Tax News

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: