Tax News

CCH (cch.taxgroup.com) reports:

  Recently approved District of Columbia permanent legislation provides for several changes affecting the corporate and personal income and sales and use tax provisions. Specifically, the legislation approves combined reporting, decoupling, the disallowance of certain related party transactions, tax amnesty, a reduction of the threshold for electronic payments, and a freeze on the standard deduction and personal exemption amounts until 2013. Additionally, the legislation increases the general sales and use tax rate to 6% (previously, 5.75%), for the period beginning October 1, 2009, and ending September 30, 2012, amends the taxation of premium cigars, and repeals the District's sales tax holiday.

  Details regarding the corporate and personal income tax changes were previously reported on an emergency basis. (TAXDAY, 2009/08/28, S.4 ; TAXDAY, 2009/10/30, S.3) Details regarding the sales and use tax changes were also previously reported on an emergency basis. (TAXDAY, 2009/08/28, S.6; TAXDAY, 2009/10/29, S.5)

Act 18-255 (D.C.B. 18-255), Laws 2009, approved December 18, 2009, effective after a 30-day congressional review period
 

CCH (cch.taxgroup.com) reports:

  The Tax Court did not have jurisdiction over a deficiency redetermination because the deficiency notice was not sent to the estate's last known address; consequently, it was invalid under Code Sec. 6212. At the time the estate tax return was filed, the estate's executor listed one office address; however, several years later, a revenue agent who was investigating the decedent's income tax return notified the estate tax examiner that the IRS's computer records indicated that the executor had a new residential address. The examiner was deemed to be aware of the estate's new address at the time the deficiency notice was issued because information available through the use of the IRS's computer system is attributable to the IRS's agents, and the examiner was specifically told that the executor had a new address. Furthermore, the examiner failed to use reasonable care and diligence to ascertain the estate's last known address and mail the deficiency notice to that address.

P. Rule Est., TC Memo. 2009-309, Dec. 58,047(M)

Other References:

 
Code Sec. 6212

  CCH Reference - 2009FED ¶37,544.28

  CCH Reference - FINH ¶20,755.10

  CCH Reference - FINH ¶20,755.40

 
Code Sec. 6213

  CCH Reference - 2009FED ¶37,549.5083

 
Code Sec. 7701

  CCH Reference - FINH ¶22,815.01

  Tax Research Consultant

  CCH Reference - TRC IRS: 27,150

CCH Reference -
TRC IRS: 27,156

 

CCH (cch.taxgroup.com) reports:

  The IRS has issued further guidance on issues related to Code Sec. 7216. The IRS had previously issued final, temporary and proposed regulations that provide updated guidance concerning the disclosure and use of tax return information by tax return preparers under Code Sec. 7216 (T.D. 9478, NPRM REG-131028-09; TAXDAY, 2009/12/30, I.2).

Notice 2010-4

  In Notice 2010-4, the IRS addressed three issues with respect to the use of taxpayer information to solicit new business from previous or existing clients.

  Changes in law that could result in amended returns. A tax return preparer may use tax return information to contact taxpayers to inform them of changes in tax law that could affect the income tax liability on the taxpayers' returns that were previously prepared or processed by this tax preparer. Code Sec. 7216 does not prohibit the use of tax return information to prepare a "tax return," and, under Reg. §301.7216-1(b)(1), a tax return includes an amended return. Accordingly, the preparer could use client tax return information to identify affected taxpayers, inform them regarding the change in tax law, advise whether it would be appropriate for them to file amended income tax returns, and assist in the preparation and filing of any amended returns.

  Accountant or lawyer seeking to give compliance advice. A tax return preparer who is also an accountant may use tax return information to determine who might be affected by a prospective tax rule change in order to contact potentially affected taxpayers for whom the accountant/preparer reasonably expected to provide accounting services in the next year. The contact would notify these taxpayers of the change, explain how the change may affect them, and advise them with regard to actions they may take in response to the change. Reg. §301.7216-2(h)(1)(i) allows a preparer who is lawfully engaged in the practice of law or accountancy to use tax return information to provide other legal or accounting services to the taxpayer, and such services could include advice related to current and future income tax compliance.

  Disclosure of taxpayer list to auxiliary service provider. Finally, tax return preparers may disclose their taxpayer lists kept under Reg. §301.7216-2(n) to a third party service provider holding itself out as providing services that include creation, publication, and distribution of newsletters, bulletins, or similar communications to taxpayers whose tax returns the tax return preparers have prepared or processed containing tax information and general business and economic information or analysis for educational purposes or for purposes of soliciting additional tax return preparation services for the tax return preparer. Although restrictions apply to transfers of taxpayer lists under Reg. §301.7216-2(n), a preparer is allowed under Reg. §301.7216-2(d)(1) to disclose, without taxpayer consent, tax return information to another tax return preparer located in the United States for the purpose of obtaining auxiliary services in connection with the preparation of any tax return, so long as the services provided are not substantive determinations or advice affecting the tax liability reported by taxpayers. The service provider, is prohibited from the further use or disclosure of the tax return information for purposes other than those related to the provision of the auxiliary services or as otherwise expressly permitted under
Code Secs. 6713 and Code Sec. 7216.

Rev. Rul. 2010-5

  In Notice 2010-5, the IRS discussed disclosure of information to tax return preparer insurance carriers. The IRS held that tax return preparers will not be liable for criminal penalties under Code Sec. 7216 and civil penalties under Code Sec. 6713 with respect to certain disclosures of tax return information made to the preparer's professional liability insurance carrier. Under Reg. §301.7216-2(a)(1), a tax return preparer may disclose, without taxpayer consent, tax return information to another tax return preparer located in the United States in order to obtain auxillary services, not involving substantive determinations or tax advice. Disclosures, without taxpayer consent, may also be made to an attorney for the purpose of obtaining legal advice under Reg. §301.7216-2(g).

  A professional liability insurance policy purchased by a return preparer is an auxiliary service provided in connection with the preparation of tax returns; thus, the insurance carrier is a tax return preparer. Accordingly, disclosures necessary for price quotes or to otherwise obtain or maintain professional liability insurance coverage will not result in penalties. This could include a list of client names and description of the services provided, Similarly, disclosures made to the insurance carrier as required for purposes of reporting and investigating claims or for the carrier's selection of an attorney to represent the return preparer will not result in penalties. This could include client names, a description of the services provided, a description of the claim or potential claim, and if necessary, copies of returns relevant to the claims. In both cases, disclosures beyond those that are necessary for the provision of the auxiliary services are prohibited. Finally, a return preparer may make disclosures to the selected attorney related to the claim or potential claim or in seeking legal advice from an attorney who is not a representative of the carrier, without taxpayer consent.

IR-2009-121,
2010FED ¶46,224

Rev. Rul 2010-4, 2010FED ¶46,225

Rev. Rul 2010-5, 2010FED ¶46,226

Other References:

 
Code Sec. 6713

  CCH Reference - 2009FED ¶40,160.021

 
Code Sec. 7216

  CCH Reference - 2009FED ¶40,370.027

  CCH Reference - 2009FED ¶41,370.30

  CCH Reference - 2009FED ¶41,370.60

  Tax Research Consultant

  CCH Reference - TRC IRS: 66,360.10
CCH Reference - TRC IRS: 66,360.15
 

CCH (cch.taxgroup.com) reports:

  Final, temporary and proposed regulations have been issued that provide updated guidance concerning the disclosure and use of tax return information by tax return preparers under Code Sec. 7216. The regulations address the use of information related to lists for solicitation of tax return business, the limited right to disclose, without the taxpayer's consent, certain statistical compilations in connection with, or in support of, a preparer's business, and the disclosure and use of return information in connection with performing conflict reviews.

  CCH Comment.
Code Sec. 7216 imposes a criminal penalty on preparers who knowingly or recklessly disclose any information furnished by taxpayers for the preparation of a return, or use any such information for any purpose other than the preparation of the return or declaration, subject to several exceptions. One exception, under the previously issued final regulations, allowed a preparer to use statistical compilations of anonymous return information in support of the preparer's tax return preparation business. However, the regulation also prohibited the disclosure of all statistical compilations, both taxpayer-identifying and anonymous, unless the disclosure was made in order to comply with financial accounting or regulatory reporting requirements or occurs in connection with the sale or other disposition of the compiler's tax return preparation business.

  The regulations provide a limited expansion of the right, without the taxpayer's written consent, to use and include certain information in lists for the solicitation of tax return business. They permit the information included in such lists to reflect the taxpayer entity classification or type, including individual status, and the taxpayer retrun form number (such as Form 1040, U.S. Individual Income Tax Return, or Form 1220, U.S. Corporation Income Tax Return). The regulations specify that additional information that may be included in such lists can be contained in future guidance issued by the IRS.

  While the regulations provide some expansion of the information contained in the lists used for the solicitation of tax return business, they clarify that such lists may not be used to solicit non-return preparation services. Moreover, auxiliary service providers, such as companies providing tax return preparation software, may not use any return information received to compile and maintain a list of taxpayers for the auxiliary service provider's own use, such as marketing to clients of the preparer.

  The regulations also provide clarification of the rules concerning transfers of such lists. A transfer is permitted if it takes place in conjunction with the sale or other disposition of the compiler's tax return preparation business. The regulations specify that due diligence conducted by the prospective buyer of the business is considered "in conjunction with the sale or other disposition". The buyer is, however, bound by the same provisions with respect to the use and disclosure of such list.

  The regulations supercede the interim guidance contained in Notice 2009-13, IRB 2009-6, 447, (TAXDAY 2009/01/19, I.6) which permitted a preparer to use tax return information to produce a statistical compilation of data in connection with the internal management or support of the preparer's tax return preparation business.
Notice 2009-13 provided that any disclosure of a statistical compilation had to be in a form that could not be associated with, or otherwise identify, directly or indirectly, a particular taxpayer. To further protect anonymity, the disclosure had to not disclose cells containing data from fewer than 25 tax returns.

  Under the regulations, disclosure of cells containing data from ten or more tax returns is permitted. The regulations clarify that a preparer is permitted to disclose an anonymous statistical compilation for bona fide research or public policy discussions concerning state or federal taxation or requiring data acquired during the return preparation process. However, the regulations prohibit, in the context of marketing or advertising, the use or disclosure of any part of a statistical compilation that identifies the dollar amount of refunds, credits, or deductions associated with tax returns, regardless of whether the data are statistical, averaged, aggregated or anonymous.

  Finally, the regulations permit the use and disclosure of information, without the taxpayer's written consent, for purposes of conflict of interest reviews, but only to the extent necessary to accomplish the review. The regulations specify that such reviews include reviews undertaken to comply with requirements established by federal, state or local law, agency, boards and commissions. It also includes reviews by professional association ethics committee and boards. While such reviews may take place outside the United States, if disclosure is made in connection with such foreign reviews, the disclosing and receiving preparers must have adequate procedures in place to maintain the confidentiality of the disclosed information.

  The text of the temporary regulations also serves as the text of the proposed regulations. Written or electronic comments and requests for a public hearing must be received by February 27, 2010.

T.D. 9478, 2010FED ¶47,008

Proposed Regulations, NPRM REG-131028-09, 2010FED ¶49,441

Other References:

 
Code Sec. 7216

  CCH Reference - 2009FED ¶41,365A

  CCH Reference - 2009FED ¶41,365E

  CCH Reference - 2009FED ¶41,367C

  CCH Reference - 2009FED ¶41,367G

  Tax Research Consultant

  CCH Reference - TRC IRS: 66,360.10
CCH Reference - TRC IRS: 66,360.15
 

CCH (cch.taxgroup.com) reports:

  The IRS has issued final, temporary and proposed regulations addressing the use of controlled corporations to avoid the application of
Code Sec. 304. The regulations apply to transactions that are entered into with a principal purpose of avoiding the application of Code Sec. 304 to a corporation that is controlled by the issuing corporation in the transaction, or to a corporation that controls the acquiring corporation in the transaction. The regulations affect shareholders treated as receiving distributions in redemption of stock by reason of Code Sec. 304, and are effective on December 29, 2009.

Background

 
Code Sec. 304(a)(1) generally provides that if one or more persons are in control of each of two corporations, and one such corporation acquires stock of the other corporation in exchange for property from the person or persons so in control, the property is treated as received in redemption of the stock of the acquiring corporation. Code Sec. 304(a)(2) generally provides that if in exchange for property, the acquiring corporation acquires stock of the issuing corporation from a shareholder of the issuing corporation, and the issuing corporation controls the acquiring corporation, the shareholder is treated as receiving the property in redemption of the stock of the issuing corporation. Under Code Sec. 304(b)(2), the determination of the amount of the distribution that is a dividend is made as if the property were distributed by the acquiring corporation to the extent of its earnings and profits, and then by the issuing corporation to the extend of its earnings and profits. If the acquiring corporation is foreign, the amount of earnings and profits that are taken into account for this purpose are limited by Code Sec. 304(b)(5).

  In June 1988, the IRS issued Temporary Reg. §1.304-4T to address transactions that are entered into with a principal purpose of avoiding the application of Code Sec. 304. The regulation provided that for purposes of determining the amount constituting a dividend and source thereof, a corporation (deemed acquiring corporation) will, at the discretion of an IRS District Director (now known as the Director of Field Operations), be considered to have acquired for property the stock of another corporation that is controlled by the deemed acquiring corporation, if one of the principal purposes for creating, organizing, or funding the acquiring corporation, through capital contributions or debt, is to avoid the application of Code Sec. 304 to the deemed acquiring corporation

Final and Temporary Regulations

  The final and temporary regulations provide an anti-avoidance rule similar to Temporary Reg. §1.304-4T, but that applies to transactions entered into with a principal purpose of avoiding the treatment of a corporation as the issuing corporation. The regulations provide that for purposes of determining the amount of a property distribution that is a dividend, and the source thereof, under Code Sec. 304(b)(2), the acquiring corporation will be treated as acquiring for property the stock of a corporation (deemed issuing corporation) that is controlled by the issuing corporation, if, in connection with the acquisition by the acquiring corporation, the issuing corporation acquired stock of the deemed issuing corporation with a principal purpose of avoiding the application of
Code Sec. 304 to the deemed issuing corporation.

  The regulations also modify Temporary Reg. §1.304-4T to make the anti-avoidance rule self-executing, rather than at the discretion of the District Director (Director of Field Operations). Further, the regulations clarify that the anti-avoidance rule may apply even if the funding for the acquiring corporation is from an unrelated party.

Proposed Regulations

  The text of the temporary regulations also serves as the text of the proposed regulations. Comments and requests for a public hearing must be received by March 29, 2010.

T.D. 9477, 2010FED ¶47,007

Proposed Regulations, NPRM REG-132232-08, 2010FED ¶49,440

Other References:

 
Code Sec. 304

  CCH Reference - 2009FED ¶15,377CJ

  CCH Reference - 2009FED ¶15,377D

  Tax Research Consultant

  CCH Reference - TRC CCORP: 21,452

  CCH Reference - TRC CCORP: 21,454

  CCH Reference - TRC CCORP: 24,060

 

CCH (cch.taxgroup.com) reports:

  The Ohio Department of Taxation has issued a sales and use tax information release to explain changes to the way sales of tangible personal property and services are sourced. Beginning January 1, 2010, Ohio vendors that had previously switched to destination sourcing for delivery sales must source their sales to the location where the order was received. Remote sales made by Ohio vendors, via mail order, telephone, or the Internet, must also be sourced to the location where the order was received. Sales by out-of-state vendors must be sourced to the location where the purchaser receives the tangible personal property. Sales of taxable services will be sourced to the location where the consumer receives the service, no matter where the service provider is located.

  Vendors that converted to destination sourcing and received compensation for making the change may qualify for compensation for converting back to origin sourcing. Vendors will not be subject to penalties relating to the sourcing change as long as the changes are completed by April 1, 2010. Beginning January 1, 2010, consumers who remit Ohio sales tax to the seller at the rate applicable where the order was received or where the consumer received the property will not be subject to any additional sales or use tax on the transaction.
 
Sales and Use Tax: Information Release ST 2009-03 , Ohio Department of Taxation, December 2009
 

CCH (cch.taxgroup.com) reports:

  The London International Financial Futures and Options Exchange (LIFFE), a regulated exchange of the United Kingdom, has been recognized by the IRS as a qualified board or exchange within the meaning of
Code Sec. 1256(g)(7)(C). A taxpayer may change to the Code Sec. 1256 mark-to-market accounting method for the first tax year during which the taxpayer holds LIFFE contract that was entered into on or after January 1, 2010. Although the change in treatment of LIFFE contracts is a change in method of accounting, taxpayers do not need to file Form 3115, Application for Change in Accounting Method, to make this change. The change is made on a cut-off basis and no Code Sec. 481(a) adjustment is required.

Rev. Rul. 2010-3, 2010FED ¶46,221

Other References:

 
Code Sec. 1256

  CCH Reference - 2009FED ¶31,107.021

  CCH Reference - 2009FED ¶31,107.70

  Tax Research Consultant

  CCH Reference - TRC SALES: 48,100

CCH (cch.taxgroup.com) reports:

  The IRS has further extended the application of the regulations described in Notice 2008-91, 2008-2 CB 1001 regarding the elective exclusion of certain obligations held by controlled foreign corporations (CFCs) from the definition of the term "obligation" for purposes of Code Sec. 956 (Notice 2010-12). Thus, these regulations will apply to the tax year of a CFC that immediately follows the last tax year of the CFC to which the regulations described in Notice 2008-91 could apply without regard to Notice 2010-12. Such regulations, however, will not apply to a tax year of a CFC beginning on or after January 1, 2011, and the IRS does not anticipate extending the application of these regulations to any additional periods. The IRS has also extended the application of Rev. Proc. 2008-26, 2008-1 CB 1014 to any day during calendar year 2010, for which it is relevant whether securities are readily marketable for purposes of Code Sec. 956(c)(2)(J) (in addition to any day during calendar years 2007, 2008 and 2009).

  In Notice 2008-91, the IRS announced that it intends to issue regulations under Code Sec. 956(e) that will allow a CFC to choose to exclude from the definition of the term "obligation" an obligation held by the CFC that would constitute an investment in U.S. property, provided the obligation is collected within 60 days from the time it is incurred. This exclusion will not apply, however, if the CFC holds for 180 or more calendar days during its tax year obligations that, without regard to the 60 day rule, would constitute an investment in U.S. property. Notice 2008-91 provides that the elective exclusion will apply for the first two tax years of a CFC ending after October 3, 2008. It will not, however, apply to tax years of a CFC beginning after December 31, 2009. The IRS subsequently issued Notice 2009-10, 2009-1 CB 419 to provide that the regulations described in Notice 2008-91 will also apply to the third consecutive tax year of a CFC, if any, that ends after October 3, 2008, and on or before December 31, 2009.

 
Rev. Proc. 2008-26 generally applies to determine whether securities are "readily marketable" for purposes of Code Sec. 956(c)(2)(J) for any day during calendar years 2007 or 2008, for which it is relevant whether securities are readily marketable for purposes of that provision. Notice 2009-10 subsequently extended that period to include any such day during calendar year 2009.

Notice 2010-12, 2010FED ¶46,220

Other References:

 
Code Sec. 956

  CCH Reference - 2009FED ¶28,576.023

  CCH Reference - 2009FED ¶28,576.35

  Tax Research Consultant

  CCH Reference - TRC INTLOUT: 9,256.15

CCH (cch.taxgroup.com) reports:

  The IRS has extended the temporary suspension of the rule disallowing the deduction of interest from certain applicable high yield discount obligations (AHYDOs). Generally, under Code Sec. 163(e)(5), a corporation may not deduct the "disqualified portion" of original issue discount (OID) on an AHYDO issued after July 10, 1989. However, the American Recovery and Reinvestment Act of 2009 (P.L. 111-5) suspended this rule for any AHYDO issued during the period beginning September 1, 2008, and ending December 31, 2009, in exchange for an obligation which is not an AHYDO from the same issuer. Pursuant to authority provided to it under the legislation, the Secretary of Treasury and IRS are extending the temporary suspension of the AHYDO rules to December 31, 2010, for any AHYDO that:

  --is issued after December 31, 2009, and before January 1, 2010, in exchange for an obligation which is not an AHYDO from the same issuer;

  --does not pay contingent interest;

  --is not issued to a related person;

  --the issue price of which is determined under the OID rules; and

  --would not otherwise be an AHYDO if its issue price were increased by the amount of any discharge of indebtedness income realized by the issuer upon the exchange.

Notice 2010-11, 2010FED ¶46,219

Other References:

 
Code Sec. 163

  CCH Reference - 2009FED ¶9303.12

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 36,262

CCH (cch.taxgroup.com) reports:

  An airline company's second refund claim seeking additional refunds of Illinois use tax erroneously paid on exempt aviation fuel used on international flights was barred because it was filed after the statute of limitations and the taxpayer had not entered into an agreement with the Department of Revenue to extend the limitations period.

  The Court of Appeals reversed a circuit court ruling and held that the second refund claim was not an amendment to the taxpayer's first refund claim, which was timely filed, but rather was a separate claim, based upon different transactions with different factual and legal predicates.

 

CCH (cch.taxgroup.com) reports:

  In a United States District Court case brought by Monroe County on behalf of a class of Florida counties against various on-line travel companies (OTCs) that allegedly failed to remit county tourist development taxes (TDTs), the court granted the OTCs' motion to dismiss the county's claim for permanent injunctive relief, but denied the OTCs' motion to dismiss the county's other claims. The county claimed that injunctive relief was necessary because it lacked an adequate remedy at law and would suffer irreparable harm without a permanent injunction and that these two elements are presumed satisfied when a government seeks to enforce its police power. However, the county was seeking to enforce its taxing power and not its police power; it had a host of administrative, civil, and criminal enforcement remedies to ensure compliance with its tax laws; and it failed to prove that it would suffer irreparable harm without the injunction. Also, the proposed injunction would require a federal district court to indefinitely oversee a municipal tax ordinance, which is not appropriate to the court's function.

 

CCH (cch.taxgroup.com) reports:

 
The statute of limitations for assessing tax against married taxpayers who formed a partnership that engaged in a listed transaction but failed to properly disclose the transaction on their income tax return or the partnership's income tax return remained open by reason of Code Sec. 6501(c)(10), as added by American Jobs Creation Act of 2004 (P.L. 108-357) (Jobs Act).

  This provision extends the limitations period until one year after the required disclosure statement is provided. The taxpayer's contention that the effective date of Code Sec. 6501(c)(10) provided by Act Section 814(b) of the Jobs Act was inapplicable was rejected. Further arguments that regulations requiring the identification of listed transactions on a taxpayer's tax return were invalid as a result of IRS's failure to comply with various administrative requirements related to the issuance of the regulations also failed.

  In a transaction that occurred in 2001, the taxpayers generated funds through the short sale of borrowed Treasury notes and contributed the funds and obligation to cover the short sale to a partnership in exchange for partnership interests. They each claimed a basis in their partnership interest that included the short sale proceeds, unreduced by the obligation to cover the short sale. Upon disposition of their partnership interests, they claimed substantial tax losses even though there was no economic loss.

  The court determined that the transaction was a listed transaction because it was substantially similar to the Son-of-Boss transactions described in Notice 2000-44, 2000-2 CB 255. These transactions involve the generation of funds through the creation of a liability and the contribution of the funds or an asset purchased with the funds and the associated liability to a partnership without any adjustment in the basis of the partnership interest received for the liability.

  The taxpayers' filed their 2001 income tax return more than three years before the issuance of the IRS's final partnership administrative adjustment (FPAA). Consequently, the general limitations period had expired. The IRS, however, contended that the transaction was a listed transaction described in Code Sec. 6707A(c)(2) and that the failure of the partners or partnership to disclose the transaction on their tax returns triggered the extended limitation periods of Code Sec. 6501(c)(10). If a taxpayer fails to include a statement required under Code Sec. 6011 with respect to a listed transaction as defined in Code Sec. 6707A(c)(2), as added by the Jobs Act, Code Sec. 6501(c)(1) extends the limitations period until one year after the statement is provided.

 
Code Sec. 6501(c)(10) was made effective for tax years "with respect to which the period for assessing a deficiency did not expire before" October 22, 2004. On October 22, 2004, the period for assessing a deficiency with respect to the taxpayers' 2001 tax year was open. Therefore, if the effective date provided in Act Section 814(b) applied,Code Sec. 6501(c)(10) extended the limitations period for the taxpayers' 2001 tax year.

  However, the taxpayers argued that, because Code Sec. 6707A, which imposes a penalty for failure to include information with respect to a reportable or listed transaction as required by Code Sec. 6011, is effective for returns and statements the due date for which is after October 22, 2004, and which were not filed before that date, Code Sec. 6501(c)(10) cannot apply to any transaction for which a return or statement was due on or before October 22, 2004.

  The court rejected this argument noting the different purposes of the effective dates in the two provisions. Code Sec. 6707A was enacted to impose a penalty prospectively on a taxpayer who failed to meet the reporting requirements of Code Sec. 6011 with respect to listed transactions. The effective date of Code Sec. 6501(c)(10) was intended to keep open limitations periods that had not yet expired as of October 22, 2004, if the taxpayer failed to make the required Code Sec. 6011 disclosure of involvement in a listed transactions on a return that was due before that date.

  The court noted that extending an unexpired limitations period is not an impermissible retroactive action. Further, application of the effective date for Code Sec. 6707A to Code Sec. 6501(c)(10) would render the stated effective date of Code Sec. 6510(c) meaningless. If Congress had intended Code Sec. 6501(c)(10) to apply to a transaction for which a statement was due after October 22, 2004, it could have expressly done so.

  The court also rejected the taxpayers' arguments that Temporary Reg. §1.6011-4T, which applied to the tax year at issue and required disclosure of participation in listed transactions, was invalid by reason of the IRS's determination that the regulation was not a significant regulatory action requiring review by the Office of Management and Budget in accordance with Executive Order 12866, 3 C.F.R. 638 (1994). That Executive Order specifically denies taxpayers the authority to challenge such a determination.

  Further, the IRS's decision that the regulations would not have significant economic impact on a substantial number of small entities and was, therefore, exempted from the preparation of a regulatory flexibility analysis otherwise required by the Regulatory Flexibility Act (5 U.S.C. section 603-604) was proper. Finally, the use of a cross reference in the final regulations to incorporate the rules of the temporary regulations for transactions prior to the generally applicable effective date of the final regulations was not a violation of the notice and comment requirements of the Administrative Procedure Act.

BLAK Investments, 133 TC No. 19, Dec. 58,039

Other References:

 
Code Sec. 6011

  CCH Reference - 2009FED ¶35,141.70

 
Code Sec. 6501

  CCH Reference - 2009FED ¶38,967.328

  Tax Research Consultant

  CCH Reference - TRC FILEBUS: 3,052.20
CCH Reference - TRC PENALTY: 3,252.106
 

CCH (cch.taxgroup.com) reports:

  The IRS has released the inflation-adjusted air transportation tax rates for tax years beginning in 2010. For calendar year 2010, the
Code Sec. 4261(b) excise tax on the amount paid for each domestic flight segment of taxable transportation by air increases to $3.70, up from $3.60 in 2009. The
Code Sec. 4261(c) excise tax on any amount paid for transportation of persons by air will remain at $16.10 for international travel beginning or ending in the United States. For a domestic flight segment beginning or ending in Alaska or Hawaii, the Code Sec. 4261(c) tax applies to departures at the rate of $8.10, up from $8.00 in 2009.

  The vehicle for announcing the other 2010 inflation adjustments, Rev. Proc. 2009-50, which was issued on October 15, 2009, did not include 2010 adjusted tax rates for the air transportation taxes imposed by Code Sec. 4261(b) and
(c). This is because the Fiscal Year 2010 Federal Aviation Administration Extension Act (P.L. 111-69) extended these taxes only through December 31, 2009. However, on December 16, President Obama signed the Fiscal Year 2010 Federal Aviation Administration Extension Act, Part II (P.L. 111-116), which extended the authority to collect the air transportation excise taxes through March 31, 2010.

IR-2009-120, ETR ¶66,888

Other References:

 
Code Sec. 4261

  CCH Reference - ETR ¶19,305.014

  CCH Reference - ETR ¶19,305.02

  CCH Reference - ETR ¶19,305.495

  Tax Research Consultant

  CCH Reference - TRC EXCISE: 9,102.05
CCH Reference - TRC EXCISE: 9,104.05

 

CCH (cch.taxgroup.com) reports:

 
The IRS has issued temporary guidance that covers stock distributions by publicly traded real estate investment trusts (REITs) and regulated investment companies (RICs). The new guidance expands upon previously issued guidance in Rev. Proc. 2009-15, I.R.B. 2009-4, 356.

  As under the prior guidance, if a RIC or REIT makes a qualifying distribution, the IRS will treat the distribution of stock as a dividend. The amount of such stock distribution will be treated as equal to the amount of money that could have been received instead of stock.

  The new guidance further provides that, if a RIC or REIT makes a qualifying distribution and some shareholders receive a combination of stock and money that differs from the combination received by other shareholders and if the fair market value of the stock on the date of distribution differs from the amount of money that could have been received instead, those differences do not cause the distribution to be treated as a preferential dividend.

  A qualifying distribution must meet all of the following requirements:

  (1) the distribution is made by the corporation to its shareholders with respect to its stock;

  (2) stock of the corporation is publicly traded on an established securities market in the United States;

  (3) the distribution is declared on or before December 31, 2012, with respect to a tax year ending on or before December 31, 2011 (subject to special timing rules for certain distributions, including distributions made after the close of the tax year);

  (4) pursuant to such declaration, each shareholder may elect to receive the shareholder's entire entitlement under the declaration in either money or stock of the distributing corporation of equivalent value, subject to a limitation on the amount of money to be distributed in the aggregate to all shareholders with the value of the distributed shares determined under the formula in item (5), below;

  (5) the calculation of the number of shares to be received by any shareholder will be determined over a period of two weeks ending as close as practicable to the payment date based upon a formula utilizing market prices that is designed to equate in value the number of shares to be received with the amount of money that could be received instead; and

  (6) with respect to any shareholder participating in a dividend reinvestment plan (DRIP), the DRIP applies only to the extent that, in the absence of the DRIP, the shareholder would have received the distribution in money under item (4), above.

  The new temporary guidance is effective with respect to distributions declared on of after January 1, 2008. Rev. Proc. 2009-15, I.R.B. 2009-4, 356, is amplified and superseded.

Rev. Proc. 2010-12, 2010FED ¶46,217

Other References:

 
Code Sec. 305

  CCH Reference - 2009FED ¶15,402.1385

 
Code Sec. 852

  CCH Reference - 2009FED ¶26,433.26

 
Code Sec. 857

  CCH Reference - 2009FED ¶26,533.025

  Tax Research Consultant

  CCH Reference - TRC RIC: 3,202
CCH Reference -
TRC RIC: 6,150

CCH (cch.taxgroup.com) reports:

  The Senate on December 24 passed its sweeping health care reform legislation, the Patient Protection and Affordable Care Bill (HR 3590) by a vote of 60 to 39. The vote set the stage for a contentious conference with the House to merge the two chambers' respective versions of the bill.

  Calling Senate passage of the health care reform bill "a historic vote," President Obama said that Congress is "finally poised to deliver on the promise of real, meaningful health insurance reform that will bring additional security and stability to the American people." The president noted that, if a final bill is enacted, it will be "the most important piece of social policy since the Social Security Act in the 1930s, and the most important reform of our health care system since Medicare passed in the 1960s."

Conference Issues

  Liberal House Democrats are unhappy that the Senate jettisoned a public insurance option. They are also opposed to language in the Senate bill that prohibits the use of federal funds to pay for abortions, a key concession necessary to win the vote of Sen. Ben Nelson, D-Neb. The moderate lawmaker has warned that significant changes to the Senate version could cause him to vote against the final bill, leaving Senate Democratic leaders short of the necessary 60 votes required for passing the measure.

  The House and the Senate also differ on how to pay for the reform package. The Senate bill raises most of the revenue for health care reform by imposing a 40-percent surtax on high-cost employer-sponsored health plans. House members from states with strong union supporters oppose the tax on so-called "Cadillac" plans and they have threatened to withhold their support of a final bill if the provision is included.

  The House bill would raise revenue through a 5.4-percent surtax on high-income earners and the Senate has openly rejected that plan. Democratic aides believe, however, that both sides will eventually compromise on revenue provisions and have suggested that conferees will likely consider raising the income threshold for high-end insurance plans.

  Democratic staff members will begin laying the framework for negotiations during the week starting on December 28 and conferees are expected to return to Washington the first week of January 2010. House Speaker Nancy Pelosi, D-Calif., has indicated that she would like to complete work on the health care reform package in time for President Obama's State of the Union address, traditionally delivered at the end of January. The White House has set no deadline for when it expects to see the final bill.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

CCH (cch.taxgroup.com) reports:

  A U.S. district court dismissed for lack of standing consolidated putative class actions that claimed that several wireless phone companies and other entities involved with the sale of wireless telecommunication services had engaged in the unfair and deceptive practice of charging consumers California sales tax on the full retail value of wireless phones that were advertised as "free" or at substantial discounts, in violation of California's Unfair Competition Law and False Advertising Law. The court found that the plaintiffs that brought the claims did not suffer injury as the direct result of the phone companies' advertisements as the evidence presented indicated that :

  -- one of the plaintiffs based her claim on an in-store purchase that she said she entered into as a result of an Internet advertisement that specifically limited the offer to on-line sales and stated that sales tax charges were extra;

  -- one of the plaintiffs stated that he probably would have purchased the phones even if he had known that sales taxes would be charged on basis of the phones' full retail value; and

  -- one of the plaintiffs had a history of trading in her phone every two years when her contract expired, and therefore could not show that her purchase of the phone was the result of the phone companies' advertisement.

  
Laster v. T-Mobile USA, Inc. , United States District Court, Southern District of California, No. 05cv1167, December 14, 2009

CCH (cch.taxgroup.com) reports:

  The IRS has finalized regulations that provide guidance to corporations that are component members of a controlled group of corporations regarding the apportionment of tax benefit items and the amount and type of information that they are required to submit with their returns. The final regulations also provide guidance to consolidated groups filing life-nonlife federal income tax returns. The regulations are effective on the date of publication in the Federal Register.

Code Sec. 1502 Regulations

  Under the final Code Sec. 1502 regulations, if a consolidated group is treated collectively as being one component member of a controlled group or if each member of a consolidated group is treated as being a separate member of a controlled group, then Code Sec. 1561 applies to determine the portion of the consolidated accumulated earnings credit to be allocated to the group or each member. The final regulations under Code Sec. 1502 also set forth certain filing requirements for consolidated income tax returns for a life-nonlife consolidated group by the common parent. These regulations generally apply to consolidated federal income tax returns due (without extensions) on or after December 21, 2009. However, a consolidated group may apply the regulations to any consolidated federal income tax return filed on or after December 21, 2009.

Code Sec. 1561 Regulations

  The final regulations under Code Sec. 1561 provide: (1) general rules regarding certain tax benefits available to the component members of a controlled group of corporations, (2) special rules for allocating reductions of certain Code Sec. 1561(a) tax benefit items, and (3) filing requirements related to the allocation of
Code Sec. 1561(a) tax items. These regulations generally apply to any tax year beginning on or after December 21, 2009. However, taxpayers may apply the regulations to any federal income tax return filed on or after December 21, 2009. For tax years beginning before December 21, 2009, the former temporary regulations apply.

  The general rules in the final regulations provide that the amount of tax items set forth in Code Sec. 1561(a) that are available to any of the component members of a controlled group shall be determined as if the component members were a single corporation. Certain other tax items, such as the Code Sec. 11(b)(1) additional tax and the Code Sec. 55(d)(3) phaseout of the alternative minimum tax (AMT) exemption amount will be determined by combining the positive taxable income or positive alternative minimum taxable income (AMTI) of the component members of such group and then allocating the amount of such items among the members.

  The special rules in the final regulations provide detailed guidance on the calculation of the Code Sec. 11(b)(1) additional tax and the apportionment of the additional tax under the proportionate method or the FIFO method. Detailed guidance is also provided on the calculation of the reduction set forth in Code Sec. 55(d)(3) to the amount exempted from the AMT. Any reduction to the exemption amount shall be apportioned to the component members of a controlled group in the same manner that the amount of the exemption provided in
Code Sec. 55(d)(2) to the AMT was allocated under Code Sec. 1561(a). Additional rules for short tax years and examples are also provided.

  The filing requirements in the Code Sec. 1561 final regulations generally provide that, for each tax year that a corporation is a component member of the same controlled group of corporation on December 31st (its testing date), such corporation and all other component members of such group each must file Schedule O or any successor form with the federal income tax return for that component member's tax year that includes a particular testing date. Each such corporation must file the form with its return whether or not there is an apportionment plan in effect or any change is made to the group's apportionment of its Code Sec. 1561(a) tax benefit items from the previous year. An exception applies if any of the component members of a controlled group are also members of a consolidated group. Additional rules provide guidance where no apportionment plan is in effect and guidance on how component members of a controlled group adopt an apportionment plan or an amendment of an apportionment plan.

T.D. 9476, 2010FED ¶47,006

Other References:

 
Code Sec. 924

  CCH Reference - 2009FED ¶28,144

 
Code Sec. 1502

  CCH Reference - 2009FED ¶33,190

  CCH Reference - 2009FED ¶33,193

 
Code Sec. 1561

  CCH Reference - 2009FED ¶33,341

  CCH Reference - 2009FED ¶33,342

  CCH Reference - 2009FED ¶33,344

  CCH Reference - 2009FED ¶33,345

  Tax Research Consultant

  CCH Reference - TRC CCORP: 42,050

  CCH Reference - TRC CCORP: 42,052.05

  CCH Reference - TRC CCORP: 42,052.10

  CCH Reference - TRC CCORP: 42,054.05

  CCH Reference - TRC CCORP: 42,054.10

  CCH Reference - TRC CCORP: 42,058

  CCH Reference - TRC CCORP: 42,204

  CCH Reference - TRC CCORP: 42,206

  CCH Reference - TRC CCORP: 45,054.10

  CCH Reference - TRC CCORP: 45,502

  CCH Reference - TRC CONSOL: 7,106

CCH (cch.taxgroup.com) reports:

  Unemployed workers will be eligible for an additional two months of COBRA premium assistance for their health insurance coverage, under the Department of Defense Appropriations Act, 2010 (HR 3326; P.L. 111-118) signed by President Obama on December 19. The COBRA benefits were scheduled to expire after December 31, but House lawmakers voted 395-to-34 to extend the benefits as part of the defense spending measure on December 16. Senate lawmakers cleared the measure for the president's signature on December 19 by a vote of 88 to 10.

  Extended eligibility for the 65-percent COBRA premium subsidy was originally enacted as part of the American Recovery and Reinvestment Act of 2009 (2009 Recovery Act) (P.L. 111-5). Under the new law, employees must have faced involuntary termination between September 1, 2008, and February 28, 2010, in order to qualify for the COBRA benefits. House lawmakers had also attempted to extend the COBRA benefits for six months in the Jobs for Main Street Bill of 2010, which is part of the Commerce, Justice, Science, and Related Agencies Appropriations Act, 2010 (HR 2847) on December 16, but Senate lawmakers declined to consider that bill while the chamber was in the midst of debate on health care reform legislation.

  CCH Comment. Information on the COBRA extension is available in the CCH Tax Briefing on the House-approved Tax Extenders Bill of 2009 (HR 4213). The CCH Tax Briefing update on the Tax Extenders Bill of 2009 can be found at
http://CCHGroup.com/Legislation/TaxExtendersActof2009.pdf.

  By Stephen K. Cooper, CCH News Staff

Commerce, Justice, Science, and Related Agencies Appropriations Bill, 2010, HR 2847
 

CCH (cch.taxgroup.com) reports:

  The Senate on December 22 approved, by a 60-to-39 margin, a motion to end debate on the Patient Protection and Affordable Care Bill (HR 3590), setting the stage for a final vote early on December 24. Leaders decided to move up the vote in order to recess earlier for the holidays.

  With the Senate progressing toward passage of their $871-billion health care reform package and breaking for the rest of the year, Senate Finance Committee Chairman Max Baucus, D-Mont., and ranking member Charles E. Grassley, R-Iowa, issued a joint statement declaring their intent to address expiring tax provisions early in 2010. "Although the House and Senate were unable to come to agreement on a package to extend several expiring tax provisions before Congress adjourned, these measures must be addressed as soon as possible," stated the lawmakers. "In an effort to provide a seamless extension of these provisions with the fewest disruptions and administrative problems, we will take up legislation as quickly as possible in the New Year."

  In addition, the senior lawmakers sent a letter to Senate Majority Harry Reid, D-Nev., and Senate Minority Leader Mitch McConnell, R-Ky., informing them of their plan to immediately pursue the extension of the popular tax credits. "We write to inform you that early in the next year, we intend to address the extension of various tax provisions expiring on or before December 31, 2009. We intend to extend the provisions without a gap in coverage, just as the House did on December 9th of this year."

  Baucus later told reporters that fixing the estate tax, which Congress also failed to address in 2009, was critical, and that he would like to see it taken up as part of tax reform legislation expected sometime in 2010. Democratic leaders in both chambers had initially planned to attach a short-term extension at 2009 levels to the Department of Defense appropriations bill, but they abandoned that plan when it became apparent that they did not have the necessary 60 votes in the Senate required for passage. President Obama signed the measure into law on December 19 (P.L. 111-118).

Obama to Remain in Town

  President Obama on December 22 said he would not leave Washington, D.C., until the Senate finished its work on HR 3590. Noting the sacrifices that are being made to get the measure done, the president offered to remain in town to provide "any encouragement and last-minute help, if necessary." The White House did not elaborate on what kind of eleventh hour help the president had in mind.

  White House Press Secretary Robert Gibbs, at a press briefing on December 22, hailed the Senate legislation, noting it would make fundamental changes in health care coverage by reforming the insurance system and offering access to care to 30 million people who are now uninsured. He stressed that the proposal is fiscally responsible and reduces the federal deficit.

  Gibbs depicted as "delusional" criticism that the White House pressured the Congressional Budget Office (CBO) into underestimating the cost of the legislation. According to CBO estimates, the health care reform bill would lower the deficit by $132 billion over the first 10 years and up to $1.3 trillion in the second decade.

  Speaking confidently about the prospects of the bill's passage, Gibbs several times told reporters that enactment of health care reform legislation is no longer a question of "if," but "when." When asked whether the president would like the bill to be signed into law before his State of the Union address in January, Gibbs said he did not know the date of the address, but then added that the president wants to sign the bill as soon as Congress sends it to him.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

SFC Press Release: Baucus-Grassley Statement Regarding Extending Expiring Tax Provisions

CBO Letter to Sen. Reid Regarding Financial Impact of Senate Amendment 2786

Correction to CBO Letter to Sen. Reid Regarding Financial Impact of Senate Amendment 2786

Floor Speech of Sen. Chuck Grassley: Tax Cuts v. Tax Increases
 

CCH (cch.taxgroup.com) reports:

  The Senate late on December 20 approved by a 60-40 margin a procedural motion that will allow a vote on a manager's amendment to the Patient Protection and Affordable Care Bill (HR 3590), paving the way for final passage before Christmas. The vote came after Sen. Ben Nelson, D-Neb., made a deal on December 19 with Senate Majority Leader Harry Reid, D-Nev., on language in the bill regarding federal funding of abortion, and gave Democrats the 60 votes they needed to advance the bill.

  The manager's package negotiated by Reid over the past several days incorporates the abortion language Nelson demanded and several other changes from the original bill approved by the Senate Finance Committee, including new tax provisions. The amendment adds $12 billion in small business tax cuts slated to take effect in 2010, an expansion of the adoption tax credit and a new 10-percent tax on tanning salon services.

  Nelson said he still can withhold his support of the health care reform bill if a conference to merge the House and Senate versions significantly alters the measure approved by the Senate. Senate Finance Committee Chairman Max Baucus, D-Mont., said after the procedural vote that the conference report will have to resemble the Senate's legislation in order to achieve final passage in that chamber. The conference is expected to take place shortly after lawmakers return from the Christmas recess on January 5, 2010.

  Health, Education, Labor and Pensions Chairman Tom Harkin, D-Iowa, said leadership was still considering whether to hold a full formal conference, or an abbreviated conference where changes are negotiated in private and then presented to conferees for a vote. How to pay for the health care overhaul will prove one of the more contentious items in the conference, said Harkin, a conferee designee due to his chairmanship of the one of the committees that wrote the bill.

  The Senate bill raises revenue for health care reform by imposing a 40-percent surtax on high-end employer-sponsored health plans and increasing the Medicare tax to 2.35 percent for couples with adjusted gross incomes (AGI) over $250,000 a year and individuals with AGI over $200,000. The typical premium threshold for the so-called "Cadillac plans" begins at $8,500 for individuals and $23,000 for a family. The House bill would impose a 5.4-percent surtax on high-income earners, hitting couples with adjusted gross incomes over $1 million and individuals with AGI over $500,000.

White House Reaction

  President Obama on December 21 said the Senate vote "has moved us closer to reform that makes a tremendous difference for families, for seniors, for businesses, and for the country as a whole." Obama noted that the bill would provide tax credits to small businesses and individuals who are not covered by their employer and cannot afford to buy insurance on their own.

  Countering criticism about the cost of the measure, the president pointed to Congressional Budget Office estimates that the health care reform bill would lower the deficit by $132 billion over the first 10 years and up to $1.3 trillion in the second decade. "For all those who are continually carping about how this is somehow a big-spending government bill, that argument that opponents are making against this bill does not hold water," Obama contended.

  The White House in recent days has equated the insurance reform provisions in the Senate proposal with the Patient's Bill of Rights legislation that Congress failed to approve for several years. Only this time, the president is counting on a different outcome and that a health care reform bill reaches his desk as soon as possible. "After a nearly century-long struggle, we are on the cusp of making health care reform a reality in the United States of America," Obama said in remarks on December 19.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

Manager's Amendment to the Patient Protection and Affordable Care Act (HR 3590)

White House Press Release: Statement by the President on Health Care and Climate Change

White House Press Release: Remarks by the President on the Save Award and Making Government More Efficient and Effective

JCT Estimated Revenue Effects of the Manager's Amendment to the Revenue Provisions Contained in the Patient Protection and Affordable Care Act
 

CCH (cch.taxgroup.com) reports:

  Virginia Gov. Timothy M. Kaine has unveiled a 2010-2012 biennial budget that includes a proposal to end the annual $950 million local personal property car tax payment that the state makes to localities to offset some portion of local car tax bills for the first $20,000 in value of personal vehicles. He also recommended getting rid of the car tax completely and suggested that the right way to do this was to impose a 1% personal income tax surcharge in Virginia and give 100% of the revenue to local governments in exchange for their agreement to completely eliminate the property tax on all personal cars, trucks, and motorcycles.

  The proposed budget assumes revenue due to an increase in the monthly landline and wireless E-911 fees and captures revenue from a proposal to increase the gross premium insurance tax applicable to property and casualty insurance. Further, the budget proposes to eliminate the sales tax dealer discount for retailers.

  In addition, Virginia will join 20 other states and decouple corporate income taxes from the federal income tax deduction for domestic production activities that are allowed under §199 of the Internal Revenue Code. The governor also proposed moving the date of conformity for taxpayers to file their taxes.

  The governor's news release can be found at
http://www.governor.virginia.gov/MediaRelations/NewsReleases/viewRelease.cfm?id=1172.

News Release, Virginia Gov. Timothy M. Kaine, December 18, 2009
 

CCH (cch.taxgroup.com) reports:

  The Social Security Administration has announced that the contribution and benefit base for 2010 remuneration and self-employment income is $106,800. The "old law" contribution and benefit base is $79,200. The "old law" base is used by the Railroad Retirement program to determine certain tax liabilities and tier II benefits, by the Pension Benefit Guaranty Corporation to determine the maximum amount of pension guaranteed under ERISA, and by the Social Security Administration to determine a year of coverage in computing certain benefits. Also, the domestic employee coverage threshold amount for 2010 has been determined to be $1,700.

Notice 2009-80, 2010FED ¶46,209

Other References:

 
Code Sec. 408

  CCH Reference - 2009FED ¶113

  CCH Reference - 2009FED ¶114

  CCH Reference - 2009FED ¶780.07

  CCH Reference - 2009FED ¶18,922.0249

 
Code Sec. 1401

  CCH Reference - 2009FED ¶32,543.01

  CCH Reference - 2009FED ¶32,543.07

  CCH Reference - 2009FED ¶32,543.26

 
Code Sec. 1402

  CCH Reference - 2009FED ¶32,580.01

 
Code Sec. 3401

  CCH Reference - 2009FED ¶33,506.024

  CCH Reference - 2009FED ¶33,506.054

 
Code Sec. 3510

  CCH Reference - 2009FED ¶33,828.01

  CCH Reference - 2009FED ¶33,828.30

 
Code Sec. 6017

  CCH Reference - 2009FED ¶35,203.01

 
Code Sec. 6041

  CCH Reference - 2009FED ¶35,836.20

  Tax Research Consultant

  CCH Reference - TRC INDIV: 63,052

  CCH Reference - TRC COMPEN: 27,056

  CCH Reference - TRC PAYROLL: 3,106

  CCH Reference - TRC PAYROLL: 3,180

  CCH Reference - TRC PAYROLL: 3,358

  CCH Reference - TRC PAYROLL: 9,052

  CCH Reference - TRC PAYROLL: 9,158

  CCH Reference - TRC PAYROLL: 9,204

 

CCH (cch.taxgroup.com) reports:

  The IRS has released interim guidance that extends the period for submitting taxpayer authorizations permitting disclosure of return information under Code Sec. 6103(c) to the IRS or an agent or contractor of the IRS. The interim rules, which will apply until the regulations under Code Sec. 6103(c) are amended, extend the period within which a signed and dated authorization must be received by the IRS from 60 to 120 days. The 60-day limit has proven problematic because some of the institutions assisting taxpayers have had difficulty obtaining and submitting the written authorizations within that time period. The interim rules apply to all such authorizations executed on or after the date that is 60 days prior to the publication of this guidance in the Internal Revenue Bulletin, which will be on January 19, 2010.

Notice 2010-8,
2010FED ¶46,206

Other References:

 
Code Sec. 6103

  CCH Reference - 2009FED ¶36,894.72

  Tax Research Consultant

  CCH Reference - TRC IRS: 9,104

CCH (cch.taxgroup.com) reports:

  The IRS has issued guidance regarding the reporting requirements of widely held fixed investment trusts (WHFITs). The new guidance provides interim rules on transition payments for trustees and "middlemen" with respect to WHFITs and trust interest holders (TIHs) and also limited penalty relief for trustees and middlemen. A middleman for this purpose is a person who hold interests in a WHFIT, but is not the ultimate beneficial owner of such interest. The guidance also provides rules for: inclusion of summary totals of WHFIT interest, dividend and miscellaneous income on Form 1099; the format of the written tax information statement required to be provided to TIHs; and the obligations of trustees and middlemen for information reporting with respect to certain non-mortgage WHFITs (NMWHFITs).

 
Reg. §1.671-5 contains the WHFIT reporting rules. The IRS had previously informed trustees and middlemen of WHFITs in Notice 2008-77, IRB 2008-40, 814, that it would not assess penalties as a result of failure to comply with WHFIT reporting rules with respect to calendar year 2008. In the new guidance, the IRS states that trustees and middlemen must comply with the Reg. §1.671-5 rules, except as provided in the new guidance.

  Under the rules, the trustee or middleman of the WHFIT must report income paid to the beneficial owner as of the record date, rather than the payment date, as had often been the previous practice. To avoid confusion, a trustee or middleman who transitions to the new rules must provide the TIH with a statement that it is transitioning from reporting based on payment dates to reporting based on record dates and that the record date was in the previous calendar year, even though the payment date is in the current year, and the TIH must include the relevant payment as a Code Sec. 481(a) adjustment. Because the IRS recognizes that the trustees and middlemen may not have time to modify their reporting systems to report payments that span the 2008 and 2009 calendar years, it will not sanction them for 2009 for a failure to comply with Reg. §1.671-5(d), (e), and (g)(2).

  A change in recognizing trust income in the year of the payment date to the year of the record date is a change in accounting method under Code Sec. 446(e), which would normally require IRS approval. In the guidance, the IRS gives consent to all cash method TIHs to make this change.

  The new guidance also sets out procedures for information reporting with respect to WHFIT income. Middlemen and trustees may report such information on Form 1099-INT, Form 1099-DIV, or Form 1099-MISC, as appropriate, with a summary total included on Form 1099. Information may be furnished to TIHs via electronic and composite statements and may include summary totals, provided such statement provides enough information to the TIH to enable it to properly report its income.

  Finally, the IRS determined that a trustee or middleman may satisfy its reporting requirements under Reg. §1.671-5(e) by providing a TIH of a royalty or commodity trust (two types of NMWFITs) with the address of a website where information can be found sufficient to meet the requirements of that regulation, if the middleman or trustee also provides the TIH with the option of receiving a written statement containing such information.

Notice 2010-4,
2010FED ¶46,205

Other References:

 
Code Sec. 671

  CCH Reference - 2009FED ¶24,686.0525

  CCH Reference - 2009FED ¶24,686.86

  Tax Research Consultant

  CCH Reference - TRC ESTTRUST: 36,300

CCH (cch.taxgroup.com) reports:

  Senate Majority Leader Harry Reid, D-Nev., has laid out the steps he plans to take to pass the Senate's $848-billion sweeping health care reform overhaul before Christmas. With the expected unveiling on December 19 of his manager's amendment, which includes all the changes negotiated with members over the past several weeks, and, hopefully, the approval of moderate holdout Sen. Ben Nelson, D-Nev., Reid plans to begin the procedural steps that will likely lead to final passage before December 25. If Reid fails to lock in all 60 votes from caucus members, however, the health care reform debate could be pushed into the final week of December while leadership continues to negotiate problem areas.

  The three-step process, according to an internal memo circulated by Senate Assistant Majority Leader Richard J. Durbin, D-Ill., would begin with Reid filing cloture on his manager's amendment, a substitute amendment, and the underlying bill (HR 3590) on December 19. Procedural rules would call for a vote on the manager's amendment late on December 21, followed by a vote on the Reid substitute amendment on December 22. On December 23, lawmakers would vote to approve cloture, which limits debate, on the health reform measure. Assuming all goes smoothly, the Senate could proceed to a final vote on the bill on December 24.

  By Jeff Carlson, CCH News Staff

CCH (cch.taxgroup.com) reports:

  Meeting by conference call on December 17, the Streamlined Sales Tax (SST) Governing Board gave final approval to an amendment to the SST Agreement that relates to the organization's membership structure. The board also confirmed that Indiana and Iowa are out of compliance with the Agreement at this time, gave initial approval to a standard for documenting exemptions, and agreed to consider if the taxation of online travel companies is within its remit.

 

CCH (cch.taxgroup.com) reports:

  The IRS has issued a reminder to individual taxpayers who are considering buying a new car that they have until Dec. 31 to take advantage of a tax break that may not be available in 2010. Taxpayers who buy a qualifying new motor vehicle after Feb. 16, 2009, can deduct the state or local sales or excise taxes they paid on the first $49,500 of the purchase price. Qualifying motor vehicles include new passenger automobiles, light trucks, motorcycles, and motor homes.

  The deduction is reduced for joint filers with modified adjusted gross incomes between $250,000 and $260,000 and other taxpayers with modified adjusted gross incomes between $125,000 and $135,000. Taxpayers with higher incomes do not qualify.

  Taxpayers who take the standard deduction need to complete Schedule L and attach it to Form 1040 or Form 1040A to increase the standard deduction by the allowable amount of state or local sales or excise taxes paid on the purchase of the new vehicle and to check the box on line 40b on Form 1040 or line 24b on Form 1040A. Taxpayers who itemize should include the allowable amount of state or local sales or excise taxes from the purchase of the vehicle on Form 1040, Schedule A.

IR 2009-119

CCH (cch.taxgroup.com) reports:

  The IRS has adopted final regulations that clarify when the stock distribution requirements of Code Sec. 368(a)(1)(D) (Type-D reorganizations) and Code Sec. 354(b)(1)( (nonrecognition of gain or loss) are considered satisfied even though no qualifying stock or securities are actually issued. Under the final regulations (which generally adopt temporary regulations issued in December 2006 (T.D. 9303, 2007-1 CB 379, clarified by T.D. 9313, 2007-1 CB 805)), the distribution requirements for a Type-D reorganization are satisfied and a nominal share of stock is deemed issued if:

  the same person or persons own, directly or indirectly, all of the stock of the transferor and transferee corporations in identical proportions; and

  there is only a de minimis variation in shareholder identity or proportionality of ownership in the transferor and transferee corporations (Reg. §1.368-2(l)(2), as added by the new regulations.

  Companion regulations under Code Sec. 358 are also issued which hold that in Type-D reorganizations where the property received consists solely of nonqualifying property equal to the value of the transferred assets (i.e., none of the consideration is stock or securities of the transferee), the shareholder may designate the share of stock of the transferee that they already hold to which the basis, if any, of the surrendered stock or securities of the transferor will attach (Reg. §1.358-2(a)(2)(iii), as added by T.D. 9475, December 17, 2009). In addition, the IRS has added a new example to the intercompany transaction regulations extending these Type-D reorganization rules to consolidated groups (Reg. §1.1502-13(f)(7), as amended by the new rules.

  The IRS request comments on the application of these rules to reorganizations involving foreign corporations or shareholders. Specifically, the IRS is soliciting comments on:

  whether any Code Sec. 1248 amount attributable to the stock of the transferor corporation can be preserved in the nominal share deemed issued by the transferee corporation;

  the manner in which earnings and profits (E&P) are (or should be) taken into account for purposes ofCode Sec. 902 when an exchanging shareholder recognizes gain under Code Sec. 356(a) that is treated as a dividend from the E&P of the transferor and transferee corporations;

  whether and how Code Sec. 902 should apply when an exchanging shareholder does not actually own stock in the transferee corporation but the exchanging shareholder recognizes gain under Code Sec. 356(a) that is treated as a dividend from the E&P of the transferee corporation (including whether a limitation similar to Code Sec. 304(b)(5) is appropriate in such cases);

  whether and how, under Code Sec. 959, an exchanging shareholder should be able to access previously taxed E&P of a foreign transferor and/or transferee corporation before any nonpreviously taxed E&P of either corporation; and

  whether and how Code Sec. 897 applies if the transferor corporation is a United States real property holding corporation with at least one foreign shareholder.

  The final regulations are effective December 17, 2009, and apply to transactions occurring on or after the effective date. For transactions occurring before December 17, 2009, taxpayers should rely on Temporary Reg. §1.368-2T(l), prior to removal by T.D. 9475. However, taxpayers may, in certain circumstances, apply the new rules to transactions occurring before December 17, 2009 (Reg. §1.368-2(l)(4), as added by the new rules.

T.D. 9475, 2010FED ¶47,005

Other References:

 
Code Sec. 354

  CCH Reference - 2009FED ¶16,433.021

 
Code Sec. 358

  CCH Reference - 2009FED ¶16,553.01

 
Code Sec. 368

  CCH Reference - 2009FED ¶16,753.0253

 
Code Sec. 1502

  CCH Reference - 2009FED ¶33,168.0236

  Tax Research Consultant

  CCH Reference - TRC REORG: 18,052.15

CCH (cch.taxgroup.com) reports:

  The IRS plans to issue proposed regulations to amend its arbitrage regulations under Code Sec. 148 to make it easier for state perpetual trust funds to provide credit enhancement for municipal bonds in the wake of the financial crises.

  Arbitrage restrictions apply to the proceeds of state and local tax-exempt bond issues, and to replacement proceeds associated with those bond issues. Replacement proceeds can include funds pledged to provide assurance to investors that the principal and interest of the original issue will be paid. If certain requirements are met, an exception to the arbitrage rules applies under Reg. §1.148-11(d)(1) for perpetual trust funds set up by states to enhance the credit worthiness of its general issue bonds. One of the requirements is that, in the event there is a deposit in the fund to bolster the fund in light of the new obligation, the outstanding amount of the bonds guaranteed by the fund must not exceed 250 percent of the lower of cost or fair market value of the fund prior to the deposit.

  The IRS notes that the value of perpetual trust funds has been adversely affected by the financial crises, which in turn under these regulations adversely affects the ability of such funds to provide credit enhancement in the municipal bond market. Accordingly, the IRS plans to issue proposed regulations to amend this rule to change the amount to 500 percent of the total cost of the assets held by the fund as of December 16, 2009. Taxpayers can rely on the changed amount for bonds sold on or after December 16, 2009, and before the effective date of future regulations or guidance.

  Comment: The IRS intends for the new rule to completely take the place of the current rule rather than provide an optional means of satisfying the regulatory requirements.

  The IRS has asked for comments on the rule change, and on any other regulation under Code Sec. 148 that may impede an issuer's ability to obtain credit enhancement.

Notice 2010-5,
2010FED ¶46,204

Other References:

 
Code Sec. 148

  CCH Reference - 2009FED ¶7889.08

  CCH Reference - 2009FED ¶7889.18

  Tax Research Consultant

  CCH Reference - TRC SALES: 51,500

CCH (cch.taxgroup.com) reports:

  Proposed regulations relating to reporting sales of securities by brokers and determining the basis of securities have been issued. The proposed regulations reflect the changes made by the Emergency Economic Stabilization Act of 2008 (P.L. 110-343) to the determination of cost basis under Code Sec. 1012, and the additional broker reporting requirements of Code Sec. 6045 (g). They also reflect the additions of Code Secs. 6045A (requiring basis information for transfers of covered securities to be reported to the receiving broker) and 6045B (relating to information reporting in connection with organizations actions such as mergers or stock splits) made by P.L. 110-343, and conforming amendments to the list of returns in Code Sec. 6724 for which penalties may be imposed if the new reporting obligations are not met.

  The proposed regulations address the changes toCode Sec. 6045 that require brokers to show the gross proceeds of a covered security, together with information about the customer's adjusted basis in the security and whether any gain or loss is long-term or short-term. Covered securities are stock, notes, bonds debentures, other debt instruments, and certain commodities and other financial instruments (collectively "specified securities") held in certain accounts and acquired on or after an applicable date.

  CCH Comment. The applicable date of the reporting depends on the type of specified security that is sold. For stock of a corporation, other than stock in a regulated investment company (RIC), or stock acquired in connection with a dividend reinvestment plan (DRP), the applicable date is January 1, 2011. For stock in a RIC, or stock acquired in connection with a DRP, the applicable date is January 1, 2012. For any other specified security, the applicable date is January 1, 2013, or a later date determined by the Secretary. The reporting rules related to options transactions apply only to options granted or acquired on or after January 1, 2013. The proposed regulations would clarify that for this purpose a security that the issuer classifies as stock is treated as stock, but if no classification is made by the issuer, it is not considered stock unless the broker knows, or has reason to know, that the specified security is stock.

  Pursuant to the proposed regulations, all brokers required to report basis and the character of gain or loss as long or short term would use the new version of Form 1099-B, "Proceeds from Broker and Barter Exchange Transactions." The basis that brokers are required to report would be the total amount paid by a customer or credited against a customer's account as a result of the acquisition of securities adjusted for commissions and the effects of other transactions occurring within the account. The proposed regulations also would require brokers to adjust the basis they report to take into account the information received on a Code Sec. 6045A transfer statement, as well as information received pursuant to a Code Sec. 6045B statement related to organizational actions.

  A broker would not, however, be required under the proposed regulations to adjust the reported basis for transactions, elections, or events occurring outside the account. The proposed regulations further clarify that a broker would not be required to report adjusted basis, and whether any gain or loss on a sale is long-term or short-term, for securities that are excepted from reporting under Code Sec. 6045 at the time of their acquisition, such as certain securities purchased by tax-exempt organizations. Moreover, a broker who either fails to receive a transfer statement, or receives an incomplete statement, would be permitted to treat the underlying security as a noncovered security if the broker requests a complete statement and none is forthcoming prior to the sale or transfer of the security.

  CCH Comment. If, however, the broker receives such information after reporting the sale, the proposed regulations require the broker to file a corrected Form 1099-B. Similarly, if a broker receives the Code Sec. 6045B organization action statement after reporting the sale, the broker would be required to file a corrected Form 1099-B to report any necessary adjustments to basis.

  To streamline the information-reporting requirements, the proposed regulations maintain the current requirement that brokers report a sale of securities within an account on one return, even if the sale involves multiple acquisitions. The proposed regulations would provide brokers with the option of voluntarily undertaking reporting for noncovered securities on a security-by-security basis, but no penalties would be imposed for the failure to report such information correctly if the broker indicates on the Form 1099-B that it is for a noncovered security.

  CCH Comment. Because brokers must report whether any gain or loss on the sale of a covered security is short-term or long-term, and because noncovered securities must be reported separately from covered securities to avoid treatment as covered securities, a single sale in an account could necessitate as many as three returns if the sale included covered securities held more than a year, covered securities held one year or less, and noncovered securities.

  The proposed regulations address how a broker determines the basis required to be reported, including clarification of how to do so for sales of less than the entire position of a security in an account. This generally would require use of the customer's instructions either identifying the security sold, or requesting that average basis be used to make such computation. If no instruction is provided by the customer, the proposed regulations would require the broker to report basis using a first in first out (FIFO) method, except for stock eligible for averaging, in which case the broker must use the default basis determination method.

  Under present law, as set forth in Rev. Rul. 67-436, 1967-2 CB 266, the requirement that stock be identified at the time of sale or transfer is satisfied if such identification is made by the time of delivery within four days of the sale date. Consistent with this, the proposed regulations provide that a taxpayer makes an adequate identification of stock at the time of sale, transfer, delivery, or distribution if the taxpayer identifies the stock no later than the earlier of the settlement date or the time for settlement under Securities and Exchange Commission regulations. Rev. Rul. 67-436 will be obsoleted when the proposed regulations are finalized.

  Proposed special average basis method rules are provided for DRP stock, which allow a customer to elect to select such method using specified rules for all identical shares (generally defined as shares with the same Committee on Uniform Security Identification Procedures, or CUSIP) acquired after December 31, 2010. These rules would require the customer to report gain or loss consistent with such election. Absent such election, the broker would be required to use the default basis determination method, which the customer must also use in computing gain or loss.

  The proposed regulations further address how to compute average basis for various transactions and accounts (including definitions of an account, and the treatment of identical stock held in two separate accounts), the rules governing a single-account election for RICs and DRPs, the time and manner of making an average basis method election and revoking such election, and how to change to another permissible method.

  The proposed regulations also provide guidance with respect to various reporting obligations including wash sales, short sales, sales by S corporations and reporting to trust interest holders in a widely held fixed instrument trust. They further address reporting required in connection with transfers of gifted, inherited and borrowed securities (in the case of short sales). Clarification of the Code Sec. 6045B reporting obligations is also supplied and would require a reporting issuer to identify itself and the security on the return and provide information about the organizational action. Domestic and foreign issuers would also be required to furnish a written information statement about the organizational action to nonexempt recipients, or their nominees. These return filing and information statements would be waived, however, if the issuer posts a timely statement with the required information in a readily accessible format on its primary public website.

  Finally, the proposed regulations update the penalty provision regulations to reflect the new Code Secs. 6045A and 6045B reporting obligations, and clarify that any failure to report correct information arising from reliance on such statements is deemed to be due to reasonable cause for purposes of the Code Secs. 6721 and 6722 penalties. If the broker takes into account information from a customer or third party other than as shown on statements, and the broker neither knows nor has reason to know that the information is incorrect, then the broker would be deemed to have relied on the information in good faith.

  Comments on the proposed regulations have been requested. A public hearing on the proposals is scheduled for February 17, 2010.

IR-2009-118,
2010FED ¶46,203

Proposed Regulations, NPRM REG-101896-09, 2010FED ¶49,439

Other References:

 
Code Sec. 408

  CCH Reference - 2009FED ¶18,916G

 
Code Sec. 1012

  CCH Reference - 2009FED ¶29,331C

 
Code Sec. 3406

  CCH Reference - 2009FED ¶33,641A

 
Code Sec. 6039

  CCH Reference - 2009FED ¶35,602G

 
Code Sec. 6042

  CCH Reference - 2009FED ¶35,867C

 
Code Sec. 6044

  CCH Reference - 2009FED ¶35,909C

 
Code Sec. 6045

  CCH Reference - 2009FED ¶35,923G

  CCH Reference - 2009FED ¶35,926BC

  CCH Reference - 2009FED ¶35,926G

  CCH Reference - 2009FED ¶35,929A

  CCH Reference - 2009FED ¶35,929D

 
Code Sec. 6045A

  CCH Reference - 2009FED ¶35,932C

 
Code Sec. 6045B

  CCH Reference - 2009FED ¶35,935C

 
Code Sec. 6049

  CCH Reference - 2009FED ¶36,035C

 
Code Sec. 6051

  CCH Reference - 2009FED ¶36,424C

 
Code Sec. 6721

  CCH Reference - 2009FED ¶40,213C

 
Code Sec. 6722

  CCH Reference - 2009FED ¶40,232C

  Tax Research Consultant

  CCH Reference - TRC FILEBUS: 9,256
CCH Reference -
TRC SALES: 6,068
 

CCH (cch.taxgroup.com) reports:

  The Massachusetts Department of Revenue has issued guidance explaining the impact of federal changes on the state's corporate excise and personal income tax. Specifically, state legislation adopted the new federal exclusion from gross income allowed by the federal American Recovery and Reinvestment Act of 2009 ("ARRA") for the COBRA subsidy for certain involuntarily terminated employees and their families. In addition, the legislation included provisions decoupling Massachusetts tax law from certain federal tax law changes made by ARRA.

  The state's corporate excise provisions generally reference the Internal Revenue Code ("Code") as amended and in effect for the current year. For personal income tax purposes, the pertinent Massachusetts provisions generally adopt the Code as amended and in effect on January 1, 2005; however, the Massachusetts personal income tax adopts the current Code with respect to certain sections.

 

CCH (cch.taxgroup.com) reports:

  As Senate Democrats try to reach an agreement on a package that can garner the 60 votes necessary to end a filibuster, President Obama said he is "cautiously optimistic" that Congress will pass health care reform legislation "on our watch." Obama noted that while there are still disagreements that need to be resolved within the next few days, he remained confident that a bill will pass "because it's right for America."

  Following a White House meeting with fellow members of the Senate Democratic caucus on December 15, Senate Democratic Whip Richard J. Durbin, D-Ill., indicated that senators decided to drop the controversial Medicare buy-in proposal, after one of the key voters, Sen. Joseph I. Lieberman, I-Conn., said he opposed it.

  Meanwhile, Obama reaffirmed his support for the Patient Protection and Affordable Care Bill (HR 3590), noting that it meets all the necessary principles for making insurance available for 30 million currently uninsured Americans without increasing the federal deficit.

Senate Action

  The Senate on December 15 approved, by a 97-to-1 margin, an amendment offered by Senate Finance Committee Chairman Max Baucus, D-Mont., that would ensure no family with an adjusted gross income of less than $250,000 would face any tax increases under HR 3590. The amendment was offered in order to counter a proposal by Sen. Mike Crapo, R-Ida., that would send the health care overhaul legislation back to the Finance Committee in order to allow that panel to strip out tax-related provisions. Crapo claimed the health care reform measure would lead to tax increases for middle-class families. Crapo's amendment to recommit the legislation, which required 60 votes for adoption, was defeated by a vote of 45-to-54.

  Baucus argued that the Joint Committee on Taxation estimated that tax credits in the health reform bill would reduce taxes by $40 billion, or approximately $440 per individual, in 2017.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

SFC Release: The Patient Protection and Affordable Care Act --What American Families, Small Businesses and Workers Get Right Away
 

CCH (cch.taxgroup.com) reports:

  The Issue Resolution Committee of the Streamlined Sales Tax (SST) Governing Board heard oral arguments on two pending matters during the committee's inaugural meeting, which was held by conference call on December 14. The matters relate to Nevada's compliance with the SST Agreement and the proper characterization of software license upgrades. Other petitions relating to the compliance of North Dakota, Rhode Island and Vermont were withdrawn by the Business Advisory Council (BAC) after those states resolved the matters in dispute. (TAXDAY, 2009/12/04, S.1)

  The committee is chaired by R. Bruce Johnson, Utah State Tax Commission. The other members are Tom Gillaspie, Nebraska Department of Revenue; Erica Mani, West Virginia Department of Revenue; and Robert Thompson, Oklahoma Tax Commission. Any person may petition the board to invoke the issue resolution process if certain enumerated matters are at issue, including matters related to a member state's compliance with the Agreement and interpretation issues. Petitions are heard by the Issue Resolution Committee, which makes recommendations to the board. After considering the recommendations, the board then makes a final determination.

  The BAC filed a petition arising from the board's failure to find Nevada out of compliance with the Agreement during the 2008 recertification process. (TAXDAY, 2009/09/01, S.1) On behalf of the BAC, Fred Nicely, Council On State Taxation, argued that Nevada's inability to process ACH credit payments, as required by §319(c) of the Agreement, puts the state out of compliance. While the state can process ACH debit payments, Nicely argued that is insufficient, adding that taxpayers prefer ACH credit transactions because they are more secure and easier to correct in the event of error than ACH debit payments. On behalf of Nevada, Dino DiCianno, Nevada Department of Taxation, admitted that the state does not have the ability currently to accept ACH credit payments. He said the Legislature failed to act on his request for funding to complete the necessary interface in 2009 and that now it is unlikely he can obtain the funding prior to 2011, when the Legislature next meets in regular session.

  Mark Nebergall, Software Finance and Tax Executives Council (SoFTEC), filed a petition seeking to have the board reconsider its adoption of an opinion holding that the purchase of software license upgrades should be treated the same as the original purchase of a software license (which may be considered the purchase of "tangible personal property" or "computer software"). (TAXDAY, 2009/05/19, S.1) Nebergall argued that this opinion was not a proper interpretation of any provision of the Agreement and that the board should, instead, hold that software license upgrades are intangible personal property. The opposing side was presented by Myles Vosberg, North Dakota Office of State Tax Commissioner, who chairs the Compliance Review and Interpretations Committee (CRIC). The CRIC issued the original opinion (TAXDAY, 2009/01/16, S.1) that later was adopted by the board over Nebergall's objection.

  Under the guidelines laid out by Johnson at the beginning of the call, the Issue Resolution Committee will issue its recommendations within 60 days. The Governing Board then will have 60 days after that to meet and act on those recommendations.

Conference call, Streamlined Sales Tax Issue Resolution Committee, December 14, 2009
 

CCH (cch.taxgroup.com) reports:

  Stock transferred by a decedent to a family limited partnership (FLP) was not includible in the decedent's gross estate under Code Sec. 2036(a) because the transfer was a bona fide sale for adequate and full consideration. The decedent and his advisors decided to create the FLP in order to consolidate and protect his stock holdings in an insurance company, namely by preventing his grandsons from selling their shares of stock and protecting his son's shares from potential claims incident to divorce. The protection from creditors and potential dissipation was a legitimate and significant nontax reason for the creation of the FLP. The creation of the FLP was the result of an arm's-length transaction. Furthermore, the decedent received an interest in the FLP that represented adequate and full consideration because: (1) the participants in the FLP received interests proportionate to the value of the property each contributed; (2) the respective contributed assets were properly credited to the transferors' capital accounts; (3) distributions required negative adjustments to distributee capital accounts; and (4) there was a legitimate and significant nontax reason for formation of the FLP. Consequently, the decedent's transfer of stock to the FLP satisfied the bona fide sale exception.

  The decedent's surviving spouse died less than five months after the decedent, before the marital trust could be funded with shares of the FLP. Pursuant to the decedent's testamentary documents, a pecuniary marital trust was created for the spouse. Because the trust was to terminate on the her death, it was never funded. However, in order to calculate the spouse's gross estate, the value of the trust had to be established. The amount of the pecuniary bequest was not ascertainable until the after the determination of the decedent's estate tax liability, which was not calculated the spouse's death. The executor used the spouse's death as the date in which the trust was funded because that was the last possible date that the funding could occur, as it was not possible to fund the marital trust after the spouse's death. Moreover, if the spouse had survived and requested that the trust be funded with cash, the FLP shares would have been sold for their current fair market value. Accordingly, the executor use of the spouse's date of death when determining the date in which the marital trust was funded was proper.

  The deduction of the interest paid by the spouse's estate to the FLP was not a necessary expense under Reg. §20.2053-3(a). In order to satisfy liabilities of the spouse's estate, which included federal and state estate taxes and a charitable bequest from the decedent's estate, without receiving a large distribution from the FLP, the executor obtained a $71-million loan from the FLP. It was noted that the repayment of the loan would require a sale of the insurance stock attributable to the spouse's interest in the FLP. Therefore, it was determined that the only difference between the redemption of the stock and the loan was that the loan created a $20-million interest deduction, which was offset by a smaller income tax expense to the other partners. Furthermore, the principal beneficiary of the estate was also the majority share holder. Thus, the beneficiary was making interest payments to himself. In addition, when the shares of the insurance stock were sold, only half of the expenses incurred were deductible. In order to repay the loan, a secondary offering of one-third of the insurance stock was made. The spouse's estate's indirect ownership of the stock through the FLP was sufficient to deduct the sale under Reg. §20.2053-3(d)(2). However, it was held that only a portion of the funds generated by the secondary offering were directly used by the spouse's estate. The attorney's fees, administrative costs, and other fees associated with the satisfaction of the decedent's charitable bequest were not deductible by the spouse's estate.

S.P. Black, Jr., Est., Dec. 58,018

Other References:

 
Code Sec. 2036

  CCH Reference - FINH ¶4955.701

  CCH Reference - FINH ¶4955.712

 
Code Sec. 2044

  CCH Reference - FINH ¶5940.05

  CCH Reference - FINH ¶5940.10

 
Code Sec. 2053

  CCH Reference - FINH ¶6120.12

  CCH Reference - FINH¶6140.65

  CCH Reference - FINH ¶6160.53

 
Code Sec. 2056

  CCH Reference - FINH ¶6120.12

  CCH Reference - FINH¶6140.65

  CCH Reference - FINH ¶6850.45

  Tax Research Consultant

  CCH Reference - TRC ESTGIFT: 18,100
CCH Reference - TRC ESTGIFT: 39,150
CCH Reference - TRC ESTGIFT: 42,350

 

CCH (cch.taxgroup.com) reports:

  The IRS has delayed the effective date of Rev. Rul. 2006-57, 2006-2 CB 911, which provides guidance to employers on the use of smartcards, debit or credit cards, or other electronic media to provide qualified transportation fringe benefits under Code Sec. 132(a)(5) and
(f). The guidance is intended to provide relief to mass transit providers that have been unable to update their present systems in order to comply with the revenue ruling guidelines prior to the current effective date of January 1, 2010. The effective date is delayed until January 1, 2011. However, employers and employees may rely on Rev. Rul. 2006-57 with respect to transactions occurring prior to January 1, 2011.

Notice 2009-95, 2010FED ¶46,202

Other References:

 
Code Sec. 132

  CCH Reference - 2009FED ¶7438.054

  CCH Reference - 2009FED ¶7438.75

  Tax Research Consultant

  CCH Reference - TRC COMPEN: 36,354

CCH (cch.taxgroup.com) reports:

  The IRS has issued additional guidance on the application of Code Sec. 382 and other provisions of law to corporations whose instruments are acquired by the Treasury Department under the following programs established pursuant to the Emergency Economic Stabilization Act of 2008 (P.L. 110-343) (the EESA programs):

  (1) the Capital Purchase Program for publicly traded issuers (Public CPP);

  (2) the Capital Purchase Program for private issuers (Private CPP);

  (3) the Capital Purchase Program for S corporations (S Corp CPP);

  (4) the Targeted Investment Program (TARP TIP);

  (5) the Asset Guarantee Program;

  (6) the Systemically Significant Failing Institutions Program;

  (7) the Automotive Industry Financing Program; and

  (8) the Capital Assistance Program for publicly traded issuers (TARP CAP).

  The guidance amplifies and supersedes Notice 2009-38, I.R.B. 2009-18, 901 (TAXDAY, 2009/04/14, I.4), to address the treatment under Code Sec. 382 of stock sold by the Treasury to public shareholders. Where the Treasury sells stock that was issued to it under one of the EESA programs, and the sale creates a public group, that public group's ownership in the corporation is not to be considered as having increased solely because of the sale. However, the public group's ownership in the corporation will be considered to have increased pursuant to any other transaction. The stock is considered outstanding for purposes of determining the percentage of stock owned by other five-percent shareholders on any testing date, and Code Sec. 382 applies to the public group in the same manner as any other public group.

  The following guidance is retained from Notice 2009-38 without changes:

  Generally, for all federal income tax purposes, any instrument issued to the Treasury under the EESA programs, other than TARP CAP, will be treated as an instrument of indebtedness if denominated as such, and as stock described in Code Sec. 1504(a)(4) if denominated as preferred stock. Such instruments will not be treated as stock for purposes of Code Sec. 382, except that
Code Sec. 1504(a)(4) preferred stock will be treated as stock for purposes of
Code Sec. 382(e)(1). The classification of any instrument issued to the Treasury pursuant to TARP CAP will be determined under general federal tax law principles.

  In addition, any warrant to purchase stock issued to the Treasury under any of the EESA programs, except Private CPP and S Corp CPP, will be treated as an option (and not as stock). While held by the Treasury, such a warrant will not be deemed exercised under Reg. §1.382-4(d)(2). Any warrant to purchase stock issued under the Private CPP will be treated as an ownership interest in the underlying stock, which will be treated as Code Sec. 1504(a)(4) preferred stock. Any warrant issued pursuant to the S Corp CPP will be treated as an ownership interest in the underlying indebtedness.

  For purposes of Code Sec. 382, the ownership represented by any stock (other than Code Sec. 1504(a)(4) preferred stock) issued to the Treasury under the EESA programs on any date on which it is held by the Treasury will not be considered to have caused the Treasury's ownership in the issuing corporation to have increased over its lowest percentage owned on any earlier date. Such stock will be generally considered outstanding for purposes of determining the percentage of stock owned by other five-percent shareholders on a testing date. However, any stock that was issued to the Treasury under the EESA programs and subsequently redeemed by the issuing corporation will be treated as if it had never been outstanding in measuring shifts in ownership by any five-percent shareholder on any testing date occurring on or after the redemption date.

  Any capital contribution made by the Treasury pursuant to the EESA programs will be exempt from the Code Sec. 382(l)(1) anti-stuffing rule and will not be considered to have been made as part of a plan a principal purpose of which was to avoid or increase any Code Sec. 382 limitation. Also, any amount received by a corporate issuer in exchange for instruments issued to the Treasury under the EESA programs will be treated as received, in its entirety, as consideration for such instruments.

  Finally, the above rules, except for the rules for the characterization of instruments and warrants for federal tax purposes, will also apply to "covered instruments" as though such instruments were acquired by the Treasury under the EESA programs. Covered instruments include any instruments acquired by the Treasury in exchange for instruments issued to the Treasury under the EESA programs. Any instruments acquired by the Treasury in exchange for covered instruments will also be treated as covered instruments.

  The IRS intends to issue regulations implementing certain of the rules described in the new guidance. Pending the issuance of further guidance, taxpayers may rely on the new rules. However, any future contrary guidance will not apply to any instrument that was issued to the Treasury under the EESA programs, or acquired by the Treasury in an exchange for such an interest as provided in this guidance, prior to the publication of the contrary guidance or under a binding contract entered into prior to the publication of that guidance.

Notice 2010-2,
2010FED ¶46,201

Other References:

 
Code Sec. 382

  CCH Reference - 2009FED ¶17,115.0225

  CCH Reference - 2009FED ¶17,115.026

  CCH Reference - 2009FED ¶17,115.40

  CCH Reference - 2009FED ¶17,115.45

  CCH Reference - 2009FED ¶17,115.73

  Tax Research Consultant

  CCH Reference - TRC NOL: 33,050
CCH Reference -
TRC NOL: 33,152
CCH Reference - TRC REORG: 33,202
CCH Reference - TRC REORG: 33,208
 

CCH (cch.taxgroup.com) reports:

  Senate Majority Leader Harry Reid's, D-Nev., plan to pass a sweeping $848-billion health care reform bill before Christmas suffered a serious setback over the weekend as several key lawmakers voiced their objections to recent changes in the bill and threatened to withhold their support for the measure. Independent Joseph I. Lieberman, I-Conn., who has already stated that he would not support a bill that contains a public option, said on December 13 that he opposes the latest compromise proposal that expands Medicare eligibility to people between the ages of 55 and 64.

  Speaking on CBS's "Face the Nation," Lieberman said he would have "a hard time" voting for a bill that contains a Medicare buy-in. "We've got to stop adding to the bill," he said. "We've got to start subtracting some controversial things."

  Lieberman said the proposal contains many of the same ills as the public option: mainly, that it would end up costing the U.S. taxpayer. "It has some of the same infirmities that the public option did," he said. "It will add taxpayer costs."

  In a joint appearance with Lieberman, moderate Ben Nelson, D-Neb., who also opposes the public option, said he, too, has problems with the Medicare buy-in plan. "I am concerned that it's the forerunner of single payor, the ultimate single-payor plan, maybe, even more directly than the public option," he said.

  Sen. Claire McCaskill, D-Mo., joined the chorus of lawmakers who hold reservations about the price tag of Reid's latest gambit to secure 60 votes for passage of his health care reform measure. She said on "Fox News Sunday" that she would not vote for the bill if the proposal would lead to an increase in health care spending. "I have to be assured that this is going to bring down the deficit and it's going to bring down health care costs," said McCaskill.

  Reid is expecting within days a cost estimate from the Congressional Budget Office (CBO) of the compromise agreement, which he hopes will allay concerns that the Medicare expansion would add to the cost of the plan.

  By Jeff Carlson, CCH News Staff

CCH (cch.taxgroup.com) reports:

  The Kentucky Department of Revenue offers personal income tax filing guidance to military spouses who fall under the federal Military Residency Relief Act of 2009 (P.L. 111-97), legislation signed by President Barack Obama on November 11, 2009. The Act is effective beginning with taxable year 2009 and prohibits a servicemember's spouse from losing or acquiring a residence or domicile for purposes of taxation because he or she is absent or present in any U.S. tax jurisdiction solely to be with the servicemember in compliance with the servicemember's military orders, if the residence or domicile is the same for both the servicemember and the spouse. The Act also prohibits a spouse's income from being deemed income earned in a tax jurisdiction if the spouse is not a resident or domiciliary of the jurisdiction when the spouse is in the jurisdiction solely to be with a servicemember serving under military orders.

  For 2009, military spouses to whom the Act applies should file Form 740-NP (Kentucky Individual Income Tax Nonresident or Part-Year Resident Return) to obtain a refund of Kentucky income tax withheld from their 2009 pay. The income should not be reported as taxable on the Kentucky income tax return, and "MILITARY SPOUSE" should be written across the top of the return. For 2010, military spouses should file the newly updated Form K-4 (Employee's Withholding Exemption Certificate) with their employer to claim the exemption from withholding of Kentucky income tax. The updated form is available at
http://revenue.ky.gov/forms/curwhfrms.htm. Taxpayer assistance is available at (502) 564-4581.

Hot Topics , Kentucky Department of Revenue, December 11, 2009
 

CCH (cch.taxgroup.com) reports:

  The IRS has adopted final regulations relating to the reduction in taxable income under section 302 of the Katrina Emergency Tax Relief Act of 2005 (KETRA) (P.L. 109-73) and section 702 of the Heartland Disaster Tax Relief Act of 2008 (HDTRA) (Title VII of Division C of P.L. 110-343). The regulations finalize 2006 temporary regulations that affected taxpayers who provide housing in their principal residences to individuals displaced by Hurricane Katrina. The reach of the final regulations has been expanded to also cover taxpayers who provide housing in their principal residences to individuals displaced due to a 2008 Midwestern disaster.

  Section 702 of HDTRA, enacted on October 3, 2008, applied section 302 of KETRA to the Midwestern disaster. The Midwestern disaster area is an area with respect to which a major disaster was declared by the president under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (P.L. 100-707) by reason of severe storms, tornadoes or flooding on or after May 20, 2008, and before August 1, 2008, in the following states: Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska and Wisconsin. The applicable disaster date for each state in the Midwestern disaster area is the date of the severe storm, tornado, or flooding giving rise to the presidential declaration for that state. The reduction in taxable income for providing housing to a displaced individual in a Midwestern disaster area applies to tax years beginning in 2008 or 2009.

  The final regulations, in addition to expanding the scope of the temporary regulations to include taxpayers who provide housing in their principal residences to Midwestern disaster displaced individuals, clarify that the limitations on the reduction in taxable income apply separately to the Hurricane Katrina disaster area and the Midwestern disaster area. As a result, a taxpayer who, for example, provides housing to both Hurricane Katrina and Midwestern disaster displaced individuals may reduce taxable income by up to $2,000 for providing housing to Midwestern disaster displaced individuals, even though the taxpayer reduced taxable income for providing housing to Hurricane Katrina displaced individuals.

  The temporary regulations provided that the maximum dollar limitation for a married individual who files separately is $1,000. The final regulations provide that the maximum dollar limitation is $2,000 for married taxpayers filing jointly or separately. Married taxpayers filing separately may allocate the $2,000 between both returns.

  The final regulations authorize the IRS to apply these rules in additional guidance of general applicability if Congress extends relief under section 302 of KETRA to other future disaster areas.

  The final regulations apply to tax years ending after December 11, 2006. Taxpayers who, after filing their tax returns for 2006 or 2008 as married filing separately, want to apply the rule allowing them to allocate the $2,000 maximum limitation between them may do so by filing amended returns, so long as the period of limitations on credit or refund under Code Sec. 6511 has not expired.

T.D. 9474, 2009FED ¶47,042

Other References:

 
Code Sec. 151

  CCH Reference - 2009FED ¶8004M

  Tax Research Consultant

  CCH Reference - TRC FILEIND: 6,050

CCH (cch.taxgroup.com) reports:

  The IRS has published the 2009 Cumulative List of Changes in Plan Qualification Requirements (2009 Cumulative List). The 2009 Cumulative List informs plan sponsors and practitioners of issues the IRS has specifically identified for review when determining whether individually designed single-employer plans filing in Cycle E have been properly updated. The 2009 Cumulative List reflects changes made by a number of recent laws, including the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), (P.L. 107-16) (with technical corrections made by the Job Creation and Worker Assistance Act of 2002 (JCWAA) (P.L. 104-147), the Pension Funding Equity Act of 2004 (PFEA), (P.L. 108-218), the American Jobs Creation Act of 2004 (AJCA), (P.L. 108-357), the Katrina Emergency Tax Relief Act of 2005 (KETRA), (P.L. 109-73), the Gulf Opportunity Zone Act of 2005 (GOZA), (P.L. 109-135), the Pension Protection Act of 2006 (PPA '06), (P.L. 109-280), the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007, (P.L. 110-28), the Heroes Earnings Assistance and Relief Act of 2008 (HEART Act), (P.L. 110-245), the Emergency Economic Stabilization Act of 2008 (EESA), (P.L. 110-343), and the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA), (P.L. 110-458).

  In order to be qualified, a plan must comply with all relevant qualification requirements, not just those on the 2009 Cumulative List. The IRS will not review plan language for guidance issued after October 1, 2009, statutes enacted after October 1, 2009, qualification requirements first effective in 2011 or later, or statutory provisions first effective in 2010, for which no guidance is identified in the 2009 Cumulative List. Thus, sponsors of pre-approved plans may not rely on opinion or advisory letters with respect to any guidance issued after October 1, 2009, unless that guidance is on the 2009 Cumulative List. The 2009 Cumulative List does not extend the deadline by which a plan must be amended to comply with any statutory, regulatory or guidance changes.

Notice 2009-98,
2009FED ¶46,560

Other References:

 
Code Sec. 401

  CCH Reference - 2009FED ¶17,507.041

  CCH Reference - 2009FED ¶17,507.15

  CCH Reference - 2009FED ¶17,507.2531

  CCH Reference - 2009FED ¶17,929.024

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 51,052.20
CCH Reference - TRC RETIRE: 51,100
CCH Reference - TRC RETIRE: 66,058.10

CCH (cch.taxgroup.com) reports:

  The IRS has extended the deadline for amending qualified retirement plans to meet certain requirements of the Internal Revenue Code that were added by the Pension Protection Act of 2006 (P.L. 109-280), and subsequently modified by the Worker, Retiree, and Employer Recovery Act of 2008 (P.L. 110-458). The deadline is extended to the last day of the first plan year that begins on or after January 1, 2010.

  This extension applies to: (1) the deadline for amending single-employer defined benefit plans to meet the requirements of Code Secs. 401(a)(29) and
436, relating to funding-based limits on benefits and benefit accruals under single-employer plans; (2) the deadline for amending cash balance and other applicable defined benefit plans, within the meaning of Code Sec. 411(a)(13)(C), to meet the requirements of Code Sec. 411(a)(13) (other than Code Sec. 411(a)(13)(A)) and Code Sec. 411(b)(5), relating to vesting and other special rules applicable to these plans; and (3) the deadline for amending applicable defined contribution plans, within the meaning of Code Sec. 401(a)(35)(E), to meet the requirements of Code Sec. 401(a)(35), relating to diversification requirements for certain defined contribution plans.

  The IRS has also provided for the anti-cutback requirements of Code Sec. 411(d)(6) for amendments that are adopted by the extended deadline for amending a plan to meet the requirements of Code Secs. 401(a)(29) and
436. The IRS expects that limited Code Sec. 411(d)(6) relief will be granted for amendments that are adopted by the extended deadline for amending a plan to meet the requirements of Code Sec. 411(b)(5) once final regulations under Code Secs. 411(a)(13) and 411(b)(5) are issued.

  The IRS's review of an application for a determination letter that is submitted before February 1, 2011, will not take into account the requirements of Code Secs. 401(a)(29) and
436. After January 31, 2009, and before February 1, 2011, the IRS will take into account the requirements of Code Secs. 401(a)(35), 411(a)(13) (including
Code Sec. 411(a)(13)(A)), or 411(b)(5), only if the plan has been amended to meet those requirements.

  Section 5.07(2) of Rev. Proc. 2007-44, I.R.B. 2007-28, 54, is modified. Notice 2008-108, 2008-2 CB 1275, is modified to provide that the Service's review of an application for a determination letter submitted during the submission period beginning on February 1, 2009, will take into account the requirements of Code Secs. 401(a)(35), 411(a)(13) (including
Code Sec. 411(a)(13)(A)), or 411(b)(5), only if the plan has been amended to meet those requirements.

Notice 2009-97, 2009FED ¶46,559

Other References:

 
Code Sec. 401

  CCH Reference - 2009FED ¶17,507.041

  CCH Reference - 2009FED ¶17,507.2531

 
Code Sec. 411

  CCH Reference - 2009FED ¶19,076.23

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 15,050
CCH Reference - TRC RETIRE: 51,052.05
 

CCH (cch.taxgroup.com) reports:

  The IRS has issued guidance permitting a Troubled Asset Relief Program (TARP) recipient to comply with an advisory opinion of the Special Master under certain circumstances without triggering adverse tax consequences under Code Sec. 409A. However, this guidance is applicable only for TARP recipients and the service providers of such TARP recipients and is only effective to the extent that an arrangement involving compensation paid by a TARP recipient to a one of its service providers is addressed in an advisory opinion issued by the Special Master pursuant to the Emergency Economic Stabilization Act of 2008 (Division A of P.L. 110-343) after September 30, 2009.

  In addition, because the Treasury Department and the IRS believe that further guidance is both appropriate and necessary, they have announced their intent to issue regulations that will (1) permit changes in the time and form of payment of nonqualified deferred compensation, including the acceleration of payments under a nonqualified deferred compensation plan by a TARP recipient, to the extent necessary to comply with an advisory opinion or other determination issued by the Special Master, and (2) specify when a payment that is delayed due to conditions imposed by such an advisory opinion or determination will not cause an amount to fail to qualify as a short-term deferral under Code Sec. 409A(a)(3) or Reg. §1.409A-3(j).

Notice 2009-92, 2009FED ¶46,558

Other References:

 
Code Sec. 409A

  CCH Reference - 2009FED ¶18,960.20

  CCH Reference - 2009FED ¶18,960.22

  Tax Research Consultant

  CCH Reference - TRC COMPEN: 15,056.30
CCH Reference - TRC COMPEN: 15,060
CCH Reference - TRC COMPEN: 15,062.05
 

CCH (cch.taxgroup.com) reports:

  The Utah Supreme Court has ruled that a limitation against retroactive application of the severance tax valuation holding in
ExxonMobil Corp. v. Utah State Tax Commission, Utah Supreme Court, 86 P.3d 706, 2003 UT 53, November 25, 2003, does not apply to severance tax deficiency actions but continues to apply to refund actions initiated by taxpayers. The court handed down the ruling in a case where an oil company sought a refund of severance taxes. At issue in the case were valuation methods and the commission's proration of an annual tax exemption.

 

CCH (cch.taxgroup.com) reports:

  The New York Department of Taxation and Finance has reversed its previous policy that excluded alcoholic beverage wholesalers from the statutory requirement of collecting and maintaining sales tax Resale Certificates (ST-120) for sales made to retailers. Starting February 15, 2010, alcoholic beverage wholesalers must get a properly completed Resale Certificate when they sell otherwise taxable products for resale (e.g., beer, wine, liquor) to an alcoholic beverage retailer.

  Previously enacted legislation required wholesalers of alcoholic beverages licensed by the New York State Liquor Authority to annually report certain information to the Department of Taxation and Finance, including:

  -- identifying information about their customers, including sales tax Certificate of Authority (COA) number or federal identification number, and

  -- information regarding sales to such customers.

  Some wholesalers have reported difficulty obtaining COA numbers or federal identification numbers. To address this concern, the department has changed its policy. Thus, for every sale made on or after February 15, 2010, without the collection of sales or use tax, wholesalers must obtain and maintain a properly completed ST-120 Resale Certificate or other appropriate exemption document.

  Because a Resale Certificate includes the retailer's COA number, wholesalers who obtain and maintain Resale Certificates will be able to satisfy the new legislation's reporting requirements. In addition, reporting the COA number will make it unnecessary for wholesalers to get federal identification numbers from customers.

  Penalties for noncompliance: Wholesalers may be held liable for the sales tax due, along with penalties and interest, on all transactions that are not supported by proper exemption documentation.

  The notice and alert can be found on the department's Web site at
http://www.tax.state.ny.us/enforcement/audit/alcbev.htm.

Notice, Alcoholic Beverage Wholesaler Annual Reporting Requirements, New York Department of Taxation and Finance, December 7, 2009; Audit Division Alert, New York Department of Taxation and Finance, December 3, 2009
 

CCH (cch.taxgroup.com) reports:

  The comparable uncontrolled transaction (CUT) method, used to calculate a buy-in payment for certain preexisting intangibles made by a foreign subsidiary corporation to its parent, pursuant to a cost sharing arrangement for the development and manufacture of storage management software products, was found to be the best method for determining such buy-in payment. The IRS's determination that the buy-in payment should have been calculated using an income method, and the factors it used in making its calculations under such method, were found to be arbitrary, capricious and unreasonable.

  The IRS relied on the testimony of an expert at was found to be unsupported, unreliable, and unconvincing. The expert used the wrong useful life for the product and the wrong discount rate.

  Moreover, the notice of deficiency relied on a report by a non-witness expert that resulted in a valuation one third higher than the valuation the IRS subsequently claimed at trial. This, together with other factors, suggested that the deficiency notice was arbitrary, capricious and unreasonable. Such other factors included a concession at trial by the IRS's expert that the beta factor he used by the in calculating the appropriate discount rate for the buy-in payment was erroneous.

  The IRS's modified computation of the correct buy-in payment in its amendment to its answer was also arbitrary, capricious and unreasonable. It relied on an assumption that the transfer of preexisting intangibles was akin to a sale of the US parent's business to its foreign subsidiary, that short-lived intangibles should be valued as though they would have perpetual life, and that subsequently developed, rather than just preexisting intangibles, should be factored in. This approach was found to be unreliable. Moreover, the IRS allocation took into account items not transferred or of insignificant value, as well as rights to future co-developed intangibles in violation of Reg. §1.482-7(g)(2). It also employed the wrong useful life, discount rate and growth rate in computing the appropriate buy-in payment.

  By contrast, the CUT method employed by the taxpayer satisfied the best method rule of Reg. §1.482-1(c) and was found to be essentially reliable. Certain adjustments were, however, made, including the starting royalty rate, the appropriate useful life of the preexisting product intangibles, the royalty degradation rate, the value assigned to trademark intangibles and sales agreements, and the appropriate discount rate.

Veritas Software Corp., 133 TC No. 14, Dec. 58,016

Other References:

 
Code Sec. 482

  CCH Reference - 2009FED ¶22,283.107

  CCH Reference - 2009FED ¶22,283.48

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 30,102.10
CCH Reference -
TRC INTL: 15,104
CCH Reference - TRC INTL: 15,104.10
 

CCH (cch.taxgroup.com) reports:

  The IRS has added an exception under Reg. §1.338-1(b)(2) to the provision that treats a new target corporation as a new corporation unrelated to the old target if a Code Sec. 338 election is made. In the case of a life insurance company, for purposes of Code Sec. 807(e)(4), the new target and the old target will be treated as the same corporation.

Notice 2010-1,
2009FED ¶46,557

Other References:

 
Code Sec. 338

  CCH Reference - 2009FED ¶16,288.32

 
Code Sec. 807

  CCH Reference - 2009FED ¶25,821.40

  Tax Research Consultant

  CCH Reference - TRC CCORP: 30,252

CCH (cch.taxgroup.com) reports:

  The IRS has issued guidance regarding how an employer corrects employment tax reporting errors using the interest-free adjustment and refund claim processes under Code Secs. 6205, 6402, 6413 and 6414 in a number of situations. The guidance refers to corrections made pursuant to Code Secs. 6205 and 6413 of underpayments or overpayments, respectively, resulting from employment tax reporting errors as having been made using the adjustment process. It also refers to corrections made pursuant to Code Secs. 6402 and 6414 of overpayments resulting from employment tax reporting errors as having been made using the refund claim process, and analyzes the applicable regulations.

  Situations. Ten situations were analyzed: (1) an underpayment of Federal Insurance Contributions Act (FICA) tax and income tax withholding (ITW) when the error is not ascertained in the year the wages were paid; (2) an overpayment of ITW when the error is ascertained in the same year the wages were paid; (3) both an overpayment and an underpayment of FICA tax for the same tax period; (4) an underpayment of FICA tax when the employer's filing requirement has changed; (5) an underpayment of FICA tax and ITW resulting from a failure to file an employment tax return because the employer failed to treat any workers as employees; (6) an overpayment of FICA tax on wages paid to a household employee; (7) an overpayment of FICA tax when the error is ascertained close to the expiration of the period of limitations on credit or refund; (8) an underpayment of FICA tax and ITW ascertained in the course of an employment tax examination; (9) an underpayment of FICA tax and ITW ascertained in the course of the appeals process; and (10) an underpayment of FICA tax and ITW resulting from the misclassification of employees ascertained in the course of the appeals process.

  As a result of T.D. 9405 and the new guidance, Rev. Rul. 75-464, 1975-2 CB 474, is no longer determinative of when interest-free adjustments are made in the context of an employment tax examination and is obsolete.

Rev. Rul. 2009-39, 2009FED ¶46,556

Other References:

 
Code Sec. 6205

  CCH Reference - 2009FED ¶37,523.10

 
Code Sec. 6402

  CCH Reference - 2009FED ¶38,519.395

 
Code Sec. 6413

  CCH Reference - 2009FED ¶38,770.35

 
Code Sec. 6414

  Tax Research Consultant

  CCH Reference - TRC IRS: 33,108
CCH Reference - TRC PAYROLL: 9,308
 

CCH (cch.taxgroup.com) reports:

  The IRS has issued guidance regarding Code Sec. 403(b) plans which provides for a remedial amendment period and reliance for employers that, pursuant to upcoming revenue procedures, either adopt a pre-approved plan with a favorable opinion letter or apply for an individual determination letter when available. The IRS expects to publish, within the next few months, a procedure for obtaining an opinion letter that the form of a prototype or other "pre-approved plan" meets the requirements of Code Sec. 403(b) and the regulations thereunder. The procedure will reflect the IRS's consideration of comments it has received on the draft revenue procedure that was provided in Announcement 2009-34 (TAXDAY, 2009/04/15, I.1). Subsequently, the IRS intends to publish a procedure for obtaining an individual determination letter for a Code Sec. 403(b) plan.

  If the relevant condition under Notice 2009-3, I.R.B. 2009-2, 250, with respect to adopting a plan on or before December 31, 2009, is met, and, pursuant to the upcoming revenue procedures, the employer sponsoring the plan either adopts a pre-approved plan that has received a favorable opinion letter from the IRS or applies for an individual determination letter when available, the employer will have a remedial amendment period in which to amend the plan to correct any form defects retroactive to January 1, 2010. Also, beginning January 1, 2010, the form of the employer's written plan will be considered to satisfy the requirements of
Code Sec. 403(b) and the regulations, provided that, during the remedial amendment period, the pre-approved plan is adopted retroactive to January 1, 2010 or the plan is amended to correct any defects in the form of the plan retroactive to January 1, 2010.

  The remedial amendment provision will be included in the upcoming revenue procedures. Also, the revenue procedures will address the time-frames for adopting a pre-approved plan or applying for a determination letter and other details regarding the remedial amendment period. Employers may continue to rely on the model plan language in Rev. Proc. 2007-71, I.R.B. 2007-51, 1184.

  Employers may rely on the new guidance prior to publication of the revenue procedure for pre-approved Code Sec. 403(b) plans. Employers should not request ruling or determination letters on the form of their
Code Sec. 403(b) plans at this time, pending publication of the revenue procedure for pre-approved Code Sec. 403(b) plans and additional procedures on applying for individual determination letters for Code Sec. 403(b) plans.

Announcement 2009-89, 2009FED ¶46,555

Other References:

 
Code Sec. 403

  CCH Reference - 2009FED ¶18,282.077

  CCH Reference - 2009FED ¶18,282.11

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 9,050
CCH Reference - TRC RETIRE: 51,100
 

CCH (cch.taxgroup.com) reports:

  Senate lawmakers on December 10 passed the Fiscal Year 2010 Federal Aviation Administration Extension Act, Part II (HR 4217). The measure extends the financing and spending authority of the Airport and Airway Trust Fund for three months, to March 31, 2010. The previous long-term FAA reauthorization act, the Vision 100--Century of Aviation Reauthorization Act (P.L. 108-176) expired on September 30, 2007, and the FAA's current funding authority was set to expire on December 31. The House has passed a long-term FAA funding bill, but the Senate has not, resulting in the need for a series of short-term extension acts.

CCH (cch.taxgroup.com) reports:

  The Rhode Island Department of Revenue has announced that the 2010 personal income withholding tax tables are available to calculate the appropriate withholding amounts. The annual exemption amount for 2010 is $3,650.

Rhode Island Employer's Income Tax Withholding Tables , Rhode Island Department of Revenue, December 2009
 

CCH (cch.taxgroup.com) reports:

  Colorado Secretary of State Bernie Buescher announced on December 4, 2009, that Proposed Initiatives 10 and 12 were found to be sufficient for inclusion on the November 2, 2010 general election ballot.

 

CCH (cch.taxgroup.com) reports:

  Senate Democrats said late on December 8 that they have reached agreement on a possible compromise on a public option in the health reform bill that could end the current impasse and lead to final passage of the measure. The proposal would drop an opt-in government-run plan as proposed by Senate Majority Leader Harry Reid, D-Nev., and, instead, offer an array of a health insurance policies provided by private health insurers and administered by the Office of Personnel Management (OPM), which handles benefits for federal employees. A government-run insurance program would be created in instances where private insurers fail to provide affordable choices. In order to mollify its liberal base, which strongly advocated for a public option, negotiators also proposed expanding Medicare eligibility to people aged 55 to 64.

  Not all 10 members of the negotiating team are fully satisfied with the tentative agreement, but they agreed to allow it to move forward. Reid said he would send the proposal to the Congressional Budget Office for cost estimates, a process that could take days, before fully vetting the details with members of his caucus.

  "I know not all 10 senators in the room agree on every single detail of this, nor will all 60 members of my caucus," said Reid. "But I know we all appreciate the hard work that these progressives and moderates have done to move this historic debate forward."

  President Obama said the Democrats "made progress last night with a creative new framework" that he said he believes "will pave the way for final passage" of health care reform legislation. Although details of the compromise have yet to be officially released, White House Press Secretary Robert Gibbs, at a press briefing on December 9, said he thought requiring the OPM to administer the health insurance plan and requiring coverage to be akin to the Federal Employee Health Benefits Program (FEHBP) "fit together in a way that might be difficult to break apart."

  At this point in the process, Gibbs declined to say whether the White House prefers the Senate compromise to the House version, which contains a public option. He indicated that the primary focus at the moment is to get the bill out of the Senate and into conference.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

SFC Release: The Patient Protection and Affordable Care Act --Cutting Taxes, Making Health Care Affordable
 

CCH (cch.taxgroup.com) reports:

  House lawmakers approved the Tax Extenders Bill of 2009 (HR 4213) on December 9. The 241-to-181 vote to pass the measure came after Democrats spent the day defending their decision to include $31 billion in new taxes to offset the extension of expiring tax provisions. Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., said that extending the tax provisions would boost job creation during the recession. However, Rep. Tom Price, D-Ga., speaking on behalf of the House Republican Study Committee, noted that the extensions in the bill are long-standing policy and should not be offset by revenue increases.

  "These tax extensions, such as the research and development credit for businesses, are simply a continuation of long-standing policies," Price said. "The argument that they need to be offset with new tax hikes is just an excuse to push more taxpayer money into federal coffers." But Rangel said Democrats are simply trying to stop people from taking unfair advantage of the tax code, particularly investment managers who would face higher taxes on income from carried interest under the legislation.

FAA Extension

  In other tax action, House lawmakers on December 8 passed the Fiscal Year 2010 Federal Aviation Administration Extension Act, Part II (HR 4217) by a voice vote. The measure would provide a three-month extension for the financing and spending authority of the Airport and Airway Trust Fund, which expires on December 31. House Transportation Committee Chairman James L. Oberstar, D-Minn., said the aviation taxes support the trust fund, which funds a substantial portion of the FAA's budget. "With an uncommitted cash balance of just $251 million at the end of FY 2009, any lapse in the aviation taxes could put the solvency of the trust fund at risk," Oberstar said. He noted that the previous long-term FAA reauthorization act, the Vision 100--Century of Aviation Reauthorization Act (P.L. 108-176) expired on September 30, 2007. The House has passed a long-term funding bill, but the Senate has not, resulting in the need for a series of short-term extension acts that, unfortunately, continues to this day, Oberstar said.

  By Stephen K. Cooper, CCH News Staff

Ways and Means Press Release: House Passes Tax Extenders Act

Fiscal Year 2010 Federal Aviation Administration Extension Act, Part II, as Passed by the House on December 8, 2009, HR 4217
 

CCH (cch.taxgroup.com) reports:

  Massachusetts Gov. Deval Patrick has released a proposed budget for fiscal year 2010 that would:

  -- eliminate existing sales tax exemptions on alcoholic beverages, sweetened beverages, and candy;

  -- increase the state meals and hotel occupancy taxes by 1%;

  -- authorize cities and towns to impose a 1% local option tax on meals and increase local option hotel taxes by 1%;

  -- eliminate property tax "loopholes" applicable to telecommunications companies;

  -- increase motor vehicle registration fees; and

  -- require disclosure, on the tax credit disclosure/accountability Web site currently being developed, of the names of taxpayers who receive refundable or transferable tax credits and the number of jobs created through these credits.

  Budget documents are available on the Governor's Web site at
http://www.mass.gov/bb/h1/fy10h1/msg10/hdefault.htm.

FY2010 Budget Narrative , Massachusetts Gov. Deval Patrick, January 28, 2009
 

CCH (cch.taxgroup.com) reports:

  The California Franchise Tax Board has issued a legal ruling clarifying the application of the real estate mortgage investment conduit (REMIC) excess inclusion rules for members of a California franchise tax unitary combined reporting group. The minimal amount of a California noneconomic residual interest (NERI) holder's excess income from a REMIC that is reported on the NERI holder's tax return must be determined on a post-apportioned basis if the NERI holder is included in a California combined report. Furthermore, the minimal excess income amount is not included in the NERI holder's gross income or taxable income for purposes of calculating the NERI holder's California net operating loss carryforward.

Legal Ruling 2009-01 , California Franchise Tax Board, January 26, 2009,
¶404-839

  Other References:

  Explanations at ¶10-365

CCH (cch.taxgroup.com) reports:

  A corporation that redeemed shares of its common stock held by a trust that in turn used the proceeds to satisfy distributions to terminated employees who cashed out of an employee stock ownership plan (ESOP) was not entitled to a tax deduction under Code Sec. 404(k)(1) for the payments to the employees.

  Under the terms of the ESOPs set up by the corporation, when a participant left the corporate employer, the ESOP trust distributed to the participant in cash or stock the value of the participant's ESOP account. If the participant elected cash, the trust would ask the corporation to purchase its own stock from the trust to fund the distribution. The corporation would buy the stock and make the payments (which the parties agreed were equivalent to dividends for purposes of Code Secs. 301 and 316). The trust then distributed the cash to the participant.

  These two steps - the payment of a dividend to the trust followed by the distribution of the amount to the participant - meant that the payments were applicable dividends under Code Sec. 404(k)(2)(A)(ii), and such dividends are normally deductible under Code Sec. 404(k)(1). However, Code Sec. 162(k)(1), which prohibits otherwise allowable deductions by a corporation for amounts paid in connection with reaquiring its own stock, prohibited the corporation from claiming the deduction.

  CCH Comment. The IRS pointed out in Rev. Rul. 2001-6, 2001-1 CB 491, which prohibited a deduction under a similar set of facts, that application of Code Sec. 404(k) to redemption amounts would allow employers to claim deductions for payments that do not represent true economic costs, and it would eliminate important rights and protections for recipients of ESOP distributions, including the right to reduce taxes by using the return of basis provisions under Code Sec. 72, the right to make rollovers of ESOP distributions received upon separation from service, and the protection against involuntary cash-outs.

  CCH Comment. The court declined to follow the Ninth Circuit's decision in Boise Cascade Corp. , CA-9, 2003-1 USTC ¶50,472; rather, it is in line with the Tax Court's recent decision in Ralston Purina Co. , 131 TC --, No. 4, Dec. 57,534, as well as
Reg. §§1.62(k)-1(c), and 1.404(k)-3, which the IRS issued in response to Boise . The district court's take in General Mills, Inc. , DC Minn., 2008-1 USTC ¶50,141, essentially followed the holding in Boise Cascade that Code Sec. 162(k)(1) would only apply, if at all, to the initial step (the payment made to the trust in the stock repurchase), which by itself is not otherwise deductible.

  Also, the district court concluded that Code Sec. 162(k)(1) only prohibits deductions for fees and expenses that are necessary and incident to the repurchase of the stock, rather than the amount paid for the stock itself. The Court of Appeals rejected both positions.

  CCH Comment. An approach not taken by the Court of Appeals was to use Code Sec. 404(k)(5)(A), under which the IRS can disallow a Code Sec. 404(k)(1) deduction for tax-avoidance reasons. This was the approach advocated by the concurring opinion in Ralston Purina .

  Reversing and remanding a DC Minn. decision, 2008-1 USTC ¶50,141.

General Mills, Inc. & Subsidiaries, CA-8, 2009-1 USTC ¶50,177

Other References:

 
Code Sec. 162

  CCH Reference - 2009FED ¶9052.01

  CCH Reference - 2009FED ¶9052.23

 
Code Sec. 404

  CCH Reference - 2009FED ¶18,371.30

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 75,204

CCH (cch.taxgroup.com) reports:

  An accrual based parent corporation was required to include in its consolidated income deferred payments from the sale of barges manufactured by its subsidiary. Under the contract to sell the barges, a portion of the payments were due 18 months after the delivery of each barge. The deferred payments were excluded by the parent because they were withheld by customers in order to offset agreed-upon damages incurred under a previous barge sale contract.

  As an accrual basis taxpayer, the parent was required to accrue the deferred payments for the barges in the year that all of the events occurred to fix the right to the income. The delivery of the barges unconditionally fixed the right to receive the full contract price, including the deferred payments, in the year of delivery. The customers' offset claim did not prevent the accrual of the income. The customers did not dispute the fact or the amount of the obligation under the contract and there was no question as to whether the right to receive income was vitiated by a contractual provision for withholding a portion of the sales price. The offset claims affected only the timing of the receipt of the income under the contract and not the right to receive the income. Moreover, the deferred payments did not fall within the income-accrual exception because there was no evidence that the deferred payments were uncollectible as a result of insolvency, bankruptcy or other financial conditions of the customers. It was only in the tax year after the barges had been delivered and the right to income had been fixed that the customers asserted their right to an offset for the damages from the previous contract.

  Additionally, the withheld deferred payments could not be deducted in the year as an amount transferred to satisfy a contested liability in the tax year the income accrued. The withholding of the deferred payments did not constitute a transfer of property in the same tax year in satisfaction of a liability. In the year the barges were delivered and the income accrued, the deferred payments were not yet due and so could not have been withheld. Additionally, the withholding of the deferred payments did not constitute a transfer. The deferred payments withheld by the customers were not in the control of the subsidiary. In the year the income accrued, there was no order of any competent legal authority to force the subsidiary to transfer the funds that were owed.

Trinity Industries, Inc., 132 TC No. 2, Dec. 57,718

Other References:

 
Code Sec. 451

  CCH Reference - 2009FED ¶21,005.756

 
Code Sec. 461

  CCH Reference - 2009FED ¶21,817.225

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 9,050

  CCH Reference - TRC ACCTNG: 12,058
 

CCH (cch.taxgroup.com) reports:

  Calling it an investment in America's future, House Democratic leaders successfully passed the American Recovery and Reinvestment Bill of 2009 (HR 1) on January 28. The party-line vote of 244 to 188 came at the end of a day-long legislative session in which GOP lawmakers sought to portray the measure as an ineffective, tax-and-spend liberal package that would do little to help end the U.S. recession, create jobs or help struggling families. The House action was the latest step in an effort to get economic stimulus legislation to President Obama's desk before the Presidents Day recess in mid-February. The Senate is expected to shortly vote on its version of the legislation, which includes different tax provisions and might win more GOP support.

  The centerpiece of the tax provisions in the House's $825 billion bill is the Making Work Pay tax credit, which would provide a $145.3 billion refundable credit to families and individuals in their paychecks. The provision, which GOP lawmakers wanted to replace with targeted tax incentives and a cut in marginal tax rates, was intended to help middle-income taxpayers who did not benefit from the tax policies supported by former President Bush in the last eight years, Democrats charged. Congress is saying, in effect, that trickle-down economics has not worked, said Rep. John Lewis, D-Ga., who is a member of the House Ways and Means Committee. "We are saying that the people's resources should be used to benefit the greatest number of citizens in their time of need," he added.

  Eleven Democrats voted against the bill. The measure ran into trouble with the conservative House Democratic Blue Dog Coalition, which favors following pay-as-you-go (PAYGO) budget rules as a way to shrink the budget deficit. Rep. Charlie Melancon, D-La., said he voted for the measure following a commitment by the Obama administration that it will support efforts to follow PAYGO rules.

  Democrats soundly defeated an alternative proposal from Ways and Means ranking member Dave Camp, R-Mich., and Rep. Tom Price, R-Ga. GOP lawmakers said they raised their concerns about HR 1 with Obama, but the bill still includes unnecessary federal spending. "The bulk of the tax cuts are simply rebate checks --$10 a week for individuals and $20 a week for couples. We tried rebate checks last year and they simply don't work," said Ways and Means member Paul Ryan, R-Wis.

  President Obama said he was grateful for the House vote on the economic package but hopes the Senate will "strengthen" the plan before it reaches his desk. Obama said the House package will provide "billions of dollars of immediate tax relief "to working families and save or create 3 million jobs over the new few years. Obama did not explain what areas of the bill need to be changed but stressed the importance of moving on the package swiftly. Earlier in the day after a meeting with business leaders (TAXDAY, 2009/01/29, W.1), the president said he hoped to sign an economic recovery bill "in the next few weeks."

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

American Recovery and Reinvestment Tax Act of 2009, as Reported by the House Ways and Means Committee, HR 598

Ways and Means Press Release: Economic Recovery Plan Passes House of Representatives

Ways and Means Press Release: Ways & Means Democrats Support American Recovery and Reinvestment Plan

White House Press Release: Statement of the President on the House Passage of the American Recovery and Reinvestment Act

SFC Press Release: Finance Panel Votes to Create Jobs, Cut Taxes for Working Families and Small Businesses in Economic Recovery Plan
 

CCH (cch.taxgroup.com) reports:

  The Senate Finance Committee on January 27 approved its portion of an $825 billion economic stimulus bill, the American Recovery and Reinvestment Bill of 2009, and potentially boosted the total cost to nearly $900 billion after agreeing to include a one-year patch for the alternative minimum tax (AMT). The $69.8 billion price tag of the fix is not offset and its inclusion could possibly serve to mollify Republicans who have complained that the package contains too much spending and not enough tax cuts. The final vote was 14 to 9.

  Committee Chairman Max Baucus, D-Mont., has been under intense pressure to include more Republican proposals, and he has done so, tacking on several modifications before presenting the bill to the committee. Such changes include loosening net operating loss carryback requirements, extending the deferred business tax debt repayment period from four years to eight years and expanding credits for broadband development and hybrid electric plug-ins. Bank acquisitions lost a tax break as Baucus restricted the utilization of Code Sec. 382 rules for transactions occurring after January 16, 2009. The provision raises approximately $7 billion in revenue.

  In his opening statement, Baucus had urged members not to delay in moving the bill in a timely fashion. "Congress needs to act quickly and in a unified fashion to address the economic woes in this country," he said.

  Committee members initially offered over 216 amendments to the Chairman's Mark, but the panel eventually considered less than 30, approving only the AMT patch. Sen. Robert Menendez, D-N.J., had earlier filed a different version of an AMT amendment, but modified his amendment to mirror an amendment offered by ranking member Charles E. Grassley, R-Iowa. The economic stimulus bill passed on January 22 by the House Ways and Means Committee did not address the AMT (TAXDAY, 2009/01/23, C.1).

  The stimulus package in its present form faces an uncertain future though, as President Obama on January 27 met with Republicans in both chambers to hear their proposals and hopefully craft a more bipartisan bill. Stopping short of making any promises, Obama called the meetings "constructive" and acknowledged that GOP members had "legitimate philosophical differences." He assured them that the bill was still a work in progress, despite House plans to hold a vote on its version on January 28. "The key right now is to make sure that we keep politics to a minimum," said Obama.

Obama Tax Cuts

  According to White House Press Secretary Robert Gibbs, the president has not refused to compromise with GOP lawmakers on tax cuts, and his economic advisors will evaluate any proposals advanced by them. When asked about the AMT patch proposed by Grassley, the White House spokesman maintained that the administration's Making Work Pay tax credit would serve as a greater stimulus to the economy.

  The president ran on a tax policy that lower-income workers whose wages have stagnated or declined are the ones who are most likely to spend any additional earnings they receive from tax breaks, Gibbs said at a press briefing on January 27. He noted that Obama supports the AMT patch, but believes it should be taken up separately from the economic recovery package, since it is directed at upper-middle-income taxpayers. Gibbs said the most important thing about the House vote on the economic package and Senate action is "keeping the process moving." He maintained that Obama is open to making some changes in the bill and believes "we are on track" to finish a stimulus bill that will garner bipartisan support by the Presidents Day recess.

  Separately, Office of Management and Budget Director Peter Orszag sent a letter to Congress outlining the major principles of the president's economic plan. Among the measures to maintain fiscal discipline in the future, Orszag said any proposals in the economic package to make temporary tax cuts permanent will be paid for, and further details will be included in the president's forthcoming budget request to Congress in February.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

JCT Description of the Chairman's Modification to the Revenue Provisions of the American Recovery and Reinvestment Tax Act of 2009, JCX-12-09

JCT Estimated Revenue Effects of the Chairman's Mark, as Modified, of the American Recovery and Reinvestment Tax Act of 2009, Scheduled for Markup by the Senate Finance Committee on January 27, 2009, JCX-13-09

SFC Press Release: Finance Panel Votes to Create Jobs, Cut Taxes for Working Families and Small Businesses in Economic Recovery Plan

SFC Press Release: Modifications to Titles II --V of the Chairman's Mark, The American Recovery and Reinvestment Act of 2009

SFC Press Release: Statement of SFC Ranking Member Charles E. Grassley on Committee Markup of Stimulus Bill

House Ways and Means Press Release: Economic Recovery Plan Creates Jobs, Provides Tax Cuts to Families and Businesses

OMB Director Orszag's Letter to House Appropriations Committee Chairman Obey
 

CCH (cch.taxgroup.com) reports:

  A bill has been introduced in the Arkansas Legislature that would replace destination-based sourcing with origin-based sourcing for Arkansas sales and use tax purposes. Under the proposed legislation, a retail sale would be sourced to the seller's business location, beginning July 1, 2009.

  If a purchaser picks up the good in Arkansas in his or her own conveyance, sales tax must be collected. If property is sold by a seller in Arkansas and the seller is required under the terms of the sales contract to deliver the property by common carrier, U.S. Postal Service, or in the seller's own conveyance to a point outside the state for consumption and use, the transaction would not be subject to sales or use tax and may be deducted. If a taxable service is performed in Arkansas, sales or use tax must be collected based on the location where the service is performed.

 

CCH (cch.taxgroup.com) reports:

  In a case engendering widespread interest, a taxpayer has asked the U.S. Supreme Court to consider its challenge to an Alabama statute requiring that certain royalty payments to related parties be added back to income subject to the state's corporate income tax. At present, approximately 20 states have some version of an addback statute, all of which could be put at risk if the high court decides to accept the taxpayer's request.

  Background: In 2001, Alabama enacted its addback statute, which requires a corporation to add back to its taxable income otherwise deductible intangible expenses paid to related members of its corporate group. The statute includes exceptions to this addback requirement, including an exception when the corresponding income is subject to a tax based on net income in Alabama or any other state.

  The taxpayer, a clothing manufacturer with operations in Alabama, did not add back to its 2001 Alabama income royalties paid to related companies for the use of their trademarks. The related companies are Delaware corporations that do not file Alabama income tax returns. Delaware does not tax royalty payments. The Alabama Department of Revenue issued an additional assessment based on its determination that the taxpayer was required to add back a portion of the deductions taken for the royalty payments.

  The taxpayer challenged the addback statute in state court on state statutory and federal constitutional grounds. The challenge was successful at the trial court level on the statutory grounds. However, the Court of Civil Appeals reversed. In addressing the constitutional challenges, the appellate court held that the addback statute does not discriminate against interstate commerce because the subject-to-tax exception does not benefit in-state corporations to the detriment of out-of-state corporations. Also, the court held the taxpayer had not demonstrated that the addback statute resulted in taxation of income that is not fairly attributable to Alabama. (TAXDAY, 2008/02/13, S.2) The Alabama Supreme Court affirmed, adopting the appellate court's opinion as its own. (TAXDAY, 2008/09/23, S.1)

  Questions presented: The taxpayer has asked the U.S. Supreme Court to consider two questions: (1) whether Alabama's addback statute discriminates against interstate commerce in violation of the Commerce Clause by denying a deduction for ordinary business expenses because they are paid to corporations located outside Alabama in a state that has chosen not to tax those payments, and (2) whether the statute violates the federal Due Process and Commerce Clauses by denying a deduction for ordinary business expenses paid to corporations located outside Alabama based on the tax policy of the state in which those corporations are located.

  Subscribers to CCH Tax Research NetWork can view the petition.
 
VFJ Ventures, Inc. v. Surtees, U.S. Supreme Court, Dkt. 08-916, petition for certiorari filed January 21, 2009
 

CCH (cch.taxgroup.com) reports:

  An airline mechanic was not entitled to deductions for vehicle, meal and lodging expenses because he was not "away from home" when the expenses were incurred. Although his positions in three other cities lasted for very short periods of time, each of those stays was indefinite in nature; thus, the taxpayer did not have a business reason to be living in two places. The taxpayer was expected to locate his home for tax purposes at his major post of duty so as to minimize the amount of business travel away from home. His decision to do otherwise was not motivated by business necessity.

  Affirming the Tax Court, 93 TCM 1363, Dec. 56,969(M), TC Memo. 2007-152.

D.A. Wilbert, CA-7, 2009-1 USTC ¶50,171

Other References:

 
Code Sec. 162

  CCH Reference - 2009FED ¶8570.1248

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 24,050

CCH (cch.taxgroup.com) reports:

  Timothy F. Geithner won confirmation in the Senate late on January 26 to serve as Secretary of the Treasury despite revelations about previous tax return errors involving self-employment taxes. Geithner had earlier told the Senate Finance Committee that his "[mistakes] were careless, avoidable, but completely unintentional" (TAXDAY, 2009/01/23, C.2). The Senate voted 60 to 34 to confirm the former Federal Reserve official. Geithner was sworn in immediately after the vote.

High Expectations

  Geithner's supporters expect him to playing a leading role in the economic recovery. "These are extraordinary times that require extraordinary action," President Obama said. Geithner will help Obama implement the pending $825 billion economic stimulus package along with overseeing disbursement of the remaining $350 billion in bailout funds authorized by the Emergency Economic Stabilization Act of 2008 (P.L. 110-343).

  "His portfolio, knowledge and skills make him uniquely qualified to serve and is sorely needed by the nation as we face the current economic crisis," Sen. Orrin G. Hatch, R-Utah, said before the confirmation vote. "He is intimately familiar with all arms of U.S. economic policymaking."

Opposition Lingers

  Geithner was able to overcome opposition from some powerful lawmakers, including Sen. Mike Enzi, R-Wyo., who, on January 22, echoed the thoughts of many taxpayers. "How do I explain to my constituents that I voted to confirm someone who will make them pay taxes, but sometimes does not pay his own taxes?"

Swearing In

  Geithner was sworn in as Treasury Secretary shortly after the Senate vote. President Obama and members of his economic team were in attendance at the swearing in ceremony at the Treasury Department. Obama made brief remarks, noting work must start immediately to repair the economy. Geitner said, "Treasury's tradition is to defend the integrity of policy, to respect the constraints imposed by limited resources, and to limit government intervention to where it is essential to protect our financial system and improve the lives of the American people."

  By Paula Cruickshank and George L. Yaksick, Jr., CCH News Staff

CCH (cch.taxgroup.com) reports:

  Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, has filed amendments to the economic stimulus legislation set for committee consideration on January 27 that would either extend or make permanent the wind energy tax credit and ease access to loans for higher education. He said his clean energy proposals would maintain the option for producers to take either the production tax credit (PTC) or investment tax credit (ITC) for 2009 and 2010.

  Grassley is also proposing a new 10-year carryback of the credit, either the PTC or ITC, depending on a wind energy company's election. The House bill has a provision to elect the PTC or the ITC in 2009 and 2010, but only allows a one-year carryback. Senate Finance Committee Chairman Max Baucus, D-Mont. included in his Mark the same election and a five-year carryback of either the PTC or the ITC.

  In addition, Grassley filed three tuition-assistance amendments. One proposal would giveCode Sec. 529 participants the opportunity to change investments up to four times a year. The proposed amendment builds on a December 2008 decision by the Treasury Department to allow Code Sec. 529 account holders to change investment options twice a year (Notice 2009-1; TAXDAY, 2008/12/24, I.2). The second education amendment prevents states receiving Federal Medical Assistance Percentage (FMAP) funds from increasing tuition at publicly funded universities during the period of time that the enhanced federal funding is in effect. A third Grassley amendment would increase the level of the proposed American Opportunity Tax Credit from $2,500 to $3,250 for single filers with incomes between $50,000 and $80,000 annually

  By Jeff Carlson, CCH News Staff

SFC Release: Grassley Works to Bolster Wind Energy Production and Create Jobs in Wind Energy Sector

SFC Release: Grassley Works to Increase Access to College and Jobs
 

CCH (cch.taxgroup.com) reports:

  President Obama will meet with House and Senate Republicans on their turf on January 27, hearing their recommendations on what should be in a final economic recovery package. Obama has scheduled separate meetings on Capitol Hill with the House and Senate GOP caucuses hoping to garner support for legislation that has drawn criticism from Republican lawmakers for containing too much spending and not enough tax cuts.

  If House and Senate Republicans come forward with tax cuts that would improve the existing plan, the White House is willing to consider them, according to White House Press Secretary Robert Gibbs on January 26. However, he maintained that the $825 billion House package containing $275 billion in tax cuts is a "pretty good balance" of tax and spending provisions.

  The House Ways and Means Committee approved the tax title to the American Recovery and Reinvestment Bill of 2009 (HR 598) on January 22 (TAXDAY, 2009/01/23, C.1). Gibbs noted that the House measure already includes several tax cuts supported by GOP lawmakers, such as the five-year carryback of net operating losses. Some House Republicans are pressing for a 5-percent income tax rate cut for taxpayers in the 10-percent and 15-percent tax bracket. They argue that lower tax rates would bolster the economy and reach more taxpayers than the $145.3 billion Making Work Pay tax credit of $500 to individuals and $1,000 to couples.

COBRA Tax Credit Heading

  The White House released further details about the Obama economic plan in a report released on January 24. The report includes a new tax credit proposal to help newly unemployed workers keep their health insurance through COBRA and a new Medicaid option for low-income individuals who lack access to the stopgap insurance. Combined, the proposals could help to provide coverage for almost 8.5 million people, according to the White House report, entitled "Recovery Plan Metrics Report."

  The Obama plan also contains several measures that are in the Ways and Means package. They include a new $2,500 partially refundable higher education tax credit and a $1,000 "Making Work Pay" tax credit. The White House said the Making Work Pay tax cut would benefit 95 percent of workers and their families. Under the proposed higher education tax credit, nearly 20 percent of high school seniors who are not eligible under current law would qualify for at least a portion of the tax cut. Obama also proposes to expand the child tax credit. According to the White House report, the plan would provide a new tax cut to more than 6 million children and increase the existing credit for more than 10 million children.

  By Paula Cruickshank, CCH News Staff

American Recovery and Reinvestment Act of 2009, HR 1

White House Release: Recovery Plan Metrics Report

Code Finding List for HR 598, American Recovery and Reinvestment Tax Act of 2009, as of January 25, 2009
 

CCH (cch.taxgroup.com) reports:

  As previously reported, a new online service called "My Tax Account" for filing Wisconsin personal income tax withholding, sales and use tax, premier resort area tax, local exposition tax, and rental vehicle fee returns is scheduled to be launched in February 2009. (TAXDAY, 2008/12/04, S.37; TAXDAY, 2009/01/12, S.29) A Wisconsin Department of Revenue news release discusses the online services provided by "My Tax Account"; how taxpayers can sign up for the service; how taxpayers can authorize their representatives to act for them; the transition from the EFT Registration and Payment System and Sales Internet Process (SIP) to "My Tax Account"; and other matters.

 

CCH (cch.taxgroup.com) reports:

  The California Franchise Tax Board (FT has outlined the potential relief available to taxpayers facing financial hardships who are delinquent on their personal income taxes.

  The FTB can assist taxpayers by establishing payment plans, granting relief from state tax liens, or delaying some collection actions. The FTB can generally grant relief from state tax liens within two weeks for financially distressed homeowners trying to sell or refinance their homes. The FTB may be able to remove its tax lien to assist a homeowner to complete a home sale when a home sells for less than the loan balance. The tax lien remains in effect on any other property the taxpayer currently holds or later acquires. The FTB can also help individuals who are refinancing or modifying an existing home loan by allowing the new or modified loan to have priority over the tax lien.

  For additional lien information, look under the "Bills and Notices" tab on the FTB's Web site at
www.ftb.ca.gov. Information concerning installment payments can also be found on the FTB's Web site or by calling the FTB at 800-689-4776

Press Release, California Franchise Tax Board, January 23, 2009

CCH (cch.taxgroup.com) reports:

  The IRS has provided additional guidance to clarify the rules regarding the effects of making the Code Sec. 168(k)(4) election not to claim bonus depreciation, the time and manner for making the election, the allocation of the credit limitation increases among the members of a controlled group, the effect of the election on partnerships with corporate partners that make the election, the applicability of this election for S corporations, and the election under Act §3081(b) of the Housing and Economic Recovery Act of 2008 (P.L. 110-289) by certain automotive partnerships. Except for these certain automotive partnerships, only a corporation may elect to apply Code Sec. 168(k)(4). This guidance supplements earlier guidance contained in Rev. Proc. 2008-65, I.R.B. 2008-44, 1082.

  The election is made by the taxpayer for its first tax year ending after March 31, 2008, and applies to all eligible qualified property placed in service by the taxpayer in the taxpayer's first tax year ending after March 31, 2008, and in any subsequent tax year. When the election is made, the corporation forgoes the 50 percent additional first year depreciation deduction and instead increases the limitations under both the general business credit (Code Sec. 38(c)) and the alternative minimum tax (Code Sec. 53(c)). This will enable a corporation to claim unused credits from tax years beginning prior to 2006 that are allocable to research expenditures or AMT liabilities. The guidance clarifies that --to the extent that a corporation is allowed the business or AMT credit in an amount allocable to the aggregate increases in the credit limitation as a result of the Code Sec. 168(k)(4) election --any such amounts will be treated as overpayment (within the meaning of Code Sec. 6401(b)) and refundable to the taxpayer.

  The guidance clarifies that generally a corporate taxpayer must make the election by the due date, including extensions, of its federal income tax return for its first tax year ending after March 31, 2008, even if the taxpayer does not place in service any eligible qualified property during the first tax year ending after that date. Special rules are included for taxpayers whose first tax year ending after March 31, 2008, ends before December 31, 2008.

  The guidance also describes the necessity for an electing taxpayer to allocate the bonus depreciation amount between the business credit limitation under Code Sec. 38(c) and the AMT credit limitation under Code Sec. 53(c). Different allocations may be used for different tax years.

  In addition, the guidance clarifies that an S corporation is allowed to make this election, but any increases in the business or AMT credit limitations that result from the election must be applied at the corporate level, and not at the shareholder level.

Rev. Proc. 2009-16, 2009FED ¶46,255

Other References:

 
Code Sec. 168

  CCH Reference - 2009FED ¶11,279.058

  CCH Reference - 2009FED ¶11,279.19

  Tax Research Consultant

  CCH Reference - TRC DEPR: 3,600
CCH Reference -
TRC DEPR: 3,606
 

CCH (cch.taxgroup.com) reports:

  The IRS has released a fact sheet highlighting provisions of the National Disaster Relief Act of 2008, Subtitle B of Title VII of the Emergency Economic Stabilization Act of 2008 (P.L. 110-343), which provide tax relief for victims of federally declared disasters occurring after December 31, 2007, and before January 1, 2010. The National Disaster Relief Act, which provides numerous tax benefits that may be used by anyone who is affected by a federally declared disaster, effectively replaces the former strategy of providing targeted benefits for disaster victims in the weeks or months following the incident.

  Major provisions of the National Disaster Relief Act include:

  --an expansion of the availability of the casualty loss deduction to include not only individual taxpayers who itemize but, also, those who claim the standard deduction;

  --an increase, for tax years beginning in 2009, in the amount by which all individual taxpayers must reduce their personal casualty losses from each casualty from $100 to $500 (the $100 floor returns for tax years beginning after 2009);

  --a waiver of the requirement that the net casualty loss deduction be allowed only if the casualty loss exceeds 10 percent of the individual's adjusted gross income;

  --the creation of a special five-year net operating loss carryback period for qualified disaster losses; and

  --increases in the charitable mileage deduction and in the charitable use of a vehicle allowance.

  Other important provisions in the National Disaster Relief Act for business taxpayers include:

  --an election to deduct, rather than capitalize, certain qualified disaster cleanup expenses;

  --a waiver of certain mortgage revenue bond requirements for affected business taxpayers and permission to use the bond proceeds for rebuilding;

  --a new set of disaster private activity bonds for business reconstruction;

  --a deduction for 50 percent of the cost of qualifying property in addition to the regular depreciation allowance that is normally available; and

  --an increase in the limits that can be expensed for qualifying Code Sec. 179 property.

  Certain provisions of the National Disaster Relief Act do not apply to the Midwestern disaster area, i.e., disasters affecting the Midwest that were declared from May 20, 2008 through July 31, 2008. That is because the Heartland and Hurricane Ike Disaster Relief Act, part of the same legislation that resulted in the National Disaster Relief Act, provides other tax benefits.

IRS Fact Sheet FS-2009-8, 2009FED ¶46,254

Other References:

 
Code Sec. 63

  CCH Reference - 2009FED ¶6023.033

 
Code Sec. 143

  CCH Reference - 2009FED ¶7786.025

  CCH Reference - 2009FED ¶7786.073

 
Code Sec. 165

  CCH Reference - 2009FED ¶10,005.01

  CCH Reference - 2009FED ¶10,005.041

 
Code Sec. 168

  CCH Reference - 2009FED ¶11,279.001

 
Code Sec. 172

  CCH Reference - 2009FED ¶12,014.061

 
Code Sec. 179

  CCH Reference - 2009FED ¶12,126.01

  CCH Reference - 2009FED ¶12,126.03

  CCH Reference - 2009FED ¶12,126.0325

 
Code Sec. 198A

  CCH Reference - 2009FED ¶12,467.01

  Tax Research Consultant

  CCH Reference - TRC INDIV: 54,200
CCH Reference - TRC INDIV: 54,300
CCH Reference - TRC BUSEXP: 45,154.05
CCH Reference - TRC BUSEXP: 57,300
CCH Reference - TRC BUSEXP: 57,304.45
CCH Reference -
TRC DEPR: 3,600
 

CCH (cch.taxgroup.com) reports:

  Senate Finance Committee Chairman Max Baucus, D-Mont., on January 23 unveiled an economic recovery tax package, the American Recovery and Reinvestment Act of 2009, which includes $275 billion in tax cuts for individuals and businesses, in addition to investments in renewable energy, infrastructure projects, and health care. The release came a day after the House Ways and Means approved a slightly different version of the economic stimulus legislation (HR 598) (TAXDAY, 2009/01/23, C.1), setting the stage for more negotiations before Congress can approve the measure and send it to President Obama before the President's Day recess beginning on February 13.

  Most provisions in the competing bills are the same. Differences in ideology and costs explain the differing provisions. The total dollars in tax cuts are the same in the House and Senate versions, but Baucus lays out almost $11 billion more than his counterpart Charles B. Rangel, D-N.Y., does for green energy incentives. A tax break highly favored by the business community that allows companies to carry back net operating losses (NOLs) over two years, was increased to five years in the Baucus mark. Rangel made a last-minute change in his mark and offered companies the five-year option with a permanent 10-percent reduction in the value of their NOLs.

  During the Ways and Means markup on January 22 House Democrats defeated a Republican amendment that would have temporarily cut taxes on jobless benefits for two years, but the Senate version includes an altered version of the proposal that would temporarily suspend federal income tax on the first $2,400 of unemployment benefits per recipient. The provision would be in effect only for 2009 and is estimated to cost $4.7 billion over ten years. In the Senate bill the income threshold for the refundable child tax credit would be lowered to $6,000, while the House bill would eliminate the threshold.

  Notably missing from both bills is a fix for the alternative minimum tax (AMT). Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, said that he will be fighting during the markup on January 27 to include an AMT patch in the legislation. "Without it, at least 24 million middle-income families will face a tax increase, and that's the last thing anyone needs right now," he said.

  Additional business tax cuts and investments include delayed recognition of certain cancellation of debt income, extension of bonus depreciation, elective expensing (Code Sec. 179), and monetization of accumulated AMT and R&amp credits in lieu of bonus depreciation, an expansion of the work opportunity tax credit (WOTC), new markets tax credit and industrial development bonds, and an increase in the exclusion for small business capital gains.

  Tax breaks for individuals include the making work pay credit which would provide an individual tax credit in the amount of 6.2 percent of earned income, expansion of the earned income tax credit and the refundable child tax credit, creation of a $2,500 higher education tax credit, inclusion of computers as qualified education expenses in Code Sec. 529 education plans, and a homeownership tax credit.

JCT Description of the American Recovery and Reinvestment Tax Act of 2009, JCX-10-09

JCT Estimated Budget Effects of the American Recovery and Reinvestment Tax Act of 2009, Scheduled for Markup by the Senate Finance Committee on January 27, 2009,
JCX-11-09

SFC Release: Stimulus Legislation Memorandum
 

CCH (cch.taxgroup.com) reports:

  The White House and Congress appear to be "on target" in enacting an economic recovery package by the President's Day holiday recess in mid-February, President Obama stated at a meeting with congressional leaders from both parties on January 23. Obama acknowledged the differences between the parties on the size of the spending portion of the package and the makeup of the tax cuts, but he maintained both parties are unified in their goal to enact a package quickly that gets the economy moving again.

  "What I think unifies this group is a recognition that we are experiencing an unprecedented, perhaps, economic crisis that has to be dealt with, and dealt with rapidly," the president stated.

  Senate Minority Leader Mitch McConnell, R-Ky., said Congress should be able to meet the mid-February deadline. Borrowing a line from House Speaker Nancy Pelosi, D-Calif., McConnell said a final package should be "timely, temporary and targeted." Senate Majority Leader Harry Reid, D-Nev., maintained "there was not a single person in the room" that felt they could not work out this problem.

  Although there is general agreement about the broad goals, House Minority Leader John A. Boehner, R-Ohio, pressed the case for lower tax rates and criticized some of the spending proposals for the length of time they would take to bolster the economy. "Some of the provisions do not spend out quickly enough," Boehner said.

  The White House took issue with critics that contend a large proportion of the stimulus plan would not jump-start the economy in the near term. A recently released Congressional Budget Office (CBO) report concluded that about 25 percent of the $825-billion package would not be spent until 2011 at the earliest.

  White House Press Secretary Robert Gibbs maintained that the package is stimulative. "Seventy-five percent of this money will be spent in the next 18 months to create jobs and to get people working and to get the economy moving again," Gibbs maintained.

  Office of Management and Budget Director Peter Orszag noted that the CBO report focused on a spending component of the package dealing primarily with public infrastructure projects. In a letter to Senate Budget Committee Chairman Kent Conrad, D-N.D., on January 22, Orszag noted, "At least 75 percent of the overall package (including the tax component and other provisions not analyzed in the CBO report) will be spent over the next year and a half (the rest of the fiscal year 2009 and fiscal 2010)."

  Pelosi said House Democrats are willing to review any "constructive suggestions" offered by GOP lawmakers. She added that there are several Republican-backed tax cuts already in the House Ways and Means Committee markup (HR 598), including the provision on net operating loss carrybacks.

  The president added that the economic plan will be only "one leg in at a least three-legged stool." Obama's economic advisors are expected to make recommendations shortly on implementing the second half of the financial rescue package. Gibbs said the main principles of the financial stabilization measures are to open up bank lending to consumers and assist homeowners in avoiding foreclosure.

  By Paula Cruickshank, CCH News Staff

White House Press Release: Letter from OMB Director Peter R. Orszag to Senate Budget Committee Chairman Kent Conrad

 

CCH (cch.taxgroup.com) reports:

  The New York Legislature has passed a tax amnesty measure (A.B. 21, Laws 2009, Fourth Special Session) on December 2, 2009, that would allow the Department of Taxation and Finance to administer an accounts receivable discount program, for certain outstanding tax, fee, or surcharge liabilities, that are or were imposed under the Tax Law and administered by the department. The measure awaits Gov. David A. Paterson's signature.

  Under the program, penalties would be reduced by 50% for delinquent assessments that are overdue for between three years and six years. In addition, penalties would be reduced by 80% for delinquent assessments that are overdue for more than six years. The limited forgiveness period would probably take place in the last quarter of FY 2009-10.

  Subscribers can view the full text of A.B. 21.

   
  A.B. 21, Laws 2009, Fourth Special Session; Fact Sheet: $2.7 Billion Enacted Deficit Reduction Legislation , Office of New York Gov. David Paterson, December 3, 2009

CCH (cch.taxgroup.com) reports:

  Massachusetts Governor Deval Patrick has signed legislation authorizing a two-month tax amnesty program, during which penalties for failure to timely file or pay Massachusetts taxes will be waived if the taxpayer files all outstanding returns and makes payments as required by the Commissioner of Revenue. The amnesty program will begin on a date to be determined by the commissioner and will end no later than June 30, 2010. The scope of the program, including the particular tax types and periods covered and any limited look-back period for unfiled returns, will be determined by the commissioner. Amnesty will not apply to penalties that the commissioner does not have the sole authority to waive, including penalties applicable to fuel taxes administered under the International Fuel Tax Agreement and local option portions of taxes collected for the benefit of cities, towns, or state governmental authorities. Any taxpayer who has been the subject of a tax-related criminal investigation or prosecution is not eligible for amnesty. Eligible taxpayers who fail to come forward under the program and pay tax owed will be subject to an additional penalty of $500.

Ch. 166 (H.B. 4359), Laws 2009, effective November 24, 2009

CCH (cch.taxgroup.com) reports:

  A small business tax credit to employers who hire new workers and a temporary payroll tax holiday were among tax incentive ideas discussed at a White House jobs summit on December 3. President Obama said he will speak in greater detail the week of December 7 on several new job creation ideas, including tax-cut proposals. He is scheduled to make a speech on the economy at the Brookings Institution in Washington, D.C., on December 8.

  At a breakout session on small business job growth, Treasury Secretary Timothy F. Geithner said the administration is open to ideas to extend or modify existing tax cuts and new tax incentives. One participant criticized a payroll tax holiday, saying it was too broad-based, and that targeted tax incentives would be more effective.

  The White House summit invited representatives from small business, large firms, labor, community lenders and economists to discuss regulatory, financial and tax measures that could create new jobs. Breakout sessions addressed energy, trade, small business and infrastructure jobs. With respect to energy jobs, the president stressed the job potential of green technology but also noted that the price of carbon must be determined first before the administration can "make a big push" on green jobs.

  The president, in opening remarks, emphasized that the private sector is the ultimate engine of job creation, although the federal government plays a critical role in establishing the conditions for economic growth. Obama said that the measurement of a real economic recovery is when the private sector begins to invest again. "Only when our businesses start hiring again and people start spending again and families start seeing improvement in their own lives again that we're going to have the kind of economy that we want, "he noted.

Grassley Introduced Jobs Bill

  Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, seized the occasion to introduce what he termed a jobs bill. The Clean Renewable Energy Advancement Tax Extension Jobs (CREATE Jobs) Bill of 2009 would extend the tax credit for the production of electricity from wind and open-loop biomass through December 31, 2016. The legislation would also increase the amount of bond authority for new clean renewable energy bonds. Such bonds are used to finance facilities that generate electricity from wind, closed-loop biomass, open-loop biomass, geothermal, small irrigation, hydropower, landfill gas, marine renewable and municipal trash combustion facilities.

  In addition, the proposed legislation extends bonus depreciation for one year. The current 50-percent first-year bonus depreciation allowance expires at the end of 2009.

  " Green energy is a real bright spot in our economic future," Grassley said. "We need to keep up the momentum for job creation, a clean environment, and energy independence. Getting these tax incentives extended is important to help businesses secure the loans they need to make the investments necessary to create jobs."

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

SFC Press Release: Grassley Continues Push for Job Creation With Bill to Extend Renewable Energy, Key Business Tax Incentives
 

CCH (cch.taxgroup.com) reports:

  The IRS has released the 2010 optional standard mileage rates that employees, self-employed individuals and other taxpayers can use to compute deductible costs of operating automobiles (including vans, pickups and panel trucks) for business, medical, moving and charitable purposes. The revenue procedure also provides substantiation rules for employees' local travel or transportation expenses when a payor (an employer, its agent, or a third party) provides a mileage allowance under a reimbursement or other expense allowance arrangement. Finally, the procedure explains the fixed and variable rate allowance (FAVR) rules that payors can use to reimburse business expenses paid or incurred with respect to an automobile owned or leased by an employee. The mileage rates are all lower than they were for 2009, reflecting generally lower transportation costs.

  The updated rates are effective for deductible transportation expenses paid or incurred on or after January 1, 2010; and for mileage allowances or reimbursements paid to, or transportation expenses paid or incurred by, an employee or a charitable volunteer on or after January 1, 2010. Rev. Proc. 2008-72, I.R.B. 2008-50, 1286, is superseded.

Business Mileage Rate

  The standard mileage rate for business mileage in 2010 will be 50 cents per mile. When a taxpayer uses this mileage rate for automobiles the taxpayer owns, depreciation will be considered to have been allowed at a rate of 23 cents per mile. This depreciation reduces the taxpayer's basis in the automobile.

  A taxpayer computes a deduction using the business standard mileage rate on a yearly basis, in lieu of computing the fixed and variable automobile costs allocable to business purposes, such as depreciation, lease payments, maintenance and repairs, tires, gasoline, oil, insurance, and license and registration fees. However, the taxpayer may continue to claim separate allowable deductions for parking fees and tolls, interest relating to the purchase of the automobile, and state and local personal property taxes. The standard business mileage rate may not be used for automobiles used for hire (such as taxicabs) or when five or more automobiles are owned or leased and used simultaneously by the taxpayer (such as in fleet operations). Rules providing for substantiation of an employee's ordinary and necessary expenses for local travel or transportation away from home are also provided. Such expenses will be deemed substantiated when the employer, its agent or a third-party provider provides a mileage allowance under a reimbursement or other expense allowance arrangement.

Medical, Moving Mileage Rate

  The standard mileage rate for medical and moving expenses will be 16.5 cents per mile.

Charitable Mileage Rate

  The standard mileage rate for charitable purposes will remain at 14 cents per mile.

IR-2009-111, FED ¶46,547

Rev. Proc. 2009-54, FED ¶46,548

Other References:

 
Code Sec. 61

  CCH Reference - 2009FED ¶1090.11

  CCH Reference - 2009FED ¶1201.24

  CCH Reference - 2009FED ¶5907.0325

 
Code Sec. 62

  CCH Reference - 2009FED ¶6006.0324

 
Code Sec. 162

  CCH Reference - 2009FED ¶8590.021

  CCH Reference - 2009FED ¶8590.55

 
Code Sec. 170

  CCH Reference - 2009FED ¶11,620.029

  CCH Reference - 2009FED ¶11,620.6744

 
Code Sec. 213

  CCH Reference - 2009FED ¶12,543.82

 
Code Sec. 217

  CCH Reference - 2009FED ¶12,623.021

  CCH Reference - 2009FED ¶12,623.11

 
Code Sec. 274

  CCH Reference - 2009FED ¶14,417.043

  CCH Reference - 2009FED ¶14,417.045

  CCH Reference - 2009FED ¶14,417.046

  CCH Reference - 2009FED ¶14,417.047

  CCH Reference - 2009FED ¶14,417.048

  CCH Reference - 2009FED ¶14,417.05

  CCH Reference - 2009FED ¶14,417.051

  CCH Reference - 2009FED ¶14,417.052

  CCH Reference - 2009FED ¶14,417.053

  CCH Reference - 2009FED ¶14,417.50

 
Code Sec. 1016

  CCH Reference - 2009FED ¶29,412.385

  Tax Research Consultant

  CCH Reference - TRC INDIV: 36,056.15
CCH Reference - TRC INDIV: 36,164
CCH Reference - TRC INDIV: 39,106.10
CCH Reference - TRC INDIV: 42,158
CCH Reference - TRC INDIV: 51,056.15
CCH Reference - TRC BUSEXP: 24,506.05
CCH Reference - TRC BUSEXP: 24,506.10
CCH Reference - TRC BUSEXP: 24,510
CCH Reference - TRC BUSEXP: 24,906.25
CCH Reference - TRC BUSEXP: 24,912.10
CCH Reference - TRC DEPR: 3,252.15
CCH Reference -
TRC FARM: 9,074

CCH (cch.taxgroup.com) reports:

  House lawmakers approved the Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Bill of 2009 (HR 4154) by a vote of 225-to-200 on December 3. The legislation would permanently extend the current exemption for estates up to $3.5 million per individual and $7 million for married couples and set a maximum rate of 45 percent on estates above this threshold.

  House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., said the bill would provide certainty for businesses. In addition, the measure would repeal the enactment of carryover basis rules that would require many heirs to pay additional taxes on built-in gains of property inherited starting in 2010.

  "This bill simply continues present law at current rates and exemptions. But it does not abolish the estate tax altogether, which would be a severe mistake," said House Majority Leader Steny H. Hoyer, D-Md. He noted that a permanent repeal of all estate taxes would cost billions of dollars and only benefit a small number of wealthy families. Hoyer explained that, although HR 4154 is not paid for, lawmakers were able to add the statutory pay-as-you-go (PAYGO) rules to the measure. HR 4154 includes the Statutory PAYGO Bill of 2009 (HR 2920) that passed the House in July (TAXDAY, 2009/07/23, C.1).

  Ways and Means ranking member Dave Camp, R-Mich., who did not vote for the bill, said HR 4154 extends the current rates, which he termed as excessively high. Since the tax rate is not indexed for inflation, it will affect more families each year, according to Camp. Based on historical inflation data, the value of the estate tax exemption could thus be cut in half with every passing generation, GOP lawmakers said. If current law is not changed, the estate tax will disappear in 2010 for one year. He said the bill is unlikely to reach the president's desk before the end of 2009, since the Senate is fully engaged in the health care reform debate.

  By Stephen K. Cooper, CCH News Staff

House Passes Permanent Estate Tax Relief for Families, Farmers, and Small Businesses

House Rules Committee Report Providing for Consideration of HR 4154, the Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009,
HRRepNo 111-350

Joint Committee on Taxation Technical Explanation of HR 4154, the Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009, JCX-57-09

Joint Committee on Taxation Estimated Revenue Effects of HR 4154, the Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009,
JCX-58-09
 

CCH (cch.taxgroup.com) reports:

  The Georgia Department of Revenue has amended its personal income tax rule covering the withholding on distributions to nonresident members of partnerships, S corporations, and limited liability companies. The rule conforms to statutory changes that reduced the penalty from 100% to 25% on pass-through entities that fail to withhold tax on distributions. Withholding is required with respect to distributions paid, or distributions credited but not paid, to a nonresident member. The due date for taxes deducted and withheld on distributions credited but not paid by the entity to its nonresident members is the due date for filing the income tax return for the entity. In lieu of withholding, the entity may elect to file a composite income tax return for one or all of its nonresident members using Form IT-CR.

  Subscribers to CCH Tax Research NetWork can view the regulation.

Reg. Sec. 560-7-8-.34 , Georgia Department of Revenue, effective January 18, 2009

 

CCH (cch.taxgroup.com) reports:

  The California Franchise Tax Board (FT has addressed frequently asked questions (FAQs) regarding the new penalty applicable for taxable years beginning on or after January 1, 2003, to corporations that have an understatement of California corporation franchise or income tax in excess of $1 million. Details of the new law were previously reported. (TAXDAY, 2008/10/02, S.2)

  The FAQs address questions regarding what the penalty is, what an understatement of tax is, what tax years are subject to the penalty, who is subject to the penalty, how the penalty is computed, when the FTB will assess the penalty, and more.

  The penalty is 20% of the entire amount of the understatement. The understatement is measured by the difference between the tax reported on the original return or shown on an amended return, filed on or before the extended due date, and the correct tax liability.

  For the purpose of this penalty for taxable years 2003-2007, a taxpayer can file an amended return and pay the tax shown on the amended return by May 31, 2009, to treat the tax shown on the amended return as tax shown on the original return. This will increase the self-assessed tax base against which the understatement is measured to reduce the likelihood of receiving this penalty for these taxable years.

  The FTB will issue an FTB Notice and provide additional FAQs in the near future to prescribe procedures on the following subjects:

  -- the filing of amended returns under Rev. & Tax. Code Sec. 19138(b);

  -- the payment of the amount shown on the amended return under Rev. & Tax. Code Sec. 19138(b); and

  -- the method to alleviate the burden of filing amended returns in situations involving pending, disputed, and final proposed assessments.

  Concerns and recommendations related to the FAQs should be sent via e-mail to Ting Lee at ting.lee@ftb.ca.gov.

  Subscribers to CCH Tax Research NetWork can view the FTB release.

Large Corporate Understatement Penalty FAQs , California Franchise Tax Board, January 21, 2009

 

CCH (cch.taxgroup.com) reports:

  The U.S. Court of Appeals for the First Circuit has upheld a federal court's decision that the taxpayer's tax accrual workpapers, the contents of which were communicated to an independent auditor, were not revealed to an adversarial party and, therefore, did not forfeit protection under the work product privilege. However, the court vacated and remanded the lower court's determination that the communications were not a complete waiver of the privilege. On remand, the lower court must decide to what extent the independent auditor's own workpapers can be disclosed without violating the taxpayer's work product privilege.

  CCH Comment. Kevin Kenworthy, partner, Miller & Chevalier, Washington, D.C., commented immediately after the release of the First Circuit's opinion that "while the Appeals Court has ruled largely affirming the decision in favor of Textron, the fight is not over yet. While in many respects the court made a favorable decision for taxpayers, the dust has not settled. The case could go as far as the U.S. Supreme Court and Textron could end up losing. Corporate taxpayers need to continue watching the case because a final verdict against Textron could give the IRS an extra tool to find out what companies really believe about their tax returns."

Work Product Protection Applied

  The First Circuit upheld the district court's ruling that documents prepared by Textron for the purpose of calculating its tax reserves were protected by the work product privilege. The taxpayer prepared its tax accrual workpapers in anticipation of litigation because they would not have been created "but for the prospect of litigation." The taxpayer's tax accrual workpapers would not have been prepared "but for" the need to estimate the likelihood of success in litigation in order to establish a reserve fund to cover positions for which the taxpayer could foresee disputes with the IRS. Anticipation of a tax dispute with the IRS could qualify as anticipation of litigation for purposes of the work product doctrine. The resolution of disputes through adversarial administrative processes such as proceedings before the IRS Appeals Board met the definition of litigation.

  The IRS's argument that the taxpayer's legal requirement to calculate and report a tax reserve fund rendered the tax accrual workpapers as prepared in the ordinary course of business versus in anticipation of litigation was rejected. The workpapers were "dual purpose" documents protected by the work product doctrine because "the business purpose derives from and is inextricably relate to anticipating litigation."

No Specific Litigation Reporting Required

  The court also ruled that the taxpayer should not be required to report a particular instance of litigation for each prepared tax accrual workpaper in order to prevent the work product doctrine from growing so broad as to swallow the attorney-client privilege. Such a requirement would offer protection under the work product privilege to only "the cantankerous and combative taxpayer who intends to thoroughly litigate every position. "

Independent Auditor

  The taxpayer did not waive protection under the work product privilege by showing its tax accrual workpapers to an independent auditor. The taxpayer's relationship with the auditor did not waive this protection, as it was not adversarial but, rather, cooperative in nature. The appellate court reasoned that this was different from a previous case ( Massachusetts Institute of Technology, CA-1, 97-2 USTC ¶50,955), where an auditor reviewed a client's financial statements to identify litigious disputes it would subsequently have with the client.

  However, despite the work product protection of the taxpayer's tax accrual workpapers, the independent auditor itself may be required to disclose its own resulting workpapers. The IRS argued that, despite any professional confidentiality obligations, the auditor may be required to disclose information to the Securities and Exchange Commission to protect stockholders or respond to valid subpoenas. While this is true, the court found that the remaining issue was whether disclosure of the auditor's workpapers to the IRS would substantially increase the risk that the contents of the taxpayer's workpapers would be disclosed to "an adversary."

  Although the IRS had requested the auditor's tax accrual workpapers, the lower court made no factual rulings on their contents. Thus, the court remanded to the case to the lower court to perform an in camera inspection or testimonial proceeding on the documents to make this assessment.

  Affirming in part, reversing in part and remanding a DC R.I. decision, 2007-2 USTC ¶50,605.

  By Torie Cole, CCH News Staff

Textron Inc., CA-1, 2009-1 USTC ¶50,167

Other References:

 
Code Sec. 7525

  CCH Reference - 2009FED ¶42,816F.25

 
Code Sec. 7602

  CCH Reference - 2009FED ¶42,827.33

  CCH Reference - 2009FED ¶42,827.5036

  Tax Research Consultant

  CCH Reference - TRC IRS: 21,400

  CCH Reference - TRC IRS: 21,402.35

  CCH Reference - TRC IRS: 21,404

 

CCH (cch.taxgroup.com) reports:

  The massive economic stimulus bill made its way through the House Ways and Means Committee on January 22, with lawmakers approving the $275 billion measure by a vote of 24 to 13. Democrats rejected dozens of GOP amendments to Chairman Charles B. Rangel's, D-N.Y., chairman's mark of the American Recovery and Reinvestment Tax Bill of 2009 (HR 598). Ranking member Dave Camp, R-Mich., said the best chance for Republican lawmakers to influence the bill is to persuade President Obama that a 5-percent income tax rate cut for taxpayers in the 10 percent and 15 percent tax brackets would be a more effective way to stimulate the economy and reach a larger number of Americans. Rangel and the House Democratic leadership believe that the $145.3 billion Making Work Pay tax credit of $500 to individuals and $1,000 to couples is a better plan.

  Rangel said the tax bill will be married to a larger spending bill package now under consideration by the House Energy and Commerce and the House Appropriations committees. The combined legislation, which will then be called the American Recovery and Reinvestment Bill (HR 1), will reach a vote on the House floor on January 28. Since the legislation is moving so quickly, without the benefit of committee hearings, Camp said that he hopes Obama will prevail on Senate lawmakers to modify the bill with their tax proposals. He acknowledged that House Speaker Nancy Pelosi, D-Calif., has tasked Rangel with moving the legislation as quickly as possible.

  In an attempt to assuage criticism of the tax proposal by GOP lawmakers, Rangel offered to hold an informal, bipartisan meeting with Republicans and Obama administration officials. The meeting, which has not been scheduled, would seek to determine an estimate of the number of jobs created by the proposed legislation. Rangel said he was forced to skip the regular hearing process in order for Congress to get a finished bill to Obama's desk before Presidents Day in February.

  The committee voted on a modified version of the tax legislation that was released by Rangel late on January 21, which revised the original version of HR 589. The Joint Committee on Taxation also released update revenue estimates of the modified legislation. The revised tax bill would allow companies a five-year carryback period for operating losses. It would expand qualified school construction bonds, qualified energy conservation tax credit bonds and recovery zone economic development bonds and recovery zone facility bonds. The measure also clarifies that Notice 2008-83, I.R.B. 2008-42, 905 (TAXDAY, 2008/10/01, I.2, which allows financial institutions to use net unrealized built-in losses after an ownership change, shall have the force and effect of law with respect to new and previously announced ownership changes of companies occurring after January 16, 2009.

  By Stephen K. Cooper, CCH News Staff

Chairman's Amendment in the Nature of a Substitute to HR 598

Summary of Changes in the Chairman's Amendment in the Nature of a Substitute to HR 598

Ways and Means Passes Economic Recovery Legislation

Neal Welcomes Ways and Means Committee Passage of Economic Stimulus Proposal

JCT Description of Title I of HR 598, the American Recovery and Reinvestment Tax Act of 2009,
JCX-5-09

JCT Description of Title III of HR 598, the Health Insurance Assistance for the Unemployed Act of 2009, JCX-6-09

JCT Estimated Budget Effects of the Revenue Provisions in Titles I and III of HR 598, the American Recovery and Reinvestment Tax Act of 2009, JCX-7-09

JCT Description of the Chairman's Amendment in the Nature of a Substitute to Titles I and III of HR 598, JCX-8-09

JCT Estimated Budget Effects of the Chairman's Amendment in the Nature of a Substitute to HR 598, the American Recovery And Reinvestment Tax Act of 2009, JCX-9-09

 

CCH (cch.taxgroup.com) reports:

  The Wyoming Department of Revenue has been ordered to allow a refund or credit for Wyoming sales taxes that were collected by a telecommunications provider from Wyoming customers on federal customer access line charges (CALC).

 

CCH (cch.taxgroup.com) reports:

  On January 20, 2009, New Mexico Governor Bill Richardson delivered his 2009 State of the State address. While the Governor stated that his proposed budget does not raise taxes, he did call for increasing or expanding several specific credits, including the renewable energy production credit, advanced energy credit, rural health care practitioner credit, hybrid vehicle credit, and child day care credit.

  Subscribers to CCH Tax Research NetWork can view the text of the speech.
 
Press Release , New Mexico Governor's Office, January 20, 2009

 

CCH (cch.taxgroup.com) reports:

  CCH Tax and Accounting is hosting a live two-hour audio seminar, The New Michigan Business Tax, on Thursday, January 29, 2009, at 1 p.m. Eastern; noon Central; 10 a.m. Pacific. This two-hour CCH Audio Seminar is presented by seasoned Michigan tax practitioners Terry Conley and Ralph Ourlian of Grant Thornton, and will provide an in-depth and practical update on the latest Michigan Business Tax (MBT) changes passed on December 19, 2008, and the filing of MBT returns. This practical review will discuss the new MBT structure and its impact on in-state and out-of-state businesses, how the MBT is computed, and the issues and challenges that the MBT presents for dealing with business taxes and compliance. In addition, the new forms will be covered as taxpayers get closer to the filing of the MBT returns. The common forms and the flow of the computations will also be discussed, as well as the impact of the newly passed legislation and its effect on gross receipts.

  Program topics include the following:

  -- the MBT's structure and its major components,

  -- single factor sales apportionment,

  -- unitary reporting,

  -- lower nexus threshold,

  -- a heavy emphasis on credits,

  -- new forms and computation of the MBT, and

  -- new changes to the MBT.

  The learning objectives include:

  -- gaining a practical understanding of the recent Michigan tax developments affecting business entities,

  -- learning the key issues and concerns regarding compliance that the MBT presents for companies,

  -- understanding how the MBT is computed, and

  -- learning how to gather the information to maximize available deductions.

  Registration can be completed online at
http://www.krm.com/cch or by calling 1-800-775-7654. Participants can receive two hours of CPE credit for an additional $25 per person. Firms registering for this audio seminar will also receive a copy of CCH's
Guidebook to Michigan Taxes (2009).

CCH (cch.taxgroup.com) reports:

  The House Ways and Means Committee plans to mark up the American Recovery and Reinvestment Tax Bill of 2009 (HR 598) on January 22, despite criticism from House GOP lawmakers who object to some of the tax provisions in the bill. Committee ranking member Dave Camp, R-Mich., and House Minority Leader John Boehner, R-Ohio, said the legislation should undergo the normal committee hearings, thereby giving lawmakers the chance to receive views from industry experts.

  Boehner and Camp were joined by other House Republicans at a press briefing on January 21 where lawmakers said they planned to meet with President Obama and present their own ideas for more effective tax incentives to provide economic stimulus. In particular, Camp objected to the Making Work Pay tax credit in the measure because it would provide a greater tax incentive to people than the amount they actually paid in taxes. Instead, House Republican Whip Eric Cantor, R-Va., said that Obama should consider other tax incentives for families, small businesses, self-employed workers and entrepreneurs.

  Cantor said they planned to let Obama know that House Republicans are opposed to the Democratic economic stimulus legislation, especially since more than $500 billion is targeted to new government spending. The largest item in the tax bill is a two-year Making Work Pay tax credit, which would cost $145.3 billion over 10 years (TAXDAY, 2009/01/16, C.1). Members of the House Republican Study Committee introduced their own legislation, the Economic Recovery and Middle Class Relief Bill (HR 470), on January 13. Among other things, the GOP legislation would provide a 5-percent, across-the-board income tax cut, increase the child tax credit to $5,000, repeal the alternative minimum tax and make permanent the current 15-percent tax rate on capital gains and dividends.

  By Stephen K. Cooper, CCH News Staff

CCH (cch.taxgroup.com) reports:

  A married couple was properly denied a deduction for suspended passive losses on their S corporation stock because the stock became worthless two years prior to the year asserted by the couple. The couple claimed that the stock became worthless in the year a lawsuit filed by the corporation was settled because they expected that a recovery would have allowed the corporation to resume its prior activities. However, they failed to demonstrate the reasonableness of their belief that the lawsuit represented potential value for the corporation. The couple did not provide any evidence regarding the merits of the lawsuit or how the damages were calculated. Contrary to the couple's assertion, the corporation's hope that it would prevail in the lawsuit was not the same as the corporation's reasonable expectation that its future operations would succeed. Moreover, the private construction projects carried out by a division of the corporation did not demonstrate that the corporation retained any value. There was no evidence of how much work the division was doing, whether it was viable, or whether it could have reasonably generated enough money to allow the corporation to resume its public projects.

  Affirming a DC Ill., decision, 2007-2 USTC ¶50,680.

A. Bilthouse, CA-7, 2009-1 USTC ¶50,158

Other References:

 
Code Sec. 165

  CCH Reference - 2009FED ¶10,001.103

  CCH Reference - 2009FED ¶10,001.43

 
Code Sec. 469

  CCH Reference - 2009FED ¶21,966.70

 
Code Sec. 1366

  CCH Reference - 2009FED ¶32,084.425

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 30,262
CCH Reference - TRC BUSEXP: 30,262.30
 

CCH (cch.taxgroup.com) reports:

  The IRS has set forth the maximum allowable values of employer-provided automobiles, including trucks and vans, first made available to employees for personal use in calendar year 2009 for which the vehicle cents-per-mile valuation rule of Reg. §1.61-21(e) and the fleet-average valuation rule of Reg. §1.61-21(d), may be applicable. The maximum value for use of the vehicle cents-per-mile valuation rule is $15,000 for a passenger automobile and $15,200 for a truck or van. The maximum value for use of the fleet-average valuation rule is $19,900 for a passenger automobile and $19,900 for a truck or van.

Rev. Proc. 2009-12, 2009FED ¶46,251

Other References:

 
Code Sec. 61

  CCH Reference - 2009FED ¶1201.235

  CCH Reference - 2009FED ¶1201.24

  CCH Reference - 2009FED ¶5907.0325

  CCH Reference - 2009FED ¶5907.033

  CCH Reference - 2009FED ¶5907.80

  Tax Research Consultant

  CCH Reference - TRC COMPEN: 33,152.10
CCH Reference - TRC COMPEN: 33,154.05
 

CCH (cch.taxgroup.com) reports:

  President Barack Obama, in his inaugural address on January 20, reaffirmed the need to take "bold and swift" action to address the economic crisis in the United States. The 44th President of the United States said that overcoming the difficult challenges ahead will take time but the challenges "will be met."

  As the new president takes office amid a deepening U.S. recession, rising unemployment and financial market turmoil, he maintained that his administration will advance the measures necessary to create jobs and lay the groundwork for economic growth. "We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together," Obama said.

  Obama, in his remarks, cited the current financial crisis, the deteriorating housing market and business failures. He attributed the ""badly weakened" economy to "greed and irresponsibility on the part of some, but also our collective failure to make hard choices."

  In an effort to further stabilize the financial and housing markets, President Bush, at the behest of Obama, made a formal request to Congress on January 12 to release the second $350 billion tranche of the Troubled Asset Relief Program (TARP). The Senate approved the request, which granted the Obama administration access to the TARP funds

  On the role of the federal government, Obama stressed that the issue is not its size or scope but how well it works. Echoing the goals set by recent administrations to eliminate unnecessary federal programs --an effort which met with very limited success --Obama said the White House would keep the federal programs that work and end the unnecessary ones. He also maintained that there will be accountability and transparency over how U.S. taxpayer dollars are managed and spent.

  Obama ended his speech on a confident note. "In the face of our common dangers, in this winter of our hardship, let us remember these timeless words. With hope and virtue, let us brave once more the icy currents, and endure what storms may come." He stated that future generations will look back on this time in history and say that "we carried forth that great gift of freedom and delivered it safely" to them.

  By Paula Cruickshank, CCH News Staff

CCH (cch.taxgroup.com) reports:

  The city of Anaheim was barred from invoking the constitutional pay first requirement in litigation that arose when the city assessed a local transient occupancy tax against a number of online travel companies (OTCs). The pay first rule applies only to actions against the state or an officer of the state and the local ordinance did not contain a similar requirement.

  Under Article XIII, Section 32, of the California Constitution, a taxpayer who wishes to challenge the assessment of a state tax must pay the disputed amount of tax before seeking recourse in the courts to recover the amount assessed. That provision, however, applies only to actions against the state or an officer of the state. After the city assessed the tax and interest against the OTCs, the OTCs, without first paying the assessed amounts, filed actions in superior court that sought mandamus and declaratory relief against the city and its administrative hearing officer. The city cited the pay first rule and demurred to the petitions on the ground that the OTCs had not paid the taxes allegedly due prior to filing suit. The superior court overruled the demurrers and the appellate court denied the city's petition for writ of mandate.

  Moreover, the local transient occupancy tax ordinance did not contain a pay first requirement and it did not provide taxpayers with an adequate remedy at law, such as a refund procedure, to challenge the legality of the tax. As such, the city had no statutory authority to impose a pay first requirement on the OTCs. The city argued that a pay first requirement should be imposed based on the public policy underlying Article XIII, Section 32. The appellate court, however, held that the city could not rely on a public policy argument because the taxes the city seeks to collect from the OTCs do not represent a predictable income stream on which the city has come to rely. Although the transient occupancy tax has been in effect since 1977, the city had sought to collect the tax only from hotel operators until 2007 when the city issued a notice of audit to the OTCs regarding unpaid taxes. The city had not collected any of the taxes it claimed the OTCs owed.

  The appellate court limited its holding to the procedural issue of whether the OTCs could seek mandamus and declaratory relief in the superior court without first paying the taxes. The court did not consider issues relating to the merits of the OTC claims, such as whether they are "operators" as defined in the ordinance, the applicability of Proposition 218, the possibility of criminal sanctions for nonpayment of the tax, or the due process concerns that arise from the fact that the city seeks to impose the transient occupancy tax for a seven-year period in which the OTCs had no notice that the city considered them subject to the tax.

City of Anaheim v. Superior Court of Los Angeles County , California Court of Appeal, Second Appellate District, No. B216250, November 24, 2009, ¶404-019

  Other References:

  Explanations at ¶60-480

CCH (cch.taxgroup.com) reports:

  The California Franchise Tax Board (FT has announced that it will not impose the personal income tax e-pay penalty against taxpayers required to make their tax payments electronically. The FTB states that since the mandatory e-pay requirements were instituted in 2009, compliance has been increasing steadily. However, rather than imposing penalties now, the FTB will continue to focus its efforts on outreach and education so that taxpayers and their representatives can implement processes and procedures to comply with the law. The FTB will continue to monitor compliance levels to determine the appropriate time to begin implementation of the penalty.

Announcement , California Franchise Tax Board, November 24, 2009
 

CCH (cch.taxgroup.com) reports:

  The IRS was required to pay specified taxpayers' costs and attorney fees associated with remand proceedings attributable to the IRS's misconduct during the "Kersting" tax shelter project litigation. The proceedings for which fees and costs were awarded were directly related to the IRS's sanctionable conduct.

  CCH Comment . The IRS attorneys' unreasonable conduct involved arranging secret settlements with two of the test-case plaintiffs involved in the "Kersting" tax shelter test cases. The effect of these settlements was to pay the test-case plaintiffs' attorney to provide the appearance of independent representation of the test-case plaintiffs in the test-case trial. The Ninth Circuit Court of Appeals held that the IRS's conduct was a fraud upon the court ( Dixon , 2003-1 USTC ¶50,194) and remanded the remaining 27 cases to the Tax Court to settle the remaining cases on the same terms as those secretly settled. The Tax Court recently imposed similar sanctions against the IRS with respect to attorneys who worked in the same proceedings on a contingency fee basis ( Dixon,
Dec. 57,766). The Tax Court plans to address fees incurred by other attorneys involved in the proceedings in a future opinion.

  Related decision sub nom Dixon, CA-9, 2003-1 USTC ¶50,194.

R.F. Hongsermeier, TC Memo. 2009-273, Dec. 58,005(M)

Other References:

 
Code Sec. 6673

  CCH Reference - 2009FED ¶39,790.451

  Tax Research Consultant

  CCH Reference - TRC LITIG: 6,816.15

 

CCH (cch.taxgroup.com) reports:

  A married couple was required to include in income Social Security disability benefits received by the wife and was not entitled to exclude discharge of indebtedness income arising from the forgiveness of certain credit card debt. Although the Social Security disability benefits reduced the amount the wife was entitled to receive tax-free under a private long-term disability (LTD) policy, the LTD policy only entitled the wife to receive benefits on top of what she received from Social Security. Pursuant to Code Sec. 86, the Social Security benefits were required to be included in income.

  The credit card debt which was relieved had been incurred for legal fees that the couple's attorney allegedly promised that they would be entitled to recoup. When the couple discovered they were not entitled to recoup such fees, they disputed the credit card charge and were relieved of the liability. Although the couple acknowledged that they were not eligible for any exception under Code Sec. 108 for discharge of indebtedness income, they claimed they should have been entitled to an offsetting theft loss for the attorney's misrepresentation. The couple failed, however, to establish that the alleged misrepresentation constituted a theft. Futhermore, even if such theft had occurred, it would have been deductible in a later year when the litigation concluded and they discovered they were not entitled to recoup the fees.

K.A. Seaver, TC Memo. 2009-270, Dec. 58,002(M)

Other References:

 
Code Sec. 86

  CCH Reference - 2009FED ¶6421.17

 
Code Sec. 108

  CCH Reference - 2009FED ¶7010.25

 
Code Sec. 165

  CCH Reference - 2009FED ¶10,101.103

  Tax Research Consultant

  CCH Reference - TRC INDIV: 6,204
CCH Reference - TRC SALES: 12,150
CCH Reference - TRC INDIV: 54,100
CCH Reference - TRC INDIV: 54,254

 

CCH (cch.taxgroup.com) reports:

  Bracing themselves for a long Senate health care reform debate, President Obama's chief budget and health care reform advisors on November 25 argued that the pending legislation meets the administration's four key criteria for being a fiscally responsible bill. The Senate package: (1) is deficit-neutral; (2) raises revenue by imposing an excise tax on insurers of high-end ("Cadillac") health care policies; (3) establishes an independent commission to improve health care quality and rein in Medicare health care expenditures; and (4) implements delivery system reforms, noted Office of Management and Budget (OM Director Peter Orszag.

  The tax on insurance companies offering Cadillac health plans aims to curtail private insurers' premium increases and encourage employers to seek higher-quality and lower-cost health benefits, Orszag noted in a conference call with reporters. He cited an analysis of the Senate Finance Committee proposal by leading economists who estimated the excise tax would increase workers' take home pay by more than $300 billion over 10 years, or approximately $173 annually per family.

  The findings were included in a letter to President Obama on November 17 from 23 leading economists, including Alice Rivlin, Robert Reischauer, Mark McClellan, and Laura D'Andrea Tyson. "As economists, we believe that it is important to enact health reform, and it is essential that health reform include these four features that will lower health care costs and help reduce deficits over the long term," Henry Aaron of the Brookings Institution stated in the letter.

  By Paula Cruickshank, CCH News Staff

CCH (cch.taxgroup.com) reports:

  The Kentucky Court of Appeals has upheld a circuit court decision that a corporation and its affiliates with no physical presence in Kentucky, but with a 99% ownership interest in a Delaware limited partnership doing business in Kentucky, had taxable nexus with Kentucky and, therefore, was required to pay corporation income tax on its distributive share of partnership income. However, the circuit court was reversed in so far as it concluded that the Kentucky statutory three-factor apportionment formula provided the correct method for calculating the taxes because it reasoned that prohibiting taxpayers from using the three-factor formula would subject the formula to possible constitutional problems. The Kentucky Court of Appeals disagreed, finding that the legislature clearly intended for the amount of tax to be calculated using the three factor formula and that this would not result in extraterritorial values being taxed. The circuit court also erred by granting the corporations immediate payment of their refunds because the applicable Kentucky statute clearly directs payment of refunds only upon final appeal. Finally, the Kentucky Court of Appeals ruled that Kentucky legislation that retroactively changed the date for accrual of interest and the rate of interest on refund claims did not violate the U.S. or Kentucky Constitutions because it rationally furthered a legitimate governmental purpose of raising revenue, it did not constitute an unconstitutional taking of property, and it did not amount to impermissible special legislation.

 

CCH (cch.taxgroup.com) reports:

  Employee benefits and tax accounting issues stand out in the IRS's 2009-2010 Priority Guidance Plan, which the Service released on November 24. The guidance plan describes more than 300 areas in which the Service intends to issue final regulations, proposed regulations and other guidance. Some of the projects have already been completed.

Employee Benefits

  In the employee benefits and related areas, the IRS promised to deliver long-awaited final regulations on cafeteria plans under Code Sec. 125. The Service also plans to issue a notice on a sample cafeteria plan under Code Sec. 125.

  Many of the employee benefits and related guidance projects spring from the Pension Protection Act of 2006 (P.L. 109-280). The IRS intends to issue final regulations on diversification requirements under Code Sec. 401(a)(35), on hybrid plans under Code Secs. 411(a)(13) and 411(b)(5), and final regulations on the determination of the minimum required contributions under
Code Sec. 430.

  Taxpayers can expect more Code Sec. 409A guidance, including guidance on a Code Sec. 409A correction program, the Service reported. The IRS also intends to publish final regulations on income inclusion under Code Sec. 409A.

Tax Accounting

  Tax accounting issues also make up a large part of the priority guidance plan. Among other projects, the IRS intends to issue final regulations under Code Sec. 263(a) regarding the deduction and capitalization of expenditures for tangible assets, proposed regulations under Code Sec. 263(a) regarding the treatment of capitalized transaction costs, and additional guidance under Code Sec. 469 regarding home construction contracts.

International Issues

  The priority guidance plan reflects the IRS's renewed emphasis on international tax issues. The Service intends to issue guidance under Code Sec. 1441 on qualified intermediaries and guidance on cross-border information and filing issues. As in past years, taxpayers can expect guidance on the foreign tax credit.

Partnerships and S Corporations

  In the pass-through area, the IRS intends to issue final regulations on S corporation losses/reduction in tax attributes under Code Sec. 108(b) for discharge of indebtedness income that is excluded from gross income and guidance under Code Sec. 1367 regarding S corporations and back-to-back loans. Taxpayers can also expect final regulations under Code Sec. 108(e)(8) regarding debt satisfied by a partnership interest.

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

Treasury Office of Tax Policy and Internal Revenue Service 2009-2010 Priority Guidance Plan, 2009FED ¶46,543

Other References:

 
Code Sec. 7804

  CCH Reference - 2009FED ¶43,266.49

  Tax Research Consultant

  CCH Reference - TRC IRS: 12,350

CCH (cch.taxgroup.com) reports:

  The IRS has issued a press release noting changes made to the First-Time Homebuyer Credit made by the Worker, Homeownership, and Business Assistance Act of 2009 (P.L. 111-92). Taxpayers who claim the credit on their 2009 returns will not be able to file electronically, but will have to file a paper return. Taxpayers are also reminded that, for qualifying purchases in 2010, they can choose to claim the credit on either their 2009 or 2010 returns. An IRS video on YouTube discusses various rules related to the credit

  The IRS has also announced that a new version of Form 5405, First-Time Homebuyer Credit, will be released sometime in the next few weeks. Taxpayers who purchase homes after November 6, 2009, or who claim the credit on their 2009 returns must use this new form. Qualifying taxpayers who purchase a principal residence on or before November 6, 2009, and who claim the credit on an original or amended 2008 return may use the current version of Form 5405.

IR-2009-108,
2009FED ¶46,540

Other References:

 
Code Sec. 36

  CCH Reference - 2009FED ¶4190.11

  Tax Research Consultant

  CCH Reference - TRC INDIV: 57,950

 

CCH (cch.taxgroup.com) reports:

  The IRS has issued final regulations relating to the payment of tax liabilities through installment agreements. The regulations reflect changes to the law made by the Taxpayer Bill of Rights II (P.L. 104-168), the Internal Revenue Service Restructuring and Reform Act of 1998 (P.L. 105-206) and the American Jobs Creation Act of 2004 (P.L. 108-357). The final regulations generally adopt proposed regulations issued in March 2007 (NPRM REG-100841-97), with revisions to two provisions made in response to comments received by the IRS. The regulations are effective November 25, 2009.

  The final regulations adopt without change procedures set forth in the proposed regulations regarding submission and consideration by the IRS of proposed installment agreements, and acceptance, form and terms of installment agreements. The regulations provide that a proposed installment agreement must be submitted according to the procedures prescribed by the IRS, and becomes pending when it is accepted for processing. An installment agreement request is not accepted until the IRS notifies the taxpayer or the taxpayer's representative of the acceptance.

  The final regulations clarify that partial payment agreements do not reduce the amount of taxes, interest or penalties owed. They also clarify that the IRS may enter into agreements that end before the expiration of the period of limitations on collection. Thus, a partial payment installment agreement ending before the expiration of the collection period of limitations would allow the IRS to collect the balance of the tax liability after the agreement expired. However, the preamble to the final regulations notes that the IRS does not currently enter into partial payment installment agreements that expire before the end of the collection statute and has no plans to do so routinely in the future. The final regulations also require the IRS to review partial payment agreements every two years to determine whether the financial condition of the taxpayer has significantly changed. Further, the regulations provide that, while an installment agreement is in effect, the IRS may require the taxpayer to provide updated financial information at any time.

  In addition, the final regulations provide that the IRS may not notify a taxpayer of the rejection of an installment agreement until an independent review of the proposed rejection is completed. The final regulations also allow taxpayers to appeal a rejection of an installment agreement to the IRS Office of Appeals within 30 days of being notified of the rejection.

  The IRS may modify or terminate an installment agreement if it determines that the taxpayer's financial condition has significantly changed or if the taxpayer fails to meet certain requirements. The proposed regulations provided that the IRS may modify or terminate an installment agreement if the taxpayer fails to provide a financial condition update requested by the Service. The final regulations clarify that the IRS may terminate an installment agreement only if the taxpayer provides materially inaccurate or incomplete information in connection with a requested financial update. Further, the final regulations modify the rule provided in the proposed regulations to explicitly allow taxpayers to request a modification or termination of an existing installment agreement. Additionally, the final regulations clarify that a taxpayer must comply with the terms of an existing installment agreement while a request for modification is being considered, and that a proposed modification will not result in a suspension of the statute of limitations on collection.

  The final regulations generally prohibit the IRS from taking any collection activity while a proposed installment agreement is pending, while an installment agreement is in effect, or during the 30-day period following the rejection of a proposed installment agreement or the termination of an installment agreement. Further, the final regulations provide that the statute of limitations on collection under Code Sec. 6502 is suspended while a proposed installment agreement is pending, plus 30 days following a rejection of a proposed installment agreement, and during any appeal. The final regulations also provide that each taxpayer with an installment agreement must also be provided with an annual statement showing the balance due at the beginning of the year, the payments made during the year, and the remaining balance due at the end of the year.

T.D. 9473, 2009FED ¶47,041

T.D. 9473, FINH ¶41,128

Other References:

 
Code Sec. 6159

  CCH Reference - 2009FED ¶37,180DF

  CCH Reference - 2009FED ¶37,180E

  CCH Reference - FINH ¶20,562

  CCH Reference - FINH ¶20,565

 
Code Sec. 6331

  CCH Reference - 2009FED ¶38,186K

  CCH Reference - FINH ¶21,160

  Tax Research Consultant

  CCH Reference - TRC FILEIND: 21,154.40

  CCH Reference - TRC FILEBUS: 6,104.40

  CCH Reference - TRC IRS: 45,112.15

 

CCH (cch.taxgroup.com) reports:

  Proposed regulations relating to awards of administrative costs and attorney's fees under Code Sec. 7430 have been issued. The proposed regulations reflect the amendments to Code Sec. 7430 made by the Taxpayer Relief Act of 1997 (P.L. 105-34) and the IRS Restructuring and Reform Act of 1998 (P.L. 105-206).

  CCH Comment.
Code Sec. 7430 provides that a prevailing party in any administrative or court proceeding that is brought by or against the United States in connection with the determination, collection, or refund of any tax may be awarded a judgment or settlement for reasonable administrative or litigation costs incurred in connection with the proceeding. To recover attorney's fees and costs, an individual taxpayer cannot have a net worth in excess of $2 million at the time of the filing of the civil action. Pursuant to Code Sec. 7430(c)(4)(D)(ii), joint filers are treated as two separate individuals for purposes of computing the net worth limitation.

  Under the proposed regulations, net worth is calculated using the fair market value of assets to provide a more accurate assessment of a taxpayer's actual and current net worth as of the administrative proceeding date. The proposed regulations also specify which net worth and size limitations apply when a taxpayer is an owner of an unincorporated business, and clarify the net worth requirement in cases involving partnerships subject to the unified audit and litigation procedures of Code Secs. 6221 through 6234 (the TEFRA partnership procedures).

  The proposed regulations address the period for recovery of administrative costs, which generally entitles the taxpayer to recover costs incurred after a notice of proposed deficiency (a "30-day letter") is mailed to the taxpayer. They clarify that such costs are recoverable only if at least one issue (other than recovery of costs) remains in dispute. The proposed regulations also address procedural requirements with respect to presenting an application with the IRS or, upon receiving an adverse decision from the IRS with respect to such application, filing a petition with the Tax Court to recover administrative costs.

  Comments on the proposed regulations have been requested. A public hearing on the proposals is scheduled for March 10, 2010.

Proposed Regulations, NPRM REG-111833-99, 2009FED ¶49,438

Proposed Regulations, NPRM REG-111833-99, FINH ¶41,144

Other References:

 
Code Sec. 7430

  CCH Reference - 2009FED ¶41,741C

  CCH Reference - 2009FED ¶41,742AC

  CCH Reference - 2009FED ¶41,742BC

  CCH Reference - 2009FED ¶41,742CC

  CCH Reference - 2009FED ¶41,742DC

  CCH Reference - 2009FED ¶41,742EC

  CCH Reference - 2009FED ¶41,742FC

  CCH Reference - 2009FED ¶41,742HC

  CCH Reference - FINH ¶22,392

  CCH Reference - FINH ¶22,397

  CCH Reference - FINH ¶22,405

  CCH Reference - FINH ¶22,412

  CCH Reference - FINH ¶22,417

  CCH Reference - FINH ¶22,422

  CCH Reference - FINH ¶22,427

  CCH Reference - FINH ¶22,432

  Tax Research Consultant

  CCH Reference - TRC LITIG: 3,154
CCH Reference - TRC LITIG: 3,154.20
 

CCH (cch.taxgroup.com) reports:

  In a 4-1 decision, the Utah Supreme Court held that the statute that imposes the state's Sexually Explicit Business and Escort Service Tax is a content-neutral law that imposes only incidental burdens on some expression, but is unreasonably vague with respect to the imposition of the tax on escort service providers.

  The case was filed by a group of erotic dancing clubs and escort service agencies to obtain a permanent injunction against the enforcement of the tax, and a declaratory judgment that the tax violates their First Amendment rights under the U.S. Constitution. The tax is a 10% gross receipts tax imposed on businesses whose employees or independent contractors perform services while nude or partially nude for 30 days or more per year, or provide companionship to another individual in exchange for compensation. Proceeds from the tax are used to provide treatment for convicted sex offenders. A district court granted summary judgment in favor of the Utah State Tax Commission. The plaintiffs appealed to the state supreme court.

 

CCH (cch.taxgroup.com) reports:

  The IRS properly determined withholding tax deficiencies and additions to tax with respect to a U.S. corporation. The burden of proof to overcome the presumption that the IRS's determinations of tax liability were correct remained with the taxpayer corporation. Although interest paid by the taxpayer to a corporation wholly owned and operated by the People's Republic of China was incorrectly included in the IRS's notice of deficiency, the IRS's determination was not arbitrary. In fact, the IRS had relied on information reported by the taxpayer in its Forms 5472, Information Return of a 25 Percent Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. Consequently, the burden to prove the correct amount of taxes owed did not shift to the government.

  The U.S.-China tax treaty did not exempt the taxpayer corporation from the requirement to withhold tax on its interest payments to a Hong Kong-based subsidiary of the Chinese corporation. The treaty was inapplicable because the subsidiary principally conducted its business in and filed its returns as a resident of Hong Kong, prior to its acquisition by the People's Republic of China. A loan from the Hong Kong subsidiary was not in substance a loan from the Chinese corporation. Moreover, the loan agreement did not mention an agency relationship or that the Chinese corporation guaranteed the debt or controlled the loan in any way.

  The taxpayer was liable for additions to tax for failure to file Forms 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, because it did not establish reasonable cause for such failure. The corporation's reliance on incorrect advice from its president did not absolve it from its duty to file returns. Even if the advice it received regarding withholding had been correct, it was still required to file the returns. The taxpayer did not show that it sought professional advice regarding filing.

  Affirming the Tax Court, 95 TCM 1228, Dec. 57,367(M), TC Memo. 2008-62.

New York Guangdong Finance Inc., CA-5, 2009-2 USTC ¶50,757

Other References:

 
Code Sec. 894

  CCH Reference - 2009FED ¶2300.57

  CCH Reference - 2009FED ¶26,870.20

 
Code Sec. 1442

  CCH Reference - 2009FED ¶32,723.198

 
Code Sec. 1461

  CCH Reference - 2009FED ¶32,828.20

 
Code Sec. 6203

  CCH Reference - 2009FED ¶37,514.27

 
Code Sec. 6651

  CCH Reference - 2009FED ¶39,475.23

  CCH Reference - 2009FED ¶39,475.355

  CCH Reference - 2009FED ¶39,475.42

  Tax Research Consultant

  CCH Reference - TRC PENALTY: 3,060.55
CCH Reference - TRC EXPAT: 15,052.15
CCH Reference - TRC EXPAT: 15,102.10
CCH Reference -
TRC INTL: 18,250
CCH Reference - TRC IRS: 27,210.05
 

CCH (cch.taxgroup.com) reports:

  The IRS has announced that the interest rates for the calendar quarter beginning January 1, 2010, will remain at 4 percent for overpayments (3 percent in the case of a corporation), 4 percent for underpayments and 6 percent for large corporate underpayments. The interest rate for the portion of a corporate overpayment exceeding $10,000 remains at 1.5 percent. The interest rates are computed by using the federal short-term rate based on daily compounding determined during October 2009.

 
Code Sec. 6621 provides that the rate of interest is to be determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus three percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus three percentage points, and the overpayment rate is the federal short-term rate plus two percentage points. The rate for large corporate underpayments is the federal short-term rate plus five percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a tax period is the federal short-term rate plus one half of a percentage point.

IR-2009-107,
2009FED ¶46,537

Rev. Rul. 2009-37, 2009FED ¶46,538

Rev. Rul. 2009-37, FINH ¶30,633

Rev. Rul. 2009-37, ETR ¶66,884

Other References:

 
Code Sec. 6601

  CCH Reference - 2009FED ¶174.01

  CCH Reference - 2009FED ¶175.01

  CCH Reference - 2009FED ¶175.30

 
Code Sec. 6621

  CCH Reference - 2009FED ¶39,455.01

  CCH Reference - 2009FED ¶39,455.51

  CCH Reference - FINH ¶21,685.01

  CCH Reference - FINH ¶21,685.30

  CCH Reference - ETR ¶102

  CCH Reference - ETR ¶50,615.01

 
Code Sec. 6622

  CCH Reference - 2009FED ¶39,465.01

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 33,204.15
CCH Reference - TRC PENALTY: 9,152
 

CCH (cch.taxgroup.com) reports:

  The IRS has finalized, with modifications, proposed regulations under Code Secs. 411(d)(6) and
4980F providing guidance on the application of the notice requirements for plan amendments that are allowed to provide for reduction in benefits accrued before the plan amendment's applicable amendment date. The final regulations reflect changes made by the Pension Protection Act of 2006 (2006 PPA) (P.L. 109-280). The final regulations apply also for purposes of ERISA Sec. 204(g) and (h), which contain rules parallel to the rules in Code Secs. 411(d)(6) and
4980F, respectively.

Background

 
Code Sec. 411(d)(6) generally provides that a plan is treated as not satisfying the Code Sec. 411 minimum vesting requirements if the accrued benefit of a participant is decreased by an amendment of the plan, other than an amendment described in Code Sec. 412(d)(2), ERISA Sec. 4281, or any other applicable law. ERISA Act sec. 204(g) contains parallel rules to Code Sec. 411(d)(6). Act Sec. 1107 of P.L. 109-280 provides that any plan amendment made pursuant to a change made by P.L. 109-280 may be retroactively effective and, except as provided by the IRS, does not violate the anti-cutback rules of Code Sec. 411(d)(6) or ERISA Act sec. 204(g) if, in addition to satisfying the conditions specified in Act sec. 1107(b)(2) of P.L. 109-280, the amendment is made on or before the last day of the first plan year beginning on or after January 1, 2009 (January 1, 2011, with respect to governmental plans).

 
Code Sec. 4980F imposes an excise tax when a plan administrator fails to provide timely notice of a plan amendment that provides for a significant reduction in the rate of future benefit accrual. Except as provided in regulations, the notice must be provided within a reasonable time before the effective date of the plan amendment. ERISA Act sec. 204(h) contains parallel rules to Code Sec. 4980F, and a notice required under any of these two provisions is generally referred to as a "section 204(h) notice". P.L. 109-280 amended Code Sec. 4980F and ERISA Act sec. 204(h) to require that a section 204(h) notice be provided to any employer that has an obligation to contribute to a plan. P.L. 109-280 also provided that, in the case of a plan amendment adopted in order to comply with the rules in Act Sec. 402 of P.L. 109-280 (i.e., funding rules for plans maintained by an employer that is a commercial passenger airline or the principal business of which is providing catering services to a commercial passenger airline), any notice required under Code Sec. 4980F(e) or ERISA Act sec. 204(h) must be provided within 15 days of the effective date of the plan amendment.

  In addition to the section 204(h) notice requirement, both the Code and ERISA include a number of other notice requirements to provide information to certain parties (such as participants, beneficiaries, and contributing employers) regarding the potential effect of a plan amendment that is permitted to reduce or eliminate previously accrued benefits.

Final Regulations

  To reflect the changes made by P.L. 109-280, the final regulations clarify that the requirement that a section 204(h) notice be given to contributing employers applies only to employers in a multiemployer plan, not to employers in a single employer plan. For certain plans maintained by an employer that is a commercial passenger airline or the principal business of which is providing catering services to a commercial passenger airline, a section 204(h) notice must be provided at least 15 days before the effective date of the amendment. The final rules also retain the proposal that no section 204(h) notice is required if a defined benefit plan is amended to reflect changes to the Code Sec. 417(e)(3) applicable interest or mortality assumptions made by P.L. 109-280.

  In addition, the final regulations provide a conforming amendment to the current regulations under Code Sec. 411(d)(6) to include Act sec. 1107 of P.L. 109-280 as a statutory exception to the general anti-cutback rule in Code Sec. 411(d)(6). Moreover, in the case of an amendment that is permitted to be adopted retroactively, the effective date of the amendment, for purposes of Code Sec. 4980F, is the date the amendment is put into effect on an operational basis under the plan, so that a section 204(h) notice must generally be provided at least 45 days before the date the amendment is put into effect on an operational basis (15 days for multiemployer plans). The cross-references in Reg. §54.4980F-1, Q&A-7(b), are also revised to provide that any plan amendment that is permitted to eliminate or reduce a Code Sec. 411(d)(6) protected benefit under certain provisions, is not an amendment for which a section 204(h) notice is required.

  The final regulations further provide that for any section 204(h) notice that is required to be provided in connection with an amendment to a Code Sec. 411(a)(13)(C) statutory hybrid plan that is first effective before January 1, 2009, and that limits the amount of a distribution to the account balance under Code Sec. 411(a)(13)(A), a section 204(h) notice does not fail to be timely if the notice is provided at least 30 days before the date the amendment is first effective. This special timing rule reflects the 30-day timing rule described in
Notice 2007-6, 2007-1 CB 272. The final regulations permit the use of this transitional timing rule through the end of 2008. Thereafter, the general 45-day timing rule applies to such amendments.

  To eliminate the need for a plan to provide multiple notices at different dates and with substantially the same function and information to affected persons, the final regulations provide that, with respect to an amendment that triggers a section 204(h) notice requirement as well as another statutory notice requirement listed in the regulations, if a plan provides the latter notice in accordance with the applicable standards for such a notice, then the plan is treated as having timely complied with the requirement to provide a section 204(h) notice. However, this special treatment does not apply if a plan is amended to implement benefit reductions independent of the reductions permitted under the relevant notice requirement. The final regulations remove the proposed rule under which the timing and content of a Code Sec. 432(e)(8)(C) notice for a multiemployer plan in a critical status would also satisfy such requirements for a section 204(h) notice because such interaction will be addressed in a separate guidance. The regulations, however, add the Code Sec. 432(b)(3)(D) notice to the list of similarly-situated benefit reduction notices.

  Finally, the regulations delegate authority to the IRS to publish revenue rulings, notices, or other guidance under Code Sec. 4980F, which would also apply to ERISA Act sec. 204(h), that the IRS determines to be necessary or appropriate for a plan amendment that applies with respect to benefits accrued before the applicable amendment date but that does not violate Code Sec. 411(d)(6). This delegation authority provides the IRS with greater flexibility to develop special rules to address special circumstances in the future, such as future statutory changes, and also extends to circumstances in which such a plan amendment may require another notice in addition to a section 204(h) notice.

Effective and Applicability Dates

  The final regulations generally apply to section 204(h) amendments that are effective on or after January 1, 2008. With respect to the timing rules on providing a section 204(h) notice for a plan amendment that has a retroactive effective date, the final rules generally apply to plan amendments adopted in plan years beginning after July 1, 2008. With respect to any amendment to a lump sum-based benefit formula, the special rules under the regulations relating to an amendment that applies to benefits accrued before the applicable amendment date apply to amendments adopted after December 21, 2006. In addition, the special 30-day limit timing rule for providing a section 204(h) notice applies to such amendments effective on or after December 21, 2006, and no later than December 31, 2008. The IRS anticipates issuing guidance in the near future relating to the application of Code Sec. 4980F to plan amendments that are adopted to comply with the Code Sec. 411(b)(5)((i) requirements regarding market rates of return. This future guidance may provide a special timing rule for when a section 204(h) notice must be provided.

T.D. 9472, 2009FED ¶47,040

Other References:

 
Code Sec. 411

  CCH Reference - 2009FED ¶19,072

 
Code Sec. 4980F

  CCH Reference - 2009FED ¶34,618B

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 15,404.05
CCH Reference - TRC RETIRE: 36,154.20
 

CCH (cch.taxgroup.com) reports:

  Proposed regulations relating to information-reporting requirements under new Code Sec. 6050W for issuers of credit, debit, gift and similar payment cards have been issued. The regulations provide guidance to interpret the definitions used in the statute and contain numerous illustrative examples.

 
Code Sec. 6050W, as added by the Housing Assistance Act of 2008 (P.L. 110-289), requires payment settlement entities (e.g., a bank) to annually report payments to participating payees (e.g., a merchant) in settlement of reportable payment transactions (e.g,. a credit or debit card transaction). The reporting requirement also applies to transactions settled through third-party payments networks, such as third-party organizations that settle online transactions (e.g., PayPal).

  Information reporting will begin to apply to 2011 transactions. Form 1099-K has been proposed for this purpose and is now available in draft form.

  Form 1099-K will be prepared for each calendar year and report the gross amount of reportable transactions for the year and for each month of the year. The inclusion of monthly amounts on the return filed with the IRS and the copy furnished to the payee will help fiscal-year payees reconcile payment carD and third-party network transaction receipts. The gross amount of a transaction is not reduced by fees, chargebacks, refunds, or any other amount.

  Payees may be given an electronic version of the form but only pursuant to current rules which require affirmative written consent.

  Individuals who use payment cards are not affected by the reporting requirements. No personal information regarding a payment card user is given to the IRS.

  Under the proposals, a payment card includes, but is not limited to, credit cards, debit cards, and stored-value cards (e.g., gift cards or similar cards with a prepaid value). A payment card also includes the acceptance as payment of any account number or other indicia associated with a payment card. A payment card issued in connection with a flexible spending arrangement or a health reimbursement arrangement is not exempted from the reporting requirements.

  Transactions using a stored-valued card that a network of persons has agreed to accept as payment (such as card issued by a college that may be used at specified local merchants) are subject to reporting. However, transactions involving a person (e.g., merchant) related to the issuer are excepted from the reporting requirements.

  A payment settlement entity may be a domestic or a foreign entity. A payment settlement entity that is not a U.S. payor or U.S. middleman is not required to report payments to participating payees that do not have a U.S. address so long as the payment settlement entity neither knows nor has reason to know that the participating payee is a U.S. person. Other payment settlement entities are exempt from the reporting requirements only if they obtain specified documentation from a payee with a foreign address establishing that the payee is a foreign person.

  An electronic payment facilitator (i.e., a person that contracts to make payments on behalf of a payment settlement entity) is subject to the reporting requirements and is liable for any penalties for failure to comply with those requirements. The facilitator's failure to comply with the reporting requirements will not cause the payment settlement entity to be liable for penalties.

  Under a de minimIs rule, a third-party settlement organization must report payments made to a participating payee only if its aggregate payments to that payee from third-party network transactions exceed $20,000 and the aggregate number of those transactions with the payee exceeds 200. This de minimIs exception does not apply to payments in settlement of payment card transactions. The IRS is seeking comments on whether the de minimIs exception should be mandatory or voluntary.

  Payments made to governmental units are subject to the reporting requirements under the proposals. No exception is provided for payments made using transit cards, electronic tool collection systems, and similar electronic payment mechanisms. The IRS seeks comments on the impact the regulations would have on government units that use such payment methods.

  The proposals clarify that health carriers operating health care networks, in-house accounts payable departments, and automated clearinghouse networks are not subject to the reporting requirements under the third-party payment network rules.

  Pursuant to rules for aggregated payees, the proposals require a corporation that receives payment from a bank for credit card sales transacted at its independently owned franchise stores to report the gross amount of the reportable transactions settled through the corporation. The corporation is required to separately report the gross amount of reportable transactions allocable to each franchise store.

  Under the proposals, any payment card transaction that would otherwise be reportable under both Code Sec. 6041 (relating to information at source) and new Code Sec. 6050W are excepted from the Code Sec. 6041 reporting requirements. This relief, however, does not apply to third-party network transactions. No further exceptions from duplicating reporting are provided.

  The proposed regulations also provide guidance on backup withholding requirements for reportable amounts that are paid after December 31, 2011.

  The proposals would be effective on the date published as final regulations in the Federal Register and would generally apply to returns for calendar years beginning after December 31, 2010.

  Comments on the proposed regulations must be received by January 25, 2010, and may be submitted electronically by mail or hand-delivered to the IRS.

  A public hearing on the proposals is scheduled for February 10, 2010.

IR-2009-106,
2009FED ¶46,535

Proposed Regulations, NPRM REG-139255-08, 2009FED ¶49,437

Other References:

 
Code Sec. 3406

  CCH Reference - 2009FED ¶33,640AD

  CCH Reference - 2009FED ¶33,640CD

  CCH Reference - 2009FED ¶33,641BG

  CCH Reference - 2009FED ¶33,641EC

 
Code Sec. 6041

  CCH Reference - 2009FED ¶35,821C

 
Code Sec. 6050W

  CCH Reference - 2009FED ¶36,381C

 
Code Sec. 6051

  CCH Reference - 2009FED ¶36,424AC

 
Code Sec. 6721

  CCH Reference - 2009FED ¶40,213C

 
Code Sec. 6722

  CCH Reference - 2009FED ¶40,232C

  Tax Research Consultant

  CCH Reference - TRC FILEBUS: 9,320
CCH Reference - TRC FILEBUS: 18,050
CCH Reference - TRC PENALTY: 3,204.05
 

CCH (cch.taxgroup.com) reports:

  After the Senate agreed to begin debate on health care reform on November 21 (TAXDAY, 2009/11/23, C.1), lawmakers took to the airwaves early the next morning to debate the legislation's prospects for passage. Speaking on CBS News' "Face the Nation," Sen. Jon Kyl, R-Ariz., and Sen. Charles E. Schumer, D-N.Y., disagreed over whether nonwealthy Americans would have to pay more taxes if the health care bill becomes law. Kyl maintained that taxes on pharmaceuticals and medical devices in the bill would be passed on to average consumers, while Schumer said only those earning over $250,000 would pay taxes on some cosmetic medical procedures, like botox.

  On NBC's "Meet the Press," Sen. Kay Bailey Hutchinson, R-Tex., said that GOP lawmakers would try to stop the bill from passing by telling Americans that their taxes are going to rise, their premiums are going to increase and their Medicare benefits are going to be cut. However, Sen. Dianne Feinstein, D-Calif., said lawmakers will be able to make changes once the bill becomes law, noting that the benefits and tax credits in the health reform would be incremental.

Economy

  Meanwhile, on the economic front, the Obama administration said it will continue to work with Congress to see what can be done to stimulate the economy. White House officials, however, have not indicated support for a second stimulus package. As for a stock transaction tax proposed by some in Congress (TAXDAY, 2009/11/20, C.2), the administration is not prepared to support the proposal, according to White House Deputy Press Secretary Jennifer Psaki. Lawmakers such as Rep. Peter DeFazio, D-Ore., have suggested taxing stock transactions to raise money to provide for unemployment benefits, infrastructure projects and other tax breaks for businesses.

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

CCH (cch.taxgroup.com) reports:

  Iowa Gov. Chet Culver announced that he has ordered a review of each of Iowa's 30 tax credit programs. To complete the review, the governor has asked the directors of six state agencies that oversee tax credit programs to submit a review of their respective tax credit programs. Specifically, the governor has asked for submissions to include the following information: (1) a general description of the purpose of the tax credit; (2) minimum, maximum, and average value of tax credits issued; (3) contingency liability for each tax credit; (4) the number of tax credits issued each year; (5) the number of individuals and/or businesses served by the tax credit; (6) whether the tax credit is transferable and, if so, how many times; (7) whether the tax credit is refundable; (8) processes for oversight and regulation of the tax credit; (9) the return on investment for the tax credit; (10) data on the fiscal impact of the tax credit for the past ten years, if available; and (11) a description of what information is currently made available to the public for the tax credit(s) administered by each agency.

  The governor also has asked that the directors serve on a review panel and submit a report to the governor addressing oversight, accountability, transparency, public reporting, and cost-benefit of the programs, and which programs should be continued, curtailed, and/or eliminated. Iowa Department of Management (IDOM) Director Dick Oshlo has been named to chair the panel. The review will be due to IDOM at the close of business on December 4, 2009. The panel will hold two public meetings to discuss the review in Des Moines and Cedar Rapids the week of December 7, 2009. Dates and locations of the public meetings are yet to be determined.

  The text of the press release is available at
http://www.governor.iowa.gov/index.php/press_releases/single/194/.

Release , Iowa Governor's Office, November 19, 2009
 

CCH (cch.taxgroup.com) reports:

  The IRS has issued guidance describing when and how taxpayers can elect to carry back applicable net operating losses (NOLs) under relief provided by section 13 of the Worker, Homeownership, and Business Assistance Act of 2009 (P.L. 111-92). Section 13 of the Act amended Code Sec. 172(b)(1)(H) to allow taxpayers to elect to carry back applicable NOLs for a period of three, four or five years, or a loss from operation for four or five years, to offset taxable income in those previous years. In addition, section 13 amended Code Sec. 810(b) to allow losses from the operations of life insurance companies to be treated in the same manner as NOLs.

  Any NOL or loss from operations carried back five years can only offset a maximum of 50 percent of the taxpayer's taxable income for that fifth preceding year. This relief is available to all taxpayers with business losses except those that received payments under the Troubled Asset Relief Program (TARP), and applies to taxpayers that incurred NOLs or losses from operations in tax years ending after December 31, 2007, and before January 1, 2010.

IR-2009-105,
2009FED ¶46,533

Rev. Proc. 2009-52, 2009FED ¶46,534

Other References:

 
Code Sec. 172

  CCH Reference - 2009FED ¶12,014.3245

  CCH Reference - 2009FED ¶12,014.331

 
Code Sec. 810

  CCH Reference - 2009FED ¶25,879.85

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 45,154
CCH Reference - TRC NOL: 6,154.15
CCH Reference - TRC NOL: 12,103.15
 

CCH (cch.taxgroup.com) reports:

  A table outlining the base period Treasury bill rate for the period that ended on September 30, 2009, has been released by the IRS. The base period T-bill rate for the covered period is 0.630 percent. The figures in the table are to be used to determine the amount of interest to be paid each year by a shareholder of a domestic international sales corporation (DISC). Such amount is equal to the product of the shareholders' DISC-related deferred tax liability for the year and the base period T-bill rate.

Rev. Rul. 2009-36, 2009FED ¶46,532

Other References:

 
Code Sec. 995

  CCH Reference - 2009FED ¶29,033.20

  Tax Research Consultant

  CCH Reference - TRC INTLOUT: 15,512

CCH (cch.taxgroup.com) reports:

  The Senate on Nov. 21 approved by a 60-39 margin a procedural motion to take up a sweeping $849 billion health care reform measure, but some moderate Democrats said their vote to proceed does not ensure their support for final passage. The full Senate returns from Thanksgiving recess on Nov. 30, and lawmakers are expected to engage in a lengthy debate stretching into late December.

  Senate Democratic leadership warned that if the bill is not finished by the holidays, the Senate could take an abbreviated break and quickly return to work "We have to finish it in the Senate or it's going to be maybe a long lunch break over Christmas," Majority Whip Dick Durbin, D-Ill., said Nov. 22 on NBC's "Meet The Press."

  Durbin said it would still be possible to pass the legislation if debate slips into early January, but cautioned that the process would become more complicated. "It becomes more complex because both the president and the Congress want to shift from this critically important issue, which is central to our economy, to the economy and jobs."

  Central issues to the looming debate include whether or not to provide a public option, statutory language disallowing any federal funding for abortions, and a 40-percent tax on high end insurance plans that could hit middle income earners. Democratic leaders are expected to negotiate with moderate Democrats on a compromise solution regarding a government sponsored health insurance plan.

  Republicans will likely remain united in their drive to kill the bill, although Democratic leaders are holding out hope that one or two GOP members may relent and vote for final passage. Some Republican votes may be critical to passing health reform if Reid cannot ultimately win the support of some wavering Democrats.

  Senate Finance Committee Chairman Max Baucus, D-Mont., who guided his Committee through passage of that panel's portion of health reform legislation, said lawmakers now have the chance to fully address the growing health care crisis. "Now, on this floor, we have the opportunity to consider this plan. We have the chance to make it even better. We hope to have a full debate," said Baucus.

  Following the vote, the White House issued a statement praising the Senate's decision to proceed. "The President is gratified that the Senate has acted to begin consideration of health insurance reform legislation. Tonight's historic vote brings us one step closer to ending insurance company abuses, reining in spiraling health care costs, providing stability and security to those with health insurance, and extending quality health coverage to those who lack it. The President looks forward to a thorough and productive debate."

  CCH Comment. CCH's Tax Briefing on the Senate's Health Care Bill can be found at
http://tax.cchgroup.com/Legislation/Heathcare-Reform-Nov-19-2009.pdf.

  By Jeff Carlson, CCH News Staff

SAP on HR 3590 --Patient Protection and Affordable Care Act
 

CCH (cch.taxgroup.com) reports:

  Shipping charges on purchases of merchandise from a certain retailer's Internet store were properly included in the selling price of the merchandise and thus were subject to Illinois retailers' occupation (sales) and use tax. In so ruling, the Illinois Supreme Court affirmed the judgment of an appellate court affirming the dismissal of the plaintiffs' class action complaints.

 

CCH (cch.taxgroup.com) reports:

  The Military Spouses Residency Relief Act (MSRRA) (Public Law 111-97) was signed into law on November 11, 2009 and may affect the California income tax filing requirements for spouses of military personnel. This new law is effective for taxable year 2009. The MSRRA allows the same residency benefits permitted to military personnel under the Servicemembers Civil Relief Act (SCRA) to also apply to a military spouses non-military service income, under certain circumstances.

  The Franchise Tax Board (FT is currently updating its Publication 1032 (Tax Information for Military Personnel) with guidelines on the impacts of the MSRRA. The revised Pub. 1032 is expected before the end of 2009.

  CCH Note: The MSRRA prohibits a servicemember's spouse from either losing or acquiring a residence or domicile for purposes of taxation because he or she is absent or present in any U.S. tax jurisdiction solely to be with the servicemember in compliance with the servicemember's military orders, if the residence or domicile is the same for the servicemember and the spouse. P.L. 111-97 also prohibits a spouse's income from being considered income earned in a tax jurisdiction if the spouse is not a resident or domiciliary of such jurisdiction when the spouse is in that jurisdiction solely to be with a servicemember serving under military orders.

Announcement , California Franchise Tax Board, November 19, 2009
 

CCH (cch.taxgroup.com) reports:

  The IRS has created a pilot program allowing filers of information returns to truncate an individual payee's nine-digit identifying number on paper payee statements for calendar years 2009 and 2010 if the filers meet certain requirements. The pilot program is available only to paper payee statements in the Form 1098 series, Form 1099 series and Form 5498 series, which report payments or distributions made to an individual during a calendar year.

  The three types of identifying numbers applicable to individuals are social security numbers, IRS individual taxpayer identification numbers and IRS adoption taxpayer identification numbers. These numbers are sensitive personal information; consequently, a risk exists that the information could be misappropriated from a payee statement and misused in various ways, possibly to facilitate identify theft. The pilot program is an effort to minimize this risk. If requirements regarding the type of information return and the type of identifying number are met, the identifying number is truncated by replacing the first five digits of the nine-digit number with asterisks or Xs.

  The IRS invites interested parties to comment on the pilot program by submitting comments by May 1, 2010.

Notice 2009-93, 2009FED ¶46,531

Other References:

 
Code Sec. 6041

  CCH Reference - 2009FED ¶35,836.30

 
Code Sec. 6045

  CCH Reference - 2009FED ¶35,930.28

 
Code Sec. 6050H

  CCH Reference - 2009FED ¶36,186.075

 
Code Sec. 6722

  CCH Reference - 2009FED ¶40,240.021

  CCH Reference - 2009FED ¶40,240.40

  Tax Research Consultant

  CCH Reference - TRC: FILEBUS: 12,106

CCH (cch.taxgroup.com) reports:

  Democratic lawmakers are considering a proposal to institute a stock transaction tax in order to raise revenue to pay for job creation efforts, such as new spending on infrastructure, broadband expansion or providing new tax incentives to employers, according to House Speaker Nancy Pelosi, D-Calif. Pelosi told reporters during her weekly press conference on November 19 that some Democrats have suggested a stock transaction tax, but no decisions have yet been made to pursue that idea.

  Pelosi cautioned that such a tax might have drawbacks and would have to be part of an international rule in which other nations are involved. She explained that a stock transaction tax has long been suggested during international financial meetings, but U.S. officials have always resisted that effort. Now House Democrats are taking a closer look at the tax, even though it has yet to become a high priority for the Democratic Caucus, Pelosi said.

  One effort is being led by Rep. Peter DeFazio, D-Ore., who is seeking support for his legislation to raise $150 billion by imposing a .25-percent tax on stock transactions and a .02-percent tax on other transactions, including swaps, credit default swaps and options. Approximately half of the tax revenues would be used for deficit reduction and the remaining amount would go to a" job creation reserve" to fund the creation of good jobs, according to a Dear Colleague letter from DeFazio to other lawmakers. "The tax appropriately disincentivizes excessive speculation because much of the excessive risk on Wall Street is high-volume short-term speculative trading," he said in the letter.

  Houses Minority Whip Eric Cantor, R-Va., said the stock transaction tax is a bad idea, given that the U.S. financial markets are still recovering during the recession. Rep. Randy Neugebauer, R-Tex., said a tax on capital would lead to higher interest rates for small businesses seeking to borrow. Cantor and Neugebauer spoke during a meeting of the GOP Economic Solutions Group, which hopes to deliver a set of proposals to President Obama before he begins his economic tour in early December. Rep. Kevin Brady, R-Tex., said lawmakers are considering tax cuts for small businesses and permanent tax relief.

  By Stephen K. Cooper, CCH News Staff

CCH (cch.taxgroup.com) reports:

  The Senate is expected to hold an important procedural vote on the evening of November 21 to determine whether lawmakers will begin debate on an $849-billion health care reform bill unveiled by Democratic leaders (TAXDAY, 2009/11/19, C.2). Senate Majority Leader Harry Reid, D-Nev., filed a cloture motion on November 19 that sets up the vote two days later. If he is successful in reaching the necessary 60 votes, Reid will then be able to start work on the Patient Protection and Affordable Care Bill, which will be considered as a substitute amendment to House bill HR 3590.

  If the Senate vote is approved, the chances for final passage of health reform is strengthened; however, Reid will need 58 Democrats and two Independents to support the measure. No Republican lawmakers are expected to vote for the health care reform bill. Speaking on the Senate floor, Reid promised that the legislation would provide health care for 30 million Americans who are currently uninsured. Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, said the bill might have trouble getting 60 Senate votes because it imposes new fees and taxes that will cause insurance premium increases as early as 2010.

  By Stephen K. Cooper, CCH News Staff

CBO Letter Providing Estimates of the Direct Spending and Revenue Effects of the Patient Protection and Affordable Care Act
 

CCH (cch.taxgroup.com) reports:

  A trial court's decision concerning a NASCAR racing team's eligibility to qualify as an eligible business for purposes of the former Article 3A William S. Lee business expansion credits against North Carolina corporation franchise tax was reversed and remanded to the Office of Administrative Hearings because both the trial court and the secretary of revenue utilized the wrong legal standard in determining whether the taxpayer qualified for the credit. In addition, the trial court failed to apply the proper legal standard in reviewing the secretary of revenue's final decision. The trial court made its own independent factual inquiry, when the proper standard of review was to determine whether the Tax Review Board's findings were supported by the evidence taken as a whole. The trial court did not have the authority to make its own independent review.

  During the tax years at issue, only those taxpayers whose primary business was manufacturing were eligible to claim the credit. The taxpayer had indicated it was an automobile manufacturer when it initially applied for the credits, however it listed its primary business as a racing team on both its federal and North Carolina tax returns and the evidence indicated that the majority of its revenues were from racing-related activities. The Department of Revenue originally denied the credit. Upon review, the secretary of the department reversed the department's initial determination. When the department appealed to the Tax Review Board, the board upheld the department's original denial, and the taxpayer appealed the board's decision.

  The appellate court determined that both the board and the trial court erred in their interpretation of what criteria were to be used to determine whether a taxpayer's primary business was in manufacturing. The trial court and the department based their decision as to what was the taxpayer's primary business based upon the percentage of the taxpayers' revenues that were attributable to its manufacturing activities. However, both the North American Industrial Classification System (NAICS) Code guidelines and the department's own guidelines required that serious consideration be given to a taxpayer's relative share of current production costs and capital investment in manufacturing to its overall current production costs and capital investment. From the record it appeared that this inquiry was not made by either the department or the trial court.

  The appellate court instructed that, on remand, the decision as to whether or not the business was primarily engaged in manufacturing should not be based solely upon the taxpayer's share of current production costs of capital investment. Rather, the department should also examine whether the share of production costs and capital investments would be the proper basis of determining whether the taxpayer was primarily engaged in manufacturing, and if not, the department should examine all the relevant factors and totality of circumstances to determine the taxpayer's principal product or group of products.

North Carolina Department of Revenue v. Bill Davis Racing , North Carolina Court of Appeals, No. COA08-1387, November 17, 2009, ¶202-461

  Other References:

  Explanations at 12-001

CCH (cch.taxgroup.com) reports:

  The Georgia Department of Revenue has amended its net taxable income rule for individuals regarding the procedure for a taxpayer entitled to a refund of personal income taxes as a result of a net operating loss (NOL) carryback. The rule provides that a taxpayer, entitled to a refund by reason of an NOL carryback, must file an NOL carryback adjustment claim for refund on Form 500-NOL within three years after the due date for filing the income tax return for the taxable year in which the loss was incurred (including extensions). The commissioner will determine the amount of the tax decrease attributable to the carryback adjustment within 90 days from the last day of the month in which the claim for refund was filed.

  Subscribers can view the regulation.

   
Reg. Sec. 560-7-4-.01, Georgia Department of Revenue, effective November 25, 2009

CCH (cch.taxgroup.com) reports:

  Working with the "new cars" and "new trucks" components of the October 2009 Consumer Price Index, CCH has calculated the unofficial depreciation limits on automobiles first put into use during the 2010 tax year for business and investment purposes. Based on those inflation-adjusted computations (as specified under Code Sec. 280F(d)(7)(), the 2010 Code Sec. 280F limits on the amounts of depreciation deductions for passenger automobiles will rise from 2009 levels (after remaining stagnant for the 2008-2009 period). The 2010 depreciation limits for trucks and vans will also rise from 2009 levels (after having dropped in 2009 from 2008 levels).

  CCH Comment. The truck index for October 2009, upon which the 2010 truck and van depreciation amounts are computed, was 140.897, once again on the rise after seeing the October 2007 level of 139.513 drop to 133.640 for October 2008. For the same periods, the car index rose to 137.851 in October 2009 after falling from 135.169 to 134.837 between 2007 and 2008.

  CCH Comment. The IRS officially announced the depreciation limits for 2009 in April 2009. The expectation is that the IRS will release the 2010 figures under a similar timetable.

  CCH Comment. Congress, to date, has not extended 2009 bonus depreciation into 2010 for vehicles placed in service in 2010. Bonus depreciation (which is elective) has allowed taxpayers in 2009 to add another $8,000 to the maximum first-year depreciation limits ($10,960 for new passenger automobiles and $11,060 for qualifying new trucks/vans).

Passenger Auto Depreciation Caps

  The unofficial annual maximum depreciation amounts for passenger automobiles first placed in service in calendar year 2010 are:

  $3,060 for the first tax year (up from $2,960 in 2008 and 2009);

  $4,900 for the second tax year (up from $4,800 in 2008 and 2009);

  $2,950 for the third tax year (up from $2,850 in 2008 and 2009); and

  $1,775 for each tax year thereafter (same as 2008 and 2009 due to rounding rules).

Depreciation Caps for Trucks and Vans

  The indexing computations under Code Sec. 280F typically call for a higher depreciation deduction for trucks and vans. The computations for 2010 follow that pattern. The unofficial 2010 amounts are projected to be:

  $3,160 for the first tax year (up from $3,060 in 2009, and back to the same level as in 2008);

  $5,100 for the second tax year (up from $4,900 in 2009, and back to the same level as in 2008);

  $3,050 for the third tax year (up from $2,950 in 2009, and back to the same level as in 2008); and

  $1,875 for each tax year thereafter (up from $1,775 in 2009, and back to the same level as in 2008).

  To qualify for the truck and van depreciation deduction, a vehicle must be a passenger vehicle built on a truck chassis with an unloaded gross weight of over 6,000 pounds. A vehicle built on an automobile chassis is classified as an automobile, regardless of weight and even if its manufacturer calls it an SUV.

  By George Jones, CCH News Staff

CCH (cch.taxgroup.com) reports:

 

CCH (cch.taxgroup.com) reports:

  Treasury Secretary Timothy F. Geithner presided over the Small Business Financing Forum presented by the Treasury Department and the Small Business Administration (SBA) on November 18 in Washington, D.C. While the program was aimed at exploring financing issues, recent tax cuts were highlighted as a potential method by which the government could help small businesses increase their cash flow during the current tough economic environment.

Economic Stimulus Effort

  The forum was part of the administration's push to brainstorm ways in which the government could help ease access to credit for small businesses. "Without increased access to credit for American families and small businesses, growth will be weaker, companies will defer long term investments and we will not be able to create a recovery that is self-sustaining and led by private demand," Geithner explained.

NOL Relief

  In his opening remarks, Geithner highlighted the enhanced net operating loss (NOL) carryback rules under the American Recovery and Reinvestment Act of 2009 (the 2009 Recovery Act) (P.L. 111-5) for small businesses. These were recently extended to the 2009 tax year by the Worker, Homeownership, and Business Assistance Act of 2009 (P.L. 111-92). "We need to provide direct help to small businesses," Geithner stated in his prepared opening remarks. "We've done that through the Recovery Act by establishing targeted tax relief to small businesses, allowing them to write off more of their expenses and to earn an instant refund on their taxes by "carrying back" their losses five years instead of two."

New Markets Tax Credit

  Additionally, Geithner pointed out that the 2009 Recovery Act enhanced the New Markets Tax Credit. Code Sec. 45D allows the tax credit for taxpayers investing in entities whose primary mission is to provide investment capital for low-income communities or persons. "The Recovery Act provided...an additional $3 billion in New Market Tax Credit investments to support small businesses as they spur growth in those struggling communities," Geithner stated.

Continued Efforts

  Despite some economists' reports that the country's recession may already be at, or will soon come to, an end, Geithner indicated that the Treasury will continue to prompt tax cuts that make small businesses more liquid. Nevertheless, the main focus of the forum was financing opportunities and Geithner stayed on message in that regard in his closing remarks: "No jobs without growth. No growth without credit." He stated that President Obama would soon receive a conference report on the results of the forum, which would be publicly available for review.

  By Torie Cole, CCH News Staff

CCH (cch.taxgroup.com) reports:

  Senate Majority Leader Harry Reid, D-Nev., plans to officially unveil an $849-billion health care reform package on November 19, but Democratic holdouts may spoil his plan to immediately take up the measure on the Senate floor. Reid vetted the measure to his caucus late on November 18 after receiving a final cost analysis by the Congressional Budget Office (CBO).

  The 10-year cost of the revised legislation comes in well below the $900-billion threshold set by President Obama and would cut the federal budget deficit by $127 billion over 10 years. The plan would reduce the number of the uninsured by 31 million by making coverage available to 94 percent of eligible Americans, according to a Senate Democratic leadership aide. Reid plans to hold a procedural vote on November 20 or possibly November 21 that would allow the Senate to proceed to the bill but he needs all Democrats and the two Independents to reach the required 60-vote threshold.

  Sens. Ben Nelson, D-Neb., Blanche Lincoln, D-Ark., and Mary L. Landrieu, D-La, continue to harbor reservations and have not committed to backing the measure. Reid believes the three will eventually back the move to take up the bill, but the wavering lawmakers could balk at a second procedural vote, which would block a filibuster by limiting the time allotted for debate.

  Nelson said he needed time to review the bill before making his decision. He told reporters he would not support a final bill that included a public option or allowed public funds to be used to pay for abortions. He left open the possibility that his concerns could be addressed through the amendment process during floor debate. Landrieu told reporters that she would make her decision after taking time to read the bill. In addition to the three questionable Democrats, Reid faces another dilemma in scheduling the test vote as Senate Finance Committee Chairman Max Baucus, D-Mont., returned home on November 18 due to a family emergency. It is uncertain when he will return.

  Nelson also expressed concern about the excise tax on high-end insurance plans, although Reid adjusted the 40-percent excise tax on such plans by raising the threshold at which insurers would pay the fee. The tax now applies to family plans costing $23,000 or more and individual plans priced over $8,500, a $2,000 and $500 increase, respectively. The lost revenue would be made up with a 0.5-percent increase in the Medicare payroll tax for couples with incomes over $250,000 and individuals with earnings over $200,000. The provision would raise $54 billion over 10 years. Reid also added a new 5-percent tax on cosmetic surgery that would raise an addition $5 billion.

  The revised legislation also slices in half the tax on medical devices from $40 billion to $20 billion. Additional changes to health care tax incentives include capping flexible spending account (FSA) contributions, conforming definitions of deductible medical expenses and changing penalties for health spending account (HSA) spending that is not devoted to health care.

  The $849-billion price tag of the measure, which merges the legislation approved by the Senate Finance Committee and the Health, Education, Labor and Pensions (HELP) Committee, is lower than the $1,052 trillion House-approved measure, and slightly higher than the $829-billion Finance Committee package. With rising concern over the overall health of the economy and increased federal spending, Democratic leaders are touting the fact that Reid's bill cuts the federal budget deficit more than the House and Senate Finance Committee proposals. The House bill would reduce the deficit by $111 billion while the Senate versions would reduce the federal debt by $82 billion.

  By Jeff Carlson, CCH News Staff

CCH (cch.taxgroup.com) reports:

  Continued rising unemployment in the U.S. is prompting House Democratic leaders to consider a jobs bill before lawmakers leave Washington and end the first session of the 111th Congress on December 18, according to House Majority Leader Steny H. Hoyer, D-Md. Hoyer told reporters on November 17 that a second stimulus bill is unlikely, but lawmakers might consider taking some type of legislative action to boost jobs. He declined to list specific proposals that might be under consideration.

  House committees might be asked to produce some ideas for lawmakers to consider, such as more spending on infrastructure or some targeted tax incentives, according to Hoyer. "There are a lot of options available. We are discussing those." Hoyer also indicated that the long-term deficit concerns must be balanced against the need to spur job growth. President Obama supported a jobs tax credit earlier in 2009, but some Democratic lawmakers greeted the idea negatively and the proposal was not included in the American Recovery and Reinvestment Act of 2009 (P.L. 111-5). House Republicans, including GOP Whip Eric Cantor, R-Va., said that a Democratic effort to produce a job creation bill is an admission that the first stimulus bill did not work. Cantor, however, said Republicans want to work with Democrats to produce a jobs bill.

  By Stephen K. Cooper, CCH News Staff

CCH (cch.taxgroup.com) reports:

  A Streamlined Sales Tax (SST) panel rejected an interpretation sought by seven states that would have held the January 1, 2010, effective date in the SST Agreement for an origin-sourcing option is a "trigger," rather than a "sunset." (TAXDAY, 2009/08/04, S. 1) By a vote of 3-2, with one member absent, the Compliance Review and Interpretations Committee (CRIC) rejected the interpretation sought by Arizona, New Mexico, Ohio, Tennessee, Texas, Utah, Virginia, and the Virginia Association of Counties. SST Executive Director Scott Peterson told the CRIC members that, having rejected the requested interpretation, they must now explain in writing how they think the relevant provision should be interpreted and hold another vote on that alternative interpretation. The CRIC deferred any further action until their next meeting.

  Background: In an attempt to resolve a long-running controversy, the SST Governing Board amended the Agreement in December 2007 to allow states to qualify for full membership under an origin-sourcing option, effective "on or after January 1, 2010, provided that at least five states which are not full member states on December 31, 2007" make the election to use origin sourcing and are otherwise in substantial compliance with the Agreement. It is now apparent there will not be five states in that position on January 1, 2010.

  In response to questions about how to interpret the effective-date language, the seven states and the Virginia Association of Counties sought an interpretation holding that January 1, 2010, is the earliest date on which qualifying states can become full members (i.e. a "trigger") and not a deadline. Opponents of this interpretation, from the Business Advisory Council (BAC) and, apparently, among some existing member states, take the position that January 1, 2010, was intended as a deadline (i.e. a "sunset"), and that the origin-sourcing option will not be available after that date unless the board further amends the Agreement.

  During a sometimes heated debate, BAC representatives argued that it was inappropriate for the CRIC to take this matter up now, given the expectation that the board will be debating this issue at its annual meeting in September in Oklahoma City. Supporters of hearing the matter responded that the CRIC is supposed to vet such interpretations and that any action it takes does not bind the board. Ultimately, although the CRIC did hold a vote, the requested interpretation was rejected.

  Other action: The CRIC took three other votes during their conference call.

  -- The CRIC voted 4-2 to approve an interpretation sought by Loren Chumley, KPMG, that the value of points, awarded employees as sales incentives and redeemable for merchandise at a reduced price, should be treated as a discount and excluded from the sales price of the merchandise.

  -- The CRIC voted 5-0 not to accept a request to issue an interpretation sought by Denton Childs, Tyson Foods, Inc., related to how Arkansas amended its laws to impose use tax on services in order to conform to the Agreement's destination-based sourcing requirements. The CRIC members had reservations about how the request was drafted, and questions about exactly what they were being asked to determine.

  -- The CRIC voted 5-0 to accept a request to issue an interpretation sought by James Tilton, Alex Lee, Inc., on whether Lucky Charms cereal should be taxed as "candy" because it "bundles" marshmallows (which fit the Agreement's definition of "candy") with oat pieces that contain flour (the presence of which excludes these pieces from the "candy" definition).

  Peterson told the CRIC that his office has begun the process for the annual recertification of member states. He hopes to have completed the process for some states in time for the CRIC to begin its review at its next meeting in two weeks. At that time, Peterson also hopes to have prepared a schedule for the annual review process.

Meeting, Compliance Review and Interpretations Committee, August 13, 2009

CCH (cch.taxgroup.com) reports:

  In a tax shelter case stemming from a John Doe summons issued to a law firm in 2003, the six-year statute of limitations for substantial omissions from gross income under Code Sec. 6501(e) was applied to a partnership return. The partners in the partnership had increased their basis in the partnership with premiums paid on a long position in a foreign currency option without reducing their basis for premiums received from a related and partially offsetting short foreign currency option.

  This increased basis was then transferred to stock distributed to the partners under the carry-over basis rules of Code Sec. 732(b). The high-basis stock was then sold for a large capital loss.

  In attacking the transaction, the IRS applied the extended six-year statute of limitations by virtue of the partners' incorrect accounting for the offsetting foreign currency positions. The foreign currency options were subject to Code Sec. 988 because they were denominated in Japanese yen, a nonfunctional currency. Under Reg. §1.988-1(e), each transaction subject to Code Sec. 988 must be reported and accounted for separately.

  The taxpayers violated this rule by netting the amounts paid and received on the two contracts. The taxpayer's argument that the two contracts were a single transactions due to similar terms was rejected as the long and short options were priced separately and payment on the contracts was determined separately. Failure to report gain and loss on the individual transactions resulted in a substantial omission of gross income and, thus, Code Sec. 6501(e) was applicable.

  However, the IRS motion for summary judgment that the foreign options, and the overall transaction, were shams was denied as it contradicted the Service's argument that the options were subject to Code Sec. 988. Nonetheless, the court refused to state that the a 6-year period of limitations would not apply if the IRS's sham theory were eventually upheld, only that it was not deciding that question in the context of a motion for summary judgment.

  Furthermore, the IRS position in the final partnership administrative adjustment (FPAA) that the foreign currency transactions should be disregarded did not preclude application of the extended statute of limitations even though disregarded transactions cannot create omitted income. The failure to raise the issue of omitted income under Code Sec. 988 on the FPAA did not prevent the court from addressing the issue. In addition, the IRS's alternative argument - that the two options should be combined as one transaction, thus limiting the increase to the partners' basis to the net amount of the two options - was not a concession on the part of IRS that no income was omitted.

  Finally, the partners' reporting of the net loss from the offsetting foreign options on their individual returns was not adequate disclosure for purposes of avoiding the finding of omitted income under
Code Sec. 6501(e)(1)(A)(ii).

Highwood Partners, 133 TC No. 1, Dec. 57,904

Other References:

 
Code Sec. 988

  CCH Reference - 2009FED ¶28,907.021

  CCH Reference - 2009FED ¶28,907.022

  CCH Reference - 2009FED ¶28,907.026

 
Code Sec. 6501

  CCH Reference - 2009FED ¶38,971.55

  CCH Reference - 2009FED ¶38,971.76

  Tax Research Consultant

  CCH Reference - TRC PART: 60,352.10
CCH Reference -
TRC INTL: 3,462
CCH Reference - TRC INTLOUT: 21,100
 

CCH (cch.taxgroup.com) reports:

  The IRS has established a qualifying advanced energy project program under Code Sec. 48C. The IRS has also announced an initial allocation round of the advanced energy project credit under the program. The program serves to encourage taxpayers to establish, expand or re-equip manufacturing facilities for the production of certain energy-related property.

Treasury Department News Release, TDNR TG-262, 2009FED ¶46,447

Notice 2009-72, 2009FED ¶46,448

Other References:

 
Code Sec. 48C

  CCH Reference - 2009FED ¶4695.01

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 51,804

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The new issue of the Journal of State Taxation, now available, includes articles and columns covering the following timely top state tax issues:

CCH (cch.taxgroup.com) reports:

  The IRS plans to issue guidance relating to eligible combined plans under Code Sec. 414(x) and is seeking comments regarding the requirements for such plans. An eligible combined plan provides a vehicle through which an employer can maintain both a defined contribution plan and a defined benefit plan on a combined basis, thus reducing the administrative burdens and costs of maintaining separate plans. The effective date for Code Sec. 414(x) is plan years beginning after December 31, 2009, and any forthcoming guidance would apply prospectively. Comments must be submitted by October 15, 2009.

Notice 2009-71, 2009FED ¶46,446

Other References:

 
Code Sec. 414

  CCH Reference - 2009FED ¶19,198B.01

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 3,500

CCH (cch.taxgroup.com) reports:

  The IRS has requested comments of the proper application of rules governing the creation and maintenance of multiple layers of forward and reverse Code Sec. 704(c) gain and loss to partnerships and tiered partnerships, including in the context of partnership mergers and divisions. The IRS had received numerous comments on proposed regulations issued in 2007 concerning the tax consequences of certain partnership mergers (NPRM REG-143397-05).

  CCH Comment.
Code Sec. 704(c) is intended to prevent the shifting among partners of the precontribution gain attributable to property contributed to a partnership.

  Also, the IRS is aware of practitioners taking different positions based on varying interpretations of Reg. §1.704-3(a)(9). For example, some practitioners have taken the aggregate approach, so that a tiered partnership can be looked though and Code Sec. 704(c) applied as if the partners of the upper tier partnership directly own a portion of the assets of the lower tier partnership. In contrast, under the entity approach favored by some practitioners, the upper tier partnership is treated as owning an interest in the lower tier partnership but is not treated as owning any interest in the property of the lower tier partnership.

  The IRS is asking for comments to clarify the issues raised by the different approaches. The questions relate to issues raised by the revaluation of assets, how tax items should be allocated among the different
Code Sec. 704(c) "layers", how layers should be maintained in a tiered-partnership structure, issues related to mergers and divisions, and international issues.

Notice 2009-70, 2009FED ¶46,445

Other References:

 
Code Sec. 704(c)

  CCH Reference - 2009FED ¶25,135.32

  Tax Research Consultant

  CCH Reference - TRC PART: 9,150

CCH (cch.taxgroup.com) reports:

  The IRS has extended the deadline for governmental retirement plans to be amended to reflect changes in the governing law. Reg. §1.401(b)-1(e)(3) and Rev. Proc. 2007-44, 2007-2 CB 54, generally provide that a plan sponsor has 91 days after its request for a determination letter has been rejected to make necessary retroactive remedial amendments. This 91-day extension may be insufficient for governmental plans if the governing body with authority to amend the plan is unable to do so because it is not in session or for other procedural reasons.

  Under the new procedure, the remedial amendment period extends through the 91st day after the last day of the first regular legislative session beginning more than 120 days after the date on which the application for determination is finally disposed of by the IRS or the Tax Court. The procedure also formalizes an option previously announced by the IRS. The sponsor of an individually designed governmental may elect Cycle E (February 1, 2010, through January 31, 2011) instead of Cycle C (February 1, 2008, through January 31, 2009) as the plan's initial (EGTRRA) remedial amendment cycle.

 
Rev. Proc. 2007-44 is modified.

Rev. Proc. 2009-36, 2009FED ¶46,444

Other References:

 
Code Sec. 401

  CCH Reference - 2009FED ¶17,929.65

 
Statement of Procedural Rules Sec. 601.201

  CCH Reference - 2009FED ¶43,360.2116

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 51,052.20

CCH (cch.taxgroup.com) reports:

  The IRS has clarified its previous guidance (TAXDAY, 2009/05/29, I.3) regarding unemployed veterans and disconnected youth for purposes of the work opportunity tax credit (WOTC). First, an individual who received a high school diploma or GED certificate at least six months prior to the hiring date and who otherwise satisfies the requirements for a disconnected youth will not fail to qualify as a disconnected youth merely because the individual has been employed at times since graduation, as long as that employment was no more than occasional. Second, transition relief is extended for submitting certification requests.

  Generally, a worker cannot be treated as a member of a targeted group unless the employer obtains certification from a designated local agency on or before the day the individual begins work that the individual is a member of a targeted group, or completes a prescreening notice (Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit) on or before the day the individual is offered employment and submits that notice to the designated local agency to request certification not later than 28 days after the individual begins work. Under the extended transition relief, any employer who hires an unemployed veteran or disconnected youth after December 31, 2008, and before September 17, 2009, will be considered to satisfy the deadline if the employer submits the pre-screening notice to the designated local agency to request certification not later than October 17, 2009. Notice 2009-28, I.R.B. 2009-24, 1082, is clarified.

Notice 2009-69, 2009FED ¶46,443

Other References:

 
Code Sec. 51

  CCH Reference - 2009FED ¶4803.03

  CCH Reference - 2009FED ¶4803.04

  CCH Reference - 2009FED ¶4803.64

  CCH Reference - 2009FED ¶4803.65

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 54,258.60
CCH Reference - TRC BUSEXP: 54,262.02
 

CCH (cch.taxgroup.com) reports:

  The IRS could not use the extended six-year limitations period to assess a deficiency where an individual overstated his basis in two S corporations following their sale, thereby lowering the amount of gross income reported on his return. Overstatement of basis is not an omission of gross income for purposes of Code Sec. 6501(e)(1)(A); therefore, the notice of deficiency sent to the taxpayer was untimely because it was not issued within the three-year limitations period.

  Under Colony, Inc. , SCt, 58-2 USTC ¶9593, and Bakersfield Energy Partners, LP , 128 TC 207, Dec. 56,966, the extended limitations period applies where specific income receipts have been "left out" of the gross income computation, not where an understatement results from overstatement of reported basis. The IRS's arguments that
Bakersfield was wrongly decided, and that Colony should be limited to cases involving the sale of goods or services, was rejected.

K.H. Beard, TC Memo. 2009-184, Dec. 57,903(M)

Other References:

 
Code Sec. 6501

  CCH Reference - 2009FED ¶38,971.13

  CCH Reference - 2009FED ¶38,971.76

  Tax Research Consultant

  CCH Reference - TRC IRS: 30,152.15

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Hawaii Department of Taxation has issued a Tax Information Release (TIR) announcing a concurrent voluntary disclosure program for corporate and personal income taxpayers participating in the current Internal Revenue Service (IRS) voluntary disclosure program for undeclared offshore bank account income.

  In March 2009, the IRS announced guidelines for taxpayers making voluntary disclosures of unreported income generated through undeclared offshore bank accounts located in countries outside the United States. The IRS encouraged taxpayers with undisclosed foreign accounts or entities to make a voluntary disclosure to avoid substantial civil penalties and generally eliminate the risk of criminal prosecution. In furtherance of the IRS's efforts, the Department of Taxation is likewise encouraging taxpayers with Hawaii income sourced from undeclared foreign bank accounts to make a voluntary disclosure with the state. Any person submitting a voluntary disclosure with the state pursuant to the TIR will generally not be referred for criminal prosecution or be assessed any civil penalties on any timely and complete submissions. In order for a voluntary disclosure with the state to be timely, the taxpayer must make a timely voluntary disclosure with the IRS pursuant to its offshore undeclared bank account voluntary disclosure guidelines and must make contact with the department's Offshore Voluntary Disclosure Coordinator by the same deadline. As of the date of issuance of the TIR, the deadline for submissions is September 23, 2009.

  Any taxpayer making a voluntary disclosure of undeclared offshore bank account income pursuant to the IRS guidelines that would like to also make a voluntary disclosure with the state should initiate contact with the Department of Taxation by contacting the Offshore Voluntary Disclosure Coordinator at (808) 587-1603 in order to determine whether the taxpayer is eligible for the Hawaii voluntary disclosure program. The coordinator will request the identity of the taxpayer and determine whether the taxpayer is under civil examination or criminal investigation. Persons under civil examination or criminal investigation are not eligible to participate in the Hawaii program; all other taxpayers are eligible. Taxpayers eligible for the Hawaii program must submit the following: a cover letter identifying the taxpayer and the taxpayer's representative and also stating that the voluntary disclosure is being made to resolve unreported offshore Hawaii taxable income pursuant to the TIR and IRS guidelines and that none of the unreported offshore taxable income being reported is illegal source income; a copy of the voluntary disclosure package submitted to the IRS; amended returns for any taxable year for which the statute of limitations remains open, with the marking "OFFSHORE VOLUNTARY DISCLOSURE" on the top of the first page of the return; and full payment of tax and interest due and payable at the time of the submission.

  Beginning October 1, 2009, any taxpayer subsequently audited by the Department of Taxation (or by the IRS where the IRS adjusts for unreported foreign bank account income) that includes adjustments to Hawaii taxable income due to unreported foreign bank account income will be subject to all civil penalties available by law, including the 50% civil fraud, 25% negligence, and 20% substantial understatement penalties. Furthermore, pursuant to Act 166, Laws 2009, taxpayers found to have unreported income from foreign bank accounts will be assessed unpaid taxes and penalties on up to six taxable years where unreported income constitutes 25% or more of the amount stated on a return. Also, the likelihood of referral for criminal investigation increases for those taxpayers that fail to submit a voluntary disclosure and are later selected for examination.

  Persons needing additional information regarding this TIR may contact the Department of Taxation at (808) 587-1577.

Tax Information Release No. 2009-03 , Hawaii Department of Taxation, August 6, 2009, ¶200-757

  Other References:

  Explanations at ¶89-186

CCH (cch.taxgroup.com) reports:

  A deficiency notice issued to an individual partner that recharacterized over $200 million in charitable remainder annuity trust (CRAT) distributions as capital gain income, rather than a return of corpus was invalid because it adjusted affected items that could not be litigated until the Tax Court issued a final decision in the related ongoing partnership-level proceeding. The IRS's motion to dismiss for lack of jurisdiction was, therefore, granted.

  The taxpayer transferred stock to a limited partnership in exchange for a 99-percent limited partnership interest and a .6-percent general partnership interest. The 99-percent limited partnership interest was transferred to a CRAT formed by the taxpayer.. The taxpayer was entitled to monthly distributions as the term beneficiary until the CRAT terminated approximately two years later. The day after forming the CRAT, the partnership entered into a variable forward purchase contract with an investment banking firm, which paid the partnership $198 million for the stock upon execution of the contract although the stated purchase date of the sale was approximately two years later. The CRAT's monthly distributions were reported by the taxpayer as nontaxable return of corpus.

  The IRS determined in its final partnership administrative adjustment (FPAA) that the partnership made a closed and complete sale of the stock when it executed the variable prepaid forward contract and, therefore, pursuant to Code Sec. 664, had approximately $214 million in long-term capital gain, measured by the difference between the $198 million in cash received, plus the contingent right to future appreciation less the partnership's basis in the stock. The tax matters partner immediately filed a petition with the Tax Court which is currently pending. The IRS, however, issued a deficiency notice to the taxpayer on the same day it issued its FPAA. The deficiency notice, which the IRS's motion in this case sought to declare invalid, alleged that the CRAT anti-abuse regulation (Reg. §1.643(a)-8) requires the recharacterization of the distributions as capital gain and treats the CRAT as having sold a pro rata portion of the stock in the tax years it made the distributions.

  According to the court, recharacterization of the CRAT distributions as capital gain under the anti-abuse regulation cited in the notice of deficiency is only possible if the CRAT distributions would otherwise be characterized as corpus in the hands of the taxpayer. The characterization of the distributions as capital gain or a return of capital depended upon a final determination of the partnership gain issue. The deficiency notice, therefore, adjusted affected items that depended upon the outcome of the partnership gain issue in the partnership-level proceeding. Imposition of the accuracy-related penalties also depended upon operation of the anti-abuse regulation and were, therefore, affected items.

S.L. Miller, TC Memo. 2009-182, Dec. 57,901(M)

Other References:

 
Code Sec. 6221

  CCH Reference - 2009FED ¶37,569.12

 
Code Sec. 6231

  CCH Reference - 2009FED ¶37,849.45

  Tax Research Consultant

  CCH Reference - TRC PART: 60,056

CCH (cch.taxgroup.com) reports:

  The IRS has issued procedures that allow a supporting organization under Code Sec. 509(a)(3) to request a change in its public charity classification to a public charity classification under Code Sec. 509(a)(1) and Code Sec. 170(b)(1)(A)(vi) or Code Sec. 509(a)(2) (i.e., churches, schools, hospitals and charities that receive public support). An organization may want to change its status as a result of changes made by the Pension Protection Act of 2006 (P.L. 109-280). Specifically, supporting organizations are not eligible to receive IRA distributions under the provision that allows for such distributions without an inclusion in gross income. Additionally, private foundations are restricted from making distributions to supporting organizations.

  The procedures for requesting a change in public charity classification are consistent with recently issued temporary and proposed regulations that implement the redesign of the Form 990, Return of Organization Exempt from Income Tax. A request for reclassification must made under the rules of Rev. Proc. 2009-4, I.R.B. 2009-1, 118. The request must include a number of specific items and it must be signed under the penalties for perjury by the organization's officer, director, trustee or other authorized official. There is no user fee for the determination letter.

  Formerly, requests for reclassification were made under
Announcement 2006-93, 2006-1 CB 1017 and were processed by the IRS on an expedited basis. Requests submitted under Announcement 2006-93 will be processed, although the announcement is now superseded.

Announcement 2009-62, 2009FED ¶46,442

Other References:

 
Code Sec. 509

  CCH Reference - 2009FED ¶22,812.50

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 66,514
CCH Reference - TRC EXEMPT: 21,202
CCH Reference - TRC EXEMPT: 21,210
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The New Jersey Division of Taxation has adopted a new chapter of administrative and procedural rules to conform to the Streamlined Sales Tax (SST) Agreement. The new rules contain the following: definitions, administration of exemptions, administration of tax returns, rules for remitting tax, certification of service providers and automated systems, registration of sellers, state review and approval of certified automated system software and certain liability relief, confidentiality and privacy protections under Model 1 (Model 1 refers to a seller that has selected a certified service provider as its agent to perform all the seller's sales and use tax functions, other than the seller's obligation to remit tax on its own purchases), and relief from certain liability for purchasers confidentiality and privacy protections under Model 1.

  Subscribers can view the adopted rules.

 
N.J.A.C. 18:24B-1.1, 18:24B-1.2, 18:24B-1.3, 18:24B-1.4, 18:24B-1.5, 18:24B-1.6, 18:24B-1.7, 18:24B-1.8, and 18:24B-1.9, New Jersey Division of Taxation, effective August 3, 2009

CCH (cch.taxgroup.com) reports:

  CCH has recently learned that the California Franchise Tax Board (FT is forwarding refunds from a registered domestic partnership's (RDP) California personal income tax joint return to the Internal Revenue Service (IRS) to satisfy the separate federal tax liability of one of the partners, even though the IRS does not recognize RDPs and requires registered domestic partners to file single returns.

  Upon inquiry, the FTB has stated that under Cal. Rev. & Tax. Code §17021.7, the FTB is required to treat RDPs the same as married persons. The FTB offset procedures are based on the presumption that refunds from joint returns stem from taxes withheld or other refundable credits that are community property in character and, therefore, are subject to offset to the separate tax liabilities of either spouse incurred before or after marriage. The FTB has stated that the only exception would be if the RDP filed a prenuptial agreement or equivalent. In that case, the FTB would attempt to reimburse the spouse or RDP for the amount of refund allocable to the spouse or RDP.

  It is clear that the FTB is following the "letter of the law" in this instance; however, it is questionable whether such action is frustrating the actual intent of the law. The FTB is aware that the IRS is not treating RDPs the same as married taxpayers. The IRS is being inconsistent in its position by refusing to acknowledge RDPs for federal tax purposes, yet taking advantage of the state's community property laws to access state tax refunds from an RDP's joint California return to satisfy a federal tax liability from one of the individual partners. Absent a legislative change, there does not appear to be any clear administrative remedy against the FTB, other than contacting the California Taxpayer Rights Advocate office for possible intervention. The Taxpayer Advocate's office is currently reviewing this matter on a systemic level.

  On the federal side, once the IRS receives the refund, the non-debtor spouse/domestic partner may then want to pursue a return of such spouse's/domestic partner's allocable portion of the refund on the basis that the IRS does not regard the individuals as being married and, therefore, the refund should not be treated as community property for federal income tax purposes. While at first blush it might appear that the non-debtor spouse/partner should file Form 8379, Injured Spouse Allocation, the IRS will likely not process such request given that no federal joint return was ever filed, and the IRS does not regard the non-debtor spouse/partner as a spouse at all under federal tax law.

  Alternately, the non-debtor spouse/partner might want to file Form 9423, Collection Appeal Request , to request Appeals Office assistance, or Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order) , and seek the intervention of the Taxpayer Advocate Service. Such efforts may be constrained by the absence of any definitive guidance from Chief Counsel indicating that while property rights are generally determined under state law, and state law may regard the couple as being married and therefore any refund as community property, the IRS will not treat it as community property for federal income tax purposes. The non-debtor spouse/partner might also consider a wrongful levy action if these administrative remedies are unsuccessful.

  For preparers who advise same sex couples and domestic partners where one spouse/partner owes back federal taxes, it may be appropriate to consider whether the couple should adjust their state withholding now, thereby avoiding any refund on their 2009 California return.

  Subscribers can view the FTB's response to CCH's inquiry.

E-mail, California Franchise Tax Board, August 4, 2009

CCH (cch.taxgroup.com) reports:

  The IRS has extended the due date for certain specified persons to file foreign bank account reports (FBARs) (Forms TD F 90-22.1, Report of Foreign Bank and Financial Accounts) for 2008 and earlier calendar years. Citing additional time needed by the Treasury Department to address issues pertaining to FBAR filing requirements and the need to provide administrative relief for specified persons, the IRS has provided that eligible persons have until June 30, 2010, to file FBARS for 2008, 2009 and earlier calendar years. Specified persons are (1) persons with signature authority over, but no financial interest in, a foreign financial account, and (2) persons with a financial interest in, or signature authority over, a foreign commingled fund.

  Current instruction to the FBAR provide that Form TD F 90-22.1 with respect to a given calendar year must be filed with the Treasury Department on or before June 30 of the succeeding year. Thus, except as provided in prior relief granted by the IRS on its website (www.irs.gov) and the relief granted in this notice, FBARs with respect to the 2008 calendar year should have been filed on or before June 30, 2009. The prior relief provided on the IRS website allowed certain persons who had only recently learned of their filing obligations to file Forms TD F 90-22.1 by September 30, 2009. The new relief supplemented that previous filing extension.

  The Treasury Department intends to issue regulations clarifying the FBAR filing requirements pertaining to the specified persons described above. It is soliciting public comments related to a number of related issues affecting a person's FBAR filing requirements. Comments must be received by the IRS by October 6, 2009.

Notice 2009-62, 2009FED ¶46,441

Other References:

 
Code Sec. 6011

  CCH Reference - 2009FED ¶35,141.48

  Tax Research Consultant

  CCH Reference - TRC FILEBUS: 9,104

CCH (cch.taxgroup.com) reports:

  The IRS has provided domestic asset/liability percentages and domestic investment yields needed by foreign life insurance companies and foreign property and liability insurance companies to compute their minimum effectively connected net investment income under Code Sec. 842(b). This guidance is effective for tax years beginning after December 31, 2007.

  For the first tax year beginning after 2007, the relevant domestic asset/liability percentages are 118.6 percent for foreign life insurance companies and 183.4 percent for foreign property and liability insurance companies. The relevant domestic investment yields are 5.3 percent for foreign life insurance companies and 3.6 percent for foreign property and liability insurance companies. In addition, instructions are set forth for computing foreign insurance companies' estimated tax liabilities for tax years beginning after 2007.

Rev. Proc. 2009-34, 2009FED ¶46,440

Other References:

 
Code Sec. 842

  CCH Reference - 2009FED ¶26,251.70

  CCH Reference - 2009FED ¶26,251.72

  Tax Research Consultant

  CCH Reference - TRC INTLIN: 3,102.25

CCH (cch.taxgroup.com) reports:

  For pension plan years beginning in August 2009, the IRS has released the corporate bond weighted average interest rate, the permissible range of interest rates used to calculate current plan liability and to determine the required contribution under Code Sec. 412(l) for plan years through 2009, and the current corporate bond yield curve and related segment rates for the purpose of establishing a plan's funding target under
Code Sec . 430(h)(2).

  The corporate bond weighted average interest rate for plan years beginning in August 2009 is 6.48 percent; and the 90-percent to 100-percent permissible range is 5.83 percent to 6.48 percent. The annual rate of interest on 30-year Treasury securities for July 2009, used to determine the minimum present value of a participant's benefit under Code Sec. 417(e)(1) and (2), is 4.41 percent.

  For plans electing not to use the transitional rule under Code Sec. 430(h)(2)(G), or for plans whose first year begins after 2009, the 24-month average segments rates for August 2009 are: 5.12 for the first segment; 6.74 for the second segment; and 6.83 for the third segment.

  For plan years beginning in 2009, the funding transitional segment rates for August 2009 are: 5.57 for the first segment; 6.65 for the second segment; and 6.71 for the third segment.

  For plan years beginning in 2009, the minimum present value transitional segment rates for July 2009 are: 4.00 for the first segment; 5.16 for the second segment; and 5.23 for the third segment.

Notice 2009-63, 2009FED ¶46,439

Other References:

 
Code Sec. 401

  CCH Reference - 2009FED ¶17,730.40

 
Code Sec. 412

  CCH Reference - 2009FED ¶19,125.505

 
Code Sec. 417

Code Sec. 430

  CCH Reference - 2009FED ¶20,161.30

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 15,304.05
CCH Reference - TRC RETIRE: 15,304.10
CCH Reference - TRC RETIRE: 30,556

CCH (cch.taxgroup.com) reports:

  President Obama on August 7 signed legislation to keep the Highway Trust Fund solvent through the end of fiscal year 2009. The bipartisan measure, HR 3357, which would transfer $7 billion from the General Fund to the Highway Account of the Highway Trust Fund, passed the Senate by a vote of 79-to-17 on July 30 and passed the House by a vote of 363 to 68 on July 29 (TAXDAY, 2009/07/30, C.2). The measure will also provide essential loans to the Unemployment Trust Fund (UTF) to meet a projected shortfall by early August. According to a Ways and Means press release issued late on July 29, the loans are repayable with interest, and the Congressional Budget Office has scored the legislation as having no cost to the federal treasury.

  The president also signed HR 3435, a bill to provide $2 billion in emergency supplemental appropriations for the Consumer Assistance to Recycle and Save Program, aka the Cash-for-Clunkers program. The program provides dealers with refund vouchers worth up to $4,500 when consumers trade in older vehicles with fuel economy ratings of 18 miles per gallon or less. The Senate approved the measure on August 6 by a vote of 60-to-37 (TAXDAY, 2009/08/07, C.1). The Senate voted down six amendments that would have stalled the bill and caused House and Senate members to negotiate a compromise version after the August recess. The House passed the measure before leaving for its recess on July 31 (TAXDAY, 2009/08/03, C.1).

  By Stephen K. Cooper, CCH News Staff

Legislation to Restore Sums to the Highway Trust Fund, Enrolled, as Signed by the President on August 7, 2009, HR 3357

Legislation Making Supplemental Appropriations for Fiscal Year 2009 for the Consumer Assistance to Recycle and Save Program, as Passed by the House on July 31, 2009, HR 3435

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  For purposes of the Oregon corporate excise (income), personal income, and certain property tax laws, Oregon generally conforms to the Internal Revenue Code (IRC) as amended and in effect on May 1, 2009 (formerly, December 31, 2008). Thus, except for specific decoupling provisions, Oregon now conforms to the IRC as amended by the federal American Recovery and Reinvestment Act of 2009 (Recovery Act). As previously reported (TAXDAY, 2009/2/18, S.11), Oregon decoupled from the Recovery Act earlier this year. Oregon requires an addition to federal taxable or adjusted gross income for differences between federal and state law resulting from bonus depreciation under IRC §168(k), asset expense election limitations under IRC §179, and income from the discharge of indebtedness under IRC §108. For Oregon income tax purposes, taxpayers must use the amounts allowed under the IRC as in effect on December 31, 2008, prior to any changes made by the Recovery Act. For tax years beginning after 2010, Oregon will conform to the IRC as amended and in effect on May 1, 2009, or if related to the definition of taxable income, as applicable to the tax year of the taxpayer.

CCH (cch.taxgroup.com) reports:

  A Louisiana sales and use tax exemption is enacted for the amount paid by qualifying radiation therapy treatment centers for the purchase, lease, or repair of capital equipment and software used to operate such equipment. Political subdivisions of the state, including parishes and municipalities, are authorized to elect to grant the same exemption. "Capital equipment" is defined as tangible personal property eligible for depreciation for federal income tax purposes that is used in the diagnosis or treatment of cancer patients. Capital equipment includes linear accelerators, PET/CT scanners, imaging devices, and software necessary to operate such equipment. For purposes of the Biomedical Research Foundation in Shreveport, the term is defined as a PET/CT scanner and related equipment for medical diagnosis and the installation of such equipment. A "qualifying radiation therapy center" is defined as a radiation therapy center that is also a nonprofit organization that maintains joint accreditation with a state university by the Commission on Accreditation of Medical Physics Educational Programs, Inc. (CAMPEP) for a graduate medical physics program and that provides facilities and personnel for use for a joint CAMPEP-accredited graduate medical physics program for research, teaching, and clinical training for graduate students. In addition, such a center includes the Biomedical Research Foundation. An exemption certificate must be obtained from the Secretary of the Louisiana Department of Revenue in order for a radiation therapy center to qualify for the exemption.

Act 462 (H.B. 734), Laws 2009, effective July 1, 2009
 

CCH (cch.taxgroup.com) reports:

  The California Franchise Tax Board (FT has announced that it is sending more than 140,000 audit letters to pre-selected individuals who used the head of household (HOH) filing status on their 2008 personal income tax returns. The FTB advises taxpayers who receive an audit letter to promptly submit a completed questionnaire by any of these methods:

  -- go to the FTB's Web site at
http://ftb.ca.gov and use the HOH Audit Letter Web Response page (taxpayers will need their Social Security number and the FTB ID number listed at the top of the questionnaire letter);

  -- fax pages 3 and 4, and any supporting information, to (866) 223-8195; or

  -- mail the questionnaire using the pre-addressed envelope provided with the audit letter.

  Failure to respond could result in a penalty. The FTB provides an HOH self-test, answers to many frequently asked questions, and Publication 1540, CA Head of Household Filing Status, in English and Spanish on its Web site at
http://ftb.ca.gov.

  The HOH filing status generally provides a lower tax assessment for unmarried taxpayers who cared for a dependent for over half the year and paid more than half the cost of maintaining their home. Taxpayers who do not qualify for HOH filing status will have their tax reassessed using either the single or married-filing-separate filing status.

  The FTB notes that filing status mistakes are some of the more common errors on tax returns. Filing status errors are less common on electronically-filed returns, as the state's e-file programs and many other software-based tax preparation programs include a head of household questionnaire that guides taxpayers toward the correct filing status.

News Release , California Franchise Tax Board, August 6, 2009
 

CCH (cch.taxgroup.com) reports:

  The Senate on August 6 approved a bill (HR 3435) that would provide an additional $2 billion for the Cash for Clunkers program that gives consumers a cash incentive to trade in old vehicles for new, higher fuel-efficient models. The measure was approved 60-to-37 and came after lawmakers defeated six amendments that would have altered the original House-passed-version and likely delayed final action until Congress returned from its summer recess in September.

  "We have a choice before us. We're either going to have an extension of the Cash for Clunkers program with a passage of the House bill without any changes in it, or it is going to die," said Sen. Carl Levin, D-Mich., as the Senate prepared to vote on amendments.

  The widely popular program began running out of funds less than a week after it began, prompting the White House and Congress to seek additional funding. The House on July 31 immediately passed a bill providing an additional $2 billion to keep the program running (TAXDAY, 2009/08/03, C.1), but it was uncertain whether the Senate would follow suit before recessing for four weeks. Some senators had objected to more government spending at a time of record federal deficits, while others wanted assurances that Congress would find other means to finance the program instead of using funds earmarked for a clean energy loan guarantee program included in the American Recovery and Reinvestment Act of 2009 (P.L. 111-5). President Obama is expected to sign the measure quickly in order to keep the program running without interruption.

  The initial Cash-for-Clunkers legislation provided $1 billion in tax-free vouchers to automobile dealers who participated in the program. The program vouchers, worth $3,500 or $4,500, are given to dealers when consumers trade in old vehicles for ones with higher fuel efficiency. The vouchers are considered taxable income for the car buyer. Lawmakers created the Cash-for-Clunkers program as part of the Consumer Assistance to Recycle and Save Act of 2009 (CARS Act) (P.L. 111-32) (TAXDAY, 2009/06/25, W.1).

  By Jeff Carlson, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Although New Jersey requires that gross (personal) income tax be imposed at the highest rate on a composite return (NJ-1080C) filed by pass-through entities on behalf of their nonresident owners, the Division of Taxation is allowing the use of two rates in order to encourage nonresident individuals to elect to participate in a composite return. As a result of Ch. 69 (A.B. 4102), Laws 2009, which increased the personal income tax rate on high-income taxpayers, 2009 composite return filers may continue to apply the 6.37% rate for participating individuals with New Jersey sourced income of less than $250,000 each. However, the new highest rate of 10.75% is applied to participants with New Jersey sourced income of $250,000 or more.

   
 
Notice , New Jersey Division of Taxation, August 4, 2009   

CCH (cch.taxgroup.com) reports:

  A taxpayer's request for an installment agreement was remanded to the IRS Appeals Officer to permit a taxpayer to pursue the agreement where the administrative record was hopelessly muddled and the IRS settlement officer handling the case was unavailable for a scheduled telephone conference. The officer abused her discretion where the notice of determination she issued inaccurately stated that the taxpayers had failed to provide sufficient documentation. Moreover, the attachment to the notice stated that the taxpayer had failed to provide any documentation and that the taxpayers "did not present any acceptable alternatives or provide a financial statement." All of these grounds were contradicted by the factual record.

  Furthermore, the settlement officer did not make herself available for a scheduled telephone conference, which was never rescheduled, and was generally not available when the petitioners tried to contact her. In addition, the administrative record in the case was confused and contained so many errors and inconsistencies as to lack a sound basis in fact or law. The settlement officer failed to make any actual determination as to whether the petitioners would qualify for an installment agreement.

S. Meeh, TC Memo. 2009-180, Dec. 57,899(M)

Other References:

 
Code Sec. 6330

  CCH Reference - 2009FED ¶38,184.60

  Tax Research Consultant

  CCH Reference - TRC IRS: 42,120
CCH Reference - TRC IRS: 51,056.25

CCH (cch.taxgroup.com) reports:

  As part of its 2009 Summertime Tax Tips series, the IRS has provided summary sheets for taxpayers with important information on avoiding identity theft, determining if it is necessary to amend a return and obtaining tax refunds that are currently unclaimed or undeliverable.

  In 2009 IRS Summertime Tax Tip 2009-11, the IRS provides a list of some of the ways that a taxpayer's identity could be stolen and the repercussions this could have for the individual's tax records. The IRS points out that it does not initiate contact with a taxpayer by email and cautions that if a taxpayer receives such an email, the taxpayer should report this to the IRS and forward the scam email to hishing@irs.gov.">phishing@irs.gov. Additional information is available on the IRS's Identity Theft Resource Page, and further assistance for those who have been victimized is available from the IRS Identity Protection Specialized Unit at (800) 908-4490.

  When is it necessary to amend your tax return? 2009 IRS Summertime Tax Tip 2009-12 explains that amendment is generally not necessary for math errors or missing forms because the IRS corrects such errors and requests missing forms when it processes an original return. However, filing an amended return is necessary if filing status, dependents, total income or deductions and credits were incorrectly reported. The guidance also cites instances when a taxpayer may elect to file an amended return, such as when a taxpayer is eligible to claim a credit and didn't do so on the original return. The procedure for filing Form 1040X and the applicable time frame are also briefly summarized; additional assistance is available at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676).

  In 2009 IRS Summertime Tax Tip 2009-13, the IRS outlines the procedures for collecting unclaimed refunds and undeliverable refunds. If an individual was not required to file a tax return but had taxes withheld from wages or is eligible for the refundable Earned Income Tax credit (EITC), that individual may obtain a refund by filing a return to claim the refund within three years. Additional guidance about this and the EITC is available at www.IRS.gov. If a taxpayer filed a return and expected a refund check but never received it, the refund may have been returned to the IRS as undeliverable. Procedures for claiming an undeliverable refund and ensuring that the IRS has the taxpayer's current correct address are summarized in the information sheet.

2009 IRS Summertime Tax Tip 2009-11

2009 IRS Summertime Tax Tip 2009-12

2009 IRS Summertime Tax Tip 2009-13
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The North Carolina General Assembly's conference committee has presented a proposed budget to the full General Assembly for approval that contains provisions that would enact a new personal and corporate income tax surcharge; partially conform North Carolina income tax provisions to federal provisions enacted in 2008 and 2009; increase the sales and use tax rate; adopt an Amazon provision with a $10,000 threshold; expand the sales tax base on digital property; and increase the alcohol excise and tobacco products tax rates.

  Notably absent from the latest budget deal is the unitary group reporting requirement, which was a hybrid of a combined reporting and a consolidated return approach; expansion of the corporate franchise tax to limited liability companies; and the corporate income tax throwback rule that were proposed in the House's version of the budget bill (see TAXDAY, 2009/06/17, S.3) The conference committee's budget bill passed the first vote of the General Assembly on August 4, 2009, and will be presented for a second vote on August 5, 2009, before being sent to the Governor for her signature.

CCH (cch.taxgroup.com) reports:

  An income tax refund that was traceable to pension, unemployment compensation and Social Security benefits that were exempt under state (Ohio) law was also exempt. The state exemption provisions were clearly designated to protect funds intended primarily for maintenance and support of debtors' families. Therefore, because it was traceable to funds exempt under state and federal statutes, the refund was also exempt.

In re J.W. Sparks, BC-DC Ohio, 2009-2 USTC ¶50,531

Other References:

 
Code Sec. 6402

  CCH Reference - 2009FED ¶38,519.145

 
Code Sec. 6871

  CCH Reference - 2009FED ¶40,630.12

  Tax Research Consultant

  CCH Reference - TRC IRS: 57,060

CCH (cch.taxgroup.com) reports:

  A corporation's claims for damages stemming from the IRS's alleged unauthorized disclosure of return information to the Japanese National Tax Administration were remanded to determine whether any such disclosures were not barred by the statute of limitations. For subject matter to exist under Code Sec. 7431(d), the corporation must have filed its action within two years of the date that the alleged disclosures were discovered, not the date that the corporation realized the disclosures were unauthorized. This two-year limitations period is jurisdictional and was intended to be absolute. Because the district court made no findings of fact determining the dates that the corporation discovered the disclosures, the matter was remanded to determine whether the corporation discovered any disclosures within the two-year statutory period.

  Vacating and remanding a DC Ariz. decision, 2007-1 USTC ¶50,325.

Aloe Vera of America, Inc., CA-9, 2009-2 USTC ¶50,530

Other References:

 
Code Sec. 6103

  CCH Reference - 2009FED ¶36,894.65

  CCH Reference - 2009FED ¶36,894.75

 
Code Sec. 7431

  CCH Reference - 2009FED ¶41,758.10

  Tax Research Consultant

  CCH Reference - TRC IRS: 9,052.10
CCH Reference -
TRC IRS: 9,352
CCH Reference -
TRC IRS: 9,358
 

CCH (cch.taxgroup.com) reports:

  Senate Finance Committee Chairman Max Baucus, D-Mont., said he is confident a health care reform bill will reach the president's desk in 2009 "if we all work together...." Emerging with other Senate leaders from a White House luncheon meeting on August 4, Baucus said he wants a final bill to reform the health insurance industry, cut health care costs and garner 60 votes. When asked by a reporter, he did not say whether a final package must include a specific mechanism, such as a public option or non-profit co-op, to increase coverage for the uninsured.

  Baucus has been working diligently for months with other key senators in an effort to move forward a bipartisan bill that does not lose the support of Democratic members. Sen. Christopher Dodd, D-Conn., stressed that Democrats and GOP members of Congress must come back from the August recess with a "new sense of purpose" to get the bill done.

  By Paula Cruickshank, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Franchise Tax Board (FT has clarified the California personal income and corporation franchise and income tax treatment of the federal Car Allowance Rebate System, or "cash for clunkers," voucher benefit provided to purchasers of qualifying new cars and trucks in conjunction with the transfer of an eligible trade-in vehicle to a car dealer. According to the FTB, the transaction will be treated for California income tax purposes as a sale or exchange of the used car that the person delivers, in exchange for consideration of the $3,500 or $4,500 voucher, as the case may be. Persons trading in used cars may offset the applicable amount realized by the basis of the used cars relinquished, which is generally cost, in determining whether they realized gain on the transaction. Personal losses on the sale of personal assets, such as a family car, may not be used to reduce taxable income.

E-mail , California Franchise Tax Board, July 30, 2009, ¶404-951

  Other References:

  Explanations at ¶10-640

  Explanations at ¶16-070

CCH (cch.taxgroup.com) reports:

  A Streamlined Sales Tax (SST) panel has agreed to issue an interpretation on whether the option for SST member states to use origin sourcing expires on January 1, 2010, or remains available after that date. The Compliance Review and Interpretations Committee (CRIC) accepted the request for an interpretation made by the states of Arizona, New Mexico, Ohio, Tennessee, Texas, Utah and Virginia. The Virginia Association of Counties also joined the request.

  The request grows out of a compromise approved by the SST Governing Board in December 2007. Originally, the SST Agreement required full member states to use destination sourcing. However, several states that used origin sourcing argued that making the transition to a destination system posed an insurmountable obstacle preventing them from becoming full members. This group included associate member states Ohio, Tennessee and Utah and nonmembers Texas and Virginia. After considerable resistance from some states and taxpayers, the board ultimately amended the Agreement to allow states to elect to use origin sourcing and still become full members under certain circumstances.

  Among the conditions was that the origin-sourcing option would be effective "on or after January 1, 2010, provided that at least five states which are not full member states on December 31, 2007" made the election to use origin sourcing and otherwise were in substantial compliance with the Agreement. Although Ohio, Tennessee and Utah may meet that standard now, there is no expectation that another two states will do so by January 1, 2010.

  The states requesting the interpretation have asked the CRIC to evaluate the 2007 amendments to the Agreement and decide whether the January 1, 2010 date is a "sunset" or a "trigger." If it is a "sunset," the option to elect to use origin sourcing would expire on January 1, 2010. If it is a "trigger," January 1, 2010, simply would be the earliest possible date that states making the election could become full member states. Under the "trigger" interpretation, states electing to use origin sourcing, which were otherwise in compliance, could become full members at whatever date in the future a fifth state successfully made that election.

  The states seeking the interpretation from the CRIC have asked that it rule the date is a "trigger," not a "sunset." The CRIC is expected to hold an expedited hearing on this issue in the near future, so that the matter can be evaluated by the full board at the upcoming annual meeting in Oklahoma City, September 29-30, 2009.

Meeting, Compliance Review and Interpretations Committee, July 30, 2009

CCH (cch.taxgroup.com) reports:

  The IRS could not use an extended six-year limitations period to assess a deficiency where a partnership allegedly overstated its basis on disposition of an asset, thereby lowering the amount of gross income reported in its return. Overstatement of basis is not an omission of gross income for purposes of Code Sec. 6501(e)(1)(A); therefore, a Notice of Final Partnership Administrative Adjustment (FPAA) was untimely because it was not issued within the three-year limitations period. The interpretation of former Code Sec. 275(c) in Colony, Inc. , SCt, 58-2 USTC ¶9593, controls the interpretation of the substantially identical language in Code Sec. 6501(e)(1)(A). Thus, the decision of the Court of Federal Claims that the FPAA was not time-barred was reversed and remanded.

  The IRS's argument that the Colony, Inc., holding should be limited to the sale of goods or services by a trade or business was rejected because the holding only identifies situations in which a taxpayer omits particular items from gross income. Code Sec. 6501(e)(1)(A) is not limited to any particular type of taxpayer and its general judicial construction was not altered by the addition of Code Sec. 6501(e)(1)(A)(i), which clarifies that an overstatement of basis is not an omission from gross income in the case of a trade or business. Applying the Colony, Inc. , holding did not render Code Sec. 6501(e)(1)(A)(i) and Code Sec. 6501(e)(1)(A)(ii) superfluous because Code Sec. 6501(e)(1)(A) only clarifies that the "omits from gross income" does not extend to an alleged overstatement of basis in property.

  Reversing a FedCl decision, 2007-2 USTC ¶50,803.

Salman Ranch Ltd., CA-FC, 2009-2 USTC ¶50,528

Other References:

 
Code Sec. 6229

  CCH Reference - 2009FED ¶37,749.13

 
Code Sec. 6501

  CCH Reference - 2009FED ¶38,971.13

  CCH Reference - 2009FED ¶38,971.40

  CCH Reference - 2009FED ¶38,971.76

  Tax Research Consultant

  CCH Reference - TRC IRS: 30,152.15
CCH Reference - TRC IRS: 30,152.40
CCH Reference - TRC PART: 60,352.10
 

CCH (cch.taxgroup.com) reports:

  A domestic corporation's request for a redetermination of foreign sales corporation (FSC) commissions allocated to its wholly-owned FSC was properly denied because the FSC's assessment period was closed. The government's interpretation of
Temporary Reg. §1.925(a)-1T(e)(4), which required that the redetermination be filed while both the refund limitations period under Code Sec. 6511 and the Code Sec. 6501 assessment period is open with respect to both the FSC and its related supplier (the domestic corporation), was valid. The
Temporary Reg. §1.925(a)-1T(e)(4) requirement that a redetermination "shall affect" both the FSC and the related supplier necessarily refers to a meaningful tax effect.

  The "shall affect" language in the regulation was ambiguous; however, the government's interpretation of that language was entitled to deference because its interpretation was reasonable and was not inconsistent with any prior governmental interpretation. The government's inability to offset any refund paid to the corporation by assessing and collecting additional taxes from the FSC clearly would have prevented the redetermination from affecting both parties. The taxpayer's interpretation of the "shall affect" language as only requiring that the FSC and related supplier accurately reflect their income and expenses on their books would have rendered the "shall affect" language superflous.

  Affirming a FedCl decision, 2008-2 USTC ¶50,570.

Abbott Laboratories, CA-FC, 2009-2 USTC ¶50,525

Other References:

 
Code Sec. 925

  CCH Reference - 2009FED ¶28,163.60

 
Code Sec. 6511

  CCH Reference - 2009FED ¶39,080.2485

  Tax Research Consultant

  CCH Reference - TRC IRS: 36,052.05

CCH (cch.taxgroup.com) reports:

  The IRS's decision to proceed with the collection of a married couple's unpaid tax liability through a federal tax lien was not an abuse of discretion. The couple had a prior opportunity to dispute their underlying tax liability at a Code Sec. 6330 Collection Due Process hearing and also did not file a Tax Court petition; therefore, they were precluded from disputing their underlying tax liability at a Code Sec. 6320 hearing they requested in response to the notice of federal tax lien. At that hearing, the couple failed to provide any reason why the lien should not be enforced nor any collection alternatives.

C.M. Willock, TC Memo. 2009-178, Dec. 57,897(M)

Other References:

 
Code Sec. 6320

  CCH Reference - 2009FED ¶38,134.89

 
Code Sec. 6330

  CCH Reference - 2009FED ¶38,184.62

  Tax Research Consultant

  CCH Reference - TRC IRS: 51,056.25

CCH (cch.taxgroup.com) reports:

  Senate leaders intent on approving an additional $2 billion in funds for the successful Cash for Clunkers program received a boost when two lawmakers threatening to derail legislation providing the money dropped their objections (TAXDAY, 2009/08/03, C.1). Sens. Dianne Feinstein, D-Calif., and Susan M. Collins, R-Maine, said on August 3 that they believed their goal of achieving higher fuel efficiency through the program had been met.

  The use of an energy loan fund made available through the American Recovery and Reinvestment Act of 2009 (P.L. 111-5) to finance an extension of the program poses a problem to many lawmakers, however, and both Collins and Feinstein said they would seek alternative ways to finance the project. Feinstein suggested the possibility of dipping into funds from the Troubled Asset Relief Program (TARP) to cover the costs, but said the White House was opposed to the idea because it believes there would be legal obstacles to redirecting those funds.

  Sen. Charles E. Schumer, D-N.Y., said that leadership on both sides of the aisle was committed to "getting this done" before leaving for August recess. "There will be more money coming down the pike," said Schumer. Feinstein said she believed there were 60 votes in the Senate to approve the measure (HR 3435) as passed by the House on July 31 (TAXDAY, 2009/08/03, W.1). She said changes to the funding source could occur when Congress returns from recess in September.

  Feinstein and Collins had originally questioned whether the program had achieved its stated goal of having customers trade-in gas guzzling vehicles for more fuel efficient cars. In a July 31 letter to Transportation Secretary Ray LaHood, they requested a detailed analysis of how the program has worked to date, including the make and model of the vehicles purchased, the fuel efficiency of purchased vehicles and the condition of vehicles traded in. They said a report on the sales had indicated most customers were indeed trading in for better fuel efficiency.

  Senate Democrats will hold their weekly policy luncheon at the White House on August 4 to discuss legislative priorities, including health care, the state of the economy, energy legislation and the Cash for Clunkers program. Gibbs warned that the extremely successful vehicle trade-in program is very unlikely to last beyond the end of the week if the Senate does not follow the House's lead to pass legislation for $2 billion more in funding.

  By Jeff Carlson, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Oregon has enacted a transportation law that extends two corporate excise (income) and/or personal income tax credits, sunsets another corporate and personal income tax credit, and increases the motor fuel tax rate, vehicle registration fees, and motor carrier taxes.

CCH (cch.taxgroup.com) reports:

  The dire fiscal situation facing most states hung over the 42nd Annual Conference of the Multistate Tax Commission (MTC), held in Kansas City, Missouri, July 29, 2009. During the leadership meetings on the following day, the MTC renewed its commitment to examine the Uniform Division of Income for Tax Purposes Act (UDITPA) for possible revision. The MTC members also heard a status report on federal legislation affecting state taxes, including possible Streamlined Sales Tax (SST) authorizing legislation, and received public comment regarding withholding requirements on mobile workers.

CCH (cch.taxgroup.com) reports:

  The IRS has issued proposed regulations updating the questions and answers inReg. §301.7611-1, relating to church tax inquiries and examinations to reflect changes in IRS offices caused by the Internal Revenue Service Restructuring and Reform Act of 1998 (P.L. 105-206). In mandating a restructuring of the IRS from a geographic structure to one based on taxpayer type, Congress provided a saving provision in
P.L. 105-206 to maintain the effectiveness of standing regulations even in the event of positions described in the regulations being eliminated. However, references in the regulations to positions no longer in existence created some confusion; therefore, Reg. §301.7611-1 questions and answers 1, 7, 9, 10, 11, 15, 16 and 17 have been updated to reflect and clarify these changes. The proposed amendments make the following substitutions:

  "Director, Exempt Organizations" for "Regional Commissioner" (answers 1, 7, 9, 15, 17); and

  "Division Counsel/Associate Chief Counsel, Tax Exempt and Government Entities" for "Regional Counsel" (answers 10, 11).

  In addition, references to "the Assistant Commissioner (Employee Plans and Exempt Organizations)" have been replaced by either "the Commissioner, Tax Exempt and Government Entities" or "the Deputy Commissioner, Tax Exempt and Government Entities" (answer 16).

  Written or electronic comments will be considered if they are timely submitted. Requests for a public hearing will be honored if requested in writing by any person timely submitting written or electronic comments. The details of any such public hearing will be published in the Federal Register.

Proposed Regulations, NPRM REG-112756-09, 2009FED ¶49,426

Other References:

 
Code Sec. 7611

  CCH Reference - 2009FED ¶42,912

  Tax Research Consultant

  CCH Reference - TRC IRS: 18,406
CCH Reference - TRC IRS: 18,406.05
CCH Reference - TRC IRS: 18,406.10
CCH Reference - TRC IRS: 18,406.15
CCH Reference - TRC IRS: 18,406.20
CCH Reference - TRC IRS: 18,406.25
CCH Reference - TRC IRS: 18,406.30
CCH Reference -
TRC IRS: 21,202
CCH Reference -
TRC IRS: 21,206
CCH Reference -
TRC IRS: 21,208
 

CCH (cch.taxgroup.com) reports:

  The IRS has issued final regulations that provide guidance regarding the treatment of controlled services transactions under Code Sec. 482 and the allocation of income from intangible property, in particular with respect to contributions by a controlled party to the value of an intangible owned by another controlled party. The final regulations also modify regulations under
Code Sec. 861 with respect to stewardship expenses, so that these provisions are consistent with the changes to the Code Sec. 482 regulations concerning controlled services transactions.

  CCH Comment.
Code Sec. 482 generally provides that the IRS may allocate gross income, deductions and credits between or among two or more taxpayers owned or controlled by the same interests in order to prevent evasion of taxes or to clearly reflect income of a controlled taxpayer. Final, temporary and proposed regulations issued in 2006 relating to the treatment of controlled service transactions, the allocation of income from intangible property, and stewardship expenses generated a number of comments from taxpayers, their representatives, and industry and professional groups.

  Both the format and the substance of the final regulations are generally consistent with the 2006 temporary regulations, and make clear that application of the services cost method (SCM) is a matter within the control of the taxpayer, as previously indicated in Notice 2007-5, 2007-1 CB 269. In order for the SCM to be applicable, the final regulations clarify that the service must be a covered service, cannot be an excluded activity, and cannot be precluded from constituting a covered service by reason of the business judgment rule, and adequate books and records must be maintained with respect to the service.

  Although comments were received requesting that the proposed list of specified covered services be expanded, the final regulations do not add to the list set forth in Rev. Proc. 2007-13, 2007-1 CB 295. In response to comments concerning the business judgement rule, the final regulations clarify that it is determined on a controlled group basis and determined by reference to a trade or business of the controlled group. The final regulations also clarify language concerning the comparable uncontrolled services price method, provide additional guidance concerning the application of the comparable profit split and residual profit split methods to controlled services transactions in Reg. §1.482-9(g) and Reg. §1.482-6(c)(3)(i)(, and clarify certain examples with respect to the profit split method and economic substance considerations.

  The regulations conforming the stewardship expense regulations under Code Sec. 861 are applicable for tax years beginning after December 31, 2006. The Code Sec. 482 regulations are applicable for tax years after July 31, 2009, but may by election be applied retroactively to any tax year beginning after September 10, 2003.

T.D. 9456, 2009FED ¶47,025

Other References:

 
Code Sec. 482

  CCH Reference - 2009FED ¶22,282B

  CCH Reference - 2009FED ¶22,282CK

  CCH Reference - 2009FED ¶22,282D

  CCH Reference - 2009FED ¶22,282EK

  CCH Reference - 2009FED ¶22,282F

  CCH Reference - 2009FED ¶22,282GE

  CCH Reference - 2009FED ¶22,282J

  CCH Reference - 2009FED ¶22,282JK

  CCH Reference - 2009FED ¶22,282N

  CCH Reference - 2009FED ¶22,282R

  CCH Reference - 2009FED ¶22,282SG

  CCH Reference - 2009FED ¶22,282T

  CCH Reference - 2009FED ¶22,282U

 
Code Sec. 861

  CCH Reference - 2009FED ¶27,138

  CCH Reference - 2009FED ¶27,139

  CCH Reference - 2009FED ¶27,140

  CCH Reference - 2009FED ¶27,141

  CCH Reference - 2009FED ¶27,142

  CCH Reference - 2009FED ¶27,143

  CCH Reference - 2009FED ¶27,145

 
Code Sec. 6038A

  CCH Reference - 2009FED ¶35,561A

  CCH Reference - 2009FED ¶35,561C

 
Code Sec. 6662

  CCH Reference - 2009FED ¶39,653C

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 30,104.10
CCH Reference - TRC ACCTNG: 30,106
CCH Reference - TRC INTL: 15,110.10
 

CCH (cch.taxgroup.com) reports:

  Following reports that the "Cash for Clunkers" (CARS) program had been suspended because of depleted funds, Congress and the White House on July 31 scrambled to ensure that consumers can continue to buy cars under the program. The House immediately took up and passed a bill (HR 3435) providing an additional $2 billion to keep the program running. The final vote was 316 to 109.

  The additional funds come from a loan guarantee for clean energy included in the American Recovery and Reinvestment Act of 2009 (2009 Recovery Act) (P.L. 111-5) and would extend the program through September 30, 2010. Rep. Edward J. Markey, D-Mass., one of the co-authors of the "Cash for Clunkers" program, said he would push to ensure that the money is replaced in the environmental fund.

  Sen. Carl Levin, D-Mich., said that the program had proven "hugely successful" and that he had been assured by the White House that consumers could continue to purchase vehicles under the program until further notice. Levin said that the Senate is also going to seek additional funds to extend the program. The Senate will likely take up the measure, which would be open to amendments, during the week beginning August 3. However, passage may not be as smooth in the Senate because some senators plan to seek higher fuel-efficiency standards in the deal.

  Sens. Dianne Feinstein, D-Calif., and Susan M. Collins, R-Maine, on July 31 urged the Department of Transportation to promptly provide Congress with a detailed evaluation of the effectiveness of the CARS program. In a letter to Transportation Secretary Ray LaHood, Feinstein and Collins requested a detailed analysis of how the program has worked to date, including the make and model of the vehicles purchased, the fuel efficiency of purchased vehicles, and the condition of vehicles traded-in. "The tremendous number of sales in the first week of this program demonstrates that the CARS Act (Consumer Assistance to Recycle and Save Act of 2009, approved as part of the 2009 Supplemental Appropriations Act for Iraq, Afghanistan, Pakistan and Pandemic Flu (P.L. 111-32) (TAXDAY, 2009/06/25, W.1)) has succeeded in increasing new vehicle sales, but Congress needs this data in order to determine if the fleet modernization program delivered significant fuel economy gains and oil savings," stated the lawmakers.

  President Obama is "enormously pleased" that the House bill proposes to use $2 billion from energy efficiency funds contained in the
2009 Recovery Act, according to White House Press Secretary Robert Gibbs. Gibbs said the CARS program benefits taxpayers because their new cars are more fuel-efficient.

  Obama on June 24 signed legislation to boost the sale of vehicles at financially strapped U.S. automobile dealerships (TAXDAY, 2009/06/25, W.1). The program provides $1 billion in tax-free vouchers to automobile dealers who participate in the new program. The program vouchers, worth $3,500 or $4,500, are given to dealers when consumers trade in old vehicles for ones with higher fuel efficiency. The vouchers are considered to be taxable income for the dealers but not the customers who purchase a new vehicle.

  Congress created the new program as part of the CARS Act. Generally, the trade-in vehicle must have a fuel economy value of 18 miles-per-gallon (mpg) or less. The vehicle must be in drivable condition and have been continuously insured and registered in the same owner's name for one year before trade-in. Vehicles manufactured more than 25 years ago generally are ineligible for the program. The new law limits the number of vouchers to one per customer, including joint registered owners of a single eligible trade-in vehicle.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Gov. David A. Paterson signed legislation amending the New York State historic preservation tax credit, available against the corporate and personal income tax. The rehabilitation tax credit program provides incentives to developers, municipalities, businesses and residents to make investments in distressed areas by rehabilitating historic properties that are listed on the State and National Registers of Historic Places. For qualified historic properties, the amended credit will

  -- gradually increase over five years the cap on the commercial credit value from $100,000 to $5 million and the residential credit value from $25,000 to $50,000;

  -- target the credit in "distressed areas" (those located within a Census tract identified at or below 100% of the median family income);

  -- increase the share of qualified rehabilitation costs that commercial property owners can claim for the credit from 6% to 20%; and

  -- offer the preservation tax credit as a rebate for lower income homeowners.

The program will apply to taxable years beginning on or after January 1, 2010, and will sunset in five years on December 31, 2014.

A.B. 9023, Laws 2009, effective July 29, 2009 and applicable as noted

CCH (cch.taxgroup.com) reports:

  By executive order, California Gov. Arnold Schwarzenegger will call a special session of the state General Assembly in September 2009 to consider the recommendations made by the Commission on the 21st Century Economy to improve the state's tax system. The commission is scheduled to deliver a report to the governor and to the General Assembly by September 20 with recommendations to change laws to achieve the following goals:

  (1) establish a 21st century tax structure that fits with the state's 21st century economy;

  (2) stabilize state revenues and reduce volatility;

  (3) promote the long-term economic prosperity of the state and its citizens;

  (4) improve the state's ability to compete successfully with other states and nations for jobs and investments;

  (5) reflect principles of sound tax policy, including simplicity, competitiveness, efficiency, predictability, stability, and ease of compliance and administration; and

  (6) ensure that the tax structure is fair and equitable.

  The initial version of the Commission was created by an order of the governor in 2008. (TAXDAY, 2008/10/31, S.3) The commission has been holding meetings throughout 2009. (TAXDAY, 2009/07/21, S.1)

  Subscribers can view the governor's order that, in part, announces the special session.

Executive Order S-15-09 , Office of California Governor Arnold Schwarznegger, July 29, 2009
 

CCH (cch.taxgroup.com) reports:

  The IRS has finalized proposed regulations (NPRM REG-208199-91), with one minor change, regarding the use of designated summonses and related summonses and the period of limitations on assessment under Code Sec. 6503(j) when a case is brought to enforce or quash such a summons. The regulations affect corporate taxpayers that are examined under the coordinated industry case (CIC) program and served with designated or related summonses, as well as third parties that are served with such summonses for information regarding the corporate examination.

  The final regulations generally provide that the limitations period on assessment is suspended regarding any tax return of a corporation that is the subject of a designated or related summons if a court proceeding to enforce or quash is instituted with respect to that summons. The regulations include guidance on the judicial enforcement period, court proceeding, date when the proceeding is no longer pending, final resolution, compliance, and date when compliance occurs. In addition, the regulations provide special rules addressing the number of designated and related summonses that may be issued, the time within which a court challenge to a covered summons must be brought, the computation of the suspension period when there are multiple proceedings, the computation of the 60-day period when the final day falls on a weekend or holiday, and the interaction of this suspension period with other suspension provisions.

  Regarding the date when compliance occurs, the IRS clarified in the final regulations that the examination team conducting the audit --and that team's management and supervisory chain of command --is the first point of inquiry for any examination matter. Those are the persons who will decide whether the summoned person's production satisfies the court's order.

  Once the final regulations are effective, the IRS will issue Internal Revenue Manual (IRM) procedures under which the IRS will promptly inform the CIC taxpayer of whether the production of summoned information fully complies with the summons. The IRS noted that, even without such IRM procedures, the CIC taxpayer can contact the examining agent to determine when the IRS determined full compliance and when the suspension terminated.

  The regulations are effective and applicable as of July 31, 2009.

T.D. 9455, 2009FED ¶47,024

Other References:

 
Code Sec. 6503

  CCH Reference - 2009FED ¶39,037C

  Tax Research Consultant

  CCH Reference - TRC IRS: 21,114
CCH Reference -
TRC IRS: 30,218
CCH Reference - TRC IRS: 30,218.05
CCH Reference - TRC IRS: 45,204.35
 

CCH (cch.taxgroup.com) reports:

  Senate negotiators failed to meet on July 30 as hopes of forging agreement on sweeping health care reform legislation before the Senate recesses for a month-long break on August 7 began to fade. The slow progress has frustrated Democratic leaders who believe that Senate Finance Committee Chairman Max Baucus, D-Mont., is devoting too much time to Republican concerns in hopes of producing a bipartisan bill. Republican leaders fear that Democrats are seeking to shut them out of the process.

  That pressure led Finance Committee ranking member Charles E. Grassley, R-Iowa, to push back. In a tersely worded statement, Grassley warned that rushing a bill through committee without Republican backing would do more harm than good. "It'll be a lost opportunity if Democratic leaders in Congress and the administration force action on health care legislation that's not ready because of the complexity of the issue and the high stakes in getting it right," stated Grassley.

  The situation in the House was not much better as liberal members threatened to withhold their backing of that chamber's health reform legislation. Still seething over a deal brokered by House Energy and Commerce Committee Chairman Henry A. Waxman, D-Calif., and conservative Democratic Blue Dogs (TAXDAY, 2009/07/30, C.1), members of the Congressional Progressive Caucus (CPC) held a press conference to reiterate their belief that any health care reform must include a public health plan option. The House Energy and Commerce Committee began to mark up its portion of the bill in hopes of wrapping up deliberations prior to the August break scheduled to begin in the House on July 31.

White House

  With growing public wariness over a public health insurance option, the White House is signaling that an alternative to a government-run plan might be acceptable under certain conditions. White House Press Secretary Robert Gibbs, at a press briefing on July 30, said the administration has not drawn a line in the sand as long as the final plan meets President Obama's health care reform goal to ensure choice and competition.

  While the relevant House and Senate Health, Education, Labor and Pensions committees include a public option, the Senate Finance Committee is widely expected to propose a network of nonprofit co-ops instead of a government-run plan. The White House will continue to evaluate each proposal to "see what commonality there might be," Gibbs said.

  Obama has said he will not sign a bill that adds to the deficit in the long run and does not provide affordable and accessible health care insurance. Unless final legislation contains genuine insurance reform, the president will not sign it, Gibbs stressed.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

CCH (cch.taxgroup.com) reports:

  The Illinois Department of Revenue has provided guidance on the sales tax treatment for vehicles purchased in conjunction with the federal government's Car Allowance Rebate System (CARS) program, also known as "cash for clunkers."

  The department has determined that the $3,500 or $4,500 payment from the federal government to the dealer under the CARS program is not taxable for Illinois sales tax purposes because it is a direct government payment to the dealer. The salvage value that the dealer provides for the traded-in vehicle will be treated as a trade-in and therefore is also not taxable for sales tax purposes.

  For example, $20,000 (purchase price of new vehicle) minus $4,500 (federal CARS payment to dealer) and minus $1,000 (salvage value allowed by dealer on traded-in vehicle) would result in $14,500 as the amount subject to sales tax.

  Dealers should combine both payment amounts on Part 6, Line 2 (Total trade in credit or value), of Form ST-556 but keep the amounts separate in their books and records. Manufacturer or dealer incentives remain taxable.

  The announcement can be found on the department's Web site at
http://www.revenue.state.il.us/announcements/cashforclunkers.htm.

"Cash for Clunkers" Announcement , Illinois Department of Revenue, July 27, 2009

CCH (cch.taxgroup.com) reports:

  The IRS has issued proposed regulations relating to contingent fees that may be charged by tax practitioners. The proposed regulations are identical to interim guidance provided in Notice 2008-43, I.R.B. 2008-15, 748. This notice will be declared obsolete when the proposed regulations are published as final regulations in the Federal Register.

  Final regulations currently permit a practitioner to charge a contingent fee for services rendered in connection with the IRS examination of, or challenge to, an amended return or claim for refund or credit when the amended return or claim for refund or credit was filed within 120 days of the taxpayer receiving a written notice of the examination of, or a written challenge to, the original tax return. The proposed regulations would also allow contingent fee arrangements with respect to an amended return or claim for refund or credit if the amended return or claim for refund or credit is filed before the taxpayer receives written notice of the examination or written challenge to the original return (or if the taxpayer never receives such notice or writing). In addition, contingent fees could be charged for services rendered in connection with a "whistle-blowers" claim under Code Sec. 7623.

  The proposed regulations also clarify the definition of a contingent fee to provide that a contingent fee includes a fee that is based on a percentage of the refund reported on a return, that is based on a percentage of the taxes saved, or that otherwise depends on the specific tax result attained. The current regulations state that a contingent fee depends on the specific result attained without directly providing that it is the specific tax result that is relevant. Thus, under the proposed regulations, a fee based on the closing of a transaction or other nontax contingency is permissible.

  A public hearing is scheduled for November 20, 2009, at 10 a.m. Written or electronically generated comments must be received by September 10, 2009. Outlines of topics to be discussed at the public hearing must be received by September 10, 2009.

Proposed Regulations, NPRM REG-113289-08, 2009FED ¶49,425

Proposed Regulations, NPRM REG-113289-08, FINH ¶41,141

Other References:

  Circular 230

  CCH Reference - 2009FED ¶43,566

 
Code Sec. 7852

  CCH Reference - FINH ¶23,122

  Tax Research Consultant

  CCH Reference - TRC IRS: 3,206.05

CCH (cch.taxgroup.com) reports:

  The IRS has ruled that the Forest Health Protection Program (FHPP) administered by the Department of Agriculture to protect forests in the United States is a small watershed program and, therefore, substantially similar to the type of programs described in Code Sec. 126(a)(1) through (8) within the meaning of
Code Sec. 126(a)(9). As a result, all or a portion of the cost-sharing payments received by a taxpayer under the FHPP is eligible to be excluded from gross income to the extent permitted under Code Sec. 126.

Rev. Rul. 2009-23, 2009FED ¶46,435

Other References:

 
Code Sec. 126

  CCH Reference - 2009FED ¶7334.15

  CCH Reference - 2009FED ¶7334.30

  Tax Research Consultant

  CCH Reference - TRC FARM: 3,168.05

CCH (cch.taxgroup.com) reports:

  Supporters of a proposal to levy an excise tax on insurance companies that offer high-end health care plans, often called "Cadillac" plans are picking up support from the White House and key members of Congress. The proposal, offered by Sen. John F. Kerry, D-Mass., would help pay for an estimated $1 trillion health care reform bill. White House Press Secretary Robert Gibbs, at a press briefing on July 27, said the White House is evaluating the insurance tax option that is under consideration by the Senate Finance Committee (SFC) as they craft legislation for a mark-up before the August recess.

  David Axelrod, senior advisor to the president, gave the idea a plug during an appearance July 26 on CBS's "Face the Nation." "The president actually was asked this the other day by Jim Lehrer and what he said was that this was, you know, that this was an intriguing idea to put an excise tax on high-end health care policies, like the ones that the executives at Goldman Sachs have, the $40,000 policies." said Axelrod.

  One member of the Finance Committee, Senate Budget Committee Chairman Kent Conrad, D-N.D., endorsed the plan while appearing on ABC's "This Week." Conrad said there is little choice but to end the insurance subsidy in some form. "I think we've got to. Again, virtually every economist that has come before us has said, you've got to reduce that tax subsidy as part of an overall strategy to really contain costs."

  As the Senate Finance Committee continues struggling to seek a solution to filling a $320-billion gap in revenue needed to cover the estimated $1 trillion cost of health care reform, the Congressional Budget Office on July 25 released a report downplaying the savings hoped for under the administration's proposal for an Independent Medicare Advisory Council (IMAC), which would make recommendations to the president for changing federal payments for Medicare services. The CBO estimated the plan would create savings of only $2 billion, which does little to help the SFC. In addition, lawmakers are loath to give up control of Medicare payments to the White House.

  The House Energy and Commerce Committee is expected to complete its markup of its health reform legislation during the week beginning July 27 but it is doubtful whether they will manage to hold a floor vote before breaking for a long summer recess on July 31. "I don't believe so next week, "said Rep. Jim Cooper, D-Tenn., on "Face the Nation." He added, "We have agreement on 70 or 80 percent of the legislation, but it is important we get the other details right too." Cooper said he does not believe House Speaker Nancy Pelosi, D-Calif., has the votes at this point to ensure passage.

  Gibbs also emphasized that the administration and Congress have reached agreement on 80 percent of reform issues and acknowledged the remaining 20 percent "won't be easy." Areas of consensus are greater access to affordable health care coverage, a deficit-neutral health care reform plan over 10 years and an end to insurance companies denying coverage due to pre-existing medical conditions, Gibbs notes.

  President Obama maintains final legislation will reach his desk in the fall. Gibbs said there are "no intermediate deadlines" for getting the bill through Congress, although Obama initially called on the House and Senate to pass health care reform bills before they started their August recess. "The president is encouraged that we're making progress and I think is satisfied with the path we're on," Gibbs said.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The California Legislature passed two budget trailer bills as part of the budget deal negotiated between Gov. Arnold Schwarzenegger and legislative leaders that, if enacted, would increase personal income tax withholding, accelerate the installment payments for personal income and corporation franchise and income taxes, retroactively revise the estimated tax underpayment penalty to conform the application of withholding credits to the revised estimated tax installment percentages, generally conform to federal backup withholding provisions, and require qualified purchasers to register with the California State Board of Equalization (BOE) for purposes of reporting and paying use taxes.

  Notably absent from the California budget agreement is the so-called Amazon proposal to create a presumption of nexus for online sellers for sales tax purposes under certain circumstances. The governor previously vetoed such a proposal (S.B. 17, Third Extraordinary Session, was vetoed by the governor on June 30, 2009).

CCH (cch.taxgroup.com) reports:

  The Senate is expected to wait until September to take up health care reform legislation. President Obama, who had called for its passage before the August recess, said that he had no problem with this delay as long as work continued during the recess. PAYGO legislation passed the House, but the Senate may not take up the measure. The IRS reminded taxpayers of the temporary tax incentives in the American Recovery and Reinvestment Act of 2009 (2009 Recovery Act) (P.L. 111-5) and finalized filing rules for small exempt organizations. On the international front, the IRS announced that it intends to issue guidance for individuals receiving gifts and bequests from expatriates and a Treasury Department official said that negotiating tax treaties is a priority.

Legislation

  Senate Majority Leader Harry Reid, D-Nev., said on July 23 that the Senate will wait until September to take up health care reform legislation, but he expects that the Senate Finance Committee will mark up its bill before August 7 (TAXDAY, 2009/07/24, C.2). Reid said the delay was in response to numerous complaints from Republican lawmakers that leadership is moving too quickly to pass complex legislation that would have far-reaching impact. Baucus hopes to mark up his health care overhaul during the week beginning August 3, just day days before the Senate leaves for a month-long recess. Baucus continues to hold meetings with a group of six bipartisan members of the Committee who are negotiating the bill. House lawmakers on July 22 voted 265-to-166 to approve the Statutory Pay-As-You-Go Bill of 2009 (2920) (TAXDAY, 2009/07/23, C.1). Under PAYGO, lawmakers would be required to fully offset any new mandatory spending or tax cuts so that the budget deficit will not increase. The Senate may not take up the measure as Senate Budget Committee Chairman Kent Conrad, D-N.D., has said he opposes the bill over concerns about exemptions and the possibility of relinquishing control of budget baselines to the White House.

  President Obama dropped his call for both House and Senate passage of health care reform legislation by the August recess after Senate Majority Leader Harry Reid, D-Nev., announced that the Senate would not be able to meet the president's deadline. Obama said he had no problem with the delay as long as work continued diligently during the month-long recess (TAXDAY, 2009/07/24, C.2). The president said his target date for a final package to reach his desk is the fall.

  Obama began to weigh in on some of the financing options passed by the House Ways and Means Committee and under consideration by the Senate Finance Committee, suggesting that a House proposal to impose a surtax on wealthy households meets his general principle to not raise taxes on the middle class. He also expressed interest in proposals under consideration by the Senate tax-writing panel to cap the tax exclusion for high-end health insurance plans and penalize insurance companies that provide the so-called Cadillac, gold-plated coverage. He stressed he does not support eliminating the tax break altogether and opposes taxing health care benefits on anyone already receiving them (TAXDAY, 2009/07/24, W.1).

IRS/Treasury

  Exempt Organizations. Final regulations detail which small exempt organizations must file Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required To File Form 990 or 990-EZ (T.D. 9454,
TAXDAY, 2009/07/23, I.1). The IRS declined to exclude small exempt organizations that have little or no income.

  Recovery Act. Many of the tax incentives in the 2009 Recovery Act (P.L. 111-5) are temporary; therefore, the IRS encouraged taxpayers to take advantage of them before they sunset (IR-2009-67; TAXDAY, 2009/07/21, I.1). The IRS highlighted the deduction for state and local sales taxes of qualified new vehicle purchases, energy tax incentives, the American Opportunity Tax Credit, the first-time homebuyer credit, and the Making Work Pay Credit.

  Gifts and Bequests. The Heroes Earnings Assistance and Relief Tax Act of 2008 (P.L. 110-245) added new filing and reporting requirements on individuals who received gifts and bequests from expatriates. The IRS announced that it intends to issue guidance in this area (Announcement 2009-57, TAXDAY, 2009/07/20, I.1).

  Tax Treaties. A Treasury Department official said on July 23 that the U.S. is anticipating updating some existing tax treaties and negotiating more tax information exchange agreements (TAXDAY, 2009/07/24, T.1). Treasury International Tax Counsel John Harrington relayed that recent agreements with Luxemburg and Switzerland have focused on information exchanges, rather than resolving all issues.

  Return Preparers. The IRS invited tax professionals and consumers to comment on its review of return preparers (IR-2009-68, Notice 2009-60; TAXDAY, 2009/07/27, I.7). The IRS is holding the first in a series of nationwide public meetings in Washington, D.C. on July 30 (IR-2009-66; TAXDAY, 2009/07/15, I.1).

  Tax Tips. The IRS launched its "Summertime Tax Tips" with tips for job seekers, new business owners, recently married couples, students with summer jobs, and members of the U.S. Armed Forces (TAXDAY, 2009/07/22, I.2.; TAXDAY, 2009/07/23, I.4). The IRS also reminded taxpayers that its website offers many explanations and materials in Spanish.

  By Jeff Carlson, Paula Cruickshank and George L. Yaksick, Jr., CCH News Staff

CCH (cch.taxgroup.com) reports:

  The IRS has released proposed regulations on the issuance of Taxpayer Assistance Orders (TAOs) by the National Taxpayer Advocate (NTA) to reflect legislative changes and to provide updated guidance on the administration of TAOs. The regulations are generally effective for TAOs issued on or after the date the final regulations are published. Code Sec. 7811 authorizes the NTA to issue a TAO when a taxpayer is suffering or about to suffer a significant hardship as a result of the manner in which the internal revenue laws are being administered by the IRS. A TAO may be issued by the NTA regardless of whether a taxpayer has submitted an application with the NTA on Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order).

  The proposed regulations provide guidance on what constitutes significant hardship, including specific guidance with regard to the 30-day delay standard. However, a finding by the NTA that a taxpayer is suffering or about to suffer a significant hardship will not automatically result in the issuance of a TAO. The NTA must make a separate determination that the facts and law support relief. If and when a TAO is issued, it acts as an order directing the IRS to either cease any action or take any action under any provision of the internal revenue laws within a specified time. The IRS must comply with the TAO unless it is appealed and then modified or rescinded by the IRS Commissioner, IRS Deputy Commissioner, or the NTA. The TAO may be issued to an office, operating division or function of the IRS, as well as any private collection agency working under contract with the IRS. However, a TAO cannot be issued to the IRS Criminal Investigation (CI) division if the CI division reasonably determines that the TAO would impede its investigation of the taxpayer.

Proposed Regulations, NPRM REG-152166-05, 2009FED ¶49,424

Other References:

 
Code Sec. 7811

  CCH Reference - 2009FED ¶43,308A

  Tax Research Consultant

  CCH Reference - TRC IRS: 3,058.05
CCH Reference -
TRC IRS: 30,220
CCH Reference - TRC IRS: 45,112.20
CCH Reference - TRC IRS: 45,204.50

CCH (cch.taxgroup.com) reports:

  The IRS has released materials used during a series of two-hour training sessions on governance and tax-exempt organizations. The sessions were part of a continuing professional education program for Exempt Organizations examination agents, determinations specialists, tax law specialists and managers (TAXDAY, 2009/06/09. I.1). The materials, which are available on the IRS website at http://www.irs.gov/charities/article/0,,id=208454,00.html, include course outlines, presentation materials, excerpts from the Internal Revenue Manual, policies and practices related to governance of 501(c)(3) organizations and selected portions of Form 990 and its instructions.

CCH (cch.taxgroup.com) reports:

  House Democratic leaders huddled on July 24 to discuss the possibility of bypassing the House Energy and Commerce Committee and taking its massive health reform bill directly to the floor for a vote. The Committee has delayed a markup of its portion of the bill as conservative Democrats known as Blue Dogs have threatened to withhold approval of the measure until they are satisfied that the costs are realistic and manageable. House Energy and Commerce Committee Chairman Henry Waxman, D-Calif., showing frustration with the inability to move the bill, made the threat after a contentious meeting with members of his panel.

  House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., told CCH that he was meeting with House Speaker Nancy Pelosi, D-Calif., to discuss holding the direct floor vote. Rangel also affirmed that the bill would be changed before the vote, but declined to give any details. There had been earlier discussions of raising the threshold for applying a surtax on wealthier Americans as a means to pay for health reform changes, but at the time Rangel dismissed the idea.

  The pressure for the House to act before leaving for its summer recess on July 31 is growing, and the impasse in the House Energy and Commerce Committee may be providing the incentive to move forward. Pelosi on July 23 played down the possibility of bypassing the Committee. "I don't want to do that, "she told reporters following a meeting with House Democratic leaders, but by the next day she was holding meetings to discuss the option.

White House

  President Obama met with Senate Majority Leader Harry Reid, D-Nev., and Senate Finance Committee Chairman Max Baucus, D-Mont., at the White House on July 24. Both Reid and Baucus have said they believe the Finance Committee will be able to complete its mark up of a health care bill before the August recess. White House Press Secretary Robert Gibbs said the White House meeting addressed process and substantive issues but he did not know if they included proposals to tax health care benefits.

  The president at a health care town hall meeting in Shaker Heights, Ohio, on July 23 (TAXDAY, 2009/07/24, W.1) expressed interest in a few of the health care financing options under consideration by the tax-writing panel. Obama said he is willing to consider changes in the tax exclusion on employer-provided benefits and penalizing health insurers that offer high-end health insurance plans, but he does not support eliminating the tax break entirely. He noted that he had not signed off on any particular proposal to change the exclusion.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

White House Press Release: CEA Releases Report on the Economic Effects of Health Care Reform on Small Businesses and Their Employees

Executive Office of the President Council of Economic Advisers Report: The Economic Effects of Health Care Reform on Small Businesses and Their Employees
 

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Gov. Ted Kulongoski has signed legislation that, as previously reported (TAXDAY, 2009/06/16, S.20), increases the Oregon personal income tax rate and phases out the deduction for federal income taxes paid for high-income taxpayers. The legislation also allows a subtraction from federal AGI of up to $2,400 of unemployment compensation received in the 2009 tax year. In effect, Oregon incorporates the exclusion enacted under the federal American Recovery and Reinvestment Act of 2009 (P.L. 111-5).

  For tax years beginning after 2008 and before 2012, the personal income tax rate is 10.8% on taxable income over $125,000 but not over $250,000 and 11% on taxable income over $250,000. For tax years beginning after 2011, the highest tax rate will be 9.9% on taxable income over $125,000.

  For tax years beginning after 2008, federal income taxes paid in excess of a specified limit, less refunds for which a tax benefit was received, must be added back to federal taxable income. The specified limit is reduced for high-income taxpayers to effectively phase out the amount of the federal income tax deduction allowed for Oregon personal income tax purposes.

  Applicable to the 2009 tax year, the Oregon Department of Revenue will waive any penalty or interest that would otherwise apply to taxes due if the penalty or interest is based on underpayment or underreporting that results solely from the above-described law changes.

H.B. 2649, Laws 2009, effective September 28, 2009, applicable as noted

CCH (cch.taxgroup.com) reports:

  Facing significant opposition from large taxpayers and state legislators, the effort to revise the Uniform Division of Income for Tax Purposes Act (UDITPA) has been abandoned by the Uniform Law Commission (ULC). The ULC Scope and Program Committee and Executive Committee accepted the recent recommendations of the UDITPA study committee to end the latter's review of UDITPA without further action. (TAXDAY, 2009/07/01, S.1) Therefore, the study committee is discharged and the ULC will not establish a drafting committee on the topic of revising UDITPA.

  The ULC, formerly known as the National Conference of Commissioners on Uniform State Laws (NCCUSL), is the organization that drafted UDITPA over 50 years ago. As such, the Multistate Tax Commission (MTC) asked the ULC to undertake the effort of revising the Act when the MTC concluded that a revision was necessary. Initially, the ULC accepted the request and formed a drafting committee. When that encountered opposition, the ULC downgraded the effort to a study committee. However, this action did not assuage the effort's opponents, who successfully pressed for a complete end to the ULC review.

  The MTC is expected to continue its own project to revise portions of UDITPA.

Email, Uniform Law Commission, July 21, 2009
 

CCH (cch.taxgroup.com) reports:

  The IRS has posted the first of its 2009 Summertime Tax Tips for taxpayers. The tax tips provide helpful information and guidance regarding the following topics:

  --Job seekers;

  --Taxpayers starting a new business;

  --Those arranging for child care during the school vacation;

  --Recently married taxpayers;

  --Students with summer jobs; and

  --The IRS Spanish language web site, IRS.gov/Espanol.

  Links to related forms, publications, and tax topics are included with the summertime tax tips.

2009 IRS Summertime Tax Tips 2009-01

2009 IRS Summertime Tax Tips 2009-02

2009 IRS Summertime Tax Tips 2009-03

2009 IRS Summertime Tax Tips 2009-04

2009 IRS Summertime Tax Tips 2009-05

2009 IRS Summertime Tax Tips 2009-06
 

CCH (cch.taxgroup.com) reports:

  A tax-exempt credit union's sales of insurance products were substantially related to its tax-exempt purpose of encouraging thrift. Despite the government's expert witness' opinion that the insurance products were too expensive given their relatively low loss-ratios and that sale of the insurance products enriched lending institutions and insurers at the expense of consumers, the jury's conclusion to the contrary was not irrational. The jury could have interpreted "thrift" more broadly and concluded that, even if other kinds of insurance could accomplish the same goals at a lower price, members could nevertheless be engaged in thrift when obtaining insurance against possible losses. Moreover, considering the relatively low actual cost of the insurance products, the government's loss-ratio calculations and reverse competition claims were inconsequential.

Community First Credit Union, DC Wis., 2009-2 USTC ¶50,496

Other References:

 
Code Sec. 513

  CCH Reference - 2009FED ¶22,846.37

  Tax Research Consultant

  CCH Reference - TRC EXEMPT: 12,202
CCH Reference - TRC EXEMPT: 15,056.05
 

CCH (cch.taxgroup.com) reports:

  President Obama assured members of the House Energy and Commerce Committee that health care reform legislation must be deficit-neutral in order for him to sign it, according to Committee Chairman Henry A. Waxman, D-Calif., following a White House meeting on July 21. Rep. Mike Ross, D-Ark., a leading member of the fiscally conservative Blue Dog Coalition, said the president wants final legislation to be deficit-neutral, reduce the rate of health care inflation, cover as many people as possible, make health care coverage affordable and include insurance reform so that pre-existing conditions can no longer preclude coverage.

  Ross said the focus of the White House meeting was on reining in health care costs, but no final decisions were made on cost containment. He said rising health care costs must be brought down to the rate of inflation and that the first priority is to squeeze as many health care savings as possible before taking revenue-raising measures.

  The president, in separate television interviews, indicated that the August deadline for the House and Senate to pass health care bills could slip under certain conditions and that he might be open to penalizing insurance companies that offer Cadillac, gold-plated health insurance plans. He also signaled his possible support for imposing additional taxes on those earning above $250,000.

  "I think that ultimately what we're going to have is a package which will probably include some additional revenue from well-to-do people who can afford to pay a little more so that working families can have a little more security on their health care," Obama said in an interview on NBC's "Today Show" on July 21. On setting an August deadline, the president said that "if you don't set a deadline in this town, nothing happens."

  White House Press Secretary Robert Gibbs, at a press briefing on July 21, said the August deadline was necessary to keep the process moving forward. However, when pressed about the issue in a July 20 interview on PBS's "News Hour With Jim Lehrer," Obama said, "If somebody comes to me and says, "It's basically done. It's going to spill over by a few days or a week," you know, that's different."

SFC Progress

  Senate Finance Committee Chairman Max Baucus, D-Mont., and his team of negotiators spent the day discussing offsets, bringing in Joint Committee on Taxation (JCT) Chief of Staff Thomas A. Barthold to help with determining costs. Sen. Olympia J. Snowe, R-Maine, said discussions were productive and all involved were determined to produce a bipartisan bill. She said there was no talk of deadlines. Baucus described a discussion earlier in the day with President Obama as agreeable, and also pointed out that there was no mention of a timetable or the pace of negotiations. "He seemed very encouraged that progress was taking place," said Baucus.

  Obama has not endorsed Senate Finance Committee financing options to change the exclusion on employer-sponsored health plans, but indicated that he was interested in measures to penalize insurance companies offering overly generous health care packages. "What's being talked about now, I understand, is the possibility of penalizing insurance companies who are offering super, gold-plated, Cadillac plans. I haven't seen the details of this yet, but it may be an approach that doesn't put additional burdens on middle-class families," Obama said in the "Newshour" interview.

PAYGO

  Separately, the administration said it supports House passage of the Statutory Pay-As-You-Go (PAYGO) Bill of 2009 (HR 2920), in the form of a substitute that is expected to be considered by the House Rules Committee. "Statutory PAYGO would hold the federal government to a simple but important principle: new tax or entitlement legislation should be paid for," according to an administration-written policy statement.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

SAP on HR 2920 --Statutory Pay-As-You-Go Act of 2009
 

CCH (cch.taxgroup.com) reports:

  The New York City Department of Finance has issued a memorandum highlighting the substantial changes created by recently enacted legislation (Ch. 201 (A.B. 8867), Laws 2009), which include generally requiring related corporations with substantial intercorporate transactions to file a combined report, regardless of the transfer price for such intercorporate transactions, and phasing in a single sales factor for New York City general corporation tax and unincorporated business tax, as well as for certain taxpayers under the banking corporation tax. (TAXDAY, 2009/07/17, S.30)

CCH (cch.taxgroup.com) reports:

  The Hawaii Department of Taxation has issued an announcement discussing Act 196 (S.B. 1461), Laws 2009, which advanced general excise tax filing and payment due dates, expanded application of the semiweekly deposit schedule for withheld personal income taxes, authorized the director of taxation to impose additional electronic filing and electronic payment requirements, and extended the general excise tax exemption allowed to submanagers of condominium and homeowner associations and to hotel operators and suboperators. Details of the law were previously reported. (TAXDAY, 2009/07/20, S.8)

CCH (cch.taxgroup.com) reports:

  The California Commission on the 21st Century Economy held its sixth public meeting on July 16, 2009, in San Francisco. At the meeting, the Commission further discussed but did not reach a final decision on which tax reform proposals would be included in its package of recommendations that is scheduled to be delivered to Gov. Arnold Schwarzenegger and the Legislature by July 31, 2009.

  The 14-member bipartisan Commission has been meeting since January 2009 and is tasked with presenting a set of recommendations to reform the current California tax structure to stabilize state revenues and reduce volatility, increase the state's competitiveness, promote jobs and growth, and reflect the state's 21st century economy.

CCH (cch.taxgroup.com) reports:

  The IRS has provided a reminder to taxpayers of the various tax breaks made available by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5). In many cases, taxpayers must take action within the 2009 or 2010 calendar years in order to take advantage of the tax benefits.

  --The expanded $8,000 first-time homebuyer credit under Code Sec. 36 requires a home purchase before December 1, 2009.

  --The deduction for the local sales and excise taxes of qualified new vehicle purchases (up to $49,500 in cost) under Code Sec. 164 requires the purchase of the vehicle before January 1, 2010.

  --The 30-percent credit for energy-efficient home improvements under Code Sec. 25C applies to improvements placed into service in 2009 and 2010.

  --The expanded Hope scholarship credit under Code Sec. 25A, temporarily applicable to the first four years of college rather than only the first two, applies to tax years 2009 and 2010.

  --The expansion of education savings plans under Code Sec. 529 to allow for the purchase of computer technology, Internet access and related services applies to 2009 and 2010.

  --Finally, the making work pay credit under Code Sec. 36A provides taxpayers with lower withholding rates in 2009. However, families in which both spouses work or taxpayers with multiple jobs may need to adjust their withholding in order to avoid lower refunds or tax liabilities for 2009.

IR-2009-67,
2009FED ¶46,430

Other References:

 
Code Sec. 25A

  CCH Reference - 2009FED ¶3830.20

 
Code Sec. 25C

  CCH Reference - 2009FED ¶3843.10

 
Code Sec. 36

  CCH Reference - 2009FED ¶4190K.11

 
Code Sec. 36A

  CCH Reference - 2009FED ¶4195.11

 
Code Sec. 164

  CCH Reference - 2009FED ¶9502.35

  CCH Reference - 2009FED ¶9602.7244

  CCH Reference - 2009FED ¶9602.87

 
Code Sec. 529

  CCH Reference - 2009FED ¶22,945.30

  Tax Research Consultant

  CCH Reference - TRC INDIV: 45,104.15
CCH Reference - TRC INDIV: 57,800
CCH Reference - TRC INDIV: 57,950
CCH Reference - TRC INDIV: 58,050
CCH Reference - TRC INDIV: 60,152
CCH Reference - TRC INDIV: 60,204

CCH (cch.taxgroup.com) reports:

  A Congressional Budget Office (CBO) estimate that shows a $250-billion budget deficit under the Democratic health care reform bill does not take into account projected Medicare cost savings, according to House Ways and Means Chairman Charles B. Rangel, D-N.Y., who spoke on CBS News' "Face the Nation" on July 19. Rangel said that the more money lawmakers can cut out of Medicare, the less taxes will have to be raised under the America's Affordable Health Choices Bill of 2009 (HR 3200). The CBO did not score savings from fewer people getting sick or being admitted to the hospital because they receive preventive care, Rangel said. He added that the CBO is obviously using different assumptions that what Ways and Means and the White House are considering.

  Senate Finance Committee member Orrin G. Hatch, R-Utah, speaking on the same program, said that GOP lawmakers are not going to accept a Democratic proposal for a surtax on the wealthy. The Democratic bill will result in small business owners having a 45.7-percent tax rate --an amount that is higher than the corporate tax rate, he said.

  However, Rangel disputed that the small businesses would be hurt by taxes, since the legislation provides tax credits as well as exemptions for smaller firms. He said the bill represents a tax on less that 1 percent of the wealthiest people in America, not on small businesses. Hatch said the Senate Finance negotiations on the health care bill are working on the idea of Chairman Max Baucus, D-Mont., to tax health care benefits that cost over $25,000. Hatch said he does not support that plan, either.

  By Stephen K. Cooper, CCH News Staff

Congressional Budget Office Preliminary Analysis of Estimate of Effects on the Deficit and Effects of Key Provisions of HR 3200, America's Health Choices Act of 2009
 

CCH (cch.taxgroup.com) reports:

  President Obama on July 20 continued to make his case for health care reform in the face of growing criticism in Congress about its potential cost and how it would be paid for. Obama, in remarks at Children's Medical Center in Washington, D.C., maintained that the need for reform is "urgent and indisputable" and that it can be done in 2009 in a way that does not add to the deficit over the next decade.

  "The bill I sign must reflect my commitment and the commitment of Congress to slow the growth of health care costs over the long run. That's how we can ensure that health care reform strengthens our nation's fiscal health at the same time," he stated. In his remarks at the medical center, Obama criticized "health insurance companies and their executives" for reaping "windfall profits from a broken system" while premiums doubled and deductibles and out-of-pocket costs rose sharply over the past 10 years.

  Although there are calls to slow down the process, White House Press Secretary Robert Gibbs said the president believes the House and Senate can pass health care reform bills before the August recess. The president will continue his lobbying efforts throughout the week, including a town hall meeting in Cleveland, Ohio, on July 23 and an evening news conference on July 22.

  By Paula Cruickshank, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The city of Oakland was required to exhaust its administrative remedies before filing suit in federal court for collection of California local transient occupancy taxes. Oakland filed a complaint against a number of online travel companies (OTCs) alleging that they collected taxes from their customers based on the retail price of the rooms but remitted to the city taxes based only on the wholesale price. The city, however, had not yet assessed the tax. The ordinance that Oakland enacted to levy the transient occupancy tax provides an administrative process for assessment and requires the tax administrator to determine and assess the tax against hotel operators. The Court of Appeals held that under California law, exhaustion of administrative remedies is a jurisdictional requirement and absent a clear indication of legislative intent, a court should refrain from inferring a statutory exemption from the state's rule requiring exhaustion. The local ordinance uses mandatory language to impose the city's initial obligation to have the tax administrator assess the tax and give notice of the amount to be assessed. The city argued that exhaustion was excused because the administrative remedy is inadequate and the process would be futile. The Court was not persuaded and found that the city was central to the administrative process. Once a final assessment was made and the tax remained unpaid, the city could then file suit to collect the tax. Although the city also argued that it would not be able to recover on its other claims via the administrative process (i.e., conversion, unfair business practices, unjust enrichment, and imposition of a constructive trust), the city could not file suit in federal court without first exhausting its administrative remedies. The Court ruled, however, that the city's failure to exhaust its administrative remedies is a curable defect and, as such, it affirmed the district court's dismissal for lack of subject matter jurisdiction but remanded the case to the district court so that the dismissal is without prejudice.

Oakland v. Hotels.com, LP , U.S. Court of Appeals for the Ninth Circuit, No. 07-17258, July 16, 2009, ¶404-932

  Other References:

CCH (cch.taxgroup.com) reports:

  The California Franchise Tax Board (FT has extended the deadline for corporation franchise and income taxpayers that are members of a unitary combined reporting group to file Form 3726, DISA and Capital Gain Information, to disclose their deferred intercompany stock account (DISA) balances. In FTB Notice 2009-01 , the FTB indicated that previously unreported DISA balances had to be disclosed on a completed Form 3726 by May 31, 2009. However, subsequent to the issuance of FTB Notice 2009-01 , many taxpayers contacted the FTB stating that they were unable to meet the May 31, 2009 deadline. With that in mind, the FTB has extended the deadline for filing a completed FTB Form 3726 to satisfy the DISA reporting requirement to October 15, 2009. Thereafter, in order to satisfy the requirement, a taxpayer must submit a completed FTB Form 3726 along with an amended tax return, which must be filed before any relevant statute of limitations has expired. Details of the annual disclosure requirement for DISA transactions were previously reported. (TAXDAY, 2009/02/24, S.7, TAXDAY, 2009/02/27, S.4)

   
FTB Notice 2009-05 , California Franchise Tax Board, July 17, 2009
 

CCH (cch.taxgroup.com) reports:

  The House Ways and Means and Senate Health, Education, Labor and Pensions (HELP) Committees each passed separate versions of health care reform legislation as President Obama made a Rose Garden appeal to Congress to pass House and Senate health care reform bills before the August recess. However, several impediments developed over the course of the week of July 13 that could delay his timetable. Settlement talks appear to be continuing between the IRS and Swiss banking giant UBS AG; a federal district court granted their request for additional time to resolve their dispute over the disclosure of account holders. In addition, the IRS updated its rosters of "listed transactions" and "transactions of interest." The Service also announced the first in a series of public meetings about its oversight of return preparers.

Congress

  The Ways and Means Committee approved the America's Affordable Health Choices Bill of 2009 (HR 3200) early on July 17 by a vote of 23 to 18 (TAXDAY, 2009/07/20, C.1). The plan would overhaul the nation's health care system and impose a surtax of $544 billion on wealthier taxpayers. The measure now heads to the House Rules Committee, where it will be amended again before heading to the House floor.

  Three Democrats, Reps. Earl Pomeroy, D-N.D, Ron Kind, D-Wis., and John Tanner, D-Tenn., voted with the Republicans against the measure. House Speaker Nancy Pelosi, D-Calif., told reporters that Democratic leaders are still negotiating to win support from the conservative members of the House Blue Dog Coalition, as well as freshmen Democratic lawmakers. The House provision to raise revenue to help pay for health care reform through a surtax on the wealthy is unlikely to gain any traction in the Senate as several members of the Senate Finance Committee on July 14 let it be known that the provision had little support among Democratic lawmakers.

  The HELP Committee on July 15 passed its $615-billion version of a health care reform bill (TAXDAY, 2009/07/16, C.1). The Affordable Health Choices Bill was approved by a 13 to 10 margin and provides a public insurance option and a pay-or-play mandate for most employers that would require them to provide health insurance for their employees or face a stiff penalty. The measure will eventually be melded with the Senate Finance Committee (SFC) draft legislation before being taken up on the Senate floor.

  The SFC inched closer to completing a draft of its health care reform legislation on July 16 despite news that all reform proposals to date would cause the federal government to spend more on health care more than it would save (TAXDAY, 2009/07/17, C.1). Appearing earlier in the day before the Senate Budget Committee, Congressional Budget Office Director Douglas Elmendorf told the panel that the legislation significantly expands the federal responsibility for health care costs. Elmendorf told lawmakers that the government, however, has two powerful levers for controlling costs: changing Medicare payment rules and limiting the tax exclusion for employer-sponsored insurance. Finance Committee Chairman Max Baucus, D-Mont., later suspended negotiations until July 20, thereby seriously jeopardizing hopes of passing health care reform in the Senate prior to the beginning of the month-long summer recess, which starts on August 7.

  Although the president courted several lawmakers during the week of July 13, there were no visible sign of progress toward meeting his August deadline for completing health care reform. Following a White House meeting on July 16, Sen. Olympia J. Snowe, R-Maine, a swing voter on the Senate Finance Committee (SFC), said it was "overly ambitious" for the Senate to pass a bill before the summer recess. However, she believed it would be possible for the tax-writing panel to finish its mark before the August break and use the summer hiatus for melding the SFC and HELP Committee bills.

  Late in the afternoon on July 17, the president made a brief statement maintaining that health reform will happen in 2009, but acknowledging there would be much debate over its cost and how to pay for it. He warned that failure to act now would lead to crushing long-term deficits and debt.

  The House approved the IRS's fiscal year (FY) 2010 budget on July 16 by a vote of 219-208 (TAXDAY, 2009/07/20, C.2). Under the House bill, the government would allocate $12.1 billion to the IRS for FY 2010.

  Real estate professionals told House lawmakers on July 15 that the first-time homebuyers tax credit enacted in 2008 was unfair to purchasers because less than eight months later Congress passed an even better homebuyer tax credit in the American Recovery and Reinvestment Act of 2009 (P.L. 111-5) that does not have to be repaid (TAXDAY, 2009/07/16, C.2). Charles McMillan, 2009 President of the National Association of Realtors (NAR), told the House Small Business Committee that the NAR questions whether the repayment scheme is sound tax policy, since it is not in the best interest of taxpayers or the IRS to maintain a 15-year repayment and/or recapture program for a provision that was in effect for only eight months.

IRS/Treasury

  Litigation. The IRS's dispute with UBS AG may be headed for resolution (TAXDAY, 2009/07/14, M.1). The U.S. and the Swiss Governments asked a federal district court for additional time to continue discussions about a settlement. The IRS wants the bank to disclose the names of individuals who may have allegedly used their accounts for tax evasion.

  Listed Transactions. The IRS released updated rosters of listed transactions and transactions of interest (Notice 2009-55, TAXDAY, 2009/07/16, I.3; Notice 2009-59, TAXDAY, 2009/07/16, I.4). The listed transaction roster reflects additions and deletions made by the IRS since 2004.

  Return Preparers. The IRS will hold a public meeting in Washington, D.C. on June 30 to hear opinions and suggestions about its oversight of return preparers (IR-2009-66; TAXDAY, 2009/07/15, I.1). Practitioner professional groups and consumer associations are scheduled to speak at the meeting.

  In related news, Karen Hawkins, director of the IRS Office of Profession Responsibility (OPR), indicated that the IRS is taking a wide view of the return preparer community in its study (TAXDAY, 2009/07/15, I.2). The study will focus on preparers but will also look at software manufacturers and banks that engage in refund anticipation loans, Hawkins reported.

  Research Tax Credit. Proposed regulations would simplify the election of the reduced research credit (NPRM REG-130200-08; TAXDAY, 2009/07/16, I.1). The proposed regulations explain that the election is made on Form 6765, Credit for Increasing Research Activities, which should be attached to the return instead of requiring the election to be made "on an original return."

  Offers-in-Compromise. The IRS has revised Form 656, Offer in Compromise, into two new forms to aid ease of use by taxpayers (TAXDAY, 2009/07/16, I.6). The new forms are Form 656, Offer in Compromise, and Form 656-B, Offer in Compromise Booklet.

  Nonprofits. Recent guidance from the IRS should prove helpful to nonprofits, Jane M. Searing, CPA, shareholder, Clark Nuber, PS, Bellevue, Wash., told CCH. In Rev. Proc. 2009-32, I.R.B. 2009-28, 142 (TAXDAY, 2009/07/01, I.2), the IRS issued reliance criteria for private foundations and sponsoring organizations with donor advised funds to determine if a grantee is a public charity and if the grantee is a Type I, II or III supporting organization for purposes of excise taxes imposed on grants by the Pension Protection Act of 2006 (PPA) (P.L. 109-280).

  "We have been telling clients that the IRS Business Master File (BMF) was the best source currently, although not previously cited as an acceptable source," Searing noted. "It is interesting to me that the IRS is allowing organizations to rely upon third party providers to get this information," Searing added. "Organizations obtaining the information this way should include in the contract with the third party that the third party understands how the foundation or donor advised fund sponsor is using the data, that the data will be in the required format, and that the third party will indemnify them from any penalties incurred as a result of relying upon these third party reports for these purposes."

  By Jeff Carlson, Stephen K. Cooper, Paula Cruickshank and George L. Yaksick, Jr., CCH News Staff

CCH (cch.taxgroup.com) reports:

 
Code Sec. 162(k)(1) precluded a corporation from claiming deductions under Code Sec. 404(k)(1) with respect to redemption payments that it made to reacquire its preferred stock from its employee stock ownership plan (ESOP). Code Sec. 162(k)(1) disallows deductions for any amounts paid or incurred by a corporation in connection with the reacquisition of its own stock. Therefore, even if the amounts paid by the corporation were applicable dividends under Code Sec. 404(k)(1), the amounts could not be deducted.

  The corporation's argument that Code Sec. 162(k)(1) did not apply because while the payments to the trust were made in connection with a redemption, the subsequent distribution of the benefits to the participants was not, was rejected. Under Code Sec. 404(k)(2)(A)(ii), dividends must be both paid by the corporation to the plan and distributed in cash to the participants in order to be eligible for the deduction. Although the corporation correctly contended that there would be no allowable deduction under Code Sec. 404(k)(1) without the plan's benefit distribution to the participant, no distribution from the ESOP would be deductible unless the corporation made the dividend payment to the plan.

  Affirming a DC N.J. decision, 2007-2 USTC ¶50,582

Conopco, Inc., CA-3, 2009-2 USTC ¶50,492

Other References:

 
Code Sec. 162

  CCH Reference - 2009FED ¶9052.23

 
Code Sec. 316

  CCH Reference - 2009FED ¶15,704.426

 
Code Sec. 404

  CCH Reference - 2009FED ¶18,371.30

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 75,204

CCH (cch.taxgroup.com) reports:

  The government was enjoined from proceeding with a collection action against an individual during the pendency of the individual's refund proceeding and its request for a stay with respect to the refund proceedings was denied. The individual filed a refund action to recover trust fund recovery penalty taxes he had paid; subsequently, the government brought suit in a different district court to collect the unpaid portion of the trust fund recovery penalty from the individual and another responsible person. Code Sec. 6331(i)(4)(A) prohibits the government from filing a collection action against a refund claimant for any unpaid divisible tax while a refund suit is pending with respect to that individual and that tax. The government could not rely on the exception to Code Sec. 6331(i)(4)(A), which states that the statute does not apply to any "proceeding relating to" the refund proceeding. A collection action will always have some connection, relation and reference to a refund proceeding involving the same taxes and taxpayer; however, taking into consideration the language of the statute, its legislative history and subsequent decisions, the exception was not meant to apply in a collection action against the same taxpayer to recover the same tax at issue in the refund proceeding.

J.D. Nickell, Sr., DC Tex., 2009-2 USTC ¶50,491

Other References:

 
Code Sec. 6331

  CCH Reference - 2009FED ¶38,187.024

  CCH Reference - 2009FED ¶38,187.37

 
Code Sec. 6672

  CCH Reference - 2009FED ¶39,780.74

  Tax Research Consultant

  CCH Reference - TRC IRS: 51,054.25

CCH (cch.taxgroup.com) reports:

  By a vote of 219 to 208, the House late on July 16 approved legislation providing an IRS budget of $12.1 billion for fiscal year (FY) 2010. Four Republicans joined 215 Democrats to vote for the bill; 38 Democrats joined 170 Republicans in voting against the bill. The IRS budget was included in the Financial Services and General Government Appropriations Bill, 2010 (HR 3170). The measure appropriates funds for the Treasury, the White House and executive offices, the judiciary and independent agencies.

  The IRS budget fully funds the Obama administration's budget request and is a $600-million increase over the IRS's FY 2009 budget. The proposed budget includes $5.5 billion for tax enforcement, an increase of $387 billion, and $2.27 billion for taxpayer services, a $19-million decrease that omits one-time costs to provide economic stimulus payments. The taxpayer services budget includes $206 million for the Taxpayer Advocate Service and $680 million for pre-filing taxpayer assistance and education.

  The IRS budget appropriates $4.1 billion for operations support, a 5-percent increase, and $253 million for business systems modernization, a 10-percent increase. The bill provides $149 million for the Treasury Inspector General for Tax Administration and $2 million for the IRS Oversight Board.

  The bill also directs the IRS to make a priority of improving and increasing staffing for taxpayer telephone help lines. The Appropriations Committee report (HRRepNo 111-202) encourages the IRS to continue efforts to ensure that its enforcement actions do not cause unnecessary problems for taxpayers facing economic difficulties. The report also directs the IRS to update the Taxpayer Assistance Blueprint within 90 days of the bill's enactment.

  The committee report noted a recent Government Accountability Office report identifying several information security weaknesses; the bill directs the IRS to institute procedures to safeguard the confidentiality of taxpayer information. The report also spotlights the IRS's plan to study paid tax preparers.

  The Obama administration issued a statement of administration policy (SAP) July 15 that applauded the bill's commitment to stepped-up tax enforcement and improved taxpayer service (TAXDAY, 2009/07/16, O.3). It said that IRS tax enforcement is a critical program supporting the administration's efforts to improve tax fairness and close the tax gap. The SAP estimated that IRS tax fraud efforts recoup $5 for every $1 spent.

  The Senate Appropriations Committee approved an IRS budget of $12.15 billion on July 9 (TAXDAY, 2009/07/10, C.3). The Senate is expected to take up the budget before Congress's August recess.

  By Brant Goldwyn, CCH News Staff

Tax-Related Sections of House Appropriations Committee Report on HR 3170, Financial Services and General Government Appropriations Bill, 2010, HRRepNo 111-202
 

CCH (cch.taxgroup.com) reports:

  The America's Affordable Health Choices Bill of 2009 (HR 3200) was approved by the House Ways and Means Committee early on July 17. By a vote of 23 to 18, the committee approved a plan to overhaul the nation's health care system and impose a surtax of $544 billion on wealthier taxpayers. The next step for the legislation will be to go to the House Rules Committee, where it will be amended again before heading to the House floor.

  Three Democrats, Reps. Earl Pomeroy, D-N.D, Ron Kind, D-Wis., and John Tanner, D-Tenn., voted with the Republicans against the measure. House Speaker Nancy Pelosi, D-Calif., told reporters that Democratic leaders are still negotiating to win support from the conservative members of the House Blue Dog Coalition, as well as freshmen Democratic lawmakers.

  In addition, the Congressional Budget Office (CBO) has yet to release a cost estimate of the bill. GOP lawmakers questioned how Democrats could support a 1,018-page health care reform bill when even preliminary CBO estimates show it will increase the federal budget deficit by $1 trillion over 10 years. Pelosi has promised that the bill will be paid for by Medicare and Medicaid cost containment provisions as well as the surtax on the wealthy.

  Under HR 3200, approximately $544 billion in revenues would be raised through a surtax of 5.4 percent on married individuals with adjusted gross income (AGI) over $1 million beginning in 2011; a 1.5-percent surtax on incomes between $500,000 and $1 million; and a 1-percent surtax on incomes from $350,000 to $500,000. The measure is expected to be considered by the full House before the August recess.

  By Stephen K. Cooper, CCH News Staff

Ways and Means Committee Press Release: Ways and Means Passes Historic Health Reform Legislation

House Ways and Means Committee Release: America's Affordable Health Choices Act Section-by-Section Analysis (Updated to Include Changes in the Amendment in Nature of a Substitute)
 

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Legislation has been enacted that increases the New York City sales tax rate from 4% to 4.5%, effective August 1, 2009. It also increases the tax rate on credit rating and reporting services, and on beauty, barbering, and certain other personal services from 4% to 4.5%, and provides that the taxes on these services can only be imposed through November 30, 2011, unless they are renewed. Previously, these taxes could only be imposed through December 31, 2011.

  In addition, the legislation repeals the New York City sales tax exemption for purchases of clothing items priced at $110 or more (the exemption for clothing and footwear costing under $110 is maintained) and applies the full New York City sales tax to the transmission and distribution of electric and natural gas service, even when the electricity or natural gas service is purchased separately from the transmission and distribution service.

Ch. 200 (A.B. 8866), Laws 2009, effective August 1, 2009
 

CCH (cch.taxgroup.com) reports:

  Hawaii Gov. Linda Lingle has vetoed a bill that would have conformed Hawaii general excise tax laws with the Streamlined Sales and Use Tax (SST) Agreement. The Senate voted 23-2 to override the veto, but the House of Representatives declined to override the veto. Therefore, the veto stands.

  If enacted, the legislation would have moved the 0.5% tax on wholesale transactions to a new chapter; added a new chapter on the taxation of imports of property, services, and contracting; moved the 0.15% tax on insurance producers to a new chapter; and eliminated the tax on businesses owned by disabled persons. The legislation also would have provided for destination-based sourcing and amnesty.

  Subscribers can view the bill

S.B. 1678, vetoed by Hawaii Gov. Linda Lingle on July 15, 2009; Telephone Conversation, Hawaii Legislative Reference Bureau, July 16, 2009

CCH (cch.taxgroup.com) reports:

  Requiring federal tax compliance to obtain a state business license can help boost tax collection, the Government Accountability Office (GAO) reported on July 16 ("Tax Compliance: Opportunities Exist to Improve Tax Compliance of Applicants for State Business Licenses (Reference Number: GAO-09-569)"). The GAO examined data-sharing arrangements between the IRS and several states at the request of the Senate Finance Committee.

State Requirements

  The GAO contacted all 50 states and the District of Columbia to inquire if they require tax compliance for business licenses. Twenty states responded that they require compliance with state taxes to obtain a state business license. These requirements exist for one or more industries. Another 20 states reported that they do not require tax compliance for state business licenses. Eight states had no business license requirement at the state level.

California

  The GAO examined in detail the data-sharing arrangement between the IRS and California. Applicants for California business licenses in three industries (farm labor contracting, garment manufacturing and car washing and polishing) must be compliant with federal employment tax obligations. Applicants submit a state business license application and IRS Form 8821, Tax Information Authorization. IRS examiners in Ogden, Utah, check the employment tax status of the applicant. The IRS informs California if the applicant is compliant or not.

  Between 2006 and 2008, the IRS told California that roughly 24 percent of applicants needed to take action to become compliant with their federal employment tax obligations. In some cases, individuals had to file employment tax returns. Collaboration between the IRS and California resulted in the collection of more than $7 million in additional federal revenues.

Compliance

  According to the GAO, the data-sharing arrangement between the IRS and California has been a valuable tool for improving compliance. "Requiring tax compliance makes the businesses think about the consequences of not being tax compliant." Additionally, the data-sharing arrangement can be viewed as a deterrent. "Individuals will learn that they cannot secure a state business license without being compliant in all their tax obligations."

  "This report confirms my initial thinking that we can improve tax compliance through better cooperation between the IRS and state licensing boards," Sen. Max Baucus, D-Mont., said in a statement. Sen. Charles E. Grassley, R-Iowa, urged the IRS to work with all the states on arrangements similar to its data-sharing program with California.

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

GAO Report: Tax Compliance: Opportunities Exist to Improve Tax Compliance of Applicants for State Business Licenses (Reference Number: GAO-09-569)

Senate Finance Committee Release: Baucus, Grassley Call for Federal-State Cooperation in Improving Tax Compliance
 

CCH (cch.taxgroup.com) reports:

  Following a White House meeting with President Obama, Sen.Olympia Snowe, R-Maine, said it would be "overly ambitious" to pass a health care bill on the Senate floor before the August recess. However, she thought the Senate Finance Committee could finish its mark up of the measure by the scheduled summer break and that the Finance and Senate Health, Education, Labor, and Pensions (HELP) committees could spend August melding the two proposals. In response to Snowe's recommended delay, however, White House Deputy Press Secretary Bill Burton said "the president still wants the House and Senate to pass health care reform bills by the August recess."

  Snowe, who is a swing vote on the tax-writing panel, noted the complexity of the bill and said members should not be restrained by a set timeline to finish their work. "It's important to take time to work through these issues," Snowe said. Although she stressed the importance of moving in a "deliberative fashion," Snowe thought Congress should be able to pass a health care reform bill this year.

  The Finance Committee needs to review the ramifications of its proposal to make sure it is not "overloaded with taxes and spending," she advised reporters. Snowe said it is preferable and desirable to win bipartisan support of the Finance Committee bill in order to increase the odds of a bipartisan bill on the Senate floor.

  On the Baucus comments about the president's lack of support for taxing employer-provided health benefits, Burton said there are bound to be "bumps along the way" toward passing House and Senate legislation. He maintained that the president is not favoring the House and HELP bills over the Finance measures that are under consideration. The president is still very committed to reaching agreement on a final package that has bipartisan support, Burton asserted.

  Senate Finance Committee Chairman Max Baucus, D-Mont., inched closer to completing his mark on health care reform July 16 despite news that the legislation would cost more than it would save. Appearing earlier in the day before the Senate Budget Committee, Congressional Budget Office Director Douglas Elmendorf told lawmakers that the reform revenue measures proposed to date would only serve to increase federal spending on health care.

  "In the legislation that has been reported, we have not seen the fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount, and, on the contrary, the legislation significantly expands the federal responsibility for healthcare costs," he said. Elmendorf told the panel that the government has two powerful levers for controlling costs: changing Medicare payment rules and limiting the tax exclusion for employer-sponsored insurance. But the latter option has led to second thoughts among Senate Democrats and was never favored by President Obama.

  "Basically, the president is not helping, "said Baucus following a bipartisan meeting with several members from the Committee. "He does not want the exclusion, and that's making it difficult." Baucus, however, said the proposal was still on the table.

  Key members of the panel continued to meet throughout the day with Baucus, looking for the right combination of health care delivery savings and revenues that Democrats and hopefully some GOP members will accept. Senate Budget Committee Chairman Kent Conrad, D-N.D., said the group was looking at about 10 smaller revenue proposals that could help fill the estimated $320 billion gap.

  Senate Majority Leader Harry Reid, D-Nev. told reporters that he still hopes the Senate can take up health care reform legislation during the week beginning July 27, but that it would depend on whether or not the Senate Finance Committee completes a markup of its bill during the week beginning July 20.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

CCH (cch.taxgroup.com) reports:

  The House Ways and Means Committee was expected to complete consideration late on July 16 of the America's Affordable Health Choices Bill of 2009 (HR 3200), which included a chairman's mark that made changes to the tax treatment of health savings accounts, spousal coverage and other provisions estimated by the Joint Committee on Taxation (JCT) to cost $6 billion. As expected, the health insurance reform measure ran into stiff opposition from Republican lawmakers, who labeled the bill a government takeover of medicine that would harm physician-owned hospitals, tax small businesses into oblivion and worsen the federal budget deficit.

  Democratic lawmakers voted against any attempt by Republicans to impose a week-long delay in order to consider the more than 1,000 page measure, which was introduced on July 14. They also brushed aside Republican concerns that the Congressional Budget Office has not completed an analysis of the cost of the legislation. Under HR 3200, approximately $544 billion in revenues would be raised through a surtax of 5.4 percent on married individuals with adjusted gross income (AGI) over $1 million beginning in 2011; a 1.5-percent surtax on incomes between $500,000 and $1 million; and a 1-percent surtax on incomes from $350,000 to $500,000. The measure is expected to be considered by the full House before the August recess.

  Speaking to reporters during her weekly press conference on July 16, House Speaker Nancy Pelosi, D-Calif., defended the bill's tax provisions, promising that the Medicare cost containment sections would sufficient to fund the measure. The tax increases, Pelosi insisted, would be used for deficit reduction. "I believe that we have an obligation to try to squeeze as much savings out of the system so that we can use as much of the tax of the high income people in our country to reduce the deficit," Pelosi said. "To the extent that we have the cooperation of those who we want to squeeze in the system, we can do less on the tax side." Pelosi said she had not yet seen a letter from House Democratic freshman lawmakers who are reportedly unhappy with the bill's surtax on wealthy taxpayers.

  However, Ways and Means member Wally Herger, R-Calif., charged that the massive tax increases in the bill are no substitute for real fiscal responsibility. He criticized the plans for raising taxes in order to spend even more on a public health care option that will force people out of the private insurance market. GOP concerns were unlikely to win the day however, since Democrats hold an 11-seat majority on the committee. Moreover, the bill is likely to be changed again to build more Democratic support before it reaches the House floor.

  By Stephen K. Cooper, CCH News Staff

Amendment in the Nature of a Substitute to HR 3200, America's Affordable Health Choices Act of 2009

JCT Description of an Amendment in the Nature of a Substitute to the Provisions of HR 3200, The America's Affordable Health Choices Act of 2009, JCX-32-09

JCT Estimated Effects of the Chairman's Amendment in the Nature of a Substitute to the Revenue Provisions of HR 3200, The America's Affordable Health Choices Act of 2009, Scheduled for Markup by the House Ways and Means Committee on July 16, 2009, JCX-33-09

HR 3200, America's Affordable Health Choices Act, Summary of Changes in the Chairman's Amendment in the Nature of a Substitute
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The New Jersey Division of Taxation has issued a notice and new gross (personal) income tax withholding tables to reflect the new income tax rates for all taxpayers with gross income over $400,000. The new withholding rates take effect October 1, 2009; however the withholding rates have been adjusted to take into account that the new tax rates apply for the entire 2009 tax year. All employers are required to withhold at the rate of 12% (the rate at which the withholding rate is capped) from salaries, wages, and other remuneration paid in excess of $400,000 during the remainder of 2009. This new rate takes effect immediately and must be instituted by all employers no later than October 1, 2009. On January 1, 2010, the withholding rate will revert back to the prior rate.

  Two sets of revised withholding tables for the percentage method of withholding are provided. One table is for October 1, 2009, through December 31, 2009, and the second table is for January 1, 2010, and thereafter.

  Subscribers can view the notice and new withholding tables. The percentage method computation rates in Tables A through E are for weekly, biweekly, semimonthly, monthly, daily or miscellaneous, and annual pay periods. Taxpayers who have pay frequencies other than those provided should divide the amount of tax to be withheld under the Annual Pay Period column for each rate table (but not the withholding percentage rate) by the number of pay periods in the year.

Notice , New Jersey Division of Taxation, July 15, 2009
 

CCH (cch.taxgroup.com) reports:

  Proposed regulations have been issued regarding the election for claiming the reduced research credit under Code Sec. 280C(c)(3). The regulations are proposed to apply to tax years ending on or after the date of publication of the Treasury decision adopting these rules as final regulation in the Federal Register.

Procedure

  The proposed regulations would change the procedure for making the election for the reduced research credit under Code Sec. 280C(c)(3)(C). Instead of requiring the election to be made "on an original return," the proposed regulations specify that the election is made on Form 6765, "Credit for Increasing Research Activities," which should be attached to the return.

Controlled Groups

  The proposed regulations also address comments received by the IRS and Treasury Department regarding members of controlled groups. The proposal provides that each member of a controlled group may make the election under Code Sec. 280C(c)(3) after the group credit is computed and allocated under Reg. §§1.41-6(b)(1) and 1.41-6(c) and
Temporary Reg. §§1.41-6T(b)(1) and
1.41-6T(c)(2).

Comments & Hearing

  Written or electronic comments must be received by October 14, 2009. Outlines of topics to be discussed at the public hearing, scheduled for November 4, 2009, at 10:00 a.m. EST, must be received by October 16, 2009.

Proposed Regulations, NPRM REG-130200-08, 2009FED ¶49,423

Other References:

 
Code Sec. 280C

  CCH Reference - 2009FED ¶14,953C

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 54,150

CCH (cch.taxgroup.com) reports:

  The IRS has updated the list of transactions that it has determined to be "listed transactions" for purposes of Reg. §1.6011-4(b)(2) and Code Secs. 6111, 6112, 6662A, 6707, 6707A, and 6708. The notice updates the list of listed transactions in Notice 2004-67, 2004-2 CB 600, adding transactions identified as listed transactions in notices and other guidance released after September 24, 2004, and deleting those that the IRS has previously announced will no longer be considered listed transactions.

  The IRS has determined that transactions that are the same as or substantially similar to transactions described in the notice are tax-avoidance transactions and are, therefore, listed transactions. Consequently, taxpayers may need to disclose their participation in these transactions under Reg. §1.6011-4, and material advisors may need to disclose them under Reg. §301.6111-3.

  Taxpayers who fail to disclose may be subject to penalties under
Code Secs. 6662A and 6707A. Material advisors who fail to disclose may be subject to penalties under Code Sec. 6707. In addition, material advisors must maintain lists of advisees and other information with respect to these listed transactions pursuant to Reg. §301.6112-1. Failure to furnish a required list may subject a material advisor to penalties under Code Sec. 6708. Notice 2004-67, 2004-2 CB 600, is supplemented and superseded.

Notice 2009-59, 2009FED ¶46,429

Other References:

 
Code Sec. 6011

  CCH Reference - 2009FED ¶35,141.78

 
Code Sec. 6111

  CCH Reference - 2009FED ¶37,002.156

 
Code Sec. 6112

  CCH Reference - 2009FED ¶37,022.156

 
Code Sec. 6662A

  CCH Reference - 2009FED ¶39,654E.01

 
Code Sec. 6707

  CCH Reference - 2009FED ¶40,090.20

 
Code Sec. 6707A

  CCH Reference - 2009FED ¶40,093.10

 
Code Sec. 6708

  CCH Reference - 2009FED ¶40,100.10

  Tax Research Consultant

  CCH Reference - TRC FILEBUS: 3052.25

CCH (cch.taxgroup.com) reports:

  The IRS has provided a list of transactions that have been identified by the Service as "transactions of interest." The IRS will consider transactions similar to any of the transactions on the list to be transactions of interest for purposes of Code Secs. 6111, 6112, 6662A, 6707, 6707A and 6708, and Reg. §1.6011-4(b)(6).

  One transaction of interest (initially identified in
Notice 2007-72, 2007-2 CB 544) involves taxpayers who purchase a remainder interest or similar successor member interest directly or indirectly in real property and then transfer such interest to a tax-exempt organization, claiming a charitable contribution deduction significantly higher than the amount paid for the interest. The Treasury and IRS are concerned that taxpayers may be utilizing the contribution of such successor member interests to generate an excessive deduction.

  Another transaction of interest (Notice 2007-73, 2007-2 CB 545) involves certain transactions in which trust grantors attempt to avoid recognizing gain or claiming a tax loss greater than the actual economic loss by purportedly terminating ("toggling off") and then reestablishing ("toggling on") the grantor status of the trust. These terminations and reestablishments usually occur within a brief period of time.

  A third transaction (Notice 2008-99, I.R.B. 2008-47, 1194) involves the creation of a charitable remainder trust, contribution of appreciated assets to the trust by the taxpayer and subsequent sale of the assets by the trust and reinvestment of the proceeds of the sale in different assets such as money market funds or marketable securities. The taxpayer and the charity then sell or dispose of their respective interests in the trust to an unrelated third party for an amount equal to the value of the trust's assets. The trust then terminates, with its assets being distributed to the third party. The taxpayer typically takes the position that this set of transactions results in little or no taxable gain. The IRS believes the transaction improperly manipulates the uniform basis rules to avoid tax on gain from the sale of the appreciated assets in this transaction.

  The last transaction (Notice 2009-7, I.R.B. 2009-3, 312) involves a U.S. taxpayer who 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. 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 described result 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.

  Generally, persons entering into these transactions on or after November 2, 2006, must disclose their participation in the transaction. Taxpayers who fail to disclose may be subject to civil penalties. Material advisors who make tax statements with respect to transactions of interest may have disclosure and list maintenance obligations.

Notice 2009-55, 2009FED ¶46,428

Other References:

 
Code Sec. 664

  CCH Reference - 2009FED ¶24,468.12

 
Code Sec. 951

  CCH Reference - 2009FED ¶28,474.021

 
Code Sec. 1001

  CCH Reference - 2009FED ¶29,225.1011

 
Code Sec. 1014

  CCH Reference - 2009FED ¶29,380.73

 
Code Sec. 1015

  CCH Reference - 2009FED ¶29,394.14

 
Code Sec. 6011

  CCH Reference - 2009FED ¶35,141.06

  CCH Reference - 2009FED ¶35,141.78

 
Code Sec. 6111

  CCH Reference - 2009FED ¶37,002.157

 
Code Sec. 6112

  CCH Reference - 2009FED ¶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 Senate Health, Education, Labor and Pensions (HELP) Committee on July 15 passed a $615-billion health care reform bill, leaving the heavy lifting, on how to pay for it, up to the Senate Finance Committee. Talks between Finance Committee Chairman Max Baucus, D-Mont., and key members continue, but they have yet to forge agreement on the most acceptable way to raise revenue and fill an estimated $320-billion gap that remains after all reforms are in place and the final cost nears $1 trillion.

  Following early morning talks between Democratic members of the Finance Committee, Sen. Charles E. Schumer, D-N.Y., reasserted that most of the bill would be paid for through cutting costs and not through raising revenue. Schumer said members had spent much of the meeting discussing the need to bring insurance companies into the equation and have them commit to savings in the range of $75 billion to $100 billion, which would resemble similar agreements recently reached between the White House and hospitals and pharmaceutical companies.

  The HELP Committee's Affordable Health Choices Bill, approved 13-10 along strict partisan lines, provides a public insurance option and a pay-or-play mandate for most employers that would require them to provide health insurance for their employees or face a stiff penalty. The sweeping reform reportedly would cover 97 percent of the currently estimated 46-million uninsured and place greater emphasis on preventative care and wellness programs. The marathon markup stretched over 13 working days and saw Democrats approve over 160 Republican amendments.

  When the Senate Finance Committee produces a mark, lawmakers will still face another difficult hurdle, melding the HELP bill with the Finance Committee's final product. That task may prove more difficult than crafting a bipartisan Finance Committee bill, according to several lawmakers, and pressure is mounting. Senate Majority Leader Harry Reid, D-Nev., said he wants to take up a health care reform bill on the Senate floor by the week beginning July 27.

White House Response

  President Obama put Congress on notice that he wants the House and Senate to pass health care reform bills before the August recess. "We are going to be continually talking about this for the next two to three weeks until we've got a bill out of the Senate and we've got a bill out of the House," Obama asserted.

  Following passage of the Senate HELP Committee's health care bill, Obama praised the action taken so far by House and Senate Democrats and said both proposals "will offer stability and security to Americans who have coverage today, and affordable options for Americans who don't." House leaders unveiled their reform plan on July 14 (TAXDAY, 2009/07/15, C.1).

  The president, in remarks in the Rose Garden with members of the American Nurses Association, maintained that the status quo on health care is unsustainable and threatens the stability of families, businesses and government. He praised the House and Senate measures for including a health insurance exchange and a public health insurance option.

  In his statements about the House and Senate health care proposals, Obama has not commented on the tax provisions. White House Press Secretary Robert Gibbs, at a press briefing on July 15, noted that the president has refrained from commenting on any tax-cut proposals beyond his own because he wants to watch the legislative process as it unfolds. The president has proposed limiting certain deductions taken by upper income taxpayers but the proposal has not been well-received in Congress.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

HELP Committee Press Release: In Historic Vote, HELP Committee Approves the Affordable Health Choices Act

SFC Press Release: SFC Republican Tax Counsels Q&A on House Surtax

White House Press Release: Statement by the President on the Health Care Reform Legislation Passed Today by the Senate HELP Committee
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  As previously reported (TAXDAY, 2009/6/18, S.6), Ch. 192 (S.B. 2504), Laws 2009, updated Florida's conformity date to January 1, 2009 and decoupled the Florida corporate income tax from the extension through 2009 by the American Recovery and Reinvestment Act of 2009 (Recovery Act) (P.L. 111-5) of the 50% bonus depreciation and IRC §179 limitations enacted by the Economic Stimulus Act of 2008 (P.L. 110-185) and the Recovery Act provision that allows taxpayers to defer income from the discharge of indebtedness in connection with the reacquisition after December 31, 2008, and before January 1, 2011, of a corporate or business debt instrument. The legislation is operative retroactively to January 1, 2009. Therefore, except for the provisions from which Florida has specifically decoupled, taxpayers filing Florida returns during 2009 will use adjusted federal income as the starting point in computing their Florida corporate income tax.

  Amounts required to be added back may be subtracted in subsequent tax years. If a corporation acquires or merges with another corporation, the acquiring corporation may claim the subtractions in the same manner and to the same extent as the original corporation. In addition, if a corporate taxpayer has a net operating loss in a tax year in which it is entitled to claim a subtraction, it is allowed to increase its net operating loss by the amount of the subtraction. However, if a corporate taxpayer ceases to do business, it may not transfer or otherwise use a subtraction. Corporate taxpayers must create and maintain a schedule reflecting all of the adjustments made and must also report any additions on Schedule I and subtractions on Schedule II of the Florida Corporate Income/Franchise and Emergency Excise Tax Return (Form F-1120) for the current tax year. The schedule should specify the type and amount of the original addition(s) and show all subsequent subtractions by tax year. However, the basis of assets subject to the additions and subtractions for bonus depreciation and IRC §179 is the same for federal and Florida corporate income tax purposes. Therefore, even though the underlying asset(s) may have been sold, fully depreciated, or otherwise disposed of, corporate taxpayers may continue to claim the subtractions over the allowed seven-year period.

Tax Information Publication, No. 09C01-03 , Florida Department of Revenue, July 8, 2009, ¶205-359

  Other References:

  Explanations at ¶10-670

  Explanations at ¶10-685

  Explanations at ¶10-900

CCH (cch.taxgroup.com) reports:

  The IRS has announced that a series of public forums will be held during the summer to gather comments from consumer groups and tax professionals on tax return preparer performance. Comments offered at the forums will assist the IRS in developing return preparer performance standards to help ensure that preparers are qualified and ethical, and provide a high level of service to the public. The IRS plans to assemble a comprehensive set of recommendations by the end of 2009.

  Two public forums will be held on July 30 in Washington, D.C. The first is for consumer groups to provide their recommendations. Organizations such as the AARP, Consumer Federation of America, Center on Budget and Policy Priorities, National Community Tax Coalition and Low Income Tax Clinics have been tapped for this meeting. A second forum is intended for tax professional groups, including the American Institute of Certified Public Accountants, the National Association of Enrolled Agents, the National Association of Tax Professionals, and the National Society of Accountants. Both forums will be held at 9 a.m. in the Ronald Reagan Building's amphitheater; individuals interested in attending are advised to confirm attendance by sending an e-mail to CL.NPL.Communications@irs.gov.

  Other meetings with the IRS will be held later in the summer and fall where comments will be sought from federal and state organizations; IRS advisory groups; unaffiliated and individual return preparers and groups; and private firms that support return preparers. Small groups of preparers will also have a chance to meet with IRS representatives and provide recommendations at the four IRS Nationwide Tax Forums to be held in Orlando, New York, Dallas, and Atlanta in August and September.

IR-2009-66,
2009FED ¶46,426

Other References:

 
Code Sec. 7701

  CCH Reference - 2009FED ¶43,114.20

  Tax Research Consultant

  CCH Reference - TRC IRS: 6,050

CCH (cch.taxgroup.com) reports:

  Declaring the end of health insurance insecurity for all Americans, House leaders on July 14 introduced the America's Affordable Health Choices Bill of 2009 (HR 3200), a comprehensive reform bill that would raise approximately $581.1 billion over 10 years, mostly through a progressive tax on upper income individuals. The 1,018-page measure, which will be marked up by the House Ways and Means Committee on July 16, is also expected to cut Medicare spending by at least $500 billion.

  Committee Chairman Charles B. Rangel, D-N.Y., told reporters that he is hopeful that the final Congressional Budget Office (CBO) estimate of the cost savings in the bill will be large enough to reduce the amount of revenue increases on wealthy Americans. A preliminary estimate of Medicare savings based on an earlier draft of the health care bill shows gross savings from the Medicare program of $500 billion over 10 years. The CBO estimate, released on July 8, shows that solvency of the Medicare Trust Fund would be extended by the bill.

  Under HR 3200, approximately $544 billion in revenues would be raised through a surtax of 5.4 percent on married individuals with adjusted gross income (AGI) over $1 million beginning in 2011; a 1.5-percent surtax on incomes between $500,000 and $1 million; and a 1-percent surtax on incomes from $350,000 to $500,000. According to a committee explanation, the lowest two tax rates would be increased to 2 percent and 3 percent, respectively, if health care cost savings are not achieved by the bill.

  House Majority Leader Steny H. Hoyer, D-Md., said that Congress is on schedule to pass a budget-neutral health care reform bill in 2009. The goal is to pass reform legislation in the House and Senate before the August recess, or the recess will be cancelled, said House Energy and Commerce Chairman Henry Waxman, D-Calif. Then, lawmakers hope to have a bill on the president's desk by the end of the first session of the 111th Congress, Waxman added. House Speaker Nancy Pelosi, D-Calif., said leaders are still negotiating for support from the fiscally conservative members of the Democratic Blue Dog Coalition. She predicted that the final legislation will have a strong public option plan.

  President Obama, in a written statement, said the House proposal will "begin the process of fixing what's broken about our health care system" He noted that the legislation would "lower costs, provide better care for patients, and ensure fair treatment of consumers by the insurance industry."

  Obama said the public option would make health care more affordable and that increasing competition by offering more choices will keep insurance companies honest. The president praised the three key committees involved in drafting the House bill for their "unprecedented cooperation."

GOP Weighs In

  House Minority Leader John Boehner, R-Ohio, immediately criticized the measure, likening it to an unpopular proposal from President Clinton to tax BTUs that passed the House but died in the Senate. "During a deep economic recession, it is criminal malpractice for Democrats to push a government takeover of health care and a new small business tax that will destroy more American jobs," Boehner stated. Republican Study Committee Chairman Tom Price, R-Ga., said the Democrats' plan would interfere with patient care through a massive government takeover of health care. "To pay for this enormous growth of government-run medicine, they seek to ration services for America's seniors on Medicare and levy a massive new tax on American small businesses --our nation's leading engine for job creation," Price said.

  Ways and Means Health Subcommittee Chairman Fortney Pete Stark, D-Calif., predicted that the reform bill will pass the House with only about six Republican votes. The measure also contains other tax provisions, which have already passed the House with some bipartisan support, including delaying implementation of worldwide allocation of interest (which raises $26.1 billion over 10 years), limiting the use of tax havens to avoid U.S. taxation by foreign multinational corporations ($7.5 billion over 10 years), and clarifying the use of the economic substance doctrine ($3.6 billion over 10 years). The measure also requires that employers with annual payrolls exceeding $250,000 would have to pay a payroll penalty of 2 percent if they do not provide health insurance. Firms with annual payrolls above $400,000 would pay an 8-percent penalty. Some small businesses would be eligible for a new small business tax credit to help them provide coverage for their employees.

  According to a preliminary estimate from the CBO and the Joint Committee on Taxation released late on July 14, passage of the health reform measure would result in a net increase in federal deficits of $1,042 billion for fiscal years 2010 through 2019. According to the estimate, most of the increased deficit comes from $438 billion in additional federal outlays for Medicaid and $773 billion in federal subsidies that would be provided to purchase coverage through the new insurance exchanges. The other main element of the proposal that would increase federal deficits is the tax credit for small employers who offer health insurance, which is estimated to reduce revenues by $53 billion over 10 years, the estimate says.

Senate Reaction

  The House plan to raise revenue through a surtax on the wealthy may be a nonstarter in the Senate as several members of the Senate Finance Committee let it be known that the provision had little support among senior lawmakers. "The House is the House. We in the Senate are a different institution," said Senate Finance Committee Chairman Max Baucus, D-Mont., when asked whether he could back a surtax on the wealthy. "I might not agree with their revenues in respect to a policy plan but we expect that there will be differences," Sen. Olympia J. Snowe, R-Maine, a well-known moderate on the committee, told reporters following a private meeting with Baucus. Sen. Ron Wyden, D-Ore., another member of the Finance Committee, said he did not "see any appetite for it" in the Senate. "I don't think it's very likely," added Senate Budget Committee Chairman Kent Conrad, D-N.D., also a member of the Finance panel.

  Senate Democratic leaders are hoping to see health care reform draft legislation by July 16 or July 17, and a markup held the week beginning July 20, according to senior Democratic aides. However, Baucus was unwilling to commit to that deadline. Instead, he promised to have a bill completed before the Senate leaves on August 7 for its summer recess.

  Meanwhile, the Senate Health, Education, Labor and Pensions (HELP) Committee plans to hold a final vote on its health care reform bill early on July 15. The panel late on July 13 approved an amendment that would lower drug costs by creating a pathway for the Food and Drug Administration (FDA) to approve new competitors for biologic drugs, such as vaccines and cancer drugs.

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

Tax-Related Provisions of America's Affordable Health Choices Act of 2009, HR 3200

Press Release: House Democrats Introduce Bill to Provide Quality, Affordable Health Care for All Americans

Summary of America's Affordable Health Choices Act of 2009, HR 3200

Summary and Description of Revenue Provisions in HR 3200

Health Reform at a Glance: Shared Responsibility

Health Reform at a Glance: Paying for Health Care Reform

Health Reform at a Glance: Making Coverage Affordable

CBO Estimate on America's Affordable Health Choices Act

White House Press Release: Statement by the President on the Health Care Reform Introduced in the House

JCT Description of the Revenue Provisions of HR 3200, America's Affordable Health Choices Act of 2009, JCX-30-09

JCT Estimated Effects of the Revenue Provisions of HR 3200, America's Affordable Health Choices Act of 2009, JCX-31-09
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Beginning in 2010, a new tax incentive program is created with refundable corporate and personal income tax credits and property tax incentives for expanding or locating new renewable energy operations in Arizona. The tax credits are available for taxable years beginning after December 31, 2009, through December 31, 2014. Special property tax classifications may be granted through December 31, 2014. The program is scheduled to terminate on January 1, 2016.

  To participate in the tax incentive program, a renewable energy business must submit an application to the Department of Commerce to be certified as a qualifying business.

  For purposes of the tax incentives, renewable energy operations are limited to manufacturing and headquarters for systems and components that are used or useful in manufacturing renewable energy equipment for the generation, storage, testing, research and development, transmission, or distribution of electricity from renewable resources, including specialized crates necessary to package the renewable energy equipment manufactured at the facility.

CCH (cch.taxgroup.com) reports:

  House leaders expect to unveil their massive health care reform bill on July 14, according to House Speaker Nancy Pelosi, D-Calif., who noted that Democratic leaders are still meeting to determine ways to pay for the overhaul. Pelosi and House Majority Whip James E. Clyburn, D-S.C., told reporters that leaders are working out the specifics of the health care reform bill with members of the Democratic caucus. Pelosi said GOP lawmakers would get a chance to amend the legislation during the bill's markup before the House Ways and Means Committee. Pelosi called a press conference to tout components of the health care reform bill, such as eliminating restrictions due to pre-existing conditions, controlling health cost inflation, setting standard benefit options offered through a health exchange market and capping out-of-pocket expenses.

  Clyburn said the legislative process has included six listening sessions for Democrats from different regions of the county to explain how the bill will affect different markets. Pelosi acknowledged that the legislation will require a tax increase in order to show that it is budget neutral for Congressional Budget Office scoring; it will likely achieve enough savings to allow any tax increases to be used for deficit reduction.

  Speaking on NBC's "Meet the Press" program on July 12, Senate Finance Committee member Charles E. Schumer, D-N.Y., said both Republicans and Democrats in the House and Senate have ruled out the possibility of taxing benefits to offset the cost of reform. Schumer said lawmakers are hoping to agree on a plan by July 17 but he declined to give specifics about what lawmakers are suggesting. He said the first option is to cut costs to pay for health reform, and then raise revenues to make up the difference.

  In a July 9 letter to Pelosi and House Majority Leader Steny H. Hoyer, D-Md., the House Blue Dog Coalition laid out its group of principles that it must see in order to support health care reform legislation. Forty members of the group signed the letter promising to vote against the measure unless it is budget neutral. They suggested that House leaders scale back the bill in order to craft more affordable legislation, and that leaders look for ways to find savings within the health care delivery system.

White House

  On health care reform legislation, President Obama said he has "no illusions" that it will be easy to reach the finish line but he maintained "we are going to get this done." The president, at a White House announcement of his U.S. Surgeon General nominee on July 13, said that "inaction is not an option" and would create the biggest health care crisis of all.

  According to a White House spokesman, the president remains confident that a health care bill will reach his desk in 2009. However, White House Press Secretary Robert Gibbs seemed to be less certain Congress that would finish work on both the House and Senate bills before the August recess. At a July 13 press briefing, Gibbs added that the president would consider asking the Senate to stay in session if it did not make sufficient progress by its scheduled recess on August 7.

  On the contentious issue of cost, Obama maintained that the reform plan would not add to the deficit in the long-term and would eventually lower the deficit by slowing the rising cost of Medicare and Medicaid.

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

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  New Hampshire has enacted legislation that prohibits New Hampshire retailers from providing private consumer information to a state for use in the determination of a consumer's or a retailer's sales and use tax liability in that state with respect to a New Hampshire retail purchase transaction, unless that state has provided formal notice to the New Hampshire Commissioner of Revenue Administration of its intention to collect use tax on such transactions and the Department of Justice has determined that the state's sales and use tax statutes:

  -- impose upon its residents a requirement to individually pay sales or use tax on the use, storage, or consumption of goods or services purchased in any other state;

  -- specifically identify the goods and services to which the use tax applies;

  -- require that the retailer or its affiliates have adequate physical presence to establish nexus with that state for the imposition of an obligation of the retailer to determine, collect, and remit tax with respect to purchases by that state's residents;

  -- require every resident to submit an annual statement to that state identifying each item purchased outside the state for use in the state;

  -- require that state or its residents to provide the retailer at the time of a New Hampshire retail purchase transaction with information establishing whether the goods or services purchased are intended to be used, stored, or consumed outside New Hampshire, and provide that this information is irrefutably presumed to be correct and complete and may be relied upon by retailers;

  -- require that state's tax agency to annually audit, investigate, or examine at least 10% of the total use tax returns filed by its residents;

  -- require that state's tax agency to conduct its audit, investigation, or examination practices with respect to residents' use tax returns in a manner that ensures that such practices are applied equally regardless of the state in which the sales transaction occurs, and to file an annual public report demonstrating compliance with this nondiscrimination requirement;

  -- create an irrebuttable presumption that, in the absence of voluntary information by the resident, the goods or services purchased are intended to be used in the state in which they are purchased; and

  -- explicitly impose use tax collection requirements on out-of-state retailers with respect to retail purchase transactions that are completed in those other states.

S.B. 5, Laws 2009, effective July 9, 2009

CCH (cch.taxgroup.com) reports:

  The Louisiana corporate and personal income tax and franchise tax credit for research and development expenses is amended and extended. Specifically, the expiration date of the credit has been extended to December 31, 2013 (previously, 2009). Various definitions have also been amended.

CCH (cch.taxgroup.com) reports:

  The IRS may allow taxpayers to claim a casualty loss deduction for defective Chinese-made drywall, the Service indicated in a recent letter to Sen. Jim Webb, D-Va. Individuals in 21 states have complained of headaches and other health problems from noxious odors they claim are emitted from Chinese-made drywall. However, the IRS appeared to reserve making a final determination pending conclusion of a government investigation into the drywall.

Noxious Odors

  The U.S. Consumer Product Safety Commission (CPSC) has received complaints from more than 600 individuals about defective Chinese-made drywall. The majority of the complaints have come from individuals in Florida, Louisiana and Virginia. Residents of Alabama, Arizona, California, Georgia, Indiana, Kentucky, Louisiana, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Tennessee, Texas, Virginia, Washington, Wisconsin, Wyoming and the District of Columbia have also reported problems with Chinese-made drywall.

  According to the homeowners, putrid odors from the drywall cause irritated and itchy eyes and skin, difficulty breathing, bloody noses and headaches. The odors have also reportedly corroded pipes and electrical equipment. The CPSC, the U.S. Environmental Protection Agency (EPA) and other federal agencies are collecting samples of Chinese-made drywall from affected homeowners. The CPSC indicated that laboratory analysis of the drywall should be completed my mid-September 2009.

Casualty Loss

  In June, Webb and several of his colleagues in the Senate asked the IRS if affected individuals could claim a casualty loss deduction under Code Sec. 165(h). "Taxpayer losses associated with Chinese drywall seem to meet the criteria for the deduction," Webb told the IRS.

  The IRS replied to Webb on July 2, and Webb made the letter public on July 10.

  The IRS noted the CPSC investigation. "If it is determined that Chinese-made drywall emits an unusual or severe concentration of chemical fumes that cause the extreme and unusual damage you describe, affected taxpayers can qualify for a casualty loss deduction," the IRS indicated.

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

IRS Chief Counsel Letter Regarding Chinese-Made Drywall

CCH (cch.taxgroup.com) reports:

  The IRS has issued interim guidance on the procedures that manufacturers must use to certify a vehicle as eligible for the new specified qualified plug-in electric vehicle credit under Code Sec. 30. Guidance is also provided to purchasers of qualified vehicles regarding reliance on the manufacturer's certification in claiming the credit.

 
Code Sec. 30 provides a tax credit for 10 percent of the cost (up to $2,500) of a qualified plug-in electric vehicle placed in service by the taxpayer after February 17, 2009. However, the credit is not available for a vehicle placed in service before 2010 if the credit for a qualified plug-in electric drive motor vehicle under
Code Sec. 30D may be claimed for the vehicle. A qualified plug-in electric vehicle includes certain specified electrically powered two-wheeled, three-wheeled, and low-speed vehicles.

  A manufacturer's certification that a vehicle is eligible for the credit must include a statement that the vehicle is made by the manufacturer, as well as the make, model or other identifier of the vehicle. The certification must also include the vehicle's gross weight, the number of wheels, a statement that the vehicle is propelled to a significant extent by an electric motor that draws electricity from a battery, the kilowatt hour capacity of the battery, and a statement that the battery is capable of being recharged from an external source of electricity. With respect to low speed vehicles, the certification must provide a statement that the vehicle is a low speed vehicle within the meaning of federal regulations, and that the maximum speed attainable by the vehicle in one mile is more than 20 miles per hour but not more than 25 miles per hour on a paved level surface.

  The IRS will review and acknowledge the certification presented by a manufacturer within 30 days of receipt of the certification. A manufacturer's right to provide a certification to future purchases of a vehicle will be withdrawn if the IRS determines that a vehicle is not qualified for the credit. Purchasers who acquire vehicles after the withdrawal date may not rely on the certification. However, purchasers may continue to rely on a certification for a vehicle acquired before the withdrawal date even if the vehicle is not placed in service yet or the credit is claimed after the withdrawal date.

  Except for the withdrawal of acknowledgment by the IRS, purchasers of a qualified electric plug-in vehicle may rely on a manufacturer's certification for purposes of claiming the credit. The purchaser may claim the credit in the certified amount with respect to the vehicle if the following requirements are satisfied:

  the vehicle is acquired after February 17, 2009, and before January 1, 2012;

  the original use of the vehicle commences with the taxpayer;

  the vehicle is acquired for use or lease by the taxpayer, and not for resale; and

  the vehicle is used predominantly in the United States.

Notice 2009-58, 2009FED ¶46,424

Other References:

 
Code Sec. 30

  CCH Reference - 2009FED ¶4056B.01

  Tax Research Consultant

  CCH Reference - TRC INDIV: 58,010

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Alabama Department of Revenue has revised a chart that reflects the latest information concerning the counties and municipalities that have notified the department regarding their participation in the sales tax holiday being held from August 7 through August 9, 2009.

  The updated chart reflects the participation by Cherokee on an annual basis, while Guntersville and Red Bay are only participating in 2009. Also, Jefferson County and Needham are not participating in the tax holiday. Jefferson County had previously announced that it was participating in the tax holiday on a "limited" basis each year.

  The list of participating localities will be updated by the department as it receives information. The chart listing localities that have notified the department regarding their participation in the tax holiday can be found on the department's Web site at
http://www.ador.state.al.us/salestax/STholiday.htm.

Sales Tax Holiday Notice, Alabama Department of Revenue, July 9, 2009
 

CCH (cch.taxgroup.com) reports:

  The U.S. District Court for the Southern District of Florida has denied Swiss banking giant UBS AG's motion to compel the government to provide certain discovery materials in efforts to unearth the names of U.S. taxpayers hiding assets abroad in the firm's accounts. The bank had argued that some of the information requested by the IRS in a "John Doe" summons (TAXDAY, 2009/02/20, M.1) was already within the IRS's possession. As a result, it sought discovery, cross-examination and potential in camera inspection of documents to determine what information was within the IRS's possession. The bank had also argued that there were alternative means of obtaining the information sought by the IRS.

  Instead, the court, in a July 7 order denying the motion to compel disclosure, gave the government a green light to continue with enforcing its John Doe summons, seeking the identities of U.S. customers of UBS for which the firm did not have Forms W-9, Request for Taxpayer Identification of Certification, or accurately and timely filed Forms 1099 reporting to the IRS amounts paid. The court held that enforcement of this summons should not be denied strictly because the IRS was in possession of some of the records sought. The IRS had pointed to controlling law in the Eleventh Circuit ( Davis,
81-1 USTC ¶9193), where appeal of the decision on the motion would lie.

  The court also ruled that reliance on voluntary disclosure and other filings by U.S. taxpayers did not provide an alternative means for the government to obtain the same information. The government had argued that, simply because some U.S. taxpayers had voluntarily disclosed their identities and the existence of a UBS bank account to the IRS, not all of the documents sought by the government's summons were in the IRS's possession. The taxpayer's filing of a TD F 90-22.1, Report of Foreign Bank and Financial Accounts, or disclosure of a secret bank account did not require the taxpayer to produce any of the UBS source documents requested.

  CCH Comment. Also on July 7, the Swiss government filed an amicus curiae brief against the government's efforts to enforce the IRS summons, asserting that UBS would be unable to comply with the summons without violating Swiss law. It stated, "The government of Switzerland will use its legal authority to ensure that the bank cannot be pressured to transmit the information illegally, including if necessary by issuing an order taking effective control of the data at UBS that is the subject of the summons and expressly prohibiting UBS from attempting to comply."

  CCH Comment. In response, House Ways and Means Select Revenue Measures Subcommittee Chairman Richard Neal, D-Mass., released a written statement, saying, "The statement from the Swiss government today does not look like a move toward greater openness to me. And, I don't find their willingness to provide information on tax evaders in the future particularly reassuring.... In my opinion, the current policy of protecting these tax evaders is simply unacceptable."

  By Torie Cole, CCH News Staff

UBS AG, DC Fla., 2009-2 USTC ¶50,478

Ways and Means Select Revenue Measures Subcommittee Press Release: Neal Critical of Swiss Bank Action

Other References:

 
Code Sec. 7602

  CCH Reference - 2009FED ¶42,827.562

  CCH Reference - 2009FED ¶42,827.570

  Tax Research Consultant

  CCH Reference - TRC IRS: 21,364

CCH (cch.taxgroup.com) reports:

  A trust's margin-purchased securities constituted debt-financed property that produced income subject to the unrelated business income tax (UBIT). Reg. §1-514(b)-1(a), which interprets the UBIT to tax both periodic income and capital gains, is consistent with the definition of debt-financed property in
Code Sec. 514(b)(1). Furthermore, Code Sec. 512(b)(4) treats all income derived from debt-financed property as taxable and deriving from an unrelated trade or business. Imposition of the UBIT is also not limited to situations in which an exempt organization's business activities provide it with an unfair competitive advantage over taxable entities. Finally, the "inherent purpose" and "substantially related" exceptions to the UBIT were inapplicable. Although the use of debt-financed property was substantially related to the organization's purpose, selling that property to fund the organization was subject to the UBIT. Moreover, the trust did not establish that it could not support the university by any investment strategy other than the use of margin-purchased securities.

The Henry E. and Nancy Horton Bartels Trust for the Benefit of Cornell University, FedCl, 2009-2 USTC ¶50,475

Other References:

 
Code Sec. 512

  CCH Reference - 2009FED ¶22,837.30

 
Code Sec. 514

  CCH Reference - 2009FED ¶22,859.30

  Tax Research Consultant

  CCH Reference - TRC EXEMPT: 15,050
CCH Reference - TRC EXEMPT: 18,100
CCH Reference - TRC EXEMPT: 18,102.05
CCH Reference - TRC EXEMPT: 18,104
 

CCH (cch.taxgroup.com) reports:

  The Senate Appropriations Committee on July 9 approved a proposed IRS budget of $12.15 billion for fiscal year (FY) 2010. The IRS budget is included in the proposed FY 2010 Treasury budget of $13.5 billion, which includes $152 million for the Treasury Inspector General for Tax Administration. The House Appropriations Committee approved the IRS's budget on July 7 (TAXDAY, 2009/07/09, C.1). Congress is expected to act on the budget before its August recess.

  The Senate Appropriations Subcommittee on Financial Services and General Government, chaired by Sen. Richard Durbin, D-Ill., approved the IRS and Treasury budgets on July 8. The proposed IRS budget exceeds the Service's FY 2009 budget by $550 million (5 percent) and increases the Obama administration's proposal by $26 million, the subcommittee reported in a July 8 news release. The House Appropriations bill provides $2.27 billion for taxpayer services; the Senate Appropriations Committee did not identify the funding for this category.

  The bill fully funds the administration's request of $7.1 billion for IRS enforcement, the subcommittee indicated. This represents a $387-million increase above the FY 2009 level. The budget provides $274 million for business systems modernization (BSM), approximately $20 million above the administration proposal, a spokesman for Durbin said. The IRS Oversight Board has highlighted BSM as an IRS weakness and recommended funding of $400 million (TAXDAY, 2009/07/08, I.3).

  The Senate bill also provides a 2.9-percent cost-of-living increase for federal employees. The administration has proposed a 2-percent increase. "The bill includes several provisions constraining the outsourcing of federal jobs to contractors," the subcommittee reported.

  By Brant Goldwyn, CCH News Staff

CCH (cch.taxgroup.com) reports:

  Senate Finance Committee Chairman Max Baucus, D-Mont., is scrambling to find ways to offset some $320 billion from the estimated $1-trillion price tag of health care overhaul legislation after both Republican and Democrats, including Senate Majority Leader Harry Reid, D-Nev., publicly and privately expressed their reservations over plans to tax employer-provided health benefits. Reid is further pressuring Baucus to hold firm on inclusion of a public health insurance option, despite Finance Committee Republicans' resistance to such a proposal.

  The brewing dissent left Baucus holding open the possibility of raising revenue outside of the health care system and backing down on an earlier pledge not to seek revenue in other areas. Back on the table is discussion of taxing sugared drinks, placing additional taxes on alcohol and tobacco, and levying a surtax on the wealthy, roughly aimed at those earning more than $250,000 a year. Most lawmakers, however, downplayed those options, saying the committee would continue to look for ways to cut costs through savings in other areas.

  "The most difficult issue is paying for it," said Sen. Charles E. Schumer, D-N.Y., adding that "there are lots of options out there to fill the hole." He does not believe the tax on health care benefits is completely without merit, but acknowledged that there will be resistance among Democrats if it cuts too deeply into middle-class pocketbooks. One option is to cap the tax at benefits valued over $25,000, which would raise $90 billion over 10 years. The question now facing lawmakers is what constitutes the middle class, and Schumer was not convinced that the proposed cap would pass that test. "If that still includes the middle class, there will be a lot of concern," he warned.

  Democratic leaders are apparently losing patience with the snail's pace of Baucus' negotiations with Republicans and continued setbacks. Reid wants to complete action on the bill before the month-long summer recess, which is slated to begin for the Senate on August 7. In an effort to move the process forward, he met on July 8 with four Republican heavyweights on the Finance Committee: ranking member Charles E. Grassley, R-Iowa, Olympia J. Snowe, R-Maine, Orrin G. Hatch, R-Utah, and Michael B. Enzi, R-Wyo. "We need to work with Republicans," said Reid the following day. "It's better that we do a bipartisan bill...we are committed to doing this."

  In an effort to deflect charges that he was strong-arming Baucus and cutting Republicans out of the picture, Reid added that he was not going to "draw lines," but was standing by his timetable of completing a health care reform bill by the start of the August recess. As to the difficulties the finance panel is reportedly having over raising revenue to pay for the bill, Reid asserted that lawmakers involved in assembling the bill had already worked out 85-to-90 percent of the needed revenue, mostly through new cost-cutting measures. "We will be able to pay for this in a bipartisan manner," he said.

  Reaching final agreement in a timely manner, however, still seems elusive. Following a meeting with a small group of bipartisan Finance Committee members, Baucus acknowledged that lawmakers are resistant to raising revenue through taxation. "It's difficult, but there is no discouragement," he said. "We are moving the ball forward. We are discussing a lot of revenue options."

  However, Baucus refused to offer a time frame for completion of his mark, saying only that meetings and discussions were ongoing. Other members were also unwilling to offer assurances that the job would be done anytime soon. "We are going through a laundry list and trying to see what is possible," said Snowe.

  By Jeff Carlson, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Florida property tax relief measure known as the "Save Our Homes" Amendment was constitutionally valid and did not violate a nonresident's rights under the Equal Protection Clause, the Privileges and Immunities Clause, or the Commerce Clause. The taxpayers argued that the existence of a benefit for homestead property, when combined with the tax treatment of non-homestead property, gave Florida residents a tax advantage. However, a Florida resident who owned vacation property or business property in the state would not be entitled to claim any tax benefit and would be in the same position with respect to that property as a nonresident. The tax benefit was based on the way the property was used, not on the status of the landowner as a resident or nonresident.

  Additionally, the trial court had jurisdiction over the case because the 60 day time period that taxpayers had to contest a property tax assessment or the denial of an exemption did not apply to litigation that involved the validity of the tax laws.

  Subscribers can view the full text of the opinion.
Lanning v. Pilcher , Florida Court of Appeal, First District, No. 1D07-6564, July 8, 2009

CCH (cch.taxgroup.com) reports:

  CCH Tax and Accounting is hosting a live two-hour audio seminar, Multistate Income Taxation: Individuals and Passthroughs, on Tuesday, July 14, 2009, at 1 p.m. Eastern; noon Central; 10 a.m. Pacific. This two-hour CCH Audio Seminar is the final program of a three-part series on multistate income taxation presented by noted state tax experts, educators and authors, John C. Healy, M.S.T., CPA, and Bruce Nelson, M.A., CPA. This seminar will provide background and a look at the latest developments and trends in multistate income tax relating to individual and passthrough taxpayers.

  Program topics include the following:

  -- Calculating nonresident state tax credits

  -- Residency, nonresidents, incentive stock options and other deferred compensation

  -- Factor flow-through for S corporations, limited liability companies and partnerships

  -- Apportionment and allocation --at the partner or partnership level?

  -- Nexus and tax credits with nonincome based tax jurisdictions

  The learning objectives include:

  -- understand the distinctions between nexus and residency

  -- develop an approach to analyze passthrough income issues

  -- gain awareness of recently instituted state taxing structures

  Registration can be completed online at
http://www.krm.com/cch or by calling 1-800-775-7654. Participants can receive two hours of CPE credit for an additional $25 per person. Firms registering for this audio seminar will also receive a free issue of CCH's Journal of Passthrough Entities.

CCH (cch.taxgroup.com) reports:

CCH (cch.taxgroup.com) reports:

  For pension plan years beginning in July 2009, the IRS has released the corporate bond weighted average interest rate, the permissible range of interest rates used to calculate current plan liability and to determine the required contribution under Code Sec. 412(l) for plan years through 2009, and the current corporate bond yield curve and related segment rates for the purpose of establishing a plan's funding target under
Code Sec . 430(h)(2).

  The corporate bond weighted average interest rate for plan years beginning in July 2009 is 6.47 percent; and the 90-percent to 100-percent permissible range is 5.83 percent to 6.47 percent. The annual rate of interest on 30-year Treasury securities for June 2009, used to determine the minimum present value of a participant's benefit under Code Sec. 417(e)(1) and (2), is 4.52 percent.

  For plans electing not to use the transitional rule under Code Sec. 430(h)(2)(G), or for plans whose first year begins after 2009, the 24-month average segments rates for July 2009 are: 5.21 for the first segment; 6.74 for the second segment; and 6.84 for the third segment.

  For plan years beginning in 2009, the funding transitional segment rates for July 2009 are: 5.63 for the first segment; 6.65 for the second segment; and 6.72 for the third segment.

  For plan years beginning in 2009, the minimum present value transitional segment rates for June 2009 are: 4.27 for the first segment; 5.35 for the second segment; and 5.33 for the third segment.

Notice 2009-57, 2009FED ¶46,423

Other References:

 
Code Sec. 401

  CCH Reference - 2009FED ¶17,730.40

 
Code Sec. 412

  CCH Reference - 2009FED ¶19,125.505

 
Code Sec. 417

 
Code Sec. 430

  CCH Reference - 2009FED ¶20,161.30

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 15,304.05
CCH Reference - TRC RETIRE: 15,304.10
CCH Reference - TRC RETIRE: 30,556
 

CCH (cch.taxgroup.com) reports:

  The House Appropriations Committee late on July 7 approved an IRS budget of $12.1 billion for fiscal year (FY) 2010. The proposed budget is a $600-million increase (5.2 percent) over the Service's FY 2009 budget and fully funds the administration's budget request. According to the committee's tentative schedule, the House will take up the financial services bill on July 17, including the IRS budget.

  The IRS budget provides an increase of $387 million for tax enforcement to $5.5 billion, Committee Chairman David R. Obey, D-Wis., reported in a written statement. "Among other things, the increase is for the administration's initiative to target wealthy individuals and businesses who avoid U.S. taxes by parking money in overseas tax havens," Obey indicated. "In enforcing our tax laws, we need to be sure we're going after the big fish as well as the little ones," Financial Services and General Government Subcommittee Chairman José E. Serrano, D-N.Y., said in a written statement.

  The budget provides $2.27 billion for taxpayer services, $4 million above the administration's request and $19 million below FY 2009, which included additional costs to make economic stimulus payments. The FY 2010 figure includes $680 million for prefiling assistance and education, an increase of $19 million, and $206 million for the IRS Taxpayer Advocate, an increase of $13 million.

  The proposed IRS appropriation also includes $4.1 billion for operations support, a 5-percent increase; $253 million for business systems modernization (BSM), a 10-percent increase, and $15 million for administering the health insurance tax credit. The bill "works to make it easier for honest Americans to file their taxes while it beefs up IRS enforcement to catch tax cheats," Obey said.

  The IRS Oversight Board on June 7 released a report to Congress that recommended an IRS budget of $12.5 billion for FY 2010 (TAXDAY, 2009/07/08, I.3). The Board's budget included $400 million for BSM, a $147-million increase over the administration request, to speed up the development of the IRS's information technology program to support the tax administration system. The Board also recommended a $184-million increase in IRS infrastructure initiatives and an additional $32 million for taxpayer service. It agreed with the administration's proposal for tax enforcement.

  By Brant Goldwyn, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Delaware Division of Revenue is authorized to establish a voluntary tax compliance initiative to encourage the voluntary disclosure and payment of corporate and personal income, gross receipts, realty transfer, public utilities, lodging, use, estate, gift, income on estate and gift taxes, occupational license fees and tax, contractors' license fees and tax, manufacturers' license fees and tax, retail and wholesale merchants' license fees and tax, and tobacco products license fees and tax. The initiative is applicable to the period that runs from September 1, 2009 through October 30, 2009.

  A taxpayer who has a current outstanding liability for tax periods before January 1, 2009, and makes payment during the initiative period or enters into a payment plan and makes payment before June 30, 2010, will have the penalty and interest for late return filing waived. A non-filer who files returns will have any tax, penalty and interest for non-filed returns for any period prior to January 1, 2004, waived. Provisions concerning the 50% limitation on the penalty for failure to file timely tax returns and the 75% limitation on the penalty for any fraudulent tax returns are removed, effective for tax years beginning after December 31, 2009. In addition, the period for which interest accrues on an amended refund is changed to 46 days after the receipt of the amended tax return (formerly, 46 days after the original return was filed), also effective for tax years beginning after December 31, 2009.

H.B. 268, Laws 2009, effective as noted above
 

CCH (cch.taxgroup.com) reports:

CCH (cch.taxgroup.com) reports:

  IRS Commissioner Douglas H. Shulman announced that the Service will not undertake any collection enforcement action of penalties assessed under Code Sec. 6707A through September 30, 2009, on cases where the annual tax benefit from the transaction is less than $100,000 for individuals or $200,000 for other taxpayers per year. Shulman made the announcement in a July 6 letter responding to a request by House Ways and Means Oversight Subcommittee Chairman John Lewis, D-Ga., and other lawmakers to suspend these collection activities.

  "I am dismayed by the feedback that I have received from some of the most seasoned IRS examination professionals that this statutory provision, in certain cases, requires them to assess penalties that are way out of line with penalties for other similar cases of non-compliance," said Shulman in his letter.

  However, Shulman added that, since the penalty determination is related to the underlying transaction, and the IRS can only determine the amount of tax benefit through examination, the Service will continue its examination of such cases.

Lawmakers' Concerns

  In a letter dated June 12 (TAXDAY, 2009/06/16, C.1), lawmakers from the Senate Finance Committee (SFC) and House Ways and Means Committee had asked Shulman to direct the IRS to suspend the collection of tax shelter penalties under Code Sec. 6707A assessed on small businesses while Congress works to create legislation to lessen the significant financial impact of these penalties on small businesses. According to lawmakers, small businesses with investments in listed tax shelter transactions that created modest tax benefits were faced with tax penalties that were significantly larger than the tax benefits received. This situation was sparked, according to lawmakers, by business owners who bought benefit plans that actually were prohibited tax shelters without realizing it, then were hit with large penalties on audit. In their June 12 letter, the lawmakers asked Shulman to "use discretion provided to the IRS with its effective administration authority to suspend efforts to collect [Code Sec.] 6707A liabilities...while Congress acts to remedy this situation."

  CCH Comment. During a June 4 subcommittee hearing in Washington, D.C., in which Shulman testified, some subcommittee members had questioned whether Shulman's initiative to crack down on tax shelters was disproportionately geared toward small businesses (TAXDAY, 2009/06/05, C.1). At that time, Shulman had responded that it was Congress that enacted such a draconian provision and that the IRS had little discretion in enforcing the penalty.

Disproportionate Penalties

  When the Code Sec. 6707A penalties were enacted in the American Jobs Creation Act of 2004 (2004 Jobs Act) (P.L. 108-357), the disproportionate consequences were not anticipated. However, many transactions now under IRS examination "involve tax benefits that are minor when compared to the statutory penalty amounts of $100,000 (for individuals) and $200,000 (for other taxpayers) per year," said Shulman in his July 6 letter to Congressman Lewis. SFC ranking member Charles E. Grassley, R-Iowa, stated that, when he advanced legislation to shut down tax shelters as part of the 2004 Jobs Act, he "did not intend to bankrupt small businesses that had no ill intent." Grassley's focus, on the other hand, had been "big corporations that were actively seeking to hide their participation in tax shelters."

Forthcoming Legislation

  Members of the Ways and Means Committee intend to introduce bipartisan, bicameral legislation to modify the law and make the penalties more proportionate to the tax benefits. This legislative effort was the catalyst for the lawmakers' request that the IRS suspend collection actions against small businesses. The Small Business Tax Relief Bill of 2009 (Sen 1381), introduced by Grassley, contains provisions to amend the tax code to provide relief to small businesses. The relief would be applied retroactively to cover situations now in collection.

  "I'm glad the IRS has decided to do what is fair and to allow Congress to correct the unintentional consequences of a law intended to target big corporations," said Lewis.

  By H. Goehausen, CCH News Staff

Ways and Means Oversight Subcommittee Press Release: Lawmakers Applaud IRS Decision to Suspend Collection of Penalties on Small Businesses

Letter from IRS Commissioner Shulman

SFC Press Release: Grassley Comments on IRS Suspension of Certain Penalties

SFC Press Release: Baucus, Grassley Applaud IRS Suspension of Certain Penalties on Small Businesses
 

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Rhode Island Gov. Donald L. Carcieri has signed the budget bill which (1) decouples the calculation of the corporate and personal income taxes from the federal provision deferring the recognition of income from the discharge of business indebtedness (CODI), (2) eliminates the lower tax rates for capital gains, (3) requires e-filing for personal income withholding tax in certain circumstances, (4) expands the failure to pay penalty, (5) makes the qualifications for the Jobs Development Act more stringent, and (6) increases certain insurance company fees. Sales and use tax provisions (TAXDAY, 20090702-S.25) and motor fuel and estate tax provisions (TAXDAY, 20090702-S.24) are reported separately.

CCH (cch.taxgroup.com) reports:

  The budget bill signed by Rhode Island Gov. Donald Carcieri establishes a presumption of nexus for sales and use tax nexus purposes, requires electronic sales and use tax payments for some taxpayers, and amends hospital licensing fees.

CCH (cch.taxgroup.com) reports:

  The Indiana budget bill makes numerous changes to corporate and personal income tax, franchise and capital stock tax, and insurance companies gross premiums tax laws as summarized below.

CCH (cch.taxgroup.com) reports:

  The IRS properly credited five checks toward the outstanding tax liability of a law firm and not the individual tax liability of an attorney and his wife. For the tax year at issue, the taxpayer/husband was improperly characterized as an independent contractor rather than an employee of his law firm and the IRS determined that the couple failed to report income and improperly claimed deduction. The taxpayers requested a collection due process (CDP) hearing after the IRS sent a notice of intent to levy. Although one of the disputed checks was not presented to the Appeals Officer, the Tax Court could consider it because the Tax Court did not follow the record rule, and therefore, could consider evidence not produced at the CDP hearing as long as it was relevant. Since the IRS did not make an evidentiary objection to the check at trial, any objection for relevance was waived. Because the taxpayers received a notice of deficiency, their underlying tax liability could not be challenged in the CDP hearing. Questions about whether a particular check could be credited to a taxpayer's account for a particular tax year, however, were not challenges to the taxpayer's underlying tax liability. The Appeal's officer's determination to the contrary was a harmless error of law and not an abuse of discretion because the IRS did correctly credit the checks against liabilities other than the taxpayers' unpaid individual tax liability for the tax year at issue. The taxpayers payments were voluntary and so their designations controlled. Designations on the checks, such as the employer identification number of the law firm that was liable for the employment taxes with respect to the taxpayer, supported a conclusion that the payments were meant to pay the law firm's tax debt, not the taxpayers' individual tax debt. Although one check arguably could have been for the payment of trust fund recovery penalty against the taxpayer as a responsible person for his law firm, the liability was for a tax year outside of the CDP hearing and the Tax Court lacked jursidiction over those taxes

  The taxpayers failed to present evidence that the employment taxes were overpaid prior to the year at issue and that the overpayment should be credited toward their individual deficiency. The taxpayers presented no evidence of their income from earlier years nor stated how the amounts should be credited or how the credits reduced the deficiency. Finally, the Appeals officer did not abuse her discretion in refusing to send the Social Security Administration information about the taxpayer's additional income. The issue was not related to an unpaid tax or levy and so was an issue that could not be raised at a CDP hearing.

Y.R. Kovacevich, Dec. 57,879(M)

Other References:

 
Code Sec. 6330

  CCH Reference - 2009FED ¶38,184.12

  Tax Research Consultant

  CCH Reference - TRC IRS: 51,056.25

CCH (cch.taxgroup.com) reports:

  The IRS Office of Chief Counsel issued guidance to its attorneys with respect to the scope and standard of review in cases involving requests for relief from joint and several liability under Code Sec. 6015(f). In Porter I (Dec. 57,439), and Porter II (Dec. 57,792), the Tax Court ruled that it would make its own de novo determination regarding whether a requesting spouse is entitled to relief, and that it would not be limited to evidence in the administrative record. The IRS disagrees with these holdings, and the guidance instructs government attorneys to continue to argue that the scope of the Tax Court's review is limited to issues and evidence presented before IRS Appeals or Examination. Government attorneys are to raise scope and standard of review arguments whenever appropriate, noting the IRS's disagreement with the Porter opinions.

  In addition, the guidance urges the expeditious identification of all cases in which a taxpayer raises relief from joint and several liability for the first time in a petition to the Tax Court following receipt of a notice of deficiency, or when the taxpayer files a petition after six months from filing a claim for relief with the IRS but before a determination on the claim is issued. The Cincinnati Centralized Innocent Spouse Operations (CCISO) should be requested to make a determination with respect to these cases. If CCISO determines the petitioner is not entitled to relief, a status report should be filed with the Tax Court setting forth the IRS's determination and attaching CCISO's written analysis as an exhibit.

Chief Counsel Notice CC-2009-021

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The $29 billion state budget signed by New Jersey Gov. Jon S. Corzinebudge on June 29, 2009, imposes additional corporation (business) taxes (CBTs) and personal income taxes; increases taxes on cigarettes and alcohol, except beer; and eliminates property tax rebates for certain individuals. The budget includes funding that is dependant upon the passage of separate legislative measures, as indicated, below. A.B. 4102, A.B. 4103, and A.B. 4104 also were signed by the governor on June 29, 2009.

CCH (cch.taxgroup.com) reports:

  A committee reviewing the Uniform Division of Income for Tax Purposes Act (UDITPA) for possible revision voted 5-2 to recommend that its study of UDITPA terminate in the face of intense opposition from some taxpayers and state legislators. The vote by the study committee appointed by the Uniform Law Commission (ULC) came during a June 30 conference call. The committee included a proviso that its recommendation may be revisited if circumstances change. The recommendation will be considered by the ULC leadership during its annual meeting in Santa Fe, New Mexico, July 9-16.

CCH (cch.taxgroup.com) reports:

  An individual acting as a branch manager and a member of a broker-dealer company's branch office servicing day traders could deduct as ordinary and necessary business expenses commission rate adjustments paid to his brother's limited liability company (LLC). The taxpayer negotiated the commission rate adjustments with all the customers, including his brother's LLC, which was the branch office's biggest customer, at arm's-length to keep the customers when they complained of the untimeliness of the broker-dealer company's commission rebates. It was a common practice in the day trading industry to lower commissions to attract and retain customers, and the broker-dealer company offered commission rebates to customers upon requests by branch managers. Whether the taxpayer or the broker-dealer company paid the commission rebates did not change the economics. Because the commission rate adjustments were expenses that would be expected of someone trying to increase and maintain business in the highly competitive world of day trading and were appropriate and helpful to keep customers trading through the branch office, they qualified as ordinary and necessary business expenses.

  The court rejected the IRS's alternative argument that the commission rate adjustments were illegal payments under Code Sec. 162(c)(2) made in violation of federal law implemented by NASD Rule 2110. The payments were not commission-sharing payments made in return for referrals of business, and the IRS failed to show that they would be classified as such by the NASD or that the payments would result in the taxpayer's being subject to a civil or criminal penalty or losing his license. Such payments were also not illegal per se since the IRS could not cite any statute or regulation specifically prohibiting them.

  The IRS's argument that the taxpayer's payments to his brother's LLC lacked economic substance since they were returned to the taxpayer in later years was also rejected since the later payments represented repayment of a principal and interest on a loan extended by the taxpayer to the LLC and a share of the LLC's profits made in the years when the taxpayer became responsible for operating and maintaining a new trading software at the LLC. The IRS also could not establish that the commission rate adjustment arrangement was not an arm's-length arrangement. These payments were necessary and legitimate business expenses, indistinguishable from those made to unrelated parties, and resulted in net commissions to the LLC comparable to those the LLC could have negotiated directly with the broker-dealer company or any other broker-dealer.

  Further, the taxpayer did not have to include in gross income trading gains generated from a subaccount with his brother's LLC since he had no ownership interest in, or rights to, the subaccount and never received any funds from the subaccount. The taxpayer did not have an agreement with the LLC giving him rights to a share of the subaccount gains while traders who were entitled to subaccount gains had written agreements with the LLC setting the terms of the profit splits and also received Schedules K-1 reflecting their portions of the subaccount gains. The subaccount belonged to the LLC and all the gains generated in the subaccount were ultimately passed to the taxpayer's brother.

  Since all of the taxpayer's records were accurate and thorough, except for two commission rate adjustments that were mistakenly deducted in the tax year at issue even though they were not, in fact, paid until the following year, the taxpayer was not liable for the accuracy-related penalty for negligence under Code Sec. 6662(a).

J.T. Manning, TC Memo. 2009-157, Dec. 57,876(M)

Other References:

 
Code Sec. 61

  CCH Reference - 2009FED ¶5504.198

  CCH Reference - 2009FED ¶5504.20

 
Code Sec. 162

  CCH Reference - 2009FED ¶8520.517

  CCH Reference - 2009FED ¶8858.01

 
Code Sec. 6662

  CCH Reference - 2009FED ¶39,651G.31

  Tax Research Consultant

  CCH Reference - TR INDIV: 6,050

CCH Reference - TRC BUSEXP: 3,100
CCH Reference - TRC PENALTY: 3,106
 

CCH (cch.taxgroup.com) reports:

  A husband and wife who owned, directly or through other entities, interests in seven limited liability partnerships (LLPs), two limited liability companies (LLCs), and two tenancies in common (TICs) were not limited partners in limited partnerships with respect to such interests; accordingly, the couple was not subject to Code Sec. 469(h)(2) and companion temporary regulations, which presumptively treat losses from certain limited partnerships as passive.

  CCH Comment.
Code Sec. 469(h)(2), enacted in 1986, and Temporary Reg. §1.469-5T(e)(1) and (2), adopted in 1988, predate the existence of LLPs, and the widespread availability of LLCs. Thus, they only contemplate limited or general partnership interests in a limited partnership entity, the nature of which is dependent on an identity between the management rights and liability exposure of the entity's owners. Limited partners of a limited partnership do not participate in the management of the business and do not have personal liability for the debts of the partnership. Entities such as LLPs and LLCs, however, offer owners the ability to materially participate in the management of the business, while at the same time enjoying limited liability for its obligations.

  Although the couple may have had limited liability with respect to all of the LLC and LLP investments, this did not preclude them under state law, as limited partners in a limited partnership would have been, from materially participating in the entities' businesses. Accordingly, in applying the material participation tests under the passive loss rules, the taxpayers were considered to be general partners, not limited partners. Similarly, the TIC properties were not limited partnerships, and the couple's interests in the TIC properties were not limited partnership interests.

  While the couple was identified on certain Schedules K-1, Partner's Share of Income, Deductions, Credits, etc, for the LLPs and one of the TIC properties as being a "limited partner" with respect to such investments, and the couple might have thereby potentially avoided self-employment tax because limited partner distributive shares are not considered self-employment income, this did not require that the couple be regarded as limited partners for purposes of the passive loss rules. The Schedule K-1 form did not provide the option of identifying their interests in the LLPs as that of a "limited liability partner," and the description on the K-1s did not conclusively establish the nature of their interests.

P.D. Garnett, 132 TC No. 19, Dec. 57,875

Other References:

 
Code Sec. 469

  CCH Reference - 2009FED ¶21,966.028

  CCH Reference - 2009FED ¶21,966.53

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 33,160
CCH Reference - TRC BUSEXP: 33,160.10
 

CCH (cch.taxgroup.com) reports:

  An IRS revenue procedure provides guidance on the election by corporations not to claim the 50-percent additional depreciation allowance (bonus depreciation) (Code Sec. 168(k)) on property acquired after March 31, 2008 (eligible qualified property), and instead to claim accelerated research and/or alternative minimum tax (AMT) credit carryforwards from tax years that began before January 1, 2006. The guidance specifically deals with the special elections for "extension property" contained in Code Sec. 168(k)(4)(H). The guidance covers property eligible for the elections, the time and manner for making elections, and the computation of the bonus depreciation amount (i.e., the amount by which the Code Sec. 38(c) business credit and Code Sec. 53(c) AMT credit limitations are increased if the elections are or are not made.

  CCH Comment. Extension property is property that is eligible for bonus depreciation solely by reason of the extension of the bonus depreciation provision by the American Recovery and Reinvestment Act of 2009 (P.L. 111-5). Thus, extension property generally consists of property placed in service in 2009 that is eligible for bonus depreciation.

  The special rules for extension property allow a corporation that made the Code Sec. 168(k)(4) election in its first tax year that ended after March 31, 2008, with respect to bonus depreciation property placed in service after that date to elect not to have the election apply to extension property. If the corporation does not elect to exclude extension property, then a "bonus depreciation amount" is computed separately for bonus depreciation property which is extension property and for bonus depreciation property which is not extension property.

  CCH Comment. The amount of additional research credit and/or AMT credit that a corporation may claim if it elects to forgo bonus depreciation is determined by increasing the Code Sec. 38(c) business credit and Code Sec. 53(c) AMT credit limitations by the bonus depreciation amount for the tax year.

  The second special rule for extension property allows a corporation that did not make a Code Sec. 168(k)(4) election for its first tax year ending after March 31, 2008, to make the election for its first tax year ending after December 31, 2008. If this election is made a bonus depreciation amount is only computed with respect to extension property.

  Definitions relating to extension property . Under the guidance, eligible qualified property is not extension property if:

  --The eligible qualified property is acquired by the taxpayer after March 31, 2008, and placed in service by the taxpayer before January 1, 2009;

  --The eligible qualified property meets the requirements of Code Sec. 168(k)(2)(, is acquired by the taxpayer after March 31, 2008, and is placed in service by the taxpayer before January 1, 2010; or

  --The eligible qualified property meets the requirements of Code Sec. 168(k)(2)(C), is acquired by the taxpayer after March 31, 2008, and is placed in service by the taxpayer before January 1, 2010.

  Extension property is eligible qualified property that:

  --Is acquired by the taxpayer after March 31, 2008, is placed in service by the taxpayer after December 31, 2008, and before January 1, 2010, and is not described in items (2) and (3) above;

  --Meets the requirements of Code Sec. 168(k)(2)(, is acquired by the taxpayer after March 31, 2008, and is placed in service by the taxpayer after December 31, 2009, and before January 1, 2011; or

  --Meets the requirements of Code Sec. 168(k)(2)(C), is acquired by the taxpayer after March 31, 2008, and is placed in service by the taxpayer after December 31, 2009, and before January 1, 2011.

  Election not to apply the Code Sec. 168(k)(4) election to extension property. The election not to apply the Code Sec. 168(k)(4) election to extension property must be made by the due date (including extensions) of the income tax return for the corporation's first tax year ending after December 31, 2008. If a corporation has already filed that return and did not make the election not to apply the Code Sec. 168(k)(4) election to extension property it may make a late election by following the procedures contained in Sec. 4.04 of Rev. Proc. 2009-33. The corporation must attach a statement indicating that is is making the election not to apply its Code Sec. 168(k)(4) election to extension property. Separate written notification of the election must be made to any partnership in which the corporation is a partner on or before the due date (including extensions) of the corporation's return for its first tax year ending after December 31, 2008, or by the date it files its return containing a late election.

  If all members of a controlled group are members of an affiliated group that files a consolidated return, the common parent of the consolidated group makes the election for the group on the consolidated return. Special rules apply when separate federal income tax returns are filed by some or all members of a controlled group.

  If a corporation that made the Code Sec. 168(k)(4) election for its first tax year ending after March 31, 2008, elects not to have that election apply to extension property, the election will exclude extension property placed in service in its first tax year ending after December 31, 2008 and in any subsequent tax year. Even if the corporation does not place any extension property in service in its first tax year ending after December 31, 2008, it must make the election not to apply the Code Sec. 168(k)(4) election to extension property for that tax year if it wishes to apply such election to extension property placed in service in a subsequent tax year.

  Bonus depreciation amount for extension property. If a corporation does not elect to not to apply its Code Sec. 168(k)(4) election to extension property, a separate bonus depreciation amount is computed for eligible qualified property that is not extension property (non-extension property) and eligible qualified proeprty that is extension property (extension property). In general, the computation rules described in
Rev. Proc. 2008-65, I.R.B. 2008-44, 1082, are used to determine these amounts by applying the rules separately to non-extension and extension property. The maximum bonus depreciation amounts is limited to $30 million for non-extension property and $30 million for extension property. Similar rules apply to controlled groups except that the computation rules described in Rev. Proc. 2009-16, I.R.B. 2009-6, 449, for controlled groups are used.

  Election to apply Code Sec. 168(k)(4) election only to extension property. A corporation that did not make the Code Sec. 168(k)(4) election for its first tax year ending after March 31, 2008, may make the election to apply the election only to extension property (the "extension property election").

  The extension property election must be made by the due date (including extensions) of the income tax return for the corporation's first tax year ending after December 31, 2008. A late election may be made by a corporation that filed its return for its first tax year ending after December 31, 2008, pursuant to section 6.06 of this Rev. Proc. 2009-33.

  A C corporation makes the election by:

  --Claiming the refundable AMT and/or research credit on the appropriate line of Form 1120, U.S. Corporation Income Tax Return, for the its first tax year ending after December 31, 2008;

  --Filing, with the Form 1120, the Form 3800, General Business Credit, or Form 8827, Credit for Prior Year Minimum Tax --Corporations, or both, as applicable, for its first tax year ending after December 31, 2008;

  --Filing, with the Form 1120, Form 4562, Depreciation and Amortization (Including Information on Listed Property), for its first tax year ending after December 31, 2008, indicating that it used the straight-line method and did not claim the bonus depreciation deduction for any extension property; and

  --Providing written notification to any partnership in which it is a partner that it is making the Code Sec. 168(k)(4) extension property election on or before the due date (including extensions) of its federal income tax return for its first tax year ending after December 31, 2008, or by the date it files its income tax return containing a late election.

  An S corporation makes the election by:

  Making appropriate adjustments to the appropriate line of the Form 1120S, U.S. Income Tax Return for an S Corporation, for its first tax year ending after December 31, 2008, to reflect the results from making the extension property election;

  Attaching a statement to the return indicating that it is making the extension property election and a statement showing the computation of the increases to the business credit and AMT credit limitations that result from making the election;

  Filing, with the Form 1120S, Form 4562 indicating that the taxpayer used the straight-line method and did not claim the bonus depreciation deduction for all extension property; and

  Providing written notification to any partnership in which it is a partner that it is making the extension property election on or before the due date (including extensions) of its federal income tax return for its first tax year ending after December 31, 2008, or by the date it filed its income tax return containing a late election.

  If the extension property election is made, it applies to all extension property placed in service by the corporation in the its first tax year ending after December 31, 2008, and in any subsequent tax year. Even if the corporation does not place any extension property in service in its first tax year ending after December 31, 2008, it must make the extension property election for that tax year if it wishes to apply the election to extension property placed in service in a subsequent tax year.

  If all members of a controlled group are members of a consolidated group, the common parent makes the extension property election. If a controlled group includes members of a consolidated group, the consolidated group is treated as a single member of the controlled group and the election is made by the common parent. Special election procedures apply to a member of a controlled group that makes the extension property election. The guidance also explains the manner of determining the members of a controlled group for the first tax year ending after December 31, 2008 and subsequent tax years.

  The bonus depreciation amount is generally computed in the manner provided in Rev. Proc. 2008-65 by only taking into account extension property. S corporations will generally follow the rules previously issued for S corporations in Rev. Proc. 2009-16. If a corporation making the extension property eletion is a partner in a partnership, the partnership must provde the corporation with sufficient information to determine its appropriate distributive share of partnership items relating to any extension property placed in service during the tax year.

 
Code Sec. 168(k)(4) election by corporation with short succeeding tax year. The new guidance also modifies section 3.02(1)(a)(ii) of Rev. Proc. 2009-16 to address how a corporation whose first tax year ending after March 31, 2008, ends before December 31, 2008, makes the Code Sec. 168(k)(4) election when the corporation's succeeding tax year is a short tax year. That section generally provides that if a taxpayer's first tax year ending after March 31, 2008, ends before December 31, 2008, the corporation must file an amended federal income tax return on or before the due date (without regard to extensions) of the corporation's original federal income tax return for the succeeding tax year in order to claim the refundable credit resulting from a Code Sec. 168(k)(4) election. The modified guidance provides that if the succeeding tax year is a short tax year, the amended return must be filed on or before the earlier of (1) 30 days after the due date (excluding extensions) of the corporation's income tax return for its first tax year ending after March 31, 2008 or (2) 180 days after the due date (excluding extensions) of the corporation's income tax return for the succeeding tax year.

Rev. Proc. 2009-33, 2009FED ¶46,419

Other References:

 
Code Sec. 168

  CCH Reference - 2009FED ¶11,279.058

  CCH Reference - 2009FED ¶11,279.19

  Tax Research Consultant

  CCH Reference - TRC DEPR: 3,600

  CCH Reference - TRC DEPR: 3,606

CCH (cch.taxgroup.com) reports:

  The IRS has issued guidance providing reliance criteria for private foundations and sponsoring organizations that maintain donor-advised funds in determining whether a potential grantee is an organization described in Code Sec. 509(a)(1),
(2) or (3) for purposes of the excise taxes imposed on grants to certain supporting organizations under
Code Secs. 4942, 4945 and 4966.

  The Pension Protection Act of 2006 (P.L. 109-280) enacted new rules regarding grants by private foundations to certain types of supporting organizations. Under previously issued guidance in Notice 2006-109, 2006-2 CB 1121, for purposes of Code Secs. 4942, 4945 and 4966, a grantor acting in good faith may rely on information from the IRS Business Master File (BMF) or the grantee's current IRS letter recognizing the grantee as exempt from federal income tax and indicating the grantee's public charity classification in determining whether the grantee is a public charity under Code Sec. 509(a)(1),
(2) or (3). The IRS subsequently posted a document on its website clarifying how a grantor may access BMF data and providing that a private foundation or sponsoring organization may use a third party to obtain BMF data as long as certain requirements are met.

  The new guidance provides that, in determining whether a public charity is classified under Code Sec. 509(a)(1),
(2) or (3), a private foundation or a sponsoring organization that maintains a donor advised fund, acting in good faith, may rely on either: (1) the grantee's current IRS letter recognizing the grantee as exempt from federal income tax and indicating the grantee's public charity classification; or (2) information from the BMF.

  A grantor may download the BMF directly from the IRS website and store the relevant information in hard copy or electronically. A grantor may also obtain the BMF information from a third party, so long as the following requirements are met:

  (1) The third party must provide a report to the grantor that includes the grantee's name, Employer Identification Number and public charity classification, a statement that the information is from the most current update of the BMF and the BMF revision date and the date and time the information was provided to the grantor; and

  (2) The report must be in a form that the grantor can store in hard copy or electronically.

  The portions of section 3.01 of Notice 2006-109, 2006-2 CB 1121, that relate to reliance for purposes of determining whether a grantee is a public charity under Code Sec. 509(a)(1),
(2) or (3), are superseded.

Rev. Proc. 2009-32, 2009FED ¶46,418

Other References:

 
Code Sec. 509

  CCH Reference - 2009FED ¶22,812.50

 
Code Sec. 4942

  CCH Reference - 2009FED ¶34,047.034

  CCH Reference - 2009FED ¶34,047.67

 
Code Sec. 4945

  CCH Reference - 2009FED ¶34,107.43

 
Code Sec. 4966

  CCH Reference - 2009FED ¶34,317C.01

  CCH Reference - 2009FED ¶34,317C.20

  Tax Research Consultant

  CCH Reference - TRC EXEMPT: 21,210

  CCH Reference - TRC EXEMPT: 24,400

  CCH Reference - TRC EXEMPT: 33,150

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  An IRS Appeals officer did not abuse his discretion in denying the application of Code Sec. 6621(d) interest netting in calculating additions to tax for negligence against an individual taxpayer under former Code Sec. 6653(a)(2). Although the addition to tax is calculated based on Code Sec. 6601 underpayment interest, and Code Sec. 6601 references Code Sec. 6621 in determining the underpayment rate, the underpayment rate, not the netted underpayment and overpayment rate, is used to calculate the addition to tax.

  Even if the entire Code Sec. 6621 is considered,
Code Sec. 6621(d) does not apply a zero interest rate but, rather, provides that the net rate of interest would be zero on equivalent underpayments and overpayments. Thus, the underpayment interest rate used to calculate the addition to tax does not itself become zero. Moreover, Code Sec. 6621(d) does not refer to amounts that are not interest, such as penalties or additions to tax.

  In addition, the IRS did not abuse its discretion by not offsetting the taxpayer's outstanding overpayments and underpayments, and properly applied the interest netting by decreasing the underpayment interest to equal the interest paid to the taxpayer on refunds for the overlapping period. Generally, the IRS has discretion whether to apply overpayments to delinquencies or to refund them. Also, the IRS would not generally use Code Sec. 6621(d) to eliminate interest rate imbalances if the differing rates had been eliminated through crediting because of a refund or tax payment. In this case, the IRS issued a refund to the taxpayer and paid him taxable interest on overpayments at the same rate at which the taxpayer was charged interest on equal amounts of underpayments during the same periods. Because the IRS sent a refund for the overpayments, with interest, and agreed that Code Sec. 6621(d) interest netting applied, the interest rate imbalances had been eliminated. Thus, the interest netting could be properly applied without offsetting the taxpayer's outstanding overpayments and underpayments.

T.I. Lincir, TC Memo. 2009-153, Dec. 57,871(M)

Other References:

 
Code Sec. 6330

  CCH Reference - 2009FED ¶38,184.60

 
Code Sec. 6621

  CCH Reference - 2009FED ¶39,455.38

  Tax Research Consultant

  CCH Reference - TRC PENALTY: 9,056.05
CCH Reference - TRC IRS: 51,056.25
   
 

CCH (cch.taxgroup.com) reports:

  David Axelrod, President Obama's senior advisor, indicated that the White House is willing to consider various proposals to tax health care benefits. However, he stressed that the president's proposal to limit the tax deduction for charitable contributions made by those earning above $250,000 remains "the best way to go."

  Axelrod, appearing on ABC's "This Week" on June 28, said there are "a number of formulations" in the health care reform plan so the administration will "wait and see." He maintained that keeping the legislative process moving along is "the most important thing at this point."

  White House Press Secretary Robert Gibbs, at a press briefing on June 29, said the administration understands that working with Congress requires flexibility and many participants at "a very large table" in order to make progress on health care reform. Gibbs, when pressed by reporters, did not rule out White House support for taxing health benefits but responded that the administration "will let the process work its way through."

  Senate Finance Committee Chairman Max Baucus, D-Mont., and ranking member Charles E. Grassley, R-Iowa, on May 18 released policy options for financing reform of the health care system that contained changes in the exclusion for employer-provided benefits (TAXDAY, 2009/05/19, C.1). Proposals included capping the exclusion based on the value of a health insurance policy or the income level of the employee eligible for the exclusion, capping the exclusion based on both the value of the health insurance policy and income level, converting the employer-provided health insurance exclusion to an individual tax deduction or credit, and grandfathering existing plans so that benefits provided under existing collective bargaining agreements are not limited.

  By Paula Cruickshank, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Both Houses of the New Jersey Legislature have passed legislation that would, if enacted, increase the gross (personal) income tax rate and reduce the property tax deduction for high-income taxpayers and tax New Jersey lottery winnings in excess of $10,000.

CCH (cch.taxgroup.com) reports:

  After the Kentucky Legislature adjourned from its regular session without a final agreement on an economic incentives package (TAXDAY, 2009/03/30, S.14) and finally reached consensus on a package during a special session (TAXDAY, 2009/06/25, S.7), Gov. Steve Beshear signed legislation that creates and amends numerous credits that may be claimed against the Kentucky corporation income tax, the limited liability entity tax (LLET) and the personal income tax. The legislation includes new and amended credits for investment, job training, job retention, employer-paid tuition, first-time new home purchases, small business development, the film industry, and alternative energy facilities. In addition, all military pay received by active duty members of the U.S. Armed Forces, reserve members, and National Guard members, including compensation for state active duty, may be excluded from personal income effective for taxable years beginning on or after January 1, 2010. Provisions of the legislation that provide sales and use tax incentives (TAXDAY, 2009/06/29, S.11) and a pari-mutuel tax exemption for certain horse racing events and a motor vehicle usage tax incentive (TAXDAY, 2009/06/29, S.13) are covered in other stories.

CCH (cch.taxgroup.com) reports:

  The Connecticut General Assembly has passed a biennial budget bill for the period beginning July 1, 2009, and ending June 30, 2011, that, if enacted, would increase personal income tax rates, impose a corporate tax surcharge, decouple from the federal domestic product activities deduction, increase cigarette taxes, enact an estate tax surcharge, create a new tire fee, and make various other changes to the Connecticut tax laws as described below. Unless otherwise noted, all changes would be effective July 1, 2009, and apply to income or tax years beginning on or after January 1, 2009.

  Gov. Jodi Rell has indicated that she will veto the bill. The General Assembly has, however, sent Gov. Rell a letter asking for her support for the bill. The letter, signed by the Speaker of the House (Christopher Donovan) and the Senate President Pro Tempore (Donald Williams, Jr,), states that if Gov. Rell intends to veto the legislation, the General Assembly requests immediate bi-partisan negotiations between the Executive and Legislative branches of government. The General Assembly also suggests Monday, June 29, 2009, at 11:00 a.m. in Capitol Room 410 as a possible first session of negotiations.

CCH (cch.taxgroup.com) reports:

  The House passed the American Clean Energy and Security Bill of 2009 (HR 2454), a comprehensive energy measure designed to combat global warming by capping the amount of greenhouse gas produced by American businesses and consumers. The measure, which passed by a vote of 219 to 212 on June 26, includes few tax provisions since House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., decided against convening his committee to make changes to the bill.

  The measure includes a provision to modify the earned income tax credit by increasing the phaseout amount from $5,280 to $11,640 for taxpayers without qualifying children, effective after December 31, 2011. That provision was included in a 310-page amendment that Democratic leaders added to the bill in the early hours of June 26. The bill also includes a provision to allow the Treasury to transfer money from the general fund to the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund to offset any changes in benefit costs and tax revenues caused by the energy measure.

  House Minority Leader John Boehner, R-Ohio, criticized the legislation, saying it allows the federal government to impose new regulations and programs that will drive up the cost of gasoline, food and electricity. This over-intrusive energy measure would drive millions of jobs overseas to other countries that have less strict environmental regulations, he said. Rep. Earl Blumenauer, D-Ore., said the bill puts a mechanism in place to rein in global warming and create capital that can be invested in renewable energy sources from the wind and sun.

White House

  President Obama hailed House passage of the energy bill, saying it was a historic action that would create millions of new jobs, reduce U.S. dependence on foreign oil and limit the release of dangerous pollutants.

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

Tax Section of Amendment to American Clean Energy and Security Act of 2009, HR 2454

Statement of Administration Policy on HR 2454

CCH (cch.taxgroup.com) reports:

  Charging that the Obama Administration's economic stimulus bill has done little to assist small businesses, Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, on June 26 introduced legislation that he said would give those employers critical tax relief, allowing them to grow and create new jobs.

  "My bill will leave more money in the hands of small business owners so they can hire more workers, keep paying the salaries of their employees, and make additional investments that will lead to new jobs" Grassley said.

  Grassley's Small Business Tax Relief Act of 2009 includes provisions that would increase the expensing allowance from $250,000 to $500,000, allow more small C corporations to benefit from the lower tax rates for the smallest C corporations, take the general business credits out of the alternative minimum tax (AMT) for companies with $50 million or less in annual gross receipts, extend the one-year carryback for general business credits to a five-year carryback for small businesses, provide a 20-percent deduction for flow-through business income for small businesses, which are defined as flow-through entities with $50 million or less in annual gross receipts, lower the potential tax burden when a C corporation becomes an S corporation, and expand the net operating loss provision contained in the stimulus bill.

  By Jeff Carlson, CCH News Staff

Senate Finance Committee Release: Grassley Introduces Bill to Strengthen Job-Creating Abilities of Small Businesses
 

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Texas has enacted a group of tax incentives aimed at projects to capture and sequester carbon dioxide that would otherwise be emitted into the atmosphere, including a franchise tax credit, a sales and use tax exemption, an extended severance tax rate reduction, and new qualifications for property tax incentives under the Texas Economic Development Act.

CCH (cch.taxgroup.com) reports:

  The Minnesota Department of Revenue has issued an update regarding the July 1 sales and use tax rate increase that provides transitional provisions for various transactions. As previously reported, the general sales and use tax rate increases from 6.5% to 6.875% on July 1, 2009. (TAXDAY, 2009/04/10, S.16) Beginning July 1, the new tax rate of 6.875% applies to all taxable sales, including leases of motor vehicles. However, the new 6.875% rate does not apply to sales or purchases of motor vehicles that are subject to the state excise tax on motor vehicles. (TAXDAY, 2009/05/19, S.8)

  If an invoice or billing includes charges for taxable items or services for dates prior to July 1 and dates on or after July 1, the entire billing is taxed at the 6.875% rate unless the charges are separately stated for sales before July and for sales beginning July 1. When the charges are separately stated, charges for taxable items and services sold before July 1 are taxed at the 6.5% rate and charges for taxable items or services sold on or after July 1 are taxed at the 6.875% rate.

CCH (cch.taxgroup.com) reports:

  California Controller John Chiang has announced that unless the governor and legislature adopt immediate budget and cash solutions, beginning July 2, 2009, the controller's office will be forced to issue registered warrants, also known as IOUs, for personal income and corporation franchise and income tax refunds and all other payment categories not protected by the state constitution, federal law, and court decisions.

  The warrants will carry an interest rate set by the Pooled Money Investment Board. The controller has requested an emergency meeting of the Board on July 2 to set the rate. Any rate adoption will become effective immediately. The warrants will have a maturity date of October 1, 2009.

Press Release , California State Controller's Office, June 24, 2009

CCH (cch.taxgroup.com) reports:

  The IRS failed to take necessary actions to notify taxpayers and their representatives of Notices of Federal Tax Liens (NFTL) filed by the Service, the Treasury Inspector General for Tax Administration (TIGTA) concluded in a report released on June 25. In a separate report, TIGTA determined that the IRS is not properly monitoring Acceptance Agents who obtain individual taxpayer identification numbers (ITIN) for alien individuals.

Notices of Federal Tax Liens

  The IRS attaches an NFTL on taxpayer assets when it has a claim for unpaid taxes. The IRS filed over 700,000 lien notices for the year beginning July 1, 2007, and ending June 30, 2008. After filing a notice, the IRS must, within five business days, notify taxpayers of the lien in writing at their last-known address. In addition, if the taxpayer has an authorized representative on file with the IRS, the Service must notify the representative of the lien within five business days after notice is sent to the taxpayer.

  TIGTA is required to audit the lien program every year. In a sample of 125 cases, TIGTA found that the IRS notified taxpayers within five days in every case. In the previous year, IRS could not demonstrate timely mailing in 3 percent of sampled cases.

  Taxpayers had an authorized representative in 27 of the 125 cases, but the IRS failed to notify the representatives in eight (30 percent) of the 27 cases. While this error rate declined from 76 percent in 2006, TIGTA projected that taxpayer representatives may not have been notified in over 45,000 cases. At TIGTA's recommendation, the IRS is improving its processes for updating its records of taxpayer representatives and for notifying representatives of NFTLs.

  If the lien notice mailed to the taxpayer is returned to the IRS as undelivered mail, employees must research the IRS computer system within five days to check the accuracy of the taxpayer's address. In a sample of 283 undelivered lien notices, the IRS failed to perform timely research in 83 percent of the cases, compared to 33 percent in the previous year. TIGTA indicated that it found similar problems in the previous year and that the IRS had agreed to address the problem but, instead, the IRS's performance declined. The Service agreed to TIGTA's new recommendation to check addresses using the Automated Lien System.

  TIGTA identified 26 cases where the addresses on the lien notice and in the IRS system did not match. In 17 of the cases, the address was updated before notice was sent to the taxpayer, and a new lien notice should have been sent to the updated address. This created potential violations of taxpayers' rights because the IRS did not satisfy the statutory requirement to send the lien notice to the taxpayer's last-known address. TIGTA also determined that the IRS failed to enter appropriate codes in its records to reflect the status of the notices and to determine appropriate actions.

Acceptance Agents

  In the second report, TIGTA examined the use of IRS-approved Acceptance Agents to obtain ITINs for aliens. TIGTA noted that inadequate screening and monitoring increased the risk to taxpayers and the government of potential losses associated with unscrupulous agents. The auditor found that the IRS failed to properly monitor agents. Copies of green cards were lacking for 10 of 12 agents sampled, and required criminal background checks were not performed for 70 of 74 agents. Finally, the IRS failed to visit agents to check on their performance. The IRS agreed to correct these problems.

TIGTA Press Release: TIGTA Releases Audit Report on Acceptance Agent Program

TIGTA Report: Inadequate Management Information Has Adversely Affected the Acceptance Agent Program (Reference Number: 2009-40-087)

TIGTA Press Release: TIGTA Releases Audit Entitled, "Additional Actions Are Needed to Protect Taxpayers' Rights During the Lien Due Process"

TIGTA Report: Additional Actions Are Needed to Protect Taxpayers' Rights During the Lien Due Process (Reference Number: 2009-30-089)
 

CCH (cch.taxgroup.com) reports:

  Transportation industry experts and government officials told lawmakers on the House Ways and Means Subcommittees of Oversight and Select Revenue Measures on June 25 that the nation's transportation needs are dire and that the Highway Trust Fund is severely underfunded. Since Americans have curbed their driving during the recession, the trust fund is not collecting enough in fuel taxes to fund the current highway program, said Transportation Department (DOT) Undersecretary for Policy Roy Kienitz.

  DOT estimates that the trust fund will run out of money in August 2009. "We estimate that an additional $5-7 billion will be needed in the Highway Account to manage the cash flow and pay all of our bills on time through the end of the current fiscal year," Kienitz said. "And we estimate that another $8-10 billion will be needed to cover the anticipated cash shortfall in fiscal year 2010."

  DOT Secretary Ray LaHood has proposed that lawmakers pass an 18-month highway reauthorization bill that lasts through March 2011, and that the Highway Trust Fund immediately be replenished with $20 billion in cash. However, 43 Democratic members of the House Transportation and Infrastructure Committee sent a letter to President Obama on June 24 arguing against the 18-month extension. Lawmakers prefer a massive surface transportation authorization bill that is now under consideration by the Transportation panel. Ways and Means members are considering whether to increase the current gasoline tax of 18.4 cents per gallon to add money to the trust fund.

  Rep. Charles Boustany Jr., R-La., said simply transferring money from the Treasury general fund to the Highway Trust Fund is not an acceptable long-term solution to the nation's transportation infrastructure needs. Moreover, Congress is likely to be on its August recess when the trust fund runs dry, so lawmakers really only have until the end of July to find a funding solution that the president will sign.

  By Stephen K. Cooper, CCH News Staff

Ways and Means Press Release: Chairmen Neal and Lewis on Highway and Transit Investment Needs
 

CCH (cch.taxgroup.com) reports:

  House lawmakers are expected to consider the American Clean Energy and Security Bill of 2009 (HR 2454) on June 26, just before leaving town for the week-long Independence Day recess. The measure includes a provision to modify the earned income tax credit by increasing the phaseout rate from $5,280 to $13,590, effective after December 31, 2011. The bill also includes a provision to allow the Treasury to transfer money from the general fund to the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund to offset any changes in benefit costs and tax revenues caused by the energy measure.

  President Obama, in a Rose Garden statement, said the House energy bill would spur the development of low-carbon energy sources, such as wind, solar, geothermal, clean coal and nuclear power. He said the legislation would create incentives that will "spark a clean energy transformation" of the U.S. economy. Obama maintained that the energy bill will create millions of new jobs and urged lawmakers to support the measure.

  House Speaker Nancy Pelosi, D-Calif., in remarks to reporters, said the energy bill would reduce America's dependence on foreign oil, reduce pollution and create jobs. Former Vice President Gore had been scheduled to come to Capitol Hill to meet with undecided Democrats, but a last-minute agreement between House Agriculture Chairman Collin C. Peterson, D-Minn., and House Energy and Commerce Chairman Henry Waxman, D-Calif., reportedly persuaded more members to support the legislation.

  GOP lawmakers are not expected to support the measure, which they characterized as a national energy tax that will exacerbate the economic recession. House Republican Study Committee Chairman Tom Price, R-Ga., cited a study by the National Black Chamber of Commerce that predicts that, by the year 2030, the Waxman-Markey legislation will lower U.S. gross domestic product by roughly $350 billion; result in 2.5 million fewer jobs; and take an average of $390 per year out of American worker's pockets.

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

Tax-Related Portions of the American Clean Energy and Security Bill, as Reported by the House Rules Committee, HR 2454
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Kentucky Legislature has reached consensus on Gov. Steve Beshear's special session economic development package that contains a broad range of corporation and personal income tax credits, sales and use tax incentives, and a pari-mutuel tax exemption for certain horse racing events, according to a Legislative Research Commission (LRC) news release. Both the House of Representatives (TAXDAY, 2009/06/19, S.5) and the Senate (TAXDAY, 2009/06/23, S.12) passed different versions of a bill (H.B. 3) amending the original provisions proposed by the governor (TAXDAY, 2009/06/12, S.17). The LRC said changes to the bill that were agreed upon by House and Senate conferees, include:

  -- a personal income tax exemption for Kentucky's active-duty military personnel;

  -- a motor vehicle use tax incentive that would only tax car buyers on the difference between a new car purchase and the owner's trade-in; and

  -- an extension of tourism development incentives.

  The tax exemption for military personnel was part of special session legislation proposed by the governor that would have authorized the use of Video Lottery Terminals (VLTs) at certain Kentucky horse racing tracks (TAXDAY, 2009/06/10, S.11). The VLT bill (H.B. 2) was passed by the House, but later died in Senate committee.

  Subscribers can view the LRC news releases.

News Release , Kentucky LRC, June 24, 2009; Capitol Notes , Kentucky LRC, June 22, 2009
 

CCH (cch.taxgroup.com) reports:

  The House Education and Labor Committee on June 24 approved legislation aimed at giving investors more information about fees that are charged to their 401(k) retirement plans. By a vote of 29-to-17, lawmakers approved the 401(k) Fair Disclosure and Pension Security Bill (HR 2989). The legislation is designed to provide employees with more information about fees taken from their retirement plans, and more options when they choose their investment plans. Rep. George Miller, D-Calif., chairman of the Education and Labor Committee, said the bill is a response to employee worries about the value of their retirement plans during the current economic recession.

  The legislation would require retirement plans to give investors a quarterly statement that includes a dollar figure representing all fees taken from their 401(k) plan. Service providers and plan administrators would be required to categorize fees as administrative fees, investment management fees, transaction fees and other fees. The measure would also require service providers to disclose any financial relationships so that companies that sponsor 401(k) plans can make sure there are no conflicts of interest.

  A spokesman for the Education and Labor Committee said Miller will determine the next step for the legislation after consulting with the House Ways and Means Committee, which also has jurisdiction over
401(k) plans. Meanwhile, a similar bill, introduced by Senate Special Committee on Aging Chairman Herb Kohl, D-Wis., and Sen. Tom Harkin, D-Iowa, is pending in the Senate. Their bill, the Defined Contribution Fee Disclosure Bill (Sen 401), would require a 401(k) plan to provide a written statement of services provided, as well as the expected total annual service charge.

  By Stephen K. Cooper, CCH News Staff

401(k) Fair Disclosure and Pension Security Act of 2009, HR 2989

Defined Contribution Fee Disclosure Act of 2009, Sen 401
 

CCH (cch.taxgroup.com) reports:

  Lawmakers on the House Ways and Means Committee traded barbs on June 24 about the nature and effect of comprehensive health care reform legislation now under consideration by Congress. At a committee hearing on the health care draft legislation proposed by Democratic leaders, GOP lawmakers attempted to characterize the public insurance option included in the health care reform plan as a wholesale move toward socialized medicine.

  Ways and Means ranking member Dave Camp, R-Mich., said an independent analysis of the Democratic plan shows that a public option would cost $3.5 trillion. Committee Chairman Charles B. Rangel, D-N.Y., remarked that Congress would use estimates from the Congressional Budget Office (CBO) when determining the cost and method of paying for health care reform. Democrats maintained that offering Americans a public option for health care would provide competition for private insurers and lower prices for patients. The health care discussion draft legislation was written by Democrats on the House Ways and Means, Energy and Commerce and Education and Labor Committees, which held a third day of hearings on the proposal on June 24.

  Randel K. Johnson, senior vice president of Labor, Immigration, & Employee Benefits for the U.S. Chamber of Commerce, told lawmakers that the only way health care reform can appear to be budget-neutral is for Congress to impose massive new taxes. He said creating a European-style value-added tax would harm the economy and hurt those with the lowest incomes. Other regressive ideas under consideration by Congress include taxing sugary drinks and alcohol, and modifying flexible spending accounts and health savings accounts.

HELP Committee Seeks Budget Score

  The Senate Health, Education, Labor, and Pensions (HELP) Committee on June 24 asked the CBO to score the budget impact of two competing proposals requiring employers to help pay for employee private health insurance coverage if they are not offered coverage in the workplace. The so-called "pay or play "mandate would exempt small businesses, according to Sen. Christopher Dodd, D-Conn., but the committee has yet to determine who would qualify as a small business. The CBO has also been asked to determine the cost of a proposal requiring businesses with large numbers of employees covered under Medicaid to pay additional taxes.

  The committee plans to wrap up work on the less-controversial portions of its health care reform bill by the end of the week of June 22 and resume consideration of more difficult sections, including public-backed insurance programs and how to pay for the overhaul, when Congress returns from its Fourth of July recess during the week beginning July 6.

  By Jeff Carlson and Stephen K. Cooper, CCH News Staff

Ways and Means Press Release: Ways and Means Focuses on Health Reform Proposals to Reduce Costs, Protect Current Coverage and Preserve Choice for Patients to Ensure Affordable Care

CCH (cch.taxgroup.com) reports:

  President Obama on June 24 signed legislation aimed at boosting the sale of vehicles at financially struggling U.S. automobile dealerships. The so-called "cash for clunkers" program provides $1 billion in tax-free vouchers to automobile dealers who participate in the new program. The program vouchers, worth $3,500 or $4,500, will be given to dealers when consumers trade in old vehicles for ones with higher fuel efficiency. The vouchers will not be considered taxable income for the car buyer.

  The new law limits the number of vouchers to one per customer, including joint registered owners of a single eligible trade-in vehicle. The car voucher measure is included in the 2009 Supplemental Appropriations Bill for Iraq, Afghanistan, Pakistan and Pandemic Flu (HR 2346).

  By Paula Cruickshank, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Various prescribed rates for federal income tax purposes for July 2009 have been provided by the IRS. The annual short-term, mid-term, and long-term applicable federal interest rates (AFRs) are 0.82 percent, 2.76 percent and 4.36 percent, respectively. The semiannual short-term, mid-term, and long-term AFRs are 0.82 percent, 2.74 percent and 4.31 percent, respectively. Quarterly short-term, mid-term and long-term AFRs are 0.82 percent, 2.73 percent and 4.29 percent, respectively. Finally, the monthly short-term, mid-term and long-term rates are 0.82 percent, 2.72 percent and 4.27 percent, respectively.

  The short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for July 2009 for purposes of Code Sec. 1288(b) are 0.84 percent, 2.22 percent, and 4.33 percent, respectively, when annual compounding is used.

  Additionally, the Code Sec. 382 adjusted federal long-term rate is 4.33 percent, and the long-term tax-exempt rate is 4.58 percent. The Code Sec. 42(b)(2) appropriate percentage for the 70-percent present-value, low-income housing credit is 7.82 percent, and the appropriate percentage for the 30-percent present-value, low-income housing credit is 3.35 percent. TheCode Sec. 7520 AFR for determining the present value of an annuity, an interest for life or a term of years, or a remainder or reversionary interest is 3.40 percent.

  Finally, the Code Sec. 7872(e)(2) blended annual rate for 2009 is 0.82 percent.

Rev. Rul. 2009-20, 2009FED ¶46,411

Rev. Rul. 2009-20, FINH ¶30,622

Other References:

 
Code Sec. 42

  CCH Reference - 2009FED ¶173.02

  CCH Reference - 2009FED ¶176.01

  CCH Reference - 2009FED ¶4385.03

 
Code Sec. 382

  CCH Reference - 2009FED ¶17,115.28

 
Code Sec. 1274

  CCH Reference - 2009FED ¶31,310.05

 
Code Sec. 7520

  CCH Reference - 2009FED ¶42,785.45

  CCH Reference - FINH ¶22,630.05

 
Code Sec. 7872

  CCH Reference - 2009FED ¶43,960.14

  CCH Reference - FINH ¶18,950.05

  CCH Reference - FINH ¶18,950.80

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 36,162.05

CCH (cch.taxgroup.com) reports:

  "Pay-for-Performance Success Payments" under the U.S. Government's Home Affordable Modification Program (HAMP) are excludable from gross income. Under HAMP, which was created in response to the unprecedented financial stress of 2008 and 2009, financially stressed homeowners that make timely payments on modified loans are eligible to have incentive payments made on their behalf to lenders/investors. These payments reduce the principal balance on the homeowner's mortgage loan. Absent an exclusion, these payments would constitute gross income under Code Sec. 61(a). However, the HAMP "Pay-for-Performance Success Payments" are excluded from income because they meet the definition of payments under governmental social benefit programs for the promotion of the general welfare and not for services rendered. See Rev. Rul. 74-205, 1974-1 C.B. 20 and Rev. Rul. 98-19, 1998-1 C.B. 840 for other examples of qualifying payments.

Rev. Rul. 2009-19, 2009FED ¶46,412

Other References:

 
Code Sec. 61

  CCH Reference - 2009FED ¶5504.184

  Tax Research Consultant

  CCH Reference - TRC: INDIV: 33,350

CCH (cch.taxgroup.com) reports:

  As Congress considers several health care reform proposals, President Obama said that he is "very optimistic" and hopes that federal lawmakers will make significant progress in the weeks ahead. The president, at a news conference on June 23, made his case for including a public insurance option in the legislation, but also indicated he is open to negotiations on the controversial proposal.

  Obama called the public insurance plan an important tool for keeping down private insurance costs. Nevertheless, Obama noted that Congress is in the early stages of the legislative process and that he is drawing no lines in the sand, except that a final package must lower health care costs and be paid for.

Senate Action

  The Senate Health, Education, Labor and Pensions (HELP) Committee could finish marking up its health care reform bill by the end of the week of June 22, despite the fact that major sections of the legislation remain incomplete, according to Sen. Christopher Dodd, D-Conn. Committee Democrats on June 23 approved 46 Republican amendments and a provision offered by Sen. Tom Harkin, D-Iowa, that would phase in funding for a preventative public health fund over a 10-year period.

  Senate Finance Committee Chairman Max Baucus, D-Mont., said he was uncertain when he would release his health care reform draft, but remained optimistic that it would have bipartisan support. Senate Budget Committee Chairman Kent Conrad, D-N.D., said lawmakers had brought down the overall cost of the bill to around $1.2 trillion and were still working to cut another $200 billion. A preliminary estimate by the Congressional Budget Office (CBO) of an earlier draft had pegged the cost at $1.6 trillion, setting off a firestorm of criticism and forcing the committee to rework their reform plan.

House Energy Bill

  House lawmakers are moving ahead with plans to pass the American Clean Energy and Security Bill of 2009 (HR 2454) before leaving town for the weeklong Independence Day recess. The House Rules Committee plans to hold a hearing on the energy bill on June 25 and is in the process of accepting amendments from lawmakers. If the committee approves the bill, it will likely go to the House floor for a vote on the following day.

  The measure includes a provision to modify the earned income tax credit by increasing the phaseout rate from $5,280 to $13,590, effective after December 31, 2011. The bill also includes a provision to allow the Treasury to transfer money from the general fund to the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund to offset any changes in benefit costs and tax revenues caused by the energy bill.

  The president commended the House for moving forward on energy legislation, which he said will lessen U.S. dependence on foreign oil and encourage the development of clean energy sources, such as wind, solar and geothermal power. When asked if the deepening economic crisis warranted a second stimulus package, Obama responded, "not yet," and said it was important to see how the economy "evolves" and how effectively the existing package spurs economic growth.

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

Tax-Related Sections of the Rules Committee Draft Proposal of American Clean Energy and Security Act of 2009, HR 2454
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  An amended version of Gov. Steve Beshear's special session economic development package containing income tax credits, sales and use tax incentives, and a pari-mutuel tax exemption for certain horse racing events passed by a wide margin in the Kentucky Senate. The original provisions proposed by the governor (TAXDAY, 2009/06/12, S.17), along with amendments made by the House of Representatives (TAXDAY, 2009/06/19, S.5), were retained in the Senate version, but the following provisions were added or changed:

  -- companies eligible to claim the new economic development credit against the corporation income tax, limited liability entity tax (LLET), and personal income tax, which would replace the Kentucky Rural Economic Development Act (KREDA), the Kentucky Economic Opportunity Zone Act (KEOZ), the Kentucky Jobs Development Act (KJDA), and the Kentucky Industrial Development Act (KIDA) credit programs, would be required to pay at least 90% of all new employees at the target minimum wage levels and advance disbursement of the credits would be subject to General Assembly approval;

  -- companies eligible to claim the alternative and renewable energy facilities credit against corporation and personal income tax, limited liability entity tax (LLET), sales and use tax, and severance tax liability would be allowed to use tar sands as an energy feedstock;

  -- personal income taxpayers would be allowed to claim a one-time, nonrefundable credit for the purchase of a new home;

  -- a 10% surcharge would be imposed on purchases of Kentucky lottery tickets to be remitted in the same manner as sales and use taxes; and

  -- an excise tax would be imposed on horse racing tracks equal to 1.5% of the taxable handle attributable to each live race conducted at the track.

  Subscribers can view the bill as passed by the Senate.

 
H.B. 3, as passed by the Kentucky Senate on June 19, 2009

CCH (cch.taxgroup.com) reports:

  In a sharply worded letter, a group of state legislators stated unequivocally their opposition to the Uniform Law Commission (ULC) proceeding with its current review of the Uniform Division of Income for Tax Purposes Act (UDITPA). The letter was sent to the ULC's leadership by the National Conference of State Legislatures (NCSL) Executive Committee Task Force on State and Local Taxation of Communications and Electronic Commerce.

  In 2008, the ULC appointed a drafting committee to revise the 50-year-old UDITPA. After certain legislators and taxpayers expressed their strong opposition to the revision effort, the ULC downgraded the panel to a study committee. However, the opposition to the committee's efforts did not abate. Following a May 14 committee conference call, the committee chair asked the ULC leadership to have until January 2010 to "explore with elected executive and legislative leaders of the states the need to revise UDITPA." (TAXDAY, 2009/05/29, S.1) The NCSL Task Force letter was a response to this request.

  The letter says the Task Force found the failure to allow legislators to participate in the May 14 conference call "incredibly offensive" and "met with incredulity" the suggestion that the committee was unclear as to legislators' stance on the revision effort. On May 30, 2009, the Task Force voted unanimously to oppose the continuation of the study committee and the effort to revise UDITPA. The letter concludes with a caution that the ULC not "squander [its] trusted trademark on an ill-conceived, ill-advised and unwarranted project."

  Subscribers can view the NCSL's letter.

 
Letter, NCSL Task Force on Communications & Electronic Commerce, June 19, 2009
 

CCH (cch.taxgroup.com) reports:

  A corporation was required to produce certain documents that it received from its tax advisors and that had been withheld as privileged or non-responsive to an IRS summons. The documents did not discuss federal tax issues; rather, they contained information generally gathered to facilitate the filing of a tax return. Such accounting advice was not covered by the tax practitioner privilege. Several memoranda and notes were not privileged because they did not reflect confidential communication between a client and tax practitioner for the purpose of providing federal income tax advice.

  The government also met its burden of showing that the withheld and redacted documents relating to the corporation's transactions surrounding its merger with a Canadian company fell within the tax shelter exception to the tax practitioner privilege and were, therefore, required to be fully disclosed. The communications between the corporation and its tax advisors were made in connection with the promotion of the corporation's participation in a tax shelter as defined in Code Sec. 6662(d)(2)(C)(ii).

  Affirming a DC Ill. decision, 2008-2 USTC ¶50,482.

Valero Energy Corporation, CA-7, 2009-1 USTC ¶50,445

Other References:

 
Code Sec. 7525

  CCH Reference - 2009FED ¶42,816F.25

  Tax Research Consultant

  CCH Reference - TRC IRS: 21,404

CCH (cch.taxgroup.com) reports:

  An individual's sentence for willful tax evasion and failure to collect and pay over payroll taxes was incorrectly calculated because the amount of tax loss used in sentencing improperly included the same amount twice. The individual, as a responsible party of a corporation, did not withhold tax from his own wages, and as an individual did not pay tax on those wages. These funds, however, were only subject to being taxed once, Similarly, the restitution order should have included the amount only once.

  Further, the individual's offense level under the sentencing guidelines was erroneously enhanced for abusing his position of public or private trust. Although the IRS was the victim of the individual's charged conduct, the individual was not in a position of trust in relation to the IRS because his only duty was to collect and pay over the payroll taxes. However, the court properly imposed a sophisticated means enhancement because the individual sought to hide his ownership interest in a financial advisory firm and established various business entities to disguise the distribution of profits. The individual's sentence was also properly enhanced for perjury because his trial testimony was false, material and intended to affect the outcome of the trial.

  Vacating and remanding an unreported DC Ohio decision.

M.W. May, CA-6, 2009-1 USTC ¶50,444

Other References:

 
Code Sec. 7201

 
Code Sec. 7202

  CCH Reference - 2009FED ¶41,318.22

  CCH Reference - 2009FED ¶41,318.221

  CCH Reference - 2009FED ¶41,318.222

  CCH Reference - 2009FED ¶41,318.224

  Tax Research Consultant

  CCH Reference - TRC IRS: 66,462
CCH Reference - TRC IRS: 66,462.10
CCH Reference - TRC IRS: 66,462.20

CCH (cch.taxgroup.com) reports:

  The IRS has released guidance encouraging taxpayers to safeguard themselves during the 2009 hurricane season. The Service suggests that taxpayers keep an extra set of records, preferably electronic records, in a location separate from their storage of original documents. The IRS also recommends that taxpayers take pictures or videos of items in their homes in order to more easily document items lost in a disaster. Finally, the IRS encourages employers to update emergency plans as needed and to ask payroll service providers if they have fiduciary bonds in place in the event of default by the provider.

  If a disaster occurs, the IRS has specialists available who are trained to handle disaster-related issues at (866) 562-5227. The IRS can also provide copies or transcripts of tax returns at no cost to taxpayers located in federal disaster areas.

IR-2009-61,
2009FED ¶46,408

Other References:

 
Code Sec. 165

  CCH Reference - 2009FED ¶10,005.42

 
Code Sec. 6001

  CCH Reference - 2009FED ¶35,111.30

 
Code Sec. 7508A

  CCH Reference - 2009FED ¶42,687C.101

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 30,104.10
CCH Reference - TRC FILEBUS: 15,110
CCH Reference -
TRC IRS: 9,300
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  For Oregon corporation excise (income) and personal income tax purposes, otherwise deductible intangible expenses that have been directly or indirectly paid, accrued, or incurred in connection with one or more direct or indirect transactions with one or more related members, and that were received by one or more related members that are not included in the same state tax return as the taxpayer, must be added back to federal taxable income. However, as discussed below, a credit is allowed against the corporate income taxes otherwise due if a related member pays tax on the same income that has been added back.

CCH (cch.taxgroup.com) reports:

  On June 18, 2009, after revealing that New Jersey expects to receive $700 million in unanticipated revenue as a result of the Tax Amnesty program authorized in March, Gov. Jon S. Corzine said he wants to apply the funds to property tax relief. Plans to vote on the FY 2010 $28.6 billion budget were halted by the governor who said he had met with legislative leaders and wanted to revise the budget in light of the latest developments to include the proposed property tax relief.

Press Release , Office of Gov. Jon S. Corzine, June 19, 2009

CCH (cch.taxgroup.com) reports:

  During the past week, the Senate approved the "cash for clunkers" program, but Senate Finance Committee Chairman Max Baucus, D-Mont., said on June 17 that health care reform markup may not be held prior to the July 4 recess. The White House, however, did not consider this delay as a sign that health care reform would not pass in 2009. House Democrats introduced PAYGO legislation, while House subcommittees looked into minority participation in the New Market tax credit program. The IRS issued guidance affecting consolidated groups, the plug-in electric drive motor vehicle credit and Recovery Zone Bonds.

Congress

  Lawmakers from the Senate Finance Committee and House Committee on Ways and Means on June 12 asked IRS Commissioner Douglas H. Shulman to suspend certain penalties assessed on small businesses while Congress works on legislation to address what they term an inequitable and unintended consequence in the tax code (TAXDAY, 2009/06/16, C.1). The lawmakers argued that small businesses with investments in listed tax shelter transactions that are generating modest tax benefits have received tax penalties significantly larger than the tax benefits received. The lawmakers requested that Shulman suspend efforts to collect Code Sec. 6707A liabilities while Congress acts to remedy the situation. Code Sec. 6707A was enacted in the American Jobs Creation Act of 2004 (P.L. 108-357) as part of a package of provisions intended to help the IRS detect, deter and shut down tax shelters.

  Senate Finance Committee Chairman Max Baucus, D-Mont., said on June 17 that he would not have his health care reform mark ready by the end of the week of June 15 as initially promised and raised doubts that he would hold a markup prior to the July 4 recess (TAXDAY, 2009/06/18, C.1). Finance Committee Democrats have been scrambling to find ways to bring down the cost, estimated by the Congressional Budget Office (CBO) at nearly $1.6 trillion, to under $1 trillion.

  The Senate on June 18 approved a proposal known as the "cash for clunkers" program, which would provide $1 billion in tax-free vouchers to automobile dealers who participate in the new program aimed at revitalizing sagging vehicle sales (TAXDAY, 2009/06/19, C.3). The program vouchers, worth $3,500 or $4,500, will be given to dealers when consumers trade in an old vehicle for one with higher fuel efficiency and will not be considered taxable income for the purchaser.

  With the New Market Tax Credit (NMTC) program set to expire at the end of 2009, two House subcommittees looked into the issue of whether minority firms are fully participating in the program (TAXDAY, 2009/06/19, C.1). Donna J. Gambrell, director of the Treasury Department's Community Development Financial Institutions Fund, explained the program on June 18 before a joint hearing of the House Ways and Means Select Revenue Measures Subcommittee and the House Financial Services Subcommittee on Domestic Monetary Policy and Technology.

  The hearing was called as a result of a Government Accountability Office (GAO) study which concluded that minority-owned CDEs have not received allocation awards in proportion to their representation in the application pool (TAXDAY, 2009/06/02, M.3). Gambrell said the discrepancy is not attributable to biases in the application review or selection process. Instead, the capacity of each applicant, based on its merit, rather than ownership structure, is what determines whether NMTCs will be awarded.

  House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., has scheduled a June 24 hearing to focus on proposals to reform the health system, including the discussion draft proposal released by Democratic leaders on June 19. The hearing will begin at 10:00 a.m. in the main committee hearing room, 1100 Longworth House Office Building (TAXDAY, 2009/06/19, C.5).

  House Democrats on June 17 introduced President Obama's pay-as-you-go (PAYGO) legislation, which would require Congress to pay for new tax cuts or entitlement programs (TAXDAY, 2009/06/18, C.2) . Democrats will work with the administration to resolve the differences between the president's proposal and existing House rules, said House Majority Leader Steny H. Hoyer, D-Md. Obama's proposal would not trigger a sequester if the net effect with regard to all legislation enacted during a year was that the legislation was paid for over a 10-year period, lawmakers explained.

White House

  The Obama administration does not regard the delay by the Finance Committee as a setback that could keep Congress from passing a health care reform bill this year, according to White House Press Secretary Robert Gibbs (TAXDAY, 2009/06/18, C.1). He noted that Baucus shares the administration's goal to win bipartisan support for a bill that constrains health care costs and is paid for.

  Office of Management and Budget Director Peter Orszag emphasized the positive about the CBO health care cost estimates. Orszag pointed out the CBO policy options that could achieve long-term budget savings and that were included in President Obama's budget or health care reform proposals. They include the creation of accountable care organizations, bundling payments to hospitals and other providers, and expanding the use of wellness and preventive services. Likewise, Gibbs emphasized the common principles held by the BPC and the administration to lower health care costs for families, businesses and governments, guarantee choice of doctors and plans, and provide quality, affordable health care.

  Gibbs noted there are many "moving parts" under consideration in developing a final package. Among those proposals, Gibbs said that establishing nonprofit cooperatives is a constructive idea that should be discussed as part of health care reform deliberations. However, Obama is holding firm about including a public insurance option, insisting that will not mean a government takeover of health care and that it still ensures choice of doctors and competitively priced plans.

IRS

  Employer-provided Cell Phones. On June 16 IRS Commissioner Douglas Shulman announced that the agency supports easing the listed property rules under Code Sec. 280F for employer-provided cell phones. Shulman's announcement came on the heels of the IRS's proposal in Notice 2009-46 (TAXDAY, 2009/06/08, I.1) to simplify the substantiation rules for employer-provided cell phones. To allay confusion that the IRS was planning tougher enforcement of the current rules, Shulman announced that the IRS does not intent to crack down on employer-provided cell phones despite media reports. In the House, legislation (HR 690) has been introduced to remove cell phones from the category of Code Sec. 280F listed property.

  Consolidated Groups. Recently released guidance by the IRS (Rev. Proc. 2009-31, TAXDAY, 2009/06/17, I.1) details the procedures for a consolidated group to elect to account for intercompany transactions on a separate entity basis under
Reg. §1.1502-13(e)(3). Requests must be submitted as a private letter ruling request under provisions of Rev. Proc. 2009-1, I.R.B. 2009-1, 1, and apply to all members of the consolidated group for the consent year. The guidance is substantially similar to previous guidance set forth in Rev. Proc. 97-49, 1997-2 CB 523, except for various procedures regarding the IRS's review of election requests and consideration of whether to grant or revoke an election under the regulation.

  Plug-in Electric Drive Motor Vehicle Credit. The IRS has issued guidance (Notice 2009-54, TAXDAY, 2009/06/15, I.6) for purchasers and manufacturers of the motor vehicles qualifying for the plug-in electric drive motor vehicle credit under Code Sec. 30D. The guidance includes procedures that a vehicle manufacturer needs to follow in order to certify the motor vehicle meets certain requirements to claim the credit, and the amount of the credit allowable for the motor vehicle. The IRS will review and acknowledge the certification by the manufacturer. The guidance also provides that purchasers may rely on the manufacturer's certification in determining whether the credit is allowable for the vehicle, and the amount of the credit itself.

  Recovery Zone Bonds. Treasury and the IRS have issued guidance on the maximum face amount of Recovery Zone Bonds - both Recovery Zone Economic Development Bonds and Recovery Zone Facility Bonds - that may be issued by each state and counties and large municipalities within each state before January 1, 2011, under Code Secs 1400U-2 and
1400U-3 (TAXDAY, 2009/06/15, I.5). The guidance also provides interim rules specifying the required information reporting associated with Recovery Zone Bonds, defining "issuers" of Recovery Zone Bonds and entities authorized to allocate volume cap to the ultimate beneficiaries, and also providing that the Code Sec. 148(d) definition of "reasonably required reserve or replacement fund" applies.

  TIGTA. A new Treasury Inspector General for Tax Administration (TIGTA) report reveals that IRS collection staff delayed initiating collection activities in 21 percent of cases reviewed by TIGTA ("Enforcement Actions Were Not Always Timely Initiated When Taxpayers Did Not Respond to Contact Attempts or Missed Deadlines," Reference Number: 2009-30-081, TAXDAY, 2009/06/19, T.1). TIGTA concluded, as a result, that IRS collection enforcement tools, including liens, levies and seizures, were either not used or were not used soon enough in approximately 4,250 cases of the 20,270 cases it identified. The IRS agreed with the two recommendations made by TIGTA: (1) issue a memorandum re-emphasizing the IRS policy for effective follow-up responses to missed deadlines; and (2) assess the adequacy of taking enforcement actions as part of the operational reviews of Area Offices.

  International Tax Enforcement. The IRS and tax/law enforcement authorities in the U.S. Virgin Islands recently updated a memorandum of understanding (MOU) to share information and resources in efforts to combat tax evasion (TAXDAY, 2009/06/18, I.2). The revised MOU is expected to be signed in the near future, according to the Justice Department. Under the MOU, the IRS and tax/law enforcement bodies in the U.S. Virgin Islands agree to cooperate in the identification, investigation and prosecution of tax crimes. The IRS Large and Mid-Sized Business (LMS Division and IRS Criminal Investigation will assist the Virgin Islands Internal Revenue Bureau and the Virgin Islands Department of Justice.

  By Jeff Carlson, Stephen K Cooper, Paula Cruickshank and Hilary Goehausen, CCH News Staff

CCH (cch.taxgroup.com) reports:

  Under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) (P.L. 107-16) the estate tax is scheduled to go from a 45-percent maximum rate and a $3.5 million exclusion in 2009, to total repeal during 2010. Catherine Hughes, attorney-advisor in the Office of Tax Legislative Counsel for Treasury, predicted during a June 18 Grant Thornton webcast on the Obama budget proposal that action to prevent this result is highly likely. In its recent budget proposals in the Treasury "Greenbook," the Obama administration proposed that, instead of a total repeal, the 2009 parameters for the estate tax should be permanently enacted. Hughes gave insights on several aspects of the overall proposal that could eventually survive the vetting process as final legislation takes shape.

Consistency in Value

  The Obama administration budget proposal would require beneficiaries of an estate to report, on disposition, as the basis of property they receive, the fair market value of the asset reported on the decedent's estate tax return. Hughes explained that because the Internal Revenue Code does not currently have any direct provisions tying the fair market value of the property to the recipient's basis, recipients are not directly prevented from manipulating their basis (and therefore their recognized gain or loss) when subsequently selling the property.

  The Obama administration would place one further caveat to this requirement to avoid incorrect reporting. It would allow recipients to use a basis that is less than or equal to the estate tax reported value. "That's a one-sided proposal," Hughes stated. She explained that, "the concern was, if you have a situation where ... the executor reported a value on the estate tax return and the recipient, years later, had reason to believe that the number was overstated on date of death ... when the income tax return of the beneficiary is ... going to be prepared and filed with capital gain or loss reported on the sale of that asset, we didn't want to put the preparer or the taxpayer in the position where they're using, as a basis number, a number they have reason to believe was incorrect and therefore could not meet the standards for the return preparer penalty."

Restrictions on Estate Value

  While restrictions on property generally discount the value of the property and, therefore, the amount of estate tax generated by the asset, Code Sec. 2704(b) lists certain restrictions on property that should be ignored for purposes of valuing an estate. However, certain court decisions and state law amendments have diminished the force of this provision by allowing these discounts to be effectively considered, particularly with regard to partnership interests.

  Calling this issue the "elephant in the living room for estate planners," Hughes reported that the Obama administration's proposal would add another set of restrictions on valuation discounts especially applicable to transferred interests in property. She observed that this amendment would "reinvigorate the intent and the language of the provisions of 2704" and make the statute apply as it was intended.

  The administration's proposal would also prohibit estates from discounting interests in property based on limitations on the right to liquidate to the extent more restrictive than a safe-harbor standard to be set forth in Treasury regulations. Additionally, the proposal calls for regulations to determine when certain interests held by charities and other nonfamily members would be considered held by family members.

  "Because this is such a significant issue, we felt that it would make sense to leave the details to regulations subject to public comment to make sure we got it right instead of letting the statute draw the line from which things would be measured," she said.

  By Torie Cole, CCH News Staff

CCH (cch.taxgroup.com) reports:

  House Democratic leaders unveiled a comprehensive health care reform plan on June 19, calling for the establishment of a public health insurance program that would compete with private insurers to lower costs. The proposal would create a Health Insurance Exchange to provide a functional marketplace for individuals and small employers to comparison shop among private and public insurers. Few details of how the plan would be paid for were announced, and lawmakers said they were awaiting estimates from the Congressional Budget Office.

  In a press conference to announce the discussion draft, House Ways and Means Chairman Charles B. Rangel, D-N.Y., said his committee, along with the House Education and Labor and the House Energy and Commerce committees, would hold hearings and work out final details in the coming weeks. Ways and Means has already scheduled a hearing on the discussion draft on June 24. President Obama, in a written statement, said the House Democrats' proposal is a "major step" toward improving the quality of health care and making it more available and affordable.

  The proposal was almost immediately sharply criticized by the top Republican lawmaker in the House. House Minority Leader John Boehner, R-Ohio, faulted the Democrats' plan for raising taxes, rationing care and empowering government bureaucrats to make key medical decisions. "This plan will make health care more expensive, reduce the quality of care for millions of families and small businesses, cost American jobs, and force untold millions of Americans off their current plans and into a government-run nightmare operated by federal bureaucrats," Boehner charged.

  Rep. Henry Waxman, D-Calif., who chairs the Energy and Commerce panel, said the Democrats were considering changes to the Medicare and Medicaid program, such as forcing pharmaceutical manufacturers to repay excessive profits made on drugs sold to Medicare patients. The bill would impose a tax on individuals and families who do not have their own coverage. In addition, small businesses would get a 50-percent health care credit toward the expense of providing coverage to their employees.

  By Stephen K. Cooper, CCH News Staff

Draft of Health Care Reform Bill Text

House Tri-Committee Health Reform Discussion Draft Summary
 

CCH (cch.taxgroup.com) reports:

  It is not clear how the House Ways and Means Committee will proceed on the president's international tax proposals, a committee staff member indicated June 19. Melissa Mueller, the committee's majority tax counsel, told a group of international tax practitioners that the message has gotten "fuzzy." Speaking at a BNA Tax Management luncheon held at Buchanan, Ingersoll & Rooney P.C. and moderated by Herman Bouma.Mueller, Mueller stressed that she was expressing her own views and was not speaking on behalf of Committee Chairman Charles Rangel, D-N.Y., or Rep. Richard Neal, D-Mass., for whom she works.

  Some view the proposals as addressing tax evasion, while others view the issues as matters of policy, not tax evasion, Mueller said. Neal, for example, has indicated that some proposals, such as deferring U.S. taxes, involve policy choices, not abuse. Reform concerns are growing out of the issue of hidden overseas bank accounts. With the president carrying out his own tax reform study, the Ways and Means Committee may be reluctant to move on some issues until the administration makes its recommendations.

  While some members talk about bringing jobs back to the United States, Mueller noted that companies may have substantial business reasons for locating overseas that do not depend on U.S. taxation. Eliminating deferral will not necessarily bring back jobs.

  Mueller said that changes to the check-the-box (CT rules are now estimated to raise $30 billion in revenue, a sharp decline from the initial estimate of $80 billion. Some practitioners at the luncheon, including Pam Olson of Skadden, Arps, Slate, Meagher & Flom LLP, questioned whether the changes would raise any revenue. Mueller said that foreign tax credit (FTC) proposals are "scored" to raise $40-50 billion in revenue, while changes to the deferral rules are estimated to raise $50-60 billion.

  Michael Durst of Steptoe & Johnson LLP commented that no one knows the economic impact of these proposals. Companies do not know the impact and do not know how to explain their concerns. He suggested that the CTB proposal could increase the overall tax burden on U.S. companies without raising much tax revenue. Barbara Angus of Ernst & Young LLP commented that the CTB and FTC proposals all have an impact on tax deferral, even though they are not labeled in that manner, and that the cumulative impact could be substantial.

  Mueller said that the committee staff has not been briefed on the proposals. She urged the practitioners to have private companies, not just trade groups, contact the committee to discuss the impact of the proposals.

  Mueller mentioned that a value-added tax (VAT) had been identified as a possible revenue-raiser for health reform. Asked about the seriousness of this proposal, Mueller said that the cost of health reform may elicit big proposals, and perhaps this is a time to move on a VAT.

  Asked whether there will be another generation of the "mother of all tax bills," Mueller said that things had changed, and she could not say what might be in the next bill. A reduction in overall corporate tax rates to 28 percent is still a possibility. She indicated that the next tax bill could also address the issue of deferral.

  By Brant Goldwyn, CCH News Staff

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Wisconsin Senate has passed its version of the 2009-11 budget bill, which would make numerous sales and use, personal income, and corporation franchise and income tax changes. Differences between the Senate's version and the previously reported Assembly's version of the bill (TAXDAY, 2009/06/17, S.36) include those described below. Both the Assembly and the Senate worked off the version offered by the Joint Committee on Finance on May 28, 2009.

CCH (cch.taxgroup.com) reports:

  The Kentucky House of Representatives has overwhelmingly passed Gov. Steve Beshear's special session economic development package containing income tax credits, sales and use tax incentives, and a pari-mutuel tax exemption for certain horse racing events. The House added several new provisions to the Governor's original package (TAXDAY, 2009/06/12, S.17), including:

  -- a nonrefundable corporation income tax and personal income tax credit for railroad companies that invest in Kentucky track infrastructure maintenance and improvements;

  -- a nonrefundable income tax credit for railroad companies that invest in Kentucky track infrastructure for the purpose of transporting coal, oil shale, natural gas, and biomass resources, such as biodiesel or ethanol;

  -- a sales tax refund on sales generated at a "tourism development project," meaning a tourism attraction project, theme restaurant destination attraction project, entertainment destination center project, or lodging facility project; and

  -- a sales tax refund for governmental entities of sales tax generated by the sale of admissions to multipurpose public facilities of 500 to 8,000 seats.

  Subscribers can view the bill passed by the House.
 
H.B. 3, as passed by the Kentucky House of Representatives on June 17, 2009
 

CCH (cch.taxgroup.com) reports:

  Treasury Secretary Timothy F. Geithner defended the administration's proposal to grant new regulatory authority to the Federal Reserve, arguing that countries that had chosen to limit their central bank's authority over financial stability found themselves with less capacity to act as the financial crisis unfolded. "I think they found themselves in a substantially worse position than we did as a country," Geithner told the Senate Banking, Housing and Urban Affairs Committee on June 18.

  Geithner described the administration's proposals for giving the Fed additional authority as "quite modest," noting that they build on existing authority, while at the same time take some authority away. He told members that the Fed is best positioned to be the first responder in a financial emergency because it already supervises and regulates bank holding companies, including all major U.S. commercial and investment banks.

  While the proposed Financial Services Oversight Council would fill gaps in the regulatory structure where they currently exist, it would not be in a position to respond like the Fed. "You don't convene a committee to put out a fire," Geithner said.

  Ranking committee member Richard C. Shelby, R-Ala., told the hearing that claims that the Fed has the most experience to regulate the financial system, including insurance companies, hedge funds and mutual funds, gave a "grossly exaggerated" view of the Fed's expertise. Geithner responded by saying the administration does not envision such a sweeping scope of authority for the Fed. At this stage, he said, the proposed authority would largely cover the major banks and investment firms.

  Meanwhile, Sen. Charles E. Schumer, D-N.Y., questioned Geithner on why the administration had not done more to consolidate bank supervision, noting that the new proposals would still result in four bodies responsible for bank oversight. He also wondered why, with the Fed gaining new powers, it should have responsibility over state banks.

  "We thought a lot about that," Geithner said, adding that the basic principle guiding the administration's proposals was to focus on those problems that were central to the crisis. He noted that the administration decided "it was not essential to take on the more complicated challenge of fundamentally transforming the rest of the system where there's a balance now between state and federal supervision of state chartered banks."

  By Sarah Borchersen-Keto, CCH News Staff

Treasury Department News Release, TDNR TG-176
 

CCH (cch.taxgroup.com) reports:

  Two House subcommittees looked into the issue of whether minority firms are fully participating in the New Market Tax Credit (NMTC) program, which is set to expire at the end of 2009. Donna J. Gambrell, director of the Treasury Department's Community Development Financial Institutions Fund, explained the program on June 18 before a joint hearing of the House Ways and Means Select Revenue Measures Subcommittee and the House Financial Services Subcommittee on Domestic Monetary Policy and Technology. "I believe the new markets tax credit is an efficient way to target investment into the neediest communities around the country," said Select Revenue Measures Subcommittee Chairman Richard E. Neal, D. Mass., who noted that lawmakers want to ensure that community organizations, many of which are smaller or minority-owned, have a fair shot at competing for these tax credits. The hearing concluded early without questioning by lawmakers, who had to return to the House floor for pending votes.

  Under the NMTC program, taxpayers receive a credit against federal income taxes for making qualified equity investments (QEIs) in designated community development entities (CDEs), Gambrell explained. Substantially all of these QEI dollars must be used by the CDE to provide investments in businesses and real estate developments in low-income communities. "To date, investors have invested $13.7 billion into CDEs, or over 70 percent of the NMTC allocation authority that was awarded to CDEs through 2008," Gambrell said in her written testimony. "In fact, since September of 2008, investors have invested close to $2 billion into CDEs, demonstrating the resiliency of this program in even the most difficult of economic times." She noted that in 2007, more than $4.1 billion was invested in census tracts where non-white populations exceeded 50 percent of the total population.

  The hearing was called as a result of a Government Accountability Office (GAO) study which concluded that minority-owned CDEs have not received allocation awards in proportion to their representation in the application pool (TAXDAY, 2009/06/02, M.3). Gambrell said the discrepancy is not attributable to biases in the application review or selection process. Instead, the capacity of each applicant, based on its merit, rather than ownership structure, is what determines whether NMTCs will be awarded. In addition, Gambrell suggested that many non-profit organizations that have significant minority executive control fall within the CDFI Fund's definition of a minority-owned entity, but failed to check the appropriate box on their applications.

  By Stephen K. Cooper, CCH News Staff

Ways and Means Select Revenue Measures Subcommittee Press Release: Chairman Neal on the New Markets Tax Credit Program

GAO Testimony: New Markets Tax Credit --Minority Entities Are Less Successful in Obtaining Awards Than Non-Minority Entities
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The New York Assembly has passed A.B. 8615, A.B. 8866, and A.B. 8867, which contain a variety of New York City sales tax, corporation tax, and unincorporated business tax provisions that are part of a revenue package previously announced by the mayor and the city council speaker. (TAXDAY, 2009/06/03, S.23)

  If enacted, A.B. 8866 would do the following:

  -- increase the New York City portion of the sales tax rate from 4.0% to 4.5%;

  -- repeal the exemption for purchases of clothing items priced at $110 or more; and

  -- apply the full New York City sales tax to electric and natural gas customers purchasing energy from non-utility companies.

  Under A.B. 8615, a credit reducing the unincorporated business tax would apply if the annual tax amount is less than $5,400. The credit would completely offset unincorporated business tax amounts of $3,400 or less.

  Among other changes, A.B. 8867 would phase in a single sales factor and generally require related corporations with substantial intercorporate transactions to file a combined report, regardless of the transfer price for such intercorporate transactions.

  The text of the bills is available at
http://assembly.state.ny.us/leg/?bn=a8615 for A.B. 8615,
http://assembly.state.ny.us/leg/?bn=a8866 for A.B. 8866, and
http://assembly.state.ny.us/leg/?bn=a8867 for A.B. 8867.

A.B. 8615, A.B. 8866, and A.B. 8867, as passed by the New York Assembly on June 16, 2009; Press Release , New York City Mayor's Office, June 15, 2009

CCH (cch.taxgroup.com) reports:

  Gov. Charlie Crist has signed legislation that, as previously reported (TAXDAY, 2009/05/01, S.4), decouples the Florida corporate income tax from the extension through 2009 by the American Recovery and Reinvestment Act of 2009 (Recovery Act) (P.L. 111-5) of the 50% bonus depreciation and IRC §179 limitations enacted by the Economic Stimulus Act of 2008 (P.L. 110-185). The legislation also decouples the Florida corporate income tax from a Recovery Act provision that allows taxpayers to defer income from the discharge of indebtedness in connection with the reacquisition after December 31, 2008, and before January 1, 2011, of a corporate or business debt instrument. The legislation is operative retroactively to January 1, 2009.

  In addition, the legislation updates Florida's conformity date to January 1, 2009 (formerly, January 1, 2008).

S.B. 2504, Laws 2009, effective June 16, 2009, operative as noted

CCH (cch.taxgroup.com) reports:

  A corporation seeking a research credit for expenses incurred to develop a new computer business system was allowed to apply the rules in 2001 proposed regulations that provided an exception to the disallowance of the credit for the development of internal use software. Subsequently adopted 2003 final regulations, which the taxpayer could choose to apply to the tax years at issue, were silent regarding the test. The taxpayer, however, was not required to apply the discovery test in the 2001 regulations and could choose to apply the dramatically different discovery test in the 2003 final regulations.

  The IRS impermissibly attempted to amend the 2003 regulations with subsequently issued Announcement 2004-9, 2004-1 CB 441, that stated that the internal use software test in the 2001 regulations must be applied with the discovery test in the 2001 regulations. The announcement was not due substantial deference and could not override the 2003 regulations because it was inconsistent with the Treasury and IRS statement that the discovery test in the 2001 regulations did not accurately reflect the intent of Congress.

  Further, the 2003 regulations allowed the taxpayer to apply the rules to the tax years at issue and the two tests did not have to be applied together. Finally, the 2001 regulations were issued pursuant to the Treasury's delegated authority and had never been amended.

FedEx Corporation, DC Tenn., 2009-1 USTC ¶50,435

Other References:

 
Code Sec. 41

  CCH Reference - 2009FED ¶4362.03

  CCH Reference - 2009FED ¶4362.15

  CCH Reference - 2009FED ¶4362.25

 
Code Sec. 7805

  CCH Reference - 2009FED ¶43,282.1076

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 54,158.05
CCH Reference - TRC BUSEXP: 54,158.30
CCH Reference -
TRC IRS: 12,050
 

CCH (cch.taxgroup.com) reports:

  Medical residents who were full-time employees of two medical education programs were not eligible for the student exception to FICA taxes.
Reg. §31.3121(b)(10)-2(d)(3)(iii) limits the exception to students who work only part-time by providing that the services of a full-time employee, defined as an employee who works for 40 or more hours a week, are not incident to, and for the purpose of, pursuing a course of study. Legislative history indicates that FICA exceptions were directed toward part-time workers; therefore, the full-time employee limitation in the amended regulation does not conflict with the plain language of the statute, is consistent with the origin and purpose of the student exception and is not invalid. The medical residents did not fall within the student exception because they worked more than 40 hours per week; therefore, they were full-time employees and their compensation for health care and patient services was subject to FICA taxes.

  Reversing DC Minn. decisions, 2007-2 USTC ¶50,577 and 2008-1 USTC ¶50,262.

Mayo Foundation for Medical Education and Research, CA-8, 2009-1 USTC ¶50,432

Other References:

 
Code Sec. 3401

  CCH Reference - 2009FED ¶33,533.23

  CCH Reference - 2009FED ¶33,538.5056

  CCH Reference - 2009FED ¶33,538.558

  Tax Research Consultant

  CCH Reference - TRC COMPEN: 3,122

CCH (cch.taxgroup.com) reports:

  Senate Finance Committee Chairman Max Baucus, D-Mont., told reporters on June 17 that he would not have his health care reform mark ready by the end of the week of June 15 as initially promised and raised doubts that he would hold a markup prior to the July 4 recess. Finance Committee Democrats have been scrambling to find ways to bring down the cost, estimated by the Congressional Budget Office (CBO) at nearly $1.6 trillion, to under $1 trillion.

  The Obama administration does not regard the Finance Committee's delay in drafting the bill as a setback, according to White House Press Secretary Robert Gibbs. The White House still believes that health care reform legislation can be done in 2009, Gibbs said at a press briefing on June 17. Noting that Baucus is working toward a bill that has bipartisan support and contains "cost-saving measures that are paid for," Gibbs said these are the same as the administration's goals. However, the administration, to date, has not called for additional taxes to finance a final health care package beyond its own proposal to reduce certain deductions for high-income taxpayers.

  Baucus initially downplayed the CBO figures, saying they are based on a plan that is two weeks old and has undergone significant changes since then. He emphasized that he plans to look for more savings through medical spending reductions and other offsets, rather than raising revenue outside of health-care-related matters. However, mounting pressure from Republican opponents to reduce the cost and to find ways to make sure that more people are covered under reform has left Baucus with the difficult task of once again trying to forge an agreement that will gain the approval of his party and appease the loudest GOP critics of the plan.

  As Baucus retreated from his initial deadline, Sen. Christopher J. Dodd, D-Conn., filling in for the ailing Senate Health, Education, Labor and Pensions (HELP) Committee Chairman Edward M. Kennedy, D-Mass., began marking up that committee's partially completed bill. That measure has also proved controversial as the CBO estimates pegged the price so far at over $1 billion, or approximately $6,250 per newly insured, and noted that it would only provide coverage for an additional 16-million individuals out of an estimated 46-million uninsured. Moreover, the mark remains incomplete, with scant language addressing how to pay for the health care makeover. The markup is expected to take two weeks.

  Meanwhile, a health care reform proposal offered on June 17 by Bipartisan Policy Center (BPC) advisors and former Senators Howard Baker, Thomas Daschle, and Robert Dole, received high praise from Baucus and Senate Finance Committee ranking member Charles E. Grassley, R-Iowa. "The proposal not only helps identify areas of clear agreement, it addresses critical reforms, such as tackling cost concerns and ensuring quality coverage while holding insurance companies' feet to the fire, "said Baucus. "It should encourage current members of Congress that former leaders of both political parties were able to find a compromise on even the most controversial health care issues and demonstrate that bipartisan reform may be achievable, "said Grassley.

  Gibbs said the BPC's report reinforces the president's main health care reform principles: "lowering costs for families, businesses and governments; guaranteeing choice of doctors and plans; ensuring quality and affordable health care for all Americans, and adhering to fiscal discipline that does not add to the deficit." The report is available on the BPC website at http://www.bipartisanpolicy.org.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Wisconsin Assembly has passed its version of the 2009-11 budget bill, which would make numerous sales and use, personal income, and corporation franchise and income tax changes, including those described below. In addition, the bill would impose an oil company assessment.

CCH (cch.taxgroup.com) reports:

  The North Carolina House passed a version of the budget bill on June 13, 2009, that, if enacted, would adopt two higher personal income tax brackets, treat unitary business groups as a single taxpayer for corporate income tax purposes, extend the corporation franchise tax to apply to limited liability entities, require a corporate income tax interest expense addback for financial institutions, increase the state sales and use tax rate, extend the definition of nexus for sales tax purposes, expand the sales and use tax base, and increase the excise tax on alcoholic beverages. The Senate failed to concur in the House version of the bill and a conference committee has been appointed.

CCH (cch.taxgroup.com) reports:

  The Georgia Supreme Court has ruled in favor of the city of Columbus, Georgia, in the city's action against online travel company Expedia.com to collect unpaid hotel occupancy taxes. Previously, a superior court had issued an order compelling Expedia to collect the city's hotel occupancy taxes based on the prices its online consumers pay on Expedia.com rather than the wholesale prices Expedia contracts for with hotels. (TAXDAY, 2009/09/25, S.8) The action filed by Columbus is similar to an action filed by the city of Atlanta against online travel companies seeking payment of hotel occupancy taxes. That case currently awaits trial following remand by the supreme court for adjudication of the Atlanta's claim on the merits.(TAXDAY, 2009/06/04, S.12; TAXDAY, 2009/03/24, S.7)

  As Expedia contracted with the city of Columbus hotels to collect hotel occupancy taxes, it was obligated to remit the taxes to the appropriate authority. For purposes of the tax statute, it does not matter that Expedia is not a hotel or motel. Further, the tax should be applied to the rate charged by Expedia,, not to the wholesale rate negotiated between Expedia and the hotels because the city ordinance imposes the tax on the rate charged to the public. The undisclosed facilitation fee is also taxable because there is no means to identify the amount charged as a fee from the total charge for the room. According to the statute, the entire amount charged for a room is taxable.

Expedia, Inc. v. City of Columbus , Supreme Court of Georgia, No. S09A0567, June 15, 2009, ¶200-669

  Other References:

  Explanations at ¶60-480

CCH (cch.taxgroup.com) reports:

  A federal district court applied incorrect definitions for "discovering information" and "process of experimentation" in determining that several S corporations' projects did not involve qualified research for purposes of the research tax credit. The corporations relied on definitions contained in regulations adopted subsequent to the year at issue and those regulations expressly permitted taxpayers to rely on those provisions for prior years.

  While denying the credit, the trial court also stated that some of the corporations' activities may have constituted qualified research. Therefore, on remand, the trial court was required to apply the correct definitions to determine whether any qualified research occurred and, where records were inadequate, to estimate the expenses related to that research. Finally, the court was required to make factual determinations on whether a shareholder bonus was part of wages reasonably attributable to qualified research.

  Vacating and remanding a DC Tex. decision, 2008-2 USTC ¶50,583.

A.R. McFerrin, CA-5, 2009-1 USTC ¶50,430

Other References:

 
Code Sec. 41

  CCH Reference - 2009FED ¶4362.25

  CCH Reference - 2009FED ¶4362.33

 
Code Sec. 6001

  CCH Reference - 2009FED ¶35,111.35

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 3,166
CCH Reference - TRC BUSEXP: 54,158.05
CCH Reference - TRC BUSEXP: 54,158.10
 

CCH (cch.taxgroup.com) reports:

  Proceeds from the sale of a subdivision lot were entitled to capital gain treatment because the lot was held for investment purposes, not held primarily for sale to customers in the ordinary course of business. The taxpayers, a married couple, spent very little time selling portions of land they had originally purchased to build their home and sold only a few lots over the course of several years. Their primary business was the design and administering of 401(k) plans and trusts. Furthermore, the taxpayers were not liable for the accuracy-related penalty because they properly claimed capital gains treatment from the sale of the lot at issue and maintained adequate records. The couple was not entitled to a claimed loss from the sale of two lots because they had abandoned the issue.

B.A. Rice, TC Memo. 2009-142, Dec. 57,860(M)

Other References:

 
Code Sec. 1221

  CCH Reference - 2009FED ¶30,422.6987

 
Code Sec. 6662

  CCH Reference - 2009FED ¶39,651D.25

  Tax Research Consultant

  CCH Reference - TRC REAL: 15,050
CCH Reference - TRC PENALTY: 3104