Tax News

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: