Tax News

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: