Tax News

CCH (cch.taxgroup.com) reports:

  James R. Eads, Jr., has been named the new Executive Director of the Federation of Tax Administrators (FTA). He is formerly the Public Affairs Director for Ryan, a state tax consulting firm. Eads' previous experience includes service as Chief Counsel for the Arkansas Department of Finance & Administration Revenue Division and as state tax counsel for Sears and AT&T Corp. He also worked for Ernst & Young and the Internal Revenue Service.

  Eads replaces Harley Duncan, who resigned after 20 years with the FTA to take a position with KPMG. Eads will assume his new post on September 8.

News Release, Federation of Tax Administrators, August 14, 2008.
 

CCH (cch.taxgroup.com) reports:

  The IRS's proposed overhaul of Code Sec. 6694 regulations (NPRM REG-129243-07, I.R.B. 2008-27, 32; TAXDAY, 2008/06/17, I.1) drew a subdued response from tax professionals at an August 18 hearing in Washington, D.C. Representatives from practitioner groups and the return-preparation industry appear ready to live with the regulations if they are finalized as proposed. Recommended changes are largely limited to clarifications of proposed rules, such as those dealing with reliance on a taxpayer's legal conclusions, disclosure, a preparer's reliance on the advice of others, penalties and the treatment of appraisers.

New Standard

  The IRS issued the proposed regulations in June in response to changes made to Code Sec. 6694 by Congress in 2007. The Small Business and Work Opportunity Tax Act of 2007 (P.L. 110-28) replaced the realistic-possibility-of-success standard in Code Sec. 6694(a) with the heightened more-likely-than-not standard for undisclosed, nonabusive positions. The preparer must have a reasonable belief that the tax treatment of the position would more likely than not be sustained on its merits. Additionally, Congress extended Code Sec. 6694 to cover preparers of all returns, not just preparers of income tax returns.

  Preparers also risk significantly increased penalties under the 2007 Small Business Act. The old, first-tier $250 penalty in Code Sec. 6694(a) has jumped to the greater of $1,000 or 50 percent of the income derived, or to be derived, by the preparer. The penalty for willful or reckless conduct in Code Sec. 6694(b) increased from $1,000 to the greater of $5,000 or 50 percent of the income derived or to be derived by the preparer.

Legal Conclusions

  Under the proposed regulations, a preparer may generally rely in good faith on information provided by the taxpayer. However, the proposed regulations expressly prohibit the preparer from relying on information from a taxpayer with respect to legal conclusions on federal tax issues.

  J. Edward Swails, speaking on behalf of the American Institute of Certified Public Accountants (AICPA), warned that the prohibition could be interpreted as "changing the government's long-standing position that preparers can rely on taxpayer information regarding items that involve mixed issues of fact and law." These include, Swails explained, earnings and profits, depreciation and inventory. Swails also predicted that the prohibition would require preparers to "re-perform the research and analysis conducted by in-house tax professionals."

  Brian Donahue, director of government relations for H&R Block, Inc., urged the IRS to clarify the definition of legal conclusion. For example, if a client believes that he or she owns a property outright but actually has a life estate in the property, would the taxpayer's representation of an ownership interest be a legal conclusion, Donahue asked.

Alternative Reference Sources

  The first-tier penalty in Code Sec. 6694(a) would not be imposed if the IRS determines that the understatement was due to reasonable cause and the preparer acted in good faith. Among the factors the IRS will consider is the preparer's good-faith reliance on the advice of the taxpayer or others.

  The Pennsylvania Society of Public Accountants (PSPA) asked the IRS to expand the factors and accept alternative reference sources in addition to the authorities in Reg. §1.662-4(d)(3)(iii). "The alternative reference sources would be for purposes of sustaining that a preparer has reasonable cause and acted in good faith," said Paul J. Cannataro, speaking on behalf of the PSPA. An example of an alternative reference source would be CCH's Master Tax Guide, Cannataro told CCH.

  "The pressure from taxpayers to complete returns causes practitioners to work as many as 80 to 90 hours a week," Cannataro said. "For less complicated issues, the alternative reference sources provide a more expedient solution to the overwhelmed practitioner's problems."

Disclosure

  The proposed regulations permit a preparer to contemporaneously document in his or her file that disclosure was made to the client. However, boilerplate language is not allowed. The IRS has estimated that preparers will be able to prepare the contemporaneous document in 15 minutes. "The 15-minute estimate is inaccurate and misleading," Cannataro said.

NATP Comments

  The National Association of Tax Professionals (NATP), which did not send a representative to testify in person at the hearing, provided written comments to the IRS. The NATP urged the IRS to exercise caution in penalizing preparers for nonwillful errors. "IRS auditors should be disabused from raising a penalty as a result of a material error unless it is willful and there is a repeated pattern of it happening with the preparer. A one-time penalty should not be the basis for application of a penalty."

  Appraisers cautioned that the proposed regulations could be interpreted as treating appraisers as nonsigning preparers. The proposed regulations govern both signing and nonsigning preparers.

  Anita C. Soucy, attorney-advisor, Treasury Office of Tax Legislative Counsel, asked if a person could be retained to appraise a property and also prepare a return (related to the property). Jay Fisherman, speaking on behalf of the American Society of Appraisers, responded that this scenario would create a conflict of interest for the appraiser.

  Deborah Butler, associate chief counsel (Procedure & Administration), indicated that the proposed regulations will be finalized before the end of the year. The AICPA recommended that final Code Sec. 6694 regulations give preparers some transition relief. "The effective date should include a transition rule allowing preparers to comply with the requirements of Notice 2008-13 (TAXDAY, 2008/01/02, I.1), rather than the final regulations, for any return filed or any advice given within the 60 days following publication of the final regulations."

  In July, AICPA President Barry C. Melancon told CCH that equalizing the preparer and taxpayer penalty standards at substantial authority for undisclosed nonabusive return positions is the organization's top legislative priority (TAXDAY, 2008/07/24, M.2). The pending Renewable Energy and Job Creation Bill of 2008 (HR 6049), the so-called "extenders bill," would equalize the standards. While the bill passed in the House, it stalled in the Senate before Congress's August recess.

  The PSPA urged the IRS to support equalizing the preparer and taxpayer standards at substantial authority at the hearing. "The IRS has the obligation to make Congress aware of laws that cause inefficiency in the tax system. One such example is the unequal standard placed on preparers versus taxpayers," Cannataro said.

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

AICPA Comments on Proposed Rules (REG-129243-07) Regarding Tax Return Preparer Penalties

National Association of Tax Professionals Comments on Tax Return Preparer Penalties Under Code Secs. 6694 and 6695
 

CCH (cch.taxgroup.com) reports:

  The IRS has issued a new revenue procedure that taxpayers must follow when they wish to obtain automatic consent to change accounting methods. The new procedure generally applies to applications to change accounting methods that are filed on or after August 18, 2008, for a year of change ending on or after December 31, 2007.

  In general, a change in accounting method occurs when there is a change in the overall plan of accounting for gross income or deductions or when there is a change in the treatment of any material item. Except as otherwise provided, a taxpayer must obtain the consent of the IRS before changing accounting methods for tax purposes. Under the general rule, a taxpayer obtains IRS consent to an accounting method change by filing Form 3115, Application for Change in Accounting Method, during the tax year in which the taxpayer wants to make the proposed change.

  Previously, in Rev. Proc. 2002-9, 2002-1 CB 327, the IRS provided guidance on how taxpayers could receive automatic consent for certain accounting method changes specified in that revenue procedure. This latest guidance from the IRS supersedes Rev. Proc. 2002-9 and updates the automatic consent procedures for accounting method changes by clarifying some of the terms and conditions of Rev. Proc. 2002-9 and incorporating many of the modifications that have been made to that procedure since it was released.

  General procedures. Taxpayers who fall within the scope of the new procedure are automatically granted the consent of the IRS to change an accounting method described in the Appendix of the procedure. In most situations, a completed and filed current Form 3115 will serve as the application for consent to change accounting methods. The taxpayer must include the designated automatic accounting method change number, as identified in the Appendix of the procedure, on the application. A user fee does not have to be paid with the application.

  Taxpayers under IRS examination can file an application to change accounting methods under the automatic consent procedure, but only during certain time periods or under certain conditions. Taxpayers before an IRS Appeals Office or before a federal court can also file an application to change accounting methods under the automatic consent procedure but may receive limited audit protection if the accounting method to be changed is an issue under consideration.

  Five-year change prohibition. In general, a five-year prohibition on accounting method changes under the automatic consent procedure applies. Thus, unless otherwise provided, a taxpayer that changed its overall method of accounting or applied for consent to change its overall method of accounting during any of the five tax years ending with the year of change may not obtain automatic consent to change its overall method of accounting under the new procedure. A similar restriction applies to a change in a method of accounting for a specific item.

  Code Sec. 481 adjustment period. Many accounting method changes require a Code Sec. 481 adjustment so that amounts are not duplicated or omitted following the change. Unless otherwise provided, the new procedure sets forth a Code Sec. 481 adjustment period of four tax years for net positive Code Sec. 481 adjustments and one tax year for net negative Code Sec. 481 adjustments. Taxpayers may elect to use a one-year Code Sec. 481 adjustment period for positive net Code Sec. 481 adjustments that are less than $25,000. Special rules apply for taxpayers that are ceasing to engage in a trade or business or are terminating their existence.

  Incorporation of additional accounting method changes. Additional accounting method changes that have been incorporated in the new automatic consent procedure include: (1) changes for lessor improvements abandoned at termination of the lease; (2) changes for accounting for, or identifying disposed, depreciable repairable and reusable spare parts; (3) changes from depreciating land or nondepreciable land improvements to not depreciating them; (4) changes to capitalize and depreciate repairable and reusable spare parts; (5) changes from the cash method to the accrual method for specific items; (6) changes to the overall cash method for specified transportation industry taxpayers; (7) changes to an overall cash/hybrid method for certain banks; (8) changes to an overall cash method for farmers; (9) changes for nonshareholder contributions to capital under Code Sec. 118; (10) changes for retainages under Code Sec. 451; (11) changes relating to timing of incurring liabilities for employee bonuses and vacation pay under Code Sec. 461; (12) changes for rebates and allowances under Code Sec. 461; (13) changes from a ratable inclusion of rental income or expense to inclusion in accordance with the rent allocation; (14) changes from permissible methods of identifying and valuing inventories; (15) changes in the official used vehicle guide utilized in valuing used vehicles; (16) changes relating to invoiced advertising association costs for new vehicle retail dealerships; (17) changes to dollar-value pools of manufacturers; and (18) changes to comply with Reg. §1.1012-1(c)(1)-(4).

  Transition rules. The new automatic consent procedure generally applies to applications to change accounting methods that are filed on or after August 18, 2008, for a year of change ending on or after December 31, 2007. However, if a taxpayer within the scope of Rev. Proc. 97-27, 1997-1 CB 680, timely filed a Form 3115 under that procedure before August 18, 2008, requesting consent for a change in accounting method described in that procedure for a year of change ending on or after December 31, 2007, and the Form 3115 is still pending with the IRS National Office on August 18, 2008, the taxpayer may choose to make the change under the new procedure. The taxpayer must notify the IRS National Office of its intent to make the change under the new procedure before the later of September 18, 2008, or the issuance of a letter ruling granting or denying consent for the change.

  If a taxpayer filed an application under Rev. Proc. 2002-9 with the IRS National Office to make a change in accounting method and the application was postmarked or received before August 18, 2008, the taxpayer makes the change under Rev. Proc. 2002-9. However, a taxpayer that filed an application under Rev. Proc. 2002-9 before August 18, 2008, for a year of change that is the taxpayer's first tax year ending on or after December 31, 2007, may choose to file an amended application for that year under the new procedure.

Rev. Proc. 2008-52, 2008FED ¶46,545

Other References:

 
Code Sec. 77

  CCH Reference - 2008FED ¶530

  CCH Reference - 2008FED ¶6304.20

 
Code Sec. 162

  CCH Reference - 2008FED ¶8526.024

  CCH Reference - 2008FED ¶8610.01

  CCH Reference - 2008FED ¶8610.143

  CCH Reference - 2008FED ¶8630.025

  CCH Reference - 2008FED ¶8630.027

  CCH Reference - 2008FED ¶8630.1242

  CCH Reference - 2008FED ¶8630.45

  CCH Reference - 2008FED ¶8754.1695

 
Code Sec. 163

  CCH Reference - 2008FED ¶9104.0442

  CCH Reference - 2008FED ¶9104.62

  CCH Reference - 2008FED ¶9303.0668

  CCH Reference - 2008FED ¶9303.10

 
Code Sec. 166

  CCH Reference - 2008FED ¶10,690.155

 
Code Sec. 167

  CCH Reference - 2008FED ¶11,009.046

  CCH Reference - 2008FED ¶11,009.135

  CCH Reference - 2008FED ¶11,037.675

  CCH Reference - 2008FED ¶11,043.01

  CCH Reference - 2008FED ¶11,043.015

  CCH Reference - 2008FED ¶11,043.021

  CCH Reference - 2008FED ¶11,043.283

  CCH Reference - 2008FED ¶11,043.285

  CCH Reference - 2008FED ¶11,043.288

  CCH Reference - 2008FED ¶11,043.40

  CCH Reference - 2008FED ¶11,043.45

 
Code Sec. 168

  CCH Reference - 2008FED ¶11,279.051

  CCH Reference - 2008FED ¶11,279.0516

  CCH Reference - 2008FED ¶11,279.0545

  CCH Reference - 2008FED ¶11,279.058

  CCH Reference - 2008FED ¶11,279.073

  CCH Reference - 2008FED ¶11,279.18

  CCH Reference - 2008FED ¶11,279.19

  CCH Reference - 2008FED ¶11,279.55

  CCH Reference - 2008FED ¶11,279.68

  CCH Reference - 2008FED ¶11,279.70

 
Code Sec. 171

  CCH Reference - 2008FED ¶11,855.073

  CCH Reference - 2008FED ¶11,855.65

 
Code Sec. 174

  CCH Reference - 2008FED ¶12,047.035

  CCH Reference - 2008FED ¶12,047.037

  CCH Reference - 2008FED ¶12,047.046

  CCH Reference - 2008FED ¶12,047.057

  CCH Reference - 2008FED ¶12,047.10

  CCH Reference - 2008FED ¶12,047.115

 
Code Sec. 179B

  CCH Reference - 2008FED ¶12,136.20

 
Code Sec. 194

  CCH Reference - 2008FED ¶12,335.073

  CCH Reference - 2008FED ¶12,335.25

 
Code Sec. 197

  CCH Reference - 2008FED ¶12,455.30

 
Code Sec. 199

  CCH Reference - 2008FED ¶12,476.0235

  CCH Reference - 2008FED ¶12,476.0334

  CCH Reference - 2008FED ¶12,476.0386

  CCH Reference - 2008FED ¶12,476.0387

 
Code Sec. 263

  CCH Reference - 2008FED ¶13,709.017

  CCH Reference - 2008FED ¶13,709.03

  CCH Reference - 2008FED ¶13,709.033

  CCH Reference - 2008FED ¶13,709.035

  CCH Reference - 2008FED ¶13,709.037

  CCH Reference - 2008FED ¶13,709.105

  CCH Reference - 2008FED ¶13,709.385

  CCH Reference - 2008FED ¶13,709.469

  CCH Reference - 2008FED ¶13,709.564

 
Code Sec. 263A

  CCH Reference - 2008FED ¶13,815.037

  CCH Reference - 2008FED ¶13,815.044

  CCH Reference - 2008FED ¶13,815.24

  CCH Reference - 2008FED ¶13,815.63

  CCH Reference - 2008FED ¶13,822.05

  CCH Reference - 2008FED ¶13,822.30

  CCH Reference - 2008FED ¶13,822.80

  CCH Reference - 2008FED ¶13,848.01

  CCH Reference - 2008FED ¶13,848.04

  CCH Reference - 2008FED ¶13,848.045

  CCH Reference - 2008FED ¶13,848.10

  CCH Reference - 2008FED ¶13,848.15

  CCH Reference - 2008FED ¶13,850.01

  CCH Reference - 2008FED ¶13,850.28

  CCH Reference - 2008FED ¶13,850.50

 
Code Sec. 280F

  CCH Reference - 2008FED ¶15,108.042

 
Code Sec. 404

  CCH Reference - 2008FED ¶18,352.18

 
Code Sec. 446

  CCH Reference - 2008FED ¶20,620.0257

  CCH Reference - 2008FED ¶20,620.026

  CCH Reference - 2008FED ¶20,620.027

  CCH Reference - 2008FED ¶20,620.0274

  CCH Reference - 2008FED ¶20,620.0312

  CCH Reference - 2008FED ¶20,620.0314

  CCH Reference - 2008FED ¶20,620.054

  CCH Reference - 2008FED ¶20,620.055

  CCH Reference - 2008FED ¶20,620.075

  CCH Reference - 2008FED ¶20,620.076

  CCH Reference - 2008FED ¶20,620.102

  CCH Reference - 2008FED ¶20,620.111

  CCH Reference - 2008FED ¶20,620.143

  CCH Reference - 2008FED ¶20,620.144

  CCH Reference - 2008FED ¶20,620.166

  CCH Reference - 2008FED ¶20,620.20

  CCH Reference - 2008FED ¶20,620.217

  CCH Reference - 2008FED ¶20,620.222

  CCH Reference - 2008FED ¶20,620.226

  CCH Reference - 2008FED ¶20,620.236

  CCH Reference - 2008FED ¶20,620.238

  CCH Reference - 2008FED ¶20,620.239

  CCH Reference - 2008FED ¶20,620.241

  CCH Reference - 2008FED ¶20,620.2412

  CCH Reference - 2008FED ¶20,620.242

  CCH Reference - 2008FED ¶20,620.243

  CCH Reference - 2008FED ¶20,620.2432

  CCH Reference - 2008FED ¶20,620.247

  CCH Reference - 2008FED ¶20,620.248

  CCH Reference - 2008FED ¶20,620.249

  CCH Reference - 2008FED ¶20,620.2505

  CCH Reference - 2008FED ¶20,620.2507

  CCH Reference - 2008FED ¶20,620.251

  CCH Reference - 2008FED ¶20,620.258

  CCH Reference - 2008FED ¶20,620.259

  CCH Reference - 2008FED ¶20,620.284

  CCH Reference - 2008FED ¶20,620.285

  CCH Reference - 2008FED ¶20,620.286

  CCH Reference - 2008FED ¶20,620.292

  CCH Reference - 2008FED ¶20,620.304

  CCH Reference - 2008FED ¶20,620.311

  CCH Reference - 2008FED ¶20,620.323

  CCH Reference - 2008FED ¶20,620.3235

  CCH Reference - 2008FED ¶20,620.625

  CCH Reference - 2008FED ¶20,620.627

  CCH Reference - 2008FED ¶20,620.6275

  CCH Reference - 2008FED ¶20,620.6305

  CCH Reference - 2008FED ¶20,620.641

 
Code Sec. 448

  CCH Reference - 2008FED ¶20,803.03

  CCH Reference - 2008FED ¶20,803.032

  CCH Reference - 2008FED ¶20,803.50

  CCH Reference - 2008FED ¶20,803.75

 
Code Sec. 451

  CCH Reference - 2008FED ¶21,005.027

  CCH Reference - 2008FED ¶21,005.7035

  CCH Reference - 2008FED ¶21,005.7043

  CCH Reference - 2008FED ¶21,005.9327

  CCH Reference - 2008FED ¶21,005.933

  CCH Reference - 2008FED ¶21,005.946

  CCH Reference - 2008FED ¶21,030.073

 
Code Sec. 454

  CCH Reference - 2008FED ¶21,503.075

  CCH Reference - 2008FED ¶21,503.35

 
Code Sec. 455

  CCH Reference - 2008FED ¶21,517.075

  CCH Reference - 2008FED ¶21,517.35

 
Code Sec. 461

  CCH Reference - 2008FED ¶21,817.0285

  CCH Reference - 2008FED ¶21,817.029

  CCH Reference - 2008FED ¶21,817.128

  CCH Reference - 2008FED ¶21,817.163

  CCH Reference - 2008FED ¶21,817.2345

  CCH Reference - 2008FED ¶21,817.235

  CCH Reference - 2008FED ¶21,817.2377

  CCH Reference - 2008FED ¶21,817.287

  CCH Reference - 2008FED ¶21,817.3215

  CCH Reference - 2008FED ¶21,817.704

 
Code Sec. 467

  CCH Reference - 2008FED ¶21,911.01

 
Code Sec. 471

  CCH Reference - 2008FED ¶22,206.021

  CCH Reference - 2008FED ¶22,206.5075

  CCH Reference - 2008FED ¶22,208.50

  CCH Reference - 2008FED ¶22,208.76

  CCH Reference - 2008FED ¶22,210.24

  CCH Reference - 2008FED ¶22,218.01

  CCH Reference - 2008FED ¶22,218.35

 
Code Sec. 472

  CCH Reference - 2008FED ¶22,240.027

  CCH Reference - 2008FED ¶22,240.03

  CCH Reference - 2008FED ¶22,240.037

  CCH Reference - 2008FED ¶22,240.04

  CCH Reference - 2008FED ¶22,240.041

  CCH Reference - 2008FED ¶22,240.047

  CCH Reference - 2008FED ¶22,240.25

  CCH Reference - 2008FED ¶22,240.33

  CCH Reference - 2008FED ¶22,240.55

  CCH Reference - 2008FED ¶22,240.70

  CCH Reference - 2008FED ¶22,241.04

  CCH Reference - 2008FED ¶22,241.45

 
Code Sec. 475

  CCH Reference - 2008FED ¶22,268.023

  CCH Reference - 2008FED ¶22,268.20

 
Code Sec. 481

  CCH Reference - 2008FED ¶22,277.027

  CCH Reference - 2008FED ¶22,277.029

  CCH Reference - 2008FED ¶22,277.38

  CCH Reference - 2008FED ¶22,277.40

  CCH Reference - 2008FED ¶22,277.493

  CCH Reference - 2008FED ¶22,277.498

  CCH Reference - 2008FED ¶22,277.50

  CCH Reference - 2008FED ¶22,277.502

  CCH Reference - 2008FED ¶22,277.51

  CCH Reference - 2008FED ¶22,277.58

  CCH Reference - 2008FED ¶22,277.595

  CCH Reference - 2008FED ¶22,277.70

 
Code Sec. 585

  CCH Reference - 2008FED ¶23,662.10

 
Code Sec. 811

  CCH Reference - 2008FED ¶25,900.20

 
Code Sec. 832

  CCH Reference - 2008FED ¶26,157.021

 
Code Sec. 846

  CCH Reference - 2008FED ¶26,331.105

 
Code Sec. 860D

  CCH Reference - 2008FED ¶26,662.65

 
Code Sec. 861

  CCH Reference - 2008FED ¶27,131.128

  CCH Reference - 2008FED ¶27,146.49

 
Code Sec. 904

  CCH Reference - 2008FED ¶27,901.82

 
Code Sec. 985

  CCH Reference - 2008FED ¶28,848.028

  CCH Reference - 2008FED ¶28,848.032

 
Code Sec. 986

  CCH Reference - 2008FED ¶28,861.25

 
Code Sec. 1273

  CCH Reference - 2008FED ¶31,283.45

  CCH Reference - 2008FED ¶31,283.50

  CCH Reference - 2008FED ¶31,283.60

 
Code Sec. 1276

  CCH Reference - 2008FED ¶31,361.40

 
Code Sec. 1281

  CCH Reference - 2008FED ¶31,421.04

  CCH Reference - 2008FED ¶31,421.35

 
Code Sec. 1363

  CCH Reference - 2008FED ¶32,062.035

  CCH Reference - 2008FED ¶32,062.20

  CCH Reference - 2008FED ¶32,062.40

 
Code Sec. 1400J

  CCH Reference - 2008FED ¶32,472.10

 
Code Sec. 1400L

  CCH Reference - 2008FED ¶32,477.026

 
Code Sec. 1400N

  CCH Reference - 2008FED ¶32,487.031

 
Code Sec. 7121

  CCH Reference - 2008FED ¶41,090.115

 
Statement of Procedural Rules 601.201

  CCH Reference - 2008FED ¶43,360.16

 
Statement of Procedural Rules 601.204

  CCH Reference - 2008FED ¶43,384.031

  CCH Reference - 2008FED ¶43,384.10

  CCH Reference - 2008FED ¶43,384.45

  Tax Research Consultant

  CCH Reference - TRC DEPR: 15,304
CCH Reference - TRC ACCTNG: 21,100
CCH Reference - TRC ACCTNG: 21,200
 

CCH (cch.taxgroup.com) reports:

  The IRS has provided guidance regarding when a child of divorced or separated parents will be treated as a dependent of both parents. Under Code Sec. 152(e), a child of divorced or separated parents will only be treated as a dependent of the noncustodial parent for purposes of the dependency exemption only if the custodial parent provides a written declaration that he or she will not claim the child as a dependent for the tax year and the noncustodial parent attaches the declaration to his or her return. Many other provisions that provide for benefits and exclusions attributable to the dependents of a taxpayer reference the rules of Code Sec. 152, including its use in relation to the children of divorced or separated parents. However, under this procedure, the IRS will treat the child as a dependent of both parents for purposes of several provisions relating to medical expenses, medical coverage and employee benefits, regardless of whether or not the custodial parent released the claim of the exemption.

  Specifically, the IRS will treat a child as a dependent of both parents, without a declaration of the custodial parent, under the following circumstances:

  --the exclusion from gross income of certain employer reimbursements of expenses incurred for the medical care of the employee's child under Code Sec. 105(b);

  --the exclusion from gross income of employer contributions to an accident or health plan on behalf of the employee's children under Code Sec. 106(a) and Reg. §1.106-1;

  --the exclusion from gross income of fringe benefits qualifying as no-additional-cost services or qualified employee discounts under Code Sec. 132(a) that are treated as used by the employee due to use by an employee's child under Code Sec. 132(h)(2);

  --the deduction of medical expenses of the taxpayer's child under Code Sec. 213(a); and

  --the exclusions under Code Secs. 220(f)(1) and 223(f)(1) for distributions from Archer Medical Savings Accounts and Health Savings Accounts, respectively, if the distributions are used to pay qualified medical expenses of the account beneficiary's child.

  The guidance is effective August 18, 2008, but taxpayers may choose to apply the guidance to any tax year beginning after December 31, 2004, for which a credit or refund can still be claimed under Code Sec. 6511.

Rev. Proc. 2008-48, 2008FED ¶46,544

Other References:

 
Code Sec. 105

  CCH Reference - 2008FED ¶6702.027

  CCH Reference - 2008FED ¶6702.23

 
Code Sec. 106

  CCH Reference - 2008FED ¶6803.01

  CCH Reference - 2008FED ¶6803.193

 
Code Sec. 132

  CCH Reference - 2008FED ¶7438.034

  CCH Reference - 2008FED ¶7438.14

 
Code Sec. 152

  CCH Reference - 2008FED ¶8250.027

  CCH Reference - 2008FED ¶8250.21

 
Code Sec. 213

  CCH Reference - 2008FED ¶12,543.057

  CCH Reference - 2008FED ¶12,543.20

 
Code Sec. 220

  CCH Reference - 2008FED ¶12,675.25

 
Code Sec. 223

  CCH Reference - 2008FED ¶12,785.041

  CCH Reference - 2008FED ¶12,785.25

  Tax Research Consultant

  CCH Reference - TRC INDIV: 42,356.05

  CCH Reference - TRC INDIV: 42,450

  CCH Reference - TRC INDIV: 42,500

  CCH Reference - TRC FILEIND: 6,168.20

  CCH Reference - TRC COMPEN: 33,052

  CCH Reference - TRC COMPEN: 45,056.05

  CCH Reference - TRC COMPEN: 45,154.05

CCH (cch.taxgroup.com) reports:

  The IRS has released the Summer 2008 issue of the Statistics of Income (SOI) Bulletin. The SOI is a quarterly compilation of information from federal tax returns and other documents. This issue of the bulletin contains data on the growth in profits and tax liability reported by foreign-controlled domestic corporations.

  According to 2005 data, there were 61,820 foreign-controlled domestic corporations (FCDCs), accounting for 1.1 percent of the total of all U.S. corporations. However, FCDCs generated $3.5 trillion of total receipts with $9.2 trillion of total assets, accounting for 13.7 percent of receipts and 13.9 percent of assets reported on all U.S. corporation income tax returns. Profits, or net income less deficit, reported by FCDCs for tax purposes were $165.2 billion, an 81.9 percent increase from $90.8 billion reported in 2004. The U.S. tax liability for FCDCs, total income tax after credits, was $42.4 billion for 2005, a 41.7 percent increase since 2004.

  The bulletin also includes articles on:

  --Foreign corporations controlled by U.S. multinational corporations;

  --Corporations that claimed the foreign tax credit on their U.S. tax returns;

  --Growth trends in the number of partnership and sole proprietorship returns;

  --Federal gift tax returns filed for gifts given in 2005; and

  --Use of business credit for research activities.

  The Statistics of Income Bulletin is available from the Superintendent of Documents, U.S. Government Printing Office, P.O. Box 371954, Pittsburgh, Pa. 15250-7954, Both annual subscriptions and single issues are available. The Bulletin is also available online at www.irs.gov.

IR-2008-97,
2008FED ¶46,543

Summer 2008 SOI Bulletin [Document will be available on August 20, 2008 - CCH.]

Other References:

 
Code Sec. 6108

  CCH Reference - ¶36,942.01

  CCH Reference - ¶36,942.40

  Tax Research Consultant

  CCH Reference - TRC IRS: 3,152.10

Tax Analysts report: