Tax News

CCH (cch.taxgroup.com) reports:

  A West Virginia commercial bank was entitled to a deduction allowance in computing corporation net income and business franchise tax liability for the entire amount of mortgage loan obligations because the bank satisfied its burden of proof by showing that the loans for which it obtained additional nonresidential collateral were primarily secured by state residential property occupied by nontransients. The bank was also entitled to rely on a Technical Assistance Advisory (TAA) in claiming a deduction allowance for construction loans secured by unoccupied residential property. The bank was not entitled to a deduction allowance for Small Business Administration (SBA) and United States Department of Agriculture (USDA) loans because the bank never filed a petition for refund and, even if it had filed a petition, the loans did not qualify as exempt U.S. obligations under West Virginia law.

CCH (cch.taxgroup.com) reports:

  Virginia transportation funding legislation that would have included various tax-related provisions, including a statewide sales tax increase, was defeated by the House of Delegates on July 9, 2008. As previously reported, the legislation passed the Senate on June 25, 2008. (TAXDAY, 2008/06/30, S.34)

S.B. 6009, defeated by the Virginia House of Delegates on July 9, 2008.
 

CCH (cch.taxgroup.com) reports:

  The Alaska Legislature convened in a fourth special session on July 9 to consider items related to energy, including the following:

  -- approval of the issuance of a license under the Alaska Gasline Inducement Act;

  -- statutory changes to establish the Alaska resource rebate program and to provide payments under the program to residents of the state; and

  -- statutory changes to suspend temporarily the motor fuel tax.

Executive Proclamation, Governor Sarah Palin, July 1, 2008.
 

CCH (cch.taxgroup.com) reports:

  The Senate on July 10 neared final passage of a housing bill (HR 3221) that contains nearly $14.5 billion in tax breaks, but a lone GOP senator held up final passage by trying to cut a deal on an unrelated measure. At press time, Senate leaders continued their negotiations and a spokesperson for Senate Majority Leader Harry Reid, D-Nev., told reporters that the chamber would move the bill either that night or on July 11.

  Earlier in the day, the Senate cleared the final hurdle toward passage by approving a third cloture vote, 84-12, leaving only a final vote under a unanimous consent agreement necessary in order to send the legislation back to the House for approval. And, while some House members said they have a few minor issues with the Senate version, it is widely expected that the bill, which has broad bipartisan support in both chambers, will be quickly conferenced and sent to President Bush for his signature. A threatened presidential veto may have little impact as both the House and Senate seem to have enough votes to override a veto.

  The noncontroversial tax package would create an additional standard deduction for property taxes for homeowners who do not itemize their federal taxes, provide an $8,000 refundable, repayable tax credit to assist first time home buyers with home purchases and an increase in funding for mortgage revenue bonds. Also included is a provision to increase the amount of federal low-income housing tax credits (LIHTC). Offset provisions include expanded information return reporting by banks to the IRS regarding annual credit card sales by merchants, and changes to IRS penalties on companies and individuals that fail to correctly report or neglect to timely file certain tax documents required by the IRS.

  By Jeff Carlson, CCH News Staff

CCH (cch.taxgroup.com) reports:

  The Economic Stimulus Act of 2008 (ESA) (P.L. 110-185) is analogous to a retroactive reduction in 2007 tax rates; consequently, with respect to taxpayers who had filed for bankruptcy, the only debtors who could not take advantage of the economic stimulus checks issued under the ESA were those who had no cash exemption available to them. In cases where a bankruptcy petition was filed after the enactment of the ESA, the economic stimulus check could be exempted as a tax refund if the cash exemption was available. Under the ESA, the amount received by a taxpayer is to be viewed as an extra payment on the 2007 tax liability; thus, the check either increased a refund or provided a refund for a taxpayer who paid the IRS an amount owed. The argument that no right to the check vested until it was received was rejected, as was the idea that a refund of amounts never actually paid could not be a tax refund. Congress authorized the fictional payment or overpayment treatment of the amounts paid, and the court could not question that decision.

  Debtors who filed bankruptcy petitions before the enactment of the ESA and who had a cash exemption available could also exempt their stimulus checks as a refund of taxes. Congress restructured and recalculated each debtor's prepetition tax liabilities; thus, the liabilities related back to the prepetition size of the debtor's tax refund, yielding a larger asset.

  Debtors who did not have a cash exemption available could not take advantage of the checks. Congress specifically linked the stimulus checks to 2007 taxes; thus, the payments were not intended to be treated as gifts or grants and were the property of the bankruptcy estate.

In re D.F. Alguire, BC-DC N.Y., 2008-2 USTC ¶50,421

Other References:

 
Code Sec. 6428

  CCH Reference - 2008FED ¶38,869.021

  CCH Reference - 2008FED ¶38,869.60

 
Code Sec. 6871

  CCH Reference - 2008FED ¶40,630.365

  Tax Research Consultant

  CCH Reference - TRC INDIV: 57,900
CCH Reference - TRC INDIV: 66,052.05
 

CCH (cch.taxgroup.com) reports:

  An oil corporation's exchange of nonproducing oil properties for a newly formed subsidiary's stock was a valid transfer to a controlled corporation and, under the law in effect at the time, the corporation's basis in the properties carried over to the stock. Thus, the corporation could recognize a significant loss on its subsequent sale of the stock.

  The exchange was a typical internal restructuring that was supported by substantial business reasons; in fact, it was just one part of a three-prong plan to improve the taxpayer's financial position without completely relinquishing control over the transferred assets. Although the taxpayer's tax officer had proposed creating the subsidiary and the transfer produced significant tax benefits, the arrangement also achieved that taxpayer's legitimate nontax objectives of raising capital while reducing the management costs for the nonproducing properties. Since the transfer served a valid business purpose and possessed objective economic substance, it was not a sham transaction. Coltec Industries, Inc. , CA-FC, 2006-2 USTC ¶50,389, was distinguished.

  In addition, the nonproducing oil properties constituted property, even though they had no discounted net cash flow value and were not otherwise appraised for market value. Even if the government was correct when it claimed that assets had to have value in order to qualify as property, the evidence showed that the nonproducing properties had some value, both in terms of potential oil production and the taxpayer's fee simple interest in some of the land.

  Finally, the anti-abuse rules of Code Sec. 482 did not allow the IRS to reallocate the taxpayer's losses within the taxpayer's controlled group. The IRS did not mention reallocation in the taxpayer's notice of determination, and it raised the issue for the first time only shortly before trial. In any case, the anti-abuse rules were inapplicable because the exchange of the nonproducing properties for stock was not an improper attempt to evade taxes.

Shell Petroleum Inc., DC Tex., 2008-2 USTC ¶50,422

Other References:

 
Code Sec. 351

  CCH Reference - 2008FED ¶16,405.26

  CCH Reference - 2008FED ¶16,405.46

 
Code Sec. 482

  CCH Reference - 2008FED ¶22,283.13

  CCH Reference - 2008FED ¶22,283.48

  Tax Research Consultant

  CCH Reference - TRC CCORP: 3,052
CCH Reference -
TRC CCORP: 3,060
CCH Reference - TRC ACCTNG: 30,050
 

Tax Analysts report: