Tax News

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: