Tax News

CCH (cch.taxgroup.com) reports:

  According to unofficial results, Florida voters on January 29 approved changes to the state constitution relating to property tax relief. The constitutional amendments, contained in a single ballot measure, provide for (1) an increase in the homestead exemption, (2) the transfer of the accrued benefit from the limitation on the assessed value of homestead property, (3) an exemption for tangible personal property, and (4) a limitation on annual assessment increases for specified real property.

  With respect to homestead property, the amendments increase the homestead exemption, except for school district taxes, by $25,000. The exemption is increased by exempting the assessed value between $50,000 and $75,000. In addition, the amendments allow homestead property owners to transfer up to $500,000 of their Save-Our-Homes benefit to their next homestead. Property owners can transfer their benefit to a new homestead within one year and not more than two years after relinquishing their previous homestead. The law specifies that if the new homestead is established on January 1, 2008, the previous homestead must have been relinquished in 2007. If the new homestead has a higher just value than the previous one, the accumulated benefit can be transferred. If the new homestead has a lower just value, the amount of benefit transferred will be reduced. This provision applies to all taxes.

  With respect to non-homestead property, the amendments provide a $25,000 exemption for tangible personal property. This provision applies to all taxes. In addition, the amendments limit assessment increases for specified non-homestead real property to 10% each year. Property will be assessed at just value following an improvement, as defined by law, and may be assessed at just value following a change of ownership or control if provided by law. This limitation does not apply to school district taxes. The limitation is repealed effective January 1, 2019, unless renewed by the voters in a general election held in 2018.

  The changes take effect upon approval and operate retroactively to January 1, 2008. The limitation on annual assessment increases for specified real property first applies to the 2009 tax roll.

  Full text of the amendments may be viewed at
http://election.dos.state.fl.us/.

Proposed Constitutional Amendment No. 1, approved by the voters at the January 29, 2008 election; S.J.R. 2-D,, Special Session D, Laws 2007.
 

CCH (cch.taxgroup.com) reports:

  For Arizona corporate income tax purposes, the Arizona Department of Revenue used the correct methodology to recalculate a taxpayer's net operating loss (NOL) carryforward following a statutory merger. Also, the exclusion of in-state municipal bond interest from taxable income, while requiring the addition of interest from out-of-state municipal bonds, was constitutional, according to the Director of Revenue, affirming a hearing officer's decision. The hearing officer's decision was previously reported. (TAXDAY, 2007/08/24, S.2)

  The taxpayer argued that Arizona followed federal law regarding a successor's use of an acquired company's NOL carryover in a statutory merger. However, Arizona does not adopt federal law regarding NOLs, but instead has its own NOL provisions. Under Arizona law, pre-merger NOLs may be carried forward and deducted from post-merger income only to the extent the losses being used to offset gains are attributable to the same business unit. Here, the taxpayer did not demonstrate a continuity of the same business that produced the loss.

  The taxpayer also argued that Arizona's statutory provisions relating to municipal bond interest violated the Commerce Clause because the provisions favored in-state bonds over out-of-state bonds without sufficient justification. However, only a court, not the Arizona Department of Revenue, could declare a statute unconstitutional, and Arizona's add-back requirement had not been declared unconstitutional by any court. Also, statutes are presumed to be constitutional, and the taxpayer produced insufficient evidence to overcome the presumption in this case. The taxpayer cited the Kentucky Court of Appeals' decision in Davis v. Department of Revenue , 193 S.W.3d 557 (Ky. App. 2006), in support of its argument that the Arizona provisions were unconstitutional. However, the U.S. Supreme Court recently granted review of the Davis case, so the status of that decision remained uncertain.

  Subscribers to CCH Tax Research NetWork can view the text of the Director's decision.

Case No. 200600161-C , Office of the Director, October 29, 2007 (released January 2008).
 

CCH (cch.taxgroup.com) reports:

  The IRS has warned taxpayers about new e-mail and telephone scams using the IRS name as a lure, cautioning taxpayers to be on the lookout for scams involving advance payment checks. Although the proposed economic stimulus package has not yet been enacted, at least one scheme using the word "rebate" has already been identified. Typically, the targeted victim receives a phone call from a purported IRS employee asking for personal and financial data to effectuate a direct deposit. If the victim refuses to give such information, he or she is told that no rebate can be received. Not only is this a scam, but the IRS does not force taxpayers to use direct deposit, nor does the IRS gather such information by telephone.

  The IRS has also seen several variations of a refund-related e-mail, falsely claiming to come from the IRS, instructing the recipient to click on a link in the e-mail to access a refund claim form. Taxpayers are advised that this e-mail is not from the IRS. The IRS does not send unsolicited e-mail about tax account matters to individual, business, tax-exempt or other taxpayers. Moreover, filing a tax return is the only way to apply for a tax refund; there is no separate application form.

  Another new scam involves an e-mail notifying the recipient that his or her tax return will be audited. This e-mail instructs the recipient to click on links to complete forms with personal and account information. The IRS reiterated that it does not send out unsolicited e-mails or ask for detailed personal information via e-mail. In addition, e-mails containing instructions for downloading information on tax law changes have been sent to businesses, accountants and "Treasury" managers. The IRS believes that clicking on the link downloads malware, malicious code that can take over a victim's hard drive, onto the recipient's computer. The URLs contained in the link are not legitimate; all IRS.gov Web page addresses begin with http://www.irs.gov/.

  Taxpayers who have received a questionable e-mail claiming to come from the IRS may forward it to a special mailbox, phishing@irs.gov, using instructions contained in an article on the IRS's website entitled " How to Protect Yourself from Suspicious E-Mails or Phishing Schemes ." Taxpayers may also use this mailbox to notify the IRS of questionable telephone calls. More information on identify theft, phishing and telephone scams using the IRS name, logo or copied website is available on the IRS website at IRS.gov.

IR-2008-11,
2008FED ¶46,279

Other References:

 
Code Sec. 7804

  CCH Reference - 2008FED ¶43,266.87

  Tax Research Consultant

  CCH Reference - TRC IRS: 3,154.15

CCH (cch.taxgroup.com) reports:

  The IRS has issued final regulations (T.D. 9378) on the mechanism by which the release of a tax lien may be requested by a person other than the taxpayer against whom the underlying tax was assessed. The new regulations take into account changes made to the tax code by the IRS Restructuring and Reform Act of 1998 (P.L. 105-206). With one significant exception, the final regulations generally retain the provisions of the proposed regulations (NPRM REG-159444-04) published on January 11, 2007.

  The final regulations relate to the release of a tax lien and the discharge of the underlying property under Code Secs. 6325, 6503 and 7426. The regulations contain rules for processing a request made by a property owner for discharge of a federal tax lien from his property under Code Sec. 6325(b)(4). The regulations also make conforming amendments pertinent to the impact of these rules on Code Secs. 6503(f)(2), 7426(a)(4) and
7426(b)(5). These code sections were enacted by P.L. 105-206 to provide a way for a person, other than the taxpayer against whom the underlying tax was assessed to obtain a discharge of a tax lien attached to property owned by him, and for the government to determine whether to refund a deposit or bond amount paid by such person. The regulations are intended to conform to these statutory changes.

  The only substantive difference between the final and proposed regulations pertains to the interpretation of Code Sec. 6325(b)(4)(D). The proposed regulations state that Code Sec. 6325(b)(4)(A) (providing for the discharge of a tax lien when the owner of the underlying property meets certain requirements) is inapplicable to persons who are seeking discharge of a tax lien on property that they own with the person whose tax liability gave rise to the lien. The final regulations, in contrast, permit the discharge of a tax lien in such circumstances. The change is due to a decision by the IRS that the interpretation in the proposed regulations would leave some innocent, third-party property owners without recourse against federal tax liens attached to their properties.

T.D. 9378, 2008FED ¶47,015

T.D. 9378, FINH ¶43,115

Other References:

 
Code Sec. 6325

  CCH Reference - 2008FED ¶38,166
CCH Reference -
FINH ¶21,125

 
Code Sec. 6503

  CCH Reference - 2008FED ¶39,036
CCH Reference -
FINH ¶21,485

 
Code Sec. 7426

  CCH Reference - 2008FED ¶41,712
CCH Reference -
FINH ¶22,345

  Tax Research Consultant

  CCH Reference - TRC IRS: 48,200

CCH (cch.taxgroup.com) reports:

  The Senate Finance Committee on January 30 approved, by a 14-7 margin, an approximate $151-billion alternative stimulus package that would allow 20 million low-income taxpayers to receive rebate checks and extend unemployment benefits an additional 13 weeks. The measure provides a flat $500 rebate to taxpayers with $3,000 of qualifying income reported on 2007 tax returns and rebates would be doubled for married couples filing jointly; families would receive an additional $300 per child under age 17. Businesses showing losses during the economic downturn would be allowed to write off losses retroactively for up to five years.

  The rebate proposal differs from the House-approved bill (the Recovery Rebates and Economic Stimulus for the American People Act of 2008 (HR 5140); TAXDAY, 2008/01/30, C.1) in that the definition of qualifying income includes Social Security benefits as well as wages. The more controversial removal of upper income caps in the original Senate version, which led to bitter acrimony among Democrats, was reinstated by Senate Finance Committee Chairman Max Baucus, D-Mont., but at twice the income level ($150,000 for singles and $300,00 for couples) than in the House version.

  For business owners, the chairman's mark would extend a provision allowing corporations to apply excess net operating losses (NOLs) to tax returns from prior profitable years and receive any applicable refunds. For 2006 and 2007 losses, the NOL carryback will extend back five years, to 2001, from the two years currently allowed. The mark also would expand
Code Sec. 179 expensing of equipment for small businesses and bonus depreciation for business property that is purchased and placed into service by large companies during 2008, similar to the House-approved stimulus package.

  The modified Baucus measure also would extend expiring energy tax incentives that failed to move in the latest comprehensive energy bill signed into law in 2007. Those provisions include: a credit for electricity produced from certain renewable resources (Code Sec. 45); a credit to holders of clean renewable energy bonds; a deduction for energy-efficient commercial buildings; credit for the construction of new energy-efficient homes, credit for residential energy-efficient property, alternative energy credit for electricity production for businesses, energy-efficient existing homes credit; and energy-efficient appliances production. The total cost of the energy provisions would be approximately $5.5 billion over 10 years.

  The White House gave a tepid response to the Finance panel's action, foregoing criticism in order to quietly encourage lawmakers to move the bill as quickly as possible. "I think the only thing we can do is help remind them that America is expecting action, and they are expecting it quickly," said White House spokesperson Tony Fratto. "And so, maybe, we'd like to see some leadership that will encourage members to put away some of their pet ideas and think about the bigger picture of getting an economic growth package passed quickly." The Senate was expected to start debate on the House-passed stimulus package late on January 30 with an eye to wrapping up the measure by February 1.

  There were also plenty of hints of a second, long-term stimulus bill to address the many concerns of lawmakers whose amendments to the Baucus bill were never realized." This clearly is not the sole solution," said Baucus, referring to his stimulus package. Earlier in the day, Senate Majority Leader Harry Reid, D-Nev., reiterated his statements made on January 29 regarding the likely necessity of a near term, follow-up stimulus package.

  By Jeff Carlson, CCH News Staff

JCT Description of the Chairman's Modification to the Provisions of the Economic Stimulus Act of 2008, JCX-11-08

JCT Estimated Budget Effects of the Chairman's Modification to the Economic Stimulus Act of 2008, JCX-12-08

SFC Release Regarding the Economic Stimulus Act of 2008
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The New York Department of Taxation and Finance has released an updated version of its publication containing information for personal income tax return preparers. The new version applies for tax year 2007. Among other information, the publication provides an updated discussion of tax shelter disclosure requirements.

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

Publication 58, New York Department of Taxation and Finance, January 2008.
 

CCH (cch.taxgroup.com) reports:

  Illinois Secretary of State Jesse White has issued a press release reminding taxpayers that an amnesty program for all corporate businesses owing past due franchise tax or license fees to the state of Illinois is set to begin February 1, 2008, and remain in effect until the close of business on March 17, 2008. The amnesty program, authorized by Public Act 95-233, establishes terms through which participating corporations must complete an amnesty program petition form and pay all overdue franchise taxes, license fees, and standard filing fees. Participating corporations will receive amnesty from all accrued penalty and interest payments due as well as any exposure to civil or criminal prosecution. Those corporations owing past franchise taxes or fees that fail to comply with the amnesty program by March 17, 2008 will see the monthly interest rate charged on their delinquent franchise taxes double from 1% to 2%.

  Subscribers to CCH Tax NetWork can view the press release.
  Press Release , Illinois Secretary of State Jesse White, January 24, 2008.
 

CCH (cch.taxgroup.com) reports:

  The IRS did not abuse its discretion by rejecting an attorney's offer-in-compromise when there were outstanding excise and income liabilities, nor by determining the attorney's reasonable collection potential (RCP) to be the full amount of his liabilities. Moreover, the IRS properly calculated the future income component of his RCP by using the attorney's average wage income over 3 years since the Internal Revenue Manual recommends averaging over 3 years for similar circumstances and averaging over more years would still have yielded more than the amount he offered. Finally, the IRS effectively balanced the need for efficient tax collection against the concern that collection be no more intrusive than necessary.

H.M. Lloyd, TC Memo. 2008-15, Dec. 57,316(M)

Other References:

 
Code Sec. 7122

  CCH Reference - 2008FED ¶41,130.29

  Tax Research Consultant

  CCH Reference - TRC IRS: 42,056.10
CCH Reference -
TRC IRS: 42,120
 

CCH (cch.taxgroup.com) reports:

  Despite misgivings by several dozen lawmakers, the House overwhelming voted to approve a $150-billion economic stimulus package negotiated by House Speaker Nancy Pelosi, D-Calif., House Minority Leader John Boehner, R-Ohio, and Treasury Secretary Henry M. Paulson, Jr. House lawmakers voted 385-35 to pass the Recovery Rebates and Economic Stimulus for the American People Act of 2008 (HR 5140) on January 29.

  The bill now heads to the Senate, where Democratic lawmakers are working on their own economic stimulus package, despite concerns that any changes made to the bill in the Senate might unravel bipartisan House support. House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., maintained tha,t during negotiations with the administration, House lawmakers believed that the Senate was prepared to accept the agreement without change.

  During debate on the House floor, lawmakers kept their criticism about the stimulus legislation to a minimum. Several GOP lawmakers, like Rep. Jeb Hensarling, R-Texas, gave unenthusiastic support to the legislation because the tax rebate for low- and middle-income Americans would do little to boost the economy. Instead, lawmakers should have focused more attention on tax provisions that would help business owners and others who invest in new equipment and create jobs, he believes. Ways and Means member Dave Camp, R-Mich., suggested that Congress quickly pass the measure and then move on to other legislation to address regulatory reform, exports and tax relief.

  Some Democrats, like Ways and Means member Jim McDermott, D-Wash., were unhappy that the stimulus bill did not include an expansion of unemployment insurance for laid-off workers. However, Pelosi noted that the bill was negotiated with the Bush administration so that it would give an immediate boost to the economy, and she did not want to worsen the long-term deficit by adding too many provisions. House Majority Leader Steny Hoyer, D-Calif., told reporters that the stimulus bill would increase the deficit, but unlike the Tax Increase Prevention Act of 2007 (P.L. 110-166), signed into law in December, raising the deficit to boost the economy should be exempt from the House pay-as-you-go rules. He said increasing the federal budget deficit is acceptable when the economy begins to slow.

  President Bush praised the House for taking swift bipartisan action on HR 5140, noting it meets his criteria for providing broad-based and temporary tax incentives to increase consumer spending and business investment. The president, in his State of the Union address on January 28 (TAXDAY, 2008/01/29, W.1), urged the Senate not to delay the process by adding on provisions to the House measure that could derail the compromise agreement reached by Paulson and House congressional leaders on January 24.

  Bush, in the address to a joint session of Congress, urged lawmakers to send him a short-term growth bill "as soon as possible." Senate Majority Leader Harry Reid, D-Nev., set a mid-February deadline in order to complete action on a final package before the Presidents' Day recess. White House Principal Deputy Press Secretary Tony Fratto said it "would be disappointing to go longer than what the majority leader called for."

  "I commend the House for quick bipartisan action today on an economic growth package that is simple, temporary, broad-based and effective," Paulson said in a written statement. According to Paulson, if the House package is enacted quickly, it will inject money into the economy that will help create more than 500,000 jobs before the end of 2008. "I am confident that Senate leaders understand that speed and simplicity are key to getting a bipartisan agreement enacted. The time to act is now," he added.

SFC Mark

  Reid on January 29 vowed quick action on HR 5140 but gave mixed signals on whether he would push for full approval of a $156-billion Senate version slated for Senate Finance Committee (SFC) markup on January 30. Reid said the Senate will take-up the House bill late on January 30, after the Finance Committee approves its mark.

  Speaking on the Senate floor, Reid acknowledged that the Senate will attempt to make changes to the House bill via Senate Finance Committee Chairman Max Baucus' mark, which gives rebate checks to an additional 20-million seniors who are excluded from the House version and increased business tax breaks, which are highly favored by the business community.

  "We'll work through this and try to get something done very quickly so we can, if there are changes made, that we can do a very quick conference and get it to the president," said Reid. He made it clear that extending rebates to the poor and extending unemployment insurance (UI) were top Democratic priorities and he warned Republicans that attempts to block them could jeopardize their political careers. He added that Democrats could probably sway at least nine Republicans in order to move those proposals past a 60-vote threshold. Conversely, Reid acknowledged that he had received 15 letters from individual senators requesting add-ons to the bill that he deemed worthy of congressional action, just not on this bill. Instead, Reid said that Congress needs to address additional long-term stimulus issues with another bill over the next few weeks, rather than months.

  It is widely anticipated that Senate Republicans, who, despite their own desire to increase spending on some programs and provide greater business tax breaks, will move to establish a 60-vote threshold for all amendments to HR 5140. Such a move could effectively stop Baucus' mark before it gets off the ground, as it would be offered as a substitute bill in the form of an amendment. Senate Minority Whip Jon Kyl, R-Ariz., said he is very concerned about the additional 13 weeks of unemployment insurance in the Baucus package. Calling the UI provision very problematic, Kyl pointed out that Paulson warned that the additional spending could have a "detrimental effect" on the economy. Kyl declined to speculate on whether Senate GOP leaders will agree on a 60-vote threshold for amendments to the House bill.

  "A lot of us are not happy with the House proposal" Sen. Lamar Alexander, R-Tenn., told CCH. "But if you start adding, it would be hard to stop adding." Overall, Alexander said that he believes the House bill would still provide what he termed "a real shot in the arm" for the economy.

  Senate Minority Leader Mitch McConnell, R-Ky., told reporters that GOP members would back quick passage of the House-approved bill. "This is not the time for a testing of wills," he said. "The best approach is for the Senate to take up and pass the House-approved bill."

Health Care Coverage

  The president, in his January 28 address, called on Congress to pass legislation in 2008 establishing a standard health care deduction for individuals who purchase their own insurance and do not receive the same tax benefits as individuals with employer-provided health care plans. The president is also open to supporting health care tax credits as another possible coverage option for leveling the playing field among the insured, Fratto confirmed.

  Separately, the president on January 29 signed an executive order directing federal departments to ignore any future earmarks that are slipped into committee reports but not explicitly voted on by Congress. The president, in his January 28 address, pledged to veto any appropriations bill in 2008 that does not meet his goal to cut the number and cost of earmarks in half.

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

Finance Committee Staff Summary Economic Stimulus Act of 2008

SFC Release --A Simple Solution on Rebates: Equal Treatment for Taxpayers in Economic Stimulus

SFC Release --America's Seniors: A Smart Target for Economic Stimulus

SFC Release --Business Tax Relief: Expanded Options for Entrepreneurs in Tough Times

JCT Description of the Economic Stimulus Act of 2008, JCX-8-08

JCT Estimated Budget Effects of the Economic Stimulus Act of 2008, JCX-9-08

JCT Distributional Effects of a Proposal to Provide Tax Credits for Individual Taxpayers As Contained in the Economic Stimulus Act of 2008, JCX-10-08
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Senate Finance Committee Chairman, Max Baucus, D-Mont., on January 28 unveiled a proposed economic stimulus package providing a flat $500 rebate to taxpayers with $3,000 of qualifying income on 2007 tax returns and a 13-week extension of federal unemployment insurance benefits. Overall, the measure makes minor modifications to the House-Bush administration agreement (TAXDAY, 2008/01/25, C.1) but adds millions of taxpayers, primarily retirees, to the eligible class of rebate recipients.

White House Opposition

  A White House spokesman quickly criticized the Baucus proposal, contending it threatens to "create partisan conflict." Meanwhile, President Bush urged the Senate not to "delay or derail" the economic stimulus agreement reached by the administration and House leaders. White House Principal Deputy Press Secretary Tony Fratto called the House bill "a very careful, balanced compromise" and he warned that "the American people would be disappointed if that fell apart because of partisan wrangling."

Plan Details

  Under the Baucus plan, rebates would be doubled for married couples filing jointly and families would receive an additional $300 per child under age 17. Businesses showing losses during the economic downturn would be allowed to write off losses retroactively for up to five years. The total package is expected to cost approximately $156 billion.

  "The White House says we must not slow the economic stimulus agreement down or blow it up," said Baucus. "We're going to improve it and get it passed right away."

  The rebate proposal differs from the House plan by changing the definition of qualifying income to include Social Security benefits as well as wages and does not call for upper-income limits for rebate eligibility. In addition, recipients are allowed the full rebate even if their income tax liabilities do not equal or exceed the rebate amount. Baucus said the structure of the rebate under his proposal is resistant to fraudulent filing of 2007 returns as both wages and Social Security benefits can be verified by the IRS through required copies of Forms W-2 and/or the filer's Form 1099-SSA.

  For businesses, the chairman's mark extends a provision allowing corporations to apply excess net operating losses (NOLs) to tax returns from prior profitable years and receive any applicable refunds. For 2006 and 2007 losses, the NOL carryback will extend back five years, to 2001, instead of the two years currently allowed. The chairman's mark also expands
Code Sec. 179 expensing of equipment for small businesses and bonus depreciation for business property that is purchased and placed into service by large companies during 2008, similar to the House-administration proposal. The plan would also extend unemployment insurance (UI) benefits another 13 weeks, through the end of December 2008. The Senate Finance Committee is slated to take-up the chairman's mark on January 30.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

Recovery Rebates and Economic Stimulus for the American People Act of 2008, HR 5140

JCT Technical Explanation of the Revenue Provisions HR 5140, the Recovery Rebates and Economic Stimulus for the American People Act of 2008, JCX-5-08

JCT Estimated Budget Effects of the Revenue Provisions Contained in HR 5140, the Recovery Rebates and Economic Stimulus for the American People Act of 2008, JCX-6-08

JCT Distributional Effects of a Proposal to Provide Tax Credits for Individual Taxpayers as Contained in HR 5140, the Recovery Rebates and Economic Stimulus for the American People Act of 2008, JCX-7-08

SFC Release: Baucus Stimulus Plan Expands Rebate to Seniors and Payroll Taxpayers, Extends Jobless Benefits, Adds Tax Relief for Struggling Businesses
 

CCH (cch.taxgroup.com) reports:

  President Bush, in his final State of the Union address on January 28, urged Congress to quickly pass a $150 billion economic stimulus package containing temporary tax incentives to increase consumer spending and business investment. The short-term growth package was agreed to by the administration and House leaders but faces opposition from Senate Democrats who want to extend the proposed tax rebates to senior citizens and extend unemployment insurance an additional 13 weeks.

  Under the White House-backed agreement, the first $6,000 of taxable income for individual taxpayers and the first $12,000 of taxable income for couples would be taxed at zero percent, instead of the current 10 percent. The minimum tax benefit would be $300 per single taxpayer and $600 per married couple. The package includes a child tax credit of $300 per child.

  For businesses, the stimulus package would provide a 50-percent bonus deduction on new equipment in the year that it is placed in service. It would also allow employers to fully expense $250,000 in both new and used tangible property in the year it is purchased. The president warned the Senate against "loading up the bill" with provisions that could "delay ... or derail" passage of the package. Congressional leaders aim to enact a stimulus plan by the President's Day recess in mid-February. The president urged Congress to send him a short- term growth package "as soon as possible."

  Amid growing concern at home and abroad of a coming recession in the United States, Bush maintained the U.S. economy is sound but "undergoing a period of uncertainty." In the short run, the president acknowledged that economic growth is slowing but asserted that "in the long run, Americans can be confident about our economic growth".

  The president reaffirmed his call for permanent tax cuts and his pledge to veto any legislation that increases taxes. He urged Congress to complete "unfinished business" and to pass the standard health care deduction proposal he unveiled in his State of Union address in 2007.

  The president also promised to veto any appropriations bill in 2008 that does not meet his goal to cut the number and cost of earmarks in half. Bush will issue an executive order on January 29 directing federal departments to ignore any future earmarks that were slipped into committee reports but were not explicitly voted on by Congress.

Reaction from Congress

  House Majority Leader Steny H. Hoyer, D-Md., said the President's speech was a continuation of the failed economic policies that have led to the current budget deficit. "The president demanded that Congress make his tax cuts permanent, while failing to explain how he will pay for his proposal," Hoyer said. "Democrats believe that following the same irresponsible policies that reignited budget deficits and spiraling debt is neither sustainable nor economically sound and only threatens our long-term national and economic security."

  Marsha Blackburn, R-Tenn., House Ways and Means Committee member, said her constituents liked to hear Bush's call for extending his tax cuts that passed Congress in 2001 and 2003. She said citizens in Tennessee believe that the best economic stimulus comes from measures that create stable jobs. Rep. Zoe Lofgren, D-Calif., said she was disappointed that so little attention was given to the economy, which is on the minds of many Americans. Lofgren said she hoped there would be broad support on the House floor for the Recovery Rebates and Economic Stimulus for the American People Act of 2008 (HR 5140) (TAXDAY, 2008/01/29, C.1).

  Rep. Jack Kingston, R-Ga., said the 2003 tax cuts created three million jobs and boosted the stock market, but Bush did not spend enough time talking about that success. He said the stimulus bill will not create long term jobs like the 2003 tax bill did in the last economic slowdown. Kingston also said he liked hearing Bush promise to veto any tax increase bill that comes to his desk. Rep. Hilda L. Solis, D-Calif., said she wished the president spoke more about economic stimulus. The idea of creating jobs through long term infrastructure projects was missing from his speech, she said.

  Jim McCrery, R-La., ranking member, House Ways and Means Committee, said Bush's remarks were deliberate and specific about the need for economic growth. McCrery maintained that businesses must have an incentive to invest and have access to capital for job creation. Ways and Means Chairman, Charles B. Rangel, D-N.Y., called on Congress and the administration to work in a bipartisan fashion to simply the tax code and close tax loopholes that give unfair advantages to corporations.

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

State of the Union Address

White House Release: Keeping Our Economy Healthy

White House Release: Staying on Track to a Balanced Budget by 2012

White House Release: Empowering Americans with Affordable Options for Health Care

Ways and Means Release: Chairman Rangel on State of the Union

SFC Release: Senate Finance Committee Chairman Responds to President's State of the Union Address

SFC Release: Grassley Comments on State of the Union Address
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The property tax reform package proposed by Indiana Governor Mitch Daniels, which includes a 1% increase in the state sales tax, passed the state House of Representatives on January 24, 2008, by a vote of 93-1.

  The measure, which would be financed by an increase in the sales tax from 6% to 7%, would cap homeowners' property tax bills at 1% of a home's assessed value beginning in 2009. The cap would be set at 2% for rental properties and 3% for businesses. The measure also would transfer school and welfare costs, which were funded with property tax revenue, to the state; impose spending limits on local governments; and eliminate township assessors.

  Amendments made by the House include freezing property taxes for taxpayers age 65 and older who own homes valued at $200,000 or less and whose adjusted gross incomes do not exceed $35,000 for single filers and $50,000 for individuals filing joint tax returns. The House also added provisions doubling the state income tax deduction for renters from $2,500 to $5,000; increasing the earned income tax credit from 6% to 9%; and reducing the property tax cap on agricultural land from 3% to 2% of assessed value.

  The legislation now heads to the state Senate where lawmakers will have until March 14, 2008, the final date of the legislative session, to act on the measure.

H.B. 1001, as passed by the Indiana House of Representatives, January 24, 2008.
 

CCH (cch.taxgroup.com) reports:

  The IRS has updated the annually-issued revenue procedure which explains when disclosure on a return with respect to an item or position is adequate for the purpose of reducing the penalty for the substantial understatement of income tax (Code Sec. 6662(d)) and avoiding the preparer penalty for understatements due to unreasonable positions (Code Sec. 6694(a)). The procedure applies to 2007 tax forms filed for tax years beginning in 2007 and to 2007 tax forms filed in 2008 for a short tax year beginning in 2008.

  Additional disclosure of facts relevant to, or positions taken with respect to, issues involving the items specified in the revenue procedure is unnecessary, provided that the applicable tax return forms and attachments are completed in a clear manner and in accordance with their instructions. The money amounts entered on the forms must be verifiable, and the information on the return must be disclosed in the manner indicated by the revenue procedure. In the case of a preparer penalty, no disclosure is adequate unless made on an income tax return.

  This year's procedure has been updated to reflect an increase in the Code Sec. 6694 preparer penalty amount from $250 per return to the greater of (a) $1,000 per return or (b) 50 percent of the income earned by the preparer with respect to the return or claim (Code Sec. 6694(a)(1) and (a)(2) as amended by the Small Business and Work Opportunity Tax Act of 2007 (P.L. 110-28). The disclosure requirements in Section 4.02(1)(d) for charitable contribution deductions have also been updated to reflect the new requirements that taxpayers must maintain bank records or obtain written communication from the donee with respect to cash contributions of less than $250 (Code Sec. 170(f)(17), as added by the Pension Protection Act of 2006 (P.L. 109-280)).

  In addition, section 4.02(3) of the procedure, which addresses disclosure requirements relating to differences in book and income tax reporting, is expanded by adding information required to be shown on Form 1120-F, Schedule M-3 (Net Income (Loss) Reconciliation of Foreign Corporations With Total Assets of $10 Million or More).

Rev. Proc. 2008-14, 2008FED ¶46,278

Other References:

 
Code Sec. 6662

  CCH Reference - 2008FED ¶39,652.02

 
Code Sec. 6694

  CCH Reference - 2008FED ¶39,960.20

  Tax Research Consultant

  CCH Reference - TRC PENALTY: 3,108.15
CCH Reference - TRC IRS: 6,156.05
 

CCH (cch.taxgroup.com) reports:

  The White House, administration officials and some members of Congress have, at press time, released only summaries of the tax rebates and business incentives contained in the economic stimulus package brokered between the Bush administration and House leadership on January 24 (TAXDAY, 2008/01/25, C.1). Legislative language is expected soon. In the meantime, practitioners and taxpayers are wondering who will qualify for the rebates, and when and how the IRS will issue the checks.

  During a January 25 online forum called "Ask the White House," Treasury Secretary Henry M. Paulson, Jr,. said that individuals with earned income of $3,000 or more will be eligible for a $300 rebate ($600 for married couples filing jointly). "Based on the amount of federal income taxes paid, the rebate rises to as high as $600 for an individual and $1,200 for a married couple," Paulson explained. Shortly before Paulson's online presentation, the Treasury Department issued a fact sheet with examples of who would receive a rebate.

  The proposal excludes some individuals who could benefit from the rebates, Chad Stone, chief economist for the Center on Budget and Policy Priorities, told CCH. "Low-income elderly will be left out," he explained.

  Rebates would phase out for single individuals with adjusted gross incomes (AGI) of $75,000 or more and for married couples filing jointly with AGI of $150,000 or more. Paulson had previously indicated that rebates would phase out at five percent for each additional $1,000 in earnings (TAXDAY, 2008/01/25, C.1).

Child Bonus

  Besides rebates, the proposal includes a $300 child "bonus." The $300 bonus would be added to the taxpayer's rebate amount. At this time, it appears the bonus would be paid for each and every qualifying child with no cap on the number of children. However, bonuses would be subject to phase-outs similar to the phase-outs for rebates.

Processing Rebate Checks

  Paulson said that the Treasury Department is working closely with the IRS to process rebates "as quickly as possible." A Treasury spokesperson told CCH that "checks can start going out 60 days after legislation is enacted."

  If Congress passes a bill quickly, the IRS would be in the possibly unworkable position of issuing rebates and 2007 tax refunds at the same time. The Joint Committee on Taxation (JCT) has cautioned that the IRS lacks the resources to do both (TAXDAY, 2008/01/24, C.1). "The IRS' systems are today fully engaged in processing 2007 returns," the JCT explained. "As a result, it is not practical to contemplate distributing cash rebates until the peak filing season is completed, which in past years has been the very end of May." According to the JCT, the federal government can only print nine million checks each week.

  However, if Congress passes a bill in mid- or late February, the IRS will likely have issued the bulk of 2007 tax refunds before having to switch gears to process the rebates. "Individuals expecting refunds tend to file early," Thomas Ochsenschlager, vice president-taxation for the American Institute of Certified Public Accountants (AICPA) told CCH. Many people will be filing very soon after January 31. The earlier they file, the more time the IRS will have to process their refunds before issuing the rebates, he noted.

  The Treasury spokesperson also indicated that the government will encourage taxpayers to have their rebates directly deposited into their bank accounts. CCH asked if taxpayers would have the option of splitting their rebates among one or more accounts. The spokesperson replied that "details are still being worked out." Individuals already have the option to split their tax refunds.

2001 Rebates

  Congress enacted a similar rebate program in 2001 as part of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) (P.L. 107-16). President Bush signed EGTRRA into law on June 7, 2001, and the first rebate checks were issued in late July 2001. The IRS notified taxpayers in advance of how much their rebate would be (the rebates were advance payments of the new 10-percent tax bracket).

  At that time, the IRS used a distribution schedule based on the last two digits of the taxpayer's Social Security number. For married couples filing jointly, the first Social Security number on the return determined the mailing date for the rebate. Distributions began in late July and continued into September, a period of roughly 10 weeks. Paulson has indicated that distributions in 2008 would be spread out over 10 weeks.

Business Incentives

  The proposal also includes two business tax incentives: temporary bonus depreciation and enhanced Code Sec. 179 expensing. Bonus depreciation would reach 50 percent. The Code Sec. 179 expensing amount would reach $250,000, with an overall investment limit of $800,000.

  "The current expensing amount ($125,000 for 2007 and $128,000 for 2008) is enough for many small businesses that are not equipment intensive," Edward K. Zollars, CPA, Thomas & Zollars, Ltd, Phoenix, told CCH. "A service business can buy a lot of computer equipment for $125,000."

  Businesses that are equipment-intensive, such as a trucking business, will benefit more from enhanced expensing, Zollars, a member of the Arizona Society of Certified Public Accountants, noted. "For large businesses, bonus depreciation is also significant."

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

Treasury Department News Release, TDNR HP-773
 

CCH (cch.taxgroup.com) reports:

  President Bush will not unveil any broad-sweeping proposals, such as Social Security or tax reform, in his final State of the Union address to Congress on January 28, advised White House Press Secretary Dana Perino. "It is unrealistic to expect that this Congress is going to take on such big problems this year. They haven't been willing to do it in the past several years; there's no reason to think that they would do it this year," Perino said at a January 25 press briefing.

  The president's speech is "focused on the future" and will "reflect the president's mindset that he is going to sprint to the finish," Perino offered. According to the White House spokeswoman, Bush will identify potential areas of agreement with the Democratic majority in Congress and include new policy proposals that have "realistic chances of enactment this year."

  Bush will highlight "unfinished business" pending in Congress, such as the stimulus package that congressional leaders aim to enact before the President's Day recess begins in mid-February. The president also will highlight executive and administrative actions that can be done without legislative approval, Perino stated.

"Prebuttal" Speech

  The economic stimulus package now under consideration by Congress will help millions of working Americans who face an uncertain economic future, according to House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., who spoke on January 25 at the National Press Club in Washington, D.C. In speeches designed to provide a prebuttal to the State of the Union Address, Pelosi said that the House will move swiftly to pass the plan, which will provide tax rebate checks to 117 million Americans.

  "The plan provides working Americans, middle-income families and those who aspire to the middle class who are struggling in these difficult times with timely, targeted and temporary relief," according to Pelosi. In addition to supporting speedy passage of an economic stimulus bill, Reid called on the president to boost American investment in renewable fuels and to lower the nation's carbon emissions. "If we show the world that we are giving this crisis the attention and investment it deserves, others will do the same," he said.

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

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  States stand to lose billions of dollars in revenue from business-investment tax incentives being considered as part of a federal stimulus bill, according to the Center on Budget and Policy Priorities (CBPP). Proposed "bonus depreciation" and enhanced "expensing" of investments at the federal level could lead to state losses because of linkages between federal and state tax codes, the CBPP said in a report. Some 30 states could lose revenue as a result of "bonus depreciation" and 32 states could lose from an increase in IRC §179 expensing, the group claims. The CBPP goes on to predict that much of the economic stimulus from federal legislation could be dissipated through resulting budget cuts or tax increases at the state level.

  When the federal government last enacted "bonus depreciation" in 2002-03, many states decoupled, in whole or in part, from the Internal Revenue Code with respect to these provisions to avoid the revenue impact.

  Subscribers to CCH Tax Research NetWork can view the CBPP release.

Report, Center on Budget and Policy Priorities, January 22, 2008.

CCH (cch.taxgroup.com) reports:

  The property passing to a charitable lead annuity trust as a result of a disclaimer by a decedent's daughter did not qualify for an estate tax charitable deduction because the daughter retained a contingent remainder interest in the trust. Under Code Sec. 2518(b)(4), a disclaimer is treated as a "qualified disclaimer" only if the disclaimed interest passes to a person other than the person making the disclaimer. For purposes of Reg. §25.2518-2(e)(3), the daughter's remainder interest was neither "severable property" nor "an undivided portion of the property." Under the applicable definition of severable property, the daughter could not disclaim the present enjoyment of partnership units that passed to the trust but retain a remainder interest in such units. The daughter was not permitted to disclaim a "horizontal slice" of her interest in the property --in other words, she could not disclaim the income interest and keep the remainder. A savings clause in the disclaimer did not change the result because, no matter how the clause operated, it would violate one of the requirements for a qualified disclaimer. Consequently, because the daughter did not make a qualified disclaimer as to any portion of the property passing to the trust, none of the property passing to the trust was eligible for a charitable deduction. However, the property passing to a charitable foundation as a result of the daughter's disclaimer did qualify for a charitable deduction, in an amount that reflected the increased valuation of the property included in the decedent's gross estate. The transfer of property to the foundation was not contingent on any event that occurred after the death of the decedent within the meaning of Reg. §20.2055-2(b)(1). Moreover, an adjustment clause in the disclaimer that increased the amount going to charity if the value of the estate increased was not void on public policy grounds. The adjustment clause did not undo a transfer, but only reallocated the value of the property among the daughter, the trust, and the foundation.

H. Christiansen Est., 130 TC No. 1, Dec. 57,301

Other References:

 
Code Sec. 2055

  CCH Reference - FINH ¶6410.40

 
Code Sec. 2518

  CCH Reference - FINH ¶11,419.45

  Tax Research Consultant

  CCH Reference - TRC ESTGIFT: 45,066.20

CCH (cch.taxgroup.com) reports:

  House leaders completed negotiations on January 24 with the Bush administration over a $150-billion package of economic stimulus provisions that they believe will prevent the economy from heading into a recession. At a Capitol Hill briefing, House Speaker Nancy Pelosi, D-Calif., and House Minority Leader John Boehner, R-Ohio, were joined by Treasury Secretary Henry M. Paulson, Jr., to announce details of the package that would give tax rebates and child tax credits to millions of American families and tax relief to businesses. Lawmakers hope that the bipartisan proposal will reach the president's desk by mid-February.

  Pelosi credited Paulson's patience in working to reach an agreement that both House Democrats and Republicans can support. While not totally satisfied with the stimulus package, Pelosi hinted that House lawmakers might pursue additional measures if the economy worsens. "I've always said that what we needed to do is to put money in the hands of those who will spend it right away to inject demand into the economy, to help create jobs, to help turn around the economy," Pelosi said.

  Boehner noted that both he and Pelosi had to give up some of their preferred stimulus proposals in order to reach an agreement that both parties could accept. "But I think it's a good compromise that will benefit the American people," he said. He added that he hopes for quick action in the House, followed by swift work in the Senate in order to get money in the hands of middle-income Americans. Paulson said that he plans to work with the Senate to get the package passed as soon as possible.

  According to Boehner, members from both parties had an endless list of items they wanted in the stimulus package, but the administration and House leaders agreed on a proposal that was simple, clean and neat. "And, I believe that, if we can have broad bipartisan support for this bill on the floor of the House --which I do, in fact, believe we will get --that it will simplify the process," he said.

Proposal Details

  According to details from Paulson and Pelosi, single taxpayers with earned income of at least $3,000 would get a tax rebate check of at least $300, while married taxpayers would get double that amount. Taxpayers with income up to $75,000 single, and $150,000 married, would see rebate checks of up to $600 and $1,200, respectively. Taxpayers with incomes above those levels will see benefits phase out at five percent for each additional $1,000 in earnings. In addition, the package includes a child tax credit of $300 per child. The tax rebates would go to approximately 117 million Americans.

  According to an unofficial summary obtained by CCH, the proposal is an accelerated reduction of the 10-percent rate for 2008 tax filings. The cost of the rebate checks and child tax credit is estimated at $103 billion. For businesses, the stimulus package would provide a 50-percent bonus deduction on new equipment in the year that it is placed in service. The approximate cost would be $42.3 billion for 2008. It would also allow employers to fully expense $250,000 in both new and used tangible property in the year it is purchased. The cost would be $1 billion.

White House Response

  President Bush said the stimulus package meets his principles for giving a boost to the economy. Bush, in a brief statement at the White House on January 24, praised the agreement for containing "an effective, robust and temporary set of incentives" to encourage consumer spending and business investment. Except for tax increases, the White House has indicated everything is negotiable, including the size and the scope of a final agreement. The president, nonetheless, said he is pleased the agreement did not contain any "unnecessary spending projects," contending they would have "little immediate impact" on the U.S. economy.

  Bush maintained the economy remains "structurally sound" but acknowledged "short-term disruptions" in the housing market and the impact of higher energy prices are slowing economic growth. Administration officials continue to dispute any economic forecasts of a recession but agree there is currently an economic slowdown.

Senate Democrats' Reaction

  Senate Democratic leaders praised the focus of the House agreement with the White House, citing the targeted tax rebates aimed at middle-class families, but they also termed the package incomplete, announcing their intention to add more spending measures. Senate Majority Leader Harry Reid, D-Nev., said that the Highway Trust Fund is facing a $500-billion shortfall and that directing funds for infrastructure improvements, such as highway resurfacing, is the most expedient way to stimulate the economy due to the number of new jobs it would create. Democrats also want to extend unemployment benefits, with the backing of some Senate Republicans, according to Reid, and to provide funding for food stamps (favored by Senate Finance Committee ranking member Charles E. Grassley, R-Iowa), along with funding for summer youth employment programs. Mortgage relief in the form of raising loan limits for Fannie Mae, Freddie Mac and mortgages insured by the Federal Housing Administration is also on the table, as are tax breaks for small businesses.

  "I expect that the [Finance] Committee and other senators will work to improve the House package by adding funds for other initiatives that can boost the economy immediately, such as unemployment benefits, nutrition assistance, state relief and infrastructure investment," said Reid. Senate Finance Committee Chairman Max Baucus, D-Mont., announced that his committee will mark up its own economic stimulus package, independent of House legislation, during the week beginning January 28. Baucus also praised the focus of the agreement on tax rebates, but said he wants to ensure that all who pay Medicare and Social Security payroll taxes --as well as those who pay income taxes --receive a fair rebate. "For my part, I want to make sure that every American who looks at his or her paycheck and sees Medicare taxes taken out, Social Security taxes taken out, gets the same rebate as every other taxpaying American," he said.

  Baucus added that the Finance Committee bill could include quick stimulus measures, such as increases to unemployment insurance and food stamps and that a temporary increase in federal Medicare funds for states remains a possibility. Capping the income limit on who would be eligible for tax rebates is also under consideration, according to Baucus. He told reporters that he is not sure what business tax breaks would be included but he cited provisions aimed at accelerated depreciation of business equipment purchases and net operating losses as possibilities. "I intend for the committee to work fast, and to work together," he stated. "I believe the committee can complete its work by the time the House sends a bill to the Senate" he said. Reid also concurred on the timeline, saying. "I look forward to this proposal's quick passage in the House so that the Senate can debate these provisions soon and meet my goal of sending the president a package by the President's Day recess."

Rebates

  The IRS could begin sending out tax rebates in May, according to Treasury Secretary Paulson. According to Paulson, the "lion's share" should reach an estimated 117-million individuals by mail or electronically within 10 weeks of when the checks begin to be issued. He added that the delayed enactment of the alternative minimum tax would have little impact on issuing the rebates. The IRS will use the direct deposit option as much as possible, according to a Treasury spokesman.

Other SFC News

  In a related matter, Senate Minority Leader Mitch McConnell, R-Ky., announced that Sen. John Sununu, R-N.H. will take over the vacant Senate Finance Committee seat created by the resignation of former Minority Whip Trent Lott, R-Miss., in December 2007.

  By Jeff Carlson, Stephen K. Cooper, Paula Cruickshank and George L. Yaksick, Jr., CCH News Staff

White House Fact Sheet: New Growth Package Meets Criteria To Keep Our Economy Healthy

Rangel Congratulates Speaker Pelosi on Targeted Tax Relief to Lower- and Middle-Income Working Families

Summary --2008 Economic Growth Package

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  In his annual budget plan, Massachusetts Governor Deval L. Patrick proposed reducing the state's corporation excise tax rate from 9.5% to 8.3% over a three-year period beginning in 2010. The rate reduction would be accompanied by the adoption of combined reporting and federal "check-the-box" business entity classification rules.

  The Governor also proposed changes in the collection and enforcement of tobacco and cigarette excise taxes, including the use of new encrypted cigarette excise tax stamps to reduce counterfeiting. In addition, excise tax on cigars and smoking tobacco would be imposed at the wholesale level rather than at the retail level, and cigarette wholesalers would be required to collect sales tax on sales to retailers.

  The Governor said the Attorney General's Office and the Department of Revenue would begin a statewide initiative to increase enforcement and public awareness of employee classification laws. The Governor said misclassification of workers as independent contractors rather than employees results in millions of dollars in lost withholding tax revenue.

  Though not included in the budget, the Governor mentioned his proposal to open casinos in the state. Revenue from casinos, he said, would be used to fund property tax relief.

  The text of the Governor's budget message can be viewed at:
http://www.mass.gov/bb/h1/fy2009h1/msg2_09/hdefault.htm.

Governor Deval L. Patrick's FY-2009 Budget Recommendation , January 23, 2008.

CCH (cch.taxgroup.com) reports:

  Hawaii Governor Linda Lingle outlined her administration's priorities for the 2008 legislative session and provided details on key initiatives, including proposals relating to personal income tax, wireless enhanced 911 surcharge, vehicle tax and registration, and conveyance tax. The terms of some of the personal income tax proposals and the 911 surcharge proposal were reported previously. (TAXDAY, 2008/01/21, S.7) The additional proposals include creating tax-free Life-Long Learning Accounts that would enable employer-matched portable individual savings accounts to pay for career-building skills; offering a tax credit to low-income residents for the installation of renewable technology in the home; providing vehicle tax and registration fee exemptions for private vehicles of Hawaii residents serving in the military; and ensuring that 50% of the conveyance tax is deposited into the Rental Housing Trust Fund to build more affordable rentals. The initiatives were announced the day after the Governor's State of the State Address. (TAXDAY, 2008/01/24, S.12)

  The text of the initiatives can be viewed at
http://hawaii.gov/initiatives.

The Lingle-Aiona Administration's Initiatives 2008 , January 23, 2008.

CCH (cch.taxgroup.com) reports:

  A married couple, who were victims of a fraud scheme involving the purchase of gems and jewelry, were entitled to theft loss deductions for the year at issue for amounts they ascertained with reasonable certainty that they had no prospect of recovering. Several lawsuits they filed to recover the funds were resolved either through settlement, adjudication or abandonment, and their remaining claims sought fixed and identifiable amounts. The taxpayers were not required to wait until the total amount of recovery from every source was established to claim the deduction.

  They were not entitled to theft loss deductions for any portion of their loss in a prior year because they failed to demonstrate that they could ascertain with reasonable certainty the amount of reimbursement they would receive after resolution of their lawsuits. Estimates of their recovery made by the couple's lawyers and accountants were not sufficient to constitute ascertaining with reasonable certainty the amount of reimbursement they were entitled to receive.

  Related decisions at 2007-1 USTC ¶50,136 and 2007-2 USTC ¶50,749.

A.E. Johnson, FedCl, 2008-1 USTC ¶50,142

Other References:

 
Code Sec. 165

  CCH Reference - 2008FED ¶9805.575

  CCH Reference - 2008FED ¶10,101.293

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 30,110.05
 

CCH (cch.taxgroup.com) reports:

  Discussion on the provisions of a rapidly developing economic stimulus package continued on Capitol Hill on January 23, as Democratic and Republican lawmakers held press conferences to stake out their opposition to or support for the type of tax measures and domestic spending under consideration. House Majority Leader Steny H. Hoyer, D-Md., told reporters that the economic stimulus package should be targeted to getting money in the hands of people "who will spend it on the consumer demand side of our economy or grow their businesses on the investment side of the economy."

  House Democrats said they are in favor of extending unemployment benefits for laid off workers, increasing the amount of food stamp payments and sending tax rebate checks to consumers who will spend them immediately. House Republicans are in favor of giving businesses increased business expensing and bonus depreciation. They said that increased spending on infrastructure, such as spending on bridges, roads and schools, would not stimulate the economy fast enough.

  House GOP Whip Adam H. Putnam, R-Fla., said conservative Republicans want to see tax measures targeted toward business growth, which will stimulate the economy by helping to create more jobs. Putnam said extending unemployment benefits will not have a stimulative effect on the economy, since it is a responsive measure likely to be triggered by a future downturn in the job market. "The single best way to help struggling employers in this climate, while providing a jump-start to the economy, is to allow companies to quickly recapture the money they invest in capital," said House Ways and Means Committee member Phil English, R-Pa.

  The White House expects to reflect the cost of the economic stimulus package in the president's State of the Union Address on January 28, according to White House spokesperson Dana Perino. House Speaker Nancy Pelosi, D-Calif., and House Minority Leader John A. Boehner, R-Ohio, are working with the administration to craft bipartisan legislation that will win support in the House, said Hoyer.

  He said that House committee chairmen as well as Senate leadership are informed about progress, and are expected to add their support to help the legislation reach the president's desk. Hoyer said Pelosi and Boehner are looking at ways to craft a deal that will generate support across party lines.

  Some hostilities between tax and domestic policy could slow progress, however. House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., said he would resist any attempt by Republicans to limit the tax rebate checks to Americans who actually paid income taxes. He said hard-working families, who may be living paycheck to paycheck and do not pay income taxes, still contribute to Social Security and Medicare. "Any argument on this issue will be met with equally vigorous discussion of the inclusion of tax incentives for businesses that have been proven by economists to have a less-than-timely return on investment," he said.

  Peter Orzag, director of the Congressional Budget Office, testified before the House Budget Committee that the economy may face several quarters of slow economic growth but not actually go into recession. Moreover, he said the timing of any stimulus package is critical. "If the policies do not generate additional spending when the economy is in a phase of very slow growth or a recession, they will provide little help to the economy when it is needed," he told lawmakers. "Poorly timed policies may do harm by aggravating inflationary pressures and needlessly increasing federal debt if they stimulate the economy after it has already started to recover," he said.

  By Stephen K. Cooper, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

A business that makes $75,000,000 of qualified capital investment in a business facility in an urban transit hub and employs at least 250 full-time employees at that facility may qualify for tax credits equal to 100% of the qualified capital investment that may be applied against New Jersey corporation business tax, gross (personal) income tax, or insurance premiums tax liability. A tenant may also be eligible for the credit, if the tenant occupies space in a qualified business facility that proportionally represents at least $25,000,000 of the capital investment in the facility and employs at least 250 full-time employees in that facility. The credit is limited to investment and employment in municipalities that are eligible for urban aid, that have at least 30% of their real property value exempt from property taxes, and that have a specified commuter rail station. According to the New Jersey Office of Economic Growth, the following municipalities would qualify for the credit: Camden, East Orange, Elizabeth, Jersey City, Newark, New Brunswick, Paterson, Trenton, and Hoboken. The New Jersey Commerce Commission (Commission) is authorized to designate areas in a one-half mile radius around urban transit rail stations (not including rail stations at international airports) as an "urban transit hub" in which qualifying business facility investment and employment must be located in order to qualify for the credit.

CCH (cch.taxgroup.com) reports:

The IRS's application of Reg. §1.882-5 or the proposed corporate yardstick method to determine the interest expense deduction when calculating the taxable income of the United States (U.S.) branch of a United Kingdom (U.K.) banking corporation was incompatible with Article 7 (Business Profits) of the 1975 income tax treaty between the United States and the United Kingdom. The plain language of the treaty prohibited the IRS from treating the domestic branch of a U.K. bank as if it were a separately incorporated bank for purposes of determining the amount of capital the branch was deemed to hold and calculating the branch's interest expense deduction. Pursuant to the U.S.-U.K. income tax treaty, use of the branch's books and records was controlling. Nothing in the language of the treaty authorized the IRS to impose capital requirements on the branch that were the same as those imposed on separately incorporated banks in order to give meaning to the phrase "separate and distinct."
The treaty did not permit the government to attribute additional capital to the branch, as measured by regulatory and marketplace capital requirements applicable to separate U.S. bank corporations. Instead, the branch's properly maintained books were to be used to determine each element affecting its profits during the tax years at issue. Additional capital could be allotted to the branch only if that amount had not been properly noted on the books as capital.
The IRS's argument that the use of allocation formulas was contemplated by both parties to the treaty and that their behavior between the signing of the treaty and its entry into force evidenced this understanding, was rejected. The U.K. abandoned its formula then in use, and the formula used by the United States was significantly different than Reg. §1.882-5. There was no evidence to suggest that the contemporaneous understanding of the United States differed from that of the United Kingdom.
Affirming Federal Claims decisions 99-2 USTC ¶50,654, 2004-1 USTC ¶50,105 and 2006-1 USTC ¶50,107.
National Westminster Bank, PLC, CA-FC, 2008-1 USTC ¶50,140
Other References:
Code Sec. 882
CCH Reference - 2008FED ¶27,050.027
CCH Reference - 2008FED ¶27,050.07
CCH Reference - 2008FED ¶27,509.0307
CCH Reference - 2008FED ¶27,509.16
Tax Research Consultant
CCH Reference - TRC INTLIN: 3,106.30
CCH Reference - TRC INTL: 18,102.05
CCH Reference - TRC INTL: 18,102.10

CCH (cch.taxgroup.com) reports:

Regulations on several issues affecting insurance companies have been finalized, including guidance on the treatment of Code Sec. 197 intangibles resulting from an assumption reinsurance transaction, reserve increases after a Code Sec. 338 deemed asset sale, and Code Sec. 846(e) elections to use historical loss payment patterns.
Basis of Code Sec. 197 Intangibles. The final regulations provide guidance on the determination of the adjusted basis of an amortizable Code Sec. 197 intangible resulting from an assumption reinsurance transaction. In general, the basis of the intangible is the excess of: (1) the amount paid or incurred by the reinsurer under the assumption reinsurance transaction, over (2) the amount, if any, required to be capitalized under Code Sec. 848 in connection with such transaction. The final regulations assist in the basis determination by providing rules for determining the amounts paid or incurred for amortizable Code Sec. 197 intangibles with respect to contracts acquired as a result of assumption reinsurance transactions occurring as part of a Code Sec. 338 deemed asset sale, a Code Sec. 1060 applicable asset acquisition, or other transaction. The regulations also provide rules for determining the required capitalization amounts for the transactions.
Reserve Increases After Code Sec. 338 Deemed Asset Sales. In addition, the final regulations discuss the treatment of increases in insurance company reserves after a Code Sec. 338 deemed asset sale. Under the final regulations, if the new target increases its reserves for any acquired contracts in its first tax year or any subsequent year, the new target is treated as receiving an additional premium in the assumption reinsurance transaction. The new target includes the additional premium in gross income for the tax year in which the new target increases its reserves for acquired contracts. The final regulations provide rules for determining the amount of the additional premium and set forth limitations on such amount.
Code Sec. 846(e) Elections. The final regulations also provide guidance on the effect of a Code Sec. 338 election on an insurance company's Code Sec. 846(e) election to use its historical loss payment pattern to discount certain unpaid losses. In general, when a Code Sec. 338 election is made, the new target is treated as a new corporation that can adopt its own accounting methods without regard to the methods used by the old target. The final regulations provide a different rule when a Code Sec. 846(e) election is involved. In that situation, the final regulations state that the new target and the old target are treated as the same corporation for purposes of a Code Sec. 846(e) election. Thus, if the old target has a Code Sec. 846(e) election in effect on the acquisition date, the new target will continue to use the historical loss payment pattern of the old target to discount unpaid losses, unless the new target chooses to revoke the election. If the new target chooses to revoke the old target's Code Sec. 846(e) election, then the new target uses the industry-wide factors to discount unpaid losses incurred in accident years beginning on or after the acquisition date through the subsequent determination year.
T.D. 9377, 2008FED ¶47,014
Other References:
Code Sec. 197
CCH Reference - 2008FED ¶12,450A
CCH Reference - 2008FED ¶12,452
Code Sec. 338
CCH Reference - 2008FED ¶16,275A
CCH Reference - 2008FED ¶16,276
CCH Reference - 2008FED ¶16,282I
CCH Reference - 2008FED ¶16,287B
CCH Reference - 2008FED ¶17,025
Code Sec. 846
CCH Reference - 2008FED ¶26,330A
CCH Reference - 2008FED ¶26,330C
CCH Reference - 2008FED ¶26,330E
Tax Research Consultant
CCH Reference - TRC CCORP: 30,100
CCH Reference - TRC CCORP: 30,164
CCH Reference - TRC CCORP: 30,200
CCH Reference - TRC CCORP: 30,208
CCH Reference - TRC DEPR: 21,056.15
CCH Reference - TRC SALES: 33,052.10
CCH Reference - TRC VALUE: 12,102.05
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

An insurance agent was required to treat termination payments received under a corporate agreement as ordinary income, not long-term capital gain. The agreement, which governed the relationship between the agent's corporation and the insurance company whose policies he sold, was not a capital asset because the taxpayer had no property rights under the agreement beyond the contractual obligation to perform services and be compensated for those services.
Under the express terms of the agreement, any property rights in the policies belonged to the insurance company, not the agent, and the agreement expressly forbade him from transferring or assigning his interest in the agreement. The termination payments were made pursuant to, not in exchange for, the agreement and only after fulfillment of its noncompete provisions.
Affirming a DC Ariz., decision, 2005-2 USTC ¶50,449.
C.E. Trantina, CA-9, 2008-1 USTC ¶50,138
Other References:
Code Sec. 1221
CCH Reference - 2008FED ¶30,422.4865
Tax Research Consultant
CCH Reference - TRC SALES: 15,052.05
CCH Reference - TRC 15,054.35

CCH (cch.taxgroup.com) reports:

A federal district court properly convicted and sentenced an individual for filing false individual income tax returns because he failed to report income diverted from his company to pay off his gambling debts. The district court did not abuse its discretion when it denied him permission to present expert psychiatric evidence that the individual claimed would have demonstrated that he was a pathological gambler and considered the diverted funds as loans, not income. The court found that the psychiatric evidence was irrelevant and lacked probative value with respect to whether the individual possessed the specific intent to willfully file a false tax return.
The court also properly excluded the testimony of a forensic accountant that the individual sought to admit as evidence to identify the "seven primary indicators" of tax fraud and to rebut the testimony of a government witness who characterized his transactions as diversions and misappropriations. The expert testimony, if admitted, would have confused the jury. Further, the individual did not issue prior notice to the government of his intent to use the expert testimony. He knew that the government's case against him involved his failure to report diverted funds as income; therefore, he could not claim that he was surprised by the government's evidence characterizing his transactions as diversions or misappropriations.
Unpublished opinion affirming an unreported DC N.C. decision.
S.K, Hayez, CA-4, 2008-1 USTC ¶50,137
Other References:
Code Sec. 7206
CCH Reference - 2008FED ¶41,333.17
Tax Research Consultant
CCH Reference - TRC IRS: 66,058.210

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  On January 17, 2008, both houses of the Illinois General Assembly accepted the terms of Governor Rod Blagojevich's amendatory veto of a mass transit funding bill that, among other things, would allow increases in real estate transfer tax in Chicago and increases in local sales and use taxes in some counties. The governor certified the bill the following day.

  Within six months after the effective date of this law, a home rule municipality with a population in excess of 1,000,000 (Chicago) may by ordinance increase the rate of its existing real estate transfer tax by a rate of up to $1.50 for each $500 of value or fraction thereof, or in the alternative may impose a real estate transfer tax at a rate of up to $1.50 for each $500 of value or fraction thereof. All amounts collected under that supplemental tax, after fees for costs of collection, shall be provided to the Chicago Transit Authority.

CCH (cch.taxgroup.com) reports:

  In her State of the State address, Delaware Governor Ruth Ann Minner announced that she plans to propose a modification to the Delaware corporate income tax code in an effort to keep Delaware competitive and as a location of choice for businesses with high-wage jobs. The governor proposed no other tax changes.

State of the State Address , Delaware Governor Ruth Ann Minner, January 17, 2008.

CCH (cch.taxgroup.com) reports:

  President Bush has called for a $140- to $150-billion economic stimulus package that is designed to spur consumer spending and business investment. The day after holding a conference call with congressional leaders on how to jump-start a faltering economy, Bush laid out principles for crafting a temporary tax relief measure aimed at infusing cash quickly into the hands of individual taxpayers and spurring business investment.

  The president stressed that the stimulus plan must be built on "broad-based tax relief" that will have immediate impact on the U.S. economy. "This plan ought to be broad-based, it ought to be simple, and it ought to be temporary," Bush said, essentially ruling out any permanent tax relief provisions in the growth package. "Passing a new growth package is our most pressing economic priority. And, when that is done, Congress must turn to the most important economic priority for our country --making sure the tax relief now in place is not taken away," Bush asserted.

  The president stressed that the economic package should not include any tax increases or spending projects, which he said "would have little impact on our economy." Treasury Secretary Henry M. Paulson, at a White House press briefing, noted that keeping the plan broad-based and simple would have "a bigger impact on the economy sooner."

  Several Democratic ideas circulating in Congress are aimed at strengthening the social safety net, including extending unemployment insurance benefits and expanding the earned income tax credit (EITC). Council of Economic Advisers Chairman Ed Lazear, at the January 18 briefing, acknowledged that there are many ways to assist particularly vulnerable populations but the primary focus right now should be on economic growth measures.

  The White House is widely reported to be planning a proposed tax rebate of up to $800 for individual taxpayers and $1,600 for married couples. The rebate reportedly would equal the amount of taxable income paid at the ten-percent marginal rate. Under the current tax rate schedule, single filers are taxed at the ten-percent marginal rate on income up to $8,025 and married couples, filing jointly, are taxed at the ten-percent marginal rate on income up to $16,050. To encourage businesses to speed up purchases of equipment, the White House reportedly will propose to double the $125,000 expensing limit temporarily.

  Responding to the president's remarks on the economy, Senate Majority Leader Harry Reid, D-Nev., said he is encouraged and shares the president's view that prompt bipartisan action is needed to strengthen the economy. "I also agree that our focus must be on finding temporary measures that will do the job effectively," stated Reid. "I look forward to working with the president to implement responsible solutions that revive our economy for the benefit of all Americans." Senate Finance Committee Chairman Max Baucus, D-Mont., said that he is inclined to agree that tax relief, particularly rebates, would be the best foundation for a stimulus package. "But I think Congress can build beyond tax relief to further address the needs of Americans bearing the brunt of slow job growth and the housing crisis," he added. Baucus said he hopes the president will work with congressional leadership to settle on the design of a comprehensive stimulus package. Baucus recently announced a series of economic stimulus hearings set for January 22 and January 24. Congressional Budget Office Director Peter Orszag and a number of other economic experts are slated to testify at the first two hearings.

  A spokesman for House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., would not confirm details of the stimulus package under development. Discussions are likely to continue throughout next week, and specific details might not be available until the package is finalized, the spokesman said.

  House Majority Leader Steny Hoyer, D-Md., said he is encouraged that Bush wants to work with members of Congress from both parties to speedily enact legislation. "There is a broad consensus that quickly enacting a simple, focused and temporary plan that puts money in the hands of low- and middle-income Americans will be the most effective shot in the arm to our nation's economy," Hoyer said.

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

White House Fact Sheet: Taking Action To Keep Our Economy Healthy

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  A telecommunications reseller's service transactions were not taxable by Virginia because no corporate income tax or retail sales and use tax nexus was created with Virginia.

  The taxpayer, which utilized a third-party supplier of certain landline services and facilities, had no property, payroll, or sales in Virginia. Therefore, the taxpayer did not have a positive Virginia apportionment factor, and nexus was not created. Additionally, the service transactions did not create retail sales and use tax nexus because the taxpayer was not a dealer for purposes of Va. Code §58.1-612. Finally, the transactions between the taxpayer and the supplier were determined to be sales for resale, and thus, exempt from the Communications Sales and Use Tax, provided the taxpayer presented the supplier with a valid Communications Sales and Use Tax Certificate of Exemption (Form CT-10).

Ruling of Commissioner, P.D. 08-02, Virginia Department of Taxation, January 7, 2008, ¶204-726

  Other References:

  Explanations at ¶11-520

  Explanations at ¶60-025

  Explanations at ¶60-720

CCH (cch.taxgroup.com) reports:

  A company that provided financing on consumer retail purchases was not a "taxpayer" under the Arkansas Bad Debt Statute and therefore was not entitled to claim a refund of sales taxes that it had paid to retailers on credit accounts on which consumers defaulted. Furthermore, the financing company was barred from claiming a refund as an assignee of the retailer.

  In reaching its conclusions, the Arkansas Supreme Court affirmed a circuit court order granting summary judgment in favor of the Department of Finance and Administration.

CCH (cch.taxgroup.com) reports:

  The IRS has identified the four components identifying an intermediary transaction tax shelter (ITTS), which is a listed transaction under Reg. §1.6011-4(b)(2), and has modified Notice 2001-16, 2001-1 C.B. 730, with respect to the types of persons considered to be participants in such transaction. An ITTS is an abusive tax shelter transaction in which a corporation's stock is sold by its shareholders to another corporation, the intermediary, who, in turn, sells some or all of its assets to a buyer purchasing no stock of the first corporation. The buyer claims a basis in the intermediary corporation's assets equal to the purchase price. The intermediary, which may be a member of an affiliated group filing a consolidated return, is able to report losses or credits to offset the gain or tax resulting from the sale of the assets.

  A transaction is characterized as an ITTS if it has four components:

  (1) A corporation (T) or its successor owns appreciated assets and has insufficient tax benefits to eliminate or offset the gain if such assets were sold (the "built-in tax");

  (2) At least 50 percent of T's stock is sold by it shareholder(s) (X) in a non-liquidation transaction within a 12 month period;

  (3) At the time X sells at least 50 percent of T's stock, or within the twelve months before or thereafter, T's assets are sold to one or more buyers (Y); and

  (4) T's built-in tax is purportedly offset, avoided or not paid.

  A transaction lacking at least one of the four components will not be considered the same or substantially similar to the listed transaction described in Notice 2001-16. In addition, X will not be considered a participant in an ITTS transaction if the T stock X disposes of is traded on an established securities market ("Securities"). The buyer, Y, will not be treated as a participant if the only assets of T which Y acquires are either Securities or do no include a trade or business.

  Participants in ITTS transactions have disclosure and registration requirements, and may be subject to penalties for failing to satisfy them. Persons involved in ITTS or substantially similar transactions may be liable for the accuracy-related penalty under Code Sec. 6662 or 6662A, the return preparer penalty under Code Sec. 6694, the promoter penalty under Code Sec. 6700 and the aiding and abetting penalty under Code Sec. 6701. In addition, the assessment limitations period may be extended if such transaction is not disclosed.

  The Notice is effective as of January 17, 2008. It is applicable to returns and statements due after that date.

Notice 2008-20, 2008FED ¶46,273

Other References:

 
Code Sec. 6011

  CCH Reference - 2008FED ¶35,141.78

 
Code Sec. 6111

  CCH Reference - 2008FED ¶37,002.156

 
Code Sec. 6112

  CCH Reference - 2008FED ¶37,022.156

 
Code Sec. 6662

  CCH Reference - 2008FED ¶39,651G.825

 
Code Sec. 6662A

  CCH Reference - 2008FED ¶39,654B

 
Code Sec. 6694

  CCH Reference - 2008FED ¶39,960.40

 
Code Sec. 6700

  CCH Reference - 2008FED ¶40,030.14

 
Code Sec. 6701

  CCH Reference - 2008FED ¶40,035.80

  Tax Research Consultant

  CCH Reference - TRC FILEBUS: 9,452
CCH Reference - TRC FILEBUS: 9,456
 

CCH (cch.taxgroup.com) reports:

  With signs of an economic downturn mounting, President Bush on January 18 will call for "an effective, temporary growth measure" to help avert a possible recession, confirmed a White House spokesman. White House Press Secretary Dana Perino on January 17 said the president will "lay out principles" on "the kinds of policy responses that would be effective."

  Democrats on the hill are calling on the president to support a plan that can be passed by mid-February, contending that any measures taken much later than that will come to late to jump start the U.S. economy. "I see no obstacle to that," White House Deputy Press Secretary Tony Fratto said at a January 17 press briefing. "We're dealing with short-term concerns with the economy. So we do want to try to pass something quickly," Fratto asserted.

  Fratto signaled that the White House would support a tax rebate as part of any stimulus package. He also indicated the president was unlikely to insist that a temporary plan include provisions to make permanent the tax cuts which are due to expire in 2011.

  The tax rebate enacted after the September 11 terrorist attack in 2001 was "probably one of the most timely fiscal stimulus efforts in history. It hit at a very appropriate time. It had a beneficial impact on the economy," Fratto asserted. He noted that Bush remains committed to making tax cuts permanent as a long-term policy goal "whether or not it is included" in the stimulus plan.

  Although administration officials insist it is too early to say what would be in a final package, the president generally believes there should be "broad-based solutions to address the needs of the whole economy," Fratto advised. The White House spokesman stressed that any economic stimulus plan should not require offsets. "If you think about the stimulus, the idea is to put money into the economy, not take money out of the economy. Taking money out of the economy ... is contractional and that's not something we would want to do."

  The president and his chief economic advisers held a conference call with bipartisan congressional leaders on the eve of the president's planned announcement, the first step in a series of consultations with Congress to quickly reach agreement on an economic stimulus plan. Bush asked Treasury Secretary Henry M. Paulson, Jr., to take the lead for the administration "in identifying policies consistent with an effective, temporary growth package," Perino advised.

Help for Low Income Americans

  Federal Reserve System Chairman Ben S. Bernanke told members of the House Budget Committee on January 17 that any economic stimulus package developed by Congress and the Bush administration should focus on increasing spending by low and middle income Americans. Bernanke brushed aside repeated attempts by House Republicans to win support for making the Bush tax cuts of 2001 and 2003 permanent as part of the stimulus package.

  Instead, Bernanke said Congress should be focusing on short term measures for the economy, rather than long term growth in later years. He said putting money directly into the hands of American households would have the fastest effect on turning back an economic slowdown in the next six months. Without giving a firm stamp of approval on any specific measures, Bernanke said Congress should consider direct tax rebates to consumers, increased spending on government programs such as health care, food stamps and unemployment insurance, and targeted tax provisions like bonus depreciation and enhanced expensing for small business.

Congressional Response

  Senate Majority Leader Harry Reid, D-Nev., said he was encouraged that President Bush acknowledged the developing economic problems but was disappointed that the president rejected a request from congressional leaders to work directly with them to develop a bipartisan package. Instead, he said the president was determined to unilaterally develop his own approach without congressional input. "The president's strategy threatens to unnecessarily politicize the inevitable bipartisan negotiations we will need to quickly enact legislation," said Reid. "We hope that the president will agree in the near future to work with us to develop a comprehensive package that is targeted, timely, and temporary, and that provides an urgently needed boost for the economy and the middle class."

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

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  In his recent State of the State Address, Indiana Governor Mitch Daniels proposed a property tax cap and a one-cent sales tax increase. He described the plan as the largest tax cut in state history.

  The governor asked lawmakers to take Indiana property tax levels to among the lowest in the country through a permanent and constitutional 1% cap of a home's value, and by permanently alleviating property taxpayers from the costs of school operations and child welfare protection. He also called for reform of the assessment system with respect to unequal treatment of like properties.

  To offset the property tax cuts, the governor proposed to add a penny to the sales tax. He stated that the overall result would be $1.19 in tax cuts for every $1 of new sales tax revenue before the cap was in effect, and $2 in tax cuts for every $1 of new sales tax revenue after the cap was in effect.

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

State of the State Address, Governor Mitchell E. Daniels, Jr., January 15, 2008.

CCH (cch.taxgroup.com) reports:

  An out-of-state corporation was not subject to Alabama corporate income tax on the gain it realized from selling its one-third stock interest in a European company, despite the fact that the two companies were in the same general line of business (i.e., selling cereal sweeteners) and were owned by the same holding company. The Alabama Department of Revenue treated the gain as apportionable business income and assessed the taxpayer accordingly.

  However, the Department's assertions that the companies were unitary and operationally related were speculative and unsupported by the evidence. The determining question was whether there was a flow of value between the companies, as evidenced by functional integration, centralization of management, and economies of scale. Applying those three factors, it was clear that the taxpayer and the European company were not involved in a unitary business.

  The two companies independently manufactured, marketed, and sold their products to customers on different continents. They had separate manufacturing facilities, as well as separate accounting, payroll, legal, purchasing, and tax departments. The day-to-day operations of the companies were unrelated. Thus, there was no functional integration between the two entities. There was also no centralized management. The companies had their own independent management teams and had no common directors. Although there were general discussions between upper-level managers in the group, decision making was not shared between the subsidiaries. In addition, there were no economies of scale resulting from the taxpayer's ownership of its one-third interest in the European company. The purchase of items under the group's global purchasing agreements showed only that the two companies had a common parent, not that they had a unitary relationship. Accordingly, it was clear that the taxpayer and the European company were separate and unrelated businesses that were not unitary.

  Although the companies were not unitary, the stock gain could still be apportioned to Alabama if the taxpayer's ownership of the stock served an operational function relating to its business conducted in Alabama. However, the taxpayer held the stock for 45 years, and there was no evidence that the stock was purchased for purposes related to the taxpayer's business in Alabama. Rather, purchasing the stock was an investment, and owning it did not serve an operational function or otherwise assist the taxpayer in operating its business in Alabama or elsewhere. The taxpayer did not use the European company as a source of supply because the companies used different raw materials (i.e., corn and wheat), and there were no sales or exchanges of raw materials between the companies.

  Further, even if the Department was not constitutionally barred from taxing the gain, the income in question was not apportionable under Alabama law. With respect to the state's definition of "business income," the taxpayer's sale of the stock was an infrequent transaction, not in the taxpayer's regular course of business. Thus, the income clearly was not business income under the transactional test. The gain also did not constitute business income under the functional test because the taxpayer did not acquire, manage, or dispose of the stock as an integral part of its regular business of selling cereal sweeteners. Finally, the ownership of the stock was not operationally related to the taxpayer's business in Alabama. Because the stock gain was not business income under the transactional test, the functional test, or the operationally-related test, it constituted nonbusiness income that was not apportionable to Alabama.

  Subscribers to CCH Tax Research NetWork can view the complete text of the opinion and preliminary order.

Tate & Lyle Ingredients Americas, Inc. v. Alabama Department of Revenue, Opinion and Preliminary Order, Alabama Department of Revenue, Administrative Law Division, No. CORP. 07-162, January 15, 2008.
 

CCH (cch.taxgroup.com) reports:

  A corporate oil products producer was not entitled to a refund under Code Sec. 1341 for payments it made to its crude oil suppliers to settle antitrust claims. The taxpayer's argument that the settlement payments retroactively increased its cost of goods sold (COGS) for prior years and, thus, supported recalculation of taxes previously paid was rejected. The settlement payments did not arise from the same circumstances as the taxpayer's past understatement of COGS.

  The government established that the understatement of COGS arose from a different commercial relationship or legal obligation and, thus, was not connected to the taxpayer's subsequent settlement payments. Moreover, COGS is not a deduction allowable from gross income but, rather, an expense subtracted from gross receipts to arrive at the taxpayer's gross income. On the other hand, the settlement payments, which the taxpayer deducted as an ordinary and necessary business expense, were not included in gross income. Further, even if the taxpayer could establish a connection between the item previously included in gross income and the recently restored item, the inventory exception would bar relief because the understatement of COGS was attributable to the taxpayer's sale of inventory.

  Reversing a FedCl decision, 2004-2 USTC ¶50,398.

Pennzoil-Quaker State Company, CA-FC, 2008-1 USTC ¶50,131

Other References:

 
Code Sec. 1341

  CCH Reference - 2008FED ¶31,882.272

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 27,408
CCH Reference - TRC ACCTNG:27,450
CCH Reference - TRC ACCTNG:27,456
CCH Reference - TRC ACCTNG:27,502

CCH (cch.taxgroup.com) reports:

  A unanimous Supreme Court handed the IRS an important victory on January 16 when it ruled that investment advisory fees incurred by trusts are subject to the two-percent floor for miscellaneous deductions under
Code Sec. 67(e). While the decision dashed the hopes of many trust and estate administrators that the Court would allow these fees to be fully deductible, the Court did not adopt the analysis of the Second Circuit Court of Appeals on which the IRS based controversial proposed regulations (NPRM REG-128224-06, I.R.B. 2007-36, 551; TAXDAY, 2007/07/21, I.2). It is likely the IRS will have to repropose the regulations to reflect the Supreme Court's decision, several experts told CCH.

  "The decision puts us back to square one," Carol A. Cantrell, co-counsel for the trustee in Rudkin , told CCH. Cantrell, a shareholder with Briggs & Veselka Co., Bellaire, Texas, and a member of the AICPA Fiduciary Accounting Task Force, predicted more litigation as trusts proceed on a case-by-case basis.

Circuit Split

  The decision resolves a split among the circuit courts of appeal over the deductibility of fees paid by nongrantor trusts and estates for investment advice (TAXDAY, 2007/11/28, J.5). The U.S. Court of Appeals for the Sixth Circuit interpreted Code Sec. 67(e) as allowing trusts and estates to fully deduct investment advisory fees ( W.J. O'Neill, Jr., Irrevocable Trust, CA-6, 93-1 USTC ¶50,332). To the contrary, the Federal Circuit in Mellon Bank, N.A. (CA-FC,
2001-2 USTC ¶50,621) and the Fourth Circuit in J.H. Scott (CA-4, 2003-1 USTC ¶50,428) held that Code Sec. 67(e) does not permit the full deduction of investment advice fees because those fees are commonly incurred outside of the trust context.

  The Supreme Court's decision involves yet another circuit. The Second Circuit held in Rudkin that Code Sec. 67(e) permits a full deduction only for those costs that could not have been incurred by an individual. Because investment advisory fees are costs that could be incurred by individuals, the deduction was subject to the two-percent floor, the Second Circuit found.

  The trustee in Rudkin asked the Supreme Court to resolve the split among the circuits. The Supreme Court heard oral arguments in November 2007 (TAXDAY, 2007/11/28, J.5). Chief Justice John G. Roberts, Jr., delivered the opinion of the Court.

Could v. Would

 
Code Sec. 67(e), Justice Roberts wrote, generally provides that a trust's AGI is computed in the same manner as an individual's, including the two-percent floor for miscellaneous itemized deductions. However, Code Sec. 67(e) provides an exception to the two-percent floor if the relevant costs are paid or incurred in connection with the administration of the trust and the cost would not have been incurred if the property was not held in trust.

  The Court rejected the Second Circuit's approach of asking if the cost could have been incurred by an individual. "This approach flies in the face of the statutory language," Justice Roberts wrote. "The provision asks whether the costs would not have been incurred if the property was not held in trust, not ... whether the costs could have been incurred." If Congress had intended this result, it would have used the word "could" in the statute, and not "would," he added.

No Causation Test

  The Court also rejected the trustee's argument that Code Sec. 67(e) establishes a causation test. According to the trustee, the inquiry into deductibility of an expense turns on whether a particular expense of a trust was caused by the fact that the property was held in trust. "The statute ... does not establish a causation test but, rather, invites a hypothetical inquiry into the treatment of the property were it held outside a trust," Justice Roberts wrote.

Unique Expenses

  Having rejected both the Second Circuit's reasoning and the trustee's arguments, the Court then discussed the interpretations of
Code Sec. 67(e) by the Mellon Bank and Scott courts. The Scott court held that costs incurred by trusts that escape the two-percent floor are those that would not commonly or customarily be incurred by individuals. The Mellon Bank court found that Code Sec. 67(e) treats as fully deductible only those trust-related administrative expenses that are unique to the administration of a trust and not customarily incurred outside of trusts. "We agree with this approach," Justice Roberts wrote.

  "The question of whether a trust-related expense is fully deductible turns on a prediction about what would happen if a fact were changed, specifically, if the property were held by an individual rather than by a trust. In the context of making such a prediction, when there is uncertainty about the answer, the word "would" is best read as expressing concepts such as custom, habit, natural disposition, or probability," the Court held.

  Custom varies by location, Cantrell observed. "In Texas we have many individuals who manage their own portfolios. The top five percent hire an advisor. In other parts of the country, individuals automatically hire investment advisors."

Specialized Balancing

  The decision is a disappointment but may leave the door open a little, Jacqueline Patterson, CPA, JD, a partner with Hanney, Buchanan and Patterson, LLP, Los Angeles, and a member of the AICPA Trust, Estate and Gift Tax Technical Resource Panel, observed. At the very end of its opinion, the Court noted that the Solicitor General believes that, "[s]ome trust-related investment advisory fees may be fully deductible if an investment advisor were to impose a special, additional charge applicable only to its fiduciary accounts.... It is conceivable, moreover, that a trust may have an unusual investment objective, or may require a specialized balancing of the interests of various parties such that a reasonable comparison with individual investors would be improper."

Proposed Regulations

  "The IRS lifted the language for the proposed regulations right from Rudkin ," Patterson explained. Because the Supreme Court rejected the Second Circuit's reasoning, the IRS will have to repropose the regulations, she predicted.

  A spokesperson for the American Bankers Association also predicted that the IRS will issue new proposed regulations. "We hope the IRS will quickly provide trustees with transitional and other guidance as needed."

  However, some provisions in the proposed regulations are not from Rudkin , Eileen Sherr, technical manager-taxation, for the AICPA, observed. The proposed regulations require the "unbundling" of fees charged to administer trusts. Investment advisory fees and administrative fees, including tax preparation fees, cannot be combined to, in the words of the IRS, "circumvent the two percent floor." The Supreme Court did not address the unbundling of fees.

  Affirming CA-2, 2006-2 USTC ¶50,569.

  By George L. Yaksick, Jr. and Deborah Petro, CCH News Staff

Michael J. Knight, Trustee of William L. Rudkin Testamentary Trust, SCt, 2008-1 USTC ¶50,132

Other References:

 
Code Sec. 67

  CCH Reference -2008FED ¶6064.75

  Tax Research Consultant

  CCH Reference - TRC ESTTRST: 12,054

CCH (cch.taxgroup.com) reports:

  Congressional lawmakers from all sides of the political spectrum pledged on January 16 to work with the Bush administration to produce an economic stimulus package geared toward staving off a possible recession. However, the broad areas of agreement, such as making sure the package is targeted, timely and temporary, could easily fray as lawmakers disagree over whether the package would be targeted at middle-class consumers or provide an extension of the Bush tax cuts of 2001 and 2003.

  At a hearing of the Joint Economic Committee, Sen. Charles E. Schumer, D-N.Y., said quickly enacted economic stimulus measures could stop the December downturn in retail sales from turning into a deep, protracted recession. As the subprime mortgage crisis in the housing market bleeds into the economy, direct spending of tax rebate checks would be one way to support declining demand, Schumer said. While some Republicans may be looking to make an extension of the Bush tax cuts the centerpiece of economic stimulus, Schumer warned that the president should resist such attempts because they would kill the package in the Senate.

  Schumer's comments were buoyed by former Treasury Secretary Lawrence H. Summers, who testified that extending the Bush tax cuts would increase the projected budget deficit, add to the national debt and translate into lower national savings and higher capital costs, which would be reflected in mortgage rates and stock prices. Summers said that in a recession economy it is more important to stimulate demand rather than supply, and that current investment in plants and equipment is unlikely to be affected by letting the Bush tax cuts expire in 2011.

  In response to questions by Committee Vice Chairman Rep. Jim Saxton, R-N.J., Summers said lawmakers should be able to muster the political will for passing across the board tax rebates. Saxton said he feared that policymakers, under the guise of providing economic stimulus, might fall prey to channeling federal resources into earmarks at the behest of special interest groups. Businesses and investors are currently planning to pay higher taxes when the Bush tax cuts expire, but those revenues could be spent now if the tax cuts are extended, Saxton said.

  Meanwhile, other House GOP leaders pledged to work in a bipartisan fashion to quickly craft an economic growth package that does not raise taxes or spend billions on unrelated pork-barrel projects. House Minority Leader John Boehner, R-Ohio, said that he and House Minority Whip Roy Blunt, R-Mo, plan to work with House Speaker Nancy Pelosi, D-Calif., on the stimulus package.

  In remarks to reporters, House Majority Leader Steny Hoyer, D-Md., said Democrats have no precondition on what can be included in the stimulus package, which could reach the president's desk by February. He quoted House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., in noting that Congress should not pass a stimulus package and a tax increase at the same time. Moreover, Hoyer said the House pay-as-you-go budge rules would allow for deficit spending in order to stimulate the economy. He said lawmakers have not decided whether to pass a tax increase to pay for stimulus in future years.

  Hoyer also noted that failure to pass an extension of the expiring Bush tax cuts, which some Republicans term a tax increase, will not have an impact on the economy in the short term. "I don't think tax relief for upper income Americans will stimulate the economy, because they won't necessarily spend it," Hoyer said.

  By Stephen K. Cooper, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  A foreign corporation was denied an abatement of the Massachusetts corporation excise tax because the taxpayer failed to present sufficient evidence that its activities within the state were protected by P.L. 86-272. The taxpayer presented testimony of a single witness, a sales representative, who did not possess sufficient knowledge to establish the full extent of the taxpayer's activities in the state. Further, the taxpayer did not submit any documentary evidence such as job descriptions, organizational charts, training manuals, operational memoranda, or other materials to corroborate the sales representative's testimony. Alternatively, the taxpayer argued the application of the single sales formula to a manufacturing corporation discriminated against interstate commerce in violation of the Commerce Clause of the U.S. Constitution. This argument was without merit because the U.S. Supreme Court has held neither the Due Process Clause nor the Commerce Clause prohibits the application of the a single sales factor formula to an interstate business. The Appellate Tax Board noted the application of the single sales factor formula in a particular case may be unconstitutional, however, the taxpayer only attacked the single sales factor formula facially and not as it was applied to the taxpayer in this case.

Advanced Logic Research Inc. v. Commissioner of Revenue , Massachusetts Appellate Tax Board, Nos. C271740, C271871, January 10, 2008, ¶401-137

  Other References:

  Explanations at ¶10-075

  Explanations at ¶11-520

CCH (cch.taxgroup.com) reports:

  The arrangement between one cell of a Protected Cell Company (PCC) and that cell's sole insured shareholder was not an insurance contract. The arrangement lacked the requisite risk shifting and risk distribution because any claim payment to the sole shareholder would be paid out of that shareholder's premium payments. Consequently, the premiums paid by the sole shareholder were not deductible as insurance premiums. However, the arrangements between another cell of the same PCC (where the sole cell shareholder also owned 12 domestic subsidiaries) and each of the 12 insured subsidiaries were insurance contracts since all premiums were pooled and any loss was to be paid from the pool. Since there was risk shifting and risk distribution, the premiums paid by each subsidiary were deductible.

Rev. Rul. 2008-8, 2008FED ¶46,270

Other References:

 
Code Sec. 162

  CCH Reference - 2008FED ¶8522.3915

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  For purposes of California corporate and personal income taxes, qualifying organizers of tax shelters and material advisors who previously failed to make required disclosures during various periods after 2003 will not be subject to certain penalties if they make the disclosures before March 11, 2008, according to the Franchise Tax Board (FT. The different periods relate to federal law and regulation changes since 2003. The penalty law sections (Rev. & Tax. Code §19173 and §19182) relate to required maintenance and disclosure of investor lists by organizers of tax shelters and advisee lists by material advisors.

CCH (cch.taxgroup.com) reports:

  The California State Board of Equalization (SBE) has adopted a comprehensive revision to its Rules of Practice that addresses the appeals process for sales and use taxes, timber yield taxes, property taxes, and special taxes and fees administered by the SBE, as well as corporation franchise and income and personal income tax appeals from the Franchise Tax Board (FT. Now entitled Board of Equalization Rules for Tax Appeals (RTA), the revised rules codify important procedures not contained in the former Rules of Practice, reorganize the rules for the Board's appeals process in a more logical manner, and generally explain the Board's appeals processes as plainly and comprehensively as possible, according to the SBE. The RTA was approved by the Office of Administrative Law and filed with the Secretary of State on January 7, 2008.

  Articles 1 through 8 (§5010-§5087) of the former Rules of Practice have been repealed and are replaced by five chapters of the RTA at §5000 through §5576, as part of Title 18, Division 2.1, Chapter 10 of the California Code of Regulations. Other sections and cross-references have been renumbered accordingly.

  Chapter 2 of the RTA, Sales and Use Tax, Timber Yield Tax, and Special Taxes and Fees, includes rights and policies that were not included in the previous rules. Chapter 3, Property Taxes, incorporates the existing procedures for the Board's property tax appeals processes, except appeals under the Timber Yield Tax Law and appeals of jeopardy assessments issued under the Private Railroad Car Tax Law, which are governed by Chapter 2 of the RTA. Chapter 4, Appeals from Actions of the Franchise Tax Board, clarifies the Board's procedures for hearing appeals from actions of the FTB and codifies the Board's existing practices that were not contained in the former rules. Also, a new briefing schedule for innocent spouse appeals and new pre-hearing conference procedures have been added. Chapter 5, General Board Hearing Procedures, incorporates the Board's appeals processes and revises the Board's historical practices with regard to the disclosure of information relevant to an oral Board hearing.

Reg. 5000 et seq., California State Board of Equalization, February 6, 2008.

CCH (cch.taxgroup.com) reports:

 
The IRS alerts life insurance companies to federal income tax issues that may arise as a result of the adoption of proposed actuarial guideline VACARVM and/or a proposed principles-based approach for calculating statutory reserves for life insurance. This notice identifies areas in which the Treasury Department and IRS have concerns and invites comments on these issues.

  Proposed VACARVM sets forth a new actuarial guideline that would constitute annuity reserve valuation method (CARVM) for variable annuities. It also interprets the standard for valuation of reserves for variable annuity and other contracts involving certain guaranteed benefits similar to those offered with variable annuities. On the other hand, the proposed calculation of life insurance reserves defines the minimum valuation standard under principles-based approach for individual life insurance policies.

  If both proposals are adopted, it is anticipated that the new rules would apply for federal income tax purposes only to contracts that are issued after the date of adoption and not to previously issued contracts that are in force on that date, regardless of the applicability of the new rules to previously issued contracts for regulatory purposes. The Treasury Department and IRS assume this approach would render moot any issue concerning the applicability of a 10-year spread under Code Sec. 807(f) for adjustments resulting from the adoption of these proposed rules. Further, the Treasury Department and IRS do not anticipate changes to existing guidance that requires that tax principles override statutory accounting principles in appropriate cases.

  Comments should be submitted in writing on or before May 5, 2008, and should contain a reference to this notice. Comments may be submitted to CCA:LPDR (Notice 2008-18), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Alternatively comments may be submitted electronically via the following e-mail address: Notice.Comments@irscounsel.treas.gov. Include "Notice 2008-18" in the subject line of any electronic communications.

Notice 2008-18, 2008FED ¶46,268

Other References:

 
Code Sec. 807

  CCH Reference - 2008FED ¶25,821.20

 
Code Sec. 816

  CCH Reference - 2008FED ¶26,003.789

  Tax Research Consultant

  CCH Reference - TRC CCORP: 36,204
 

CCH (cch.taxgroup.com) reports:

 
The IRS has identified 43 frivolous positions that have been deemed frivolous by courts or have no basis for validity in existing law. These positions are frivolous for purposes of the Code Sec. 6702(a) penalty for filing frivolous tax returns and the Code Sec. 6702(b) penalty for filing specified frivolous submissions, such as requests for Collection Due Process (CDP) hearings, and applications for installment agreements, offers in compromise, and taxpayer assistance orders.

  The maximum amount of the penalties is $5,000 if: (i) a purported return based on one or more of these positions does not contain information that allows the substantial correctness of the self-assessed tax to be judged; (ii) a purported return contains information that, on its face, indicates the self-assessed tax is substantially incorrect; (iii) a specified submission is based on one or more these frivolous positions; or (iv) a purported return or specified submission reflects a desire to delay or impede the administration of federal tax laws, even if it is not based on one of these identified positions.

  Included in the list of 43 frivolous positions are four new frivolous claims that were not included in last year's guidance. These four new positions relate to:

  --A misinterpretation of the Ninth Amendment regarding objections to military spending;

  --Erroneous claims that taxes are owed only by persons with a fiduciary relationship to the U.S. or IRS;

  --A nonexistent "Mariner's Tax Deduction," or something similar, related to invalid deductions for meals; and

  --Misuse or excessive use of the credit for fuels under Code Sec. 6421.

 
Notice 2007-30, I.R.B. 2007-14, 883, is modified and superseded.

IR-2008-8, 2008FED ¶46,266

Notice 2008-14, 2008FED ¶46,267

Other References:

 
Code Sec. 6159

  CCH Reference - 2008FED ¶37,181.20

 
Code Sec. 6320

  CCH Reference - 2008FED ¶38,134.023

 
Code Sec. 6330

  CCH Reference - 2008FED ¶38,184.023

  CCH Reference - 2008FED ¶38,184.108

 
Code Sec. 6702

  CCH Reference - 2008FED ¶40,043.01

  CCH Reference - 2008FED ¶40,043.50

 
Code Sec. 7122

  CCH Reference - 2008FED ¶41,130.025

  CCH Reference - 2008FED ¶41,130.45

 
Code Sec. 7811

  CCH Reference - 2008FED ¶43,312.10

  Tax Research Consultant

  CCH Reference - TRC FILEBUS: 6,204.40
CCH Reference -
TRC IRS: 24,054
CCH Reference -
TRC IRS: 42,100
CCH Reference - TRC IRS: 48,056.25
CCH Reference - TRC PENALTY: 3,260
CCH Reference - TRC PENALTY: 3,260.10
CCH Reference - TRC PENALTY: 3,260.15

CCH (cch.taxgroup.com) reports:

  The IRS has finalized, with some modifications, previously proposed amendments to Reg. §1.1502-80 (NPRM
REG-131128-04) that provide guidance on the manner in which multiple consolidated group members succeed to and take into account items of a liquidating corporation (including Code Sec. 381(c) items, but excluding any intercompany items) in a Code Sec. 332 liquidation. The final regulations apply to corporations filing consolidated returns and are effective January 15, 2008. The amendments to Reg. §1.1502-13 that were also proposed in NPRM
REG-131128-04 are withdrawn.

  Under the final regulations, each distributee member succeeds to and takes into account the items of the liquidating corporation that could be used to offset the income or tax liability of the group or any member (including deferred deductions, net operating loss carryovers and capital loss carryovers). This is done to the extent that such items would have been reflected in investment basis adjustments to the stock of the liquidating corporation owned by the distributee member under Reg. §1.1502-32(c) if, immediately prior to the liquidation, any stock of the liquidating corporation owned by non-members had been redeemed and then such items had been taken into account.

  Any deferred income items of the liquidating corporation attributable to assets and/or liabilities transferred to a non-80-percent distributee are taken into account under applicable principles of law as a result of the liquidation, despite the fact that the transaction is described in Code Sec. 381(a). Likewise, Code Sec. 332(a) does not apply in determining the recognition or nonrecognition of any income realized by the non-80-percent distributee that is attributable to its assumption of a liability related to the deferred income because such income is not gain or loss recognized with respect to the stock of the liquidating corporation. The regulations also clarify that the full amount of the deferred income items or deferred deductions that are attributable to specific property or business is allocated to the distributee member that receives the property or the business in the liquidation.

  The final regulations further revise the proposed credit allocation rules to provide that credits of the liquidating corporation are allocated proportionately to each distributee member based on the value of the liquidating corporation's stock owned by that member. Except to the extent that the distributee member's earnings and profits (E&P) already reflect the liquidating corporation's E&P, each distributee member succeeds to and takes into account under Reg. §1.1502-32(c) the liquidating corporation's E&P or a deficit in E&P, determined after taking into account the E&P amount applicable to non-member shareholder distributions under Reg. §1.381(c)(2)-1(c)(2).

  Finally, a distributee member that, immediately prior to the liquidation, owns stock in the liquidating corporation meeting the requirements of Code Sec. 1504(a)(2), without regard to Reg. §1.1502-34, succeeds to other items of the liquidating corporation in accordance with Code Sec. 381 and other applicable provisions. If the distributee member was a non-80-percent shareholder prior to the liquidation, it succeeds to other items to the extent that it would have succeeded to those items if it had purchased, in a taxable transaction, the assets or businesses of the liquidating corporation that it received in the liquidation and assumed the liabilities it assumed in the liquidation.

T.D. 9376, 2008FED ¶47,013

Other References:

 
Code Sec. 1502

  CCH Reference - 2008FED ¶33,204

  Tax Research Consultant

  CCH Reference - TRC CCORP: 45,352.35

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

 
The U.S. Fourth Circuit Court of Appeals upheld a district court's finding that principles of comity barred a federal suit brought by two satellite television providers that challenged North Carolina's sales and use taxation of providers of multi-channel video programming on the grounds that it discriminated against interstate commerce in violation of the Commerce Clause and also directly conflicted with federal law in violation of the Supremacy Clause of the U.S. Constitution. (TAXDAY 2007/03/16, S.10)
  The taxpayers had asked the federal courts to reverse North Carolina legislation enacted in 2006 that altered the taxation of satellite and cable providers by (1) increasing and expanding the state sales and use tax on multichannel television programmers, (2) repealing the authority of local governments to enter into franchise agreements with cable operators and impose taxes on them, and (3) mandating that the Secretary of Revenue distribute some of the gross receipts taxes paid by satellite and cable operators to local governments. However, the appellate court ruled that principles of comity prevented the federal courts from intervening in state tax matters and precluded the taxpayers from seeking a federal court order to reallocate the taxation authority between the state and its political subdivisions.
  The appellate court rejected the taxpayers' argument that the local franchise taxes at issue were fees and not a tax and therefore the principles of comity were inapplicable. The charges at issues were taxes because (1) they were imposed by local governments and not by an administrative agency, (2) they were spread among a large portion of the population because the cable operators were allowed to pass on the charges to the cable subscribers, and (3) the proceeds from the charges went into the local governments' general funds and not a discrete fund established to maintain the rights-of-way utilized by the cable operators. Furthermore, the fact that the franchise taxes were replaced by a state-level tax gave further credence to the conclusion that the local franchise taxes were taxes rather than fees.
  Subscribers to CCH Tax Research NetWork can view the court's decision.
  DIRECTV, Inc. v. Tolson , U.S. Court of Appeals for the Fourth Circuit, No. 07-1250, January 10, 2008.
 

CCH (cch.taxgroup.com) reports:

  Numerous amendments to Illinois corporate income tax, personal income tax, retailers' occupation (sales) tax, and use tax statutes are included in the FY2008 Budget Implementation bill, which became law on January 11, 2008, after the Illinois Legislature accepted Governor Rod R. Blagojevich's amendatory vetoes to the bill and the governor certified the changes. Selected tax changes are discussed below.
 

CCH (cch.taxgroup.com) reports:

 
In the wake of growing evidence of an economic slowdown in the United States, President Bush stressed that any plans under consideration by the administration and Congress to keep the economy on track should not increase taxes. Major news from the IRS during the week of January 7 included a reversal by the Chief Counsel's Office of its position on access to tax rate reconciliation workpapers, the release of a critical annual report on the IRS by the Taxpayer Advocate and announcement that the 2008 filing season is off to a successful start despite initial delays caused by the eleventh-hour AMT patch made under the Tax Increase Prevention Act of 2007 (P.L. 110-166). The Service also provided its annual updates to determinations and rulings procedures, as well as guidance on the mortgage insurance deduction.
White House
  In a speech made in Chicago, Illinois, President Bush, noted that mixed reports on the economy reinforce the need for sound policies in Washington but that raising taxes at a time of uncertainty would exacerbate the problem. Bush urged Congress to make permanent all the tax cuts that are due to expire in 2010.
  The president's top economic advisors are looking at several options that may or may not be needed to keep the U.S. economy on track. If the president decides a stimulus package is warranted, he will announce the measures in the State of the Union address on January 28 (TAXDAY, 2008/01/07, W.1). Administration officials decline to comment on specific measures under consideration but a White House spokesman said that tax cuts are definitely on the table.
  Any economic stimulus package considered by Congress in 2008 could include middle-class tax relief and an extension of the 2001 and 2003 Bush tax cuts, according to a panel of economic experts at the Brookings Institution in Washington, D.C. (TAXDAY, 2008/01/11, M.1). Former Treasury Secretary Robert E. Rubin said the trigger, size and contents of a stimulus package are the parameters that should be under discussion as lawmakers and the administration seek ways to avert a recession. Former Federal Reserve Board Vice Chairman Alice Rivlin said aid to states should be included in a stimulus package so that states do not raise taxes and cut back on benefits to low income residents. Other suggestions by the panel included a payroll-tax rate cut and increased unemployment insurance benefits for distressed workers.
IRS
  FIN 48. Without explanation, the IRS Office of Chief Counsel cancelled Chief Counsel Notice CC-2007-015 and stated that it should not be followed (CC-2008-008, TAXDAY, 2008/01/07, I.3). In CC-2007-015, the Chief Counsel had determined that tax rate reconciliation workpapers created under Financial Accounting Standards Board Statement (FAS No. 109 (Accounting for Income Taxes, effective 1992) would not be treated as audit or tax accrual workpapers that would be covered under the IRS's long-standing policy of restraint and the intended definitions in the Internal Revenue Manual. Apparently, some internal disagreement within the Chief Counsel's Office led to pulling back this aggressive position. No indication has been made as to whether any permanent position will be announced.
  Income Tax Return Filing Season. Updated paper forms are now available and taxpayers may file their 2007 tax returns electronically beginning January 11, the IRS has announced (IR-2008-5, IR-2008-6; TAXDAY, 2008/01/11, I.1 ). The IRS's Free File program, which also provides free return preparation, also began on January 11. David Williams, director of the IRS's Electronic Tax Administration, told reporters in a telephone news conference it was a "big deal" that the IRS was able to open the e-filing season on time, despite the late passage of tax legislation.
  Another e-mail scam promising an IRS "refund" is circulating, a spokesperson for the Service told CCH on January 8 (TAXDAY, 2008/01/09, I.4). The latest version of the refund scam is similar to past scams. The IRS never communicates with taxpayers through unsolicited e-mails. Similarly, the Service never asks individuals for their personal identification numbers (PINs), passwords or other secret access information for credit and debit cards or other bank accounts.
  The IRS issued guidance on the documentation required to substantiate lump-sum charitable contributions made through United Way's Combined Federal Campaign or a similar program (Notice 2008-016;
TAXDAY, 2008/01/09, I.1). Under the Pension Protection Act of 2006 (P.L. 109-280), all charitable contributions of cash, check or other monetary gift regardless of amount must be substantiated in writing. Regulations are being drafted to finalize the substantiation requirements and, until published in the Federal Registrar, taxpayers may rely on this notice.
  Taxpayer Advocate. National Taxpayer Advocate Nina E. Olson's annual report to Congress identified the consequences of changes to the tax code enacted late in the year as the most serious problem facing taxpayers (TAXDAY, 2008/01/10, I.1). The report also focused particular attention to the need for a coordinated approach by the IRS to combat the "cash economy," which represents the largest portion of the tax gap. The report further recommended that Congress enact a Taxpayer Bill of Rights and authorize symbolic "apology payments" in flagrant situations where taxpayers suffer serious harm as the result of IRS errors.
  Determinations & Rulings. The IRS issued its annual series of revenue procedures for issuing private letter rulings, revenue rulings, determination letters, and similar taxpayer-requested guidance, as well as for technical advice requested by IRS personnel. No surprises were found in the 2008 updates, although more detailed procedures involved tax-exempt organization and international transactions, clearly reflecting the IRS's refocus in the area. In an effort to have most private rulings funded by fees, the user fee for most general rulings and closing agreements jumps from $10,000 to $11,500 starting on February 1. are collected. (Rev. Proc. 2008-1,
TAXDAY, 2008/01/07, I.4; Rev. Proc. 2008-2, TAXDAY, 2008/01/07, I.5; Rev. Proc. 2008-3, TAXDAY, 2008/01/07, I.6; Rev. Proc. 2008-4, TAXDAY, 2008/01/07, I.7; Rev. Proc. 2008-5, TAXDAY, 2008/01/07, I.8; Rev. Proc. 2008-6, TAXDAY, 2008/01/07, I.9; Rev. Proc. 2008-7, TAXDAY, 2008/01/07, I.10; Rev. Proc. 2008-8, TAXDAY, 2008/01/07, I.11).
  Mortgage Insurance. The IRS also issued guidance on how individuals should allocate prepaid qualified mortgage insurance premiums and how entities receiving premiums should report them (Notice 2008-15,
TAXDAY, 2008/01/09, I.3). Qualified mortgage insurance premiums paid or accrued in 2007 for qualified mortgage insurance contracts issued in 2007 can be treated as deductible qualified residence interest. However, if the premiums are prepaid, the deduction is limited to the amount allocable to 2007. In addition, the allocable amount may be reduced or eliminated due to the phaseout of the qualified residence interest deduction for higher-income taxpayers. For 2007, qualified mortgage insurance premiums are reported in box 4 of Form 1098, Mortgage Interest Statement.
  By Torie Cole, Stephen K. Cooper and Paula Cruickshank, CCH News Staff
 

CCH (cch.taxgroup.com) reports:

  The IRS has updated procedures regarding the request, issuance and appeal of determination letters and rulings on the exempt status of organizations under Code Secs. 501 and 521. These procedures apply to exempt organizations other than those relating to pension, profit-sharing, stock bonus, annuity and employee stock ownership plans. The updated procedures provide guidance on requesting determination letters, the steps taken in issuing determination letters, appealing determination letters, revoking determination letters and when an organization will have sufficiently exhausted administrative remedies allowing for a declaratory judgment proceeding under Code Sec. 7428. Included in the guidance is the new central address for the processing of exempt status applications, replacing the former system of district offices. However, some applications may be processed in other exempt organization (EO) offices or referred to EO Technical. Rev. Proc. 2007-52, I.R.B. 2007-30, 222, is superseded, and Rev. Proc. 76-34, 1976-2 CB 656, is supplemented.
Rev. Proc. 2008-9, 2008FED ¶46,264
Other References:
 
Code Sec. 501
  CCH Reference - 2008FED ¶22,604.021
  CCH Reference - 2008FED ¶22,604.10
  CCH Reference - 2008FED ¶22,660.10
 
Code Sec. 507
  CCH Reference - 2008FED ¶22,780.15
 
Code Sec. 511
  CCH Reference - 2008FED ¶22,825.101
 
Code Sec. 521
  CCH Reference - 2008FED ¶22,882.112
 
Code Sec. 527
  CCH Reference - 2008FED ¶22,911.10
 
Code Sec. 4947
  CCH Reference - 2008FED ¶34,143.35
 
Code Sec. 7428
  CCH Reference - 2008FED ¶41,723.18
 
Statement of Procedural Rules Sec. 601.201
  CCH Reference - 2008FED ¶43,360.172
  CCH Reference - 2008FED ¶43,360.173
  Tax Research Consultant
  CCH Reference - TRC EXEMPT: 12,054
CCH Reference -
TRC EXEMPT: 12,102
CCH Reference -
TRC EXEMPT: 12,104
CCH Reference - TRC EXEMPT: 12,140.10
CCH Reference -
TRC EXEMPT: 12,156

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Governor Arnold Schwarzenegger submitted a budget to the Legislature on January 10 that would raise no taxes, as the Governor indicated he would do in his State of the State Address. (TAXDAY, 2008/01/10, S.3) The budget also includes a proposed Budget Stabilization Act that, according to the Governor, would keep spending under control, build savings in prosperous times, and bridge the revenue gap in lean times.

CCH (cch.taxgroup.com) reports:

  A panel of economic experts speaking at the Brookings Institution in Washington, D.C. on January 10 discussed the prospects of a stimulus package that includes middle-class tax relief and an extension of the 2001 and 2003 Bush tax cuts. Former U.S. Treasury Secretary Robert E. Rubin said the trigger, size and contents of a stimulus package are the parameters that should be under discussion by lawmakers and the administration. Former Federal Reserve Board Vice Chairman Alice Rivlin said aid to states should be included in a stimulus package so that states do not raise taxes and cut back on benefits to low income residents. Other suggestions by the panel included a payroll tax rate cut and increased unemployment insurance benefits for distressed workers.

  The panel met to discuss a Brookings Institution paper entitled, "If, When and How: A Primer on Fiscal Stimulus," by Douglas W. Elmendorf and Jason Furman. "According to the paper, In considering fiscal policy at this juncture, policymakers need to answer several key questions. Is fiscal stimulus needed? When should such stimulus be provided?" Further, the paper asks "And what would constitute effective fiscal stimulus? These questions are not merely technical. The livelihoods and living standards of many Americans are at stake." The paper can be found http://www.brookings.edu/Economy.aspx, with a link to the report under the "Recent Research and Commentary" column.

  The panel said that economists across the county are divided on how big a stimulus package should be passed by Congress, and what impact stimulus would have on the economy in 2008. Rubin questioned whether the pay-as-you-go rules in Congress would require that taxes be raised in later years to pay for the stimulus. Increasing the deficit in the short term might be economically justifiable, Furman said. "I think we need a stronger economy now to invest in education and health care," Rubin said.

  By Stephen K. Cooper, CCH News Staff

CCH (cch.taxgroup.com) reports:

  Taxpayers may file their 2007 tax returns electronically beginning January 11, the IRS announced in a January 10 news release (IR-2008-5). The IRS's Free File program, which also provides free return preparation, also will begin January 11 (IR-2008-6). David Williams, director of the IRS's Electronic Tax Administration (ETA), told reporters in a telephone news conference it was a "big deal" that the IRS was able to open the e-filing season on time, despite the late passage of tax legislation.

  Taxpayers with an adjusted gross income of $54,000 or less qualify for Free File. The IRS estimated that 97 million filers qualify for Free File. The $54,000 threshold applies regardless of the taxpayer's filing status, Williams explained.

AMT Fall-Out

  Some taxpayers will still have to wait to file their returns while the IRS revises certain forms and reprograms its systems in response to the recently enacted alternative minimum tax (AMT) legislation (the Tax Increase Prevention Act of 2007) (P.L. 110-166). Any 2007 returns e-filed before Monday, February 11, 2008, that include Form 8863, Education Credits; Form 5695, Residential Energy Credit; Schedule 2, Form 1040A, Child and Dependent Care Expenses for Form 1040A Filers; Form 8396, Mortgage Interest Credit; or Form 8859, District of Columbia First-Time Homebuyer Credit, will not be accepted. However, taxpayers who owe the AMT may file immediately if they do not use any of those five forms.

  Williams said that every effort was made to inform tax return preparers about the forms and to ensure that software packages alerted taxpayers to the forms at issue. The updated forms are on the IRS website and available in paper. He said it was highly unlikely that taxpayers would be able to obtain the out-of-date forms.

2007 Filing Season

  For the 2007 filing season, 80 million individual taxpayers out of 140 million returns filed electronically, about 57 percent, according to Williams. 57.4 million returns were prepared by professionals, while 22.6 million returns were self-prepared. Williams said a continuing problem is that many professionals use software to prepare returns but then print and file paper returns.

  Williams and Acting IRS Commissioner Linda Stiff touted the benefits of e-filing in a news release. The error rate is reduced from 20 percent for paper returns to 1 percent for e-filed returns. IRS processing is much cheaper: 29 cents per e-filed return, compared to $2.65 for a paper return. IRS acknowledges within 48 hours that it has accepted the return. Direct deposit refunds are paid within 10 days and return information is secure.

Increasing E-Filing

  Congress initially mandated a goal of 80-percent e-filing by 2007. The ETA is launching a study on how to close the gap to 80 percent, Williams said. The report will make recommendations and will come out in 2008. The study will look at a direct IRS filing option, bypassing private software companies. Williams said it was unclear how many taxpayers would use it, since some people like third-party help. The study would look at the characteristics of taxpayers who do and do not e-file. In addition, the IRS is looking at the use of a bar code on paper returns that would facilitate processing.

Free File; Software Companies

  The Free File program is in its sixth year. In 2007, 3.9 million taxpayers used the program. Taxpayers can choose from 19 software companies to prepare their returns. The program can only be accessed through the IRS website at www.irs.gov. Customer surveys indicate a high level of satisfaction with the program.

  According to Williams, the IRS takes policing of Free File very seriously. It has purged the marketing of ancillary products and ads from Free File vendors. If a vendor is producing inaccurate results, the IRS will look carefully at that. It will also look at whether the handling of data is secure and the processing of data is correct.

  The IRS works with software companies to stem identity fraud, Williams said. When asked about refund anticipation loans (RALs), Williams said the IRS is concerned that they may encourage cheating by return preparers who inflate the claimed refunds. In response, the IRS requested comments on limiting consent to disclosures of taxpayer information that could be used in selling RALs (Advance NPRM REG-136596-07, TAXDAY, 2008/01/04, I.2).

  By Brant Goldwyn, Ian Lesch and John Old, CCH News Staff

IR-2008-5, 2008FED ¶46,262

IR-2008-6, 2008FED ¶46,263

 
Code Sec. 6011

  CCH Reference - 2008FED ¶35,141.47

  Tax Research Consultant

  CCH Reference - TRC FILEBUS: 12,306
CCH Reference - TRC FILEIND: 18,050  

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

In his State of the State address, New York Governor Eliot Spitzer proposed no tax increases. The Governor also called for the formation of a bipartisan committee that would recommend a property tax cap plan to stabilize school district property taxes.
State of the State Address , New York Governor Eliot Spitzer, January 9, 2008.

CCH (cch.taxgroup.com) reports:

In his State of the State address on January 8, California Governor Arnold Schwarzenegger noted that the budget he will submit on January 10 will not raise taxes despite a projected deficit next year of $14 billion. Instead, the budget will cut spending across the board, according to the Governor.
Subscribers to CCH Tax Research NetWork can view the prepared text of the Governor's speech.

State of the State Address , Office of California Governor Arnold Schwarzenegger, January 8, 2008.

CCH (cch.taxgroup.com) reports:

Former IRS Large and Mid-Size Business Division Commissioner Deborah Nolan discussed the Service's increasing international focus, what to expect from the IRS in terms of stepped-up global tax enforcement, and her new role as a partner with Ernst & Young's Tax Controversy and Risk Management Services group within its national tax department during a phone forum with reporters on January 9. Nolan retired from the IRS on October 3, 2007. She has been with Ernst & Young only a short time --three days.
The Service is positioning itself to "better identify and deal with compliance risk" associated with international business, Nolan revealed. "International issues are becoming more of the core, not the specialty." Technical competencies are building, she added.
Nolan also identified the implications of FIN 48 on financial accounting as another hot area the IRS will be increasingly focused on over the course of the next two years. She also revealed that the handling of Tier I issues is maturing and that "the number of issues could expand." According to Nolan, the IRS will focus on becoming more efficient in handling these issues. The IRS will also look to use its issue resolution tools --such as the compliance assurance program --in a more timely and efficient manner.
As the corporate environment changes and taxpayers need more certainty with regard to planning, compliance and knowledge of IRS resolution tools and the rationale behind those policies and decisions, Nolan believes she can provide that assistance in the private arena. She plans to use her experience and background to help corporate taxpayers obtain that certainty and resolve those issues. According to Nolan, there is a common ground between sound tax administration, what tax professionals want to provide for their clients, and what corporations want.
By Hilary Goehausen, CCH News Staff
 

CCH (cch.taxgroup.com) reports:

National Taxpayer Advocate Nina E. Olson's annual report to Congress identified the consequences of changes to the tax code enacted late in the year as the most serious problem facing taxpayers. The report also focused particular attention to the need for a coordinated approach by the IRS to combat the "cash economy," which represents the largest portion of the tax gap. The report also recommended that Congress enact a Taxpayer Bill of Rights and authorize symbolic "apology payments" in flagrant situations where taxpayers suffer serious harm as the result of IRS errors. A second volume was included in the report that describes the findings of six research studies, including one that shows that low-income taxpayers do better in IRS earned income tax credit audits when they are represented by practitioners.
Late-Year Tax Changes
The report pointed to a variety of problems caused by late-year retroactive changes to the tax code, including the extension of several popular tax breaks in December 2006 and the alternative minimum tax "patch" enacted in December 2007. These problems include:
(1) Many taxpayers may not have claimed tax deductions to which they were entitled for 2006 merely because they did not know about them. In December 2006, Congress reauthorized deductions for state and local sales taxes, educator expenses, and post-secondary tuition and fees. Approximately 1.4 million fewer claims for these deductions were made in 2006 than in 2005, and the only appreciable difference between the two tax years was that the benefits for 2006 could not be included in the Form 1040 tax packages or shrink-wrapped software packages due to the late passage of the deduction extensions.
(2) Low-income taxpayers may suffer financial hardship due to the delay in the issuance of tax refunds. This is caused by the delay in the start of the filing season to enable the IRS to reprogram its computer systems to reflect last-minute changes in the tax law.
(3) The IRS must divert its "thinly stretched resources" to implement the late-year changes in the tax law.
The report called for the Treasury Department and the tax-writing committees to establish a process whereby the IRS identifies and estimates the filing-season impact of important tax legislation and transmits this information to the tax-writing committees at several points during the year.
"Cash Economy"
The report suggests that a comprehensive strategy be developed to address tax noncompliance in the "cash economy". The report stresses, however, that, while new approaches to reduce the tax gap are needed, undue compliance burdens should not be imposed and taxpayer rights should not be undermined. The report criticized the IRS for having failed to create a Cash Economy Program Office to coordinate its various initiatives.
Taxpayer Bill of Rights
The report recommended that Congress establish a comprehensive Taxpayer Bill of Rights and authorize "apology payments" in situations where the IRS unduly burdens or harms taxpayers. Although, over the last two decades, three important taxpayer rights' bills have been enacted by Congress, the report claims that the number of bills and the lack of publicity have "muddled the message."
Regarding "apology payments," the report points out that other countries, including the United Kingdom and Australia, authorize de minimis payments to taxpayers in situations where errors have been made by the tax administrator that imposed substantial hardship or inconvenience. Olson suggested that up to $1 million a year be authorized for the National Taxpayer Advocate to make such payments, which would range from $100 to $1,000.
Taxation of Cancelled Debts
The report recommends that the IRS improve its instructions regarding the taxation of cancelled debt and develop a publication devoted to cancelled-debt issues. The report notes that, while a taxpayer that borrows money must generally include any amount of cancelled debt in gross income, several exceptions exist, such as that for insolvent taxpayers. Although Congress, in 2007, passed legislation providing temporary relief for homeowners relating to mortgages (the Mortgage Forgiveness Debt Relief Act of 2007 (P.L. 110-142)), taxpayers received approximately two million Forms 1099-C reporting cancelled debts in 2007, many of which related to defaults on automobiles and credit card bills. According to the report, many taxpayers may be paying taxes they do not owe due to inadequate instructions regarding exceptions to cancellation-of-indebtedness income. For example, the Form 1040 Instructions list cancelled debts under the heading, "Examples of income to report," but do not mention exceptions to the rule.
User Fees
The IRS collects about $180 million annually in user fees, largely from taxpayers who enter into installment agreements. The report expresses concern that the IRS does not have a clear policy for setting and waiving fees and makes several recommendations to assist in establishing and setting fees in the future.
Private Debt Collection
The report states that the private debt collection program is "falling far short of revenue projections." Particular concern was also expressed about the lack of transparency in the program. While IRS collection procedures are publicly available and subject to review by taxpayers and members of Congress, the private collection agencies have designated comparable information as proprietary, and the IRS has failed to insist on a contractual term to make the information publicly available. Olson reiterated her previous call for repeal of the program.
Research Studies
The National Taxpayer Advocate has published six research reports that it conducted or commissioned. One study, the Earned Income Credit (EITC) Audit Challenges Study, concludes that represented taxpayers retain nearly twice as much EITC benefits as those who are not represented. Another study, on the expected effect of the Tax Increase and Prevention Reconciliation Act (TIPRA) on the IRS's offer-in-compromise program, shows that most taxpayers lack the resources to submit the newly required 20-percent deposit.
IR-2008-4, 2008FED ¶46,259
National Taxpayer Advocate's 2007 Annual Report to Congress
NTEU Press Release
Other References:
Code Sec. 7804
CCH Reference - 2008FED ¶43,266.385
Tax Research Consultant
CCH Reference - TRC IRS: 3,058
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

South Carolina Governor Mark Sanford has proposed an optional 50% reduction in the state's top marginal personal income tax rate, to be offset by a 30-cents-per-pack increase in the state's cigarette tax, as part of his Fiscal Year 2008-2009 Executive Budget. The proposal would reduce the top marginal income tax rate from the current 7% to 3.4% and would increase the cigarette tax from 7 cents per pack to 37 cents per pack.
As explained in a budget preview, dated December 19, 2007, the Governor's proposal would offer South Carolinians two options for paying their income taxes starting in 2009: (1) pay the current 7% rate and be eligible for current deductions or (2) pay a flat tax of 3.4% with no deductions.
The Governor believes that a lower, simpler, and flatter income tax rate would make the state more competitive nationally and globally, attracting jobs and capital.

CCH (cch.taxgroup.com) reports:

The Hawaii Department of Taxation has released guidance for determining whether an entity that is considered a disregarded entity for tax purposes satisfies the activity and gross income tests for a qualified high technology business (QHT for purposes of the high tech business investment credit allowed against corporate income, personal income, and insurance gross premiums tax liabilities and the research and development credit allowed against corporate income and personal income tax liabilities. Guidance is also provided for determining whether a disregarded entity satisfies the activities test for a QHTB for purposes of the income tax exemptions for certain types of income owned by a QHTB. Types of entities that are typically disregarded for income tax purposes include single-member limited liability companies (SMLLCs) and qualified Subchapter S subsidiaries (QSSSs).
For purposes of the QHTB determinations, the Department is allowing taxpayers the option to test activities and gross income at the disregarded entity level in order to avoid unintentional disqualification of otherwise qualified businesses. The Department will allow a disregarded entity to be considered separate and distinct only for purposes of these determinations. A taxpayer may not argue the separate status allowed pursuant to these determinations as a basis for separate consideration in any other tax matter, except where otherwise allowed by law. The effect of the Department's position is to encourage larger companies with both qualified and unqualified research activities to establish qualified research operations in Hawaii to take advantage of the tax benefits available. Electing to test the activities or gross income of a QHTB at the disregarded entity level is optional. In some instances it may be more beneficial to have a disregarded entity's activities be attributed to the owner. A company may continue to treat an entity as disregarded if doing so will qualify the company and its subsidiaries as a QHTB.

CCH (cch.taxgroup.com) reports:

Another email scam promising an IRS "refund" is circulating, a spokesperson for the Service told CCH on January 8. As the filing season gets underway, the number of email scams, known as phishing, is likely to significantly increase as con artists seek to steal taxpayer's identities by enticing them with offers of refunds.
Refund Teaser
The latest version of the refund scam is similar to past scams. The email tells the recipient that he or she is eligible for an IRS refund. "After the last calculations of your fiscal activity, we have determined that you are eligible to receive a tax refund of $129.53," the email reads.
The email asks the recipient to link to an electronic refund request form so the IRS can process the refund. Scam artists then use the personal information on the form to steal the recipient's identity or for other criminal purposes. Some email scams contain harmful viruses or spyware that can infest the recipient's computer.
Refunds do not require a separate form, the spokesperson reminded CCH. Anyone who thinks that he or she may be due a refund should use the IRS' online Where's My Refund? tool at www.irs.gov . The spokesperson cautioned taxpayers never to click on any link in a suspicious email.
Reporting Suspicious Emails
The IRS never communicates with taxpayers through unsolicited emails. Similarly, the Service never asks individuals for their personal identification numbers (PINs), passwords or other secret access information for credit and debit cards or other bank accounts.
Individuals who receive suspicious emails should never open them, the spokesperson advised. Instead, they should forward them to the IRS at hishing@irs.gov.">phishing@irs.gov.
International Links
Over the past year, the IRS has identified a number of phishing scams. In November, the Service discovered criminals sending emails purportedly from the Taxpayer Advocate Service (TAXDAY, 2007/11/09, I.8). Scam artists also used the California wildfires as cover for phishing scams (TAXDAY, 2007/11/06, I.6). Another scheme claims that the recipient is the target of an IRS criminal investigation (IR-2007-109; TAXDAY, 2007/06/01, I.4).
Many of the scams originate outside of the U.S., the spokesperson indicated. The IRS and the Treasury Inspector General for Tax Administration (TIGTA) work with U.S. and international Internet service providers to have the phishing scams taken offline.
By George L. Yaksick, Jr., CCH News Staff
 

CCH (cch.taxgroup.com) reports:

The IRS has issued guidance on how individuals should allocate prepaid qualified mortgage insurance premiums and how entities receiving premiums should report them. Qualified mortgage insurance premiums paid or accrued in 2007 for qualified mortgage insurance contracts issued in 2007 can be treated as deductible qualified residence interest. However, if the premiums are prepaid, the deduction is limited to the amount allocable to 2007. In addition, the allocable amount may be reduced or eliminated due to the phaseout of the qualified residence interest deduction for higher-income taxpayers. For 2007, qualified mortgage insurance premiums are reported in box 4 of Form 1098, Mortgage Interest Statement.
A proper allocation period will need to be determined by individuals who, in 2007, obtained a mortgage that qualifies as acquisition indebtedness on a qualified residence and, in connection with the mortgage, paid a qualified mortgage insurance premium for private mortgage insurance or Federal Housing Association (FHA) mortgage insurance issued in 2007 but extending beyond 2007. As a matter of administrative convenience, the IRS has determined that such individuals may allocate the prepaid premium ratably over the shorter of: (1) the stated term of the mortgage, or (2) 84 months, beginning with the month in which the insurance was obtained, to determine the amount treated as deductible qualified residence interest for 2007.
Reporting entities that receive qualified mortgage insurance premiums of $600 or more in 2007 from an individual are required to file the 2007 Form 1098. The form instructions provide that the reporting entity should report, in box 4 of Form 1098, the portion of the amount of prepaid qualified mortgage insurance premiums received that is allocable to 2007. However, an entity reporting either the amount actually received or the amount determined under the 84-month allocation method will be deemed to have satisfied its reporting requirement. Individuals may need to contact the issuer of the Form 1098 to determine how the amount reflected in box 4 was determined.
Comments
Since the deduction for prepaid qualified mortgage insurance premiums has been extended through 2010, but the newly issued guidance only applies to 2007, the Treasury and the IRS are requesting comments regarding the appropriate allocation method and reporting requirements that should apply to future years. Submissions should include the name and telephone number of a person to contact. However, submissions should not include taxpayer-specific information of a confidential nature.
Notice 2008-15, 2008FED ¶46,258
Other References:
Code Sec. 163
CCH Reference - 2008FED ¶9402.64
Code Sec. 6050H
CCH Reference - 2008FED ¶36,186.12
Tax Research Consultant
CCH Reference - TRC REAL: 6,060
CCH Reference - TRC FILEBUS: 9,312

CCH (cch.taxgroup.com) reports:

The IRS has issued guidance on the documentation required to substantiate lump-sum charitable contributions made through Combined Federal Campaign or a similar program, such as a United Way Campaigns. The Pension Protection Act of 2006 (P.L. 109-280) added Code Sec. 170(f)(17), which requires all charitable contributions of cash, check, or other monetary gift regardless of amount to be substantiated in writing. To meet the recordkeeping requirements of Code Sec. 170(f)(17), Combined Federal Campaign organizations will need to provide the donor with a written communication that includes the name of the donee organization that is the ultimate recipient of the charitable contribution. This is in addition to satisfying the written communication requirements of Code Sec. 170(f)(8) for contributions of $250 or more. Regulation are being drafted to finalize the substantiation requirements under Code Sec. 170 and, until published in the Federal Registrar, taxpayers may rely on this notice.
CCH Comment: In Notice 2006-51 (I.R.B. 2006-51, 1127), the IRS provided these types of organizations with guidance for substantiating charitable contributions made by payroll deduction.
The notice commented on the fact that the IRS may review the nexus between these combined federal campaigns and the actual donees. In addition, the regulation may require that the written communication include the specific dollar amounts contributed by the donor that are distributed to the donee organizations along with the date of the distribution.
Notice 2008-16, 2008FED ¶46,256
Other References:
Code Sec. 170
CCH Reference - 2008FED ¶11,700.021
CCH Reference - 2008FED ¶11,700.50
Tax Research Consultant
CCH Reference - TRC INDIV: 51,454
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The North Carolina Department of Revenue was authorized to require a taxpayer to file a consolidated return and was also authorized to use combined reporting to determine a multistate unitary business's true net income subject to North Carolina corporation franchise tax.

CCH (cch.taxgroup.com) reports:

The U.S. Supreme Court has granted the request of a regular participant in Cook County, Illinois, property tax lien auctions (Sabre Group, LLC) for review of a decision allowing two competitors to proceed with an action alleging that Sabre violated the federal Racketeer Influenced and Corrupt Organizations (RICO) Act (18 U.S.C. §§1961-1968) in its auction bidding. The high court limited its review to whether reliance is a required element of a RICO claim predicated on mail fraud and, if it is, whether that reliance must be by the plaintiff.
Background: The bidder in a Cook County tax lien auction willing to accept the lowest penalty (payable by the property owner desiring to clear the lien) wins the auction. Given the competitive situation, most auctioned parcels in Cook County attract multiple bids at 0% penalty. The county deals with multiple identical bids by allocating the auctioned parcels by lot among the bidders. To avoid an unfair allocation, the county prohibits related entities from offering multiple, simultaneous bids. A bidder is required to submit an affidavit before the auction affirming that no agent or related entity is participating.
Two of Sabre's competitors filed a RICO lawsuit alleging that Sabre, its principal, and others regularly violated the county's rules by arranging for related firms to bid while concealing that fact. As a result, they allege Sabre received an unfair portion of profitable liens. The alleged scheme involved use of the mails to deliver the affidavits and notices of the sales to property owners. These acts provided the instances of mail fraud supporting the RICO claim. The federal district court dismissed the suit for lack of standing, however, holding that the county was the only proper plaintiff.
Court of Appeals decision: The U.S. Court of Appeals for the Seventh Circuit reversed. (TAXDAY, 2007/02/26, S.9) It held that neither the county nor, assuming the penalty was 0%, the property owners were harmed by the alleged fraud. Regardless of the identity of the successful bidder, the county still received all the back taxes and interest, and the property owners had to pay the same amount to retain their property. The only injured parties were losing bidders and, therefore, they were the proper parties to bring an action. The Court of Appeals held that these competing bidders had standing and that the allegations satisfied the causation standard in Anza v. Ideal Steel Supply Corp., 126 S. Ct. 1991 (2006).
Furthermore, the court ruled that the fact that the alleged false statements were not made to the victims was irrelevant. However, the Court of Appeals noted that there is a split in the federal circuits on this issue of whether the victims must have relied on the misstatements to recover under RICO. It is this question that the U.S. Supreme Court now has agreed to consider.
Subscribers to CCH Tax Research NetWork can view the petition.
Bridge v. Phoenix Bond & Indemnity Co., U.S. Supreme Court, Dkt. 07-210, petition for certiorari granted January 4, 2008.

CCH (cch.taxgroup.com) reports:

A recent audit of fees paid by the IRS to private collection agencies revealed no significant problems, the Treasury Inspector General for Tax Administration (TIGTA) has reported ("Invoice Audit of Fees Paid Under the Private Debt Collection Initiative," Reference Number: 2008-10-054). TIGTA is also conducting a separate report about the overall initiative.
CCH Comment. "Since the program's implementation in September 2006, the IRS has turned over more than 142,000 cases worth more than $786 million in unpaid taxes to private collection agencies," a spokesperson for the Tax Fairness Coalition told CCH. "During the limited implementation phase of the program, the private collection agencies so far have collected $37.5 million in delinquent taxes from taxpayers who otherwise would not have been contacted by the IRS. Taxpayers also have agreed to pay another $7.75 million through installment payments."
Private Collection Agencies
The IRS originally contracted with three private collection agencies, The CBE Group, Inc., Waterloo, Iowa; Linebarger Grogan Blair & Sampson, LLP, Austin, Texas; and Pioneer Credit Recovery Inc., Cascade, N.Y., to handle taxpayer accounts in September 2006 (TAXDAY, 2007/02/21, I.4). Linebarger Grogan Blair & Sampson ended its participation in the initiative in March 2007 (TAXDAY, 2007/03/02, I.2), leaving The CBE Group and Pioneer Credit Recovery as the current participants.
When the IRS launched the initiative, it reported that the private collection agencies would handle simple cases and those in which the taxpayer did not dispute the liability. According to TIGTA, the IRS had $7.7 billion in delinquent tax debt classified as potentially available for the implementation phase of the initiative. Approximately $5.5 billion was "low-priority" workload, likely eligible for placement with private debt collectors.
Fees
Between September 2006 and April 2007, the IRS processed 18 invoices, containing more than 6,000 expense transactions, from the three contractors totaling approximately $2.7 million, TIGTA reported. TIGTA audited a sample of the invoices and determined that the fees were accurate, supportable and allowable. Minimal discrepancies were subsequently remedied by the IRS.
CCH Comment. TIGTA did not identify the nature of the fees in its report. A TIGTA spokesperson told CCH that the fees were "for collecting the money."
Overall Evaluation Next
TIGTA also reported that its staff is performing an overall evaluation of the initiative to measure its performance and evaluate its effectiveness. The overall evaluation will also examine IRS oversight of the program, contractors' compliance with laws and procedures and taxpayers satisfaction with the program.
The results of the overall evaluation, if positive, are sure to be touted by supporters as evidence of the program's success and, if negative, by opponents as signs of its flaws. During its short life, the initiative has sparked heated controversy on Capitol Hill. Opponents came very close to terminating the program last autumn when the House voted to cut off future funding (TAXDAY, 2007/10/11, C.1). However, a similar ban was not inserted in the omnibus fiscal year 2008 appropriations bill, the Consolidated Appropriations Act, 2008 (P.L. 110-161) (TAXDAY, 2007/12/20, C.3).
Supporters of the initiative have a powerful ally in Sen. Charles E. Grassley, R-Iowa, ranking member of the Senate Finance Committee. Several times in 2007, Grassley helped to turn back proposals in the Senate or deflate House actions that would have ended the initiative (TAXDAY, 2007/05/22, C.1).
By George L. Yaksick, Jr., CCH News Staff
TIGTA Report: Invoice Audit of Fees Paid Under the Private Debt Collection Initiative (Reference Number: 2008-10-054)

CCH (cch.taxgroup.com) reports:

Nearly 27,000 veterans may be eligible for refunds of tax paid on benefits from vocational rehabilitation programs, the U.S. Department of Veterans Affairs (VA) announced on January 7. Participants in the VA Compensated Work Therapy (CWT) and Incentive Therapy (IT) programs may qualify for refunds.
Vocational Rehabilitation
The two programs assist veterans who are unable to work and support themselves. The CWT program teaches new job skills and matches veterans with jobs in the private and public sectors. The IT program helps seriously disabled veterans. They receive benefits for performing services at VA medical centers. The VA reported that 19,000 veterans received CWT benefits in 2007. More than 8,000 veterans received IT benefits.
Tax-Free Treatment
In Wallace , 128 TC No. 11, CCH Dec. 56,899 (TAXDAY, 2007/04/17, J.1), the Tax Court held that CWT payments were tax-free benefits. The IRS subsequently acquiesced in the decision, reversing its long-held position (Rev. Rul. 65-18, 1965-1 CB 32) that the payments had to be included in gross income as compensation for services (TAXDAY, 2007/10/29, I.5; IRS News Release IR-2007-198, TAXDAY, 2007/12/13, I.1).
Refunds
The VA reported that it is no longer sending Forms 1099 (Miscellaneous Income) to recipients of CWT and IT benefits. Veterans who paid tax on these benefits in the 2004, 2005 or 2006 tax years can claim a refund by filing an amended return, the VA indicated.
By George L. Yaksick, Jr., CCH News Staff
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The owner of farmland subject to at least one development rights agreement or agricultural conservation easement may claim a credit against the Michigan business tax (MBT). The credit is equal to the amount by which property taxes on land and structures used in farming restricted by the development rights agreements or agricultural conservation easements exceed 3.5% of the owner's business income tax base. Previously, the credit was available against the single business tax, but not the MBT.
Act 174 (S.B. 932), Laws 2007, effective December 21, 2007.

CCH (cch.taxgroup.com) reports:

Rev. Proc. 2008-8 provides guidance for complying with the IRS's user fee program as it pertains to requests for letter rulings, determination letters and similar requests regarding matters under the jurisdiction of the Commissioner, Tax Exempt and Government Entities Division. Further, the procedure addresses the method by which the administrative scrutiny determination user fees described in Rev. Proc. 93-41, 1993-2 CB 536, are collected.
The procedure reflects Section 8244 of the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007 (P.L. 110-28), which makes user fees permanent. Also, two new user fees have been added to section 6.01 as a result of on-going practice and the Pension Protection Act of 2006 (P.L. 109-280), and the user fee for Form 6406, Short Form Application for Determination for Minor Amendment of Employee Benefit Plan, has been removed due to the elimination of that form. Rev. Proc. 2008-8 is effective for requests postmarked, or if not mailed, received on or after January 7, 2008. Rev. Proc. 2007-8, I.R.B. 2007-1, 230, is superseded.
Rev. Proc. 2008-8, 2008FED ¶46,254
Other References:
Code Sec. 401
CCH Reference - 2008FED ¶17,507.042
CCH Reference - 2008FED ¶17,507.0425
CCH Reference - 2008FED ¶17,507.2531
Code Sec. 403
CCH Reference - 2008FED ¶18,282.41
Code Sec. 408
CCH Reference - 2008FED ¶18,922.0216
CCH Reference - 2008FED ¶18,922.0459
CCH Reference - 2008FED ¶18,922.116
CCH Reference - 2008FED ¶18,922.272
CCH Reference - 2008FED ¶18,922.40
CCH Reference - 2008FED ¶18,922.722
Code Sec. 408A
CCH Reference - 2008FED ¶18,930.19
Code Sec. 412
CCH Reference - 2008FED ¶19,125.0289
CCH Reference - 2008FED ¶19,125.0355
CCH Reference - 2008FED ¶19,125.296
CCH Reference - 2008FED ¶19,125.465
CCH Reference - 2008FED ¶19,125.60
Code Sec. 501
CCH Reference - 2008FED ¶22,604.021
CCH Reference - 2008FED ¶22,604.10
CCH Reference - 2008FED ¶22,660.10
Code Sec. 503
CCH Reference - 2008FED ¶22,683.87
Code Sec. 507
CCH Reference - 2008FED ¶22,780.15
Code Sec. 509
CCH Reference - 2008FED ¶22,812.026
CCH Reference - 2008FED ¶22,812.50
Code Sec. 511
CCH Reference - 2008FED ¶22,825.101
Code Sec. 521
CCH Reference - 2008FED ¶22,882.196
Code Sec. 4945
CCH Reference - 2008FED ¶34,107.024
Code Sec. 4971
CCH Reference - 2008FED ¶34,324.50
Statement of Procedural Rules Sec. 601.201
CCH Reference - 2008FED ¶43,360.031
CCH Reference - 2008FED ¶43,360.173
CCH Reference - 2008FED ¶43,360.205
Tax Research Consultant
CCH Reference - TRC RETIRE: 12,066.15
CCH Reference - TRC RETIRE: 30,404.10
CCH Reference - TRC RETIRE: 51,050
CCH Reference - TRC RETIRE: 51,400
CCH Reference - TRC RETIRE: 63,056.10
CCH Reference - TRC RETIRE: 66,650
CCH Reference - TRC IRS: 12,200
CCH Reference - TRC IRS: 12,220.60
CCH Reference - TRC IRS: 12,230.20
CCH Reference - TRC IRS: 12,230.25
CCH Reference - TRC IRS: 12,302
CCH Reference - TRC EXEMPT: 12,054.20
CCH Reference - TRC EXEMPT: 12,056
CCH Reference - TRC EXEMPT: 12,102
CCH Reference - TRC EXEMPT: 12,102.05
CCH Reference - TRC EXEMPT: 18,156

CCH (cch.taxgroup.com) reports:

The IRS has provided an updated list of subject areas under the jurisdiction of the Associate Chief Counsel (International) for which it will not issue advance letter rulings or determination letters. Rev. Proc. 2007-7 is updated to provide that the IRS will not ordinarily provide rulings on the following issues: (1) whether foreign income tax laws deny any opportunity for the foreign use of a dual consolidated loss under Reg. §1.1503(d)-3(e)(1); (2) whether no possibility of foreign use exists under Reg. §1.1503(d)-6(c)(1); (3) whether an event presumptively constitutes a triggering event under Reg. §1.1503(d)-6(e)(1)(i) - (ix); (4) whether the presumption of a triggering event is rebutted under Reg. § 1.1503(d)-6(e)(2); and (5) whether a domestic use agreement terminates under Reg. §1.1503(d)-6(j)(1). Rev. Proc. 2008-7 also provides that the IRS will not ordinarily rule on the corresponding provisions of prior regulations under Code Sec. 1503(d).
Rev. Proc. 2008-7, I.R.B. 2008-1, 229, is effective January 7, 2008. Rev. Proc. 2007-7, I.R.B. 2007-1, 227, is superseded.
Rev. Proc. 2008-7, 2008FED ¶46,253
Other References:
Code Sec. 367
CCH Reference - 2008FED ¶16,667.25
Code Sec. 861
CCH Reference - 2008FED ¶27,129.135
Code Sec. 862
CCH Reference - 2008FED ¶27,153.1124
Code Sec. 864
CCH Reference - 2008FED ¶27,189.20
Code Sec. 871
CCH Reference - 2008FED ¶27,343.138
CCH Reference -2008FED ¶27,343.142
Code Sec. 881
CCH Reference - 2008FED ¶27,484.13
Code Sec. 892
CCH Reference - 2008FED ¶27,608.13
Code Sec. 893
CCH Reference - 2008FED ¶27,622.102
Code Sec. 894
CCH Reference - 2008FED ¶27,642.10
Code Sec. 901
CCH Reference - 2008FED ¶27,826.152
Code Sec. 903
CCH Reference - 2008FED ¶27,862.01
CCH Reference - 2008FED ¶27,862.13
Code Sec. 927
CCH Reference - 2008FED ¶28,208.24
Code Sec. 936
CCH Reference - 2008FED ¶28,394.12
Code Sec. 943
CCH Reference - 2008FED ¶28,426.12
Code Sec. 954
CCH Reference - 2008FED ¶28,543.195
Code Sec. 956
CCH Reference - 2008FED ¶28,576.18
Code Sec. 985
CCH Reference - 2008FED ¶28,848.15
Code Sec. 989
CCH Reference - 2008FED ¶28,925.15
Code Sec. 993
CCH Reference - 2008FED ¶28,989.157
Code Sec. 1058
CCH Reference - 2008FED ¶30,003.20
Code Sec. 1502
CCH Reference - 2008FED ¶33,168.7233
Code Sec. 7701
CCH Reference - 2008FED ¶43,084.10
CCH Reference - 2008FED ¶43,097E.15
CCH Reference - 2008FED ¶43,125A.12
CCH Reference - 2008FED ¶43,126H.15
Code Sec. 7874
CCH Reference - 2008FED ¶43,971.025
Statement of Procedural Rules Sec. 601.201
CCH Reference - 2008FED ¶43,360.051
CCH Reference - 2008FED ¶43,360.65
Tax Research Consultant
CCH Reference - TRC IRS: 12,214.30
CCH Reference - TRC IRS: 12,214.40

CCH (cch.taxgroup.com) reports:

Revised procedures of the various offices of the IRS for issuing determination letters on the qualified status of pension, profit-sharing, stock bonus, annuity and employee stock ownership plans (ESOPs) under Code Sec. 401, Code Sec. 403(a), Code Sec. 409 and Code Sec. 4975(e)(7), and on the status for exemption of any related trusts or custodial accounts under Code Sec. 501(a), have been issued. Most changes involve minor revisions, such as updating citations and references to other revenue procedures.
In accordance with the staggered remedial amendment cycles instituted under Rev. Proc. 2005-66, I.R.B. 2005-37, 509, the IRS has referenced the first submission period for Cycle C individually designed plans and Code Sec. 414(d) governmental plans for purposes of accepting applications for determination letters starting on February 1, 2008. The new procedures require that all changes to prior plan documents be identified and any interim amendments be submitted with determination letter applications. In addition, all determination letter submissions must include a restated plan or a working copy of the plan in restated format, except in the case of terminating plans. Also, an authorized representative submitting 30 or more on-cycle individually designed plans must pre-notify the IRS via e-mail.
Rev. Proc. 2008-6 supersedes Rev. Proc. 2007-6, I.R.B. 2007-1, 189, and is effective January 7, 2008. Future guidance is expected that will supersede and/or substantially modify portions of Rev. Proc. 2008-6.
Rev. Proc. 2008-6, 2008FED ¶46,252
Other References:
Code Sec. 401
CCH Reference - 2008FED ¶17,507.042
CCH Reference - 2008FED ¶17,507.0434
CCH Reference - 2008FED ¶17,507.2531
CCH Reference - 2008FED ¶17,512.01
CCH Reference - 2008FED ¶18,123.28
Code Sec. 403
CCH Reference - 2008FED ¶18,282.11
Code Sec. 409
CCH Reference - 2008FED ¶18,951.075
CCH Reference - 2008FED ¶18,951.27
Code Sec. 410
CCH Reference - 2008FED ¶18,997.25
Code Sec. 411
CCH Reference - 2008FED ¶19,071.075
Code Sec. 414
CCH Reference - 2008FED ¶19,166A.01
CCH Reference - 2008FED ¶19,166A.16
CCH Reference - 2008FED ¶19,170A.023
CCH Reference - 2008FED ¶19,170A.03
CCH Reference - 2008FED ¶19,170A.25
Code Sec. 415
CCH Reference - 2008FED ¶19,218.721
Code Sec. 420
CCH Reference - 2008FED ¶19,303.35
Code Sec. 501
CCH Reference - 2008FED ¶22,604.10
Statement of Procedural Rules Sec. 601.201
CCH Reference - 2008FED ¶43,360.2112
CCH Reference - 2008FED ¶43,360.2113
CCH Reference - 2008FED ¶43,360.2116
Tax Research Consultant
CCH Reference - TRC RETIRE: 9,022
CCH Reference - TRC RETIRE: 9,024
CCH Reference - TRC RETIRE: 9,026
CCH Reference - TRC RETIRE: 9,028
CCH Reference - TRC RETIRE: 9,030
CCH Reference - TRC RETIRE: 9,150
CCH Reference - TRC RETIRE: 9,200
CCH Reference - TRC RETIRE: 12,066.35
CCH Reference - TRC RETIRE: 12,112
CCH Reference - TRC RETIRE: 45,114.05
CCH Reference - TRC RETIRE: 51,050
CCH Reference - TRC RETIRE: 51,052
CCH Reference - TRC RETIRE: 51,052.05
CCH Reference - TRC RETIRE: 51,052.10
CCH Reference - TRC RETIRE: 51,054
CCH Reference - TRC RETIRE: 51,054.05
CCH Reference - TRC RETIRE: 51,054.10
CCH Reference - TRC RETIRE: 51,054.15
CCH Reference - TRC RETIRE: 51,054.20
CCH Reference - TRC RETIRE: 51,054.25
CCH Reference - TRC RETIRE: 51,054.30
CCH Reference - TRC RETIRE: 51,054.35
CCH Reference - TRC RETIRE: 51,056
CCH Reference - TRC RETIRE: 51,056.10
CCH Reference - TRC RETIRE: 51,056.15
CCH Reference - TRC RETIRE: 51,056.20
CCH Reference - TRC RETIRE: 51,056.30
CCH Reference - TRC RETIRE: 51,058
CCH Reference - TRC RETIRE: 51,060
CCH Reference - TRC RETIRE: 51,062
CCH Reference - TRC RETIRE: 51,100
CCH Reference - TRC RETIRE: 51,104
CCH Reference - TRC RETIRE: 51,106.05
CCH Reference - TRC RETIRE: 51,252
CCH Reference - TRC RETIRE: 51,254
CCH Reference - TRC RETIRE: 51,302
CCH Reference - TRC RETIRE: 51,304
CCH Reference - TRC RETIRE: 54,200
CCH Reference - TRC RETIRE: 54,206
CCH Reference - TRC RETIRE: 54,258.10
CCH Reference - TRC RETIRE: 57,050

CCH (cch.taxgroup.com) reports:

The IRS has issued an updated procedure for the furnishing of technical advice memoranda (TAMs) by Employee Plans (EP) Technical or Exempt Organizations (EO) Technical offices. This procedure governs advice to an Employee Plans Examinations Area manager, an Exempt Organizations Examinations Area manager, an Employee Plans Determinations manager, an Exempt Organizations Determinations manager or an Appeals Area director regarding issues in the employee plans areas (including actuarial matters) and the exempt organizations areas. The procedure also explains a taxpayer's rights when an EP or EO Examinations Area manager, an EP or EO Determinations manager or an Appeals Area Director requests technical advice regarding a tax matter. The procedure may also be used where another Operating Division of the IRS has audit jurisdiction while EP Technical has interpretive jurisdiction.
General procedures govern technical advice requests regarding matters within the jurisdiction of the Commissioner, Tax Exempt and Government Entities Division. Requests for Code Sec. 7805(b) relief are mandatory TAMs with respect to all exempt organizations and employee plans matters.
Rev. Proc. 2008-5 is effective January 7, 2008. Rev. Proc. 2007-5, I.R.B. 2007-1, 161, is superseded.
Rev. Proc. 2008-5, 2008FED ¶46,251
Other References:
Code Sec. 401
CCH Reference - 2008FED ¶17,507.042
CCH Reference - 2008FED ¶17,507.76
Code Sec. 501
CCH Reference - 2008FED ¶22,604.10
Code Sec. 521
CCH Reference - 2008FED ¶22,882.196
Code Sec. 7805
CCH Reference - 2008FED ¶43,360.103
Tax Research Consultant
CCH Reference - TRC EXEMPT: 12,102
CCH Reference - TRC IRS: 12,052.05
CCH Reference - TRC IRS: 12,252
CCH Reference - TRC RETIRE: 51,054.35
CCH Reference - TRC RETIRE: 51,304

CCH (cch.taxgroup.com) reports:

The IRS has updated its procedures for issuing letter rulings and revenue rulings, as well as determination, opinion, notification and information letters, on matters relating to Internal Revenue Code provisions under the jurisdiction of the Commissioner, Tax Exempt and Government Entities Division (TE/GE). Most of the changes involve minor revisions, such as updating citations to other revenue procedures. However, a few larger changes have also been made.
--EO Technical will not issue letter rulings under Code Secs. 507, 4941
or 4945 pertaining to the tax consequences of the termination of a charitable remainder trust before the end of the trust term in a transaction in which the trust beneficiaries receive their actuarial shares of the value of the trust assets.
--Taxpayers must no longer attach a waiver of disclosure violations resulting from a fax transmission to their request to receive a copy of a private letter ruling by fax.
--Taxpayers may request a conference regarding a determination letter not subject to Code Secs. 7428, 501
or 521; however, such conferences will generally be held by telephone.
The ruling also clarifies that a letter ruling will not be issued with respect to an issue that is clearly and adequately addressed by statute, regulations, court decisions or IRS rulings that are published in the Internal Revenue Bulletin, although the IRS may issue an information letter calling attention to well-established principles of tax law. Rev. Proc. 2008-4 is effective January 7, 2008. Rev. Proc. 2007-4, I.R.B. 2007-1, 118, is superseded.
Rev. Proc. 2008-4, 2008FED ¶46,250
Other References:
Code Sec. 381
CCH Reference - 2008FED ¶17,031.223
Code Sec. 401
CCH Reference - 2008FED ¶17,507.042
CCH Reference - 2008FED ¶17,507.2351
CCH Reference - 2008FED ¶17,507.2531
Code Sec. 412
CCH Reference - 2008FED ¶19,125.905
Code Sec. 414
CCH Reference - 2008FED ¶19,156D.40
Code Sec. 501
CCH Reference - 2008FED ¶22,609.30
Code Sec. 507
CCH Reference - 2008FED ¶22,780.15
Code Sec. 509
CCH Reference - 2008FED ¶22,812.50
Code Sec. 529
CCH Reference - 2008FED ¶22,945.30
Code Sec. 4942
CCH Reference - 2008FED ¶34,047.70
Code Sec. 4966
CCH Reference - 2008FED ¶34,317C.30
Code Sec. 4967
CCH Reference - 2008FED ¶34,319C.30
Code Sec. 6033
CCH Reference - 2008FED ¶35,425.116
Statement of Procedural Rules Sec. 601.201
CCH Reference - 2008FED ¶43,360.103
CCH Reference - 2008FED ¶43,360.175
Tax Research Consultant
CCH Reference - TRC RETIRE: 42,454
CCH Reference - TRC RETIRE: 51,050
CCH Reference - TRC RETIRE: 51,052.16
CCH Reference - TRC RETIRE: 51,054
CCH Reference - TRC RETIRE: 69,352
CCH Reference - TRC IRS: 12,230.10
CCH Reference - TRC IRS: 12,230.15
CCH Reference - TRC IRS: 12,230.20
CCH Reference - TRC IRS: 12,230.40
CCH Reference - TRC IRS: 12,304
CCH Reference - TRC EXEMPT: 12,054
CCH Reference - TRC EXEMPT: 12,102
CCH Reference - TRC EXEMPT: 21,110
CCH Reference - TRC EXEMPT: 21,162
CCH Reference - TRC EXEMPT: 33,150
CCH Reference - TRC EXEMPT: 33,200

CCH (cch.taxgroup.com) reports:

The IRS has revised the list of areas under the jurisdiction of the Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities), the Associate Chief Counsel (Corporate), the Associate Chief Counsel (Financial Institutions & Products), the Associate Chief Counsel (Income Tax & Accounting), the Associate Chief Counsel (Passthroughs & Special Industries) and the Associate Chief Counsel (Procedure and Administration) for which letter rulings or determination letters will not be issued. Lists of areas of nonissuance under the jurisdiction of the Associate Chief Counsel (International) and the Commissioner, Tax Exempt and Government Entities Division (relating to plans or plan amendments) are presented in separate revenue procedures.
The following issues have been added to those for which advance rulings will not be issued:
Whether a transfer is a gift;
Whether amounts paid to research fellows and research associates are scholarships or fellowships excluded from wages for FICA purposes;
Whether a charitable contribution deduction is allowed for a transfer of an interest in a limited partnership or limited liability company taxes as a partnership to a charitable organization;
The determination of who is the owner of a qualified film or television production;
The determination of who is the taxpayer that has the benefits and burdens of ownership of any qualifying production property, qualified film, or utilities during the period in which a qualifying activity under Code Sec. 199 occurs;
Whether the termination of a charitable remainder trust before the end of the trust term is a transaction in which the beneficiaries receive their actuarial shares of the value of trust assets is a sale or other disposition by the beneficiaries of their trust interests;
The income tax consequences of a transaction in which the holder of an annuity contract irrevocably elects to apply only a portion of the contract to purchase a stream of annuity payments under the contract, leaving the remainder of the contract to accumulate income on a tax-deferred basis; and
Permission to use a single yield for two or more issues of qualified mortgage bonds or qualified student loan bonds.
Rev. Proc. 2008-3 is effective January 7, 2008. Rev. Proc. 2007-3, 2007-1 CB 108, and Rev. Proc. 2007-39, I.R.B. 2007-25, 1446, are superseded.
Rev. Proc. 2008-3, 2008FED ¶46,249
Rev. Proc. 2008-3, FINH ¶30,575
Other References:
Statement of Procedural Rules Sec. 601.201
CCH Reference - 2008FED ¶4580.663
CCH Reference - 2008FED ¶5504.101
CCH Reference - 2008FED ¶5504.699
CCH Reference - 2008FED ¶5507.405
CCH Reference - 2008FED ¶5900.67
CCH Reference - 2008FED ¶5907.70
CCH Reference - 2008FED ¶6006.123
CCH Reference - 2008FED ¶6114.48
CCH Reference - 2008FED ¶6367.11
CCH Reference - 2008FED ¶6390.11
CCH Reference - 2008FED ¶6504.15
CCH Reference - 2008FED ¶6553.245
CCH Reference - 2008FED ¶6602.15
CCH Reference - 2008FED ¶6662.521
CCH Reference - 2008FED ¶6702.22
CCH Reference - 2008FED ¶6702.72
CCH Reference - 2008FED ¶6852.10
CCH Reference - 2008FED ¶7142.10
CCH Reference - 2008FED ¶7183.20
CCH Reference - 2008FED ¶7222.21
CCH Reference - 2008FED ¶7266.17
CCH Reference - 2008FED ¶7324.30
CCH Reference - 2008FED ¶7707.11
CCH Reference - 2008FED ¶7752.11
CCH Reference - 2008FED ¶7814.11
CCH Reference - 2008FED ¶7889.10
CCH Reference - 2008FED ¶8570.143
CCH Reference - 2008FED ¶8637.692
CCH Reference - 2008FED ¶9104.2465
CCH Reference - 2008FED ¶11,004.11
CCH Reference - 2008FED ¶11,258.15
CCH Reference - 2008FED ¶11,620.505
CCH Reference - 2008FED ¶12,146.20
CCH Reference - 2008FED ¶12,476.15
CCH Reference - 2008FED ¶12,543.125
CCH Reference - 2008FED ¶12,603.10
CCH Reference - 2008FED ¶13,603.102
CCH Reference - 2008FED ¶14,008.10
CCH Reference - 2008FED ¶14,054.10
CCH Reference - 2008FED ¶14,262.17
CCH Reference - 2008FED ¶14,417.15
CCH Reference - 2008FED ¶15,330.44
CCH Reference - 2008FED ¶15,378.10
CCH Reference - 2008FED ¶15,452.64
CCH Reference - 2008FED ¶15,612.222
CCH Reference - 2008FED ¶16,004.148
CCH Reference - 2008FED ¶16,052.188
CCH Reference - 2008FED ¶16,288.32
CCH Reference - 2008FED ¶16,361.1925
CCH Reference - 2008FED ¶16,405.48
CCH Reference - 2008FED ¶16,466.01
CCH Reference - 2008FED ¶16,466.03
CCH Reference - 2008FED ¶16,466.27
CCH Reference - 2008FED ¶16,466.923
CCH Reference - 2008FED ¶16,612.45
CCH Reference - 2008FED ¶16,753.01
CCH Reference - 2008FED ¶16,753.53
CCH Reference - 2008FED ¶18,956.25
CCH Reference - 2008FED ¶20,103.18
CCH Reference - 2008FED ¶20,307.80
CCH Reference - 2008FED ¶20,406.10
CCH Reference - 2008FED ¶20,803.15
CCH Reference - 2008FED ¶21,005.7495
CCH Reference - 2008FED ¶21,005.946
CCH Reference - 2008FED ¶21,406.10
CCH Reference - 2008FED ¶21,406.57
CCH Reference - 2008FED ¶21,536.10
CCH Reference - 2008FED ¶21,536.50
CCH Reference - 2008FED ¶23,637.10
CCH Reference - 2008FED ¶24,267.051
CCH Reference - 2008FED ¶24,267.1014
CCH Reference - 2008FED ¶24,267.491
CCH Reference - 2008FED ¶24,267.699
CCH Reference - 2008FED ¶24,308.10
CCH Reference - 2008FED ¶24,468.10
CCH Reference - 2008FED ¶24,686.604
CCH Reference - 2008FED ¶25,124.56
CCH Reference - 2008FED ¶25,602.104
CCH Reference - 2008FED ¶26,512.26
CCH Reference - 2008FED ¶29,225.106
CCH Reference - 2008FED ¶29,702.104
CCH Reference - 2008FED ¶30,422.6924
CCH Reference - 2008FED ¶30,422.6986
CCH Reference - 2008FED ¶30,733.12
CCH Reference - 2008FED ¶32,026.10
CCH Reference - 2008FED ¶32,053.10
CCH Reference - 2008FED ¶33,168.564
CCH Reference - 2008FED ¶33,302.25
CCH Reference - 2008FED ¶33,538.029
CCH Reference - 2008FED ¶36,315.20
CCH Reference - 2008FED ¶43,084.10
CCH Reference - 2008FED ¶43,182.70
CCH Reference - 2008FED ¶43,360.50
CCH Reference - 2008FED ¶43,360.60
CCH Reference - FINH ¶3125.11
CCH Reference - FINH ¶4955.712
CCH Reference - FINH ¶5170.158
CCH Reference - FINH ¶5630.72
CCH Reference - FINH ¶6380.218
CCH Reference - FINH ¶6420.10
CCH Reference - FINH ¶9950.154
CCH Reference - FINH ¶10,663.75
CCH Reference - FINH ¶11,135.50
CCH Reference - FINH ¶11,513.28
CCH Reference - FINH ¶11,621.10
CCH Reference - FINH ¶12,085.90
CCH Reference - FINH ¶14,185.20
CCH Reference - FINH ¶16,801.1878
CCH Reference - FINH ¶17,075.125
CCH Reference - FINH ¶17,075.205
CCH Reference - FINH ¶22,850.15
Tax Research Consultant
CCH Reference - TRC CCORP: 3,406
CCH Reference - TRC CONSOL: 7,152.10
CCH Reference - TRC BUSEXP: 51,050
CCH Reference - TRC COMPEN: 3,050
CCH Reference - TRC COMPEN: 3,100
CCH Reference - TRC COMPEN: 3,150
CCH Reference - TRC COMPEN: 3,300
CCH Reference - TRC COMPEN: 15,050
CCH Reference - TRC COMPEN: 15,102
CCH Reference - TRC COMPEN: 15,152
CCH Reference - TRC COMPEN: 45,206.15
CCH Reference - TRC PAYROLL: 3,050
CCH Reference - TRC PAYROLL: 3,250
CCH Reference - TRC RETIRE: 51,052.05
CCH Reference - TRC IRS: 12,214.20
CCH Reference - TRC IRS: 12,214.35
CCH Reference - TRC IRS: 12,214.40
CCH Reference - TRC IRS: 12,216

CCH (cch.taxgroup.com) reports:

The IRS has issued its annual revision of procedures for issuing technical advice memoranda (TAMs) to directors or appeals area directors, under the jurisdiction of the Associate Chief Counsel (Corporate), Associate Chief Counsel (Financial Institutions and Products), Associate Chief Counsel (Income Tax and Accounting), Associate Chief Counsel (International), Associate Chief Counsel (Passthroughs and Special Industries), Associate Chief Counsel (Procedure and Administration) and Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). The procedure also explains the rights of a taxpayer when a field office requests a TAM regarding a tax matter.
Rev. Proc. 2008-2 is effective January 7, 2008. Rev. Proc. 2007-2, I.R.B. 2007-1, 88, is superseded.
Rev. Proc. 2008-2, 2008FED ¶46,248
Rev. Proc. 2008-2, FINH ¶30,574
Other References:
Code Sec. 6110
CCH Reference - FINH ¶20,480.15
Code Sec. 7805
CCH Reference - FINH ¶22,850.30
Statement of Procedural Rules Sec. 601.201
CCH Reference - 2008FED ¶3100.10
CCH Reference - 2008FED ¶3100.13
CCH Reference - 2008FED ¶3100.22
CCH Reference - 2008FED ¶43,360.101
Tax Research Consultant
CCH Reference - TRC IRS: 12,250
 

CCH (cch.taxgroup.com) reports:

The IRS has issued a new procedure that explains how the IRS provides advice to taxpayers in the form of letter rulings, closing agreements, determination letters, information letters, and oral advice on issues under the jurisdiction of the Associate Chief Counsel (Corporate), Associate Chief Counsel (Financial Institutions & Products), Associate Chief Counsel (Income Tax & Accounting), Associate Chief Counsel (International), Associate Chief Counsel (Passthroughs & Special Industries), Associate Chief Counsel (Procedure and Administration), and Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). A sample format of a request for a letter ruling is included. Section 4 of the revenue procedure lists the issues that are outside the scope of the procedure.
The new procedure excepts information letters from the user fee requirements. Further, Appendix A of the new procedure incorporates the new user fees which will be effective for requests received after February 1, 2008. The procedure is effective January 7, 2008; however, the new user fees in Appendix A are effective for requests received after February 1, 2008. Rev. Proc. 2007-1, 2007-1 C.B. 1 is superseded.
Rev. Proc. 2008-1, 2008FED ¶46,247
Rev. Proc. 2008-1, FINH ¶30,573
Other References:
Code Sec. 355
CCH Reference - 2008FED ¶16,466.923
Code Sec. 367
CCH Reference - 2008FED ¶16,667.25
Code Sec. 368
CCH Reference - 2008FED ¶16,753.53
Code Sec. 401
CCH Reference - 2008FED ¶17,507.2531
Code Sec. 446
CCH Reference - 2008FED ¶20,620.054
CCH Reference - 2008FED ¶20,620.075
CCH Reference - 2008FED ¶20,620.076
CCH Reference - 2008FED ¶20,620.306
Code Sec. 457
CCH Reference - 2008FED ¶21,536.10
Code Sec. 482
CCH Reference - 2008FED ¶22,283.308
Code Sec. 501
CCH Reference - 2008FED ¶22,604.10
Code Sec. 528
CCH Reference - 2008FED ¶22,931.30
Code Sec. 894
CCH Reference - 2008FED ¶27,642.01
Code Sec. 1362
CCH Reference - 2008FED ¶32,053.41
Code Sec. 2001
CCH Reference - FINH ¶1250.012
Code Sec. 2032A
CCH Reference - FINH ¶4240.54
Code Sec. 2056A
CCH Reference - FINH ¶7105.70
Code Sec. 2501
CCH Reference - FINH ¶9340.775
Code Sec. 2601
CCH Reference - FINH ¶12,085.90
Code Sec. 6039G
CCH Reference - 2008FED ¶35,696.25
Code Sec. 6110
CCH Reference - FINH ¶20,480.15
Code Sec. 7121
CCH Reference - 2008FED ¶41,090.021
CCH Reference - 2008FED ¶41,090.10
CCH Reference - 2008FED ¶41,090.115
Code Sec. 7805
CCH Reference - FINH ¶22,850.15
Code Sec. 7852
CCH Reference - FINH ¶22,880.30
Statement of Procedural Rules Sec. 601.201
CCH Reference - 2008FED ¶43,360.16
CCH Reference - 2008FED ¶43,360.42
Code Sec. 7871
CCH Reference - 2008FED ¶43,952.30
Tax Research Consultant
CCH Reference - TRC CCORP: 39,400
CCH Reference - TRC SCORP: 160.10
CCH Reference - TRC SCORP: 206
CCH Reference - TRC SCORP: 554
CCH Reference - TRC CONSOL: 11,102.10
CCH Reference - TRC CONSOL: 35,200
CCH Reference - TRC SALES: 51,056.15
CCH Reference - TRC SALES: 51,060
CCH Reference - TRC ACCTG: 21,106.05
CCH Reference - TRC ACCTG: 21,106.10
CCH Reference - TRC ACCTG: 21,200
CCH Reference - TRC ACCTG: 21,202
CCH Reference - TRC VALUE: 1,200
CCH Reference - TRC INTL: 15,206.55
CCH Reference - TRC INTL: 15,208
CCH Reference - TRC INTL: 15,210.15
CCH Reference - TRC INTL: 21,250
CCH Reference - TRC IRS: 3,056.05
CCH Reference - TRC IRS: 3,056.40
CCH Reference - TRC IRS: 3,154.05
CCH Reference - TRC IRS: 3,154.25
CCH Reference - TRC IRS: 12,200
CCH Reference - TRC IRS: 12,202
CCH Reference - TRC IRS: 12,204
CCH Reference - TRC IRS: 12,208
CCH Reference - TRC IRS: 12,214.15
CCH Reference - TRC IRS: 12,214.25
CCH Reference - TRC IRS: 12,214.30
CCH Reference - TRC IRS: 12,214.40
CCH Reference - TRC IRS: 12,218.05
CCH Reference - TRC IRS: 12,218.10
CCH Reference - TRC IRS: 12,220.20
CCH Reference - TRC IRS: 12,220.50
CCH Reference - TRC IRS: 12,220.55
CCH Reference - TRC IRS: 12,220.60
CCH Reference - TRC IRS: 12,220.65
CCH Reference - TRC IRS: 12,220.70
CCH Reference - TRC IRS: 12,222
CCH Reference - TRC IRS: 12,222.10
CCH Reference - TRC IRS: 12,224
CCH Reference - TRC IRS: 12,226
CCH Reference - TRC IRS: 12,228
CCH Reference - TRC IRS: 12,252
CCH Reference - TRC IRS: 12,302
CCH Reference - TRC IRS: 12,304
CCH Reference - TRC IRS: 12,306
CCH Reference - TRC IRS: 12,352
CCH Reference - TRC IRS: 12,372
CCH Reference - TRC IRS: 15,106
CCH Reference - TRC IRS: 39,058
CCH Reference - TRC EXEMPT: 12,102

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Michigan Department of Treasury has provided guidance regarding the definition of "actively solicits" as it is used in the nexus standard for the Michigan business tax. According to the statute, a taxpayer has Michigan nexus if (1) he has physical presence in Michigan for a period of more than one day during the tax year or (2) he actively solicits sales in Michigan and has gross receipts of $350,000 or more sourced to Michigan. The guidance does not discuss the physical presence nexus standard.
"Actively solicits" means purposeful solicitation of persons within Michigan. "Solicitation" means speech or conduct that explicitly or implicitly invites an order and activities that neither explicitly or implicitly invite an order, but are entirely ancillary to requests for an order. "Purposeful" means directed at or intended to reach persons within Michigan or the Michigan market. Active solicitation may include the use of mail, telephone, e-mail, advertising, and maintenance of an Internet site through which sales transactions occur with persons in Michigan. Whether active solicitation has been met is determined on a facts and circumstances basis. In addition, the same standards are used to determine if a taxpayer is taxable in another state for apportionment purposes.
P.L. 86-272 protects taxpayers from the business income tax portion of the MBT, but not the modified gross receipts tax portion. Active solicitation, combined with $350,000 in Michigan gross receipts, constitutes nexus under the MBT and satisfies the Due Process and Commerce Clauses of the U.S. Constitution. Due process clause nexus is satisfied if a person has an economic or physical presence in the state. A person has economic presence in the state when the person purposefully avails himself of the benefits of the economic market. Examples are provided.
Revenue Administrative Bulletin 2007-6, Michigan Department of Treasury, December 28, 2007, ¶401-347
Other References:
Explanations at ¶10-075
 

CCH (cch.taxgroup.com) reports:

The Massachusetts Commission on Corporate Taxation that was assembled to review and offer recommendations for streamlining the state's current tax laws has released its final report. The Commission recommended the following changes to the corporate excise tax code:
-- adopting a combined reporting system;
-- conforming to federal "check-the-box" business entity classification rules; and
-- reducing the corporate income tax rate.

CCH (cch.taxgroup.com) reports:

The IRS and the Treasury Department have announced that they will work toward publishing guidance on a method for integrated utilities to use when calculating the tax deduction for domestic production activities. The IRS hopes that the selection of this issue for the Industry Issue Resolution (IIR) Program will clear up concerns regarding possible inconsistencies in computing the deduction.
Integrated utility companies must determine their domestic production gross receipts, cost of goods sold and direct expenses in order to properly compute the Code Sec. 199 deduction. The goal is the development of an alternative method that integrated utility companies may use to compute qualified production activities under Code Sec. 199(c).
Business associations and taxpayers may submit business tax issues that they believe could be resolved through the IIR Program at any time. The IRS reviews submissions at least semi-annually, and the next review will be on submissions received by March 31, 2008. IIR project selection criteria and submission procedures are outlined in Rev. Proc. 2003-36, 2003-1 CB 859.
IR-2008-3, 2008FED ¶46,245
Other References:
Code Sec. 199
CCH Reference - 2008FED ¶12,476.15
Tax Research Consultant
CCH Reference - TRC BUSEXP: 6,154

CCH (cch.taxgroup.com) reports:

The IRS has provided guidance to tax return preparers regarding the format and content of consents to disclose and use tax return information with respect to a Form 1040 series return (i.e.., Forms 1040, 1040NR, 1040A, 1040EZ) under Reg. §301.7216-3 (TAXDAY, 2008/01/04, I.1). The Service has also provided specific requirements for electronic signatures when a taxpayer executes an electronic consent. Several illustrative examples are included. The procedure is effective after December 31, 2008.
Form and content. Generally, a taxpayer's consent to each separate disclosure or use of tax return information must be contained on a separate written document (for example, as an attachment to an engagement letter furnished to the taxpayer), furnished either on paper or electronically. A special rule exists for multiple disclosures or uses within a single consent form.
A paper consent must be provided on one or more sheets of 81/2 -inch by 11-inch or larger paper, and all text must be in at least 12-point type. All text on each sheet must pertain solely to the disclosure or use authorized, and the sheet(s) must contain all the required elements described below.
An electronic consent must be provided on one or more computer screens, and all text on each screen must pertain solely to the disclosure or use authorized, except for computer navigation tools. The text size must be at least the same as or larger than the normal or standard body text used by the website or software package for direction, communications or instructions, and there must be sufficient contrast between the text and background colors. All screens must: (1) contain all the required elements described below; (2) be able to be dated and signed according to the electronic signature requirements; and (3) be able to be formatted in a readable and printer-friendly manner.
Required elements. In addition to the requirements in Reg. §301.7216-3, every consent is required to include the following:
--Mandatory statements regarding the impact of consent. Separate mandatory language is provided for consent to disclose information (1) to another return preparer for the purpose of performing services that assist in the preparation of or provide auxiliary services in connection with preparation of the return; or (2) to a return preparer located outside of the United States.
--Language informing the taxpayer that he or she may contact the Treasury Inspector General for Tax Administration (TIGTA) if the taxpayer believes that the return information has been disclosed or used improperly in an unauthorized manner or without permission.
--The taxpayer's affirmative consent to disclosure or use of the information. A consent allowing the taxpayer to opt-out of specific disclosures or uses is not allowed. However, if a consent authorizes disclosure of a copy of the taxpayer's entire tax return or all information contained within a return, the consent must provide that the taxpayer can request a more limited disclosure as the taxpayer directs.
--The taxpayer's signature.
Multiple disclosures or uses. A taxpayer may consent to multiple uses or disclosures within the same written document. Such consents must provide the taxpayer with the opportunity, within the separate written document, to affirmatively select each separate disclosure or use. The required elements listed above must be provided to the taxpayer for each separate disclosure or use. The mandatory statements described above only need to be stated once.
Electronic signatures. A taxpayer who furnishes consent electronically must provide the tax return preparer with an electronic signature that will verify that the taxpayer consented. To be valid, an electronic consent must be furnished in a manner that ensures affirmative, knowing consent to each disclosure or use. The tax preparer must obtain the taxpayer's electronic signature by: (1) assigning the taxpayer a personal identification number (PIN) that is at least five characters long, which the taxpayer affirmatively enters; (2) having the taxpayer type in his or her name and then hit "enter" to authorize the consent; or (3) any other manner in which the taxpayer affirmatively enters five or more characters that are unique to that taxpayer and used by the preparer to verify the taxpayer's identity.
Rev. Proc. 2008-12, 2008FED ¶46,243
Other References:
Code Sec. 7216
CCH Reference - 2008FED ¶41,370.10
Tax Research Consultant
CCH Reference - TRC IRS: 6,114.10

CCH (cch.taxgroup.com) reports:

The IRS has issued final regulations under Code Sec. 7216 governing the disclosure and use of return information by return preparers and the requirements for a valid taxpayer consent to such disclosure or use. Proposed regulations issued on December 8, 2005 (NPRM REG-137243-02) were the subject of much comment, with consumer protection organizations seeking stronger protections for taxpayers' private data and some tax practitioners seeking less burdensome restrictions on the use of taxpayer information for marketing purposes.
The final regulations generally follow the proposed regulations. The Treasury and IRS are seeking additional comments on a proposal, suggested by commentators and not included in the regulations, which would ban preparers from using or disclosing tax return information for the purpose of selling their customer a refund anticipation loan or certain other products (Advance Notice of Proposed Rulemaking, REG-136596-07, TAXDAY, 2008/01/04, I.2). In addition, the IRS has issued Rev. Proc. 2008-12, TAXDAY,2008/01/04, I.3, which provides guidance to tax return preparers regarding the format and content of consents to disclose and consents to use tax return information with respect to taxpayers filing a return in the Form 1040 series.
Uses and disclosures allowed without taxpayer consent. The IRS chose not to adopt most of the comments on the proposed regulations that would have, for example, reduced barriers to foreign outsourcing of return preparation. The rule allowing a preparer to maintain a client list and to contact those individuals only to offer tax information or additional tax preparation services is tightened by the addition of a provision requiring that no mention of services or products other than those related to tax preparation services may be made.
Uses and disclosures requiring taxpayer consent.
The IRS chose not to adopt comments seeking broad unwaivable restrictions on the use or disclosure of return information, asserting that to do so would be contrary to the regime that has been in place for thirty years. However, the final regulations do include some additional privacy protections. For example, a tax preparer located within the United States may not obtain consent to disclose a taxpayer's social security number to a preparer located outside the United States. Even if the taxpayer requests that his information be transferred to a foreign preparer, the social security number must be provided to the foreign preparer by the taxpayer.
Methods of obtaining or establishing consent.
The final regulations retain the separation between use consents and disclosure consents as contained in the proposed regulations. The final regulations do provide two different sets of rules for providing consent. Preparers must obtain consent from individual taxpayers in a specified format (see Rev. Proc. 2008-12). For other taxpayers, the rules are more flexible. A use or disclosure consent may be in any format, including an engagement letter, as long as it contains the specified information.
The new regulations will apply to disclosures or uses of tax return information occurring after 2008. The existing regulations under Code Sec. 7216, issued in the early 1970s, will continue to apply until the end of 2008. Rev. Rul. 79-114, 1979-1 CB 441, also will be obsolete on and after January 1, 2009.
IR-2008-2, 2008FED ¶46,242
T.D. 9375, 2008FED ¶47,012
Other References:
Code Sec. 7216
CCH Reference - 2008FED ¶41,365A
CCH Reference - 2008FED ¶41,366C
CCH Reference - 2008FED ¶41,367C
CCH Reference - 2008FED ¶41,368C
Tax Research Consultant
CCH Reference - TRC IRS: 6,114.10
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Legislation has been enacted that amends the Michigan business tax (MBT) by adding provisions that address the sourcing of media receipts derived from the sale of both media property and media services related to the use of media property.
"Media receipts" includes receipts from the broadcast, distribution, exhibition, license, sale, transmission, or other use of media property, and receipts from the sale of media services. "Media property" is defined as motion pictures, television programs, Internet programs, Web sites, other audiovisual works, and any other similar property that embodies concepts, ideas, images, sounds, or words, regardless of the method of distribution or medium in which the property is embodied. "Media services" includes services for which the use of the media property is integral to performance. Media receipts do not include receipts from the sale of media property that is a consumer product ultimately sold at retail.

CCH (cch.taxgroup.com) reports:

A rail transportation service provider's income received for providing liability coverage was "revenue from Indiana transportation" services, which should have been apportioned, for Indiana corporate income tax purposes, on the basis of mileage. The Indiana Department of Revenue (Department) incorrectly allocated all of the income to Indiana because the revenues were earned from taxpayer's corporate office located in Indiana and the employees in who performed the activities relating to the income, were located in Indiana.
However, the Department could exclude the taxpayer's parent corporation from its consolidated return in order to fairly reflect Indiana-source corporate adjusted gross income. Although the parent's ownership of Indiana real property was sufficient for Indiana nexus, including it in the consolidated return resulted in a 120% decrease in taxpayer's adjusted gross income. Including the parent in the consolidated return allowed the taxpayer to calculate its Indiana adjusted gross income using a disproportionate amount of the parent's nationwide federal loss to entirely offset the taxpayer's Indiana-earned income. IC Sec. 6-3-2-2 provides the Department discretionary authority to adjust the allocation and apportionment provisions of a taxpayer's adjusted gross income tax in order to arrive at an equitable and accurate allocation of the taxpayer's Indiana income.
In addition, following federal case law ( Phoenix Coal Co. v. Commissioner , 231 F.2d 420 (2nd Cir. 1956)), the Department was authorized to disallow a net operating loss (NOL) incurred in a closed tax year that was carried back to an open tax year and assess additional tax for the open tax year. Because the tax year for which the additional tax was assessed was an open tax year, the statute of limitations did not bar the assessment.
The taxpayer also protested the Department's addback of West Virginia property taxes to the taxpayer's adjusted gross income on the basis that the taxes were imposed at the state level rather than the local level and were, therefore, not subject to addback under Indiana law. However, the taxpayer failed to provide to provide any documentation demonstrating the amount of property taxes that were assessed at the state level.
Finally, a subsidiary's income was incorrectly classified as nonbusiness income and was wrongly allocated to Indiana, the taxpayer failed to prove that a gain on the sale of assets was previously reported, and a charitable contribution deduction was properly disallowed.
Letter of Findings No. 04-0262 , Indiana Department of Revenue, December 26, 2007, ¶401-267
Other References:
Explanations at ¶10-605
Explanations at ¶10-615
Explanations at ¶11-540
Explanations at ¶11-545
 

CCH (cch.taxgroup.com) reports:

A partnership's distribution of third-party promissory notes in liquidation of its partners' interests had a business purpose and should not be recharacterized as taxable distributions of cash under the economic substance doctrine. The government's argument that the partnership did not have a business purpose in purchasing the notes as the interest terms were unfavorable was rejected. The underlying business purpose of using the notes to redeem the partners' interests was not negated by the fact that the means for accomplishing this were chosen, in part, for their favorable tax consequences.
In addition, the notes were not themselves marketable securities that would be treated as cash under Code Sec. 731(c)(2)((ii). The notes were not publicly traded on an established market. Moreover, the government failed to introduce evidence showing that the notes were other than nonmarketable.
The transactions related to the liquidating distributions were not recast under the partnership anti-abuse rules. The partnership was bona fide and the transactions were entered into for a substantial business purpose. They did not violate substance over form principles. Finally, the tax consequences that resulted from the transactions clearly reflected the partners' income, as contemplated by Subchapter K. Particularly, no gain was properly reportable on the distribution of nonmarketable securities under Code Sec. 731(a)(1).
The Tax Court also ruled against the IRS on several procedural matters. The government attempted to claim that there was an informal arrangement between the partners and the partnership to that would have allowed the partners to convert the notes into cash or marketable securities, but was unable to produce convincing evidence of any such arrangement. The Tax Court denied the government's request for additional cross-examination or discovery under Tax Court Rule 121(e), noting that the government already had conducted extensive discovery and that it was doubtful that further discovery or cross-examination would enable it to raise an issue of material fact as to the marketability of the notes. The court also rejected the government's argument that it could not rule on the present summary judgment motion before it ruled on the government's motion to compel production of communications between the taxpayers and their tax attorneys and accountants. The court stated that the taxpayers had already conceded the issues to which the communications were relevant.
Countryside Limited Partnership, TC Memo. 2008-3, Dec. 57,304(M)
Other References:
Code Sec. 163
CCH Reference - 2008FED ¶9104.556
Code Sec. 701
CCH Reference - 2008FED ¶25,062.20
Code Sec. 731
CCH Reference - 2008FED ¶25,322.188
Tax Court Rule 121
CCH Reference - 2008FED ¶42,281.69
Tax Research Consultant
CCH Reference - TRC INDIV: 48,152.10
CCH Reference - TRC LITIG: 6,500
CCH Reference - TRC PART: 3,110
CCH Reference - TRC PART: 33,104.05

CCH (cch.taxgroup.com) reports:

The IRS has issued proposed regulations under Code Sec. 401(a)(35) relating to diversification requirements for certain defined contribution plans that use publicly traded employer securities. The regulations are proposed to be effective for plan years beginning on or after January 1, 2009. Transition rules will continue to apply until then, although plans can rely on the proposed regulations before final regulations go into effect. Written or electronic comments and requests for a public hearing must be received by April 2, 2008.
Background
Under Code Sec. 401(a)(35), which was added by the Pension Protection Act of 2006 (P.L. 109-280), applicable individuals have the right to divest employer securities in their accounts and reinvest the amounts in certain diversified investments. The diversification requirements are generally effective for plan years beginning after December 31, 2006. Transition guidance in Notice 2006-107, I.R.B. 2006-51, 1114, fleshed out and provided details for meeting the diversification requirements. In Notice 2008-7, I.R.B. 2008-3, the IRS extended this transition guidance and relief until regulations issued under Code Sec. 401(a)(35) become effective. The proposed regulations follow the guidance found in Notice 2006-107 in large part, but extend certain features of the guidance. Significant changes are noted below.
Pooled Investment Vehicles
Notice 2006-107 provides that employer securities held by an investment company registered under the Investment Company Act of 1940 or similar pooled investment vehicle are not treated as being held by the plan. Proposed Reg. §1.401(a)(35)-1(f)(2)(iv)((3)(ii) clarifies that the following types of pooled investment vehicles are exempt from the diversification requirements: a common or collective trust fund or pooled investment fund maintained by a bank or trust company supervised by a state or federal agency, a pooled investment fund of an insurance company qualified to do business in a state, or an investment fund designated by the IRS.
Restriction of Diversification Rights
Notice 2006-107 includes a rule that permits a plan to restrict the otherwise applicable diversification rights under Code Sec. 401(a)(35) for a period of up to 90 days following an initial public offering of the employer's stock. Under Proposed Reg. §1.401(a)(35)-1(e)(3)(iii), this rule is extended to apply to the first 90 days after the plan becomes an applicable defined contribution plan. This situation could occur, for example, when some other entity in the controlled group first issues stock that is publicly traded or when a standalone ESOP first provides for contributions that are subject to Code Sec. 401(k) or 401(m).
Restrictions on Employer Securities
Notice 2006-107 allows a plan to impose a restriction on an investment in employer securities that is not imposed on a stable value fund. Proposed Reg. §1.401(a)(35)-1(e)(3)(vi) extends this rule to a fund that is similar to a stable value fund. Specifically, in the case of a plan that has several investment funds, including a fund invested in employer securities, a fund that is a stable value or similar fund, and other funds that are not invested in employer securities, the plan does not impose a prohibited restriction merely because the plan permits transfers to be made into the stable value or similar fund more frequently than in the fund invested in employer securities.
Restrictions on Elections
The proposed regulations would allow a restriction on the frequency of investment elections that was not in Notice 2006-107. Under Proposed Reg. 1.401(a)(35)-1(e)(3)(iii), a plan is permitted to impose reasonable restrictions on the timing and number of investment elections that an individual can make to invest in employer securities, provided the restrictions are designed to limit short-term trading in the employer securities. For example, a fund could limit the purchase of employer securities if there has been a sale within a short period of time, such as seven days. The regulations, however, would not permit a plan to limit an individual's right to divest employer securities.
Proposed Regulations, NPRM REG-136701-07, 2008FED ¶49,786
Other References:
Code Sec. 401
CCH Reference - 2008FED ¶17,925A
Tax Research Consultant
CCH Reference - TRC RETIRE: 3,214.40
 

CCH (cch.taxgroup.com) reports:

The IRS has kicked off the 2008 tax filing season by issuing guidance that announces and recaps a number of programs and tax law changes that affect the filing of 2007 tax returns.
IRS Fact Sheet FS-2008-1 recaps and highlights tax changes for the 2007 tax filing season. These highlights include the raising of the alternative minimum tax (AMT) exemption for 2007 (TAXDAY, 2007/12/27, W.1) and the extension of the tuition and fees, the educator expense and the state and local sales taxes deductions. In addition, an itemized deduction for premiums paid or accrued on qualified mortgage insurance obtained in connection with acquisition indebtedness on a qualified residence is available for taxpayers with incomes not exceeding designated amounts under Code Sec. 163(h)(3)(E)(iv), and the limits on contributions to IRAs and other retirement plans have risen.
Inflation adjustments have increased the amounts of the personal and dependency exemptions, standard deduction and the maximum earned income credit (Rev. Proc. 2007-66, I.R.B. 2007-45, 970) (TAXDAY, 2007/10/19, I.2). The standard mileage rates for business use of a vehicle and for use of a vehicle for medical reasons or as part of a deductible move have increased. The rate for use of a vehicle to provide services to charitable organizations has not changed (Rev. Proc. 2007-70, I.R.B. 2007-50, 1162)(TAXDAY, 2007/11/28, I.1).
New for 2007, employees working for employers who failed to withhold Social Security and Medicare taxes can use new Form 8919 to report and pay their share of those taxes (IR-2007-203, TAXDAY, 2007/12/21, I.2).
Electronic Filing and Related Issues
In IRS Fact Sheet FS-2008-4, the IRS urged taxpayers to e-file in 2008, pointing out that over 80 million taxpayers chose e-file options in 2007; 9 percent more than in 2006. The IRS is expecting a record number of taxpayers to e-file in 2008. Among the advantages of electronic filing are faster refunds, easy payment options, more accurate returns and fast confirmation of receipt by the IRS. For the 2008 filing season, 95 million individual taxpayers will be eligible for IRS Free File. For the 2008 filing season, taxpayers and tax practitioners will be able to select a Self-Select PIN or a practitioner PIN for signing their e-filed returns. Finally, direct deposit of refunds is available to both e-filers and those filing traditional paper tax returns.
IRS Fact Sheet FS-2008-3 explains in more detail the new simplified signature process for e-filed individual income tax returns submitted by tax practitioners. The process eliminates the requirement that the practitioner send a paper signature document to the IRS in addition to the e-filed return. Similarly to returns submitted by individuals, those prepared and submitted by practitioners must now be electronically signed using a Personal Identification Number (PIN). Practitioners may use either a Self-Select PIN, which allows taxpayers to sign a return by selecting a five-digit PIN, or a Practitioner PIN, which is used when a taxpayer authorizes an Electronic Return Originator (ERO) to input an electronic signature on the taxpayer's behalf on an electronically filed return. The Practitioner PIN method requires the practitioner to complete Form 8879, IRS e-file Signature Authorization. Form 8453, U.S. Individual Income Tax Declaration, which was formerly used to submit a paper signature for e-file returns, has been redesigned to be used to transmit supporting paper documents required to be submitted with e-filed returns.
Individuals who e-file their own returns will continue to use Form 8453-OL or the Self-Select PIN method.
IRS Fact Sheet FS-2008-6 discusses the various electronic payment options for the 2008 filing season. Taxpayers can pay 2007 income taxes electronically through e-pay options such as electronic funds withdrawal from a checking or savings account or by paying with a credit card. They can also use these methods to pay projected tax when requesting an automatic extension of time to file and to pay quarterly estimated taxes for tax year 2008. In addition, taxpayers can make a credit card payment for past due tax from 1997 and after.
Businesses can use electronic funds withdrawal to pay taxes on employment, corporate and fiduciary tax returns and to pay projected tax due when requesting a filing extension. Businesses can also make a credit card payment for taxes owed on employment tax returns and for past due taxes from 1997 and after.
The electronic funds withdrawal option is free, but available only to those who e-file. Taxpayers can make credit card payments whether they file an electronic or paper return. Credit card payments may be made through tax software when filing electronically, over the phone or online, While the IRS does not impose any fee for credit card payments, the private sector companies authorized by the IRS to process these payments do impose fees.
Taxpayers can use a EFTPS, a free tax payment system to make all federal tax payments, including income, employment, estimated and excise taxes. Businesses can schedule 120 days in advance and individuals can schedule payments a year in advance. According to the IRS, businesses should enroll in EFTPS to make and tax payments that their Third Party Provider is not making on their behalf. In addition, employers should verify EFTPS payments as part of their bank account reconciliation process.
Split Refunds, Direct Deposit
In IRS Fact Sheet FS-2008-5, the IRS is focusing on splitting a refund among multiple accounts and direct deposit of refunds. Taxpayers who use the split-refund option can have their refunds split among up to three accounts at up to three different U.S. financial institutions. In order to split a refund, the taxpayer must fill out Form 8888, Direct Deposit of Refund to More Than One Account.
The accounts designated must be held by U.S. financial institutions, the financial institutions must accept direct deposits for the type of accounts designated, and the taxpayer must provide accurate account and routing numbers. Taxpayers generally cannot directly deposit their refunds into another person's account; however, in the case of a joint refund, taxpayers can designate deposits to a joint account or to an account controlled by one spouse.
Among the types of accounts taxpayers can choose to direct their refunds to are:
Regular passbook savings or checking accounts;
Brokerage accounts;
IRAs;
Health savings accounts (HSAs);
Archer MSAs'
Coverdell education savings accounts; and
Individual development accounts (IDAs).
In the case of direct deposits to IRAs, the account owners are responsible for informing their IRA trustees of the year for which the deposits are intended and for ensuring that the contributions do not exceed the taxpayers' annual contribution limitations. The IRS is not responsible for the timeliness or contribution amounts related to direct deposit in an IRA.
In some cases, the amount of a taxpayer's refund is changed, generally due to a math error. In the case of a larger-than-expected refund where a split refund has been requested, the difference will be added to the last account designated. If the refund is smaller than expected, the IRS will first deduct the difference from the amount designated for deposit to the last account.
Deposits may also be adjusted in cases where a taxpayer owes delinquent state income taxes, outstanding child support payments or delinquent nontax federal debts. Taxpayers in such cases will receive correspondence from the Department of Treasury's Financial Management Service (FMS) explaining any offset amounts.
Tax Credits
In IRS Fact Sheet FS-2008-2 and IRS Fact Sheet FS-2008-8, the IRS reminds taxpayers about popular, but sometimes overlooked, tax credits. These credits include:
The Earned Income Credit (EITC). The EITC may be available to working families with incomes below $39,783 and childless workers with incomes under $14,590 who have earned income as an employee, independent contractor, farmer or business owner. In certain cases, disability retirees are also eligible for the credit.
The Child Tax Credit. Taxpayers may claim a $1,000 credit for each eligible dependent child under age 17; this credit is in addition to the regular $3,400 exemption claimed per dependent, and should not be confused with the child care credit.
The Credit for Child and Dependent Care Expenses. The credit for child and dependent care expenses, claimed on Form 2441, Child and Dependent Care Expenses, is for child care expenses incurred for dependents under age 13, or for the care of a spouse or dependent unable to care for themselves, in order for the taxpayer to work or look for work.
The Hope Education Credit and the Lifetime Learning Credit. The Hope education credit and Lifetime Learning credit, claimed on Form 8863, can help parents and students pay tuition and required enrollment fees for post-secondary education; there are special rules, including income limitations, which apply to each of these credits.
The Saver's Credit. The saver's credit, claimed on Form 8880, is designed to encourage contributions to IRAs or workplace retirement plans; those eligible are singles and married filing separately taxpayers who earn less than $26,000, heads of households earning less than $39,000 and joint filers earning less than $52,000. To claim the credit on a 2007 return IRA contributions can be made until April 15, 2008.
The Energy-Saving Tax Credit. Taxpayers may claim an energy savings tax credit on Form 5695, for energy-saving improvements made to a principal residence including insulation, exterior doors and windows, water heaters, heat pumps, central air conditioners, furnaces and hot water boilers; the credit is up to $500 with lower limits applied to certain components. There is also a 30-percent credit for the cost of photovoltaic property, solar water heating property and fuel cell property.
The Alternative Motor Vehicle Credit.
Taxpayers who purchased a new hybrid passenger automobile or light truck and placed it in service in 2007 may qualify for the alternative motor vehicle credit under Code Sec. 30B. The amount of the credit depends on the manufacturer and, in some cases, when the vehicle was purchased. For hybrid passenger automobiles or light trucks purchased in 2008, taxpayers may be entitled to a tax credit worth as much as $3400 for the most fuel-efficient models.
Original purchasers may claim the full amount of the allowable credit only up to the end of the first calendar quarter after the quarter in which the manufacturer sells 60,000 hybrid passenger automobiles and light trucks and new advanced lean burn technology motor vehicles. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. For quarters after that fifth quarter, no credit is allowed.
The credit is limited in the 2007 tax year for hybrid vehicles and new advanced lean burn technology motor vehicles manufactured by Toyota Motor Sales, USA, which includes Lexus, that were purchased on or before Sept. 30, 2007. Toyota and Lexus hybrid vehicles and new advanced lean burn technology motor vehicles purchased after Sept. 30, 2007 do not qualify for the credit. The credit for hybrid passenger automobiles and light trucks and new advanced lean burn technology motor vehicles manufactured by American Honda Motor Company, Inc, will begin to phase out in 2008.
A taxpayer cannot claim the credit unless the taxpayer's regular tax liability exceeds the taxpayer's alternative minimum tax liability. The credit cannot be used to reduce regular tax liability below zero and cannot be carried forward or back to another taxable year. Lessees may not claim the credit. However, the credit is available to the owner-lessor.
Tax Assistance
The numerous ways taxpayers can access free assistance with their tax-related concerns is addressed in IRS Fact Sheet FS-2008-7. A comprehensive listing of these services is found in IRS Publication 910, Guide to Free Tax Services. Taxpayers with a personal computer can access a wealth of information on almost every tax topic and check the status of their refund on the IRS's website, www.irs.org. Free help can also be obtained via telephone on individual and business-related tax issues. In-person tax preparation assistance is available through the Volunteer Income Tax Assistance and Tax Counseling for the Elderly sites in many communities. The IRS Taxpayers Assistance Centers also offer personal help with tax issues that cannot be handled on-line or by phone, including inquiries, adjustments, letters, notices and payment plans. In addition, the IRS's Taxpayer Advocate Service can help those taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working properly. Low income taxpayers can obtain assistance, for free or for a nominal charge, through a Low Income Taxpayer Clinic. Finally, forms and publications can also be obtained at many libraries and post offices. Most of the IRS materials are available, free of charge, in Braille.
Taxpayer Warnings
IRS Fact Sheet FS-2008-9 discusses various email scams targeting taxpayers. These "phishing" scams use emails that falsely claim to come from the IRS. The IRS again warned taxpayers that the only genuine IRS website is www.irs.gov. Moreover, all official webpages begin with that address. Further, the IRS does not send unsolicited email regarding taxpayers' accounts and never requests taxpayers' personal or financial information, such as Social Security numbers and bank PINS, via email. Therefore, any email soliciting such information should be viewed with caution. Taxpayers who receive suspicious email are encouraged to report it to the IRS. Messages can be forwarded to hishing@irs.gov.">phishing@irs.gov. In addition, taxpayers should report any such activity to law enforcement and the major credit bureaus. For more information, taxpayers should consult IRS Publication 4535, Identity Theft Protection and Victim Assistance.
IRS Fact Sheet 2008-10 urges taxpayers to be careful when choosing a tax preparer. According to the fact sheet, return preparer fraud generally involves the preparation and filing of income tax returns that claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions. Preparers may also fraudulently obtain tax credits, such as the earned income tax credit, by manipulating income figures. The fact sheet reminds taxpayers that, even if they are unaware of false information that may appear on their returns, they are responsible for any additional taxes and interest and may be subject to penalties. The fact sheet includes helpful hints when choosing a return preparer, criminal investigation statistical information on return preparer fraud, case summaries of criminal and civil legal actions against certain return preparers, and directions for reporting suspected tax fraud activity.
IRS Fact Sheet FS-2008-1, 2008FED ¶46,230
IRS Fact Sheet FS-2008-2, 2008FED ¶46,231
IRS Fact Sheet FS-2008-3, 2008FED ¶46,232
IRS Fact Sheet FS-2008-4, 2008FED ¶46,233
IRS Fact Sheet FS-2008-5, 2008FED ¶46,234
IRS Fact Sheet FS-2008-6, 2008FED ¶46,235
IRS Fact Sheet FS-2008-7, 2008FED ¶46,236
IRS Fact Sheet FS-2008-8, 2008FED ¶46,237
IRS Fact Sheet FS-2008-9, 2008FED ¶46,238
IRS Fact Sheet FS-2008-10, 2008FED ¶46,239
IR-2008-1, 2008FED ¶46,240
Other References:
Code Sec. 21
CCH Reference - 2008FED ¶3507.03
Code Sec. 24
CCH Reference - 2008FED ¶3770.01
CCH Reference - 2008FED ¶3770.30
Code Sec. 25A
CCH Reference - 2008FED ¶3830.07
CCH Reference - 2008FED ¶3830.25
CCH Reference - 2008FED ¶3830.75
Code Sec. 25B
CCH Reference - 2008FED ¶3838.10
Code Sec. 25C
CCH Reference - 2008FED ¶3843.10
Code Sec. 25D
CCH Reference - 2008FED ¶3847.04
Code Sec. 30B
CCH Reference - 2008FED ¶4059E.0265
CCH Reference - 2008FED ¶4059E.10
Code Sec. 32
CCH Reference - 2008FED ¶4082.048
CCH Reference - 2008FED ¶4082.12
CCH Reference - 2008FED ¶4082.18
CCH Reference - 2008FED ¶4082.35
Code Sec. 55
CCH Reference - 2008FED ¶5101.035
CCH Reference - 2008FED ¶5101.24
Code Sec. 63
CCH Reference - 2008FED ¶6023.07
CCH Reference - 2008FED ¶6023.10
Code Sec. 151
CCH Reference - 2008FED ¶8005.021
CCH Reference - 2008FED ¶8005.12
Code Sec. 162
CCH Reference - 2008FED ¶8590.55
Code Sec. 213
CCH Reference - 2008FED ¶11,620.6744
Code Sec. 217
CCH Reference - 2008FED ¶12,623.11
Code Sec. 402
CCH Reference - 2008FED ¶18,221.10
Code Sec. 402A
CCH Reference - 2008FED ¶18,250.021
Code Sec. 408
CCH Reference - 2008FED ¶18.922.0229
CCH Reference - 2008FED ¶18,922.0326
CCH Reference - 2008FED ¶18,922.1065
CCH Reference - 2008FED ¶18,922.1068
Code Sec. 6011
CCH Reference - 2008FED ¶35,141.02
CCH Reference - 2008FED ¶35,141.035
CCH Reference - 2008FED ¶35,141.47
Code Sec. 6311
CCH Reference - 2008FED ¶38,089.101
Code Sec. 6402
CCH Reference - 2008FED ¶38,519.026
CCH Reference - 2008FED ¶38,519.37
Code Sec. 7206
CCH Reference - 2008FED ¶41,333.10
CCH Reference - 2008FED ¶41,333.210
Code Sec. 7513
CCH Reference - 2008FED ¶42,702.13
CCH Reference - 2008FED ¶42,702.14
Code Sec. 7526
CCH Reference - 2008FED ¶42,816M.01
Code Sec. 7804
CCH Reference - 2008FED ¶43,266.304
CCH Reference - 2008FED ¶43,266.336
CCH Reference - 2008FED ¶43,266.339
CCH Reference - 2008FED ¶43,266.353
CCH Reference - 2008FED ¶43,266.385
CCH Reference - 2008FED ¶43,266.386
CCH Reference - 2008FED ¶43,266.65
CCH Reference - 2008FED ¶43,266.87
Code Sec. 7805
CCH Reference - 2008FED ¶43,282.0412
Tax Research Consultant
CCH Reference - TRC IRS: 3,058
CCH Reference - TRC IRS: 3,154.15
CCH Reference - TRC IRS: 6,050
CCH Reference - TRC IRS: 6,072
CCH Reference - TRC IRS: 6,250
CCH Reference - TRC IRS: 12,380
CCH Reference - TRC INDIV: 57,050
CCH Reference - TRC INDIV: 57,056.10
CCH Reference - TRC INDIV: 57,250
CCH Reference - TRC INDIV: 57,252
CCH Reference - TRC INDIV: 57,452
CCH Reference - TRC INDIV:57,454
CCH Reference - TRC INDIV: 57,552
CCH Reference - TRC INDIV: 57,706.15
CCH Reference - TRC INDIV: 57,708
CCH Reference - TRC INDIV: 57,806
CCH Reference - TRC INDIV:60,152
CCH Reference - TRC INDIV: 60,154
CCH Reference - TRC FILEBUS: 6106.05
CCH Reference - TRC FILEBUS: 12,250
CCH Reference - TRC FILEBUS: 12,306
CCH Reference - TRC FILEBUS: 12,308.15
CCH Reference - TRC FILEIND: 21,156.05
CCH Reference - TRC PENALTY: 3,260

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The IRS has issued guidance to identify the returns and claims for refunds required to be signed by a tax return preparer in order to avoid the penalty for failure to sign a return. The Small Business and Work Opportunity Tax Act of 2007 (P.L. 110-28) extended the application of the income tax return preparer penalties to all tax return preparers, including the penalty under Code Sec. 6695(b) for failure by a preparer to sign a return or claim for refund. The change is effective for tax returns and claims for refunds prepared after May 25, 2007.
For purposes of the penalty, an individual who is a tax return preparer must sign the return or claim for refund after it is completed and before it is presented to the taxpayer for signature. If the preparer is unavailable for signature, another tax return preparer must review the entire preparation of the return or claim for refund and sign it before it is presented to the taxpayer. If more than one preparer is involved in the preparation of the return or claim for refund, the individual tax return preparer who has the primary responsibility for the overall substantive accuracy in preparing the return must sign the return.
The Treasury Department and IRS intend to issue regulations on or before December 31, 2008, regarding the extension of the signature requirement. However, consistent with existing regulations, a tax return preparer may avoid the penalty only by providing a signature on any income tax returns or claim for refund of income tax that is filed after December 31, 2007, including Forms 1040, 1040A, 1040A, 1041, 1065, 1120, 1120S, and 2438 (among others). A return preparer will not be subject to the penalty with respect to other tax returns or refund claims for taxes other than income taxes that are filed after December 31, 2007, but on or before December 31, 2008, including Forms 706, 709, 720, 940, 941, 943, 944, and 4720.
IR-2007-213, 2008FED ¶46,226
Notice 2008-12, 2008FED ¶46,228
Other References:
Code Sec. 6695
CCH Reference - 2008FED ¶39,970.60
CCH Reference - 2008FED ¶39,970.75
Tax Research Consultant
CCH Reference - TRC IRS: 6104
 

CCH (cch.taxgroup.com) reports:

The preparer penalty transitional relief provided by Notice 2007-54, I.R.B. 2007-27, 12, relating to adequate disclosure and the reasonable basis standard, has been clarified to provide that certain original and amended returns and refund claims will qualify for such transitional relief. The relief is extended to timely amended returns or claims for refund (other than 2007 employment and excise tax returns) filed on or before December 31, 2007, timely amended employment and excise tax returns or claims for refund filed on or before January 31, 2008, original returns due on extension after December 31, 2007 (other than 2007 employment or excise tax returns) filed on or before December 31, 2007, and original employment and excise returns filed on or before January 31, 2008. The guidance also clarifies that transitional relief is available for advice rendered by nonsigning preparers for advice provided on or after December 31, 2007.
The transitional relief clarification is effective as of May 25, 2007. The IRS intends to provide guidance in the future to address amended returns filed after the expiration of the transitional relief period described in Notice 2007-54 that relates to original returns filed under previous law or during the transitional relief period.
IR-2007-213, 2008FED ¶46,226
Notice 2008-11, 2008FED ¶46,227
Other References:
Code Sec. 6694
CCH Reference - 2008FED ¶39,957A.01
CCH Reference - 2008FED ¶39,957C.01
CCH Reference - 2008FED ¶39,960.70
CCH Reference - FINH ¶21,864.50
Tax Research Consultant
CCH Reference - TRC IRS: 6,000
CCH Reference - TRC IRS: 6,050
CCH Reference - TRC IRS: 6,052
CCH Reference - TRC IRS: 6,054
CCH Reference - TRC IRS: 6,056
CCH Reference - TRC IRS: 6,058
CCH Reference - TRC IRS: 6,060
CCH Reference - TRC IRS: 6,062
CCH Reference - TRC IRS: 6,064
CCH Reference - TRC IRS: 6,066
CCH Reference - TRC IRS: 6,068
CCH Reference - TRC IRS: 6,070
CCH Reference - TRC IRS: 6,072
CCH Reference - TRC IRS: 6,104
CCH Reference - TRC IRS: 6,106
CCH Reference - TRC IRS: 6,108
CCH Reference - TRC IRS: 6,110
CCH Reference - TRC IRS: 6,112
CCH Reference - TRC IRS: 6,116
CCH Reference - TRC IRS: 6,152
CCH Reference - TRC IRS: 6,154
CCH Reference - TRC IRS: 6,156
CCH Reference - TRC IRS: 6,158
CCH Reference - TRC IRS: 6,160
CCH Reference - TRC IRS: 6,162
CCH Reference - TRC IRS: 6,200
CCH Reference - TRC IRS: 6,252
CCH Reference - TRC IRS: 6,254
CCH Reference - TRC IRS: 6,256
CCH Reference - TRC IRS: 33,154.15
 

CCH (cch.taxgroup.com) reports:

The Treasury Department and the IRS have issued guidance providing interim rules implementing and interpreting the legislatively expanded tax return preparer penalty. The guidance also solicits input from the tax return preparer community with respect to a planned overhaul of the tax return preparer penalty regime anticipated to be completed by the end of 2008.
The guidance provides interim rules implementing and interpret these heightened standards. These rules will be in effect until the overhaul of the current return preparer penalty regulations is complete. The interim rules emphasize the importance to preparers of understanding the legal basis for positions taken on tax returns, the requirement for taxpayers to disclose certain positions, and the need for preparers to advise taxpayers on the various penalties that can apply when a position is taken on a return that may not be supported by existing law.
Under the guidance, preparers generally can continue to rely on taxpayer representations in preparing returns and can also generally rely on representations of third parties, unless the preparer has reason to know they are wrong. The new law also expanded the return preparer penalty to cover all tax return preparers, not just income tax return preparers. Further, preparers of many information returns will not be subject to the new penalty provision unless they willfully understate tax or act in reckless or intentional disregard of the law.
The guidance is generally effective January 1, 2008. However, it is effective February 1, 2008, for all 2007 employment and excise tax returns filed on or after that date with respect to advice provided on or after that date.
IR-2007-213, 2008FED ¶46,226
Notice 2008-13, 2008FED ¶46,229
Other References:
Code Sec. 6694
CCH Reference - 2008FED ¶39,960.70
CCH Reference - FINH ¶21,864.01
Code Sec. 7701
CCH Reference - FINH ¶23,815.82
Tax Research Consultant
CCH Reference - TRC IRS: 6156
 

CCH (cch.taxgroup.com) reports:

President Bush on December 29 signed the Tax Technical Corrections Act of 2007 (HR 4839). Most of the provisions corrected inadvertent mistakes, but some of the changes involve clarifications or interpretations of law. Some of the more notable provisions include:
(1) Forbearance of Code Sec. 470 sale in, lease-out (SILO) rules in certain legitimate real estate and venture capital partnerships;
(2) Definition of the alternative minimum tax (AMT) refundable credit to more effectively utilize long-term unused credits under the AMT; and
(3) Clarification of the role of shareholder basis in connection with contributions of appreciated property by S corporations.
Other notable revisions include:
(1) Modification of the active business definition under Code Sec. 355 in coordination with the separate affiliated group rule;
(2) Clarification of the treatment of a loss on a position identified in certain offsetting situations; and
(3) Determination of the time for assessment of penalty relating to substantial and gross valuation misstatements attributable to incorrect appraisals.
By Paula Cruickshank, CCH News Staff

Tax Analysts report:

Tax Analysts report: