huge job to capture the information they have to report. The community is hoping the IRS will understand this concern." Kuhn said it would be appropriate for the IRS to provide transition relief for reporting under the new system. One way to do this would be not to impose penalties when the IRS examines the first returns, Kuhn said.

  Reactions also varied as practitioners honed in on different schedules. "People were really unhappy with the [draft instructions'] definition of "key employee" [for Schedule J]," Suzy McDowell of Steptoe & Johnson LLP told CCH. The old definition looked for control of a discrete segment or five percent of the organization, McDowell stated. The revised definition "now requires organization-wide control or influence, or control of at least 10 percent of the organization." This is an improvement, McDowell said, although "exempt organizations won't be completely happy." McDowell said that another part of the instructions for Schedule J provided "extensive clarification" for the definitions of "reportable (wage) compensation" and "other compensation," a change that will be helpful.

  "The complexity is very evident and appears on the very first page of the instructions," Kuhn told CCH. There are three categories of transactions with "interested persons" that must be reported on Schedule L (Transactions With Interested Persons), Kuhn said, and each category uses a different definition of interested persons, she indicated. The American Bar Association commented that "this is complexity that doesn't need to be there," Kuhn said. "So [the lack of change] was disappointing."

  The instructions indicate when an organization can rely on "reasonable efforts" to obtain certain information from interested persons and third parties, such as family and business relationships, compensation paid by related organizations, and the involvement of an interested person in particular transactions. "This is good," Kuhn told CCH. "It shows there is an understanding that some information may not be available." McDowell agreed. "That's a big change that will give exempt organizations some relief."

  The IRS has identified approximately 1.3 million public charities and other non-charitable exempt organizations. For tax year 2004, the most recent year available, the IRS reported that it had received 364,000 Forms 990 and 142,000 Forms 990-EZ, a total of 506,000 returns. The IRS intends to release "draft" instructions in the next few weeks for the Form 990-EZ, the short form currently used by smaller tax-exempt organizations with gross receipts under $1 million and total assets of less than $2.5 million. The new Form 990-EZ will be phased in for smaller organizations over a three-year period.

  By Brant Goldwyn and Mary Krackenberger, CCH News Staff

IR-2008-98,
2008FED ¶46,548

IRS Completed 2008 Form 990 Instructions and Background Documents

IRS Background Paper --Summary of Form 990 Redesign Process

IRS TE/GE Division Exempt Organizations 2008 Form 990 Background Paper --Form 990, Moving from the Old to the New

IRS Background Paper --Changes to April Draft Instructions

Redesigned Forms 990 Instructions (August 2008)

Other References:

 
Code Sec. 6033

  CCH Reference - 2008FED ¶35,425.33

 
Code Sec. 6104

  CCH Reference - 2008FED ¶36,911.10

  Tax Research Consultant

  CCH Reference - TRC EXEMPT: 12,252.15

  CCH Reference - TRC EXEMPT: 12,258.05

CCH (cch.taxgroup.com) reports:

  The IRS has provided domestic asset/liability percentages and domestic investment yields needed by foreign life insurance companies and foreign property and liability insurance companies to compute their minimum effectively connected net investment income under Code Sec. 842(b). This guidance is effective for tax years beginning after December 31, 2006.

  For the first tax year beginning after 2006, the relevant domestic asset/liability percentages are 124.4 percent for foreign life insurance companies and 197.1 percent for foreign property and liability insurance companies. The relevant domestic investment yields are 4.9 percent for foreign life insurance companies and 4.2 percent for foreign property and liability insurance companies. In addition, instructions are set forth for computing foreign insurance companies' estimated tax liabilities for tax years beginning after 2006.

Rev. Proc. 2008-53, 2008FED ¶46,547

Other References:

 
Code Sec. 842

  CCH Reference - 2008FED ¶26251.70

  CCH Reference - 2008FED ¶26,251.72

  Tax Research Consultant

  CCH Reference - TRC INTLIN: 3,102.25

CCH (cch.taxgroup.com) reports:

  Various prescribed rates for federal income tax purposes for September 2008 have been provided by the IRS. The annual short-term, mid-term, and long-term applicable federal interest rates (AFRs) are 2.38 percent, 3.46 percent and 4.58 percent, respectively. The semiannual short-term, mid-term, and long-term AFRs are 2.37 percent, 3.43 percent and 4.53 percent, respectively. Quarterly short-term, mid-term and long-term AFRs are 2.36 percent, 3.42 percent and 4.50 percent, respectively. Finally, the monthly short-term, mid-term and long-term rates are 2.36 percent, 3.41 percent and 4.49 percent, respectively.

  The short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFRs) for September 2008 for purposes of Code Sec. 1288(b) are 1.81 percent, 3.21 percent and 4.53 percent, respectively, when annual compounding is used.

  Additionally, the Code Sec. 382 adjusted federal long-term rate is 4.53 percent, and the long-term tax-exempt rate is 4.65 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. Finally, 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 4.2 percent.

Rev. Rul. 2008-46, 2008FED ¶46,546

Rev. Rul. 2008-46, FINH ¶30,596

Other References:

 
Code Sec. 42

  CCH Reference - 2008FED ¶173.02

  CCH Reference - 2008FED ¶176.01

  CCH Reference - 2008FED ¶4385.03

 
Code Sec. 382

  CCH Reference - 2008FED ¶17,115.28

 
Code Sec. 642

  CCH Reference - 2008FED ¶24,308.1885

 
Code Sec. 1274

  CCH Reference - 2008FED ¶31,310.05

 
Code Sec. 7520

  CCH Reference - 2008FED ¶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 IRS has issued proposed regulations that affect domestic corporations that transfer property to foreign corporations in certain transactions or that distribute the stock of certain foreign corporations, and certain shareholders of such domestic corporations.

Regulations Under Code Sec. 367(a)(5) and (b)

  Regulations proposed under Code Sec. 367(a)(5) and
(b) apply when a domestic corporation transfers certain property to a foreign corporation in an exchange described in Code Sec. 361(a) or (b). The regulations apply to property transfers by U.S. transferors, including RICs, REITs and S corporations.

  Generally, under Code Sec. 367(a)(5) a U.S. transferor to a foreign acquiring corporation in a Code Sec. 361 exchange recognizes gain with respect to the transfer of appreciated property under
Code Sec. 367(a)(1). This rule does not apply if the U.S. transferor is controlled by five or fewer domestic corporations. The proposed regulations confirm the general rule, but provide an elective exception, under which the exceptions provided by Code Sec. 367(a) and associated regulations may be available. The proposed regulations apply to all property transferred by a U.S. transferor in a Code Sec. 361 exchange, other than property to which Code Sec. 367(d) applies, and preserve or recognize the net built-in gain in Code Sec. 367(a) property transferred in the exchange. The regulations also contain an anti-stuffing rule with respect to Code Sec. 367(a) property. Inside gain is recognized currently by the U.S. transferor or preserved for future taxation in the stock received in the transaction by the controlling domestic corporate shareholder of the transferor.

  The proposed regulations include a control requirement regarding the U.S. transferor. Instances where a U.S. transferor must recognize gain on the transfer of the Code Sec. 367(a) property are also clarified, as are adjustments to the basis of stock received by control group members. Moreover, the U.S. transferor must include a statement with its U.S. income tax return for the year of the exchange under which it agrees to recognize gain and file an amended tax return if it enters into certain transactions with a principal purpose of avoiding U.S. tax.

  Proposed regulations under Code Sec. 367(b) provide an additional exception to the general rules that apply to certain transfers of stock of a foreign acquired corporation by a U.S. transferor to a foreign acquiring corporation in a Code Sec. 361 exchange. The proposed regulations provide that the U.S. transferor must include in income the Code Sec. 1248 amount attributable to the stock of the foreign acquired corporation only if immediately after the exchange, the foreign acquiring corporation or the foreign acquired corporation is not a CFC with respect to which the U.S. transferor is a
Code Sec. 1248 shareholder. The Code Sec. 1248 amount can be preserved in the hands of a corporate Code Sec. 1248 shareholder following the distribution of the stock of the foreign acquiring corporation by the U.S. transferor. Special rules for outbound triangular asset reorganizations are also proposed.

Regs Under the Code Sec. 367 Coordination Rule

  The coordination rule, found at
Reg. §1.367(a)-3(d)(2)(vi)(A), has been used inappropriately in transactions intended to repatriate earnings and profits of foreign corporations without the recognition of gain or a dividend inclusion. In response, the IRS issued Notice 2008-10, I.R.B. 2008-3, 277 (TAXDAY, 2007/12/31, I.7), which announced the revision of the application of the coordination rule exception. The proposed regulations incorporate, with modifications, the provisions of that IRS guidance.

Regs Under Code Sec. 1248(f)

  The proposed regulations under Code Sec. 1248(f) apply when a domestic corporation distributes stock of certain foreign corporations in a distribution to which Code Sec. 337, 355 or 361 applies. The proposed regulations include regulations described in Notice 87-64, 1987-2 CB 375. Under the proposed regulations:

  --A domestic distributing corporation that is a section 1248 shareholder of a foreign corporation and that distributes stock of such foreign corporation in a Code Sec. 337 distribution shall generally include in income as a dividend the Code Sec. 1248 amount attributable to the stock distributed.

  --If such a domestic distributing corporation distributes such stock in a Code Sec. 355 distribution, other than stock received by the domestic distributing corporation in a
Code Sec. 361 exchange, shall generally include in income as a dividend the Code Sec. 1248 amount attributable to the stock distributed, but only to the extent the domestic distributing corporation does not otherwise recognize gain on the Code Sec. 355 distribution.

  --If such a domestic distributing corporation distributes stock of such corporation received in a Code Sec. 361 exchange, in a
section 355 distribution or a Code Sec. 361 distribution, it shall include in income as a dividend the Code Sec. 1248 amount attributable to the stock distributed.

  The general rule will not apply to certain Code Sec. 337 distributions of the stock of a foreign corporation or certain Code Sec. 355 distributions of a stock of stock of a foreign corporation. An elective exemption to the general rule for certain distributions pursuant to a plan or reorganization is also provided.

Other Changes

  The proposed regulations suspend the application of
Code Sec. 1248(e) when capital gains are taxed at a rate equal to or greater than the rate at which ordinary income is taxed. Changes under Code Sec. 6038B establish reporting requirements for certain transfers of property by a domestic corporation to a foreign corporation in certain Code Sec. 361 exchanges.

Effective Dates

  A number of different effective dates apply with respect to the proposed regulations.

  --Proposed Reg. §1.367(a)-7 and the revisions to §1.6038B-1 apply to transfers occurring on or after the date that is 30 days after the date these regulations are published as final regulations in the Federal Register.

  --In accordance with Notice 87-64, §1.1248-6(d) applies to sales, exchanges or other dispositions of stock of a domestic corporation occurring on or after September 21, 1987.

  --The revisions described in Notice 2008-10 generally apply to transactions occurring on or after December 28, 2007.

  --Proposed Reg. §§1.1248-8(b)(2)(iv), 1248(f)-1 through
1.1248(f)-3, and the modifications to Proposed Reg. §1.367(b)-4 apply to transfers or distributions occurring on or after the date that is 30 days after the date these regulations are published as final regulations in the Federal Register.

Comments Requested

  The IRS is seeking comments on a number of aspects of these proposed regulations. Written or electronic comments and requests for a public hearing must be received by November 18, 2008.

Proposed Regulations, NPRM REG-209006-89, 2008FED ¶49,829

Other References:

 
Code Sec. 358

  CCH Reference - 2008FED ¶16,552L

 
Code Sec. 367

  CCH Reference - 2008FED ¶16,641F

  CCH Reference - 2008FED ¶16,642E

  CCH Reference - 2008FED ¶16,646E

  CCH Reference - 2008FED ¶16,647FE

  CCH Reference - 2008FED ¶16,647J

 
Code Sec. 1248

  CCH Reference - 2008FED ¶30,961D

  CCH Reference - 2008FED ¶30,963D

  CCH Reference - 2008FED ¶30,966C

  CCH Reference - 2008FED ¶30,967A

  CCH Reference - 2008FED ¶30,967E

  CCH Reference - 2008FED ¶30,967J

  CCH Reference - 2008FED ¶30,967I

  CCH Reference - 2008FED ¶30,967M

 
Code Sec. 6038B

  CCH Reference - 2008FED ¶35,580E

  Tax Research Consultant

  CCH Reference - TRC INTL: 30,076

  CCH Reference - TRC INTLOUT: 9,404

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  James R. Eads, Jr., has been named the new Executive Director of the Federation of Tax Administrators (FTA). He is formerly the Public Affairs Director for Ryan, a state tax consulting firm. Eads' previous experience includes service as Chief Counsel for the Arkansas Department of Finance & Administration Revenue Division and as state tax counsel for Sears and AT&T Corp. He also worked for Ernst & Young and the Internal Revenue Service.

  Eads replaces Harley Duncan, who resigned after 20 years with the FTA to take a position with KPMG. Eads will assume his new post on September 8.

News Release, Federation of Tax Administrators, August 14, 2008.
 

CCH (cch.taxgroup.com) reports:

  The IRS's proposed overhaul of Code Sec. 6694 regulations (NPRM REG-129243-07, I.R.B. 2008-27, 32; TAXDAY, 2008/06/17, I.1) drew a subdued response from tax professionals at an August 18 hearing in Washington, D.C. Representatives from practitioner groups and the return-preparation industry appear ready to live with the regulations if they are finalized as proposed. Recommended changes are largely limited to clarifications of proposed rules, such as those dealing with reliance on a taxpayer's legal conclusions, disclosure, a preparer's reliance on the advice of others, penalties and the treatment of appraisers.

New Standard

  The IRS issued the proposed regulations in June in response to changes made to Code Sec. 6694 by Congress in 2007. The Small Business and Work Opportunity Tax Act of 2007 (P.L. 110-28) replaced the realistic-possibility-of-success standard in Code Sec. 6694(a) with the heightened more-likely-than-not standard for undisclosed, nonabusive positions. The preparer must have a reasonable belief that the tax treatment of the position would more likely than not be sustained on its merits. Additionally, Congress extended Code Sec. 6694 to cover preparers of all returns, not just preparers of income tax returns.

  Preparers also risk significantly increased penalties under the 2007 Small Business Act. The old, first-tier $250 penalty in Code Sec. 6694(a) has jumped to the greater of $1,000 or 50 percent of the income derived, or to be derived, by the preparer. The penalty for willful or reckless conduct in Code Sec. 6694(b) increased from $1,000 to the greater of $5,000 or 50 percent of the income derived or to be derived by the preparer.

Legal Conclusions

  Under the proposed regulations, a preparer may generally rely in good faith on information provided by the taxpayer. However, the proposed regulations expressly prohibit the preparer from relying on information from a taxpayer with respect to legal conclusions on federal tax issues.

  J. Edward Swails, speaking on behalf of the American Institute of Certified Public Accountants (AICPA), warned that the prohibition could be interpreted as "changing the government's long-standing position that preparers can rely on taxpayer information regarding items that involve mixed issues of fact and law." These include, Swails explained, earnings and profits, depreciation and inventory. Swails also predicted that the prohibition would require preparers to "re-perform the research and analysis conducted by in-house tax professionals."

  Brian Donahue, director of government relations for H&R Block, Inc., urged the IRS to clarify the definition of legal conclusion. For example, if a client believes that he or she owns a property outright but actually has a life estate in the property, would the taxpayer's representation of an ownership interest be a legal conclusion, Donahue asked.

Alternative Reference Sources

  The first-tier penalty in Code Sec. 6694(a) would not be imposed if the IRS determines that the understatement was due to reasonable cause and the preparer acted in good faith. Among the factors the IRS will consider is the preparer's good-faith reliance on the advice of the taxpayer or others.

  The Pennsylvania Society of Public Accountants (PSPA) asked the IRS to expand the factors and accept alternative reference sources in addition to the authorities in Reg. §1.662-4(d)(3)(iii). "The alternative reference sources would be for purposes of sustaining that a preparer has reasonable cause and acted in good faith," said Paul J. Cannataro, speaking on behalf of the PSPA. An example of an alternative reference source would be CCH's Master Tax Guide, Cannataro told CCH.

  "The pressure from taxpayers to complete returns causes practitioners to work as many as 80 to 90 hours a week," Cannataro said. "For less complicated issues, the alternative reference sources provide a more expedient solution to the overwhelmed practitioner's problems."

Disclosure

  The proposed regulations permit a preparer to contemporaneously document in his or her file that disclosure was made to the client. However, boilerplate language is not allowed. The IRS has estimated that preparers will be able to prepare the contemporaneous document in 15 minutes. "The 15-minute estimate is inaccurate and misleading," Cannataro said.

NATP Comments

  The National Association of Tax Professionals (NATP), which did not send a representative to testify in person at the hearing, provided written comments to the IRS. The NATP urged the IRS to exercise caution in penalizing preparers for nonwillful errors. "IRS auditors should be disabused from raising a penalty as a result of a material error unless it is willful and there is a repeated pattern of it happening with the preparer. A one-time penalty should not be the basis for application of a penalty."

  Appraisers cautioned that the proposed regulations could be interpreted as treating appraisers as nonsigning preparers. The proposed regulations govern both signing and nonsigning preparers.

  Anita C. Soucy, attorney-advisor, Treasury Office of Tax Legislative Counsel, asked if a person could be retained to appraise a property and also prepare a return (related to the property). Jay Fisherman, speaking on behalf of the American Society of Appraisers, responded that this scenario would create a conflict of interest for the appraiser.

  Deborah Butler, associate chief counsel (Procedure & Administration), indicated that the proposed regulations will be finalized before the end of the year. The AICPA recommended that final Code Sec. 6694 regulations give preparers some transition relief. "The effective date should include a transition rule allowing preparers to comply with the requirements of Notice 2008-13 (TAXDAY, 2008/01/02, I.1), rather than the final regulations, for any return filed or any advice given within the 60 days following publication of the final regulations."

  In July, AICPA President Barry C. Melancon told CCH that equalizing the preparer and taxpayer penalty standards at substantial authority for undisclosed nonabusive return positions is the organization's top legislative priority (TAXDAY, 2008/07/24, M.2). The pending Renewable Energy and Job Creation Bill of 2008 (HR 6049), the so-called "extenders bill," would equalize the standards. While the bill passed in the House, it stalled in the Senate before Congress's August recess.

  The PSPA urged the IRS to support equalizing the preparer and taxpayer standards at substantial authority at the hearing. "The IRS has the obligation to make Congress aware of laws that cause inefficiency in the tax system. One such example is the unequal standard placed on preparers versus taxpayers," Cannataro said.

  By George L. Yaksick, Jr., CCH News Staff

AICPA Comments on Proposed Rules (REG-129243-07) Regarding Tax Return Preparer Penalties

National Association of Tax Professionals Comments on Tax Return Preparer Penalties Under Code Secs. 6694 and 6695
 

CCH (cch.taxgroup.com) reports:

  The IRS has issued a new revenue procedure that taxpayers must follow when they wish to obtain automatic consent to change accounting methods. The new procedure generally applies to applications to change accounting methods that are filed on or after August 18, 2008, for a year of change ending on or after December 31, 2007.

  In general, a change in accounting method occurs when there is a change in the overall plan of accounting for gross income or deductions or when there is a change in the treatment of any material item. Except as otherwise provided, a taxpayer must obtain the consent of the IRS before changing accounting methods for tax purposes. Under the general rule, a taxpayer obtains IRS consent to an accounting method change by filing Form 3115, Application for Change in Accounting Method, during the tax year in which the taxpayer wants to make the proposed change.

  Previously, in Rev. Proc. 2002-9, 2002-1 CB 327, the IRS provided guidance on how taxpayers could receive automatic consent for certain accounting method changes specified in that revenue procedure. This latest guidance from the IRS supersedes Rev. Proc. 2002-9 and updates the automatic consent procedures for accounting method changes by clarifying some of the terms and conditions of Rev. Proc. 2002-9 and incorporating many of the modifications that have been made to that procedure since it was released.

  General procedures. Taxpayers who fall within the scope of the new procedure are automatically granted the consent of the IRS to change an accounting method described in the Appendix of the procedure. In most situations, a completed and filed current Form 3115 will serve as the application for consent to change accounting methods. The taxpayer must include the designated automatic accounting method change number, as identified in the Appendix of the procedure, on the application. A user fee does not have to be paid with the application.

  Taxpayers under IRS examination can file an application to change accounting methods under the automatic consent procedure, but only during certain time periods or under certain conditions. Taxpayers before an IRS Appeals Office or before a federal court can also file an application to change accounting methods under the automatic consent procedure but may receive limited audit protection if the accounting method to be changed is an issue under consideration.

  Five-year change prohibition. In general, a five-year prohibition on accounting method changes under the automatic consent procedure applies. Thus, unless otherwise provided, a taxpayer that changed its overall method of accounting or applied for consent to change its overall method of accounting during any of the five tax years ending with the year of change may not obtain automatic consent to change its overall method of accounting under the new procedure. A similar restriction applies to a change in a method of accounting for a specific item.

  Code Sec. 481 adjustment period. Many accounting method changes require a Code Sec. 481 adjustment so that amounts are not duplicated or omitted following the change. Unless otherwise provided, the new procedure sets forth a Code Sec. 481 adjustment period of four tax years for net positive Code Sec. 481 adjustments and one tax year for net negative Code Sec. 481 adjustments. Taxpayers may elect to use a one-year Code Sec. 481 adjustment period for positive net Code Sec. 481 adjustments that are less than $25,000. Special rules apply for taxpayers that are ceasing to engage in a trade or business or are terminating their existence.

  Incorporation of additional accounting method changes. Additional accounting method changes that have been incorporated in the new automatic consent procedure include: (1) changes for lessor improvements abandoned at termination of the lease; (2) changes for accounting for, or identifying disposed, depreciable repairable and reusable spare parts; (3) changes from depreciating land or nondepreciable land improvements to not depreciating them; (4) changes to capitalize and depreciate repairable and reusable spare parts; (5) changes from the cash method to the accrual method for specific items; (6) changes to the overall cash method for specified transportation industry taxpayers; (7) changes to an overall cash/hybrid method for certain banks; (8) changes to an overall cash method for farmers; (9) changes for nonshareholder contributions to capital under Code Sec. 118; (10) changes for retainages under Code Sec. 451; (11) changes relating to timing of incurring liabilities for employee bonuses and vacation pay under Code Sec. 461; (12) changes for rebates and allowances under Code Sec. 461; (13) changes from a ratable inclusion of rental income or expense to inclusion in accordance with the rent allocation; (14) changes from permissible methods of identifying and valuing inventories; (15) changes in the official used vehicle guide utilized in valuing used vehicles; (16) changes relating to invoiced advertising association costs for new vehicle retail dealerships; (17) changes to dollar-value pools of manufacturers; and (18) changes to comply with Reg. §1.1012-1(c)(1)-(4).

  Transition rules. The new automatic consent procedure generally applies to applications to change accounting methods that are filed on or after August 18, 2008, for a year of change ending on or after December 31, 2007. However, if a taxpayer within the scope of Rev. Proc. 97-27, 1997-1 CB 680, timely filed a Form 3115 under that procedure before August 18, 2008, requesting consent for a change in accounting method described in that procedure for a year of change ending on or after December 31, 2007, and the Form 3115 is still pending with the IRS National Office on August 18, 2008, the taxpayer may choose to make the change under the new procedure. The taxpayer must notify the IRS National Office of its intent to make the change under the new procedure before the later of September 18, 2008, or the issuance of a letter ruling granting or denying consent for the change.

  If a taxpayer filed an application under Rev. Proc. 2002-9 with the IRS National Office to make a change in accounting method and the application was postmarked or received before August 18, 2008, the taxpayer makes the change under Rev. Proc. 2002-9. However, a taxpayer that filed an application under Rev. Proc. 2002-9 before August 18, 2008, for a year of change that is the taxpayer's first tax year ending on or after December 31, 2007, may choose to file an amended application for that year under the new procedure.

Rev. Proc. 2008-52, 2008FED ¶46,545

Other References:

 
Code Sec. 77

  CCH Reference - 2008FED ¶530

  CCH Reference - 2008FED ¶6304.20

 
Code Sec. 162

  CCH Reference - 2008FED ¶8526.024

  CCH Reference - 2008FED ¶8610.01

  CCH Reference - 2008FED ¶8610.143

  CCH Reference - 2008FED ¶8630.025

  CCH Reference - 2008FED ¶8630.027

  CCH Reference - 2008FED ¶8630.1242

  CCH Reference - 2008FED ¶8630.45

  CCH Reference - 2008FED ¶8754.1695

 
Code Sec. 163

  CCH Reference - 2008FED ¶9104.0442

  CCH Reference - 2008FED ¶9104.62

  CCH Reference - 2008FED ¶9303.0668

  CCH Reference - 2008FED ¶9303.10

 
Code Sec. 166

  CCH Reference - 2008FED ¶10,690.155

 
Code Sec. 167

  CCH Reference - 2008FED ¶11,009.046

  CCH Reference - 2008FED ¶11,009.135

  CCH Reference - 2008FED ¶11,037.675

  CCH Reference - 2008FED ¶11,043.01

  CCH Reference - 2008FED ¶11,043.015

  CCH Reference - 2008FED ¶11,043.021

  CCH Reference - 2008FED ¶11,043.283

  CCH Reference - 2008FED ¶11,043.285

  CCH Reference - 2008FED ¶11,043.288

  CCH Reference - 2008FED ¶11,043.40

  CCH Reference - 2008FED ¶11,043.45

 
Code Sec. 168

  CCH Reference - 2008FED ¶11,279.051

  CCH Reference - 2008FED ¶11,279.0516

  CCH Reference - 2008FED ¶11,279.0545

  CCH Reference - 2008FED ¶11,279.058

  CCH Reference - 2008FED ¶11,279.073

  CCH Reference - 2008FED ¶11,279.18

  CCH Reference - 2008FED ¶11,279.19

  CCH Reference - 2008FED ¶11,279.55

  CCH Reference - 2008FED ¶11,279.68

  CCH Reference - 2008FED ¶11,279.70

 
Code Sec. 171

  CCH Reference - 2008FED ¶11,855.073

  CCH Reference - 2008FED ¶11,855.65

 
Code Sec. 174

  CCH Reference - 2008FED ¶12,047.035

  CCH Reference - 2008FED ¶12,047.037

  CCH Reference - 2008FED ¶12,047.046

  CCH Reference - 2008FED ¶12,047.057

  CCH Reference - 2008FED ¶12,047.10

  CCH Reference - 2008FED ¶12,047.115

 
Code Sec. 179B

  CCH Reference - 2008FED ¶12,136.20

 
Code Sec. 194

  CCH Reference - 2008FED ¶12,335.073

  CCH Reference - 2008FED ¶12,335.25

 
Code Sec. 197

  CCH Reference - 2008FED ¶12,455.30

 
Code Sec. 199

  CCH Reference - 2008FED ¶12,476.0235

  CCH Reference - 2008FED ¶12,476.0334

  CCH Reference - 2008FED ¶12,476.0386

  CCH Reference - 2008FED ¶12,476.0387

 
Code Sec. 263

  CCH Reference - 2008FED ¶13,709.017

  CCH Reference - 2008FED ¶13,709.03

  CCH Reference - 2008FED ¶13,709.033

  CCH Reference - 2008FED ¶13,709.035

  CCH Reference - 2008FED ¶13,709.037

  CCH Reference - 2008FED ¶13,709.105

  CCH Reference - 2008FED ¶13,709.385

  CCH Reference - 2008FED ¶13,709.469

  CCH Reference - 2008FED ¶13,709.564

 
Code Sec. 263A

  CCH Reference - 2008FED ¶13,815.037

  CCH Reference - 2008FED ¶13,815.044

  CCH Reference - 2008FED ¶13,815.24

  CCH Reference - 2008FED ¶13,815.63

  CCH Reference - 2008FED ¶13,822.05

  CCH Reference - 2008FED ¶13,822.30

  CCH Reference - 2008FED ¶13,822.80

  CCH Reference - 2008FED ¶13,848.01

  CCH Reference - 2008FED ¶13,848.04

  CCH Reference - 2008FED ¶13,848.045

  CCH Reference - 2008FED ¶13,848.10

  CCH Reference - 2008FED ¶13,848.15

  CCH Reference - 2008FED ¶13,850.01

  CCH Reference - 2008FED ¶13,850.28

  CCH Reference - 2008FED ¶13,850.50

 
Code Sec. 280F

  CCH Reference - 2008FED ¶15,108.042

 
Code Sec. 404

  CCH Reference - 2008FED ¶18,352.18

 
Code Sec. 446

  CCH Reference - 2008FED ¶20,620.0257

  CCH Reference - 2008FED ¶20,620.026

  CCH Reference - 2008FED ¶20,620.027

  CCH Reference - 2008FED ¶20,620.0274

  CCH Reference - 2008FED ¶20,620.0312

  CCH Reference - 2008FED ¶20,620.0314

  CCH Reference - 2008FED ¶20,620.054

  CCH Reference - 2008FED ¶20,620.055

  CCH Reference - 2008FED ¶20,620.075

  CCH Reference - 2008FED ¶20,620.076

  CCH Reference - 2008FED ¶20,620.102

  CCH Reference - 2008FED ¶20,620.111

  CCH Reference - 2008FED ¶20,620.143

  CCH Reference - 2008FED ¶20,620.144

  CCH Reference - 2008FED ¶20,620.166

  CCH Reference - 2008FED ¶20,620.20

  CCH Reference - 2008FED ¶20,620.217

  CCH Reference - 2008FED ¶20,620.222

  CCH Reference - 2008FED ¶20,620.226

  CCH Reference - 2008FED ¶20,620.236

  CCH Reference - 2008FED ¶20,620.238

  CCH Reference - 2008FED ¶20,620.239

  CCH Reference - 2008FED ¶20,620.241

  CCH Reference - 2008FED ¶20,620.2412

  CCH Reference - 2008FED ¶20,620.242

  CCH Reference - 2008FED ¶20,620.243

  CCH Reference - 2008FED ¶20,620.2432

  CCH Reference - 2008FED ¶20,620.247

  CCH Reference - 2008FED ¶20,620.248

  CCH Reference - 2008FED ¶20,620.249

  CCH Reference - 2008FED ¶20,620.2505

  CCH Reference - 2008FED ¶20,620.2507

  CCH Reference - 2008FED ¶20,620.251

  CCH Reference - 2008FED ¶20,620.258

  CCH Reference - 2008FED ¶20,620.259

  CCH Reference - 2008FED ¶20,620.284

  CCH Reference - 2008FED ¶20,620.285

  CCH Reference - 2008FED ¶20,620.286

  CCH Reference - 2008FED ¶20,620.292

  CCH Reference - 2008FED ¶20,620.304

  CCH Reference - 2008FED ¶20,620.311

  CCH Reference - 2008FED ¶20,620.323

  CCH Reference - 2008FED ¶20,620.3235

  CCH Reference - 2008FED ¶20,620.625

  CCH Reference - 2008FED ¶20,620.627

  CCH Reference - 2008FED ¶20,620.6275

  CCH Reference - 2008FED ¶20,620.6305

  CCH Reference - 2008FED ¶20,620.641

 
Code Sec. 448

  CCH Reference - 2008FED ¶20,803.03

  CCH Reference - 2008FED ¶20,803.032

  CCH Reference - 2008FED ¶20,803.50

  CCH Reference - 2008FED ¶20,803.75

 
Code Sec. 451

  CCH Reference - 2008FED ¶21,005.027

  CCH Reference - 2008FED ¶21,005.7035

  CCH Reference - 2008FED ¶21,005.7043

  CCH Reference - 2008FED ¶21,005.9327

  CCH Reference - 2008FED ¶21,005.933

  CCH Reference - 2008FED ¶21,005.946

  CCH Reference - 2008FED ¶21,030.073

 
Code Sec. 454

  CCH Reference - 2008FED ¶21,503.075

  CCH Reference - 2008FED ¶21,503.35

 
Code Sec. 455

  CCH Reference - 2008FED ¶21,517.075

  CCH Reference - 2008FED ¶21,517.35

 
Code Sec. 461

  CCH Reference - 2008FED ¶21,817.0285

  CCH Reference - 2008FED ¶21,817.029

  CCH Reference - 2008FED ¶21,817.128

  CCH Reference - 2008FED ¶21,817.163

  CCH Reference - 2008FED ¶21,817.2345

  CCH Reference - 2008FED ¶21,817.235

  CCH Reference - 2008FED ¶21,817.2377

  CCH Reference - 2008FED ¶21,817.287

  CCH Reference - 2008FED ¶21,817.3215

  CCH Reference - 2008FED ¶21,817.704

 
Code Sec. 467

  CCH Reference - 2008FED ¶21,911.01

 
Code Sec. 471

  CCH Reference - 2008FED ¶22,206.021

  CCH Reference - 2008FED ¶22,206.5075

  CCH Reference - 2008FED ¶22,208.50

  CCH Reference - 2008FED ¶22,208.76

  CCH Reference - 2008FED ¶22,210.24

  CCH Reference - 2008FED ¶22,218.01

  CCH Reference - 2008FED ¶22,218.35

 
Code Sec. 472

  CCH Reference - 2008FED ¶22,240.027

  CCH Reference - 2008FED ¶22,240.03

  CCH Reference - 2008FED ¶22,240.037

  CCH Reference - 2008FED ¶22,240.04

  CCH Reference - 2008FED ¶22,240.041

  CCH Reference - 2008FED ¶22,240.047

  CCH Reference - 2008FED ¶22,240.25

  CCH Reference - 2008FED ¶22,240.33

  CCH Reference - 2008FED ¶22,240.55

  CCH Reference - 2008FED ¶22,240.70

  CCH Reference - 2008FED ¶22,241.04

  CCH Reference - 2008FED ¶22,241.45

 
Code Sec. 475

  CCH Reference - 2008FED ¶22,268.023

  CCH Reference - 2008FED ¶22,268.20

 
Code Sec. 481

  CCH Reference - 2008FED ¶22,277.027

  CCH Reference - 2008FED ¶22,277.029

  CCH Reference - 2008FED ¶22,277.38

  CCH Reference - 2008FED ¶22,277.40

  CCH Reference - 2008FED ¶22,277.493

  CCH Reference - 2008FED ¶22,277.498

  CCH Reference - 2008FED ¶22,277.50

  CCH Reference - 2008FED ¶22,277.502

  CCH Reference - 2008FED ¶22,277.51

  CCH Reference - 2008FED ¶22,277.58

  CCH Reference - 2008FED ¶22,277.595

  CCH Reference - 2008FED ¶22,277.70

 
Code Sec. 585

  CCH Reference - 2008FED ¶23,662.10

 
Code Sec. 811

  CCH Reference - 2008FED ¶25,900.20

 
Code Sec. 832

  CCH Reference - 2008FED ¶26,157.021

 
Code Sec. 846

  CCH Reference - 2008FED ¶26,331.105

 
Code Sec. 860D

  CCH Reference - 2008FED ¶26,662.65

 
Code Sec. 861

  CCH Reference - 2008FED ¶27,131.128

  CCH Reference - 2008FED ¶27,146.49

 
Code Sec. 904

  CCH Reference - 2008FED ¶27,901.82

 
Code Sec. 985

  CCH Reference - 2008FED ¶28,848.028

  CCH Reference - 2008FED ¶28,848.032

 
Code Sec. 986

  CCH Reference - 2008FED ¶28,861.25

 
Code Sec. 1273

  CCH Reference - 2008FED ¶31,283.45

  CCH Reference - 2008FED ¶31,283.50

  CCH Reference - 2008FED ¶31,283.60

 
Code Sec. 1276

  CCH Reference - 2008FED ¶31,361.40

 
Code Sec. 1281

  CCH Reference - 2008FED ¶31,421.04

  CCH Reference - 2008FED ¶31,421.35

 
Code Sec. 1363

  CCH Reference - 2008FED ¶32,062.035

  CCH Reference - 2008FED ¶32,062.20

  CCH Reference - 2008FED ¶32,062.40

 
Code Sec. 1400J

  CCH Reference - 2008FED ¶32,472.10

 
Code Sec. 1400L

  CCH Reference - 2008FED ¶32,477.026

 
Code Sec. 1400N

  CCH Reference - 2008FED ¶32,487.031

 
Code Sec. 7121

  CCH Reference - 2008FED ¶41,090.115

 
Statement of Procedural Rules 601.201

  CCH Reference - 2008FED ¶43,360.16

 
Statement of Procedural Rules 601.204

  CCH Reference - 2008FED ¶43,384.031

  CCH Reference - 2008FED ¶43,384.10

  CCH Reference - 2008FED ¶43,384.45

  Tax Research Consultant

  CCH Reference - TRC DEPR: 15,304
CCH Reference - TRC ACCTNG: 21,100
CCH Reference - TRC ACCTNG: 21,200
 

CCH (cch.taxgroup.com) reports:

  The IRS has provided guidance regarding when a child of divorced or separated parents will be treated as a dependent of both parents. Under Code Sec. 152(e), a child of divorced or separated parents will only be treated as a dependent of the noncustodial parent for purposes of the dependency exemption only if the custodial parent provides a written declaration that he or she will not claim the child as a dependent for the tax year and the noncustodial parent attaches the declaration to his or her return. Many other provisions that provide for benefits and exclusions attributable to the dependents of a taxpayer reference the rules of Code Sec. 152, including its use in relation to the children of divorced or separated parents. However, under this procedure, the IRS will treat the child as a dependent of both parents for purposes of several provisions relating to medical expenses, medical coverage and employee benefits, regardless of whether or not the custodial parent released the claim of the exemption.

  Specifically, the IRS will treat a child as a dependent of both parents, without a declaration of the custodial parent, under the following circumstances:

  --the exclusion from gross income of certain employer reimbursements of expenses incurred for the medical care of the employee's child under Code Sec. 105(b);

  --the exclusion from gross income of employer contributions to an accident or health plan on behalf of the employee's children under Code Sec. 106(a) and Reg. §1.106-1;

  --the exclusion from gross income of fringe benefits qualifying as no-additional-cost services or qualified employee discounts under Code Sec. 132(a) that are treated as used by the employee due to use by an employee's child under Code Sec. 132(h)(2);

  --the deduction of medical expenses of the taxpayer's child under Code Sec. 213(a); and

  --the exclusions under Code Secs. 220(f)(1) and 223(f)(1) for distributions from Archer Medical Savings Accounts and Health Savings Accounts, respectively, if the distributions are used to pay qualified medical expenses of the account beneficiary's child.

  The guidance is effective August 18, 2008, but taxpayers may choose to apply the guidance to any tax year beginning after December 31, 2004, for which a credit or refund can still be claimed under Code Sec. 6511.

Rev. Proc. 2008-48, 2008FED ¶46,544

Other References:

 
Code Sec. 105

  CCH Reference - 2008FED ¶6702.027

  CCH Reference - 2008FED ¶6702.23

 
Code Sec. 106

  CCH Reference - 2008FED ¶6803.01

  CCH Reference - 2008FED ¶6803.193

 
Code Sec. 132

  CCH Reference - 2008FED ¶7438.034

  CCH Reference - 2008FED ¶7438.14

 
Code Sec. 152

  CCH Reference - 2008FED ¶8250.027

  CCH Reference - 2008FED ¶8250.21

 
Code Sec. 213

  CCH Reference - 2008FED ¶12,543.057

  CCH Reference - 2008FED ¶12,543.20

 
Code Sec. 220

  CCH Reference - 2008FED ¶12,675.25

 
Code Sec. 223

  CCH Reference - 2008FED ¶12,785.041

  CCH Reference - 2008FED ¶12,785.25

  Tax Research Consultant

  CCH Reference - TRC INDIV: 42,356.05

  CCH Reference - TRC INDIV: 42,450

  CCH Reference - TRC INDIV: 42,500

  CCH Reference - TRC FILEIND: 6,168.20

  CCH Reference - TRC COMPEN: 33,052

  CCH Reference - TRC COMPEN: 45,056.05

  CCH Reference - TRC COMPEN: 45,154.05

CCH (cch.taxgroup.com) reports:

  The IRS has released the Summer 2008 issue of the Statistics of Income (SOI) Bulletin. The SOI is a quarterly compilation of information from federal tax returns and other documents. This issue of the bulletin contains data on the growth in profits and tax liability reported by foreign-controlled domestic corporations.

  According to 2005 data, there were 61,820 foreign-controlled domestic corporations (FCDCs), accounting for 1.1 percent of the total of all U.S. corporations. However, FCDCs generated $3.5 trillion of total receipts with $9.2 trillion of total assets, accounting for 13.7 percent of receipts and 13.9 percent of assets reported on all U.S. corporation income tax returns. Profits, or net income less deficit, reported by FCDCs for tax purposes were $165.2 billion, an 81.9 percent increase from $90.8 billion reported in 2004. The U.S. tax liability for FCDCs, total income tax after credits, was $42.4 billion for 2005, a 41.7 percent increase since 2004.

  The bulletin also includes articles on:

  --Foreign corporations controlled by U.S. multinational corporations;

  --Corporations that claimed the foreign tax credit on their U.S. tax returns;

  --Growth trends in the number of partnership and sole proprietorship returns;

  --Federal gift tax returns filed for gifts given in 2005; and

  --Use of business credit for research activities.

  The Statistics of Income Bulletin is available from the Superintendent of Documents, U.S. Government Printing Office, P.O. Box 371954, Pittsburgh, Pa. 15250-7954, Both annual subscriptions and single issues are available. The Bulletin is also available online at www.irs.gov.

IR-2008-97,
2008FED ¶46,543

Summer 2008 SOI Bulletin [Document will be available on August 20, 2008 - CCH.]

Other References:

 
Code Sec. 6108

  CCH Reference - ¶36,942.01

  CCH Reference - ¶36,942.40

  Tax Research Consultant

  CCH Reference - TRC IRS: 3,152.10

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  New Mexico Governor Bill Richardson unveiled details of a scaled-back personal income tax rebate plan to be presented to the legislature during the special session scheduled to begin on August 15, 2008. Under the revised plan, New Mexico taxpayers with adjusted gross incomes up to $60,000 would each receive a $120 tax rebate, plus $48 for each dependent. Taxpayers with incomes between $60,000 and $70,000 would receive an $80 rebate for each taxpayer and $32 for each dependent, while taxpayers with incomes between $70,000 and $80,000 would receive rebates of $40 for each taxpayer and $16 for each dependent. Taxpayers with incomes over $80,000 would not qualify for a rebate.

  For example:

  -- a married couple with two children and income of $45,000 would receive a rebate of $336.

  -- a single mother with one child and income of $25,000 would receive a rebate of $168.

  -- a single person with income of $15,000 would receive a rebate of $120.

  -- a married couple with one child and income of $75,000 would receive a rebate of $96.

  For the full text of the governor's announcement, go to
http://www.governor.state.nm.us. The governor's original tax rebate plan, which called for higher rebate amounts, was covered in an earlier story. (TAXDAY, 2008/07/18, S.18)

Press Release , New Mexico Governor's Office, August 14, 2008.
 

CCH (cch.taxgroup.com) reports:

  The California Franchise Tax Board has released the results from its interested parties meeting held on July 17, 2008, to discuss potential regulatory amendments intended to clarify the apportionment of trucking company and trucking activity income for California corporation franchise and income tax purposes. (TAXDAY, 2008/04/28, S.4)

  Topics discussed include:

  -- whether the definition of "trucking company" in Reg. 25137-11(b)(1) needs to be clarified;

  -- whether a definition of "trucking activities" should be added to Reg. 25137-11(b) and, if so, what form it should take;

  -- how Reg. 25137-11 would apply to a scenario based on a hypothetical trucking operation that was unitary with a mining operation;

  -- whether the receipts of freight forwarders should be governed by Reg. 25137-11;

  -- how to assign receipts when a trucking company purchases transportation from an independent contractor; and

  -- whether the "trucking company" definition should refer to owned motor vehicles.

  Subscribers to CCH Tax Research NetWork can view the summary of the meeting.
  Announcement , California Franchise Tax Board, August 14, 2008.
 

CCH (cch.taxgroup.com) reports:

  The IRS has released procedures setting forth the requirements for using IRS forms to file 2008 information returns, preparing acceptable substitutes of the official forms, and using official or acceptable substitute forms to furnish information to recipients. The procedures cover Forms 1096, 1098 series, 1099 series, 5498 series, W-2G, and 1042-S. Further, the procedures outline the official form specifications for a form or statement to be acceptable.

  Substitutes that totally conform to the specifications may be privately printed and filed as returns with the IRS. Taxpayers may contact the Substitute Forms Program by email at taxforms@irs.gov with "Substitute Forms" on the subject line for clarification of any specification, or by mail to: Internal Revenue Service, Attn: Substitute Forms Program, SE:W:CAR:MP:T:T:SP, 1111 Constitution Ave. NW., Room 6526, Washington, D.C. 20224.

 
Rev. Proc. 2007-50, I.R.B. 2007-31, 244, is superseded.

Rev. Proc. 2008-36, 2008FED ¶46,542

Other References:

 
Code Sec. 1461

  CCH Reference - 2008FED ¶32,828.157

 
Code Sec. 6041

  CCH Reference - 2008FED ¶35,836.075

  CCH Reference - 2008FED ¶35,836.30

 
Code Sec. 6041A

  CCH Reference - 2008FED ¶35,842.075

 
Code Sec. 6042

  CCH Reference - 2008FED ¶35,870.01

 
Code Sec. 6043

  CCH Reference - 2008FED ¶35,888.0756

 
Code Sec. 6044

  CCH Reference - 2008FED ¶35,911.075

  CCH Reference - 2008FED ¶35,911.30

 
Code Sec. 6045

  CCH Reference - 2008FED ¶35,930.024

  CCH Reference - 2008FED ¶35,930.28

 
Code Sec. 6047

  CCH Reference - 2008FED ¶35,983.075

 
Code Sec. 6049

  CCH Reference - 2008FED ¶36,037.075

  CCH Reference - 2008FED ¶36,037.58

 
Code Sec. 6050A

  CCH Reference - 2008FED ¶36,044.01

  CCH Reference - 2008FED ¶36,044.50

 
Code Sec. 6050B

  CCH Reference - 2008FED ¶36,062.01

  CCH Reference - 2008FED ¶36,062.35

 
Code Sec. 6050D

  CCH Reference - 2008FED ¶36,102.01

 
Code Sec. 6050E

  CCH Reference - 2008FED ¶36,122.077

 
Code Sec. 6050J

  CCH Reference - 2008FED ¶36,223.075

 
Code Sec. 6050N

  CCH Reference - 2008FED ¶36,301.01

  CCH Reference - 2008FED ¶36,301.35

 
Code Sec. 6050P

  CCH Reference - 2008FED ¶36,315.03

 
Code Sec. 6050Q

  CCH Reference - 2008FED ¶36,317.01

  CCH Reference - 2008FED ¶36,317.10

 
Code Sec. 6050R

  CCH Reference - 2008FED ¶36,319.01

 
Code Sec. 6050S

  CCH Reference - 2008FED ¶36,319B.075

 
Code Sec. 6050T

  CCH Reference - 2008FED ¶36,330.01

 
Code Sec. 6050U

  CCH Reference - 2008FED ¶36,350.01

 
Code Sec. 6050V

  CCH Reference - 2008FED ¶36,370.068

 
Code Sec. 7513

  CCH Reference - 2008FED ¶42,702.40

  Tax Research Consultant

  CCH Reference - TRC FILEBUS: 12,052.10
CCH Reference - TRC PAYROLL: 3,354.15
 

Tax Analysts report:

Tax Analysts report: