Tax News

CCH (cch.taxgroup.com) reports:

  The House and Senate approved housing legislation after the White House lifted a veto threat. White House Press Secretary Dana Perino stressed that the president would not have supported the measure if there were more time left for negotiations before the start of the congressional recess in early August. The IRS, meanwhile, issued regulations dealing with the averaging of farm and fishing income when computing income tax liability and reminded qualifying retirees and veterans that it is not too late to file for an economic stimulus payment.

Congress

  The Senate on July 25 approved a final procedural motion on housing legislation (HR 3221) by a vote of 80 to 13, paving the way for a final vote and approval of the legislation on July 26 (TAXDAY, 2008/07/28, C.1). On July 26 the Senate approved by a 72 to 13 vote the massive housing bill, the Housing and Economic Recovery Act of 2008), that contains a package of $15.1 billion in housing tax provisions.

  The bill moved forward, passing the House on July 23 (TAXDAY, 2008/07/24, C.1), after President Bush dropped his veto threat, even though the $4 billion community block grant provision remained in the bill. Senior administration officials had recommended a veto because they regarded the provision as a bailout to lenders. However, Perino noted that the legislation needed to be enacted without further delay to increase confidence and stability in the housing and financial markets.

  Perino down played the significance of a Congressional Budget Office estimate that the bill would cost $25 billion if it included a provision giving the Treasury Department temporary authority to assure Fannie Mae and Freddie Mac continued access to capital and liquidity. The administration does not expect this authority will be needed, but taxpayer protections are in place if the plan were ever implemented, Perino maintained.

  Senate Finance Committee. Senate Finance Committee (SFC) Chairman Max Baucus, D-Mont. on July 24 held a hearing on the findings of a Government Accountability Office (GAO) investigation of Ugland House, a building in the Cayman Islands that is the registered office of over 15,000 companies (TAXDAY, 2008/07/25, C.1). Baucus said the problem might require financial firms to file information reports to the IRS when they facilitate transfers of client funds offshore, as a method of enabling the IRS to better track tax evaders by matching that report with filed returns. On July 22, the SFC held a hearing on Indian tax issues where witnesses called on the federal government to enhance Indian tax policy already in place; specifically tax-exempt bonds, accelerated depreciation and the Indian Employment Tax Credit.

  SFC ranking member Charles E. Grassley, R-Iowa, and several Midwestern senators on July 23 introduced a comprehensive plan to provide $3.96 billion in federal tax relief to flood, tornado and severe storm victims in the Midwest. The Midwestern Disaster Tax Relief Bill of 2008 (Sen 3322) is modeled after tax legislation that Congress passed to help victims of Hurricanes Katrina, Rita and Wilma in 2005 and the tornado in Kiowa County, Kansas in 2007. A companion bill was also introduced in the House.

White House

  Amid the current turmoil in the housing and financial sectors, the Office of Management and Budget (OM on July 28 will release the administration's latest economic forecast. The OMB report will show any changes in federal deficit projections, the annual rates of economic growth, unemployment and inflation, among other economic indicators since its February estimate.

IRS

  Farm and Fishing Income Averaging. The IRS and Treasury issued final, proposed and temporary regulations under Code Sec. 1301 dealing with the averaging of farm and fishing income when computing income tax liability (T.D. 9417,
NPRM REG-161695-04; TAXDAY, 2008/07/22, I.1). The regulations reflect changes to the law made by the American Jobs Creation Act of 2004 (P.L. 108-357) and provide guidance to individuals engaged in a farming or fishing businesses who elect to reduce their liability by treating all or a portion of the current tax year's farm or fishing income as if one-third of it had been earned in each of the prior three tax years. The temporary regulations generally apply to tax years beginning after July 22, 2008. However, taxpayers may use the temporary regulations in taxable years beginning after December 31, 2003, if consistently applied.

  Bonus Depreciation for Kansas Disaster Area. 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 (Notice 2008-67; TAXDAY, 2008/07/24, I.4). The guidance also explains how a taxpayer may elect not to deduct the additional first-year depreciation for Kansas RA property.

  Stimulus Payment Information. The IRS reminded qualifying retirees and veterans that it is not too late to obtain an economic stimulus payment by filing a 2007 tax return (IR-2008-91; TAXDAY, 2008/07/22, I.4). The IRS will send a second set of information packets to 5.2 million people who may be eligible to receive a stimulus payment, but who have not yet filed. The packages will contain instructions, an example Form 1040A return showing the few lines that need to be completed and a blank Form 1040A. The packages will be mailed over a three-week period starting July 21.

  Offshore Tax Evasion. Frank Ng, the IRS commissioner of Large and Mid-Size Businesses, testified July 24 at the Senate Finance Committee hearing on tax evasion in the Cayman Islands (TAXDAY, 2008/07/25, C.1). Ng reported that over 9,000 Cayman Island entities are associated with U.S. firms, and over 900 are wholly owned U.S. companies. In 2005, the IRS received 5,500 tax returns from Cayman Island corporations reporting gross receipts of $162 billion. The IRS is attempting to deter offshore tax evasion by improving the qualified intermediary program, international cooperation, criminal investigations of U.S. taxpayers for offshore tax evasion, and the use of John Doe summonses. The Cayman Islands have cooperated with U.S. investigations, but the IRS has been hampered by its inability to identify specific individuals and activities for information requests. Ng asked Congress to strengthen penalties for foreign trust reporting, increase the three-year statute of limitations, and continue to support tax treaty information exchange agreements.

  By Jeff Carlson, Paula Cruickshank, Brant Goldwyn and George Jones, CCH News Staff.