Tax News

CCH (cch.taxgroup.com) reports:

  The IRS has provided guidance on the requirements to be satisfied by a sponsor of a defined benefit plan wishing to use substitute mortality tables in determining the plan's minimum funding requirements, as allowed under Code Sec. 430(h)(3)(C). This is an update of Rev. Proc. 2007-37, I.R.B. 2007-25, 1433, which was based upon proposed regulations. The update is necessary due to the need to reflect final regulations published in the Federal Register on July 31, 2008 (T.D. 9419,
TAXDAY, 2008/07/31, I.1).

  The following changes were made to reflect the provisions of the final regulations:

  --guidance regarding the required experience study reflect the final regulation's grant of authority to use a period of up to five years and clarify that the experience study period used to develop unadjusted base tables must coincide with the experience study period used to demonstrate credible mortality experience;

  --reflection of the extended October 1, 2008 deadline for submitting requests to use substitute mortality tables to be used for plan years beginning in 2009;

  --reflection of the revised definition of "Base Year" used in the final regulations;

  --a new subsection allowing plans within a permissive group to use different experience study periods if the plans have different plan years;

  --reflection of the increased length of the period used to demonstrate lack of credible mortality experience if an experience study period is longer than four years;

  --guidance for demonstrating lack of credible mortality experience when different experience study periods are used by a permissive group;

  --permission to use alternative means of demonstrating lack of credible mortality experience;

  --elimination of one set of sample annuity values with respect to nonannuitant mortality tables;

  --adjustments to the date of birth used for annuity values; and

  --the term "newly acquired" was changed to "newly affiliated" throughout the procedure to reflect the change in the final regulation's language.

  This procedure applies to all requests to use substitute mortality tables submitted on or after December 1, 2008. Requests submitted prior to December 1, 2008 may choose to follow this procedure or that prescribed in Rev. Proc. 2007-37.

Rev. Proc. 2008-62, 2008FED ¶46,592

Other References:

 
Code Sec. 430

  CCH Reference - 2008FED ¶20,161.032

  CCH Reference - 2008FED ¶20,161.60

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 30,556

CCH (cch.taxgroup.com) reports:

  The IRS has provided the static mortality tables to be used under Code Sec. 430(h)(3)(A) for purposes of calculating the funding target and other items for valuation dates occurring during calendar years 2009 through 2013, and modified "unisex" mortality tables for use in determining minimum present value under Code Sec. 417(e)(3) for distributions with annuity starting dates that occur during stability periods beginning in calendar years 2009 through 2013.

  The mortality tables described in Code Sec. 430(h)(3)(A) are also used to determine current liability under Code Sec. 412(l)(7) of the Code for nondisabled participants. Furthermore, the same mortality assumptions that apply for purposes of Code Sec. 430(h)(3)(A) and Reg. §1.430(h)(3)-1(a)(2) are used to determine a multiemployer plan's current liability for purposes of applying the full-funding rules of Code Sec. 431(c)(6). For this purpose, a multiemployer plan is permitted to apply either the annually adjusted static mortality tables or the generational mortality tables.

Notice 2008-85, 2008FED ¶46,591

Other References:

 
Code Sec. 412

  CCH Reference - 2008FED ¶19,125.52

 
Code Sec. 417

  CCH Reference - 2008FED ¶17,730.41

 
Code Sec. 430

  CCH Reference - 2008FED ¶20,161.022

  CCH Reference - 2008FED ¶20,161.60

 
Code Sec. 431

  CCH Reference - 2008FED ¶20,181.033

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 30,556

CCH (cch.taxgroup.com) reports:

  The IRS has published a list of the counties and parishes in the United States that have suffered exceptional, severe or extreme drought during the 12 months ending August 31, 2007, sufficient to extend the livestock replacement period. As authorized in Code Sec. 1033(e)(2)( and implemented in Notice 2006-82, I.R.B. 2006-39, 529, an extended replacement period is available for livestock sold on account of extreme weather conditions until the end of the first taxable year ending after the first drought-free year. For this purpose, the 12-month period that ended on August 31, 2007, was not a drought-free year for a region that includes any county on the IRS list.

Notice 2008-86, 2008FED ¶46,589

Other References:

 
Code Sec. 1033

  CCH Reference - 2008FED ¶29,650.127

  Tax Research Consultant

  CCH Reference - TRC SALES: 27,064.25
CCH Reference - TRC FARM: 3,206.10
 

CCH (cch.taxgroup.com) reports:

  House lawmakers had planned to leave Washington, D.C., on September 29, thereby ending stalled negotiations with the Senate and forcing Senate lawmakers to accept their package of tax extenders, energy incentives and alternative minimum tax (AMT) relief bills. However, the failure of the House to pass the Emergency Economic Stabilization Bill of 2008 (HR 3997), will require lawmakers to return to Washington as early as October 1. Since work must continue on a bailout plan for the economy, House and Senate lawmakers might also get another chance to work out their difference on the tax bills.

  House Ways and Means Committee member Jim McDermott, D-Wash., said the Senate has "played all kinds of games with us, so we though we could get out of here without having to have another round." McDermott said the failure of the bailout bill means that House lawmakers could be back in Congress for another couple of weeks, thereby leaving lots of time for a continued standoff between the House and Senate.

  Two energy incentive and extender tax bills were unveiled by House Ways and Means Chairman Charles B. Rangel, D-N.Y., late on September 28, but Democratic leadership decided not to bring them up for a vote when it became clear that the Senate would reject them. Rangel had hoped that the Energy Improvement and Extension Bill of 2008 (HR 7201) and the Temporary Tax Relief Bill of 2008 (HR 7202) would generate support in the Senate because they include modified energy tax incentives and added rural schools provisions.

  Senate Finance Committee Chairman Max Baucus, D-Mont., said the 60 votes necessary to pass House tax legislation are not available, after another attempt failed on September 29. GOP lawmakers do not believe the tax extenders, energy incentives or disaster relief bills should be offset by tax increases, Baucus said. He told reporters that House and Senate lawmakers have not communicated with one another and that the gulf between the two legislative bodies is resulting in a lack of movement on the legislation.

  "The larger issue is the House and Senate just don't talk to one another and work out an understanding," Baucus said. "They're in their little world and we're in our little world, instead of just sitting down like adults, both sides --House and Senate, and working out solutions."

  House Majority Leader Steny H. Hoyer, D-Md., and the group of fiscally conservative House Democrats known as the Blue Dogs, expressed anger that the Senate sent its version of the energy, AMT and extenders tax bill, HR 6049, to the House on September 29 just as lawmakers were preparing to vote on the economic bailout bill. Hoyer said that did not give the House enough time to consider the tax bill since the House planned to adjourn following the bailout vote. Hoyer said the House would reject the Senate strategy to legislate by blunt force. "It is not our intention to come back in a lame-duck session and pass extenders," he said.

  Baucus also said the Senate would not be satisfied with simply approving the House-passed Alternative Minimum Tax (AMT) Relief Bill of 2008 (HR 7005), a $64.6-billion measure that does not include a revenue offset. The measure passed the House on September 24 by a bipartisan vote of 393 to 30 (TAXDAY, 2008/09/25, C.1). He said the Senate views their own bill, HR 6049, as a total package that should not be broken into individual pieces.

  By Stephen K. Cooper, CCH News Staff

Energy Improvement and Extension Act of 2008, HR 7201

Temporary Tax Relief Act of 2008, HR 7202

Renewable Energy and Job Creation Tax Act of 2008, as Passed by the House on September 26, 2008, HR 7060

Congressional Release: Summary of HR 7201 Energy Improvement and Extension Act of 2008

Congressional Release: Summary of HR 7202 Temporary Tax Relief Act of 2008

Senate Finance Committee Release: SFC Chairman Max Baucus Remarks on Extenders
 

CCH (cch.taxgroup.com) reports:

  The House on September 29 voted 228 to 205 to reject the Emergency Economic Stabilization Bill of 2008 (EESA) (HR 3997). House Republicans voting against the measure totaled 133, with 95 Democrats joining them. Treasury Secretary Henry M. Paulson, Jr., will be consulting with President Bush, Federal Reserve Board Chairman Ben Bernanke and congressional leaders as to the next steps, according to a statement released by the Treasury.

  " In the meantime, we stand ready to work with fellow regulators and use all the tools at our disposal, as we have over the last several months, to protect our financial markets and our economy," said Treasury Assistant Secretary for Public Affairs and Director of Policy Planning Michele Davis.

  Prior to the vote, President Bush described the EESA as "a bold bill that will help keep the crisis in our financial system from spreading throughout our economy."

  The bill would have given the Treasury $250 billion immediately, and would have required the president to certify if an additional $100 billion is necessary. The remaining $350-billion disbursement would have been subject to congressional approval. The Treasury would have been required to report on the use of the funds and progress made in addressing the crisis.

  Meanwhile, the EESA also called on the Treasury to modify troubled loans wherever possible to help families keep their homes. It also directed other federal agencies to modify loans that they own or control.

  The legislation also would require companies that sold some of their bad assets to the government to provide warrants so that taxpayers could benefit from any future growth these companies might experience as a result of participation in this program. The legislation would require the president to submit legislation to cover any losses to taxpayers resulting from this program by charging a small, broad-based fee to all financial institutions.

  The EESA provided that, in exchange for participation in the program, companies would lose certain tax benefits and, in some cases, would have to limit executive pay.

  In a September 28 letter from Office of Management and Budget (OM Director Jim Nussle to House Minority Leader John A. Boehner, R-Ohio, Nussle stated that the impact on the taxpayer would be "substantially less" than $700 billion. "No one knows just how much these assets will sell for, but since 90 percent of mortgages are currently being paid on time and in full, we can expect a substantial payback on our investment." He added that, in some cases, if a mortgage asset is purchased at a deep discount from its face value, taxpayers may even see a positive return on their investment.

  House Financial Service member Emanuel Cleaver II, D-Mo., said that his constituents believe the bailout bill would allow the federal government to spend tax dollars to bail out millionaires, or executives with lucrative golden parachutes. Rep. John Tanner, D-Tenn., said lawmakers did a poor job of communicating the seriousness of the economic problems that the bailout bill would address. "Nobody knew for sure what we were avoiding, and nobody knew for sure what we were alleviating," he said.

  Rep. Joseph Crowley, D-N.Y., said the bailout bill failed because of a lack of GOP support. "Outside of war and peace, this is the most important vote people will take in their lives." But Rep. Eric Cantor, R-Va., the GOP Chief Deputy Whip, said more Republicans would have voted for the bill, but a partisan speech given by House Speaker Nancy Pelosi, D-Calif., made at least 11 members vote against the bill.

  House leaders will either find the necessary votes to bring the same bill up in the same format, or they will negotiate a better piece of legislation that is more acceptable to House Republicans, predicted Rep. Chris Van Hollen, D-Md.

  By Sarah Borchersen-Keto and Stephen K. Cooper, CCH News Staff

Amendment to the Senate Amendment to HR 3997, Emergency Economic Stabilization Act of 2008, HR 3997

Congressional Release: Section-by-Section Analysis of the Legislation, Emergency Economic Stabilization Act of 2008, HR 3997

Congressional Release: Summary of the Emergency Economic Stabilization Act of 2008, HR 3997

White House Statement: A Strong Bipartisan Proposal To Stabilize Our Financial System

Statement of Administration Policy on HR 3997, Emergency Economic Stabilization Act of 2008

Letter from Office of Management and Budget Director Jim Nussle to Rep. John Boehner

Treasury Department News Release, TDNR HP-1167

Treasury Department News Release, TDNR HP-1168
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Legislation revises and clarifies the California corporation franchise and income tax intercompany dividend elimination provision and makes numerous other changes to corporation franchise and income tax and personal income tax provisions. These changes expand eligibility for filing nonresident group returns, subject partnerships to the nonresident realty withholding requirements, subject withholding agents who fail to remit withholding payments to the withholding penalty, increase the personal income estimated tax payment filing threshold, and extend the limitations period for filing a refund claim for taxes paid to another state. In addition, amendments authorize the Franchise Tax Board's (FT Taxpayers' Rights Advocate to abate penalties, interests, and additions to tax under specified conditions.

 

CCH (cch.taxgroup.com) reports:

  Legislation has been enacted that partially conforms California personal income tax law to federal amendments made by the Mortgage Forgiveness Debt Relief Act of 2007 (P.L. 110-142) allowing an exclusion from gross income for discharge of an individual's qualified principal residence indebtedness. However, the California exclusion is limited to indebtedness discharged in the 2007 and 2008 calendar years, while the federal exclusion applies to indebtedness discharged in 2007 through 2009. Also, the amount of the California exclusion is limited to $250,000 ($125,000 in the case of a married individual filing separately), and "qualified principal residence indebtedness" is defined for purposes of the California exclusion to mean an individual's qualified acquisition indebtedness of up to $800,000 ($400,000 in the case of a married individual filing separately) rather than the $2 million ($1 million in the case of a married individual filing separately) provided under federal law. Notwithstanding any other law to the contrary, no penalties or interest will be due with respect to the discharge of any qualified principal residence indebtedness during the 2007 taxable year, regardless of whether the taxpayer reports the discharge on his or her return for the 2007 taxable year.

Ch. 282 (S.B. 1055), Laws 2008, effective September 25, 2008, and applicable as noted above.
 

CCH (cch.taxgroup.com) reports:

  The IRS has provided guidance regarding the application of
Code Sec. 1058(a) to situations involving securities loan agreements where the borrower subsequently defaults under the agreement as a result of its bankruptcy (or that of an affiliate) and, as soon as it is commercially practicable (but in no event more than 30 days following the default), the lender uses collateral provided pursuant to the agreement to purchase identical securities. Pursuant to the guidance, the purchase of the identical securities will not result in the loss of tax-free treatment under Code Sec. 1058(a) for the lender, so long as the following conditions are met:

  (1) the securities loan agreement meets the requirements of Code Sec. 1058(b);

  (2) the agreement requires that the borrower transfer collateral as security for its obligations under the agreement;

  (3) the borrower defaults under the agreement as a direct or indirect result of its bankruptcy or that of an affiliate; and

  (4) as soon as it is commercially practicable (but in no event more than 30 days following the default), the lender applies collateral transferred under the agreement (or cash generated by the sale of the collateral) to the purchase of identical securities.

  The guidance is effective for tax years ending on or after January 1, 2008. No inference should be drawn as to whether similar consequences will result if a securities loan falls outside the scope of this guidance.

Rev. Proc. 2008-63, 2008FED ¶46,588

Other References:

 
Code Sec. 1058

  CCH Reference - 2008FED ¶30,003.01

  Tax Research Consultant

  CCH Reference - TRC SALES: 3,302.35

CCH (cch.taxgroup.com) reports:

  The IRS and Treasury Department will issue regulations providing that the date as of the close of which the U.S. government directly or indirectly owns a more-than-50-percent interest in a loss corporation will not be considered a testing date for purposes of determining whether the loss corporation is required to determine whether an ownership change has occurred under Code Sec. 382. In other words, the loss corporation will be required to determine whether there is a testing date (and, if so, whether there has been an ownership change) on any date as of the close of which the U.S. does not own a more-than-50-percent interest in the corporation. A "more-than-50-percent interest" is stock with more than 50 percent of the total value of all stock classes (excluding Code Sec. 1504(a)(4) preferred stock), or more than 50 percent of the combined voting power of all voting stock, or an option to acquire such stock. The regulations will address acquisitions not described in Notice 2008-76, I.R.B. 2008-39 (TAXDAY, 2008/09/09, I.1), and will apply for any tax year ending on or after September 26, 2008, unless and until the IRS issues additional guidance.

Notice 2008-84, 2008FED ¶46,587

Other References:

 
Code Sec. 382

  CCH Reference - 2008FED ¶17,115.40

  CCH Reference - 2008FED ¶17,115.45

  Tax Research Consultant

  CCH Reference - TRC NOL: 33,050

CCH (cch.taxgroup.com) reports:

  Although the IRS will continue not to issue advance rulings or determination letters on the income tax consequences of establishing, operating, or participating in a nonqualified deferred compensation plan, as described in Code Sec. 409A, the Service may issue rulings on the application of certain other tax provisions to taxpayers who participate in those plans. Specifically, for rulings and determination letters issued after September 25, 2008, the IRS may address issues such as the estate and gift tax consequences of proposed inter vivos or testamentary transfers of rights under nonqualified deferred compensation plans that may be covered by Code Sec. 409A, and issues arising under the Federal Insurance Contributions Act (FICA) with respect to nonqualified deferred compensation.

  CCH Comment.
Code Sec. 409A contains requirements that apply to nonqualified deferred compensation plans. If the plan does not meet specified requirements, a participant must immediately include amounts deferred under the plan in income and pay additional taxes on such income. The IRS prohibition against issuing rulings encompassed matters tangential to issues regarding the establishment and operation of nonqualified deferred compensation programs under Code Sec. 409A. On April 7, 2007, final regulations were issued under Code Sec. 409A that apply on January 1, 2009, and define "nonqualified deferred compensation plan" and "deferral of compensation" for purposes of Code Sec. 409A. Transitional relief, as well as guidance on the correction of certain failures of nonqualified deferred compensation plans, is provided in Notice 2007-100, I.R.B. 2007-52, 1243, issued on December 3, 2007. In light of this additional guidance, the IRS has determined that the existing no-rule policy unnecessarily restricts its ability to issue private letter rulings.

  Pursuant to Section 3.01 of Rev. Proc. 2008-3, as modified and amplified by Rev. Proc. 2008-61, the IRS will continue not to issue rulings with respect to:

  --the income tax consequences of establishing, operating, or participating in a nonqualified deferred compensation plan as defined in Reg. §1.409A-1(a);

  --whether a plan is a plan subject to a totalization agreement or similar plan;

  --whether a plan is a broad-based foreign retirement plan;

  --whether a plan is a bona fide vacation leave, sick leave, or compensatory time plan; and

  --whether a plan provides for the deferral of compensation under Reg. §1.409A-1(b).

 
Rev. Proc. 2008-3, I.R.B. 2008-1, 110, is modified and amplified.

Rev. Proc. 2008-61, 2008FED ¶46,586

Other References:

 
Code Sec. 409A

  CCH Reference - 2008FED ¶18,960.25

 
Statement of Procedural Rules Sec. 601.201

  CCH Reference - 2008FED ¶43,360.60

  Tax Research Consultant

  CCH Reference - TRC COMPEN: 15,050
CCH Reference - TRC IRS: 12,214.20
 

CCH (cch.taxgroup.com) reports:

  The IRS has designated the Indian tribal entities that appear on the annual lists published by the Bureau of Indian Affairs as Indian tribal governments for purposes of Code Sec. 7701(a)(40). The BIA published its list annually, with the most recent list appearing in the Federal Register on April 4, 2008. The list reflects the tribes eligible for programs and services provided to Indians by the federal government because of their status as Indians. Indians are treated as states for certain purposes under Code Sec. 7871(a).

Rev. Proc. 2008-55, 2008FED ¶46,582

Other References:

 
Code Sec. 103

  CCH Reference - 2008FED ¶6602.385

 
Code Sec. 7701

  CCH Reference - 2008FED ¶43,130.01

 
Code Sec. 7871

  CCH Reference - 2008FED ¶43,952.20

  CCH Reference - 2008FED ¶43,952.35

  Tax Research Consultant

  CCH Reference - TRC SALES: 51,056.15
CCH Reference -
TRC IRS: 12,216

CCH (cch.taxgroup.com) reports:

  The House passed HR 7083, the Charity Enhancement Bill of 2008, by voice vote on September 27 during an unusual weekend session. Introduced by House Ways and Means Committee Oversight Subcommittee Chairman John Lewis, D-Ga., the bill is intended "to fix unintended consequences of the Pension Protection Act of 2006 (PPA) P.L. 109-280), which failed to take into account unique and unforeseen situations in the charitable sector, such as the effect on scholarships and charitable giving," a Ways and Means press release announced after the vote. The bill is in response to a flood of written comments submitted to the Oversight Subcommittee by charitable institutions and foundations over the past year, complaining that certain PPA provisions have had the effect of hampering worthwhile charitable works.

  CCH Comment. While the Charity Enhancement Bill is a bi-partisan bill, its fate in the Senate before adjournment for the elections is uncertain based on the limited time available on the Senate calendar for pending bills other than the financial bailout legislation. The Charity Enhancement Bill is separate from the Pension Protection Technical Corrections Bill of 2008, HR 6382, passed by voice vote in the House on July 9, which primarily corrects non-charitable related PPA provisions. Its fate in the Senate is similarly dependent upon room on the Senate calendar before adjournment.

  The Charity Enhancement Bill of 2008 limits the extent to which certain PPA provisions should be applied, as well as rectifies other unintended restrictions on exempt organizations. HR 7083 would:

  --Remove from PPA's definition of "donor advised funds" those charitable funds created, funded and advised solely by one or more public charities or governmental entities;

  --Remove from PPA's restrictions on distributions from donor advised funds legitimate and carefully-monitored scholarship awards approved in advance by the charitable organization holding the donor advised fund;

  --Repeal the special written acknowledgment required for charitable contributions to donor advised funds stating that the sponsoring organization has exclusive legal control over the assets contributed;

  --Lift excess-benefit restrictions (and, thereby encourage voluntary boards) by allowing supporting organizations to pay substantial contributors reasonable compensation for services and reimburse reasonable and necessary expenses;

  --Except from holdings and payout requirements certain pre-1970 fully-funded Type III supporting organizations in which the original donors and family are no longer involved; and

  --Treat contributions by Indian tribal governments the same as contributions by states (i.e., as public support) in determining classification as a public charity or private foundation (and, thereby supporting their philanthropy).

  The Charity Enhancement Bill of 2008 also would tighten two provisions and raise $76 million in the process by:

  --Increasing e-filing (and, therefore, transparency) by exempt organizations by allowing the IRS to require e-filing of annual Form 990 information returns by organizations filing at least five returns with the IRS annually; and

  --Expanding the Code Sec. 6657 bad check penalty introduced by the Small Business and Work Opportunity Tax Act of 2007 (P.L. 110-28) so that the penalty also applies in cases of bed electronic payments.

  By George Jones, CCH News Staff

SFC Release: Grassley Statement on House Charity Bill
 

CCH (cch.taxgroup.com) reports:

  Frustration at the lack of Senate movement on the House-passed tax extenders and energy bill (HR 7060) prompted House Ways and Means Chairman Charles B. Rangel, D-N.Y., on September 28 to separate the measure into two tax bills. Rangel and House Majority Leader Steny Hoyer, D-Md., told reporters that the two new tax bills were being introduced in hopes of persuading the Senate to negotiate with the House. Rangel introduced the Energy Improvement and Extension Act of 2008 (HR 7201) and the Temporary Tax Relief Act of 2008 (HR 7202). The House could take up the two new tax bills on September 29.

  The new legislation comes on the heels of HR 7060, the Renewable Energy and Job Creation Tax Act of 2008, which passed the House on September 26. However, Senate lawmakers immediately refused to accept the measure. Instead, they insisted that House lawmakers accept the bipartisan Senate-passed bill HR 6049.

  Rangel said HR 7201 and HR 7202 are mostly similar to the provisions included in HR 7060, except they add rural school provisions and make minor changes to the energy provisions. HR 7060 passed the House by a vote of 257 to 166.

  Hoyer and Rangel expressed their frustration at the unwillingness of the Senate to compromise on the tax legislation. They said House lawmakers do not want to accept the Senate positions, or bow to the necessity of getting 60 votes to pass legislation in the Senate. Hoyer said the House pay-as-you-go (PAYGO) rules are important to uphold, despite the possibility of ending the 110th Congress without ultimately passing the tax legislation. Hoyer also threatened that the House might decide to slow its consideration of Senate legislation in retaliation.

  By Stephen K. Cooper, CCH News Staff

Ways and Means Release: House Passes Critical Tax Relief for Families and Businesses

Blue Dog Leaders Support Fiscally Responsible Tax-Break Extenders, Call on Senate Republicans to Do the Same

SFC Release: Baucus Statement on House Vote on Tax Extenders Legislation
 

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  A Wisconsin corrugate manufacturer could not recover from the municipality in which it resided the amount of personal property taxes it erroneously paid on manufacturing equipment based on either an unidentified city employee's error in providing a tax form or the city mayor's assurances that he was working to correct the problem. Dismissal of the manufacturer's equitable estoppel claim against the municipality for over $200,000 was affirmed.

  Initially, it was decided not to determine whether the manufacturer could use equitable estoppel as a basis to a claim, rather than as a defense to a claim. Instead, it was assumed that the theory applied and the case would be decided based on whether the manufacturer's reliance was reasonable.

 

CCH (cch.taxgroup.com) reports:

  The sales of downloadable copyrighted photographs over the Internet by a Web site based business are not subject to Missouri sales and use tax if there is not a transfer of tangible personal property from the business to its customers. The business does not provide hard copies of the pictures that are downloaded by its customers. Although telecommunications services used for transmission of messages and conversations are taxable, telecommunications service does not include access to the Internet or interactive computer or electronic publishing services.

Letter Ruling No. LR5058 , Missouri Department of Revenue, August 29, 2008,
¶202-993

  Other References:

  Explanations at ¶60-445

CCH (cch.taxgroup.com) reports:

  The 2009 annual interest rate drops from 11% to 8% on underpayments and nonpayments of Colorado taxes. In addition, the interest rate decreases from 8% to 5% if payment of the tax, or an agreement to pay, is made within 30 days of notice of underpayment or nonpayment, or if an underpayment or nonpayment is cured voluntarily without notification from the Department of Revenue.

  Subscribers to CCH Tax Research NetWork can view the notice.

FYI General 11 , Colorado Department of Revenue, September 2008.
 

CCH (cch.taxgroup.com) reports:

  The IRS announced that it will issue guidance under the Industry Issue Resolution (IIR) program regarding technical terminations of a publicly traded partnership (PTP) that result in multiple short tax years within one calendar year. These terminations occur when more than 50 percent of a PTP's capital and profits interest are sold or exchanged within a 12-month period (Code Sec. 708(b)) and result in the PTP having to file a Form 1065, U.S. Partnership Return of Income, for each short tax year. Taxpayers that follow this released guidance will be able ton avoid audits triggered by problems arising from the PTP's filing requirements.

  Business associations and taxpayers may submit business tax issues that they believe could be resolved through the IIR program at any time. IIR project selection criteria and submission procedures are outlined in Rev. Proc. 2003-36, 2003-1 CB 859. The IRS reviews submissions at least semi-annually, with the last review conducted for submissions received by Aug. 31, 2008.

IR-2008-110,
2008FED ¶46,581

Other References:

 
Code Sec. 708

  CCH Reference - 2008FED ¶25,202.03

 
Code Sec. 7704

  CCH Reference - 2008FED ¶43,182.01

 
Code Sec. 7804

  CCH Reference - 2008FED ¶43,266.3097

  Tax Research Consultant

  CCH Reference - TRC IRS: 12,384
CCH Reference -
TRC PART: 51,100
CCH Reference -
TRC PART: 3,250
 

CCH (cch.taxgroup.com) reports:

  The IRS has updated the rules for determining the amount of an employee's ordinary and necessary business expenses for lodging, meals, and incidental expenses incurred while traveling away from home that are deemed substantiated under Reg. §1.274-5. The new procedure provides transition rules for the last three months of calendar year 2008 and updates the simplified "high-low" per diem rates and the high-cost/low-cost localities.

Transition Rules

  CONUS rates. Taxpayers may continue to use the current CONUS rates for the first nine months of calendar year 2008 instead of the updated GSA rates; however, they must consistently use one or the other for the period of October 1, 2008, to December 31, 2008.

  Meal and incidental expenses. Taxpayers who used the federal meal and incidental expense rates for the first nine months of calendar year 2008, may not use the transportation industry rates provided in this procedure until January 1, 2009. Conversely, taxpayers who used the transportation industry rates for the first nine months, cannot use the federal meal and incidental expense rates until January 1, 2009.

  Substantiation method. Payors who used the substantiation method for the first nine months of calendar year 2008, may not use the high-low method until January 1, 2009, and vice versa. However, payors using the high-low method may use the rates and high-cost localities contained in Rev. Proc. 2006-41, I.R.B. 2006-43, 777, rather than the updated rates and localities contained in this procedure.

Per Diem Rates

  The update applies to per diem allowances paid for travel on or after October 1, 2008. The simplified "high-low" per diem rates have increased to $256 for high-cost localities and increased to $158 for low-cost localities. For purposes of applying the high-low substantiation methods and the 50-percent limitation on meal expenses, the federal meal and incidental expense rate is treated as $58 for a high-cost locality and $45 for any other locality within CONUS.

Locality Update

  Jackson/Pinedale, Wyoming, has been added to the list of high-cost localities.

  The portion of the year for which the following are high-cost localities has been changed: Phoenix/Scottsdale, Arizona; San Diego, California; Silverthorne/Breckenridge, Colorado; Steamboat Springs, Colorado; Vail, Colorado; Palm Beach, Florida; Cambridge/St. Michaels, Maryland; Ocean City, Maryland; Martha's Vineyard, Massachusetts; Nantucket, Massachusetts; Jamestown/Middletown/Newport, Rhode Island.

  The following localities have been removed from the list of high-cost localities: Palm Springs, California; Yosemite National Park, California; Stuart, Florida; Incline Village/Crystal Bay/Reno/Sparks, Nevada; Conway, New Hampshire; Providence, Rhode Island; Loudon County, Virginia; Virginia Beach, Virginia; Lake Geneva, Wisconsin.

 
Rev. Proc. 2007-63, I.R.B. 2007-42, 809, is superseded.

Rev. Proc. 2008-59, 2008FED ¶46,580

Other References:

 
Code Sec. 162

  CCH Reference - 2008FED ¶180.01

  CCH Reference - 2008FED ¶1070.11

  CCH Reference - 2008FED ¶8856.17

 
Code Sec. 274

  CCH Reference - 2008FED ¶14,417.002

  CCH Reference - 2008FED ¶14,417.035

  CCH Reference - 2008FED ¶14,417.037

  CCH Reference - 2008FED ¶14,417.038

  CCH Reference - 2008FED ¶14,417.039

  CCH Reference - 2008FED ¶14,417.04

  CCH Reference - 2008FED ¶14,417.041

  CCH Reference - 2008FED ¶14,417.421

  CCH Reference - 2008FED ¶14,417.62

  Tax Research Consultant

  CCH Reference - TRC INDIV: 36,054.05
CCH Reference - TRC INDIV: 36,056.10
CCH Reference - TRC INDIV: 36,056.15
CCH Reference - TRC BUSEXP: 24,808
CCH Reference - TRC BUSEXP: 24,904
CCH Reference - TRC BUSEXP: 24,906.10
CCH Reference - TRC BUSEXP: 24,906.25
CCH Reference - TRC BUSEXP: 24,912.05
CCH Reference - TRC BUSEXP: 24,912.15
CCH Reference - TRC BUSEXP: 24,912.20
 

CCH (cch.taxgroup.com) reports:

  House Ways and Means Chairman Charles B. Rangel, D-N.Y., introduced yet another tax extenders bill on September 25, but it failed to generate support from Senate Republicans who are sticking to their insistence that House lawmakers should accept the bipartisan, Senate-passed bill
HR 6049. The House took up the Renewable Energy and Job Creation Tax Bill of 2008 (HR 7060), but a drafting error caused lawmakers to pull the bill from House consideration.

  The Bush administration issued a veto threat against the Rangel bill, saying that the measure should be discarded in favor of the Senate tax bill, which combines alternative minimum tax relief, energy tax incentives and tax provisions for businesses and families. "The House is trying to play games with extenders and tax relief," said Senate Finance Committee ranking member Charles E. Grassley, R-Iowa. He said HR 6049 includes provisions that House members want and that the bill would definitely become law because the president supports it.

  The Rangel bill, which will likely reach the House floor on September 26, was modified from earlier House extender tax bills in hopes of winning support from Senate Republicans. "The Senate said they wanted two years; this bill gives them two years, paid for by offsets they have already blessed," said Rangel, who urged the Senate to accept a compromise, rather than insisting on their version of the legislation.

  According to a summary of HR 7060 provided by Rangel's office, the legislation would invest $15 billion in renewable energy, energy efficiency and conservation improvements, and carbon capture and sequestration demonstration projects. Another $42 billion would be invested in extending a group of expiring tax provisions through 2009. Those provisions include the research and development credit, special rules for active financing income, the state and local sales tax deduction, the deduction for out-of-pocket expenses for teachers, and the deduction for qualified tuition expenses. The bill also includes $3 billion for the refundable child tax credit.

  In order to pay for the bill, Rangel used tax offsets that already won support in the Senate. His bill would prevent the understatement of foreign oil and gas extraction income in calculating foreign tax credits and freeze the Code Sec. 199 deduction for oil and gas companies at six percent. According to the summary, the measure would also prevent hedge fund managers who work for offshore corporations from deferring tax on their compensation.

  The bill would also delay a tax benefit for multinational corporations operating overseas that has yet to take effect. HR 7060 would also provide for broker reporting of customer's basis in securities, extend the FUTA surtax for one year and extend and increase funding for the Oil Spill Liability Trust Fund.

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

Ways and Means Release: Summary of Tax Provisions in HR 7060, the Renewable Energy and Job Creation Act of 2008

Statement of Administration Policy on HR 7060

JCT Technical Explanation of HR 7060, the Renewable Energy and Job Creation Tax Act of 2008, JCX-75-08

JCT Estimated Budget Effects of HR 7060, the Renewable Energy and Job Creation Tax Act of 2008, JCX-76-08

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  A Georgia superior court has issued an order compelling Expedia, Inc. to collect Columbus, Georgia, hotel occupancy taxes based on the prices its online consumers pay on Expedia.com rather than the wholesale prices it contracts for with hotels. Columbus filed the case in 2006 with respect to the collection of its 7% hotel occupancy tax. Though many cities and towns throughout the country have filed similar hotel occupancy tax cases against online travel companies, this order is the first substantive ruling.

 

CCH (cch.taxgroup.com) reports:

  A mechanical contractor that was expanding its business to serve the high-tech construction market was entitled to rental expense deductions for amounts paid to rent equipment from its controlling shareholders. The rental agreements entered into with the shareholders were hybrid arrangements that contained features of both long-term leases and short-term rental agreements.

  The taxpayer had a valid business reason for the arrangements. The taxpayer's management determined that incurring additional long-term debt or comparable commitments under a long-term lease was imprudent given the untested line of business. Additionally, short-term rentals were infeasible, given an increase in the construction business and a demand for construction equipment that exceeded its supply on the third-party rental market.

  The hybrid arrangements provided for exclusive control of the equipment, as well as actual usage features that precluded rental payments when the equipment was idle or in transit. The payments made under the hybrid arrangements were reasonable and not more than the taxpayer would have been required to pay as a result of an arm's-length bargain. Expert testimony confirmed that the hourly and monthly rates paid to the shareholders were generally consistent with or below rates in the short-term rental market in the area at the time the contracts were entered into.

  Further, amounts paid by the taxpayer and the shareholders to co-lease equipment under option to purchase agreements that were less than the amounts of the shareholders' subleases to the taxpayer did not indicate that the taxpayer paid above the fair market value. The taxpayer's financial condition supported the inference that the primary lessors of the equipment would not have entered into the leases without the shareholders as co-lessees and a rental amount over the rental value of the equipment was necessary to reflect guarantor risk.

  Because the taxpayer's financial condition prevented it from obtaining five-year leases for the equipment at issue, an arm's-length rate for the taxpayer's rent was not equal to the cost of these leases, but, rather, the cost was a rate above what would be paid for the five-year leasehold interest in order to compensate the shareholders for the risk that they might be unpaid as a result of the untested business.

  The taxpayer bore the burden of proof with respect to the original determination of deficiencies because it failed to meet the cooperation requirement. During pretrial proceedings, the taxpayer resisted producing necessary materials to substantiate the rental expense deductions, resulting in court-enforced discovery.

Yearout Mechanical & Engineering, Inc., TC Memo. 2008-217, Dec. 57,540(M)

Other References:

 
Code Sec. 162

  CCH Reference - 2008FED ¶8754.5587

 
Code Sec. 7491

  CCH Reference - 2008FED ¶42,520.10

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 3,152
CCH Reference -
TRC LITIG: 3,200
 

CCH (cch.taxgroup.com) reports:

  The House on September 24 approved a continuing appropriations resolution (an amendment to the Senate amendment to HR 2638) to fund the federal government at 2008 levels through March 6, 2009. Majorities in both parties, including 224 Democrats and 146 Republicans, voted 370-58 to approve the resolution, which was introduced by House Appropriations Committee Chairman David Obey, D-Wis. The government's fiscal year (FY) 2008 appropriations are set to expire on September 30, 2008.

  The resolution was part of a package that includes the FY 2009 appropriations for military construction and veterans affairs, defense and homeland security, as well as a disaster relief package. The resolution includes an additional $68 million to fund IRS taxpayer services needed to administer payments under the Economic Stimulus Act of 2008 (P.L. 110-185).

  The IRS budget for FY 2008 budget was $11.1 billion. The Service will receive a prorated amount for FY 2009. The Senate Appropriations Committee on July 10 approved an IRS budget of $11.5 billion for FY 2009; $163 million higher than the Bush administration's request (TAXDAY, 2008/07/11, C.3). The House Appropriations Committee on June 25 approved an IRS budget of $11.4 billion for FY 2009 (TAXDAY, 2008/06/30, C.1). Both bills would eliminate the IRS's use of private debt collectors.

  In other developments, the House and Senate approved the Fostering Connections to Success and Increasing Adoptions Act of 2008 (HR 6893), which would tighten the uniform definition of a child in Code Sec. 152 for claiming various tax benefits. The legislation would require that the child not have filed a joint return and that the child be younger than the taxpayer claiming the child. The bill also restricts claims for the child tax credit to the child's parents or to an individual whose income is higher than either parent's. The provisions would apply to tax years beginning in 2009 or later.

  By Brant Goldwyn, CCH News Staff

Fostering Connections to Success and Increasing Adoptions Act of 2008, Enrolled, HR 6893
 

CCH (cch.taxgroup.com) reports:

  President Bush warned that the U.S. is in the midst of a "serious financial crisis," with major sectors of the financial system at risk of shutting down unless action is taken on a $700-billion bailout proposal put forward in recent days by the administration. In a televised address to the nation, Bush said that the White House is working with Congress to address the root cause of the problem.

  Presidential candidates Sen. Barack Obama, D-Ill., and Sen. John McCain, R-Ariz., have been invited to the White House on Thursday to discuss the financial crisis, along with other congressional leaders, Bush said.

  "Our entire economy is in danger," Bush stressed. He noted that failure to act could result in bank failures, lost jobs, rising foreclosures and complete loss of retirement savings.

  Bush said that the proposal would remove the risk caused by troubled financial assets, while assuring that taxpayers are protected. In addition, the plan would put in place an oversight board to oversee implementation of the bailout, he said, adding that it would also prevent "failed executives" from receiving a windfall from taxpayer money.

  Meanwhile, "much, if not all," of the $700 billion will be paid back, Bush stated, noting that the government is the one institution with the patience and resources to buy assets at their current low prices and hold them until markets return to normal.

  By Sarah Borchersen-Keto, CCH News Staff

CCH (cch.taxgroup.com) reports:

  House lawmakers on September 24 approved the Alternative Minimum Tax (AMT) Relief Bill of 2008 (HR 7005) and the Disaster Tax Relief Bill of 2008 (HR 7006).

AMT Bill

 
HR 7005, a $64.6-billion measure authored by House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., does not include a revenue offset and passed the House by a bipartisan vote of 393 to 30. Ways and Means member Richard E. Neal, D-Mass., called HR 7005 a true, hold-harmless AMT patch but noted that the measure does not meet House pay-as-you-go (PAYGO) budget rules.

  The bill would provide AMT relief for nonrefundable personal credits and would increase the AMT exemption amount to $69,950 for joint filers and $46,200 for individuals. The legislation would also provide relief for AMT payors who have exercised incentive stock options and would make changes to the refundable AMT credit, according to a summary provided by Rangel. Rep.

  Thomas M. Reynolds, R-N.Y., said that, absent a long-term proposal, Congress has no choice but to pass HR 7005. Congress's inaction in 2008 has left many taxpayers hanging in the balance, he said.

  The Bush administration, in a written statement, praised the House for considering the AMT relief measure without including tax increases and urged Congress to send legislation to the president's desk as soon as possible in order to reduce the risk of a disruption in the 2009 tax filing season. Meanwhile, Senate Finance Committee Chairman Max Baucus, D-Mont., said the Senate-passed bill, HR 6049, includes an extension of expiring tax provisions, AMT relief and energy tax incentives.

  House lawmakers have not yet received that bill from the Senate and have signaled their displeasure with HR 6049 since the extenders provisions are not totally offset by corresponding tax increases or spending cuts. House passage of the Rangel AMT bill sets up a scenario where the AMT bill is cleared for the White House, while the extenders bill is delayed until 2009.

Disaster Bill

  The House also voted to pass the Disaster Tax Relief Act of 2008 (HR 7006) on September 24. Also introduced by Rangel, the measure passed by a 419 to 4 vote. He said the bill would provide a flexible package of economic recovery incentives to help families and businesses recover from the recent floods and hurricanes in the Midwest. The legislation would provide tax relief to taxpayers affected by federally declared disasters nationwide, between January 1, 2008, and December 31, 2011. According to a summary provided by Rangel, the measure would waive the income limitations on personal loss deductions, allow businesses to write off certain qualified disaster cleanup expenses and permit a five-year carryback for certain losses.

  The bill would also waive certain mortgage revenue bond requirements to allow bond proceeds to be used for rebuilding, provide additional low-income housing tax credits to communities with housing losses, add a new set of disaster private activity bonds for business reconstruction and waive certain limitations on charitable contributions for disaster relief, according to the summary.

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

Alternative Minimum Tax Relief Act of 2008, HR 7005

Disaster Tax Relief Act of 2008, HR 7006

Ways and Means Release: House Passes Bipartisan AMT Relief Bill

Ways and Means Release: House Passes Nationwide Disaster Relief Tax Package

SFC Release: Senate Passes Baucus-Grassley Clean Energy Incentives, Extensions of Expiring Tax Cuts, Disaster Tax Relief and Protection from AMT

SFC Release: Grassley Statement on Tax Extenders, Disaster Tax Relief

SFC Release: Baucus Statement on Senate Legislation for Jobs, Energy, Families

SAP on HR 7005-Alternative Minimum Tax Relief Act of 2008

JCT Technical Explanation of HR 7005, the Alternative Minimum Tax Relief Act of 2008,
JCX-71-08

JCT Estimated Revenue Effects of HR 7005, the Alternative Minimum Tax Relief Act of 2008,
JCX-72-08

JCT Technical Explanation of HR 7006, the Disaster Tax Relief Act of 2008, JCX-73-08

JCT Estimated Revenue Effects of HR 7006, the Disaster Tax Relief Act of 2008, JCX-74-08
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The IRS has provided guidance regarding the treatment of taxpayers that accept certain settlements of potential legal claims relating to auction rate securities. The guidance applies to taxpayers who, before June 30, 2009, accept settlement offers from persons against whom the taxpayers may have legal claims due to the other persons' conduct related to auction rate securities. The settlement offers must include window periods that do not extend beyond December 31, 2012, and require that the taxpayer deliver an auction rate security that the taxpayer purchased prior to February 12, 2008. The procedure does not apply to taxpayers who (1) accept a settlement offer with respect to an auction rate security, (2) make an election to borrow the par amount of the auction rate security from the person making the offer either before or during the window period, and (3) take the position that they continue to own the auction rate security following the acceptance and election.

  The IRS stated that it will not challenge the following positions taken by taxpayers to whom the new guidance applies:

  --The taxpayer continues to own the auction rate security upon accepting the settlement offer.

  --The taxpayer does not realize any income as a result of accepting the settlement offer and does not reduce the basis of the auction rate security from its original purchase price.

  --The taxpayer's amount realized from the sale of the auction rate security during the window period to the person offering the settlement is the full amount of the cash proceeds received from that person.

Rev. Proc. 2008-58, 2008FED ¶46,579

Other References:

 
Code Sec. 385

  CCH Reference - 2008FED ¶17,351.12

  CCH Reference - 2008FED ¶17,351.15

  Tax Research Consultant

  CCH Reference - TRC CCORP: 3,300

CCH (cch.taxgroup.com) reports:

  The IRS has released proposed amendments to the new market tax credit regulations that provide rules on how an entity meets the requirements to be a qualified active low-income community business (QALIC when its activities involve certain targeted populations under Code Sec. 45D(e)(2). The new proposals generally follow earlier published rules in
Notice 2006-60 (I.R.B. 2006-29, 82), which can be relied upon until the proposed amendments are finalized.

Background

  The new markets tax credit is a credit for persons that have a qualified equity investment in a qualified community development entity (CDE) on the credit allowance date. Among the requirements for a qualified equity investment is that substantially all of the cash must be used by the CDE to make qualified low-income community investments. One type of qualified low-income community investment is an investment in a qualified active low-income community business.

 
Notice 2006-60 provides rules on how an entity meets the requirements to be a qualified active low-income community business when its activities involve targeted populations. The proposed amendments to the regulations follow the general definitions of targeted populations and low-income persons set forth in Notice 2006-60 and the Riegle Community Development and Regulatory Improvement Act of 1994 (12 U.S.C. § 4702(17), (20)). Targeted populations that will be treated as a low-income community are individuals, or an identifiable group of individuals, including an Indian tribe, who are low-income persons or who are individuals otherwise lacking adequate access to loans or equity investments.

QALICB Requirements for Low-Income Targeted Populations

  Individuals are considered low-income if the individual's family income, adjusted for family size, is not more than: (1) for metropolitan areas, 80 percent of the area median family income; or (2) for nonmetropolitan areas, the greater of 80 percent of the area median family income or 80 percent of the statewide nonmetropolitan area median family income. The proposed amendments to the regulations follow the general requirements for a qualified active low-income community business set forth in Notice 2006-60.

  In general, a qualified active low-income community business is a corporation, including a nonprofit corporation, or a partnership engaged in the active conduct of a qualified business if: (1) at least 50 percent of the entity's total gross income for any tax year is derived from sales, rentals, services or other transactions with individuals who are low-income persons; (2) at least 40 percent of the entity's employees are individuals who are low-income persons; or (3) at least 50 percent of the entity is owned by individuals who are low-income persons. Definitions of employee and owner for this purpose are also provided.

 
Notice 2006-60 and the proposed amendments provide a 120-percent income restriction. In general, under this restriction, an entity will not be treated as a qualified active low-income community business if the entity is located in a population census tract for which the median family income exceeds 120 percent of: (1) in the case of a tract not located within a metropolitan area, the statewide median family income; or (2) in the case of a tract located within a metropolitan area, the greater of statewide median family income or metropolitan area median family income. Other qualifications and restrictions also apply.

QALICB Requirements for GO Zone Targeted Populations

  Individuals are considered to lack adequate access to loans or equity investments if they are part of the GO Zone Targeted Population, meaning that the individual was displaced from his or her principal residence as a result of Hurricane Katrina and/or the individual lost his or her principal source of employment as a result of Hurricane Katrina. Notice 2006-60 and the proposed amendments provide special requirements for a qualified active low-income community business for the GO Zone Targeted Population.

  In general, an entity will not be treated as a qualified active low-income community business for the GO Zone Targeted Population unless: (1) at least 50 percent of the entity's total gross income for any tax year is derived from sales, rentals, services or other transactions with the GO Zone Targeted Population, low-income persons or some combination thereof; (2) at least 40 percent of the entity's employees consist of the GO Zone Targeted Population, low-income persons or some combination thereof; or (3) at least 50 percent of the entity is owned by the GO Zone Targeted Population, low-income persons or some combination thereof.

 
Notice 2006-60 and the proposed amendments provide a 200-percent income restriction qualified active low-income community businesses for GO Zone Targeted Populations. In general, under the 200-percent income restriction, an entity will not be treated as a qualified active low-income community business for GO Zone Targeted Populations if the entity is located in a population census tract for which the median family income exceeds 200 percent of: (1) in the case of a tract not located within a metropolitan area, the statewide median family income; or (2) in the case of a tract located within a metropolitan area, the greater of statewide median family income or metropolitan area median family income. Other qualifications and restrictions also apply.

Effective Date

  The rules in the regulations are proposed to apply to tax years ending on or after the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register. Until that time, taxpayers can rely on Notice 2006-60 for designations made after October 22, 2004.

Request for Comments and Public Hearing

  A public hearing is scheduled for January 22, 2009, beginning at 10:00 a.m. Written and electronic comments must be received by December 23, 2008.

  The IRS and the Treasury Department are particularly interested in receiving comments on the following issues: (1) the measure of income that should be used to determine an individual's income for purposes of the definition of low-income persons; (2) whether the gross income requirements should be modified to include the fair market value of goods and services provided to low-income persons at reduced fees; and (3) whether additional restrictions should be added to the employee requirements.

Proposed Regulations, NPRM REG-142339-05, 2008FED ¶49,835

Other References:

 
Code Sec. 45D

  CCH Reference - 2008FED ¶4488E

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 54,906.15

CCH (cch.taxgroup.com) reports:

  The Senate overwhelmingly voted to approve an alternative minimum tax (AMT) relief and extenders bill (HR 6049) on September 23, paving the way for House lawmakers to decide whether the partially offset tax measure will reach the president's desk before Congress adjourns later in September. The Senate bill, which also includes a package of clean energy tax incentives, passed by a vote of 93-to-2. Senate Budget Committee Chairman Kent Conrad, D-N.D., failed to win approval for revenue-raisers or spending cuts to offset the cost of HR 6049, noting that failing to meet the pay-as-you-go (PAYGO) budget rules will likely slow the bill in the House.

  Senate Majority Leader Harry Reid, D-N.D., questioned whether House Democrats could accept AMT relief that is not paid for, while rejecting the extenders because they were only partially offset. He said that, if Democratic leaders allow the Senate bill to come to the House floor, it would likely pass. The House has scheduled a vote on extenders tax legislation on September 24, but Democratic leaders and members of the House Ways and Means Committee said the Senate's partially paid-for package is unacceptable. Instead, Rep. Earl Pomeroy, D-N.D., said that the House might simply pass a smaller tax bill that only includes the provisions that can be paid for by the Senate-approved offsets.

  The Senate bill includes $18 billion in clean energy tax incentives, which are offset by a provision to delay the tax deduction for domestic manufacturing activities of major American oil and gas companies. The bill would also change rules for paying taxes on income earned overseas, according to a summary released by the Senate Finance Committee. The bill would also provide a one-year extension of the Federal Unemployment Tax Act surtax at the current level, and an increase in reporting requirements for brokers on stock sales. Meanwhile, the $64-billion cost of providing AMT relief would not be offset, under the Senate bill.

  The two-year extension of expiring tax provisions would be offset by requiring hedge fund managers to account for deferred compensation as it accrues, rather than avoiding appropriate and timely income taxes. The bill would provide tax relief for victims of natural disasters, expand the child tax credit and provide parity for mental health treatments. Other provisions included in the Senate bill would allow the deduction of state and local taxes, deduction for qualified tuition and teacher's expenses, and additional deductions for real property taxes. The bill would extend the research and development credit and the new markets tax credit.

  Late on September 23, House Ways and Means Chairman Charles B. Rangel, D-N.Y., introduced the Alternative Minimum Tax Relief Bill of 2008 (HR 7005) and the Disaster Tax Relief Bill of 2008 (HR 7006). Rangel said the two measures are ready to be considered on September 24 by House lawmakers. House Majority Leader Steny Hoyer, D-Md., said that the Senate action would be met with consideration of House legislation that meets PAYGO budget rules and does not add to the national debt.

White House Support

  The Bush administration supports passage of the Senate extenders legislation, "despite the inclusion of several provisions that the administration opposes." The administration raised numerous objections to tax provisions in HR 6049 but did not threaten to veto the extenders package because officials believe that delaying the AMT patch would be "very problematic for our economy" said White House Deputy Press Secretary Scott Stanzel. "The AMT relief is critically important, particularly at this time," Stanzel asserted on September 23.

  The administration remains "strongly opposed to provisions that would freeze the domestic manufacturing deduction for one industry, change the tax treatment of foreign income for American energy companies operating abroad, and eliminate the cap on the oil spill liability trust fund, raising the price of a barrel of oil," stated a written policy statement. The guidance, issued on September 23, contended that the tax provisions "will increase the costs of American oil production, give further advantages to foreign suppliers, and will likely result in higher prices at the pump."

  Other White House concerns include provisions related to deferred compensation and certain tax credit bonds. The administration also opposes new mandatory funding for Payments in Lieu of Taxes and believes that any extension of rural community payments should be phased out.

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

Amendment to HR 6049

Summary of the Reid Amendment to the Substitute to HR 6049

SFC Very Preliminary Estimated Revenue Effects of an Individual AMT Proposal

Statement of Administration Policy on Senate Amendments to HR 6049 --Energy Improvement and Extension Act of 2008 and Tax Extenders and Alternative Minimum Tax Relief Act of 2008

Ways and Means Summary of Tax Provisions in AMT and Disaster Relief Tax Bills

Ways and Means Release: Rangel, Kind Introduce Disaster Relief Tax Package

Ways and Means Release: Chairman Rangel Introduces Renewable Energy and Job Creation Act of 2008

SFC Release: Baucus Floor Statement Regarding the Energy Tax Package

JCT Estimated Budget Effects of the Tax Extenders and Alternative Minimum Tax Relief Act of 2008, JCX-69-08R

JCT Estimated Budget Effects of the Energy Improvement and Extension Act of 2008,
JCX-70-08R
 
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Alabama Supreme Court has affirmed, and adopted in its entirety, a previously reported decision by the Court of Civil Appeals upholding the state's corporate income tax addback requirement for certain interest and intangible expenses. (TAXDAY, 2008/2/13, S.2) The Court of Civil Appeals had determined that the addback statute was reasonable and did not violate either the Commerce Clause or the Due Process Clause of the U.S. Constitution.

VFJ Ventures, Inc. v. Surtees, Alabama Supreme Court, No. 1070718 , September 19, 2008, ¶201-328

  Other References:

  Explanations at ¶10-620

CCH (cch.taxgroup.com) reports:

  In response to the recent credit market instability, the Treasury has made certain funds available from its Exchange Stabilization Fund on a temporary basis to money market funds that are regulated by the Security and Exchange Commission's Rule 2a-7 to enable such funds to maintain stable $1.00 per share net asset value. The program is available to both money market funds holding assets subject to federal income tax and to money market funds holding assets that include state and local governmental debt obligations the interest on which is excludable from gross income under
Code Sec. 103. The Treasury Department and the IRS will not assert that the program causes any violation of the restrictions against federal guarantees of tax-exempt bonds under Code Sec. 149(b) with respect to any tax-exempt bond assets held by tax-exempt money market funds participating in the program. In addition, the Treasury Department and the IRS will not assert that the program impairs the ability either of a money market fund participating in the program to designate exempt interest dividends under Code Sec. 852(b)(5) or of the shareholders of such a fund to claim the benefits of tax exemption with respect to such exempt interest dividends under Code Sec. 852(b)(5)(. The program will be limited to assets in money market funds as of the close of business on September 19, 2008, and to investors of record as of that date. Participating money market funds are required to make premium payments to participate in the program.

Notice 2008-81, 2008FED ¶46,577

Other References:

 
Code Sec. 149

  CCH Reference - 2008FED ¶7905.40

 
Code Sec. 852

  CCH Reference - 2008FED ¶26,433.26

  Tax Research Consultant

  CCH Reference - TRC IND: 12,104

  CCH Reference - TRC RIC: 3,304

  CCH Reference - TRC SALES: 51,064

CCH (cch.taxgroup.com) reports:

  The Federal Reserve said it has approved the applications of Goldman Sachs and Morgan Stanley to change their status from investment banks to bank holding companies under the Bank Holding Company Act. The move places the firms under the supervision of bank regulators, allows them to establish commercial banks, and exposes them to a wider availability of credit.

  Goldman Sachs, founded in 1869, said it views regulation by the Fed as "appropriate and in the best interests of protecting and growing our franchise across our diverse range of businesses." The company added that under Fed supervision, it will be regarded as an even more secure institution with an "exceptionally clean balance sheet" and a greater diversity of funding sources.

  Under the new arrangement, Goldman Sachs will move assets from a number of its strategic businesses, including its existing lending businesses, into GS Bank USA. The bank will have over $150 billion in assets and will be one of the ten largest banks in the U.S.

  Morgan Stanley, meanwhile, said it will pursue initiatives to expand the retail banking services it offers its retail clients, and build a stable base of core deposits. It noted that it has more than 3 million retail accounts and as of August 31 had $36 billion in bank deposits. It will also convert its Utah industrial bank to a national bank.

  Separately, Morgan Stanley also announced it has entered into a letter of intent to pursue a strategic alliance with Mitsubishi UFJ Financial Group Inc., Japan's largest banking group. The investment in Morgan Stanley would eventually reach 20 percent of its equity.

Congressional Package

  Meanwhile, President Bush on September 22 urged members of Congress to send him the emergency package without including "unrelated provisions." However, White House Press Secretary Dana Perino indicated that the administration is willing to consider additional provisions but would want to keep them to a minimum.

  "From our perspective, the cleaner the better and the quicker the better, and the way that you get a clean and quick bill is to make sure that it is clearly, narrowly targeted to giving the Treasury these authorities in order to help stabilize the market," Perino told reporters at a press briefing on September 22.

  Although the House initially planned to leave town on September 26, House Speaker Nancy Pelosi, D-Calif., on September 19 advised reporters that federal lawmakers would stay longer, if necessary, to finish work on the Wall Street rescue package. However, as details begin to emerge about the Paulson plan, it is meeting resistance on Capitol Hill.

  Several lawmakers warned against rushing legislation too quickly through Congress. Senate Majority Leader Harry Reid, D-Nev., in a written statement, said a final package must protect the taxpayers "who are footing the bill for this legislation. That begins with more oversight, more transparency, more accountability and more controls to prevent conflicts of interest," Reid said on September 22. He added that the legislation should provide aid to homebuyers at risk of losing their homes to foreclosure.

  Former House Speaker Newt Gingrich, R-Ga., in an interview with National Public Radio, strongly opposed rushing the complicated package through Congress without hearings or time "to catch your breath." He noted that Paulson for more than a year maintained that the housing and financial sectors were healthy enough to weather any correction to an overheated housing market. Calling it "Wall Street welfare," Gingrich criticized the size of the package and the risk to taxpayers.

  By Sarah Borchersen-Keto and Paula Cruickshank, CCH News Staff

Treasury Department News Release, TDNR HP-1150

Treasury Department News Release, TDNR HP-1151

SFC Release: Baucus Statement on Latest Developments in Financial Crisis

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  In a case of first impression, the Vermont Supreme Court applied the economic substance doctrine to disregard the existence of a taxpayer's holding companies and upheld the bank franchise assessment and substantial underpayment penalty that was imposed against the taxpayer. In addition, the Court affirmed the lower court's finding that the Department's actions to collect the erroneous refund were undertaken within the statute of limitations period and that the Tax Commissioner had the authority to independently impose the substantial underpayment penalty against the taxpayer during the taxpayer's administrative appeal.

 

CCH (cch.taxgroup.com) reports:

  On May 29, 2008, the California State Board of Equalization (SBE) approved a global settlement with Barnes & Noble.com that resolves all disputes between Barnes & Noble.com and the State of California for sales and use taxes, including pending litigation in the U.S. District Court for the Eastern District of California and the California Court of Appeal (First District). Under the settlement, two tax determinations against Barnes & Noble.com, plus all interest and penalties, were canceled by the SBE. In addition, the SBE waived all claims for sales and use taxes, interest, and penalties through November 1, 2005, the date on which Barnes & Noble.com voluntarily commenced collecting and remitting sales and use taxes to California. A final settlement agreement was entered into by the parties on August 19, 2008.

  Barnes & Noble.com had filed a complaint on December 21, 2007, in the U.S. District Court for the Eastern District of California for declaratory and injunctive relief against the members of the SBE and others. The complaint sought a declaration that the actions of the state in seeking to impose California sales and use tax on the sales of Barnes & Noble.com for the period of May 1, 2000, through March 31, 2004, plus interest and penalties, violated the Commerce Clause and the First Amendment of the U.S. Constitution, as well as the California Administrative Procedures Act. This assessment was also the subject of an administrative protest filed by Barnes & Noble.com. Barnes & Noble.com had also challenged another earlier assessment by the SBE for the period of November 15, 1999, through January 31, 2000. This earlier assessment was struck down by a decision of a California superior court on September 7, 2007 (see TAXDAY 2007/11/09, S.5) in favor of Barnes & Noble.com, and the SBE had filed an appeal in the California Court of Appeal (First District).

Form 10-Q Quarterly Report , Barnes & Noble, Inc., filed with the Securities and Exchange Commission on September 11, 2008.

CCH (cch.taxgroup.com) reports:

  The IRS has released the applicable terminal charge and the Standard Industry Fare Level (SIFL) mileage rates for determining the value of noncommercial flights on employer-provided aircraft in effect for the second half of 2008 for purposes of the taxation of fringe benefits. The value of a flight is determined under the base aircraft valuation formula by multiplying the SIFL cents-per-mile rates applicable for the period during which the flight was taken by the appropriate aircraft multiple provided in Reg. §1.61-21(g)(7) and then adding the applicable terminal charge.

  For flights taken during the period from July 1, 2008, through December 31, 2008, the terminal charge is $42.26, and the SIFL rates are: $.2312 per mile for the first 500 miles, $.1763 per mile for 501 through 1,500 miles, and $.1695 per mile for over 1,500 miles.

Rev. Rul. 2008-48, 2008FED ¶46,576

Other References:

 
Code Sec. 61

  CCH Reference - 2008FED ¶5907.04

  CCH Reference - 2008FED ¶5907.042

  CCH Reference - 2008FED ¶5907.50

  Tax Research Consultant

  CCH Reference - TRC COMPEN: 33.202.10

CCH (cch.taxgroup.com) reports:

  Treasury Secretary Henry M. Paulson, Jr., will ask Congress to take action as soon as the week of September 22 on legislation that would restore confidence in the financial system by removing illiquid mortgage assets from the balance sheets of financial institutions.

  Paulson said September 19 that the government will present a legislative proposal to Congress over the weekend, adding that, "until we get stability in the housing market, we're not going to get stability in our financial markets." He explained that illiquid mortgage assets, which have lost value as the housing correction has proceeded, are choking off the flow of credit in the economy and are "undermining the strength of our otherwise sound financial institutions."

  "This is a pivotal moment for America's economy," President Bush declared. "Given the precarious state of our financial markets and their vital importance to the daily lives of the American people, government intervention is not only warranted, it is essential." The president acknowledged that "a significant amount of taxpayer dollars" is on the line but he maintained that "this bold approach will cost American families far less than the alternative." Bush added, "Further stress on our financial markets would cause massive job losses, devastate retirement accounts, further erode housing values and dry up new loans for homes, cars and college tuitions."

  In words of reassurance to everyone concerned about their financial security, Bush said that every savings account, checking account and certificate of deposit that is insured by the Federal Deposit Insurance Corporation (FDIC) is protected by the federal government for up to $100,000. "The FDIC has been in existence for 75 years, and no one has ever lost a penny on an insured deposit. And this will not change," Bush said.

  Treasury spokesman Andrew DeSouza said that the administration is "not interested in tax increases" as it continues its discussions with Congress. "Our initial thinking is that issuing Treasuries is the simplest and least costly means of financing this," DeSouza said.

  National Economic Council (NEC) Director Keith Hennessey said separately that the administration is "very willing" to work with members of Congress to figure out the best way of dealing with the illiquid assets; however, "it has to be done quickly." He added that the administration has received "very positive signs" from congressional leaders and the relevant committees. "We're optimistic it will move as fast as it needs to," he said.

  Paulson stressed that the proposed asset relief program must protect taxpayers "to the maximum extent possible;" however, he noted that it would involve a "significant" investment of taxpayer money, which he estimated was "hundreds of billions." He noted that "this needs to be big enough to make a real difference and get at the heart of the problem."

  "The ultimate taxpayer protection," Paulson added, "will be the stability this troubled asset relief program provides to our financial system... I am convinced that this bold approach will cost American families far less than the alternative --a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion."

  Paulson told reporters that the government has acted on a case-by-case basis in recent weeks to help offset pressures in the financial markets, including placing Fannie Mae and Freddie Mac under government control and lending to American Insurance Group (AIG). Other measures taken include the Treasury's announcement that it would establish a temporary guaranty program for the money market mutual fund industry. For the coming year, the Treasury will insure the holdings of any publicly offered eligible money market mutual fund that pays a fee to participate in the program.

Congressional Reaction

  House Speaker Nancy Pelosi, D-Calif., who met with Paulson and administration officials earlier, called the meeting productive and said in a prepared statement that lawmakers were committed to quick, bipartisan action."Congress stands ready beyond the targeted adjournment date next week to consider legislative solutions and conduct necessary investigations to address this historic crisis," stated Pelosi. "Once Congress receives the Bush Administration's formal proposal, we will examine it expeditiously."

  Pelosi added that she had also directed House Financial Services Committee Chairman Barney Frank, D-Mass., and House Oversight and Government Reform Committee Chairman Henry Waxman, D-Calif., to hold hearings over the next two months to investigate the regulatory failures. Senate Majority Leader Harry Reid, D-Nev., said that he was anxious to see the administration's proposal as soon as possible. "I believe that to avoid a deepening crisis and turn this economy around, the proposal must not only address the broader, underlying structural issues in the financial markets, but also protect taxpayers and strengthen the middle class," stated Reid.

  By Sarah Borchersen-Keto, Jeff Carlson and Paula Cruickshank, CCH News Staff

Treasury Department News Release, Treasury Announces Guaranty Program for Money Market Funds, TDNR HP-1147

White House Release: Statement by the President on the Economy

White House Fact Sheet: Confronting Economic Challenges Head On
 

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Louisiana Department of Revenue will grant filing and payment extensions to those sales and use, severance, and excise taxpayers whose business or tax preparer is located in any of the disaster areas declared by President Bush due to Hurricane Ike. The declared disaster areas include 14 parishes in Louisiana and 29 counties in Texas. The extensions are available for sales tax, severance tax and excise taxes with original or extended due dates on or after September 13, 2008, and on or before September 30, 2008. The due date for qualifying tax returns and payments is extended to October 15, 2008. This relief applies to the following 14 parishes in Louisiana: Acadia, Beauregard, Calcasieu, Cameron, Iberia, Jefferson, Jefferson Davis, Lafourche, Plaquemines, Sabine, St. Mary, Terrebonne, Vermilion, and Vernon. The relief also applies to the following 29 counties in Texas: Angelina, Austin, Brazoria, Chambers, Cherokee, Fort Bend, Galveston, Grimes, Hardin, Harris, Houston, Jasper, Jefferson, Liberty, Madison, Matagorda, Montgomery, Nacogdoches, Newton, Orange, Polk, Sabine, San Augustine, San Jacinto, Trinity, Tyler, Walker, Waller, and Washington. Any additional parishes or counties that are declared Hurricane Ike disaster areas by President Bush will receive the same relief. The Department will waive any late filing penalties, late payment penalties, and interest that would otherwise apply. Any return or amount on which penalty or interest began accruing before September 13, 2008 will be ineligible for this relief. When filing a return that qualifies for the extension, taxpayers are instructed to write the words "Hurricane Ike" in black ink at the top of the return. The tax return filing extensions apply only to those taxpayers and businesses located in any of the disaster areas declared by the President.

  Subscribers to CCH Tax Research NetWork can view the bulletin in its entirety.

Revenue Information Bulletin, No. 08-029 , Louisiana Department of Revenue, September 17, 2008.
 

CCH (cch.taxgroup.com) reports:

  The IRS has provided tax relief for victims of Hurricane Ike who reside or have a business in the following Texas counties that constitute a presidentially declared disaster area: Angelina, Austin, Brazoria, Chambers, Cherokee, Fort Bend, Galveston, Grimes, Hardin, Harris, Houston, Jasper, Jefferson, Liberty, Madison, Matagorda, Montgomery, Nacogdoches, Newton, Orange, Polk, Sabine, San Augustine, San Jacinto, Trinity, Tyler, Walker, Waller and Washington. These taxpayers have until January 5, 2009, to file returns, pay taxes and perform other time-sensitive acts otherwise due on or after September 7, 2008, and before January 5, 2009, including individual estimated tax returns and corporate tax returns due September 15 and extended individual returns due October 15. The postponement extends to taxpayers who are not in the disaster area, but whose books and records, or tax professionals' offices are in the covered disaster area, as well as to relief workers affiliated with a recognized government or charitable organization assisting in the relief activities in the covered disaster area.

  The IRS will also waive the failure to deposit penalties for employment and excise deposits due on or after September 7 and before September 22, 2008, as long as the deposits are made on or before September 22. The IRS computer systems will automatically identify taxpayers located in the covered disaster area and apply automatic filing and payment relief. For taxpayers residing or having a business outside the disaster area, the tax relief must be requested by calling the IRS disaster hotline at 1-866-562-5227.

IR-2008-107,
2008FED ¶46,574

IR-2008-107, ETR ¶66,860

IR-2008-107,
FINH ¶30,600

Other References:

 
Code Sec. 6081

  CCH Reference - 2008FED ¶36,789.213

  CCH Reference - ETR ¶39,845.15

  CCH Reference - FINH ¶20,345.65

  CCH Reference - FINH ¶20,355.45

 
Code Sec. 6161

  CCH Reference - ETR ¶43,235.15

  CCH Reference - FINH ¶20,585.35

 
Code Sec. 6656

  CCH Reference - ETR ¶51,475.88

 
Code Sec. 7508A

  CCH Reference - 2008FED ¶42,687C.22

  CCH Reference - ETR ¶57,495.25

  CCH Reference - FINH ¶22,560.30

  Tax Research Consultant

  CCH Reference - TRC FILEIND: 15,204.25
CCH Reference - TRC FILEBUS: 15,110
 

CCH (cch.taxgroup.com) reports:

  The IRS has extended return filing and payment deadlines for victims of Hurricane Ike in the Louisiana parishes of Acadia, Beauregard, Calcasieu, Cameron, Iberia, Jefferson, Jefferson Davis, Lafourche, Plaquemines, Sabine, St. Mary, Terrebonne, Vermilion and Vernon. Taxpayers residing or having businesses in these presidentially declared disaster areas have until January 5, 2009, to file returns, pay taxes and perform other time-sensitive acts otherwise due on or after September 11, 2008, and before January 5, 2009. The extension includes individual estimated tax returns and corporate tax returns that were due on September 15 and extended individual returns due on October 15. The postponement of time to file an pay does not apply, however to information returns in the Form W-2, 1098, 1099 series or to Forms 1042-S or 8027.

  The IRS will waive the failure to deposit penalties for employment and excise deposits due on or after September 11, 2008, and before September 26, 2008, as long as the deposits are made on or before September 26, 2008. This includes failure to deposit penalties on employment and excise deposits that were waived under previous relief granted due to Hurricane Gustav. Taxpayers whose books, records or tax professionals' offices are in the covered disaster area are also entitled to relief. In addition, all relief workers affiliated with a recognized government or charitable organization assisting the relief activities in the covered disaster area are eligible for relief. Affected taxpayers claiming a disaster loss due to Ike on their returns for the 2007 tax years should write, "Louisiana/Hurricane Ike" at the top of their returns to receive expedited service.

IR-2008-108,
2008FED ¶46,575

IR-2008-108, ETR ¶66,861

IR-2008-108,
FINH ¶30,601

Other References:

 
Code Sec. 6081

  CCH Reference - 2008FED ¶36,789.213

  CCH Reference - ETR ¶39,845.15

  CCH Reference - FINH ¶20,345.65

  CCH Reference - FINH ¶20,355.45

 
Code Sec. 6161

  CCH Reference - ETR ¶43,235.15

  CCH Reference - FINH ¶20,585.35

 
Code Sec. 6656

  CCH Reference - ETR ¶51,475.88

 
Code Sec. 7508A

  CCH Reference - 2008FED ¶42,687C.22

  CCH Reference - ETR ¶57,495.25

  CCH Reference - FINH ¶22,560.30

  Tax Research Consultant

  CCH Reference - TRC FILEIND: 15,204.25
CCH Reference - TRC FILEBUS: 15,110
 

CCH (cch.taxgroup.com) reports:

  As the Senate on September 18 remained deadlocked on a motion to proceed to an approximately $150- billion tax extenders bill, a White House spokesman said that President Bush would veto tax extenders legislation that is funded by tax increases. Tax breaks for oil and gas companies would be eliminated or frozen to pay for more than a dozen expiring tax provisions contained in the Senate tax extension proposal. Since the beginning of the president's first term, Bush made clear he will not support tax increases and that the last thing taxpayers need to sustain a healthy U.S. economy is higher taxes, noted White House Deputy Press Secretary Scott Stanzel.

  White House Press Secretary Dana Perino declined to characterize current economic conditions when asked if they were in the worst shape since the Great Depression. A Wall Street Journal headline on September 17 declared the U.S. economy was in the "worst crisis since '30s with no end in sight." When asked about the financial newspaper's front-page headline, Perino told reporters at the daily press briefing she is "not in a position to be able to assess it. I would leave it to economists and historians and analysts ... to do that."

  In addition, when asked whether the U.S. is in a recession, Perino referred to the definition used by the National Bureau of Economic Research (NBER). Most of the recessions identified by NBER procedures consist of "two or more quarters of declining real GDP, but not all of them," according to the research bureau.

Senate Progress

  Meanwhile, two Texas senators blocked a unanimous consent agreement as the Senate remained deadlocked on a motion to proceed on extenders legislation. Sens. John Cornyn, R-Tex., and Kay Bailey Hutchison, R-Tex., are unhappy with the disaster relief provisions, which exclude hurricane-devastated parts of their home state. Senate Finance Committee leaders and staff are in the process of negotiating with the two senators with the intent of breaking the deadlock.

  The measure faces an uncertain future nonetheless. As Senate Majority Leader Harry Reid, D-Nev., plans to break up the package into three pieces and offer them as amendments to a larger, House-approved measure, the Renewable Energy and Job Creation Bill (HR 6049), House Democrats have reiterated their insistence on paying for all approved measures with corresponding offsets. Only the $18.3-billion energy tax incentives portion of the package is fully offset, while the alternative minimum tax patch and most of the other tax extenders and disaster relief portions of the Senate package are not offset. If the House, which would likely make minor changes, were to pass the energy tax incentives as a stand-alone measure, many Senate Republicans said they would vote against it when it returns to their chamber because they believe the tax extenders should be approved as a single package.

  Adding to the troubles with the Senate package are two revenue provisions that impact the oil industry and would undoubtedly lead to a presidential veto. Both of the proposals are compromises hammered out by Senate leaders that would affect the tax treatment of oil companies' profits. One provision would impact tax breaks for oil and gas companies' overseas operations by modifying the tax treatment of offshore nonqualified deferred compensation, raising $25 billion. The other provision would freeze at six percent the Code Sec. 199 deduction for income attributable to domestic production of oil and gas, raising nearly $5 billion in revenue.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

SFC Release: Baucus Floor Statement Regarding Energy Tax and Tax Extenders

JCT Estimated Revenue Effects of Title VIII of HR 6899, the Energy Tax Incentives Act of 2008, As Passed by the House, JCX-68-08

JCT Estimated Budget Effects of the Tax Extenders and Alternative Minimum Tax Relief Act of 2008, JCX-69-08

JCT Estimated Budget Effects of the Energy Improvement and Extension Act of 2008, JCX-70-08
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The California Legislature has passed a budget (A.B. 1781) and numerous trailer bills, including a budget trailer bill that would limit corporation franchise and income tax and personal income tax business credits; allow unitary group members to assign corporation franchise and income tax credits to other members of the unitary group; temporarily suspend net operating losses (NOLs), but thereafter conform to the federal NOL carryback and carryover provisions; authorize an amnesty program for unpaid corporation franchise and income tax and personal income taxes; require limited liability companies (LLCs) to make estimated LLC fee payments; and expand the existing rebuttable presumption that a vehicle shipped or brought into California within 90 days from the purchase date is subject to use tax to apply to vehicles, vessels, and aircraft purchased out of state within 12 months of the purchase date.

  Governor Schwarzenegger has stated that he would veto these bills, but legislative leaders contend that they have the votes necessary to override the veto. Below is a brief summary of the provisions contained in A.B. 1452, the budget trailer bill that contains many of the tax provisions included in the budget compromise package.

 

CCH (cch.taxgroup.com) reports:

  The IRS has proposed a revenue procedure that would contain additional eligibility requirements for tax-exempt-bond partnerships that wish to elect to close their books on a monthly basis, so that partners may take into account their distributive shares of partnership items on a monthly basis. The proposed revenue procedure aims to provide greater administrative certainty to investors in tax-exempt-bond partnerships. The proposed procedure, which would modify and supersede Rev. Proc. 2003-84, 2003-2 C.B. 1159, would provide more specific eligibility criteria for the monthly closing election. The IRS is seeking public comments on the proposed revenue procedure.

  Under the proposed procedure a tender or put option issued to partners, who were holders of partnership interests resembling variable-rate interest debt instruments ("variable-rate interest holders,") would be required terminate without notice upon the occurrence of one of four events with respect to a tax-exempt bond held by the partnership. These events include: (i) a bankruptcy filing by or against a tax-exempt bond issuer; (ii) a downgrade in the credit rating of a tax-exempt bond and a downgrade in the credit rating of any guarantor of the tax-exempt bond, if applicable, to a rating or ratings, as applicable, below investment grade; (iii) a payment default on a tax-exempt bond; or (iv) a final judicial determination or a final IRS administrative determination of taxability of a tax-exempt bond for federal income tax purposes under Code Sec. 103.

  The partnership would also be required to give the variable-rate interest holders a reasonable opportunity to share in appreciation in the value of the bonds. The membership interests of the variable-rate interest holders would be required to give them a right to share in at least five percent of the gain from the sale or other disposition of the partnership's bonds In addition, the partnership would be required to provide to the variable-rate interest holders a right to require a sale, redemption, or other disposition of its bonds, by a date that is no later than the date that represents 80 percent of the remaining weighted average maturity of the tax-exempt bonds held by the partnership (as measured from the date of the partnership's acquisition of the bonds), the so-called "80 percent WAM test."

Notice 2008-80, 2008FED ¶46,573

Other References:

 
Code Sec. 103

  CCH Reference - 2008FED ¶6602.025

 
Code Sec. 702

  CCH Reference - 2008FED ¶25,083.2954

 
Code Sec. 706

  CCH Reference - 2008FED ¶25,165.066

  CCH Reference - 2008FED ¶25,165.281

  CCH Reference - 2008FED ¶25,165.42

 
Code Sec. 707

  CCH Reference - 2008FED ¶25,183.408

 
Code Sec. 761

  CCH Reference - 2008FED ¶26,602.03

 
Code Sec. 851

  CCH Reference - 2008FED ¶26,408.565

 
Code Sec. 852

  CCH Reference - 2008FED ¶ 26,433.26

  CCH Reference - 2008FED ¶ 26,433.29

 
Code Sec. 6031

  CCH Reference - 2008FED ¶35,389.021

  Tax Research Consultant

  CCH Reference - TRC PART: 18,160

CCH (cch.taxgroup.com) reports:

  The IRS has provided guidance regarding several provisions of the Housing Assistance Tax Act of 2008 (P.L. 110-289) pertaining to tax-exempt bonds and the low-income housing credit. One provision, Act sec. 3021, provides a temporary $11 billion increase in the annual private activity bond volume cap under Code Sec. 146 for qualified housing issues and, under new Code Sec. 143(k)(12), temporarily allows the use of qualified mortgage bonds to refinance certain subprime mortgage loans. A second provision, Act sec. 3005, excludes basic housing allowances paid to military members at certain military bases for purposes of applicable low-income set-aside income limitations with respect to the low-income housing credit and exempt facility bonds. A third provision, Act sec. 3023, gives temporary authority to Federal Home Loan Banks to guarantee certain tax-exempt bonds.

Additional Bond Volume Cap

  Guidance is provided on allocations, carryforwards, information reporting, and uses of the additional $11 billion bond volume cap ("2008 Housing Act Volume Cap"). A list is provided of allocations of the 2008 Housing Act Volume Cap to the states, the District of Columbia, and possessions of the United States. These allocations, based on the 2008 Housing Act Volume Cap, were determined using the population figures provided in Notice 2008-22, I.R.B. 2008-8, 465 (TAXDAY, 2008/02/25, I.1), and reflecting the 2008 cost-of-living adjustments contained in
Rev. Proc. 2007-66, I.R.B. 2007-45, 970 (TAXDAY, 2007/10/19, I.2).

  New Code Sec. 146(f)(6) provides that any carryforwards of the 2008 Housing Act Volume Cap may be used only for qualified housing issues that are issued by the end of calendar year 2010. The IRS states that it will afford issuers of a qualified housing issue flexibility in their use of the 2008 Housing Act Volume Cap and in coordinating the use of this volume cap with the general volume cap under
Code Sec. 146. Thus, the 2008 Housing Act Volume Cap should be tracked and accounted for separately from the general volume cap. Further, an issuer may, at its discretion, utilize the 2008 Housing Act Volume Cap or carryforwards thereof either before or after the use of the general volume cap or carryforwards thereof. Also, issuers who file a proper carryforward election for the 2008 Housing Act Volume Cap may assign any portion of that cap to another eligible issuer in the state.

  Issuers of a qualified housing issue that use the 2008 Housing Act Volume Cap are provided a list of modifications to Form 8038, Information Return for Tax-Exempt Private Activity Bond Issues, subject to updated IRS information reporting forms or procedures. Issuers that have an unused 2008 Housing Act Volume Cap at the end of calendar year 2008 should elect this carryforward amount by filing a separate Form 8328, Carryforward Election of Unused Private Activity Bond Volume Cap, with modifications also provided in the guidance.

  The IRS also clarified that an issuer may elect to exchange unused authority to issue private activity bonds with the 2008 Housing Act Volume Cap under Code Sec. 146 for authority to issue mortgage credit certificates under Code Sec. 25. An exchange may be made only if the indebtedness to which the mortgage credit certificate relates is incurred within 12 months of the date of the election under
Code Sec. 25(c)(2)(A)(ii) not to issue an amount of private activity bonds that it may otherwise issued during the calendar year under Code Sec. 146.

Refinancing of Qualified Subprime Loans

  New Code Sec. 143(k)(12) temporarily allows the use of qualified mortgage bonds to refinance qualified subprime mortgage loans. A "qualified subprime mortgage loan" is defined as an adjustable rate single-family residential mortgage loan made in the years 2002 through 2007 that the bond issuer determines would be reasonably likely to cause financial hardship to the borrowers if not refinanced. According to the IRS, issuers may make a determination of the likelihood of financial hardship based on reasonable estimates made in good faith. Further details on this refinancing provision are provided in the guidance, including proper information reporting.

Exclusion of Military Basic Housing Allowances

  The IRS has provided a list identifying military bases that are presently considered to be qualified for purposes of the exclusion of basic housing allowances from applicable low-income set-aside income limitations with respect to the low-income housing credit and exempt facility bonds. Other bases that meet the necessary requirements in the future would also be eligible at such time.

Federal Home Loan Bank Guarantees

  Tax-exempt bonds issued by state and local governments after July 30, 2008 until December 31, 2010, are eligible for tax-exempt status if they are guaranteed, upon original issuance, by a Federal Home Loan Bank. The IRS has clarified that, for purposes of the "original issuance" requirement, any tax-exempt bond, including a bond for new money purposes or a bond that is part of a refunding issue (as defined in Reg. §1.150-1(d)) that is issued during the relevant period may be eligible for Federal Home Loan Bank guarantees.

 
Notice 88-80, 1988-2 CB 396, is modified.

Notice 2008-79, 2008FED ¶46,572

Other References:

 
Code Sec. 42

  CCH Reference - 2008FED ¶4385.025

  CCH Reference - 2008FED ¶4385.45

 
Code Sec. 142

  CCH Reference - 2008FED ¶7752.028

 
Code Sec. 143

  CCH Reference - 2008FED ¶7786.021

 
Code Sec. 146

  CCH Reference - 2008FED ¶7854.07

 
Code Sec. 149

  CCH Reference - 2008FED ¶7905.025

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 54,214

  CCH Reference - TRC SALES: 51,064.10

  CCH Reference - TRC SALES: 51,154.10

  CCH Reference - TRC SALES: 51,368.05

CCH (cch.taxgroup.com) reports:

  Various prescribed rates for federal income tax purposes for October 2008 have been provided by the IRS. The annual short-term, mid-term, and long-term applicable federal interest rates (AFRs) are 2.19 percent, 3.16 percent and 4.32 percent, respectively. The semiannual short-term, mid-term, and long-term AFRs are 2.18 percent, 3.14 percent and 4.27 percent, respectively. Quarterly short-term, mid-term and long-term AFRs are 2.17 percent, 3.13 percent and 4.25 percent, respectively. Finally, the monthly short-term, mid-term and long-term rates are 2.17 percent, 3.12 percent and 4.23 percent, respectively.

  The short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for October 2008 for purposes of Code Sec. 1288(b) are 1.75 percent, 2.97 percent, and 4.45 percent, respectively, when annual compounding is used.

  Additionally, the Code Sec. 382 adjusted federal long-term rate is 4.45 percent, and the long-term tax-exempt rate is 4.65 percent. The Code Sec. 42(b)(2) appropriate percentage for the 70-percent present-value, low-income housing credit is 7.87 percent, and the appropriate percentage for the 30-percent present-value, low-income housing credit is 3.37 percent. Finally, theCode Sec. 7520 AFR for determining the present value of an annuity, an interest for life or a term of years, or a remainder or reversionary interest is 3.80 percent.

Rev. Rul. 2008-49, 2008FED ¶46,571

Rev. Rul. 2008-49, FINH ¶30,599

Other References:

 
Code Sec. 42

  CCH Reference - 2008FED ¶173.02

  CCH Reference - 2008FED ¶176.01

  CCH Reference - 2008FED ¶4305.03

 
Code Sec. 382

  CCH Reference - 2008FED ¶17,115.28

 
Code Sec. 642

  CCH Reference - 2008FED ¶24,308.1885

 
Code Sec. 1274

  CCH Reference - 2008FED ¶31,310.05

 
Code Sec. 7520

  CCH Reference - 2008FED ¶42,785.40

  CCH Reference - FINH ¶22,630.05

 
Code Sec. 7872

  CCH Reference - FINH ¶18,950.05

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 36,162.05

CCH (cch.taxgroup.com) reports:

  The IRS has relaxed its restrictions on off-cycle submissions of applications for opinion and advisory letters by new plans if the plans are identical to mass submitter plans. The IRS was originally concerned about diverting resources from its determination letter program. However, the plans affected by the changes have, in effect, already been reviewed and approved by the IRS, so the IRS believes it can make the changes without compromising its determination letter program.

  The restrictions were originally included in Rev. Proc. 2007-44. Under that procedure, a sponsor or practitioner that submitted an application for an opinion or advisory letter within the submission period for an applicable six-year cycle could not also submit an off-cycle application for an opinion or advisory letter. Furthermore, the adopting employer of a new pre-approved plan had to submit the plan to the IRS for an opinion or advisory letter prior to the beginning of the announced adoption period for that cycle. Finally, the opinion or advisory letter with respect to an off-cycle application was not retroactive and could not be relied upon for the period prior to the date of submission of the application. Under this last rule, some Economic Growth and Tax Relief Reconciliation Act of 2001, P.L. 107-16 (EGTRRA) opinion and advisory letters include a caveat stating that the letter is not retroactive and may not be relied upon for the period prior to the date of submission of the application.

  These rules are now changed, effective June 13, 2007 (the effective date of Rev. Proc. 2007-44). Under the modifications, a sponsor or practitioner may submit an off-cycle application for an opinion or advisory letter even though it also submitted an on-cycle application, provided the new application is for a plan that is word-for-word identical to a mass submitter plan that has received a favorable EGTRRA opinion or advisory letter, or for which an application for such a letter is pending, as long as the normal procedures governing mass submitter plans are followed.

  Furthermore, adopting employers of a new pre-approved plan that is word-for-word identical to a mass submitter plan will not fail to be eligible for an applicable six-year cycle merely because the plan is submitted to the IRS for an opinion or advisory letter after the beginning of the announced adoption period for that cycle. Regardless of when the application is filed or when the opinion or advisory letter is issued, however, the announced adoption period for any applicable six-year cycle will not be extended.

  Finally, an otherwise eligible adopting employer may rely on a pre-approved plan's current opinion or advisory letter to retroactively amend its plan by adopting the pre-approved plan within the announced adoption period for the applicable six-year cycle, regardless of whether the opinion or advisory letter application for the plan was filed off-cycle (and regardless of whether the plan is word-for-word identical to a mass submitter plan). Thus, for example, an eligible employer may rely on a pre-approved plan's EGTRRA opinion or advisory letter to retroactively amend its plan for EGTRRA and the other qualification changes listed in the 2004 cumulative list of changes by adopting the pre-approved plan within the adoption period ending on April 30, 2010, even if the application for the opinion or advisory letter for the plan was submitted off-cycle. Any EGTRRA opinion or advisory letters that have been issued with a caveat prohibiting retroactive reliance will be reissued by the IRS to remove the caveat.

 
Rev. Proc. 2007-44, I.R.B. 2007-28, 54, is modified.

Rev. Proc. 2008-56, 2008FED ¶46,570

Other References:

 
Code Sec. 401

  CCH Reference - 2008FED ¶17,507.042

  CCH Reference - 2008FED ¶17,507.15

  CCH Reference - 2008FED ¶17,507.2531

  CCH Reference - 2008FED ¶17,507.0331

  CCH Reference - 2008FED ¶17,515.026

  CCH Reference - 2008FED ¶17,929.024

  CCH Reference - 2008FED ¶17,929.025

  CCH Reference - 2008FED ¶17,929.06

  CCH Reference - 2008FED ¶17,929.65

  CCH Reference - 2008FED ¶18,112.0242

 
Code Sec. 403

  CCH Reference - 2008FED ¶18,282.11

  CCH Reference - 2008FED ¶18,282.41

 
Code Sec. 410

  CCH Reference - 2008FED ¶18,997.25

 
Code Sec. 411

  CCH Reference - 2008FED ¶19,076.954

 
Code Sec. 412

  CCH Reference - 2008FED ¶19,125.60

 
Code Sec. 415

  CCH Reference - 2008FED ¶19,218.721

 
Code Sec. 501

  CCH Reference - 2008FED ¶22,604.10

 
Code Sec. 503

  CCH Reference - 2008FED ¶22,660.10

  CCH Reference - 2008FED ¶22,683.87

 
Code Sec. 507

  CCH Reference - 2008FED ¶22,780.15

 
Code Sec. 509

  CCH Reference - 2008FED ¶22,812.50

 
Code Sec. 511

  CCH Reference - 2008FED ¶22,825.101

 
Code Sec. 521

  CCH Reference - 2008FED ¶22,882.196

 
Statement of Procedural Rules Sec. 601

  CCH Reference - 2008FED ¶43,360.2112

  CCH Reference - 2008FED ¶43,360.2113

  CCH Reference - 2008FED ¶43,360.2116

  CCH Reference - 2008FED ¶43,360.212

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 51,100

CCH (cch.taxgroup.com) reports:

  White House Press Secretary Dana Perino on September 17 said that she does not expect Congress to reach agreement on a comprehensive energy bill acceptable to the president. The administration issued a veto threat against the House-passed energy measure (HR 6899) on September 16 strongly opposing several "poison pill" provisions in it, including one that would require multinational corporations to forgo Code Sec. 199 tax breaks in order to use the revenue to fund renewable energy and conservation measures.

  "We don't believe tax increases are the right way to move forward on an energy bill," Perino asserted at a press briefing on September 17. She added, "My worry is not that Congress is going to send a bill to the president that he would have to veto; I think our worry is that the Congress, after all of this debate and all of this rhetoric, they are not even going to produce a bill that they could pass."

  White House Deputy Press Secretary Scott Stanzel later noted that an anticipated bipartisan Senate agreement on tax extenders includes renewable energy incentives "without raising taxes in other places and it ... is not contingent on an energy bill passing." The tentative agreement would extend dozens of expired and expiring provisions, including tax incentives for renewable energy, and a one-year patch for the alternative minimum tax (TAXDAY, 2008/09/17, C.1).

  By Paula Cruickshank, CCH News Staff

Comprehensive American Energy Security and Consumer Protection Act of 2008, HR 6899

Legislative Text for the SFC Summary Amendment to the Substitute Amendment to HR 6049, the Energy Improvement and Extension Act of 2008

SFC Amendment in the Nature of a Substitute to HR 6049, the Energy Improvement and Extension Act of 2008

SFC Estimated Revenue Effects of the Tax Extenders and Alternative Minimum Tax Relief Act of 2008 (Very Preliminary)

SFC Estimated Revenue Effects of the Energy Improvement and Extension Act of 2008 (Very Preliminary)

SFC Summary --Amendment to the Substitute Amendment to HR 6049

SFC Summary --The Energy Improvement and Extension Act of 2008
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Legislation has been introduced and passed by the New Jersey Assembly Appropriations Committee that would conform New Jersey's sales and use tax laws to the provisions of the Streamlined Sales and Use Tax (SST) Agreement that it has not already conformed to. Among other things, the proposed amendments would include changes to telecommunications provisions and the taxation of fur clothing that have given rise to challenges to New Jersey's substantial compliance with the Agreement.

  Similar legislation (S.B. 1418) is awaiting action in the New Jersey Senate.

  Subscribers to CCH Tax Research NetWork can view A.B. 3111.
Subscribers to CCH Tax Research NetWork can view S.B. 1418.

A.B. 3111, as introduced and passed by the New Jersey Assembly Appropriations Committee on September 15, 2008.
 

CCH (cch.taxgroup.com) reports:

  As a service to our subscribers, CCH Tax & Accounting has prepared projected inflation-adjusted tax bracket numbers for the 2009 Tax Rate Schedules, the standard deduction and personal exemption for use in year-end and 2009 tax planning. The projected figures are based on the inflation-adjustment provisions of the Internal Revenue Code (IRC) as currently in force and the average of the Consumer Price Index for All Urban Consumers (CPI-U) published by the Department of Labor for each month in the 12-month period ending on August 31, 2008. Official IRS figures will not be released until later in 2008.

Tax Brackets

  Joint returns. For married taxpayers filing jointly and surviving spouses, the maximum taxable income subject to the 10-percent bracket will rise from $16,050 in 2008, to $16,700 in 2009; the top of the 15-percent tax bracket will increase from $65,100 to $67,900. The bracket amounts for the remaining tax rates show similarly proportionate increases: $137,050 as the maximum for the 25-percent bracket (up $5,600 from 2008); $208,850 for the 28-percent bracket (up $8,550 from 2008); and $372,950 for the 33-percent bracket (up $15,250 from 2008). Amounts above the $372,950 level will be taxed at the 35-percent rate.

  Unmarried filers. For single taxpayers, the maximum taxable income for the 10-percent bracket will increase to $8,350 for 2009 (up from $8,025 in 2008). The remainder of the rate brackets show inflation increases of: $1,400 for the top of the 15-percent bracket (to $33,950); $3,400 for the 25-percent bracket (to $82,250); $7,000 for the 28-percent bracket (to $171,550); and $15,250 for the top of the 33-percent bracket (to $372,950).

  Married filing separately. Married taxpayers filing separately will see a $325 increase for the upper limit of the 10-percent bracket (to $8,350) and a $1,400 increase for the 15-percent bracket (to $33,950). The top of the 25-percent bracket will increase by $2,800 (to $68,525); the 28-percent bracket will increase by $4,275 (to $104,425); and the 33-percent bracket will increase by $7,625 (to $186,475).

  Heads of household. For heads of households, the maximum taxable income for the 10-percent bracket will rise to $11,950 (from $11,450). The top of the remainder of the bracket amounts will also increase: up $1,850 from 2008 for the 15-percent bracket, to $45,500; up $4,800 from 2008 for the 25-percent bracket, to $117,450; up $7,800 from 2008 for the 28-percent bracket, to $190,200; and up $15,250 from 2008 for the top of the 33-percent bracket, to $372,950.

  Estates and trusts. For estates and nongrantor trusts, the maximum taxable income for the 15-percent bracket will increase by $100 over the 2008 level, to $2,300 (there is no 10-percent bracket for these taxpayers). For the 25-percent bracket, the maximum for the bracket will be $5,350 (up $200 from 2008); for the 28-percent bracket, $8,200 (up $350 from 2008); and, for the 33-percent bracket, $11,150 (up $450 from 2008).

Standard Deduction

  The 2009 standard deduction will rise by $250, to $5,700, for single taxpayers; by $350, to $8,350, for heads of households; by $500, to $11,400, for married taxpayers filing jointly and surviving spouses; and by $250, to $5,700, for married taxpayers filing separately. The standard deduction for dependents will rise to $950 (or earned income plus $300).

Personal Exemptions

  The amount of personal and dependency exemptions for 2009 will increase from the 2008 level by $150 to $3,650.

Gift Tax

  The gift tax annual exemption, which rose from a base of $10,000 to $11,000 in 2002 and to $12,000 in 2006, will rise to the $13,000 level for 2009. Pursuant to the IRC, the exemption can rise only when the inflation adjustment produces an increase of $1,000 or more.

Personal Exemption, Itemized Deduction

  Personal exemption phaseout. The 2009 personal exemption phaseout for married taxpayers filing jointly will increase by $10,250 over the 2008 level and will begin at adjusted gross income (AGI) of $250,200; for single taxpayers, the phaseout will increase by $6,850 over the 2008 level, to begin at AGI of $166,800; for heads of households, the increase over 2008 will be $8,550, to begin at AGI of $208,500; and for married taxpayers filing separately, the phaseout will begin at AGI of $125,100, representing an increase of $5,125 over the 2008 level.

  Itemized deductions phaseout. For higher income taxpayers, the amount of their otherwise allowable itemized deductions will be reduced when AGI exceeds a threshold amount. The reduction is equal to the lesser of three percent of AGI over the threshold amount or 80 percent of itemized deductions otherwise allowable. For 2009, the threshold amount at which the three-percent itemized deduction limitation takes effect will increase by $6,850, to AGI of $159,950 for married taxpayers filing jointly, single taxpayers and heads of household, and will increase by $3,425, to AGI of $83,400 for married taxpayers filing separately.

  CCH Comment. Continuing from the previous year, taxpayers only lose one-third of the amount otherwise required under the personal exemption and itemized deduction phaseouts, down from two-thirds in 2006 and 2007.

New for 2009

  Agricultural bonds. Section 15341 of the Food, Conservation, and Energy Act of 2008 (P.L. 110-234) amended Code Sec. 147(c)(2) to increase the portion of private activity bonds allowed for use by first-time farmers to acquire land. As a result, these amounts are now indexed for the first time for inflation for years after 2008. The amount for 2009 is $469,200.

  Expatriation. Section 301 of the Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART Act) (P.L. 110-245) added
Code Sec. 877A regarding tax penalties for U.S. citizens expatriating to foreign countries. The provision requires them to treat their property as sold on the day before the expatriation date for its fair market value, subject to a specified exclusion from gross income. As passed, this amount was $600,000. However, it is adjusted for inflation for calendar years after 2008. For 2009, the exclusion is $626,000.

  Retirement plan contribution. Deductions for qualified retirement plan contributions are increased and inflation-adjusted for the first time for tax years after 2008. The amount for 2009 remains at $5,000 because of a $500 rounding convention.

Other Tax Figures

  In addition to the projected tax figures for 2009 listed above, the IRC requires other adjustments based on the September 2007 through August 2008 CPI amounts. These additional amounts include:

  Roth IRAs . The AGI limits for maximum Roth IRA contributions are: married filing jointly, $166,000 (formerly $159,000); other filing statuses, other than married filing jointly or separately, $105,000 (formerly $101,000).

  IRAs. The AGI limits for maximum IRA contributions for individuals covered by a retirement plan are: married filing jointly, $89,000; head of household and single, $55,000.

  Education savings bond interest exclusion. When U.S. savings bonds are redeemed to pay expenses for higher education, the interest may be excluded from income if the taxpayer's income is below a certain range. For 2009, that phase-out range begins at $69,950 modified AGI ($104,900 for joint returns).

  Education credits. The HOPE and Lifetime Learning Credits for 2009 will be phased out for those taxpayers with modified adjusted gross income in 2009 starting at $48,000 ($96,000 for married joint filers). The $1,000 credit amount in 2009 goes up $100 to $1,200.

  Adoption expense credit. This $10,000 maximum credit was first subject to an inflation adjustment after 2002. For 2009, the amount will increase to $12,150, with the AGI phaseout beginning at $182,180.

  Student loan interest income phaseout. The $2,500 student loan interest deduction phaseout begins at $60,000 AGI for singles in 2009. The phase-out level for joint filers rises to $120,000.

  Gifts to noncitizen spouses. The first $133,000 of gifts in 2009 to a spouse who is not a U.S. citizen will not be included in taxable gifts, up $5,000 from 2008.

  Foreign gifts. A U.S. person receiving aggregate foreign gifts exceeding $14,139 in 2009 must file an information return.

  Transportation fringe benefits. The monthly cap on the exclusion of qualified parking expenses will be $230 in 2009 (up from $220 in 2008). Transit passes/commuter highway vehicle amounts will rise $5 to $120 per month.

  Child credit. The refundable child credit earned income threshold will be $12,550 (formerly $12,050).

  By George Jones and Torie Cole, CCH News Staff

CCH (cch.taxgroup.com) reports:

 

CCH (cch.taxgroup.com) reports:

  The IRS has provided initial guidance for claiming the new Code Sec. 36 first time home buyer tax credit. The credit was added by the Housing and Economic Recovery Act of 2008 (P.L. 110-289). The credit is only available for a U.S. home purchased after April 8, 2008, and before July 1, 2009. Vacation homes and rental property are not eligible for the credit. For newly built homes, the purchase date is the first date the taxpayer lives in the home. Only taxpayers who are first-time home buyers or those who have not owned a home in the three years prior to the relevant purchase qualify for the credit.

  The credit equals 10 percent of the purchase price of the home with a maximum available credit of: (1) $7,500 for either a single taxpayer or a married couple filing jointly; or, (2) $3,750 for a married person filing a separate return. Unlike most tax credits, this credit operates like an interest free loan and generally must be paid back over 15 years in equal annual installments. Repayment begins the second tax year after the year the credit is claimed and is included as an additional tax on the taxpayer's income tax return. Taxpayers may need to adjust their withholding or make quarterly estimated tax payments to meet the repayment requirements. Certain events (e.g., sale of the home) can cause the repayment amount to change or accelerate the due date.

  The credit is phased out for a married couple filing a joint return whose adjusted gross income plus various amounts excluded from income is $150,000 to $170,000. For other taxpayers, the phase out range is $75,000 to $95,000. The following individuals are not eligible for the credit: individuals who buy their home from a close relative; taxpayers who stop using the home as their main home (special rules apply for an involuntary conversion); individuals who sell the home before the end of the year; non-resident aliens; taxpayers who are or were eligible for the District of Columbia first-time home buyer credit for any taxable year; and individuals who obtain home financing from tax-exempt mortgage revenue bonds. The credit will be claimed on the soon to be released new form, IRS Form 5405. This form, along with further instructions, will be available later in 2008 on the IRS website at www.irs.gov.

IR-2008-106,
2008FED ¶46,569

Other References:

 
Code Sec. 36

  CCH Reference - 2008FED ¶4190.01

  Tax Research Consultant

  CCH Reference - TRC INDIV: 57,950

CCH (cch.taxgroup.com) reports:

  Senate leaders from both parties announced on September 16 that they had reached a tentative agreement on a series of tax extenders that would extend dozens of expired and expiring provisions, including incentives for renewable energy, and provide a one-year fix for the alternative minimum tax (AMT). Senate Majority Leader Harry Reid, D-Nev., told reporters that he expects to move to the tax extenders before turning to more controversial energy legislation. The Senate could act as quickly as September 17, said Reid.

  According to Reid, the Senate would likely break up the tax extenders into three separate votes if they could not assemble all the provisions into two packages. Under that scenario, the Senate would first address a roughly $18-billion package of energy tax incentives, then a one-year patch for the AMT and, finally, a package of nonenergy tax extenders. Reid said he would immediately send the approved bills to the House.

  While details have not been released, sources indicate that agreement is near on the energy provisions after settling on paying for the renewable energy tax incentives and dropping the most controversial revenue-raiser: an excise tax on crude oil and natural gas derived from the Gulf of Mexico if oil companies did not pay royalties on their leases. A roughly $100-billion package of tax extenders combined with a one-year fix for the AMT is near agreement after negotiators opted not to fully offset the nonenergy-related tax extenders. The AMT patch would not be paid for. A revenue-raising provision that would have delayed until 2019 a more tax favorable implementation of allocation of interest costs for multinational corporations was also dropped.

  Negotiators are also apparently looking into expanding many of the expired tax extenders, especially those aimed at business, by increasing their extensions from one year to two years. "I hope we can work something out with the Republicans to pass the other tax extenders for more than one year," said Reid. "We've got to get away from the one-year deal."

  By Jeff Carlson, CCH News Staff

SFC Release: Baucus, Grassley, Senate Leaders Agree to Move Clean Energy Incentives, Extend Expiring Tax Cuts, Offer Disaster Tax Relief, Protect Millions from Alternative Minimum Tax
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The ballot title and summary for a proposed amendment to the Florida Constitution that would eliminate the state-required school property tax and replace those revenues by, among other methods, repealing sales and use tax exemptions not specifically excluded and increasing the state sales and use tax rate up to 1% are misleading. As such, the amendment is fatally defective and must be removed from the November 2008 general election ballot.

 

CCH (cch.taxgroup.com) reports:

  The Alabama Department of Revenue has announced that it will follow federal filing extensions granted for Louisiana residents affected by Hurricane Gustav who cannot meet their Alabama corporate and individual income tax filing obligations. Taxpayers have until January 5, 2009, to file Alabama tax returns that have an original or extended due date between September 1, 2008, and January 5, 2009. Relief for other taxes will be handled on a case-by-case basis. Taxpayers should write "GUSTAV" in red ink at the top of any paper return filed with the Department.

  Subscribers to CCH Tax Research NetWork can view the announcement.

Information Release, Alabama Department of Revenue, September 12, 2008.
 

CCH (cch.taxgroup.com) reports:

  House Ways and Means Chairman Charles B. Rangel, D-N.Y., unveiled a comprehensive energy bill on September 15 that would provide $18 billion worth of incentives for renewable energy and energy conservation, while requiring big, multinational oil companies to forgo their tax breaks to pay for the measure. According to a summary of the Democratic legislation released by Rangel's office, the Energy Tax Incentives Bill of 2008 would also prevent the understatement of foreign oil and gas extraction income in calculating foreign tax credits.

  In May, the House passed the Renewable Energy and Job Creation Bill of 2008 (HR 6049) but the bill failed to win Senate support for passage. Meanwhile, House Republicans have spent the month of September pressuring the Democratic leadership to produce another piece of legislation that includes offshore drilling. However, the summary released by Rangel's office only includes energy tax provisions, such as extending the investment tax credit and residential tax credit for solar energy by eight years. It also seeks to encourage natural gas vehicles and to assist businesses that build ethanol pipelines.

  The measure is expected to be considered by House lawmakers during the week of September 15. House Republicans are unlikely to support the measure because the revenue offsets raise taxes on companies that drill for and refine oil and transport gasoline. In past debates on energy taxation bills, Republicans maintained that raising revenues by repealing Code Sec. 199 for oil companies will discourage investment and exploration of new energy sources and lead to higher prices at the pump.

  By Stephen K. Cooper, CCH News Staff

Ways and Means Release: Summary of Tax Provisions in the Comprehensive American Energy Security and Consumer Protection Act
 

CCH (cch.taxgroup.com) reports:

  Treasury Secretary Henry M. Paulson, Jr., speaking in the wake of a major shake-out of Wall Street investment firms Lehman Brothers and Merrill Lynch, stressed on September 15 that the public can remain confident in the "soundness and resilience" of the U.S. financial system. "The American people can be very, very confident about their accounts in our banking system," he said.

  Paulson stressed the need for balance between regulation and market discipline, and called for major regulatory changes in the intermediate and longer term. He also emphasized the need for additional authorities to deal with non-bank financial institutions. Such steps will require congressional action, Paulson said, adding, "Right now, we're working with the tools we have."

  When asked about the extent of future federal involvement in financial markets, Paulson replied that it is important that regulators remain vigilant. "We're very vigilant, but we do not take, and I don't take, lightly... putting the taxpayer on the line to support an institution," he said. Pressed on why the government did not intervene to support Lehman Brothers in the way that it helped Bear Stearns earlier in 2008, Paulson claimed the situations were "very, very different...I never once considered that it was appropriate to put taxpayer money on the line in resolving Lehman Brothers."

  Paulson reiterated that the root of the current problems in the financial sector lies in the housing correction. "Until we stem the housing correction, until the biggest part of that is behind us and we have more stability in housing prices, we're going to continue to have turmoil in the financial markets." He added that there is a "reasonable chance" the biggest part of the housing correction could be over within a number of months. "I'm not saying two to three months, but in months...as opposed to years," Paulson said.

  Meanwhile, President Bush expressed confidence that, over the long term, capital markets are flexible and resilient enough to deal with the current adjustments. Bush said his administration is working to reduce disruptions and minimize the impact of financial market developments on the broader economy.

Financial Markets Working Group

  Bush will be briefed on financial market conditions by members of the President's Working Group on Financial Markets on September 16. He will deliver a statement on current financial conditions following the meeting.

  The President's Working Group (PWG) is composed of Paulson, who chairs the group; Federal Reserve Board Chairman Ben Bernanke; Securities and Exchange Commission Chairman Christopher Cox; and Commodity Futures Trading Commission acting Chairman Walter Lukken. The PWG meets regularly to consider market issues and appropriate regulatory responses. It was created by Executive Order in 1987.

Second Stimulus Package

  As Congress considers the ramifications of the current turmoil on Wall Street, federal lawmakers are weighing the prospects of advancing a second stimulus package. White House Press Secretary Dana Perino on September 15 questioned whether any proposals under consideration would provide a short-term boost to the U.S. economy. She indicated that additional measures to stimulate the economy are not limited to a second, short-term growth bill.

  "It could come in the form of energy legislation and that's what we will be focusing on," Perino advised. She added that Democrats in Congress have not yet united behind a final economic growth package and what Republican members have seen so far "falls short of what we could do for this economy to actually stimulate in the area of energy."

  Perino did not specify how provisions in the energy bill could stimulate economic growth, create new jobs or increase short-term consumer spending. She maintained that legislative proposals to start and fund new infrastructure projects would not have "short-term, positive economic stimulus impacts on the economy."

  House Majority Leader Steny Hoyer, D-Md., has maintained that Democrats have no intention of allowing the federal government to shut down since the annual appropriations bills have not been passed for fiscal year 2009. Although the scheduled adjournment date for the 110th Congress is September 26, lawmakers will work with the Bush administration to craft a Continuing Resolution (CR) that funds the government beyond October 1. Hoyer said he does not favor calling a lame-duck session of Congress.

  Hoyer hinted that, since the CR is the only must-pass legislation that Congress must act on before it leaves Washington, lawmakers might consider including a second economic stimulus package in the measure. While he did not give a comprehensive list of items likely to be included, Hoyer mentioned spending on infrastructure, such as bridges and roads, help for low-income families facing high energy bills, unemployment insurance and hurricane and flood relief.

  By Sarah Borchersen-Keto, Stephen K. Cooper and Paula Cruickshank, CCH News Staff

Treasury Department News Release, TDNR HP-1134
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  In an action that arose after a parcel of residential property was foreclosed for failure to pay Michigan property taxes, the court held that a bank's mortgage interest in the property was foreclosed upon without due process because notice of the pending foreclosure proceedings was not mailed to the bank's trust beneficiary at its last known address. Although the bank's interest was not recorded until after the certificate of foreclosure was filed, the bank's trust beneficiary, which retained a properly recorded interest in the property when it became the beneficial holder of the mortgage, was entitled to notice. Because the bank's beneficiary was entitled to notice, the bank was entitled to bring suit on behalf of its beneficiary.

  The court did not agree with the argument that due process was satisfied because the forfeiture certificate was recorded before the mortgage was assigned from the trust beneficiary to the bank. Although a recorded interest in property takes priority over subsequent owners and encumbrances, it did not follow that recording a certificate of forfeiture was reasonably calculated to apprise the interested parties of the pending foreclosure. Rather, the onus was on the foreclosing governmental unit to provide notice. A party that records an instrument at the register of deeds is not required to determine whether anything has been filed regarding foreclosure. The court noted that had the bank received notice of the proceedings at the address recorded with the register of deeds, due process would have been satisfied.

First National Bank of Chicago v. Department of Treasury , Michigan Court of Appeals, No. 272431, September 9, 2008, ¶401-385

  Other References:

  Explanations at ¶89-176

CCH (cch.taxgroup.com) reports:

  The Kansas Department of Revenue has released corporate, personal, insurance premiums, and financial institutions privilege tax guidance, as well as policies and procedures, related to the declared disaster capital investment tax credit program. The tax credit program tax credit program was established for the purpose of assisting businesses in specific declared disaster areas. Taxpayers may apply for the declared disaster capital investment tax credit by completing and submitting the disaster application, available at
http://www.ksrevenue.org/pdf/forms/PR-Disaster.pdf.

  Applications should be submitted prior to November 30, 2008, to be considered for funding. Applications received after November 30, 2008, and before December 31, 2008, will be considered for tax credits if funding is available.

  Subscribers to the CCH Tax Research NetWork can view the guidance, policies, and procedures.

Release , Kansas Department of Revenue, September 12, 2008.
 

CCH (cch.taxgroup.com) reports:

  Taxpayers and preparers affected by Hurricane Ike have been granted an extension of seven days to file corporate returns and third-quarter estimated taxes otherwise due on September 15, 2008. Taxpayers impacted by the storm will have until midnight September 22, 2008, to meet their filing obligations without incurring penalties. A further postponement of the filing deadline by the IRS is likely, following damage assessments by the Federal Emergency Management Agency.

  Affected taxpayers should mark paper returns with the words "Hurricane Ike" and in the case of electronically filed returns, taxpayers can use their software's "disaster" feature, if available.

IR-2008-105,
2008FED ¶46,568

Other References:

 
Code Sec. 6081

  CCH Reference - 2008FED ¶36,789.213

 
Code Sec. 7508A

  CCH Reference - 2008FED ¶42,687C.22

  Tax Research Consultant

  CCH Reference - TRC FILESBUS: 15,110

CCH (cch.taxgroup.com) reports:

  The IRS has issued guidance that informs trustees and middlemen of widely held fixed investment trusts (WHFITs) that the IRS will not impose penalties under the reporting rules pursuant to Reg. §1.671-5(m) with respect to calendar year 2008. The guidance also informs trustees and middlemen of widely held mortgage trusts (WHMTs) that, pending future published guidance, certain modifications of mortgages held by a WHMT that has entered into a guarantee arrangement are not required to be reported under the WHFIT reporting rules. This guidance is effective September 12, 2008. Trustees and middlemen may apply the reporting exception for certain modifications of mortgages as of January 1, 2007.

  The IRS issued this guidance at the request of middlemen and trustees of WHFITs that require additional time to update their computer and information systems to fully comply with WHFIT reporting rules.

  The IRS requests comments regarding the scope and description of the reporting exception described in the guidance. Comments should be submitted on or before November 1, 2008, and should include a reference to Notice 2008-77.

Notice 2008-77, 2008FED ¶46,567

Other References:

 
Code Sec. 671

  CCH Reference - 2008FED ¶24,686.0525

  CCH Reference - 2008FED ¶24,686.86

  Tax Research Consultant

  CCH Reference - TRC ESTTRST:36,300

CCH (cch.taxgroup.com) reports:

  A list of organizations that have failed to establish or maintain their status as either public charities or operating foundations has been compiled by the IRS. Reclassification as private foundations does not indicate that the entities have lost their status as Code Sec. 501(c)(3) organizations eligible to receive deductible contributions. However, grantors and contributors may not rely on any rulings or designations predating September 15, 2008, the publication date of the Internal Revenue Bulletin containing this listing.

Announcement 2008-81
 

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The U.S. Court of Appeals for the Sixth Circuit has issued a ruling in consolidated cases challenging Kentucky's prohibition against identifying the 1.3% telecommunications provider tax imposed on the gross receipts of telecommunications providers as a line item on customer invoices, and challenging its prohibition against the direct collection of the tax from consumers. The actions, filed by telecommunications providers, also challenge the validity of penalties imposed on providers for failure to comply with the prohibitions. The tax applies to the provision of communications services billed on or after January 1, 2006. The appellate court affirmed the district court in finding that the federal Tax Injunction Act did not bar the lawsuits, and in finding that the clause prohibiting identifying the tax on invoices violates the First Amendment. It reversed the district court by finding that the clause prohibiting direct collection from consumers could be severed and that penalties could be imposed with respect to that clause.

  The district court opinions were previously reported in State Tax Day and can be found on CCH Tax Research NetWork as follows: AT&T Corp. et al. v. Rudolph et al. , U.S. District Court for the Eastern District of Kentucky, No. 06-16, February 27, 2007;
BellSouth Telecommunications, Inc. v. Farris et al. , U.S. District Court for the Eastern District of Kentucky, No. 3:06-39, February 27, 2007.

 

CCH (cch.taxgroup.com) reports:

  Friday, September 12, 2008, is the deadline to apply for the California corporation franchise and income tax and personal income tax penalty relief available to participants in "bogus optional basis" (BO or certain "employee stock ownership plan" (ESOP) transactions that was announced in Franchise Tax Board (FT Notice 2008-4.

  To participate, taxpayers must submit a signed and completed closing agreement by September 12, 2008 and pay all tax, penalties, and interest relating to the eligible BOB and ESOP transactions.

  The following relief is available to participating taxpayers:

  -- reduction of the 40% non-economic substance transaction (NEST) penalty to 20%;

  -- cancellation of the 100% interest based penalty if the assessment is not final; and

  -- for participants who have not yet received an assessment, the FTB will only assess the 20 percent accuracy-related penalty on the underpayment relating to the eligible BOB or ESOP transactions.

Press Release , California Franchise Tax Board, September 11, 2008.
 

CCH (cch.taxgroup.com) reports:

  An Alabama Circuit Court held that the state did not bear its burden of proving justification for the deduction provisions of the business privilege tax (BPT) and the former corporate shares tax (CST) that were determined by the Alabama Civil Court of Appeals to be facially discriminatory and violative of the Commerce Clause of the U. S. Constitution. Both taxes contain provisions allowing taxpayers to deduct the book value of an equity investment in another entity doing business in Alabama, but not investments in entities that are not doing business in Alabama. These deduction provisions were discriminatory on their face because they imposed a heavier tax burden if the entity in which the taxpayer had invested did not do business in Alabama.

  The Civil Court of Appeals held that the trial court erred in placing the burden on the taxpayer to overcome the presumption that the statutes were constitutional and remanded the case to determine whether the state met its burden of proving that the unconstitutional statutes were justified. None of the four justifications accepted by the U.S. Supreme Court, i.e., market-participation, health and safety, compensatory tax, and greater economic cost by out-of-state activity, were applicable to the BPT and the CST deduction provisions. Also, although the Circuit Court originally held that the deduction provisions were valid because they were necessary to eliminate double taxation of the taxpayer, on remand, it determined that elimination of double taxation was not sufficient legal justification for a facially discriminatory taxation statute. Therefore, the Circuit Court held that the state did not meet its burden of proving facts that could justify the facially discriminatory taxation scheme and ordered the Department of Revenue to issue a refund of the excess BPT and CST that the taxpayer paid for the tax years in question.

  On September 9, 2008, prior to entry of the final judgment, the case was dismissed without prejudice.

AT&T Corporation v. Surtees , Circuit Court of Jefferson County, No. CV 04-3356 JSV, September 3, 2008, ¶201-327

  Other References:

  Explanations at ¶5-325

CCH (cch.taxgroup.com) reports:

  Small business owners urged lawmakers on September 11 not to adjourn without passing a package of tax extenders. Jobs could be lost if Congress fails to renew some popular but temporary tax incentives, such as the research tax credit, enhanced depreciation for leasehold and restaurant improvements and energy tax breaks, they warned. The business owners testified before the House Small Business Committee.

Stalled Legislation

  Although the House has passed a package of extenders (the Renewable Energy and Job Creation Bill of 2008 (HR 6049)), similar legislation has stalled in the Senate (the Jobs, Energy, Families, and Disaster Relief Bill of 2008 (Sen 3335)). Congress is anticipated to recess at the end of September or in early October, leaving little time to pass the extenders before the November elections.

  If Congress does not return for a lame-duck session after the November elections, the extenders may have to wait until 2009, some lawmakers have predicted. "We've got to move on this (the extenders)," Senate Finance Committee Chairman Max Baucus, D-Mont., said later on September 11.

Job Losses

  The extenders can "galvanize" the job market, said House Small Business Committee Chairman Nydia M. Velazquez, D-N.Y. "With unemployment at its highest point in five years, we could use that boost."

  The extenders not only impact the businesses that claim them, but also their customers, suppliers and others, Joseph E. Clements, speaking on behalf of the National Restaurant Association, explained. "The restaurant industry is projected to spend $70 billion over the next 10 years for building construction and renovation. Every $1 spent in the construction industry creates more than 28 jobs in the overall economy."

  Congress has authorized accelerated depreciation for restaurant and leasehold property several times since 2000. The most recent extension was in the Tax Relief and Health Care Act of 2006 (TRHCA) (P.L. 109-432), which extended the 15-year MACRS recovery period for qualified leasehold improvement property and qualified restaurant property. "As of January 1, 2008, all schedules reverted back to 39-1/2 years," Clements explained. "Most restaurants remodel and update their buildings every six to eight years - a much shorter timeframe than is reflected in the current depreciation schedule," Clements, who owns several restaurants in Louisiana, said.

  Jobs could also be lost in the energy industry, Manning Feraci, vice president of federal affairs, National Biodiesel Board, told lawmakers. Since enactment of the biodiesel excise tax credit, production of biodiesel jumped from 25 million gallons in 2004 to 500 million gallons in 2007. "Expiration of the incentive would have a catastrophic impact on the U.S. biodiesel industry," Feraci warned. The incentive is set to expire at the end of 2008.

  Failure to renew the research tax credit could encourage businesses to move work out of the U.S., Leo Berlinghieri, speaking on behalf of Semiconductor Equipment and Materials International (SEMI), cautioned. "The U.S. used to have the best research tax credit, and now we are way down the list as other countries have made this a priority, and the U.S. has not. Many countries, such as Canada, China and Ireland, have more attractive research tax incentives luring research jobs away from the U.S." The research credit expired at the end of 2007.

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

CCH (cch.taxgroup.com) reports:

  Senate Finance Committee Chairman Max Baucus, D-Mont., and ranking member Charles E. Grassley, R-Iowa, on September 11 unveiled a revised $40 billion energy tax package that is offset in part with reductions in tax breaks for the top five oil and gas companies. The measure includes approximately $8 billion in new energy tax policy and proposes two new revenue raisers: mandatory basis reporting measures to the IRS by brokers for transactions in publicly traded securities and expansion of the oil spill tax from 5 cents per barrel to 15 cents per barrel.

  Two new provisions propose tax credits for the capture and storage of carbon dioxide and tax incentives for smart meters, which provide real-time feedback on electricity use. Key provisions in the bill include long-term extensions of wind and solar energy tax credits, consumer credit of up to $7,500 for plug-in electric vehicles, extension of tax incentives for energy-efficiency including buildings, appliances and smart meters, long-term extensions of credits for alternative transportation fuels, and $2.5 billion in new credits for clean coal facilities. Additional provisions in the bill include an increase in the nuclear production tax credit and extensions for alternative fuels credits.

  The largest revenue raiser for the legislation is the modification to Code Sec. 199, which raises $13.9 billion over 10 years. In 2008, the Code Sec. 199 deduction is 6 percent, rising to 9 percent in 2009 and thereafter. The bill repeals the Code Sec. 199 manufacturing deduction for major integrated and state-owned oil and gas companies, while maintaining the 6-percent rate for other oil and gas companies. Another revenue raiser establishes an excise tax of 13 percent on the removal price of any taxable crude oil or natural gas produced from federal submerged lands on the Outer Continental Shelf (OCS) in the Gulf of Mexico pursuant to a federal OCS lease. Still another source of revenue comes from a modification of Code Sec. 907, which would eliminate the distinction between foreign oil and gas extraction income and foreign oil-related income.

  The two lawmakers said they hope to move the package when the Senate takes up legislation to address rising energy costs, including allowing offshore drilling, which has been banned to this point. Baucus said he believes that his latest proposal could gain traction as members of both parties feel the need to address consumer fears over increased energy costs, leaving open the possibility of much-needed compromise on both sides. "We know this bill can be a bipartisan solution for the entire Senate, because it reflects bipartisan success here on the tax-writing committee" said Baucus during a news conference introducing the bill. "Congress needs to put aside its differences and move this country toward new forms and sources of energy," he said.

  By Jeff Carlson, CCH News Staff

SFC Release: Baucus, Grassley Offer Tax Incentives for Clean Energy, Homegrown Jobs

Energy Independence and Investment Act of 2008

Very Preliminary SFC Estimated Revenue Effects of the Energy Independence and Investment Act of 2008

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Tax Court had no jurisdiction to hear an appeal from an equivalent hearing conducted by an IRS Appeals officer. The communication that IRS Appeals sent the taxpayer informing her of the appeals officer's decision was not a notice of determination. Therefore, the court had no jurisdiction to hear the taxpayer's appeal under Code Sec. 6330(d)(1).

  The taxpayer submitted Form 12153 after the 30-day deadline for her to request a collection due process (CDP) hearing. Accordingly, she was not granted a CDP hearing by IRS Appeals, but instead was granted an equivalent hearing. After the equivalent hearing, IRS Appeals sent her a form letter entitled "NOTICE OF DETERMINATION CONCERNING COLLECTION ACTION(S) UNDER SECTION 6320 AND/OR 6330" informing her that the IRS could sustain a collection action against her. The letter contained boilerplate language stating that it was a "notice of determination" and that the taxpayer had 30 days from the date of the letter to file a petition with the Tax Court if she wanted to dispute the determination in the letter. However, notwithstanding the language in the communication from IRS Appeals, the letter was not a valid notice of determination, because an equivalent hearing is not considered a hearing under Code Sec. 6330.

M.P. Wilson, 131 TC No. 5, Dec. 57,535

Other References:

 
Code Sec. 6330

  CCH Reference - 2008FED ¶38,184.025

  CCH Reference - 2008FED ¶38,184.027

  CCH Reference - 2008FED ¶38,184.67

  CCH Reference - 2008FED ¶38,184.69

  Tax Research Consultant

  CCH Reference - TRC IRS: 51,056.20

  CCH Reference - TRC IRS: 51,056.35

  CCH Reference - TRC LITIG: 6,136.25

CCH (cch.taxgroup.com) reports:

  A corporation was not entitled to deduct payments made to redeem stock held by its employee stock ownership plan (ESOP) that were subsequently distributed to employees, terminating their participation in the plan. Generally, distributions to redeem stock made from a corporation's earnings and profits are dividends. However, corporations may not claim a deduction for dividends paid to shareholders unless the amount distributed qualifies under Code Sec. 404(k), which allows a deduction for applicable cash dividends paid with respect to employer securities.

  The corporation based its argument on the decision reached by the Ninth Circuit in Boise Cascade Corp. , CA-9, 2003-1 USTC ¶50,472. In that case, the court concluded that the distributions at issue were essentially equivalent to a dividend under Code Sec. 302(b)(1); that the redemption did not result in a meaningful reduction in the ESOP's stock holdings, and that they qualified as dividends under Code Sec. 404(k)(2).

  The court here stated that the Boise Cascade result was not controlling and was incorrectly decided. The payments were "potentially" deductible as an applicable dividend under Code Sec. 404(k). The payment from the taxpayer to the ESOP and, then, to the departing employees was a statutorily integrated transaction. The two sides of the transaction were necessarily connected because the ESOP must distribute the same funds paid to it by the taxpayer. Once that connection was established, deduction under
Code Sec. 404(k) was possible. However, deduction was denied under Code Sec. 162(k) because the amounts were paid in connection with the corporation's reacquisition of its own stock.

Ralston Purina Co., 131 TC No. 4, Dec. 57,534

Other References:

 
Code Sec. 162

  CCH Reference - 2008FED ¶9052.23

 
Code Sec. 302

  CCH Reference - 2008FED ¶15,330.1394

 
Code Sec. 316

  CCH Reference - 2008FED ¶15,704.426

 
Code Sec. 404

  CCH Reference - 2008FED ¶18,371.30

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 75,204

CCH (cch.taxgroup.com) reports:

  The Treasury Department and IRS have released the 2008-2009 Priority Guidance Plan, which contains 314 projects to be completed from July 2008 through June 2009. An appendix to the plan also lists routine guidance that is published annually. The IRS intends to update and republish the plan periodically during the plan year to reflect additional guidance that will be published and to respond to developments arising during the year. The IRS invites comments and suggestions regarding the plan and future guidance throughout the plan year.

Practitioner's Comments

  Guidance under Code Sec. 382 on the transfer of net operating losses (Items 17-19 under "Corporations and Their Shareholders") "is definitely needed," Todd Reinstein of Pepper Hamilton LLP told CCH. "It's a very hot area. The need for understanding these rules has gone up considerably with the economy going down. You have these NOLs. The issue is can you use them? These rules are very complicated and the guidance out there is scarce. People need concrete answers."

  "[The] Treasury and the IRS have again created an ambitious Priority Guidance Plan. They've made a good attempt to pare down their annual plans to reflect more realistic goals, but still managed to fit 314 projects on this year's list," said Dave Auclair, managing principal of the Grant Thornton, LLP, National Tax Office, Washington, D.C. "Many of these projects would provide much-needed guidance in a number of complex areas. The aggressive list of 53 projects in the tax administration area could be particularly helpful, including much anticipated revisions to Circular 230 rules."

  "There are also a number of other topics of particular interest to taxpayers in certain industries as well as topics that affect taxpayers across industries," Auclair observed. "In the tax accounting area, for example, guidance regarding the treatment of post-production costs, such as sales-based royalties, is an important topic for manufacturers. The topic of inclusion of income from the sale or use of gift cards is of particular interest to retailers, and the documentation requirements related to success-based fees is a topic of interest that cuts across a number of industries."

  By Brant Goldwyn and George L. Yaksick, Jr., CCH News Staff

Office of Tax Policy and Internal Revenue Service 2008-2009 Priority Guidance Plan, 2008FED ¶46,565

Joint Statement Regarding the 2008-2009 Priority Guidance Plan

Office of Tax Policy and IRS Update to 2007-2008 Priority Guidance Plan

Other References:

 
Code Sec. 7804

  CCH Reference - 2008FED ¶43,266.49

  Tax Research Consultant

  CCH Reference - TRC IRS: 12,350

CCH (cch.taxgroup.com) reports:

  The IRS issued identical temporary and proposed regulations regarding the imposition of penalties under Code Sec. 6707A for a failure to include on any return or statement any information required to be disclosed under Code Sec. 6011 with respect to a reportable transaction. The temporary regulations apply to disclosure statements that are due after September 11, 2008, and they are set to expire on or before September 9, 2011. Written or electronic comments on the proposed regulations and requests for a public hearing must be received by December 10, 2008. Notice 2005-11, 2005-1 CB 493, which provided interim guidance, is superseded.

  Under Code Sec. 6011 and its regulations, a taxpayer must file a disclosure statement on Form 8886, Reportable Transaction Disclosure Statement, for each reportable transaction in which the taxpayer participated. The taxpayer also must send a copy to the IRS Office of Tax Shelter Analysis (OTSA) at the same time. Under Code Sec. 6707A, the IRS can impose a penalty for failure to comply with these requirements. The penalty is $10,000 for an individual, and $50,000 in any other case. These amounts are increased to $100,000 and $200,000 if the failure relates to a listed transaction. In Rev. Proc. 2007-21, 2007-1 CB 613, the IRS provided a procedure under which a taxpayer can seek to have the IRS rescind a Code Sec. 6707A penalty.

Separate Penalty for Each Failure

  As under the interim guidance, Temporary Reg. §301.6707A-1T(c) and Proposed Reg. §301.6707A-1(c) provide that a taxpayer incurs a separate penalty with respect to each reportable transaction that the taxpayer was required, but failed, to disclose within the time and in the form and manner required. A taxpayer who is required to disclose a reportable transaction on a Form 8886 filed with a return, amended return or application for tentative refund and who also is required to disclose the transaction on a Form 8886 with OTSA, is subject to only a single penalty for failure to make either one or both of those disclosures.

Rescinding the Penalty

  As under the interim guidance, Temporary Reg. §301.6707A-1T(d) and Proposed Reg. §301.6707A-1(d) provide that the IRS may rescind the penalty if: (i) the violation relates to a reportable transaction that is not a listed transaction, and (ii) rescinding the penalty would promote compliance with the requirements of the IRC and effective tax administration. The regulations adopt the factors listed in Rev. Proc. 2007-21 that the IRS will consider in deciding to rescind. The factors include the following:

  (1) The taxpayer, upon becoming aware that it failed to disclose a reportable transaction properly, filed a complete and proper, although untimely, Form 8886.

  (2) The failure arose from events beyond the taxpayer's control.

  (3) The taxpayer cooperates with the IRS by providing timely information with respect to the transaction at issue.

  (4) The failure was due to an unintentional mistake of fact that existed despite the taxpayer's reasonable attempts to ascertain the correct facts with respect to the transaction.

  (5) The taxpayer has an established history of properly disclosing other reportable transactions and complying with other tax laws.

  (6) The penalty weighs against equity and good conscience, including whether the penalty is disproportionate to the tax benefit and whether the taxpayer demonstrates reasonable cause (such as that the taxpayer informed the individual who prepared its tax returns that the taxpayer participated in the reportable transactions).

SEC Reporting

  Temporary Reg. §301.6707A-1T(e) and Proposed Reg. §301.6707A-1(e) provide that a taxpayer who is required to file periodic reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 (or is required to file consolidated reports with another person) must disclose in periodic reports filed with the SEC the requirement to pay certain penalties in a manner to be prescribed by the IRS. The IRS has done so in Rev. Proc. 2005-51, 2005-2 CB 296, amplified by Rev. Proc. 2007-25, 2007-12 I.R.B. 761.

T.D. 9425, 2008FED ¶47,059

Proposed Regulations, NPRM REG-160868-04, 2008FED ¶49,834

Other References:

 
Code Sec. 6707A

  CCH Reference - 2008FED ¶40,092

  Tax Research Consultant

  CCH Reference - TRC PENALTY: 3,252

CCH (cch.taxgroup.com) reports:

  The Treasury and IRS have issued final regulations that provide rules for determining the tax consequences of a member's transfer (including by deconsolidation and worthlessness) of loss shares of subsidiary stock (the Unified Loss Rule). The regulations apply to corporations filing consolidated returns and to corporations that enter into certain tax-free reorganizations. The Unified Loss Rule implements aspects of the repeal of the General Utilities Doctrine and addresses the duplication of loss by consolidated groups. Although proposed rules issued in January 2007 (NPRM REG-157711-02) were favorably received, concerns were expressed about the complexity of the rules. The final regulations attempt to simplify the rules, where possible.

  The Unified Loss Rule applies when a member transfers a share of subsidiary stock and, after taking into account the effect of all laws applicable as of the transfer, the share is a loss share. The Unified Loss Rule applies to non-intercompany transfers of loss shares at the time the stock is transferred, even if the loss recognized is subject to deferral. If, however, a member transfers a share of subsidiary stock to another member and the gain or loss is deferred under the intercompany transaction provisions of Reg. §1.1502-13, the Unified Loss Rule applies to the transfer or to a subsequent transfer of a share by a member when the intercompany item is taken into account.

  The Unified Loss Rule consists of the following three principal rules, which are applied in the following order:

  --a basis redetermination rule that reallocates investment adjustments to address both noneconomic and duplicate stock losses;

  --a basis reduction rule that addresses noneconomic stock loss; and

  --an attribute reduction rule that addresses duplicated loss.

Basis Redetermination Rule

  The basis redetermination rule addresses problems created when shares of stock are held with disparate bases. The investment adjustment system allocates a subsidiary's items of income, gain, deduction or loss, among the members of a group filing a consolidated return under the assumption that all items reflect economic accruals to all shares equally within a group. When members of the group have disparate bases, the general operation of the investment adjustment system can cause both noneconomic and duplicated losses.

  Under the basis redetermination rule, when a member transfers a share of subsidiary stock, and the share is a loss share, all members' shares of subsidiary stock are subject to redetermination. The redeterminations are made by reallocating investment adjustments (other than positive adjustments allocated to preferred shares and distributions) that were previously applied to members' bases in the stock in a manner that permits the reallocation of both positive and negative adjustments from common to preferred shares. The reallocation is intended to reduce or eliminate loss on transferred preferred shares and any gain on either transferred or nontransferred preferred shares.

  The basis redetermination rule will not apply if members' bases in shares of subsidiary common stock are equal (i.e., no disparity) and the members' bases in shares of subsidiary preferred stock reflect no gain or loss. An additional exception applies if members dispose of their entire interest in subsidiary stock to one or more nonmembers, if all members' shares of subsidiary stock become worthless, or if all members' shares of subsidiary stock are worthless or disposed of to one or more nonmembers, in one fully taxable transaction. An election may be made to apply the basis redetermination rule if the exception applies.

Basis Reduction Rule

  If, after basis redetermination, any member's transferred share is a loss share, the basis of the share is subject to reduction in order to eliminate any stock loss that is presumed noneconomic. The basis of each transferred loss share is reduced, but not below zero, by the lesser of the share's disconformity amount and its net positive adjustment. The disconformity amount is the excess of the share's basis over its allocable portion of the subsidiary's net inside attributes (i.e., sum of the subsidiary's loss carryovers, deferred deductions, cash and asset basis, reduced by the subsidiary's liabilities) determined at the time of the transfer.

  Loss carryovers mean losses that are attributable to the subsidiary, including losses apportioned to the subsidiary under Reg. §1.1502-21(b)(2) if the subsidiary had a separate return year. When applying the attribute reduction rule, discussed below, a subsidiary's loss carryovers do not include losses waived under Reg. §1.1502-32(b)(4). The disconformity amount identifies the amount of unrealized appreciation reflected in the basis of the shares. The share's positive adjustment is the greater of zero and the sum of all investment adjustments.

Attribution Reduction Rule

  If any transferred shares remain loss shares after the application of the basis reduction rule, the subsidiary's attributes are subject to reduction. The attribute reduction rule addresses the duplication of loss by members of a consolidated group. The rule is intended to prevent the group from recognizing more than one loss with respect to an economic loss, regardless of whether the stock is disposed of before or after the subsidiary recognizes loss with respect to its assets or operations.

  A subsidiary's attributes are reduced by the attribution reduction amount. The attribution reduction amount is the lesser of net stock loss and aggregate inside loss. This reflects the total unrecognized loss reflected in both the basis of the subsidiary stock and the subsidiary's attributes. Net stock loss is the excess of the sum of the bases of all the subsidiary's shares transferred by members in the same transaction over the value of the shares. The aggregate inside loss is the excess of the subsidiary's net inside attributes over the value of all of the subsidiary shares.

  The rules take into account both the basis in the lower tier subsidiary stock and the attributes of the lower tier subsidiaries. When duplication is not uniformly reflected in stock basis and attributes, there can be an overreduction in lower tier attributes (i.e., when loss duplication resides primarily in the lower tier stock basis) or in the lower tier stock basis (when loss duplication resides primarily in lower tier attributes). To prevent an overreduction of lower tier attributes, a conforming limitation on the lower tier attribute reduction limits the application of the tiered-down attribute reduction. A basis restoration rule reverses the reductions in lower tier stock basis made by the Unified Loss Rule. Taxpayers are permitted to elect not to apply the conforming limitation or the basis restoration rule if they decide the protection afforded is outweighed by the burden of applying the rules.

  After a taxpayer computes its attribution reduction amount, if the total attribution reduction amount is less than five percent of the aggregate value of the subsidiary shares that are transferred by members in the transaction, the attribute reduction rule does not apply to the transfer. Taxpayers may elect to apply the attribute reduction rule even if the total attribute reduction is less than five percent of the aggregate value of the shares transferred. If the election is made, it will apply with respect to the entire attribute reduction amount determined in the transaction, and so will apply with respect to all members transferring shares and all shares transferred in the transaction.

  Recognized losses (i.e., net operating loss (Category A), capital loss carryovers (Category and deferred deductions (Category C) are reduced before reducing asset basis. If the attribute reduction amount is less than total attributes in Category A, Category B and Category C, the taxpayer may specify the allocation of the subsidiary's attribute reduction amount among those categories. If no allocation is specified, the default allocation will reduce capital loss carryovers first (oldest to newest), NOL carryovers second (oldest to newest) and the deferred deductions (proportionately).

  When applying the attribute reduction amount to Category D, the amount remaining after reducing Category A, Category B and Category C attributes, asset basis is reduced in reverse order of the residual method of allocating consideration paid or received in a transaction under
Code Sec. 1060. Generally, the attribute reduction amount is applied to reduce the basis of assets in the asset classes in Reg. §1.338-6(b) other than Class I, but in the reverse order from the others specified in the section.

  Under this reverse residual method, any attribute reduction amount applied to reduce asset basis is generally applied first to reduce basis in assets Class VII (proportionately based on basis). Any remaining attribute reduction amount is then applied in the same manner to reduce the basis of assets in each succeeding lower asset class other than Class I.

  However, the portion of the attribute reduction amount that is not applied to Category A, Category B and Category C, is first allocated between the subsidiary's basis in the stock of the lower tier subsidiaries and the subsidiary's other assets. The allocation is made in proportion to the subsidiary's deemed basis in each single share of the lower tier subsidiary stock and the subsidiary's basis in the nonstock Category D assets. Only the portion of the attribute reduction not allocated to lower tier subsidiary stock is applied under the reverse residual method.

  Attribute reduction amounts in excess of reducible amounts are suspended and will reduce or eliminate attributes arising when all or part of the liability is paid or satisfied.

  The regulations allow a taxpayer to make a protective election to re-attribute attributes (other than asset basis) and/or reduce stock basis to avoid attribute reduction. The election will have no effect if it is ultimately determined that the subsidiary has no attribute reduction amount. Similarly, an election will have no effect to the extent that the election is made for an amount that exceeds the attribute reduction amount that is ultimately determined. Attributes may be re-attributed in the same amount, order and category that would otherwise be reduced under the attribute reduction rule.

  Taxpayers may reduce or not reduce stock basis or re-attribute or not re-attribute attributes (or any combination of these) in an amount that does not exceed the subsidiary's attribute reduction amount.

  The regulations provide special attribute elimination rules that apply to credits and built-in losses attributable to a subsidiary to prevent their use after the subsidiary either becomes worthless or is dissolved in a taxable transaction

Other Rules

  In general, transfers of loss shares of subsidiary stock on or after the publication of the final regulations, will be subject to the Unified Loss Rule and not Reg. §1.337(d)-1, Reg. §1.337(d)-2 or Reg. §1.1502-20.

  AlthoughReg. §1.1502-35 also specifically states that it does not apply to transfers subject to the Unified Loss Rule, several modifications were made to the rules. The loss suspension rule is revised to provide that it ceases to apply ten years after the stock disposition that gave rise to the suspended loss in order to conform the loss suspension rule and the anti-loss re-importation rule. The general rules of Reg. §1.1502-35 apply only to losses allowed within ten years of the date they are recognized. Additionally, if a member recognizes a loss on subsidiary stock and the loss was suspended, and if the member ceases to be a member of the group when the subsidiary remains a member immediately before the member ceases to be a member, the parent is treated as succeeding to the loss to which Code Sec. 381(c) applies This rule preserves the loss for the group that disposed of the loss stock and the location of the loss is specified

Intercompany Transactions

 
Code Sec. 362(e)(2), which provides for the limitation on transfer of built-in losses in a Code Sec. 351 transaction, is generally inapplicable to intercompany transactions so that the consolidated return provisions can address loss duplication. An anti-abuse rule provides for appropriate adjustments to be made to clearly reflect the income of the group if the taxpayer acts to prevent the consolidated return provisions from addressing loss duplication.

Miscellaneous Amendments

  The regulations adopt without substantive change a number of proposed modifications to the regulations that are unrelated to subsidiary stock loss issues. Further, various technical corrections to existing regulations or expansions of the January 2007 proposals are adopted.

Comments

  The Treasury and IRS will continue to accept comments on the need for a provision that would address the gain duplication that occurs when subsidiary stock is sold at a gain and that gain is attributable unrecognized net appreciation in the subsidiary's assets.

T.D. 9424, 2008FED ¶47,058

Partial Withdrawal of Proposed Regulations, NPRM REG-157711-02, 2008FED ¶49,833

Other References:

 
Code Sec. 267

  CCH Reference - 2008FED ¶14,156B

 
Code Sec. 337

  CCH Reference - 2008FED ¶16,238

  CCH Reference - 2008FED ¶16,240

 
Code Sec. 358

  CCH Reference - 2008FED ¶16,552

 
Code Sec. 362

  CCH Reference - 2008FED ¶16,611CE

 
Code Sec. 597

  CCH Reference - 2008FED ¶23,810D

 
Code Sec. 1502

  CCH Reference - 2008FED ¶33,155

  CCH Reference - 2008FED ¶33,157

  CCH Reference - 2008FED ¶33,158

  CCH Reference - 2008FED ¶33,162B

  CCH Reference - 2008FED ¶33,167

  CCH Reference - 2008FED ¶33,169B

  CCH Reference - 2008FED ¶33,179

  CCH Reference - 2008FED ¶33,180

  CCH Reference - 2008FED ¶33,181

  CCH Reference - 2008FED ¶33,183

  CCH Reference - 2008FED ¶33,185C

  CCH Reference - 2008FED ¶33,187

  CCH Reference - 2008FED ¶33,195

  CCH Reference - 2008FED ¶33,204

  CCH Reference - 2008FED ¶33,205A

  CCH Reference - 2008FED ¶33,205AF

  CCH Reference - 2008FED ¶33,205EC

  CCH Reference - 2008FED ¶33,205FC

  CCH Reference - 2008FED ¶33,205JL

  Tax Research Consultant

  CCH Reference - TRC CCORP: 45,410
CCH Reference - TRC CCORP: 45,414
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Chair of the State Board of Equalization (SBE) announced that more than 500,000 California retailers will be receiving information regarding a possible 1% sales and use tax increase currently under consideration by the Legislature to partially address the 2008-09 budget gap. If a rate increase is approved by the Legislature, retailers may have to file a supplemental return depending on its implementation date. Monthly and quarterly taxpayers will receive information this month about the possible increase and the possible need to file a supplemental sales and use tax return if the increase is imposed at any time other than the first day of a calendar quarter. Retailers may also need to reprogram cash registers and computers for the new sales tax rate.

  In the proposals under current consideration, there is no specific effective date for a sales and use tax rate increase, according to the SBE. If such an increase is approved, it may become effective quickly, depending on the exact language adopted by the Legislature.

  In addition to the information being mailed to retailers beginning this week, the SBE will officially notify registered retailers of the effective date of any tax rate increase, if and when information is available.

  Current proposals would exclude sales of gasoline, diesel, and jet fuel from the additional tax. If a tax rate increase goes into effect, the combined state, local, and county rate would be 8.25%. Sales would be subject to the combined statewide rate of 8.25% plus any applicable local district taxes. Sales tax rates in California currently vary from 7.25% to 8.75%. Under current proposals, the combined tax rate for sales of gasoline, diesel, and jet fuel would remain at 7.25%.

  CCH Tax Research NetWork subscribers can view the news release in its entirety.

News Release 70-08-C , California State Board of Equalization, September 9, 2008.
 

CCH (cch.taxgroup.com) reports:

  Various partnerships were entitled to discover documents and testimony regarding the IRS's interpretation and application of Code Sec. 752. The documents sought by the partnerships were not protected by the deliberative process privilege and were relevant to the partnerships' defenses to the accuracy-related penalties asserted by the IRS. The government did not properly invoke the deliberative process privilege because it was not asserted by the IRS Commissioner or by an official with delegated authority. Moreover, the government did not particularly state what information sought by the partnerships' request for deposition testimony was privileged or provided precise and certain reasons for maintaining the confidentiality of the requested information. Further, if the government produced the requested documents in another case; the government waived the privilege and was required to produce those documents to the partnerships.

Alpha I, L.P., FedCl, 2008-2 USTC ¶50,534

Other References:

 
Code Sec. 7402

  CCH Reference - 2008FED ¶41,605.2036

  Tax Research Consultant

  CCH Reference - TRC IRS: 9,502.15

 

CCH (cch.taxgroup.com) reports:

  A corporation, utilizing the accrual method of accounting, was entitled to claim a business expense deduction for the portion of a property's total purchase price attributable to buying out an excessive lease. The corporation established the fair market value of the property, that the lease was excessive and that the amount it paid to acquire the property in excess of its fair market value was attributable to buying out the onerous lease. Contrary to the government's argument, Code Sec. 167(c)(2) did not preclude the corporation from allocating any portion of the purchase price to its leasehold. The statute applied only if, upon acquisition, the property was subject to a lease. Since the leasehold was extinguished upon the taxpayer's acquisition, the property was not acquired subject to a lease and, therefore, Code Sec. 167(c)(2) did not apply.

  However, a genuine issue of material fact existed as to when the corporation could take the deduction because the facts did not clearly establish when the expense was incurred. Although the corporation argued that its liability became fixed in the year it took the deduction, the facts did not clearly establish whether the liability was fixed in the year the corporation offered to purchase the property or in the year title was transferred.

  Cleveland Allerton Hotel, Inc., CA-6, 48-1 USTC ¶9218, followed. Millinery Center Building Corp., SCt, 56-1 USTC ¶9391, 350 U.S. 456 distinguished.

ABC Beverage Corporation, DC Mich., 2008-2 USTC ¶50,533

Other References:

 
Code Sec. 162

  CCH Reference - 2008FED ¶8754.1312

 
Code Sec. 167

  CCH Reference - 2008FED ¶11,011.031

 
Code Sec. 263

  CCH Reference - 2008FED ¶13,709.391

 
Code Sec. 461

  CCH Reference - 2008FED ¶21,817.14

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 210

CCH (cch.taxgroup.com) reports:

  The IRS announced that it is not too late to obtain an economic stimulus check, but that analysis of submissions to date have indicated several common questions and errors that delay receipt of the check. The most frequently asked question is related to when will the check be received. The answer to this question, as well as the status of the payment and other payment related issues, can be found on the IRS website, www.irs.gov, by using the "Where's My Economic Stimulus Payment?" tool.

  The most frequent errors are:

  (1) Filing more than one return;

  (2) Failing to properly report qualifying income;

  (3) Failing to review one's tax liability;

  (4) Filing amended returns to increase the economic stimulus amount; and

  (5) Failing to use one's most current address.

  The IRS will be issuing checks thorough December 2008 for returns filed by October 15, 2008. Furthermore, those who failed to file a 2007 return in order to receive a stimulus check can claim the economic stimulus payment on their 2008 income tax return.

IR-2008-103,
2008FED ¶46,564

Other References:

 
Code Sec. 6428

  CCH Reference - 2008FED ¶38,869.021

  CCH Reference - 2008FED ¶38,869.60

  Tax Research Consultant

  CCH Reference - TRC INDIV: 57,900

CCH (cch.taxgroup.com) reports:

  The House is likely to consider comprehensive energy legislation before its target adjournment date of September 26, House Majority Leader Steny H. Hoyer, D-Md., said on September 10. In remarks to reporters during a press briefing, Hoyer said House Democrats would like to pass energy legislation that includes tax incentives for renewable energy such as wind power.

  According to Hoyer, the legislation could also include the so-called tax extenders, and those provisions would have to meet House pay-as-you-go budget rules. He added that the energy legislation could come to the House floor as early as the week of September 8, but House consideration is somewhat dependent on whether Senate lawmakers are able to reach an agreement on energy legislation.

  By Stephen K. Cooper, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The California Franchise Tax Board will postpone corporation franchise and income tax and personal income tax deadlines until January 5, 2009, for taxpayers affected by Hurricane Gustav to file returns, pay taxes, and perform other time-sensitive acts for deadlines falling between September 1, 2008, and January 5, 2009.

  The relief applies to taxpayers who live or have a business located in the following Louisiana parishes: Acadia, Allen, Ascension, Assumption, Avoyelles, Beauregard, Cameron, East Baton Rouge, East Feliciana, Evangeline, Iberia, Iberville, Jefferson, Jefferson Davis, Lafayette, Lafourche, Livingston, Orleans, Plaquemines, Pointe Coupee, Rapides, Sabine, St. Bernard, St. Charles, St. James, St. John the Baptist, St. Landry, St. Martin, St. Mary, Terrebonne, Vermilion, Vernon, West Baton Rouge, and West Feliciana. Taxpayers not living in the disaster area, but whose books, records, or tax professionals' offices are in the covered disaster area, are also entitled to relief. Relief is also available to relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area.

  Taxpayers needing copies of lost or damaged state returns should complete Form FTB 3516, Request for Copy of Tax Return. Disaster victims receive copies of tax returns for free. "Louisiana/Hurricane Gustav" should be printed in red at the top of the request.

Press Release , California Franchise Tax Board, September 5, 2008.
 

CCH (cch.taxgroup.com) reports:

  The Streamlined Sales Tax (SST) Governing Board agreed to let all sellers, including those not registered under the SST Agreement, file a simplified electronic return in member states by 2013. The vote came during the Board's 2008 annual meeting in Charleston, West Virginia, September 4-5. Commissioner Joan Wagnon of Kansas, the Board's departing president, said the action was required to prepare for a "huge influx" of returns if federal authorizing legislation passes, an eventuality about which she said she is "more optimistic every day." Business representatives echoed Wagnon's description of the action as "one of the most, if not the most, important simplifications" the group has approved.

  In other actions, the group continued to debate New Jersey's compliance with the Agreement and issues related to direct mail. Meanwhile, West Virginia State Del. John Doyle will replace Wagnon as president of the Board, effective October 1. Commissioner Jerry Johnson of Oklahoma becomes first vice-president (president-elect) and Indiana State Sen. Luke Kenley steps into the second vice-president slot. Richard Dobson of the Kentucky Department of Revenue continues as secretary/treasurer.

 

CCH (cch.taxgroup.com) reports:

  A widower was entitled to claim "married filing jointly" status for years prior to his wife's death because all of the requirements for claiming that status were met. The couple were not nonresident aliens, had the same taxable years, the wife had not filed returns for the tax years at issue and no authorized representative or executor was appointed for filing the return of the surviving spouse. Moreover, the record reflected the wife's intention to file joint tax returns. The government's argument that the husband could elect joint filing status only for the year of the spouse's death was rejected. Code Sec. 6013, which allows a surviving spouse to make the election if a return has not been filed for "the taxable year," refers not only to the year of the spouse's death, but to any tax year at issue.

D.J. Vidalier, DC La., 2008-2 USTC ¶50,532

Other References:

 
Code Sec. 6013

  CCH Reference - 2008FED ¶35,171.68

  Tax Research Consultant

  CCH Reference - TRC FILEIND: 18,056.25

CCH (cch.taxgroup.com) reports:

  Proposed regulations update, clarify and simplify the public notice and approval requirements for tax-exempt private activity bonds under Code Sec. 147(f).

  The proposals would require less specific information for public approvals of mortgage revenue bonds, qualified loan bonds, and qualified Code Sec. 501(c)(3) bonds than other types of private activity bonds. Issuers of these bonds that made a good-faith effort to comply with the public disclosure requirements of Code Sec. 147(f), taking into account congressional intent and the special characteristics of these types of financing, will not be subject to audit merely because the issuer did not include all of the information required to be included in the public notice and approval requirements contained in Reg. §5f.103-2(f)(2) of the existing regulations.

  The proposals provide that an issue will fail to meet the public approval requirements if there is a substantial deviation between the public notice and approval information required to be provided and the actual information provided.

  The determination of whether a deviation is substantial is based on all of the facts and circumstances. However, two safe harbors provide that the following are not substantial deviations: (1) a five-percent or less difference between the amount the public approval stated would be used for the facility and the actual amount used; and (2) a change in the initial owner or principal user of a project to a person related to the initial owner or principal user named in the public approval. In addition, if certain conditions are met, an issuer can cure a substantial deviation through a subsequent public approval if, as a result of unexpected events or unforeseen changes in circumstances after the issue date, it is not longer feasible to use the proceeds of the bonds in the manner set forth in the original public approval or it does not need to use the full amount of the proceeds.

  The proposals would allow a government unit to provide notice of a public hearing on its website if it offers an alternative method, such as a phone recording, for obtaining this information for residents without access to computers. The public would also be permitted to submit electronic comments to the governmental unit. The time required between public notice and a public hearing would be reduced from fourteen days to seven business days. A public hearing could be cancelled if no requests to participate are received.

Effective Date

  The regulations are proposed to apply to bonds sold on or after the date the regulations are published as final regulations in the federal register.

Comments and Public Hearing

  A public hearing is scheduled for January 26, 2009, beginning at 10:00 a.m. Written and electronic comments must be received by December 8, 2008.

Proposed Regulations, NPRM REG-128841-07, 2008FED ¶49,832

Other References:

 
Code Sec. 147

  CCH Reference - 2008FED ¶7860E

  Tax Research Consultant

  CCH Reference - TRC SALES: 51,100

CCH (cch.taxgroup.com) reports:

  The approval process for organizations seeking tax-exempt status as publicly supported charities has been streamlined by newly issued final and temporary regulations. The new regulations do away with advance rulings that granted public charity status for an initial five-year period, but required exempt organizations to demonstrate, after the initial period, that they in fact received a substantial part of their support from public sources to receive a final determination letter. The IRS was able to eliminate the advance rulings process because of the recent redesign of the Form 990, Return of Organization Exempt From Income Tax. Organizations that have already received an advance ruling, but are still in their first five years of existence, can use their advance ruling letter as their final determination letter. In addition to the streamlined approval process, the new regulations include other modifications necessary to implement the redesigned Form 990.

  Approximately 95 percent of exempt organizations that received advance rulings were later recognized as publicly supported charities at the end of the five-year period. "Given the high "recognition" rate and the redesigned Form 990, it makes sense to eliminate the burdensome advance ruling process," said Lois Lerner, Director of the IRS Exempt Organizations division. "Not only will the streamlined process aid exempt organizations, but it will also allow the IRS to redirect staffing to other program areas without compromising compliance."

  "The advance ruling procedures always seemed burdensome," Nancy Ortmeyer Kuhn of Caplin & Drysdale told CCH. "Five years is a remarkable grace period. It's a real gift to the charitable community."

  The temporary regulations make revisions to the regulations under Code Sec. 6033 and Code Sec. 6043 to allow for new threshold amounts for reporting compensation, to require that compensation be reported on a calendar year basis, and to modify the scope of organizations subject to information reporting requirements upon a substantial contraction. The temporary regulations also eliminate the substantial and material changes exception, which is made obsolete by the establishment of a general five-year computation period. Further, the temporary regulations add key employees to the list of persons who may be required to be reported on Form 990.

Elimination of Advance Ruling Process

  The temporary regulations eliminate advance rulings and the Form 8734, Support Schedule for Advance Ruling Period, filing requirement for all new Code Sec. 501(c)(3) organizations. Under the temporary regulations if, at the time of the initial application for exemption, an organization can establish to the satisfaction of the IRS that the organization can reasonably be expected to meet a public support test during its first five years, the organization qualifies as publicly supported for its first five years as a Code Sec. 501(c)(3) organization. The IRS will issue a determination letter stating that the organization is exempt under Code Sec. 501(c)(3) and is classified as a public charity. The organization will be a public charity for its first five years, regardless of the level of public support it in fact receives during this period. In addition, unlike a new organization's public charity status under an advance ruling, which was conditioned on its ultimate satisfaction of a public support test on a Form 8734 filed with the IRS, under the temporary regulations, a new organization that can show it can reasonably be expected to meet a public support test will be classified as a public charity for all purposes during its first five years. The organization will not owe any Code Sec. 4940 tax or Code Sec. 507 termination tax with respect to its first five years. Beginning with the organization's sixth year, if the organization cannot establish that it is not a private foundation, such as a public charity or a supporting organization under Code Sec. 509(a)(3), it will be liable for the Code Sec. 4940 excise tax and other Chapter 42 excise taxes applicable to private foundations for any year for which it cannot establish that it is not a private foundation.

Method of Accounting

  Under the temporary regulations, when a Code Sec. 501(c)(3) organization computes its public support and reports the information on Schedule A, it must use the same accounting method that it uses in keeping its books under Code Sec. 446 and that it otherwise uses to report on its Form 990. An organization that uses the accrual method will not be able to use the support information reported on Form 990 for prior years (because that support was reported using the cash method) to compute its public support for the current year, and instead must report all support for the computation period on the accrual method.

  Kuhn stated that "using the same [accrual] method is a positive step. It's one more welcome simplification."

Effective Date, Proposed Regulations

  The regulations apply to tax years beginning on or after January 1, 2008. 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 November 10, 2008.

  By Brant Goldwyn and Larry Perlman, CCH News Staff

IR-2008-102,
2008FED ¶46,563

T.D. 9423, 2008FED ¶47,057

Proposed Regulations, NPRM REG-142333-07, 2008FED ¶49,831

Other References:

 
Code Sec. 170

  CCH Reference - 2008FED ¶11,662

  CCH Reference - 2008FED ¶11,662E

 
Code Sec. 507

  CCH Reference - 2008FED ¶22,773

  CCH Reference - 2008FED ¶22,773E

 
Code Sec. 509

  CCH Reference - 2008FED ¶22,803

  CCH Reference - 2008FED ¶22,803E

  CCH Reference - 2008FED ¶22,812.40

 
Code Sec. 6033

  CCH Reference - 2008FED ¶35,422

  CCH Reference - 2008FED ¶35,422C

 
Code Sec. 6034

  CCH Reference - 2008FED ¶35,885

  CCH Reference - 2008FED ¶35,885B

  Tax Research Consultant

  CCH Reference - TRC EXEMPT: 12,102
CCH Reference - TRC EXEMPT: 21,114
 

CCH (cch.taxgroup.com) reports:

  The IRS and Treasury have announced they will issue regulations that provide that the date (or any date after) the U.S. government purchases obligations of Fannie Mae and Freddie Mac will not be considered a testing date for purposes of determining whether a loss corporation is required to determine an ownership change has occurred under Code Sec. 382. The regulations will apply on or after September 7, 2008, unless the IRS issues further guidance.

Notice 2008-76, 2008FED ¶46,562

Other References:

 
Code Sec. 382

  CCH Reference - 2008FED ¶17,115.40

  CCH Reference - 2008FED ¶17,115.45

  Tax Research Consultant

  CCH Reference - TRC NOL: 33,050

CCH (cch.taxgroup.com) reports:

  Senate Majority Leader Harry Reid, D-Nev., told lawmakers on September 8 that he plans to take up energy legislation, which includes tax incentives, during the week beginning September 15 if the chamber can complete work by that time on a crucial defense spending bill. The move to energy legislation is also a high priority for Republicans who said Congress needs to act quickly on finding a solution to the energy crisis.

  Reid said he expects the Senate to vote on several comprehensive energy bills, including a measure offered earlier by Senate Finance Committee Chairman Max Baucus, D-Mont., that would extend renewable energy, energy efficiency and advanced vehicle tax incentives and offset the cost by eliminating oil company subsidies and closing royalty relief loopholes. A new bipartisan bill, the New Energy Reform Bill of 2008, which has already garnered 16 co-sponsors, also would extend and expand renewable energy and advanced alternative fuel vehicle tax incentives. The measure would provide consumer tax credits of up to $7,500 per vehicle to purchase advanced alternative fuel vehicles (primarily nonpetroleum fuels) and up to $2,500 to retrofit existing vehicles with advanced alternative fuel engines.

  Reid said he is also open to open to a vote on a Republican offering that would open up all coastal areas to drilling at the states' requests, except for the eastern Gulf of Mexico, which stays closed until 2022. It also would close the London loophole and requires index trader and swaps dealers to report their energy-commodity transactions. "So far, Congress has been unable to come together on a comprehensive solution to our nation's energy crisis, but the book hasn't closed yet on the 110th Congress," said Senate Minority Leader Mitch McConnell, R-Ky., on the Senate floor. "There is still time to act on this issue."

  By Jeff Carlson, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Georgia Governor Sonny Perdue has signed an executive order that suspends the collection of sales and use tax on prescription "controlled substances" and "dangerous drugs" distributed free of charge (prescription drug samples) on or after September 1, 2008, by pharmaceutical manufacturers or distributors to clinics, dentists, doctors, hospitals, or any person or entity located within the state. The order also applies to suspend the collection of sales and use tax on controlled substances and dangerous drugs distributed free of charge on or after September 1 for human clinical trials approved by an institutional review board accredited by the Association for the Accreditation of Human Research Protection Programs.

  The controlled substances and dangerous drugs impacted by the suspension are defined by reference in O.C.G.A. Sec. 16-13-1, a provision of the Criminal Code of Georgia. O.C.G.A. Sec. 16-13-1 is available on the state's Web site at
http://www.georgia.gov/. The suspension will remain in effect until acted upon by the General Assembly.

  Subscribers to CCH Tax Research NetWork can view guidance issued by the Georgia Department of Revenue as well as the governor's executive order.

Executive Order , Governor Sonny Perdue, August 29, 2008; Georgia Sales and Use Tax Informational Bulletin , Georgia Department of Revenue, September 2, 2008.
 

CCH (cch.taxgroup.com) reports:

  For pension plan years beginning in September 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 September 2008 is 6.10 percent; the 90-percent to 100-percent permissible range is 5.49 percent to 6.10 percent. The annual rate of interest on 30-year Treasury securities for August 2008, used to determine the minimum present value of a participant's benefit under Code Sec. 417(e)(1) and (2), is 4.50 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 September 2008 are: 5.07 for the first segment; 6.09 for the second segment; and 6.56 for the third segment.

  For plan years beginning in 2008, the funding transitional segment rates for September 2008 are: 5.76 for the first segment, 6.10 for the second segment, and 6.25 for the third segment. For plan years beginning in 2009, the funding transitional segment rates are: 5.41 for the first segment, 6.09 for the second segment, and 6.41 for the third segment.

  For plan years beginning in 2008, the minimum present value transitional segment rates for September 2008 are: 4.64 for the first segment, 4.97 for the second segment, and 4.98 for the third segment. For plan years beginning in 2009, the minimum present value transitional segment rates are: 4.78 for the first segment, 5.45 for the second segment, and 5.46 for the third segment.

Notice 2008-75, 2008FED ¶46,561

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
 

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Beginning with 2009 information returns, the Oregon Department of Revenue (DOR) will require electronic filing of W-2s to report wages for personal income tax purposes. The new requirement will apply to businesses with 250 or more employees and all payroll service providers. Electronic filing for smaller businesses will be phased in over time. The filing due date is the same as the federal filing deadline (March 31, 2010 for 2009 W-2s). The DOR is interested in working with the business community to gather input and develop standards and in obtaining employer input during the testing phase in 2009. Those interested in being part of the development group, a tester, or both, should contact Deanna Mack by e-mail at eanna.D.Mack@state.or.us">Deanna.D.Mack@state.or.us or by phone at 503-947-2082.

PayrollTax-News , Oregon Department of Revenue, August, 2008, ¶400-859

  Other References:

  Explanations at ¶89-106.

CCH (cch.taxgroup.com) reports:

  For the fourth quarter of 2008, the interest rate on underpayments of Massachusetts taxes administered by the Department of Revenue increased from 6% to 7% compounded daily, while the interest rate paid by the Department on tax overpayments increased from 4% to 5%.

Technical Information Release 08-14 , Massachusetts Department of Revenue, September 4, 2008, ¶401-190

  Other References:

  Explanations at ¶89-204

CCH (cch.taxgroup.com) reports:

  A limited liability company (LLC) was not entitled to contest the IRS's certificate of redemption because it failed to tender sufficient funds within the allotted time for redemption. Assuming that the IRS's redemption was invalid, the LLC was required under state (Minnesota) law to tender the amount paid by the foreclosure sale purchaser, plus interest calculated from the date of the sale to the date of its attempted redemption and any additional costs. Since the LLC failed to include interest from the date of the sale its tender was insufficient. Therefore, the LLC forfeited its interest in the property and its related right to contest the IRS's redemption of the property.

  Affirming a DC Minn. decision, 2007-1 USTC ¶50,413.

Real Estate Equity Strategies, LLC, CA-8, 2008-2 USTC ¶50,529

Other References:

 
Code Sec. 7425

  CCH Reference - 2008FED ¶41,708.27

  CCH Reference - 2008FED ¶41,708.28

  Tax Research Consultant

  CCH Reference - TRC IRS: 51,306

CCH (cch.taxgroup.com) reports:

  The latest fact sheet released by the IRS in its monthly International Tax Gap Series reminds partnerships with foreign partners of their withholding responsibilities with respect to partnership income. If a partnership is engaged in a U.S. trade or business, each foreign partner is treated as directly engaged in that business for federal income tax purposes. The partnership must pay a withholding tax based on foreign partners' allocable share of the partnership's effectively connected income, and each partner must file an appropriate U.S. income tax return. Withholding tax rates range from 15% to 35%, depending on the type of income.

IRS International Tax Gap Series: U.S. Tax Withholding on Effectively Connected Income Allocable to Foreign Partners
 

CCH (cch.taxgroup.com) reports:

  The IRS has announced that it surpassed its goal to hire at least 1,000 military veterans during the 2008 fiscal year. According to IRS Commissioner, Doug Shulman, the IRS will continue its effort to recruit from this talented pool of people who already have demonstrated their leadership, work ethic and dedication.

  As a part of this effort, the IRS Human Capital Office developed Veteran Hiring, Employment and Recruitment Opportunities (V-HERO) earlier this year and is partnering with veterans' organizations, other government agencies and job fairs to recruit veterans and transitional military personnel. The IRS has also developed partnerships with the Paralyzed Veterans of America, the American Legion, the Veterans of Foreign Wars and the Blinded Veterans of America to discuss employment opportunities.

IR-2008-101

 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Ohio Court of Appeals determined that the Ohio commercial activity tax (CAT), when applied to gross receipts from the wholesale sale of food and from the retail sale of food for human consumption off premises where sold, operates as, and is, an excise tax levied or collected upon the sale or purchase of food, and therefore violates Secs. 3 and 13 of Article XII of the Ohio Constitution.

  The Court of Common Pleas for Franklin County, Ohio, had previously ruled that the CAT did not violate the state constitution because it ruled that the CAT was a franchise tax, which was a type of excise tax, imposed on the privilege of doing business in the state, and was not an excise tax "levied or collected upon the sale or purchase of food."

 

CCH (cch.taxgroup.com) reports:

  The Florida Supreme Court has affirmed the
opinion of the Leon County Circuit Court removing from the 2008
general election ballot a proposed state constitutional amendment
that would have eliminated the state required property tax. Under the proposal, the property tax revenues would be replaced by, among other methods, repealing sales and use tax exemptions not specifically excluded and increasing the state sales and use tax up to 1%.

  Subscribers to CCH Tax Research NetWork can view the Supreme Court order.

Florida Department of State v. Slough , No. SC08-1569, Florida Supreme Court, September 3, 2008.
 

CCH (cch.taxgroup.com) reports:

  The IRS has extended return filing and payment deadlines for victims of Hurricane Gustav in the Louisiana parishes of Acadia, Allen, Ascension, Assumption, Avoyelles, Beauregard, Cameron, East Baton Rouge, East Feliciana, Evangeline, Iberia, Iberville, Jefferson, Jefferson Davis, Lafayette, Lafourche, Livingston, Orleans, Plaquemines, Pointe Coupee, Rapides, Sabine, St. Bernard, St. Charles, St. James, St. John the Baptist, St. Landry, St. Martin, St. Mary, Terrebonne, Vermilion, Vernon, West Baton Rouge and West Feliciana. Taxpayers residing or having businesses in these presidentially declared disaster areas have until January 5, 2009, to file returns, pay taxes and perform other time-sensitive acts otherwise due between September 1, 2008 and January 5, 2009. The extended deadline applies to most tax returns, including individual and corporate income tax returns, but does not apply to information returns in the Forms W-2, 1098 and 1099 series, or to Forms 1042-S or 8027.

  The IRS will also waive penalties for the failure to deposit employment and excise taxes due on or after September 1, 2008, and on or before September 16, 2008, as long as the deposits are made by September 16, 2008. Taxpayers whose books, records or tax professionals' offices are in the covered disaster area are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area are eligible for relief. Affected taxpayers claiming a disaster loss due to Gustav on their returns for the 2007 tax year should write "Louisiana/Hurricane Gustav" at the top of their returns to receive expedited service.

IR-2008-100,
2008FED ¶46,560

IR-2008-100,
FINH ¶30,598

Other References:

 
Code Sec. 6081

  CCH Reference - 2008FED ¶36,789.213

  CCH Reference - FINH ¶20,345.65

  CCH Reference - FINH ¶20,355.45

 
Code Sec. 6161

  CCH Reference - FINH ¶20,585.35

 
Code Sec. 7508A

  CCH Reference - 2008FED ¶42,687C.22

  CCH Reference - FINH ¶22,560.30

  Tax Research Consultant

  CCH Reference - TRC FILEIND: 15,204.25

  CCH Reference - TRC FILEBUS: 15,110

CCH (cch.taxgroup.com) reports:

  The IRS has announced the expansion of transition relief for certain small single-employer defined benefit plans originally provided in Notice 2008-21, I.R.B. 2008-7, 431. Limitations on the accrual and payment of benefits of an underfunded single-employer defined benefit plan underCode Sec. 436 are applied based on a plan's adjusted funding target attainment percentage (AFTAP) for the plan year. The AFTAP is generally based on the plan's funding target attainment percentage (FTAP) for the plan year.

  A series of presumptions apply during the portion of the plan year that precedes the certification of the AFTAP. For example, plans subject to the benefit limitations for the preceding plan year are presumed to be subject to the limitations in the current year until the plan actuary certifies the actual AFTAP for the current year. For other than small plans with fewer than 100 participants, underCode Sec. 430(g), the valuation date for the plan year must be the first day of the plan year.

  The IRS issued Notice 2008-21 to provide a transition rule for small plans with end-of-the-year valuation dates. Under the transition rule, for a plan with an end-of-the-year valuation date for each of the plan years beginning in 2006, 2007 and 2008, for purposes of applying the benefit limitations for the plan year during 2008, the AFTAP for the 2007 plan year may be made by determining the FTAP for the 2007 plan year under special rules.

  Because Congress is considering, but has not yet enacted, technical corrections that would provide the IRS and Treasury Department with the authority to issue regulations addressing end-of-year valuation dates, many small plans may adopt beginning-of-the-year valuation dates. Plans that adopt a beginning-of-the-year valuation date for the 2008 plan year will be ineligible for the transition relief in Notice 2008-21 and will have difficulty in complying with the timing requirements for certifying the plan's AFTAP. Thus, the transition relief is expanded to apply with respect to any plan that has an end-of-year valuation date for both the 2006 and 2007 plan years, regardless of the plan's valuation date for 2008.

Notice 2008-73, 2008FED ¶46,559

Other References:

 
Code Sec. 430

  CCH Reference - 2008FED ¶20,161.60

 
Code Sec. 436

  CCH Reference - 2008FED ¶20,221.01

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 30,554
CCH Reference - TRC RETIRE: 30,556
CCH Reference - TRC RETIRE: 30,568
CCH Reference - TRC RETIRE: 30,604
CCH Reference - TRC RETIRE: 30,606
CCH Reference - TRC RETIRE: 30,608
CCH Reference - TRC RETIRE: 30,610
CCH Reference - TRC RETIRE: 30,612
CCH Reference - TRC RETIRE: 30,614
CCH Reference - TRC RETIRE: 30,616
CCH Reference - TRC RETIRE: 30,618
CCH Reference - TRC RETIRE: 30,622
 

CCH (cch.taxgroup.com) reports:

  The IRS has again delayed the effective date of Rev. Rul. 2006-57, 2006-2 CB 911, which provides guidance to employers on the use of smartcards, debit or credit cards, or other electronic media to provide qualified transportation fringe benefits under Code Secs. 132(a)(5) and
132(f). The guidance was originally scheduled to go into effect January 1, 2008, but that date was pushed back to January 1, 2009, by Notice 2007-76, 2007-40 I.R.B.
735, to provide relief for mass transit providers that found it difficult to update their systems to comply with the new rules. The IRS has now pushed the effective date back again, this time to January 1, 2010, for the same reason. Nevertheless, employers and employees may rely on Rev. Rul. 2006-57 with respect to transactions occurring prior to January 1, 2010.

Notice 2008-74, 2008FED ¶46,558

Other References:

 
Code Sec. 132

  CCH Reference - 2008FED ¶7438.054

  CCH Reference - 2008FED ¶7438.75

  Tax Research Consultant

  CCH Reference - TRC COMPEN: 36,354

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Buyers and sellers of computer software that
is not subject to sales and use tax under the Wisconsin Supreme Court's decision
in Wisconsin Department of Revenue v. Menasha Corp. may file a claim for refund with the Wisconsin Department of Revenue for periods that are still open to adjustment. In that decision, an integrated business application software system was ruled exempt as custom software. To help speed up processing, the Department requests that refund claims pertaining to the Menasha decision be filed separately from refund claims for other matters.

 

CCH (cch.taxgroup.com) reports:

  In two separate opinions, Illinois appellate court panels rejected property tax exemption claims by a hospital and a school district. One lower court opinion was reversed, and another was affirmed.

 

CCH (cch.taxgroup.com) reports:

  A federal district court's decision denying attorney's fees to an individual after the government voluntarily dismissed its petition to enforce IRS summonses was remanded. The district court implicitly treated the individual as a prevailing party by awarding him litigation costs, but denied his request for attorney's fees on the ground that he failed to show that the government acted in bad faith or vexatiously. However, to prevail on a claim for attorneys' fees under Code Sec. 7430, the individual was not required to show that the government acted in bad faith, but that he was a prevailing party and that the government's position was not substantially justified.

  The case was remanded for the district court to determine whether the individual was a prevailing party entitled to attorney's fees and whether the administrative-exhaustion requirement under Code Sec. 7430 was satisfied.

  Unpublished opinion vacating and remanding an unreported DC N.Y. decision.

C. Cathcart, CA-2, 2008-2 USTC ¶50,522

Other References:

 
Code Sec. 7430

  CCH Reference - 2008FED ¶41,743.68

  Tax Research Consultant

  CCH Reference - TRC LITIG: 3,150
CCH Reference - TRC LITIG: 3,154.05
 

CCH (cch.taxgroup.com) reports:

  31 C.F.R. 10.7(c)(1)(viii) is a valid regulation that did not unlawfully and arbitrarily limit an unenrolled tax return preparer's right to represent taxpayers before the IRS. In a case of first impression, CA-11 determined that 31 C.F.R. 10.7(c) (1)(viii), which limits the scope of representation by an unenrolled representative, was a reasonable legislative regulation and was not arbitrary, capricious or manifestly contrary to the statute. The provision balances the need for a taxpayer to have affordable representation and to be able to choose his representative with the need for competent representation that protects the taxpayer, the IRS and the general public.

  Although Code Sec. 7521 permits practitioners and certain other persons to represent taxpayers before the IRS in the context of a taxpayer interview, it did not define the persons permitted to practice before the IRS. Furthermore, while Congress has not set out anything directly on the question of whether an unenrolled representative could represent the taxpayers before the IRS under 31 C.F.R. 10.7(c) (1)(viii), it expressly delegated authority to the IRS to promulgate regulations governing who could practice before the IRS. Finally, the preparer could acquire the ability to fully represent clients by becoming an enrolled agent.

  Affirming, per curiam , an unreported DC Fla. decision.

P.H. Wright v. M.W. Everson, CA-11, 2008-2 USTC ¶50,521

Other References:

 
Code Sec. 7521

  CCH Reference - 2008FED ¶42,791.035

  31 CFR Part 10

  CCH Reference - 2008FED ¶43,808.154

  Tax Research Consultant

  CCH Reference - TRC IRS: 3,204.20
CCH Reference - TRC IRS: 6,252.30
 

CCH (cch.taxgroup.com) reports:

  The IRS has announced that it will temporarily suspend collection of incentive stock option (ISO) alternative minimum tax (AMT) liabilities through September 30, 2008. The suspension is intended to provide lawmakers with time to enact legislation related to the collection of this AMT liability, IRS Commissioner Douglas H. Shulman indicated in a just-released letter to Sen. Charles E. Grassley, R-Iowa, ranking member of the Senate Finance Committee.

Lawmakers' Request

  The IRS's decision to temporarily halt its collection activities involving ISO AMT liabilities is in response to a July request from Grassley and more than 20 other members of Congress. These lawmakers asked the IRS for the suspension in order to work on legislation aimed at providing relief to individuals and families affected by ISO AMT liability.

  "We are currently working to help these ISO AMT families through the enactment of AMT Credit Fairness and Relief Act of 2007 (HR 3861), and its companion bill (Sen 2389). These bills work off earlier legislation contained in the Tax Relief and Health Care Act of 2006 (P.L. 109-432) to increase the AMT refundable credit amount for families and individuals with long-term unused credits for prior-year minimum tax liability," the lawmakers told Shulman. "There is now a very broad bipartisan consensus to abate all interest and penalties attributable to ISO AMT liabilities and permit taxpayers to apply the full amount of their future refundable credits towards the entirety of the current ISO AMT liabilities," the lawmakers added.

  Under current law, taxpayers who exercise ISOs must realize income subject to the AMT upon exercise, rather than only at any subsequent sale. However, taxpayers are not subject to regular income tax upon exercise of an ISO.

Suspension

  Shulman reported that the IRS is taking steps to identify all collection cases involving ISO AMT liabilities. "To provide the Congress with an opportunity to enact the pending legislation, the IRS will not undertake any collection enforcement action through the end of this fiscal year (September 30, 2008) on these cases," said Shulman.

  By Hilary Goehausen, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  In its September 2008 issue of Tax News , the California Franchise Tax Board (FT discusses the use of offshore entities and financial arrangements to avoid corporation franchise and income and personal income tax obligations, noneconomic substance transaction understatement (NEST) penalties, adjusted interest rates for tax underpayments and overpayments, electronic payment options, and a new online service for lien payoff demand requests. In addition, the FTB announces that the California Tax Policy Conference is coming in November, and repeats previous announcements about free e-services workshops (TAXDAY, 2008/08/04, S.3), tax relief for wildfire victims (TAXDAY, 2008/07/25, S.4), its new same-sex married couples information page (TAXDAY, 2008/08/04, S.2), and its decision to postpone creation of a California Schedule M-3 (TAXDAY, 2008/08/26, S.2).

 

CCH (cch.taxgroup.com) reports:

  The IRS has announced transition relief for the effective date of Rev. Proc. 2008-52, I.R.B. 2008-36 (TAXDAY, 2008/08/19, I.3). The IRS updated the automatic change in accounting method procedures in Rev. Proc. 2008-52, incorporating Rev. Proc. 2002-9, 2002-1 CB 327 and subsequent guidance. Rev. Proc. 2008-52 describes the procedures taxpayers may use to obtain automatic consent for a change in method of accounting for more than 30 areas, including new areas. Its immediate effective date is August 18.

Transition Relief

  Under the transition relief, taxpayers may generally elect to apply the automatic change in accounting method procedures of
Rev. Proc. 2002-9 through September 15, 2008. If, prior to August 18, 2008, a taxpayer has not filed an application requesting consent to change a particular method of accounting for its first tax year ending on or before July 31, 2008, the taxpayer may elect to apply the provisions of Rev. Proc. 2002-9 with respect to the method of accounting for the tax year. However, the IRS expressly excluded certain changes from a hybrid method from the transitional relief.

Practitioner Concerns

  On August 29, the American Institute of Certified Public Accountants (AICPA) warned that the immediate effective date of Rev. Proc. 2008-52 would cause hardship for practitioners and their clients. According to the AICPA, many practitioners are bracing for October 15 filing deadlines. Additionally, the AICPA expressed concern that some practitioners may not be aware of the immediate effective date of Rev. Proc. 2008-52

Announcement 2008-84, 2008FED ¶46,556

AICPA Comments on Rev. Proc. 2008-52

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 Sec. 601.20

  CCH Reference - 2008FED ¶43,384.10

 
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 ¶43,384.45

  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 on business-related provisions of the Economic Stimulus Act of 2008 (P.L. 110-185) (Stimulus Act) that: (1) amended Code Sec. 179 by increasing the dollar limitations that apply to taxpayers who elect to expense certain depreciable assets under that section for tax years beginning in 2008 (Act sec. 102 of the Stimulus Act); and (2) allowed a 50-percent additional first year depreciation for certain new property acquired and placed in service during 2008 (Act sec. 103). The guidance provides clarification in several areas, as described below.

Partnerships and S Corporations

  For tax years beginning in 2008, the Code Sec. 179(b)(1) limitation under the Stimulus Act is $250,000. For tax years beginning in 2009, the limitation will be $125,000 as adjusted for annual inflation ("2009 Code Sec. 179(b)(1) dollar limitation.") A passthrough entity (a partnership or an S corporation) with a tax year beginning in 2007 and ending in 2008 is subject to the $125,000 limitation for property placed in service by the passthrough entity during that tax year. A passthrough entity with a tax year beginning in 2008 and ending in 2009 is subject to the $250,000 limitation for property placed in service by the passthrough entity during that tax year.

  Pursuant to Reg. §1.179-2(b)(3)(iv), and as clarified by the new guidance, a partner or an S corporation shareholder that is a calendar-year taxpayer is subject to the $250,000 limitation for property placed in service by the partner or shareholder during 2008, and its allocable share of the Code Sec. 179 deduction from any partnership or S corporation with a tax year ending in 2008. A similar rule for 2009 applies with respect to the 2009 Code Sec. 179(b)(1) dollar limitation. An example is provided to illustrate these rules.

30-Percent Additional First Year Depreciation

  Prior to the enactment of the Stimulus Act, Code Sec. 168(k)(1) provided a 30-percent additional first year depreciation deduction for qualified property acquired after September 10, 2001, and before January 1, 2005. Act sec. 103 of the Stimulus Act amended that provision to allow a taxpayer to claim the Stimulus additional first year depreciation deduction for certain new property acquired after 2007 and placed in service before 2009 (before 2010 for property described in Code Sec. 168(k)(2)( (property having longer production periods) or Code Sec. 168(k)(2)(C) (certain aircraft)). The Stimulus Act also raises the additional first year deprecation deduction from 30 percent to 50 percent.

  With the exception of the increased amount and the revised dates, the same operative rules that applied to the expired additional first year depreciation under Code Sec. 168(k)(1) apply to the Stimulus additional first year depreciation. However, the new guidance provides that, in applying Reg. §1.168(k)-1(d)(1)(i), the computation of the allowable Stimulus additional first year depreciation deduction is made in accordance with the rules for 50-percent bonus depreciation property. The guidance also clarifies the nonrefundable deposit requirement under Code Sec. 168(k)(2)(C)(iii) with respect to aircraft described in Code Sec. 168(k)(2)(C).

Interaction of Stimulus Act with GO Zone and Kansas Disaster Area Incentives

 
Code Sec. 1400N(d) provides a 50-percent additional first year depreciation deduction (GO Zone additional first year depreciation deduction) for qualified Gulf Opportunity Zone property placed in service on or before December 31, 2007 (December 31, 2008, for nonresidential real property and residential rental property (GO Zone property). The placed-in-service date is extended to December 31, 2010, for any specified GO Zone extension property. GO Zone extension property does not include any property to whichCode Sec. 168(k) applies.

  Act section 15345 of the Food, Conservation, and Energy Act of 2008 (P.L. 110-246) (Farm Bill) provides a 50-percent additional first year depreciation deduction for certain property substantially used in the Kansas disaster area. The increased Code Sec. 179 amounts provided for
Code Sec. 179 GO Zone property is also extended to certain property substantially used in the Kansas disaster area.

  The new guidance clarifies:

  --how the Stimulus Code Sec. 179 deduction interacts with the increased Code Sec. 179 amounts (a) provided under Code Sec. 1400N(e) for certain GO Zone property placed in service during 2008, and (b) applicable to the Kansas disaster area; and

  --how the Stimulus additional first year depreciation deduction interacts with (a) GO Zone first year additional depreciation deduction for GO Zone property, including GO Zone extension property, placed in service during 2008, and (b) the 50-percent additional first year depreciation deduction applicable to the Kansas disaster area.

Making Code Sec. 179 Elections by Amended Returns

  The guidance clarifies that, for any tax year beginning after 2007, and before the last year provided in Code Sec. 179(c)(2) for revoking a Code Sec. 179 election by a taxpayer with respect to any property, the taxpayer will be allowed to make a
Code Sec. 179 election on an amended federal tax return for that tax year, without the consent of the IRS. Currently, the last year provided in Code Sec. 179(c)(2) is 2011. Treasury and the IRS intend to amend Reg. §1.179-5(c) to incorporate this rule.

  Section 3.20 of Rev. Proc. 2007-66, I.R.B. 2007-45, 970, is modified and superseded. Section 4.01(4)(b) of
Notice 2007-36, I.R.B. 2007-17, 1000, is clarified, modified, and amplified.

Rev. Proc. 2008-54, 2008FED ¶46,554

Other References:

 
Code Sec. 168

  CCH Reference - 2008FED ¶11,279.058

 
Code Sec. 179

  CCH Reference - 2008FED ¶12,126.001

  CCH Reference - 2008FED ¶12,126.03

  CCH Reference - 2008FED ¶12,126.031

  CCH Reference - 2008FED ¶12,126.07

  CCH Reference - 2008FED ¶12,126.54

 
Code Sec. 1400N

  CCH Reference - 2008FED ¶32,487.001

  CCH Reference - 2008FED ¶32,487.054

  Tax Research Consultant

  CCH Reference - TRC DEPR: 3,600

  CCH Reference - TRC DEPR: 3,650

  CCH Reference - TRC DEPR: 12,104

  CCH Reference - TRC DEPR: 12,112

Tax Analysts report:

Tax Analysts report: