Tax News

CCH (cch.taxgroup.com) reports:

  The Massachusetts Senate and House of Representatives have passed legislation that would authorize a sales tax holiday from August 16-17, 2008. Sales tax would not apply to non-business retail sales of tangible personal property with a price of up to $2,500 per item. The tax holiday would not apply to sales of telecommunications, tobacco products, gas, steam, electricity, motor vehicles, motorboats, or meals.

H.B. 4995, as passed by the Massachusetts Senate and House of Representatives on July 22, 2008.
 

CCH (cch.taxgroup.com) reports:

  Equalizing the preparer and taxpayer penalty standards at substantial authority for undisclosed nonabusive return positions is the "top legislative priority" for the American Institute of Certified Public Accountants (AICPA), Barry C. Melancon, president and CEO of the 350,000 member organization, told CCH on July 23. However, AICPA supported legislation (the Renewable Energy and Job Creation Bill of 2008 (HR 6049)) appears stalled in the Senate. Melancon also called for the banning of tax strategy patents and greater certainty and stability in the Tax Code. Melancon spoke to reporters at the accounting/tax press in Washington, D.C.

Different Standards

  The AICPA has been working to equalize the preparer and taxpayer standards since Congress passed the Small Business and Work Opportunity Tax Act of 2007 (2007 Small Business Tax Act) (P.L. 110-28). The
2007 Small Business Tax Act replaced the old "realistic possibility of success" standard for undisclosed nonabusive positions with a reasonable belief that the position would more likely than not be sustained on its merits. However, the 2007 Small Business Tax Act did not change the taxpayer standard of substantial authority for undisclosed nonabusive positions. "The difference puts the preparer and the taxpayer at a different level of confidence," Melancon explained.

  "Our members are very worried about this (the difference between the preparer and taxpayer standards)," Melancon said. The AICPA has cautioned that the more-likely-than-not standard could require a preparer to disclose a return position that a taxpayer, under the substantial authority standard, might not be inclined to disclose, setting the stage for preparer/client conflict.

  The House has approved HR 6049, which equalizes the preparer and taxpayer standards for undisclosed nonabusive positions at substantial authority (TAXDAY, 2008/05/22, C.1). However, the bill has stalled in the Senate over offsets for unrelated tax incentives.

  Meanwhile, the IRS has issued proposed regulations on revised Code Sec. 6694 (NPRM REG-129243-07, I.R.B. 2008-27, 32; TAXDAY, 2008/06/17, I.1) The IRS has scheduled a hearing on the proposed regulations for August 18 in Washington, D.C. The AICPA will testify at the hearing.

Tax Strategy Patents

  Another legislative priority for the AICPA is the banning of tax strategy patents, Melancon explained. "Tax strategy patents are not good public policy." Prohibiting tax strategy patents will require legislation but the Patent Reform Bill (HR 1908) appears stalled in Congress (TAXDAY, 2008/02/04, M.3).

 
HR 1908 would prohibit the Patent Office from granting patents for any "tax-planning method" (TAXDAY, 2007/09/10, C.3). A tax-planning method is "a plan, strategy, technique, or scheme that is designed to reduce, minimize or defer, or has, when implemented, the effect of reducing, minimizing or deferring a taxpayer's liability." HR 1908 excludes return-preparation software from the ban.

  Besides banning the patenting of tax strategies, Congress could take away the incentive for securing a patent. An individual could patent a tax strategy, Melancon explained, but not be able to enforce it against alleged infringers.

  The IRS has proposed regulations governing tax strategy patents (NPRM REG-129916-07, I.R.B. 2007-43, 891; TAXDAY, 2007/09/26, I.1). The proposed regulations would add patented transactions to the roster of reportable transactions under Code Sec. 6011.

Need for Certainty

  Additionally, the AICPA is" always advocating for tax simplification and tax stability," Melancon said. Practitioners and their clients are often perplexed by the on-again/off-again nature of many tax incentives, such as the long list of so-called extenders (the state and local sales tax deduction, the higher education tuition deduction and many more). "Our members raise this issue (the need for certainty in the Tax Code and in tax planning) all the time."

Next Generation of CPAs

  Melancon predicted that the accounting profession is about to undergo one of its greatest changes as Baby Boomers retire and a new generation of CPAs fill their ranks. "Baby Boomer retirements will give the younger generation a quicker path to advancement," he said. At the same time, however, the next generation of CPAs will be creating firms that operate very differently from that of their predecessors.

  "There will be more emphasis on work-life balance," Melancon predicted. Firms are also creating alternative paths to partner-level positions. Firms that are not receptive to these changes will find talented professionals "running to other opportunities."

  By George L. Yaksick, Jr., CCH News Staff

CCH (cch.taxgroup.com) reports:

  The IRS has issued procedures for claiming the 50 percent Kansas additional first-year depreciation provided by the Food, Conservation, and Energy Act of 2008 (P.L. 110-246) for qualified Recovery Assistance property (RA property) placed in service by the taxpayer on or after May 5, 2007. The guidance also explains how a taxpayer may elect not to deduct the Kansas additional first-year depreciation for RA property.

Background

 
Code Sec. 1400N(d) provides an additional first-year depreciation deduction equal to 50 percent of the adjusted basis of certain depreciable property used in the areas affected by the Katrina, Wilma and Rita hurricanes. The Food, Conservation, and Energy Act of 2008 applies a modified version of Code Sec. 1400N(d) to the Kansas disaster area for "qualified Recovery Assistance property" and allows an additional first-year depreciation deduction equal to 50 percent of the adjusted basis of such property.

Claiming Kansas Bonus Depreciation for Tax Year That Includes May 5, 2007

  For a taxpayer that has yet to file a federal tax return for the tax year that includes May 5, 2007, the taxpayer may claim the depreciation on line 14 of Form 4562, Depreciation and Amortization, for the federal tax return for the tax year that includes May 5, 2007. If the RA property is listed property, such as passenger automobiles or computers, the taxpayer may claim the Kansas additional first-year depreciation on line 25 of Form 4562, Depreciation and Amortization, for the federal tax return for the tax year that includes May 5, 2007.

  If a taxpayer timely filed its federal tax return for the tax year that includes May 5, 2007, and did not claim the Kansas additional first-year depreciation for RA property, but wants to do so, the IRS has provided special procedures by which the taxpayer can claim the bonus depreciation (provided that the taxpayer did not elect not to deduct the bonus depreciation). These procedures allow certain taxpayers to claim the bonus depreciation on an amended return for the tax year that includes May 5, 2007, or on a return for the first or second succeeding year (along with filing a Form 3115, Application for Change in Accounting Method).

Electing Not to Deduct Kansas Bonus Depreciation

  An election not to deduct the Kansas additional first-year depreciation for any class of property that is RA property placed in service during the tax year must be made by the due date (including extensions) of the federal tax return for the tax year in which the RA property is placed in service by the taxpayer. The guidance provides different sets of procedures for returns for tax years that include May 5, 2007, filed before August 11, 2008, and for such returns filed on or after that date. A taxpayer that files its tax return for the tax year including May 5, 2007, that claims depreciation but not Kansas bonus depreciation, and does not follow the procedures for claiming Kansas bonus depreciation on a subsequent return, will be deemed to have elected not to take the bonus depreciation.

Notice 2008-67, 2008FED ¶46,525

Other References:

 
Code Sec. 179

  CCH Reference - 2008FED ¶12,126.54

 
Code Sec. 1400N

  CCH Reference - 2008FED ¶32,487.054

  Tax Research Consultant

  CCH Reference - TRC DEPR: 3,700

CCH (cch.taxgroup.com) reports:

  With time running out before Congress's month long August recess begins, the House on July 23 approved the Housing and Economic Recovery Bill of 2008 HR 3221 by a vote of 272 to 152. The House action cleared the way for an expected swift approval by Senate lawmakers, who are acting in tandem with the Bush administration to stave off a deepening housing crisis in the U.S. Despite repeated veto threats, President Bush will sign the legislation, confirmed White House Press Secretary Dana Perino on July 23.

  In addition to billions of dollars in tax relief targeted to the nation's troubled housing market, the bill would also provide financial stability to Fannie Mae and Freddie Mac, the nation's two government-sponsored housing enterprises that control the market. In remarks to reporters, House Majority Leader Steny H. Hoyer, D-Md., said the bill would stabilize neighborhoods and provide homeowners and lenders with the resources to prevent home foreclosures.

  According to a Democratic summary of the legislation, the bill would provide tax relief to homebuyers and homeowners, increase state allocations of low-income housing tax credits and tax-exempt bond financing. It would also increase funding for the Community Development Block Grant program. The cost of these and other provisions would be offset by requiring credit card information return reporting by merchants, delaying the worldwide allocation of interest rules and modifying the exclusion of gains on the sale of a principal residence.

 
HR 3221 previously faced a presidential veto for including the $4 billion community block grant provision allowing states to purchase foreclosed homes. Perino said that the White House still regards the provision as "a bailout to lenders" but the president decided that this is not the time for a prolonged veto fight. The White House spokeswoman said the overall bill is needed "to increase confidence and stability in the housing and financial markets." Perino stressed that the president would not have decided to approve the measure if there had been more time for negotiations before the start of congressional recess in early August.

  Perino mostly dismissed the significance of the Congressional Budget Office estimate that the housing bill will cost $25 billion. She emphasized that the administration does not plan to employ the proposed temporary authority given to the Treasury Department to assure Fannie Mae and Freddie Mac continued access to capital and liquidity. Nonetheless, Perino maintained there are "tremendous taxpayer protections" in place if the plan were implemented.

  By Stephen K. Cooper and Paula Cruickshank, CCH News Staff

Division C, Housing Assistance Tax Act of 2008, of Housing and Economic Recovery Act of 2008, Amendment to Senate Amendment to House Amendments to Senate Amendment,
HR 3221

JCT Technical Explanation of Division C of HR 3221, the Housing Assistance Tax Act of 2008, Scheduled for Consideration by the House on July 23, 2008, JCX-63-08

JCT Estimated Budget Effects of the Tax Provisions Contained in HR 3221, the Housing and Economic Recovery Act of 2008, Scheduled for Consideration by the House on July 23, 2008, JCX-64-08

House Ways and Means Committee Release: House Votes to Strengthen Housing Market, Stem Tide of Foreclosures

House Ways and Means Committee Release: Summary of HR 3221, Housing Assistance Tax Act of 2008

Statement of Administration Policy on HR 3221, Housing and Economic Recovery Act of 2008
 

Tax Analysts report: