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