Tax News

CCH (cch.taxgroup.com) reports:

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

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

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

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

CCH (cch.taxgroup.com) reports:

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

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

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

Rev. Rul 2008-41, 2008FED ¶46,515

Rev. Rul 2008-41, FINH ¶30,588

Other References:

 
Code Sec. 507

  CCH Reference - 2008FED ¶22,780.31

 
Code Sec. 664

  CCH Reference - 2008FED ¶24,468.12

  CCH Reference - FINH ¶17,075.10

 
Code Sec. 1015

  CCH Reference - 2008FED ¶29,394.021

  CCH Reference - 2008FED ¶29,394.18

 
Code Sec. 1223

  CCH Reference - 2008FED ¶30,463.675

 
Code Sec. 4941

  CCH Reference - 2008FED ¶34,031.535

 
Code Sec. 4945

  CCH Reference - 2008FED ¶34,107.021

  Tax Research Consultant

  CCH Reference - TRC ESTGIFT: 45,204

CCH (cch.taxgroup.com) reports:

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

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

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

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

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

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

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

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

Rev. Proc. 2008-47, 2008FED ¶46,514

Other References:

 
Code Sec. 860D

  CCH Reference - 2008FED ¶26,662.01

  CCH Reference - 2008FED ¶26,662.021

 
Code Sec. 7701

  CCH Reference - 2008FED ¶43,091.68

  Tax Research Consultant

  CCH Reference - TRC RIC: 9,300

  CCH Reference - TRC ESTTRST: 3,150

CCH (cch.taxgroup.com) reports:

  For pension plan years beginning in July 2008, the IRS has released the corporate bond weighted average interest rate, the permissible range of interest rates used to calculate current plan liability and to determine the required contribution under Code Sec. 412(l) for plan years through 2008, and the current corporate bond yield curve and related segment rates for the purpose of establishing a plan's funding target under
Code Sec . 430(h)(2).

  .The corporate bond weighted average interest rate for plan years beginning in July 2008 is 6.04 percent; and the 90-percent to 100-percent permissible range is 5.44 percent to 6.04 percent. The annual rate of interest on 30-year Treasury securities for June 2008, used to determine the minimum present value of a participant's benefit under Code Sec. 417(e)(1) and (2), is 4.69 percent.

  For plans electing not to use the transitional rule under Code Sec. 430(h)(2)(G), or for plans whose first year begins after 2008, the 24-month average segments rates for July 2008 are: 5.10 for the first segment; 6.03 for the second segment; and 6.54 for the third segment.

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

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

Notice 2008-65, 2008FED ¶46,513

Other References:

 
Code Sec. 401

  CCH Reference - 2008FED ¶17,730.40

 
Code Sec. 412

  CCH Reference - 2008FED ¶19,125.505

 
Code Sec. 417

 
Code Sec. 430

  CCH Reference - 2008FED ¶20,161.30

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 15,304.05

  CCH Reference - TRC RETIRE: 15,304.10

  CCH Reference - TRC RETIRE: 15,304.15

  CCH Reference - TRC RETIRE: 30,170

  CCH Reference - TRC RETIRE: 30,556

CCH (cch.taxgroup.com) reports:

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

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

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

  The text of the temporary regulations also serves as the text of the proposed regulations. Written or electronic comments and requests for a public hearing must be received by October 6, 2008.

T.D. 9411, 2008FED ¶47,048

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

Other References:

 
Code Sec. 195

  CCH Reference - 2008FED ¶12,370D

  CCH Reference - 2008FED ¶12,370H

 
Code Sec. 248

  CCH Reference - 2008FED ¶13,351

  CCH Reference - 2008FED ¶13,351E

 
Code Sec. 709

  CCH Reference - 2008FED ¶25,221

  CCH Reference - 2008FED ¶25,221E

  Tax Research Consultant

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

CCH (cch.taxgroup.com) reports:

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

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

  By Jeff Carlson, CCH News Staff

Tax Analysts report: