Tax News

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Maine Revenue Services (MRS) reminds the public that beginning April 1, 2009, sales, use, and service provider taxpayers reporting monthly must file their returns electronically. Taxpayers without computer or Internet access will be able to satisfy the electronic filing requirement by filing by telephone via the TeleFile system. Payment by electronic funds transfer or paper check will be accepted using either filing system.

  The first monthly return affected by the April 1 electronic filing requirement is the March 2009 return due on April 15. Requests for a waiver from the requirement for undue hardship can be made to MRS in writing by March 1, 2009. Applications to use TeleFile are also due March 1.

  Quarterly accounts will be required to file electronically in 2010, semi-annual accounts in 2011, and annual accounts in 2012. Details of the upcoming electronic filing requirement were previously reported. (TAXDAY, 2008/12/23, S.19)

  Subscribers can view both information released by MRS on the filing requirement and the TeleFile application.

Electronic Filing of Sales Tax, Use Tax and Service Provider Tax Returns , Maine Revenue Services, January 26, 2009
 

CCH (cch.taxgroup.com) reports:

  The California Franchise Tax Board (FT has released answers to frequently asked questions about the delayed payment of corporation franchise and income tax and personal income tax refunds, announced by the State Controller on January 16, 2009. (TAXDAY, 2009/01/19, S.8)

  The FTB indicates that taxpayers should not wait to file their returns if they have all of the documents and information needed to prepare their returns. The refund delay does not affect return due dates or the FTB's ability to process returns.

  It is anticipated that as soon as the state's cash and budget problems are solved, the refund delay will be lifted. However, refunds will not necessarily be issued as soon as a budget is enacted, as the state will need sufficient cash to pay other outstanding debts in addition to the tax refunds. If the state's cash flow problems do not improve, the State Controller may need to issue IOUs.

  Taxpayers' direct deposit requests will be honored when the state resumes payment of refunds. Whether taxpayers will be entitled to receive interest because of the delay will depend upon the length of the delay. For individual taxpayers, interest on current year refunds is payable only if the refund is not issued within 45 days after April 15, or the date that the return is filed, whichever is later.

  Taxpayers may request on their 2008 returns that their refunds be applied toward their 2009 taxes. If a taxpayer owes money to the state for another debt collected by the FTB, the taxpayer's refund will be applied toward that debt, and the taxpayer will be refunded the difference, if any, once the delay on issuing refunds is lifted.

  Subscribers can view the FAQs.

Tax Refund Delay FAQs , California Franchise Tax Board, January 28, 2009
 

CCH (cch.taxgroup.com) reports:

  The Supreme Court has resolved a split among the circuit courts of appeal over a divorced spouse's ability to waive pension plan benefits through a divorce decree not amounting to a qualified domestic relations order (QDRO). An ERISA plan's beneficiary's waiver of her benefits was not a prohibited assignment or alienation. The Court, among other things, looked to IRS regulations to conclude that a benefit in certain circumstances can be disclaimed and disclaimer would not constitute an assignment or alienation.

Designated Beneficiary

  In 1974, a participant in an employer-sponsored retirement savings plan designated his wife as the beneficiary. The participant and his wife divorced in 1994. The divorce decree stated that the wife agreed to forfeit all rights to her ex-husband's retirement plan assets. However, the decedent never replaced his ex-wife as his sole beneficiary. After the participant's death, the plan distributed his retirement savings to the ex-wife pursuant to her designation as beneficiary.

  The decedent's daughter, as executor of her father's estate, asked the ex-wife to forfeit her rights to the funds. The daughter claimed that the ex-wife had waived her rights under the divorce decree. The trial court agreed with the daughter but the Fifth Circuit Court of Appeals reversed.

  The Fifth Circuit found that because no QDRO mechanism was invoked, the ex-wife did not waive her interest. According to the Fifth Circuit, a QDRO supplies the sole exception to the anti-alienation provisions of ERISA in the marital dissolution context.

Supreme Court's Analysis

  Justice David Souter delivered the opinion for a unanimous Supreme Court. The Court affirmed the Fifth Circuit but on different reasoning. The Court observed that, not only were the circuit courts of appeal split on whether a divorce decree not amounting to a QDRO would waive pension rights, the circuit courts also disagreed as to whether a beneficiary's common law waiver of plan benefits would be effective if the waiver is inconsistent with plan documents.

  The Court looked to IRS regulations for guidance on whether the ex-wife's purported waiver violated ERISA's anti-alienation provision.
Reg. §1.401(a)-13(c)(1)(ii) defines an "assignment or alienation" to include "any direct or indirect arrangement...whereby a party acquires from a participant or beneficiary a right or interest enforceable against the plan in, or to, all or any part of a plan benefit payment which is, or may become, payable to the participant or beneficiary." "The Treasury reads its own regulation to mean that the anti-alientation provision is not violated by a beneficiary's waiver where the beneficiary does not attempt to direct her interest in pension benefits to another person," the Court observed.

  The Court also looked to the law of trusts for guidance. "Although the beneficiary of a spendthrift trust traditionally lacked the means to transfer his beneficial interest to anyone else, he did have the power to disclaim prior to accepting it." When the ex-wife agreed to the waiver, she did not assign or alienate anything to her ex-husband or his estate.

QDRO

  The Court also disagreed with the Fifth Circuit's finding that a QDRO is the sole exception to the anti-alienation provisions of ERISA. A beneficiary seeking only to relinquish her right to benefits cannot do this by a QDRO, for a QDRO, by definition, requires that it be the creation, or recognition of, an alternate payee's right to, or assignment to an alternate payee of, the right to receive all or a portion of the benefits payable with respect to a participant under a plan.

Plan Documents

  The Court concluded that the plan properly distributed the assets to the ex-wife. The plan's documents provided that the plan administrator would pay benefits to a participant's designated beneficiary. Designations and changes had to be made in a particular way. The decedent followed the requirements and designated his ex-wife as beneficiary. "The plan administrator did exactly what [the law] required and paid [the ex-wife] the benefits."

Open Questions

  The Court left for another day the situation in which plan documents provide no means for a beneficiary to renounce an interest in benefits. The Court also did not address the question of whether requiring a plan to distribute benefits in conformity with plan documents would allow a beneficiary who murders a participant to obtain benefits.

  By George L. Yaksick, CCH News Staff

Kennedy v. Plan Administrator for Dupont Savings and Investment Plan et al.
 

CCH (cch.taxgroup.com) reports:

  The Senate on January 29, passed legislation to renew and expand the State Children's Health Insurance Program (SCHIP) by a vote of 66 to 32. The Children's Health Insurance Program Reauthorization Bill of 2009 (CHIPRA) (Sen 275) funds investment in the SCHIP program with a 61-cent increase in federal tax on cigarettes, with proportional increases for other tobacco products, raising approximately $65 billion over 10 years. The House passed a similar measure (HR 2) on January 14, by a vote of 289 to 139 (TAXDAY, 2009/01/16, C.2). The House is expected to take up the Senate-passed bill the week of February 2.

CCH (cch.taxgroup.com) reports:

  Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, said on January 29 that he has a commitment from lawmakers to raise the mileage reimbursement for charitable work via the American Recovery and Reinvestment Bill of 2009 (HR 1), working through Congress. Grassley sought to offer an amendment on the mileage deduction during the committee's January 27 consideration of the economic stimulus bill, but withdrew the amendment after receiving a commitment from Chairman Max Baucus, D-Mont., and other members to address charitable mileage deductions when the bill reaches the Senate floor during the week beginning February 2.

  The tax code currently allows deductions for reimbursement at 1984 levels, restricting a charity from reimbursing its volunteer drivers more than 14 cents a mile because drivers would have to pay taxes on any amount in excess of 14 cents per mile. For drivers who take a personal deduction for charitable miles driven, the tax code also limits that deduction to 14 cents a mile.

  The IRS has the discretion to adjust the reimbursement and deduction rates for miles driven for business, medical or moving purposes; however, it has not had the authority since 1984 to set the rate for charitable miles driven. Grassley argued that despite the steadily increasing rise of gas prices, volunteer drivers continued to receive the same rate, while those driving for business, medical or moving purposes received the benefit of the IRS adjustments.

  "While gas prices may be low now, these charities are still facing a shortage of volunteers since many of these volunteers are affected by the economic crisis," Grassley said.

  By Jeff Carlson, CCH News Staff

SFC Press Release: Grassley Wins Commitment to Fix Charity Mileage Problem in Stimulus Bill
 

CCH (cch.taxgroup.com) reports:

  White House Press Secretary Robert Gibbs indicated that the "Making Work Pay" tax credit in President Obama's economic plan is not a negotiable item with Congress as it continues deliberations on a stimulus package. When asked at a press briefing on January 29 if there were any sacrosanct items in the president's plan that were not negotiable, Gibbs pointed to the pay-related tax credit that is geared toward lower-income earners.

  "I think you've heard the president talk about believing that the "Make Work Pay" tax cut that he ran on in the campaign --and that is part of this bill --is something that he believes quite strongly in," Gibbs noted. According to the White House spokesman, the tax credit makes good economic sense because it would "put money back into the pockets of people who have watched their wages decline as they've worked harder and as their expenses have mounted."

  Because the tax cut is structured to be paid out each pay period, those eligible are more likely to spend it than if they received the money in a lump-sum payment, Gibbs said. The tax credit is aimed at low- and middle-income individuals and families who, Gibbs said, "are likely to take that money and spend it and get this economy moving again."

  The "Making Work Pay" credit was part of the House-passed bill and was expanded in the Senate Finance Committee measure. Under the Senate bill, the credit would make one time payments of $300 to individuals on fixed incomes, primarily Social Security recipients and disabled veterans. The House bill would allow a credit against income tax in an amount equal to the lesser of 6.2 percent of an individual's earned income up to $500 or $1,000 for married couples filing jointly. The credit declines if an individual's adjusted gross income exceeds $75,000 or $150,000 for married couples.

  The tax credit is retroactive to the beginning of 2009 and extends though 2010. Qualified individuals have the choice to take the credit through a reduction in wage withholding or in a lump-sum payment when filing their return for the tax year.

  By Paula Cruickshank, CCH News Staff

Tax Analysts report:

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
 

Tax Analysts report:

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
 

Tax Analysts report:

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
 

Tax Analysts report:

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

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

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

Tax Analysts report:

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

Tax Analysts report:

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

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Four new credits for automobile alternative power may be claimed against the Michigan business tax. The credits are for (1) the manufacturing of plug-in traction battery packs, (2) expenses for vehicle engineering, (3) engineering activities for advanced automotive battery technologies, and (4) the construction of an integrative cell manufacturing facility.

CCH (cch.taxgroup.com) reports:

  The Tax Court correctly determined that Code Sec. 481 adjustments attributable to a corporation's change in accounting method were subject to the built-in gains tax following its S corporation election because the adjustments resulted from a deduction claimed before the S corporation election was made. The corporation's argument that the Code Sec. 481 adjustments were items of income under Reg. §1.1374-4(b) and that the corporation, as an accrual method taxpayer, could not have included the adjustments in gross income prior to its S corporation election was without merit. The deduction was the item to be considered in determining whether the built-in gain tax applied, not the Code Sec. 481 adjustments. The corporation had used the accrual method and included that item in its income before using the mark-to-market valuation method to deduct it. Since the adjustments related to the deductions taken prior to the 10-year S corporation recognition period, the adjustments were recognized as built-in gains.

  Affirming the Tax Court, 94 TCM 514; Dec. 57,188(M); TC Memo. 2007-354.

MMC Corp., CA-10, 2009-1 USTC ¶50,155

Other References:

 
Code Sec. 481

  CCH Reference - 2009FED ¶22,277.58

 
Code Sec. 1374

  CCH Reference - 2009FED ¶32,203.20

  Tax Research Consultant

  CCH Reference - TRC SCORP: 356.15
CCH Reference - TRC SCORP: 356.20
CCH Reference - TRC ACCTNG: 21,000
CCH Reference - TRC ACCTNG: 21,150

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Under the plain meaning of the statute that authorizes Pitt County to levy a North Carolina local occupancy tax under its own ordinance, an online travel company (OTC) is not a retailer because it is not a type of business that is similar to a hotel, motel, tourist home, or camp. As a result, an OTC is not subject to the Pitt County occupancy tax, and the District Court's dismissal of the complaint was affirmed because the complaint failed to state a claim upon which relief can be granted.

  Pitt County levies an occupancy tax on the gross receipts from the rental in the county of any room, lodging, or similar accommodation subject to sales tax under state law. State law, in turn, imposes its sales tax upon retailers for the privilege of selling, and operators of hotels and motels are considered "retailers" for purposes of the sales tax. The OTCs pay participating hotels a certain amount (a discount price) when they find people to rent rooms and consumers then reserve the rooms online for a marked-up price that includes applicable taxes. The OTCs collect and pass on taxes to the hotels for remittance to the county. The OTCs, however, after collecting the taxes on the marked-up price, only pass on to the hotels the amount of taxes that are imposed on the discount price and they keep the difference. The District Court determined that the OTCs were not subject to the county's occupancy tax and the county had suffered no injury, and dismissed the action on the ground that the county lacked standing to sue. The U.S. Court of Appeals for the Fourth Circuit agreed with the District Court that an OTC does not meet the statutory definition of a "retailer" because it is not a type of business that is similar to a hotel, motel, tourist home, or tourist camp, and that the county is not entitled to collect the occupancy tax. However, although the Court of Appeals concluded that the county did have standing to sue in that the county alleged that it was injured by the failure of the OTCs to remit occupancy taxes on the full rental rate of hotel rooms in the county, the appellate court affirmed the District Court's judgment of dismissal on the alternative ground that the county's complaint failed to state a claim upon which relief can be granted.

  According to the Court of Appeals, OTCs are not operators of the hotels whose rooms they offer to the public on the Internet. The OTCs have no role in the day-to-day operation or management of the hotels, and as such, they cannot be said to operate the hotels. The county argued that OTCs and hotels are "similar type businesses" under the statute because the OTCs, like hotels, make a profit or gain from the rental of rooms. The appellate court noted, however, that unlike OTCs, hotels, motels, tourist homes, and camps all provide lodging to patrons on site. The businesses enumerated in the statute are all physical establishments with rooms or other accommodations where guests can stay. A business that arranges for the rental of hotel rooms over the Internet but does not physically provide the rooms is not a business that is of a similar type to a hotel, motel, tourist home, or camp. Consequently, although the District Court did have jurisdiction to entertain Pitt County's claim, its dismissal of the complaint was appropriate on the alternative ground that the complaint failed to state a claim upon which relief can be granted.

Pitt County v. Hotels.Com, L.P. , U.S. Court of Appeals, No. 07-1900, January 14, 2009, ¶202-435

  Other References:

  Explanations at ¶60-480

CCH (cch.taxgroup.com) reports:

  In his January 15, 2009 State of the Commonwealth address, Massachusetts Gov. Deval Patrick proposed measures to aid local governments, including raising new revenue through a "modest" meals and lodging tax and levying new property taxes on telecommunications companies. In discussing government shortcomings, Gov. Patrick recognized that the Commonwealth has not yet been able to deliver on its commitment to reduce property taxes in every community.

State of the Commonwealth , Massachusetts Gov. Deval Patrick, January 15, 2009
 

CCH (cch.taxgroup.com) reports:

  The Treasury Department and the IRS have withdrawn proposed regulations relating to the treatment of transactions between a partnership and its partners as disguised sales of partnership interests between the partners under Code Sec. 707(a)(2)( (NPRM REG-149519-03). The proposed regulations sought to amend the existing regulations by adding rules for disguised sales of partnership interests and revising the rules relating to disguised sales of property. The Treasury Department and IRS decided to withdraw the proposed regulations after considering comments from interested parties, but will continue to study this area and may issue future guidance. Until new guidance is issued, any determination of whether transfers between a partner or partners and a partnership is a transfer of a partnership interest will be based on the statutory language, guidance provided in legislative history, and case law.

Withdrawal of Notice of Proposed Rulemaking, NPRM REG-149519-03, 2009FED ¶49,414

Other References:

 
Code Sec. 707

  CCH Reference - 2009FED ¶25,180C

  CCH Reference - 2009FED ¶25,181BC

  CCH Reference - 2009FED ¶25,181DC

  CCH Reference - 2009FED ¶25,181EC

  CCH Reference - 2009FED ¶25,181FC

  CCH Reference - 2009FED ¶25,181GC

  CCH Reference - 2009FED ¶25,181HC

 
Code Sec. 752

  CCH Reference - 2009FED ¶25,524C

  Tax Research Consultant

  CCH Reference - TRC PART: 27,058.05
CCH Reference - TRC PART: 27,058.15
CCH Reference - TRC PART: 27,058.25
 

CCH (cch.taxgroup.com) reports:

  The IRS has issued proposed regulations that offer guidance with respect to the recovery of stock basis in certain distributions and transactions to which Code Sec. 301 applies. The regulations also provide guidance regarding the determination of gain and the basis of stock or securities received in exchange for, or with respect to, stock or securities in certain transactions. The proposed regulations impact shareholders and security holders of corporations and are necessary to provide such shareholders and security holders with guidance regarding the allocation and recovery of basis on distributions of property.

Background

  The main purpose of these proposed regulations is to provide a single model for stock basis recovery by a shareholder that receives a constructive or actual distribution to which Code Sec. 301 applies and a single model for sale and exchange transactions to which Code Sec. 302(a) applies, including certain elements of a reorganization exchange. These proposed regulations define the scope of the exchange that must be analyzed under particular Code provisions, and provide a methodology for determining gain realized under
Code Sec. 356 and stock basis under Code Sec. 358.

  The regulations also respond to comments received by the IRS regarding the current regulations under Code Sec. 358 and include amendments to the regulations under Code Sec. 304 that import statutory amendments to that section.

Exchanges and Distributions to Which Code Secs. 301 and 302 Apply

  The proposed regulations are intended to be a comprehensive approach to stock basis recovery and stock basis identification in order to produce consistent results among economically similar transactions, regardless of the transaction type or the specific Code provision that results in the application of Code Sec. 301 or 302(a). The primary theme of the regulations is that a share of stock is the basic unit of property that can be disposed of and, accordingly, the results of a transaction should generally derive from the consideration received in respect of that share. To harmonize the tax treatment of economically similar transactions, these proposed regulations adopt a single model for Code Sec. 301 distributions (dividend equivalent transactions) and a single model for sale or exchange transactions to which Code Sec. 302(a) applies (non-dividend equivalent transactions), regardless of whether Code Sec. 301 or 302(a) applies directly or by reason of Code Sec. 302(d), 304 or 356.

Distributions

  Code Sec. 301 distributions . Consistent with the fundamental notion that a share of stock is the basic unit of property, the results of a Code Sec. 301 distribution should derive from the consideration received in respect of each share of stock. Thus, the proposed regulations treat a Code Sec. 301 distribution as received on a pro rata, share-by-share basis with respect to the class of stock upon which the distribution is made.

  Dividend equivalent redemptions . The proposed regulations apply the same basis recovery rules to both dividend equivalent redemptions and certain Code Sec. 304 transactions. Accordingly, under the regulations, a dividend equivalent redemption results in a pro rata, share-by-share distribution to all shares of the "redeemed class" held by the redeemed shareholder immediately before the redemption. A constructive Code Sec. 301 distribution is conformed to an actual Code Sec. 301 distribution by identifying those shares with respect to which an actual Code Sec. 301 distribution would have been received, and by reducing the basis of only those shares. If less than all of the shares of a class of stock held by the taxpayer are redeemed, the proposed regulations provide that in a hypothetical recapitalization described in Code Sec. 368(a)(1)(E), the redeemed shareholder is deemed to exchange all its shares in the class, including the redeemed shares, for the actual number of shares held after the redemption transaction. Tracing rules preserve the basis of the shares exchanged in the recapitalization in the remaining shares of the redeemed class held by the shareholder. Thus, under the proposed regulations, a dividend equivalent redemption is generally treated in the same manner, and its results are the same as, a Code Sec. 301 distribution in which no shares were cancelled.

  Under current law, if all of the shares of a single class held by a shareholder are redeemed in a dividend equivalent redemption, any unrecovered basis in the redeemed shares is permitted to shift to other shares in certain circumstances. The proposed regulations do not permit the shifting of basis to other shares held (directly or by attribution) by the redeemed shareholder. Instead, the proposed regulations preserve the tax consequences of the unrecovered basis for the redeemed shareholder by treating the amount of the unrecovered basis as a deferred loss of the redeemed shareholder that can be accessed when certain conditions are satisfied, or alternatively, when all the shares of the issuing corporation (or its successor) become worthless within the meaning of Code Sec. 165(g).

  Dividend equivalent reorganization exchanges . If, pursuant to a reorganization, a shareholder receives qualifying property and boot in exchange for its target corporation stock, the tax consequences of the receipt of the boot under these proposed regulations will depend upon whether the reorganization exchange is dividend equivalent or not. To promote consistency between sale or exchange transactions, the proposed regulations provide that the overall reorganization exchange shall be taken into account in determining whether a particular exchange is dividend equivalent. Thus, a shareholder that exchanges a class of stock solely for boot and another class of stock solely for nonqualifying property shall consider the overall exchange (the exchange of the two classes of stock for boot and qualifying property) in determining whether each particular exchange is dividend equivalent. If it is determined that a reorganization exchange is dividend equivalent, because different classes of stock have distinct legal entitlements that are respected for federal income tax purposes, the proposed regulations provide that an exchange of a class of stock solely of boot is an exchange to which Code Sec. 302(d) applies.

  To ensure similar tax treatment of dividend equivalent reorganization exchanges and dividend equivalent redemptions, if the reorganization exchange is dividend equivalent the proposed regulations limit the ability of the exchanging shareholder to specify the terms of the exchange.

  Apportionment of interest and other expenses . Under the proposed regulations, the interest expense allocation and apportionment consequences of a dividend equivalent redemption are the same as an actual Code Sec. 301 distribution.

  Code Sec. 1059 . The proposed regulations do not affect the basis reduction provided for in Code Sec. 1059(e)(1)(A) if Code Sec. 1059(e)(1)(A)(iii) otherwise applies. Accordingly, to the extent of an extraordinary dividend, a redeeming shareholder would first reduce basis as prescribed by Code Sec. 1059(e)(1)(A). The proposed regulations would then apply to the extent the distribution is not a dividend within the meaning of Code Sec. 301(c)(1).

  Redemptions of stock held by partnerships, trusts and S corporations . The treatment of unrecovered basis as a deferred loss raises special issues where the redeemed shareholder is an S corporation, a partnership or a trust (a flow-through entity). The proposed regulations reserve with respect to the issues relating to redeemed shareholders that are flow-through entities pending further study and comment. The primary issue under study is whether an "outside" basis adjustment that reflects the deferred loss should occur at the time of the dividend equivalent redemption, or alternatively, when there is an inclusion date with respect to the deduction. The IRS has also requested comments with respect to deferred losses arising from unrecovered basis as presenting an opportunity to separate the deferred loss from the dividend income resulting from the redemption. The IRS also requests comments on the issue of when is appropriate to treat an owner of the flow-through entity as the redeemed shareholder, and when it is appropriate to treat the flow-through entity itself as the redeemed shareholder.

Redemptions Treated as a Sale or Exchange

  The proposed regulations do not limit the current law ability of a shareholder that owns shares of stock with different bases to decide whether to surrender for redemption high basis shares, low basis shares or any combination thereof. In addition, the proposed regulations affirm the ability of a shareholder to specify the terms of a reorganization exchange where the receipt of boot results in sale or exchange treatment. If it is determined that the reorganization exchange is not dividend equivalent, Code Sec. 302(a) will apply to the extent shares are exchanged solely for boot. A shareholder engaging in a reorganization exchange that is not dividend equivalent can specify the receipt solely of boot for a share, provided that the terms of the exchange are economically reasonable.

Extension of Tracing Principles to Certain Stock Transfers Not Reorganizations

  The proposed regulations broaden the application of the tracing principles under the Code Sec. 358 regulations to transfers of stock in Code Sec. 351 exchanges in which no liabilities are assumed. The proposed regulations also incorporate the deemed issuance and recapitalization approach of the current Code Sec. 358 regulations to section 351 exchanges to preserve basis if insufficient shares, or no shares at all, are actually issued in the exchange.

Request for Comments

  Finally, the proposed regulations request comments with respect to: the treatment of certain Code Sec. 306(c) redemptions treated as Code Sec. 301 distributions; nominal share deemed issued in all cash "D" reorganizations; and controlled corporations after a Code Sec. 355
pro rata split-up. Written or electronic comments, and a request for a public hearing, must be received by April 21, 2009.

Proposed Regulations, NPRM REG-143686-07, 2009FED ¶49,413

Other References:

 
Code Sec. 301

  CCH Reference - 2009FED ¶15,303G

 
Code Sec. 302

  CCH Reference - 2009FED ¶15,327G

  CCH Reference - 2009FED ¶15,329G

 
Code Sec. 304

  CCH Reference - 2009FED ¶15,376G

  CCH Reference - 2009FED ¶15,377BC

  CCH Reference - 2009FED ¶15,377CE

  CCH Reference - 2009FED ¶15,377G

 
Code Sec. 351

  CCH Reference - 2009FED ¶16,404BE

 
Code Sec. 354

  CCH Reference - 2009FED ¶16,432G

 
Code Sec. 355

  CCH Reference - 2009FED ¶16,462G

 
Code Sec. 356

  CCH Reference - 2009FED ¶16,491G

 
Code Sec. 358

  CCH Reference - 2009FED ¶16,551I

  CCH Reference - 2009FED ¶16,552AE

  CCH Reference - 2009FED ¶16,552LE

 
Code Sec. 368

  CCH Reference - 2009FED ¶16,751KG

 
Code Sec. 861

  CCH Reference - 2009FED ¶27,142G

 
Code Sec. 1002

  CCH Reference - 2009FED ¶29,224G

 
Code Sec. 1016

  CCH Reference - 2009FED ¶29,413G

 
Code Sec. 1374

  CCH Reference - 2009FED ¶32,202V

  Tax Research Consultant

  CCH Reference - TRC CCORP: 6,256.15

  CCH Reference - TRC CCORP: 21,100

  CCH Reference - TRC CCORP: 21,150

  CCH Reference - TRC CCORP: 21,250

  CCH Reference - TRC CCORP: 21,252.05

  CCH Reference - TRC CCORP: 39,256.10

  CCH Reference - TRC REORG: 30,152.15

CCH (cch.taxgroup.com) reports:

  Various prescribed rates for federal income tax purposes for February 2009 have been provided by the IRS. The annual short-term, mid-term, and long-term applicable federal interest rates (AFRs) are .60 percent, 1.65 percent and 2.96 percent, respectively. The semiannual short-term, mid-term, and long-term AFRs are .60 percent, 1.64 percent and 2.94 percent, respectively. Quarterly short-term, mid-term and long-term AFRs are .60 percent, 1.64 percent and 2.93 percent, respectively. Finally, the monthly short-term, mid-term and long-term rates are .60 percent, 1.63 percent and 2.92 percent, respectively.

  The short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for February 2009 for purposes of Code Sec. 1288(b) are 1.50 percent, 2.83 percent, and 5.27 percent, respectively, when annual compounding is used.

  Additionally, the Code Sec. 382 adjusted federal long-term rate is 5.27 percent, and the long-term tax-exempt rate is 5.49 percent. The Code Sec. 42(b)(2) appropriate percentage for the 70-percent present-value, low-income housing credit is 7.53 percent, and the appropriate percentage for the 30-percent present-value, low-income housing credit is 3.23 percent. Finally, theCode Sec. 7520 AFR for determining the present value of an annuity, an interest for life or a term of years, or a remainder or reversionary interest is 2.0 percent.

Rev. Rul. 2009-5, 2009FED ¶46,249

Rev. Rul. 2009-5, FINH ¶30,613

Other References:

 
Code Sec. 42

  CCH Reference - 2009FED ¶173.02

  CCH Reference - 2009FED ¶176.01

  CCH Reference - 2009FED ¶4305.03

 
Code Sec. 382

  CCH Reference - 2009FED ¶17,115.28

 
Code Sec. 1274

  CCH Reference - 2009FED ¶31,310.05

 
Code Sec. 7520

  CCH Reference - 2009FED ¶42,785.40

  CCH Reference - FINH ¶22,630.05

 
Code Sec. 7872

  CCH Reference - FINH ¶18,950.05

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 36,162.05

CCH (cch.taxgroup.com) reports:

  Dubai Mercantile Exchange, a United Arab Emirates Authorized Market Institution, 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 a Dubai Mercantile Exchange contract that was entered into on or after February 1, 2009. Although the change in treatment of Dubai Mercantile Exchange 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.

Rev. Rul. 2009-4, 2009FED ¶46,248

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

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Alabama Governor Bob Riley and Revenue Commissioner Tim Russell have announced that the Department of Revenue will temporarily waive penalties and will not seek criminal prosecutions for delinquent taxpayers that come forward and pay delinquent state taxes. The program, known as Operation Clean Slate, runs from February 1 through May 15, 2009, and is available, but not limited, to personal and corporate income taxes, business privilege tax and, if unregistered with the Department, sales tax and use tax.

  Penalties for failure to file returns or failure to pay the tax due will not be imposed during this limited period of time. In addition, the Department will not seek to impose civil penalties for underpayment due to negligence nor the penalty for fraud for those taxpayers who correct their situations by filing or amending their returns and paying the proper amount due before May 15. The Department also will not seek any criminal penalties for failure to pay taxes for those who come forward and pay by the deadline.

  The full text of the press release may be viewed at http://governorpress.alabama.gov.

Press Release , Office of Alabama Governor Bob Riley, January 15, 2009

CCH (cch.taxgroup.com) reports:

  A Streamlined Sales Tax (SST) panel rejected an interpretation request sought by a representative of the software industry and found that the purchase of a software license upgrade is the purchase of "computer software," as defined in the SST Agreement. The Software Finance and Tax Executives Council (SoFTEC) submitted the request to the Compliance Review and Interpretations Committee (CRIC) of the SST Governing Board. SoFTEC sought a ruling that a software license upgrade (as opposed to an upgrade of the software itself) does not constitute "tangible personal property" or "computer software" where the only thing delivered to the purchaser is an alphanumeric code. The Agreement defines "computer software" as "a set of coded instructions designed to cause a computer or automated data processing equipment to perform a task." "Tangible personal property" is defined to include "prewritten computer software."

  Mark Nebergall, on behalf of SoFTEC, argued that a key providing enhanced license rights is intangible personal property. It permits broader distribution through, or use in, the purchaser's business of the underlying software's existing functionality or capability, but it does not require the delivery of any additional software code, according to Nebergall. He distinguished this from a software upgrade that allows the software to cause the computer onto which it is loaded to perform more or different functions.

  Members of the CRIC, and representatives of other states on the conference call, greeted Nebergall's position with a great deal of skepticism. They argued that it was contrary to the position currently taken in many states, obscured the true nature of the transaction, and would facilitate tax reduction strategies. Ultimately, the committee members voted unanimously to reject the proposed SoFTEC interpretation. In addition, they affirmatively found that a software license upgrade as described in the proposed interpretation would constitute "computer software" as defined in the Agreement.

Teleconference, Compliance Review and Interpretations Committee, January 15, 2009
 

CCH (cch.taxgroup.com) reports:

  Owners of an S corporation that, in turn, owned a qualified subchapter S subsidiary bank (the QSub bank) could not treat the QSub bank as a disregarded entity for purposes of applying Code Sec. 291(a)(3), which governs a bank's deductions of tax-exempt interest. The taxpayers argued that Code Sec. 1363(b)(4) precluded the application of Code Sec. 291(a)(3) to their S corporation because, as required by Code Sec. 1363(b)(4), the S corporation had not been a C corporation for over three years.

  The court rejected this argument stating that: (1)Code Sec. 1361(b)(3)(A) and Reg. §1.1361-4(a)(3) specifically make special bank rules such as Code Sec. 291(a)(3) applicable to qualified subchapter S subsidiary banks; and (2) Code Sec. 1363(b)(4) by its own terms does not apply to such banks. Therefore, the rules of Code Sec. 291(a)(3) applied to the QSub bank as a separate entity.

  The court further rejected the taxpayers' argument that Reg. §1.1361-4(a)(3) was an invalid exercise of regulatory authority provided under Code Sec. 1361(b)(3)(A).

J.R. Vainisi, 132 TC No. 1, Dec. 57,701

Other References:

 
Code Sec. 291

  CCH Reference - 2009FED ¶15,191.18

 
Code Sec. 1361

  CCH Reference - 2009FED ¶32,026.35

 
Code Sec. 1363

  CCH Reference - 2009FED ¶32,062.04

  Tax Research Consultant

  CCH Reference - TRC SCORP: 562

CCH (cch.taxgroup.com) reports:

  The IRS has provided guidance with regard to allocating the new first-time homebuyer credit between unmarried co-purchasers of a principal residence pursuant to Code Sec. 36(b)(1)C). This new credit, added by the Housing and Economic Recovery Act (P.L. 110-289), allows a taxpayer to claim a credit that is equal to 10 percent of the purchase price of a residence purchased after April 8, 2008, and before July 1, 2009. The maximum amount of the credit is $7,500 ($3,750 for a married taxpayer filing a separate return). The total credit allocated between unmarried taxpayers cannot exceed $7,500.

  According to the guidance, if two or more taxpayers who are not married purchase a principal residence and otherwise satisfy the requirements of Code Sec. 36, the homebuyer credit may be allocated between the taxpayers using any reasonable method. A reasonable method includes allocating the credit between taxpayers who are eligible to claim the credit based on: (1) the taxpayers' contributions toward the purchase price of the residence as tenants in common or joint tenants, or (2) the taxpayers' ownership interests in the residence as tenants in common.

  Todd Solomon, partner, McDermott, Will and Emery, LLP, Chicago, told CCH, "By offering a valuable tax credit to taxpayers who are not married, Notice 2009-12 provides an important federal tax benefit for unmarried domestic partners. As domestic partnerships are not recognized under federal law, a benefit of this sort is rare."

  The IRS provides several examples illustrating how the credit may be allocated when unmarried taxpayers purchase a principal residence as tenants in common and apply in a similar manner to taxpayers who purchase a residence as joint tenants. In one of the examples, one of the unmarried co-owners contributed $45,000 and the other contributed $15,000 toward the $60,000 purchase price of a residence and each co-owner owns a one-half interest in the residence. In this case, the co-owners may allocate the allowable $6,000 credit: (1) three-fourths to the $45,000 contributor and one-fourth to the $15,000 contributor based on their contributions; (2) one-half to each based on their ownership interests in the residence; or (3) using any other reasonable method.

Notice 2009-12, 2009FED ¶46,247

Other References:

 
Code Sec. 36

  CCH Reference - 2009FED ¶4190.03

  Tax Research Consultant

  CCH Reference - TRC INDIV: 57,950

CCH (cch.taxgroup.com) reports:

  The Senate Finance Committee on January 15 approved legislation to renew and expand the State Children's Health Insurance Program (SCHIP) by a vote of 12 to 7. The $31.5-billion measure would fund investment in the SCHIP program with a 61-cent increase in federal tax on cigarettes, with proportional increases for other tobacco products, raising approximately $65 million over 10 years. The House passed a similar measure (the Children's Health Insurance Program Reauthorization Bill of 2009 (CHIPRA) (HR 2)) on January 14 by a vote of 289 to 13. The full Senate is expected to take up its version during the week beginning January 19.

  The revenue would primarily be raised through increases in tobacco excise tax rates and, to a lesser degree, by modifying certain definitions pertaining to tobacco products. The measure would modify the definition of roll-your-own tobacco and would strengthen regulatory and enforcement authority with respect to tobacco and alcohol. In addition, the bill would modify corporate quarterly estimated tax payments, increasing the applicable percentage for 2013 (120.00) created under the Tax Increase Prevention Act of 2005 (TIPRA) (P.L. 109-222), by 0.5 percentage points.

  Other provisions would tighten reporting and recordkeeping requirements for permits and inventory, clarify the three-year statute of limitations pertaining to excise taxes imposed on imported alcohol, tobacco products and cigarette papers and tubes, and allow the Treasury Department broader authority to revoke licenses for violations of the tax code and impose an immediate tax on unlawfully manufactured tobacco products, including cigarette papers and tubes. Additional provisions would allow the use of tax information provided under Code Sec. 6103(o) in tobacco assessments and provide for a study of the amount of lost tax revenue through tobacco smuggling in the United States.

  By Jeff Carlson, CCH News Staff

Children's Health Insurance Program Reauthorization Act of 2009, as Passed by the House on January 14, 2009, HR 2
 

CCH (cch.taxgroup.com) reports:

  The House Ways and Means Committee plans to consider economic stimulus legislation on January 22 that provides approximately $275 billion in individual and business tax relief, lawmakers said on January 15. The two-year tax bill is part of a larger stimulus plan called the American Recovery and Reinvestment Act of 2009, which would also provide an additional $550 billion in federal spending designed to create jobs and boost American productivity. Lawmakers intend to have the legislation ready for President-elect Obama's signature by mid-February.

  Ways and Means Committee Chairman Charles B. Rangel's, D-N.Y., office released a summary of the proposed legislation that includes a package of tax incentives for employment, education, housing, business, state and local governments, energy, trade and health care. Although details were not available, the outline includes expanded child and earned income tax credits, simplified education credits, and first-time homebuyer credits for housing purchased before June 30, 2009. For businesses, the legislation includes provisions to provide bonus depreciation, increased small business expensing, and work opportunity tax credits. The legislation would also provide a five-year carryback of net operating losses for certain companies and repeal the alternative minimum tax limits on new private activity bonds.

  The legislation would also provide a one-year deferral of a 3-percent withholding tax on government contractors who have unpaid federal tax obligations and would prospectively repeal an IRS ruling that allows banks to use the losses of companies they acquire to cut their own tax liability. The measure also includes a package of energy tax incentives, including an extension of renewable energy production tax credits, clean renewable energy bonds, conservation bonds and research and development tax credits.

  In a written statement, President-elect Obama commended the House for acting quickly on the economic recovery package. "This plan is a significant down payment on our most urgent challenges," Obama stated. The president-elect said the economic package will preserve or create 3 million new jobs and will provide tax relief to families and businesses and needed spending on health care, education and energy. The measure also contains "strict, independent oversight" on all expenditures, Obama noted.

  However, House Minority Leader John Boehner, R-Ohio, expressed disappointment with the Democratic tax and spending priorities, saying many of the provisions were recycled ideas that have little to do with economic stimulus. He said the measure will not create jobs, and that GOP lawmakers would offer their own ideas to Obama. Ways and Means member Kevin Brady, R-Tex., said Republican lawmakers were not involved in the negotiations to determine the contents of the economic stimulus bill.

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

American Recovery and Reinvestment Act of 2009

Discussion Draft of the Appropriations Committee Report on the American Recovery and Reinvestment Act of 2009

Summary of the American Recovery and Reinvestment Act of 2009

Ways and Means Release: Chairman Rangel Outlines Economic Recovery Package
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Legislation to bring Florida into conformity with the Streamlined Sales and Use Tax (SST) Agreement has been prefiled in the Florida House of Representatives. If enacted, the legislation would be effective July 1, 2009.

  CCH Tax Research NetWork subscribers can view the legislation as prefiled.

H.B. 329, as prefiled in the Florida House of Representatives on January 13, 2009

CCH (cch.taxgroup.com) reports:

  In response to the continued liquidity crisis making it difficult for taxpayers to fund their operations, the IRS has extended the temporarily relaxed standards set forth in Notice 2008-91, I.R.B. 2008-43, 1001 (TAXDAY, 2008/10/07, I.1) and Notice 88-108, 1988-2 CB 445, for the exclusion of certain obligations from the definition of U.S. property on which U.S. shareholders of a controlled foreign corporation (CFC) are taxed. The IRS has also extended the application of Rev. Proc. 2008-26, I.R.B. 2008-21, 1014 (TAXDAY, 2008/05/13, I.1) to any day during calendar year 2009, for which it is relevant whether securities are readily marketable under Code Sec. 956(c)(2)(J).

 
Notice 88-108 excludes from the definition of the term "obligation" (Code Sec. 956(c)(1)(C)) an obligation that would constitute an investment in U.S. property if it is held at the end of a CFC's tax year, so long as the obligation is collected within 30 days from the time it is incurred. This exclusion does not apply, however, if the CFC holds for 60 or more calendar days during such tax year obligations that, without regard to the 30-day rule, would constitute an investment in U.S. property if it is held at the end of the CFC's tax year.

  Under Notice 2008-91, a CFC may choose to exclude from the definition of the term "obligation" an obligation held by the CFC that would constitute an investment in United States property provided the obligation is collected within 60 days from the time it is incurred. This exclusion does not apply if the CFC holds for 180 or more calendar days during such tax year obligation that, without regard to the 60-day rule, would constitute an investment in U.S. property.

  The new rules provide that, in addition to the period set forth in Notice 2008-91, the regulations described in that notice will apply to the third consecutive tax year of a foreign corporation, if any, including any short tax year that ends after October 3, 2008, and before December 31, 2009.

Notice 2009-10, 2009FED ¶46,246

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 Treasury and IRS have finalized proposed regulations (NPRM REG-142680-06) relating to the postponement of certain tax-related deadlines for taxpayers affected by military or terroristic actions or federally declared disasters. The regulations reflect the Victims of Terrorism Tax Relief Act of 2001 (P.L. 107-134), as well as the Tax Extenders and Alternative Minimum Tax Relief Act of 2008 (TEAMTRA) (P.L.110-343). The rules apply for disasters declared after January 15, 2009.

  The Victims of Terrorism Tax Relief Act of 2001 extended the time period during which the Secretary could postpone certain tax-related acts and allowed the Secretary to suspend the accrual of interest, penalties and additional amounts or additions to tax during the postponement period. The regulations reflect that the Secretary may postpone certain tax-related acts up to one year. The regulations also reflect that the Secretary may suspend the accrual of interest, penalties, additional amounts or additions to tax during the postponement period.

  The regulations describe how postponements are implemented and additionally that:

  --further relief may be granted in revenue rulings, procedures, notices, announcements, new releases or other guidance;

  --specific tax-related acts due on different days within the postponement period may be postponed until the last day of the period;

  --if an affected taxpayer's tax-related due date falls within the postponement period, it will be eligible for relief from interest and penalties, etc.;

  --the postponement period runs concurrently with extensions to file and pay under other Code Secs.; and

  --the relief provided under Code Sec. 7508A, is specific to the type of extension received, for extended due dates that are not original dues dates within the postponement period.

  Consistent with changes made by TEAMTRA, the regulations use the term "federally declared disaster," instead of the term "Presidentially declared disaster." The term "affected taxpayer" is expanded to include any individual, business entity, or sole proprietorship not located in a covered disaster area, but whose records necessary to meet a deadline are in the covered disaster area. Affected taxpayers may also include individuals visiting a covered disaster area who are killed or injured as a result of the disaster.

  Finally, the regulations add Example 9 to illustrate that a taxpayer's obligation to make installment agreement payments is suspended during the postponement period, but interest and penalties continue to accrue since the payments relate to preexisting liabilities.

T.D. 9443, 2009FED ¶47,012

T.D. 9443, FINH ¶43,124

Other References:

 
Code Sec. 7508A

  CCH Reference - 2009FED ¶42,687B

  CCH Reference - FINH ¶22,555

  Tax Research Consultant

  CCH Reference - TRC FILEIND: 18,052.20

  CCH Reference - TRC FILEBUS: 15,100

  CCH Reference - TRC FILEBUS: 15,110

  CCH Reference - TRC FILEBUS: 15,204.25

CCH (cch.taxgroup.com) reports:

  Preliminary negotiations over a $775 billion, tax-laden stimulus package are near completion and the tax-writing panels in both chambers plan to mark up portions within their authority during the week beginning January 19. Members reiterated that they are on track to have a bill completed and ready for President-elect Obama's signature by February 13.

  Lawmakers have jettisoned a proposed $3,000 tax credit for employers to hire and retain workers during the current economic downturn, arguing that the $50 billion the provision would cost could be put to better use. Negotiators say they remain undecided on how to utilize the funds but have more than enough options to choose from."Every member has five ideas" for what they would like to see replace the credit, Senate Finance Committee Chairman Max Baucus, D-Mont., recently told reporters.

  Senate Finance Committee member Charles E. Schumer, D-N.Y., told reporters on January 14 that adding a one-year patch for the alternative minimum tax (AMT) to the stimulus package is still under consideration. "Some people have proposed it be in the bill because, as you know, it's something that has to be done. And it's been difficult to pass in the past," he said. Baucus acknowledged the same a day earlier, telling reporters that the AMT patch is "still on the table."

  According to Schumer, the energy incentives portion of the measure has been expanded, reportedly up to $25 billion from the $10 billion initially proposed. Education tax credits will also get a boost, with a doubling and possibly quadrupling of the current $1,000 college tuition tax credit. Still posing problems is a provision that would allow companies to write off losses (NOLs) beyond the two years currently on the books. Aside from its questionable stimulative benefits, lawmakers are uneasy with the idea that banks receiving federal funds under Troubled Assets Relief Program (TARP) may also benefit from the tax deduction. Some have said that a smaller expansion beyond the proposed five years may still be possible because, despite their reluctance to include the provision, the deduction remains a popular means to provide tax relief for small businesses.

  House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., told reporters on January 14 that the economic stimulus package now under consideration by lawmakers and the incoming Obama administration would likely include a one-year AMT patch. Rangel said that both Senate and House lawmakers are interested in including an AMT provision, and he predicted that Congress would never let the AMT affect unintended taxpayers. He said his committee would have jurisdiction over $300 billion in tax cuts as part of the stimulus bill, but he would approach Obama for a larger amount if the committee believes it is necessary.

  The Ways and Means Committee is likely to mark up the economic stimulus bill during the week of January 19, according to House Majority Leader Steny H. Hoyer, D-Md. Hoyer told reporters that the tax components of the legislation will be targeted to middle-class working Americans, who will spend cash and boost the economy. Although he was not specific, Hoyer said the bill would also include energy tax credits.

  Meanwhile, members of the House Republican Study Committee released their own plan for economic stimulus on January 14, calling for lowering corporate tax rates, expanding child tax credits, lowering and indexing capital gains tax rates for inflation and allowing greater business expensing. The provisions are included in the Economic Recovery and Middle-Class Tax Relief Bill, sponsored by Rep. Scott Garrett, R-N.J., and Rep. Jim Jordan, R-Ohio.

Obama Administration View

  Separately, Office of Management and Budget Director Nominee, Peter Orszag, said Congress must take dramatic action to stimulate the U.S. economy. Orszag, at a nomination hearing before the Senate Committee on Homeland Security and Government Affairs on January 14, stressed the importance of maintaining a balanced mix of spending and tax-cut proposals in the economic recovery package.

  The key impediment to economic growth is the $1 trillion gross domestic product (GDP) gap between U.S. goods and services produced and the demand for them, Orszag noted. Public infrastructure projects are the fastest way to add to aggregate demand followed by assistance to states to maintain necessary social services, he said.

  "The economy lost more than 2.5 million jobs in 2008 and without policy interventions to bolster aggregate demand, it could lose another 3-to-4 million jobs over the coming year," Orszag warned. The former head of the Congressional Budget Office said the most pressing challenge in the short run is to jump-start the U.S. economy "out of the worst crisis since the Great Depression." A key challenge in the long run is putting the budget on a more sustainable course, but that will not be possible without controlling health care costs, he said.

Ways and Means Meeting

  After an organizational meeting of the Ways and Means committee, Rangel and ranking member Dave Camp, R-Mich., agreed to continue the cordial working relationship started by Rangel and former ranking member Jim McCrery, R-La., who retired. In reference to the committee's agenda, Rangel said he hopes to work with Camp and other GOP lawmakers on legislation to lower corporate tax rates and close outdated tax loopholes.

  Oversight Subcommittee Chairman John Lewis, D-Ga., said once his subcommittee meets in February, it will likely begin work on the issue of using private debt collectors to collect unpaid taxes. Lewis said his subcommittee would actively provide oversight of charitable organizations and nonprofits.

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

CCH (cch.taxgroup.com) reports:

  The definition of "gross receipts" under the Michigan business tax is modified so that more items are excluded. The amount deducted as a bad debt under federal income tax law that corresponds to items included in the modified gross receipts tax base may be subtracted from gross receipts according to phased-in percentage amounts. Among other things, other items that may be excluded from gross receipts include:

  -- proceeds from the sale less any gain to the extent the gain is included in federal taxable income if the property is (1) a capital asset under IRC §1221(a), (2) land used in a trade or business under IRC §1231(b), (3) a hedging transaction, or (4) an investment or trading assets managed as part of a treasury function;

  -- interest and dividends received from federal or Michigan bonds;

  -- dividends and royalties received or deemed received from a foreign operating entity, according to phase-in percentage amounts;

  -- certain specific taxes and fees, such as sales or use taxes collected from a consumer, excise taxes paid on tobacco, and motor fuel taxes, according to phased-in percentage amounts;

  -- amounts attributable to an ownership interest in a pass-through entity, regulated investment company, or a real estate investment trust; and

  -- for a regulated investment company, receipts derived from investment activity by that regulated investment company.

In addition, other technical changes were made to the gross receipts definition.

Act 433 (S.B. 1038), Laws 2009, effective January 9, 2009, applicable retroactively and effective for taxes levied on and after January 1, 2008
 

CCH (cch.taxgroup.com) reports:

  The Council On State Taxation (COST) has issued an evaluation of the laws governing state administration of unclaimed property. The evaluation is structured in a way that is similar to COST's well-known Scorecard on Tax Appeals & Procedural Requirements and, in the same way, it assigns a grade to each state based on COST's evaluation of several criteria.

  The criteria evaluated by COST include:

  -- whether business-to-business transactions are subject to escheat,

  -- whether a period of limitations for unclaimed reporting requirements exists that corresponds with state tax laws and normal business practices,

  -- whether an independent administrative appeals process is available for holders of unclaimed property,

  -- whether gift certificates are subject to escheat,

  -- whether the state treats both the payment of interest to property owners and the assessment of interest against holders equitably, and

  -- whether the state engages contingent-fee auditors in its administration of unclaimed property.

  The following states were ranked highly by COST: Kansas, Arizona, Wisconsin, Indiana, Maryland, Massachusetts, North Carolina, and Virginia. The following states were ranked at the bottom by COST: Delaware, Georgia, Mississippi, New York, Oregon, Pennsylvania, New Hampshire, Utah, and Wyoming.

  Subscribers to CCH Tax Research NetWork can view the COST report.

   
Scorecard on State Unclaimed Property Statutes, Council On State Taxation, January 2009
 

CCH (cch.taxgroup.com) reports:

  Stimulus provisions will get Congress's full --and undivided --attention on the tax side in 2009. In 2010, however, major tax reform is likely if momentum on preparatory work continues in 2009 and, in 2010, President-elect Obama leads the charge for major tax reform and gets buy-in from the congressional leadership who, in turn, muster bipartisan support from members. These predictions reflected a consensus of opinion of the over 20 panelists and speakers, most with extensive experience on Capitol Hill, attending "Current Perspective on Tax Reform," an all-day program held in Washington on January 13, sponsored by the D.C. Bar Tax Section.

  On stimulus tax legislation, former Hill staffers at the program stated their belief that the alternative minimum tax (AMT) patch that extends the 2008 higher exemption amounts into 2009 is one of the few nonstimulus provisions likely to find its way into legislation soon. Another is the retention of the estate tax for at least one more year, 2010, at 2009 levels. Ironically, prior to the current economic downturn, the AMT's growing incursion into the ranks of the middle-class and the estate tax issue were considered, along with the sunsetting of the Bush tax cuts in 2010, concerns over the international competitiveness of the corporate tax structure and the growing cost of health care entitlements, as the "perfect storm" to make 2009 the year for tax reform. Most panelists, including Jonathan Talisman, former Assistant Secretary for Tax Policy, and Marc Gerson, partner with Miller & Chevalier, however, agreed that the ingredients for this perfect storm remain and may be just as compelling in 2010.

Groundwork for Tax Reform

  Joint Committee on Taxation Chief of Staff Edward Kleinbard would not predict the contents of any eventual tax reform package but did indicate that preparations to make the eventual decisions on reform possible are being made in 2009. Among the most essential components for tax reform, in Kleinbard's opinion, is good distributional analysis, now taking place, to pinpoint who bears what percentage of the tax burden currently and how different proposals would change that matrix. He added that, for example, the current variation in the average effective tax rates for corporations (26 percent) from that for other business forms (20 percent), as well as that imposed on corporate equity investment capital (36 percent) in contrast to debt-financed investment (negative six percent), are the types of distributional statistics that may support reform.

  He also suggested that looking at the opinions of Lawrence (Larry) Summers, Obama's chief economic advisor, on distributional trends also might indicate where tax reform might be headed. Summers has voiced concern for at least several years over a growing disparity between the wealthiest and the poorest individuals within the U.S.

  In additional to readying the necessary statistical work for a tax reform package, preparations in 2009 for serious tax reform considerations next year are being made through debate being generated by House Ways and Means Committee Chairman Charles B. Rangel's, D-N.Y., "mother of all tax bills" (HR 3970) introduced in 2008 to cover individual and business reforms independently and with separate revenue offsets. Another development considered by panelists as great benefit to any tax reform bill in 2010 is an effort on the budget side to put into place a better procedure for forecasting the revenue impact of particular reform provisions, in contrast to the static, 10-year forecasts now in use.

Tax Reform Strategy

  Former Senate Finance Committee Chairman Bob Packwood, who served during the last major tax reform in 1986, shared his recipe for successful tax reform during an Obama administration. First and foremost, he observed that Congress, by its nature, is a body comfortable with incremental change. To move major tax reform, the proposal must be championed by the president as a priority of his administration. Without that support, most congressional members simply will not take the chance on voting for a controversial bill that would create many losers as well as winners and might not become law in the end.

  Next, congressional leadership must back major tax reform without qualification. In addition, lawmakers must feel that there is transparency and that their views will be fully vetted in committee. Finally, major tax reform in Congress cannot take place without some compromise on both sides, with each feeling that they are getting "a grand bargain." In 1986, this bargain took the form of rate cuts in return for more tax fairness. Packwood would not predict what "grand bargain" would work this time around.

Other Observations

  Other opinions on the direction of tax reform in 2010 (or beyond) voiced during the program included the following observations:

  --The rising cost of health care entitlements will create the need for another source of revenue. A value-added tax appears to be the most likely candidate at this point.

  --Imposing an energy tax on "bad" energy, such as with a carbon tax, would automatically provide an incentive to use "good" energy without the complications created by direct tax incentives.

  --Any tax reform will create winners and losers, absent a surplus. The politics of getting tax reform passed by Congress requires threading the needle carefully to know what votes are not needed and what provisions must stay in for passage.

  --Hearings on tax reform may begin in 2009.

  --The business community needs consistency and predictability for long-range investment planning. Postponing corporate tax reform postpones needed certainty.

  --While corporations do not vote, there is growing consensus that lowering the corporate tax rate to be competitive worldwide will increase jobs for domestic employees, who do vote.

  By George Jones, CCH News Staff

CCH (cch.taxgroup.com) reports:

  The IRS will provide a daily on-line series of Tax Tips for the 2009 filing season. The series will provide useful information easily understandable by the average taxpayer, with a new tip added every day until the April 15, 2009, filing deadline. Taxpayers will have access to Tax Tips through the IRS website, which will also provide daily e-mails upon request and audio files for podcast. Topics for the series will include: choosing a tax preparer, how to obtain free tax help, e-filing, filing extensions, retaining tax records, and the first-time homebuyer tax credit.

IR-2009-4, 2009FED ¶46,243

Other References:

 
Code Sec. 7804

  CCH Reference - 2009FED ¶43,266.308

  Tax Research Consultant

  CCH Reference - TRC INDIV: 100

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  When calculating Michigan business tax (MBT), taxpayers are required to calculate federal taxable income as if IRC §168(k) (bonus depreciation) and IRC §199 (domestic production activities deduction) were not in effect. However, a new credit against the MBT is created to mitigate the effects of decoupling from bonus depreciation. Furthermore, the investment and compensation credits against the MBT are revised for certain taxpayers.

CCH (cch.taxgroup.com) reports:

  The IRS has provided additional time to furnish certain composite annual tax reporting statements, including Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, without penalty. The deadline under Code Sec. 6045(b) with respect to reportable items from calendar year 2008 is February 17, 2009. Entities that report such statements have until February 17, 2009, to report all items that they customarily report on these annual composite form recipient statements to all customers, whether or not each customer's transactional history for 2008 triggered an obligation to furnish Form 1099-B to that particular customer. The new February due date was established under section 403 of the Energy Improvement and Extension Act of 2008 (P.L. 110-343) to provide Form 1099-B information to customers and also applies to other tax information customarily reported to customers with Form 1099-B statements on an annual composite tax reporting statement. This would typically include interest and dividends reported on Form 1099-INT and Form 1099-DIV.

Notice 2009-11, 2009FED ¶46,241

Other References:

 
Code Sec. 6045

  CCH Reference - 2009FED ¶35,930.27

  Tax Research Consultant

  CCH Reference - TRC FILEBUS: 9,256

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Rhode Island Gov. Donald J. Carcieri has submitted a supplemental budget for 2009 to the General Assembly, which includes various proposals and tax increases that affect personal income tax, corporate income tax, cigarette tax, motor vehicle fees, and gross premiums tax.

CCH (cch.taxgroup.com) reports:

  A company's charges for access to its software that allows a customer to upload an image onto the company's servers and manipulate the image to show various colors and views is subject to New York state and local sales when accessed by a customer located in New York because it is prewritten computer software. When the company's customers access the software, it constitutes a transfer of possession of the software because the customer gains constructive possession of the software, and gains the "right to use, control or direct the use" of the software. This is true even if no "copy" of the software is transferred to the customer. Thus, the sale of a license to use the software to a customer in New York is taxable.

  The situs of the sale for purposes of determining the proper local tax rate and jurisdiction is the location associated with the license to use (i.e., the location of the customer's employees that use the software). If the customer's employees that use the software are located both in and out of New York, the company should collect tax based on the portion of the receipt attributable to the employee users located in New York.

TSB-A-08(62)S , New York Commissioner of Taxation and Finance, November 24, 2008, released January 2009, ¶406-277

  Other References:

  Explanations at ¶60-310

CCH (cch.taxgroup.com) reports:

  In his biennial budget proposal for fiscal years 2010-11, Maine Gov. John E. Baldacci did not propose increasing Maine income or sales taxes. Instead, Gov. Baldacci proposed equalizing the taxes on smokeless tobacco, a change in business taxes that benefits Maine-based companies, and a continuation of the estate tax. Regarding Maine-based companies, the budget would remove from the apportionment calculation the sales of tangible personal property by businesses operating in more than one state, if the sales are delivered to a state where the taxpayer is not subject to tax. In addition, the sales other than those of tangible personal property would be removed from Maine sales in the apportionment calculation, if the sales are delivered from Maine to a state where the taxpayer is not subject to tax.

  The governor's budget proposal can be viewed at
http://www.maine.gov/budget/.

Press Release and 2010-2011 Biennial Budget , Gov. John E. Baldacci, January 9, 2009
 

CCH (cch.taxgroup.com) reports:

  The IRS has modified the rules for financial institutions reporting required minimum distributions from retirement plans in light of the waiver on minimum distributions during 2009 that was included in the Worker, Retiree, and Employer Recovery Act of 2008 (P.L. 110-458). Under the recently enacted legislation, required minimum distributions from individual retirement accounts (IRAs) and retirement plans that maintain participant benefits in individual accounts are waived for 2009. Issuers of the 2008 Form 5498, IRA Contribution Information, should not put a check in Box 11 of the form. However, if a financial institution issues a 2008 Form 5498 with a check in Box 11, the IRS will not consider the form as being issued incorrectly if the financial institution notifies the individual retirement account owner by March 31, 2009, that no required minimum distribution is required for 2009. Further, financial institutions need not send the required minimum distribution information required under Notice 2002-27, 2002-1 CB 814, to IRA owners for 2009. If the institution sends a separate required minimum distribution statement to an IRA owner, the financial institution must show that the required minimum distribution for 2009 is zero or include a statement showing what the required minimum distribution would have been if the 2009 waiver hadn't occurred accompanied by an explanation of the waiver for 2009. Notice 2002-27, 2002-1 CB 814, is modified.

Notice 2009-9,
2009FED ¶46,240

Other References:

 
Code Sec. 401

  CCH Reference - 2009FED ¶17,726.25

  CCH Reference - 2009FED ¶17,726.26

 
Code Sec. 403

  CCH Reference - 2009FED ¶18,282.11

 
Code Sec. 408

  CCH Reference - 2009FED ¶18,922.0759

  CCH Reference - 2009FED ¶18,922.1066

  Tax Research Consultant

  CCH Reference - TRC PLANIND: 15,054.10

  CCH Reference - TRC PLANRET: 12,052.30

  CCH Reference - TRC RETIRE: 42,750

  CCH Reference - TRC RETIRE: 66,456

  CCH Reference - TRC RETIRE: 66,466

CCH (cch.taxgroup.com) reports:

  For pension plan years beginning in January 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 January 2009 is 6.29 percent; and the 90-percent to 100-percent permissible range is 5.67 percent to 6.29 percent. The annual rate of interest on 30-year Treasury securities for December 2008, used to determine the minimum present value of a participant's benefit under Code Sec. 417(e)(1) and (2), is 2.87 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 segment rates for January 2009 are: 5.32 for the first segment; 6.45 for the second segment; and 6.69 for the third segment.

  For plan years beginning in 2009, the funding transitional segment rates for January 2009 are: 5.64 for the first segment; 6.40 for the second segment; and 6.56 for the third segment.

  For plan years beginning in 2009, the minimum present value transitional segment rates for January 2009 are: 4.41 for the first segment; 4.57 for the second segment; and 4.27 for the third segment.

Notice 2009-2,
2009FED ¶46,239

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 IRS has updated procedures regarding the request, issuance and appeal of determination letters and rulings on the exempt status of organizations under Code Secs. 501 and 521. These procedures apply to exempt organizations other than those relating to pension, profit-sharing, stock bonus, annuity and employee stock ownership plans.

  The updated procedures provide guidance on requesting determination letters, the steps taken in issuing determination letters, appealing determination letters, revoking determination letters and when an organization will have sufficiently exhausted administrative remedies allowing for a declaratory judgment proceeding under Code Sec. 7428. Included in the guidance is the new central address for the processing of exempt status applications, replacing the former system of district offices. However, some applications may be processed in other exempt organization (EO) offices or referred to EO Technical. Rev. Proc. 2008-9, I.R.B. 2008-2, 258, is updated and superseded, and Rev. Proc. 76-34, 1976-2 CB 656, is supplemented.

Rev. Proc. 2009-9, 2009FED ¶46,238

Other References:

 
Code Sec. 501

  CCH Reference - 2009FED ¶22,604.10

  CCH Reference - 2009FED ¶22,660.10

 
Code Sec. 507

  CCH Reference - 2009FED ¶22,780.15

 
Code Sec. 511

  CCH Reference - 2009FED ¶22,825.101

 
Code Sec. 521

  CCH Reference - 2009FED ¶22,882.112

 
Code Sec. 527

  CCH Reference - 2009FED ¶22,911.10

 
Code Sec. 4947

  CCH Reference - 2009FED ¶34,143.35

 
Code Sec. 7428

  CCH Reference - 2009FED ¶41,723.18

 
Statement of Procedural Rules Sec. 601.201

  CCH Reference - 2009FED ¶43,360.172

  CCH Reference - 2009FED ¶43,360.173

  Tax Research Consultant

  CCH Reference - TRC EXEMPT: 12,052.05

  CCH Reference - TRC EXEMPT: 12,054

  CCH Reference - TRC EXEMPT: 12,056

  CCH Reference - TRC EXEMPT: 12,102

  CCH Reference - TRC EXEMPT: 12,102.05

  CCH Reference - TRC EXEMPT: 12,102.10

  CCH Reference - TRC EXEMPT: 12,104

  CCH Reference - TRC EXEMPT: 12,104.05

  CCH Reference - TRC EXEMPT: 12,104.10

  CCH Reference - TRC EXEMPT: 12,156

  CCH Reference - TRC EXEMPT: 12,202

CCH (cch.taxgroup.com) reports:

  President-elect Obama signaled he is flexible about the size of the forthcoming economic recovery plan and the tax-cut provisions in it. He also maintained that Congress must take urgent action on a package because of rapidly deteriorating economic conditions. The president-elect's advisors in recent days indicated that the plan could cost as much as $775 billion, an amount that has been criticized in some quarters for having either too large or too small a spending portion.

  At a news conference on January 9, Obama noted that 524,000 jobs were lost in December and nearly 2.6 million were eliminated in the past year. The Bureau of Labor Statistics on January 9 reported the unemployment rate jumped from 6.8 percent in November to 7.2 percent in December 2008.

  In meetings with congressional leaders, Obama's economic advisors have met some resistance to the president-elect's spending and tax-cut priorities. Obama made clear that he welcomes any proposals that are designed to jump start the economy. "If somebody has an idea for a tax cut that is better than a tax cut we've proposed, we will embrace it," he asserted. The new administration also will support spending projects identified by Congress if they create jobs, are good for the economy and do not hamper control of the federal deficit in the long run.

  By Paula Cruickshank, CCH News Staff

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Massachusetts Supreme Judicial Court has upheld the imposition of the financial institution excise tax and the corporate excise tax in two cases involving taxpayers that did not have a physical presence in Massachusetts.

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 pays, or at the Commissioner's discretion provides security for, all tax and interest due. The amnesty period will begin on a date to be determined by Department of Revenue and will end no later than June 30, 2009. The amnesty program will not apply to any tax liability for a period that commenced on or after January 1, 2007. Also excluded are 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. Taxpayers who have delayed payment due to a pending abatement application or appeal must waive the right to delay payment, and pay all assessed tax and interest, in order to participate in the amnesty program. Payment of tax and interest will not affect the taxpayer's appeal rights.

  Subscribers to CCH Tax Research NetWork can view the text of H.B. 5143.

 
H.B. 5143, Laws 2009, effective January 7, 2009
 

CCH (cch.taxgroup.com) reports:

  President-elect Obama made his strongest argument yet for a massive stimulus package, warning that government intervention is necessary to stop the downward economic spiral. Without bold and swift action by Congress, Obama warned that the United States could "sink deeper into a crisis that, at some point, we may not be able to reverse."

  Obama, in a January 7 speech at George Mason University in Fairfax, Virginia, urged Congress to pass a plan "in the next few weeks," working through weekends, if necessary, to get the work done. However, congressional leaders have already put the brakes on completing action the first week of February and are aiming for final passage by the Presidents Day recess that begins on February 13.

  The forthcoming plan will not solve all economic problems, but any package must include measures to fix the broken financial system and take sweeping measures to avoid the mounting number of home foreclosures, Obama asserted. Any efforts to prevent the collapse of financial institutions must provide "maximum protections for taxpayers" and put "significant restrictions" on companies that receive government help, he stressed.

  To implement reform of the financial and housing market will require an overhaul of the existing "weak and outdated regulatory system," Obama said. Regulatory reform is necessary to "withstand financial shocks and better protect consumers, investors, and businesses from reckless greed and risk-taking," he maintained.

  In an effort to appease lawmakers who are wary of proposals for greater government spending on public infrastructure and assistance to states, Obama emphasized that the economic plan "won't just throw money at a problem but will invest in what works." The president-elect said the real test of his policies will be whether they "create jobs, grow our economy, and put the American Dream within reach of the American people." He added, "that's why our goal is not to create a slew of new government programs, but a foundation for long-term economic growth."

  Obama also reaffirmed his commitment to provide a $1,000 tax cut for 95-percent of working families, calling it the "first stage" of middle-income tax relief that he promised during his presidential campaign and which will be included in his February budget proposal. He also called for a further extension of unemployment insurance for the jobless who cannot find new employment and continuation of health care coverage "to help them through this crisis."

House Reaction

  House Speaker Nancy Pelosi, D-Calif., reaffirmed that action on the economic stimulus legislation called for by Obama might not be finished until the Presidents Day recess. Following Obama's speech, Pelosi told reporters that unless Congress completes its work on a stimulus bill by Presidents Day, Congress's week-long recess would be cancelled. She said she expects House committees to begin marking up legislation later in January.

  House Majority Leader Steny H. Hoyer, D-Md., promised that Congress would not sit idly in the face of the current economic crisis. He predicted that lawmakers would face difficult choices as they attempted to cut entitlement spending, but the economic turnaround depends on reforming how Washington meets its fiscal responsibility. House Minority Leader John A. Boehner, R-Ohio, noted that GOP lawmakers are ready to work with the new Obama administration and Democrats, but they are especially concerned about the size and scope of the plan. Boehner expressed concern about adding billions of dollars to the federal debt, which will be repaid by future generations of Americans.

  Meanwhile, House Ways and Means Committee members and economic advisors to Obama have begun holding meetings on the upcoming economic recovery package, Chairman Charles B. Rangel, D-N.Y., announced. Rangel said that he was excited by the prospect of working with an administration that shared his goals of providing tax relief for middle- and lower-income Americans and small businesses, and boosting spending on education, health care and infrastructure.

SFC Members Cool to Obama Tax Plan

  Senate Finance Committee members on January 8 emerged from a closed-door meeting on the economic stimulus plan unified on the principle that swift action is necessary, but determined to avoid spending large sums of taxpayers' money without seeing a real return on their investment. Many lawmakers panned Obama's centerpiece tax-relief legislation that would provide $500 tax rebates for most individuals and $1,000 for couples by withholding less from paychecks over a five-month period, instead of mailing checks to taxpayers. They likened it to President Bush's rebate checks, which they believe failed to provide a significant stimulus for the economy. Most agreed that any money spent must serve as an investment in future productivity and competitiveness. Moderate Republican Sen. Olympia J. Snowe, R-Me., who often provides a key swing vote, told reporters her vote depends on the overall mix and policy direction of the stimulus package.

  Senate Finance Committee Chairman Max Baucus, D-Mont., said he had tentative plans to mark up a tax package following the January 20 inauguration. The senior tax writer said that he believed housing assistance would become an "integral" part of the package. Lawmakers acknowledged that the legislation would undergo many changes before they reached final agreement. Baucus found himself down playing talk of adding a one- or two-year patch for the alternative minimum patch to the bill, a proposal that Rangel dismissed the day before as being too expensive a proposition.

  Senate Budget Committee Chairman Kent Conrad, D-N.D., said that Obama's proposed $3,000 tax credit for businesses as an incentive to hire and retain workers also did not go over well with committee members. Moreover, he cast doubt over a proposal that would allow firms incurring losses (NOLs) in 2008 to take a credit against profits dating back five years instead of the two years presently allowed. Conrad said he supports more investment in energy conservation and home-buying assistance. He believes the stimulus package should provide a first-time homebuyers' tax credit and a more attractive interest rate near 4.5 percent.

  Republican reaction to the Obama speech carried a cautious warning against throwing money at the problem without thinking through the cost benefits. "How much debt are we going to pile up on future generations?" Boehner asked. Republicans praised Obama for reaching out to them for advice on stimulus needs, but they said their support depends on how much their input is actually heeded. Senate Minority Leader Mitch McConnell, R-Ky., said he believes cutting the middle-class tax rate from 25 percent down to 10 percent would provide a boost to the economy. On the spending side, McConnell said he wanted to make aid to states through a loan process, rather than grants, in order to assure that states spend the money wisely. He suggested a 5 percent interest rate over five years and then 9 percent. McConnell said Congress should complete the bill by mid-February.

Subcommittee Assignments

  Also on January 8, Rangel announced the assignments of Democratic lawmakers to various Ways and Means subcommittees. The leadership recommendations have been transmitted to the Democratic Caucus for ratification. In a press release, Rangel noted, "The 111th Congress begins during a time of historic opportunity and challenge." He added that lawmakers "have already hit the ground running, and will continue working in the coming weeks, drawing on the knowledge and experience of our Members to develop a robust economic recovery package and tackle the challenges facing hardworking Americans today."

  By Jeff Carlson, Stephen K. Cooper, Paula Cruickshank and Chantal Mahler, CCH News Staff

Ways and Means Release: Rangel Remarks on President-Elect Obama's Speech on the Economy, Recovery Efforts

Ways and Means Release: Ways and Means Committee Announces Subcommittee Assignments for 111th Congress
 

CCH (cch.taxgroup.com) reports:

  The IRS has provided interim guidance on the application of Code Sec. 457A to nonqualified deferred compensation plans of nonqualified entities. Code Sec. 457A, which was added by the Emergency Economic Stabilization Act of 2008 (P.L. 110-343), provides that any compensation that is deferred under a nonqualified entity's nonqualified deferred compensation plan is includible in gross income when there is no substantial risk of forfeiture of the rights to the compensation. However, deferred compensation is not includible in gross income if its amount is not determinable, in which case additional taxes apply at the time the amount of the compensation becomes determinable and is includible in gross income. A nonqualified entity includes a foreign corporation unless substantially all of its income is effectively connected with the conduct of a U.S. trade or business or is subject to a comprehensive foreign income tax; and a partnership (foreign or domestic) unless substantially all of its income is allocated to certain U.S. persons and exempt organizations. Code Sec. 457A applies to deferred amounts that are attributable to services performed after December 31, 2008.

  The interim guidance:

  defines a nonqualified deferred compensation plan, including special rules for equity appreciation rights and a short-term deferral exception;

  defines substantial risk of forfeiture, including special rules for stock rights and enforcement of forfeiture conditions;

  defines short-term deferral;

  defines nonqualified entities, including rules for determining whether an entity is a foreign corporation or a partnership, whether substantially all of a foreign corporation's income is subject to a comprehensive foreign income tax or is effectively connected with the conduct of a trade or business in the U.S.; when a foreign person is eligible for the benefits of a comprehensive income tax treaty; allocations of partnership income; coordination with Code Sec. 882; and the timing of the determination;

  provides rules for determining amounts includible in income;

  provides rules governing deferred amounts that are not determinable; and

  coordinates Code Sec. 457A with Code Sec. 409A, including rules governing amounts that are attributable to services performed before 2009.

Effective Dates

  Until further guidance is issued, taxpayers may rely on the rules in this notice effective from October 3, 2008. Further guidance that would expand the coverage of Code Sec. 457A will be prospective and will not apply to a service provider's tax years beginning before the issuance of that guidance.

  In addition, if a deferred amount would not be subject to Code Sec. 457A solely because it is attributable to services performed before 2009, then to the extent the deferred amount is not included in gross income in a tax year beginning before 2018, the deferred amount is includible in gross income in the later of (a) the last tax year beginning before January 1, 2018 or (b) the first tax year in which there is no substantial risk of forfeiture of the right to the amount deferred. The guidance also provides detailed rules for determining periods of service to which the compensation is attributable.

Comments Requested

  The IRS anticipates issuing additional guidance with respect to Code Sec. 457A. Comments are requested on the topics addressed in this interim guidance, and any other issues arising under Code Sec. 457A, particularly (i) whether and to what extent a limitation on benefits provision or exchange of information program is relevant to the determination of what is a comprehensive income tax treaty; (ii) the extent to which a reimbursement arrangement with respect to a domestic taxpayer service recipient and a nonqualified entity that has agreed to share or reimburse the domestic taxpayer service recipient's compensation costs should result in the domestic taxpayer service recipient also being treated as a nonqualified entity; (iii) the potential scope of the exception to the definition of substantial risk of forfeiture that may be provided by regulations relating to the single investment asset; and (iv) the proper treatment of trusts that are partners in a partnership and beneficiaries of these trusts for purposes of allocating partnership income.

Notice 2009-8,
2009FED ¶46,237

Other References:

 
Code Sec. 457A

  CCH Reference - 2009FED ¶21,539.01

  Tax Research Consultant

  CCH Reference - TRC COMPEN: 15,350

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

 
In his January 7, 2009, State of the State address, New York Gov. David Paterson proposed imposing a surcharge on sales of sugared beverages to help curb childhood obesity and placing a cap on property taxes to promote economic development. Paterson also called for reforming the current Enterprise Zone program to increase corporate accountability for creating jobs and investing in their facilities.
 
State of the State Address , New York Gov. David Paterson, January 7, 2009

CCH (cch.taxgroup.com) reports:

 
The Massachusetts Department of Revenue has adopted a cigarette and tobacco amendment to the confidentiality of tax information regulation to allow an exception to the prohibition on disclosure with respect to information regarding licenses issued by the Commissioner, the minimum pricing of cigarettes, and other related non-tax information.
 

Details, which were outlined in an emergency regulation, were reported in a previous story. ( TAXDAY, 2008/10/08, S.6 )
 

Final Reg. 830 CMR 62C.21.1, Massachusetts Department of Revenue, effective December 26, 2008

CCH (cch.taxgroup.com) reports:

  Assets held by acquired subsidiaries in a consolidated group had to be depreciated under the Accelerated Cost Recovery System (ACRS) on the basis of the subsidiaries' short tax year, rather than the tax year of the acquiring parent, even though the parent elected to treat the acquisition of the stock of the subsidiaries as an acquisition of assets under Code Sec. 338. By electing to treat the acquisition as an asset purchase, the old target corporations disappeared, and new taxable entities, unrelated to the old target corporations, came into existence the following day. These entities had new tax attributes, including a new tax year (which was a short tax year) and a new tax basis for assets. The new subsidiaries were deemed to have directly acquired the assets of the old target corporations, at which point the assets were placed in service and subject to the half-year convention.

  For consolidated groups, the depreciation rules applicable to each member of a consolidated group, rather than the rules applicable to the parent, control the amount of the depreciation deduction the parent may take. Because the assets were placed in service and used by the subsidiaries, their short tax years, rather than the parent's tax year, were the relevant tax years for applying the half-year convention.

  Although an IRS Technical Advice Memorandum, a Field Service Advice, and a nondocketed advice review might have suggested a contrary result, such informal IRS documents are not authoritative.

Brunswick Corporation, DC Ill., 2009-1 USTC ¶50,131

Other References:

 
Code Sec. 167

  CCH Reference - 2009FED ¶11,025.21

 
Code Sec. 168

  CCH Reference - 2009FED ¶11,258.022

 
Code Sec. 338

  CCH Reference - 2009FED ¶16,288.35

 
Code Sec. 1502

  CCH Reference - 2009FED ¶33,168.03

 
Code Sec. 6110

  CCH Reference - 2009FED ¶39,988.51

  Tax Research Consultant

  CCH Reference - TRC DEPR: 3,050
CCH Reference - TRC CONSOL: 3,200
CCH Reference - TRC CCORP: 30,100
 

CCH (cch.taxgroup.com) reports:

  The IRS did not show by clear and convincing evidence that two attorneys filed their returns with the intent to evade tax with regard to contingency fees; consequently, the three-year period of limitations under Code Sec. 6501(a) applied, and the IRS was barred from assessing any deficiencies. As a result of their contingency fee agreement with their landowner clients, the taxpayers believed they had an ownership interest in land that was the subject of litigation. Pursuant to this interest, the attorneys, representing themselves as landowners, made an election to defer their contingency fee income under Code Sec. 1033(a). However, state law does not convert an attorney-client relationship into a partnership or joint venture for purposes of federal tax law; thus, the nonrecognition provisions of Code Sec. 1033(a) were not applicable to the attorneys.

  Although the taxpayers erroneously believed that the legal fees qualified for nonrecognition treatment and made an underpayment of tax based on that belief, their behavior with respect to the understatements did not demonstrate fraudulent intent. The attorneys did not understate their income, maintain inadequate records, present implausible or inconsistent explanations of their behavior or conceal income or assets. Furthermore, they filed tax returns, cooperated with tax authorities throughout the case and did not engage in illegal activities, file false documents or deal in cash. Because the statute of limitations was not extended due to fraud, the IRS could not assess deficiencies with respect to the tax year at issue.

D.C. Loeb, TC Memo. 2009-6, Dec. 57,707(M)

Other References:

 
Code Sec. 1033

  CCH Reference - 2009FED ¶29,650.71

 
Code Sec. 6501

  CCH Reference - 2009FED ¶38,967.28

  Tax Research Consultant

  CCH Reference - TRC SALES: 27,050
CCH Reference -
TRC IRS: 27,212
 

CCH (cch.taxgroup.com) reports:

  The IRS has released temporary guidance regarding stock distributions by publicly traded regulated investment companies (RICs). Previously issued guidance in Rev. Proc. 2008-68, I.R.B. 2008-52, 1373, applied only to distributions by publicly traded real estate investment trusts (REITs).

  A stock distribution by a RIC or a REIT is treated as a dividend under Code Sec. 301 provided:

  (1) the RIC or REIT makes the distribution to its shareholders with respect to its stock;

  (2) the RIC or REIT's stock is publicly traded on an established U.S. securities market;

  (3) the distribution is declared with respect to a tax year ending on or before December 31, 2009;

  (4) each shareholder may elect to receive the entire amount due under the declaration either in money or stock subject of equivalent value, subject to a limitation on the amount to be distributed in the aggregate to all shareholders (the cash limitation);

  (5) the number of shares to be received by any shareholder will be determined, as close as practicable to the payment date, using a formula that is designed to equalize the value of the shares with the amount of money that could be received instead; and

  (6) shareholders participating in a dividend reinvestment plan (DRIP) meet certain requirements.

 
Rev. Proc. 2008-68, I.R.B. 2008-52, 1373, is amplified and superseded.

Rev. Proc. 2009-15, 2009FED ¶46,236

Other References:

 
Code Sec. 305

  CCH Reference - 2009FED ¶15,402.026

  CCH Reference - 2009FED ¶15,402.1385

  Tax Research Consultant

  CCH Reference - TRC RIC: 3,000
CCH Reference -
TRC RIC: 6,150

CCH (cch.taxgroup.com) reports:

  Senate Democratic leaders on January 7 unveiled an ambitious agenda for the start of the 111th Congress that focuses on economic recovery and reinvestment through job creation, energy independence and middle-class tax relief. Instead of rolling out the first 10 bills of the new Congress, the leadership painted a broad picture of the areas they intend to address and some of the ways they plan to achieve benefits through legislative action. With a renewed focus on the middle-class, Senate Majority leader Harry Reid, D-Nev, said Democrats will push legislation to address stabilizing the housing market and investment firms, rising costs of higher education, health care and providing for elderly parents.

  Senate Majority Whip Richard Durbin, D-Ill., said additional middle-class tax relief would come in the form of increased college tuition tax credits and elder care credits, tax breaks for the purchase of college textbooks and, to enhance savings, an increase in the allowable IRA contributions. On the environmental front, Democrats plan to invest heavily in renewable energy and energy efficiency through tax credits aimed at business owners.

  There will also be a heavy emphasis on affordable health care, with promises to lower costs, protect existing coverage and extend coverage to the some 46 million Americans who have none. Democrats also promised to restore confidence in the economy by protecting consumers from Wall Street abuses and protecting homeowners from foreclosure. Leadership said it will address those issues by increasing transparency and accountability in those areas to prevent risky bets that threaten the whole system. They also promised to protect consumers by preventing predatory lending and stabilizing credit markets.

  By Jeff Carlson, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  President-elect Barack Obama said he expects to face a nearly $1-trillion federal budget deficit his first year in office and possibly "for years to come," regardless of whether Congress enacts an economic stimulus package in early February. Despite the bleak budget outlook, Obama on January 6 maintained that a massive economic recovery plan is necessary "to jump-start our economy, save or create three million new jobs, mostly in the private sector, and lay a solid foundation for future growth."

  The initial focus of the incoming administration is to pass an economic package with deficit-reduction measures to follow once the economic recovery takes hold. However, Obama indicated that there are a few measures that can be done immediately to rein in unnecessary federal spending.

  Following a meeting with his economic advisors, Obama proposed to ban all earmarks from the forthcoming economic recovery package. He also plans to establish an oversight board made up of key administration officials and independent advisors to ensure budget transparency.

  The new administration also intends to eliminate "outmoded" federal programs and improve those that work, he said. The incoming White House will put information on-line identifying how taxpayer money is being spent, Obama noted.

  By Paula Cruickshank, CCH News Staff

CCH (cch.taxgroup.com) reports:

  The IRS has kicked off the 2009 tax filing season by issuing guidance that announces and recaps a number of programs and tax law changes that affect the filing of 2008 tax returns, help financially distressed taxpayers receive their refunds faster and provide additional assistance to individuals who are struggling to meet their tax obligations. Several suggestions are offered to taxpayers who owe back taxes, such as additional review of offers-in-compromise and expedited levy releases. In addition, electronic filing options are offered to more taxpayers and many "fillable" tax forms are now available (TAXDAY, 2009/01/07, I.2).

 
IRS Fact Sheet FS-2009-1 recaps and highlights tax changes for the 2008 tax filing season. These highlights include a reminder that economic stimulus payments are not taxable, and they are not reported on 2008 tax returns. Additional highlights include the raising of the alternative minimum tax (AMT) exemption for 2008 and the limits on contributions to IRAs and other retirement plans; the first-time homebuyer credit for homes purchased from April 9, 2008, to June 30, 2009; special tax relief related to severe storms, tornadoes or flooding in the Midwest.

  The standard deduction has increased for most taxpayers and taxpayers can claim an additional standard deduction, based on state or local real-estate taxes paid in 2008. A taxpayer can also increase his standard deduction by the net disaster losses suffered from a federally declared disaster. Inflation adjustments have also increased the amounts of the personal and dependency exemptions, and the maximum earned income credit. The standard mileage rate for business use of a vehicle has increased, while the rate for use of a vehicle for medical reasons or as part of a deductible move has decreased. The rate for use of a vehicle to provide services to charitable organizations has not changed.

  Also new in 2008, the five-percent tax rate on qualified dividends and net capital gains is reduced to zero; the "kiddie tax" has been revised; any Conservation Reserve Program (CRP) payments are now exempt from the 15.3-percent Social Security self-employment tax; and more farmers and self-employed people this year can choose the optional methods for figuring and paying the self-employment tax. Several expiring deductions and credits also been renewed.

  In IRS Fact Sheet FS-2009-2, the IRS alerts taxpayers to the new first-time homebuyer credit and reminds taxpayers about other popular, but sometimes overlooked tax credits. Taxpayers who qualify can use these credits to increase their refund or reduce their tax bill.

  First-Time Homebuyer Credit. Taxpayers who bought a main home during the period from April 9, 2008, to June 20, 2009, may be able to claim a first-time homebuyer credit of up to $7,500. This credit works more like a 15-year interest-free loan in that it is repaid each year as an additional tax. The credit is claimed on new Form 5405. Various restrictions on income and prior home ownership apply.

  Earned Income Tax Credit (EITC). The EITC may be available to working families with incomes below $41,646 and childless workers with incomes under $15,880. The IRS has a tool on its website called the "EITC Assistant" that will be available in mid-January to help you see if you qualify for the credit.

  Child Tax Credit. Taxpayers may claim a $1,000 credit for each eligible dependent child under age 17, in addition to the regular $3,500 exemption that can be claimed for each dependent.

  Credit for Child and Dependent Care Expenses. The credit for child and dependent care expenses is claimed if the taxpayer pays someone to care for a dependent child under the age or 13 or a spouse or dependent who cannot care for himself or herself, in order for the taxpayer to work or look for work. The credit is claimed on Form 2441.

  Education Credits. The Hope credit and the lifetime learning credit help parents and students pay tuition and enrollment fees for post-secondary education. Many limitations apply, including a restriction that the education credit and the tuition and fees deduction cannot both be claimed for the same student in the same year.

  Saver's Credit. The saver's credit (also known as the retirement savings contributions credit) is designed to help low- and moderate-income workers save for retirement. The 2008 income limits for this credit are $26,500 for singles and married taxpayers filing separately, $39,750 for heads of household, and $53,000 for joint filers. Qualifying taxpayers must make contributions to an IRA or workplace retirement plan such as a 401(k) plan. 2008 IRA contributions can be made until April 15, 2009. The credit is claimed on Form 8880.

  Other Credits. The IRS has information on other credits, such as the recovery rebate credit, the District of Columbia first-time homebuyer credit, the foreign tax credit, the credit for the elderly or the disabled, the adoption credit, the residential energy efficient property credit, the alternative motor vehicle credit, the credit for prior year minimum tax, and various business credits, on its website, IRS.gov.

  In IRS Fact Sheet FS-2009-3, the IRS issued guidance addressing the recovery rebate credit for individuals who did not receive an economic stimulus payment in 2008. The recovery rebate credit is a special one-time benefit that most people received in 2008 as an economic stimulus payment, based on 2007 tax return information. Individuals who were not eligible for the economic stimulus payment or did not receive the maximum amount may be eligible for the credit based on 2008 tax return information due to a change in circumstances, including a change in income, addition of a child, or, for Social Security and veterans' benefits recipi ents, an increase in qualifying benefits.

  Taxpayers can choose to have the IRS calculate their eligibility for the credit and the amount that should be claimed by following the "Credit Figured by the IRS" instructions on the 2008 Form 1040, 1040A or 1040EZ. Taxpayers who choose to calculate the credit themselves can do so by using commercial tax preparation software or a worksheet included with the instructions for Forms 1040, 1040A and 1040EZ. To calculate the recovery rebate credit, individuals will need to know the amount of the economic stimulus payment received in 2008. Two online tools, The Recovery Rebate Credit Calculator and How Much Was My 2008 Stimulus Payment? will be available to taxpayers through the Recovery Rebate Credit Information Center on the IRS website, www.irs.gov.

  The numerous ways taxpayers can access free assistance with their tax-related concerns are addressed in IRS Fact Sheet FS-2009-6. A comprehensive listing of these services is found in IRS Publication 910, Guide to Free Tax Services. Taxpayers with personal computers can access information on almost every tax topic and check the status of their refunds on the IRS's website, www.irs.org.

  Free help can be obtained via telephone on individual and business-related tax issues. In many communities, in-person tax preparation assistance is available through the Volunteer Income Tax Assistance and Tax Counseling for the Elderly sites. IRS Taxpayers Assistance Centers also offer personal help with tax issues that cannot be handled on-line or by phone, including inquiries, adjustments, letters, notices and payment plans. In addition, the IRS's Taxpayer Advocate Service can help those taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working properly.

  Low-income taxpayers can obtain assistance, for free or for a nominal charge, through a Low Income Taxpayer Clinic. Finally, forms and publications can be obtained at many libraries and post offices. Most of the IRS materials are available, free of charge, in Braille.

 
IRS Fact Sheet FS-2009-5 helps taxpayers understand the process and advantages of e-filing returns and using other electronic tax tools. The IRS predicts that nearly 90 million of the 140 expected returns for 2009 will be filed electronically. Benefits of e-filing include faster refunds, elimination of paperwork, file now - pay later options, reduction of errors, quick confirmation and easier state return filing. Taxpayers can e-file by using the Free File program for eligible taxpayers, low-cost filing programs with IRS private sector partners, IRS-approved tax preparation software, paid tax preparers, volunteer tax preparers and Tax Counseling for the Elderly.

  All taxpayers who e-file must sign their returns using a Personal Identification Number (PIN). Form 8453-OL, U.S. Individual Income Tax Declaration for an IRS e-file Online Return, has been eliminated as a paper signature document and taxpayers must now use Form 8453. The IRS claims that the new method makes e-filing of Forms 1040 more secure.

  Taxpayers may choose to use direct deposit for their tax refunds, which can be split up among and deposited directly to up to three different bank accounts. Most e-file and tax preparation software provides the split refund option. Paper filers must use Form 8888, Direct Deposit of Refund to More than One Account. Taxpayers using direct deposit will receive refunds more quickly (often within 10 days) and avoid lost or stolen paper refund checks. Furthermore, the Electronic Federal Tax Payment System (EFTPS) allows taxpayers to pay both their business and individual taxes through the internet or by telephone. EFTPS is a free and secure service offered through the U.S. Department of Treasury. For more information go to www.eftps.gov or call EFTPS customer service at 1-800-555-4477.

 
IRS Fact Sheet FS-2009-4 reminds taxpayers that the official web site of the Internal Revenue Service is IRS.gov., and that all of its webpages begin with that address. Numerous phony internet sites impersonate federal and state revenue sites in order to "phish" for taxpayers' personal identification information as well as passwords to access financial accounts. The IRS reiterated that it does not send unsolicited e-mail regarding taxpayers' accounts and never requests taxpayers' personal or financial information, such as Social Security numbers and bank PINS. Links embedded in these e-mails should never be opened, and such scams should be reported immediately. Finally, taxpayers are reminded that they may access state revenue information from the IRS website.

 
IRS Fact Sheet FS-2009-7 urges taxpayers to be careful when choosing a tax preparer. Return preparer fraud generally involves the preparation and filing of income tax returns that claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions. Preparers may also fraudulently obtain tax credits, such as the earned income tax credit, by manipulating income figures. The fact sheet reminds taxpayers that even if they are unaware of false information that may appear on their returns, they are responsible for any additional taxes and interest and may be subject to penalties. The fact sheet includes information regarding when choosing a return preparer, criminal investigation statistical information on return preparer fraud, case summaries of criminal and civil legal actions against certain return preparers, and directions for reporting suspected tax fraud activity.

IR-2009-2, 2009FED ¶46,227

IRS Fact Sheet FS-2009-1, 2009FED ¶46,228

IRS Fact Sheet FS-2009-2, 2009FED ¶46,229

IRS Fact Sheet FS-2009-3, 2009FED ¶46,230

IRS Fact Sheet FS-2009-4, 2009FED ¶46,231

IRS Fact Sheet FS-2009-5, 2009FED ¶46,232

IRS Fact Sheet FS-2009-6, 2009FED ¶46,233

IRS Fact Sheet FS-2009-7, 2009FED ¶46,234

Other References:

 
Code Sec. 1

  CCH Reference - 2009FED ¶3270.30

 
Code Sec. 21

  CCH Reference - 2009FED ¶3507.10

 
Code Sec. 24

  CCH Reference - 2009FED ¶3770.11

  CCH Reference - 2009FED ¶3770.25

  CCH Reference - 2009FED ¶3770.30

 
Code Sec. 25A

  CCH Reference - 2009FED ¶3830.25

 
Code Sec. 25B

  CCH Reference - 2009FED ¶3838.10

 
Code Sec. 32

  CCH Reference - 2009FED ¶4082.11

  CCH Reference - 2009FED ¶4082.12

  CCH Reference - 2009FED ¶4082.18

  CCH Reference - 2009FED ¶4082.35

 
Code Sec. 36

  CCH Reference - 2009FED ¶4190.01

  CCH Reference - 2009FED ¶4190.03

 
Code Sec. 55

  CCH Reference - 2009FED ¶5101.035

 
Code Sec. 63

  CCH Reference - 2009FED ¶6023.035

 
Code Sec. 108

  CCH Reference - 2009FED ¶7010.048

 
Code Sec. 274

  CCH Reference - 2009FED ¶14,417.50

 
Code Sec. 402

  CCH Reference - 2009FED ¶18,221.10

  CCH Reference - 2009FED ¶18,221.022

 
Code Sec. 408

  CCH Reference - 2009FED ¶18,922.0264

 
Code Sec. 457

  CCH Reference - 2009FED ¶21,536.035

 
Code Sec. 6011

  CCH Reference - 2009FED ¶35,141.47

 
Code Sec. 6061

  CCH Reference - 2009FED ¶35,605.16

 
Code Sec. 6402

  CCH Reference - 2009FED ¶38,519.37

 
Code Sec. 6343

  CCH Reference - 2009FED ¶38,274.015

 
Code Sec. 6428

  CCH Reference - 2009FED ¶38,869.021

  CCH Reference - 2009FED ¶38,869.60

 
Code Sec. 7122

  CCH Reference - 2009FED ¶41,130.45

 
Code Sec. 7206

  CCH Reference - 2009FED ¶41,333.10

  CCH Reference - 2009FED ¶41,333.210

 
Code Sec. 7804

  CCH Reference - 2009FED ¶43,266.336

  CCH Reference - 2009FED ¶43,266.386

  CCH Reference - 2009FED ¶43,266.49

  CCH Reference -
2009FED¶43,266.87

  Tax Research Consultant

  CCH Reference - TRC IRS: 3,058

  CCH Reference - TRC IRS: 6,050

  CCH Reference - TRC IRS: 6,072

  CCH Reference - TRC IRS: 6,250

  CCH Reference - TRC IRS: 33,254

  CCH Reference - TRC IRS: 42,158

  CCH Reference - TRC IRS: 51,050

  CCH Reference - TRC IRS: 66,304

  CCH Reference - TRC INDIV: 45,102

  CCH Reference - TRC INDIV: 57,050

  CCH Reference - TRC INDIV: 57,056.10

  CCH Reference - TRC INDIV: 57,250

  CCH Reference - TRC INDIV: 57,252

  CCH Reference - TRC INDIV: 57,450

  CCH Reference - TRC INDIV: 57,452

  CCH Reference - TRC INDIV: 57,454

  CCH Reference - TRC INDIV: 57,550

  CCH Reference - TRC INDIV: 57,552

  CCH Reference - TRC INDIV: 57,900

  CCH Reference - TRC INDIV: 57,950

  CCH Reference - TRC INDIV: 60,150

  CCH Reference - TRC FILEBUS: 12,306

  CCH Reference - TRC FILEBUS: 12,308.15

  CCH Reference - TRC FILEBUS: 12,308.25

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  On December 31, 2008, California Gov. Arnold Schwarzenegger released his proposed 2009-2010 budget, which includes proposed increases and changes to a variety of taxes, including personal income taxes, sales and use taxes, alcoholic beverage taxes, and vehicle registration fees, as well as the adoption of an oil severance tax.

CCH (cch.taxgroup.com) reports:

  The IRS released information highlighting the general rules for claiming the foreign housing cost exclusion or deduction. An individual may elect to exclude or deduct a foreign housing cost amount if the taxpayer:

  (1) is a U.S. citizen or resident alien for federal tax purposes;

  (2) has received income for working in a foreign country;

  (3) has a tax home in a foreign country;

  (4) meets either the bona fide residence test or the physical presence test; and

  (5) has paid or incurred foreign housing expenses.

  The foreign housing costs that may be excluded or deducted are the total of foreign housing expenses less the base housing amount. Foreign housing expenses include reasonable expenses paid or incurred in the tax year for housing in a foreign country, such as rent, the fair rental value of housing provided in kind by the employer, utilities (other than telephone charges), real and personal property insurance, rental of furniture and accessories, repairs, and residential parking. The amount of foreign housing expenses is subject to limitation and varies depending on the location of the foreign tax home. The base housing amount for 2008 is $14,016, or $38.30 per day.

  The foreign housing exclusion applies only to amounts considered paid for with employer-provided amounts while the foreign housing deduction applies only to amounts paid for with self-employment earnings. If the taxpayer is both an employee and self-employed during the year, he or she can deduct part of his or her housing amount and exclude part of it, subject to the limitation. The foreign housing exclusion and deduction are claimed and figured using Form 2555, Foreign Earned Income, which is then attached to Form 1040. Form 2555-EZ cannot be used to claim the foreign housing exclusion or deduction.

Foreign Housing Exclusion or Deduction, International Tax Gap Series

Other References:

 
Code Sec. 911

  CCH Reference - 2009FED ¶28,049.01

  Tax Research Consultant

  CCH Reference - TRC EXPAT: 12,150

CCH (cch.taxgroup.com) reports:

  President-elect Barack Obama on January 5 said he hopes "the bulk" of the economic recovery plan will be finished by the end of January or the first week of February. Obama met with congressional leaders as they continue to work on a massive economic recovery package that is expected to total more than $700 billion and include upward of $300 billion in tax cuts. Following a morning meeting with House Speaker Nancy Pelosi, D-Calif., Obama noted the "extraordinary economic challenge ahead of us," but also spoke hopefully about developing an economic investment and recovery plan aimed at creating 3 million new jobs.

  Incoming White House Press Secretary Robert Gibbs told reporters there is "an added urgency" to act on an economic plan in light of worsening economic conditions. Gibbs, at a press briefing on January 4, noted recent figures on declining consumer confidence, slow holiday retail sales and what is expected to be a "sobering job report" the week of January 5.

  Obama repeated the need for an economic recovery plan that creates jobs in the short term and spurs the U.S. economic growth and competitiveness in the long-term. In a radio address on January 3, he noted that economists across the political spectrum believe a large package is necessary to avoid an even deeper recession and double-digit unemployment rates.

  Pressed about his tax cut plans at a brief press session on January 5, Obama referred to the proposals made over the past two years. He noted that tax cuts have been the centerpiece of his economic plan throughout his presidential campaign.

  In the past two years, Obama called for a tax cut for 95 percent of working families and seniors. He proposed a permanent tax cut of $500 for workers and $1,000 for families. To hasten tax relief, the proposed credits would be mailed out quickly by the IRS based on tax returns filed for the tax year 2007. His proposal would extend tax credits to retired seniors as a down payment to eliminate taxes for all senior citizens earning less than $50,000 annually.

  His plans also would permit penalty-free hardship withdrawals from individual retirement accounts (IRAs) and 401(k)s in 2008 and 2009 and allow seniors to delay required withdrawals from 401(k)s and IRAs. His plan would also provide a new temporary American jobs tax credit, raise the small business investment expensing limit to $250,000 through the end of 2009 and eliminate all capital gains taxes on investments made in small and start-up businesses.

  "The most important task for us is to stabilize the patient. The economy is badly damaged," Obama said after meeting with his economic advisers on January 5. At the same time, the president-elect stressed the importance of fiscal responsibility and his intention to lower the deficit after an economic recovery takes hold.

  Congressional Democratic leaders agreed with Obama that quick action was necessary and basically agreed on the $300 billion price tag, but they were reluctant to commit to that number. Pelosi said the figure was "in the ballpark."Following a January 5 meeting with the president elect, Pelosi said she hoped to have a stimulus bill ready for signing into law by January 20, the date of the inauguration.

  Other leaders, however, tamped down such an optimistic scenario. House Majority Leader Steny H. Hoyer, D-Md., said on Fox News Sunday that a mid-February date was more likely. "It's going to be very difficult to get the package put together that early so that it can have sufficient time to be reviewed, and then sufficient time to be debated and passed," he said.

  House Democratic caucus leader John B. Larson, D-Conn., noted that bumps along the road to passage would likely cause some delay, but ultimately Congress would pass the measure. Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, later warned that Republican lawmakers were concerned about further expanding entitlement spending and increasing the federal deficit without stimulating the economy. "If we don't stick to a tight definition of "stimulative," we'll have trouble getting an effective bill passed," he said.

  According to House Ways and Means Committee member Fortney Pete Stark, D-Calif., there have been ongoing meetings between Democratic members of the House and Senate tax writing panel and the Obama team and that they were in agreement on approximately 80 to 85 percent of the tax portion. He noted that there were several portions of the bill that were currently being circulated among members.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Connecticut Department of Revenue Services will accept applications beginning May 1, 2009, for certain taxpayers to qualify for the tax amnesty program from May 1, 2009, through June 25, 2009, that covers, among others, personal income taxes, corporate income taxes, and sales and use taxes. The enactment of the amnesty program legislation was previously reported. (TAXDAY, 2008/11/26, S.5)

  The amnesty program provides an opportunity for eligible taxpayers to pay their back taxes while avoiding penalties and criminal prosecution. Taxpayers who failed to file or who underreported Connecticut tax may be eligible for amnesty. Amnesty will be offered to any taxpayer owing Connecticut tax for any taxable period ending on or before November 30, 2008. However, amnesty will not be offered on existing bills.

  The full text of the notice is available at
http://www.ct.gov/drs.

Connecticut Tax Amnesty - May 1 - June 25, 2009 , Connecticut Department of Revenue Services, December 30, 2008

CCH (cch.taxgroup.com) reports:

  The 40-percent gross valuation misstatement penalty, as well as the 20-percent substantial valuation misstatement penalty, asserted by the IRS in a Final Partnership Administrative Adjustment (FPAA), was inapplicable to a partnership because the underpayment of the partnership's taxes was not attributable to an overvaluation misstatement. Since the partnership conceded the correctness of the IRS's proposed capital gains adjustments under Code Sec. 465(b)(1) on grounds unrelated to an overstatement of basis or value, the overvaluation penalties under Code Sec. 6662 could not be imposed. The partnership's concession on the underlying tax issue obviated the need to conduct a trial on valuation issues, and therefore, achieved the very efficiencies and economies that the elimination of penalties sought to encourage.

  Related decision at 2008-2 USTC ¶50,534 and 2008-2 USTC ¶50,595.

Alpha I, L.P., FedCl, 2009-1 USTC ¶50,125

Other References:

 
Code Sec. 6662

  CCH Reference - 2009FED ¶39,654.20

  Tax Research Consultant

  CCH Reference - TRC PENALTY: 3,104.15
CCH Reference - TRC PENALTY: 3,110.25

CCH (cch.taxgroup.com) reports:

  The IRS has released temporary and proposed regulations that provide guidance and clarification regarding methods under Code Sec. 482 to determine taxable income in connection with a cost sharing arrangement (CSA). The temporary regulations potentially affect controlled taxpayers, within the meaning of Code Sec. 482, that enter into CSAs.

  On August 29, 2005, a notice of proposed rulemaking and notice of public hearing regarding additional guidance to improve compliance with, and administration of, the rules in connection with a CSA were published in the Federal Register; a correction to such notices was filed on September 28, 2005. Substantial comments were received.

Background

 
Code Sec. 482 authorizes the IRS to allocate income, deductions and other tax items among related taxpayers in order to prevent the evasion of tax or to more clearly reflect income. Code Sec. 482 permits reallocation in any common control situation, including between two U.S. entities, but is largely employed in the international tax area, where there is incentive for multinational operations to use transfer pricing to take advantage of different tax systems and effective tax rates. In general, transfer pricing reallocates items of income and deductions among entities under common control to minimize the U.S. tax of foreign affiliates by permitting the IRS to challenge transfer prices pursuant to its broad authority to allocate gross income, deductions, credits or allowances between controlled taxpayers under Code Sec. 482.

  Proposed regulations under Code Sec. 482 issued in 2005 continued the arm's-length standard as the fundamental principle behind
Code Sec. 482 and the basis for transfer pricing adjustments. Under this standard, a controlled transaction meets the arm's-length standard if the results of the transaction are consistent with results that would have been realized if uncontrolled taxpayers had engaged in the same transaction under the same circumstances.

  Under a CSA, related parties agree to share the costs and risks of intangible development in proportion to their reasonable expectations of the extent to which they will benefit from their separate exploitation of the developed intangibles. The proposed regulations issued in 2005 provided rules governing CSAs consistent with the commensurate with income standard under the statute and the general arm's-length standard under the regulations.

Temporary Regulations

  In response to public comments received following the issuance of the 2005 proposed regulations, the temporary regulations make several significant changes to the proposed regulations. The temporary regulations generally provide guidance regarding the application of Code Sec. 482 and the arm's length method to CSAs, and provide further guidance on the evaluation of the arm's length results of cost sharing transactions (CSTs) and platform contribution transactions (PCTs). The regulations address the material functional and risk allocations in the context of a CSA, including the reasonably anticipated duration of the commitments, the intended scope of the intangible development, the degree and uncertainty of profit potential of the intangibles to be developed and the extent of platform and other contributions of resources, capabilities and rights to the development and exploitation of cost shared intangibles.

  The temporary regulations provide taxpayers with greater flexibility in designing certain aspects of CSAs and address the treatment of non-conforming intangible development arrangements. For example, the 2005 proposed regulations required the controlled participants in a CSA to receive non-overlapping territorial interests that entitled each controlled participant to the perpetual and exclusive right to the profits in its territory attributable cost shared intangibles. To provide taxpayers with more flexibility in designing qualifying divisional interests, the temporary regulations permit use of a new basis --the field of use division of interests --in addition to the territorial basis The temporary regulations also clarify the circumstances under which the IRS may treat an arrangement as a CSA even though there is a technical failure to meet the substantive requirements of a CSA. However, to prevent abuse and facilitate compliance, the temporary regulations address changes in participation which require arm's length consideration.

  The 2005 proposed regulations described external contributions for which compensation was due from other controlled participants, that is, preliminary or contemporaneous transactions; an "external contribution "generally consisted of the rights in the reference transaction (RT) in any resource or capability reasonably anticipated to contribute to developing cost shared intangibles. The temporary regulations replace the term "external contribution "with the term "platform contribution", replace the term "preliminary or contemporaneous transaction" with the term "platform contribution transaction", and do not employ the RT concept.

  The temporary regulation also clarify the "general principles" articulated in the 2005 proposed regulations applicable to any method to determine the arm's length charge in a PCT, clarifying that the principles are intended to provide supplementary guidance on the application of the best method rule to determine which method, or application of a method, provides the most reliable measure of an arm's length result in a CSA context. In that regard, the temporary regulations address the investor model that was a core principal of the 2005 proposed regulations and provide guidance on aggregation of transactions, discount rates, projections, and arm's length range. Additionally, the relevant considerations for purposes of evaluating whether a putative comparable controlled transaction reflects the most reliable measure of an arm's-length result are described, and the income method, acquisition price and market capitalization methods, residual profit split method and unspecified methods used for purposes of evaluating the arm's length charge in a PCT are addressed.

  The temporary regulations liberalize the form of payment (fixed or contingent) for post formation acquisitions; allowing controlled participants to chose the form of payment for PCTs regardless of whether the PCTs occur at the outset of the CSA or later, and also clarify the rules for contingent payments. Finally, the temporary regulations address the determination of periodic adjustments which implement the commensurate with income principle in the context of cost sharing and the administrative and transition rules as originally adopted in the 2005 proposed regulations for existing CSAs. The IRS and Treasury Department intend to issue a revenue procedure which will provide an exception to periodic adjustments in the context of an advanced pricing agreement entered into pursuant to Rev. Proc. 2006-9, 2006-1 C.B. 278.

  The text of the temporary regulations also serves as the text of the proposed regulations The temporary regulations are generally effective for CSAs commencing on or after January 5, 2009. There are transition rules for certain pre-exiting arrangements.

Hearing and Comments

  A public hearing on the proposed regulations is scheduled for April 21, 2009. Written or electronic comments must be received by the IRS by April 6, 2009. Outlines of topics to be discussed at the public hearing must be received by April 6, 2009.

T.D. 9441, 2009FED ¶47,011

Proposed Regulations, NPRM REG-144615-02, 2009FED ¶49,412

Other References:

 
Code Sec. 367

  CCH Reference - 2009FED ¶16,640A

  CCH Reference - 2009FED ¶16,640B

  CCH Reference - 2009FED ¶16,641

 
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 ¶22,282GA

  CCH Reference - 2009FED ¶22,282GE

  CCH Reference - 2009FED ¶22,282JG

  CCH Reference - 2009FED ¶22,282JK

  CCH Reference - 2009FED ¶22,282L

  CCH Reference - 2009FED ¶22,282Q

  CCH Reference - 2009FED ¶22,282QD

  CCH Reference - 2009FED ¶22,282R

  CCH Reference - 2009FED ¶22,282SG

  CCH Reference - 2009FED ¶22,282SH

  CCH Reference - 2009FED ¶22,282U

 
Code Sec. 861

  CCH Reference - 2009FED ¶27,149

 
Code Sec. 6662

  CCH Reference - 2009FED ¶39,653C

 
Code Sec. 7701

  CCH Reference - 2009FED ¶43,081

  Tax Research Consultant

  CCH Reference - TRC INTL: 15,152
CCH Reference - TRC INTL: 15,152.05
CCH Reference - TRC INTL: 15,152.10
CCH Reference - TRC INTL: 15,152.15
CCH Reference - TRC INTL: 15,152.20
CCH Reference - TRC INTL: 15,152.25
 

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

Tax Analysts report: