Tax News

CCH (cch.taxgroup.com) reports:

  A multistate corporation correctly apportioned interest expense deductions on its 1993 and 1994 Alabama corporate income tax returns using the gross income ratio formula. The specific language of the statute setting forth the gross income ratio formula for out-of-state corporations was valid and in effect for the tax years at issue and prevailed over the more general language of the regulations, which directed an out-of-state corporation to apportion its deductions to Alabama using the standard three-factor formula. The provisions of a statute will prevail in any case of a conflict between a statute and an agency regulation, and the Department of Revenue is not authorized to subvert a statute.

Alabama Department of Revenue v. Jim Beam Brands Co., Inc., Alabama Court of Civil Appeals, No. 2070768, December 19, 2008, ¶201-352

  Other References:

  Explanations at ¶11-520

CCH (cch.taxgroup.com) reports:

  An individual was not entitled to an alimony deduction for amounts paid to his ex-spouse pursuant to a divorce decree because he owed child support for the same period for which the deduction was claimed. Under
Code Sec. 71, the individual's payments had to be allocated to child support and related obligations before any amount could be allocated to alimony. Since the taxpayer's total payments for the tax year at issue were less than the amount he owed for child support, child support arrears and medical reimbursement no portion of the amount paid could be allocated to alimony.

G.H. Haubrich, TC Memo. 2008-299, Dec. 57,636(M)

Other References:

 
Code Sec. 71

  CCH Reference - 2008FED ¶6094.027

  CCH Reference - 2008FED ¶6094.15

 
Code Sec. 215

  Tax Research Consultant

  CCH Reference - TRC INDIV: 21,450

 

CCH (cch.taxgroup.com) reports:

  A corporation's cross-chain sales of stock in its subsidiaries to brother-sister corporations within the affiliated group qualified as redemptions in complete termination of the corporation's interest in the subsidiaries and were properly taxed as distributions in exchange for stock, rather than as dividends. In an opinion supplementing
Merrill Lynch & Co., Inc. & Subs. (Dec. 55,017, 120 TC 12, affirmed in part and remanded from the U.S. Court of Appeals for the Second Circuit (2005-1 USTC ¶50,243, 386 F3d 464), the Tax Court determined that, since the corporation owned all of the subsidiaries's stock prior to the cross-chain sales, only its ownership interest in the subsidiaries had to be considered when applying the Code Sec. 302(b)(3) test for complete termination. The continuing constructive ownership interest of the affiliated group's parent in the subsidiaries through its ownership of the acquiring brother-sister corporations did not have to be considered in determining whether there had been a complete termination. Under Code Sec. 304(a), only the ownership interest of the person who actually receives property in exchange for the stock is considered, not that of a person who indirectly or constructively holds stock but neither transferred the stock nor received the proceeds of the stock sale.

  Supplementing Tax Court decision Dec. 55,017, 120 TC 12, affirmed in part and remanded CA-2, 2005-1 USTC ¶50,243, 386 F3d 464.

Merrill Lynch & Co., Inc. & Subsidiaries, 131 TC No. 19, Dec. 57,635

Other References:

 
Code Sec. 301

  CCH Reference - 2008FED ¶15,305.10

 
Code Sec. 302

  CCH Reference - 2008FED ¶15,330.1394

  CCH Reference - 2008FED ¶15,330.1628

 
Code Sec. 304

  CCH Reference - 2008FED ¶15,378.22

 
Code Sec. 318

  CCH Reference - 2008FED ¶15,906.42

  Tax Research Consultant

  CCH Reference - TRC CCORP: 21,202

  CCH Reference - TRC CCORP: 24,058

  CCH Reference - TRC CCORP: 24,202.05

 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  President-elect Barack Obama intends to move forward immediately on a middle-income tax cut once he takes office on January 20 but he has not decided whether to propose a repeal of the 2001 and 2003 tax cuts benefiting upper income taxpayers or simply let them expire, according to Obama's chief strategist David Axelrod. Continuing tax cuts for the wealthiest taxpayers is "something that we plainly can't afford moving forward." Axelrod noted in an interview on NBC News' "Meet the Press" on December 28.

  Axelrod noted that the upcoming economic recovery package will include a portion of the middle-income tax cut and that it will be made permanent in Obama's upcoming budget plan. The economic recovery package to be considered by Congress in early January could cost between $675 billion to $775 billion, Axelrod estimated in an interview on CBS News' "Face the Nation" on December 28.

  Obama repeatedly has called for bold action on a large stimulus package. National Economic Council Director-designate Larry Summers is among Obama's top economic advisors who maintain that a stimulus package must be large to have a positive effect on the U.S. economy and to avoid a double-digit unemployment rate. "We want to do it in a way that leaves a lasting footprint, by investing in energy and health care projects" and by repairing schools and transportation infrastructure, Axelrod said. The Obama administration's employment goal is to create three million jobs or save three million in an effort to turn around the U.S. economy, Axelrod said.

  By Paula Cruickshank, CCH News Staff

 

CCH (cch.taxgroup.com) reports:

  The IRS has identified a transaction wherein a U.S. taxpayer owns a controlled foreign corporation (CFC) that holds stock of a lower tier CFC through a domestic partnership that takes a position that subpart F income of a lower tier CFC does not result in income inclusion as another type of transaction that has potential for tax avoidance or evasion for purposes of Reg. §1.6011-4(b)(6) and Code Secs. 6111 and 6112. The U.S. taxpayer takes the position that the subpart F income of a lower tier CFC was already included in the domestic partnership's income, which is not subject to U.S. tax and, thus, should not be included in the income of the U.S. taxpayer. Without the interposition of the domestic partnership, the subpart F income of the lower tier CFC would be taxable to the U.S. taxpayer.

  The IRS is concerned that taxpayers are taking the position that the structures describedresult in no income inclusion under Code Sec. 951. Therefore, the IRS has identified these structures and other substantially similar transactions as transactions of interest that are contrary to the purpose and intent of the provisions of subpart F.

  Persons who entered into these transactions on or after November 2, 2006, must disclose the transactions. Material advisors who make tax statements on or after November 2, 2006, must comply with disclosure and list maintenance obligation. Otherwise, penalties under Code Sec. 6707(a), 6707A or 6708(a) and accuracy-related penalties will be imposed.

Notice 2009-7,
2009FED ¶46,215

Other References:

 
Code Sec. 951

  CCH Reference - 2008FED ¶28,474.021

 
Code Sec. 6011

  CCH Reference - 2008FED ¶35,141.06

  CCH Reference - 2008FED ¶35,141.78

 
Code Sec. 6111

  CCH Reference - 2008FED ¶37,002.156

 
Code Sec. 6112

  CCH Reference - 2008FED ¶37,022.157

  Tax Research Consultant

  CCH Reference - TRC FILEBUS: 9,450.10
CCH Reference - TRC FILEBUS: 9,454.05
 

CCH (cch.taxgroup.com) reports:

  The IRS has released a fact sheet highlighting recent tax law changes made by the Heartland Disaster Tax Relief Act of 2008, which is part of the Emergency Economic Stabilization Act of 2008 (P.L. 110-343).
P.L. 110-343 provides certain tax breaks to victims of the severe storms, flooding and tornadoes that occurred in Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Missouri, Minnesota, Nebraska and Wisconsin (the Midwestern disaster area) where the government declared a disaster during the period beginning May 20, 2008, and ending July 31, 2008.

  The law changes are intended to help individuals who suffered losses as a result of the Midwestern disasters and make it easier for individuals and businesses to engage in charity to benefit those affected by the severe storms, flooding and tornadoes. Taxpayers located in the counties listed in Table 1 are generally eligible for all portions of the relief, while taxpayers located in the counties listed in Table 2 are eligible only for certain of the special tax provisions. The IRS will provide an explanation of the recently enacted legislation in Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas, which will be available in January 2009.

  Generally, for individuals affected by the Midwestern disasters, P.L. 110-343 eliminates the limitations on claiming casualty or theft losses of personal-use property and permits certain earned income tax credit and refundable child tax credit recipients to choose either tax year 2008 or 2007 to determine their earned income and use the more beneficial result. P.L. 110-343 also expands the Hope and Lifetime Learning educational credits to provide assistance to students enrolled and paying tuition at eligible educational institutions located in the Midwestern disaster area.

  In addition, the new law allows certain taxpayers who provided housing to individuals displaced by the Midwestern disasters to claim an additional $500 exemption, and provides tax-favored treatment for early distributions and loans from retirement accounts. P.L. 110-343 further allows affected individuals to exclude from income certain cancellations of debt and extends, from two years to five years, the replacement period for converted properties. Finally, the new law suspends the limits on certain charitable contributions, increases the standard mileage rate for charitable use of vehicles and excludes from gross income mileage reimbursements to charitable volunteers.

FS-2008-27,
2009FED ¶46,214

Other References:

 
Code Sec. 24

  CCH Reference - 2008FED ¶3770.35

 
Code Sec. 25A

  CCH Reference - 2008FED ¶3830.20

 
Code Sec. 32

  CCH Reference - 2008FED ¶4082.11

 
Code Sec. 108

  CCH Reference - 2008FED ¶7010.25

 
Code Sec. 151

  CCH Reference - 2008FED ¶8005.01

 
Code Sec. 165

  CCH Reference - 2008FED ¶10,005.041

  CCH Reference - 2008FED ¶10,101.023

 
Code Sec. 170

  CCH Reference - 2008FED ¶11,670.01

  CCH Reference - 2008FED ¶11,680.01

 
Code Sec. 408

  CCH Reference - 2008FED ¶18,922.0325

  Tax Research Consultant

  CCH Reference - TRC INDIV: 51,250
CCH Reference - TRC INDIV: 54,200
CCH Reference - TRC INDIV: 57,058
CCH Reference - TRC INDIV: 57,262
CCH Reference - TRC FILEIND: 6,050
CCH Reference - TRC RETIRE: 66,450

 

CCH (cch.taxgroup.com) reports:

  The IRS has issued procedures for eligible small employers to elect out of filing Form 944, Employers ANNUAL Federal Tax Return, but instead to continue to file Form 941, Employer's QUARTERLY Federal Tax Return. Guidance is also provided on how employers can contact the IRS to receive notification of their eligibility for Form 944. The guidance is effective as of January 1, 2009.

Form 944

  Generally, employers are required to file returns quarterly on Form 941 to report income and employment taxes withheld from employee wages. Certain exceptions to the reporting requirement exist for agricultural employers and for wages paid for domestic service. To alleviate the reporting burden on eligible small employers, the IRS issued rules in 2006 that permit eligible employers to file annual employment tax returns on Form 944, rather than quarterly returns. Revised temporary and proposed regulations relating to Form 944 were released by the IRS on December 29, 2008 (T.D. 9440;
NPRM REG-148568-04; TAXDAY, 2008/12/29, I.8). Under the regulations, an employer is eligible for file Form 944 beginning in 2009 if its estimated annual tax liability is $1,000 or less. Once notified, the employer is required to file Form 944 for the tax year. However, temporary regulations permit an employer to elect out of filing Form 944 after notification from the IRS and to continue to file Form 941 quarterly.

Election Out

  Effective for tax year 2009, an employer is eligible to opt out of filing Form 944 if it timely notifies the IRS that it either: (1) anticipates that its employment tax liability for the year will be more than $1,000; or (2) it wants to file electronically quarterly Form 941 for the year. An employer who satisfies one of these conditions must notify the IRS by either calling or writing the IRS before an applicable due date. In the case of an employer who filed a Form 941 or Form 944 for a tax year prior to 2009, a call to opt-out of filing Form 944 must be made on or before April 1, 2009. A written notification by such an employer must be postmarked on or before March 15, 2009.

  In the case of a new employer or an employer who was not previously required to file Form 941 or Form 944 prior to 2009, a telephone call to the IRS to elect out of filing Form 944 for the 2009 tax year must be made before the first day of the month that its first required Form 941 is due (i.e., April 1, July 1, October 1, 2009, or January 1, 2010). A written notification by a new employer must be postmarked on or before the 15th day of the month before its first required Form 941 would be due (i.e., March 15, June 15, September 15, or December 15, 2009).

Requests for Notification

  Beginning in 2009, the IRS will send notification of eligibility to file Form 944 only upon request by a qualified employer. The employer may request to receive the notification by calling the IRS at the telephone numbers identified in procedure. An employer who previously received notification of qualification to file Form 944 must continue to file Form 944 unless an election out is filed.

Rev. Proc. 2009-13, 2009FED ¶46,213

Other References:

 
Code Sec. 6011

  CCH Reference - 2008FED ¶35,141.51

 
Code Sec. 6302

  CCH Reference - 2008FED ¶38,070.115

  Tax Research Consultant

  CCH Reference - TRC PAYROLL: 3,352.05

  CCH Reference - TRC PAYROLL: 3,352.15

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Individual partners of a Missouri limited liability limited partnership that derives substantially all of its income through its ownership interest in a limited partnership will be allowed to claim the Missouri personal income tax credit for tax paid to another state for their proportionate shares of the Texas margin tax (TMT) and Michigan business tax (MBT) paid directly by the limited partnership.

  The Missouri Supreme Court has previously applied two tests, the "based on" test and the "object" test, to determine whether another state's tax is an income tax for which Missouri residents can take the credit for tax paid to another state. The "based on" test analyzes whether the tax was based on federal taxable income. The "object" test analyzes whether the object of the tax is that of an income tax, to compensate the state for benefits received, or that of a franchise tax, to pay for the privilege of doing business in the state.

 

CCH (cch.taxgroup.com) reports:

  Sixty-one members of Congress are displeased with the Treasury Department's recent decision not to provide relief from required minimum distributions from IRAs and similar arrangements for 2008 (TAXDAY, 2008/12/22, T.1). The bipartisan group of lawmakers asked President Bush to use his executive authority to suspend RMDs for 2008 and, moreover, to allow individuals to recontribute RMDs already taken for 2008.

Lower Account Balances

  Generally, RMDs are calculated by dividing the prior December 31 balance of the IRA or retirement plan account by a life expectancy factor provided by the IRS. RMDs for 2008 are based on account balances as of December 31, 2007, which were typically higher than today's account balances because of the steep decline in the stock market during 2008. Some individuals have near-worthless investments, Cindy Hockenberry, EA, tax analyst, National Association of Tax Professionals (NATP), told CCH.

  Several bills were introduced in Congress in recent weeks to suspend RMDs for 2008 and beyond. One proposal would have suspended RMDS for 2008, 2009 and 2010. Ultimately, Congress voted to suspend RMDs only for 2009 as part of the Worker, Retiree and Employer Recovery Act of 2008 (P.L. 110-458), which President Bush signed into law on December 23.

No Relief for 2008

  On December 17, a senior Treasury official revealed that the government would not suspend RMDs for 2008. "Because Congress has provided broad and direct relief [for 2009]...the Treasury and the IRS have determined that any further change to the RMD rules should not be undertaken," Kevin I. Fromer, Treasury assistant secretary for legislative affairs, told House Education and Labor Committee Chairman George Miller, D-Calif.

Executive Action

  "We respectfully request that you use your executive authority to direct the Secretary of the Treasury to use the flexibility provided by statute to immediately waive the (RMD) rules for the 2008 tax year," the lawmakers wrote to President Bush on December 19. According to the lawmakers, the Treasury Department and the IRS could act without legislation.

  "Furthermore, we ask that you use the same authority to allow retirees who have already withdrawn in 2008 to make recontributions to their accounts," the lawmakers wrote. Recontribution would help individuals who have already taken 2008 RMDs.

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

Lawmakers' RMD Letter to President Bush
 

CCH (cch.taxgroup.com) reports:

  The IRS announced on December 24 that it has released the final versions of the 2008 Form 990, Return of Organization Exempt From Income Tax, Form 990-EZ, Short Form Return, schedules and instructions. The release is the culmination of a redesign project that began in June 2007, when the IRS first issued a draft of the redesigned form.

  The redesigned Form 990 must be filed in 2009 for the 2008 tax year. Form 990-EZ generally was not changed, although schedules from the Form 990 redesign must be used with the Form 990-EZ. Form 990 must be filed by May 15 for a calendar year taxpayer. An automatic three-month extension is available, and another three-month extension may be requested.

  Form 990 must be filed by all tax-exempt organizations that exceed the filing threshold for Form 990-EZ. For 2008, the thresholds for using Form 990-EZ are gross receipts under $1 million and total assets under $2.5 million. The IRS has reported that it receives 500,000 Form 990 and Form 990-EZ returns, and has identified approximately 1.3 million public charities and noncharitable exempt organizations.

  Form 990 had not been substantially redesigned in 30 years. The new form has an 11-page, 11-part core form that must be completed by all organizations, and 16 schedules to be filed by organizations satisfying the schedule's requirements. The revised instructions are 75 pages long.

  The IRS website (www.irs.gov) for charities and nonprofit organizations has copies of the forms and instructions plus online courses, interactive workshops, frequently asked questions and background papers describing the redesigned form. The revised instructions also explain the features of the new form and instructions.

By Brant Goldwyn, CCH News Staff

 

CCH (cch.taxgroup.com) reports:

  The IRS has issued temporary and proposed regulations relating to the federal employment tax return filing requirements under
Code Sec. 6011 and to the employment tax deposit requirements under Code Sec. 6302. These temporary regulations amend the current regulations issued under Code Secs. 6011 and 6302 and are part of the IRS's effort to reduce taxpayer burden by permitting certain employers to file one return annually to report their employment tax liabilities instead of four quarterly returns. The temporary regulations affect taxpayers that file Form 941, "Employer's QUARTERLY Federal Tax Return," Form 944, "Employer's ANNUAL Federal Tax Return," and any related Spanish-language returns or returns for U.S. possessions.

Form 944 Program

  The temporary regulations allow certain employers to file an annual employment tax return, Form 944, to report their social security, Medicare, and withheld Federal income taxes rather than the quarterly Form 941. For these employers, Form 944 will replace Form 941, reducing the number of returns they are required to file each year. Most participating employers can also pay their employment taxes annually with their Form 944, rather than making monthly or bi-weekly deposits. Generally, Form 944 is due January 31 of the year following the year for which the return is filed. If the employer timely deposits all accumulated employment taxes on or before this due date, the employer will have 10 extra calendar days to file Form 944 pursuant to Reg. §31.6071(a)-1.

  Caution: Although some agricultural and domestic employers may also file annual employment tax returns, Form 944 does not replace Form 943, Employer's Annual Tax Return for Agricultural Employees, or the Form 1040 Schedule H, Household Employment Taxes. However, if an employer files Form 944, the employer may choose to report wages with respect to household employees on Form 944, instead of reporting such wages on Schedule H (Form 1040).

  Eligibility for the Form 944 Program is generally limited to employers with an annual estimated employment tax liability of $1,000 or less. The IRS will notify employers it believes are eligible; however, the temporary regulations provide that the Form 944 program is voluntary. The IRS will issue guidance informing employers how they can contact the IRS to participate in the Form 944 Program and how they can elect out if they later decide that they want to file Forms 941 instead of Form 944. Because the program is being made voluntary, beginning in tax year 2010, employers will be able to opt out for any reason if they follow procedures to be provided in future guidance.

  The temporary regulations also clarify that, for most employers, the look back period for determining deposit frequency is the 12 month period ending on the preceding June 30. For employers in the Form 944 Program, however, the look back period is the second calendar year preceding the current calendar year. For instance, the look back period for 2009 is calendar year 2007.

Deposit Rule Safe Harbor

  These temporary regulations also incorporate the safe harbor for employers who file Forms 941 that was included in the 2006 proposed regulations. The safe harbor helps small employers who file Form 941 and have an unexpected increase in their deposit liability for a quarterly return period. The temporary regulations also provide an alternate method for determining whether the taxpayer's employment tax obligations are de minimis , which is based on the employment taxes due for the prior return period. This special rule does not apply to employers who file Form 944.

  Also employers may pay their employment taxes when they timely file their quarterly returns if the taxes due for the current quarter or for the prior quarter is less than $2,500. Modifying the de minimis deposit rule to allow employers to base the determination on the employment taxes due for the immediately preceding quarter provides a safe harbor for employers regarding their deposit obligations. However, these regulations have no application to the One-Day rule, which requires employers to make a deposit on the next banking day if they accumulate $100,000 or more of employment taxes on any day during a deposit period. Due to the programming changes necessary to implement this safe harbor, the safe harbor will be available for deposit periods beginning on or after January 1, 2010.

Comments Requested

  The text of the temporary regulations also serves as the text for the proposed regulations. The IRS requests comments on the substance of the proposed regulations. Written or electronic comments must be received by March 30, 2009. Submissions should be sent to: CCA:LPDR (REG-148568-04), Room 5203, IRS, P.O. Box 7604, Ben Franklin Station, Washington, DC, 20044. Submissions may also be hand-delivered Monday through Friday between the hours of 8:00 a.m. and 4:00 p.m. to: CCA:LPDR (REG-148568-04), Courier's Desk, IRS, 1111 Constitution Avenue NW., Washington, DC, or sent electronically via the Federal eRulemaking Portal at www.regulations.gov (referencing IRS-REG-148568-04).

T.D. 9440, 2009FED ¶47,009

Proposed Regulations, NPRM REG-148568-04, 2009FED ¶49,410

Other References:

 
Code Sec. 6011

  CCH Reference - 2008FED ¶35,130B

  CCH Reference - 2008FED ¶35,130BA

  CCH Reference - 2008FED ¶35,131

  CCH Reference - 2008FED ¶35,131C

 
Code Sec. 6302

  CCH Reference - 2008FED ¶38,055A

  CCH Reference - 2008FED ¶38,055AB

  CCH Reference - 2008FED ¶38,055B

  CCH Reference - 2008FED ¶38,055BB

  Tax Research Consultant

  CCH Reference - TRC PAYROLL: 3,352.05

  CCH Reference - TRC PAYROLL: 3,352.15

 

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Legislation has been enacted that amends New Jersey sales and use tax laws to conform with various changes to the Streamlined Sales and Use Tax (SST) Agreement.

 

CCH (cch.taxgroup.com) reports:

  A taxpayer was denied a Code Sec. 213 medical expense deduction for in vitro fertilization (IVF) expenses incurred in fathering two children. The taxpayer was a fertile man who used IVF for non-medical reasons. He had no physical or mental condition that prevented him from procreating without the use of IVF technologies. The expenses were not, therefore, incurred for the treatment of a medical condition or for the purpose of affecting any structure or function of the body. Under Code Sec. 262, they constituted non-deductible personal expenses.

W. Magdalin, TC Memo. 2008-293, Dec. 57,629(M)

Other References:

 
Code Sec. 213

  CCH Reference - 2008FED ¶12,543.42

 
Code Sec. 262

  CCH Reference - 2008FED ¶13,603.945

  Tax Research Consultant

  CCH Reference - TRC INDIV: 39,052
CCH Reference - TRC INDIV: 42,074.20
CCH Reference - TRC INDIV: 42,074.40
 

CCH (cch.taxgroup.com) reports:

  President Bush on December 23 signed the Worker Retiree and Employee Recovery Act of 2008 (HR 7327). The bill provides temporary relief to businesses from pension funding requirements under the Pension Protection Act of 2006 (P.L. 109-280). The Bush administration had raised concerns about delaying pension funding requirements on the premise that it would increase the cost of near-term claims on the Pension Benefit Guaranty Corporation, according to a White House spokesman. Despite concerns about the bill, White House Deputy Press Secretary Tony Fratto said the administration concluded that "the benefits of the legislation outweighed our objections," particularly given current economic conditions.

  The House and Senate on December 10 and December 11, respectively, approved the pension technical corrections bill by unanimous consent (TAXDAY, 2008/12/12, C.1). Passage of the measure came as House leadership dropped objectionable tax breaks advanced by Senate Democrats, forcing the Senate to approve a clean bill.

  Provisions in the bill change current law to provide tax relief for seniors age 70-1/2 or older who are required to take distributions from their retirement plans during the current market crisis. Another measure gives generally healthy multi-employer pension plans that were hurt by the decline in the stock market the ability to avoid drastic contribution increases and cutbacks in worker benefits.

  Additional provisions in the bill will allow single-employer pension plans to account for expected and unexpected earnings in addition to contributions and distributions when determining the value of the plan's assets. Those plans that fall below the set target funding percentage for a particular year will be required to fund up to the specified funding percentage for that year, instead of 100 percent. Other provisions in the bill were also included in the Pension Protection Technical Corrections Act of 2008 (HR 6382), originally passed by the Senate in December 2007, and the House in March and July of 2008.

  By Paula Cruickshank, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  As part of his job creation and economic development proposals for the upcoming 2009 legislative session, Colorado Gov. Bill Ritter, Jr. has proposed the creation of a new corporate and personal income tax credit program as an incentive for businesses to create jobs in Colorado. A company would be eligible for a tax credit of up to 50% of its annual FICA taxes on new employees under the Job Growth Incentive Program, if it applies to the Economic Development Commission and meets specific criteria.

  Subscribers to CCH Tax Research NetWork can view the governor's press release.

   
Press Release , Colorado Gov. Bill Ritter, Jr., December 18, 2008

 

CCH (cch.taxgroup.com) reports:

  The Tax Court has upheld the validity of Temporary Reg. §301.6221-1T(c) and (d), which provide that a partner may only assert a partner-level defense to a penalty, addition to tax or additional amount that relates to an adjustment to a partnership item at a partnership-level proceeding through a refund action following assessment and payment of the penalty. Accordingly, a limited partner was not allowed to raise a reasonable cause defense at partnership-level proceedings, even though the penalties imposed by the IRS were the result of the conduct of the limited partner.

  According to the Tax Court, when read in conjunction, Code Secs. 6221 and
6230(c)(1)(C) and (c)(4) make clear that Congress intended that a partner may only raise partner-level defenses in a refund action filed after the close of the partnership-level proceedings. The regulations, therefore, do not impermissibly strip the court of its jurisdiction. Rather, they implement the statutory jurisdictional scheme. Furthermore, the definition of partner-level defenses in Temporary Reg. §301.6221-1T(d) as those that are personal to the partner or are dependant upon the partner's separate return does not place an impermissible limit on the types of defenses that may be raised by a partner.

New Millennium Trading, L.L.C., Dec. 57,620

Other References:

 
Code Sec. 6221

  CCH Reference - 2008FED ¶37,569.12

  Tax Research Consultant

  CCH Reference - TRC PART: 60,060

 

CCH (cch.taxgroup.com) reports:

  The IRS's enforcement revenues declined by $2.8 billion in fiscal year (FY) 2008, statistics released on December 22 revealed. The IRS collected $56.4 billion from collection activities, audits and document matching, down almost 5 percent from FY 2007 revenue of $59.2 billion.

  Deputy Commissioner Linda Stiff attributed the drop to a number of factors. Enforcement personnel declined by 2.2 percent, to 20,722 agents and officers, because of retirements and a flat budget, she indicated. To administer the economic stimulus program, the IRS shifted enforcement personnel to taxpayer service to deliver 117 million checks and respond to a "crush" of phone calls. She noted that 2007 was a record year, because of closings of large corporate audits and heavy tax shelter activity, such as Son of BOSS settlements.

  According to Stiff, the IRS held steady on key service and enforcement results. Correspondence audits of individuals increased to 1.08 million and face-to-face audits remained at 310,000. Some other measures of enforcement activity declined; others stayed even or increased. Audits of individuals increased by 7,000 (one-half of 1 percent), based on the increase in correspondence audits, but audit coverage of individuals declined from 1.03 percent to 1.01 percent. Audits of individuals with income under $200,000 declined by 11,000, or 1 percent, but audits of individuals with income of $200,000 and higher increased over 15 percent.

  Business audits essentially held steady, but business filings increased by almost 460,000, primarily in the partnership and S corporation categories. Overall corporate audits increased slightly, to 30,000, and audit coverage of large corporations ($10 million or more in assets) was over 15 percent. However, audit coverage of partnerships and S corporations was less than one-half of 1 percent. Audits of tax-exempts increased by 4 percent, to almost 7,900, while filings increased to 890,000 returns.

  Stiff said there will be continued emphasis on high-income individuals and the largest corporations. Priorities for 2009 will also include international transactions and employment taxes. Audit coverage of smaller corporations (under $50 million in assets) is not likely to increase, she indicated.

  The IRS needs to be sensitive to taxpayers in distress situations and strike the right balance in the collection area, Stiff said. She noted that the IRS recently provided relief on lien discharges, to facilitate taxpayer housing sales, and has provided additional training to IRS employees on the exclusion of cancellation of debt income. The IRS increased lien filings 85,000, to 768,000, but levies of taxpayer property declined 30 percent, to 2.6 million. Seizures of taxpayer assets dropped 10 percent, from 676 to 610.

  In the taxpayer service area, the IRS statistics indicated that the electronic filing rate increased from 57 to 58 percent and web page visits to IRS.gov increased 65 percent, to 348 million. The level of accuracy for toll-free assistance remained at 91 percent, and customer satisfaction ratings held at 93 percent. However, the toll-free assistance level of service rating dropped to 53 percent.

  By Brant Goldwyn, CCH News Staff

 

CCH (cch.taxgroup.com) reports:

  The IRS is changing the lockbox payment addresses for individual taxpayers in five states and business taxpayers in 23 states. Individuals who live in Kentucky, Louisiana, Mississippi, Tennessee or Texas who sent payments to the Dallas lockbox facility should now send payments to the new Charlotte, N.C., lockbox addresses. Business taxpayers who sent payments to the Charlotte lockbox facility should now sent payments to the new Cincinnati, Ohio, lockbox addresses. This change affects business taxpayers in Connecticut, Delaware, Georgia, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, West Virginia and Wisconsin.

Changes to Lockbox Addresses Could Affect the Clients You Serve
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The sale of agricultural machinery capable of simultaneously harvesting grain and crops as well as biomass to a person engaged in a business enterprise is exempt from Michigan use tax. Machinery used to harvest biomass is also exempt. “Biomass” is crop residue used to produce energy or crops grown specifically for the production of energy.

Subscribers to CCH Tax Research NetWork can view the legislation.

Act 314 (H.B. 5877), Laws 2008, effective December 18, 2008
 
 

CCH (cch.taxgroup.com) reports:

  The IRS has published tables showing the amount of an individual's income that is exempt from a notice of levy used to collect delinquent tax in 2009. This information is the same as that found in Publication 1494, Table for Figuring Amount Exempt from Levy on Wages, Salary, and Other Income (Forms 668-W(c), 688-W(c)(DO) & 688-W(ICS)).

Notice 2008-114, 2009FED ¶46,207

Other References:

 
Code Sec. 6334

  CCH Reference - 2008FED ¶38,225.101

  Tax Research Consultant

  CCH Reference - TRC IRS: 51,060.05
CCH Reference - TRC IRS: 51,060.052

 

CCH (cch.taxgroup.com) reports:

  The IRS has issued proposed regulations under Code Sec. 6707 concerning the failure of material advisors to timely file a return or filing a return with false or incomplete information regarding reportable transactions under
Code Sec. 6111. The regulations are proposed to apply to a return the due date of which is after the date a final version of the regulations is published in the Federal Register.

Disclosure Requirement

  Under Code Sec. 6111, each material advisor is required to timely file an information return with respect to a reportable transaction (including a listed transaction). A material advisor is any person who provides any material aid, assistance, or advice with respect to the reportable transaction, as well as any individual who receives (directly or indirectly) a certain threshold of gross income from the transaction. The threshold is $50,000 in the case of a reportable transaction with substantially all tax benefits provided to a natural person ($10,000 in the case of a listed transaction). The threshold is increased to $250,000 in any other case ($25,000 in the case of a listed transaction).

  Form 8918, Material Advisor Disclosure Statement, is used by the material advisor to make the disclosure. Generally, the return must be filed by the last day of the month that follows the end of the calendar quarter in which the person became a material advisor. To be considered complete, the information disclosed must meet the requirements of Reg. §301.6111-3. A penalty is imposed under Code Sec. 6707 on any material advisor who fails to timely file the return or files a false of incomplete return under Code Sec. 6111. The penalty with respect to any reportable transaction other than a listed transaction is $50,000. For a listed transaction, the penalty is the greater of $200,000 or 50 percent of the gross income derived by the material advisor with respect to the transaction before the return is filed. In the case of a failure or action with respect to a listed transaction that is intentional, the penalty is the greater of $200,000 or 75 percent of the gross income derived by the material advisor with respect to the transaction before the return is filed.

Liability for Penalty

  Under the newly issued proposed regulations, the penalty may be assessed against each material advisor required to file Form 8918. Thus, if more than one material advisor is responsible for filing a return with respect to the same reportable transaction, a separate penalty may be assessed under Code Sec. 6707 against each material advisor who fails to file the return timely or files the return with false or incomplete information. In addition, if a group of material advisors enter into an agreement designating one material advisor to file the required return on behalf of all parties to the agreement, then the penalty may still be imposed on each party to the agreement if the designated material advisor fails to timely file the return or files the return with false or incomplete information.

Intentional Failures

  In the case of listed transactions, material advisors are considered to have acted intentionally, subjecting them to an increased penalty, if they knew of the obligation to file a return under Code Sec. 6111, and knowingly did not timely file a return with the IRS or filed a return knowing that it was false or incomplete. Thus, in the case of a material advisor under designation agreement, a nondesignated material advisor of the agreement will not be considered to have intentionally failed to meet the requirements of
Code Sec. 6111 unless the nondesignated material advisor knew or should have known that the designated material advisor would fail to timely file a true and complete return.

  Moreover, to encourage material advisors to correct material defects, the proposed regulations provide that any failure to file a timely return or filing a return with false or incomplete information will be considered unintentional if the material advisor remedies the failure by filing a true and complete return with the IRS prior to the earlier of the date that: (1) any taxpayer files Form 8886 identifying the material advisor with respect to the reportable transaction in question; or (2) the IRS contacts the material advisor concerning the reportable transaction.

False or Incomplete Information

  A return is considered to contain false information if any information on the return is untrue or incorrect when Form 8918 is filed. Information will not be considered false if it contains untrue or incorrect information by mistake or accident after the exercise of reasonable care by the material advisor or the information is immaterial. Incomplete information on a return means that the return does not provide the information required under Reg. §301.6111-3. A return will not be considered incomplete when the required information not provided is immaterial or was not provided due to mistake or accident after the exercise of reasonable care.

  In addition, material advisors who complete Form 8918 to the best of their ability and knowledge after the exercise of reasonable efforts to obtain the information will not be considered to have filed an incomplete return. However, in the case of a listed transaction, a Form 8918 will be considered intentionally incomplete and subject to an increased penalty if information required to be provided under Reg. §301.6111-3 is omitted and the form contains a statement that the omitted information will be provided upon request.

Rescission of Penalty

  Finally, the proposed regulations restate the procedures described in Rev. Proc. 2007-21, I.R.B. 2007-9, 613, for a material advisor to request a rescission of all or a portion of a penalty assessed under Code Sec. 6707 including: the deadline by which a person must request rescission; the information the person must provide in the rescission request; the factors that weigh in favor of and against granting rescission; where the person must submit the rescission request; and the rules governing requests for additional information from the person requesting rescission.

  The regulations note that the factors that weigh in favor of or against rescission do not represent an exclusive list, and no single factor will be determinative. Rather, all factors will be considered whether included in the list or not. However, the IRS will not take into consideration doubt as to liability for, or collectibility of, the penalty. In addition, the extent to which the penalty assessed is disproportionately larger than the tax benefit received will not be considered. The gross income threshold to be considered a material advisor ensures that any penalty imposed will not be disproportionate to the benefit received.

Comments

  Written or electronic comments and requests for a public hearing regarding the proposed regulations must be received by March 23, 2009.

Proposed Regulations, NPRM REG-160872-04, 2009FED ¶49,409

Other References:

 
Code Sec. 6707

  CCH Reference - 2008FED ¶40,086E

  Tax Research Consultant

  CCH Reference - TRC PENALTY: 3,252
CCH Reference - TRC PENALTY: 3,254
 

CCH (cch.taxgroup.com) reports:

  Under proposed regulations issued by the IRS, for purposes of determining whether a conduit financing arrangement exists, the term "person" includes a business entity that is disregarded as an entity separate from its single-member owner. In general, the IRS is allowed to disregard the participation of one or more intermediate entities in a financing arrangement where an entity is acting as a conduit entity and recharacterize the financing arrangement as a transaction directly between the remaining parties to the financing arrangement for purposes of imposing tax under Code Secs. 871, 881, 1441 and 1442.

  Questions have arisen regarding the proper treatment of a disregarded entity, an entity that is not classified as a corporation, that has a single owner and that has elected to be disregarded as an entity separate from its owner, The proposed regulations would make it clear that transactions into which a disregarded entity enters will be taken into account for purposes of determining whether a financing arrangement exists.

Proposed Regulations, NPRM REG-113462-08, 2009FED ¶49,408

Other References:

 
Code Sec. 881

  CCH Reference - 2008FED ¶27,485C

  Tax Research Consultant

  CCH Reference - TRC SALES: 3,166
CCH Reference - TRC EXPAT: 15,112
CCH Reference -
TRC INTL: 3,120

 

CCH (cch.taxgroup.com) reports:

  The Treasury Department and the IRS will not suspend 2008 required minimum distributions (RMDs) from IRAs, Code Sec. 401(k) plans and similar arrangements, according to a December 17 letter from a senior Treasury official to Congress obtained by CCH. "Individuals who are subject to RMDs for 2008 should take their distribution under existing rules," Kevin I. Fromer, Treasury assistant secretary for legislative affairs, told House Education and Labor Committee Chairman George Miller, D-Calif.

  CCH Comment. At least certain members of Congress did not press for suspension of 2008 RMDs in the Worker, Retiree, and Employer Recovery Act of 2008 (P.L. 110-343) under the assumption that the Treasury and IRS would take care of 2008 RMDs administratively. The Act suspends RMDs for 2009 only. Now, the Treasury and IRS, after considering the matter, have decided that they must pass on giving any 2008 relief. Whether Congress can provide relief retroactively in the stimulus bill slated for January remains questionable. Likely, this will remain a developing story that will not end with the Treasury letter. CCH asked the Treasury to elaborate on the letter but did not receive a response by press time.

Distributions

  Individuals must receive the entire balance of their IRA or similar arrangement or start receiving periodic distributions from it by April 1 of the year following the year in which they reach age 70-1/2. Individuals who turned 70-1/2 in 2008 have until April 1, 2009 to take their 2008 distribution. However, individuals who reached age 70-1/2 before 2008 must take their distributions by December 31, 2008. Individuals who fail to take a RMD risk a 50-percent excise tax.

  "2008 RMDs are based on plan balances from December 31, 2007, and the stock market has seen major declines in October and November of 2008," B. Janell Grenier, Law Office of B. Janell Grenier, West Chester, Pa., told CCH. "This may require seniors (if they have not already done so) to liquidate their assets in order to make the RMDs and take losses whereas holding on to those assets might bring recovery."

Administrative Relief

  After Congress suspended RMDs for 2009, many practitioners and taxpayers expected the Treasury and the IRS to provide some type of relief for 2008 RMDs. Administrative relief would not necessarily have to be suspension of RMDs for 2008, Edgar Adkins, partner, Grant Thornton, LLP, Washington, D.C., told CCH. "The Treasury and the IRS could have allowed taxpayers to use a date closer to today (rather than December 31, 2007) on which to calculate their distributions." This would result in a smaller RMD for many individuals.

Not for 2008

  Now, it appears that no relief of any kind for 2008 RMDs is forthcoming from the Treasury and the IRS. "Because Congress has provided broad and direct relief [for 2009]...the Treasury and the IRS have determined that any further change to the RMD rules should not be undertaken," Fromer wrote. He explained that any steps the Treasury could take would be substantially more limited than the relief enacted by Congress and could not be made available uniformly to all individuals subject to RMDs. "Such changes would be complicated and confusing for individuals and plan sponsors."

  "We are disappointed that the Treasury declined to act to help those seniors forced to take withdrawals from their depleted retirement accounts," Aaron Albright, a spokesperson for the House Education and Labor Committee, told CCH. "Congress acted to provide relief for seniors in 2009 with the understanding that the Treasury was actively working on a solution for this tax year."

Looking Ahead

  "Some people have asked whether the fact that RMDs are not required for 2009 will mean that people will have to make two RMDs for 2010," Grenier told CCH. "While regulations will likely be issued by IRS, it appears that the general consensus is that the RMD will be skipped for 2009 and that only one RMD will be required for 2010. However, because no RMD will be taken for 2009, the year-end balance will likely be higher (unless the individual has incurred losses), meaning that later RMD amounts will be greater in amount."

  By George G. Jones and George L. Yaksick, Jr., CCH News Staff

Treasury RMD Letter
 

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  For Massachusetts corporate excise tax purposes, pass-through entities subject to pass-through entity withholding are not required to withhold on members who submit certification, on a form approved by the Commissioner of Revenue, that the member is exempt from withholding. The new date by which members must file their Forms PTE-EX with the pass-through entity is the later of the last day of the fourth month of the entity's taxable year, or within 30 days of the member joining the entity. The due date for this exemption certificate, Form PTE-EX, previously was set as the last day of the first month of the entity's taxable year, or within 30 days of the member joining the entity. This requirement has been changed to allow more time for pass-through entities to comply. Additionally, the Commissioner no longer will require that a new Form PTE-EX be filed annually. Taxpayers who already have signed Form PTE-EX, but who wish to use the Form PTE-EX certification for future years should sign the revised Form PTE-EX. The previous version of Form PTE-EX is valid for the tax year beginning on or after January 1, 2009, but must be renewed, using the revised version, for the next tax year.

Rulings and Regulations , Massachusetts Department of Revenue, December 17, 2008

 

CCH (cch.taxgroup.com) reports:

  Gov. John Baldacci released his supplemental budget, which includes technical tax changes involving Maine personal income taxes and property taxes. Under the plan, individuals who experience "unusual events," such as a capital gain of $500,000 or more, would be required to make an estimated tax payment in the quarter after the event. In addition, the supplemental budget would eliminate the planned reduction of the telecommunications personal property tax, which was scheduled to drop from 22 mills to 21 mills in 2009 (the rate would still fall to 20 mills in 2010 as currently scheduled). The governor will present the 2010-2011 biennial budget to the state Legislature on January 9, 2009.

Press Release , Maine Governor John Baldacci, December 16, 2008
 

CCH (cch.taxgroup.com) reports:

  The IRS has provided tables of covered compensation under Code Sec. 401(l)(5)(E) for the 2009 plan year. Covered compensation with respect to an employee is defined as the average of the contribution and benefit bases in effect under section 230 of the Social Security Act for each year in the 35-year period ending with the year in which the employee attains social security retirement age. The covered compensation amounts from the tables are used in determining contributions to defined benefit plans and permitted disparities under plans that are integrated with Social Security. For purposes of determining covered compensation for the 2009 plan year, the taxable wage base is $106,800.

Rev. Rul. 2009-2, 2009FED ¶46,206

Other References:

 
Code Sec. 401

  CCH Reference - 2008FED ¶18,119.10

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 24,208

 

CCH (cch.taxgroup.com) reports:

  Various prescribed rates for federal income tax purposes for January 2009 have been provided by the IRS. The annual short-term, mid-term, and long-term applicable federal interest rates (AFRs) are 0.81 percent, 2.06 percent and 3.57 percent, respectively. The semiannual short-term, mid-term, and long-term AFRs are 0.81 percent, 2.05 percent and 3.54 percent, respectively. Quarterly short-term, mid-term and long-term AFRs are 0.81 percent, 2.04 percent and 3.52 percent, respectively. Finally, the monthly short-term, mid-term and long-term rates are 0.81 percent, 2.04 percent and 3.51 percent, respectively.

  The short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for January 2009 for purposes of Code Sec. 1288(b) are 1.81 percent, 3.45 percent, and 5.49 percent, respectively, when annual compounding is used.

  Additionally, the Code Sec. 382 adjusted federal long-term rate is 5.49 percent, as is the long-term tax-exempt rate. The Code Sec. 42(b)(2) appropriate percentage for the 70-percent present-value, low-income housing credit is 7.65 percent, and the appropriate percentage for the 30-percent present-value, low-income housing credit is 3.28 percent. The Code 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 2.40 percent. Finally, the deemed rate of return for transfers during 2009 to pooled income funds that have been in existence for less than three taxable years is 4.8 percent.

Rev. Rul. 2009-1, 2009FED ¶46,205

Rev. Rul. 2009-1, FINH ¶30,609

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

  CCH Reference - FINH ¶16,801.11

 
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

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 36,162.05

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The North Carolina Superior Court has dismissed an action that challenged the constitutionality of a sales and use tax exemption for eligible Internet data centers as well as the initial approval of a grant equal to 75% of the state personal income tax withholding derived from the creation of new jobs. The suit, filed by the North Carolina Institute for Constitutional Law (NCICL), challenged: (1) legislation enacted in 2006 that grants a sales and use tax exemption for sales of electricity used at an eligible Internet data center and eligible business property to be located and used at such a center; and (2) a Job Development Investment Grant (JDIG) initially approved for Google but never finalized, to facilitate the construction of a data center to support Google's online operations and create jobs. The suit claimed that these actions violated the state constitution in that the tax benefits and other economic incentives or subsidies accrued to Google's private financial benefit and that Google was provided these benefits merely for operating its own private business and not in exchange for any public service. The plaintiffs, who sued in their individual capacities as North Carolina residents and taxpayers, alleged that the legislation was enacted solely to encourage Google to construct an Internet data facility in Lenoir, in Caldwell County, North Carolina.

 

CCH (cch.taxgroup.com) reports:

  A remote seller has asked the U.S. Supreme Court whether New Mexico may impose its gross receipts tax on the seller's sales into the state based solely on the activities of a third-party contractor that provides post-sale services to New Mexico buyers. The seller has told the Court that an answer is needed to resolve a split of state court authority over the scope of Tyler Pipe, 483 U.S. 232 (1987) and Scripto, Inc., 362 U.S. 207 (1960).

  The Texas-based seller is an Internet- and mail-order retailer of computers. It offered service contracts to buyers for on-site repair of its computers in New Mexico by a third-party contractor. The New Mexico Taxation and Revenue Department audited the seller and imposed an assessment for gross receipts tax on sales of its computers to New Mexico residents. The seller challenged the assessment on the basis that it does not have a physical presence in New Mexico and, therefore, lacked the requisite substantial nexus with the state that would impose a collection obligation consistent with Commerce Clause requirements.

  The New Mexico Court of Appeals held that the third-party contractor's activities helped the seller establish and maintain a market in New Mexico. Therefore, the seller, through its relationship with the contractor and the contractor's activities in New Mexico, had a substantial nexus with the state and, consequently, the Department's imposition of gross receipts tax did not violate the Commerce Clause. (TAXDAY, 2008/06/09, S.12) The seller argued unsuccessfully that, under Tyler Pipe and Scripto, a third party must be engaged in sales-related activities in order to establish substantial nexus for a seller. The contractor in this case was not engaged in sales solicitations. However, the Court of Appeals held that the fact that the U.S. Supreme Court has not yet addressed the question of whether a third party's non-sales activities in the taxing state can create nexus does not mean that the high court has held that such activities cannot provide such nexus. The New Mexico Supreme Court denied review.

  Subscribers to CCH Tax Research NetWork can view the petition.
 
 
Dell Marketing L.P. v. New Mexico Taxation and Revenue Department, U.S. Supreme Court, Dkt. 08-770, petition for certiorari filed December 15, 2008
 

CCH (cch.taxgroup.com) reports:

  A tax aide to a Republican member of the Senate Finance Committee (SFC) predicted that the new Congress will act quickly in January 2009 to pass stimulus legislation and have it ready for President Barack Obama to sign when he takes office. The SFC could see a markup scheduled for as early as January 8, even before the committee finishes organizing itself, although it would be unusual to have legislation ready for the new president to sign. The aide spoke to practitioners on December 17 at a BNA Tax Management Luncheon held at Buchanan, Ingersoll & Rooney in Washington, D.C.

  With the new president not yet in office, there is a void in leadership, the aide said. SFC Chairman Max Baucus, D-Mont., aims for the committee to have a role in stimulus legislation and wants a tax element in it. House Speaker Nancy Pelosi, D-Calif., has predicted a stimulus package of $600 billion, including $200 million in tax provisions. Both Republicans and Democrats support tax aid to the states, infrastructure help and food stamp increases.

  The aide believes that a second round of stimulus checks is unlikely. There are proposals for a payroll tax holiday, but that might not help people looking for work. The Republicans would prefer that bonus depreciation be extended.

  Sen. Orrin Hatch, R-Utah, is supporting expanded net operating loss (NOL) relief, such as an increase in the carryback period from two years to at least four years. Some may propose a 10- to 15-year carryback period, to move the proposal. An increased carryback period would help companies that have already maximized their carrybacks and cannot benefit from carryforwards since they are operating at a loss. Similarly, tax credits for wind and other renewable energy development do not help companies with losses. One company has called for a refundable credit, the aide noted.

  Hatch supports a permanent research credit, which he believes would have a stimulus effect. There is no discussion of a capital loss carryback for individuals, but there is some support for increasing the current $3,000 limit on deductible losses.

  Because a stimulus bill probably will not be governed by pay-as-you-go (PAYGO) requirements for offsets, Senate members may want to expand the bill's scope to include middle-class tax cuts or estate tax relief, for example. Unlike the Senate, the aide pointed out, the House may be more deferential to the new president, since it is generally governed by majority rule, without requiring the support of 60 members.

Subsequent Measures

  As soon as the economy starts to improve, Congress will shift its focus to reining in deficits, the aide predicted. The congressional Blue Dogs want a statutory requirement for PAYGO, rather than just an in-house rule. The aide expects Congress to impose some discipline on tax bills, but Republicans and Democrats may debate whether spending cuts or raising taxes is the appropriate solution. At some point, Congress will be looking for more revenue, which could come from tax increases, changes to the carried interest rules or codification of the economic substance doctrine.

  Both sides support estate tax reform, although they may differ on the exemption level and the rates. The aide believes that Congress will want to address the estate tax in 2009, and he expects action to be taken.

  Obama supports both tax cuts and increases. His chief of staff, Rahm Emanuel, initially said that the new administration does not want to wait but, since then, Obama has backed off on imposing new increases while economic stimulus is a concern. It is an open question whether Congress will take action on the 2001 tax cuts that are set to expire at the end of 2010.

  Congress is ready to talk about health care reform, the aide stated. Both Baucus and Sen. Edward M. Kennedy, D-Mass., are very interested. Reform could include changes to the health insurance exclusion. One proposal for a cap would raise $350 billion over 10 years. This is viewed as a health care issue, not as tax reform. Republicans will insist that any savings be plowed back into health reform, rather than used to support other spending measures, the aide said.

  It is not clear that Congress is ready to move on broader tax reform, the aide indicated, even with reform proposals from the House Ways and Means Committee. The president must take the lead, but Obama has not said much on this subject. More education is also needed. There has been no talk of 1986-type reform, involving a broadening of the tax base.

  By Brant Goldwyn, CCH News Staff

CCH (cch.taxgroup.com) reports:

  A private, nonprofit Catholic school was denied a refund of penalties for failure to file federal employment tax returns, to make required tax deposits and to pay its federal employment taxes. The school failed to show that its failures were due to reasonable cause and not willful neglect.

  The school exercised ordinary business care and prudence by providing for its tax obligations to be discharged by an employee. However, it failed to show that it was unable to pay its taxes (due to lack of funds or disability) or that it would have suffered undue hardship if the taxes had been paid on the dates due. The individual responsible for filing returns and paying taxes was not the school's CEO or CFO, but was an employee subject to the authority of others who failed to adequately supervise her. Although the school was in financial trouble, it failed to contradict evidence that it had access to accounts with sufficient funds available during all the relevant periods to pay the taxes.

St. Paul Cathedral School, DC Wash., 2009-1 USTC ¶50,109

Other References:

 
Code Sec. 6651

  CCH Reference - 2008FED ¶39,475.455

  CCH Reference - 2008FED ¶39,475.57

 
Code Sec. 6656

  CCH Reference - 2008FED ¶39,585.27

  CCH Reference - 2008FED ¶39,585.62

  Tax Research Consultant

  CCH Reference - TRC PENALTY: 3,062
CCH Reference - TRC PENALTY: 3,304
 

CCH (cch.taxgroup.com) reports:

  The Tax Court upheld deficiency determinations against two brothers whose capital contributions to two S corporations did not increase or restore their tax bases in loans they had made to the S corporations. The capital contributions, instead, increased their tax bases in their stock in the S corporations, resulting in additional ordinary income to the brothers when they received loan repayments from the S corporations.

  The brothers had attempted to allocate the capital contributions such that they increased their tax bases in the loans in order to use the increased tax bases in the loans to offset ordinary income. However,
Reg. §1.118-1 specifically provides that capital contributions do not constitute income to an S corporation under Code Sec. 1366(a)(1) and, therefore, such contributions to capital may not be treated as items of income used in calculating any "net increase" (as defined in
Code Sec. 1367(b)(2)() to increase or restore a shareholder's tax basis in loans to an S corporation.

  The brothers also argued that the capital contributions were made to obtain a release of personal guarantees on bank loans and, as such, the contribution amounts should be deductible as ordinary losses under Code Sec. 165(c). The argument failed because the shareholders had not guaranteed the loans for the purpose of making a profit, nor was the release of the guarantees the sole purpose for which the capital contributions were made.

I. Nathel, 131 TC No. 17, Dec. 57,617

Other References:

 
Code Sec. 1366

  CCH Reference - 2008FED ¶32,084.22

  CCH Reference - 2008FED ¶32,084.325

 
Code Sec. 1367

  CCH Reference - 2008FED ¶32,101.25

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 48,108
CCH Reference - TRC SCORP: 402.05
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Illinois corporate and personal income tax legislation amends the Film Production Services Tax Credit Act of 2008. Specifically, the legislation repeals a section that provides that the law will sunset on January 1, 2009. Additionally, the bill amends the definition of "credit" to provide that, for an accredited production commencing on or after January 1, 2009, the amount of the credit is (i) 30% (instead of 20% for the previous years) of the Illinois production spending for the taxable year, plus (ii) 15% of the Illinois labor expenditures generated by the employment of residents from geographic areas of high poverty or high unemployment. The bill also places conditions on any rulemaking authority so that any rule must be adopted in accordance with standard procedure.

P.A. 95-1006 (S.B. 1981), Laws 2008, effective December 15, 2008
 

CCH (cch.taxgroup.com) reports:

  A married couple could not deduct as charitable contributions tuition and fees they paid to Orthodox Jewish day schools. The Tax Court correctly concluded that the couple failed to show that any part of the amount paid was subject to a dual payment analysis, because the couple did not have a charitable intent in paying their children's tuition and because they received a substantial benefit --education for their children --in exchange for the payments. Amendments to Code Secs. 170(f)(8) and
6115 in 1993 did not change the established rule that tuition paid to religious schools for religious education is not deductible as a charitable contribution. The exception to the charitable substantiation and disclosure requirements found in those provisions only applies where an organization is established exclusively for religious purposes.

  Moreover, the couple never intended to make a gift of the tuition payments. Instead, they paid tuition because the schools inculcated their children with their religion's lifestyle, heritage and values. They also failed to present evidence that their tuition payments exceeded the cost of a comparable secular education offered by other private schools. Therefore, the payments were a quid pro quo transaction even if part of the benefit received was religious in nature.

  Further, the Tax Court did not abuse its discretion in denying discovery regarding a closing agreement executed between the IRS and the Church of Scientology that purportedly allowed deductions for certain qualified religious services. The couple was not similarly situated to those who benefited from the Scientology closing agreement because tuition payments to schools that provide secular and religious education as part of one curriculum are quite different from payments to organizations that provide exclusively religious services. Moreover, even if similarly situated, an unlawful policy set forth in a closing agreement could not be extended to all religious organizations.

  Affirming the Tax Court, 125 TC 281, Dec. 56,225. Related case CA-9, 2002-1 USTC ¶50,210.

M. Sklar, CA-9, 2009-1 USTC ¶50,106

Other References:

 
Code Sec. 170

  CCH Reference - 2008FED ¶11,620.518

 
Code Sec. 6115

  CCH Reference - 2008FED ¶37,068.20

 
Code Sec. 6662

  CCH Reference - 2008FED ¶39,652.38

  CCH Reference - 2008FED ¶39,652.49

  Tax Research Consultant

  CCH Reference - TRC INDIV: 51,054
CCH Reference - TRC EXEMPT: 12,306
 

CCH (cch.taxgroup.com) reports:

  An Appeals officer did not abuse his discretion in cancelling an offer-in-compromise (OIC) agreement, reinstating a taxpayer's original tax bill and sustaining a levy, based on the taxpayer's breach of the OIC. As a condition for the OIC, the taxpayer agreed to file his tax returns and pay tax due for five years. However, the taxpayer failed to timely file returns for two years and pay tax for one of those years. Because the returns were never received by the IRS and there was no record of either a postmark, or certified or registered-mail receipt, the taxpayer could not rely on the presumption of delivery. Even assuming the Appeals officer had found the returns were timely filed, the IRS's evidence of nonreceipt was overwhelming. By not timely filing the returns and paying tax, the taxpayer was not in compliance with the express terms of the OIC. As a contract, the OIC was governed by general principles of federal common law.

  Clarifying its decision in J.M. Robinette , 123 TC 85, Dec. 55,698, the Tax Court stated that a national legal standard for construing OIC agreements was supported by three factors: federal government agency as litigant, contracts entered into under federal law and the need for nationwide uniformity in administration. Under general principles of the federal common law of contracts the taxpayer's obligation to file and pay taxes was an express condition of the contract that required strict compliance. The IRS used plain language to explain the terms and conditions of the OIC and the risk of forfeiture did not weigh against finding that the obligation to file and pay was an express condition of the OIC. Even without relying on principles of contract law, other federal courts have upheld the IRS's right to cancel an OIC when the taxpayer is in default because of the express language in the agreement. Finally, the IRS provided the taxpayer with several opportunities to become compliant and the only consideration for forgiveness of 95 percent of his tax debt was to timely file and pay his taxes for five years. Thus, the Appeal's officer's decision not to excuse the breach and reinstate the OIC was not an abuse of discretion.

D.W. Trout, 131 TC No. 16, Dec. 57,615

Other References:

 
Code Sec. 6330

  CCH Reference - 2008FED ¶38,184.62

 
Code Sec. 7122

  CCH Reference - 2008FED ¶41,130.20

 
Code Sec. 7502

  CCH Reference - 2008FED ¶45,625.10

  Tax Research Consultant

  CCH Reference - TRC IRS: 30,058

  CCH Reference - TRC IRS: 42,152

  CCH Reference - TRC IRS: 51,056.25

CCH (cch.taxgroup.com) reports:

  Citing "difficult times for the U.S. economy," IRS Commissioner Douglas H. Shulman has announced his commitment of IRS resources to an expedited process under which distressed homeowners can have federal tax liens subordinated or discharged. Although procedures already have been in place for lien subordination (in case of a refinancing) and discharge (in case of a sale) well before the current economic turmoil, the Commissioner's message to the media at IRS headquarters in Washington on December 16 covered three apparent changes:

  --An effort will be made to make more homeowners aware of this relief and facilitate applications;

  --The IRS will be shifting funds, personnel and other resources into expediting the process, thereby shortening the time it takes to obtain lien discharges and subordinations; and

  --By inference, the IRS will likely be more inclined to grant relief due to the current nationwide economic threat caused by foreclosures.

  "We don't want the IRS to be a barrier to people saving or selling their homes," Shulman stated, aware that a federal tax lien often blocks refinancing of mortgages or the sale of a home. To that end, Shulman promised that the IRS will work to speed requests for discharge or subordination of a tax lien so that liens would be lifted faster than the approximately 30 days it now takes after an application has been received.

  The IRS will consider the subordination of a tax lien to a secondary position when the mortgage lender is offering refinancing or a workout. The Service will also consider issuing a certificate of discharge of the lien to enable the short sale or other sale of a residence where proceeds would not cover both the mortgage and the lien.

  Procedures already in place cover the application process. The application process for a certificate of lien subordination may be found in IRS Publication 784, How to Prepare Application for Certificate of Subordination of Federal Tax Lien. Directions for applying for a tax lien discharge are contained in IRS Publication 783, Instructions on how to apply for Certificate of Discharge of Property from Federal Tax Lien. IR-2008-141, which accompanied Shulman's announcement, stressed that "taxpayers' representatives" also may apply for the subordination or discharge and that in the case of a subordination, the taxpayer's lender may assist in the application.

  Shulman concluded, but without elaboration, that the IRS's expedited lien process represents the first in a number of steps that the IRS will be taking over the next several months to assist taxpayers. He particularly stressed that the agency wants to make certain that taxpayers with a long history of compliance don't become noncompliant because of "these extraordinary times." He added that the IRS's mission of service to these taxpayers will be considered as much as its mission of enforcement.

  By George Jones, CCH News Staff

IR-2008-141,
2009FED ¶46,204

Other References:

 
Code Sec. 6323

  CCH Reference - 2008FED ¶38,160.825

 
Code Sec. 7425

  CCH Reference - 2008FED ¶41,708.26

  Tax Research Consultant

  CCH Reference - TRC IRS: 48,166
CCH Reference -
TRC IRS: 51,308
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  An Illinois corporate income tax ruling discusses the taxability of a company that will provide gaming lessons through the Internet. In addition to a "starter kit," which would be downloaded from the Internet, the company would offer different levels of training that a customer could purchase, with the highest level allowing a customer to receive payment for referring other people to the site. The Department of Revenue refused to issue a ruling regarding nexus with the state and instead determined the tax liability imposed on nonresidents under state law.

  For taxable years ending before December 31, 2008, annual fees from poker training were not assigned to Illinois in computing the sales factor. Nothing in the letter request identified any income producing activity of the taxpayer that was performed in Illinois.

  With respect to gross receipts from sales of the taxpayer's "starter kits," sales factor treatment depends on whether a "starter kit" is tangible personal property. Assuming that a starter kit is canned computer software, gross receipts from sales would be considered sales of tangible personal property and therefore allocable to Illinois if downloaded by a purchaser in Illinois. If, however, a starter kit is not canned computer software, gross receipts from sales would not be assigned to Illinois.

  For taxable years ending on and after December 31, 2008, annual fees from poker training must be assigned to Illinois in computing the sales factor if the training is received in the state. Assuming the training is provided to individuals, the training is considered to be received in the individual's state of residence. Unless the taxpayer has actual knowledge that the residence of an individual is different from the billing address of the individual at the time of the sale, the individual is deemed to be a resident of the state in which the billing address is located.

  With respect to gross receipts from sales of "starter kits," the analysis again depends on whether the kits are canned computer software and therefore treated as tangible personal property. Gross receipts from sales of "starter kits" are assigned to Illinois to the extent that sales are made to Illinois residents. Again, unless the taxpayer has actual knowledge of the residence of a customer during the taxable year, the customer is deemed a resident of Illinois if the customer's billing address is in Illinois.

General Information Letter IT 08-0031-GIL , Illinois Department of Revenue, October 8, 2008, released December 12, 2008, ¶401-931

  Other References:

  Explanations at ¶10-075.

CCH (cch.taxgroup.com) reports:

  Distributions from the disposable military retirement pay of an individual's former spouse pursuant to a qualified domestic relations order (QDRO) were includible in the taxpayer's taxable income. There was no proof that the taxpayer's disbursement was in any way subject to double taxation or that income taxes were withheld from her share of the retirement pay prior to its disbursement.

  Although the taxpayer's interest in the retirement pay was calculated based on the retirement pay less income tax withheld, the QDRO specifically provided that taxes could only be withheld from the former spouse's pay, not from the taxpayer's share of the pay. Moreover, the QDRO did not state that the taxpayer's share of the retirement pay was not taxable or that it was subject to tax prior to distribution.

  A concurring opinion addressed an issue of first impression that the majority opinion sidestepped --namely, whether Tax Court Summary decisions have collateral estoppel effect. The concurring opinion concluded that the fact that a summary decision is not subject to appeal should not preclude the decision in that case from collaterally estopping the relitigation of the same issue by the same parties. Here, the issue before the court in this case had been decided against the taxpayer for a prior tax year in a Tax Court Summary decision (Mitchell, T.C. Summary Opinion 2004-160). The majority opinion declined to consider the collateral estoppel argument because the case had already been tried and presented a legal issue on the basis of largely undisputed facts.

L.G. Mitchell, 131 TC No. 15, Dec. 57,611

Other References:

 
Code Sec. 61

  CCH Reference - 2008FED ¶5507.121

 
Code Sec. 402

  CCH Reference - 2008FED ¶17,733.60

  Tax Research Consultant

  CCH Reference - TRC INDIV: 21,056
CCH Reference - TRC INDIV: 24,062.15

 

CCH (cch.taxgroup.com) reports:

  The IRS has released a series of guidance items addressing tax returner penalties addressed in Code Sec. 6694.

T.D. 9436

  Regulations addressing return preparer penalties have been issued. The final regulations amend existing regulations defining tax return preparers. These final regulations are applicable to returns and claims for refund filed (and advice given) after December 31, 2008. The regulations were previously limited to income tax return preparers; however, the definition now includes preparers of estate, gift and generation skipping transfer tax returns, employment tax returns, excise tax returns, and returns of exempt organizations. The standards of conduct that must be met to avoid imposition of the Code Sec. 6694 tax return preparer penalty have been changed, as has the computation of that penalty. The final regulations also expand the scope of current regulations under the penalty provisions of Code Sec. 6695 beyond income tax returns.

  The final regulations require a signing tax return preparer to furnish a copy of the completed tax return to the taxpayer and also to retain a copy. The tax return preparer's identification number needs to be included only on the return that is filed with the IRS. The regulations clarify that the copy of the return filed with the IRS may be provided to the taxpayer in any medium, including electronic, that is acceptable to both the taxpayer and the return preparer. Furthermore, for purposes of complying with the requirements of Code Sec. 6107, a corporation, partnership or other organization that hires a signing tax return preparer shall be treated as the sole signing tax return preparer.

  An individual is a tax return preparer subject toCode Sec. 6694 if the individual is primarily responsible for the position on the return or claim for refund giving rise to the understatement. Only one person within a firm will be considered primarily responsible for each position giving rise to an understatement and, accordingly, be subject to the penalty. If there is no signing tax return preparer for the return or claim for refund within that firm or if it is concluded that the signing tax return preparer is not primarily responsible for the position, the nonsigning tax return preparer within the firm with overall supervisory responsibility for the position(s) giving rise to the understatement generally will be considered the tax return preparer who is primarily responsible for the position. If the information presented would support a finding that either the signing tax return preparer or a nonsigning tax return preparer within a firm is primarily responsible for the position(s) giving rise to the understatement, the IRS may, depending on the evidence presented, assess the penalty against either one of the individuals, but not both, as the primarily responsible tax return preparer.

  The final regulations clarify that a tax return preparer may rely on advice furnished by another advisor, another tax return preparer, or other party, even if the advisor or tax return preparer is within the tax return preparer's same firm. However, the tax return preparer must meet the diligence standards in order to rely properly on information and advice provided by taxpayers or other individuals.

  The final regulations define the "reasonable to believe that the position would more likely than not be sustained on its merits" standard that now applies to positions that are tax shelters and reportable transactions to which Code Sec. 6662A applies. While recent legislation includes this "reasonable to believe" standard rather than the "reasonable belief that the position would more likely than not be sustained on its merits" standard used in previous legislation, the IRS interprets the two standards to have the same meaning. The final regulations contain the more recent terminology.

  The final regulations also modified the definition of adequate disclosure, removed provisions addressing the burden of proof regarding whether a tax return preparer has willfully attempted to understate the liability for tax and clarified that while a tax return preparer may not endorse or negotiate a refund check relating to a return for which he or she is a preparer, the preparer may affix a taxpayer's name on a refund check to deposit the check into an account in the name of the taxpayer. Appraisers are included in the definition of both signing and non-signing preparers, though penalties against them may not be stacked. Finally, administrative appeal rights remain available to tax return preparers who are subject to penalty under Code Sec. 6694.

Notice 2009-5

  Updated interim guidance has been issued concerning the
Code Sec. 6694(a) tax return preparer penalty, as recently modified by the Tax Extenders and Alternative Minimum Tax Relief Act of 2008 (P.L. 110-343). Other than for tax shelters, the guidance is generally effective for advice rendered, and returns, amended returns, and claims for refund prepared after May 27, 2007.

  CCH Comment:
Code Sec. 6694 now divides the definition of "unreasonable position" into three categories --a general category, a disclosed positions category, and a tax shelters and reportable transactions category, each with its own standard to determine whether such position is an unreasonable position. A position is treated as unreasonable and the return preparer penalty can apply unless there is substantial authority for the position (general category) or the position is properly disclosed and has a reasonable basis (disclosed positions category). A "more likely than not" standard applies for tax shelters, as defined in Code Sec. 6662(d)(2)(C)(ii), and reportable transactions to which Code Sec. 6662A applies. Prior to this change, the "more likely than not" standard applied to positions which would now fall in both the general and tax shelters categories.

  Interim guidance was previously issued in Notice 2008-13, I.R.B. 2008-3, 282 (TAXDAY, 2008/01/02, I.1) concerning application of the "more likely than not" standard. The updated guidance provides that for disclosed positions other than those falling in the tax shelters and reportable transactions category, preparers can either apply the new substantial authority standard or rely on guidance provided by Notice 2008-13. However, because the provisions governing the new tax shelters and reportable transactions category were not made retroactive, the interim guidance contained in Notice 2008-13 will continue to apply to positions falling within this category.

  The new guidance also discusses the definition of "substantial authority" for positions falling in the general category. Until further guidance is issued for purposes of Code Sec. 6694(a), the phrase has the same meaning as in Reg. §1.6662-4(d)(2), the analysis prescribed by Reg. §1.6662-4(d)(3)(i) through (ii) applies in determining whether substantial authority is present, and the authorities described in Reg. §1.6662-4(d)(3)(iii) are considered in determining whether there is substantial authority for a position.

  For tax shelters, but not reportable transactions with a significant avoidance purpose or listed transactions, a position will not be deemed an unreasonable position if there is substantial authority for the position, the preparer advises the taxapayer, documenting such advice in the preparer's files, of the Code Sec. 6662 penalty standards applicable to the taxpayer in the event the transaction is deemed to have a significant purpose of federal tax evasion or avoidance and, if having such purpose, the taxpayer possesses a reasonable belief that the treatment was more likely than not the proper treatment. The updated interim guidance also provides guidance to non-signing preparers advising other preparers, including other preparers in the same firm as the non-signing preparer, regarding a position with respect to a tax shelter. The interim guidance with respect to such tax shelters and reportable transactions to which Code Sec. 6662A applies is effective for positions on tax returns for taxable years ending after October 3, 2008.

  The IRS requests written and electronic comments concerning Notice 2009-5 by March 16, 2009.

Rev. Proc. 2009-11

  The IRS has identified the categories of tax returns and refund claims for purposes of the Code Sec. 6694 tax return preparer penalty and the returns and refund claims required to be signed by a tax return preparer in order to avoid the Code Sec. 6695(b) penalty (Rev. Proc. 2009-11). The tax return preparer rules were amended by the Small Business and Work Opportunity Tax Act of 2007 (P.L. 110-28) to extend the application of the income tax return preparer penalties to all tax return preparers, heighten the standards for both disclosed and undisclosed positions to avoid the Code Sec. 6694(a) penalty, increase the Code Sec. 6694 penalty and impose a penalty under Code Sec. 6695(b) on preparers who fail to sign a return or refund claim when required to do so by regulations. To reflect these amendments, the IRS issued interim guidance (Notice 2008-13, I.R.B. 2008-3, 282, Notice 2008-12, I.R.B. 2008-3, 280, and Notice 2008-46, I.R.B. 2008-18, 868) and published proposed regulations (NPRM
REG-129243-07). The Tax Extenders and Alternative Minimum Tax Relief Act of 2008 (P.L. 110-343) later amended the standard for avoiding the Code Sec. 6694(a) penalty for undisclosed positions. This guidance implements these legislative changes and the final regulations. The IRS may choose to add or remove documents from any of the categories in this revenue procedure in future guidance as it gains experience in implementing the provisions of P.L. 110-343 and the final regulations. The procedure is effective January 1, 2009, for all forms, tax returns, amended tax returns, and claims for refund filed on or after that date.

Returns Subject to Code Sec. 6694 Penalty

  Solely for purposes of Code Sec. 6694, a return or claim for refund includes any of the income tax, estate and gift tax, employment tax or excise tax returns listed in Section 3.02, or a claim for refund with respect to any such return. A claim for refund of tax includes a claim for credit against any tax and a request for abatement. A person who for compensation prepares all or a substantial portion of any of the listed tax returns or a claim for refund with respect to any such tax return is a tax return preparer subject to Code Sec. 6694.

  In addition, solely for purposes of Code Sec. 6694, an information return listed in Section 3.03(2) including information that is or may be reported on a taxpayer's return or refund claim is a return to which Code Sec. 6694 could apply if the information reported constitutes a substantial portion of that taxpayer's tax return or claim for refund. A person who for compensation prepares such information returns that do not report a tax liability but affect an entry or entries on a tax return and constitute a substantial portion of the tax return or claim for refund that does report a tax liability is a tax return preparer subject to Code Sec. 6694. Other documents that include information that is or may be reported on a taxpayer's tax return or claim for refund may also be treated as returns under Code Sec. 6694 if the reported information constitutes a substantial portion of that taxpayer's tax return or claim for refund.

  Further, forms listed in Section 3.04 that include information that is or may be reported on a taxpayer's tax return or claim for refund, and that constitute a substantial portion of such tax return or claim for refund, will not subject the preparer to the Code Sec. 6694(a) penalty. Such forms, however, may subject the preparer to a willful or reckless conduct penalty under Code Sec. 6694(b) if the information reported on the document constitutes a substantial portion of the tax return or claim for refund and is prepared willfully in any manner to understate the liability of tax on a tax return or claim for refund, or in reckless or intentional disregard of rules or regulations.

Returns and Claims Subject to Code Sec. 6695(b) Penalty

  The guidance also identifies returns and claims for refund required to be signed by a signing tax return preparer defined in Reg. §301.7701-15(b)(1) in order to avoid the Code Sec. 6695(b) penalty. The tax return preparer must sign the return in the manner prescribed by the IRS in forms, instructions or other appropriate guidance. Information on the preparer signature requirement for electronically filed returns will be announced in IRS publications, instructions and information posted electronically on the IRS.gov website. In order to avoid the penalty, a signing tax return preparer must provide a signature on any tax returns or claims for refund of tax that are filed on or after January 1, 2009. A non-inclusive list of such returns and refund claims is provided in Section 4.02.Notice 2008-12, I.R.B. 2008-3, 280, and Notice 2008-46, I.R.B. 2008-18, 868, are obsoleted, and the list of forms in Notice 2008-13, I.R.B. 2008-3, 282, is modified and superseded.

T.D. 9436, 2009FED ¶47,006

T.D. 9436, FINH ¶41,123

Notice 2009-5,
2009FED ¶46,201

Notice 2009-5,
FINH ¶30,606

Rev. Proc. 2009-11, 2009FED ¶46,202

Rev. Proc. 2009-11, FINH ¶30,607

Other References:

 
Code Sec. 6060

  CCH Reference - 2008FED ¶36,561

  CCH Reference - 2008FED ¶36,561E

  CCH Reference - 2008FED ¶36,561G

  CCH Reference - 2008FED ¶36,561I

  CCH Reference - 2008FED ¶36,561K

  CCH Reference - 2008FED ¶36,561M

  CCH Reference - 2008FED ¶36,561O

  CCH Reference - 2008FED ¶36,561Q

  CCH Reference - FINH ¶22,228

  CCH Reference - FINH ¶22,229

  CCH Reference - FINH ¶22,230

  CCH Reference - FINH ¶22,231

 
Code Sec. 6107

  CCH Reference - 2008FED ¶36,921

  CCH Reference - 2008FED ¶36,921BE

  CCH Reference - 2008FED ¶36,921BG

  CCH Reference - 2008FED ¶36,921BI

  CCH Reference - 2008FED ¶36,921BK

  CCH Reference - 2008FED ¶36,921BM

  CCH Reference - 2008FED ¶36,921BO

  CCH Reference - 2008FED ¶36,921BQ

  CCH Reference - FINH ¶20,436A

  CCH Reference - FINH ¶20,436B

  CCH Reference - FINH ¶20,436C

  CCH Reference - FINH ¶20,436D

 
Code Sec. 6109

  CCH Reference - 2008FED ¶36,961BC

  CCH Reference - 2008FED ¶36,961BE

  CCH Reference - 2008FED ¶36,961BG

  CCH Reference - 2008FED ¶36,961BI

  CCH Reference - 2008FED ¶36,961BK

  CCH Reference - 2008FED ¶36,961BM

  CCH Reference - 2008FED ¶36,961BQ

  CCH Reference - 2008FED ¶36,961C

  CCH Reference - FINH ¶20,438A

  CCH Reference - FINH ¶20,438B

  CCH Reference - FINH ¶20,438C

  CCH Reference - FINH ¶20,438E

 
Code Sec. 6662

  CCH Reference - FINH ¶21,790.20

 
Code Sec. 6694

  CCH Reference - 2008FED ¶39,955A

  CCH Reference - 2008FED ¶39,956A.01

  CCH Reference - 2008FED ¶39,956A.02

  CCH Reference - 2008FED ¶39,956BE

  CCH Reference - 2008FED ¶39,956BG

  CCH Reference - 2008FED ¶39,956BI

  CCH Reference - 2008FED ¶39,956BK

  CCH Reference - 2008FED ¶39,956BM

  CCH Reference - 2008FED ¶39,956BO

  CCH Reference - 2008FED ¶39,956BQ

  CCH Reference - 2008FED ¶39,957

  CCH Reference - 2008FED ¶39,957A.01

  CCH Reference - 2008FED ¶39,957A.022

  CCH Reference - 2008FED ¶39,957A.023

  CCH Reference - 2008FED ¶39,957A.03

  CCH Reference - 2008FED ¶39,957BE

  CCH Reference - 2008FED ¶39,957BG

  CCH Reference - 2008FED ¶39,957BI

  CCH Reference - 2008FED ¶39,957BK

  CCH Reference - 2008FED ¶39,957BM

  CCH Reference - 2008FED ¶39,957BO

  CCH Reference - 2008FED ¶39,957BQ

  CCH Reference - 2008FED ¶39,956C

  CCH Reference - 2008FED ¶39,957E

  CCH Reference - 2008FED ¶39,957EE

  CCH Reference - 2008FED ¶39,957EG

  CCH Reference - 2008FED ¶39,957EI

  CCH Reference - 2008FED ¶39,957EK

  CCH Reference - 2008FED ¶39,957EM

  CCH Reference - 2008FED ¶39,957EO

  CCH Reference - 2008FED ¶39,957EQ

  CCH Reference - 2008FED ¶39,957H

  CCH Reference - 2008FED ¶39,957HE

  CCH Reference - 2008FED ¶39,957HG

  CCH Reference - 2008FED ¶39,957HI

  CCH Reference - 2008FED ¶39,957HK

  CCH Reference - 2008FED ¶39,957HM

  CCH Reference - 2008FED ¶39,957HO

  CCH Reference - 2008FED ¶39,957HQ

  CCH Reference - 2008FED ¶39,960.70

  CCH Reference - FINH ¶21,853

  CCH Reference - FINH ¶21,854A

  CCH Reference - FINH ¶21,854B

  CCH Reference - FINH ¶21,854C

  CCH Reference - FINH ¶21,854D

  CCH Reference - FINH ¶21,855.01

  CCH Reference - FINH ¶21,855.05

  CCH Reference - FINH ¶21,855.50

  CCH Reference - FINH ¶21,856A

  CCH Reference - FINH ¶21,856B

  CCH Reference - FINH ¶21,856C

  CCH Reference - FINH ¶21,856D

  CCH Reference - FINH ¶21,858A

  CCH Reference - FINH ¶21,858B

  CCH Reference - FINH ¶21,858C

  CCH Reference - FINH ¶21,858D

  CCH Reference - FINH ¶21,860A

  CCH Reference - FINH ¶21,860B

  CCH Reference - FINH ¶21,860C

  CCH Reference - FINH ¶21,860D

  CCH Reference - FINH ¶21,861.01

 
Code Sec. 6695

  CCH Reference - 2008FED ¶39,966

  CCH Reference - 2008FED ¶39,966BE

  CCH Reference - 2008FED ¶39,966BG

  CCH Reference - 2008FED ¶39,966BI

  CCH Reference - 2008FED ¶39,966BK

  CCH Reference - 2008FED ¶39,966BM

  CCH Reference - 2008FED ¶39,966BO

  CCH Reference - 2008FED ¶39,966BQ

  CCH Reference - 2008FED ¶39,968

  CCH Reference - 2008FED ¶39,970.60

  CCH Reference - 2008FED ¶39,970.75

  CCH Reference - FINH ¶21,863A

  CCH Reference - FINH ¶21,863B

  CCH Reference - FINH ¶21,863C

  CCH Reference - FINH ¶21,863D

  CCH Reference - FINH ¶21,864.01

 
Code Sec. 6696

  CCH Reference - 2008FED ¶39,976

  CCH Reference - 2008FED ¶39,977BE

  CCH Reference - 2008FED ¶39,977BG

  CCH Reference - 2008FED ¶39,977BI

  CCH Reference - 2008FED ¶39,977BK

  CCH Reference - 2008FED ¶39,977BM

  CCH Reference - 2008FED ¶39,977BO

  CCH Reference - 2008FED ¶39,977BQ

 
Code Sec. 7701

  CCH Reference - 2008FED ¶43,081BC

  CCH Reference - 2008FED ¶43,081BE

  CCH Reference - 2008FED ¶43,081BG

  CCH Reference - 2008FED ¶43,081BI

  CCH Reference - 2008FED ¶43,081BK

  CCH Reference - 2008FED ¶43,081BM

  CCH Reference - 2008FED ¶43,081BO

  CCH Reference - 2008FED ¶43,113

  CCH Reference - FINH ¶22,772

  CCH Reference - FINH ¶22,773

  CCH Reference - FINH ¶22,774

  CCH Reference - FINH ¶22,812

  CCH Reference - FINH ¶22,815.06

  CCH Reference - FINH ¶22,815.82

  Tax Research Consultant

  CCH Reference - TRC IRS: 6,156
CCH Reference -
TRC IRS: 6,104

 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Florida Department of Revenue (DOR) has issued Emergency Rule 12CER08-31 along with guidance on the new rule, which, for corporate income tax purposes, governs Florida's decoupling from the bonus depreciation and IRC §179 expensing election enacted by the federal Economic Stimulus Act of 2008 (P.L. 110-185). Under the rule, taxpayers are required to add back any IRC §179 deduction that exceeds $125,000. Taxpayers must also add back an amount equal to the total depreciation claimed under IRC §167 and IRC §168 on the federal return, minus the amount of depreciation deduction that would have been allowable under IRC §167 and IRC §168, as in effect on January 1, 2007, if the taxpayers had not expensed any amounts in excess of $125,000 under IRC §179, or taken bonus depreciation under IRC §168(k). This rule applies to taxpayers who deducted more than $128,000 on their 2008 federal income tax returns under IRC §179 or claimed bonus depreciation on assets placed in service during the 2008 calendar year.

  In tax years beginning after 2008, taxpayers will be required to make an adjustment to their Florida taxable income by an amount equal to the amount of depreciation deduction that would have been allowable under IRC §167 and IRC §168, as in effect on January 1, 2007, if the taxpayers had not expensed any amounts in excess of $125,000 under IRC §179, or taken bonus depreciation under IRC §168(k), minus the amount of depreciation deduction taken under IRC §167 and IRC §168 on their related federal returns.

  Upon the sale or disposition of property for which an addback was required, the Florida gain will be the same as the federal gain. However, Florida taxable income will have to be adjusted by an amount equal to the Florida depreciation taken on the asset, minus the total federal depreciation taken on the asset. The total amount of adjustments claimed for property for all years cannot exceed the total additions for the same property. A schedule reflecting the additions and all subsequent adjustments must be attached to the Florida corporate income tax return.

  The guidance provided by the DOR contains extensive examples.

  Subscribers to CCH Tax Research NetWork can view the complete text of the emergency rule.

  Emergency Rule 12CER08-31, effective December 10, 2008; Tax Information Publication, No. 08C01-10 , Florida Department of Revenue, December 10, 2008, ¶205-283

 
Other References:

  Explanations at ¶10-670

 

CCH (cch.taxgroup.com) reports:

  The U.S. Supreme Court has granted a request by an operator of oil tankers to review whether an Alaska city's personal property tax on large vessels docking at private facilities violates the U.S. Constitution. The city of Valdez imposes a tax on 100% of a vessel's assessed value, times a ratio based on the number of days spent in Valdez divided by the total number of days spent in all ports, including Valdez, where the vessel has acquired a situs for taxation. The tanker operator challenged the tax in court, asserting that it violates the Due Process and Commerce Clauses of the U.S. Constitution because it creates a risk of multiple taxation, and the Constitution's Tonnage Clause, which prohibits taxes that "operate to impose a charge for the privilege of entering, trading in, or lying in a port."

  The Alaska Supreme Court rejected these challenges. The state high court held that the port-days formula is fair and does not create a risk of duplicative taxation. Furthermore, the court held that a fairly apportioned property tax is not a tonnage duty and, therefore, does not violate the Tonnage Clause. (TAXDAY, 2008/04/30, S.1)

  Subscribers to CCH Tax Research NetWork can view the petition that was granted.

  Polar Tankers, Inc. v. Valdez, U.S. Supreme Court, Dkt. 08-310, petition for certiorari granted December 12, 2008
 

CCH (cch.taxgroup.com) reports:

  The IRS has released final, temporary and proposed regulations to provide guidance concerning the distribution of stock of a controlled corporation acquired in a taxable transaction within five years of the distribution as described in Code Sec. 355(a)(3)(. The temporary regulations will affect corporations and their shareholders, and the text of the temporary regulations serves as the text of the proposed regulations.

  CCH Comment. The IRS has deemed its new regulations as "necesssary" due to amendments to Code Sec. 355(b) by the Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222), the Tax Relief and Health Care Act of 2006 (P.L. 109-432), and the Tax Technical Corrections Act of 2007 (P.L. 110-172.

  Under Code Sec. 355(a), a corporation may distribute stock in a corporation it controls to its shareholders without causing either the distributing corporation or its shareholders to recognize income, gain, or loss. Code Sec. 355(b)(1) requires that, immediately after the distribution, the distributing and controlled corporations must each be engaged in the active conduct of a trade or business. Code Sec. 355(b)(2) provides in part that a corporation is engaged in the active conduct of a trade or business if and only if it is engaged in the active conduct of a trade or business that has been actively conducted throughout the five-year period ending on the distribution date. It also provides that the trade or business must not have been acquired in a transaction in which gain or loss was recognized during the pre-distribution period.

  Under Code Sec. 355(b)(3)(A)-(C): (1) in determining whether a corporation meets the active business requirement, all members of the corporation's separate affiliated group (SAG) are treated as one corporation; (2) the term "SAG" means the affiliated group that would be determined under Code Sec. 1504(a) if the corporation were the common parent and the includible corporations provision under Code Sec. 1504(b) did not apply; and (3) if a parent corporation became a SAG member as a result of one or more taxable transactions, any trade or business conducted by such corporation at the time of SAG membership is treated as acquired in a taxable transaction.

  Under Code Sec. 355(a)(3)(, stock of a controlled corporation acquired by a distributing corporation in any transaction that is not a taxable transaction and that occurs within five years of the distribution of such stock is not treated as stock of the controlled corporation but, rather, as other property (also known as "hot stock"). Code Sec. 355(a)(3)( has been characterized as the "hot stock rule."

  The temporary regulations generally provide that controlled corporation stock acquired by the SAG of which the distributing corporation is the common parent within the pre-distribution period in a taxable transaction constitutes hot stock, except if the controlled corporation is a member of that SAG at any time after the acquisition but prior to the distribution. This provision renders obsolete Rev. Rul. 76-54, 1976-1 CB 96, and Rev. Rul. 65-286, 1965-2 CB 92. Transfers of controlled corporation stock owned by members of such SAG immediately before and immediately after the transfer are disregarded and not treated as acquisitions for purposes of the hot stock rule.

 
Reg. §1.355-2(g) generally exempted from the hot stock rule an acquisition of controlled corporation stock by the distributing corporation from a member of the affiliated group of which the distributing corporation was a member. The temporary regulations retain this affiliate exception, but the IRS will continue to study the impact that transfers between affiliates should have on satisfaction of the active trade or business requirement and application of the hot stock rule.

  The IRS is also considering issuing additional guidance under Code Sec. 355(a)(3)( on: (1) the effect of indirect acquisitions and the extent to which predecessor rules should apply for purposes of the hot stock rule; (2) the position that issuances of controlled stock by the controlled corporation to the distributing corporation in a taxable transaction do not give rise to hot stock; and (3) the effect of redemptions of controlled stock.

  Effective date. The final and temporary regulations are generally applicable for distributions occurring after December 15, 2008. However, unless taxpayers elect otherwise, the temporary regulations do not apply to any distribution occurring after December 15, 2008, pursuant to a transaction that is: (1) made under an agreement binding on December 15, 2008, and at all times thereafter; (2) described in a ruling request submitted to the IRS on or before such date; or (3) described on or before such date in a public announcement or in a filing with the Securities and Exchange Commission. Taxpayers may elect to apply the temporary regulations retroactively to distributions to which section 4(b) of the Tax Technical Corrections Act of 2007 (P.L. 110-172 applies (generally to distributions occurring after May 17, 2006).

  Public comments. The IRS requests comments on the clarity of the proposed rules and how they can be made easier to understand. Comments are also requested regarding:

  - the overall approach taken in the proposed rules, including the extent to which the definition of a taxable transaction should be the same under Code Sec. 355(a)(3)( and Code Sec. 355(b), and whether the exception for affiliate acquisitions should be the same under those sections;

  - the need for future guidance relating to predecessors of distributing corporations, acquisitions involving corporations that join the distributing corporation's SAG or the controlled corporation's SAG, predecessors of controlled corporations, the application of The E.L. Dunn Trust, 86 TC 745, Dec. 42,998 (Acq.), and the treatment of stock issuances by the controlled corporation to the distributing corporation; and

  - the potential application of the hot stock rule to redemptions of controlled corporation stock, specifically regarding the circumstances under which Code Sec. 355(a)(3)( should apply

  Written or electronic comments and requests for a public hearing must be received by March 16, 2009.

 
Rev. Ruls. 76-54, 1976-1 CB 96, and 65-286, 1965-2 CB 92, are obsoleted.

T.D. 9435, 2008FED ¶47,068

Proposed Regulations, NPRM REG-150670-07, 2008FED ¶49,842

Other References:

 
Code Sec. 355

  CCH Reference - 2008FED ¶16,461

  CCH Reference - 2008FED ¶16,461B

  CCH Reference - 2008FED ¶16,462

  CCH Reference - 2008FED ¶16,463

  CCH Reference - 2008FED ¶16,463D

  CCH Reference - 2008FED ¶16,466.27

  CCH Reference - 2008FED ¶16,466.855

 
Code Sec. 356

  CCH Reference - 2008FED ¶16,493.23

  Tax Research Consultant

  CCH Reference - TRC CCORP: 39,252.10
CCH Reference - TRC REORG: 30,104.05
CCH Reference - TRC REORG: 30,152.10
CCH Reference - TRC REORG: 30,154
 

CCH (cch.taxgroup.com) reports:

  The IRS has issued guidance that describes methodologies that it is considering publishing as safe harbors to be used in the determination of basis in stock that is acquired in a Code Sec. 368(a)(1)( ("B") reorganization or other transferred-basis transaction. The methodologies are intended to respond to issues raised as a result of substantial changes in market practice since the issuance of Rev. Proc. 81-70, 1981-2 CB 729. Comments are requested on the proposed methodologies, and, pending further guidance, taxpayers may rely on the safe harbors set forth in the guidance.

  A "B" reorganization is the acquisition by one corporation of the stock of a target corporation, solely in exchange for the voting stock of the acquiring corporation or its parent, if immediately after the exchange the acquiring corporation is in control of the target. Under Code Sec. 362, if a corporation acquires property in a transferred-basis transaction, including a B reorganization or a Code Sec. 351 transfer from controlling stockholders, the property so acquired keeps the same basis as it had in the hands of the transferor.

Background

  The IRS issued Rev. Proc. 81-70 to facilitate the determination of basis in B reorganizations due to two problems encountered by taxpayers in attempting to establish basis in acquired stock: (1) the acquisition of basis information from target corporation shareholders surrendering stock of widely held corporations was time-consuming, burdensome, and costly; and (2) not all surrendering shareholders were responding to requests for basis information. Rev. Proc. 81-70 provides guidelines for the use of statistical sampling techniques and estimation techniques to determine the basis of stock acquired in a B reorganization where the burden of obtaining the actual basis figures is unreasonable.

  At the time Rev. Proc. 81-70 was issued, most stock was registered stock, so that the name of the beneficial owner of the stock was recorded by the issuing corporation's stock transfer agent on its books. Today, however, stock of public companies is generally held in "street name," whereby the stock is held by a nominee (usually a clearinghouse or other financial institution holding stock on behalf of their members or customers) and the transfer agent's books list the nominee as the owner of the stock. Because there are often several tiers of nominee owners, each subject to confidentiality and other constraints that could bar the release of information, the identification of the beneficial owners of large portions of public companies, and their bases in those interests, can be nearly impossible to discover. Further, the information needed to identify the nominee holders tends to dissipate fairly quickly.

  The IRS, having studied the issues raised by nominee stock holdings and having received public comments on these issues, has concluded that the guidelines of Rev. Proc. 81-70 need to be expanded to address these issues. Expanded guidance (referred to by the IRS as "Expanded Rev. Proc. 81-70") will also apply, not only to B reorganizations but, also, to all transferred basis transactions.

Proposed Guidance

  In order to address the issues raised by nominee stock holdings and to simplify the determination of basis for small stock holdings, "Expanded Rev. Proc. 81-70" will include several safe harbor provisions. Each safe harbor will apply to a specified group of surrendering shareholders and will prescribe a methodology that can be used to determine those shareholders' bases in surrendered stock.

  In general, a determination of basis will be considered timely if it is completed within two years of the later of the date of the transferred basis transaction and the date that "Expanded Rev. Proc. 81-70" becomes effective. A previously completed basis determination will be considered timely if made compliant with the provisions of "Expanded Rev. Proc. 81-70" within two years of the date that "Expanded Rev. Proc. 81-70" becomes effective.

  Notwithstanding any safe harbor prescribed in "Expanded Rev. Proc. 81-70," if the acquiring corporation has, or acquires, actual knowledge of a surrendering shareholder's actual basis in a share of surrendered target stock, the acquirer's allowable basis in the share is equal to that of the surrendering shareholder's basis.

  If an acquiring corporation complies with the terms of a safe harbor, including those provisions that apply to all such safe harbors, the IRS will not assert an alternative method to determine a corporation's allowable basis in stock.

  Safe harbor for target stock surrendered by or on behalf of reporting shareholders. Under this safe harbor, the basis of stock surrendered by reporting shareholders must be determined by survey. In general, a survey must be done in accordance with guidelines set forth in Rev. Proc. 81-70.

  Safe harbor for target stock surrendered by or on behalf of registered nonreporting shareholders. Under this safe harbor, the basis of stock surrendered by registered, nonreporting shareholders must be determined by the certificate method, as described in the notice.

  Safe harbor for target stock surrendered by nominees on behalf of nonreporting shareholders. Under this safe harbor, the basis of all stock surrendered by nominees on behalf of nonreporting shareholders is determined under the basis modeling method, as described in the guidance.

  Reporting requirements. Corporations acquiring target stock in a transferred basis transaction will be treated as satisfying their reporting requirements under Reg. §§1.351-3 and 1.368-3 with respect to the return for the tax year in which the transaction is completed if the corporation includes a statement on or with the return stating that a basis study is pending with respect to the acquired stock.

  Interim use of safe harbor methodologies. "Expanded Rev. Proc. 81-70" will be effective for transferred-basis transactions on or after the date it is issued. Prior to the issuance of "Expanded Rev. Proc. 81-70," taxpayers may use the methodologies of any safe harbor described above to determine the basis of target stock acquired in any transferred-basis transaction that occurs prior to issuance. In such instances, the timeliness requirement will be treated as satisfied if the study is completed within two years of the later of the date of the transferred-basis transaction or January 12, 2009.

Request for Comments

  Comments are requested as to whether the approaches described in the notice should be adopted and to what extent, if any, the approaches should be further combined or modified to produce a set of rules that is both administrable and reflective of statutory intent. The IRS is especially interested in comments regarding whether a simpler methodology, such as one that would determine the basis of all surrendered shares by using a weighted average trading price, would be helpful to taxpayers and appropriate for the tax system. In addition, comments are specifically requested regarding the determination of basis in atypical transferred-basis transactions, such as acquisitions in bankruptcy reorganizations, acquisitions involving foreign transfer agents, and acquisitions involving foreign corporations that may be subject to the rules of Reg. §1.367(b)-13.

Notice 2009-4,
2008FED ¶46,695

Other References:

 
Code Sec. 351

  CCH Reference - 2008FED ¶16,405.01

 
Code Sec. 362

  CCH Reference - 2008FED ¶16,612.162

 
Code Sec. 368

  CCH Reference - 2008FED ¶16,753.21

  Tax Research Consultant

  CCH Reference - TRC CCORP: 39,304.10

Tax Analysts report:

Tax Analysts report: