Tax News

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.