Tax News

CCH (cch.taxgroup.com) reports:

  New York Governor David A Paterson has called on the Legislature to continue working on a property tax cap during a special economic session that will begin on August 19, 2008. The cap would provide relief to homeowners.

Press Release , Office of Governor David A Paterson, July 29, 2008
 

CCH (cch.taxgroup.com) reports:

  A retailer that participated in a private label credit card program with its customers that resulted in uncollectible accounts was not entitled to a bad debt refund of Indiana sales tax. As part of the program, the retailer conveyed information on the daily charges and sales tax to specified finance companies. These companies then remitted payment to the retailer for the charges and taxes and deducted certain service fees. The retailer wrote off these service fees as business expenses on its federal income tax return. In Indiana, a merchant may receive a sales tax refund if it writes off receivables as uncollectible bad debt "for federal tax purposes." However, the retailer was not eligible for the refund because it did not write off the uncollectible credit card accounts under the appropriate section of the Internal Revenue Code.

Home Depot U.S.A., Inc. v. Indiana Department of State Revenue , Indiana Tax Court, No. 49T10-0703-TA-11, July 28, 2008, ¶401-319

  Other References:

  Explanations at ¶61-120

CCH (cch.taxgroup.com) reports:

  President Bush on July 30 signed broad-sweeping housing legislation designed to reduce the growing number of housing foreclosures, assure mortgage finance giants Fannie Mae and Freddie Mac continued access to capital and liquidity and provide tax incentives primarily for homeownership and affordable housing. The Housing and Economic Recovery Act of 2008 (P.L. 110-289) contains a $15.1-billion tax package that is fully offset by a variety of revenue-raisers.

  The tax title, the Housing Assistance Tax Act of 2008, includes a refundable first-time-homebuyer tax credit and an additional standard deduction for real property taxes. The new law also simplifies and increases the low-income housing tax credit, provides a temporary increase in mortgage revenue bonds and treats certain federally guaranteed municipal bonds as tax-exempt bonds.

  The largest revenue offsets in the package require information reporting on merchant payment card transactions and a delay of the worldwide allocation rules. The housing law also sets new limits on the home sale exclusion and accelerates certain corporate estimated tax payments for corporations with at least $1 billion in assets.

  The president on July 23 announced he would sign the bill, reversing an earlier veto threat over a $4 billion community block grant provision (TAXDAY, 2008/07/24, C.1). White House Press Secretary Dana Perino emphasized that the White House still considers the block grants to be a bailout for lenders but recognizes that a prolonged veto battle was not in the best interest of the housing and credit markets.

  "We look forward to put in place new authorities to improve confidence and stability in markets and to provide better oversight for Fannie Mae and Freddie Mac. The Federal Housing Administration will begin to implement new policies intended to keep more deserving American families in their homes," White House Deputy Press Secretary Tony Fratto said.

  House Majority Leader Steny H. Hoyer, D-Md., said the new housing law is the most comprehensive action taken yet to stem the surge of foreclosures facing the nation. He predicted the law will help minimize losses to homeowners and those impacted by the slumping housing market. "Beyond an assistance and stabilization measure, this legislation is a stimulus to boost the economy, which has been badly bruised by the housing crisis and related credit crunch," Hoyer stated.

  The measure has also won support from state housing authorities that are charged with administering benefits under the new law. According to the National Council of State Housing Agencies (NCSHA), a nonprofit organization based in Washington, D.C., the measure will provide new tools to stem home foreclosures, stabilize foreclosure-rocked neighborhoods and finance affordable home mortgages and rental homes.

  The NCSHA is particularly encouraged by the increase in tax-exempt housing bonds and low-income housing tax credits, permanent alternative minimum tax relief for housing bonds and credits, and temporary mortgage revenue bond refinancing authority. "The really tough work lies ahead," noted NCSHA Executive Director Barbara Thompson. She said state housing agencies must now "quickly deploy these new resources in ways that have the greatest impact on some of the toughest housing challenges our country has ever faced."

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

Housing and Economic Recovery Act of 2008, Enrolled, P.L. 110-289

Ways and Means Release: Critical Housing Bill Signed Into Law
 

CCH (cch.taxgroup.com) reports:

  In a case of first impression, the Tax Court properly denied an innocent spouse's request for a refund of community property used to pay tax liabilities attributable to her husband's income because Code Sec. 6015(g) does not preempt state (California) community property law. While the determination whether a spouse qualifies for innocent spouse status is to be made under Code Sec. 6015(a)without regard to community property laws, Code Sec. 6015(g), the refund provision of the innocent spouse relief statute, has no similar language. Legislative history also suggests that Code Sec. 6015(a) was drafted to account for the expanded means of allocating items between spouses to determine eligibility for innocent spouse relief; it was not meant to preempt community property laws with respect to refunds.

  Affirming the Tax Court, 126 TC 47, Dec. 56,412.

L.E. Ordlock, CA-9, 2008-2 USTC ¶50,457

Other References:

 
Code Sec. 6015

  CCH Reference - 2008FED ¶35,192.75

 
Code Sec. 6321

  CCH Reference - 2008FED ¶38,136.54

  Tax Research Consultant

  CCH Reference - TRC IRS: 33,102.05

CCH (cch.taxgroup.com) reports:

  Amendments to Regs. §26.2642-6 and 26.2654-1, relating to the severance of a trust for generation-skipping transfer (GST) tax purposes, have been adopted. The final regulations under Code Sec. 2642 permit the trusts resulting from a qualified severance to be funded on a non-pro rata basis. However, if the funding is done on a non-pro rata basis, each asset received by a resulting trust must be valued by multiplying the fair market value of the asset held in the original trust as of the date of the severance by the fraction or percentage of that asset received by that resulting trust. Accordingly, the assets are valued without taking into account any discount or premium arising from the severance.

  The final regulations also permit a qualified severance of a trust with an inclusion ratio between zero and one into more than two resulting trusts, provided that certain requirements are satisfied. Trusts resulting from a severance that does not meet the requirements of a qualified severance will be treated as separate trusts for purposes of the GST tax, provided that the resulting trusts are recognized as separate trusts under applicable state law. However, each such resulting trust will have the same inclusion ratio as that of the original trust. In the case of a mandatory severance, the final regulations under Code Sec. 2654 provide that each resulting trust will be treated as a separate trust for GST tax purposes if the resulting trust is recognized as a separate trust under applicable state law. Each trust resulting from such a mandatory severance will have the same inclusion ratio as that of the original trust. The final regulations are effective July 31, 2008.

T.D. 9421, FINH ¶43,122

  [Document will be available on August 1, 2008. --CCH.]

Other References:

 
Code Sec. 2642

  CCH Reference - FINH ¶12,860

 
Code Sec. 2654

  CCH Reference - FINH ¶13,115

  Tax Research Consultant

  CCH Reference - TRC ESTGIFT: 57,054.05
CCH Reference - TRC ESTGIFT: 57,054.20
 

CCH (cch.taxgroup.com) reports:

  The IRS has issued final regulations providing guidance regarding the mortality tables to be used in determining present value or making any computation for purposes of applying certain pension funding requirements. The regulations provide generally applicable mortality tables, and rules for adopting substitute tables. The regulations governing the generally applicable mortality tables for single employer defined benefit pension plans, and the regulations providing for the use of those mortality tables for multiemployer defined benefit pension plans, apply to plan years beginning on or after January 1, 2008. The regulations regarding the approval and use of substitute mortality tables for single employer defined benefit pension plans apply to plan years beginning on or after January 1, 2009.

Background

  The Pension Protection Act of 2006 (PPA) (P.L. 109-280), revised the minimum funding requirements for defined benefit pension plans for plan years beginning on or after January 1, 2008. The PPA added Code Sec. 430, which specifies the minimum funding requirements that apply to defined benefit plans that are not multiemployer plans, and Code Sec. 431, which specifies minimum funding requirements for multiemployer plans. Code Sec. 430(h)(3) requires the IRS to provide mortality tables by regulation for these, and it provides rules for a plan's use of substitute mortality tables.

Generally Applicable Mortality Tables

  The final regulations set forth the IRS's methodology in establishing mortality tables to be used for participants and beneficiaries to determine present value or make any computation regarding the minimum funding standards for single-employer defined benefit plans under the changes made by the PPA. These mortality tables also apply for purposes of determining the current liability of a multiemployer plan and for determining the current liability of a plan for which the application of the PPA changes is delayed. Under the final regulations, mortality tables for disabled individuals is to be provided in separate guidance published by the IRS (Notice 2008-29, I.R.B. 2008-12, 637, is the latest pronouncement).

  The mortality tables are based on the RP-2000 Mortality Tables Report. The tables are gender-distinct since women live longer. The regulations use separate annuitant and nonannuitant tables because early retirees tend to be less healthy and do not live as long. The regulations reflect the effect of expected improvements in mortality.

Substitute Tables

  The final regulations provide for the use of substitute mortality tables upon written request of the plan sponsor and approval by the IRS. Substitute mortality tables must reflect the actual mortality experience of the pension plan for which the tables are to be used, and that mortality experience must be credible. Separate mortality tables must be established for each gender, and a substitute mortality table is allowed to be established for a gender only if the plan has credible mortality experience with respect to that gender.

  Credible mortality experience for a gender must be based on at least 1,000 deaths within that gender in the period covered by the experience study. One change in the final regulations from the proposed regulations is an increase in the maximum permissible time for an experience study from four years to five to help plans that have trouble coming up with 1,000 deaths. The IRS indicates that it may increase the maximum period in the future by published guidance.

T.D. 9419, 2008FED ¶47,055

Other References:

 
Code Sec. 430

  CCH Reference - 2008FED ¶20,154

  CCH Reference - 2008FED ¶20,155

 
Code Sec. 431

  CCH Reference - 2008FED ¶20,174

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 30,556

CCH (cch.taxgroup.com) reports:

  The Senate on July 30 failed to approve a motion to proceed to the Jobs, Energy, Families, and Disaster Relief Bill of 2008 (Sen 3335), sending the package of tax extenders to defeat for a second day in a row and most likely leaving until September the next opportunity to revisit the bill. The legislation in its current form would provide $18 billion in tax breaks for alternative and renewable energy, in addition to business tax incentives, protection from the alternative minimum tax, and extension of the college tuition tax deduction and state and local sales tax deduction.

  The Senate failed to end debate on the motion to call up the bill by a 51-43 margin, nine short of the 60 votes needed; however, Senate Majority Leader Harry Reid, D-Nev., said he would keep open the motion to proceed to the bill. Most Senate Republicans support the tax breaks but oppose the use of revenue-raisers to pay for them. GOP leaders have suggested they would consider offsetting some of the new tax breaks and other provisions included in the legislation in exchange for making many of them permanent.

  Further complicating passage is a standoff between leaders of both parties over provisions in energy legislation that would curb the practice of oil speculation (Sen 3268). Reid had linked approval of the extenders legislation to acceding to Republican demands to offer amendments to Sen 3268 allowing offshore drilling, oil shale development and increased use of nuclear energy. Reid said that Senate Republicans knew full-well that blocking the extenders bill would put an end to any agreement to deal with other energy amendments but "they did it anyway."

  Senate Finance Committee Chairman Max Baucus, D-Mont., who authored the bill, said the Senate missed a "huge opportunity" and members will have to face the wrath of angry constituents during the August recess. "We're going to hear from folks who can't afford a heavy hit on their taxes from the alternative minimum tax or from the expiration of other family tax cuts that are running out right now," said Baucus. "I hope senators will answer the call in September, and work together for jobs, energy, and American families."

  By Jeff Carlson, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Spousal support payments that an individual received from her former husband pursuant to a divorce decree were alimony and were includible in her income in the year received. The taxpayer failed to establish that: (1) the divorce decree designated each of the monthly payments at issue as a payment that is not includible in gross income under Code Sec. 71(a) and not allowable as a deduction under Code Sec. 215; (2) she and her former husband were members of the same household at the time the monthly payments were made; or (3) the divorce degree provided that her former husband was obligated to make any spousal support payments after the taxpayer's death. Under state (Ohio) law, any award of support payments will terminate automatically upon the death of either party unless the order expressly provides otherwise.

  The taxpayer was liable for the Code Sec. 6662 underpayment penalty because she failed to show that she had reasonable cause for not including the payments in her income or that she acted in good faith with respect to the underpayment. Her claimed belief that the term "alimony" related to child support or that an amount paid as spousal support was not includible in gross income was without a reasonable basis.

K.J. Reid, TC Memo 2008-177, Dec. 57,498(M)

Other References:

 
Code Sec. 71

  CCH Reference - 2008FED ¶6094.265

  CCH Reference - 2008FED ¶6094.38

 
Code Sec. 6662

  CCH Reference - 2008FED ¶39,651G.305

  Tax Research Consultant

  CCH Reference - TRC INDIV: 21,200 CCH Reference - TRC PENALTY: 3,106.10

CCH (cch.taxgroup.com) reports:

  "More than 1 million businesses are cheating on their payroll taxes to the tune of $58 billion," reported Sen. Norm Coleman, R-Minn., ranking member of the Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations. The July 29 subcommittee hearing coincided with the release of a related Government Accountability Office (GAO ) report, "Tax Compliance --Businesses Owe Billions in Federal Payroll Taxes (GAO-08-617).". The subcommittee examined the magnitude of unpaid payroll taxes by businesses and the IRS's collection enforcement methods for unpaid payroll taxes.

GAO Analysis

  The GAO study revealed that, as of September 30, 2007, over 1.6 million businesses owed more than $58 billion in unpaid payroll taxes. The study also indicated that more than 70 percent of all unpaid payroll taxes are owed by businesses with more than four quarters of unpaid federal payroll taxes. Additionally, more than 25 percent are owed by businesses that have tax debts for more than 12 quarters, according to the GAO.

Lien Filings

  According to the GAO study, approximately $9 billion (of the $58 billion in unpaid payroll taxes) was in a queue awaiting assignment for collection action. Over 80 percent of payroll tax cases (as of September 2007) in the queue awaiting assignment did not have a lien filed. When a lien is not filed, the federal government's interest in the property of the tax debtor is not protected, Coleman noted.

  IRS Deputy Commissioner Linda Stiff admitted that the "queue is a weakness in the system."" "We have to identify actions so that taxes can be assessed and liens can be filed." Stiff told the subcommittee that she is working with the Service-Wide Employment Tax Advisory Council collections task force on how the IRS should handle the cases in the queue. Subcommittee Chairman Carl Levin, D-Mich., questioned whether there was any reason a lien should not be automatically filed in such situations. Stiff agreed that, under certain circumstances, a lien should be automatically filed.

Criminal Prosecution

  Voluntary compliance is not working, according to Sen. Claire McCaskill, D-Mo., based on her review of several studies on payroll abuse. "Individuals are purposely engaging in criminal activity because they know they can get away with it. If an individual has received notice after notice and still refuses to comply with the tax laws, I don't see why we need to a task force to tell us that." McCaskill emphasized the need for the IRS to focus on criminal prosecution for repeat offenders.

  Steven Sebastian, director, Financial Management and Assurance, GAO, testified that revenue officers have indicated that the IRS and the Department of Justice are reluctant to prosecute such cases in the criminal arena because prosecution is too laborious. Sebastian added that, in all of the studies he has participated in over the last few years, he continues to see repeat offenders flagrantly disregard the tax laws. Stiff agreed that individuals should be criminally prosecuted when warranted.

  By Chandra Walker, CCH News Staff

Opening Hearing Statement of Chairman Levin

Opening Hearing Statement of Ranking Member Coleman

Written Testimony of IRS Deputy Commissioner Stiff

GAO Report: Tax Compliance --Businesses Owe Billions in Federal Payroll Taxes (GAO-08-617)

GAO Testimony: Tax Compliance --Businesses Owe Billions in Federal Payroll Taxes (GAO-08-1034T)

CCH (cch.taxgroup.com) reports:

  The Senate on July 29 voted again on a motion to proceed to a House-approved tax extenders bill, the Energy and Tax Extenders Bill of 2008 (HR 6049), but the motion did not garner the necessary two-thirds majority and failed 53-43; the previous vote to proceed to the House bill, on June 17, failed as well (TAXDAY, 2008/06/18, C.1). The vote was an attempt to avoid procedural issues by moving first to a House vehicle that could be amended with Senate language --as, by law, tax bills must originate in the House.

  The Senate plans to proceed to the Jobs, Energy, Families, and Disaster Relief Bill of 2008 (Sen 3335) offered by Senate Finance Committee Chairman Max Baucus, D-Mont., on July 30. That bill does not offset the cost of a one-year patch for the alternative minimum tax, an issue that has led many Republicans to vote against the House extenders package, which is fully paid for. The Baucus measure also includes temporary, rather than permanent, offsets for temporary extensions of tax cuts and omits controversial provisions that have drawn objections from Republicans. The Senate can comply with procedural requirements for tax legislation by passing the Baucus bill, and then replacing the text of a House bill with the same language.

  The vote on extenders legislation came about as Senate Democratic and Republican leaders sparred over procedural moves on energy legislation that would curb the practice of oil speculation (Sen 3268). As both parties jockey for voter approval on addressing rising fuel costs, Senate Majority Leader Harry Reid, D-Nev., linked approval of the extenders legislation, which contains approximately $17 billion in renewable energy-related tax breaks, with Republican demands to offer amendments to Sen 3268 allowing oil drilling in U.S. coastal waters. Democrats are adamantly opposed to such action. "This is the third time this year Republicans have said no to creating incentives for innovators to invest in alternative energy sources, which would also create good-paying jobs here at home and begin to break our dependence on oil and move the nation toward clean, affordable and renewable fuels," said Reid following the vote.

  Earlier in the day, Baucus spoke to reporters at a press conference ostensibly promoting renewable energy, but the forum served more as a soapbox to promote his extenders package. "Americans want Congress to steer this country toward alternative and renewable energies," Baucus said. "With gas at $4 a gallon, why on earth would we wait another minute to start boosting the new energy technologies promoted in this tax relief bill?"

  The House measure (HR 6049) would also extend a group of expiring business and family tax provisions and provide a host of tax incentives to increase the production of renewable energy. House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., had tried to portray his extenders bill, which was approved by the House on May 21, as a significant step toward reducing American dependence on foreign oil, but GOP lawmakers were more intent on adding provisions that would repeal the alternative minimum tax and extend the Bush tax cuts passed in 2001 and 2003. At the time, Rangel criticized the provisions because they were not offset by spending cuts or tax increases, saying they would add to the federal budget deficit.

  By Jeff Carlson, CCH News Staff

SFC Release: Baucus Statement on Sen 3335, the Jobs, Energy, Families, and Disaster Relief Act of 2008

SFC Release: Democratic Senators, Energy Expert Discuss Efforts to Increase Investments in Alternative and Renewable Energy, Conservation
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Property values determined for property tax purposes using the factoring valuation method, which required the use of unconstitutional values from the prior year, were necessarily unjust and inequitable, according to an en banc decision of the Nevada Supreme Court. The district court decision to void the 2004-2005 assessments was affirmed and a refund was granted.

CCH (cch.taxgroup.com) reports:

  An unemployed electrical engineer was prohibited from claiming deductions for expenses related to attending a week-long course to improve his day-trading activities, as well as travel expenses to attend the course. Code Sec. 274(h)(7) disallows any deduction for expenses of attending a convention, seminar or similar meeting if the expenses are unconnected with a trade or business. The taxpayer conceded that he was not in the trade or business of being a day trader.

C.H. Jones III, 131 T.C. No. 3, Dec. 57,496

Other References:

 
Code Sec. 274

  CCH Reference - 2008FED ¶14,408A.70

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 12,154.45

CCH (cch.taxgroup.com) reports:

  The IRS has released final regulations regarding the conversion of annuity contracts from non-Roth individual retirement accounts (IRAs) to Roth IRAs under Code Sec. 408A. The final regulations generally follow temporary and proposed regulations released in 2005, but with minor amendments made in response to comments received regarding the regulation.

  The major difference between a traditional, or non-Roth, IRA and a Roth IRA is that a traditional IRA allows for a deduction from income of the contributed amount, allowing for a pre-tax contribution, whereas a Roth IRA allows only after-tax contributions. Consequently, distributions from traditional IRAs are taxed while distributions from Roth IRAs are tax-free. The original final regulations released in 1999 provided guidance, in question-and-answer format, on the conversion of a traditional IRA to a Roth IRA, which requires the inclusion in income of the amount converted because the original contribution to the traditional IRA was a pre-tax contribution.

  Temporary and proposed amendments to Reg. §1.408A-4 released in 2005 provided additional guidance relating to the valuation of traditional individual retirement annuity contracts for purposes of conversion to a Roth IRA. In response to these temporary and proposed amendments, several comments were submitted regarding the proper valuation of the annuities and the methodology used in determining the valuation, and the IRS issued interim guidance in Rev. Proc. 2006-13, 2006-1 CB 315, in response. The commentators' suggestions and the interim guidance from Rev. Proc. 2006-13 have been incorporated into these final regulations.

  The final regulations provide guidance for circumstances in which a conversion is effected by the complete surrender of the annuity, without the transfer or retention of rights, in exchange for its cash value. In those circumstances, the surrendered cash value, which is made up of the proceeds to be contributed to the Roth IRA, is the amount of taxable income, not the fair market value of the annuity as provided under the temporary and proposed regulations.

  The other amendment provided in the final regulations relates to the methodology used to determine the fair market value of the annuity. Under the temporary and proposed regulations, the method of determining the fair market value of an annuity was similar to that found in gift tax regulations and was based upon comparable contracts issued by the same company at or around the same time. However, commentators suggested that the terms used in this guidance were unclear. In response, the final regulations provide for three different methods of determining the fair market value of the annuities. The first is the gift tax method based upon comparable contracts. The second applies where there is no comparable contract, and establishes fair market value through an approximation based upon the interpolated terminal reserve at the date of conversion, plus the proportionate part of the premium paid before conversion covering a period after the date of conversion. A third method is provided and is based on guidance in
Rev. Proc. 2006-13, and establishes the fair market value through a method that uses the accumulation of premiums, similar to a valuation method provided for qualified pension plans under Reg. §1.401(a)(9)-6.

  The final regulations apply to any Roth IRA conversion where an annuity contract is distributed or treated as distributed from a traditional IRA on or after August 19, 2005. However, the valuation methods in the temporary regulations or in Rev. Proc. 2006-13 can be used for annuity contracts distributed or treated as distributed from a traditional IRA on or before December 31, 2008.

T.D. 9418, 2008FED ¶47,054

Other References:

 
Code Sec. 408A

  CCH Reference - 2008FED ¶18,927B

  Tax Research Consultant

CCH (cch.taxgroup.com) reports:

  The IRS has adopted previously issued proposed regulations (REG-128274-03, published in the Federal Register on June 19, 2007) that amend the current low-income housing credit utility allowance regulations to provide new options for estimating utility allowance costs.

  In order to qualify as a rent-restricted unit the gross rent for a unit in a low-income housing project may not exceed 30 percent of the imputed income limitation applicable to the unit (Code Sec. 42(g)(2)). When utility costs are paid directly by the tenant, a utility allowance is added to the gross rent for that unit (Code Sec. 42(g)(2)((ii)).

Proposed Regulations

  The proposed regulations included two additional options for calculating utility allowances. The first new option allowed the building owner to obtain a utility estimate from the Agency with jurisdiction over the building. The second new method allowed the building owner to use the Housing and Urban Development (HUD) Utility Schedule Model. The final regulations retain these two proposed calculation methods and add a third option --the energy consumption model.

Calculation Method Added

  The utility allowance under the energy consumption model is calculated by a licensed engineer or Agency-approved professional using computer software that takes into account specific factors, including unit size, building orientation, design and materials, mechanical systems, appliances and characteristics of the building location.

  The final regulations do not prohibit using different calculation options for different types of utilities nor prohibit changing the method used to make a computation for a particular utility.

  A building owner is required to compute a new utility allowance once each calendar year. More frequent computation is permissible. In the case of a new building, a building owner is not required to review the utility allowances or implement new utility allowances, until the earlier of the date the building has achieved 90-percent occupancy for a period of 90 consecutive days or the end of the first-year of the 10-year credit period.

  In order to give tenants an opportunity to comment on a proposed allowance, a building owner must make the proposed utility allowances available to all tenants in the building at the beginning of the 90-day period before the utility allowances are used in determining the gross rents of rent-restricted units.

  The final regulations also exclude internet and cable television costs form the computation of the utility allowance. The current regulations only exclude telephone costs.

T.D. 9420, 2008FED ¶47,053

Other References:

 
Code Sec. 42

  CCH Reference - 2008FED ¶4384G

  CCH Reference - 2008FED ¶4384I

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 54,214.10

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Ohio Department of Taxation has issued a new information release explaining that there is no voluntary disclosure program for the commercial activity tax (CAT) because, due to the relative newness of the tax, all issues of noncompliance are within the statute of limitations for assessment. However, under current department policy, penalties will be waived for taxpayers that come forward to register, file, and pay the CAT, provided that the taxpayer was not previously contacted by the department through any audit or compliance, and that the taxpayer is not under investigation by the department's enforcement division.

  Interest is still due on delinquent accounts, and taxpayers liable for the CAT are encouraged to immediately register, file all outstanding returns, and pay any liability and interest due. Specific information regarding registration and filing is found within the release which can be viewed on the department's Web site, at
http://tax.ohio.gov/divisions/communications/information_releases/cat_2008_01.stm.

CAT Information Release 2008-01, Ohio Department of Taxation, July 25, 2008.
 

CCH (cch.taxgroup.com) reports:

  The Maryland Comptroller's Office has announced that new reporting requirements are being imposed on certain multistate corporations and manufacturers, to provide the new Maryland Business Tax Reform Commission with the necessary information to review and evaluate the state's current business tax structure and make specific recommendations for changes for corporate income tax purposes. The new reporting requirements apply to all taxable years beginning after December 31, 2005, and reports are to be filed on or before dates specified by the Comptroller.

  Manufacturing corporations that have more than 25 employees and apportion their income under the single sales factor are required to file an information report (500MC) with the Comptroller's office. The 500MC forms for 2006 and 2007 are now available on the business forms page of the Comptroller's Web site. Additionally, except as provided in regulations that the Comptroller adopts, the reports required for a taxable year beginning before January 1, 2007, must be submitted as part of the corporation's tax return for the next taxable year beginning after December 31, 2006. The information report must be submitted in an electronic format specified by the Comptroller. The Comptroller's office will post regulations shortly on due dates, format, and other issues for multistate corporations subject to the new reporting requirements. The press release is available on the Comptroller's Web site at
http://business.marylandtaxes.com/taxinfo/requirements.asp.

Press Release, Maryland Office of the Comptroller, July 25, 2008.
 

CCH (cch.taxgroup.com) reports:

  The House and Senate approved housing legislation after the White House lifted a veto threat. White House Press Secretary Dana Perino stressed that the president would not have supported the measure if there were more time left for negotiations before the start of the congressional recess in early August. The IRS, meanwhile, issued regulations dealing with the averaging of farm and fishing income when computing income tax liability and reminded qualifying retirees and veterans that it is not too late to file for an economic stimulus payment.

Congress

  The Senate on July 25 approved a final procedural motion on housing legislation (HR 3221) by a vote of 80 to 13, paving the way for a final vote and approval of the legislation on July 26 (TAXDAY, 2008/07/28, C.1). On July 26 the Senate approved by a 72 to 13 vote the massive housing bill, the Housing and Economic Recovery Act of 2008), that contains a package of $15.1 billion in housing tax provisions.

  The bill moved forward, passing the House on July 23 (TAXDAY, 2008/07/24, C.1), after President Bush dropped his veto threat, even though the $4 billion community block grant provision remained in the bill. Senior administration officials had recommended a veto because they regarded the provision as a bailout to lenders. However, Perino noted that the legislation needed to be enacted without further delay to increase confidence and stability in the housing and financial markets.

  Perino down played the significance of a Congressional Budget Office estimate that the bill would cost $25 billion if it included a provision giving the Treasury Department temporary authority to assure Fannie Mae and Freddie Mac continued access to capital and liquidity. The administration does not expect this authority will be needed, but taxpayer protections are in place if the plan were ever implemented, Perino maintained.

  Senate Finance Committee. Senate Finance Committee (SFC) Chairman Max Baucus, D-Mont. on July 24 held a hearing on the findings of a Government Accountability Office (GAO) investigation of Ugland House, a building in the Cayman Islands that is the registered office of over 15,000 companies (TAXDAY, 2008/07/25, C.1). Baucus said the problem might require financial firms to file information reports to the IRS when they facilitate transfers of client funds offshore, as a method of enabling the IRS to better track tax evaders by matching that report with filed returns. On July 22, the SFC held a hearing on Indian tax issues where witnesses called on the federal government to enhance Indian tax policy already in place; specifically tax-exempt bonds, accelerated depreciation and the Indian Employment Tax Credit.

  SFC ranking member Charles E. Grassley, R-Iowa, and several Midwestern senators on July 23 introduced a comprehensive plan to provide $3.96 billion in federal tax relief to flood, tornado and severe storm victims in the Midwest. The Midwestern Disaster Tax Relief Bill of 2008 (Sen 3322) is modeled after tax legislation that Congress passed to help victims of Hurricanes Katrina, Rita and Wilma in 2005 and the tornado in Kiowa County, Kansas in 2007. A companion bill was also introduced in the House.

White House

  Amid the current turmoil in the housing and financial sectors, the Office of Management and Budget (OM on July 28 will release the administration's latest economic forecast. The OMB report will show any changes in federal deficit projections, the annual rates of economic growth, unemployment and inflation, among other economic indicators since its February estimate.

IRS

  Farm and Fishing Income Averaging. The IRS and Treasury issued final, proposed and temporary regulations under Code Sec. 1301 dealing with the averaging of farm and fishing income when computing income tax liability (T.D. 9417,
NPRM REG-161695-04; TAXDAY, 2008/07/22, I.1). The regulations reflect changes to the law made by the American Jobs Creation Act of 2004 (P.L. 108-357) and provide guidance to individuals engaged in a farming or fishing businesses who elect to reduce their liability by treating all or a portion of the current tax year's farm or fishing income as if one-third of it had been earned in each of the prior three tax years. The temporary regulations generally apply to tax years beginning after July 22, 2008. However, taxpayers may use the temporary regulations in taxable years beginning after December 31, 2003, if consistently applied.

  Bonus Depreciation for Kansas Disaster Area. The IRS has issued procedures for claiming the 50 percent Kansas additional first-year depreciation provided by the Food, Conservation, and Energy Act of 2008 (P.L. 110-246) for qualified recovery assistance property (RA property) placed in service by the taxpayer on or after May 5, 2007 (Notice 2008-67; TAXDAY, 2008/07/24, I.4). The guidance also explains how a taxpayer may elect not to deduct the additional first-year depreciation for Kansas RA property.

  Stimulus Payment Information. The IRS reminded qualifying retirees and veterans that it is not too late to obtain an economic stimulus payment by filing a 2007 tax return (IR-2008-91; TAXDAY, 2008/07/22, I.4). The IRS will send a second set of information packets to 5.2 million people who may be eligible to receive a stimulus payment, but who have not yet filed. The packages will contain instructions, an example Form 1040A return showing the few lines that need to be completed and a blank Form 1040A. The packages will be mailed over a three-week period starting July 21.

  Offshore Tax Evasion. Frank Ng, the IRS commissioner of Large and Mid-Size Businesses, testified July 24 at the Senate Finance Committee hearing on tax evasion in the Cayman Islands (TAXDAY, 2008/07/25, C.1). Ng reported that over 9,000 Cayman Island entities are associated with U.S. firms, and over 900 are wholly owned U.S. companies. In 2005, the IRS received 5,500 tax returns from Cayman Island corporations reporting gross receipts of $162 billion. The IRS is attempting to deter offshore tax evasion by improving the qualified intermediary program, international cooperation, criminal investigations of U.S. taxpayers for offshore tax evasion, and the use of John Doe summonses. The Cayman Islands have cooperated with U.S. investigations, but the IRS has been hampered by its inability to identify specific individuals and activities for information requests. Ng asked Congress to strengthen penalties for foreign trust reporting, increase the three-year statute of limitations, and continue to support tax treaty information exchange agreements.

  By Jeff Carlson, Paula Cruickshank, Brant Goldwyn and George Jones, CCH News Staff.

CCH (cch.taxgroup.com) reports:

  Senate Finance Committee Chairman Max Baucus, D-Mont., on July 24 introduced the Jobs, Energy, Families and Disaster Relief Bill of 2008 (Sen 3335), a revised $123 billion tax extender bill, in hopes of wooing recalcitrant Republicans when the Senate attempts once again to move the legislation late in the week beginning July 28. Baucus dropped some controversial provisions and added a few sweeteners to boost chances of reaching the 60-vote majority necessary to move the legislation.

  Baucus added a $3.9 billion provision to create parity in mental health benefits, a cause long championed by two Republican senators who had previously voted against earlier versions of the extenders package. Another new provision, aimed at wooing Republicans from Midwestern states hard hit by early summer storms, would provide $ 4 billion in tax incentives to help those states recover and rebuild. In addition, Baucus dropped a controversial provision opposed by a majority of Republicans that would have provided a $1.5 billion tax break for trial lawyers.

  A new revenue-raising provision that creates mandatory basis reporting by brokers for transactions involving publicly traded securities such as stock, debt, commodities, derivatives and other items as specified by the Treasury, was also included. All of the provisions in the measure are offset, with the exception of a one-year patch for the alternative minimum tax (AMT). "Senators who support good-paying jobs, new energy solutions and America's working families must vote to pass this legislation before Congress heads home," said Baucus.

  Sen 3335 builds on the Energy Independence and Tax Relief Bill of 2008 (Sen 3125) that Baucus unveiled in June. He noted that the Senate bill text can replace the text of House tax legislation to comply with procedural rules. In addition to the original legislation, which provides another year of relief from the AMT, the measure replenishes the Highway Trust Fund to enable infrastructure repair and provides some new incentives for alternative energy and business and individual tax relief. The bill also extends tax incentives that expired at the end of 2007 or are set to expire at the end of 2008, such as the research and development tax credit, college tuition deduction and the state and local sales tax deduction.

  Senate Republican leaders qualified the revised legislation as inching nearer to something they might endorse, but stopped short of saying they were in agreement, primarily because of offsets for the renewal of tax breaks already in place. House budget hawks still insist that all tax breaks must be paid for, leaving another major hurdle before extenders legislation can be signed into law in 2008.

  By Jeff Carlson, CCH News Staff

Jobs, Energy, Families and Disaster Relief Act of 2008, Sen 3335 [Document will be available on July 29. --CCH.]

SFC Release: Baucus Updates Tax Relief Bill for Jobs, Energy, Families

SFC Staff Summary of the Jobs, Energy, Families and Disaster Relief Act of 2008

SFC Estimated Budget Effects of the Jobs, Energy, Families, and Disaster Relief Act of 2008 [Document will be available on July 29. --CCH.]
 

CCH (cch.taxgroup.com) reports:

  The Senate, on July 26, passed the Foreclosure Prevention Act of 2008 (HR 3221) by a vote of 72 to 13. The comprehensive housing legislation contains a $15.1 billion tax package, the Housing Assistance Tax Act of 2008, that is fully offset. President Bush indicated that he will sign the measure into law.

  The major revenue offset for the tax package, which is fully paid for, would require credit card information return reporting by merchants that would raise $9.082 billion. It would delay the implementation of worldwide allocation of interest rules and raise $7.322 billion. Part of that revenue would cover some of the cost of the $3.9 billion Community Development Block Grant program The bill would also raises $1.394 billion by modifying the exclusion of gains on the sale of a principal residence.

  The tax incentives include a refundable first-time home buyer credit estimated to cost $4.853 billion over 10 years, an additional standard deduction for real property taxes that would cost $1.537 billion, and a plan to simplify and increase the low income housing tax credit program and the tax exempt bond program at a cost of $1.946 billion. The measure also provides a temporary increase in mortgage revenue bonds ($1.475 billion), alternative minimum tax relief for housing programs ($2.093 billion), and treats certain federally guaranteed municipal bonds as tax exempt bonds ($126 million).

  In addition, the legislation would protect Social Security numbers in real estate transactions ($20 million), encourage the rehabilitation of government-leased buildings ($96 million), and reform rules for real estate investment trusts ($359 million). The package also includes a plan to expand the Gulf Opportunity Zone tax incentives ($1.333 billion) and allow taxpayers to accelerate the recognition of historic alternative minimum tax and research and development credits ($966 million).

  "This is an enormous win for millions of American families facing foreclosure and for our housing sector at the core of this economic downturn, "said Senate Finance Committee Chairman Max Baucus, D-Mont., following the vote. "It took ingenuity and great cooperation, and today I'm pleased to say that we passed a bill that will bring property tax relief to tens of millions of homeowners, help refinance subprime loans, and reduce the number of vacant homes on the market, "said Baucus.

  By Jeff Carlson, CCH News Staff

SFC Release: Summary of HR 3221, Housing Assistance Tax Act of 2008

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The California Franchise Tax Board (FT is hosting an interested parties meeting to discuss a proposed 2008 California Schedule M-3 for corporations, partnerships, and limited liability companies. The FTB will have a link to the draft schedule and instructions available on its Web site at
http://www.ftb.ca.gov/ by August 1, 2008, for review and comment.

  The meeting will be held at the FTB in the Golden State Rooms A and B at 9646 Butterfield Way, Sacramento, California. People interested in attending the meeting should contact Penny Celiz at (916) 845-6964 or Penny.Celiz @ftb.ca.gov by August 6, 2008. To participate by telephone dial in at (877) 923-3149 and use the participant code 2233420.

  Subscribers to the CCH Tax Research NetWork can view the announcement.

Announcement , California Franchise Tax Board, August 24, 2008.
 

CCH (cch.taxgroup.com) reports:

  A petition seeking redetermination of a couple's tax deficiency was dismissed for lack of jurisdiction because it was filed after the 90-day filing period had elapsed. The envelope containing the taxpayers' petition was postmarked four days after the end of the filing period. Furthermore, the petitioners had altered the copy of the notice of deficiency that was attached to the petition as an exhibit by changing the date of issuance and the stated "Last Date to Petition Tax Court "so that it appeared that the petition was timely filed. The IRS pointed out the alteration in its motion to dismiss, and the taxpayers did not address the issue despite multiple invitations and orders from the court. A $1,500 penalty was imposed under Code Sec. 6673(a) because merely dismissing the petition would have reward the taxpayers' dishonesty by allowing them to delay payment during the course of the proceedings without penalty.

C. Samaniego, TC Memo 2008-175, Dec. 57,495(M)

Other References:

 
Code Sec. 6213

  CCH Reference - 2008FED ¶37,549.355

 
Code Sec. 6673

  CCH Reference - 2008FED ¶39,790.22

  Tax Research Consultant

  CCH Reference - TRC LITIG: 6,200
CCH Reference -
TRC LITIG: 6,816
 

CCH (cch.taxgroup.com) reports:

  Senate Finance Committee Chairman Max Baucus, D-Mont., on July 24 pushed a panel of witnesses on the findings of a Government Accountability Office (GAO) investigation of the Ugland House, a tax haven in the Cayman Islands. Baucus said the problem might require financial firms to file information reports to the IRS when they facilitate transfers of client funds offshore as a method of enabling the IRS to better track tax evaders by matching that report with filed returns. "I think requiring individuals and companies to be more forthcoming about their offshore holdings in places like the Caymans will go a long way, "said Baucus.

  The Finance Committee also sought input on six legislative recommendations, including modifying the rules for the Foreign Bank Account Report (FBAR), which facilitates information collection by the IRS. The proposals would reinforce the role of the IRS in levying penalties against individuals who fail to file an FBAR, increase the statute of limitations for FBAR violations, require that FBARs be filed with tax returns and strengthen rules on the disclosure of the identity of individuals who make money from offshore financial transactions. Witnesses agreed that the proposals would make strides in beginning to solve the problem of offshore tax evasion.

  Other recommendations from the witnesses included revising current IRS Form W-8 procedures, which allow US taxpayers to hide behind foreign shell corporations to protect individual identities, to require foreign companies to prove they are an active trade or business.

  By Jeff Carlson, CCH News Staff

SFC Release: Hearing Statement of Senator Max Baucus (D-Mont.) Regarding The Cayman Islands and Offshore Tax Issues

SFC Release: Baucus Tackles Tax Evasion In Hearing On Cayman Islands' Ugland House

JCT Selected Issues Relating to Tax Compliance with Respect to Offshore Accounts and Entities, JCX-65-08

GAO Report: Cayman Islands --Business and Tax Advantages Attract U.S. Persons and Enforcement Challenges Exist (GAO-08-778)

GAO E-Supplement: Cayman Islands --Review of Cayman Islands and U.S. Laws Applicable to U.S. Persons' Financial Activity in the Cayman Islands, (GAO-08-1028SP)

GAO Testimony: Cayman Islands --Business Advantages and Tax Minimization Attract U.S. Persons and Enforcement Challenges Exist (08-779T)

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Massachusetts Senate and House of Representatives have passed legislation that would authorize a sales tax holiday from August 16-17, 2008. Sales tax would not apply to non-business retail sales of tangible personal property with a price of up to $2,500 per item. The tax holiday would not apply to sales of telecommunications, tobacco products, gas, steam, electricity, motor vehicles, motorboats, or meals.

H.B. 4995, as passed by the Massachusetts Senate and House of Representatives on July 22, 2008.
 

CCH (cch.taxgroup.com) reports:

  Equalizing the preparer and taxpayer penalty standards at substantial authority for undisclosed nonabusive return positions is the "top legislative priority" for the American Institute of Certified Public Accountants (AICPA), Barry C. Melancon, president and CEO of the 350,000 member organization, told CCH on July 23. However, AICPA supported legislation (the Renewable Energy and Job Creation Bill of 2008 (HR 6049)) appears stalled in the Senate. Melancon also called for the banning of tax strategy patents and greater certainty and stability in the Tax Code. Melancon spoke to reporters at the accounting/tax press in Washington, D.C.

Different Standards

  The AICPA has been working to equalize the preparer and taxpayer standards since Congress passed the Small Business and Work Opportunity Tax Act of 2007 (2007 Small Business Tax Act) (P.L. 110-28). The
2007 Small Business Tax Act replaced the old "realistic possibility of success" standard for undisclosed nonabusive positions with a reasonable belief that the position would more likely than not be sustained on its merits. However, the 2007 Small Business Tax Act did not change the taxpayer standard of substantial authority for undisclosed nonabusive positions. "The difference puts the preparer and the taxpayer at a different level of confidence," Melancon explained.

  "Our members are very worried about this (the difference between the preparer and taxpayer standards)," Melancon said. The AICPA has cautioned that the more-likely-than-not standard could require a preparer to disclose a return position that a taxpayer, under the substantial authority standard, might not be inclined to disclose, setting the stage for preparer/client conflict.

  The House has approved HR 6049, which equalizes the preparer and taxpayer standards for undisclosed nonabusive positions at substantial authority (TAXDAY, 2008/05/22, C.1). However, the bill has stalled in the Senate over offsets for unrelated tax incentives.

  Meanwhile, the IRS has issued proposed regulations on revised Code Sec. 6694 (NPRM REG-129243-07, I.R.B. 2008-27, 32; TAXDAY, 2008/06/17, I.1) The IRS has scheduled a hearing on the proposed regulations for August 18 in Washington, D.C. The AICPA will testify at the hearing.

Tax Strategy Patents

  Another legislative priority for the AICPA is the banning of tax strategy patents, Melancon explained. "Tax strategy patents are not good public policy." Prohibiting tax strategy patents will require legislation but the Patent Reform Bill (HR 1908) appears stalled in Congress (TAXDAY, 2008/02/04, M.3).

 
HR 1908 would prohibit the Patent Office from granting patents for any "tax-planning method" (TAXDAY, 2007/09/10, C.3). A tax-planning method is "a plan, strategy, technique, or scheme that is designed to reduce, minimize or defer, or has, when implemented, the effect of reducing, minimizing or deferring a taxpayer's liability." HR 1908 excludes return-preparation software from the ban.

  Besides banning the patenting of tax strategies, Congress could take away the incentive for securing a patent. An individual could patent a tax strategy, Melancon explained, but not be able to enforce it against alleged infringers.

  The IRS has proposed regulations governing tax strategy patents (NPRM REG-129916-07, I.R.B. 2007-43, 891; TAXDAY, 2007/09/26, I.1). The proposed regulations would add patented transactions to the roster of reportable transactions under Code Sec. 6011.

Need for Certainty

  Additionally, the AICPA is" always advocating for tax simplification and tax stability," Melancon said. Practitioners and their clients are often perplexed by the on-again/off-again nature of many tax incentives, such as the long list of so-called extenders (the state and local sales tax deduction, the higher education tuition deduction and many more). "Our members raise this issue (the need for certainty in the Tax Code and in tax planning) all the time."

Next Generation of CPAs

  Melancon predicted that the accounting profession is about to undergo one of its greatest changes as Baby Boomers retire and a new generation of CPAs fill their ranks. "Baby Boomer retirements will give the younger generation a quicker path to advancement," he said. At the same time, however, the next generation of CPAs will be creating firms that operate very differently from that of their predecessors.

  "There will be more emphasis on work-life balance," Melancon predicted. Firms are also creating alternative paths to partner-level positions. Firms that are not receptive to these changes will find talented professionals "running to other opportunities."

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

CCH (cch.taxgroup.com) reports:

  The IRS has issued procedures for claiming the 50 percent Kansas additional first-year depreciation provided by the Food, Conservation, and Energy Act of 2008 (P.L. 110-246) for qualified Recovery Assistance property (RA property) placed in service by the taxpayer on or after May 5, 2007. The guidance also explains how a taxpayer may elect not to deduct the Kansas additional first-year depreciation for RA property.

Background

 
Code Sec. 1400N(d) provides an additional first-year depreciation deduction equal to 50 percent of the adjusted basis of certain depreciable property used in the areas affected by the Katrina, Wilma and Rita hurricanes. The Food, Conservation, and Energy Act of 2008 applies a modified version of Code Sec. 1400N(d) to the Kansas disaster area for "qualified Recovery Assistance property" and allows an additional first-year depreciation deduction equal to 50 percent of the adjusted basis of such property.

Claiming Kansas Bonus Depreciation for Tax Year That Includes May 5, 2007

  For a taxpayer that has yet to file a federal tax return for the tax year that includes May 5, 2007, the taxpayer may claim the depreciation on line 14 of Form 4562, Depreciation and Amortization, for the federal tax return for the tax year that includes May 5, 2007. If the RA property is listed property, such as passenger automobiles or computers, the taxpayer may claim the Kansas additional first-year depreciation on line 25 of Form 4562, Depreciation and Amortization, for the federal tax return for the tax year that includes May 5, 2007.

  If a taxpayer timely filed its federal tax return for the tax year that includes May 5, 2007, and did not claim the Kansas additional first-year depreciation for RA property, but wants to do so, the IRS has provided special procedures by which the taxpayer can claim the bonus depreciation (provided that the taxpayer did not elect not to deduct the bonus depreciation). These procedures allow certain taxpayers to claim the bonus depreciation on an amended return for the tax year that includes May 5, 2007, or on a return for the first or second succeeding year (along with filing a Form 3115, Application for Change in Accounting Method).

Electing Not to Deduct Kansas Bonus Depreciation

  An election not to deduct the Kansas additional first-year depreciation for any class of property that is RA property placed in service during the tax year must be made by the due date (including extensions) of the federal tax return for the tax year in which the RA property is placed in service by the taxpayer. The guidance provides different sets of procedures for returns for tax years that include May 5, 2007, filed before August 11, 2008, and for such returns filed on or after that date. A taxpayer that files its tax return for the tax year including May 5, 2007, that claims depreciation but not Kansas bonus depreciation, and does not follow the procedures for claiming Kansas bonus depreciation on a subsequent return, will be deemed to have elected not to take the bonus depreciation.

Notice 2008-67, 2008FED ¶46,525

Other References:

 
Code Sec. 179

  CCH Reference - 2008FED ¶12,126.54

 
Code Sec. 1400N

  CCH Reference - 2008FED ¶32,487.054

  Tax Research Consultant

  CCH Reference - TRC DEPR: 3,700

CCH (cch.taxgroup.com) reports:

  With time running out before Congress's month long August recess begins, the House on July 23 approved the Housing and Economic Recovery Bill of 2008 HR 3221 by a vote of 272 to 152. The House action cleared the way for an expected swift approval by Senate lawmakers, who are acting in tandem with the Bush administration to stave off a deepening housing crisis in the U.S. Despite repeated veto threats, President Bush will sign the legislation, confirmed White House Press Secretary Dana Perino on July 23.

  In addition to billions of dollars in tax relief targeted to the nation's troubled housing market, the bill would also provide financial stability to Fannie Mae and Freddie Mac, the nation's two government-sponsored housing enterprises that control the market. In remarks to reporters, House Majority Leader Steny H. Hoyer, D-Md., said the bill would stabilize neighborhoods and provide homeowners and lenders with the resources to prevent home foreclosures.

  According to a Democratic summary of the legislation, the bill would provide tax relief to homebuyers and homeowners, increase state allocations of low-income housing tax credits and tax-exempt bond financing. It would also increase funding for the Community Development Block Grant program. The cost of these and other provisions would be offset by requiring credit card information return reporting by merchants, delaying the worldwide allocation of interest rules and modifying the exclusion of gains on the sale of a principal residence.

 
HR 3221 previously faced a presidential veto for including the $4 billion community block grant provision allowing states to purchase foreclosed homes. Perino said that the White House still regards the provision as "a bailout to lenders" but the president decided that this is not the time for a prolonged veto fight. The White House spokeswoman said the overall bill is needed "to increase confidence and stability in the housing and financial markets." Perino stressed that the president would not have decided to approve the measure if there had been more time for negotiations before the start of congressional recess in early August.

  Perino mostly dismissed the significance of the Congressional Budget Office estimate that the housing bill will cost $25 billion. She emphasized that the administration does not plan to employ the proposed temporary authority given to the Treasury Department to assure Fannie Mae and Freddie Mac continued access to capital and liquidity. Nonetheless, Perino maintained there are "tremendous taxpayer protections" in place if the plan were implemented.

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

Division C, Housing Assistance Tax Act of 2008, of Housing and Economic Recovery Act of 2008, Amendment to Senate Amendment to House Amendments to Senate Amendment,
HR 3221

JCT Technical Explanation of Division C of HR 3221, the Housing Assistance Tax Act of 2008, Scheduled for Consideration by the House on July 23, 2008, JCX-63-08

JCT Estimated Budget Effects of the Tax Provisions Contained in HR 3221, the Housing and Economic Recovery Act of 2008, Scheduled for Consideration by the House on July 23, 2008, JCX-64-08

House Ways and Means Committee Release: House Votes to Strengthen Housing Market, Stem Tide of Foreclosures

House Ways and Means Committee Release: Summary of HR 3221, Housing Assistance Tax Act of 2008

Statement of Administration Policy on HR 3221, Housing and Economic Recovery Act of 2008
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  New Mexico Governor Bill Richardson recently announced that he will call the state's legislature into a special session, beginning August 15, 2008, to discuss and address not only access to universal health care coverage and related reform issues, but also his plan to provide about $211 million in personal income tax and gross receipts tax relief to state residents.

  The tax proposals to be evaluated in the upcoming special session were comprehensively detailed in an earlier story (TAXDAY, 2008/07/18, S.18).

  Finally, the Governor will also ask the legislature to approve a $200 million road funding package.

Press Release, New Mexico Governor's Office, July 21, 2008.

CCH (cch.taxgroup.com) reports:

  Doctors and an accountant who donated stock in their medical practice to a newly formed tax-exempt professional services corporation (PSC) were only entitled to a small portion of the charitable contribution deductions that they claimed and accuracy-related penalties were imposed. The value of the donated stock, as determined by the taxpayers' expert, was too high. Based on trial testimony and other evidence, it was clear that the medical group was going to be consolidated into the PSC and should not have been valued as a going concern. Instead, the asset-based approach used by the IRS's expert was more appropriate since it valued the business on the basis of the medical group's equity with a discount to account for the noncontrolling, nonmarketable nature of the stock.

  In addition, the taxpayers were liable for the 40-percent accuracy-related penalty for gross valuation misstatement, if each taxpayer's underpayment exceeded $5,000, because they did not act in good faith and did not make a good-faith investigation as to the value of the donated stock. Despite the taxpayers' claimed reliance on appraisers and advisors, the taxpayers were well-educated and should have been aware of the problems in valuing the stock at so high a price when it was unlikely that the medical group would continue as an operating entity. To the extent that the taxpayers were not liable for the 40-percent penalty because their underpayments were $5,000 or less, they were liable for the 20-percent accuracy-related penalty due to negligence.

B.J. Bergquist, 131 TC No. 2, Dec. 57,492

Other References:

 
Code Sec. 170

  CCH Reference - 2008FED ¶11,660.58

 
Code Sec. 6662

  CCH Reference - 2008FED ¶39,651G.17

  CCH Reference - 2008FED ¶39,651G.24

  CCH Reference - 2008FED ¶39,654.48

  CCH Reference - 2008FED ¶39,654.60

 
Code Sec. 6664

  CCH Reference - 2008FED ¶39,661.65

  Tax Research Consultant

  CCH Reference - TRC INDIV: 51,152

  CCH Reference - TRC VALUE: 9,050

  CCH Reference - TRC PENALTY: 3,106.10

  CCH Reference - TRC PENALTY: 3,110.25

  CCH Reference - TRC PENALTY: 3,116.10

CCH (cch.taxgroup.com) reports:

  House lawmakers on July 22 circulated an updated package of $17.8 billion in housing tax provisions that could be added to the housing tax bill (HR 3221) that recently passed the Senate (TAXDAY, 2008/07/14, C.1). According to an unofficial summary of the Ways and Means Committee proposal obtained by CCH, the House has proposed requiring credit card information return reporting by merchants that would raise $9.082 billion. It would delay the implementation of worldwide allocation of interest rules and raise $7.322 billion. Part of that revenue would cover some of the cost of the Community Development Block Grant program, according to the summary. The bill would also raise $1.394 billion by modifying the exclusion of gains on the sale of a principal residence.

  The House proposal also includes a refundable first-time homebuyer credit estimated to cost $4.853 billion over 10 years, an additional standard deduction for real property taxes that would cost $1.537 billion, and a plan to simplify and increase the low-income housing tax credit program and the tax-exempt bond program at a cost of $1.946 billion. The House has also proposed treating certain federally guaranteed municipal bonds as tax-exempt bonds ($126 million), a temporary increase in mortgage revenue bonds ($1.475 billion) and alternative minimum tax (AMT) relief.

  The proposal would also protect Social Security numbers in real estate transactions ($20 million), encourage the rehabilitation of government-leased buildings ($96 million), and reform rules for real estate investment trusts ($359 million). The proposal also includes a plan to expand the Gulf Opportunity Zone tax incentives ($1.333 billion) and to allow taxpayers to accelerate the recognition of historic AMT/research and development credits ($966 million).

  The House proposal was circulating on the same day that the Congressional Budget Office (CBO) released a letter estimating that an administration plan to bail out Fannie Mae and Freddie Mac would cost an estimated $25 billion. The CBO said that only a 50-percent chance exists that the bailout will actually require federal funding. Lawmakers are expected to add the administration proposal to the housing bill. The whole bill is expected to come to the House floor for a vote during the week of July 21.

  By Stephen K. Cooper, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Automobile donations by taxpayers have "plummeted" since enactment of the American Jobs Creation Act of 2004 (2004 Jobs Act) (P.L. 108-357), said Mel Schwarz of Grant Thornton's National Tax Office in Washington, D.C. told CCH on July 21. The 2004 Jobs Act and subsequent IRS regulations significantly tightened the requirements for deducting the value of a vehicle donated to charity and seem to have discouraged individual donations of automobiles. Between tax years 2004 and 2005, automobile donations of more than $500 dropped by two-thirds, according to Grant Thornton's research.

2004 Jobs Act

  Before the 2004 Jobs Act, many individuals used their vehicle's "Blue Book" value as a reasonable starting point, Schwarz noted. The new rules generally limit vehicle donations over $500 to either the actual proceeds from the sale of the vehicle by the charity or the vehicle's fair market value, whichever is less. The exact amount depends on whether the charity sells the vehicle without any significant intervening use or material improvement or if the charity makes a significant intervening use of or material improvement to the vehicle.

Drop in Donations

  In 2004, more than 900,000 returns claimed deductions for donated automobiles. In 2005, the last year for which the IRS has detailed data, less than 300,000 tax returns included such claims, Grant Thornton found. "Donations fell 67 percent," Schwarz noted.

  The total amount deducted for all car donations declined from $2.4 billion in 2004 to just one half of a billion dollars the following year, Grant Thornton found. The decline represents a decrease of over 80 percent.

Congress's Intent

  The decline in donations is probably not what Congress intended, Schwarz observed. "Congress was concerned that people were inflating the value of donated used cars under the old system. The hope was that charities would still get the same number of cars they could auction for the same amount of money and the only change would be the elimination of excess charitable deductions. That hope was clearly not realized."

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

CCH (cch.taxgroup.com) reports:

  The IRS reminded qualifying retirees and veterans that it is not too late to file for an economic stimulus payment. The IRS will send a second set of information packets to 5.2 million people who may be eligible but who have not yet filed to receive their stimulus payment. The packages will contain instructions, an example Form 1040A return showing the few lines that need to be completed, and a blank Form 1040A. The packages will be mailed over a three-week period starting July 21.

  The IRS has accounted for about 75 percent of the approximately 20 million Social Security and Veterans Affairs beneficiaries identified as being potential stimulus recipients. About 5.2 million of those have not filed a return or were not eligible for a stimulus payment

  Taxpayers were also reminded that the IRS has more than 400 local Taxpayer Assistance Centers operating normal business hours Monday through Friday that can provide assistance to retirees and veterans trying to receive their payments. A list for addresses and office hours can be found on the IRS website at Contact My Local Office.

  The Economic Stimulus Act of 2008 (P.L. 110-185) provided for payments of up to $600 ($1,200 for married filing jointly) for taxpayers who normally file a tax return and have a tax liability. Recipients could receive another $300 for each eligible child younger than 17. The Act also created a special category for people who had certain types of income but may not file a tax return because their income is too low or their income is nontaxable. Taxpayers in this category must have at least $3,000 in qualifying income to be eligible for the minimum amount of $300 ($600 married filing jointly). Qualifying income is the total of Social Security, Veterans Affairs and/or Railroad Retirement benefits plus earned income, including nontaxable combat pay.

IR-2008-91,
2008FED ¶46,524

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:

  The IRS and Treasury issued final, proposed and temporary regulations under Code Sec. 1301 relating to the averaging of farm and fishing income in computing income tax liability. The regulations reflect changes to the law made by the American Jobs Creation Act of 2004 (P.L. 108-357) and provide guidance to individuals engaged in a farming or fishing business who elect to reduce their liability by treating all or a portion of the current tax year's farm or fishing income as if one-third of it had been earned in each of the prior three tax years.

  The definition of "fishing business" in the temporary regulations follows the definition in the Magnuson-Stevens Fishery Conservation and Management Act and the regulations under that Act. Thus, fishing includes catching, taking, or harvesting activities that result in the killing of fish or the bringing of live fish on board a vessel, but does not include the processing of fish. The temporary regulations also clarify that the maximum amount of income that an individual may elect to average is the total of the individual's farm and fishing income and gains, reduced by any farm and fishing deductions or losses allowed as a deduction in computing taxable income. Therefore, a taxpayer engaged in both a farming business and a fishing business must combine income, gains, deductions, and losses from both the farming business and the fishing business to determine the maximum amount of income that is eligible for averaging.

  A landlord is engaged in a farming business if this arrangement is established in a written agreement before the tenant begins significant activities on the land. Similarly a lessor of a vessel is engaged in a fishing business within the meaning of Code Sec. 1301(b)(4) if the payment due to the lessor under the lease is based on a share of the lessee's catch or a share of the proceeds from the sale of the catch, and the lease is a written agreement entered into before the lessee begins significant fishing activities resulting in the shared catch. A fixed lease payment is not eligible for income averaging.

  The regulations also provide that crew members on vessels engaged in fishing are engaged in a fishing business, whether or not they are treated as employees for employment tax purposes. Moreover, for purposes of income averaging computations, certain deposits into a Merchant Marine Capital Construction Fund also reduce taxable income.

  The temporary regulations generally apply to tax years beginning after July 22, 2008. Taxpayers may, however, apply the temporary regulations in taxable years beginning after December 31, 2003, but before July 23, 2008, if all provisions are consistently applied in each tax year.

  The text of the temporary regulations also serves as the text of proposed regulations.

T.D. 9417, 2008FED ¶47,052

Proposed Regulations, NPRM REG-161695-04, 2008FED ¶49,822

Other References:

 
Code Sec. 1301

  CCH Reference - 2008FED ¶31,789

  CCH Reference - 2008FED ¶31,789AE

  Tax Research Consultant

  CCH Reference - TRC FARM: 3,302

  CCH Reference - TRC FARM: 3,302.05

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The California State Board of Equalization (SBE) and the Employment Development Department (EDD) have announced that taxpayers affected by wildfires and (for the SBE) flash flooding in Inyo County may be eligible for emergency tax relief in regard to taxes administered by those agencies.

  For all taxpayers and fee payers who cannot meet tax filing and payment deadlines due to the fires and floods, the SBE may grant a one-month extension to file or pay taxes or fees. 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. Claims for property tax relief must be filed with the county assessor.

  Employers in the county of Inyo directly affected by the damage resulting from the fire may request up to a 60-day extension of time from the EDD to file their state payroll reports and/or deposit state payroll taxes without penalty or interest. A written request for extension must be received within 60 days from the original delinquent date of the payment or return to file or pay.

  Subscribers to CCH Tax Research NetWork can view the text of the SBE release and the EDD e-mail.

News Release 55-08-L , California State Board of Equalization, July 17, 2008; E-mail , California Employment Development Department, July 18, 2008.

CCH (cch.taxgroup.com) reports:

  Referrals of criminal tax investigations by the IRS to the U.S. Department of Justice continue to climb dramatically, the Treasury Inspector General for Tax Administration (TIGTA) has reported. At the same time, however, the IRS's Criminal Investigation Division continues to lose experienced investigators faster than it can recruit new ones. TIGTA unveiled its findings in a special report, Statistical Portrayal of the Criminal Investigation Division's Enforcement Activities for Fiscal Years 2000 through 2007, 2008-10-133.

Investigations and Convictions

  Investigations referred to the Justice Department has increased continually for five years and are now at an eight-year high, TIGTA discovered. Fiscal year (FY) 2007 ended with 4,600 subject investigations, a three-percent increase over FY 2006 and a nearly 50 percent increase since FY 2002. "For the first time since we began reporting on its enforcement activities, the Criminal Investigation Division had more investigations awaiting prosecution by the Justice Department than open criminal investigations," TIGTA reported.

  Criminal convictions are also up, TIGTA found. "The number of taxpayers convicted of a crime was 2,155, which exceeded the FY 2007 performance plan goal of 2,069 and was an increase of 6.7 percent from FY 2006"

Enhanced Publicity

  TIGTA also found that greater publicity of tax crimes fosters compliance. The publicity rate for prosecutions in FY 2007 was nearly 80 percent, an all-time high. Enhanced publicity, according to TIGTA, "sends a message to taxpayers that violations of the Internal Revenue Code and related financial crimes are investigated and prosecuted."

Staffing Shortfalls

  Despite the uptick in criminal referrals and convictions, the Criminal Investigation Division appears troubled by high employee turnover. The total number of special agents fell three percent from FY 2006 to FY 2007 and the trend appears to be continuing. "According to most recent estimates, the Criminal Investigation Division's planned hiring of approximately 96 special agents would not offset the FY 2007 attrition of 150 agents or the FY 2008 attrition of approximately 150 agents." TIGTA predicted that the loss of experienced employees will negatively affect productivity in the near future.

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

TIGTA Report: Final Audit Report --Statistical Portrayal of the Criminal Investigation Division's Enforcement Activities for Fiscal years 2000 through 2007 (Reference Number: 2008-10-133) [Document will be available on July 22. --CCH.]
 

CCH (cch.taxgroup.com) reports:

  IRS Commissioner Douglas H. Shulman said on July 18 that he is studying the Service's controversial private collection initiative but declined to predict the future of the program. Shulman added that the IRS is ready to help lawmakers understand if the policy goals of proposed tax legislation are administrable. Shulman spoke in Washington, D.C., at a special event to mark the 10th anniversary of the IRS Restructuring and Reform Act of 1998 (P.L. 105-206) (RRA '98).

Outsourcing Tax Collection

  Two private collection agencies, The CBE Group of Waterloo, Iowa, and Pioneer Recovery Credit of Arcade, N.Y., are currently working taxpayer accounts. According to the Tax Fairness Coalition, the private collection agencies have recovered roughly $60 million since September 2006 (TAXDAY, 2008/06/30, M.1).

  At his confirmation hearing earlier this year, Sen. Charles E. Grassley, R-Iowa, ranking member of the Senate Finance Committee, asked Shulman to commit to full implementation of the private collection initiative (TAXDAY, 2008/01/30, C.2). Shulman told Grassley that he would look at the program.

  When asked on July 18 about the future of the initiative, Shulman said that he is "studying the issue of private tax collection." Shulman added that he is not ready "to give an opinion (about the initiative) at this time."

  Opponents and supporters of private tax collection have been much more vocal. "It's a waste of taxpayers' money. IRS employees could collect more money for less," Colleen M. Kelley, president of the National Treasury Employees Union (NTEU), which represents IRS employees, said earlier this year (TAXDAY, 2008/02/01, T.1). "At a time when uncollected tax debt at the IRS is at a 10 year high, we cannot afford to let billions of dollars simply fall off the books at the expense of taxpayers. The program continues to bring in millions in uncollected tax debt to help close the tax gap," a spokesperson for the Tax Fairness Coalition, told CCH.

  In June, the House Appropriations Committee voted to terminate the initiative (TAXDAY, 2008/06/30, C.1). Similar legislation is pending in the Senate.

Tax Legislation

  "The legislation (RRA '98) proposed that the IRS have a seat at the table as tax legislation is drafted to offer its view on whether the legislation is administrable," Shulman explained. He noted that the IRS currently provides a complexity analysis of proposed legislation upon request by the Joint Committee on Taxation. "I think there is more we could and should do to ensure that the policy goals of legislation are administrable."

Ten Years

  Looking back on the 10 years since passage of RRA '98, Shulman said that the Service has made great progress in improving customer service and enforcement. "One of the clear mandates of the Act was for IRS to dramatically improve service to taxpayers. No one can argue that this was not the right thing to do."

  Before Congress passed RRA '98, service at the IRS had fallen to "unacceptable levels," Shulman said. Taxpayers could not reach the IRS for help and when they did, they often received incorrect information, he added. Over the past 10 years, the IRS has shown "dramatic" improvement in customer service.

  Enforcement has also improved. Shulman acknowledged that enforcement fell to record lows in the years immediately after passage of RRA '98. Shulman's immediate predecessor, Mark W. Everson, refocused the agency on enforcement.

  The IRS' reorganization into customer segments has also helped enforcement, Shulman observed. "I believe the recent success the IRS has had in combating abusive shelters was, in no small part, attributable to the existence of the Large and Mid-Size Business (LMS Division." Before RRA '98, "the responsibility for dealing with tax shelter abuses would have been the responsibility of the examination function, which was to some degree independently managed in each region and district office and had responsibility for all examination activity." LMSB, Shulman said, is "able to bring the focus and expertise necessary to address the issues."

Workforce Issues

  Finally, Shulman said that the IRS must focus on recruitment and retention of talented employees (TAXDAY, 2008/07/11, I.2). "We have a lot of people at the IRS who could leave and make double or triple their salary." Many employees stay with the agency because of their commitment to public service, he added.

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

IR-2008-90

Other References:

 
Code Sec. 6306

  CCH Reference - 2008FED ¶38,084E.01

 
Code Sec. 7804

  CCH Reference - 2008FED ¶43,266.01

  Tax Research Consultant

  CCH Reference - TRC IRS: 3,000

  CCH Reference - TRC IRS: 3,058

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Governor Michael F. Easley signed North Carolina's budget bill, thereby enacting numerous changes to corporation franchise and income tax, personal income tax, sales and use tax, insurance gross premiums tax, and property tax changes. These changes advance the Internal Revenue Code (IRC) conformity date; require a corporate and personal income tax addback adjustment for any federal bonus depreciation deduction claimed; extend, expand, and modify numerous credits against corporate franchise and income taxes, personal income tax, and insurance gross premium tax; enact a new personal and corporate income tax deduction for a qualified sale of a manufactured home community; ease the reporting requirements for publicly traded partnerships; clarify the franchise tax treatment of limited liability companies; revise the franchise tax base for captive real estate investment trusts (REITs); and set the insurance and utility regulatory fees for the 2008 fiscal and calendar years.

  Provisions affecting sales and use taxes (TAXDAY, 2008/07/18, S. 24), and property tax, gift and estate taxes, and practice and procedure (TAXDAY, 2008/07/18, S. 23) are reported separately.

CCH (cch.taxgroup.com) reports:

  New Mexico Governor Bill Richardson has proposed his Cash Assistance Relief Effort (C.A.R.E.) package, which contains a number of initiatives designed to provide taxpayers relief from rising gas prices, including a personal income tax rebate, a gross receipts tax holiday during the holiday shopping season, an expanded back-to-school tax holiday, and an increase in the working families tax credit. The proposed C.A.R.E. package will be addressed during an upcoming special session of the New Mexico Legislature, which may be called as early as August.

  Governor Richardson's proposed C.A.R.E. package includes an income tax rebate for all taxpayers. The rebate would be structured according to a taxpayer's adjusted gross income, with a rebate of $150 proposed for taxpayers with incomes up to $60,000, plus $40 for each dependent. Taxpayers with incomes between $60,000 and $65,000 would receive a rebate of $125 for each taxpayer and $34 for each dependent, while taxpayers with incomes between $65,000 and $70,000 would receive rebates of $100 for each taxpayer and $26 for each dependent. Taxpayers with incomes over $70,000 would receive a rebate of $75 for each taxpayer and $20 for each dependent.

  Under the proposed C.A.R.E. package, a one-time tax holiday would run from November 28, 2008 through December 7, 2008. During this period, clothing, school supplies, computers, and Energy Star certified appliances (subject to certain limits) could be purchased without taxes and the limits on traditional qualified tax-free items, including clothing and footwear, would be increased. Governor Richardson has also proposed expanding the back-to-school tax holiday by lengthening the duration from 3 days to 10 days in 2009 and increasing the limits on traditionally qualified tax-free items beginning next year.

  Finally, the governor's proposed C.A.R.E. package would increase the working families tax credit by 25% for tax year 2008. The maximum amount of the credit would increase by $96 to $482 for workers with two or more children, by $59 to $292 for workers with one child, and by $9 to $44 for childless workers.

  Subscribers to CCH Tax Research NetWork can view the full text of the governor's release.

Press Release , New Mexico Governor's Office, July 17, 2008.
 

CCH (cch.taxgroup.com) reports:

  Various prescribed rates for federal income tax purposes for August 2008 have been provided by the IRS. The annual short-term, mid-term, and long-term applicable federal interest rates (AFRs) are 2.54 percent, 3.55 percent and 4.58 percent, respectively. The semiannual short-term, mid-term, and long-term AFRs are 2.52 percent, 3.52 percent and 4.53 percent, respectively. Quarterly short-term, mid-term and long-term AFRs are 2.51 percent, 3.50 percent and 4.50 percent, respectively. Finally, the monthly short-term, mid-term and long-term rates are 2.51 percent, 3.49 percent and 4.49 percent, respectively.

  The short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFRs) for August 2008 for purposes of Code Sec. 1288(b) are 2.09 percent, 3.48 percent, and 4.65 percent, respectively, when annual compounding is used.

  Additionally, the Code Sec. 382 adjusted federal long-term rate is 4.65 percent, and the long-term tax-exempt rate is 4.65 percent. The Code Sec. 42(b)(2) appropriate percentage for the 70-percent present-value, low-income housing credit is 7.94 percent, and the appropriate percentage for the 30-percent present-value, low-income housing credit is 3.40 percent. Finally, the Code Sec. 7520 AFR for determining the present value of an annuity, an interest for life or a term of years, or a remainder or reversionary interest is 4.2 percent.

Rev. Rul. 2008-34, 2008FED ¶46,523

Rev. Rul. 2008-43, FINH ¶30,591

Other References:

 
Code Sec. 42

  CCH Reference - 2008FED ¶173.02

  CCH Reference - 2008FED ¶176.01

  CCH Reference - 2008FED ¶4385.03

 
Code Sec. 382

  CCH Reference - 2008FED ¶17,115.28

 
Code Sec. 642

  CCH Reference - 2008FED ¶24,308.1885

 
Code Sec. 1274

  CCH Reference - 2008FED ¶31,310.05

  CCH Reference - 2008FED ¶31,310.11

 
Code Sec. 7520

  CCH Reference - 2008FED ¶42,785.40

  CCH Reference - FINH ¶22,630.05

 
Code Sec. 7872

  CCH Reference - FINH ¶18,950.05

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 36,162.05

CCH (cch.taxgroup.com) reports:

  The IRS is losing an estimated $100 billion annually in tax revenues from offshore tax abuses, Sen. Carl Levin, D-Mich., chairman of the Homeland Security and Government Affairs Committee Permanent Subcommittee on Investigations, announced at a July 17 hearing. Ranking committee member Norm Coleman, R-Minn., stated that tax havens hold an estimated $1.5 trillion in U.S. assets, primarily U.S. securities, and that "we have to close this down."

  At the hearing, the subcommittee released a 110-page report on tax haven banks and U.S. tax compliance. The report cited other sources estimating offshore assets of $11.5 billion and annual revenue losses as high as $255 billion. Officials from the IRS and the Justice Department agreed with the magnitude of the problem, though they did not have current information to quantify the amounts.

Bank Abuses

  The hearing focused on two banks, the LGT Bank of Liechtenstein, and the UBS AG Bank of Switzerland. The two banks were accused of coming to the United States to actively promote their tax evasion schemes and recruit U.S. clients. The banks used cloak-and-dagger techniques to implement the schemes such as code names for clients, use only of pay phones, undeclared accounts, encrypted computers, and counter-surveillance training to ward off U.S. Customs and others.

  The schemes relied on "secrecy tricks" to cover transfers and hide the location of assets, Levin said. These included foreign shell companies, fake charitable trusts, straw man settlors and captive trustees, multiple transfers among companies, anonymous transfers, disguised business trips, and the use of foreign credit cards to draw on accounts. U.S. tax laws that require foreign banks to report U.S. assets held for others thus were circumvented by disguising the transfer and ownership of funds with foreign entities.

  The hearing included a videotaped statement by Heinrich Keiber, who worked with LGT. According to Levin, Keiber is now in the witness protection program; he appeared in the tape only as a silhouette. Keiber described LGT's use of special purpose vehicles to camouflage account ownership. LGT creates and owns foundations and entities registered in other countries and manages assets transferred by high net worth individuals, including nonbank assets such as real estate, paintings, and patents. Keiber said that LGT's business practices undermine reforms adopted by Liechtenstein and ignore the "know your customer" rules.

  Levin said the U.S. could "fight to end tax haven abuses" by enacting the Stop Tax Haven Abuse Bill (Sen 681). The bill would penalize tax haven banks that impede U.S. enforcement, require banks that know that U.S. clients own accounts to disclose them to the IRS, and create a rebuttable presumption that U.S. taxpayers control an entity in a Treasury designated offshore secrecy jurisdiction.

  Coleman identified a major loophole in the tax code's qualified intermediary (QI) program, which requires reporting and withholding on U.S. securities: the program does not require the reporting of accounts held by non-U.S. citizens and entities. "UBS undertook a systematic, wide-ranging effort to harvest tax cheats from the United States, help them restructure their Swiss accounts to avoid paying taxes on billions of dollars and to evade the attention of federal law enforcement agencies," Coleman reported.

  However, Mark Branson, the chief financial owner of UBS's Global Wealth Management department, appeared and testified that UBS will cooperate with the U.S. summons served on UBS. He apologized on behalf of UBS and declared that UBS will no longer provide offshore banking or securities services to U.S. residents and will serve U.S. clients only through UBS companies in the United States.

IRS and Justice Take Action

  IRS Commissioner Douglas Shulman told the committee that "tax evaders look for complexity [and that] going overseas adds complexity. Once you leave our countryr, tax evasion is higher and it is easier to hide assets." Shulman testified that he was "outraged" by the tax evasion found by the IRS and the committee and that he had designated international issues as a strategic priority for the IRS.

  Shulman told the committee the QI program "rests on bank cooperation" and that the IRS is taking a number of steps to improve compliance. He recently met with major accounting firms that audit the QI program and proposed that they report fraud. The IRS is reworking the QI regulations to require "look-through" by the banks, he said. "Getting a line of sight is the whole game," Shulman told Levin. If an account is held by an entity, the bank will be required to obtain the individual taxpayer's tax identification number. While the IRS will remove QIs from the program, Shulman said the agency's goal is to get banks into compliance with the QI program.

  Shulman described an IRS summons that requires UBS to produce records identifying U.S. taxpayers with accounts hidden from the IRS between 2002 and 2007 (TAXDAY, 2008/07/02, I.8). He said the agency takes a multifaceted approach to combating offshore tax evasion, using information reporting about foreign financial accounts, working with other countries through treaties and tax information exchange agreements, and informants, who have been a valuable source of information for civil and criminal offenses.

  Justice Department Associate Attorney General Kevin O'Connor testified that the use of tax haven banks and offshore nominee accounts was a direct assault on the fundamental concept that U.S. taxpayers are taxable on their worldwide income, from whatever source derived. The Justice Department is equally concerned about the role played by tax professionals in designing and implementing tax evasion schemes.

  O'Connor cited a number of successful prosecutions of taxpayers for tax evasion and of those assisting them for conspiracy. The agency closely cooperates with the IRS Criminal Division and uses Mutual Legal Assistance Treaties (MLATs) to obtain information in criminal cases. O'Connor said the information that can be obtained under an MLAT sometimes is limited by countries with bank secrecy laws, but treaties and subpoenas are still available. Sen. John Kerry, D-Mass., asked why there is not greater transparency and greater pursuit of these practices. O'Connor said there are roadblocks, such as sovereignty issues.

Witnesses Demur

  The hearing included other theatrics. Four U.S. individuals accused of using the banks to hide income were called to the hearing. Two took the Fifth Amendment, one declined to appear, and the fourth was out of the country, although Levin said he is scheduled to appear July 25 before the subcommittee. One UBS official took the Fifth Amendment, and LGT declined to send a witness to the hearing. LGT distributed a statement to reporters defending its actions. Levin noted that the subcommittee lacks the power to compel testimony by either LGT or UBS.

By Brant Goldwyn, CCH News Staff

Senate Permanent Subcommittee on Investigations Press Release

Senate Permanent Subcommittee on Investigations Report: Tax Haven Banks and U.S. Tax Compliance
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

As in past years, several states are offering sales and use tax holidays for a few days in August, during which back-to-school items such as clothing, footwear, school supplies, and computers may be purchased tax free. Local sales taxes may continue to be imposed in some places, however.

CCH (cch.taxgroup.com) reports:

The Treasury and IRS have issued proposed pension excise tax regulations that provide guidance on employer comparable contributions to Health Savings Accounts (HSAs) under Code Sec. 4980G. Pension excise tax regulations are also proposed covering the return requirements for excise tax payments for failure to meet the continuing coverage requirements under Code Sec. 4980B and Code Sec. 4980D, as well as the comparable coverage requirements for Archer MSAs under Code Sec. 4980E
and for HSAs.
Special Rule for Non-Highly Compensated Employees
The proposed regulations allow an employer to contribute to the HSAs of non-highly compensated employees in an amount that is larger than the employer's contribution to the HSAs of the highly compensated employees with comparable coverage during a period. Contributions to highly compensated employees may not exceed employer contributions to the HSAs of non-highly compensated employees with comparable coverage during a period.
The comparability rules will still apply with respect to contributions to HSAs for those eligible individuals who are in the same category of employees with the same category of high deductible health plan coverage (HDHP).
The proposed regulations define a highly compensated employee as either (1) a five-percent owner during the tax year or the preceding year or (2) an employee who for the preceding year has compensation from the employer in excess of $105,000 (indexed for inflation for 2008) and, if elected by the employer, was in the group consisting of the top 20 percent of employees when ranked on compensation.
Maximum HSA Contribution Allowed for Employees Who Become Eligible Mid-Year
Eligible individuals may make or have made the maximum annual HSA contribution based on their HDHP coverage during the last month of the tax year. Under the proposed regulations, a employer can contribute up to this maximum contribution on behalf of all employees who are eligible individuals during the last month of the tax year, including employees who become eligible after January 1 of the calendar year and eligible individuals who are hired after that date ("midyear eligible individuals").
Special Comparability Rules for Qualified HSA Distributions
A qualified HSA distribution is a direct distribution of an amount from a health flexible spending arrangement (health FSA) or from a health reimbursement arrangement (HRA) to an HSA. Under the proposed regulations, if an employer offers this type of distribution to any employee covered under any HDHP, the employer must offer qualified HSA distributions to all employees who are eligible individuals covered under any HDHP. Employers who offer qualified HSA distributions only to employees who are eligible individuals covered under the employer's HDHP are not required to offer qualified HSA distributions to employees who are eligible individuals, but who are not covered under the employer's HDHP.
Return Requirements for Excise Tax Payments
Under the proposed regulations, persons liable for the excise taxes under Code Sec. 4980B, Code Sec. 4980D, Code Sec. 4980E or Code Sec. 49980G must file Form 8298, Return of Certain Excise Taxes Under Chapter 43 of the Internal Revenue Code. The tax must be paid at the time prescribed for filing the return, without extensions. With respect to the excise tax under Code Sec. 4980B and Code Sec. 4980D for failure to continue coverage, the return is due on or before the due date or filing the person's federal income tax return for employers and third parties. For multi-employer or specified multiple health plans, the return is due on or before the last day of the seventh month after the end of the plan year. The excise tax return for non-comparable contributions under Code Sec. 4890E or Code Sec. 4980G is due on or before the 15th day of the fourth month following the calendar year in which the non-compabrable contribution was made.
Public Hearing
A public hearing has been scheduled for the proposed regulations on October 30, 2008, at 10:00 a.m.
Proposed Regulations, NPRM REG-120476-07, 2008FED ¶49,821
Other References:
Code Sec. 4980B
CCH Reference - 2008FED ¶34,600E
CCH Reference - 2008FED ¶34,600I
Code Sec. 4980D
CCH Reference - 2008FED ¶34,610D
Code Sec. 4980E
CCH Reference - 2008FED ¶34,615D
Code Sec. 4980G
CCH Reference - 2008FED ¶34,619R
CCH Reference - 2008FED ¶34,619V
CCH Reference - 2008FED ¶34,619X
CCH Reference - 2008FED ¶34,619YC
CCH Reference - 2008FED ¶34,619YE
Tax Research Consultant
CCH Reference - TRC COMPEN: 45,064.40
CCH Reference - TRC COMPEN: 45,206
CCH Reference - TRC COMPEN: 45,212
CCH Reference - TRC COMPEN: 45,214

CCH (cch.taxgroup.com) reports:

The IRS has published proposed amendments to regulations governing Code Sec. 6039, as amended by the Tax Relief and Health Care Act of 2006 (P.L. 109-432). Under amended Code Sec. 6039, corporate employers must provide an information return to the IRS and the employee when a transfer of stock is made in connection with the exercise of an option through an employee stock purchase plan (Code Sec. 423(c)) or through an incentive stock option program (Code Sec. 422(b)).
The main objective of the proposal is to insure that corporate employers provide employees with sufficient information to calculate their tax obligations when shares acquired through options are sold. To accomplish this, the amendments update the existing regulations governing the information statement provided to employees and add provisions detailing the return that must be filed with the IRS. Under the proposals, two new forms will be published in 2008:
Form 3921, Exercise of an Incentive Stock Option Under Section 422(b), will be used for both the information return and the employee statement for stock options described in Code Sec. 422(b).
Form 3922, Transfer of Stock Acquired Through an Employee Stock Purchase Plan Under Section 423(c), will be used for all reporting requirements for transfers of stock acquired by exercising a Code Sec. 423(c) option.
Corporations are not required to comply with the information return requirements of amended Code Sec. 6039 for stock transfers that occur during the 2007 and 2008 calendar years (Notice 2008-8, 2008-3 IRB, 276). However, corporations must furnish information statements to employees for such stock transfers and may rely on either Reg. § 1.6039-1 of the 2004 final regulations or Proposed Reg. § 1.6039-2 when providing the employee statements.
Proposed Regulations, NPRM REG-103146-08, 2008FED ¶49,820
Other References:
Code Sec. 6039
CCH Reference - 2008FED ¶35,601C
CCH Reference - 2008FED ¶35,601G
Tax Research Consultant
CCH Reference - TRC COMPEN: 21,352
CCH Reference - TRC COMPEN: 24,400

CCH (cch.taxgroup.com) reports:

House Democratic leaders said they are considering reworking the Senate-passed housing bill (HR 3221) to include provisions that address the financial problems facing Fannie Mae and Freddie Mac. House Majority Leader Steny Hoyer, D-Md., said that Senate Banking Committee Chairman Christopher Dodd, D-Conn., and House Financial Services Committee Chairman Barney Frank, D-Mass., are working with the administration to produce legislation that would be added to the housing bill. Hoyer said the measure could come before the House during the week of July 21.
The Senate completed work on July 11 on HR 3221, passing the housing bill by a margin of 63 to 5 (TAXDAY, 2008/07/14, C.1). The measure, which includes nearly $14.5 billion in tax relief, was expected to generate a swift conference agreement between the House and Senate lawmakers. However, continued weakness in the nation's housing market combined with concern over the financial stability of the two government sponsored housing enterprises have prompted lawmakers and the administration to consider broadening the scope of the housing bill. The Bush administration has spoken in favor of stronger oversight of Fannie Mae and Freddie Mac.
By Stephen K. Cooper, CCH News Staff.

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The California State Board of Equalization (SBE) conducted an informational hearing regarding nexus and the collection of use tax by online retailers in light of nexus issues that have arisen in New York and Texas. The SBE has received numerous inquiries regarding when out-of-state companies are required to collect tax on sales of products shipped into California.

CCH (cch.taxgroup.com) reports:

The U.S. Supreme Court has summarily vacated and remanded a Court of Appeals ruling that a sentence of probation and time in a halfway house imposed on a part-time income tax preparer for aiding and assisting in the preparation of false tax returns was unreasonable. The Court requested the Appeals court reconsider its ruling in light of Gall v. United States, 128 S. Ct. 586 (2007).
CCH Comment. Under Gall, district court judges have considerable discretion with respect to sentencing. So long as a sentence is generally reasonable and the court has followed proper procedures, appellate courts are required to grant deference to the sentencing judge and review sentences for abuse of discretion.
Vacating and remanding a CA-1 decision, 2007-2 USTC ¶50,653.
T.R. Taylor, SCt, 2008-2 USTC ¶50,432
Other References:
Code Sec. 7206
CCH Reference - 2008FED ¶41,333.216
Tax Research Consultant
CCH Reference - TRC IRS: 66,462.05

CCH (cch.taxgroup.com) reports:

The IRS has released amendments to final regulations and new temporary and proposed regulations that provide guidance on how to determine the amount of taxes paid for purposes of the foreign tax credit. The new temporary and proposed regulations address the treatment of foreign payments attributable to structured passive investment arrangements. In general, such foreign payments are treated as noncompulsory payments, that is, not an amount of tax paid. Thus, foreign tax credits are disallowed for such amounts. The temporary regulations include more examples illustrating additional variations of the structured passive investment arrangements. Other minor amendments to the regulations have been made to reflects recent statutory changes. The regulations are generally effective on July 16, 2008.
Background. In 2007, proposed regulations were issued that would revise Reg. §1.901-2(e)(5) by: (1) treating all foreign entities in which the same U.S. person has a direct or indirect interest of 80 percent or more as a single taxpayer; and (2) treating amounts paid to a foreign taxing authority as noncompulsory payments if those amounts are attributable to certain structured passive investment arrangements. The new temporary and proposed regulations address the second set of rules for structured passive investment arrangements.
Structured passive investment arrangement. A structured passive investment arrangement is an arrangement that is intentionally structured to create a foreign tax liability but, without the structure, would result in significantly less foreign taxes or no foreign taxes. The regulations define a structured passive investment arrangement as one that satisfies six conditions. The six conditions are that the arrangement involves: (1) use of a special purpose vehicle (SPV); (2) participation of a U.S. party that is eligible to claim a foreign tax credit; (3) direct investment, meaning that the foreign payment or payments are, or are expected to be, substantially greater than the amount of credits that the U.S. party would reasonably expect to be eligible to claim if the U.S. party directly owned its proportionate share of the assets owned by the SPV; (4) a resulting foreign tax benefit for a counterparty or for a person that is related to the counterparty but is not related to the U.S. party; (5) a counterparty, other than the SPV, that is unrelated to the U.S. party and that satisfies certain ownership tests with respect to the SPV; and (6) inconsistent treatment under the respective tax systems of the United States and an applicable foreign country. Of the six conditions, as set forth in the 2007 proposed regulations, only the conditions relating to participation of a U.S. party and inconsistent treatment under the U.S. and applicable foreign country tax systems have been adopted without significant changes by the new temporary regulations.
Special purpose vehicle (SPV). Under the regulations, an SPV is an entity that is part of the structured passive investment arrangement and that meets the following requirements: (1) substantially all of the gross income for U.S. tax purposes of the entity, if any, is passive investment income and substantially all of the assets of the entity are assets held to produce such passive investment income; and (2) there is a foreign payment attributable to income of the entity.
With respect to the first requirement, the new regulations generally follow the 2007 proposed regulations in defining passive investment income as income described in Code Sec. 954(c) with some modifications. However, the new regulations make additional modifications by providing that Code Sec. 954(h)(3)(E) shall not apply so that the entity must conduct substantial activity with respect to its business through its own employees. Also, the term" home country" as used in Code Sec. 954(h) means any foreign country. With respect to the second requirement on foreign payments, the new regulations clarify that the foreign payment must be made with respect to a U.S. tax year in which the entity meets the first requirement.
Direct investment. The third condition for a structured passive investment arrangement is direct investment, meaning that the foreign payment or payments are, or are expected to be, substantially greater than the amount of credits that the U.S. party would reasonably expect to be eligible to claim if the U.S. party directly owned its proportionate share of the assets owned by the SPV, other than through a branch, a permanent establishment, or any other arrangement that would subject the income generated by its share of the assets to a net basis foreign tax. The new regulations differ from the 2007 proposed regulations by: (1) amending the direct investment test to compare the U.S. party's proportionate share of the foreign payment made by the SPV to the amount of foreign tax that the U.S. party would be eligible to credit if the U.S. party directly owned its proportionate share of the assets; (2) clarifying that a dual resident corporation that is an SPV meets the direct investment condition since its ownership of the passive assets is treated the same as ownership through a branch operation; and (3) providing that the U.S. party's proportionate share of the SPV's assets does not include any assets that produce income subject to gross basis withholding tax.
Foreign tax benefit. The fourth condition is that the arrangement results in a foreign tax benefit. The new regulations clarify that while the benefit must reasonably be expected, there is no requirement to show that the benefit be intended or actually realized. The regulations also provide that the credit, deduction, loss, exemption, exclusion or other tax benefit must correspond to 10 percent or more of the U.S. party's share, for U.S. tax purposes, of the foreign payment or 10 percent or more of the foreign tax base with respect to which the U.S. party's share of the foreign payment is imposed. These changes are intended to clarify that a joint venture that does not involve any duplication of tax benefits is not covered by the new temporary regulations.
Counterparty. The fifth condition is that the arrangement involve a counterparty, which is a person other than the SPV, that is unrelated to the U.S. party and that satisfies certain ownership tests with respect to the SPV. The temporary regulations eliminate the percentage ownership thresholds from the counterparty definition in the 2007 proposed regulations. The new regulations also amend the definition of a counterparty to include related persons, but exclude cases where the U.S. party is a U.S. corporation or individual that owns (directly or indirectly) at least 80 percent of the value of the potential counterparty and cases where at least 80 percent of the value of the U.S. party and the potential counterparty are owned (directly or indirectly) by the same U.S. corporation or individual.
Effective date and applicability date. The regulations are generally effective on July 16, 2008. The regulations generally apply to foreign payments that, if they were an amount of tax paid, would be considered paid or accrued by a U.S. or foreign entity in tax years ending on or after July 16, 2008. Special rules apply to foreign payments by a foreign corporation that has a domestic corporate shareholder and foreign payments by a partnership, trust or estate for which any partner or beneficiary would otherwise be eligible to claim a foreign tax credit. For periods after the effective date of the temporary regulations, the IRS and the Treasury Department will continue to scrutinize other arrangements that are not covered by the regulations but are inconsistent with the purpose of the foreign tax credit.
Public hearing and submission of comments.
The text of the temporary regulations also serves as the text of the proposed regulations. Written or electronic comments must be received by October 14, 2008. Outlines of the topics to be discussed at a public hearing scheduled for December 11, 2008, must be received by November 20, 2008.
T.D. 9416, 2008FED ¶47,051
Proposed Regulations, NPRM REG-156779-06, 2008FED ¶49,819
Other References:
Code Sec. 901
CCH Reference - 2008FED ¶27,821
CCH Reference - 2008FED ¶27,821F
CCH Reference - 2008FED ¶27,822
CCH Reference - 2008FED ¶27,822F
Tax Research Consultant
CCH Reference - TRC INTLOUT: 3,106
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

Pennsylvania has enacted legislation that authorizes the expansion of, and the extension of expiration dates of, Keystone Opportunity Zones (KOZs), Keystone Opportunity Expansion Zones (KOEZs), and Keystone Opportunity Improvement Zones (KOIZs). The legislation also authorizes the creation of additional KOEZs, expands the sales and use tax exemption available to contractors, modifies the corporate net income tax credit apportionment formula, and disqualifies taxpayers who employ illegal workers. Tax benefits available to businesses and residents located in KOZs, KOEZs, and KOIZs include a sales and use tax exemption, a property tax abatement, and credits against corporate and personal income, capital stock and franchise, insurance gross premiums, bank shares, and mutual thrift institutions taxes.

CCH (cch.taxgroup.com) reports:

The IRS has extended, to August 29, 2008, the postponement of the deadlines for victims of storms, flooding and tornadoes in presidential disaster areas in Indiana, Iowa, Illinois, Nebraska, West Virginia and Wisconsin to perform time-sensitive acts. Storm victims in these disaster areas are allowed to postpone until this deadline the filing of certain tax returns, making of certain tax payments and performance of other time-sensitive acts. The IRS had previously extended deadlines in these six states, with six different deadlines applicable to each. The former deadlines were:
--Indiana - August 7 (TAXDAY, 2008/06/16, I.7);
--Iowa - July 28 (TAXDAY, 2008/06/04, I.1);
--Illinois - August 25 (TAXDAY, 2008/06/30, I.8);
--Nebraska - Ausust 19 (TAXDAY, 2008/06/25, I.2);
--West Virginia - August 18 (TAXDAY, 2008/06/25, I.2); and
--Wisconsin - August 13 (TAXDAY, 2008/06/17, I.4).
The deadline for victims in disaster areas in Missouri had previously been extended to August 29 (TAXDAY, 2008/07/03, I.2). Further information regarding the postponement of deadlines due to declared disasters can be found on the IRS website, www.irs.gov.
IR-2008-89, 2008FED ¶46,521
IR-2008-89, FINH ¶30,590
Other References:
Code Sec. 6081
CCH Reference - 2008FED ¶36,789.213
CCH Reference - FINH ¶20,345.80
CCH Reference - FINH ¶20,355.55
Code Sec. 6161
CCH Reference - FINH ¶20,585.35
Code Sec. 7508A
CCH Reference - 2008FED ¶42,687C.22
CCH Reference - FINH ¶22,560.30
Tax Research Consultant
CCH Reference - TRC FILEIND: 15,204.25
CCH Reference - TRC FILEBUS: 15,110

CCH (cch.taxgroup.com) reports:

The IRS has proposed an amendment to Reg. §301.7508A-1 to clarify the rules relating to the postponement of certain tax-related deadlines because of a presidentially declared disaster, terrorist or military actions. The proposed amendment clarifies the scope of relief under Code Sec. 7508A and allows interest to be suspended during the postponement period. The changes reflect amendments to the Code made by the Victims of Terrorism Tax Relief Act of 2001 (P.L. 107-134) and current IRS practice.
The proposed amendment allows the IRS to postpone certain tax-related acts up to one year, up from 90 days. The IRS is also authorized to suspend interest, penalties, additional amounts and additions to tax that normally accrue while a tax-related act is postponed. Moreover, the IRS may grant further relief to taxpayers under Code Sec. 7508A by revenue ruling, revenue procedure, notice, announcement, news release or other guidance. The regulation also clarifies that a postponement of time under Code Sec. 7508A to perform a tax-related act does not extend the due date to perform the act, but merely allows the IRS to disregard a time period of up to one year.
Under the proposed regulation, the postponement period runs concurrently with the extensions of time to file or pay, if any, under other sections of the Code. Thus, when the original due date falls within the postponement period, the taxpayer has until the last day of the postponement period to file for an extension to file or pay, but any resulting extension runs from the original due date. In addition, the relief is specific to the type of extension received. Thus, a taxpayer who received an extension of time to file, but not an extension of time to pay, is eligible only for a postponement of time to file and relief from penalties relating to failure to file, but not for relief from failure to pay penalties as the payment due date was not extended.
Proposed Regulations, NPRM REG-142680-06, 2008FED ¶49,818
Proposed Regulations, NPRM REG-142680-06, FINH ¶41,138
Other References:
Code Sec. 7508A
CCH Reference - 2008FED ¶42,687BD
CCH Reference - FINH ¶22,557
Tax Research Consultant
CCH Reference - TRC FILEBUS: 15,110
CCH Reference - TRC FILEIND: 18,052.20
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

An integrated business application software system that had to be significantly modified before it could be used by the purchaser, Menasha Corp., was ruled exempt from Wisconsin sales and use tax as custom software by the Wisconsin Supreme Court. The court further held that, in deciding the purchaser's appeal of the Wisconsin Department of Revenue decision that the software was taxable, the Wisconsin Tax Appeals Commission was not required to give deference to the Department's interpretation of its own rule defining "custom programs."

CCH (cch.taxgroup.com) reports:

The IRS has released the general rules for filing, and IRS and Social Security requirements for reproducing, paper substitutes for Form W-2, Wage and Tax Statement, and Form W-3, Transmittal of Wage and Tax Statements, for wages paid during the 2008 calendar year. Form W-2 (Copy A) or any other copies of a substitute Form W-2 or a substitute Form W-3 must conform to the specifications in the newly released guidance to be acceptable to the IRS and the SSA. IRS offices are not authorized to allow deviations from the specifications. The procedure will be reproduced as the next revision of Publication 1141, General Rules and Specifications for Substitute Forms W-2 and W-3.
The major changes for 2008 include:
(1) The Substitute Forms Unit has a new email address; Substituteforms@irs.gov;
(2) The room number in the official mailing address for the Substitute Forms Unit has been changed to Room 6526; and
(3) Guidance for the use of logos, slogans, and advertising on employee statements is provided in Section 1.04 of Part A of the procedure. Since no comments were received by the IRS last year, revising and amending the regulations was unnecessary.
Rev. Proc. 2007-43, I.R.B. 2007-27, 26 (reprinted as Publication 1141, Rev. 7-2007), is superseded.
Rev. Proc. 2008-33, 2008FED ¶46,519
Other References:
Code Sec. 3501
CCH Reference - 2008FED ¶33,662.175
Code Sec. 7513
CCH Reference - 2008FED ¶42,702.40
Tax Research Consultant
CCH Reference - TRC FILEBUS: 12,052.10

CCH (cch.taxgroup.com) reports:

The IRS has provided the general rules and specifications for reproducing paper and computer-generated paper substitutes for the January 2008 revision of Form 941, Employer's Quarterly Federal Tax Return, and for the January 2006 revision of Schedule B (Form 941), Report of Tax Liability for Semiweekly Schedule Depositors. Substitute territorial Forms 941-PR, 941-SS and Anexo B (Forma 941-PR) should also follow the specifications set forth. Rev. Proc. 2007-42, I.R.B. 2007-27, 15 (reprinted as Publication 4436, Rev. 7-2007), is superseded.
Rev. Proc. 2008-32, 2008FED ¶46,518
Other References:
Code Sec. 3501
CCH Reference - 2008FED ¶33,662.13
Code Sec. 7513
CCH Reference - 2008FED ¶42,702.40
Tax Research Consultant
CCH Reference - TRC FILEBUS: 12,052.10
 

CCH (cch.taxgroup.com) reports:

The IRS has issued final regulations under Code Secs. 860A, 860G(b), 863, 1441
and 1442 regarding when income from a real estate mortgage investment conduit (REMIC) becomes taxable to foreign persons with interests in entities that hold residual interest in a REMIC. The final regulations adopt previously issued temporary and proposed regulations (T.D. 9272, NPRM REG-159929-02) without any substantive changes, and the preamble to T.D. 9272 functions as the explanation for the final regulations.
Background
The holder of a residual interest in a REMIC must take into account the holder's daily share of the income and loss of the REMIC for each day of the year in which the interest is held. The holder is, therefore, taxable on the income and loss, regardless of whether there is a distribution. However, if the holder is a nonresident alien or a foreign corporation, such amounts are only taken into account for tax purposes when they are actually distributed or when the residual interest is disposed of. A REMIC will often experience a period early in its existence when it receives a large amount of interest that it uses to pay for nondeductible items, which results in a residual interest holder being taxed on income the holder will not receive in a distribution. Such interest is generally referred to as a noneconomic REMIC residual interest and, although this income ("phantom income") is taxed, it is usually offset later by matching deductions ("phantom losses").
These holders are subject to rules relating to excess inclusions, which prevent the use of net operating losses to offset excess inclusions and preclude a reduction in withholding taxes. A residual interest holder cannot reduce its taxable income for the year below the excess inclusion, equal to the excess of net income passed through to the holder over its daily accrual, which is determined by its interest in the REMIC.
The tax on excess inclusions may be incentive for a noneconomic REMIC residual interest holder to transfer the interest in order to avoid the tax. To ensure that excess inclusions are properly taxed, Reg. §1.860E-1 and §1.860G-3
provide for the disregard of such transfers made to a foreign person that have tax-avoidance potential. However, a transfer will not be disregarded if the transferor reasonably expects the REMIC will distribute to the foreign transferee an amount equaling 30 percent of the excess inclusion.
This has resulted in transactions where a noneconomic REMIC residual interest holder has transferred the interest to a domestic partnership, and the domestic partnership subsequently transfers the phantom income to later-joining foreign partners. The transferor of the interest may argue that the requirements of Reg. §1.860E-1 and §1.860G-3
do not apply, and the partnership may take the position that the foreign partner holds a share of the interest and is not taxed on the phantom income until a distribution is made or the interest is disposed of.
Final Regulations
Like the temporary regulations, the final regulations provide for an acceleration of recognition of REMIC net income in the case of the foreign partner. Furthermore, the taxation on excess inclusion income allocated to foreign partners is also accelerated by the regulations in the case of real estate investment trusts (REITs), regulated investment companies (RICs), common trust funds or subchapter T cooperative organizations.
The final regulations provide that the foreign shareholder in a REIT, participant in a common trust fund, or patron in a subchapter T cooperative organization must take into account excess inclusion income at the same time as other income from the entity. Final regulations under Code Sec. 1441 also treat the excess income as having sources inside the U.S. and eliminate the withholding exemption available under certain circumstances to withholding agents who do not have custody of money or property.
The regulations regarding the acceleration of REMIC income apply to the first REMIC allocations to foreign persons on or after August 1, 2006. The regulations regarding the source of excess inclusions are applicable for tax years ending after August 1, 2006.
T.D. 9415, 2008FED ¶47,050
Other References:
Code Sec. 860A
CCH Reference - 2008FED ¶26,600A
CCH Reference - 2008FED ¶26,600D
CCH Reference - 2008FED ¶26,605
Code Sec. 860G
CCH Reference - 2008FED ¶26,720E
CCH Reference - 2008FED ¶26,720G
Code Sec. 863
CCH Reference - 2008FED ¶27,160B
CCH Reference - 2008FED ¶27,161
CCH Reference - 2008FED ¶27,161C
Code Sec. 1441
CCH Reference - 2008FED ¶32,702A
CCH Reference - 2008FED ¶32,704
CCH Reference - 2008FED ¶32,705
Tax Research Consultant
CCH Reference - TRC EXPAT: 15,110.30
CCH Reference - TRC RIC: 9,252.20

CCH (cch.taxgroup.com) reports:

The Senate on July 11 approved by a 63 to 5 margin a housing bill (HR 3221) that contains nearly $14.5 billion in tax relief, clearing the way for the measure to return to the House, which is expected to make minor changes before passage. The Senate and House are expected to quickly concur over the differences and send the legislation to President Bush for his signature.
The unusual late Friday evening roll call vote became necessary when a lone GOP senator objected to a unanimous consent agreement in hopes of cutting a deal on an unrelated piece of legislation. The move forced Democratic leaders to run out the clock on the time allotted for debate before Senate rules would allow the chamber to hold the vote.
A threatened presidential veto could also cause further problems, although the legislation has wide bipartisan support in both chambers and it is anticipated there would be enough votes to override the veto. Also, a Senate provision in the measure that provides $3.9 billion in Community Development Block Grants for communities to buy and repair foreclosed properties will be targeted by budget hawks in the House because the proposal contains no offsets.
By Jeff Carlson, CCH News Staff.

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  A West Virginia commercial bank was entitled to a deduction allowance in computing corporation net income and business franchise tax liability for the entire amount of mortgage loan obligations because the bank satisfied its burden of proof by showing that the loans for which it obtained additional nonresidential collateral were primarily secured by state residential property occupied by nontransients. The bank was also entitled to rely on a Technical Assistance Advisory (TAA) in claiming a deduction allowance for construction loans secured by unoccupied residential property. The bank was not entitled to a deduction allowance for Small Business Administration (SBA) and United States Department of Agriculture (USDA) loans because the bank never filed a petition for refund and, even if it had filed a petition, the loans did not qualify as exempt U.S. obligations under West Virginia law.

CCH (cch.taxgroup.com) reports:

  Virginia transportation funding legislation that would have included various tax-related provisions, including a statewide sales tax increase, was defeated by the House of Delegates on July 9, 2008. As previously reported, the legislation passed the Senate on June 25, 2008. (TAXDAY, 2008/06/30, S.34)

S.B. 6009, defeated by the Virginia House of Delegates on July 9, 2008.
 

CCH (cch.taxgroup.com) reports:

  The Alaska Legislature convened in a fourth special session on July 9 to consider items related to energy, including the following:

  -- approval of the issuance of a license under the Alaska Gasline Inducement Act;

  -- statutory changes to establish the Alaska resource rebate program and to provide payments under the program to residents of the state; and

  -- statutory changes to suspend temporarily the motor fuel tax.

Executive Proclamation, Governor Sarah Palin, July 1, 2008.
 

CCH (cch.taxgroup.com) reports:

  The Senate on July 10 neared final passage of a housing bill (HR 3221) that contains nearly $14.5 billion in tax breaks, but a lone GOP senator held up final passage by trying to cut a deal on an unrelated measure. At press time, Senate leaders continued their negotiations and a spokesperson for Senate Majority Leader Harry Reid, D-Nev., told reporters that the chamber would move the bill either that night or on July 11.

  Earlier in the day, the Senate cleared the final hurdle toward passage by approving a third cloture vote, 84-12, leaving only a final vote under a unanimous consent agreement necessary in order to send the legislation back to the House for approval. And, while some House members said they have a few minor issues with the Senate version, it is widely expected that the bill, which has broad bipartisan support in both chambers, will be quickly conferenced and sent to President Bush for his signature. A threatened presidential veto may have little impact as both the House and Senate seem to have enough votes to override a veto.

  The noncontroversial tax package would create an additional standard deduction for property taxes for homeowners who do not itemize their federal taxes, provide an $8,000 refundable, repayable tax credit to assist first time home buyers with home purchases and an increase in funding for mortgage revenue bonds. Also included is a provision to increase the amount of federal low-income housing tax credits (LIHTC). Offset provisions include expanded information return reporting by banks to the IRS regarding annual credit card sales by merchants, and changes to IRS penalties on companies and individuals that fail to correctly report or neglect to timely file certain tax documents required by the IRS.

  By Jeff Carlson, CCH News Staff

CCH (cch.taxgroup.com) reports:

  The Economic Stimulus Act of 2008 (ESA) (P.L. 110-185) is analogous to a retroactive reduction in 2007 tax rates; consequently, with respect to taxpayers who had filed for bankruptcy, the only debtors who could not take advantage of the economic stimulus checks issued under the ESA were those who had no cash exemption available to them. In cases where a bankruptcy petition was filed after the enactment of the ESA, the economic stimulus check could be exempted as a tax refund if the cash exemption was available. Under the ESA, the amount received by a taxpayer is to be viewed as an extra payment on the 2007 tax liability; thus, the check either increased a refund or provided a refund for a taxpayer who paid the IRS an amount owed. The argument that no right to the check vested until it was received was rejected, as was the idea that a refund of amounts never actually paid could not be a tax refund. Congress authorized the fictional payment or overpayment treatment of the amounts paid, and the court could not question that decision.

  Debtors who filed bankruptcy petitions before the enactment of the ESA and who had a cash exemption available could also exempt their stimulus checks as a refund of taxes. Congress restructured and recalculated each debtor's prepetition tax liabilities; thus, the liabilities related back to the prepetition size of the debtor's tax refund, yielding a larger asset.

  Debtors who did not have a cash exemption available could not take advantage of the checks. Congress specifically linked the stimulus checks to 2007 taxes; thus, the payments were not intended to be treated as gifts or grants and were the property of the bankruptcy estate.

In re D.F. Alguire, BC-DC N.Y., 2008-2 USTC ¶50,421

Other References:

 
Code Sec. 6428

  CCH Reference - 2008FED ¶38,869.021

  CCH Reference - 2008FED ¶38,869.60

 
Code Sec. 6871

  CCH Reference - 2008FED ¶40,630.365

  Tax Research Consultant

  CCH Reference - TRC INDIV: 57,900
CCH Reference - TRC INDIV: 66,052.05
 

CCH (cch.taxgroup.com) reports:

  An oil corporation's exchange of nonproducing oil properties for a newly formed subsidiary's stock was a valid transfer to a controlled corporation and, under the law in effect at the time, the corporation's basis in the properties carried over to the stock. Thus, the corporation could recognize a significant loss on its subsequent sale of the stock.

  The exchange was a typical internal restructuring that was supported by substantial business reasons; in fact, it was just one part of a three-prong plan to improve the taxpayer's financial position without completely relinquishing control over the transferred assets. Although the taxpayer's tax officer had proposed creating the subsidiary and the transfer produced significant tax benefits, the arrangement also achieved that taxpayer's legitimate nontax objectives of raising capital while reducing the management costs for the nonproducing properties. Since the transfer served a valid business purpose and possessed objective economic substance, it was not a sham transaction. Coltec Industries, Inc. , CA-FC, 2006-2 USTC ¶50,389, was distinguished.

  In addition, the nonproducing oil properties constituted property, even though they had no discounted net cash flow value and were not otherwise appraised for market value. Even if the government was correct when it claimed that assets had to have value in order to qualify as property, the evidence showed that the nonproducing properties had some value, both in terms of potential oil production and the taxpayer's fee simple interest in some of the land.

  Finally, the anti-abuse rules of Code Sec. 482 did not allow the IRS to reallocate the taxpayer's losses within the taxpayer's controlled group. The IRS did not mention reallocation in the taxpayer's notice of determination, and it raised the issue for the first time only shortly before trial. In any case, the anti-abuse rules were inapplicable because the exchange of the nonproducing properties for stock was not an improper attempt to evade taxes.

Shell Petroleum Inc., DC Tex., 2008-2 USTC ¶50,422

Other References:

 
Code Sec. 351

  CCH Reference - 2008FED ¶16,405.26

  CCH Reference - 2008FED ¶16,405.46

 
Code Sec. 482

  CCH Reference - 2008FED ¶22,283.13

  CCH Reference - 2008FED ¶22,283.48

  Tax Research Consultant

  CCH Reference - TRC CCORP: 3,052
CCH Reference -
TRC CCORP: 3,060
CCH Reference - TRC ACCTNG: 30,050
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The North Carolina General Assembly has sent a budget bill to the Governor that, if enacted, would make numerous corporation franchise and income tax, personal income tax, sales and use tax, insurance gross premiums tax, property tax, and estate and gift tax changes as outlined below.

CCH (cch.taxgroup.com) reports:

  The District of Columbia's recently enacted Budget Support Act of 2008 amended a number of statutory provisions impacting the District's corporate and personal income taxes and insurance premium tax.

CCH (cch.taxgroup.com) reports:

  The Treasury and IRS have issued final regulations that address the taxation of income earned on escrow accounts, trusts and other funds used during deferred like-kind exchanges of property. Final regulations are also issued on below-market loans to facilitators of these exchanges (T.D. 9413). The regulations affect taxpayers that engage in deferred like-kind exchanges and escrow holders, trustees, qualified intermediaries and others that hold the funds during the like-kind exchange.

  The final regulations provide that exchange funds are generally treated as loaned by a taxpayer to an exchange facilitator. The exchange facilitator must take all items of income, deduction and credit into account. Exchange funds are defined as relinquished property, cash or cash equivalents that secure the obligation of the transferee to transfer replacement property or proceeds from a transfer of relinquished property held in a qualified escrow account, qualified trust, or other escrow account, trust or fund in a deferred exchange. An exchange facilitator is a qualified intermediary (QI), transferee, escrow holder, trustee or other party that holds exchange funds for a taxpayer in a deferred exchange pursuant to an escrow, trust or exchange agreement.

  Loan treatment will not apply if the escrow agreement, trust agreement, or exchange agreement specifies that the earnings attributable to the exchange funds are payable to the taxpayer. In this situation, the taxpayer must take all items of income, deduction, and credit attributable to the exchange funds into account. The regulations provide a definitive test for determining earnings attributable to a taxpayer's exchange funds when an exchange facilitator holds the taxpayer's exchange funds in a separately identified account or sub-account. Under the rule, the earnings attributable to the taxpayer's exchange fund include only the earnings on the separately identified account. Further, fees for administrative services are not treated as earnings attributable to exchange funds.

  If the exchange funds are treated as loaned by the taxpayer to the exchange facilitator, interest is generally imputed to the taxpayer under Code Sec. 7872, unless the exchange facilitator pays sufficient interest. The exchange facilitator has income from the imputed interest and offsetting deductions for the deemed paid interest.

  The final regulations contain a number of measures intended to alleviate any burden placed on small businesses from loan characterization. Specifically, the regulations provide an exemption from Code Sec. 7872 for an exchange facilitator loan if the amount of the exchange funds treated as loaned does not exceed $2 million and the duration of the loan is six months or less. The final regulatory flexibility analysis estimates that approximately 325 businesses are full-time exchange facilitators. Of that number, a significant portion of the qualified intermediary industry consists of small businesses with $2 million or less in annual gross receipts.

  The regulations also provide a special AFR that is the investment rate on a 13-week (generally 91-day) Treasury bill. Because the short-term AFR may be lower than the 91-day rate, taxpayers may apply the lower of the two when testing for sufficient interest under Code Sec. 7872. A transition period is also provided to allow exchange facilitators time to make required changes to accounting, control and reporting systems and to revise exchange agreements.

  The regulations apply to transfers of relinquished property made, and to exchange facilitator loans issued, on or after October 8, 2008. With respect to transfers of relinquished property made by taxpayers after August 16, 1986, but before October 8, 2008, the IRS will not challenge any consistently applied method of taxation for income attributable to exchange funds.

T.D. 9413, 2008FED ¶47,049

Other References:

 
Code Sec. 468B

  CCH Reference - 2008FED ¶21,950B

  CCH Reference - 2008FED ¶21,950HC

 
Code Sec. 1031

  CCH Reference - 2008FED ¶29,619

 
Code Sec. 7872

  CCH Reference - 2008FED ¶43,957CE

  CCH Reference - 2008FED ¶4,959J

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 12,222

  CCH Reference - TRC FILEBUS: 9,350

  CCH Reference - TRC FILEBUS: 9,372

CCH (cch.taxgroup.com) reports:

  The IRS has issued proposed regulations under Code Sec. 401(a)(9) and
Code Sec. 403(b) to permit a governmental plan to comply with the required minimum distribution (RMD) rules by using a reasonable and good-faith interpretation of Code Sec. 401(a)(9). Written or electronic comments and requests for a public hearing must be received by October 8, 2008.

Background

 
Code Sec. 401(a)(9) imposes RMD rules on qualified retirement plans. These rules are also applicable to IRAs, Code Sec. 403(b) plans, and Code Sec. 457(b) plans. Distributions from governmental plans are subject to the same Code Sec. 401(a)(9) RMD rules as plans sponsored by private employers. In 2004, the IRS issued Reg. §1.401(a)(9)-1 to Reg. §1.401(a)(9)-9, which outlined RMD rules applicable to both private and governmental plans, although with a transition relief period under which governmental plans could be operated under a reasonable, good-faith standard in recognition of the fact that such plans would have to be amended by a legislature.

Pension Protection Act

  Because governmental plans can be more difficult to amend than other qualified plans, and because they may be constrained by state statutes or constitutions, Congress, in the Pension Protection Act of 2006 (P.L. 109-280), instructed the Secretary of the Treasury to issue regulations under which, for all years to which Code Sec. 401(a)(9) applies, a governmental plan is to be treated as having complied with
Code Sec. 401(a)(9) if the plan complies with a reasonable, good-faith interpretation of that provision. This provision in effect protects governmental plans from ever having to be subject to anything other than a reasonable, good-faith interpretation of Code Sec. 401(a)(9).

Flexibility

  The IRS has proposed changes to the RMD regulations to comply with the congressional mandate. The proposed amendments expressly allow governmental plans to operate under a reasonable, good-faith interpretation of the RMD rules under Code Sec. 401(a)(9). The change gives plans more flexibility to comply with the RMD rules and allows them to take into account state laws permitting certain distribution options, as well as administrative issues associated with these rules.

Proposed Regulations, NPRM REG-142040-07, 2008FED ¶49,817

Other References:

 
Code Sec. 401

  CCH Reference - 2008FED ¶17,724BC

  CCH Reference - 2008FED ¶17,725JE

 
Code Sec. 403

  CCH Reference - 2008FED ¶18,278JC

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 42,170
CCH Reference - TRC RETIRE: 69,254
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  A company's provision of cell phone services in the City of Springfield, Missouri, subjected the company to a 6% local tax on the gross receipts of any business engaged in supplying telephones and telephonic services within the city, according to the U.S. Court of Appeals for the Eighth Circuit. The Springfield Code did not explicitly define the terms "telephone" and "telephonic services." However, applying Missouri's rules of statutory construction, the court concluded that the language of the tax ordinance was unambiguous and that the ordinance applied to cell phones and cell phone services. Although cell phones admittedly have newer and more advanced features than the telephones commonly used when the tax ordinance was first enacted, nothing about the term "telephonic" in the ordinance was limited to the technology generally used to operate telephones in 1944, and the city was not required to update its code for the purpose of recognizing the advent of each new form of technology used to provide telephonic services over the years. Moreover, even assuming that the tax ordinance was ambiguous, looking to extrinsic evidence interpreting it, the court concluded that the legislative intent to tax "telephonic services" made the ordinance applicable to cell phone services. The court also determined that the legislative intent of a 2000 modification that added the terms "telecommunications" and "telecommunications services" to the tax ordinance was to clarify the scope of the ordinance, making it clear that cell phone services were telephonic services subject to the tax, and not to expand the scope of the ordinance. The court did not need to reach the question of whether the 2000 modification violated the Hancock Amendment, because the court was not applying the language of the ordinance that was added in 2000 to the facts of this case. Even if the language added in 2000 was unconstitutional, which the court did not decide, the court saw no reason why the original language of the ordinance could not be severed.

  As a preliminary matter, the court ruled that the district court properly decided that the Missouri exclusive tax remedy doctrine did not require a dismissal of the city's claim for declaratory judgment on the issue of liability. Also, the district court had subject matter jurisdiction, and the city did not need to exhaust its administrative remedies before the district court could determine the issue of liability, because the city's claim satisfied at least one of the exceptions to the exhaustion doctrine. Specifically, the city's tax assessment and collection procedures did not provide an adequate remedy for determining whether the tax applied in this case. Furthermore, the city's request for a declaratory judgment presented the district court with an issue of statutory interpretation, which presented a purely legal issue. Finally, the Tax Injunction Act did not bar the city's claim, because the city's claim was not a claim by a taxpayer seeking to prevent tax collection proceedings.

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

City of Jefferson City v. Cingular Wireless LLC , U.S. Court of Appeals for the Eighth Circuit, No. 07-2884, July 3, 2008.
 

CCH (cch.taxgroup.com) reports:

  The IRS provided taxpayers with guidelines on dividing a charitable remainder trust (CRT) into two or more separate and equal CRTs without violating the provisions of Code Sec. 664. The effects of such a division on other provisions of the Internal Revenue Code were also addressed.

  The guidance presented two situations in which either a charitable remainder annuity trust (CRAT) or a charitable remainder unitrust (CRUT) was divided into separate trusts. In one case the trust was divided, pro rata, into as many separate and equal trusts as necessary to provide a separate trust for each recipient living at the time of the division, while in the second case, the trust was divided pursuant to a divorce. In both cases, the pro rata division of the trust that qualified as a CRT under Code Sec. 664(d) into two or more separate trusts did not cause the trust or any of the separate trusts to fail to qualify as a CRT. Furthermore, the division was not a sale, exchange or other disposition producing gain or loss, the basis under Code Sec. 1015 of each separate trust's share of each asset was the same share of the basis of that asset in the hands of the trust immediately before the division, and each separate trust's holding period for assets transferred to it by the original trust included the holding period of the asset as held by the original trust immediately before division.

  The division of the CRT also did not terminate the trust's status as a trust described in, and subject to, the private foundation provisions of Code Sec. 4947(a)(2) and did not result in the imposition of an excise tax under Code Sec. 507(c). The division did not constitute an act of self-dealing under Code Sec. 4941 or a taxable expenditure under Code Sec. 4945.

Rev. Rul 2008-41, 2008FED ¶46,515

Rev. Rul 2008-41, FINH ¶30,588

Other References:

 
Code Sec. 507

  CCH Reference - 2008FED ¶22,780.31

 
Code Sec. 664

  CCH Reference - 2008FED ¶24,468.12

  CCH Reference - FINH ¶17,075.10

 
Code Sec. 1015

  CCH Reference - 2008FED ¶29,394.021

  CCH Reference - 2008FED ¶29,394.18

 
Code Sec. 1223

  CCH Reference - 2008FED ¶30,463.675

 
Code Sec. 4941

  CCH Reference - 2008FED ¶34,031.535

 
Code Sec. 4945

  CCH Reference - 2008FED ¶34,107.021

  Tax Research Consultant

  CCH Reference - TRC ESTGIFT: 45,204

CCH (cch.taxgroup.com) reports:

  The IRS has issued guidance allowing certain asset securitization vehicles to avoid a challenge to their tax status in the event disqualifying modifications are made to subprime mortgage loans held by the vehicle. Real Estate Mortgage Investment Conduits (REMICs) are common securitization vehicles for mortgages. Aimed at aiding current attempts to curtail the economic fallout of the subprime mortgage crisis, the revenue procedure's emphasis is on residential subprime adjustable rate mortgage (ARM) loans. The guidance provided in Rev. Proc. 2008-47 relies on information contained in the recent publication by the American Securitization Forum entitled, "Statement of Principles, Recommendations and Guidelines for a Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans" (the July 2008 Framework).

  The July 2008 Framework is effective July 8, 2008, and applies to first-lien subprime residential ARMs that (1) originated between January 1, 2005, and July 31, 2007, (2) have an initial fixed rate period of 36 months or less, (3) are included in securitized pools, and (4) have an initial interest rate reset date between January 1, 2008, and July 31, 2010. This July 2008 Framework provides a fast track procedure for modifying loans in advance of a reset date and generally fixes the rate for a period of five years.

  The revenue procedure applies to a fast track modification to a loan following the July 2008 Framework, and to a second-lien holder's action of subordinating its lien to any new lien that may arise under a loan as the result of such a fast track modification. The transactions must occur on or before July 31, 2010. If either of these transactions occur, the IRS will not challenge a securitization vehicle's:

  (1) qualification as a REMIC on the grounds that the transactions are not among the exceptions listed in
Reg. § 1.860G-2(b)(3);

  (2) classification as a trust on the grounds that the transactions manifest a power to vary the investment of the certificate holders; and

  (3) qualification as a REMIC on the grounds that the transactions resulted in a deemed reissuance of the REMIC regular interests

Furthermore, the IRS will not contend that the transactions are prohibited transactions under Code Sec. 860F(a)(2) on the grounds that the transactions resulted in one or more dispositions of qualified mortgages and that the dispositions are not among the exceptions listed in Code Sec. 860F(a)(2)(A)(i) through (iv).

 
Rev. Proc. 2007-72 is amplified and, as amplified, is superseded by Rev. Proc. 2008-47.Rev. Proc. 2007-72 is amplified and, as amplified, is superseded by Rev. Proc. 2008-47.

Rev. Proc. 2008-47, 2008FED ¶46,514

Other References:

 
Code Sec. 860D

  CCH Reference - 2008FED ¶26,662.01

  CCH Reference - 2008FED ¶26,662.021

 
Code Sec. 7701

  CCH Reference - 2008FED ¶43,091.68

  Tax Research Consultant

  CCH Reference - TRC RIC: 9,300

  CCH Reference - TRC ESTTRST: 3,150

CCH (cch.taxgroup.com) reports:

  For pension plan years beginning in July 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 July 2008 is 6.04 percent; and the 90-percent to 100-percent permissible range is 5.44 percent to 6.04 percent. The annual rate of interest on 30-year Treasury securities for June 2008, used to determine the minimum present value of a participant's benefit under Code Sec. 417(e)(1) and (2), is 4.69 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 July 2008 are: 5.10 for the first segment; 6.03 for the second segment; and 6.54 for the third segment.

  For plan years beginning in 2008, the funding transitional segment rates for July 2008 are: 5.73 for the first segment; 6.04 for the second segment; and 6.21 for the third segment.

  For plan years beginning in 2008, the minimum present value transitional segment rates for June 2008 are: 4.75 for the first segment; 5.08 for the second segment; and 5.14 for the third segment.

Notice 2008-65, 2008FED ¶46,513

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

CCH (cch.taxgroup.com) reports:

  The IRS has amended final regulations and issued temporary and proposed regulations relating to elections to deduct start-up expenditures under Code Sec. 195, organizational expenditures of corporations under Code Sec. 248 and organizational expenses of partnerships under Code Sec. 709. The newly issued regulations reflect amendments made by the American Jobs Creation Act of 2004 (P.L. 108-357) and update the manner in which taxpayers elect to deduct such expenses. The temporary regulations contain numerous examples that illustrate how the election is made, how to calculate the amount of the allowable deduction, and how to treat later changes in the characterization of an item or redeterminations of the year in which the trade or business begins. The temporary regulations generally apply to expenditures that are paid or incurred after September 8, 2008. However, taxpayers may apply all the provisions of the regulations to expenditures that are paid or incurred after October 22, 2004, provided that the period of limitations on assessment of tax has not expired for the year that the election is deemed made.

  For start-up expenditures paid or incurred after September 8, 2008, the temporary regulations under Code Sec. 195 provide that a taxpayer is deemed to make an election to deduct such expenditures for the tax year in which the active trade or business to which the expenditures relate begins. Taxpayers are no longer required to attach a statement to their returns or specifically identify the deducted amounts as start-up expenditures in order for the election to be effective. Taxpayers can forego the deemed election by clearly electing to capitalize start-up expenditures on a timely filed federal income tax return (including extensions) for the tax year in which the active trade or business begins. The election to capitalize start-up expenditures is made in accordance with the form and instructions used by the taxpayer to file its federal income tax return. The election either to deduct start-up expenditures or to capitalize start-up expenditures is irrevocable and applies to all the taxpayer's start-up expenditures related to the active trade or business. In general, a change in the characterization of an item as a start-up expenditure or a change in the determination of the tax year in which the active trade or business begins is treated as a change in accounting method that requires a
Code Sec. 481(a) adjustment.

  Temporary regulations under Code Secs. 248 and 709 provide similar rules for organizational expenditures of corporations and organizational expenses of partnerships that are paid or incurred after September 8, 2008. Corporations and partnerships are deemed to make an election to deduct such amounts for the tax year in which the corporation or partnership begins business. Corporations and partnerships are no longer required to attach a statement to their returns or specifically identify the deducted amounts as organizational expenditures or expenses in order for the election to be effective. Such entities can forgo the deemed election by clearly electing to capitalize organizational expenditures or expenses on a timely filed federal income tax return (including extensions) for the tax year in which the corporation or partnership begins business. The election to capitalize corporate organizational expenditures or partnership organizational expenses is made in accordance with the form and instructions used by the corporation or partnership to file its federal income tax return. The election either to deduct corporate organizational expenditures or partnership organizational expenses or to capitalize such amounts is irrevocable and applies to all corporate organizational expenditures or partnership organizational expenses. In general, a change in the characterization of an item as an organizational expenditure or expense or a change in the determination of the tax year in which the corporation or partnership begins business is treated as a change in accounting method that requires a Code Sec. 481(a) adjustment.

  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 October 6, 2008.

T.D. 9411, 2008FED ¶47,048

Proposed Regulations, NPRM REG-164965-04, 2008FED ¶49,816

Other References:

 
Code Sec. 195

  CCH Reference - 2008FED ¶12,370D

  CCH Reference - 2008FED ¶12,370H

 
Code Sec. 248

  CCH Reference - 2008FED ¶13,351

  CCH Reference - 2008FED ¶13,351E

 
Code Sec. 709

  CCH Reference - 2008FED ¶25,221

  CCH Reference - 2008FED ¶25,221E

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 9,450
CCH Reference - TRC PART: 18,158.10
CCH Reference -
TRC PART: 18,200
CCH Reference -
TRC DEPR: 21,400
CCH Reference -
TRC DEPR: 24,500
 

CCH (cch.taxgroup.com) reports:

  The Senate on July 7 voted 76 to 10 to invoke cloture on a second portion of a housing package, the Foreclosure Prevention Bill of 2008 (HR 3221), leaving open the possibility that the chamber could complete action on the measure by the end of the week of July 7. The Senate on June 25 approved the main portion of the bill, which contains $14 billion in housing tax incentives (TAXDAY, 2008/06/26, C.2).

  Senate Majority Leader Harry Reid, D-Nev., had temporarily suspended debate on the housing legislation prior to the July 4th recess, opting to wait until after Congress returned from the recess because leaders on both sides of the aisle could not agree on how to proceed with amendments. The disagreement arose when Sen. John Ensign, R-Nev., insisted on adding what Democrats considered a nongermane amendment that would add an $8.3 billion package of renewable energy tax extenders to the bill. It remains unclear if Ensign will relent on his insistence on holding a vote on his amendment, potentially forestalling further action on the bill. Democratic leaders contend that the amendment would derail the entire measure as the energy tax incentives are not paid for and would never gain approval in the House.

  By Jeff Carlson, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The New York Department of Taxation and Finance has announced that, under the new voluntary disclosure and compliance program, eligible taxpayers who owe back taxes can avoid monetary penalties and possible criminal charges by doing the following:

  -- telling the Department what taxes they owe;

  -- paying those taxes; and

  -- entering an agreement to pay all future taxes.

  The program was authorized by the 2008-09 budget package. (TAXDAY, 2008/04/25, S.14)

  An online application is available on the Department's Web site at
http://www.tax.state.ny.us/e-services/vold/default.htm.

Notice, New York Department of Taxation and Finance, July 2008.

CCH (cch.taxgroup.com) reports:

  On July 3, 2008, Massachusetts Governor Deval Patrick signed into law a corporate tax reform bill that reduces the corporate excise rate for business corporations from 9.5% to 8.0% and for financial institutions from 10.5% to 9.0% by 2012. The legislation adopted combined reporting that requires corporations that are engaged in unitary business operations to file combined returns with their affiliates. The bill also adopted the federal "check the box" rules for business entity classification.

  Subscribers to the CCH Tax Research NetWork can view the full text of the release.

Press Release , Massachusetts Governor Deval L. Patrick, July 3, 2008.
 

CCH (cch.taxgroup.com) reports:

  Temporary and proposed regulations provide guidance with respect to the election to expense qualified refinery property. The temporary regulations generally apply to tax years ending on or after July 9, 2008, and terminate on July 1, 2011. However, taxpayers may rely on the proposed regulations for tax years ending prior to July 9, 2008.

 
Code Sec. 179C allows taxpayers to elect to deduct 50 percent of the cost of qualified refinery property placed in service after August 8, 2005, and before January 1, 2012. The remaining 50 percent of the cost is recovered through depreciation (or, if applicable, deducted as Code Sec. 179B capital costs incurred to comply with sulfur regulations). All costs that are properly capitalized into qualified refinery property are included in the cost of qualified refinery property.

  The temporary regulations restate many of the statutory elements of the expense election, including the definition of eligible property, the description of a qualified refinery, compliance with applicable environmental laws, and the written binding contract requirement. The temporary regulations generally interpret the statute in a manner consistent with existing statutory and regulatory principles, and recognize that taxpayers have had to address issues related to the expense election for prior tax years in the absence of regulations.

  The regulations provide that, for purposes of the original-use requirement, original use is the first use of the property, regardless of whether that use is by the taxpayer. Capital expenditures to recondition or rebuild property acquired or owned by the taxpayer can meet the original use requirement, but reconditioned or rebuilt property acquired by a taxpayer does not. Sale-leaseback transactions can qualify for exceptions to the original-use requirement, as well as the placed-in-service rules. The regulations also provide tests for satisfying the production capacity requirements, and clarify that the expense election is available for qualified refinery property even if a portion of the refinery that was placed in service before August 8, 2005, fails to meet applicable environmental laws. Rules consistent with bonus depreciation principles apply to the application of the written binding contract rules applicable to self-constructed property.

  Most taxpayers must make the election by the due date (including extensions) for filing the federal income tax return for the tax year in which the qualified refinery property is placed in service. However, a taxpayer that did not claim the expense deduction on a return filed for a tax year ending prior to July 9, 2008, may do so by properly making the election on an amended return filed by December 31, 2008. The election is generally irrevocable, but the regulations permit a taxpayer to revoke the election before the revocation deadline, which is the later of December 31, 2008, or 24 months after the due date (including extensions) of the taxpayer's return for the tax year for which the election would apply.

  A cooperative that is at least partly owned by another cooperative may elect to allocate all or a portion of its expense deduction for the year to the cooperative's owner(s). The temporary regulations provide that this allocation is equal to the cooperative's owner's ratable share of the total amount allocated, determined on the basis of the owner's ownership interest in the cooperative taxpayer at the beginning of the cooperative taxpayer's tax year. The regulations also provide rules for making the election. The cooperative's election cannot be revoked.

  The temporary regulations also provide rules for the statement that must be attached to an electing taxpayer's return filed after July 23, 2008. The statement must identify the name and location of the qualified refinery property, affirm that the refinery property meets the production capacity requirements, and provide the total cost basis of the qualified refinery property and the depreciation treatment of the capitalized portion of the qualified refinery property. A taxpayer that claims the deduction on a return filed before July 23, 2008, must attach a statement to its next return for each tax year in which the taxpayer claimed the deduction but did not file a statement.

  The text of the temporary regulations also serves as the text of the proposed regulations. Written or electronic comments must be received by October 7, 2008. Outlines of the topics to be discussed at a public hearing scheduled for Thursday, November 20, 2008, at 10:00 a.m. must be received by Tuesday, October 14, 2008.

T.D. 9412, 2008FED ¶47,046

Proposed Regulations, NPRM REG-146895-05, 2008FED ¶49,815

Other References:

 
Code Sec. 179C

  CCH Reference - 2008FED ¶12,137B

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 18,900

CCH (cch.taxgroup.com) reports:

  The IRS has provided more guidance regarding the issues addressed in Rev. Rul. 2008-12 (TAXDAY, 2008/02/20, I.2), which addressed the deductibility of an individual limited partner's distributive share of interest expense allocable to the partnership's securities trading business. In the first fact pattern, the IRS ruled that, in the case of an individual limited partner, interest paid or accrued on indebtedness allocable to property held for investment described in Code Sec. 163(d)(5)(A)(ii) is associated with a trade or business and is deductible to the extent allowable after the application of the Code Sec. 163(d)(1) limitation. The interest paid or accrued is taken into account in determining the individual's adjusted gross income and does not constitute an itemized deduction.

  In the second fact pattern, the individual limited partner has both investment interest expense attributable to indebtedness allocable to property held as a passive activity and investment interest expense attributable to indebtedness allocable to property held in an activity involving the conduct of a trade or business, and his aggregate investment interest expense is greater than his net investment income. The taxpayer must allocate his net investment income between the two categories using a reasonable method of allocation. Rev. Rul. 2008-12, I.R.B. 2008-10, 520, is amplified.

Rev. Rul. 2008-38, 2008FED ¶46,511

Other References:

 
Code Sec. 163

  CCH Reference - 2008FED ¶9403.45

 
Code Sec. 469

  CCH Reference - 2008FED ¶21,966.53

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 21,202

CCH (cch.taxgroup.com) reports:

  Where an upper-tier partnership is engaged solely in the business of holding limited partnership interests in lower-tier partnerships that are engaged in the business of trading securities, management fees paid or incurred by the upper-tier partnership are not a deductible ordinary and necessary business expense paid or incurred on behalf of its lower-tier partnerships. However, the upper-tier partnership's management fee is deductible as an ordinary and necessary expense for the collection of income. The expense is not taken into account in computing the upper-tier partnership's taxable income or loss for purposes of determining a partner's income tax. Instead, it must be separately stated by the upper-tier partnership and separately taken into account for purposes of computing an individual limited partner's tax liability. A management fee paid or incurred by a lower-tier partnership is deductible as an ordinary and necessary business expense.

  For purposes of determining a partner's income tax, the lower-tier partnership's management fee is taken into account in computing the lower-tier partnership's taxable income or loss, and the upper-tier partnership's distributive share of taxable income or loss of a lower-tier partnership is taken into account in computing the upper-tier partnership's taxable income or loss. Finally, the individual limited partner's distributive share of the upper-tier partnership's taxable income or loss is taken into in computing the limited partner's tax liability.

Rev. Rul. 2008-39, 2008FED ¶46,510

Other References:

 
Code Sec. 162

  CCH Reference - 2008FED ¶8520.3184

 
Code Sec. 212

  CCH Reference - 2008FED ¶12,523.17

 
Code Sec. 702

  CCH Reference - 2008FED ¶25,083.2954

 
Code Sec. 703

  CCH Reference - 2008FED ¶25,103.5228

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 12,062
CCH Reference -
TRC PART: 18,050
 

CCH (cch.taxgroup.com) reports:

  The IRS has issued revised specifications for electronically filing Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips. Form 8027 is used by large food or beverage establishments to report their gross receipts from food or beverage operations and tips reported by employees. The updated specifications are effective for Forms 8027 due on the last day of February 2009 or filed after that date.

  The new procedure reflects the following changes to the existing procedures:

  (1) Filings on magnetic media will no longer be accepted; all filings must be electronic.

  (2) Form 8809, Application for Extension of Time to File Information Returns, is now available as a fill-in form on the FIRE (Filing Information Returns Electronically) System, and the IRS encourages its use there in place of the filing of a paper application.

  (3) Establishments that send a test filing will receive email notification of the status of their test filing within five days.

The new procedure also provides additional and clarifying guidance for establishments that allocate tips based on a good-faith agreement and for those that wish to request a determination letter allowing the use of a lower rate for tip allocation purposes.

 
Rev. Proc. 2006-29, I.R.B. 2006-27, 13, is superseded.

Rev. Proc. 2008-34, 2008FED ¶46,508

Other References:

 
Code Sec. 3402

  CCH Reference - 2008FED ¶33,577.25

 
Code Sec. 6053

  CCH Reference - 2008FED ¶36,465.11

 
Code Sec. 7513

  CCH Reference - 2008FED ¶42,702.15

  Tax Research Consultant

  CCH Reference - TRC PAYROLL: 3,406.25

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Legislation has been enacted that modifies Missouri property tax laws by requiring tax rate rollbacks by all political subdivisions in reassessment years, changing the way voter-approved tax increases are applied to assessed values, and changing the time line for the assessment of property taxes and appeal procedures. Provisions of the personal income tax property tax credit and the property tax homestead exemption have also been amended.

CCH (cch.taxgroup.com) reports:

  The Florida corporate income tax credit for contributions made to nonprofit scholarship-funding organizations is amended to provide that children in foster care or siblings of continuing students are eligible to receive scholarships, to increase the total amount of credits that may be granted in a fiscal year, to allow organizations to use a percentage of contributions for administrative expenses, to limit the amount of unused contributions that may be carried over, and to increase the amount of scholarships that may be granted to each student per fiscal year.

CCH (cch.taxgroup.com) reports:

  Effective for taxable periods beginning after 2008, Delaware gross receipts tax rates are temporarily increased. Effective for taxable periods beginning after March 31, 2012, the rate increases are repealed, and rates will revert to the percentages that were in effect prior to the increase. New rates are as follows:

  -- occupational licensees: 0.384%;

  -- contractors: 0.624%;

  -- manufacturers: 0.180%;

  -- wholesalers: 0.384%;

  -- petroleum wholesalers: 0.240%;

  -- food processors: 0.192%;

  -- commercial feed dealers: 0.096%;

  -- retailers: 0.720%;

  -- transient retailers: 0.720%;

  -- restaurant retailers: 0.624%;

  -- farm machinery retailers: 0.096%;

  -- grocery store retailers: 0.315% of the first $2 million per month, 0.590% thereafter;

  -- lessees: 1.92%; and

  -- lessors: 0.288%.

H.B. 513, Laws 2008, effective as noted above.
 

CCH (cch.taxgroup.com) reports:

  The IRS has suspended several requirements for low-income housing credit projects in Wisconsin, in response to severe storms and flooding that destroyed or damaged many homes. The suspension allows owners of approved low-income housing credit projects to use vacant units to provide temporary housing to displaced individuals. The suspension is effective on June 14, 2008.

  The suspension of the requirements applies when these conditions are satisfied:

  (1) The displaced person must have resided in a Wisconsin jurisdiction designated for Individual Assistance by the Federal Emergency Management Agency as a result of the severe storms and flooding that began on June 5, 2008.

  (2) The Wisconsin Housing and Community Development Authority must approve the housing project for the suspension.

  (3) The project owner must meet certification and recordkeeping requirements with respect to each displaced individual.

  (4) Rents for the low-income units that house displaced individuals must not exceed the existing rent-restricted rates for the low-income units.

  (5) Existing tenants in occupied low-income units cannot be evicted or have their tenancy terminated as a result of efforts to provide temporary housing for displaced individuals.

  The Wisconsin Housing and Community Development Authority will establish a temporary housing period for each housing project, which cannot extend beyond July 31, 2009. During the temporary housing period, certain income limits are suspended; the nontransient use requirement does not apply; and units occupied by displaced persons do not have to be marketed to low-income individuals.

  In addition, for the first year of the credit period during the temporary housing period, displaced persons will be deemed to be low-income tenants for purposes of determining the project's qualified basis and for meeting its 20-50 test or 40-60 test. During the temporary housing period after the first year of the credit period, temporary occupancy of a vacant unit by a displaced person will not affect the status of the unit (that is, market-rate, low-income or never previously occupied). Also, if the income of occupants in low-income units exceeds 140 percent of the applicable income limitation, the temporary occupancy of a unit by a displaced individual will not cause application of the available unit rule. However, displaced individuals will no longer be deemed to be low-income tenants.

Notice 2008-61, 2008FED ¶46,507

Other References:

 
Code Sec. 42

  CCH Reference - 2008FED ¶4385.27

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 54,220.30

CCH (cch.taxgroup.com) reports:

  The Treasury and IRS have issued temporary and proposed regulations regarding the treatment of aircraft and vessel leasing income under
Code Secs. 954,
956 and 367. The temporary regulations reflect changes made by the American Jobs Creation Act of 2004 (P.L.108-357), which repealed the foreign base company shipping provisions and liberalized the marketing safe harbor for aircraft or vessels engaged in foreign commerce. The temporary regulations incorporate the rules of Notice 2006-48, 2006-1 CB 922, which was issued to provide interim guidance, with minor changes. The temporary regulations generally apply on or after May 2, 2008.

  In general, active rents can be excluded from subpart F foreign personal holding company income (FPHCI) when rents are derived from leasing property as a result of the marketing functions of a lessor CFC, if the organization in the foreign country is substantial in relation to the amount of rents derived, based on all of the facts and circumstances. Under a safe harbor test, an organization is substantial in relation to the amount of rents, if active leasing expenses equal or exceed 25 percent of the adjusted leasing profit. The temporary regulations preserve the existing test for determining the substantiality of a foreign organization and include the special marketing safe harbor for aircraft and vessels engaged in foreign commerce. Accordingly, for purposes of aircraft or vessels leased in foreign commerce, an organization will be considered substantial if active leasing expenses, equal or exceed 10 percent of the adjusted leasing profit. The definitions of foreign commerce and the predominant use of an aircraft or vessel outside of the United States are consistent with the legislative history of P.L. 108-357. The temporary regulations also clarify that certain finance leases and acquired leases are eligible for the exclusion

  Temporary regulations issued under Code Sec. 956 provide an exclusion from the definition of U.S. property for aircraft or vessels that generate leasing income that is excluded from FPHCI under the active rents exception.

  Temporary regulations issued under Code Sec. 367 are amended with respect to the rules that treat a U.S. person's transfer of property to a foreign corporation as a nonrecognition transaction if the property is used in the active conduct of a trade or business outside of the United States. Under the temporary regulations, the principles of the active rents exception in Code Sec. 954(c)(2)(A) and the related regulations will apply to determine whether a trade or business that produces rents or royalties is actively conducted. In determining whether certain types of property are transferred for use in the active conduct of a trade or business outside of the United States, a special rule is added to cover aircraft and vessels in foreign commerce. Under the rule, whether leased personal property is predominately used outside of the United States is determined under the Code Sec. 954 temporary regulations. The issue of how to determine whether an aircraft or vessel was used predominantly outside of the Unite States for a particular month for purposes of Code Sec. 367 recapture remains under study. Until guidance is issued, taxpayers may use any reasonable method to make this determination.

  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 October 1, 2008.

T.D. 9406, 2008FED ¶47,045

Proposed Regulations, NPRM REG-138355-07, 2008FED ¶49,814

Other References:

 
Code Sec. 367

  CCH Reference - 2008FED ¶16,642

  CCH Reference - 2008FED ¶16,644

  CCH Reference - 2008FED ¶16,645

 
Code Sec. 954

  CCH Reference - 2008FED ¶28,535B

  CCH Reference - ¶ 2008FED ¶28,535BC

 
Code Sec. 956

  CCH Reference - 2008FED ¶28,573

  CCH Reference - 2008FED ¶28,574

  Tax Research Consultant

  CCH Reference - TRC INTLOUT: 9,106.05
CCH Reference - TRC INTLOUT: 9,256.05
CCH Reference -
TRC INTL: 30,068
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Taxpayers may deduct the gain from the sale of residential rental units in Michigan to a qualified affordable housing project (project) from the tax base when calculating the Michigan business income tax. The project must enter an agreement to operate the residential rental units as rent restricted units for at least 15 years. The deduction is limited if the project agrees to operate only some of the units as rent restricted units. In that case, the deduction is limited to an amount equal to the gain from the sale multiplied by a fraction. The fraction's numerator is the number of units purchased and to be operated as rent restricted; the denominator is all the units purchased.

  A "project" is defined as a person that is organized, qualified, and operated as a limited dividend housing association that has limited the amount of dividends or other distributions that may be distributed to its owners and has received funding through certain sources.

  The Michigan Department of Treasury will record a lien against the property subject to the operation agreement for the total amount of the deduction. The project must pay the lien to the state if it does not qualify as a project and if it fails to operate all or some of the units as rent restricted within 15 years after the deduction is claimed. An amount is added back to the project's tax liability for the tax year that the project fails to comply. The amount is equal to 100% of the amount of the deduction multiplied by a fraction. The fraction's numerator is the difference between 15 and the number of years the project qualified and operated the rent restricted units; the denominator is 15.

  The project may deduct an amount equal to the product of taxable income attributable (or total gross receipts) to its Michigan residential rental units multiplied by a fraction. The fraction's numerator is the number of Michigan rent restricted units owned by the project; the denominator is the number of all Michigan residential rental units owned by the project. The deduction is reduced by the amount of limited dividends and other distributions made to the project's partners, members, or shareholders. Also, taxable income attributable to residential rental units does not include income received by a management, construction, or development company for completion and operation. This deduction is applicable to both the business income tax and the modified gross receipts tax portions of the Michigan business tax.

Act 168 (H.B. 5893), Laws 2008, effective April 30, 2008.
 

CCH (cch.taxgroup.com) reports:

  The IRS has issued interim guidance indicating that
Code Sec. 457(f) will not apply to certain types of arrangements involving recurring part-year compensation, including common arrangements involving public school employees. The Treasury and the IRS expect this rule to be included in upcoming proposed regulations; however, effective July 1, 2008, arrangements in which an employee or independent contractor receives recurring part-year compensation do not provide deferred compensation for purposes of Code Sec. 457(f) if:

  (1) the arrangement does not defer payment of any of the recurring part-year compensation beyond the last day of the thirteenth month following the beginning of the service period; and

  (2) does not defer the payment of more than the applicable dollar amount under Code Sec. 402(g)(1)( from one tax year to the next tax year. For 2008, this amount is $15,500.

  Under Code Sec. 457(f), compensation deferred by participants under ineligible plans of tax-exempt entities and state and local governments, including public schools, is generally included in the participant's gross income for the first tax year in which the compensation is not subject to a substantial risk of forfeiture.

  The IRS intends to make a conforming change to Code Sec. 409A regulations. This change would provide that a part-year compensation arrangement is not a nonqualified deferred compensation plan for purposes of Code Sec. 409A.

Notice 2008-62, 2008FED ¶46,504

Other References:

 
Code Sec. 409A

  CCH Reference - 2008FED ¶18,960.0255

 
Code Sec. 457

  CCH Reference - 2008FED ¶21,536.033

  CCH Reference - 2008FED ¶21,536.21

  Tax Research Consultant

  CCH Reference - TRC COMPEN: 15,056.30

CCH (cch.taxgroup.com) reports:

  Premiums paid by an S corporation on an employer-owned key-man life insurance policy, of which the S corporation is either a direct or indirect beneficiary, do not reduce the S Corporation's accumulated adjustment account (AAA). Conversely, benefits received by reason of death of the insured from an employer-owned life insurance policy that meets an exception under Code Sec. 101(j)(2) do not increase the S corporation's AAA.

Rev. Rul. 2008-42, 2008FED ¶46,503

Other References:

 
Code Sec. 101

  CCH Reference - 2008FED ¶6504.022

  CCH Reference - 2008FED ¶6504.44

 
Code Sec. 1368

  CCH Reference - 2008FED ¶32,121.20

  Tax Research Consultant

  CCH Reference - TRC COMPEN: 48,064
CCH Reference -
TRC SCORP: 450
CCH Reference - TRC SCORP: 458.05
 

CCH (cch.taxgroup.com) reports:

  The IRS has issued final, temporary and proposed regulations providing guidance to tax return preparers regarding the disclosure and use of tax return information. Specifically, the final and temporary regulations modify the rule prohibiting disclosure of the taxpayer's Social Security number (SSN) in Reg. § 301.7216-3(b)(4), effective on or after January 1, 2009. The final and temporary regulations are effective on July 1, 2008, and apply to disclosures or uses of tax return information occurring on or after January 1, 2009, and on or before January 1, 2012.

  CCH Comment. The rule prohibiting disclosure of the taxpayer's social security number (SSN), effective on or after January 1, 2009, requires a U.S. tax return preparer to redact the taxpayer's SSN from a return for which the taxpayer has consented to disclosure to a preparer located outside the U.S.

  The final and temporary regulations allow a tax return preparer located within the U.S. to disclose a taxpayer's Social Security number with the taxpayer's consent to a tax return preparer located outside of the U.S. in limited circumstances. A tax return preparer located within the U.S., including any territory or possession of the U.S., may obtain consent to disclose the taxpayer's SSN to a tax return preparer located outside of the U.S. or any territory or possession of the U.S. if the tax return preparer discloses the SSN through the use of an adequate data protection safeguard as described in Rev. Proc. 2008-35 (TAXDAY, 2008/07/02, I.3), which was issued concurrently to these regulations. This new rule only applies to a tax return preparer's request for consent to disclose tax return information, including an SSN, from a taxpayer filing a return in the Form 1040 series.

  CCH Comment. The intent of these regulations is to facilitate the needs of qualified tax preparers. For example, a situation may require a preparer inside the U.S. to disclose a SSN to a preparer outside the U.S. (1) who is a signing preparer, (2) who requires an unredacted SSN to file a return, or (3) who needs a copy of the entire return to assist an expatriated U.S. taxpayer in efforts to secure treaty benefits.

  The text of the temporary regulations also serves as the text of the proposed regulations A public hearing on the proposed regulations is scheduled for October 6, 2008. Persons wanting to make oral comments at the hearing must submit written comments and an outline of topics to be discussed by September 15, 2008. Written or electronic comments must be received by September 30, 2008.

T.D. 9409, 2008FED ¶47,044

Proposed Regulations, NPRM REG-121698-08, 2008FED ¶49,813

Other References:

 
Code Sec. 7216

  CCH Reference - 2008FED ¶41,368C

  CCH Reference - 2008FED ¶41,368F

  Tax Research Consultant

  CCH Reference - TRC IRS: 6,114.10
CCH Reference - TRC IRS: 66,360.15
 

CCH (cch.taxgroup.com) reports:

  The IRS has finalized a regulation on the entitlement of divorced or separated parents or parents who lived apart at all times during the last six months of the year to claim a child as a dependent. The regulation covers the manner of releasing a claim to an exemption and revoking a release of a claim, sets forth definitions and rules for specific situations, and provides numerous examples illustrating how the rules should be applied. The regulation generally applies to tax years beginning after July 2, 2008.

Release of Claim

  Consistent with Code Sec. 152(e), the final regulation provides that a taxpayer can only claim a dependency deduction for a qualifying child or qualifying relative of the taxpayer. In order for a child to be treated as a qualifying child or qualifying relative of a noncustodial parent, the custodial parent must release a claim to the exemption. Under the final regulation, a release of a claim to an exemption can only be executed on: (1) Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, or successor form; or (2) a written declaration that is not on Form 8332 but conforms to the substance of that form and that is a document executed for the sole purpose of releasing the claim.

  A court order or decree or a separation agreement cannot serve as the written declaration. The noncustodial parent must attach a copy of Form 8332 or the written declaration to the parent's return for each year that the child is claimed as a dependent.

Revocation of Release

  A custodial parent who has released a claim to an exemption may revoke the release by providing written notice of the revocation to the other parent. Under the final regulation, a revocation can be executed on: (1) Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, or successor form; or (2) a written declaration that is not on Form 8332 but conforms to the substance of that form and that is a document executed for the sole purpose of serving as a revocation.

  The revocation cannot be made effective any earlier than the tax year that begins in the first calendar year after the calendar year in which the parent revoking the release of claim provides written notice or makes reasonable efforts to provide reasonable notice to the other parent. The parent revoking the release of claim must attach a copy of the revocation to the parent's return for each year that the child is claimed as a dependent.

Definitions

  The final regulation also defines the terms "custody" and "custodial parent" for purposes of Code Sec. 152(e). A child is in the custody of one or both parents for more than one-half of the calendar year if one or both parents have the right under state law to physical custody of the child for more than one-half of the calendar year. However, a child is not in the custody of either parent when the child reaches the age of majority under state law.

  A custodial parent is the parent with whom the child resides for the greater number of nights during the calendar year (the "counting nights" rule). Under the final regulation, a child resides for a night with a parent if the child: (1) sleeps at the parent's residence, whether or not the parent is present, or (2) sleeps in the company of the parent when the child does not sleep at a parent's residence, such as when the parent and child are on vacation. A night is not counted for either parent if the child would not have resided with either parent for the night or it cannot be determined with which parent the child would have resided for the night. The final regulation also adds an exception to the counting nights rule where a child resides for a greater number of days, but not nights, with a parent who works at night.

T.D. 9408, 2008FED ¶47,043

Other References:

 
Code Sec. 152

  CCH Reference - 2008FED ¶8150

  Tax Research Consultant

  CCH Reference - TRC FILEIND: 6,152.45
CCH Reference - TRC FILEIND: 6,152.50
CCH Reference - TRC FILEIND: 6,152.55
CCH Reference - TRC FILEIND: 6,152.60
CCH Reference - TRC FILEIND: 6,168.05
CCH Reference - TRC PLANIND: 3,254.05
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The California State Board of Equalization (SBE) has announced that it will begin transitioning existing sales and use taxpayers to electronic filing and eliminate the use of paper tax returns for most taxpayers.

  In July 2008, more than 90,000 taxpayers will be notified they will no longer be receiving paper returns from the SBE, but rather they will be expected to file online. The first group of existing taxpayers transitioning to e-filing includes single location quarterly prepayment accounts that are comprised of medium to large size businesses that file and make prepayments 12 times per year. These taxpayers will be expected to e-file rather than use a paper return with the reporting of third quarter 2008 returns, due October 31.

  In addition to existing accounts, beginning July 1, 2008, all new businesses that apply for a seller's permit will be set up for e-filing. There are an estimated 165,000 new seller's permits issued each year.

  Over the next two years, the majority of existing sales and use tax accounts will be transitioned from paper to e-filing, phased in based on account type and reporting basis. All businesses will receive SBE e-file notices in their next quarterly tax returns, expected around July 1, 2008. Taxpayers may request a one-year exemption from online filing.

  There are several e-filing options available on the SBE Web site at
www.boe.ca.gov. The SBE offers a free option, BOE-file. In addition, taxpayers may also choose from two fee-based electronic service providers. Accountants, bookkeepers, and other third-party return preparers can e-file on behalf of the taxpayer as well.

  Subscribers to CCH Tax Research NetWork can view the release.

News Release 46-08-C, California State Board of Equalization, June 27, 2008.
 

CCH (cch.taxgroup.com) reports:

  In a bankruptcy proceeding, a federal district court had subject matter jurisdiction to review a debtor-partner's challenge to a notice of final partnership administrative adjustment (FPAA). The statutory res judicata provision in section 505(a)(2)(A) of the Bankruptcy Code did not deprive the district court of jurisdiction because the IRS's tax treatment of the debtor's partnership items was never contested before and adjudicated by the Tax Court or any other tribunal of competent jurisdiction.

  None of the partners timely filed a petition for readjustment in the Tax Court within 150 days from the mailing of the FPAA. The partners' participation in a conference with the IRS Appeals office following the receipt of the FPAA was insufficient to satisfy the statutory requirements that, for res judicata to apply, a tax matter must be contested before and adjudicated by a judicial or administrative tribunal within the meaning of section 505(a)(2)(A) of the Bankruptcy Code.

  Further, the IRS's adjustments to the debtor-partner's partnership items were not final and conclusive even though the TEFRA time limit for filing a petition had expired prior to the bankruptcy filing because the district court was authorized to exercise bankruptcy jurisdiction to redetermine the debtor's partnership items. The FPAA could be given preclusive effect only if there had been a proceeding and judgment in the Tax Court. Since the debtor failed to timely pursue a Tax Court action, neither section 505(a)(2)(A) of the Bankruptcy Code nor any other TEFRA provisions precluded the exercise of that jurisdiction.

  Reversing and remanding a DC Calif. decision, 2005-2 USTC ¶50,612.

Central Valley AG Enterprises, CA-9, 2008-2 USTC ¶50,405

Other References:

 
Code Sec. 6226

  CCH Reference - 2008FED ¶37,709.15

 
Code Sec. 6871

  CCH Reference - 2008FED ¶40,630.275

  Tax Research Consultant

  CCH Reference - TRC PART: 60,550

CCH (cch.taxgroup.com) reports:

  Payments received by a married couple from a corporation were repayments of a loan and interest and not constructive distributions to the husband, who was a shareholder of the corporation. The IRS failed to show that the payments were made to satisfy the personal and moral obligations of the former owners of the corporation and were not really a repayment of debt.

  Further, the IRS's argument that the obligation to repay was unenforceable under the state (Oregon) statute of frauds since there was no written agreement between the wife and the corporation was rejected. Although no written agreement existed, the corporation's conduct in actually making payments to the wife established the loan repayment character of the payments and the principal and interest nature of the payments. Thus, the funds the wife received constituted nothing more than interest and repayment of loan principal.

A. Beckley, 130 TC No. 18, Dec. 57,480

Other References:

 
Code Sec. 61

  CCH Reference - 2008FED ¶5504.2856

  CCH Reference - 2008FED ¶5504.2863

  Tax Research Consultant

  CCH Reference - TRC INDIV: 12,050

CCH (cch.taxgroup.com) reports:

  The IRS has released final regulations that modify the process for making interest-free adjustments for both underpayments and overpayments of Federal Insurance Contributions Act (FICA) and Railroad Retirement Tax Act (RRTA) taxes and federal income tax withholding (ITW) under Code Secs. 6205(a) and
6413(a). These regulations also modify the process for filing claims for refund of overpayments of employment taxes under Code Secs. 6402 and 6414. The regulations reflect the changes relating to the return requirements under Code Sec. 6011 for the adjustment and refund processes. Further, final regulations under Code Sec. 6302 clarify that deposit obligations with respect to interest-free adjustments of underpayments and the effect of adjustments and refunds on the deposit schedule of a Form 943, Employer's Annual Federal Tax Return for Agricultural Employees, filer. These final regulations are effective on January 1, 2009.

Interest-Free Adjustments

  The final regulations under Code Sec. 6205 set forth the procedures for making interest-free adjustments for underpayments of employment taxes. They provide that if a return is filed and less than the correct amount of employee or employer portions of FICA or RRTA tax is reported, and the employer discovers the error after filing the return, the employer should adjust the resulting underpayment of tax by reporting the additional amount due on an adjusted return for the return period in which the wages or compensation was paid. The adjustment must be made by the due date of the return for the return period in which the error is ascertained and the amount of the underpayment must be paid by the time the adjustment is made, or interest will begin to accrue from that date.

  Under the final regulations, if an employer filed a return reporting FICA tax when a return reporting RRTA tax should have been filed, the employer can make an interest-free adjustment by filing an original return reporting the correct amount of RRTA tax and attaching an adjusted return to correct the erroneously reported FICA tax. In addition, the final regulations provide the process by which an employer can make an interest-free adjustment if the employer failed to file a return for a return period solely because the employer failed to treat any individuals as employees. Unlike the proposed regulations, the final regulations do not require the employer to repay or reimburse the employee or to adjust the overpayment by the due date of the return for the return period following the return period in which the error is ascertained.

Deposits, Payments and Credits

  The final regulations under Code Sec. 6302 provide that an employer making an interest-free adjustment must pay the amount of the adjustment by the time it files an adjusted return; such timely payment will satisfy the employer's deposit obligations with respect to the adjustment. The regulations also clarify that new agricultural employers are treated as having employment tax liabilities of zero for any lookback period before the date the employer started or acquired its business, which is consistent with the current rule governing the lookback period for Form 941 and Form 944 filers.

Refunds of Overpayment

  The final regulations under Code Sec. 6402(a) set out the procedures for filing a claim for refund of overpaid FICA and RRTA taxes. The regulations permit an employer to file a claim for refund of an overpayment of FICA or RRTA tax, but require the employer to certify as part of the claim process that the employer has repaid or reimbursed the employee's share of FICA or RRTA tax to the employee or has secured the written consent of the employee to allowance of the refund or credit.

T.D. 9405, 2008FED ¶47,042

Other References:

 
Code Sec. 6011

  CCH Reference - 2008FED ¶35,131

  CCH Reference - 2008FED ¶35,132

 
Code Sec. 6205

  CCH Reference - 2008FED ¶37,521

 
Code Sec. 6302

  CCH Reference - 2008FED ¶38,055A

  CCH Reference - 2008FED ¶38,055B

 
Code Sec. 6402

  CCH Reference - 2008FED ¶38,511

  CCH Reference - 2008FED ¶38,512

 
Code Sec. 6413

  CCH Reference - 2008FED ¶38,751

  CCH Reference - 2008FED ¶38,752

 
Code Sec. 6414

  CCH Reference - 2008FED ¶38,781

  Tax Research Consultant

  CCH Reference - PAYROLL: 9,308

  CCH Reference - TRC IRS: 33,108

CCH (cch.taxgroup.com) reports:

  The IRS has issued proposed, final and temporary regulations relating to simplification procedures for obtaining automatic extensions of time to file returns. The final regulations adopt temporary regulations previously issued in T.D. 9229 without significant change.

  The newly issued temporary regulations, however, revise certain of the previously issued temporary regulations by reducing, from six months to five months, the automatic extension period for partnerships filing Form 1065, U.S. Partnership Return of Income, or Form 8804, Annual Return for Partnership Withholding Tax, and estates and trusts filing Form 1041, U.S. Income Tax Return for Estates and Trusts.

  For example, in the case of a calendar-year partnership, Form 1065 will need to be filed by September 15, rather than October 15. This change should enable individual taxpayers to obtain the Schedule K-1 information necessary to complete their returns by their October 15 six-month extended due date. This one-month reduction in the six-month extension period is effective for returns due on or after January 1, 2009. The six-month extension period for partnerships that file Forms 1065 or Form 8804 and trusts and estates that file Form 1041 will continue to apply to returns required to be filed before January 1, 2009.

  CCH Comment. Under the current rules, a calendar-year S corporation with a six-month extension is already required to file its return by October 15 since the unextended due date for Form 1120-S is March 15. Thus, S corporations will continue to receive an automatic six-month extension period.

  The final regulations adopt without change the earlier issued temporary regulations that provided an automatic six-month extension for individual returns if a timely, completed application for extension is filed on Form 4868, Application for Automatic Extension of Time To File a U.S. Individual Income Tax Return. Under the rules in effect prior to issuance of T.D. 9229, an individual could obtain an initial automatic four-month extension by filing Form 4868 and apply for an additional two-month discretionary extension by filing Form 2688, Application for Additional Extension of Time To File U.S. Individual Income Tax Return.

  CCH Comment. A commentator suggested that the elimination of Form 2688 adds an administrative burden on individual taxpayers living abroad who may qualify for an extension beyond six months. The IRS, however, will not retain Form 2688. Taxpayers living abroad will need to file a letter containing the information required by Reg. §1.6081-1(b) that was formerly provided on Form 2688.

  With respect to corporate filing extensions, the final regulations now explicitly state that the requirement to list with an extension request the name and address of each member of an affiliated group has the effect of granting an extension for each member's separate return in the event that the member does not file as part of the consolidated group.

  The final regulations also adopt without change temporary regulations that: (1) provide an automatic six-month extension to file certain excise, income, information and other returns by filing Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns; (2) allow administrators and sponsors of employee benefit plans subject to the Employee Retirement Income Security Act of 1974 (ERISA) to report information concerning the plans and direct entities to obtain an automatic two-and-one-half-month extension of time to file by using Form 5558, Application for Extension of Time To File Certain Employee Plan Returns; and (3) allow donors who do not request an extension of time to file an income tax return to request an automatic six-month extension of time to file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, by filing Form 8892, Payment of Gift/GST Tax and/or Application for Extension of Time to File Form 709.

  The text of the temporary regulations serves as the text of proposed regulations set forth in NPRM REG-115457-08. Written or electronic comments and requests for a public hearing must be received by September 28, 2008.

IR-2008-84,
2008FED ¶46,495

T.D. 9407, 2008FED ¶47,041

T.D. 9407, FINH ¶43,119

Proposed Regulations, NPRM REG-115457-08, 2008FED ¶49,812

Other References:

 
Code Sec. 911

  CCH Reference - 2008FED ¶28,047

 
Code Sec. 6081

  CCH Reference - 2008FED ¶28,047

  CCH Reference - 2008FED ¶36,781

  CCH Reference - 2008FED ¶36,785

  CCH Reference - 2008FED ¶36,786

  CCH Reference - 2008FED ¶36,786A

  CCH Reference - 2008FED ¶36,786C

  CCH Reference - 2008FED ¶36,788

  CCH Reference - 2008FED ¶36,788C

  CCH Reference - 2008FED ¶36,790

  CCH Reference - 2008FED ¶36,790A

  CCH Reference - 2008FED ¶36,793

  CCH Reference - 2008FED ¶36,795

  CCH Reference - 2008FED ¶36,795A

  CCH Reference - 2008FED ¶36,797

  CCH Reference - 2008FED ¶36,798

  CCH Reference - 2008FED ¶36,798M

  CCH Reference - 2008FED ¶36,798P

  CCH Reference - FINH ¶20,350

  CCH Reference - FINH ¶20,356

  Tax Research Consultant

  CCH Reference -TRC FILEIND: 15,204.05

  CCH Reference -TRC FILEIND: 15,204.10

  CCH Reference -TRC EXPAT: 15,104.20

  CCH Reference -TRC FILEBUS: 12,102.20

  CCH Reference -TRC FILEBUS: 15,102

  CCH Reference - TRC FILEBUS: 15,104.05

  CCH Reference -TRC FILEBUS: 15,104.10

  CCH Reference -TRC FILEBUS: 15,104.15

  CCH Reference - TRC FILEBUS: 15,104.20

  CCH Reference -TRC FILEBUS: 15,104.25

  CCH Reference -TRC FILEBUS: 15,106.05

  CCH Reference -TRC FILEBUS: 15,106.15

  CCH Reference -TRC RIC: 9,052

CCH (cch.taxgroup.com) reports:

  President Bush on June 30 signed the Federal Aviation Administration Extension Act of 2008 (P.L. 110-253), providing a four-month extension to collect federal aviation excise taxes and fees through September 30, 2008. The last extension of the aviation excise taxes occurred on February 28, 2008, when the president signed the Airport and Airway Extension Act of 2008 (P. L. 110-190). That law will expire at midnight on June 30, 2008.

  Soaring jet fuel prices have driven airlines to increase ticket prices resulting in a larger amount of aviation taxes being collected to fund the Airport and Airway Trust Fund. Excise tax rates remain unchanged in the new law. Extra revenue collected from the aviation taxes will be directed to address problems with airport congestion and airport runway improvements.

  By Paula Cruickshank, CCH News Staff

Tax Analysts report: