Tax News

CCH (cch.taxgroup.com) reports:

  While the tax provisions of the recently enacted Emergency Economic Stabilization Act of 2008 (HR 1424) may have taken most of the spotlight during the week of September 29, the IRS and Treasury continued releasing guidance on other important tax issues. These topics included the financial markets, exempt organizations compliance, nonqualified deferred compensation and disaster relief.

  Financial Markets. The Treasury is making market-related guidance a priority in light of the present financial crisis. Newly released guidance toward that effort covered several areas:

  Banks and Code Sec. 382(h). For purposes of Code Sec. 382(h), the IRS has assured financial institutions that any deduction properly allowed after an ownership change of a banking corporation with respect to losses on loans or bad debts, or reasonable additions to its bad debt reserve, shall not be treated as a built-in loss or a deduction attributable to periods before the change date (Notice 2008-83).

  Government ownership and Code Sec. 382. The Treasury and the IRS have also announced that they will issue regulations providing that the closing date on 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 Code Sec. 382 (Notice 2008-84).

  Bankruptcy default and Code Sec. 1058(a). The IRS has also provided guidance regarding the application of
Code Sec. 1058(a) to situations involving securities loan agreements where the borrower subsequently defaults as a result of its bankruptcy and the lender uses collateral provided pursuant to the agreement to purchase identical securities (Rev. Proc. 2008-63). Subject to several conditions, the purchase of the identical securities will not result in the loss of tax-free treatment under Code Sec. 1058(a) for the lender.

  Bail-out contributions and Code Sec. 382. The IRS announced it would issue regulations under Code Sec. 382(l)(1), to provide that a capital contribution is not part of a plan to purchase a corporation with net operating loss (NOL) carryforwards and use those carryforwards to offset the purchaser's other income solely because it was made within the two year period before the change of ownership (Notice 2008-78).

  Exempt Organizations Compliance. The IRS is sending compliance questionnaires focused on unrelated business income, endowments, and executive compensation practices to approximately 400 U.S. colleges and universities (IR-2008-112). The questionnaires are part of the IRS's effort to study the tax-exempt community.

  Ronald Schultz, IRS senior technical advisor, Tax Exempt and Government Entities Division (TE/GE), warned tax-exempt organizations and their advisors on October 1 that major changes to compensation reporting in the new 2008 Form 990 require answers to a whole new set of questions, as well as a fresh understanding of how to translate those answers into compliance.

  The IRS has issued guidance amending and supplementing
Notice 2008-41, I.R.B. 2008-15, 742, regarding reissuance standards for tax-exempt bonds (Notice 2008-88). The guidance expands the circumstances and time periods during which a state or local government may repurchase bonds it issued without resulting in a reissuance or retirement of such bonds under relevant tax code provisions.

  Nonqualified Deferred Compensation 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
Code Sec. 409A nonqualified deferred compensation plan, the agency has announced that it may issue rulings on the application of certain other tax provisions to participating taxpayers (Rev. Proc. 2008-61).

  Mortality Tables The IRS has updated the static mortality tables to be used under Code Secs. 417 and 430 for purposes of calculating the funding target and other items for valuation for defined benefit plans (Notice 2008-85).

  The IRS has provided guidance on the requirements of defined benefit plan sponsors wishing to use substitute mortality tables in determining the plan's minimum funding requirements, as allowed under Code Sec. 430(h)(3)(C) (Rev. Proc. 2008-62). This is an update of Rev. Proc. 2007-37, I.R.B. 2007-25, 1433, which was based on proposed regulations.

  Disaster relief. The IRS recently 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 (Notice 2008-86). 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.

  Korb Departing. IRS Chief Counsel Donald L. Korb has announced his intention to leave his current position, effective January 19, 2009. Korb stated on October 2 that he was announcing his resignation at this time to give notice to "those many qualified individuals" who may wish to apply for the position as his successor. Korb will have served in the position of IRS Chief Counsel for four years and nine months at the time of his departure.

  By Torie Cole, CCH News Staff