Tax News

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: