Tax News

CCH (cch.taxgroup.com) reports:

  The capital investment credit allowed against the Florida corporate income tax or insurance gross premiums tax and the renewable energy technologies credit allowed against the corporate income tax are amended to provide for transferability of the credits. The renewable energy production credit allowed against the corporate income tax is amended to clarify the treatment of the credit by pass-through entities. Also, where applicable, references in the credits to the Department of Environmental Protection have been changed to refer to the Florida Energy and Climate Commission.

 

CCH (cch.taxgroup.com) reports:

  The California State Board of Equalization (SBE) has announced that taxpayers affected by the wildfires in Mendocino County may be eligible for emergency tax relief in regard to taxes administered by the SBE. For all taxpayers and fee payers who cannot meet tax filing and payment deadlines due to the fires, the SBE may grant a one-month extension. The SBE also may extend deadlines for filings that were delayed by disruption of the normal activities of the U.S. Postal Service or private mail and freight companies. Relief is also available from interest and penalties for those unable to file their returns or pay taxes and fees due in a timely manner. Persons requesting relief must include with their returns a statement signed under penalty of perjury stating the cause for the late filing.

  CCH Tax Research NetWork subscribers can view the release in its entirety.

News Release No. 48-08-Y, California State Board of Equalization, June 27, 2008.

 

CCH (cch.taxgroup.com) reports:

  For purposes of determining a life insurance company's taxable income, where the company did business in several states with different minimum reserve requirements, the amount of the company's statutory reserves, within the meaning of Code Sec. 807(d)(6), was the highest aggregate reserve amount set forth on an annual statement pursuant to the minimum reserve requirements of any state in which the company did business. This was the case where the company held and reported to each state the highest aggregate minimum amount of reserves required for its insurance contracts under the laws of all states in which the company transacted business. The same result occurred in a second situation where the company reported to each state the minimum amount of reserves required for its insurance contracts under the laws of that particular state. In that situation, however, the company actually held the highest aggregate minimum amount of reserves required for its insurance contracts under the laws of any state in which the company did business.

Rev. Rul. 2008-37, 2008FED ¶46,492

Other References:

 
Code Sec. 807

  CCH Reference - 2008FED ¶25,821.25

  Tax Research Consultant

  CCH Reference - TRC NOL: 6,154

CCH (cch.taxgroup.com) reports:

  The IRS has provided filing relief to the victims of the recent storms and flooding in Illinois. The IRS has extended tax return filing and payment deadlines for victims of the severe storms and floods in the Illinois counties of Adams, Clark, Coles, Crawford, Cumberland, Douglas, Edgar, Hancock, Henderson, Jasper, Lake, Lawrence, Mercer and Winnebago. Taxpayers residing or having a business in these presidentially declared disaster areas have until August 25, 2008, to file returns, pay taxes and perform other time-sensitive acts. The extended deadline applies to items due between June 2, 2008, and August 25, 2008, and includes the filing of Form 5500 series returns, Annual Return/Report of Employee Benefit Plan.

  In addition, the IRS will also waive penalties for failure to deposit employment and excise taxes due on or after June 1 and on or before June 16, as long as the deposits are made by June 16. Taxpayers whose books, records or tax professionals' offices are located in the designated disaster areas may also be entitled to this relief.

  Neither of the extended due dates applies to information returns in the W-2, 1098, or 1099 series, or to Forms 1042-S or 8027. However, the IRS may waive penalties for failure to timely file information returns under existing procedures for reasonable cause. In addition, affected taxpayers may claim disaster-related casualty losses from the destruction of property on either their 2007 or 2008 federal income tax return.

  Affected taxpayers should write "Illinois/Severe Storms and Flooding" across the top of their returns to expedite the processing of any refund the taxpayer may be due.

Illinois Disaster Notice, 2008FED ¶46,493

Other References:

 
Code Sec. 6081

  CCH Reference - 2008FED ¶36,789.213

 
Code Sec. 7508A

  CCH Reference - 2008FED ¶42,687C.22

  Tax Research Consultant

  CCH Reference - TRC FILEBUS: 15,110

  CCH Reference - TRC FILEBUS: 15,204.25

CCH (cch.taxgroup.com) reports:

  The House Appropriations Committee on June 25 approved without any changes an IRS fiscal year (FY) 2009 budget of $11.4 billion, the same budget approved by the House Appropriations Subcommittee on Financial Services and General Government (TAXDAY, 2008/06/19, C.2). The budget includes $5.1 billion for enforcement, $2.2 billion for taxpayer service, and $223 million for business systems modernization. The appropriation is $304 million above the agency's FY 2008 budget and $37 million higher than the Bush administration request for FY 2009.

  The 2009 budget would "make it easier for honest Americans to file their taxes while it beefs up IRS enforcement to catch tax cheats," the committee said in a news release.

  The bill would eliminate funding for the IRS's use of private debt collectors. "The IRS can perform the same function at less cost and with better safeguards for taxpayers," the committee said. Subcommittee Chairman Jose Serrano, D-N.Y., commented that "under this very misguided and wasteful program, the IRS allows private contractors to collect unpaid taxes and to keep up to 24 percent of the tax revenue they bring in. This programs should be terminated."

  The overall IRS budget includes a $47 million increase for taxpayer service and return preparation, including IRS walk-in sites. Taxpayers receiving help at walk-in sites fell from 665,000 in 2003 to 406,000 in 2006, the committee noted. The budget also includes $192 million for the Taxpayer Advocate Service (TAS), a $15 million increase from FY 2008. From 2004 to 2006, taxpayers experienced long delays as the TAS's case load rose 43 percent while its staff declined by 7 percent, the committee pointed out.

  The bill also raises federal civilian pay by 3.9 percent for a cost-of-living adjustment and imposes a one-year moratorium on federal job outsourcing activities.

  By Brant Goldwyn, CCH News Staff

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Imposition of the Seattle telephone utility tax on a cable television provider with respect to its cable Internet service was barred by the state Internet tax moratorium in effect for the period at issue, the Washington Supreme Court has held.

CCH (cch.taxgroup.com) reports:

The Rhode Island budget bill (1) increases the gross premiums tax on insurance companies, (2) places limits on the motion picture production investment credit against the corporate and personal income taxes, the gross premiums tax, and the bank excise tax as well as on the innovation and growth credit against the corporate and personal income taxes and the franchise tax, and (3) repeals the foreign tax credit against the personal income tax. A separate story discusses changes to the utilities and motor fuel taxes. (TAXDAY, 2008/06/27, S.17)

CCH (cch.taxgroup.com) reports:

The Treasury has released temporary and proposed regulations governing how a "small business refiner" elects to take, and determines the amount of, a Code Sec. 179B deduction for costs of producing diesel fuel. The deduction, 75 percent of certain qualifying costs, is allowable for a tax year even if the relevant property is not placed in service until a later year. In addition to other implementing rules, the temporary regulations state which environmental protection agency rules are used when determining the deduction and provide a reduction in the allowable deduction if certain production thresholds are exceeded.
Under the temporary regulations, the election to utilize Code Sec. 179B(a) is made separately for each year and a taxpayer may elect the deduction for one year and not for another year. The election is made on the taxpayer's original Federal income tax return for the year and requires attaching an informational statement. The election is made at the entity level if taken by a partnership or an S corporation. And, the common parent of a consolidated group makes the election on behalf of eligible group members.
If an election under Code Sec. 179B(e) is made by a cooperative, the deduction amount allocated is equal to the owner's ratable share of the total deduction based on ownership interests in the electing cooperative small business refiner. Each cooperative owner must be notified of the election and their allocated amount of the deduction. If ownership interests vary during the year, the allocation must be done with a consistently applied method that accounts for such variances. If such an allocation is made to cooperative owners, the electing cooperative must reduce its Code Sec. 179B deduction in calculating its income under Code Sec. 1382 for the deduction amount allocated to its owners.
The due date for making the election is the due date (including extensions) of the taxpayer's Federal income tax return for the taxable year. The temporary regulations generally apply to tax years ending on or after June 26, 2008. However, the regulations may be applied to tax years ending after December 31, 2002, and before June 26, 2008 by using the rules provided in Notice 2006-47.
Written or electronic comments on the proposed regulations must be received by September 25, 2008. A public hearing is scheduled for October 28, 2008, at 10 a.m. in the IRS Auditorium, Internal Revenue Building, 1111 Constitution Avenue, N.W., Washington, D.C. Outlines of topics to be discussed must be received by September 22, 2008.
T.D. 9404, 2008FED ¶47,040
Proposed Regulations, NPRM REG-143453-05, 2008FED ¶49,811
Other References:
Code Sec. 179B
CCH Reference - 2008FED ¶12,136.20
Tax Research Consultant
CCH Reference - TRC BUSEXP: 18,900
CCH Reference - TRC BUSEXP: 18,908

CCH (cch.taxgroup.com) reports:

The Senate on June 26 approved by unanimous consent the Federal Aviation Administration Extension Bill of 2008 (HR 6327), which would lengthen a four-month extension of federal aviation excise taxes and fees until the end of September 2008. The last extension of the aviation excises taxes occurred on February 28, when President Bush signed the Airport and Airway Extension Act of 2008 (P.L. 110-190). The House earlier approved the measure on June 24 (TAXDAY, 2008/06/25, C.2).
Rising jet fuel prices have driven airlines to raise ticket prices, leading to a higher amount of aviation taxes collected to fund the Airport and Airway Trust Fund. However, HR 6327 keeps the same tax rates in effect as current law, and the extra revenue has been directed to address problems with airport congestion and airport runway improvements.
House Democrats were able to win Republican support for the measure by deleting a provision that would have transferred $8 billion to the highway trust fund. Senate Finance Committee Chairman Max Baucus, D-Mont., strongly condemned the Senate's failure to reach agreement on his trust fund legislation."Replenishing the highway trust fund now would prevent the loss of an estimated 380,000 jobs, create new ones, and do so without increasing the federal budget deficit," stated Baucus.
By Jeff Carlson, CCH News Staff.

CCH (cch.taxgroup.com) reports:

Senate Majority Leader Harry Reid, D-Nev., said late on June 25 that the Senate would temporarily suspend debate on housing legislation (HR 3221) and wait until after Congress returns from its July 4 recess because leaders on both sides of the aisle could not agree on how to proceed with amendments. The measure contains a $14 billion tax title proposed by Senate Finance Committee Chairman Max Baucus, D-Mont.
"...[R]ealistically, with this objection to the housing bill, it appears very clear to me that [it is] going to take more time and we will not be able to do that by the day after tomorrow, but we will complete it, "said Reid. "We have a short work period in July, and it is guaranteed we will complete the work on the housing bill the first week we get back," he said.
The latest glitch came when Sen. John Ensign, R-Nev., insisted on adding what Democrats considered a nongermane amendment that would add a package of renewable energy tax extenders to the bill.
White House Agenda
President Bush urged Congress to act on housing legislation once it returns from recess the week of July 7. "The Congress needs to come together and pass responsible housing legislation to help more Americans keep their homes," Bush said in a Rose Garden statement on June 26. The White House has issued veto threats on both the House and Senate housing packages, but Press Secretary Dana Perino on June 25 expressed guarded optimism that both chambers would be able to reach an agreement acceptable to the president.
By Jeff Carlson and Paula Cruickshank, CCH News Staff.

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

In calculating its alternative minimum taxable income, a corporation that owned a number of gold mines was required to make an adjusted current earnings (ACE) adjustment under Code Sec. 56(g)(4)(C)(i) for depletion with respect to mines placed in service on or before December 31, 1989. The ACE adjustment under Code Sec. 56(g)(4)(C)(i) is a general provision that applies to all property, regardless of when placed in service, and offsets the permanent benefit of percentage depletion method and other deductions not allowed when computing earnings and profits. The ACE adjustment under Code Sec. 56(g)(4)(F)(i), which applies only for mines placed in service after December 31, 1989, and requires an adjustment for the difference between the taxpayer's depletion deduction and the amount of the depletion that would be allowed under the cost method, did not preclude the general ACE adjustment. There was no ambiguity or conflict between the provisions because the general ACE adjustment applied only where the depletion deduction exceeded the adjusted basis of the property. Thus, the ACE adjustment under Code Sec. 56(g)(4)(F)(i) could be required when the general ACE adjustment would not apply. There was no evidence that Congress intended to protect mines placed in service on or before December 31, 1989, from the general ACE adjustment by, for example, including a similar limitation in the statute. The Tax Court rejected a number of arguments involving the rules of statutory construction and the legislative history and statutory scheme of Code Sec. 56.
Unamortized Code Sec. 56(a)(2) mining development costs were not included in the adjusted basis of the depletable property when calculating either the general ACE adjustment under Code Sec. 56(g)(4)(C)(i) or Code Sec. 57 tax preference items. In both cases, adjustments are required for the same amount, that being the excess of the depletion deduction allowed under the percentage depletion method over the adjusted basis of the property. Property for purposes of determining the depletion deduction included actual minerals. Unamortized Code Sec. 56(a)(2) costs are added to the mineral enterprise, but excluded from the adjusted basis of the mineral deposits for purposes of determining depletion deductions and the ACE adjustment. Similarly, for purposes of tax preference items, property was defined by reference to the cost depletion rules as interests in mineral deposits, excluding unamortized Code Sec. 56(a)(2) costs. However, based on the IRS's concession that the unamortized Code Sec. 56(a)(2) costs could be included in the adjusted basis of the mine property for purposes of calculating the tax preference items, the taxpayer was not required to make adjustments to its tax preference item. The ACE adjustment was computed to exclude items taken into account as tax preferences.
Santa Fe Pacific Gold Company, 130 TC No. 17, Dec. 57,477
Other References:
Code Sec. 56
CCH Reference - 2008FED ¶5210.22
Code Sec. 57
CCH Reference - 2008FED ¶5307.12
Tax Research Consultant
CCH Reference - TRC STAGES: 9,120.05

CCH (cch.taxgroup.com) reports:

The IRS has issued revised interim guidance on the credit for electricity produced from certain renewable resources. The new guidance revises and supersedes Notice 2006-88 to reflect recent legislative changes and omits the guidance in that notice relating to the simultaneous sale and purchase of electricity. It can be relied upon until final regulations are issued. The IRS will continue its policy of not issuing private letter rulings regarding Code Sec. 45 as it pertains to open-loop biomass or regarding Subchapter K rules for partnerships claiming the credit.
A renewable electricity production credit is allowed for electricity produced by a taxpayer from qualified energy resources at a qualified facility, including open-loop biomass produced at an open loop biomass facility placed in service by a statutorily defined deadline. Section 201 of the Tax Relief and Health Care Act of 2006 (2006 Extenders Act) (P.L. 109-432) extended that deadline to December 31, 2008. Section 7(b)(1) of the Tax Technical Corrections Act of 2007 (2007 Technical Corrections Act) (P.L. 110-172) eliminated the requirement that open-loop biomass be segregated from other waste materials.
Accordingly, the new notice makes various changes to the rules regarding claiming the credit for producing energy from open-loop biomass. The placed-in-service deadline has changed to reflect the change made in the 2006 Extenders Act. Moreover, the guidance in the old notice pertaining to simultaneous sale and purchase of electricity from an unrelated person has been eliminated.
Finally, a new section has been added clarifying the rules limiting the credit to electricity, refined coal or Indian coal produced and sold to an unrelated person. Electricity or coal will be treated as sold to an unrelated person if the ultimate purchaser of the electricity or coal is not related to the person that produces the electricity or coal. The sale requirement will be treated as satisfied if the producer sells the electricity or coal to a related person for resale to a person not related to the producer within the meaning of Code Sec. 45(e)(4). Notice 2006-88 is superseded.
Notice 2008-60, 2008FED ¶46,486
Other References:
Code Sec. 45
CCH Reference - 2008FED ¶4415.27
CCH Reference - 2008FED ¶4415.30
Tax Research Consultant
CCH Reference - TRC BUSEXP: 54,550

CCH (cch.taxgroup.com) reports:

The IRS has announced that it will view a rolling-average method of valuing inventories for financial accounting purposes as clearly reflecting income for federal income tax purposes provided a taxpayer meets one of the two newly created safe harbors. The IRS has also provided procedures by which a taxpayer may obtain automatic consent to change to a rolling-average method.
Safe Harbors
A taxpayer's use of the rolling-average method for financial accounting purposes will be deemed to clearly reflect income provided:
(1) the taxpayer recomputes the rolling average cost of an inventory item according to one of the following:
(a) each time the taxpayer purchases or produces an additional unit or units of that item; or
(b) on a regular basis but no less frequently than once per month; and
(2) the taxpayer satisfies one of the following conditions:
(a) the variance percentage (as determined under sec. 4.02 of the new procedure) does not exceed one percent; or
(b) the taxpayer's entire inventory turns at least four times per year (as determined under sec. 4.03 of the new procedure).
Variance Percentage
The variance percentage is determined by:
(1) subtracting the cost of the ending inventory, computed using the taxpayer's rolling-average method, from the cost of the ending inventory using either the FIFO or the specific identification method to determine the variance; and then
(2) dividing the variance by the aggregate rolling-average cost of the inventory.
  Inventory Turns
The number of times that the taxpayer's entire inventory turns during a tax year is equal to the cost of goods sold divided by average inventory, which is the average of beginning and ending inventory. However, a taxpayer using a LIFO cost-flow assumption for tax purposes must calculate inventory turns using rolling-average cost and a FIFO cost-flow assumption.
A taxpayer's use of a rolling-average method of accounting on a federal income tax return filed before June 25, 2008, in accordance with this procedure will not be raised by the IRS as an audit issue. In addition, for tax returns filed before June 25, 2008, where the taxpayer's use of a rolling-average method is an issue under consideration, the IRS will not pursue it further.
This procedure is effective for tax years ending on or after December 31, 2007.
Rev. Rul. 71-234, 1971-1 CB 148, and Rev. Rul. 77-480, 177-2 CB 186, are modified to permit taxpayers to use a rolling-average method of accounting for inventories as provided under the new procedure. Rev. Proc. 2002-9, 2002-1 CB 327, is modified and amplified to include in the Appendix the automatic change provided in the new procedure.
Rev. Proc. 2008-43, 2008FED ¶46,485
Other References:
Code Sec. 471
CCH Reference - 2008FED ¶22,208.50
Code Sec. 472
CCH Reference - 2008FED ¶22,240.25
CCH Reference - 2008FED ¶22,240.33
Tax Research Consultant
CCH Reference - TRC ACCTNG: 15,154.20
CCH Reference - TRC ACCTNG: 18,110.05

CCH (cch.taxgroup.com) reports:

The Treasury Department and IRS have issued a notice providing employers and employees with a new set of formal questions and answers on Health Savings Accounts (HSAs). An HSA is a tax-exempt trust or custodial account established under Code Sec. 223 exclusively for the purpose of paying qualified medical expenses of the account beneficiary who, for the months for which contributions are made to an HSA, is covered under a high-deductible health plan (HDHP).
The new guidance includes over 40 frequently asked questions and answers, grouped into the following categories: eligible individual, HDHPs, HSA contributions, HSA distributions, prohibited transactions, and establishing an HSA.
Who is an eligible individual. Guidance topics regarding eligibility mostly center around the effect of other insurance or benefits. Some of these issues examined include the payment of HDHP premiums by a Health Reimbursement Account, disqualifying benefits paid or reimbursed before the HDHP minimum deductible is satisfied, Medicare benefits, Department of Veterans Affairs benefits, access to employer-provided free or low-cost health care, and family HDHP coverage for dependents with disqualifying coverage.
High-Deductible Health Plans (HDHPs). The HDHP issues relate mostly to permitted deductibles and required coverage. The guidance examines the transition from family HDHP coverage to self-only HDHP coverage, and it discusses plans with higher deductibles for specific benefits, plans that restrict benefits to hospitalization or in-patient care, and expenses that apply toward meeting the deductible.
Contributions to HSAs. The guidance discusses a wide variety of contribution issues including limits for individuals with family coverage and dependents with nonpermitted coverage, as well as limits for married couples with different types of HDHP coverage. It also examines rollovers, catch-up contributions for spouses, excess contributions due to errors, employer contributions to an HSA of the employee's spouse.
Distributions from HSAs. Guidance topics for HSA distributions include debit cards, third-party authorization, payment of Medicare Part D premiums, Medicare premiums for a spouse, continuation coverage premiums, premiums for a dependent receiving unemployment benefits, and expenses for a child claimed as a dependent by another.
Prohibited transactions. Prohibited transaction issues include borrowing from an HSA, loans from a trustee to an HSA, pledging HSA assets as security for a loan, and the consequences for entering into a prohibited transaction.
Establishing an HSA. Topics related to establishing an HSA include determining when an HSA is established, and the establishment date for rollovers and for successive HSAs.
Notices 2004-2, 2004-1 CB 269, 2004-50, 2004-2 CB 196, and 2007-22, 2007-10 I.R.B. 670, are amplified.
Treasury Department News Release, TDNR HP-1056, 2008FED ¶46,487
Notice 2008-59, 2008FED ¶46,488
Other References:
Code Sec. 105
CCH Reference - 2008FED ¶6702.73
Code Sec. 106
CCH Reference - 2008FED ¶6803.0255
CCH Reference - 2008FED ¶6803.32
Code Sec. 223
CCH Reference - 2008FED ¶12,785.025
CCH Reference - 2008FED ¶12,785.029
CCH Reference - 2008FED ¶12,785.033
CCH Reference - 2008FED ¶12,785.037
CCH Reference - 2008FED ¶12,785.041
CCH Reference - 2008FED ¶12,785.075
CCH Reference - 2008FED ¶12,785.25
Code Sec. 4980B
CCH Reference - 2008FED ¶34,601.20
Tax Research Consultant
CCH Reference - TRC INDIV: 42,450
CCH Reference - TRC COMPEN: 45,064

CCH (cch.taxgroup.com) reports:

Taxpayers would receive one year of relief from the alternative minimum tax (AMT), under a bill passed by House lawmakers on June 25. By a vote of 233 to 198, the House approved the Alternative Minimum Tax Relief Bill of 2008 (HR 6275), which was introduced on June 17 by House Ways and Means Chairman Charles B. Rangel, D-N.Y (TAXDAY, 2008/06/18, C.1).
The $61.5-billion cost of the bill, which is offset by provisions that raise taxes on oil companies, hedge fund managers and others, continued to draw opposition from GOP lawmakers. "This vote is nothing more than a cynical and craven political exercise that will only further delay the inevitable: a one-year patch without revenue raisers," said Rep. Phil English, R-Pa., ranking member of the House Select Revenue Measures Subcommittee.
According to a summary of the legislation, the two biggest revenue raisers in the AMT bill would tax the so-called "carried interest" earned by investment fund managers as ordinary income, rather than as capital gains. This would raise $30.9 billion over 10 years. The bill would also deny Code Sec. 199 benefits to major integrated oil and natural gas companies. This provision would raise $13.5 billion over 10 years.
Rangel told lawmakers that the federal government should pay for what it buys, rather than increasing the nation's budget deficit. "We shouldn't go to China and Japan and ask them once again to bail us out," Rangel said. "Instead, we should take a look at the tax code and see what loopholes we can close to repair the AMT --at least for this year --without passing this burden on to our children and grandchildren."
GOP lawmakers noted that the Senate, as well as the White House, reject the idea of raising taxes to offset the cost of AMT relief. They predicted that a tax-free AMT relief bill will be passed by Congress and signed into law by President Bush in 2008.
The White House issued a veto threat against the AMT relief bill because it contains tax offsets to pay for it. "The administration does not believe that the appropriate way to protect the 26 million Americans from higher 2008 AMT liability --including 22 million that would be newly exposed to the AMT --is to impose a tax increase on other taxpayers," according to a written policy statement. The administration statement warned that a delay in enacting the measure would likely disrupt the 2009 tax filing season.
By Stephen K. Cooper and Paula Cruickshank, CCH News Staff
Ways and Means Release: House Passes Bipartisan AMT Relief Bill

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Louisiana Governor Bobby Jindal signed legislation that provides a reduction of personal income tax rates in certain brackets to the same amounts as provided for prior to the enactment of the Stelly Plan (Act 51 of 2002). This change is applicable to all tax years beginning on and after January 1, 2009, and the withholding tables for personal income tax will not be amended by the Department of Revenue until after July 1, 2009.
Specifically, the individual rates of tax are as follows:
-- a rate of 2% on the first $12,500 of net income that is in excess of applicable credits;
-- a rate of 4% on the next $37,500, up to $50,000, of net income; and
-- a rate of 6% on anything over $50,000.
This legislation was reported on previously (TAXDAY, 2008/06/12, S.13).
Act 396 (S.B. 87), Laws 2008, effective June 23, 2008 and applicable as noted
CCH Reference - TRC SALES: 51,552.20
 

CCH (cch.taxgroup.com) reports:

The IRS has issued guidance for issuers of tax-exempt bonds on how to make claims for recovery of overpayments with respect to arbitrage rebates under Code Sec. 148(f)(2), penalties in lieu of rebates under Code Sec. 148(f)(4), and yield-reduction payments under Reg. §1.148-5(c). In order to receive recovery of an overpayment, the issuer must file a refund claim by completing Form 8038-R, Request for Recovery of Overpayments Under Arbitrage Rebate Provisions, and filing the form and any attachments with the IRS, Ogden Submission Processing Center, Ogden, Utah, 84201.
In general, the form must be filed no later than the date that is: (1) two years after the final computation date for the applicable bond issue, for an issue of bonds whose final computation date is after June 24, 2008, or (2) two years from July 1, 2008, for an issue of bonds whose final computation date is on or before June 24, 2008.
The IRS also outlined the procedures that it will employ in processing refund claims for overpayment amounts. Any necessary refinements or revisions of these procedures will be published in the Internal Revenue Manual. If the IRS rejects a claim and issues a Refund Claim Denial letter, the issuer may appeal the Refund Claim Denial to the IRS Office of Appeals, pursuant to section 3.01 of Rev. Proc. 2006-40, I.R.B. 2006-42, 694. This newly issued guidance obsoletes Rev. Proc. 92-83, 1992-2 CB 487.
Rev. Proc. 2008-37, 2008FED ¶46,482
Other References:
Code Sec. 148
CCH Reference - 2008FED ¶7889.50
Tax Research Consultant

CCH (cch.taxgroup.com) reports:

The Senate on June 24 agreed 83-to-9 to limit debate on a housing stimulus bill (HR 3221). At press time, Senate leaders were still deciding on the timing for substituting their bill, which includes a $14-billion tax title offered by Senate Finance Committee Chairman Max Baucus, D-Mont., and ranking member Charles E. Grassley, R-Iowa, for the House version and limitations on further amendments. The amendment is part of a compromise housing policy bill reached between Senate Banking Committee Chairman Christopher Dodd, D-Conn., and ranking member Richard C. Shelby, R-Ala.
Grassley and a number of cosponsors have filed a tax relief amendment designed to help people and communities in Midwestern states recover from the recent spate of floods and tornados in that region. The Midwestern Disaster Tax Relief bill contains provisions that would let disaster victims withdraw money from retirement plans without tax penalties, suspend limits on tax incentives for charitable contributions, create tax-exempt bond authority to help rebuild infrastructure, remove limitations on deducting casualty losses due to natural disaster, and allow additional depreciation and increased amounts for expensing property to help businesses. Lawmakers are also seeking to offer an amendment that would prevent municipalities from raising property taxes because the legislation provides a new $1,000 property tax deduction for homeowners who do not itemize. The Senate plans to complete final action on the housing measure before beginning a one-week Fourth of July recess on June 27.
By Jeff Carlson, CCH News Staff
SFC Release: Senators Seek Tax Relief for Flood and Tornado Victims in the Midwest
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Guidance is provided for Florida corporate income tax purposes regarding recently enacted legislation that requires, effective January 1, 2008, additions to adjusted federal income for amounts in excess of $25,000 deducted under IRC §179 as well as amounts deducted as bonus depreciation under IRC §168. (TAXDAY, 2008/06/19, S.6)
In regard to the 2007 tax year, an amended return may be required for some fiscal year taxpayers. In regard to tax years beginning before January 1, 2008, and assets placed in service after December 31, 2007, an addition to adjusted federal income is required for amounts deducted as bonus depreciation under IRC §168. This addition must be included on Form F-1120, Florida Corporate Income/Franchise and Emergency Excise Tax Return, Schedule I, Line "Other Additions." Taxpayers are also reminded that the same legislation changed the due dates for declarations and payments of estimated corporate income tax effective January 1, 2009. Declarations and payments of estimated tax are required to be made on or before the last day of the fourth, sixth, and ninth months and the last day of the tax year.

Tax Information Publication No. 08C01-02, Florida Department of Revenue, June 17, 2008.

CCH (cch.taxgroup.com) reports:

The California Franchise Tax Board has issued a notice explaining the state personal income tax treatment and tax return filing obligations of same-sex married couples in light of the California Supreme Court's decision in In re Marriage Cases, 43 Cal.4th 575 (2008), in which the court struck down specified sections of California's Family Code, thereby allowing same-sex marriages to proceed in California.
As a result of the court's decision, for purposes of the California Revenue and Tax Code the term "spouse" includes every individual who is legally married under California law, including same-sex married individuals. Consequently, such individuals who are married by the last day of the taxable year are required to file either a joint return or married, filing separately returns.
Because same-sex married couples are still required to file their federal tax returns using the single filing status, they may be required to recompute those deductions claimed on the state tax return that are computed using a taxpayer's federal adjusted gross income (AGI) amount. Examples of such deductions include a taxpayer's itemized deductions or the deduction for contributions to an individual retirement account (IRA). Same-sex married individuals must recompute their federal AGI for purposes of computing and claiming these deductions on their state tax returns utilizing the same filing status as that used on their state return. Frequently, this will mean adding each individual's AGI from the federal return to compute the couple's combined AGI.
Taxpayers should also be aware that the filing of a joint return may impact a same-sex married couple's qualification for the estimated tax safe harbor provision that enables taxpayers to avoid estimated tax underpayment penalties if their estimated tax payments equal the amount of their tax liability for the prior year. Taxpayers who will file a joint return for the current taxable year but who filed as single, head of household, or married, filing separately during the prior taxable year must compute their prior year's tax liability for purposes of determining their estimated tax safe harbor threshold by adding the tax paid by each individual spouse during the prior taxable year.
FTB Notice 2008-5 , California Franchise Tax Board, June 20, 2008, ¶404-691
Other References:
Explanations at ¶15-125
Explanations at ¶15-305

CCH (cch.taxgroup.com) reports:

An IRS Appeals officer did not abuse her discretion when she issued a notice of determination without considering a married couple's offer-in-compromise (OIC) based only on doubt as to liability. Because the taxpayers received a notice of deficiency and had an opportunity to challenge the underlying tax liability, but failed to do so, they were barred from challenging the amount of the liability at the Collection Due Process (CDP) hearing. Therefore, the settlement officer properly refused to consider the taxpayers' OIC it was a prohibited challenge to the underlying tax liability.
E.S. Yesse, TC Memo 2008-157, Dec. 57,473(M)
Other References:
Code Sec. 6360
CCH Reference - 2008FED ¶38,184.12
Tax Research Consultant
CCH Reference - TRC IRS: 51,056

CCH (cch.taxgroup.com) reports:

In recognition of increasing gasoline prices, the IRS has announced an increase in the optional standard mileage rates for the second half of 2008. The standard mileage rate for business miles driven from July 1, 2008, through December 31, 2008, will be 58.5 cents per mile, an increase of eight cents over the rate for the first half of the year. The standard mileage rate for medical and moving expenses has been increased to 27 cents per mile from 19 cents per mile. The standard mileage rate for charitable purposes, however, remains unchanged at 14 cents per mile. Rev. Proc. 2007-70, I.R.B. 2007-50, 1162, is modified.
IR-2008-82, 2008FED ¶46,480
Announcement 2008-63, 2008FED ¶46,481
Other References:
Code Sec. 61
CCH Reference - 2008FED ¶1090.11
CCH Reference - 2008FED ¶1201.24
CCH Reference - 2008FED ¶5907.0325
Code Sec. 62
CCH Reference - 2008FED ¶6006.0324
Code Sec. 162
CCH Reference - 2008FED ¶8590.021
CCH Reference - 2008FED ¶8590.55
Code Sec. 170
CCH Reference - 2008FED ¶11,620.029
CCH Reference - 2008FED ¶11,620.6744
Code Sec. 213
CCH Reference - 2008FED ¶12,543.82
Code Sec. 217
CCH Reference - 2008FED ¶12,623.021
CCH Reference - 2008FED ¶12,623.11
Code Sec. 274
CCH Reference - 2008FED ¶14,417.043
CCH Reference - 2008FED ¶14,417.045
CCH Reference - 2008FED ¶14,417.046
CCH Reference - 2008FED ¶14,417.047
CCH Reference - 2008FED ¶14,417.048
CCH Reference - 2008FED ¶14,417.05
CCH Reference - 2008FED ¶14,417.051
CCH Reference - 2008FED ¶14,417.052
CCH Reference - 2008FED ¶14,417.053
CCH Reference - 2008FED ¶14,417.50
Code Sec. 1016
CCH Reference - 2008FED ¶29,412.385
Tax Research Consultant
CCH Reference - TRC BUSEXP: 24,506

CCH (cch.taxgroup.com) reports:

The IRS has issued temporary and proposed regulations governing the determination of basis of U.S. property acquired by a controlled foreign corporation (CFC) in certain nonrecognition transactions that are intended to repatriate earnings and profits of the CFC without a corresponding income inclusion by the U.S. shareholders of the CFC under Code Sec. 951(a)(1)(. The regulations apply when a CFC acquires the stock or obligations of a domestic corporation in an exchange with the domestic corporation, the stock or obligations constitute U.S. property under Code Sec. 956(c), and the CFC's basis in the stock or obligations is determined under Code Sec. 362(a).
If the temporary regulations apply, then, solely for purposes of determining the income inclusion required by the U.S. shareholders, the CFC's basis in the stock or obligations is not less than the fair market value of the property transferred by the CFC in exchange for the stock or obligations of the domestic corporation. Consequently, the income inclusion cannot be avoided by claiming a basis in the stock or obligations less than the amount of earnings and profits effectively repatriated. The basis rule and consequent income inclusion required by the temporary regulations cannot be avoided by a subsequent transfer of the stock or obligations of the domestic corporation by the CFC to a related person in another nonrecognition transaction.
In one typical transaction covered by the regulations, a domestic corporation that is the common parent of an affiliated group which files a consolidated return owns 100 percent of the stock of two domestic corporations (A and that are part of the consolidated group. A owns 100 percent of the stock of a CFC. B issues $100x of its stock to the CFC in exchange for $10x of CFC stock and $90x cash. The parent takes the position that (1) Code Sec. 351
applies to the exchange between and B and the CFC; (2) B recognizes no gain by reason of receipt of the $10x stock and $90x cash and the CFC recognizes no gain upon issuance of the stock to B under Code Sec. 1032(a); and (3) the CFC's basis in B's stock is zero under Code Sec. 362(a), and A and B do not have an income inclusion under Code Sec. 951(a)(1)( as a result of the CFC holding B's stock. Under the temporary regulations, however, the CFC will be treated as having acquired B's stock with a basis of no less than $90x, thereby triggering an income inclusion.
The regulations apply to United States property acquired in exchanges occurring on or after June 24, 2008. The IRS may, however, challenge earlier transactions that would otherwise be subject to the temporary regulations under other applicable provisions or judicial doctrines.
The text of the temporary regulations also serves as the text of the proposed regulations. Written or electronic comments and requests for a public hearing must be received by September 22, 2008.
T.D. 9402, 2008FED ¶47,039
Proposed Regulations, NPRM REG-102122-08, 2008FED ¶49,810
Other References:
Code Sec. 956
CCH Reference - 2008FED ¶28,571
CCH Reference - 2008FED ¶28,572
Tax Research Consultant
CCH Reference - TRC INTL: 9,250

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Wisconsin Department of Revenue has issued a notice on how to determine whether interest and rent expenses paid, accrued, or incurred to a related party (related entity) that was added back to income can be deducted for purposes of personal income and corporation franchise and income taxes. The addback requirement and deduction were enacted as part of the recent budget adjustment bill, which was reported previously. (TAXDAY, 2008/05/19, S.23)
This law change, which is effective for taxable years after 2007, applies to corporations, tax-option (S) corporations, partnerships, LLCs, individuals, fiduciaries, and insurance companies. Taxpayers who wish to deduct related party interest or rent expenses must complete and submit, along with their Wisconsin income or franchise tax return, Schedule RT, which will be available on the Department Web site around July 31, 2008.
The Department has provided an article separate from the notice that provides
-- a description of transactions affected by this law change,
-- requirements that must be met in order to deduct related party interest and rent expenses, and
-- details and examples of what is considered a "related entity."
Subscribers to CCH Tax Research NetWork can view the text of the Department notice and article.

News for Tax Practitioners ; Addback of Related Party Interest and Rent Expenses , Wisconsin Department of Revenue, June 19, 2008.
 

CCH (cch.taxgroup.com) reports:

Purchases of construction materials made by a non-Native American contractor and then delivered to a site on tribal land were subject to California sales tax. The tribe's attempt to circumvent the state sales tax by marketing an exemption to non-Native Americans did not outweigh the state's interest in raising general funds for its treasury.

CCH (cch.taxgroup.com) reports:

The House and Senate voted to override a second presidential veto of an agriculture reauthorization bill (HR 6124), which includes a $1.7 billion package of tax incentives for agriculture, conservation and renewable energy projects. The Senate also rejected another attempt to take-up a $120 billion package of tax extenders along with a temporary patch for the AMT that Democrats had intended to offer as a substitute amendment to a House energy package. The House Ways and Means Committee, meanwhile, voted to approve legislation offered by Chairman Charles B. Rangel, D-N.Y., that would fully offset the cost of a one-year patch to the alternative minimum tax (AMT). In IRS news, long-awaited proposed preparer penalty regulations under Code Sec. 6694 have been released giving tax professionals a clearer picture of what the Service expects from practitioners under the new more-likely-than-not penalty regime. The Service also issued a flurry of relief notices to help individuals and taxpayers recovering from flooding in the Midwest and other areas.
Congress
The House Ways and Means Committee on June 18 voted 26 to 16 to approve legislation offered by Chairman Charles B. Rangel, D-N.Y., that would fully offset the cost of a one-year patch to the alternative minimum tax (AMT) (TAXDAY, 2008/06/19, C.1). Lawmakers approved the Alternative Minimum Tax Relief Bill of 2008 (HR 6275), which would pay for AMT relief by raising $61.5 billion in taxes on hedge fund managers, integrated U.S. oil companies, credit card transactions and foreign firms subject to U.S. tax treaties. Republican lawmakers predicted that history will repeat itself and that the Democratic-controlled Congress will eventually pass an AMT relief bill without revenue offsets, just as it did in 2007 (TAXDAY, 2007/12/20, C.1). Speaking on behalf of the administration, Treasury Assistant Secretary for Tax Policy Eric Solomon said AMT repeal should be done as part of an overall reform of the tax code. He did acknowledge that not offsetting the AMT patch with spending cuts or higher taxes would increase the federal budget deficit.
The Senate on June 17 rejected another attempt to take-up a $120 billion package of tax extenders along with a temporary patch for the AMT that Democrats had intended to offer as a substitute amendment to a House energy package, the Renewable Energy and Jobs Creation Bill of 2008 (HR 6049) (TAXDAY, 2008/06/18, C.1). The procedural motion failed to garner the necessary 60-vote majority and fell by a 52-44 margin. Democratic leaders have vowed to continue their efforts to move the measure.
Senate Finance Committee Chairman Max Baucus, D-Mont., and ranking member Charles E. Grassley, R-Iowa, on June 18 offered a $14 billion tax title as part of a substitute amendment to a housing stimulus bill (HR 3648) (TAXDAY, 2008/06/19, C.3). The amendment was part of a compromise housing policy bill reached between Senate Banking Committee Chairman Christopher Dodd, D-Conn. and ranking member Richard Shelby, R-Ala. The tax provisions would create an additional standard deduction for property taxes for homeowners who do not itemize their federal taxes, an $8,000 refundable, repayable tax credit for first time home buyers, and increased funding for mortgage revenue bonds. Also included is a provision to increase the amount of Federal low-income housing tax credits (LIHTC).
Both the House and Senate on June 18 voted to override a second presidential veto of an agriculture reauthorization bill (HR 6124), which includes a $1.7 billion package of tax incentives for agriculture, conservation and renewable energy projects (TAXDAY, 2008/06/19, W.1). The House voted 317-109 and the Senate followed with an 80-14 vote to override President Bush's veto. Congress initially overrode President Bush's veto of the Food and Energy Security Act of 2008 (P.L. 110-234), but the enrolling clerk made an error that omitted the trade title from that bill. As a result, Congress had to take up and approve a corrected version of the measure (HR 6124). Among the tax provisions, which are fully offset, the farm bill would make changes to agricultural tax-exempt bonds, self-employment taxes, depreciation for race horses and tax-free exchanges of water rights. The most expensive provision is the establishment of a cellulosic biofuels credit at an estimated cost of $403 million, followed by the creation of a tax deduction for the protection of endangered species. In addition, the measure changes the method used for calculating the self-employment tax for Social Security by increasing the thresholds of gross earnings that would qualify for both the farm and nonfarm optional methods.
The White House issued a veto threat against a Senate housing package (TAXDAY, 2008/06/19, C.3). On the housing assistance tax provisions, the administration strongly opposes the proposal to expand the types of tax-exempt bonds guaranteed by the Federal Home Loan Banks (FHLBs) and a recapture provision in the proposed refundable tax credit for first-time homebuyers.
The FHLBs should focus its attention on the housing market and not become involved in insuring non-housing obligations, according to an administration policy statement. The administration contends that the homebuyer tax credit would go largely to those who could afford to purchase homes regardless of the tax break, making it an "inefficient use of resources," It also maintains the recapture provision would create concerns for tax administration and be burdensome to taxpayers.
IRS
Preparer Penalty Regulations. Proposed return preparer penalty regulations were released by the IRS on June 16 (NPRM REG-129243-07; TAXDAY, 2008/06/17, I.1). The proposed regulations, more than 200 pages long, describe how practitioners should apply the new more-likely-than-not standard in Code Sec. 6694(a)
as well as, among other things, how to make important disclosures to clients and the IRS. A hearing on the proposed regulations is scheduled for August 18, 2008, at the IRS National Office in Washington, D.C.
Disaster Relief. Taxpayers recovering from flooding in the Midwest and natural disasters in other parts of the country have additional time to file and pay taxes (IR-2008-78; TAXDAY, 2008/06/17, I.4). In hard-hit Iowa, the IRS is postponing certain deadlines until July 28. Similar relief has been granted to disaster victims in nine other states. In related news, the IRS announced on June 19 that it would temporary waive the low-income housing credit limits in Indiana and Iowa to help provide shelter to storm victims (IR-2008-81; TAXDAY, 2008/06/20, I.3).
IRS Collections. National Taxpayer Advocate Nina Olson told Congress on June 19 that the IRS will lose $565 million in collection revenue in 2008 because it transferred employees from collection activity to answer telephone inquiries about the economic stimulus payments (TAXDAY, 2008/06/20, C.1). Employees in IRS Accounts Management and Automated Collection System (ACS) functions were pulled from their regular duties to help taxpayers calling with questions about the payments.
Claudia Hill, EA, Cupertino, Calif., told CCH that the decline in service on both the Accounts Management and the ACS telephone lines creates real-world problems for taxpayers. Hill highlighted Olson's warning that an individual who cannot reach the IRS to negotiate an installment agreement might find his or her paycheck levied. "My concern is that the Service Center programs with automated time tracking such as Automated Under Reporter (CP-2000; service Center exam, automated substitute for return) have enough backlog problems that create ill-timed statutory notices of deficiency (SND) without this added yoke"" Hill, who is editor-in-chief of CCH's Journal of Tax Practice and Procedure , cautioned.
Economic Stimulus Payments. Testifying at the same Congressional hearing as Olson, IRS Commissioner Shulman told lawmakers that 5 million retirees and disabled veterans qualify for an economic stimulus payment but have not yet filed a 2007 return to claim their payment. While Shulman was testifying, the IRS announced a special publicity campaign targeted to these 5 million retirees and disabled veterans (IR-2008-80; TAXDAY, 2008/06/20, I.1).
Charitable Remainder Trusts . Final regulations regarding the excise tax on unrelated business taxable income (UBTI) earned by charitable remainder trusts were released on June 19 (T.D. 9043, TAXDAY, 2008/06/20, I.4). The IRS explained that the excise tax is treated as paid from corpus, and the trust income that is UBTI is income of the trust for purposes of determining the character of distributions made to beneficiaries.
Retirement Plans. Proposed regulations issued on June 17 provide guidance for retirement plans that determine benefits on the basis of two or more formulas (NPRM REG-100464-08; TAXDAY, 2008/06/18, I.2). The proposed regulations would generally extend the relief provided in Rev. Rul. 2008-7, I.R.B. 2008-7, 419; TAXDAY, 2008/02/04, I.4.
Estates and Trusts. The IRS issued proposed regulations on June 17 addressing ordering rules for charitable payments by estates and trusts (NPRM REG-101258-08; TAXDAY, 2008/06/18, I.1). The proposed regulations clarify the existing regulations under Reg. §1.642(c)-3(b), which provides guidance concerning adjustments and other special rules for computing the charitable contributions deduction, and Reg. §1.643(a)-5(b), which contains rules for computing the amount of tax-exempt income included in distributable net income.
Supplemental Wages. New guidance describes federal income tax withholding on supplemental wages (Rev. Rul. 2008-29, I.R.B. 2008-24, 1149; TAXDAY, 2008/06/16, I.1). The guidance explores nine common situations involving the payment of supplemental wages and reflects important changes made by the American Jobs Creation Act of 2004 (P.L. 108-357).
"This is the first guidance that provides common examples," William Hays Weissman, shareholder, Littler Mendelson, P.C., San Francisco, told CCH. Weissman noted that the first two examples in Rev. Rul. 2008-29, commissions paid at fixed intervals with no regular wages paid to the employee and commissions paid at fixed intervals in addition to regular wages paid at different intervals, are very common situations.
Mileage rates. The chair of H&R Block, Inc., Richard Breeden, has added his voice to the growing chorus urging the IRS to immediately increase the 2008 standard mileage rates in light of skyrocketing gasoline prices. Breeden reminded Treasury Secretary Henry M. Paulson that the government took similar action after Hurricane Katrina caused a temporary spike in gasoline prices (TAXDAY, 2008/06/16, M.1).
Previously, Sen. Norm Coleman, R-Minn., asked Shulman to increase rates mid-year (TAXDAY, 2008/06/16, M.1). A spokesperson for Coleman told CCH on June 20 that the IRS has not yet replied to the senator's request.
By Jeff Carlson, Stephen K. Cooper, Paula Cruickshank and George L. Yaksick, Jr. CCH News Staff.

CCH (cch.taxgroup.com) reports:

Forgiven student loan debt was not discharge of indebtedness income to a former student who had completed a period of service following graduation under a repayment assistance program that qualified under Code Sec. 108(f). A Loan Repayment Assistance Program (LRAP) operated by the individual's school refinanced existing loans with new loans that included provisions for forgiving part or all of the graduates' loans if they work for minimum periods of time in qualifying public-service positions. The refinanced loan still qualified as a student loan under Code Sec. 108(f)(2) because it refinanced the same sums originally borrowed as education loans, and the terms of the refinanced loan --requiring a minimum period of employment in a qualifying public service position --met the requirements of Code Sec. 108(f)(1) to qualify for the exception to the Code Sec. 61(a)(12) provision including income from the discharge of indebtedness in the graduate's gross income.
Rev. Rul. 2008-34, 2008FED ¶46,479
Other References:
Code Sec. 108
CCH Reference - 2008FED ¶7010.83
Tax Research Consultant
CCH Reference - TRC INDIV: 60,054.10
CCH Reference - TRC SALES: 12,152.10
 

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Recently enacted legislation provides tax credits and incentives for investment in the life science industry applicable to the Massachusetts corporate excise, personal income, and sales and use taxes. For purposes of this enactment, "life sciences" is defined as advanced and applied sciences, including but not limited to regenerative medicine, biotechnology, biopharmaceuticals, nanotechnology, and medical devices.

 

CCH (cch.taxgroup.com) reports:

  New Jersey was found to be out of compliance with the Streamlined Sales and Use Tax (SST) Agreement by the SST Governing Board at a meeting in Chicago, June 18, 2008. This is the first time since the Agreement came into effect almost three years ago that a member state has been found not to be in compliance. A series of staggered sanctions were imposed on New Jersey by the other 17 full member states.

  The Board also took action on two direct mail issues but failed to resolve the core issues that have tied up discussions in the Board and the State and Local Advisory Council (SLAC) for over two years. A task force of state and business representatives was appointed to try and finally resolve the outstanding direct mail issues. The Board and the SLAC, which met June 16-17, were also briefed on a series of proposals to expand the use of the current SST registration system and returns and make them more taxpayer friendly.

 

CCH (cch.taxgroup.com) reports:

  An allegation that a fraud was perpetrated on the Tax Court in a deficiency action could not be raised for the first time in a subsequent collection action, but should have been raised in a motion to vacate the decision entered in the case in which the fraud occurred.

  The taxpayers were investors in a tax shelter partnership. Their deficiency cases were determined in accordance with a test case ( G.E. Krause , Dec. 48,383, aff'd sub nom. R.A. Hildebrand , CA-10, 94-2 USTC ¶50,305) in which the tax losses generated by the shelter at issue were disallowed. Their allegation that a fraud was perpetrated on the court in the test case could have been raised in the test case or in one of the other deficiency cases that were controlled by the test case.

  Since the taxpayers had the opportunity to raise the allegation in their deficiency actions, the IRS Appeals office and the Tax Court were precluded from considering this means of challenging their underlying tax liability in a collection action.

S.G. Stroube, 130 TC No. 15, Dec. 57,470

Other References:

 
Code Sec. 6320

  CCH Reference - 2008FED ¶38,184.50

  Tax Research Consultant

  CCH Reference - TRC IRS: 48,056.25

CCH (cch.taxgroup.com) reports:

  The IRS has adopted final regulations governing the excise tax on unrelated business taxable income (UBTI) earned by charitable remainder trusts (CRTs). The regulations are effective for tax years beginning after 2006.

  The excise tax is treated as paid from corpus, and the trust income that is UBTI is income of the trust for purposes of determining the character of distributions made to beneficiaries. The tax is reported and payable in accordance with appropriate forms and instructions (currently Form 4720, Return of Certain Excise Taxes).

  The final regulations do not provide any transition relief to allow CRTs with UBTI to restructure their activities. Although the excise tax took effect just a few days after it was enacted, it replaced a more onerous sanction --the loss of tax-exempt status. Thus, the excise tax does not represent any change in long-standing tax policy that discouraged CRTs from having UBTI.

T.D 9403, 2008FED ¶47,038

T.D 9403, FINH ¶43,118

Other References:

 
Code Sec. 664

  CCH Reference - 2008FED ¶24,461

  CCH Reference - FINH ¶16,925

  Tax Research Consultant

  CCH Reference - TRC EXEMPT: 12,252.15

CCH (cch.taxgroup.com) reports:

  The IRS will waive certain limits for the low-income housing tax credit in Indiana and Iowa in order to allow qualified low-income housing projects located anywhere in those states to provide housing to victims of the recent storms and flooding. The IRS plans to issue formal guidance detailing this relief shortly.

IR-2008-81,
2008FED ¶46,477

Other References:

 
Code Sec. 42

  CCH Reference - 2008FED ¶4385.27

  Tax Research Consultant

  CCH Reference - TRC BUSEXP:54,200

CCH (cch.taxgroup.com) reports:

  The IRS has launched a summer campaign to reach retirees and disabled veterans who qualify for an economic stimulus payment, but who have not filed to claim their payment. The IRS has identified 5.2 million retirees and veterans' beneficiaries who potentially are eligible for the stimulus payments, but who do not generally file a tax return.

  People with no tax filing requirement, but at least $3,000 in qualifying income, should file a Form 1040A. To receive an economic stimulus payment, the form must be filed by October 15. Qualifying income includes earned income, nontaxable combat pay and certain Social Security, Veterans Affairs and Railroad Retirement payments.

  Social Security benefits include retirement, disability and survivor payments, but not Supplemental Social Security Income (SSI). Veterans Affairs benefits include disability compensation, disability pension and survivor payments. Railroad Retirement payments include the Social Security equivalent portion of Tier 1 benefits.

  The return should include name, address, dependents, qualifying income amount, direct deposit information and signatures. Eligible individuals, including their qualifying children, must have Social Security numbers.

  Receipt of the stimulus payment should have no impact on other federal benefits currently being received. The stimulus payment is not taxable and filing a tax return solely to receive a stimulus payment does not mean that the retiree will have to start filing tax returns again.

IR-2008-80,
2008FED ¶46,476

Other References:

 
Code Sec. 6428

  CCH Reference - 2008FED ¶38,869.60

  Tax Research Consultant

  CCH Reference - TRC INDIV: 57,900

CCH (cch.taxgroup.com) reports:

  IRS Commissioner Douglas Shulman's general message to Congress on June 19 was that the economic stimulus payment program is going well and that problems that have arisen have been addressed aggressively. Testifying at a joint hearing before the House Oversight and Social Security Subcommittees, the Commissioner appeared to assuage Congressional concerns about "trying to get money into the hands of people who need it the most." He addressed efforts to reach economic stimulus payment recipients with whom the IRS does not normally communicate, problems some recipients have had in claiming the child tax credit portion of the payment, confusion over how taxpayers with refund anticipation loans would receive their payments, and the IRS's plans to accelerate payments to military couples who have become eligible for a stimulus payment because of enactment of the Heroes Earnings Assistance and Relief Tax of 2008 (P.L. 110-245). Nina Olson, IRS National Taxpayer Advocate, also testified in agreement with most of the Commissioner's commentary, yet she also suggested that the IRS may not have been the best agency to handle the economic stimulus payment regime.

Assisting Retirees and Disabled Vets

  Shulman reported that, despite the passage of the Economic Stimulus Act of 2008 (P.L. 110-185) in the middle of the 2008 tax filing season, the IRS has been very successful so far in its efforts to send out payments to eligible taxpayers. The agency also worked closely with the Social Security Administration (SSA) and the Department of Veterans Affairs (VA) in identifying retirees and disabled veterans who did not normally file income tax returns, yet were also eligible for stimulus payments. "Outreach was incredibly important," Shulman stated, "we tried to publicize that all you needed to do was file a tax return to get a stimulus payment. We also paid special attention to the potentially 20 million people who usually don't file a tax return but should file a tax return this year in order to receive their economic stimulus payment."

  He also announced that the agency is getting set to launch a "summer campaign" to assist those Social Security recipients and veterans in correctly filing a tax year 2007 income tax return so that they may receive their entitled payments (IR-2008-80; TAXDAY, 2008/06/20; I.1). Shulman told subcommittee members that the IRS will be distributing to each member of Congress an informational packet of demographic data regarding their constituents who fall into the category of Social Security recipient or veteran, have not yet filed a 2007 return, and, therefore, have not yet received an economic stimulus payment.

Child Credit Problems

  Shulman also reported that the agency recently became aware of some taxpayers with qualifying children who did not receive their full economic stimulus payment. The problem, he explained, was that in most cases they did not check the box on their income tax return claiming the child tax credit, which was used to signal the IRS computers to pay out the additional $300 child amount of the economic stimulus payment. Also, some tax return preparation software had failed to include this box entirely.

  Shulman reported that, during a normal tax-filing season, the agency would have sent the return back to the taxpayer for correction. This year, however, because of the urgency of getting economic stimulus payments out promptly, the IRS is making the corrections itself. "Under the normal circumstances of tax administration," Shulman stated, "We'd say: "either the taxpayer didn't do it right or the software vendor didn't do it right," so we would send it back to the taxpayer and say: "file it correctly. If you file it correctly, then you will get the stimulus payment." Because it was so important that we go the extra mile with these people, about 230,000, we are actually now correcting their returns for them, correcting the error the software filing taxpayer made, and running a batch of new stimulus checks. In July, people will get an extra $300 per child they were due under economic stimulus. That's the kind of thing we're trying to do ... be very aggressive in making sure we fix problems as we see them."

RALs

  Shulman was also quick to correct public misunderstanding about the interaction between refund anticipation loans (RALs) and administration of economic stimulus payments. Shulman told the subcommittee that, in sending out economic stimulus payments, the IRS ignores the temporary accounts created for taxpayers receiving refund anticipation loans. These accounts generally have special markers indicating their nature to IRS, which allows the agency to avoid sending automatic deposit payments to the taxpayer. Instead, the agency is directly sending out paper stimulus checks to taxpayers with outstanding refund anticipation loans. Shulman remarked that some taxpayers were under the impression that the agency would directly deposit the payment into those temporary accounts and were concerned when they did not receive payment during the recent round of direct deposit stimulus payments issued this past May. He further explained that, because paper checks are being sent out to taxpayers on a later time table than automated deposits, the process for RAL taxpayers is set not to be completed until July.

HEART Act

  Commissioner Shulman also spoke on the agency's plans for the administration of stimulus payments under a special provisions within the recently-enacted Heroes Earnings Assistance and Relief Tax (HEART) Act of 2008. Under that Act, families of active-duty military members may qualify for the economic stimulus payment, even though one spouse may lack a social security number --as originally required under the Economic Stimulus Act. He admitted that the agency initially estimated that it could not send economic stimulus payments to those families now included under the HEART Act until the 2009 filing season. However, he reported that IRS has reinvestigated this task and now plans to send those payments out no later than November of this year.

Taxpayer Advocate's Testimony

  Olson, testified similar to much of the Commissioner's comments. Both Shulman and Olson confirmed that telephone services responding to economic stimulus payment queries were currently stretched beyond their limits. Olson reported that only one in ten callers to the economic stimulus payment line received an immediate answer to their question. Shulman confirmed that taxpayers face an average 13 minute wait time for economic stimulus questions.

  However, Olson additionally suggested that IRS may not be the best equipped agency to deal with sending economic stimulus payments to social security recipients and veterans. She pointed out that while they consistently receive benefit checks from SSA and the VA, these citizens have little current contact with the IRS. She also reflected that the requirement to file an income tax return, while simple sounding to most people, may be too much of a burden for older citizens --even with the guarantee of receiving a $600 check. Yet, one Congressman disagreed with this suggestion, pointing out that the SSA was too overstretched beyond its resources in trying to process outstanding disability claims. He advocated that putting the responsibility for the economic stimulus payment regime upon the SSA would reverse the progress that agency had made in its responsibilities over the last several years.

  By Torie Cole, CCH News Staff

 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The city of Chicago, Illinois, has filed a lawsuit against eBay, Inc., alleging that the company is liable for Chicago amusement tax on tickets to Chicago-based events that were sold or resold through its Web site.

  The complaint alleges that the company is required to collect and remit amusement tax as a reseller of tickets and/or as a reseller's agent because it facilitates the resale of tickets to sporting, cultural, and other amusement events taking place within the city. The complaint alleges that the company's Web site enables registered users to sell or purchase tickets by auction and/or a set price and also enables registered users to set up electronic store fronts that can be used exclusively by one seller to sell tickets.

  The complaint seeks (1) a declaratory judgment that eBay is required to collect and remit the tax, (2) a writ of mandamus requiring eBay to produce its books and records so that the Chicago Department of Revenue can conduct an audit, (3) fines for failing to produce its books and records, and (4) a monetary judgment for taxes, interest, and penalties.

  Note: A similar complaint has been separately filed against another defendant that allegedly sells and/or facilitates the sales of tickets to Chicago-based amusements through its Web site ( City of Chicago v. StubHub!, Inc. , No. 2008-L-050525, filed May 19, 2008).

Subscribers to CCH Tax NetWork can view the complaint against eBay.

City of Chicago v. eBay, Inc., Illinois Circuit Court, Cook County, No. 2008-L-050524, filed May 19, 2008.
 

CCH (cch.taxgroup.com) reports:

  For corporate income tax purposes, Florida now adopts the Internal Revenue Code (IRC) as amended as of January 1, 2008 (formerly, January 1, 2007). The updated reference adopts the amendments made to the IRC by the following 2007 federal laws: the Small Business and Work Opportunity Tax Act of 2007 and the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act of 2007 (P.L. 110-28), the Energy Independence and Security Act of 2007 (P.L. 110-140), the Mortgage Forgiveness Debt Relief Act of 2007 (P.L. 110-142), the Tax Increase Prevention Act of 2007 (P.L. 110-166), and the Tax Technical Corrections Act of 2007 (P.L. 110-172).

  However, the legislation not only decouples Florida provisions from amendments made by the federal Economic Stimulus Act of 2008 (P.L. 110-185), but decouples those provisions from any bonus depreciation under IRC §168(k) and limits the IRC §179 asset expense election to $25,000. Any bonus depreciation, as well as any IRC §179 expense in excess of $25,000, claimed on the federal return must be added back in computing Florida corporate income tax. Both the change to the conformity date and the decoupling provisions are applicable retroactively to January 1, 2008.

  In addition, effective January 1, 2009, declarations and payments of estimated corporate income tax are due before (formerly, on or before) the first day of the fifth, seventh, and tenth months of the taxable year, as well as the first day of the first month of the following taxable year.

H.B. 5065, Laws 2008, effective June 17, 2008, except as noted.
 

CCH (cch.taxgroup.com) reports:

  GOP lawmakers gave only token resistance on June 18 to a bill offered by House Ways and Means Chairman Charles B. Rangel, D-N.Y., that would offset the cost of a one-year patch to the alternative minimum tax by raising $61.5 billion in taxes on hedge fund managers, integrated U.S. oil companies, credit card transactions, and foreign firms subject to U.S. tax treaties. During the mark-up of Rangel's bill, the Alternative Minimum Tax Relief Act of 2008 (HR 6275), Republican lawmakers said the measure will never reach a vote in the Senate because Republicans object to the revenue-raisers. They predicted that history will repeat itself and that the Democratic-controlled Congress will eventually pass an AMT relief bill without revenue offsets, just as it did in 2007 (TAXDAY, 2007/12/20, C.1).

  For their part, Democratic lawmakers attempted to frame the debate over revenue offsets as a fiscally responsible way to prevent roughly 25 million Americans from paying the AMT. "I am particularly proud that we achieved this in a way that will not add to the national debt," said Rep. Allyson Schwartz , D-Pa., following the committee's vote to approve HR 6275 by a 26 to 16 margin. "Rather than pushing the cost of this proposal, that helps millions of middle income families, on to our children and grandchildren, we will close loopholes that have unfairly benefited a few wealthy individuals and corporations."

  But Rep. Jim McCrery, R-La., the ranking Republican on the committee, noted that Senate Democrats, such as Senate Finance Committee Chairman Max Baucus, D-Mont., do not support the House Democratic effort to raise taxes to pay for AMT relief. Senate GOP lawmakers have vowed to block any consideration of the measure and President Bush will veto it, McCrery said. Speaking on behalf of the administration, Treasury Assistant Secretary for Tax Policy Eric Solomon said AMT repeal should be done as part of an overall reform of the tax code. He did acknowledge that not offsetting the AMT patch with spending cuts or higher taxes would increase the federal budget deficit.

  By Stephen K. Cooper, CCH News Staff

Alternative Minimum Tax Relief Act of 2008, HR 6275

House Ways and Means Committee Chairman's Amendment in the Nature of a Substitute to Alternative Minimum Tax Relief Act of 2008, HR 6275

JCT Description of HR 6275, the Alternative Minimum Tax Relief Act of 2008, JCX-50-08

JCT Estimated Revenue Effects of HR 6275, the Alternative Minimum Tax Relief Act of 2008, Scheduled for Markup by the House Ways and Means Committee on June 18, 2008,
JCX-51-08

JCT Description of an Amendment in the Nature of Substitute to the Provisions of HR 6275, JCX-52-08

House Ways and Means Committee Release: Ways and Means Passes AMT Relief Bill
 

CCH (cch.taxgroup.com) reports:

  President Bush on June 18 vetoed farm legislation for the second time in less than a month. The president cited the same objections to the farm bill the second time he vetoed it, maintaining that it lacked genuine program reforms and fiscal discipline. The House then voted 317 to 109 to override the president's veto of the legislation.

  The Food, Conservation and Energy Act of 2008 (P.L. 110-234), which the president vetoed on May 21, 2008, did not include title III trade provisions due to a clerical error. The House on May 21 and Senate on May 22 overrode the first veto but because of the procedural mistake, it was unclear if the votes were valid.

  To rectify the mix-up, the House passed HR 6124, also titled the Food, Conservation and Energy Act of 2008, this time including title III. The Senate passed HR 6124 on June 5, sending the farm legislation to the president for an anticipated veto.

  The tax title of HR 6124, the Heartland, Habitat, Harvest, and Horticultural Act of 2008, provides $1.67 billion in tax relief and incentives. Retired farmers and farmers on disability who participate in land conservation reserve programs would be permitted to count payouts under the program as investment income, preventing reductions in Social Security or disability benefits. The tax measure also includes a new deduction for endangered species recovery expenditures, a credit for agricultural chemicals security measure and an increase in the cellulosic biofuels credit, among other tax breaks.

  The measure contains several revenue offset provisions, including a reduction in the ethanol credit, a limitation on the ability to offset farm losses against nonfarm income, and creation of an optional self-employment tax for Social Security. The legislation also excludes denaturant from the alcohol fuels credit.

  By Paula Cruickshank, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  A Massachusetts corporate excise tax matter was remanded for further proceedings where the Appellate Tax Board (board) found that a taxpayer's overall business operation constituted its income-producing activity and therefore 100% of the revenue received from the sale of travel packages was apportioned to the state. The taxpayer operated a public charter tour company during the tax years at issue. The taxpayer created and marketed travel packages in bulk to various travel destinations outside of the state. The travel packages were sold one at a time, through travel agents who were independent of the taxpayer, to individual customers.

  The board rejected the taxpayer's transactional approach to the income-producing activity test which would require that the Massachusetts cost of performance for producing a single travel package be compared with the performance costs for that package in the destination state. Instead the board applied an operational approach concluding the taxpayer failed to sustain its burden of proving that a great proportion of the taxpayer's income-producing activity was performed in any single state other than Massachusetts. The matter was remanded in order for the board to provide a further explanation as to why the taxpayer's income-producing activity should be conceptualized as the bulk assembly of travel packages and not the sale of a single travel package under the transactional approach.

The Interface Group v. Commissioner of Revenue , Massachusetts Appeals Court, No. 06-P-1875, June 13, 2008, ¶401-172

  Other References:

  Explanations at ¶11-525

CCH (cch.taxgroup.com) reports:

  The IRS has issued proposed regulations providing guidance on the application of the accrual rules for defined benefit plans under Code Sec. 411(b)(1)( in cases where plan benefits are determined on the basis of the greatest of the benefits provided under two or more separate formulas. These regulations are proposed to be effective for plan years beginning on or after January 1, 2009. A public hearing is scheduled for October 15, 2008, beginning at 10:00 a.m. Comments must be received by the IRS by September 16, 2008.

Background

  Under Code Sec. 411(b) and Reg. §1.411(b)-1, the method provided by a defined benefit plan for determining accrued benefits must satisfy at least one of three alternative testing methods for accrued benefits with respect to all active participants under the plan. The three alternative methods are the three-percent method, the 133 1/3-percent rule, and the fractional rule. A defined benefit plan may provide that accrued benefits for participants are determined under more than one plan formula. In that case, the accrued benefits under all such formulas must be aggregated in order to determine whether the accrued benefits under the plan for participants satisfy one of these methods.

 
Rev. Rul. 2008-7 (I.R.B. 2008-7, 419; TAXDAY, 2008/02/04, I.4) applies these accrual rules to a defined benefit plan that was amended to change the plan's benefit formula from a traditional formula based on highest average compensation to a new lump-sum-based benefit formula. The ruling explains that, in the case of a plan amendment that replaces the benefit formula under the plan for all periods after the amendment, the rule that would otherwise require aggregation of the multiple formulas does not apply.

  Furthermore, any amendment to the plan that is in effect for the current plan year is treated as if it were in effect for all other plan years (including past and future plan years). Thus, the ruling provides relief from disqualification for a limited class of plans under which a group of employees specified under the plan receives a benefit equal to the greatest of the benefits provided under two or more formulas, provided that each such formula standing alone would satisfy accrual rules for the years involved. This relief applies for plan years beginning before January 1, 2009.

Proposed Regulations

  The proposed regulations would extend the relief provided in Rev. Rul. 2008-7 by providing a limited exception to the existing requirement to aggregate the accrued benefits under all formulas in order to determine whether or not the accrued benefits under the plan for participants satisfy one of the alternative methods. Under Prop. Reg. §1.411(b)-1(b)(2)(ii)(G), certain plans that determine a participant's benefits as the greatest of the benefits determined under two or more separate formulas would be permitted to demonstrate satisfaction of the 133 1/3-percent rule by demonstrating that each separate formula satisfies the 133 1/3-percent rule.

  A plan would be eligible for this exception only if each of the separate formulas use a different basis for determining benefits. The IRS points out that, under this proposed rule, a traditional defined benefit plan that determined benefits based on highest average compensation that is amended to add a cash balance formula would be eligible for this exception where, in order to provide a better transition for longer service active participants, the plan provides that a group of participants is entitled to the greater of the benefit provided by the hypothetical account balance and the benefit determined under the continuing traditional formula.

  The proposed regulations would also provide an extension of this exception in the case of a plan that provides benefits based on the greatest of three or more benefit formulas. In such a case, the plan would be eligible for a modified version of the formula-by-formula testing. Under this modification, the accrued benefits determined under all benefit formulas that have the same basis are first aggregated and those aggregated formulas are treated as a single formula for purposes of applying the separate testing rule under the proposed regulations.

  Eligibility for separate testing under the proposed regulations would be subject to an anti-abuse rule.

Proposed Regulations, NPRM REG-100464-08, 2008FED ¶49,809

Other References:

 
Code Sec. 411

  CCH Reference - 2008FED ¶19,065

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 15,200

CCH (cch.taxgroup.com) reports:

  The IRS and Treasury Department have issued proposed regulations under Code Sec. 642(c), regarding the tax consequences of an ordering provision in a trust, will, or provision of local law that attempts to determine the tax character of the amounts paid to a charitable beneficiary of the trust or estate.

  Under Code Sec. 642(c), an estate or trust is allowed an unlimited deduction for charitable contributions made pursuant to the terms of the governing instrument. The proposed regulations clarify the existing regulations under Reg. § 1.642(c)-3(b), which provides guidance concerning adjustments and other special rules for computing the charitable contributions deduction, and Reg. § 1.643(a)-5(b), which contains rules for computing the amount of tax-exempt income included in distributable net income.

  When determining whether an amount paid to a charitable beneficiary includes particular items of income not included in gross income, such as tax-exempt income, Reg. § 1.642(c)-3(b)(2) provides that the governing instrument's provisions will control if they specifically state the source from which amounts are to be paid. Similarly, when computing the amount of tax-exempt income included in distributable net income, Reg. § 1.643(a)-5(b) provides that if the governing instrument specifically identifies the source out of which amounts are paid, permanently set aside, or to be used for such charitable purposes, the specific provisions control. In the absence of specific provisions in the governing instrument, the amount distributed is deemed to consist of the same proportion of each class of the items of income of the estate or trust as the total of each class bears to the total of all classes.

  The proposed regulations would provide that a provision in a governing instrument or in local law that specifically identifies the source out of which amounts are to be paid, permanently set aside or used for a purpose specified in Code Sec. 642(c) must have economic effect independent of income tax consequences in order to be respected for federal tax purposes. If such a provision does not have economic effect independent of tax consequences, income distributed will consist of the same proportion of each class of the items of income as the total of each class bears to the total of all classes.

  According to the preamble to the proposed regulations, the IRS and Treasury Department believe, based on the structure and provisions of Subchapter J and an analysis of interrelated cross references, that the current regulations include an economic effect requirement. The proposed regulations are intended to make the concept clearer and easier to understand by adding the principle of economic effect directly into the language of the regulation itself, rather than incorporating the requirement by reference to other regulations. The proposed regulations would also make conforming amendments to the regulations under Code Sec. 643(a)(5).

  A public hearing on the proposed regulations is scheduled for October 8, 2008. Written or electronic comments must be received by September 16, 2008.

Proposed Regulations, NPRM REG-101258-08, 2008FED ¶49,808

Proposed Regulations, NPRM REG-101258-08, FINH ¶41,137

Other References:

 
Code Sec. 642

  CCH Reference - 2008FED ¶24,291B

  CCH Reference - FINH ¶16,697

 
Code Sec. 643

  CCH Reference - 2008FED ¶24,326B

  Tax Research Consultant

  CCH Reference - TRC ESTTRST: 15,302

  CCH Reference - TRC ESTTRST: 30,256

 

CCH (cch.taxgroup.com) reports:

  The Senate on June 17 rejected another attempt to take up a $120 billion package of tax extenders along with a temporary patch for the alternative minimum tax (AMT) that Democrats had intended to offer as a substitute amendment to a House energy package, the Renewable Energy and Jobs Creation Bill of 2008 (HR 6049). The procedural motion failed to garner the necessary 60-vote majority and fell by a 52-44 margin.

  The bill, offered by Senate Finance Committee Chairman Max Baucus, D-Mont., would extend tax incentives that expired at the end of 2007 or are set to expire at the end of 2008, and includes breaks for college tuition, state and local sales taxes, and business investments. It also includes provisions to encourage the production and use of wind and solar energy, biofuels and carbon sequestration technologies, and addresses improvement in transportation and domestic fuel security, and energy and conservation efficiency.

  Baucus said the tax offsets in the legislation have the support of the industries that would face higher taxes to pay for the extenders bill. "The first revenue-raising provision in this bill is a delay of the effective date of the worldwide allocation of interest," he said during a speech on the Senate floor. "Many of the companies that will benefit from this provision told me that they would rather have the business extenders than application of the worldwide allocation of interest."

Rangel Introduces AMT Bill

  Meanwhile, House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., plans to hold a markup on June 18 on the Alternative Minimum Tax Relief Bill of 2008 (HR 6275). The bill, which Rangel introduced on June 17, is designed to provide one year of relief from the AMT for approximately 25 million families. The measure would be paid for by closing tax loopholes and repealing oil company tax incentives, Rangel said.

  According to a summary of the legislation prepared by the committee, the two biggest revenue raisers in the AMT bill would tax the so-called "carried interest" earned by investment fund managers as ordinary income, rather than as capital gains. This would raise $30.9 billion over 10 years. The bill would also deny Code Sec. 199 benefits for major integrated oil and natural gas companies. This provision would raise $13.5 billion over 10 years. "This must-pass legislation provides tax relief to millions of families who would otherwise be forced to pay higher taxes under the AMT through no fault of their own," Rangel said in a statement.

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

SFC Release: Baucus Floor Statement Regarding Energy and Tax Extenders

SFC Release: Grassley Statement --Motion to Proceed on House Tax Extenders Bill

SFC Release: Grassley Floor Statement --Response to House Blue Dog Democrats on Their Requirement of Tax Increases for Extensions of Expiring Tax Relief

SFC Release: Baucus Condemns Senate's Second Refusal to Consider Tax Relief for Working Families, Energy Solutions for America

Ways and Means Release: Ways and Means to Consider AMT Relief Bill

Alternative Minimum Tax Relief Act of 2008, HR 6275

Ways and Means Summary of the Alternative Minimum Tax Relief Act of 2008
 

CCH (cch.taxgroup.com) reports:

  President Bush on June 17 signed the Heroes Earnings Assistance and Relief Tax (HEART) Act (HR 6081). The legislation includes tax cuts for members of the military who are receiving combat pay, saving for retirement or purchasing their own homes. Specifically, the bill will ease rules in order to allow military families to qualify for the earned income tax credit, make penalty-free withdrawals from their pension plans and access unspent amounts held in their health flexible spending arrangements.

  The measure also will enable thousands of active-duty military families to qualify for economic stimulus payments. Under prior law, some military families were denied economic stimulus payments because one spouse is an immigrant and does not have a social security number.

  The military tax relief bill, passed by the House on May 19 (TAXDAY, 2008/05/21, C.1) and the Senate on May 22 (TAXDAY, 2008/05/27, C.1), contains several provisions that are retroactive to January 1, 2008, or earlier. They became effective on June 17. The provisions include the new employer's differential wage payments credit; flexible spending account distributions and death benefit rollovers to Roth IRAs and Educational Savings Accounts.

  The bill signing date also determines the effective date for individuals whose expatriation date is on or after the date of enactment. It also controls the effective date of the foreign contractor employment tax-avoidance measure that is effective for services performed in calendar months beginning more than 30 days after the date of enactment.

  By Paula Cruickshank, CCH News Staff

SFC Release: Baucus, Grassley Military Tax Relief Package Becomes Law
 

CCH (cch.taxgroup.com) reports:

  The sale of assets in anticipation of a bankruptcy plan, but prior to approval of the plan, was not exempt from the Florida documentary stamp tax, according to the U.S. Supreme Court. With two justices dissenting, the Court reversed and remanded a decision of the U.S. Court of Appeals that had, in turn, affirmed approval of the exemption by a federal Bankruptcy Court.

  At issue was a Chapter 11, Bankruptcy Code provision granting stamp tax exemption for asset transfers "under a plan confirmed under section 1129." The Court of Appeals had upheld the exemption noting that

  -- the exemption applied to preconfirmation transfers necessary to the consummation of a confirmed Chapter 11 plan, provided there was some nexus between the transfers and the plan;

  -- the exemption provision was ambiguous and should be interpreted consistently with the principle that a remedial statute should be construed liberally; and

  -- this interpretation better accounted for the practicalities of Chapter 11 cases because a debtor could need to transfer assets to induce relevant parties to endorse a proposed plan's confirmation.

  On appeal to the Supreme Court, the state argued that "plan confirmed" denoted a plan confirmed in the past, and that "under" should be read to mean "with the authorization of" or "inferior or subordinate" to its referent, here the confirmed plan. The debtor contended that the provision did not unambiguously impose a temporal requirement; that had Congress intended "plan confirmed" to mean "confirmed plan," it could have used that language; and that "under" was as easily read to mean "in accordance with."

 

CCH (cch.taxgroup.com) reports:

  Storm and flood victims in 10 states have been granted more time to make quarterly estimated tax payments normally due on June 16, 2008. These states include Iowa, Indiana and Wisconsin, Arkansas, Colorado, Georgia, Maine, Mississippi, Missouri and Oklahoma. Businesses will also have extra time to file various returns and pay any taxes due. Specific due dates vary by location. Details are available on the IRS's webpage at irs.gov. Also, affected taxpayers in these areas who suffered uninsured or unreimbursed property damage can choose to claim these losses on their 2007 tax returns.

Indiana and Iowa

  The IRS has also updated its tax relief Notices for Indiana (TAXDAY, 2008/06/16, I.7) and Iowa (TAXDAY, 2008/06/04, I.1) storm, flood and tornado victims. More counties have been added to the areas considered covered disaster areas for purposes of
Reg. §301.7508A-1(d)(2) and, thus, eligible for tax relief.

Wisconsin

  Victims of recent severe storms, tornadoes and flooding in Wisconsin may qualify for tax relief from the IRS. Following severe storms and tornadoes on June 5, the federal government declared Crawford, Columbia, Sauk, Milwaukee and Vernon counties presidential disaster areas qualifying for individual assistance. As a result, the IRS is postponing until August 13 certain deadlines for taxpayers who reside or have a business in the disaster area. The postponement applies to return filing, tax payment and certain other time-sensitive acts otherwise due between June 5 and August 13. In addition, the IRS will waive the failure to deposit penalties for employment and excise deposits due on or after June 5 and on or before June 20, as long as the deposits were made by June 20.

  Affected taxpayers claiming the disaster loss on last year's return should put the designation "Wisconsin/Severe Storms, Tornadoes and Flooding" at the top of the form so that the IRS can expedite the processing of casualty refunds.

Iowa Disaster Relief, 2008FED ¶46,454

Indiana Disaster Notice, 2008FED ¶46,469

IR-2008-78,
2008FED ¶46,471

Wisconsin Disaster Notice, 2008FED ¶46,472

Other References:

 
Code Sec. 6081

  CCH Reference - 2008FED ¶36,789.213

 
Code Sec. 7508A

  CCH Reference - 2008FED ¶42,687C.22

  Tax Research Consultant

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

CCH (cch.taxgroup.com) reports:

  The IRS has ruled that a member of a board of directors of a publicly traded company who had served as interim chief executive officer (CEO) prior to joining the compensation committee of the board was not an "outside director" under Code Sec. 162(m). Generally, the $1 million deduction limit does not apply to qualified performance-based compensation. Compensation is considered performance-based if the performance goals of a covered employee are established by a compensation committee of the board of directors that is comprised solely of two or more "outside directors."

  A director is an "outside director" for this purpose if he was not an officer of the corporation or related entities at any time. In this case, the board member had been employed as an interim CEO prior to becoming member of the compensation committee. He was not employed as the interim CEO for a special or single transaction. In addition, he did not merely have the title of the office. He was employed for an indefinite period to serve with full authority as an interim CEO. As a result, the individual had been an officer of the company and could not be considered an "outside director."

Rev. Rul. 2008-32, 2008FED ¶46,470

Other References:

 
Code Sec. 162

  CCH Reference - 2008FED ¶8636.2764

  Tax Research Consultant

  CCH Reference - TRC COMPEN: 12,356.10

CCH (cch.taxgroup.com) reports:

  After months of speculation, the IRS on June 16 released proposed return preparer penalty regulations. The proposed regulations, the IRS explained, do not only provide guidance on the new Code Sec. 6694(a) more-likely-than-not preparer standard, they also contain a comprehensive overhaul of all preparer penalties. The IRS predicted that final regulations will be in place for the 2009 filing season. A hearing on the proposed regulations is scheduled for August 18, 2008, at the IRS National Office in Washington, D.C.

  In welcome news to practitioners, the IRS stated that it will not stack penalties under Code Sec. 6694 and Circular 230 (TAXDAY, 2007/10/09, M.2) and reiterated that penalties under Code Sec. 6694 are not automatic (TAXDAY, 2008/03/07, I.9). Additionally, the IRS included many examples of various provisions in the proposed regulations.

  Pending legislation could make the proposed regulations obsolete before they are finalized, Thomas Ochsenschlager, Vice President, Taxation, American Institute of Certified Public Accountants (AICPA), told CCH. The House-passed Renewable Energy and Job Creation Bill of 2008 (HR 6049) would equalize the preparer and taxpayer penalty standards at substantial authority (TAXDAY, 2008/05/22, C.1). Although Senate Democrats were unable to bring HR 6049 before the full Senate for debate during the week of June 9, they are expected to try again the week of June 16.

  "In an initial review of the proposed regs, I'm pleased to see that the examples include a number of preparation-based scenarios, which are indeed welcome to enrolled agents and, I think, to many in the Circular 230 community at large," Robert A. Kerr, senior director of government relations for the National Association of Enrolled Agents (NAEA) told CCH.

  "The proposed regs are likely to generate an avalanche of comment on the lack of certainty about how to determine the amount of the penalty," Kip Dellinger, chair of the AICPA Tax Division's Tax Practice Responsibilities Committee, told CCH. Dellinger, who is author of CCH's The Practical Guide to Federal Tax Practice Standards, also predicted that the legal community will "seek more bright-line guidance on who is a nonsigning preparer."

Sea Change in 2007

  Passage of the Small Business and Work Opportunity Tax Act of 2007 (2007 Small Business Tax Act) (P.L. 110-28), sparked the drafting of the proposed regulations. The new law replaced the "realistic possibility of success standard" in Code Sec. 6694(a) with the heightened "more likely than not standard" for nonabusive undisclosed positions. The preparer must have a reasonable belief that the tax treatment of the position would more likely than not be sustained on its merits.

  The 2007 Small Business Tax Act also extended Code Sec. 6694 to preparers of all returns and not just preparers of income tax returns. Additionally, the new law significantly increased the penalties for noncompliance. The old, first-tier $250 penalty in Code Sec. 6694(a) jumped to the greater of $1,000 or 50 percent of the income derived, or to be derived, by the preparer. The penalty for willful or reckless conduct in Code Sec. 6694(b) increased from $1,000 to the greater of $5,000 or 50 percent of the income derived or to be derived by the preparer.

Interim Guidance

  The IRS initially delayed implementation of the new standard until 2008 (IR-2007-115, Notice 2007-54, I.R.B. 2007-27, 12). In January 2008, the IRS issued interim guidance for 2008 (Notice 2008-13, I.R.B. 2008-3, 282; TAXDAY, 2008/01/02, I.1). At that time, the IRS indicated that proposed regulations would be issued mid-year with adequate time for comments before they are finalized.

Regulation Provisions

  A discussion of the provisions contained in the newly proposed regulations is below.

Preparer Within Firm

  The proposed regulations eliminate the current "one preparer per firm" rule used in determining who in a particular firm is responsible for penalties in favor of a framework that focuses on returns on a position-by-position basis. If a preparer is primarily responsible for a position on a return giving rise to an understatement, that person will be subject to Code Sec. 6694. Only one person within a firm will be considered primarily responsible for each position; however, multiple individuals may be responsible for a position if employed by multiple firms.

  The individual signing the return will continue to be held responsible for all of the positions on a return, but if another individual is determined (either via information received from the signing individual or from other sources) to have primary responsibility for a position giving rise to the understatement, that other individual will be responsible under
Code Sec. 6694. If there are one or more nonsigning tax return preparers at the same firm and no signing preparer at the firm, the individual within the firm with supervisory responsibility for the position will be responsible for the
Code Sec. 6694 penalty.

  These new rules allow the IRS more flexibility in assessing responsibility for positions giving rise to understatements than the IRS has under the current "one preparer per firm" system.

Income Derived

  The proposed regulations also provide new guidance for determining the amount of income derived by a firm or an individual in preparing a return containing a position giving rise to an understatement, upon which the maximum penalty under Code Sec. 6694 is calculated. Income derived includes all compensation the preparer receives or expects to receive in preparing the return or providing tax advice. If the preparer is paid by a firm for work done for a client of the firm, income derived is all compensation that can be reasonably allocated to work done in preparing the return or advising the client on a position giving rise to an understatement.

  If the firm is subject to penalty under Code Sec. 6694, then all compensation received by the firm will be included as income derived from the transaction. If both the firm and the preparer are subject to liability, the income derived from the transaction will only count once, meaning that income received by the firm from the client and paid to the preparer will not both be used in determining the maximum penalty.

"More Likely Than Not Standard"

  The proposed regulations provide additional guidance on satisfaction of the "more likely than not" standard. The standard would be satisfied if the preparer analyzes the facts and authorities and reasonably concludes in good faith that the position has a greater than 50-percent likelihood of being sustained. The IRS will take into account the preparer's experience in tax law, familiarity with the taxpayer's affairs and the complexity of the facts. The standard may also be satisfied through a well-reasoned construction of statutory authority where no other authority exists or if the preparer relies upon the advice of another preparer or the taxpayer. However, the preparer may not rely upon information provided by taxpayers with respect to legal conclusions on tax issues.

Adequate Disclosure, Reasonable Basis

  Preparers must provide disclosure of a return position where the position has a reasonable basis, but the "more likely than not" standard cannot be satisfied. The proposed regulations provide that the reasonable basis standard for these purposes is the same as is used for the accuracy-related penalty under Code Sec. 6662 (significantly higher than not frivolous or patently improper and not satisfied by a position that is merely arguable or a merely colorable claim). However, in meeting the "reasonable basis" standard, preparers can rely in good faith upon the advice furnished by a taxpayer, advisor or another preparer without verification.

  The proposed regulations also provide guidance on what constitutes adequate disclosure, building upon guidance provided in
Notice 2008-13. For a signing return preparer, disclosure can be accomplished in one of five ways:

  - through the use of Form 8275, Disclosure Statement, or Form 8275-R, Regulation Disclosure Statement, or on the return in accordance with the annual procedure (see Rev. Proc. 2008-14, I.R.B. 2008-7, 435);

  - if the position does not satisfy the substantial authority standard of Reg. §1.6662-4(d), provision of a disclosure to the taxpayer with the prepared tax return;

  - if the position does satisfy the substantial authority standard of Reg. §1.6662-4(d), by advising the taxpayer of all the penalty standards applicable under
Code Sec. 6662;

  - if the position can be described as a tax shelter or reportable transaction, the preparer must advise the taxpayer of the requirements of minimum substantial authority and possession, on the part of the taxpayer, of a reasonable belief that the "more likely than not standard" is met and that the disclosure does not preclude the assessment of an accuracy-related penalty; or

  - for returns or refund claims subject to penalties other than the accuracy-related penalty for substantial understatements, the preparer must advise the taxpayer of the applicable penalty standards under Code Sec. 6662.

For a nonsigning return preparer, adequate disclosure may be met in one of three ways:

  - through the use of Form 8275, Disclosure Statement, or Form 8275-R, Regulation Disclosure Statement, or on the return in accordance with the annual procedure (see Rev. Proc. 2008-14, I.R.B. 2008-7, 435);

  - the preparer may advise the taxpayer of opportunities to avoid potentially applicable Code Sec. 6662 accuracy-related penalties and of applicable standards of disclosure; and

  - the nonsigning preparer advises another preparer that disclosure may be required and notes this advice in the other preparer's files.

Each of these methods of disclosure with regard to advice given to a taxpayer must be tailored to the taxpayer's facts and circumstances. Boilerplate language is not sufficient.

Reasonable Cause

  Under current Reg. §1.6694-2(d), an exception to the imposition of the penalty is provided where the understatement is due to reasonable cause where the preparer acted in good faith. The regulation includes factors to be considered in determining if the exception applies. The proposed regulations provide that whether the position is supported by generally accepted administrative or industry practices is to be added as an additional factor to be taken into consideration.

Tax Return Preparer

  The proposed regulations provide definitions of both a signing tax return preparer and a nonsigning tax return preparer. A signing tax return preparer is any tax return preparer who signs or is required to sign a return or claim for refund. A nonsigning tax return preparer is any tax return preparer who is not a signing tax return preparer but prepares all or a substantial portion of a return.

Electronically Filed and Signed Returns

  The proposed regulations provide two changes that will better facilitate the use of electronically signed returns. First, Reg. § 1.6107-1(a), which requires signing return preparers to provide a copy of the filed return to the taxpayer is proposed to be amended to allow preparers electronically filing Form 1040EZ or Form 1040-A to provide the copy to the taxpayer by reproducing the information on Form 1040. Also, a preparer need not sign an electronically signed return prior to providing the taxpayer with a copy of the return but must provide all of the information to that taxpayer at the same time the preparer provides the taxpayer with Form 8879, IRS e-file Signature Authorization.

Additional Proposed Changes

  The proposed regulations also provide the following changes:

  - the rules under Reg. §§1.6694-2 and -3 are proposed to be changed to allow for a firm to be subject to penalty where the firm's review procedures are not followed through willfulness, recklessness or gross indifference;

  - a reasonableness standard is provided for signing return preparer's due diligence requirements in determining eligibility for the earned income credit; and

  - for purposes of the penalties under
Code Sec. 6694, the date that a return is determined to be prepared is the date the return is signed by the preparer or, if the preparer fails to sign the return, the date the return is filed.

  The IRS stated in the preamble to the proposed regulations that the Service intends to modify its internal guidance so that a referral by revenue agents to the IRS Office of Professional Responsibility (OPR) will not be per se mandatory when the IRS assesses a tax return preparer penalty under Code Sec. 6694(a) against a tax return preparer who is also a practitioner within the meaning of Circular 230.

Hearing and Comments

  A public hearing has been scheduled for August 18, 2008, beginning at 10:00 a.m. Written or electronic comments must be received by the IRS by August 16, 2008. Outlines of topics to be discussed at the public hearing must be received by August 4, 2008.

  By Michael Henaghan and George L. Yaksick, Jr., CCH News Staff

Proposed Regulations, NPRM REG-129243-07, 2008FED ¶49,807

Proposed Regulations, NPRM REG-129243-07, FINH ¶41,136

Other References:

 
Code Sec. 6060

  CCH Reference - 2008FED ¶36,561C

  CCH Reference - 2008FED ¶36,561E

  CCH Reference - 2008FED ¶36,561G

  CCH Reference - 2008FED ¶36,561I

  CCH Reference - 2008FED ¶36,561K

  CCH Reference - 2008FED ¶36,561M

  CCH Reference - 2008FED ¶36,561O

  CCH Reference - 2008FED ¶36,561Q

  CCH Reference - FINH ¶22,229

  CCH Reference - FINH ¶22,230

  CCH Reference - FINH ¶22,231

  CCH Reference - FINH ¶22,229

 
Code Sec. 6107

  CCH Reference - 2008FED ¶36,921BC

  CCH Reference - 2008FED ¶36,921BE

  CCH Reference - 2008FED ¶36,921BG

  CCH Reference - 2008FED ¶36,921BI

  CCH Reference - 2008FED ¶36,921BK

  CCH Reference - 2008FED ¶36,921BM

  CCH Reference - 2008FED ¶36,921BO

  CCH Reference - 2008FED ¶36,921BQ

  CCH Reference - FINH ¶20,436B

  CCH Reference - FINH ¶20,436C

  CCH Reference - FINH ¶20,436D

  CCH Reference - FINH ¶20,436E

 
Code Sec. 6109

  CCH Reference - 2008FED ¶36,961BC

  CCH Reference - 2008FED ¶36,961BE

  CCH Reference - 2008FED ¶36,961BG

  CCH Reference - 2008FED ¶36,961BI

  CCH Reference - 2008FED ¶36,961BK

  CCH Reference - 2008FED ¶36,961BM

  CCH Reference - 2008FED ¶36,961BQ

  CCH Reference - 2008FED ¶36,964C

  CCH Reference - FINH ¶20,438A

  CCH Reference - FINH ¶20,438B

  CCH Reference - FINH ¶20,438C

  CCH Reference - FINH ¶20,438F

 
Code Sec. 6694

  CCH Reference - 2008FED ¶39,955AD

  CCH Reference - 2008FED ¶39,956BC

  CCH Reference - 2008FED ¶39,956BE

  CCH Reference - 2008FED ¶39,956BG

  CCH Reference - 2008FED ¶39,956BI

  CCH Reference - 2008FED ¶39,956BK

  CCH Reference - 2008FED ¶39,956BM

  CCH Reference - 2008FED ¶39,956BO

  CCH Reference - 2008FED ¶39,956BQ

  CCH Reference - 2008FED ¶39,957BC

  CCH Reference - 2008FED ¶39,957BE

  CCH Reference - 2008FED ¶39,957BG

  CCH Reference - 2008FED ¶39,957BI

  CCH Reference - 2008FED ¶39,957BK

  CCH Reference - 2008FED ¶39,957BM

  CCH Reference - 2008FED ¶39,957BO

  CCH Reference - 2008FED ¶39,957BQ

  CCH Reference - 2008FED ¶39,957EC

  CCH Reference - 2008FED ¶39,957EE

  CCH Reference - 2008FED ¶39,957EG

  CCH Reference - 2008FED ¶39,957EI

  CCH Reference - 2008FED ¶39,957EK

  CCH Reference - 2008FED ¶39,957EM

  CCH Reference - 2008FED ¶39,957EO

  CCH Reference - 2008FED ¶39,957EQ

  CCH Reference - 2008FED ¶39,957HC

  CCH Reference - 2008FED ¶39,957HE

  CCH Reference - 2008FED ¶39,957HG

  CCH Reference - 2008FED ¶39,957HI

  CCH Reference - 2008FED ¶39,957HK

  CCH Reference - 2008FED ¶39,957HM

  CCH Reference - 2008FED ¶39,957HO

  CCH Reference - 2008FED ¶39,957HQ

  CCH Reference - FINH ¶21,853B

  CCH Reference - FINH ¶21,854B

  CCH Reference - FINH ¶21,854C

  CCH Reference - FINH ¶21,854D

  CCH Reference - FINH ¶21,854E

  CCH Reference - FINH ¶21,856B

  CCH Reference - FINH ¶21,856C

  CCH Reference - FINH ¶21,856D

  CCH Reference - FINH ¶21,856E

  CCH Reference - FINH ¶21,858B

  CCH Reference - FINH ¶21,858C

  CCH Reference - FINH ¶21,858D

  CCH Reference - FINH ¶21,858E

  CCH Reference - FINH ¶21,860B

  CCH Reference - FINH ¶21,860C

  CCH Reference - FINH ¶21,860D

  CCH Reference - FINH ¶21,860E

 
Code Sec. 6695

  CCH Reference - 2008FED ¶39,966BC

  CCH Reference - 2008FED ¶39,966BE

  CCH Reference - 2008FED ¶39,966BG

  CCH Reference - 2008FED ¶39,966BI

  CCH Reference - 2008FED ¶39,966BK

  CCH Reference - 2008FED ¶39,966BM

  CCH Reference - 2008FED ¶39,966BO

  CCH Reference - 2008FED ¶39,966BQ

  CCH Reference - 2008FED ¶39,969

  CCH Reference - FINH ¶21,863B

  CCH Reference - FINH ¶21,863C

  CCH Reference - FINH ¶21,863D

  CCH Reference - FINH ¶21,863E

 
Code Sec. 6696

  CCH Reference - 2008FED ¶39,977BC

  CCH Reference - 2008FED ¶39,977BE

  CCH Reference - 2008FED ¶39,977BG

  CCH Reference - 2008FED ¶39,977BI

  CCH Reference - 2008FED ¶39,977BK

  CCH Reference - 2008FED ¶39,977BM

  CCH Reference - 2008FED ¶39,977BO

  CCH Reference - 2008FED ¶39,977BQ

 
Code Sec. 7701

  CCH Reference - 2008FED ¶43,081BC

  CCH Reference - 2008FED ¶43,081BE

  CCH Reference - 2008FED ¶43,081BG

  CCH Reference - 2008FED ¶43,081BI

  CCH Reference - 2008FED ¶43,081BK

  CCH Reference - 2008FED ¶43,081BM

  CCH Reference - 2008FED ¶43,081BO

  CCH Reference - 2008FED ¶43,092AE

  CCH Reference - FINH ¶22,772

  CCH Reference - FINH ¶22,773

  CCH Reference - FINH ¶22,774

  CCH Reference - FINH ¶22,813

  Tax Research Consultant

  CCH Reference - TRC IRS: 6,150

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Missouri legislation has been enacted that revises numerous corporate income, corporate franchise, financial institutions franchise, insurance gross premiums, express companies (utilities), and personal income tax credit provisions, and makes other sales and use tax and property tax changes related to economic development.

 

CCH (cch.taxgroup.com) reports:

  Colorado property tax legislation that increased the amount of taxes collected in school districts was unconstitutional because the voter approval requirements of the Taxpayer Bill of Rights (TABOR) were not sufficiently met to justify the property tax increases. The trial court found that compliance with the voter approval requirements of TABOR was required because the fiscal impact of the legislation was to increase the size of state government.

Mesa County Board of County Commissioners v. Colorado Department of Education , Colorado District Court, No. 07CV12064, May 30, 2008, ¶200-816

  Other References:

  Explanations at ¶20-070

CCH (cch.taxgroup.com) reports:

 
The IRS has issued final, temporary and proposed regulations relating to the election and calculation of the alternative simplified credit under Code Sec. 41(c)(5). These regulations implement changes to the Code Sec. 41 credit for increasing research activities made by the Tax Relief and Health Care Act of 2006 (P.L. 109-432).

Background

 
Code Sec. 41(a) provides an incremental tax credit for increasing research activity based on a percentage of a taxpayer's qualified research expenses (QREs) above a base amount. P.L. 109-432 added a third method of computation that taxpayers could elect to use in computing the amount of the research credit. Thus, in addition to the regular credit and the alternative incremental credit (AIRC), a taxpayer could elect to compute the research credit under the alternative simplified credit method in Code Sec. 41(c)(5).

  Under this method, the credit determined under Code Sec. 41(a)(1) is equal to 12 percent of so much of the QREs for the tax year as exceeds 50 percent of the average QREs for the three tax years preceding the tax year for which the credit is being determined. The credit is equal to six percent of the QREs for the tax year if the taxpayer does not have QREs in each of the three tax years preceding the year for which the credit is being determined. This election applies to the tax year for which it was made and all succeeding tax years unless it is revoked with the consent of the IRS.

Temporary Regulations

  If ASC treatment is elected, the credit determined under Code Sec. 41(a)(1) equals the amount determined under the ASC under Code Sec. 41(c)(5). The temporary rules generally parallel the rules related to elections and revocations under the AIRC regulations. Specific rules and definitions for elections in the case of a controlled group of corporations are provided.

  The temporary regulations include several special rules for taxpayers that do not have QREs in each of the three tax years preceding the year for which the credit is being determined, and clarify that the average QREs for the three tax years preceding the year for which credit is being determined will be considered the base amount for purposes of the computation under Code Sec. 41(h)(2). Thus, if the research credit expires during the credit year, the average QREs for the three tax years preceding the credit are multiplied by the ratio of the number of days for which the research credit is effective to the total number of days in the credit year.

  Special rules are also provided with respect to consistency and short tax years. Moreover, if one or more of the three tax years preceding the credit year is a short tax year, then the QREs for that year are deemed to be equal to the QREs actually paid or incurred in that year multiplied by 12 and divided by the number of months in that short year. However, if the credit year is a short year, then the QREs for the three tax years preceding the credit year are modified by multiplying that amount by the number of months in the short tax year and dividing the result by 12.

Proposed Regulations

  The text of the temporary regulations also serves as the text of proposed regulations A public hearing on the proposed regulations is scheduled for September 25, 2008. Written or electronic comments must be received by September 15, 2008.

T.D. 9401, 2008FED ¶47,037

Proposed Regulations, NPRM REG-149405-07, 2008FED ¶49,806

Other References:

 
Code Sec. 41

  CCH Reference - 2008FED ¶4351

  CCH Reference - 2008FED ¶4351C

  CCH Reference - 2008FED ¶4351F

  CCH Reference - 2008FED ¶4359

  CCH Reference - 2008FED ¶4359F

  CCH Reference - 2008FED ¶4360

  CCH Reference - 2008FED ¶4360A

  CCH Reference - 2008FED ¶4360AD

  CCH Reference - 2008FED ¶4360AG

  CCH Reference - 2008FED ¶4360AJ

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 54,164.10
CCH Reference - TRC BUSEXP: 54,164.15
 

CCH (cch.taxgroup.com) reports:

  The IRS has issued guidance regarding the effect on the equity character of stock of adding liquidity facilities to support certain auction rate preferred stock. The guidance is intended to provide greater certainty and flexibility regarding certain federal tax issues that have arisen in connection with efforts to address liquidity needs in the auction rate securities market as a result of recent significant auction failures in this market.

  In general, auction rate preferred stock is preferred stock in which the dividend rate is reset periodically (typically every seven to 28 days), pursuant to an auction rate-setting process or a similar remarketing agent rate-setting process that is designed to produce the minimum dividend rate necessary to enable all interested sellers to sell the preferred stock to willing buyers at a price equal to the par amount of the applicable "liquidation preference" (typically, $25,000), plus accrued but unpaid dividends. The auction rate preferred stock generally is perpetual, optionally redeemable by the issuer at any time, and mandatorily redeemable in certain circumstances, such as upon a failure to meet certain asset coverage requirements.

  The notice addresses auction rate preferred stock issued in the United States by closed-end management companies that are "regulated investment companies" (as defined in Code Sec. 851), that invest exclusively in either of the following or a combination thereof: (1) tax-exempt debt instruments the interest on which is excludable from gross income under
Code Sec. 103 and the tax-exempt nature of which qualifies to be passed through as exempt-interest dividends to stockholders under Code Sec. 852(b)(5); or (2) taxable debt instruments for federal income tax purposes.

  Presently, money market funds cannot hold auction rate preferred stock because it lacks the requisite liquidity features necessary to enable it to qualify as an eligible security for purchase by such funds. Issuers and other interested parties reasonably expect that adding liquidity facilities to auction rate preferred stock and expanding the investor base for such stock to include money market fund investors will facilitate successful auctions. In general, the liquidity facilities will have terms intended to make the auction rate preferred stock covered by such liquidity facilities eligible for purchase by money market funds.

  A liquidity facility on auction rate preferred stock will provide to holders a tender option or right to sell such stock to the liquidity provider at a price equal to the stock's liquidation preference, plus accrued but unpaid dividends, if one of the following two "trigger events" occurs: (1) a failed auction or remarketing; or (2) a failure to renew, replace, or extend an existing liquidity facility then in place with the same liquidity provider or another liquidity provider by a date that occurs at least two auction or remarketing dates before the stated expiration date of the existing liquidity facility then in place.

  The IRS will not challenge the equity characterization of auction rate preferred stock for federal income tax purposes as a result of adding a liquidity facility to support the auction rate preferred stock if the conditions set forth in the guidance are met.

  The guidance provides administrative relief in furtherance of public policy in light of significant liquidity needs in the auction rate securities market as a result of recent significant auction failures in this market. Except with respect to the administrative relief expressly provided, no inferences should be drawn from the guidance regarding the debt or equity character of any security, material modifications or exchanges of any security under Code Sec. 1001, or any other federal tax issues regarding any security. In addition, the guidance is not intended to address any other federal tax issue implicated in the described transactions to add liquidity facilities to auction rate preferred stock.

  The guidance is effective on June 13, 2008.

Notice 2008-55, 2008FED ¶46,468

Other References:

 
Code Sec. 385

  CCH Reference - 2008FED ¶17,351.12

  CCH Reference - 2008FED ¶17,351.15

  Tax Research Consultant

  CCH Reference - TRC CCORP: 3,300

CCH (cch.taxgroup.com) reports:

  The IRS has issued guidance on how an employer determines the amount of income required to be withheld for tax purposes relative to payments of supplemental wages paid under nine differing circumstances. Employers determine withholding on payments of supplemental wages under either an aggregate method or an optional flat rate method. In order to use the optional flat rate withholding. Three requirements must be met:

  (1) supplemental wages payments to that employee from that employer may not have exceeded $1,000,000 during that tax year;

  (2) the supplemental wages are either not paid concurrently with regular wages or kept separately stated on the employer's payroll records; and

  (3) income tax must have been withheld by that employer from the regular wages paid to that employee during either that or the immediately-preceding calendar year.

  The nine situations addressed by this guidance included when an employer pays:

  (1) commissions at fixed intervals with no regular wages paid to the employee;

  (2) commissions at fixed intervals in addition to regular wages which are paid at different intervals;

  (3) commissions when an employee's accumulated commission credit reaches a specified numerical threshold;

  (4) draws in connection with commissions;

  (5) a signing bonus in advance of an employee actually starting employment;

  (6) severance amounts after employment has been terminated;

  (7) lump sum payments of accumulated annual leave;

  (8) annual vacation and sick leave payouts; and

  (9) sick pay when paid at a different rate from the regular wage rate.

  The examples point out that the optional flat rate method is not available in situations where the employee has received no regular wages, and clarifies that draws represent prepayments of commissions rather than a payment of salary. Under such circumstances, the employer must use the aggregate procedure described in Reg. §31.3402(g)-1(a)(6). In addition, when commission payments are made at irregular intervals --such as when specified thresholds or benchmarks are achieved --the employer must determine the income tax to be withheld based on a table for miscellaneous payroll periods contained inReg. §31.2402(c)-1(c)(3) and Circular E (IRS Pub. 15, Employer's Tax Guide).

 
Rev. Rul. 66-294, 1966-2 CB 459, and Rev. Rul. 67-131, 1967-1 CB 291, are obsoleted.

Rev. Rul. 2008-29, 2008FED ¶46,466

Other References:

 
Code Sec. 3402

  CCH Reference - 2008FED ¶33,562.19

  CCH Reference - 2008FED ¶33,562.22

  CCH Reference - 2008FED ¶33,562.25

  Tax Research Consultant

  CCH Reference - TRC COMPEN: 27,202
CCH Reference - TRC PAYROLL: 6,050
CCH Reference - TRC PAYROLL: 6,066
CCH Reference - TRC PAYROLL: 6,066.10
CCH Reference - TRC PAYROLL: 6,068.10
 

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

A long-distance telephone carrier licensed to transmit 900 number and long distance telephone calls was not liable for Maryland sales tax imposed on such 900-type telecommunications services.
The uncontested factual findings in this case established only that the taxpayer acted as a common carrier with regard to the 900 number transactions at issue. Thus, under National Bellas Hess, Inc. , 386 U.S. 753 (1967) and Quill Corp. , 504 U.S. 298 (1992), the taxpayer could not be held responsible for the 900 number sales and use tax on transactions between Maryland consumers and the information services vendors without violating the Commerce Clause of the U.S. Constitution.
In ruling so, the Maryland Court of Appeals has reversed the judgment of the Maryland Court of Special Appeals that previously held the taxpayer liable for Maryland sales tax. (TAXDAY, 2007/09/17, S.5)

CCH (cch.taxgroup.com) reports:

Effective for taxable years beginning after December 31, 2008, corporations that elect to be treated as an asset management corporation for Delaware corporation income tax purposes must apportion entire net income using a single gross receipts factor, representing the ratio of Delaware-sourced gross receipts from asset management services over gross receipts from everywhere. The election is not available to subsidiaries of bank or financial companies that are subject to the Delaware bank franchise tax. If the asset management corporation is a member of a pass-through entity, the ratio must be determined by including the corporation's distributive share of pass-through entity income and losses.
An asset management corporation is a corporation that derives 90% or more of the federally reported gross receipts from investment services, such as rendering investment advice, determining the timing of sales and purchases of intangible investments, selling and purchasing intangible investments, rendering administration and distribution services, and managing contracts for sub-advisory services.
Gross receipts are sourced to the domicile of the individual investor receiving the asset management services. In the case of institutional investors, gross receipts are sourced to the domicile of beneficiaries, owners or members. If information regarding the domicile of beneficiaries, owners or members is not available, a reasonable alternative method may be used to source gross receipts. If no reasonable alternative sourcing method exists, gross receipts must be sourced to the domicile of the institutional investor or the plan or account sponsor.
If asset management services are provided to an investment company, gross receipts must be sourced to the domicile of the shareholders by multiplying total gross receipts by a fraction representing the average of the sum of the beginning of year and the end of year balance of shares owned by shareholders domiciled in the state and the average of the sum of the beginning of year and the end of year balance of shares owned by all shareholders.
S.B. 213, Laws 2008, effective as noted.  

CCH (cch.taxgroup.com) reports:

The Federation of Tax Administrators (FTA) held its 76th Annual Meeting in Philadelphia, June 8-11, 2008. Among the topics discussed by various panels were the review of the Uniform Division of Income for Tax Purposes Act (UDITPA), developments in the U.S. Supreme Court, the Streamlined Sales Tax (SST) effort, and state taxation of nonresidents.
Participants also expressed their warm appreciation of FTA Executive Director Harley Duncan, who is departing at the end of June after 20 years at the helm. A search committee has been appointed to seek a replacement for Duncan. In the meantime, Verenda Smith, FTA Government Affairs Associate, has been appointed interim director.

CCH (cch.taxgroup.com) reports:

An interest in a notional principal contract, the return on which is calculated by reference to an index based on a broad range of United States real estate data, is not a United States real property interest (USRPI) under Code Sec. 897(c)(1). The index measures appreciation and depreciation of residential or commercial real estate values within large U.S. geographic areas. Because the index is so broad-based, no investor can own or lease a material percentage of the real estate referenced. Consequently, the notional principal contract, even though its return is based on appreciation of real property, does not represent the ownership of a direct or indirect right to share in the appreciation in the value of the real property; thus, a foreign corporation's interest in the contract is not a USRPI.
Rev. Rul. 2008-31, 2008FED ¶46,465
Other References:
Code Sec. 897
CCH Reference - 2008FED ¶27,711.022
CCH Reference - 2008FED ¶27,711.45
Tax Research Consultant
CCH Reference - TRC INTLIN: 6,056

CCH (cch.taxgroup.com) reports:

House Majority Leader Steny H. Hoyer, D-Md., and Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., threatened to withhold floor consideration of extenders tax legislation in 2008 unless House and Senate Republicans accept their proposal to offset the bill's cost with higher tax revenues. Hoyer, Rangel and Democrats on the committee promised at a June 12 press conference that GOP lawmakers would not force them to abandon House pay-as-you-go (PAYGO) budget rules and bring the bill to a vote in the House without offsetting tax increases.
More than 100 House lawmakers sent a letter to Senate Minority Leader Mitch McConnell, R-Ky., indicating their support for the Renewable Energy and Job Creation Bill of 2008 (HR 6049), which passed the House on May 21 (TAXDAY, 2008/05/22, C.1). If the final extenders bill does not include an offsetting tax increase, its cost will have to be paid for by increased borrowing that will ultimately increase the budget deficit, they said.
"We believe the research and experimentation tax credit, various accelerated depreciation provisions, the energy tax incentives, the education, charitable and other individual tax incentives in HR 6049 are very important to American families and to the U.S. economy," the letter to McConnell reads. When asked if the House would eventually back down in its demands rather than see the bill fail to pass before Congress adjourns in 2008, Hoyer said he would not even bring the bill to the House floor for a vote. Rangel admitted that House Democrats did abandon the same promises in late 2007 with regard to passage of legislation providing relief from the alternative minimum tax, but he said Democrats are united in calling for a fully offset extenders bill.
Rangel's and Hoyer's comments appeared to be designed to send a message to Senate Republicans, who have vowed, just as strongly, not to accept any tax increases. Ways and Means member Paul Ryan, R-Wis., predicted that House Democrats would ultimately accept an extenders bill that does not include tax hikes. Ryan charged that House Democrats only adhere to PAYGO rules when it is convenient. Democrats are eagerly supporting other costly measures to extend unemployment benefits and provide benefits for military service members that do not have offsetting tax increases, he explained. "The fact is, they turn PAYGO off when it's not convenient," said Ryan, who is the House Budget Committee ranking member. "The reality is PAYGO does not exist."
By Stephen K. Cooper, CCH News Staff.

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Rebates or tax credits received by individuals as a result of the federal Economic Stimulus Act of 2008 (ESA) (P.L. 110-185) may be excluded from gross income for Alabama personal income tax purposes. However, for the 2008 tax year, such amounts must also be excluded in determining a taxpayer's federal income tax deduction. Any other deductions or credits enacted by the ESA do not apply to the calculation of Alabama taxable income for corporate income or personal income tax purposes. In essence, Alabama has decoupled from the 50% bonus depreciation and IRC §179 asset expense election increases enacted by the ESA.
Act 549 (H.B. 56), First Special Session, Laws 2008, effective June 9, 2008.  

CCH (cch.taxgroup.com) reports:

The Tax Court lacked jurisdiction over a taxpayer's petition challenging the IRS's denial of equitable relief under the innocent spouse rules. The relief requested on Form 8857, Request for Innocent spouse Relief (and Separation of Liability and Equitable Relief), was denied by the IRS in a Letter 3279 stating that it was a final notice of determination. The taxpayer failed to file her petition with the Tax Court within 90 days of the notice. Although the taxpayer filed a petition within 90 days of the IRS's rejection of a second Form 8857 in Letter 3657C, the second request essentially duplicated the first request. The taxpayer did not come within the exceptions that would permit a second election to be a qualifying election for which a second final determination could be made. Additionally, the IRS's second letter could not be considered the IRS's final determination. In comparison to the first letter, the Letter 3657C did not state that it was a final notice and was consistent with its description in the Internal Revenue Manual (IRM) as a letter denying relief when relief has been previously requested and denied. Statements in the IRM that a notice of final determination might be reconsidered on the basis of new information did not have the force of law and were not binding. Because the second Form 8857 was not a qualifying request and did not entitle the taxpayer to a second determination, the taxpayer's argument that the Tax Court had jurisdiction because the IRS failed to issue a notice of determination within six months of the taxpayer filing her second request was also rejected. The Tax Court also lacked jurisdiction to enjoin the IRS's collection action based on the untimely petition.
J.A. Barnes, 130 TC No. 14, Dec. 57,463
Other References:
Code Sec. 6015
CCH Reference - 2008FED ¶35,192.815
Tax Research Consultant
CCH Reference - TRC INDIV: 18,052.20
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

A statute of limitations is enacted for the issuance of deficiency determinations against corporate officers and other responsible persons liable for the unpaid California sales and use taxes of a business. A notice of deficiency determination must be mailed within the earlier of: (1) three years after the last day of the calendar month following the quarterly period in which the State Board of Equalization (SBE) obtains actual knowledge, through its audit or compliance activities, or by written communication by the business or its representative, of the termination, dissolution, or abandonment of the business of the corporation, partnership, limited partnership, limited liability partnership, or limited liability company; or (2) eight years after the last day of the calendar month following the quarterly period in which the entity was terminated, dissolved, or abandoned. If a business or its representative files a notice of termination, dissolution, or abandonment of its business with a state or local agency other than the SBE, the filing will not constitute actual knowledge of the
SBE.

Ch. 24 (A.B. 1895), Laws 2008, effective January 1, 2009.

CCH (cch.taxgroup.com) reports:

Beginning in 2009, dividends on employer securities distributed from an employee stock ownership plan (ESOP) under Code Sec. 404(k) must be reported on a Form 1099-R that does not report any other distributions according to that form's instructions. Under prior guidance intended to allow taxpayers to report Code Sec. 404(k) dividend income on short Form 1040A, a plan must use Form 1099-DIV to report payment of such dividends. Any other distributions from the ESOP that are not Code Sec. 404(k) dividends must be reported on a separate Form 1099-R. It is anticipated that the instructions to Form 1099-R will require a special code in box 7 of the form to indicate the tax treatment and rollover restrictions applicable to Code Sec. 404(k) dividends. Payments of Code Sec. 404(k) dividends made directly from the corporation to plan participants or their beneficiaries will continue to be reported on Form 1099-DIV.
Announcement 85-168, I.R.B. 1985-48, 40, is revoked.
Announcement 2008-56, 2008FED ¶46,463
Other References:
Code Sec. 404
CCH Reference - 2008FED ¶18,371.03
CCH Reference - 2008FED ¶18,371.075
CCH Reference - 2008FED ¶18,371.10
Code Sec. 6047
CCH Reference - 2008FED ¶35,983.077
Tax Research Consultant
CCH Reference - TRC RETIRE: 75,158
CCH Reference - TRC RETIRE: 75,204
CCH Reference - TRC RETIRE: 75,500

CCH (cch.taxgroup.com) reports:

Senate Finance Committee Chairman Max Baucus, D-Mont., on June 10 unveiled a substitute amendment to the Renewable Energy and Jobs Creation Bill of 2008 (HR 6049), that would extend expiring tax provisions and provide a temporary patch for the alternative minimum tax (AMT). The bill extends tax incentives that expired at the end of 2007 or are set to expire at the end of 2008, and includes breaks for college tuition, state and local sales taxes, and business investments. It also includes provisions to encourage the production and use of wind and solar energy, biofuels and carbon sequestration technologies, and addresses improvement in transportation, domestic fuel security, and energy and conservation efficiency.
The Senate, however, rejected by a 50-44 margin a procedural motion to move to the House bill, failing to garner the necessary 60 vote majority and leaving the bill in legislative limbo. Baucus decried the failed attempt to debate the bill, saying it was "a missed opportunity," and vowed that he would bring back the extenders package again, suggesting the possibility of another vote within the next two or three days. He declined to say how he would attempt to move the package, but said he would discuss options with Senate Democratic leaders.
Specifically, the Baucus measure includes extension and modification of the renewable energy production tax credit, the solar energy and fuel cell investment tax credit, and the residential energy-efficient property credit. It also extends the present-law deferral of gain on sales of electric transmission property, authorizes $2 billion of new clean renewable energy bonds to finance facilities that generate electricity from renewable sources, and provides $1.5 billion of tax credits for the creation of advanced coal electricity projects. In addition, it refunds certain coal excise taxes unconstitutionally collected from exporters, makes solvent the Black Lung Disability Trust Fund, creates a carbon audit of the tax code, expands the allowance for property to produce cellulosic alcohol, extends the biodiesel production tax credit, extends and modifies the renewable diesel tax credit, establishes a plug-in electric drive vehicle credit, provides incentives for idling reduction units and advanced insulation for heavy trucks, restructures the New York Liberty Zone tax credits and extends and increases the alternative refueling stations tax credit.
The cost of the Baucus package is fully offset by delaying a planned tax benefit that would give multinational corporations additional tax deductions in the U.S, and by requiring hedge-fund managers to report and pay taxes on their compensation as they receive it, rather than storing it offshore to avoid taxes. The one-year AMT patch is not offset. "Delaying tax breaks for multinational companies and asking hedge-fund managers to pay taxes on their income like everyone else are common sense reforms that can fund tax relief for countless American companies that need the research and development tax credit and accelerated depreciation that we are extending in this bill," Baucus said in a statement.
The offsets were cited by the Democrats as one reason the cloture motion on the bill failed. Republicans maintain that the revenue offsets are essentially tax increases. However, Republicans denied the charge. "From the perspective of the Senate Republican Conference, the vote was not a vote against offsets per se ," said Senate Finance Committee ranking member Charles E. Grassley, R-Iowa. "The vote was about not falling into a slippery slope of ever higher taxes and ever higher spending with no progress on the deficit, "he said.
In addition to the House energy bill (HR 6049), the Senate on June 10 also failed to achieve a 60 vote majority needed to proceed to another Senate energy measure (the Consumer-First Energy Bill of 2008 (Sen 3044). That bill would have imposed a 25 percent windfall profits tax on specific oil companies, repealed certain federal tax credits for specific oil companies and altered the foreign tax credit rules related to foreign oil and gas extraction income and foreign oil-related income. The final vote was 51-43.
The White House objects to the tax provisions in the Senate energy bill and issued a veto threat on the measure on June 10.
By Jeff Carlson and Paula Cruickshank, CCH News Staff
SFC Release: Baucus Bill Extends Energy Incentives, Individual and Business Tax Relief, Blocks AMT for Millions of Working Families
SFC Release: Grassley Statement on Failure to Invoke Cloture on House Tax Extenders Bill
SFC Release: Baucus Condemns Senate Failure to Proceed to Vote on Tax Extenders Legislation
SAP on Sen 3044, the Consumer-First Energy Act
Consumer-First Energy Act of 2008, Sen 3044

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The North Carolina House has passed a budget bill that, if enacted, would make numerous corporation franchise and income tax, personal income tax, sales and use tax, insurance gross premiums tax, and property tax changes as outlined below.
These changes would advance the Internal Revenue Code (IRC) conformity date; require a corporate and personal income tax addback adjustment for any federal bonus depreciation deduction claimed; and extend, expand, and modify numerous credits against corporate franchise and income taxes, personal income tax, and insurance gross premium tax.
Additional proposed amendments would authorize a sales and use tax holiday for energy star appliances, disallow franchise tax deductions for captive real estate investment trusts (REITs), ease the information and reporting requirements for publicly traded partnerships, establish a sales and use tax exemption for disaster assistance debit sales, and enact a property tax exclusion for disabled veterans.

CCH (cch.taxgroup.com) reports:

First-party reliance on misrepresentations was not an element of a civil Racketeer Influenced and Corrupt Organizations Act (RICO) claim predicated on mail fraud, according to a unanimous U.S. Supreme Court decision arising from the conduct of Cook County, Illinois, public auctions for liens acquired on property subject to delinquent property tax. A decision by the U.S. Court of Appeals for the Seventh Circuit ( Phoenix Bond & Indemnity Co. v. Bridge , 477 F.3d 928) was affirmed.
To prevent any buyer from obtaining a disproportionate share of liens, the county adopted a rule that required each buyer to submit bids in its own name; prohibited a buyer from using agents, employees, or related entities to submit simultaneous bids for the same parcel; and required a registered bidder to submit a sworn affidavit affirming compliance with the rule. Unsuccessful bidders sued other bidders for alleged violation of the county rule and for mail fraud under RICO based on false attestations to the county and various notices to property owners required by state law. A federal district court's dismissal of the RICO claim for lack of standing was reversed by the U.S. Court of Appeals.

CCH (cch.taxgroup.com) reports:

Tax benefits from a sale-in/lease-out (SILO) transaction, where a partnership trust "bought" a waste-to-energy facility located in Germany from a German corporation owned by German municipalities, and then leased the facility back to the German corporation, were improper. Depreciation deductions under Code Sec. 168, transaction cost amortization deductions and interest expense deductions under Code Sec. 163(a) claimed by the partnership and its tax partner were denied. Additionally, accuracy-related penalties imposed at the partnership level for substantial understatement of tax liability were sustained, as was the IRS's determination that the partnership should have reported additional original issue discount (OID) income for the tax years in question.
The transaction had some economic substance, because the taxpayers engaged in it with a profit motive and could have reasonably expected to make a small but guaranteed pre-tax profit. However, the transaction failed the "substance over form" test because its stated form as a sale was inconsistent with its economic reality. The partnership never actually became the true owner of the facility for U.S. tax purposes. While hundreds of millions of dollars in purchase and rent payments were exchanged, essentially all the partnership did was pay to the German corporation a $28.5 million accommodation fee to sign paperwork that met the formal requirements of a sale and leaseback, and to arrange a circular cash flow from and back to two German banks that financed the purchase. The German corporation continued to have undisturbed and uninterrupted possession and control of the facility, continued to claim the tax benefits of ownership under German law, and had no economic or political motivation to give up control of the facility to the taxpayers at any time. Accordingly, the partnership was not entitled to the depreciation or amortization deductions.
The taxpayers were not entitled to deduct interest expenses that they incurred for two nonrecourse loans that the partnership entered into with the German banks, because the loans were not genuine indebtedness. The taxpayers would never be required to use their own funds to repay the debt; instead, they structured an entirely self-sustaining transaction under which the loan proceeds would be used to pay the loan debt. Under its agreement with the taxpayers, the German corporation was required to put the loan proceeds into two debt payment undertaking accounts (PUAs), which were created to pay the corporation's sublease obligations. If the debt PUAs were to go bankrupt before the loan balances had been paid off, the German corporation remained liable to the partnership for the amounts due.
The partnership did not present a partnership-level reasonable cause defense to the IRS's imposition of accuracy-related penalties for substantial understatement of tax attributable to the SILO transaction. The partnership took an "all-or-nothing" stance at trial regarding the propriety of its tax treatment of the transaction, and presented no evidence to support of reasonable cause defense. However, individual partners each might still be able to prove a reasonable cause defense in a subsequent partner-level refund action under Reg. §301.6221-1(d).
The taxpayers waived their argument challenging the imposition of OID income. The taxpayers briefly mentioned the OID income issue in their complaint, but failed to raise or discuss the issue in pre-trial briefs or proposed findings of fact and conclusions of law. The taxpayers offered no evidence and presented no testimony at trial regarding the OID income issue, and did not argue the merits of the issue in their post-trial briefs.
AWG Leasing Trust, DC Ohio, 2008-1 USTC ¶50,370
Other References:
Code Sec. 163
CCH Reference - 2008FED ¶9104.276
CCH Reference - 2008FED ¶9104.38
Code Sec. 167
CCH Reference - 2008FED ¶11,007.285
Code Sec. 6221
CCH Reference - 2008FED ¶37,569.12
Code Sec. 6662
CCH Reference - 2008FED ¶39,652.56
Code Sec. 6664
CCH Reference - 2008FED ¶39,661.65
Tax Research Consultant
CCH Reference - TRC INDIV: 48,158.20
CCH Reference - TRC INDIV: 48,158.25
CCH Reference - TRC INDIV: 48,202
CCH Reference - TRC DEPR: 15,254
CCH Reference - TRC FILEBUS: 9,158.20
CCH Reference - TRC PART: 60,060

CCH (cch.taxgroup.com) reports:

IRS Commissioner Douglas H. Shulman declared on June 9 that the IRS must focus on both services and enforcement, "and do both very well." Speaking at the Federation of Tax Administrators' (FTA) 76th Annual Conference, Shulman said that the IRS "must have an aggressive enforcement program" for those "who understand their tax obligation, but fail to comply."
Shulman touted the Service's efforts to address international tax compliance issues, modernization and maintaining the workforce. He said the IRS is using its resources strategically to improve voluntary compliance rates. He is also looking closely at all of the IRS's compliance tools and resources, including taxpayer service and regulatory guidance.
The commissioner cited the Large and Mid-Size Business (LMS Division's tiered issue audit process as another example of operating strategically, where agents are required to examine and analyze each Tier I issue. Agents are not supposed to disallow the issue per se , Shulman commented; judgment is "the key ingredient." The LMSB has identified 13 Tier I issues for scrutiny, including the research credit, domestic production deduction, dividend repatriation, foreign tax credits, and various tax shelter issues.
Shulman supported transparency as a crucial part of the IRS's responsibility to operate with integrity and fairness. He cited the revised Form 990 for exempt organizations, Schedule M-3 for large corporations, the LMSB's Compliance Assurance Program and administration proposals to require reporting of credit and debit card transactions and the cost basis of securities.
Shulman also commended the FTA for cooperating with the IRS in many areas, including:
--the IRS's forwarding of state returns filed electronically;
--state support for the use of state refunds to pay federal tax debts;
--using state filing information to identify federal nonfilers and underreporters; and
--addressing the use of flow-through entities to avoid federal and state tax.
By Brant Goldwyn, CCH News Staff
Prepared Remarks of IRS Commissioner Shulman

CCH (cch.taxgroup.com) reports:

For pension plan years beginning in June 2008, the IRS has released the corporate bond weighted average interest rate, the permissible range of interest rates used to calculate current plan liability and to determine the required contribution under Code Sec. 412(l) for plan years through 2008, and the current corporate bond yield curve and related segment rates for the purpose of establishing a plan's funding target under Code Sec . 430(h)(2)
The corporate bond weighted average interest rate for plan years beginning in June 2008 is 6.02 percent; and the 90-percent to 100-percent permissible range is 5.42 percent to 6.02 percent. The annual rate of interest on 30-year Treasury securities for May 2008, used to determine the minimum present value of a participant's benefit under Code Sec. 417(e)(1) and (2), is 4.60 percent.
For plans electing not to use the transitional rule under Code Sec. 430(h)(2)(G), or for plans whose first year begins after 2008, the 24-month average segments rates for June 2008 are: 5.13 for the first segment; 6.01 for the second segment; and 6.53 for the third segment.
For plan years beginning in 2008, the funding transitional segment rates for June 2008 are: 5.72 for the first segment; 6.02 for the second segment; and 6.19 for the third segment.
For plan years beginning in 2008, the minimum present value transitional segment rates for June 2008 are: 4.61 for the first segment; 4.95 for the second segment; and 5.03 for the third segment.
Notice 2008-53, 2008FED ¶46,462
Other References:
Code Sec. 401
CCH Reference - 2008FED ¶17,730.40
Code Sec. 412
CCH Reference - 2008FED ¶19,125.505
Code Sec. 417
Code Sec. 430
CCH Reference - 2008FED ¶20,161.30
Tax Research Consultant
CCH Reference - TRC RETIRE: 15,304.05
CCH Reference - TRC RETIRE: 15,304.10
CCH Reference - TRC RETIRE: 15,304.15
CCH Reference - TRC RETIRE: 30,170
CCH Reference - TRC RETIRE: 30,556

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Vermont omnibus tax bill makes numerous amendments to Vermont's corporate income, personal income, estate and gift tax laws, including changes that decouple from the IRC §168(k) bonus depreciation deduction for personal income taxes, limit the personal income tax capital gains subtraction, and update Vermont's Internal Revenue Code (IRC) conformity date. Other amendments extend the wood products manufacture tax credit against corporate and personal income taxes, modify the recapture provision for the historic rehabilitation credit against corporate and personal income taxes, and revise provisions of the Vermont Economic Growth Incentive program. In addition, the Commissioner of the Department of Taxes is required to make recommendations to the General Assembly concerning the repeal of underutilized tax incentives. Finally, various provisions governing tax refunds, deficiency notice procedures, and disclosure of taxpayer information are amended.
Separate stories discuss sales and use tax changes (TAXDAY, 2008/06/09, S.29) and property and other tax changes (TAXDAY, 2008/06/09, S.28) contained in the legislation.

CCH (cch.taxgroup.com) reports:

Tennessee Governor Phil Bredesen has signed S.B. 4173, enacting various excise, franchise, and individual income tax amendments, including provisions that require financial institutions to disclose dividends received from captive real estate investment trusts (REITs) and new credit provisions for certified green energy supply chain manufacturers. The legislation also contains sales and use (TAXDAY, 2008/06/09, S.24) and other tax provisions (TAXDAY, 2008/06/09, S.23), which are reported in separate stories.
Dividends from captive REITs: Applicable to tax periods ending on or after July 1, 2008, any financial institution that receives dividends, directly or indirectly, from a captive REIT must disclose the dividends on a form prescribed by the Commissioner of Revenue. If the required disclosure is not made, then the deduction for dividends will be disallowed with respect to any direct or indirect dividends from the captive REIT. In addition, the taxpayer's net earnings will be adjusted accordingly, and the taxpayer will be subject to a 50% penalty on the amount of any underpayment arising from the adjustment. "Captive REIT" means an entity with an election in effect under IRC §856(c)(1), in which the taxpayer, directly or indirectly, has at least a 90% ownership interest by value, determined in accordance with generally accepted accounting principles, and whose shares are not traded on a national stock exchange.
Gain from sale of asset: The legislation expands the provision requiring an entity or individual not otherwise subject to the excise tax to be taxed on the gain from certain asset sales. Under the amendment, effective July 1, 2008, tax applies if, during the 12-month period immediately prior to the sale, the asset was owned by an affiliate subject to the excise tax.
Asset-backed securitization: The franchise and excise tax exemption for certain entities engaged in the asset-backed securitization of debt obligations is expanded to include an entity that is classified as a trust under the laws of the state in which it is created and that is disregarded for federal income tax purposes under IRC §7701. In addition, a similar exemption under the individual income tax is amended so that it parallels the franchise and excise tax exemption.
Diversified investing funds: The exemption for diversified investing funds is amended to specify that, as applied to individuals, the term "affiliates" means any natural person who, directly or indirectly, has more than a 50% ownership interest in the fund. Indirect ownership by an individual includes ownership by any family member of the individual, as follows: (1) an ancestor of the individual; (2) the spouse or former spouse of the individual; (3) a lineal descendant of the individual, of the individual's spouse or former spouse, or of the individual's parent; (4) the spouse or former spouse of any lineal descendant described in (3); or (5) the estate or trust of a deceased individual described in (1) --(4). As before, one condition for the exemption to apply is that the fund's capital must be primarily derived from investments by entities or individuals not affiliated with the fund. This amendment applies to tax periods beginning on or after January 1, 2009.
Jobs credit: Jobs credit provisions are amended to require that new full-time employee jobs be filled prior to January 1, 2016 (previously, January 1, 2011).
Under the expanded credit allowed for certain enterprises involving a required capital investment exceeding $1 billion, the Commissioner of Economic and Community Development may extend by four years (previously, two years) the three-year periods allowed for making the required capital investment and for providing wages equal to or greater than 150% of Tennessee's average occupational wage after completion by a worker of initial training or a probationary period.
A new provision allows integrated suppliers to qualify for an expanded jobs credit, regardless of the level of capital investment or the number of jobs created. "Integrated supplier" means a supplier that is located within the footprint of a project site and that provides goods and services on the project site solely for a manufacturer that is qualified for an expanded jobs credit in connection with a required capital investment exceeding $1 billion.
A new provision is also added to specify that if a qualified business enterprise is located in a tier 2 or tier 3 economically distressed county, then the taxpayer has three years or five years, respectively, to create the minimum number of qualifying jobs necessary to receive the credit.
Under another amendment, the Commissioner of Revenue, with the approval of the Commissioner of Economic and Community Development, is authorized to approve a jobs credit in cases where the newly created position existed in Tennessee as a job position of the taxpayer or another business entity less than 90 days prior to being filled by the taxpayer, provided that the taxpayer has satisfied all other requirements to obtain the credit and both Commissioners have determined that allowing the credit is in the best interests of the state.
In addition, the provision allowing the jobs credit to be computed by certain general partnerships (i.e., those establishing and operating a call center in Tennessee) is expanded so that the credit may also be computed by a general partnership that has established a qualifying international, national, or regional headquarters facility in Tennessee. This provision applies to business plans filed with the Department of Revenue on or after January 1, 2008.
Net operating losses: Certain taxpayers eligible for an expanded jobs credit in connection with a required capital investment exceeding $100 million may be allowed to carry net operating losses forward beyond the initial 15-year period, provided that the Commissioner of Revenue and the Commissioner of Economic and Community Development determine that extending the period is in the best interests of the state.
Headquarters relocation credit: A new provision allows the qualified headquarters facility relocation expenses credit to be computed by a general partnership that has established a qualifying international, national, or regional headquarters facility in Tennessee and has qualified for the jobs credit. The credit is to be computed as if the general partnership were subject to the excise and franchise taxes. With respect to the general partnership tax year during which a credit is so computed, a partner in the general partnership that is subject to the excise and franchise taxes and that directly holds a first tier ownership interest in the general partnership may take a percentage of the credit that equals the total amount of the credit for the general partnership, multiplied by the partner's percentage interest in the general partnership on the last day of the general partnership's tax year. In the hands of the first tier partner, the credit passed through from the general partnership is subject to applicable provisions and limitations. A credit may not be taken by a business entity unless it was a partner in the general partnership and subject to the excise and franchise taxes at the time the credit was earned by the general partnership. This provision applies to business plans filed with the Department of Revenue on or after January 1, 2008.
Credits for green energy supply chain manufacturers: A certified green energy supply chain manufacturer is allowed a green energy tax credit equal to the amount by which the charge for electricity sold to the manufacturer exceeds the charge that would have been made for the total delivered electricity if the maximum certified rate had been applied during the applicable tax year. A carbon charge credit is also allowed, equal to any carbon charges incurred by or imposed directly on the manufacturer, or imposed on the Tennessee Valley Authority or other applicable energy provider and billed to the manufacturer during the applicable tax year.
Any credits, net operating losses, or carryforwards available to the manufacturer under the excise and franchise tax provisions, aside from the green energy and carbon charge credits, must be applied to the tax liability first. Any green energy tax credit and any carbon charge credit will then be applied second and third, respectively, and will be refundable if they exceed the remaining liability. However, for the green energy credit, the refund for any tax year may not exceed an amount equal to $1.5 million for each $250 million in cumulative capital investments made by the manufacturer. To the extent that any green energy tax credit amount is not applied to the taxpayer's liability and is not received as a refund, the credit may be carried forward in perpetuity until it is claimed as a refund or used as a credit by the manufacturer. Except for purposes of receiving a refund or otherwise using credits that have been carried forward, the green energy tax credit will cease to be effective on January 1, 2029, and no new credit will be allowed for tax years ending on or after that date.
"Certified green energy supply chain manufacturer" means any manufacturer that has made, during the investment period, a required capital investment exceeding $250 million in constructing, expanding, or remodeling a certified facility engaged in manufacturing a product that is necessary for the production of green energy. The three-year investment period for making the required capital investment may be extended by the Commissioner of Economic and Community Development for a reasonable period, not to exceed two years, for good cause shown.
Deduction for financial institutions: For purposes of computing the consolidated net worth of a financial institution affiliated group, the legislation phases out the franchise tax deduction allowed for 25% of the group's securities classified as held to maturity or available for sale. Specifically, the deduction is reduced to 20% for tax years beginning after 2007, reduced to 12.5% for tax years beginning after 2008, reduced to 5% for tax years beginning after 2009, and eliminated for tax years beginning after 2010.
Family-owned noncorporate entities: For taxpayers qualifying under the exemption for certain family-owned noncorporate entities, the legislation requires forms to be filed and information to be reported periodically regarding the entity and the participating family members, as prescribed by the Commissioner of Revenue. By January 20, 2009, the Commissioner must prepare a report for the state Legislature including analyses of the utilization, costs, and benefits of the exemption, as well as findings and recommendations concerning the continuation of the exemption.
S.B. 4173, Laws 2008, effective June 5, 2008, applicable as noted.  

CCH (cch.taxgroup.com) reports:

In order to encourage the voluntary disclosure and payment of various taxes owed to Oklahoma, recently enacted legislation authorizes and directs the state's Tax Commission to establish a voluntary compliance initiative for specified "eligible taxes." Accordingly, an eligible taxpayer would be entitled to a waiver of any penalty, interest, or other collection fees due on the eligible taxes if the taxpayer voluntarily files the requisite delinquent tax returns and pays the taxes due during the course of the initiative. The time period for the initiative is limited to the period beginning on September 15, 2008, and ending on November 14, 2008. During that brief time, the taxpayer must either make a voluntary payment of the full tax liability due or the taxpayer must enter into a written payment program agreement with the Tax Commission for the full payment of the unpaid tax over a specified time and in a specified manner.
Upon full payment of the eligible taxes due pursuant to the initiative, the Tax Commission will then abate and not seek to collect any interest, penalties, collection fees, or other costs that would otherwise be applicable, and will also release any tax liens that have been imposed.
For these purposes, the term "eligible taxes" includes the following tax types that were due and payable for any tax period or periods ending before January 1, 2008:
-- mixed beverage taxes;
-- gasoline and diesel taxes;
-- gross production and petroleum excise taxes;
-- franchise taxes;
-- sales taxes;
-- use taxes;
-- corporate and personal income taxes;
-- personal income tax withholding; and
-- banking and credit union privilege taxes.
If any eligible tax or part thereof is not paid before the end of the initiative, or not in conformity with a written payment program agreement entered into during the initiative for the eventual payment of the unpaid eligible tax, then a penalty equal to the amount of the delinquent penalty imposed by the applicable nonpayment of tax statute must be added, collected, and paid. However, the Tax Commission may not collect this assessed penalty if the individual or entity from which the tax liability is due was not eligible to participate in the initiative, the taxpayer has timely filed a protest of an assessment, or the matter is being contested before a court of competent jurisdiction.
The enacted legislation further requires the Tax Commission to promulgate the requisite rules detailing the terms and other conditions of this initiative.
S.B. 2034 also contains provisions affecting income taxes that are reported separately (TAXDAY, 2008/06/09, S.17).
S.B. 2034, Laws 2008, effective June 3, 2008, applicable as noted.  

CCH (cch.taxgroup.com) reports:

The IRS has announced that new features have been added to enhance the interactive Online Payment Agreement application that is available on the IRS's website (www.irs.gov). The Online Payment Agreement application provides an easy way to resolve tax liabilities for those who have filed all required tax returns (see IR-2006-159). In addition, the IRS recently announced the automation of user fee calculations for taxpayers entering into installment agreements, so that taxpayers are no longer required to submit a paper Form 13844, Application for Reduced User Fee for Installment Agreements, to request a reduced user fee because eligibility for reduced user fees is now automatically determined by the IRS (see IR-2008-33; TAXDAY, 2008/03/05,I.2). The new enhancements permit:
(1) taxpayers to revise the payment amounts on their existing agreements and/or the payment due dates;
(2) taxpayers to revise an existing regular installment agreement into either a direct debit installment agreement, or a payroll deduction installment agreement;
(3) taxpayers to revise existing extensions to regular and direct debit installment agreements; and
(4) practitioners (with valid authorizations) to use --as alternative methods of authentication when requesting installment agreements for clients --either their caller ID, or the signature date from their approved Form 2848, Power of Attorney and Declaration of Representative.
Eligible taxpayers owing no more than $25,000 in combined tax, interest and penalties may self-qualify. Once self-qualified, a taxpayer may apply and receive immediate notification of approval on their application for an installment agreement, including pre-assessed agreements on 2007 Form 1040 liabilities and paperless direct debit agreements.
The online application is available on the IRS's web site. Use the pull-down menu titled "I need to..." and select "Set Up a Payment Plan" to get started. The online application is available seven days a week, but only during certain hours: Mondays through Fridays from 6:00 a.m. to 12:30 a.m. (Eastern time); Saturdays from 6:00 a.m. to 10 p.m.; and Sundays from 4:00 p.m. to 12:00 midnight.
IR-2008-77, 2008FED ¶46,461
Other References:
Code Sec. 6159
CCH Reference - 2008FED ¶37,181.20
Tax Research Consultant
CCH Reference - TRC FILEIND: 21,154.40
CCH Reference - TRC IRS: 45,112.15

CCH (cch.taxgroup.com) reports:

The IRS has corrected proposed regulations that address the allocation of precontribution gain or loss to a partner of a partnership (the "transferor partnership") that engages in an assets-over merger with another partnership (the "transferee partnership") (NPRM REG-143397-05, I.R.B. 2007-41, 790; TAXDAY, 2007/08/22, I.2).
Announcement 2008-53
Other References:
Code Sec. 704
CCH Reference - 2008FED ¶25,134B
CCH Reference - 2008FED ¶25,134G
Code Sec. 737
CCH Reference - 2008FED ¶25,426A
CCH Reference - 2008FED ¶25,426C
CCH Reference - 2008FED ¶25,426L
Tax Research Consultant
CCH Reference - TRC PART: 9,152.05
CCH Reference - TRC PART: 33,156

CCH (cch.taxgroup.com) reports:

The IRS has released specifications for filing 2008 Forms 1098, 1099, 5498 and W-2G electronically through the IRS FIRE System. The IRS Enterprise Computing Center --Martinsburg (IRS/ECC-MT no longer accepts any form of magnetic media. These specifications, which will be reprinted as the next revision of IRS Publication 1220, must be used for the preparation of 2008 tax year information returns and information returns for tax years prior to 2008 that will be filed beginning January 1, 2009.
Magnetic media tape cartridge files for tax years prior to 2008 must be received by December 1, 2008, in order to be processed. After December 1, 2008, the only acceptable method of filing information returns with ECC-MTB will be electronically through the FIRE system. Form 4804, Transmittal of Information Returns Reported Magnetically, is being obsoleted due to the elimination of magnetic media filing.
A toll-free fax number (877-477-0572) has been added for submitting questions regarding specifications for electronic submissions.
Rev. Proc. 2007-51, I.R.B. 2007-30, 143, is superseded.
Rev. Proc. 2008-30, 2008FED ¶46,459
Other References:
Code Sec. 6011
CCH Reference - 2008FED ¶560
CCH Reference - 2008FED ¶35,141.03
CCH Reference - 2008FED ¶35,141.47
CCH Reference - 2008FED ¶35,141.57
Code Sec. 6041
CCH Reference - 2008FED ¶35,836.075
Code Sec. 6041A
CCH Reference - 2008FED ¶35,842.075
Code Sec. 6042
CCH Reference - 2008FED ¶35,870.01
Code Sec. 6043
CCH Reference - 2008FED ¶35,888.0756
Code Sec. 6044
CCH Reference - 2008FED ¶35,911.075
Code Sec. 6045
CCH Reference - 2008FED ¶35,930.024
Code Sec. 6047
CCH Reference - 2008FED ¶35,983.075
Code Sec. 6049
CCH Reference - 2008FED ¶36,037.075
Code Sec. 6050A
CCH Reference - 2008FED ¶36,044.01
Code Sec. 6050B
CCH Reference - 2008FED ¶36,062.01
Code Sec. 6050D
CCH Reference - 2008FED ¶36,102.01
Code Sec. 6050E
CCH Reference - 2008FED ¶36,122.077
Code Sec. 6050H
CCH Reference - 2008FED ¶36,186.075
Code Sec. 6050J
CCH Reference - 2008FED ¶36,223.075
Code Sec. 6050N
CCH Reference - 2008FED ¶36,301.01
Code Sec. 6050P
CCH Reference - 2008FED ¶36,315.03
Code Sec. 6050Q
CCH Reference - 2008FED ¶36,317.01
Code Sec. 6050R
CCH Reference - 2008FED ¶36,319.01
Code Sec. 6050S
CCH Reference - 2008FED ¶36,319B.075
Code Sec. 6050T
CCH Reference - 2008FED ¶36,330.01
Code Sec. 7513
CCH Reference - 2008FED ¶42,702.13
CCH Reference - 2008FED ¶42,702.15
Tax Research Consultant
CCH Reference - TRC FILEBUS: 12,302

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  An assessment issued by the Montana Department of Revenue against a taxpayer for underpaid Montana corporation license (income) taxes was timely issued because the statute of limitations was tolled for five years as a result of the taxpayer's failure to timely report changes made to its federal return.

  The taxpayer argued that it was not required to report the changes because the deficiencies resulted from a stipulation between the Internal Revenue Service (IRS) and the taxpayer and it was only required to report changes stemming from litigation. However, there was no such statutory limitation. The plain language of the statute required the taxpayer to report all changes to the taxpayer's federal taxable income within 90 days of the final federal determination, not only those stemming from litigation. Under Montana law, a taxpayer's failure to timely report federal changes results in the statute of limitations being tolled for five years from the final federal determination. In the case at hand, the federal determination became final when the Ninth Circuit Court of Appeal issued its decision on the taxpayer's appeal, and the DOR's assessment was issued well within the five year period after the court's decision was issued.

  Although the Montana Supreme Court reached the same conclusion as the Montana District Court, it did so on different grounds. The lower court had determined that the limitations period was suspended because the taxpayer failed to file an amended return to report the federal changes. However, the governing statute only required that the taxpayer report the federal change and did not specify that the taxpayer report the change by filing an amended return.

Frontier Chevrolet v. Department of Revenue , Montana Supreme Court, 2008 MT 191, June 3, 2008, ¶401-083

  Other References:

  Explanations at ¶89-144

CCH (cch.taxgroup.com) reports:

  The IRS has released a fact sheet providing an overview of the foreign tax credit under Code Sec. 901. Qualifying taxpayers who are individuals, estates or trusts, can file Form 1116 to claim the credit for foreign taxes imposed by a foreign country or U.S. possession. Corporations file Form 1118 to claim the foreign tax credit.

  Generally, the following four tests must be met for any foreign tax to qualify for the credit:

  (1) The tax must be imposed on the individual or entity claiming the credit;

  (2) The individual or entity must have paid or accrued the tax;

  (3) The tax must be the legal and actual foreign tax liability; and,

  (4) The tax must be an income tax (or a tax in lieu of an income tax).

  The IRS notes that the amount of foreign tax that qualifies is not necessarily the amount of tax withheld by the foreign country. Moreover, if the individual or entity is entitled to a reduced rate of foreign tax based on an income tax treaty between the United States and a foreign country, only that reduced tax qualifies for the credit. If a foreign tax redetermination occurs, the individual or entity must file a Form 1040X or Form 1120X to report recalculated U.S. tax liability. Failure to notify the IRS of a foreign tax redetermination can result in a failure to notify penalty. Finally, a foreign tax credit may not be claimed for taxes on excluded income.

IRS Foreign Tax Credit Fact Sheet
 

CCH (cch.taxgroup.com) reports:

  House lawmakers followed their senatorial counterparts in passing a budget conference report for fiscal year (FY) 2009 on June 5. The measure, which lays out spending priorities for Congress, but does not require a presidential signature, passed the House by a vote of 214-210. The Senate passed the same measure, SConRes 70, on June 4 by a bipartisan vote of 48 to 45 (TAXDAY, 2008/06/05, C.1). The fiscal blueprint calls for $340 billion in tax relief over five years, including extensions of marriage penalty relief, the child tax credit and the 10-percent bracket. While predicting a budget surplus by 2012, the budget also allows for estate tax reform and an additional year of relief from the alternative minimum tax. The budget also calls for property tax relief, energy and education tax relief and extenders.

  Democrats said the budget moves the country in the right direction, while GOP lawmakers said it failed to address rising entitlement spending on Medicare and the looming cost of retirement for the nation's baby boomers. Like many budgets passed over the last decade, the measure also includes an automatic increase in the statutory limit on the nation's debt. House Majority Leader Steny Hoyer, D-Md., blamed the debt limit increase on the fiscally irresponsible policies of the Republican party. Ways and Means Committee member Phil English, R-Pa., predicted the budget would result in billions of dollars in tax increases.

  By Stephen K. Cooper, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  After accepting a recommendation by the New York State Commission on Property Tax Relief, Governor David A. Paterson plans to introduce school property tax cap legislation to address the rapid rise in New York property taxes. The legislation would establish a cap on school property tax levy increases of 4% or 120% of the Consumer Price Index, whichever is less, and would preserve the right of all school district residents to vote every year even if the board proposes a levy increase of less than 4%. The cap would apply to all school districts outside New York City, Buffalo, Rochester, Syracuse, and Yonkers.

  In addition, the Commission's report recommended that a School Tax Relief Program (STAR) "circuit breaker" be enacted, contingent upon the creation of the tax cap. The STAR circuit breaker would provide property tax relief to individual taxpayers based on income and ability to pay. A personal income tax credit also would be provided for a percentage of property taxes paid when the taxes exceed a percentage of the owner's income.

  The full text of the release may be viewed at
http://www.state.ny.us/governor/press/press_0603081.html.

Release , Office of New York Governor Paterson, June 3, 2008.
 

CCH (cch.taxgroup.com) reports:

  Colorado Governor Bill Ritter has vetoed legislation (H.B. 1408) that proposed modifications to the corporate income tax treatment of captive real estate investment trusts (REITs). The Colorado General Assembly approved the measure on May 6, 2008. (TAXDAY, 2008/05/08, S.4) In his veto letter, Governor Ritter indicated his opposition for a measure in the bill that would have forced taxpayers to either overpay the anticipated tax due before the final determination of tax liability was reached or be subjected to substantial underpayment penalties. Calling the potential ramifications of the bill "a significant burden for both the taxpayer and the Colorado Department of Revenue," the Governor voiced his hope that a more favorable solution to the problems targeted by this legislation could be reached during the next legislative session.

  The vetoed bill would have mandated the disclosure of reportable transactions and established penalties ranging from $15,000 to $50,000, plus a percentage of the unpaid tax attributable to the transactions, for failure to disclose. The legislation would also have permitted the executive director of the Department of Revenue to distribute or allocate the gross income and deductions between or among corporations that involve a captive REIT. Additionally, if enacted, the legislation would have adopted the Multistate Tax Commission's definitions of "real estate investment trust" and "captive real estate investment trust."

  Subscribers to CCH Tax Research NetWork can view the governor's veto letter.
 
Press Release , Office of Colorado Governor Bill Ritter, June 3, 2008
 

CCH (cch.taxgroup.com) reports:

  The IRS has ruled that a public utility changes its method of accounting when it changes its treatment of sewer connection fees from nontaxable capital contributions to taxable income. Conversely, a change from treating connection fees from taxable income to nontaxable capital contributions is also a change in accounting method.

  A public utility charged its customers connection fees when it constructed sewer line extensions to their premises. Previously, the utility treated these connection fees as a nontaxable contribution capital (Code Sec. 118) and claimed a zero basis in the extensions. The utility later concluded that the exclusion did not apply and that the fees should be included in income. The fees were included in income and capitalized into the basis of the extensions. Depreciation deductions were then claimed.

  Generally, if a change in the treatment of an item does not permanently affect a taxpayer's lifetime income but does or could change the tax year in which taxable income is reported, the treatment affects timing and is a method of accounting.

  In the present situation, the utility's lifetime taxable income was unaffected by the proposed change since the depreciation deductions claimed over the recovery period of the sewer lines would offset the sewage fees included in income. The timing of taxable income, however, was affected by including all the fees in income in the year of receipt and offsetting taxable income annually through depreciation deductions. Thus, the change was a change in accounting method.

  The IRS nonacquiesced to the holdings on this issue in Saline Sewer Co. , 63 TCM 2832, Dec. 48,168(M), TC Memo. 1992-236 and Florida Progress Corp. , DC Fla., 98-2 USTC ¶50,951, aff'd, per curiam, on an another issue, CA-11 (unpublished opinion), 2001-1 USTC ¶50,362. The courts in these cases concluded that a change from excluding customer connection fees from income to including them in income gave rise to a permanent difference in lifetime income and, therefore, was not a change in method of accounting. The courts erred, according to the IRS, because they did not consider the effect of the depreciation on lifetime income and the timing of taxable income.

Rev. Rul. 2008-30, 2008FED ¶46,458

Other References:

 
Code Sec. 118

  CCH Reference - 2008FED ¶7202.41

  CCH Reference - 2008FED ¶7202.67

 
Code Sec. 446

  CCH Reference - 2008FED ¶20,620.149

 
Code Sec. 481

  CCH Reference - 2008FED ¶22,277.38

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 21,054

  CCH Reference - TRC CCORP: 3,254.102

CCH (cch.taxgroup.com) reports:

  The Senate is likely to pass the Food, Conservation, and Energy Act of 2008 (HR 6124) in June and send it to the White House, prompting yet another veto override vote of the farm bill in Congress, House Agriculture Committee Chairman, Collin C. Peterson, D-Minn., told CCH on June 4. Although Congress overrode President Bush's veto of the Food and Energy Security Act of 2008 (P.L. 110-234) on May 22, the enrolling clerk made an error that omitted the trade title from that bill when it was sent to the president. As a result, the House passed HR 6124, which includes the entire 15 titles of the farm bill. Peterson said he expects the Senate to pass the measure, which will then be vetoed by the president. Following the veto, the House and Senate will be required to hold a second veto override vote, he explained.

  By Stephen K. Cooper, CCH News Staff

CCH (cch.taxgroup.com) reports:

  The Senate on June 4 gave final approval to the fiscal year 2009 budget conference report on a bipartisan vote of 48-45. The House is expected to also approve the measure on June 5. The fiscal blueprint calls for $340 billion in tax relief over five years, including extensions of marriage penalty relief, the child tax credit and the 10-percent bracket, as well as allowing for estate tax reform. It includes an additional year of alternative minimum tax relief and it provides for property tax relief, energy and education tax relief and extenders.

  Surplus budget funds cover the cost of most of the tax provisions, but some are paid for with additional offsets. The bill makes certain that individuals who relinquish their U.S. citizenship or long-term U.S. residency pay the same federal taxes for appreciation of assets, such as stocks or bonds, which they would pay if they sold them as U.S. citizens or residents. It also increases the penalty for entities failing to file required information returns. "We have passed a fiscally responsible budget today," said Senate Budget Committee Chairman, Kent Conrad, D-N.D. "This plan provides tax relief for the middle class. It makes critical investments in energy, education and infrastructure and it returns the budget to surplus in 2012 and 2013."

  Office of Management and Budget Director, Jim Nussle, sharply criticized the budget blueprint, calling it a repeat of the previous year's "tax and spend game plan." Nussle, in a written statement, said the budget resolution would "amount to the largest tax increase in our nation's history" and add $209 billion in new spending over five years without addressing the long-term entitlement crisis.

  By Jeff Carlson, CCH News Staff

OMB Release: Director Nussle on Passage of FY09 Budget Resolution

SFC Release: Baucus Tax Cuts for Families, Homeowners, Soldiers, Remain in Final Budget for Fiscal Year 2009
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Florida's limitation of corporate income tax net operating loss (NOL) carryovers to federal net losses under IRC §172 does not facially discriminate against foreign corporate dividends and thus, is constitutional under the Foreign Commerce Clause. Under federal law, a corporation may either deduct taxes paid on foreign dividends or claim the foreign tax credit. If the corporation chooses the foreign tax credit, no deduction may be claimed and any net operating loss would not include such a deduction. Although Florida allows the same treatment regarding the deduction of taxes paid on foreign dividends, it does not recognize the foreign tax credit. Therefore, if a taxpayer chooses to take the foreign tax credit, the Florida net operating loss would be higher than the federal net operating loss and yet Florida limits its NOL to the federal NOL.

  The taxpayer asserted that, because losses created by domestic dividend deductions can always be carried over while the foreign tax credit, calculated through the payment of foreign dividends, cannot be carried over, for Florida corporate income tax purposes, discrimination resulted between domestic and foreign dividends. However, if the taxpayer had chosen to deduct the foreign taxes, rather than taking a credit based on the dividends paid and income of its foreign subsidiaries, and that deduction resulted in an NOL carryover, then that carryover would have been included in Florida's federal taxable income starting point and no difference in the NOL carryover would have resulted.

  Florida's deduction based on the taxes assessed against foreign and domestic subsidiaries goes above and beyond treating foreign and domestic subsidiaries in a similar manner; as required under the Foreign Commerce Clause, i.e., all foreign dividends are subtracted from the corporation's income calculation while only some domestic dividends are deducted. Additionally, Florida allows a deduction of the dividend "gross-up" required federally when the foreign tax credit is claimed. Florida's failure to adopt the exact same credit carryover option as the federal government offers does not make the state's tax scheme violative of the Foreign Commerce Clause. The corporation could have considered Florida's prohibition on foreign tax credit carryovers when it chose to claim the foreign tax credit instead of taking a deduction for foreign taxes paid.

Colgate-Palmolive Company v. Florida Department of Revenue , Florida Court of Appeal, First District, No. 1D07-1051 , June 2, 2008, ¶205-197

  Other References:

  Explanations at ¶10-805

  Explanations at ¶10-810

CCH (cch.taxgroup.com) reports:

  The IRS has issued guidance on contributions to Health Savings Accounts (HSAs) with respect to amendments made to Code Sec. 232 by the Tax Relief and Health Care Act of 2006 (P.L. 109-432). The guidance addresses establishing HSAs, annual and monthly HSA contribution limits, HSA distributions not used for qualified medical expenses and excise taxes on excess contributions. Notice 2004-2, 2004-1 CB 269, and Notice 2004-50, 2004-2 CB 196, are modified.

Notice 2008-52, 2008FED ¶46,457

Other References:

 
Code Sec. 223

  CCH Reference - 2008FED ¶12,785.025

  CCH Reference - 2008FED ¶12,785.029

  CCH Reference - 2008FED ¶12,785.033

  CCH Reference - 2008FED ¶12,785.037

  CCH Reference - 2008FED ¶12,785.041

  CCH Reference - 2008FED ¶12,785.075

  CCH Reference - 2008FED ¶12,785.25

  Tax Research Consultant

  CCH Reference - TRC INDIV: 42,450
CCH Reference - TRC INDIV: 42,452
CCH Reference - TRC INDIV: 42,454
CCH Reference - TRC INDIV: 42,456
CCH Reference - TRC INDIV: 42,458
CCH Reference - TRC INDIV: 42,460
CCH Reference - TRC INDIV: 42,462
CCH Reference - TRC INDIV: 42,466
CCH Reference - TRC COMPEN: 45,064
 

CCH (cch.taxgroup.com) reports:

  The IRS has issued guidance on the proper tax treatment of qualified health savings account (HSA) funding distributions, effective for tax years beginning after 2006. A qualified HSA funding distribution is a one-time, direct transfer from an individual's traditional individual retirement account (IRA) or Roth IRA to the individual's HSA. In general, such distributions are excluded from gross income and are not subject to the 10-percent early distribution penalty under Code Sec. 72(t).

  The IRS guidance reflects the rules provided in Code Sec. 408(d)(9), as added by the Tax Relief and Health Care Act of 2006 (P.L. 109-432), and includes numerous examples that illustrate how these rules should be applied. Among the Code Sec. 408(d)(9) rules discussed in the guidance are the tax treatment of qualified HSA funding distributions, the restrictions on the types of IRAs from which distributions can be made, the maximum amount of distributions, the number of distributions that are allowed, the procedures for making an IRA-to-HSA transfer, and the testing period rules.

Notice 2008-51, 2008FED ¶46,456

Other References:

 
Code Sec. 223

  CCH Reference - 2008FED ¶12,785.25

 
Code Sec. 408

  CCH Reference - 2008FED ¶18.922.355

  Tax Research Consultant

  CCH Reference - TRC INDIV: 42,462
CCH Reference - TRC INDIV: 42,464
CCH Reference - TRC COMPEN: 45,064.05
 

CCH (cch.taxgroup.com) reports:

  The United States Tax Court has proposed amendments to its Rules of Practice and Procedure and the Petition form regarding the appeal of whistleblower award determinations. Various conforming and miscellaneous amendments have also been proposed, including clarification of access to electronic court files and video recording. New rules have been proposed to provide procedures for commencement of whistleblower award determination appeals.

Tax Court Press Release, 2008FED ¶46,455

Other References:

 
Code Sec. 7442

  CCH Reference - 2008FED ¶42,058.01

 
Code Sec. 7453

  CCH Reference - 2008FED ¶42,080.021

 
Code Sec. 7623

  CCH Reference - 2008FED ¶42,957.021

  CCH Reference - 2008FED ¶42,957.19

 
Tax Court Rule 13

  CCH Reference - 2008FED ¶42,173

 
Tax Court Rule 27

  CCH Reference - 2008FED ¶42,187

 
Tax Court Rule 34

  CCH Reference - 2008FED ¶42,194

 
Tax Court Rule 75

  CCH Reference - 2008FED ¶42,235

 
Tax Court Rule 76

  CCH Reference - 2008FED ¶42,236

 
Tax Court Rule 152

  CCH Reference - 2008FED ¶42,312

 
Tax Court Rule 155

  CCH Reference - 2008FED ¶42,315

 
Tax Court Rule 182

  CCH Reference - 2008FED ¶42,342

 
Tax Court Rule 221

  CCH Reference - 2008FED ¶42,380

 
Tax Court Rule 262

  CCH Reference - 2008FED ¶42,412B

  Tax Research Consultant

  CCH Reference - TRC LITIG: 6,058

  CCH Reference - TRC LITIG: 6,100

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Participants debated whether and how to proceed with revising the Uniform Division of Income for Tax Purposes Act (UDITPA) at the first public meeting of the drafting committee assigned the revision task by the National Conference of Commissioners on Uniform State Laws (NCCUSL). The meeting took place May 30-31, 2008, in Chicago. The committee heard comments from representatives of states, taxpayers, and the public as to both the merits of proceeding with a revision and, if it does proceed, the areas on which the committee should focus.

  At the conclusion of the meeting, the committee's "reporters" (drafters) were charged with developing proposals for those sections of the act identified as most in need of revision. These proposals will be reviewed at the committee's next meeting, scheduled for December. Meanwhile, those who oppose the effort will make their case for discontinuing the committee's work to NCCUSL's Executive Committee in July.

 

CCH (cch.taxgroup.com) reports:

  Harley Duncan, Executive Director of the Federation of Tax Administrators (FTA), is joining KPMG's Washington National Tax Office in mid-July. In his new role with KPMG, Duncan will seek to build the firm's and its clients' relationships with state tax agencies.

Telephone conversation, June 2, 2008.
 

CCH (cch.taxgroup.com) reports:

  The Court of Federal Claims lacked subject matter jurisdiction over a corporation's claim for refund of communications excise tax under
Code Sec. 4251 because the claim was filed 10 years after the date the corporation paid the tax and was, therefore, untimely under Code Sec. 6511(a). The corporation's argument that neither Code Sec. 6511 nor any other statute of limitations applied to its claim because it was not required to file a return with respect to the tax at issue was rejected. Code Sec. 6511 applied even though the communications service provider collected the tax and paid it over to the IRS.

  Further, Code Secs. 6511 and 7422 could not be interpreted as effecting a discriminatory exemption of excise tax claims from the limitations requirement for refund claims without any rational basis. The communications excise tax was within Code Sec. 7422's "all-inclusive" term governing the recovery of "any" wrongfully assessed or collected tax.

  CCH Comment. In Notice 2006-50, I.R.B. 2006-25, 1141, the IRS instructed carriers to cease collecting and paying over communications excise taxes paid by consumers on time-only long distance service billed after July 31, 2006. However, while it did authorize taxpayers to request a credit or refund on their 2006 income tax returns, these returns were limited to excise taxes paid on services billed after February 28, 2003, and before August 1, 2006.

Radioshack Corporation, FedCl, 2008-1 USTC ¶50,357

Radioshack Corporation, FedCl, 2008-1 USTC ¶70,278

Other References:

 
Code Sec. 4251

  CCH Reference - ETR ¶18,135.04

  CCH Reference - ETR ¶18,135.68

 
Code Sec. 6511

  CCH Reference - 2008FED ¶39,080.125

  CCH Reference - ETR ¶50,435.01

  CCH Reference - ETR ¶50,435.08

 
Code Sec. 7422

  CCH Reference - 2008FED ¶41,688.504

  CCH Reference - ETR ¶57,475.01

  CCH Reference - ETR ¶57,475.10

  Tax Research Consultant

  CCH Reference - TRC IRS: 36,052.05
CCH Reference -
TRC LITIG: 9,056
CCH Reference - TRC EXCISE: 9,056
 

CCH (cch.taxgroup.com) reports:

  The IRS has announced that the interest rates for the calendar quarter beginning July 1, 2008, will drop to 5 percent for overpayments (4 percent in the case of a corporation) and underpayments, 7 percent for large corporate underpayments and 2.5 percent for the portion of a corporate overpayment exceeding $10,000. The interest rates are computed by using the federal short-term rate based on daily compounding determined during April 2008.

  For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus three percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus three percentage points, and the overpayment rate is the federal short-term rate plus two percentage points. The rate for large corporate underpayments is the federal short-term rate plus five percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a tax period is the federal short-term rate plus one-half of a percentage point.

IR-2008-76,
2008FED ¶46,450

Rev. Rul. 2008-27, 2008FED ¶46,451

Rev. Rul. 2008-27, FINH ¶30,586

Rev. Rul. 2008-27, ETR ¶66,853

Other References:

 
Code Sec. 6601

  CCH Reference - 2008FED ¶174.01

  CCH Reference - 2008FED ¶175.01

  CCH Reference - 2008FED ¶175.30

 
Code Sec. 6621

  CCH Reference - 2008FED ¶39,455.01

  CCH Reference - 2008FED ¶39,455.51

  CCH Reference - FINH ¶21,685.01

  CCH Reference - FINH ¶21,685.30

  CCH Reference - ETR ¶102

  CCH Reference - ETR ¶50,615.01

 
Code Sec. 6622

  CCH Reference - 2008FED ¶39,465.01

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 33, 204.15

  CCH Reference - TRC PENALTY: 9,152

  CCH Reference - TRC IRS: 33,358.10

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  An additional Minnesota omnibus tax bill enacted as part of a budget agreement amends Minnesota sales and use tax laws to conform with recent changes to the Streamlined Sales and Use Tax (SST) Agreement. In addition, the bill adds exemptions, increases the June accelerated payment amount, and authorizes local taxes.

 

CCH (cch.taxgroup.com) reports:

  A parent taxpayer had sufficient contacts with Idaho to be required to collect Idaho sales tax on its sales of product advertising, corporate literature, and training materials to an Idaho customer because the taxpayer owned a subsidiary that was a retailer engaged in a similar line of business in Idaho. The subsidiary had a physical presence (an office and employees) in Idaho, held an Idaho seller's permit, collected and remitted Idaho sales tax, and was engaged in similar activities as the parent.

  In order for a collection responsibility to be imposed, a retailer must be engaged in business in Idaho. A statute provided that a "retailer engaged in business in this state" included any retailer owned or controlled by the same interests who own or control any retailer engaged in business in the same or a similar line of business in Idaho.

Decision No. 20295 , Idaho State Tax Commission, January 10, 2008, received May 2008, ¶400-579

  Other References:

  Explanations at ¶60-025

CCH (cch.taxgroup.com) reports:

  Economic stimulus payments continue to arrive in individuals' bank accounts and mail boxes as the government has distributed close to $50 billion in payments. At the same time, the IRS has been busy on the guidance front issuing final and temporary corporate reorganization regulations. IRS officials speaking in Washington, D.C., reminded exempt organizations about the ban on partisan political activity and also highlighted some of the new employee benefits guidance.

  Economic stimulus payments. The Treasury Department reported that it sent out another 6.211 million stimulus payments during the week of May 19, distributing $4.927 billion (TDNR HP-995; TAXDAY, 2008/05/28, T.1). This brings the total to 51.675 million payments in the amount of $45.72 billion through May 23. Nearly all of the direct deposit payments were made by May 23, with the mailing of paper stimulus checks set to increase in June once the mailing of regular tax refund checks has been completed, the Treasury Department indicated.

  In related news, CCH asked the IRS to confirm recent news reports that economic stimulus payments to veterans are being offset by the cost of care they received at VA hospitals. The IRS referred CCH to the Treasury Department's Financial Management Service (FMS), the Treasury bureau that is supervising distribution of the payments. "Any federal debt owed to any federal agency can be offset from the economic stimulus payments," an FMS spokesperson told CCH. "The debt must be due more than 180 days." Concerning VA care, "if the VA tells us to offset an economic stimulus payment, that's what we will do," the spokesperson explained. The IRS had previously announced that individuals may receive less than expected amounts if they owe back taxes, unpaid student loans or child-support obligations (TAXDAY, 2008/05/09, I.6)

  Future Guidance. A Treasury Department spokesperson told CCH on May 29 that a recent White House memorandum about issuing guidance in the last months of the Bush Administration will not apply to the IRS. The White House memorandum, dated May 9, was addressed to the heads of federal agencies and directed them to finalize regulations "in this Administration" no later than November 1, 2008. "Generally, we believe the White House directive does not affect our normal process of issuing business plan guidance," the Treasury Department spokesperson explained.

  Tax cuts. The Treasury Department also released two fact sheets illustrating the benefits of the tax relief enacted over the past seven years (TDNR HP-999, TAXDAY, 2008/05/29, T.1). The first paper, "Topics Related to the President's Tax Relief," analyzes how the 2001 and 2003 tax bills, along with other tax bills passed over the last several years, have allowed Americans to keep more money in their pockets. The second paper, "Tax Relief in 2001 through 2011," analyzes how the tax changes benefited Americans and the consequences if they are not extended.

IRS

  M&A Regulations. The IRS issued final and temporary regulations and proposed amendments concerning the treatment of property used to acquire parent stock in certain triangular reorganizations involving foreign corporations (T.D. 9400,
NPRM REG-136020-07: TAXDAY, 2008/05/28, I.1). The temporary regulations address certain triangular reorganizations involving foreign parties under Notice 2006-85, I.R.B. 2006-41, 677, and Notice 2007-48, I.R.B. 2007-25, 1428. The final regulations clarify that the definition of earnings and profits inReg. §1.367(b)-2(l)(8) applies only for purposes of carryover of earnings and profits and foreign income taxes and for "F" reorganizations.

  Non-shareholder Capital Contributions. The IRS has released a coordinated issue paper (CIP) that addresses the income treatment, the deductibility of tax and the effect on non-shareholder capital contribution issues as related to state and local location tax incentives (CIP; TAXDAY, 2008/05/28, I.5). The IRS noted that state and local location tax incentives are not items of gross income under Code Sec. 61, are not deductible as taxes paid or accrued under Code Sec. 164 and cannot be considered as non-shareholder contribution to capital under Code Sec. 118.

  Professional Responsibility. The IRS Office of Professional Responsibility (OPR) announced that it intends to publish announcements of disciplinary sanctions in a redesigned format that will list specific violations of Treasury Department Circular No. 230 (Announcement 2008-50; TAXDAY, 2008/05/27, I.3). OPR previously published announcements of disciplinary sanctions on a quarterly basis and each announcement was published in five consecutive issues of the Internal Revenue Bulletin (I.R.B.). Future announcements, OPR advised, will be published more frequently and each announcement will be published in one issue of the I.R.B. as well as in the Cumulative Bulletin.

  Exempt Organizations. Judith Kindell, from the IRS Tax Exempt and Government Entities (TE/GE) Division, explained to members of the District of Columbia Bar Association Section of Taxation on May 28 how the Service is handling its current task of carrying out the long-standing ban on partisan political activities by 501(c)(3) organizations (TAXDAY, 2008/05/29, I.5). Kindell stressed that the IRS has been increasing its public education activities to help exempt organizations stay in compliance.

  Benefit Plans. Practitioners acknowledged that the IRS "got it mostly right" at a May 29 hearing on proposed plan funding regulations for single employer defined benefit plans at IRS headquarters in Washington, D.C. (NPRM REG-139236-07, I.R.B. 2008-9, 491; TAXDAY, 2008/05/30, I.6). The regulations broadly address the determination of plan assets and benefit liabilities for funding requirements of these plans.

  In other benefit news, IRS Tax Specialist Robert Architect spoke about Code Sec. 403(b) annuity plans at a District of Columbia Bar Association Section of Taxation event on May 27 (TAXDAY, 2008/05/28, I.7). Architect noted that Rev. Proc. 2007-71, I.R.B. 2007-51, 1184, is the only formal IRS guidance on Code Sec. 403(b) annuity plans since the IRS issued final regulations last year (T.D. 9340, I.R.B. 2007-36, 487). Rev. Proc. 2007-71 illustrates the regulations and provides discretionary model language for
403(b) annuity plans. While the model language in particular is aimed at public colleges and universities, it can also be used by non-school exempt organizations, Architect explained.

  E-File. The Service's strong authentication requirement for Modernized e-File (MeF) stakeholders will be mandatory as of January 2009, Juanita Wueller, senior technical advisor, Electronic Tax Administration, reminded stakeholders on May 29 at the 2008 IRS Software Developers Conference in Alexandria, VA (TAXDAY, 2008/05/30, I.5). Strong authentication is an enhanced certificate-based security mechanism (digital signature technology), which will replace the password in MeF Application-to-Application (A2A) web services. The IRS has advised MeF stakeholders to start testing and using certificates early so they are ready for the change over in 2009.

  By Torie Cole, CCH News Staff

CCH (cch.taxgroup.com) reports:

  The step transaction doctrine may override the treatment of a transaction as a reorganization where a merger of a subsidiary into a target corporation is followed by a liquidation of the target corporation, Treasury attorney-advisor Marc Countryman told practitioners on May 30. Countryman discussed the application of Reg. §1.368-2(k) to this transaction, as described in Rev. Rul. 2008-25, I.R.B. 2008-21, 986 (TAXDAY, 2008/05/09, I.5).

  The first step of the transaction looks like a reorganization. However, applying step transaction principles, Rev. Rul. 2008-25 treats the transaction as a taxable purchase of target stock followed by a Code Sec. 332 liquidation of the target. In this case, reorganization treatment is denied. Furthermore, the transaction is not a qualified stock purchase (QSP) under
Code Sec. 338 because the taxpayer did not elect this treatment. The ruling follows
Rev. Rul. 90-95, 1990-2 CB 67, on the application of step transaction analysis to a QSP.

  Countryman said that Treasury is studying whether there is a place for the Kimbell-Diamond doctrine ( Kimbell-Diamond Milling Co. , 14 TC 74, Dec. 17,454). It is clear that Kimbell-Diamond does not apply to a purchase. He said Treasury would like to issue guidance on a non-QSP.

 
Rev. Rul. 2008-25 considers unrelated parties, Countryman told reporters. There is no guidance, however, on a similar transaction where the parent corporation is related to the target corporation and there is a liquidation. In this case, there is no qualified stock purchase. He said that Treasury is also studying this transaction but no answer has been determined.

  Countryman also discussed a transaction in which a foreign subsidiary merges into a U.S. parent, followed by a transfer of assets to a different foreign controlled corporation. The transaction could be recast as an F reorganization, or the form could be respected. The answer is not clear. If the form is respected, there are potential consequences under the international tax provisions, such as a taxable distribution to the parent.

  Steve Fattman, special counsel to the IRS Associate Chief Counsel (Corporate), explained that CCA Letter Ruling 200818005 (TAXDAY, 2008/05/05, L.3) applies Rev. Rul. 68-602, 1968-2 CB 135. Thus, the cancellation of debt owed by a subsidiary is disregarded as a circular, transitory action and the liquidation of an insolvent subsidiary is not a tax-free liquidation. The ruling's conclusion derives from the preamble to 1999 proposed regulations under Code Sec. 338 that discussed the exact same fact pattern (NPRM REG-107069-97), Fattman commented.

  Countryman and Fattman spoke at a BNA Tax Management Luncheon held at the offices of Buchanan Ingersoll & Rooney in Washington, D.C.

By Brant Goldwyn, CCH News Staff
 

CCH (cch.taxgroup.com) reports:

  The IRS has announced that application packages for the 2009 Tax Counseling for the Elderly (TCE) Program are now available. Applications must be filed by August 2, 2008. The TCE Program offers free tax help to taxpayers who are 60 and older.

  Section 163 of the Revenue Act of 1978 (P.L. 95-600) authorizes the IRS to enter into cooperative agreements with private or public nonprofit agencies or organizations to provide free tax information and return-preparation assistance to the elderly. Such organizations and their volunteers are not return preparers, as defined in Code Sec. 7701.

Notice of Availability of Application Packages for 2009 Tax Counseling for the Elderly (TCE) Program, 2008FED ¶46,449

Other References:

 
Code Sec. 7701

  CCH Reference - 2008FED ¶43,114.20

  Tax Research Consultant

  CCH Reference - TRC IRS: 6,050

Tax Analysts report:

Tax Analysts report: