Tax News

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  In a nonprecedential letter decision, the California State Board of Equalization (SBE) concluded that a California general corporation with insurance company subsidiaries had demonstrated that application of the standard apportionment formula to its non-insurance business led to a grossly distorted result, and that the alternative apportionment provisions of Rev. and Tax. Code Sec. 2513 could be applied to reduce the corporation's California franchise tax for the tax years in question.

  The corporation owned several insurance company subsidiaries operating in California, Georgia, Idaho, Illinois, and Louisiana. It appeared that the premiums written by these subsidiaries were exempt from franchise and income taxes in California and Idaho, exempt from franchise and capital stock taxes in Louisiana, and deductible from business income for reporting net corporation income taxes in Illinois. The corporation stated that for the six tax years in question, it generated over $165 million in federal taxable losses, and despite these losses still paid over $6 million in gross premiums taxes. However, because of the distortion caused by the standard California apportionment formula, the company would have to pay an additional $3.6 million in California corporate taxes. According to the corporation, the result of the standard California apportionment formula was that 100% of the income of California non-insurance companies was apportioned to California, even though the reason that the income existed was the result of --and to support --insurance activities, the overwhelming majority of which took place outside California during the subject years. The corporation argued that the distortion was caused by its unique organizational structure during the tax years in question, where it used a holding company to manage its insurance businesses rather than using subsidiaries each separately owned by a holding company. Thus, the corporation sought to include apparent net losses and other factors from its insurance company subsidiaries to reduce its net income, even though the insurance companies were exempt from franchise and income taxes or franchise and capital stock taxes in at least four states.

  The Franchise Tax Board (FT contended that Sec. 25137, which is part of the Uniform Division of Income for State Tax Purposes Act (UDITPA), did not apply, because the corporation did not have income from business activity that was taxable both within and without the state. The FTB further indicated that since 1975 it has consistently applied its Legal Ruling 385, which precludes the inclusion of insurance companies and other entities not subject to net income taxes in combined reports, even if those entities have a unitary relationship with non-insurance companies. SBE staff noted that if the corporation prevailed here, either 51.83% (based on location of expenses) or roughly 70% (based on location of premiums written) of the corporation's income reported as 100% sourced to California would be apportioned out of California. Nevertheless, the SBE, without explanation, concluded that the corporation had demonstrated distortion and could apply Sec. 25137.

Letter Decision, Appeal of Argonaut Group, Inc. , No. 287738, California State Board of Equalization, January 23, 2009, ¶404-851

  Other References:

  Explanations at ¶11-540

CCH (cch.taxgroup.com) reports:

  An individual's conviction on two counts of filing false income tax returns was vacated as to one count, but affirmed as to another. The indictment was insufficient to support the individual's conviction on the first count because it alleged that the individual filed a false amended tax return based on false statements contained in a schedule attached to his original return. However, the schedule, which formed an integral part of the original return, was not an integral part of the amended return. By signing the jurat on the amended return, the individual did not expose himself to potential liability for false statements contained in the schedule because he swore to the veracity of only the amended return.

  However, the government's evidence supported the individual's conviction on the other count by demonstrating that the individual received gross receipts greater than those he reported. The government's investigation was adequate because it traced the individual's financial history and reconstructed his cash flow for several years leading up to the tax year covered by the return. The individual's request for a new trial was properly denied because the jury had sufficient information to evaluate the government's investigation and the trial court's instructions to the jury adequately remedied any prejudice caused to him.

  Unpublished opinion affirming in part, vacating in part and remanding, per curiam , an unreported DC Miss. decision.

J.D. Adams, CA-5, 2009-1 USTC ¶50,241

Other References:

 
Code Sec. 7206

  CCH Reference - 2009FED ¶41,333.17

  CCH Reference - 2009FED ¶41,333.192

  Tax Research Consultant

  CCH Reference - TRC IRS: 66,202
CCH Reference - TRC IRS: 66,202.10
 

CCH (cch.taxgroup.com) reports:

  The IRS has released information to assist employers in claiming a credit for the COBRA medical premiums they pay for former employees. The new information includes an extensive set of questions and answers for employers and a revised version of the quarterly payroll tax return that employers will use to claim the credit for the COBRA premiums paid. Form 941, Employer's Quarterly Federal Tax Return, which is to be used to claim the new COBRA premium assistance payments credit, beginning with the first quarter of 2009, will be sent to two million employers in mid-March.

  Under the American Recovery and Reinvestment Act of 2009 (P.L. 111-5), eligible former employees who were enrolled in their employers' health plans at the time they lost their jobs are required to pay only 35 percent of the cost of COBRA coverage. Employers must treat the 35-percent payment by eligible former employees as full payment but may claim a credit for the other 65 percent of the COBRA cost on their payroll tax returns. Employers must maintain supporting documentation for the credit claimed.

IR-2009-15,
2009FED ¶46,279

COBRA: Answers for Employers

Other References:

 
Code Sec. 6432

  CCH Reference - 2009FED ¶38,940.01

  Tax Research Consultant

  CCH Reference - TRC COMPEN: 45,206.05
 

CCH (cch.taxgroup.com) reports:

  President Obama released his administration's "Budget Overview for Fiscal Year (FY) 2010 of the United States Government" on February 26 (TAXDAY, 2009/02/27, W.1). The proposals within his budget amount to $3.5 trillion in expenditures over the government's next fiscal year. Administration officials emphasized that the preliminary budget release was intended to be only an overview and that further details, including additional items, will be forthcoming in the Spring.

  Within any budget proposal from an administration, taxes play an important role, both as a funding mechanism and as an efficient means of distributing benefits. President Obama's 2010 budget overview is no different. This year, however, the introductory section of the "President's 2010 Budget Overview" warns, "There are no quick and easy fixes to the recession plaguing our economy."

  The administration will not increase revenue in 2009 and 2010, according to a senior Treasury official at a background briefing at the Treasury immediately after the overview was released. He emphasized that there would be no accelerated repeal of the "Bush tax cuts" at this time while the economy remains fragile. The administration has "an explicit policy of increasing demand in light of the deepening recession." According to the official, "We want to do things that will stimulate the economy and spur economic demand."

Proposed Tax Changes

  Tax recommendations contained in the budget outline include:

  Reduced Itemized Deduction for High-Income Individuals. The president's 2010 budget overview proposes to cut back the amount of tax benefits allowed to high-income individuals who itemize deductions. To create a $630-billion reserve fund to bolster health care reform, the 2010 budget would limit itemized deductions for those with high income to the same after-tax benefit as those individuals in the 28-percent bracket. The budget proposes "reducing the itemized deduction rate for families with incomes over $250,000 to 28 percent."

  Making Work Pay Tax Credit. For 2009 and 2010, the American Recovery and Reinvestment Act (the 2009 Recovery Act) (P.L. 111-5) gives wage earners (and the self-employed) an annual refundable income tax credit of up to $800 ($400 for single filers) to offset payroll taxes on the first $6,450 of wages, with an adjusted gross income phaseout starting at $150,000 ($75,000 for single filers). The president's 2010 budget would make this credit permanent.

  Enhanced Child Credit. For 2009 and 2010, the 2009 Recovery Act gives many low-income families a higher child credit by reducing the earnings threshold for the refundable portion of the child credit to $3,000. The president's 2010 budget would make this enhanced refundable credit permanent.

  American Opportunity Tax Credit . For 2009 and 2010, the 2009 Recovery Act added a new $2,500 American Opportunity Tax Credit applicable to all four years of college, eclipsing in benefits both the existing HOPE and Lifetime Learning credits for these students and their families. The president's 2010 budget would make this credit permanent.

  Mandatory Automatic Enrollment in Retirement Savings Plans. The president's budget "lays the groundwork for the future establishment of...automatic workplace pensions." All employees would be automatically enrolled in their employers' retirement plans, with an election to opt out. Employers not offering a retirement plan will be required to enroll their employees in a direct-deposit IRA account compatible with direct-deposit payroll systems.

Tax Provisions Not Enhanced or Extended

  Several tax breaks initiated in the 2009 Recovery Act were highlighted in the president's 2010 budget outline but not proposed to be changed in any way at this time. This group of tax provisions includes:

  $250 Recovery Payment to Retired and Disabled Individuals. While the 2010 budget overview touts the benefits of the $250 recovery payments for 2009 under the 2009 Recovery Act, it does not extend these benefits. However, it does state that the $250 will be disbursed "through temporarily increasing Social Security Income and Veterans benefits." Prior speculation had been that these payments would be made by issuing a single check to qualifying individuals.

  Unemployment Insurance Benefits. The 2010 budget calls for a $25 weekly increase in UI benefits. No mention is made, however, of the exclusion of UI benefits from taxable income for years after 2009.

  Production Tax Credit. The 2010 budget overview praises the 2009 Recovery Act for allowing long-range planning in developing renewable energy by extending the production tax credit (PTC) to 2012 for wind and to 2013 for other renewable energy sources. However, the 2010 budget proposes no further extensions.

  Weatherizing Homes. The 2010 budget "would build on the $5 billion provided in the 2009 Recovery Act for weatherizing assistance" to low-income homeowners. No increase in or extension of the
2009 Recovery Act's $1,500 residential energy efficient property credit for 2009 or 2010 was proposed.

  Affordable COBRA Coverage. For the period September 1, 2008, through December 31, 2009, the 2009 Recovery Act provides a credit for unemployed workers to offset up to 35 percent of their premiums for COBRA medical benefits coverage. The 2010 budget overview does not propose enhancing or extending this benefit.

More to Come

  The senior Treasury official who briefed the press immediately after the budget overview was released emphasized that the president's budget was unique in that it was the result of an accelerated and expedited process. As a result, he acknowledged that there is considerable detail that the administration cannot put forth right now, but certain details are evident. He stated that there will be the traditional "Blue Book" ("General Explanations of the Administration's Fiscal Year 2010 Revenue Proposals") released in late March or early April with the normal amount of detail.

  International Tax Enforcement. The senior official remarked that the Obama administration does not want "location to work against job creation," a clear reference to the president's statement before Congress on February 24 to "balance our tax code by finally ending the tax breaks for corporations that ship our jobs overseas." He stated that details with respect to international tax enforcement will be announced in coming months. There will be a major increase in the IRS's budget for international tax enforcement, the official emphasized.

Treasury Department's Budget Allocations

  The Administration's FY 2010 Budget Outline includes $13.3 billion in funding for the Treasury Department. The budget focuses on funding to support the Troubled Assets Relief Program (TARP), IRS international tax compliance initiatives, IRS taxpayer services and expanded lending to disadvantaged communities.

  IRS Funding. Expanded funding for IRS enforcement is a large component of the president's 2010 budget. Recognizing the ever-increasing global environment that taxpayers live and work in, the budget calls for increased funding for IRS international tax compliance initiatives. Additionally, the budget provides funding to improve the IRS's efforts to narrow the tax gap, which is more than $300 billion.

  The 2010 budget overview also seeks to improve the quality, efficiency and responsiveness of IRS taxpayer services. The strategy includes enhanced outreach as well as enhanced electronic filing capabilities. The administration's goal is to have the IRS efficiently respond to taxpayer inquiries and questions so that taxpayers receive a correct response the first time.

  TARP. The 2010 budget overview also adds support to the administration's new Financial Stability Plan as well as TARP, through an additional $250 billion contingent reserve to further stabilize the financial system. This reserve is in addition to the $750 billion already pledged to help the financial system. According to the budget, the additional $250 billion is not a response to a specific request from the financial sector.

  Expanded Lending to Disadvantaged Communities. The 2010 budget overview also provides for an expansion of funding in underserved communities and neighborhoods. The budget doubles funding for the Community Development Financial Institutions (CDFI) Fund. The CDFI Fund, through merit-based grant programs, assists locally based financial institutions offering small business, consumer and home loans in areas that lack access to affordable credit.

  By Hilary Goehausen, George Jones and Chandra Walker, CCH News Staff
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Minnesota House of Representatives has passed legislation that would, among other changes:

  -- update references to the Internal Revenue Code (IRC) to mean federal provisions as amended through December 31, 2008, for purposes of computing the Minnesota corporate franchise tax, the personal income tax, the property tax refund, and the estate tax; and

  -- require an addition to taxable income by personal income taxpayers who claim the additional standard deduction for real estate taxes or a deduction for tuition and higher education expenses IRC Sec. 222 on their federal return.

  Minnesota would not adopt special federal rules that allow certain financial institutions to treat losses from the sale of preferred stock as ordinary rather than capital losses. Finally, the state would be allowed to delay a certain number of corporate franchise tax refunds for the 2009 and 2011 tax years until 2010 and 2012 respectively.

  The tax computation changes would be effective for taxable years beginning after December 31, 2007. The refund delays would be effective for fiscal years 2009 and 2011 only.

  Subscribers can view the text of the bill.

H.F. 392, as passed by the Minnesota House, February 19, 2009
 

CCH (cch.taxgroup.com) reports:

  In a case of first impression, where an S corporation's shareholders sold their stock and agreed to treat the sale under IRC §338(h)(10), the gain from the deemed asset sale was subject to Georgia corporate income tax. Although the S corporation could not make the election as a matter of law, it affirmatively agreed under a stock purchase agreement that it would join in making the election. As a result of the deemed sale, the S corporation received a tax benefit of a stepped-up basis in assets, allowing it to claim increased depreciation and amortization deductions, thereby reducing its Georgia tax liability for subsequent periods. Further, the gain on the deemed sale of assets primarily consisting of goodwill was treated as income subject to apportionment since goodwill was key to the S corporation's longtime operational business success in Georgia. Finally, the assessment of additional tax based upon business income from the deemed asset sale did not violate the nexus requirements of the Due Process and Commerce Clauses of the U.S. Constitution. The S corporation took advantage of the privilege of doing business in Georgia in a manner which added value to the company's assets and the value of its shareholders' stock.

Georgia Department of Revenue v. Trawick Construction Co., Inc. , Court of Appeals of Georgia, No. A08A2323, February 23, 2009, ¶200-647

  Other References:

  Explanations at ¶10-540

  Explanations at ¶11-520

CCH (cch.taxgroup.com) reports:

  The IRS has announced a taxpayer-friendly option for individuals and married couples who qualify for the first-time homebuyer credit under Code Sec. 36, as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5). Taxpayers qualifying for the amended credit have the option to claim the Code Sec. 36 credit on either their 2008 or 2009 tax returns.

  The 2009 Recovery Act increased the maximum credit allowed under
Code Sec. 36 from $7,500 to $8,000 ($3,750 to $4,000 for married filing separately). To qualify for the increased credit, the home must be purchased after December 31, 2008 and before December 1, 2009. The credit, as amended, does not need to be repaid as long as the home remains the purchaser's principal residence for 36 months after the purchase date.

  A spokesperson at the Joint Committee on Taxation told CCH that the issue of whether the technical language of the Act supports the use of the $8,000 amount for credits claimed on 2008 returns for 2009 purchases, or whether the $7,500 amount should apply, had been debated among staff members. Their conclusion was that the congressional intent was to allow the $8,000 amount for all 2009 purchases, regardless of whether the credit was claimed on a 2008 and 2009 return. The staff economists then used that conclusion in determining the final revenue estimates assigned to this provision, as published in JCX-19-09.

  CCH Comment. The changes made to the first-time homebuyer credit by the Act are effective only for residences purchased after December 31, 2008. This makes clear that the increased $8,000 cap on the first-time homebuyer credit only applies to residences purchased from January 1 through November 30, 2009. The $7,500 cap still applies to homes purchased in 2008. The language providing for an election to treat a 2009 purchase as if made in the prior year was also revised by the new act. Code Sec. 36(g) states that, in the case of a purchase of a principal residence after December 31, 2008, and before December 1, 2009, a taxpayer may elect to treat such purchase as made on December 31, 2008, for purposes of Code Sec. 36 other than Code Sec. 36(c), the definitional subsection, and Code Sec. 36(f)(4)(D), the subsection addressing the waiver of recapture for purchases in 2009. Under a technical reading of the statute, therefore, an election to treat a residence purchased in 2009 as if made on December 31, 2008, would subject the purchase to the $7,500 dollar limitation applicable to 2008 purchases under Code Sec. 36(b). The IRS appears to have decided, however, to allow residences purchased in 2009 to qualify for the $8,000 limit even where the taxpayer elects to treat the purchase as if made on December 31, 2008.

  A revised version of Form 5405, First-Time Homebuyer Credit, has been posted on the IRS website (www.irs.gov/pub/irs-pdf/f5405.pdf) incorporating changes made by the Act.

  In addition, the IRS reminds taxpayers that amended Code Sec. 36 does not apply to people who actually purchased a home after April 8, 2008, and on or before December 31, 2008. These taxpayers, who are claiming the credit on their 2008 tax returns, are limited to a maximum credit of $7,500 (or $3,750 for married individuals filing separately). In addition, the credit for these 2008 purchases must be repaid in 15 equal installments over 15 years, beginning with the 2010 tax year.

IR-2009-14,
2009FED ¶46,277

Treasury Department News Release, TDNR TG-39, 2009FED ¶46,278

Other References:

 
Code Sec. 36

  CCH Reference - 2009FED ¶4190K.11

  Tax Research Consultant

  CCH Reference - TRC INDIV: 57,950

CCH (cch.taxgroup.com) reports:

  Energy policy and climate change initiatives took center stage at a hearing of the House Ways and Means Committee on February 25. Academic experts testified that a cap and trade system for carbon emissions should be considered by lawmakers, as a way to boost the U.S. economy and provide for its national security. House Subcommittee on Trade Chairman Sander Levin, D-Mich., said opponents of climate change legislation would prefer a prolonged debate, rather than action on legislation.

  Ways and Means ranking member Dave Camp, R-Mich., argued that a unilateral elimination of greenhouse gasses by the U.S. would hurt the economy, especially since other industrialized nations, such as China and India, will not match the effort. Camp said he fears that global warming legislation would result in a loss of three million U.S. jobs. Camp cautioned that, before any lawmaker votes to eliminate millions of American jobs, Congress should find out if an economy-choking solution will actually provide any measurable benefit to the environment.

  Brenda Ekwurzel, a climate scientist for the Union of Concerned Scientists, a Washington, D.C.-based policy group, said congressional action is needed to impact market decisions to build new coal plants. She advocated capping U.S emissions by 35 percent by the year 2020.

  James Hansen, an adjunct professor at Columbia University, said there is no question about the scientific validity of climate change. "It's a tactic of those who want to do nothing to make it sound like there's a debate," he said. Hansen suggested that any questions about the science of climate change should be examined by the National Academy of Sciences at President Obama's request.

  By Stephen K. Cooper, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The gross proceeds received by an out of state online travel company for booking hotel reservations are subject to South Carolina accommodations tax because the taxpayer furnishes rooms to transients. The taxpayer does not have to be the owner of any hotel in order to "furnish" accommodations. The taxpayer has the authority to book rooms on behalf of the hotels with which it contracts. The customer's right to use the accommodations is bestowed at the moment the prepaid reservation is made. Further, the taxpayer is the merchant of record for these transactions, and the customer makes no payments to the hotel other than for additional guest services.

  The fees charged by the taxpayer are subject to tax because no deduction for service or labor charges can be made in calculating gross proceeds. Therefore, the entire amount collected by the taxpayer from its customers is taxable.

  The tax may be applied to an out of state company as the taxpayer contracted with hundreds of South Carolina hotels to furnish accommodations, and the transfer of possession took place in the state.

  The taxpayer has substantial nexus for purposes of the Commerce Clause because the accommodations are located in South Carolina and the taxpayer relies on services provided by South Carolina residents employed at those accommodations. Also, application of the tax does not raise fair apportionment issues because no multiple taxation takes places and the performance of the sales transaction takes place in South Carolina.

Travelscape, LLC v. Department of Revenue , South Carolina, Administrative Law Judge Division, No. 08-ALJ-17-0076-CC, February 12, 2009, ¶400-464

  Other References:

  Explanations at ¶60-025

  Explanations at ¶60-445

  Explanations at ¶60-480
 

CCH (cch.taxgroup.com) reports:

  The estate of a person who died in 2003 could not avoid imposition of Illinois estate tax for a taxable property transfer with a tax situs within the state by merely electing to forego a credit for state death taxes under IRC §2011 on its federal tax return, according to a majority of the Illinois Appellate Court. A ruling in favor of the estate was reversed.

  In the case, the decedent's death followed her parents' death, entitling the estate to a prior transfer credit against the federal estate taxes that covered most of the federal liability. Consequently, the estate did not claim any state tax credit against federal liability and, according to the estate, it therefore was not liable for any state estate tax. When in 2003 Illinois decoupled from federal estate law following enactment of the Federal Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the estate continued, it changed the amount of tax due as the amount of state tax credit "allowed" against federal tax, as opposed to the amount of state credit "allowable," as set out in the previous version of the state law. Since the amount "allowed" was equal to the amount actually claimed, there was no tax due under the "unique" and "unusual" circumstances of this case, the estate concluded.

  The state argued that the estate's interpretation of the amended state statute that placed responsibility on the estate itself to decide whether it owed state tax simply by claiming a state death tax credit on its federal return was "absurd." The plain language of the amended statute, along with the legislative purpose of decoupling the state tax from the federal system in order to retain revenue, demonstrated that the Legislature intended for the estate to pay state tax in this case, even where no credit was claimed against the federal tax.

  The appellate court agreed with the state. Irrespective of whether the estate could claim a credit against the federal tax, the Illinois estate tax was due as the credit would have been computed and allowed under the IRC in 2001, the court held.

CCH (cch.taxgroup.com) reports:

  The IRS properly determined that the penalty period to assess accuracy-related penalties on a couple for negligently underpaying their taxes ended on the date of the assessment, not on the date that the couple remitted a payment so that they could file a refund suit. The couple argued that the tax deficiency underlying the penalties was reduced by the amount of that payment. However, the IRS's court-ordered refund of the payment revived the couple's tax liability and continued the penalty period. The refund was not an erroneous refund because it was not a determination that the couple had overpaid their taxes. Instead, it was a tax amount that revived the couple's tax liability. Since the refund put them in the same position they were in before they filed the refund suit, the tax liability underlying the penalties was unpaid on the date of assessment.

  Affirming the Tax Court, 93 TCM 1216, Dec. 56,932(M), TC Memo. 2007-119.

D.C. Greer, CA-6, 2009-1 USTC ¶50,235

Other References:

 
Code Sec. 6211

  CCH Reference - 2009FED ¶37,539.30

  Code Sec. 6653 (prior law --see Code Sec. 6662)

  CCH Reference - 2009FED ¶39,654.90

 
Code Sec. 6662

  CCH Reference - 2009FED ¶39,651G.19

  CCH Reference - 2009FED ¶39,651G.81

  Tax Research Consultant

  CCH Reference - TRC IRS: 27,052.05
CCH Reference - TRC PENALTY: 3,106.05
CCH Reference - TRC PENALTY: 3,110

CCH (cch.taxgroup.com) reports:

  President Obama, in his first address to a joint session of Congress, spoke in stark terms about the deepening economic recession, but assured Americans that they will prevail. "We will rebuild, we will recover, and the United States of America will emerge stronger than before," the president declared.

  The president, in his February 24 address, said that bold action is required to jumpstart the U.S. economy and pave the way for long-term growth. He said that the newly signed American Recovery and Reinvestment Act (P.L. 111-5) is an important first step but warned "there will be no real recovery unless we clean up the credit crisis that has severely weakened our financial system." In addition to implementing a financial rescue package, the president emphasized the necessity of a home foreclosure plan to help responsible homeowners keep their homes and an upcoming plan to re-regulate the financial industry.

  On tax policy, Obama noted that only the "wealthiest 2 percent of Americans" earning above $250,000 will pay higher taxes, and that those earning less will begin to see a higher paycheck beginning on April 1 as a result of the new "Make Work Pay" tax credit. He also said corporations that outsource their jobs overseas should not receive the same tax breaks as companies that keep their jobs in the United States.

  The president pledged to cut the soaring federal deficit in half by the end of his term and said that the administration has already identified $2 trillion in unspecified savings over the next 10 years. "My budget does not attempt to solve every problem or address every issue. It reflects the stark reality of what we've inherited --a trillion-dollar deficit, a financial crisis and a costly recession," Obama stated

  To preserve long-term fiscal health, Obama said the White House and Congress must address the rising costs in Medicare and Social Security. He called for comprehensive health care reform as the best way to strengthen Medicare in the future. The president also said it is time to "begin a conversation" on Social Security reform. He indicated that, as the debate begins on overhauling Social Security, tax-free, universal savings accounts should be created for all Americans.

House Reaction

  House Ways and Means Chairman Charles B. Rangel, D-N.Y., said the president's speech laid out the near-term and long-term challenges for the country, and that Congress would be ready to act on Social Security reform, energy independence and health care reform. Rangel said that the president is willing to work with GOP lawmakers, and that their help would be essential in meeting the country's challenges. House Republican Study Committee Chairman Tom Price, R-Ga., took a conciliatory tone toward Obama's speech, saying Obama's ambitious agenda shows that the president recognizes the challenges facing the U.S. He called on the president to forgo raising taxes during the current recession. Ways and Means ranking member Dave Camp, R-Mich., echoed that sentiment, saying that the president and Democratic leaders should work to cut federal spending instead of raising taxes.

Senate Reaction

  Senate Finance Committee Chairman Max Baucus, D-Md., indicated the committee's near-term agenda by his deliberate focus on President Obama's commitment to health care, praising his call for quick action on comprehensive reform. "I was pleased to hear the president acknowledge that a comprehensive overhaul of our health care system must be part and parcel of America's economic recovery, and pleased to hear him promise a real investment toward that goal," said Baucus in a statement. His Republican counterpart, Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, tempered the enthusiastic reception to Obama's speech by referencing the cost of the president's recovery plan in his statement. "Taxpayers are being asked for a lot right now, and there's danger that the excesses of Washington will match, or even out-do, the excesses of Wall Street," Grassley said. "The current administration inherited a $1 trillion deficit, and in its first month added another $1 trillion to the debt with its economic stimulus bill."

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

Prepared Remarks of President Barack Obama --Address to Joint Session of Congress

SFC Press Release: Grassley Reaction to President Obama's Speech to Congress 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Massachusetts Commissioner of Revenue has established a two-month amnesty period limited to individuals with existing personal income tax liabilities; personal use tax liabilities; and cigarette excise liabilities, pertaining to purchases for individual consumption.

  The amnesty period will commence on March 1, 2009, and end on April 30, 2009. It will apply to tax years or periods ending on or before December 31, 2007. The Commissioner will notify taxpayers of their eligibility to participate in the amnesty program. Only those taxpayers to whom a "Tax Amnesty Notice" has been issued will be eligible.

  Under the amnesty program, if a taxpayer is notified by the Commissioner that he or she is eligible and pays the full amount of tax and interest due for any period as shown on the "Tax Amnesty Notice," the Commissioner is authorized to waive all unpaid penalties including those imposed for failure to timely file a return, failure to file a proper return, failure to timely pay a tax liability, and failure to pay the proper amount of any required estimated tax payments for such period. When an eligible taxpayer pays the full outstanding balance of tax and interest with respect to previously filed returns or assessments, the Commissioner will waive the unpaid penalties and the interest directly attributable to those penalties as to that taxpayer for those tax periods.

  Penalties that have been assessed, or that could be assessed, by the Commissioner against a taxpayer for liabilities relating to any other tax types are not eligible for waiver under the amnesty program.

  Subscribers can view the Department of Revenue's release.

 
Technical Information Release 09-3, Massachusetts Department of Revenue, February 19, 2009
 

CCH (cch.taxgroup.com) reports:

  The California Franchise Tax Board (FT has updated its answers to frequently asked questions (FAQs) about the delayed payment of California corporation franchise and income tax and personal income tax refunds. Even though the state budget has been enacted, the state must now determine if there is sufficient cash to pay outstanding debts, including tax refunds. Until then, all refunds continue to be delayed, not just 2008 tax year refunds. The tax refund delay, as announced by the State Controller on January 16, 2009, and the prior issuance of FAQs were previously reported. (TAXDAY, 2009/01/19, S.8, TAXDAY, 2009/01/30, S.3)

  Subscribers can view the updated FAQs.

 
Tax Refund Delay FAQs , California Franchise Tax Board, updated February 20, 2009
 

CCH (cch.taxgroup.com) reports:

  The IRS and Treasury have released final regulations relating to automatic contribution arrangements. These regulations affect administrators of, employers maintaining, participants in, and beneficiaries of Code Sec. 401(k) plans and other eligible plans that include an automatic contribution arrangement. The regulations reflect provisions of section 902 of the Pension Protection Act of 2006 (P.L. 109-280), taking into account certain of the changes made by section 109(b) of the Worker, Retiree, and Employer Recovery Act of 2008 (P.L. 110-458). The final regulations relating to qualified automatic contribution arrangements apply to plan years beginning on or after January 1, 2008. The regulations relating to eligible automatic contribution arrangements apply for plan years beginning on or after January 1, 2010.

Minimum Percentage Requirement

  The final regulations clarify that, under Code Sec. 401(k)(13)(C)(iii), the minimum percentage for the initial period is based on when the employee first has contributions made pursuant to a default election under a qualified automatic contribution arrangement (QACA). Thus, if an employee makes an affirmative election before the default contribution would have begun, then the initial period does not begin for the employee. The minimum percentages are increased for plan years after the initial period. The regulations provide that the minimum percentages, in the case of a rehired employee, are determined without regard to whether an employee has continued to be eligible to make contributions under the plan. Thus, the minimum percentage is generally determined based on the number of years since the date the employee first had default contributions made under the QACA. However, the final regulations also provide that a plan is permitted to treat an employee who for an entire plan year did not have contributions made pursuant to a default election under the QACA as if the employee had not had such contributions for any prior plan year as well.

Uniformity Requirement

  The final regulations expand the exception to the Code Sec. 401(k)(13)(C)(iii) uniformity requirement that allows variance based on the number of years since the date the employee first had contributions made pursuant to a default election under an arrangement that is intended to be a QACA. Under the final regulations, the default percentage may also vary based on the portions of years since that date. Thus, the plan may provide for the increase of the default percentage mid-year, as long as the percentage is uniform based on the number of years or portions of years since an employee first had contributions made pursuant to a default election and satisfies the minimum percentage requirement throughout the plan year.

Notice Timing Requirement

  Under Code Sec. 401(k)(12), the regulations provide that the determination of whether the notice satisfies the timing requirement is based on all of the relevant facts and circumstances. The timing requirement is deemed satisfied if at least 30 days (and no more than 90 days) before the beginning of each plan year, the notice is provided to each eligible employee. In the case where an eligible employee is not provided the notice within this 30-90 day period because the employee becomes eligible after the 90th day before the beginning of the plan year, the timing requirement is deemed to be satisfied if the notice is provided no more than 90 days before the employee becomes eligible and no later than the date the employee becomes eligible.

Affirmative Elections

  The regulations do not expand the exception for automatically enrolling current employees to employees who have not made an affirmative election. Under Code Sec. 401(k)(13)(C)(iv)(II), only those employees who had an affirmative election in effect immediately before the QACA became effective are permitted to be excluded from having a default election apply to them.

Arrangements Under Code Sec. 414(w)

  The final regulations modify the rule in the proposed regulations to provide that the employees who must be subject to the automatic enrollment provisions under an eligible automatic contribution arrangement (EACA) are only those employees who are specified in the plan as being covered employees under the EACA. Thus, automatic enrollment under an EACA need not apply to all employees eligible to make a deferral election under the applicable plan, but only to those employees who are covered by the EACA. To address the possibility that a plan may contain more than one EACA, the regulations provide that the requirement that the default elective contributions under an EACA be a uniform percentage of compensation is applied by aggregating all automatic contribution arrangements within the plan that are intended to be EACAs.

  In addition, the regulations provide that the date of the first default elective contribution must take into account any default elective contributions made under any EACA under the plan. For this purpose, all EACAs under the plan must be aggregated. However, if the plan provides for multiple EACAs to cover different employees in different portions of the plan and these portions of the plan are mandatorily disaggregated under Code Sec. 410(b), then there is no requirement to aggregate those different EACAs.

T.D. 9447, 2009FED ¶47,016

Other References:

 
Code Sec. 401

  CCH Reference - 2009FED ¶18,109

  CCH Reference - 2009FED ¶18,110B

  CCH Reference - 2009FED ¶18,111

  CCH Reference - 2009FED ¶18,111C

  CCH Reference - 2009FED ¶18,111L

  CCH Reference - 2009FED ¶18,120B

  CCH Reference - 2009FED ¶18,121B

  CCH Reference - 2009FED ¶18,122B

  CCH Reference - 2009FED ¶18,122E

 
Code Sec. 402

  CCH Reference - 2009FED ¶18,210B

 
Code Sec. 411

  CCH Reference - 2009FED ¶19,056

 
Code Sec. 414

  CCH Reference - 2009FED ¶19,197

 
Code Sec. 4979

  CCH Reference - 2009FED ¶34,522B

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 3,202

  CCH Reference - TRC RETIRE: 3,210

  CCH Reference - TRC RETIRE: 3,252

  CCH Reference - TRC RETIRE: 42,410

CCH (cch.taxgroup.com) reports:

  The IRS has released withholding tables reflecting the new Making Work Pay credit, enacted by the American Recovery and Reinvestment Act of 2009 (P.L. 111-5). The new withholding tables, along with other related instructions, will be incorporated in new Publication 15-T, which will be available on the IRS website next week.

Treasury/IRS Collaboration

  The Treasury Department worked closely with the IRS to develop the revised withholding tables, Treasury Secretary Timothy F. Geithner explained in a statement. "Just days after President Obama signed this landmark legislation into law, we have the wheels turning to deliver much-needed boosts to the paychecks of working Americans." Geithner said that Treasury Department and IRS personnel moved with "exceptional speed" to issue the revised withholding tables so that employers could quickly implement the Making Work Pay credit.

Reaction

  The Making Work Pay credit appears to be the best mechanism to encourage taxpayers to spend, rather than save, Thomas Ochsenschlager, vice president, Taxation, American Institute of Certified Public Accountants (AICPA), told CCH. "Most people saved their 2008 economic stimulus payments, which did not help businesses that needed to sell what they have in inventory."

  Ochsenschlager explained that many individuals will see an increase in their take-home pay because of the Making Work pay credit. "However, individuals who have little or no income tax withheld will have to claim the credit when they file their 2009 federal income tax return."

  By Anita Nagelis and George L. Yaksick, Jr., CCH News Staff

IR-2009-13,
2009FED ¶46,276

Other References:

 
Code Sec. 36A

  CCH Reference - 2009FED ¶4195.11

 
Code Sec. 3402

  CCH Reference - 2009FED ¶33,544.20

  Tax Research Consultant

  CCH Reference - TRC INDIV: 58,050

CCH (cch.taxgroup.com) reports:

  President Obama said he is open to lowering corporate tax rates, stating "this is an area we can work on" if existing tax loopholes are closed. Obama also called for tax simplification measures and recommended making the IRS "more customer-friendly" at a White House summit on fiscal responsibility on February 23.

  In opening remarks at the one-day gathering of lawmakers and members of academia, business and labor, Obama stressed that the current economic crisis cannot be resolved without "confronting the deficits that helped to cause it." The president warned that failure to address the federal deficit risks the creation of another economic crisis in the future as interest payments increase, U.S. obligations become due and confidence in the economy erodes.

  To control the federal budget, Obama pledged to cut the federal deficit in half by the end of his term. He also said he will propose to reinstate pay-as-you-go rules. Obama submits his fiscal year 2010 budget to Congress on February 26.

  Following the session, Obama said there was general consensus that rising health care costs are the biggest contributor to the federal deficit. The White House and Congress intend to tackle health care reform in 2009, he noted. The president said that the White House will hold a summit on health care the week of March 2.

  By Paula Cruickshank, CCH News Staff

President's Weekly Radio Address: Making Work Pay Tax Cut Is Quickest and Broadest in History

Ways and Means Press Release: Chairman Rangel Pledges to Work with Administration and Congressional Republicans to Restore America's Fiscal Health
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  On February 20, California Gov. Arnold Schwarzenegger signed a series of bills to address the state's budget process, make changes to the current budget, and increase revenues by, in part, making changes regarding corporate and personal income tax, sales and use tax, property tax, and the vehicle license fee. The changes are covered in depth in other stories, which are linked below, and each story contains a link to the chaptered version of the law being discussed.

  Generally, the changes are

  -- personal income tax rates, including the personal income alternative minimum tax (AMT) rate, are temporarily increased, and the amount of the dependent credit against personal income tax is temporarily decreased; (TAXDAY, 2009/02/23, S.3)

  -- the state sales and use tax rate is increased; (TAXDAY, 2009/02/23, S.8)

  -- corporation franchise and income tax provisions governing nexus and apportionment for multistate corporations are amended; new jobs credits against; corporate franchise and income tax and personal income tax are created, and new film production credits against corporate franchise and income tax, personal income tax, and sales and use tax are enacted (TAXDAY, 2009/02/23, S.6)

  -- a homebuyers credit against personal income tax is enacted; (TAXDAY, 2009/02/23, S.5)

  -- the vehicle license fee is increased; (TAXDAY, 2009/02/23, S.9) and

  -- provisions for postponement of senior citizen property tax payments are discontinued. (TAXDAY, 2009/02/23, S.7)

CCH (cch.taxgroup.com) reports:

  The IRS has set forth the tax rates for various types of income under new tax treaties with Bulgaria and Iceland and a new protocol with Canada. Tables provide supplemental withholding tax rates and exempt personal service income for Publications 515, Withholding of Tax on Nonresident Aliens and Foreign Entities (For Withholding in 2008), and 901, U.S. Tax Treaties (Rev. April 2008).

  With respect to the Bulgaria and Iceland treaties, the provisions for withholding tax at source are effective for amounts paid or credited on or after January 1, 2009. For other taxes, the treaties are effective for tax periods beginning on or after January 1, 2009. The same holds true with respect to the Canada protocol, except that certain provisions, none of which are discussed in the announcement, have different effective dates.

  An individual who was otherwise entitled to benefits under Article 21 (Teachers) of the former Iceland treaty can continue to apply those provisions. Also, under the former Iceland treaty, a person entitled to benefits can elect to have that treaty apply in its entirety for a 12-month period following the date the new treaty would otherwise apply.

Announcement 2009-5, 2009FED ¶46,275

Announcement 2009-5, TRET ¶26,328

Other References:

 
Code Sec. 894

  CCH Reference - 2009FED ¶26,810.20

  CCH Reference - 2009FED ¶26,857.01

  CCH Reference - 2009FED ¶26,865.01

  CCH Reference - 2009FED ¶26,910.01

 
Code Sec. 1441

  CCH Reference - 2009FED ¶32,716.60

  Tax Research Consultant

  CCH Reference - TRC INTL: 18,050
CCH Reference -
TRC INTL: 18,250

CCH (cch.taxgroup.com) reports:

  The IRS has invited public comments regarding guidance to be provided to payment settlement entities and other affected persons concerning new requirements with respect to the reporting of payments made in settlement of payment card and third party network transactions. The new reporting requirements are found in Code Sec. 6050W, which was added by the Housing Assistance Tax Act of 2008 (P.L. 110-289), and apply to returns for calendar years beginning after December 31, 2010. Any payment settlement entity making payment to a participating payee in settlement of reportable payment transactions must make a return for each calendar year and furnish a statement to the participating payee, setting forth the gross amount of the reportable payment transactions, as well as the name, address, and taxpayer identification number (TIN) of the participating payees.

  Written and electronic comments should be submitted by May 18, 2009.

Notice 2009-19, 2009FED ¶46,274

Other References:

 
Code Sec. 6050W

  CCH Reference - 2009FED ¶36,380.021

  Tax Research Consultant

  CCH Reference - TRC FILEBUS: 9,320

CCH (cch.taxgroup.com) reports:

  President Obama will host a White House Fiscal Summit on February 23 and submit his fiscal year (FY) 2010 budget blueprint to Congress on February 26. Sandwiched between the two days that focus on fiscal issues, the president will address a joint session of Congress on February 24 to discuss the economic challenges facing the nation, according to White House Press Secretary Robert Gibbs.

  The White House must move forward on several fronts simultaneously in order to put the U.S. economy back on track, Gibbs said at a press briefing on February 20. In his address to Congress, the president will discuss the "the decisions we will have to make collectively to get the U.S. back on some sort of sustainable fiscal path," Gibbs advised.

  Obama has repeatedly warned that the U.S. economy will worsen before it gets better. Gibbs said it is not possible to pinpoint when there will be an economic turnaround but he maintained the administration's economic policies will make it happen.

  When the president signed the American Recovery and Reinvestment Act of 2009 (P.L. 111-5) on February 17, he called the $787-billion measure "the first step to get our economy on the road to recovery and pave the way to long-term growth" (TAXDAY, 2009/02/18, W.1) Equally important are the administration's plans to stabilize the financial and housing markets, stop further housing foreclosures and establish a financial regulatory structure, Gibbs noted.

  The White House summit will be attended by Republican and Democratic congressional leaders, the chairs and ranking members of key committees, academia, community leaders and representatives of labor, financial and business sectors, Gibbs noted. There will be two sessions on U.S. fiscal conditions followed by small group discussions on a range of economic issues, including taxes and revenue, health care, Social Security, procurement and the budget, according to the White House spokesmen.

  By Paula Cruickshank, CCH News Staff

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

    Wisconsin Gov. Jim Doyle has signed a budget repair and economic stimulus bill that enacts provisions conforming Wisconsin sales and use tax laws to the Streamlined Sales and Use Tax (SST) Agreement and imposes sales and use taxes on digital products and significantly modified computer software. As previously reported, the Senate passed the bill on February 18. (TAXDAY, 2009/02/19, S.17) Also on February 18, late in the evening, the Assembly concurred, passing the bill with no amendments. The governor signed the bill on February 19.
 

  
Income tax provisions and the hospital assessment (TAXDAY, 2009/02/20, S.28) and property tax provisions (TAXDAY, 2009/02/20, S.27) are covered in related stories.

SST Conformity

    Wisconsin sales and use tax laws are conformed to the SST Agreement, effective October 1, 2009. With the enactment of this legislation, the state may petition to become a full member of the Agreement. The state must be found in compliance with the Agreement by the SST Governing Board before it can become a full member of the Agreement.
 

    According to a Legislative Fiscal Bureau analysis, changes to the tax base include taxing certain types of food that are currently exempt and exempting certain types of food that are currently taxable; expanding the exemptions for medical equipment, mobility enhancing equipment, and prosthetic devices; generally imposing tax on exempt items in bundled transactions (exceptions are made for food, drugs, medical equipment, and other items); and taxing items that are sold by an out-of-state seller to a Wisconsin purchaser and delivered directly by common carrier or U.S. mail, regardless of whether the seller has nexus with Wisconsin.
 

    The bill also changes the tax treatment of drop shipments; includes detailed sourcing provisions; provides for compensation to certified service providers (CSPs), sellers that use a certified automated system (CAS), and large multistate sellers with proprietary tax calculation systems; includes an amnesty provision; establishes a dispute resolution process for purchasers and sellers; revises exemption certificate provisions; and makes other changes.
 

    Sourcing: In general, the new sourcing rules are destination-based, and they are largely consistent with Wisconsin's current sourcing provisions. However, some provisions in the bill change the current practice. For instance, sellers/printers of direct mail are relieved of the burden of determining the destination of each piece of mail if the purchaser does not provide this information. Sourcing provisions for towing services, admissions, leases, software and services delivered electronically, and some telecommunications services are also changed. The Department of Revenue has rule-making authority regarding the sourcing of florist sales.
 

    Amnesty: A seller is not liable for uncollected and unpaid state and local sales and use taxes, penalties, and interest on previous sales made to Wisconsin purchasers if the seller registers with the Department of Revenue to collect and remit taxes on such sales in accordance with the SST Agreement. In order to receive amnesty, the seller must:
 

— register within one year of the effective date of the state's participation in the Agreement; and
 
— collect and remit state and local taxes on sales to purchasers in Wisconsin for at least three consecutive years after the date the seller registers.
 

    Amnesty is not available to sellers that were already registered with the Department during the year immediately preceding the effective date of Wisconsin's participation in the Agreement; sellers that are being audited by the Department; or sellers that have committed or been involved in fraud or an intentional misrepresentation of a material fact.
 

Digital Goods

    Sales and use tax is imposed on certain digital goods, effective October 1, 2009. Taxable digital goods include digital audio works, digital audiovisual works, digital books, greeting cards, finished artwork, periodicals, and video or electronic games. Digital goods that would be exempt if sold in tangible form are exempt. Definitions are created and specific sourcing provisions apply.
   

Computer Software

    Sales and use tax is imposed on significantly modified computer software that was ruled exempt in Wisconsin Department of Revenue v. Menasha Corp. (TAXDAY, 2008/07/14, S.32)
 

    According to a Legislative Fiscal Bureau analysis, the sale of prewritten software from one vendor to a second vendor who will modify the software for the customer is exempt as a sale for resale (formerly, this type of sale was taxable). However, the final sale from the second vendor to the customer, minus any separately stated charges for program modifications, is taxable (formerly, prewritten software plus custom changes were exempt). For vendors who develop prewritten software and modify the software to such a degree that the software is a custom program, tax is imposed on the proceeds of the final sale to the end customer, minus any separately stated charges for program modifications (formerly, these sales were exempt). For sales of prewritten software by one vendor and significant modifications by a second vendor, the sale of the prewritten software is taxable, and the modifications are exempt (formerly, both the prewritten software and the modifications were exempt). These changes are effective on the day after publication of the bill.
 

    Subscribers can view the bill as introduced, the Senate amendment, and the Legislative Fiscal Bureau analysis.
 

S.B. 62, Laws 2009, effective as noted; Analysis of Budget Adjustment Legislation, Wisconsin Legislative Fiscal Bureau, February 16, 2009
 

CCH (cch.taxgroup.com) reports:

  
After months of negotiations, the California legislature has passed a budget deal that includes the following:
 

— a temporary 0.125% to 0.25% increase in the personal income tax rate;
 

— a temporary 1% increase in the state sales and use tax rate;
 

— with specified exceptions, a temporary increase in the vehicle license fee from 0.65% to 1.15%;
 

— a temporary reduction in the personal income tax dependent credit;  

— a new jobs tax credit against personal income and corporate income taxes for small employers;
 

— a new motion picture production tax credit against corporate income and personal income taxes;
 

— a new homebuyer's credit against personal income tax; and
 

— authority for a multistate corporate income taxpayer to elect the use of a single sales factor apportionment formula for purposes of apportioning business income among the states in which it does businesses.
 

    Gov. Arnold Schwarzenegger has indicated that he will begin signing the budget related bills beginning on Friday, February 20, 2009. Details concerning these and other tax-related provisions will be provided as final versions of the bills become available.
 

   Senate Legislative Floor Analysis, A.B.x3 3, Laws 2009, Third Extraordinary Session, February 19, 2009; Senate Legislative Floor Analysis, S.B.x3 15, Laws 2009, Third Extraordinary Session, February 14, 2009; Assembly Legislative Floor Analysis, S.B.x2 15, Laws 2009, Second Extraordinary Session, February 15, 2009

CCH (cch.taxgroup.com) reports:

    The Department of Justice (DOJ) has sued Swiss banking giant UBS AG in federal district court to obtain the identities of the bank’s U.S. customers with secret Swiss bank accounts. The lawsuit claims that as many as 52,000 U.S. customers hid their bank accounts from the IRS and failed to report the accounts’ earnings. According to the DOJ, bank documents indicated that the accounts held about $14.8 billion in assets, primarily in cash and securities, as of the mid-2000s.
 

    The U.S. district court for the southern district of Florida approved the IRS’s “John Doe” summons issued to UBS on July 21, 2008. Although UBS officials pledged to cooperate with U.S. authorities at a 2008 congressional hearing (TAXDAY, 2008/07/18, C.1), the Justice Department indicated in the lawsuit that UBS has failed to comply “in full” with the summons.
 

    An affidavit by IRS official Barry Shott submitted as part of the suit states that a request to Swiss authorities for the names of account holders may only produce information on about 300 accounts. In January 2009, the Swiss government indicated that records may be provided for a total of 12 accounts, and only after the account holders had an opportunity to contest the information release in Swiss court.
 

   
The summons enforcement lawsuit follows on the heels of a February 18 deferred prosecution agreement (DPA) between the Justice Department and UBS in which the DOJ charged UBS with conspiring to defraud the U.S. by assisting account holders to evade U.S. taxes (TAXDAY, 2009/02/19, I.1). UBS agreed to pay $780 million in fines and penalties to U.S. authorities and to stop maintaining secret bank accounts for U.S. customers.
 

Limited Names

    When it released that agreement, the DOJ appeared to indicate that UBS would disclose the identities of as many as 20,000 account holders holding $20 billion in assets. “The veil of secrecy has been pulled aside,” Acting Assistant Attorney General (Tax Division) John DiCicco said in a statement. However, as pointed out by George Clarke, an attorney with Miller & Chevalier, Washington, D.C., who is familiar with the issues, it now appears that UBS agreed to disclose only about 200-300 account holders who violated Swiss law.
 

    “The U.S. authorities do not have all or substantially all of the names” of the account holders, Clarke said. “Negotiations with Swiss authorities have apparently gone as far as they can go, so the U.S. government is now asking a U.S. court” to require disclosure, he indicated. The fact that the IRS’s voluntary disclosure process is still open, as IRS Commissioner Douglas H. Shulman asserted, also indicates that there are unnamed account holders. “If an account holder’s name has been disclosed by UBS, they are no longer eligible for the voluntary disclosure process,” Clarke explained.
 

UBS to Contest Summons

    Moreover, under paragraph 13 of the DPA, UBS can assert its rights under Swiss and U.S. law to defend against enforcement of the summons, Clarke told CCH. Only after UBS has exhausted its judicial remedies will its failure to comply with an enforcement order potentially violate the DPA. “It is basically unheard of in a deferred prosecution agreement to allow the defendant to settle yet continue fighting a related issue,” Clarke noted in an e-mail to CCH.
 

    UBS issued a statement that it intends to “vigorously contest” enforcement of the summons. UBS said that enforcement would violate U.S. law, UBS’s qualified intermediary agreement, Swiss financial privacy and other laws, and principles of comity that require U.S. courts to take foreign laws into account.
 

    The Shott affidavit states out that Swiss authorities will only exchange information about a taxpayer if the individual committed an affirmative act of deception, such as falsifying a document, above and beyond a mere failure to report the existence of the account or the account’s income. “Plain old tax evasion is not a crime in Switzerland,” Clarke commented. It is possible that UBS cannot waive any confidentiality. FINMA [the Swiss banking authorities] may have to consent to the disclosures.
 

Curtailed Business

    In the agreement with DOJ, as well as at the 2008 congressional hearings, UBS agreed to get out of the business of maintaining secret bank accounts for U.S. customers. “This puts [account holders] in a difficult position,” Clarke told CCH. “They won’t want UBS to close the account and send a check to the account holder in the U.S.”

 
By Brant Goldwyn, CCH News Staff

 
DOJ Press Release: United States Asks Court to Enforce Summons for UBS Swiss Bank Account Records

 
DOJ Petition to Enforce John Doe Summons

 
Declaration of IRS Official Barry Shott

 
Statement of IRS Commissioner Shulman

CCH (cch.taxgroup.com) reports:

  An individual taxpayer could not deduct expenses associated with his ownership of an airplane on Schedule C because none of the activities related to the airplane was a trade or business. The individual was not involved in the trade or business of environmental consulting in one of the years at issue because he did not establish that he engaged in related activities with the required continuity and regularity. Furthermore, expenses incurred by the individual with respect to aircraft maintenance activity in one year and in environmental aviation activity in the subsequent year were not deductible. The individual was not engaged in either activity as a trade or business because his primary purpose for engaging in the activities was not income or profit. His recordkeeping was disorganized and unreliable, he could not have an expectation that assets used in the activity would appreciate, he could not have had a good-faith expectation of realizing a profit on his operation, he introduced no evidence regarding the financial performance of his aircraft maintenance activity for previous years or evidence regarding occasional profits, and the individual's full-time job allowed the individual to conduct the aircraft maintenance activity at a loss. Thus, the individual's allowable deductions were limited under Code Sec. 183(b)(2) to his gross income from the activity.

  The Code Sec. 6662(b)(2) accuracy-related penalty was imposed with respect to both years at issue. The taxpayer did not contend that he was not negligent, that he had reasonable cause or that he acted in good faith.

R.L. Rowden, TC Memo. 2009-41, Dec. 57,744(M)

Other References:

 
Code Sec. 162

  CCH Reference - 2009FED ¶8521.103

 
Code Sec. 183

  CCH Reference - 2009FED ¶12,177.175

 
Code Sec. 6662

  CCH Reference - 2009FED ¶39,652.34

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 3,054

  CCH Reference - TRC PENALTY: 3,108

CCH (cch.taxgroup.com) reports:

  Various prescribed rates for federal income tax purposes for March 2009 have been provided by the IRS. The annual short-term, mid-term, and long-term applicable federal interest rates (AFRs) are 0.72 percent, 1.94 percent and 3.52 percent, respectively. The semiannual short-term, mid-term, and long-term AFRs are 0.72 percent, 1.93 percent and 3.49 percent, respectively. Quarterly short-term, mid-term and long-term AFRs are 0.72 percent, 1.93 percent and 3.47 percent, respectively. Finally, the monthly short-term, mid-term and long-term rates are 0.72 percent, 1.92 percent and 3.46 percent, respectively.

  The short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for March 2009 for purposes of Code Sec. 1288(b) are 0.84 percent, 2.04 percent, and 4.58 percent, respectively, when annual compounding is used.

  Additionally, the Code Sec. 382 adjusted federal long-term rate is 4.58 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 7.63 percent, and the appropriate percentage for the 30-percent present-value, low-income housing credit is 3.27 percent. Finally, the Code Sec. 7520 AFR for determining the present value of an annuity, an interest for life or a term of years, or a remainder or reversionary interest is 2.4 percent.

Rev. Rul. 2009-8, 2009FED ¶46,272

Rev. Rul. 2009-8, FINH ¶30,615

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
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  In his 2009-2011 budget address, Wisconsin Gov. Jim Doyle proposed, among other tax issues, a decrease in the percentage of capital gains that are exempt from corporate and personal income taxes, credits for job creation and research and development, an increase in tax on earnings above $300,000, and an increase in the cigarette tax. Other items discussed related to an oil assessment, sales and use taxes, and property taxes.

  The governor also referred to the budget repair bill, which makes budget adjustments for the 2008-2009 fiscal year that would extend into the 2009-2011 budget biennium and is covered in another story. (TAXDAY, 2009/02/19, S.17)

CCH (cch.taxgroup.com) reports:

  A budget repair and economic stimulus bill that includes combined reporting of corporate franchise and income taxes, Streamlined Sales and Use Tax (SST) conformity, a hospital assessment, corporate and personal income tax credits, and other tax measures was introduced in the Wisconsin Senate on February 17 and passed the Wisconsin Senate on February 18. The governor previously announced provisions of the bill on February 11. (TAXDAY, 2009/02/12, S.18)

CCH (cch.taxgroup.com) reports:

  The New Mexico House of Representatives passed a bill that would eliminate the personal income tax brackets and replace them with a flat tax rate of 4.9% beginning in 2009. Among other things, if enacted, the bill would also create a new credit that replaces the standard deduction, personal exemptions, the low- and middle-income exemption, the value of graduated tax rates, and the low-income comprehensive tax rebate. The new credit would be adjusted annually for inflation beginning in 2010. In addition, the definition of "taxable income "would be changed to remove the items replaced by the new credit, and the definition of "modified gross income" would be amended to mean federal adjusted gross income (AGI) plus social security and railroad retirement benefits excluded from AGI under IRC Sec. 86.

  Subscribers can view the full text of the bill.

 
H.B. 262, as passed by the New Mexico House of Representatives on February 17, 2009

CCH (cch.taxgroup.com) reports:

  The Justice Department (DOJ) announced on February 18 that UBS AG, the largest bank in Switzerland, will pay $780 million in fines, penalties and restitution to the U.S. government, and has agreed to disclose the names of thousands of secret accountholders to the IRS. The DOJ entered into a deferred prosecution agreement with the bank and filed a criminal information in federal district court that charged UBS with conspiring to defraud the U.S. by helping its accountholders evade U.S. taxes. UBS's offshore banking services generated income of $200 million a year from 2002 through 2007.

  The information alleges that UBS provided private banking services to approximately 20,000 U.S. clients with accounts worth approximately $20 billion. Seventeen thousand of the clients concealed their identities and the existence of their UBS accounts from the IRS, and many of the clients failed to pay U.S. taxes on their account earnings. UBS assisted this concealment by helping clients create nominee offshore structures and transferring assets to UBS accounts in the name of the nominees. UBS also assisted clients in filing IRS forms that claimed that the offshore nominees, not the U.S. clients, owned the offshore accounts. In addition, UBS failed to report and withhold on the accounts' earnings.

  UBS will immediately provide the IRS with identities and account information for U.S. customers of its cross-border banking business. The bank has also agreed to cease providing banking services to U.S. clients with undeclared accounts.

  "The veil of secrecy has been pulled aside and we will continue to aggressively pursue those who shirk their federal tax obligations or assist others in doing so," Acting Assistant Attorney General (Tax Division) John DiCicco said in a statement. "UBS executives knew that UBS's cross-border business violated the law," U.S. Attorney R. Alexander Acosta declared. "They refused to stop this activity, however, and in fact instructed their bankers to grow the business. This was...a knowing crime motivated by greed and disrespect of the law," Acosta said.

  IRS Commissioner Douglas H. Shulman noted that the IRS received court permission to issue a summons to UBS to identify taxpayers who were hiding offshore income. "Today's agreement states that the U.S. government will continue to seek enforcement of the summons," Shulman said. "People who have hidden unreported income offshore need to get right with their government. They should come forward and take advantage of our voluntary disclosure process."

  By Brant Goldwyn, CCH News Staff

DOJ Press Release: UBS Enters Into Deferred Prosecution Agreement

DOJ Criminal Information in USA v UBS AG

DOJ Deferred Prosecution Agreement in USA v. UBS AG

Statement of IRS Commissioner Shulman

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Although an oil transporter may have aided oil producers in making nontaxable, higher-priced off-lease sales under a questionable "barrel-back arrangement" that took advantage of a statutory anomaly, the Oklahoma Supreme Court determined that the transporter was not jointly liable as an accomplice to the producers for any additional Oklahoma gross production or excise tax since the producers did not actually retain the oil in the arrangement. The Oklahoma Tax Commission had asserted that the oil was not really sold at the time of production but was retained by the producers through the barrel-back arrangement.

  However, the Court construed that the common and ordinary meaning of "retained," as used in the applicable statute, was to keep or hold in one's possession or in a particular place, condition, or position. Under the barrel-back arrangement, the producers sold the oil to the transporter and actually parted with possession of the oil. Thereafter, the transporter kept the oil until the oil reached the market center. Thus, the oil was not retained by the producers, as the Tax Commission had argued.

  Under the barrel-back arrangement, the transporter purchased the oil from the producers at a lower field price upon which the state's gross production tax was based, transported the oil to a market center, and then purposely sold the oil back to the producers (now characterized as market buyers) for the price paid by the transporter plus the transportation costs. The producers-market buyers would then sell the oil to third parties at a non-taxed higher price set by a specified mercantile exchange.

  While the barrel-back arrangement provided an opportunity for the producers and the transporter to avoid a higher tax, this result, by itself, was not a justification for the Court to interpret the applicable statute contrary to the common and ordinary meaning of the words used. Accordingly, the state's gross production tax law, as written, did not subject the producers' buy-backs of the oil and the subsequent resales at the market center to taxation. In the absence of any tax liability on the part of the producers, there could be no tax liability for the transporter to share or jointly incur.

  To the extent that the barrel-back arrangement was an anomaly in the gross production tax law, such a transaction would have to be made taxable by a clear, affirmative declaration of the state's Legislature and not by implication through a tortured judicial construction.

State ex rel. Oklahoma Tax Commission v. Sun Company, Inc., Oklahoma Supreme Court, February 10, 2009, ¶201-052.

  Other References:

  Explanations at ¶45-106
 

CCH (cch.taxgroup.com) reports:

  CCH Tax and Accounting is hosting a live two-hour audio seminar, Sales and Use Tax Audits: Best Practices to Successfully Meet the Audit Challenge, on Thursday, February 24, 2009, at 2 p.m. Eastern; 1 p.m. Central; 11 a.m. Pacific. This two-hour CCH Audio Seminar is presented by noted state tax experts, educators and authors, John C. Healy, M.S.T., CPA and Bruce Nelson, M.A., CPA, and will provide a practical walk-through of issues that need to be addressed prior to a sales and use tax audit, during the audit, and after the audit. The program will discuss the many factors that can affect the outcome of a sales and use tax audit. The presenters will share insights on future trends and discuss best practices in areas ranging from compliance procedures and document retention policies to evaluating tax-reporting assumptions and effective negotiations.

  Program topics include the following:

  -- the impact of Sarbanes-Oxley and FIN 48 in working with auditors,

  -- pre-audit strategies and opportunities,

  -- self-audits, refund reviews, and reverse audits,

  -- audit strategies, best practices, and opportunities,

  -- sampling techniques and strategies,

  -- negotiating trade-offs on certain issues,

  -- transactional reviews,

  -- when and how to involve outside counsel,

  -- mounting successful appeals,

  -- preparing for the next audit cycle, and

  -- future audit trends and the impact of the Streamlined Sales Tax on audits.

  The learning objectives include:

  -- understanding the issues and factors that trigger sales and use tax audits,

  -- learning best practices to apply prior to audit, during audit, and in the post-audit phases, and

  -- identifying steps to take and opportunities to pursue to prevent future audits.

  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
Surviving a Sales and Use Tax Audit.
 

CCH (cch.taxgroup.com) reports:

  Although the IRS collected tax on a deceased individual's income twice, once from his employer and once from his widow, the widow was not entitled to a credit for the double payment in a later tax year. Her argument that she was entitled to claim a credit in 2004 for the amount the employer paid in 2004 to satisfy its 2001 withholding obligation was rejected. The taxpayer should have claimed the credit for 2001, the year the income was earned. Therefore, she could not use the Code Sec. 31 credit to create an overpayment for 2004.

  Moreover, the Tax Court lacked jurisdiction to impose a constructive trust because the taxpayer had received a notice of deficiency for 2001 that she failed to pursue. The 2001 overpayment had no connection to the 2003 or 2004 deficiencies at issue. Finally, she was not entitled to equitable recoupment because equitable recoupment can only be used to offset an overpayment against a deficiency. Since, due to concessions, there was no tax due in 2003 or 2004, equitable recoupment was unavailable to procure a refund of the 2001 overpayment.

C. Whalen, TC Memo. 2009-37, Dec. 57,740(M)

Other References:

 
Code Sec. 31

  CCH Reference - 2009FED ¶4062.021

  CCH Reference - 2009FED ¶4062.12

 
Code Sec. 3401

  CCH Reference - 2009FED ¶33,506.55

 
Code Sec. 7442

  CCH Reference - 2009FED ¶42,058.13

  Tax Research Consultant

  CCH Reference - TRC INDIV: 57,302

  CCH Reference - TRC LITIG: 6,100

  CCH Reference - TRC LITIG: 6,134.05

CCH (cch.taxgroup.com) reports:

  President Obama on February 17 signed into law the American Recovery and Reinvestment Act of 2009 (HR 1). The president said the $789-billion economic recovery package is "the first step to get our economy on the road to recovery and pave the way to long-term growth." Obama signed the legislation in Denver, Colorado, where he highlighted the number of green jobs that will be created by the stimulus package.

  Nearly one-third of the economic package is made up of tax cuts aimed primarily at middle-class taxpayers. The "Make Work Pay" tax credit is the centerpiece of the president's tax-cut plan, providing a tax break of $400 per individual and $800 for joint-filing couples. The credit begins to phase out at adjusted gross income of $75,000 for single filers and $150,000 for couples filing joint returns. About two million Americans will be lifted above the poverty line as a result of the new tax credit, according to an analysis by White House economic advisors.

  The president also touted the $2,500 "American Opportunity Tax Credit," which is available in 2009 and 2010. The higher education tax credit previously totaled $1,800 per year.

  The $276-billion tax-cut measure also benefits businesses, the environment and state governments. The final legislation drew fire from fiscal conservatives who argued that the measure is bloated with unnecessary spending on pork-barrel projects and did not include enough tax cuts. Many economists and lawmakers, however, contended that the package is not large enough to stimulate the U.S. economy.

  The president maintained the new law is a balanced plan with the right mix of tax cuts and investments. However, administration officials have indicated that they would have preferred to see the provision for a $70-billion, one-year alternative minimum tax patch in separate legislation later in 2009.

  White House Press Secretary Robert Gibbs did not rule out the possibility of a second stimulus bill in the future. "I think the president is going to do what's necessary to grow this economy," Gibbs said at a press briefing prior to the bill's signing. Gibbs said he would not "foreclose" the idea but the administration is not "readily making plans to do so."

  Senate Majority Leader Harry Reid, D-Nev., said enacting the bill is the first step toward economic recovery. "President Obama and this new Democratic Congress heard the demands of the American people to urgently address the worsening economic crisis, and we have acted responsibly to put people back to work, ensure middle-class families can get ahead and invest in our future," said Reid. "The American people understand that we will not solve this crisis overnight. But with the president signing this bill into law today, we can start down the long road toward restoring prosperity."

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

White House Release: Signing Statement of President Obama

White House Releases State by State Numbers; American Recovery and Reinvestment Act to Save or Create 3.5 Million Jobs
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  A limited liability company (LLC) has asked the U.S. Supreme Court whether its rights under the Due Process Clause of the U.S. Constitution were violated by the remedy offered for an unconstitutional California LLC fee. The California Court of Appeal upheld a lower court's decision that the LLC fee that was based on an LLC's worldwide income was an unapportioned tax that violated the Commerce Clause as applied to the petitioner, an out-of-state LLC that had income from both inside and outside California. However, the Court of Appeal held that, rather than the full refund mandated by the lower court, the proper remedy to be applied to the unapportioned tax in this instance was to refund the difference between the amount of the fee paid by the petitioner and the amount of the fee that would have been required had the fee been fairly apportioned. (TAXDAY, 2008/08/12, S.7) The California Supreme Court denied review.

  The LLC has asked the U.S. Supreme Court to decide whether California violated the LLC's due process rights to a clear and certain remedy for the payment of an unconstitutional tax by denying it a full refund, and also violated its rights by retroactively adding an apportionment mechanism and thereby changed the LLC's obligation under that law for at least the prior eight years that were at issue in the dispute.

  Subscribers can view the petition.

Ventas Finance I LLC v. California Franchise Tax Board, U.S. Supreme Court, Dkt. 08-1022, petition for certiorari filed February 10, 2009

CCH (cch.taxgroup.com) reports:

  The protections of P.L. 86-272 would be expanded and a physical presence nexus standard would be codified for business activity taxes, under legislation introduced in the U.S. House of Representatives on February 13, 2009. The Business Activity Tax Simplification Act of 2009 (H.R. 1083) was introduced by Rep. Rick Boucher, D-Va., and several co-sponsors, and referred to the Judiciary Committee. It is identical to legislation that was introduced in the previous Congress.

  Nexus standard: The legislation would prohibit a state from imposing a business activity tax (BAT) on any taxpayer, unless the taxpayer has a physical presence in the state for 15 days or more during the year. Presence in a state "to conduct limited or transient business activity" would not establish physical presence.

  P.L. 86-272: The legislation also would extend the protections of P.L. 86-272 to all business activity taxes, not just net income taxes as is currently the case. Furthermore, it would include in protected activity solicitations with respect to any sale or transaction approved and fulfilled outside the state, including transactions involving intangible property and services. Currently, P.L. 86-272 only applies to solicitations for sales of tangible personal property. Protected activity would include furnishing information, covering events, or gathering information in a state when the information is used or disseminated from outside the state. Protected activity would also include activities related to the purchase of goods or services in a state if the final decision to purchase is made outside the state. The existing safe harbor for the activities of independent contractors in a state would be expanded to include these new categories of protected activity.

  The bill can be found at
http://thomas.loc.gov/cgi-bin/query/z?c111:H.R.1083

H.R. 1083, as introduced in the U.S. House of Representatives on February 13, 2009

CCH (cch.taxgroup.com) reports:

  The IRS has issued general requirements and conditions for the development, printing, and approval of all substitute tax forms to be acceptable for filing in lieu of official IRS-produced and distributed forms. The IRS accepts quality substitute tax forms that are consistent with the official forms and that do not have an adverse impact on processing. The IRS Substitute Forms Program administers the formal acceptance and processing of these forms nationwide. While the program deals primarily with paper documents, it also interfaces with other processing and filing media, such as electronic filing. Only substitute forms conforming with these requirements will be accepted.

  This guidance covers the following forms: (1) tax returns and their related forms and schedules; (2) worksheets as they appear in instruction packages; (3) applications for permission to file returns electronically and forms used as required documentation for electronically filed returns; (4) powers of attorney; (5) over-the-counter estimated tax payment vouchers; and (6) forms and schedules relating to partnerships, exempt organizations, and employee plans.

  The guidelines do not cover a number of forms, including Forms W-2, W-2c, W-3, W-3c, 941 and Schedule B, 1040-ES (OCR), 1041-ES (OCR), 1096, 1098 series, 1099 series, W-2G and 1042-S. They also do not cover requests for information or documentation initiated by the IRS, forms used internally by the IRS, state tax forms, forms developed by other agencies and general and specific instructions.

  The guidelines also highlight new changes, such as those reflecting the fact that magnetic media submissions are no longer accepted, address and e-mail address updates and changes to various forms and publications. Rev. Proc. 2007-68, 2007-2 CB 1093, is superseded.

Rev. Proc. 2009-17, 2009FED ¶46,271

Other References:

 
Code Sec. 7513

  CCH Reference - 2009FED ¶42,702.12

  CCH Reference - 2009FED ¶42,702.40

  Tax Research Consultant

  CCH Reference - TRC FILEBUS: 12,052.10
CCH Reference - TRC FILEBUS: 12,250
 

CCH (cch.taxgroup.com) reports:

  Call-option spread transactions involving the simultaneous purchase of long options and a promissory note and the sale of short options and the subsequent transfer of the transactions to the purchasers' partnerships lacked economic substance. The evidence presented demonstrated that the partnerships received no economic benefit, other than an increase in basis, from the transactions.

  Following the transfers, the partners' basis in the partnerships was increased by the cost of the long options and promissory notes but was not reduced by the partnerships' assumption of the short options. The transactions had no economic purpose except to generate inflated bases in the partnerships' assets to secure tax benefits. Thus, the losses claimed by the partnership from the offsetting option transactions did not represent bona fide losses reflecting actual economic consequences.

  There was no evidence that the call-option spread was designed as a hedge generally or that it operated as a hedge. Applying the step transaction doctrine to the transactions, the steps of the "hedge" strategy pursued by the partners were interdependent and had no independent justification. Application of the substance over form doctrine revealed that the partnerships valued the contributed transactions at over 60 times the amount the partners actually paid.

  Further, the short option should have been treated as a liability under Code Sec. 752. Thus, the increase in the partners' basis should have been their net payment for the transactions. Even if the short options at issue were not liabilities under
Code Sec. 752, the obligations created by the short options had to be taken into account under Reg. §1.752-6, which was applied retroactively.

  Finally, the partnerships were subject to accuracy-related penalties for gross valuation misstatement since the partners' claimed adjusted basis in their partnership interests exceeded their correct adjusted bases by more than 400 percent. They also failed to demonstrate that they acted in good faith as required by the reasonable cause exception of Code Sec. 6664(c)(1). The transactions were entered into over one year after the IRS issued
Notice 2000-44, 2000-2 CB 255, alerting them that purported losses arising from certain transactions designed to create artificially high basis in partnership interests would be disallowed. They also failed to establish that they sought and received disinterested and objective tax advice; rather, they relied on the advice of the accounting firm that had arranged the transactions.

Maguire Partners-Master Investments, LLC, DC Calif., 2009-1 USTC ¶50,215

Other References:

 
Code Sec. 752

  CCH Reference - 2009FED ¶25,526.17

 
Code Sec. 6662

  CCH Reference - 2009FED ¶39,654.55

 
Code Sec. 6664

  CCH Reference - 2009FED ¶39,661.65

  Tax Research Consultant

  CCH Reference - TRC PART: 9,100
CCH Reference -
TRC PART: 15,252
CCH Reference - TRC PENALTY: 3,110.25
CCH Reference - TRC PENALTY: 3,116

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The 2010-2011 budget presented February 12 by New Hampshire Gov. John Lynch includes proposals for a 35-cent increase in the tobacco tax, a .75% increase in the meals and rooms tax, and a tax on gambling winnings over $600.

  Additionally, the governor indicated that in the budget development process, a number of options had been considered with regard to the state liquor stores, including selling them completely. However, full privatization was not in the best financial interest of the state, he said, because private companies would not share the state's federal tax exemption and would not be able to deliver the same revenue stream. The budget would therefore implement a plan by the Liquor Commission to increase returns.

  Gov. Lynch also reiterated his opposition to an income tax or a sales tax, and said he would veto either.

  Full text of the governor's budget address can be viewed at
http://www.governor.nh.gov/speeches/documents/021209budget.htm.

Budget Address, New Hampshire Gov. John Lynch, February 12, 2009

CCH (cch.taxgroup.com) reports:

  The Massachusetts Department of Revenue announced a voluntary compliance and enforcement initiative pertaining to employers that either have failed to file Massachusetts personal income tax withholding or wage and information returns or have misclassified workers that should have been classified as employees on such returns for past taxable periods. To be considered for voluntary disclosure, initial contact must be made with the Department's Wages and Enforcement Voluntary Disclosure Unit by letter postmarked between February 17, and April 30, 2009. Payment in full of amounts due on wage and information returns for tax periods beginning on or after January 1, 2008, plus applicable interest must be made no later than April 30, 2009.

  The Department will apply a limited seven-year look-back period for wage amounts required to be reported to the Department on employer withholding or wage and information returns for tax periods beginning on or after January 1, 2008. If an employer does not come forward voluntarily and the Commissioner discovers from a source other than the employer's voluntary disclosure that a employer has misclassified its employees, the Department will apply a look-back period that is appropriate and will not be bound by the seven-year look-back period. A taxpayer that has already been contacted by the Audit Division or is the subject of any other enforcement action is ineligible to participate in this initiative.

  Employers that seek to apply the limited look-back rules can voluntarily disclose employee misclassification and/or non-filing of withholding or wage and information returns by contacting the Department's Wage Enforcement Voluntary Disclosure Unit. The initial contact should be a letter from the employer or the employer's representative naming the employer, giving a brief general description of the employer's activities and stating the proposed application of the Department's reporting rules. The employer must furnish the Department with a list of names and Social Security numbers of its employees.

  Penalties are imposed whenever a tax return is filed late and whenever a tax is paid late. The Commissioner has authority to waive these late filing or payment penalties under certain circumstances. The Commissioner will generally waive such penalties when an employer demonstrates that the failure to file or pay resulted from reasonable cause and not willful neglect.

Technical Information Release 09-2 , Massachusetts Department of Revenue, February 9, 2009, ¶401-219

  Other References:

  Explanations at ¶89-164

CCH (cch.taxgroup.com) reports:

  A network that comprised contracts with a large number of foreign agents in numerous countries was the type of intangible property described in Code Sec. 936(h)(3)( and did not represent foreign goodwill or going-concern value as defined in
Temporary Reg. §1.367(a)-1T(d)(5)(iii). The network was part of the delivery business that the taxpayer, a domestic corporation, ultimately transferred to a partnership formed by three controlled foreign corporations. As a single intangible asset and not foreign goodwill or going-concern value, the network was subject to Code Sec. 367(d), requiring the taxpayer to recognize income on the exchange of the network for stock in a foreign corporation.

  The network met the definitions of a contract, system, franchise, method, and program for purposes of Code Sec. 936(h)(3)(, and therefore was an intangible subject to Code Sec. 367(d). The taxpayer argued that the vast majority of the network's value was not attributable to contracts but was foreign goodwill or going-concern value. The network, however, was considered a single intangible asset because it operated as an integrated whole. Also, Code Sec. 482 principles militated in favor or valuing the network as an integrated asset. In addition, case law pointed to valuing interrelated assets in the aggregate and to the conclusion that "the synergistic value of a collection of assets is attributable to those assets rather than a conceptually distinguishable goodwill or going concern value element."

  Moreover, the taxpayer's attempt to characterize the network so that the vast majority of the value of the intangible would escape taxation under Code Sec. 367 was inconsistent with
Temporary Reg. §1.367(a)-1T(d)(5)(iii). That provision defines foreign goodwill or going concern value as the residual value of a foreign business operation after all other tangible and intangible assets have been identified and valued . The network constituted such an identifiable intangible because it fell within the categories of intangible property under Code Sec. 936(h)(3)( and because it was most reliably valued as a single asset.

  Finally, the taxpayer's attempt to characterize its transfer of the network as a transfer of goodwill or going-concern value, thus allowing it to avoid recognizing income on the exchange, violated the fundamental policy of Code Sec. 367(d). The taxpayer's development of the network relied upon incurring significant expenses that reduced income otherwise taxable in the United States. Then, after offsetting income in this way, the taxpayer was attempting to earn deferred income by exploiting the network. This would have produced a virtually tax-free transfer of intangible property whose development expenses were used to offset otherwise taxable income.

Technical Advice Memorandum 200907024

Other References:

 
Code Sec. 367

  CCH Reference - 2009FED ¶16,667.04

  CCH Reference - 2009FED ¶16,667.57

 
Code Sec. 936

  CCH Reference - 2009FED ¶28,394.058

  Tax Research Consultant

  CCH Reference - TRC INTL: 15,104.05

CCH (cch.taxgroup.com) reports:

  Both the House and Senate approved a $787-billion stimulus package (the American Recovery and Reinvestment Act of 2009, HR 1) on February 13, leaving only the necessity of President Obama's signature to complete enactment. The Senate vote occurred under unusual circumstances as it was held open for several hours to accommodate a late-arriving Democratic senator who had returned home that day for a memorial service. Prior to the yea vote by Sen. Sherrod Brown, D-Ohio, the tally stood at 59 to 38, one vote shy of the 60 needed to overcome a procedural point of order. Three Republicans crossed party lines to back the measure, but Democratic leadership found themselves needing Brown's vote as Sen. Edward M. Kennedy, D-Mass., was too ill to make it to the Capitol. In the end, Democrats prevailed and the legislation was approved by a 60 to 38 margin.

House Approval

  House GOP lawmakers repeated their opposition to the massive tax relief and spending bill, which passed by a vote of 246 to 183 on February 13. Not a single Republican lawmaker was persuaded by Democratic calls to take action and prevent a prolonged recession. House Appropriations Committee Chairman David R. Obey, D-Wis., said that investing in infrastructure, health care and schools, and providing a tax break to 95 percent of Americans, would create demand for goods and services in the economy. Obey called the measure the largest change in domestic policy since the 1930s.

  Rep. Allen Boyd, D-Fla., a member of the conservative Blue Dog Coalition, said he voted for the conference agreement because billions of dollars of nonstimulative spending were removed during negotiations with the Senate. However, Boyd noted that Congress had just agreed to borrow more than $800 billion to fund the federal government. If Congress continues to deficit spend in future legislation, "then the level of our national debt --the likes of which we have never seen before --will be worse than the current recession," Boyd said. Rep. Jerrold Nadler, D-N.Y., predicted that the economy would recover in the coming years, thereby generating the tax revenues to pay down the deficit.

  GOP lawmakers were unanimous in their condemnation of the bill. Republican Study Committee Chairman Tom Price, R-Ga., said the measure simply would not work to help the economy. "There is nothing stimulating about wasting historic amounts of taxpayer money while families across the country struggle to make ends meet," Price argued. Ways and Means ranking member Dave Camp, R-Mich., criticized Democrats for excluding ideas put forward by the GOP. "There is a smarter, simpler way to stimulate the economy. It is not by running up the deficit by funding pet projects that are often wasteful," he said.

White House Support

  President Obama said that passage of the economic package "is a major milestone on our road to recovery." The president, in his weekly radio address on February 14, thanked the members of Congress who voted for the bill and said he would sign the measure shortly.

  Obama said the package will save or create more than 3.5 million jobs over the next two years, boost business and consumer spending and establish the groundwork for long-term economic growth. He stressed, however, that the economic plan is only the beginning of action that must be taken to stabilize and reform the banking system and make credit available to families and businesses.

  The president plans to unveil the administration's plan to reduce housing foreclosures on February 18 and submit his budget request to Congress "in the weeks ahead." Obama said his budget proposal will begin to restore fiscal discipline. "Our long-term economic growth demands that we tame our burgeoning federal deficit; that we invest in the things we need, and dispense with the things we don't," Obama asserted. The president acknowledged that his agenda is challenging but that it is possible to "turn this crisis into opportunity."

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

Conference Committee Report on American Recovery and Reinvestment Act of 2009, Division B, Tax, Unemployment, Health, State Fiscal Relief, and Other Provisions,
HRRepNo 111-16

Congressional Budget Office Release: Budgetary Effects of HR 1, Conference Agreement, the American Recovery and Reinvestment Act of 2009

House Ways and Means Committee Release: House Passes Historic Recovery Bill

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Kentucky House of Representatives has passed a bill that would double the tax on cigarettes from 30¢ to 60¢ per pack and, impose the 6% state sales tax on sales of distilled spirits, wine, and malt beverages not consumed on a licensed premises. The bill would increase the excise tax imposed on wholesalers of other tobacco products on their wholesale sales made within Kentucky from 7.5% to 15%, and increase the tax shall imposed on snuff wholesalers from 9.5¢ to 19¢ per unit. If enacted, the bill would take effect on April 1, 2009.

  Subscribers can view the bill as passed by the House.
 
H.B. 144, passed by the Kentucky House of Representatives on February 11, 2009
 

CCH (cch.taxgroup.com) reports:

  Businesses paid $590 billion of state and local taxes in fiscal year 2008, a level 2.7% higher than the prior fiscal year, according to a study prepared by Ernst & Young in conjunction with the Council On State Taxation that includes state-by-state estimates of taxes paid. This rate of growth was significantly below the average annual business tax growth rate of 7.4% for the prior five years. The decline in the rate of growth was due to slowing sales and property taxes, reductions in corporate income taxes due to falling profits, and lower unemployment taxes (a trend the study predicts will reverse in the current recession). Business taxes accounted for 44.1% of total state and local taxes, the same share reported for 2007. At the same time, the study estimates that the total state and local business tax burden is 83% higher than the value of public services directly benefitting businesses.

  The major components of total state and local business taxes in 2008 were property taxes on business property (35.5%), general sales taxes on business inputs (22.2%), and corporate income tax (9.6%). Corporate income taxes decreased by 7.1% over the prior fiscal year, the first decline in such taxes since fiscal year 2002, immediately after the last recession. Individual income taxes paid by owners of pass-through entities were almost half as large as corporate income taxes and represented 4.6% of total state and local business taxes in 2008.

  While property tax growth during the 2001 recession helped offset sharp declines in individual and corporate income taxes, the study predicts property taxes will not offer the same relief in the current recession due to declines in market values of property. Consequently, taxpayers should expect increased pressure for tax rate increases at both the state and local level over the next several years, the study suggests.

  Subscribers can view the study.

 
Total State and Local Business Taxes, Ernst & Young and Council On State Taxation, January 2009
 

CCH (cch.taxgroup.com) reports:

  The Tax Court had no jurisdiction to review an individual's petition challenging the IRS's denial of equitable innocent spouse relief under Code Sec. 6015(f), where she filed her petition more than 90 days after the IRS had sent its notice of determination. The IRS had mailed its notice in April, 2006, before Code Sec. 6015(e) was amended by the Tax Relief and Health Care Act of 2006 (P.L. 109-432) to expressly give the Tax Court jurisdiction to review denials of equitable innocent spouse claims arising from tax liability remaining unpaid as of December 20, 2006.

  Prior to the amendment, the law was unclear as to whether the Tax Court had jurisdiction to review such denials. The taxpayer filed her Tax Court petition under a July, 2007 order by a federal district court in a subsequent federal tax lien enforcement case.

  The Tax Court held that the 90-day limit for filing an innocent spouse petition under Code Sec. 6015(e)(1)(A) was jurisdictional and, therefore, the time limit could not be equitably tolled, even though the result could be very harsh for the taxpayer. While acknowledging that the taxpayer had no forum in which to bring her claim at the time her petition was due, the Tax Court stated that Code Sec. 6015(e) limits its jurisdiction to claims filed within 90 days of the IRS's issuing a notice of determination. The taxpayer's case fell outside the small subset of potential petitioners whose tax liability remained unpaid, and to whom the IRS had mailed a notice of determination within the 90 days preceding the amendment or who had filed undismissed petitions with the Tax Court when it had no jurisdiction.

  CCH Comment. In a footnote, the Tax Court noted the IRS's concession at oral argument that, if the taxpayer files a refund action in district court after her home is seized and sold, she could then try to make her case that she is an innocent spouse.

A.L. Pollock, 132 TC No. 3, Dec. 57,737

Other References:

 
Code Sec. 6015

  CCH Reference - 2009FED ¶35,192.815

  Tax Research Consultant

  CCH Reference - TRC INDIV: 18,052.20

CCH (cch.taxgroup.com) reports:

  The IRS has issued proposed regulations that would allow the IRS to convert partnership items to nonpartnership items, with respect to certain tax-avoidance transactions, when the application of the unified partnership audit and litigation procedures of Code Secs. 6221 through 6234 (TEFRA partnership procedures) interferes with the effective and efficient enforcement of the internal revenue laws. Although, ordinarily, under TEFRA, the IRS must adjust a partner's treatment of partnership items only through partnership-level proceedings, the proposed regulations would permit the IRS to make the examination at the partner level with respect to listed transactions under Reg. §1.6011-4(b)(2).

  The transaction must be a listed transaction on the date the IRS sends written notification to the partner, although the transaction need not have been a listed transaction on the date the taxpayer engaged in the transaction. The IRS would make determinations regarding whether to convert partnership items to nonpartnership items on a partnership-by-partnership and partner-by-partner basis. Partnership items of a partner that are attributable to a partnership that are not identified in the written notification sent by the IRS to that partner would not be treated as nonpartnership items, except that, if the notified partner holds an interest in the identified partnership through one or more pass-through partners, the partnership items attributable to the identified partnership that flow through the pass-through partners to the indirect partners would be treated as nonpartnership items of the notified partner even if the written notification did not identify the pass-through partners.

  Written requests for a hearing on the proposed rules should be submitted by May 15, 2009.

Proposed Regulations, NPRM REG-138326-07, 2009FED ¶49,416

Other References:

 
Code Sec. 6231

  CCH Reference - 2009FED ¶37,780G

  CCH Reference - 2009FED ¶37,785G

  Tax Research Consultant

  CCH Reference - TRC PART: 60,056
CCH Reference - TRC FILEBUS: 9,450
 

CCH (cch.taxgroup.com) reports:

  Aides to Senate leadership said that the chamber is slated to hold a final vote on a $789-billion stimulus package (HR 1) late on February 13. House lawmakers plan to vote on the conference agreement during the afternoon of February 13, according to House Majority Leader Steny Hoyer, D-Md. Delays in finalizing the legislative text kept action on the measure in limbo despite some discussion among Senate leaders that they might hold a vote on February 12. Senate Democratic leaders said that they have the 61 votes necessary for passage.

  House Democrats said the bill will create millions of jobs and meet the president's call for swift action to cut middle-class taxes and stabilize the economy. The measure is not expected to gain many more than a dozen votes from Republican members, since many GOP lawmakers have complained repeatedly that Democrats barred them from negotiations. In addition, GOP lawmakers said the legislation will result in higher deficits and fewer new jobs than predicted by the Obama administration. Speaking to reporters, House Ways and Means ranking member Dave Camp, R-Mich., predicted that the bill will be a drag on the economy after 2013 to 2019.

Bill Provisions

  Late in the day, the two tax-writing committees released a summary of the tax provisions, finally putting an end to speculation over what provisions may have been altered in the last stages of drafting the bill. Expansion of a tax break for companies carrying losses made the final cut but in a much-reduced form. According to the joint Ways and Means and Finance Committee summary, the bill would extend for 2008 the five-year net operating loss (NOLs) carryback period for small businesses with gross receipts of $15 million or less. The proposal is estimated to cost $947 million over 10 years, making it significantly less than the estimated $19-billion cost of an earlier, much greater expansion of the benefit.

  President Obama's "Making Work Pay" credit remained capped at $400 for individuals and $800 for couples, with a phase-out beginning at $75,000 for individuals and $150,000 for married couples filing jointly. A proposed $15,000 tax credit for all homebuyers was reduced and limited to first-time buyers only. Taxwriters bumped up the credit from $7,500 to $8,000 and removed the prohibition on financing by mortgage revenue bonds, and extended the availability of the credit for homes purchased before December 1, 2009. The bulk of the bill remained the same, or in slightly reduced form, with some smaller pet provisions making the final cut.

  Keeping true to their word to retain as much of the original bill as possible while shaving certain provisions to lower the overall cost, lawmakers retained a vehicle purchase tax credit added during Senate debate but at significantly reduced terms. The bill would provide consumers with a deduction for state and local sales and excise taxes paid on the purchase of new cars, light trucks, recreational vehicles and motorcycles through 2009, with a phase-out set at $125,000, or $250,000 in the case of a joint return.

  The bill would also increase the eligibility for the refundable child tax credit in 2009 and 2010. For 2008, the child tax credit is refundable to the extent of 15 percent of the taxpayer's earned income in excess of $8,500. The bill would reduce this floor for 2009 and 2010 to $3,000. The bill also restores and updates the electric vehicle credit for plug-in electric vehicles that would not otherwise qualify for the larger plug-in electric drive vehicle credit and provides a tax credit for plug-in electric drive conversion kits. In addition, the bill provides that computers and computer technology qualify as qualified education expenses under Code Sec. 529 education plans.

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

American Recovery and Reinvestment Act of 2009 --Division B, Tax, Unemployment, Health, State Fiscal Relief, and Other Provisions, HR 1

Congressional Press Release: Baucus, Rangel Detail Proposals to Create Jobs, Cut Taxes in Final American Recovery and Reinvestment Act

Full Summary of Provisions from Senate Finance, House Ways and Means Committees in the American Recovery and Reinvestment Act of 2009, February 12, 2009

Summary of Appropriations in the American Recovery and Reinvestment Act of 2009

House Speaker Pelosi Fact Sheet: Conference Report on American Recovery and Reinvestment Act Preliminary Overview

JCT Estimated Budget Effects of the Revenue Provisions Contained in the Conference Agreement for HR 1, the American Recovery and Reinvestment Act of 2009, JCX-19-09
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Colorado Department of Revenue has revised existing regulations and adopted new regulations so that their regulations now comply with the single sales factor apportionment formula that taxpayers are required to use for computing state corporate income tax liability for income tax years beginning on or after January 1, 2009.

  The revised regulations are updated to make the regulations effective only for returns filed for tax years beginning prior to January 1, 2009.

  The new regulations are created to provide guidance for taxpayers filing returns for tax years beginning on or after January 1, 2009. This guidance serves to:

  -- clarify that all income is business income unless U.S. constitutional standards require that it be non-business income;

  -- provide various definitions;

  -- relocate regulatory language that previously existed in adopted Multistate Tax Compact regulations under the new regulations;

  -- articulate the statutory requirement that sales from the sale of intangible personal property means the gain therefrom and not the gross revenue;

  -- explain the standards by which the sales factor numerator is calculated for sales of other than tangible personal property;

  -- articulate the standard by which the situs of tangible personal property is determined;

  -- articulate the rules under which a taxpayer must make the election to treat all business as business income;

  -- announce the department's intentions to reissue special industry regulations and serve as a cross-reference to those regulations;

  -- articulate the non-availability, to anyone filing under 39-22-303.5(8), of the business income election allowed in 39-22-303.5(6); and

  -- clarify (1) the applicability of the referenced rules for periods beginning prior to January 1, 2009, and (2) the inapplicability of the referenced rules for periods beginning on or after January 1, 2009.

Regulations, 39-22-303.1, 39-22-303.3, 39-22-303.4, 39-22-303.5(1-9), 39-22-303.10, 39-22-303.11(c and d), 39-22-305, 39-22-504, and Regulation IV, Colorado Department of Revenue, effective March 2, 2009

CCH (cch.taxgroup.com) reports:

  The IRS has provided issuers of qualified mortgage bonds and issuers of mortgage credit certificates with the nationwide average purchase price for residences located in the United States. The average area purchase price safe harbors for residences located in statistical areas in each state, the District of Columbia, Puerto Rico, the Northern Mariana Islands, American Samoa, the Virgin Islands and Guam are also provided. Issuers of qualified mortgage bonds and issuers of mortgage credit certificates may rely on the safe harbors to satisfy the purchase price and income limitation requirements of Code Sec. 143(e) and (f).

  Issuers must use the nationwide average purchase price ($243,100) when computing the housing cost/income ratio under Code Sec. 143(f)(5). Issuers may rely on the purchase price safe harbors or nationwide purchase price limitation for commitments to provide financing or issue mortgage credit certificates that are made, or (if the purchase precedes the commitment) for residences that are purchased, in the period that begins on February 11, 2009, and ends on the date the safe harbors and nationwide average purchase price limitation become obsolete. Rev. Proc. 2008-17, I.R.B. 2008-10, 549, is obsoleted.

Rev. Proc. 2009-18, 2009FED ¶46,270

Other References:

 
Code Sec. 25

  CCH Reference - 2009FED ¶3809.20

 
Code Sec. 143

  CCH Reference - 2009FED ¶7786.75

  Tax Research Consultant

  CCH Reference - TRC SALES: 51,352
CCH Reference - TRC SALES: 51,358
CCH Reference - TRC SALES: 51,374
 

CCH (cch.taxgroup.com) reports:

  The actuarial tables the IRS is required to maintain by Code Sec. 7520 have been updated. The tables are used to value annuities, terms certain, reversions, and remainders. The interest rates required for these computations are 120 percent of the mid-term applicable federal rate (AFR) for the month of valuation (or, for transfers for charitable purposes, the interest rate for either of the two months preceding the month of valuation). None of the published tables provide factors for the interest rates below 2.2 percent; however, extensions to the existing tables for interest rates below 2.2 percent have been provided.

  CCH Comment. The February 2009 AFR rate of 2 percent represented a historic point with respect to the Code Sec. 7520 AFR. The February rate is more than a full percentage point lower than the December 2008 rate and is the lowest ever issued by the IRS since the inception of the
Code Sec. 7520 regime. It is also less than 40 percent of what it was only two years ago. The fact that the IRS has issued revised tables for factors at interest rates lower than 2 percent may be a tip-off that the once historic rate of 2 percent may be lowered further. Practitioners whose clients are contemplating a strategy, such as a GRAT, CLAT, or private annuity, the results of which are more favorable in a low-interest environment, should consider acting soon to take advantage of the extremely low rates.

Notice 2009-18, 2009FED ¶46,268

Notice 2009-18, FINH ¶30,614

Other References:

 
Code Sec. 664

  CCH Reference - FINH ¶17,075.083

  CCH Reference - FINH ¶17,075.35

 
Code Sec. 2031

  CCH Reference - FINH ¶3460.05

  CCH Reference - FINH ¶3460.20

 
Code Sec. 7520

  CCH Reference - 2009FED ¶42,785.50

  CCH Reference - FINH ¶22,630.05

  CCH Reference - FINH ¶22,630.60

  Tax Research Consultant

  CCH Reference - TRC ESTGIFT: 24,102

CCH (cch.taxgroup.com) reports:

  House and Senate conferees on February 11 announced that they had reached an agreement to scale back a massive economic stimulus package (HR 1) to $789 billion, managing at the same time to retain a $70-billion, one-year fix for the alternative minimum tax. Many of the tax cut provisions were pared down in order to reduce the overall cost, including the "Making Work Pay" credit highly touted by the Obama administration. Still, tax cuts compromise approximately 35 percent of the bill, at a cost of nearly $276 billion.

  "The votes are there for passage and that will not change," said Senate Finance Committee Chairman Max Baucus, D-Mont., following an early morning meeting of conferees. "Everybody had to give here. There was shaving here and there to get everyone in line," he said in response to a question as to whether the final product favored the House or Senate version.

  Full details were unavailable as lawmakers found themselves scrambling late in the evening to put finishing touches on the measure in hopes of assembling and finalizing the bill in time for a House vote on February 12, followed by a vote in the Senate the following day. However, Baucus said that the measure will likely be voted on by both houses on February 12.

  Negotiators reportedly agreed to boost the child tax credit in exchange for reducing the "Making Work Pay" credit from $500 to $400, or $800 for married couples instead of the initially proposed $1,000. Also facing cutbacks or elimination altogether was a $15,000 tax credit for homebuyers, and a tax credit for the purchase of certain vehicles. Sen. Olympia J. Snowe, R-Maine, said she believes that credit may have been reduced to $7,500 and that only first-time homeowners would be eligible. A five-year extension of the net operating loss carry-back period for money-losing companies was reportedly limited to small businesses only.

White House Position

  President Obama on February 11 thanked Democrats and Republicans in Congress for supporting the compromise. The president said the measure will save or create more than 3.5 million jobs and put the U.S. economy on track. The plan will provide "immediate tax relief to families and businesses, while investing in priorities like health care, education, energy, and infrastructure that will grow our economy once more," Obama said in a written statement.

  Although the bipartisan agreement reduces the "Making Work Pay" tax credit, White House Press Secretary Robert Gibbs cited the president's oft-repeated argument for acting swiftly on the economic package. "The president said, let's not make perfect the enemy of what's absolutely necessary now," Gibbs noted, in a paraphrase of the president's statement.

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

American Recovery and Reinvestment Act of 2009, as Passed and Amended by the Senate on February 10, 2009, HR 1

House Ways and Means Committee Release: Ranking Member Dave Camp (R-Mich.), Opening Statement and Ten Questions for HR 1 Conference Committee

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  An individual taxpayer who had deducted losses arising from an investment in a jojoba partnership was not liable for additions to tax for understatements due to negligence. However, the Tax Court lacked jurisdiction to relieve him of the higher interest rate applied to the deficiency.

  Although taxpayers in similar situation are to be treated equally, the reasonable good-faith exception to imposition of a negligence penalty is a facts and circumstances situation. Here the taxpayer established that, given his level of education, his reliance on a licenced return preparer, who had investigated this investment for other clients, was in good faith and reasonable, thereby relieving him of liability for the addition to tax due to negligence.

  The taxpayer also requested relief from the higher interest charged on deficiencies resulting from tax-motivated investments under Code Sec. 6621(c). The Tax Court normally has no jurisdiction to review the imposition of interest on a tax-motivated investment unless the assessed tax-motivated interest is paid and a suit for a refund is filed invoking the court's jurisdiction. The taxpayer had not paid the interest and the matter was not before the court for a refund.

G.W. Swanson, TC Memo. 2009-31, Dec. 57,733(M)

Other References:

 
Code Sec. 6621

  CCH Reference - 2009FED ¶39,455.58

 
Code Sec. 6653 --prior law, see
Code Sec. 6662

  CCH Reference - 2009FED ¶39,651G.155

  CCH Reference - 2009FED ¶39,651G.78

  Tax Research Consultant

  CCH Reference - TRC PENALTY: 3,106.10
CCH Reference - TRC PENALTY: 9,152.05
 

CCH (cch.taxgroup.com) reports:

  The IRS has issued final, temporary and proposed regulations under Code Sec. 367(a) and (b) and Code Sec. 1248. The IRS is modifying the application of Code Sec. 367(a) and (b) in cases where a deemed
Code Sec. 351 exchange occurs by reason of Code Sec. 304(a)(1) and is clarifying the treatment of gain recognized under Code Sec. 301(c)(3) for purposes of Code Sec. 1248(a).

  The temporary regulations under Code Sec. 367(a) generally provide that, if, pursuant to Code Sec. 304(a)(1), a U.S. person is treated as transferring stock of a domestic or foreign corporation to a foreign corporation in exchange for that corporation's stock in a deemed exchange under Code Sec. 351, that exchange is not a transfer to a foreign corporation subject to Code Sec. 367(a). However, if a distribution received by the U.S. person in redemption of the foreign acquiring corporation stock received in the deemed exchange is subject toCode Sec. 301 by reason of Code Sec. 302(d), the temporary regulations provide an exception to the general rule if the distribution is applied against and reduces, in whole or in part, the basis of the stock of the foreign acquiring corporation held by the U.S. person, other than the stock deemed issued to that person in the exchange. In such a case, the U.S. person shall recognize gain underCode Sec. 367(a)(1) equal to the amount by which the gain realized by the U.S. person exceeds the amount of the distribution received in redemption of the foreign acquiring corporation stock that is treated as a dividend under Code Sec. 301(c)(1) and included in the U.S. person's gross income.

  The exceptions to the application of Code Sec. 367(a)(1) for transfers of stock provided in Reg. §1.367(a)-3 are not available to transfers covered by the temporary regulations. Similar revisions are provided for regulations under Code Sec. 367(b).

  For purposes of Code Sec. 1248(a), the temporary regulations provide that gain recognized by a shareholder under Code Sec. 301(c)(3) in connection with the receipt of a distribution of property from a foreign corporation with respect to its stock shall be treated as gain from the sale or exchange of the stock of such foreign corporation.

  The text of the temporary regulations serves as the text of proposed regulations. Written requests for a hearing should be submitted by May 12, 2009.

T.D. 9444, 2009FED ¶47,015

Proposed Regulations, NPRM REG-147636-08, 2009FED ¶49,415

Other References:

 
Code Sec. 367

  CCH Reference - 2009FED ¶16,642B

  CCH Reference - 2009FED ¶16,647AG

  CCH Reference - 2009FED ¶16,647F

  CCH Reference - 2009FED ¶16,647FC

 
Code Sec. 1248

  CCH Reference - 2009FED ¶30,961

  CCH Reference - 2009FED ¶30,961AC

  Tax Research Consultant

  CCH Reference - TRC INTL: 30,074
CCH Reference -
TRC INTL: 30,076
CCH Reference - TRC INTL: 30,302.10
CCH Reference -
TRC INTL: 30,308
 

CCH (cch.taxgroup.com) reports:

  The Senate on February 10 approved an $838-billion stimulus package (the American Recovery and Reinvestment Bill of 2009 (HR 1)) by a 61 to 37 margin, and the focus now turns to what could prove to be a contentious conference with the House, as some lawmakers will seek changes while others will try to maintain the status quo. Moderate Senators Susan M. Collins, R-Maine, and Ben Nelson, D-Neb., who helped broker a compromise agreement, said following the vote that they will not support a conference report that exceeds $800 billion.

  Prior to the Senate's vote on the measure, Senate Finance Committee Chairman Max Baucus, D-Mont., attempted to add a manager's amendment that includes several proposals that he and other members of the committee still want to see in the final bill. However, that attempt failed. Despite the setback, Baucus said he will try to include the provisions during conference negotiations with the House.

  The Baucus amendment includes health and tax amendments originally offered by ranking member Charles E. Grassley, R-Iowa, such as mileage reimbursement for drivers involved in charitable work and certain modifications, including ensuring that military personnel can take the "Making Work Pay" credit, even though their spouses are not U.S. citizens. A proposal first offered during the bill's markup in committee would assist companies in de-leveraging their debt and allow them to buy it back. Another proposal, offered by Sen. Olympia J. Snowe, R-Maine, would reduce the estimated taxes that small businesses have to pay quarterly.

  Immediately following the vote, Senate Majority Leader Harry Reid, D-Nev., named Senate conferees and said initial negotiations with the House would begin that day. The Senate conferees are comprised of Reid, Baucus, Grassley, Daniel K. Inouye, D-Hawaii, and Thad Cochran, R-Miss.

  At a later press conference, Reid said that he had already discussed the bill with House Speaker Nancy Pelosi, D-Calif., and does not believe that the two chambers have that many differences; he added that he does not believe the White House has that many differences with the bill in its current form. Reid expressed optimism that conferees would reach agreement in short order, saying he believes they could resolve most of the major issues in the next 24 hours.

House Conferees

  Shortly after the Senate approved HR 1, the House named its members to a conference with Senate lawmakers. The House named House Appropriations Committee Chairman David R. Obey, D-Wis., Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., and Energy and Commerce Committee Chairman Henry A. Waxman, D-Calif. Also named to the conference committee were Ways and Means ranking member Dave Camp, R-Mich., and Appropriations ranking member Jerry Lewis, R-Calif.

  The House also unanimously voted to instruct its conferees to not approve any conference agreement with the Senate unless an electronic copy of the legislation is first made available to members for 48 hours. Obey said he approved of the nonbinding instruction but it could add days to the bill's final approval. Lawmakers had been hoping to finish work on the stimulus bill before the Presidents Day recess begins. However, Obey said the House action, combined with difficulties of negotiation with the Senate, could delay final action on the legislation until the week of February 16.

Possible Changes

  Speculation immediately turned to major provisions that might not survive the conference, including the Senate's proposal to add a one-year fix for the alternative minimum tax (AMT) at a cost of nearly $70 billion. Senate Majority Whip Richard Durbin, D-Ill., told reporters that he believes the AMT fix will stay in the bill, echoing similar sentiments voiced by House Majority Leader Steny H. Hoyer, D-Md., earlier in the day.

  Sen. Charles E. Schumer, D-N.Y., along with other Democrats, took aim at a provision added during the Senate debate that they said inflated the cost of the package and would provide little assistance to the troubled housing market. The proposal by Sen. Johnny Isakson, R-Ga., would provide a $15,000 tax credit for homebuyers at an estimated cost of $35 billion.

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

SFC Press Release: Side-by-Side Comparison of the Senate-Passed and House-Passed Versions of the American Recovery and Reinvestment Act of 2009

SFC Press Release: Baucus Hails Senate Passage of Bill Creating Jobs, Cutting Taxes for America's Working Families and Small Businesses

Floor Statement of Senator Max Baucus (D-Mont.) Regarding the American Recovery and Reinvestment Act

Ways and Means Press Release: House and Senate Will Come Together on Comprehensive Economic Recovery Package

Floor Speech of Senator Chuck Grassley: Fiscal Effects of Stimulus Bill: Debate on Waiving the Budget Act

Cantwell Amendment to HR 1, to Improve Provisions Relating to Energy Tax Incentives and Provisions Relating to Manufacturing Tax Incentives for Energy Property

Wyden Amendment to HR 1, to Require Financial Institutions Receiving TARP Assistance to Redeem from the United States Preferred Stock in an Amount Equal to Excess Bonuses for 2008 or to Pay a 35-Percent Tax on Such Amount

JCT Estimated Budget Effects of the Revenue Provisions Contained in the Collins-Nelson Amendment (570) in the Nature of a Substitute to the American Recovery and Reinvestment Tax Act of 2009, JCX-17-09
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Ohio Department of Taxation has updated information release CAT 2008-02 to bring commercial activity tax (CAT) taxpayers up to date with their responsibilities in light of the decision by the Ohio Supreme Court to hear an appeal in Ohio Grocers Association v. Wilkins, (2008-Ohio-4420). The Ohio Supreme Court's decision does not affect the stay granted by the Court of Appeals on Sept. 9, 2008, which remains in effect. This means there continues to be no change concerning the filing of returns and the payment of the tax. The release also specifies how taxpayers may file refund claims with the Tax Commissioner within four years of the payment of the tax. Taxpayers that wish to file a protective claim for refund pending the outcome of the Department's appeal to the Ohio Supreme Court should file form CAT-REF, to which the release contains a link.

  The release is available on the Department's Web site at
http://tax.ohio.gov/divisions/communications/information_releases/CAT/cat200802.stm.

CAT Information Release 2008-02, Ohio Department of Taxation, February 2009

CCH (cch.taxgroup.com) reports:

  The Kentucky Court of Appeals has affirmed a 2007 circuit court decision holding that a manufacturer was entitled to a refund of sales tax paid on energy consumed in the manufacturing of Plexiglas and emulsions. The case involves the sales and use tax exemption for "energy and energy-producing fuels" used in the course of manufacturing and refining that exceed 3% of the "cost of production." The manufacturer produces distilled methyl methacrylate (MMA) from raw MMA and uses the distilled product in its Plexiglas and emulsions manufacturing operations.

  The manufacturer argued on appeal that the exemption applied with respect to its Plexiglas and emulsions operations on the ground that these operations were separate and distinct from its MMA distilling operation. The appellate court held that to be separate and distinct, each operation cannot be dependent on other operations at a site for production of a completed product. The court found that for purposes of the exemption, the Plexiglas and emulsions operations were separate and distinct from the distilling operation because both were free to acquire distilled MMA from third parties, and each of the three operations produced marketable, completed products. The court also noted that the manufacturer took measures to separate its distilling operation from the other two operations both physically and for accounting purposes.

  The court found that it was not necessary for the manufacturer to include the cost of raw MMA in the "cost of production" of the Plexiglas and emulsions operations. Instead, it held that the law only requires that the cost of materials be factored in at least once per taxpayer.

  Subscribers can view the court's opinion.

   
Finance and Administration Cabinet, Department of Revenue v. Rohm and Haas Co., Kentucky Court of Appeals, No. 2008-CA-000022-MR, February 6, 2009
 

CCH (cch.taxgroup.com) reports:

  Final regulations adopt, without substantive change, proposed and temporary regulations (REG-157271-05; T.D. 9252), previously published on February 24, 2006, that deal with administrative review procedures for government agencies and other authorized recipients of returns or return information, as authorized by Code Sec. 6103(p)(7). The regulations provide that the IRS may terminate or suspend disclosure of returns and return information to any authorized recipient if the recipient has allowed an unauthorized inspection or disclosure of return information and the recipient has not taken adequate corrective action. Suspension is also authorized if the IRS determines that the recipient does not maintain the safeguards prescribed by Code Sec. 6103(p)(4) and has no adequate plan to bring itself into compliance.

  The IRS is required to notify a recipient in writing of its preliminary determination of noncompliance and its intention to terminate or suspend disclosure of return or return information. The recipient may appeal this determination by sending a written request for a conference directly to the IRS Commissioner within 30 days of receipt of the preliminary determination. A conference must be held within 45 days, after which a final determination will be made.

  The final regulations apply to all authorized recipients of returns and return information that are subject to the safeguard requirements set forth in Code Sec. 6103(p)(4) on or after February 11, 2009.

T.D. 9445, 2009FED ¶47,014

Other References:

 
Code Sec. 6103

  CCH Reference - 2009FED ¶36,892H

  CCH Reference - 2009FED ¶36,893

  Tax Research Consultant

  CCH Reference - TRC IRS: 9,306

CCH (cch.taxgroup.com) reports:

  The IRS has finalized temporary regulations under Code Sec. 367(a) (T.D. 9311) concerning gain recognition agreements (GRAs) filed by U.S. persons with respect to transfers of stock or securities to foreign corporations. The final regulations affect primarily U.S. transferors that will enter or have entered into a GRA with respect to such a transfer. The final regulations are effective February 9, 2009.

  The temporary regulations generally expanded the exceptions to the GRA triggering events (which include dispositions and other events that would generally trigger gain recognition under the GRA) to include certain nonrecognition dispositions, provided the U.S. transferor entered into a new GRA for the remaining term of the existing GRA. The temporary regulations also provided guidance regarding the effect of other transactions on GRAs, and modified and clarified the procedural requirements for entering into GRAs (i.e., the GRA terms and conditions). The final regulations adopt, with modifications, the temporary rules.

  In particular, the final regulations retain the exceptions to the triggering events provided in the temporary regulations but with certain modifications that make the exceptions applicable to transactions involving one or more entities not clearly described in the temporary regulations. The final regulations also include additional specific exceptions and a general exception for certain transactions that cannot be adequately covered by a specific exception because of the numerous factual variations.

  The general exception applies to any disposition or other event that would otherwise constitute a triggering event if (1) the disposition is a nonrecognition transaction; (2) the U.S. transferor retains a direct or indirect interest in the transferred stock or securities (or in the assets of the transferred corporation); and (3) the U.S. transferor enters into a new GRA with respect to the initial transfer. However, if, as a result of the disposition or other event, a foreign corporation acquires all or part of the transferred stock or securities (or substantially all of the assets of the transferred corporation), the general exception applies only if the U.S. transferor owns at least five percent by vote and value of the outstanding stock of such foreign corporation immediately after the disposition or other event. A new GRA filed under the general exception is subject to the same terms and conditions as the existing GRA, but must also describe the subsequent dispositions that would constitute triggering events and must include a statement that the U.S. transferor agrees to treat such dispositions as triggering events.

  The final regulations also provide a specific exception for dispositions of stock of the transferee foreign corporation pursuant to an intercompany transaction (i.e., a transaction with another member of the U.S. transferor's consolidated group) to which a specific triggering event exception does not apply. If this intercompany transaction exception applies, the U.S. transferor remains subject to the existing GRA. This exception applies only if the transaction gives rise to an intercompany item and the final regulations provide rules to coordinate the subsequent inclusion of the intercompany item and any gain recognized under the GRA.

  Another specific exception applies for divisive reorganizations involving a transfer of the transferee foreign corporation's stock received in the initial transfer to a domestic controlled corporation before the distribution of the stock of that domestic corporation. The specific exception applies if the domestic controlled corporation enters into a new GRA with respect to the initial transfer. The IRS expects the general exception to apply to other divisive reorganizations, as appropriate. In addition, although the final regulations do not provide a specific exception for the outbound transfer of the foreign transferee corporation's stock pursuant to an asset reorganization, the IRS expects the general exception also to apply to such transfers.

  In addition, the final regulations retain the GRA termination rule, which applies when the U.S. transferor reacquires the transferred stock or securities or disposes of the foreign transferee corporation's stock received in the initial transfer, and the basis condition for its application. However, they do not permit the U.S. transferor to increase the basis of other stock or securities of the transferred corporation (or the transferee foreign corporation's stock, as applicable). The general exception, however, may apply allowing the U.S. transferor to enter into a new GRA in connection with a transaction in which the transferred stock or securities are reacquired instead of reducing the basis of the transferred stock or securities. An ordering rule to determine the amount of gain recognized is also provided if a triggering event affects multiple GRAs.

  Furthermore, the receipt of a property distribution with respect to stock to which Code Sec. 301 applies, including by reason of Code Sec. 302(d), does not constitute a disposition of the stock under the final rules. A dividend equivalent redemption, however, will constitute a disposition if the U.S. transferor does not enter into a new GRA that includes appropriate provisions to account for the redemption. A deemed sale of assets of the transferred corporation or the transferee foreign corporation by reason of a Code Sec. 338(g) election will also not constitute a triggering event for purposes of the GRA. However, a deemed sale of assets of a domestic corporation by reason of a Code Sec. 338(h)(10) election will continue to be taken into account for purposes of the GRA.

  The final regulations further retain the general rule for triggering a GRA immediately before the date on which an individual U.S. transferor loses U.S. citizenship or ceases to be taxed as a lawful permanent resident, but modify it to take into account the enactment of the Code Sec. 877A expatriation rules by the Heroes Earnings Assistance and Relief Tax Act of 2008 (P.L. 110-245). They also confirm that the information required with a GRA must be included with the GRA as filed with the U.S. transferor's tax return and make several other clarifications to the temporary rules.

T.D. 9446, 2009FED ¶47,013

Other References:

 
Code Sec. 338

  CCH Reference - 2009FED ¶16,276

 
Code Sec. 367

  CCH Reference - 2009FED ¶16,642B

  CCH Reference - 2009FED ¶16,643C

  CCH Reference - 2009FED ¶16,647AA

  CCH Reference - 2009FED ¶16,647AC

  CCH Reference - 2009FED ¶16,647F

  CCH Reference - 2009FED ¶16,647R

  Tax Research Consultant

  CCH Reference - TRC INTL: 30,074

  CCH Reference - TRC INTL: 30,076

  CCH Reference - TRC INTL: 30,077

CCH (cch.taxgroup.com) reports:

  The Senate on February 9 cleared a procedural hurdle for a massive stimulus package (HR 1), allowing for approval of a compromise proposal that would slash approximately $83 billion in spending and tax cuts and set the stage for a final vote on the bill on February 10. The 61 to 36 vote marks the final leg of the Senate stimulus battle and heralds what leadership staff believe will ultimately prove to be fast and furious negotiations between House and Senate leaders as they seek to forge a bill that can gain approval in both chambers and meet a Presidents' Day deadline set by President Obama (TAXDAY, 2009/02/10, W.1).

  The compromise amendment offered by Sens. Susan M. Collins, R-Maine, and Ben Nelson, D-Neb., slices $40 billion from state fiscal aid, nearly $20 billion in school construction funds, $6 billion from health programs and approximately $18 billion in tax relief. The reduction in school construction dollars and changes to the tax provisions will prove contentious with many Democratic House members, but both Senate Majority Leader Harry Reid, D-Nev., and Minority Leader Mitch McConnell, R-Ky., said they believe the measure will be completed by week's end.

  The addition of nearly $70 billion in the Senate's bill to fund a one-year fix for the alternative minimum tax remains the most significant difference between the House and Senate tax provisions and greatly added to the overall cost of that chamber's bill. Senate lawmakers also differed from their House counterparts by doubling a home buyer's credit from $7,500 to $15,000, adding $11 billion in tax breaks for vehicle purchases, reducing the adjusted gross income threshold for the new "Making Work Pay" tax credit, and eliminating taxes on the first $2,400 of unemployment benefits.

  Despite leadership's expressed desire to see a formal conference take place, their staff members foresee the likelihood of a more pragmatic approach often referred to as "ping pong," where House, Senate and White House negotiators and their staff work behind the scenes, sending different proposals to one another until they finally reach agreement. The measure is then quickly assembled and sent to the respective chambers for their final approval.

  By Jeff Carlson, CCH News Staff

American Recovery and Reinvestment Act of 2009, Introduced Senate Amendment in the Nature of a Substitute to HR 1

American Recovery and Reinvestment Act of 2009, Summary of Finance Provisions as Amended on the Floor through 2/7, Plus Expected Elements of the Collins-Nelson Amendment

Baucus Floor Statement Regarding American Recovery and Reinvestment Act
 

CCH (cch.taxgroup.com) reports:

  President Obama on February 9 urged Congress to pass an economic recovery package by the end of the week and warned that failure to act swiftly will deepen the economic crisis. "Our immediate job is to stop the downward spiral and that means putting money into consumers' pockets, it means loosening up credit, it means putting forward investments that not only employ people immediately but also lay the groundwork for long-term economic growth," Obama asserted at his first White House press conference.

  The president said the bottom line when judging the effectiveness of his administration's economic policy is whether it creates or saves up to four million jobs over the next two years, normalizes the credit market and stabilizes the housing market. Obama defended the role of the federal government in trying to turn the U.S. economy around. "With the private sector so weakened by this recession, the federal government is the only entity left with the resources to jolt our economy back to life," he maintained.

  The president argued that the economic package winding its way through Congress is designed to "break the vicious cycle where lost jobs lead to people spending less money which leads to even more layoffs." He said that tax cuts alone cannot solve the economic crisis, "especially tax cuts that are targeted to the wealthiest few Americans."

  Obama maintained that tax cuts should be aimed at working families who are financially struggling to pay their bills and mortgages and the cost of their children's college tuition. He singled out the "Make Work Pay" tax credit that would provide up to $1000 worth of tax cuts to working and middle-class families and the $2,500 partially refundable higher education tax credit that is available for the first four years of college. "These steps will put more money in the pockets of those Americans who are most likely to spend it, and that will help break the cycle and get our economy moving," Obama maintained.

  Earlier in the day, National Economic Council Director Lawrence Summer said that once Congress passes the economic package, its impact will begin "almost immediately." In an interview on CNN's "Situation Room," Summers said that enactment of the economic plan means that "layoffs that otherwise would have happened in cities and towns of cops and teachers won't happen. You'll see withholding schedules adjusted so that people have more money in their paychecks. You'll see orders go out for new roads, new bridges, and new computers for hospitals. You'll start to see better maintenance of schools."

  By Paula Cruickshank, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Two bills have been introduced in the California Assembly that would, if enacted, require the collection of sales and use taxes by any retailer who enters into an agreement with a California resident under which the resident, for a commission or other consideration, directly or indirectly refers potential customers of tangible personal property, whether by a link or an Internet Web site or otherwise, to the retailer.

  A.B. 27 and A.B. 178 would change the statutory definition of "retailer engaged in business in this state" to include any retailer whose cumulative gross receipts or sales price from sales by the retailer to customers in California who are referred pursuant to such agreements is in excess of $10,000 during the preceding four calendar quarterly periods. The measures specify that these provisions are inapplicable if the retailer can demonstrate that the resident with whom the retailer has an agreement did not engage in referrals in the state on behalf of the retailer that would satisfy the requirements of the Commerce Clause of the U.S. Constitution during those four quarterly periods. In addition, A.B. 27 would also change the definition of "retailer engaged in business in this state" to include any retailer who has any representative, agent, salesperson, canvasser, independent contractor, or solicitor operating in California under the authority of the retailer or its subsidiary for the purpose of servicing or repairing any tangible personal property.

  Similar legislation was enacted and unsuccessfully challenged in New York (TAXDAY, 2009/01/16, S.17 and TAXDAY, 2009/01/15, S.18). Similar legislation has also been introduced in Connecticut (TAXDAY, 2009/02/05, S.7), Hawaii (TAXDAY, 2009/02/05, S.10), and Minnesota (TAXDAY, 2009/02/02, S.15).

  Subscribers can view both bills as introduced.

 
A.B. 27, as introduced in the third extraordinary session by the California Assembly on January 29, 2009, and A.B. 178, as introduced in the regular session by the California Assembly on February 2, 2009
 

CCH (cch.taxgroup.com) reports:

  The IRS has announced that banks, credit card companies and other electronic payment processors who will be required to file annual aggregate transaction reports for payment card and third-party network transactions with the IRS under Code Sec. 6050W can use the taxpayer identification number (TIN) matching program procedures set forth in
Rev. Proc. 2003-9, 2003-1 CB 516. The matching information will help program participants avoid TIN errors and reduce the number of backup withholding notices required under Code Sec. 3406, while a verified TIN/name match will provide participants with reasonable cause relief from penalties under Code Sec. 6724.

  CCH Comment. For calendar years after 2010, Code Sec. 6050W requires payment settlement entities to file information returns reporting the gross amount of certain payment card transactions or third-party payment network transactions with respect to each participating payee. "Payment settlement entities" are banks and other organizations that settle credit card transactions or pay third-party network transaction payees. A "participating payee" is a merchant or other person who accepts payment by a payment card or from a third-party settlement organization. Reporting is required only if the amount otherwise required to be reported exceeds $20,000 and the aggregate number of transactions exceeds 200.

Announcement 2009-6, 2009FED ¶46,266

Other References:

 
Code Sec. 6050W

  CCH Reference - 2009FED ¶36,380.01

  Tax Research Consultant

  CCH Reference - TRC FILEBUS: 9,320

CCH (cch.taxgroup.com) reports:

  The Treasury Department and the IRS invite public comments regarding guidance to be provided to brokers, transferors, issuers, customers, and other affected persons concerning new requirements under Code Sec. 6045(g), Code Sec. 6045A and
Code Sec. 6045B with respect to the reporting of a customer's basis in securities transactions, and new rules for determining the basis of certain securities subject to the new reporting requirements. Topics for which comments are specifically requested include reporting requirements, basis method elections, dividend reinvestment plans, reconciliation with customer reporting, special rules and mechanical issues, transfer reporting, issuer reporting, and broker practices and procedures. These new requirements and rules generally begin to take effect on January 1, 2011.

  Interested parties are invited to submit comments by Monday, March 2, 2009. Written comments should be submitted to: Internal Revenue Service, CCA:LPDR (Notice 2009-17), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044.

Notice 2009-17, 2009FED ¶46,265

Other References:

 
Code Sec. 6045

  CCH Reference - 2009FED ¶35,930.0235

  CCH Reference - 2009FED ¶35,930.27

 
Code Sec. 6045A

  CCH Reference - 2009FED ¶35,933.01

 
Code Sec. 6045B

  CCH Reference - 2009FED ¶35,936.01

  Tax Research Consultant

  CCH Reference - TRC FILEBUS: 9,250

CCH (cch.taxgroup.com) reports:

  Senate negotiators late on February 6 reached agreement on paring down a massive economic stimulus package after having been deadlocked in negotiations with conservative members from both parties who charged that the initial measure would fail to shore-up the faltering economy. The $920-billion package was cut down to $780 billion; the cut includes a $25-billion reduction in the tax package approved by the Senate Finance Committee (SFC). In reaction to the Senate agreement, White House Press Secretary Robert Gibbs said the administration is "pleased the process is moving forward and we are closer to getting Americans a plan to create millions of jobs and get people back to work."

White House Position

  Earlier in the day, President Obama warned that the current economic crises "could turn into a catastrophe" if Congress fails to pass an economic recovery package quickly. The president cited the latest employment report by the Bureau of Labor Statistics, which showed a job loss of 598,000 in January and an increase in the national unemployment rate from 7.2 percent to 7.6 percent. "These numbers demand action," Obama asserted.

Changes in Bill

  Lawmakers slashed approximately $18 billion in direct tax cuts from the package with another $7 billion in provisions directly under the SFC's jurisdiction. Committee Chairman Max Baucus, D-Mont., said that no tax provisions were completely eliminated; rather, either they were reduced or effective dates were delayed. The $70-billion, one-year patch for the alternative minimum tax was left intact, according to Baucus. Clean energy incentives and broadband expansion were targeted, as well as a significant business tax break. The net-operating loss carryback provision, which would have extended the carryback of current losses from two years to five years was returned to two.

  The tax provisions changed by the agreement include:

  Accelerated Low-Income Housing Tax Credits. In place of extended general business carry-back provisions, low-income housing tax credits will be accelerated to permit investors to claim 20 percent of the allowable credits in each of the first three years, and the remaining 40 percent over the next six years. The provision would save $9 billion;

  Recovery Zone Bonds. The bill authorizes $10 billion in private activity bonds and $5 billion in refundable credit bonds for distressed economic areas, at a savings of $2 billion;

  Build America Bonds. The agreement provides a 35-percent tax credit for Build America Bonds for 2009 and 2010, with a 40-percent tax credit for small issuers (less than $30 million per year) in 2009 and 2010, at a savings of $2 billion;

  Phase-Out of Make Work Pay Credit. The agreement begins to phase out the Make Work Pay credit at $70,000 in annual income for singles and at $140,000 in annual income for couples, at a savings of $2 billion; and

  Refundable Child Credit. The agreement authorizes the phase-in of the refundable child credit for taxpayers with wages above $8,100, which would save $3 billion.

  Baucus said that the final number does not include amendments already approved by the Senate, including tax breaks for vehicle and housing purchases, which remain in the bill. Taken together with additional spending amendments already approved, the total cost of the bill now nears $816 billion.

  Democrats said the agreement means they can count on at least two or three Republican votes, presumably Sens. Olympia J. Snowe, R-Maine, Arlen Specter, R-Pa.,and Susan M. Collins, R-Maine. Democratic leaders also said they will bring back the ailing Sen. Edward M. Kennedy, D-Mass., who has not been on Capitol Hill since January 20, in order to reach the 60-vote majority necessary for approval.

  Differences over spending, allocation of resources and overall cost tied up the bill on the Senate floor and threatened to derail plans to complete work on the bill by February 13. The Democratic caucus huddled late in the evening to discuss a tentative agreement assembled by lead negotiators Sen. Ben Nelson, D-Neb., and Collins. Senate Majority Leader Harry Reid, D-Nev., said that votes on amendments would continue throughout the evening in order to avoid a backlog before the final vote; Republicans however, immediately took to the floor following the announcement of an agreement and insisted that they have time over the weekend to review the revised bill.

  During the ongoing amendment process, lawmakers on February 6 approved by unanimous consent an amendment by Sen. Tom Udall , D-N.M., to expand the number of veterans eligible for a tax credit for unemployed veterans to cover anyone discharged from active duty from September 1, 2001, through December 31, 2010. The credit previously applied only to veterans discharged between 2008 and 2010.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

Updates to Finance Provisions in the American Recovery and Reinvestment Act

Udall Amendment to HR 1, to Expand the Number of Veterans Eligible for the Employment Tax Credit for Unemployed Veterans

SFC Release: American Recovery and Reinvestment Act of 2009: Near 100 Percent of Finance Effects Will Come in First Two Years

House Ways and Means Release: Bleak Jobs Report Underscores the Need for Swift Action on Economy
 

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Both the Florida House (H.B. 459) and the Florida Senate (S.B. 1112) have proposed legislation that would change the way in which the state decouples from federal bonus depreciation and the IRC §179 expense election for corporate income tax purposes. The changes would be effective retroactively to January 1, 2008.

  If one or both bills are enacted, 80% of any amount deducted for federal income tax purposes as bonus depreciation for the taxable year under IRC 168(k), as amended by the Economic Stimulus Act of 2008 (P. L. 110-185), for property placed in service in 2008, would have to be added back to federal taxable income. A subtraction from federal taxable income would be allowed for the four subsequent years equal to 25% of the amount by which taxable income was increased by the addback. Under current Florida law, the entire amount of bonus depreciation must be added back with no subsequent subtraction and the decoupling is effective for all tax years after 2007.

  Similarly, an amount equal to 80% of any amount in excess of $128,000 deducted for federal income tax purposes for the taxable year under IRC §179, as amended by the Economic Stimulus Act, for the 2008 taxable year, would have to be added back to federal taxable income. A subtraction from federal taxable income would be allowed for the four subsequent years equal to 25% of the amount by which taxable income was increased by the addback. Under current Florida law, the entire amount of asset expense deduction in excess of $128,000 must be added back with no subsequent subtraction and the decoupling is effective for all tax years after 2007.

  Because proposed federal legislation (American Recovery and Reinvestment Tax Act of 2009) would extend the bonus depreciation and increased IRC §179 asset expense deduction, it is likely that the two Florida bills will be amended prior to enactment.

  Subscribers can view H.B. 459, as filed.
  Subscribers can view S.B. 1112, as filed.

 
H.B. 459, as filed by the Florida House on January 20, 2009 and S.B. 1112, as filed by the Florida Senate on January 30, 2009
 

CCH (cch.taxgroup.com) reports:

  Legislation introduced in Connecticut would require combined reporting for corporate income tax purposes under certain circumstances. If enacted, the legislation would apply to taxable years beginning on or after January 1, 2009.

  Subscribers can view the text of the bill as introduced in the Senate.

S.B. 807, introduced in the Connecticut Senate on February 3, 2009
 

CCH (cch.taxgroup.com) reports:

  For pension plan years beginning in February 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 February 2009 is 6.32 percent; and the 90-percent to 100-percent permissible range is 5.69 percent to 6.32 percent. The annual rate of interest on 30-year Treasury securities for January 2009, used to determine the minimum present value of a participant's benefit under Code Sec. 417(e)(1) and (2), is 3.13 percent.

  For plans electing not to use the transitional rule under Code Sec. 430(h)(2)(G), or for plans whose first year begins after 2009, the 24-month average segments rates for February 2009 are: 5.31 for the first segment; 6.49 for the second segment; and 6.69 for the third segment.

  For plan years beginning in 2009, the funding transitional segment rates for February 2009 are: 5.65 for the first segment; 6.43 for the second segment; and 6.57 for the third segment.

  For plan years beginning in 2009, the minimum present value transitional segment rates for February 2009 are: 3.96 the first segment; 4.60 for the second segment; and 4.40 for the third segment.

Notice 2009-16, 2009FED ¶46,264

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:

  Senate action on a $920-billion stimulus tax package on February 5 came to a standstill as Democratic leaders found themselves short of the necessary votes to ensure passage. The impasse led Senate Majority Leader Harry Reid, D-Nev., to declare that there would be no final vote that evening and that work would resume the following day. "I am cautiously optimistic that we can finish tomorrow," said Reid.

  Sens. Susan M. Collins, R-Maine, and Ben Nelson, D-Neb., had been working on forging a compromise on the spending side and hoped to trim at least $50 billion from the package but, late in the evening, they said there was no deal. Democrats need at least two Republicans to vote for the measure and those votes are contingent upon reducing the overall spending. The deadlock could jeopardize Democratic leaders' plans to have the bill ready for President Obama by February 13.

  Lawmakers moved on with the amendment process while leadership worked furtively outside of the chamber, hoping to find agreement on what and how much to cut from the package to make it more palatable to a handful of Republicans. As the night moved on, senators agreed on a number of changes, but the process seemed more notable for what was not accomplished, rather than what was approved.

  Sen. John Ensign, R-Nev., offered a substitute amendment that would have lowered mortgage rates to 4 percent or 4.5 percent, in addition to a slew of tax cuts, including a cut in the 10-percent tax rate to 5 percent over a two-year period. The measure fell by a 62-35 margin, with Democrats universally panning the proposal as too expensive. A substitute amendment offered by Sen. John McCain, R-Ariz., that was comprised mainly of tax breaks coupled with less spending was also defeated by a wide margin, 57 to 40.

  Democratic leaders again found themselves on the defensive against Republican charges that more tax breaks were needed, telling reporters earlier in the day that 36 percent of their package contains tax cuts and it does not require more. Sen. Charles E. Schumer, D-N.Y., said he that does not believe tax cuts are very stimulative and that Democrats put as many as they did in the bill as a gesture of bipartisanship. Schumer also called the Ensign amendment a "flawed" proposal, as most Democrats do not believe the refinancing of mortgages will help the housing market.

  Executive pay took another hit as an amendment offered by Senate Committee on Banking, Housing and Urban Affairs Chairman Chris Dodd, D-Conn., that would reduce executive compensation at firms receiving Troubled Asset Relief Program (TARP) funds was approved by unanimous consent. The provision bolsters the administration's plans to limit excessive pay to those executives. It would also empower the Treasury Secretary to tighten existing provisions of the law to "claw back" any bonus or compensation paid to an executive based on false earnings reports or anything else later found to be materially inaccurate or a misrepresentation of that company's financial status.

  Similarly, lawmakers approved an amendment by Sen. Claire McCaskill, D-Mo., that would prevent executives of companies receiving federal assistance from receiving compensation totaling more than the salary of the President of the United States --approximately $400,000 a year --until the company is no longer reliant on federal dollars. The provision applies to compensation in the form of salary, bonuses and stock options.

  Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, said that he is planning to offer two amendments that would institute checks to ensure that nonprofit hospitals are providing free or reduced-cost care at a level that is in-line with the tax benefit they receive. One amendment would require the IRS to study the amount of uncompensated care provided by for-profit hospitals; the other would require the Centers for Medicare and Medicaid Services (CMS) to coordinate with the IRS and MedPAC and develop a single, uniform definition of uncompensated care and charity care.

White House Position

  Vice President Biden on February 5 argued for an economic recovery package that is between $800 billion and $900 billion and said it would be "unreasonable" to settle for anything less. Biden, in remarks at the MARC train station in Laurel, Md., said the U.S. economy is "in the middle of the worst recession in decades" and that tax cuts alone will not turn the economy around and increase employment. He maintained that $100 billion in infrastructure improvements is the right amount to provide an immediate boost to the economy that will have "long-lasting effects."

  White House Press Secretary Robert Gibbs defended the size and scope of the administration's plan, contending that the tax-cut proposals should be aimed at working families and the spending portion should create or save three million to four million jobs. The vice president said there is "a solid basis" to work with in both the $817-billion House bill and the significantly larger economic package under consideration in the Senate. Biden acknowledged that both the House and Senate bills contains provisions the White House would not have included but said that is the nature of compromise.

  President Obama, in defense of his economic plan, maintained that the overall package will jump-start the economy and lay the groundwork for future economic growth. "This plan is more than a prescription for short-term spending --it's a strategy for America's long-term growth and opportunity in areas such as renewable energy, health care and education," Obama said in a "Washington Post" column on February 5.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

SFC, Ways and Means Press Release: Baucus, Rangel, Grassley, Camp: Expanded Trade Adjustment Assistance Will Save Jobs, Help American Workers in Economic Recovery Bill

McCaskill Amendment to HR 1 to Limit Compensation to Officers and Directors of Entities Receiving Emergency Economic Assistance from the Government

Dodd Amendment to HR 1 to Impose Executive Compensation Limitations with Respect to Entities Assisted by TARP

JCT Estimated Budget Effects Of The Revenue Provisions Contained In Titles I And III of Sen 350, the American Recovery and Reinvestment Tax Act of 2009, As Reported by the Committee on Finance, JCX-09-16R

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  In his budget address, Pennsylvania Gov. Edward G. Rendell proposed holding the line on state corporate and personal income taxes, state sales tax, and all business taxes; authorizing a county sales tax; enacting a tax on natural gas extraction; raising existing tobacco taxes; and enacting a tax on smokeless tobacco. The governor also proposed sweeping changes to the state's school district structure to alleviate pressure on local property taxes and spoke approvingly of some legislative suggestions involving tax changes.

CCH (cch.taxgroup.com) reports:

  A bill that would tax some Internet sales by expanding the definition of "engaging" in business and creating a rebuttable presumption for Hawaii general excise tax nexus purposes has been introduced in the Hawaii House of Representatives. The proposed bill is similar to New York's so-called "Amazon law," which was recently upheld by a New York state court. (TAXDAY, 2009/01/15, S.18)

  If enacted as introduced, the bill would provide that "engaging," as used in the general excise tax laws with reference to engaging or continuing in business, would include the sale of tangible personal property or taxable services by a person soliciting business through an independent contractor or other representative if the person entered into an agreement with a Hawaii resident who, for consideration, directly or indirectly referred potential customers to the person by a link on an Internet Web site or by other means. To qualify under this proposed definition, the cumulative gross receipts from sales by the person to customers in Hawaii who were referred to the person by such a resident would have to exceed $10,000 during the preceding four quarterly periods ending on the last day of February, May, August, and November. The presumption created by this provision could be rebutted by proof that the resident with whom the person had an agreement did not engage in any solicitation in Hawaii on behalf of the person that would satisfy the nexus requirement of the U.S. Constitution during the specified quarterly periods.

  Subscribers can view the introduced bill.

   
H.B. 1405, as introduced in the Hawaii House of Representatives on January 27, 2009
 

CCH (cch.taxgroup.com) reports:

  Legislation has been introduced that would, if enacted, require the collection of Connecticut sales and use taxes when a retailer makes sales of tangible personal property or services through an independent contractor or other representative provided the retailer has an agreement with a Connecticut resident who directly or indirectly refers potential customers to the retailer for consideration via a link on an Internet Web site or otherwise. The legislation would change the definition of "retailer" to include persons who make such sales provided the cumulative gross receipts from sales by the retailer to in-state customers who are referred to the retailer by all residents with such an agreement is in excess of $5,000 during the preceding four quarterly periods ending on the last day of March, June, September, and December. The measure specifies that such a retailer is presumed to be soliciting business through such independent contractors or representatives. That presumption could be overcome by proof that the resident with whom the retailer has an agreement did not engage in any in-state solicitation on behalf of the retailer that would satisfy the nexus requirement of the U.S. Constitution during such four quarterly periods.

  If enacted, the legislation would be effective April 1, 2009, and would be applicable to sales that occur on and after that date. The measure has been referred to the Joint Committee on Finance, Revenue, and Bonding.

  Similar legislation was enacted and unsuccessfully challenged in New York (20090116-S.17 and
20090115-S.18). Similar legislation has also been introduced in Hawaii (TAXDAY, 2009/02/05, S.10) and Minnesota (TAXDAY, 2009/02/02, S.15).

  Subscribers can view S.B. 806, as introduced.

   
S.B. 806, as introduced by the Connecticut Senate on February 3, 2009

CCH (cch.taxgroup.com) reports:

  A payment made under a noncompetition agreement was compensation treatable as ordinary income, not proceeds from the sale of the recipient's personal goodwill treatable as a long-term capital gain. The recipient failed to show by "strong proof" that, despite the agreement expressly stating that the payments would be in consideration of the individual's promises not to compete, the payment was, instead, intended to be compensation for personal goodwill. The absence of any reference to the individual's personal goodwill in any of the transaction documents also established that the contracting parties did not intend the payments to serve as de facto compensation for the individual's personal goodwill. Moreover, the taxpayer himself signed the agreement, which was not ambiguous with respect to the allocation of the amount at issue.

  The couple also could not present at trial, for the first time, a claim seeking a refund of self-employment taxes paid. The district court properly dismissed that claim for lack of subject matter jurisdiction because the couple failed to put the IRS on notice of the basic nature of that theory when filing their administrative refund claim. Raising that issue at trial would have substantially varied the legal theory set forth in the refund claim. Finally, the government was not judicially estopped from taking the position that a taxpayer who failed to exhaust his administrative remedies could not litigate a self-employment tax issue in a refund suit. The IRS's position that payments under the noncompetition agreement were not subject to self-employment tax was not inconsistent with its position in the present litigation.

  Affirming a DC N.H. decision, 2007-2 USTC ¶50,581.

I. Muskat, CA-1, 2009-1 USTC ¶50,195

Other References:

 
Code Sec. 1221

  CCH Reference - 2009FED ¶30,422.165

 
Code Sec. 7422

  CCH Reference - 2009FED ¶41,688.136

  CCH Reference - 2009FED ¶41,688.19

  CCH Reference - 2009FED ¶41,688.496

  Tax Research Consultant

  CCH Reference - TRC SALES: 33,052.05
CCH Reference - TRC SALES: 33,104
CCH Reference - TRC VALUE: 12,102.05
CCH Reference - TRC VALUE: 12,106
 

CCH (cch.taxgroup.com) reports:

  Expenses that a taxpayer incurred to place manufactured homes on sales lots were not deductible as ordinary and necessary business expenses; instead, they had to be capitalized as inventory costs. The expenses included payments to lease the sales lots, costs to transport homes to the lots, and repairs of model homes damaged while located on the lots.

  Generally, expenses related to the storage of personal property held for resale are included in inventory. While such expenses may be excluded from inventory if incurred at an on-site storage facility, the exception only applied if the taxpayer's expenses related to property sold "exclusively" to retail customers. Even if the sales lots in question were on-site storage facilities, the taxpayer's expenses were incurred to place manufactured homes on the lots to assist local independent salespersons in selling the homes. Thus, although the taxpayer participated in the sale of the homes from the lots to retail customers, it did not sell the homes exclusively to customers. Instead, the title to the manufactured homes generally passed from the taxpayer to an independent salesperson, who then made the sale to the retail customers.

  Affirming, per curiam , the Tax Court, 93 TCM 969,
Dec. 56, 855(M), TC Memo. 2007-51.

LOAD, Inc., CA-9, 2009-1 USTC ¶50,194

Other References:

 
Code Sec. 162

  CCH Reference - 2009FED ¶8520.685

 
Code Sec. 263A

  CCH Reference - 2009FED ¶13,815.23

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 9,056.35

CCH (cch.taxgroup.com) reports:

  President Obama on February 4 signed the Children's Health Insurance Program Reauthorization Act (CHIPRA) (HR 2), which expands health care coverage of uninsured children whose parents earn too much to be eligible for Medicaid but not enough to afford private health insurance. The new law, which reauthorizes the State Children's Health Insurance Program (SCHIP), is funded by a 61-cent increase in the federal excise tax on cigarettes, with proportional increases for other tobacco products, raising approximately $65 billion over 10 years.

  The reauthorization bill provides health care coverage for an additional 4 million low-income children and lifts the ban on states providing insurance to legal immigrant children. During the White House signing ceremony, the president said the expansion of SCHIP coverage is "a critical first step" in his commitment to provide health care coverage "to every single American." He added, "in a decent society, there are certain obligations that are not subject to trade-offs or negotiation --health care for our children is one of those obligations.". The House passed HR 2 on February 4 by a vote of 290 to 135. The Senate passed CHIPRA by a vote of 66 to 32 on January 29. (TAXDAY, 2009/01/30, C.2).

  By Paula Cruickshank, CCH News Staff

Ways and Means Press Release: House Sends Landmark Children's Health Bill to President's Desk

Children's Health Insurance Program Reauthorization Act of 2009, as Amended and Passed by the Senate on January 29, 2009, HR 2

CCH (cch.taxgroup.com) reports:

  The Senate on February 4 continued to add to the $900 billion cost of the economic stimulus package as lawmakers approved another costly tax break, giving homebuyers a sizeable above-the-line deduction for purchases made during the 12-month period following enactment of the bill. The amendment process continues on February 5 as Congressional leaders press on with their pledge to have a bill ready for President Obama's signature by the Presidents Day recess, which begins on February 13. "The stark reality is that we need to complete this bill," said Senate Majority Leader Harry Reid, D-Nev., adding that he wants to wrap up the measure by the end of the week of February 2.

Approved Amendments

  The Senate easily approved the amendment offered by Sen. Johnny Isakson, R-Ga., which would provide an income tax credit up to $15,000 for home purchases. It was cleared by unanimous consent and, at an estimated cost of $18.5 billion, it may prove a bargain for members concerned about the rising price tag of the bill. The push and pull bargaining mentality taking place between Republican and Democratic Senate leaders finds GOP leaders trying to steer more funds toward the housing market while at the same time appease members who want to keep down the overall cost of the package.

  Passing the amendment was largely seen as a potential trade off with Republicans who have also proposed a temporary reduced mortgage rate of 4 percent on home purchases. Sen. John Ensign, R-Nev., has pushed the idea, but many rank and file members in both parties fear that the $300 billion estimated price tag would overly inflate an already bloated stimulus package. It remains unclear whether Ensign still plans to offer that amendment.

  Additional tax cuts are already beginning to prove costly and somewhat troubling to fiscal conservatives. An amendment by Sen. Barbara Mikulski, D-Md., approved on February 3 (TAXDAY, 2009/02/04, C.1) would help out the troubled auto industry, but carries an $11 billion price tag over a 10-year period. The proposal allows for an above-the-line deduction on the taxable interest on vehicles purchased after November 12, 2008, and December 31, 2009. The deduction applies to cars costing no more than $49,500 and for individuals with incomes under $125,000, or $250,000 for joint filers.

  Before adjourning for the night, the Senate also approved a bipartisan proposal offered by Sens. Christopher S. Bond, R-Mo., and Christopher J. Dodd, D-Conn., to swap out $2 billion from the HOME program (Code Sec. 42) for investment in the low-income housing tax credit projects. Lawmakers also defeated, by a 37-60 margin, a proposal by Sen. John Cornyn, R-Tex., to supplant the key $500 middle-class tax cut prized by President Obama with a reduction of the 10-percent income tax rate to 5 percent. A massive, tax-cut laden substitute amendment offered by Sen. Jim DeMint, R-S.C., was defeated handily by a 36 to 61 margin. A proposal by Sen. Jim Bunning, R-Ky., to suspend for 2009 the 1993 income tax increase on Social Security benefits was defeated by a vote of 39 to 57.

  Following a White House meeting on February 4, Sen. Susan Collins, R-Maine, said that the economic package would win bipartisan support if it is narrowly targeted to provisions that stimulate the economy and create jobs. She criticized the House-passed legislation, saying it was tantamount to an omnibus spending bill. Collins added that she gave President Obama a list of provisions that she thought should be included in a final bill. They include proposals for "robust" infrastructure projects, investment in energy conservation and tax incentives for small businesses and middle- and low-income families. Collins said she is hopeful that the Senate can put together a package that has bipartisan support by the end of the week.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

Senate Finance Committee Press Release: Grassley Seeks to Improve Education Tax Incentives in Stimulus Package

Senate Finance Committee Press Release: Grassley: CBO Analysis That Shows Stimulus Bill Jobs to Cost as Much as $300,000 Each

Congressional Budget Office Letter to Sen. Charles E. Grassley on Senate Amendment to Stimulus Bill

Isakson-Lieberman Amendment to HR 1 to Provide a Federal Income Tax Credit for Certain Home Purchases

Bond Amendment to Provide $2,000,000,000 from the HOME Program for Investment in the Low Income Housing Tax Credit Projects
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  A taxpayer was liable for Texas use tax on printing charges in connection with rolls of paper that were purchased from out-of-state paper mills, shipped by the mills to out-of-state printers, and used by the printers to print telephone directories that were ultimately distributed in Texas.

  Although Texas allows an exclusion from use tax for printed material that has been processed, fabricated, or manufactured into other property or attached to or incorporated into other property transported into Texas, this exclusion was not available to the taxpayer because the telephone directories at issue were a final product and were not incorporated into other property. Only printed material that serves as a component of some other finished product is excluded from the use tax. Thus, the taxpayer was not entitled to a refund of use tax paid on the printing charges.

Subscribers can view this case.  
Southwestern Bell Yellow Pages v. Combs, Texas Court of Appeals, Third District, No. 03-07-00638-CV, January 30, 2009
 

CCH (cch.taxgroup.com) reports:

  The monies received from the taxpayer's customers as late payment fees did not constitute "interest" for single business tax (SBT) purposes; accordingly, the late payment fees were appropriately included in the tax base. Under former state law, interest was excluded from the SBT base and not subject to tax. The applicable statute did not define "interest." The court noted that interest generally reflects the time value of money. Here, considering that (1) the taxpayer charged a different late payment fee based on whether the customer had a business or a residential account, (2) the fee did not apply to the full amount due on the bill, and (3) the fee was assessed on a monthly basis and not under a daily rate, the court concluded that the late payment fees did not accurately reflect the time value of money. Thus, the late payment fees were properly subject to the SBT because they were not interest.

  The Department of Treasury was not required to pay interest on the refund. Michigan law requires that interest be paid to the taxpayer if the refund payment is not made within 45 days from the date of claim or from the date the return was due, whichever is later. Here, the Department sent an audit determination letter to the taxpayer; it was this event that started the 45 day time period. Using this date, the court determined that the refund was paid within 45 days.

Michigan Bell Telephone Co. v. Department of Treasury , Michigan Court of Appeals, No. 279401 and 279496, January 29, 2009, ¶401-408

  Other References:

  Explanations at ¶10-815

  Explanations at ¶89-224

CCH (cch.taxgroup.com) reports:

  Taxpayers who wait longer than one year after receiving a collection due process (CDP) notice to request an equivalent hearing will find their request denied, Mary Craca, settlement officer, IRS Office of Appeals, said in Washington, D.C., on February 3. Under current rules, requests for an equivalent hearing must be submitted within one year from when the CDP notice was issued. Craca discussed the CDP process at an event sponsored by the District of Columbia Bar Association Section of Taxation.

One-Year Window

  Generally, taxpayers may request a CDP hearing if they have received an IRS notice of federal tax lien or an IRS notice of intent to levy. Taxpayers have 30 days to request a hearing, Craca explained. "If the 30-day deadline has passed, taxpayers should seek an equivalent hearing," Lydia Noyola, manager, IRS Office of Appeals, added.

  An equivalent hearing, Craca noted, is similar to a CDP hearing but with some important differences. "There's no right to judicial review and collection action is not suspended." The IRS may suspend collection but that action is within its discretion.

  "We use to entertain equivalent hearings on notices sent five years ago," Craca said. Today, a taxpayer is only entitled to an equivalent hearing for one year from when the notice was issued, she explained. Under Reg. §301.6330-1(i)(2), Q&A 17, as added by T.D. 9291, I.R.B. 2006-46, 887, a taxpayer must submit a written request for an equivalent hearing within the one-year period commencing the day after the date of the CDP notice issued under Code Sec. 6330.

Preserving Rights

  Sometimes, Appeals may be presented with the situation where a revenue agent has rejected an installment agreement from a taxpayer. "The installment agreement is viable but the revenue agent nonetheless issues a final notice." Craca said that in one such situation she rescinded the notice to preserve the taxpayer's appeal rights. "When a viable installment agreement has been presented we cannot take enforcement action."

In-Person Hearing

  Although most CDP hearings are telephonic, taxpayers may request a face-to-face meeting with Appeals. Normally, in-person means the address (location) of the taxpayer, Noyola explained. Craca added that a face-to-face meeting will not be granted where a taxpayer raises frivolous issues.

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

CCH (cch.taxgroup.com) reports:

  The amendment process for the economic stimulus package began in earnest on February 3 as senators struck down a provision giving Hollywood production companies a $246 million tax break. At the same time, Detroit automakers received a boost for slumping sales with a personal deduction for consumers who purchase certain vehicles.

  In a nod to Republican complaints of frivolous spending with no stimulative value, lawmakers approved 52 to 45 an amendment by Sen. Tom Coburn, R-Okla. that would strike a $246 million tax earmark for Hollywood production companies. The vote made good on a promise by Senate Minority Leader Mitch McConnell, R-Ky., who reiterated to reporters earlier in the day that his party would work to cut out wasteful spending in the package. In addition, they plan to add more tax breaks for small businesses, which they believe will create more jobs and provide more stimulus to the economy.

  An amendment by Sen. Barbara Mikulski, D-Md., aimed at helping out the troubled auto industry ran into a small bump in the road as Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, raised a point of order against the proposal, forcing a full Senate vote in order to waive budget rules. Grassley said in an earlier floor speech that lawmakers had a moral obligation to keep the costs down, noting that if interest costs are included, the package would add $1.3 trillion to the federal deficit."The people back home see Congress spending vast amounts of taxpayer dollars and they are counting on us to ensure their money is spent wisely, not wastefully," he said.

  The parliamentary procedure failed, however, and the rules were waived by a vote of 71 to 26. The amendment was then agreed to by a voice vote.

  Mikulski's proposal calls for an above-the-line deduction of the interest on certain vehicles purchased after November 12, 2008, and before January 1, 2010. The deduction would apply to cars costing no more than $49,500 and for individuals with incomes under $125,000, or $250,000 for joint filers.

  While some lawmakers have focused on forging amendments that would redirect spending to areas that they feel have a greater impact on the economy, most notably the housing market, others have either proposed or are crafting heftier tax provisions than those approved by the Senate Finance Committee. Sen. Johnny Isakson, R-Ga., reportedly plans to offer an amendment that would give first-time homebuyers a $15,000 tax credit, or 10-percent of the purchase price, depending on which is lower. Income levels for eligibility would be capped at $150,000 for couples and $75,000 for individuals. Some GOP lawmakers are looking at an alternative stimulus package that would cut the corporate tax rate from 35 percent to 25 percent, lower the payroll tax, and create a $15,000 tax credit for all homebuyers.

  Sen. Barbara Boxer, D-Calif., along with several Republican backers, offered an amendment that would allow corporations to repatriate their foreign earnings at a reduced tax rate. The measure failed by a vote of 42 to 55. The proposal had the backing of several business groups but was opposed by many Democrats who believe it would encourage companies to move their operations overseas or to temporary offshore tax havens. One of the more vocal opponents was Senate Finance Committee Chairman Max Baucus, D-Mont. "This sounds like a good idea, but it isn't. This is totally unfair," he said. Sen. Carl Levin, D-Mich, who also opposed the proposal, called the tax break a "gift" that would cost the U.S. Treasury approximately $3 billion in the first five years.

  The amendment process is expected to continue late into the evening on February 4 and 5, with a final vote on the package by the end of the week.

  By Jeff Carlson, CCH News Staff

SFC Release: Floor Statement of Sen. Chuck Grassley

Boxer Amendment to HR 1

Coburn Amendment to HR 1

Mikulski Amendment to HR 1
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Under a bill passed by the Michigan Senate, the Michigan business tax surcharge would be phased out more quickly for certain taxpayers. Under current law, the surcharge is scheduled to be eliminated in 2017 provided that the Michigan personal income growth exceeds 0% in either 2014, 2015, or 2016. If enacted, the bill would eliminate the surcharge for taxpayers, other than financial institutions subject to the franchise tax, for tax years after 2009. Furthermore, the bill would reduce the surcharge rate from 21.99% for tax years ending after 2007 and before 2009 to 11% for tax years ending after 2008 and before 2010 for taxpayers, other than financial institutions subject to the franchise tax. In addition, under the bill, the maximum surcharge would be $6 million for the 2008 tax year and $3 million for the 2009 tax year. Under current law, the surcharge rate is 21.99% and the annual maximum surcharge is $6 million. The bill would not make any changes to the surcharge for financial institutions.

  Subscribers can view the text of S.B. 1.

 
S.B. 1, as passed by the Michigan Senate, January 29, 2009

CCH (cch.taxgroup.com) reports:

  The Coalition to Protect California Jobs and the Economy (CPCJE), a bipartisan non-profit organization, has launched a statewide campaign to repeal S.B. 1x 28, Laws 2008, which was enacted as part of the 2008-09 Budget Agreement and impacts California corporation franchise and income, personal income, and sales and use taxes. Details of the legislation were previously reported. (TAXDAY, 2008/10/02, S.2)

  S.B. 1x 28 has several unintended consequences on job creation and economic stimulus during these difficult economic times, according to Johan Klehs, Co-Chair of CPCJE and former Chair of the Assembly Revenue and Taxation Committee and former Member of the Board of Equalization. The bill, enacted before it was in print and without public input or any vetting, is flawed and unfair, said Klehs.

  Of primary concern to the CPCJE, the bill imposes a 20% strict liability penalty on businesses that unknowingly underpay their corporation franchise or income taxes by more than $1 million for any taxable year, retroactive to 2003. No other state has this type of penalty, noted Klehs. This forces businesses to pay ahead for speculative liabilities to avoid the penalty, said Rick Keene, former Vice Chair of the Assembly Budget Committee. The result is that businesses must set aside approximately $500 million for taxes they may not owe (one-third of which will likely be refunded later), according to CPCJE estimates, instead of using that money to invest in jobs or bring new products to the marketplace. Tom Calderon, former Chair of the Assembly Insurance Committee, called this the most egregious example of a quick-fix solution that has completely backfired. The state has other tools currently available --underpayment, negligence, fraud, and other penalties --to punish companies that willfully or negligently underreport their taxes, Klehs added.

  The 20% strict liability penalty imposed by S.B. 1x 28 has small business community consequences, said Joel Fox, President of the Small Business Action Committee, as many larger businesses that will be forced to overpay taxes they may not owe will no longer have the money to hire small businesses.

  The CPCJE urges the state to instead utilize better efforts to collect the over $12 billion in uncollected amounts owed to the state. This includes over $5 billion uncollected by the Franchise Tax Board, over $4 billion uncollected by the courts, almost $1 billion uncollected by the State Board of Equalization, and almost $2 billion uncollected by the Employment Development Department. Collection of these amounts would more than replace the one-time revenue estimated to be generated under SB 1x 28.

Press Conference, Press Release, and Fact Sheet , Coalition to Protect California Jobs and the Economy, February 2, 2009

CCH (cch.taxgroup.com) reports:

  The IRS is seeking candidates for membership on the Electronic Tax Administration Advisory Committee (ETAAC). All applicants should submit a resume and complete an application form by April 3, 2009. The ETAAC provides an organized public forum for discussion of electronic tax administration issues, in support of the overriding goal that paperless filing should be the preferred and most convenient return filing method. The committee also reports annually to Congress on the IRS's progress in increasing electronic transactions.

CCH (cch.taxgroup.com) reports:

  Pressure has been mounting over the past several weeks for the IRS to come out with guidance on how duped investors should handle the tax aspects of their misfortunes. During a January 27 hearing on regulatory oversight of Bernard Madoff's firm, members of the Senate Banking Committee proposed the creation of a special unit within the IRS tasked with finding ways to provide relief to bilked investors. Madoff has admitted to perpetrating a Ponzi scheme that may be the largest of its kind in history, totaling $50 billion in losses.

  CCH Comment. Lawrence Hill, partner, Dewey LeBoeuf, in New York, told CCH, "There are some very significant tax issues that victims of the Madoff fraud need to consider, including the potential filing of amended returns to obtain refunds of income tax paid on income that was not actually earned, as well as the appropriateness and timing of theft-loss deductions. Given the unprecedented, enormous scale of the alleged fraud, it would be helpful if the IRS would provide guidance to taxpayers on these and any other applicable tax issues."

Ponzi scheme

  On December 11, the Securities and Exchange Commission (SEC) filed a complaint in the U.S. District Court for the Southern District of New York alleging that Madoff and his firm, Bernard Madoff Investment Securities, LLC, engaged in financial fraud in the form of a Ponzi scheme. Madoff's firm was a broker dealer and investment adviser registered with the SEC and alleged to have liabilities totaling approximately $50 billion.

Senate Committee Eyes Assistance

  During the Senate Banking Committee's January 27 hearing on the Madoff scandal, members discussed ways to aid victims of the Ponzi scheme who paid income taxes on "phantom interest income" generated by funds supposedly invested by Madoff and his firm. Committee member Robert Menendez, D-N.J., proposed that the IRS establish a special unit specifically tasked with providing guidance on how to assist Madoff's victims, which include individual investors, endowments and pension plans.

  Menendez questioned whether Madoff's investors could recoup taxes paid on a "phantom investment," telling Committee Chairman Christopher Dodd, D-Conn., that the issues were worth exploring. Dodd, agreeing to cosponsor the request, asked Menendez to draft a letter raising the issue to the Senate Finance Committee and the IRS.

  Moreover, former New York state governor George Pataki also called on the IRS to assist Madoff's victims through guidance. In a January 12 letter to the IRS, Pataki, currently a partner at Chadbourne & Parke, LLP, asked the Service to issue guidance on the ability of individual investors to claim fraud losses on their 2008 income tax returns.

Charitable Reform Eyed by Grassley

  In December 2008, ranking Senate Finance Committee member Charles E. Grassley, R-Iowa, suggested that legislation aimed at reforming the charitable sector may be needed in the wake of the Madoff scandal. In addition to individual investors, a number of charitable foundations were victims of Madoff's Ponzi scheme.

  By Hilary Goehausen, CCH News Staff

CCH (cch.taxgroup.com) reports:

  The Senate on February 2 kicked off debate on an approximately $888-billion stimulus package, the American Recovery and Reinvestment Bill of 2009 (HR 1), as Republicans stepped up demands for more housing assistance and middle-class tax cuts. In ramping up support for more GOP input into the bill, Senate Mitch McConnell, R-Ky., called on President Obama to pressure congressional Democrats to work in a more bipartisan manner.

  "I think we need to exercise some discipline here," said McConnell on CBS News' "Face the Nation" on February 1. "And, I think it may be time ... for the president to kind of get a hold of these Democrats in the Senate and the House, who have rather significant majorities, and shake them up a little bit and say, "look, let's do this the right way.""

  Republicans see the housing crisis as needing the most attention and have proposed inclusion of government-backed, four-percent fixed mortgages to creditworthy homebuyers. "Let's fix housing first. That's what started all of this," said McConnell. They also propose doubling the housing tax credit for first-time homebuyers from $7,500 to $15,000. That proposal gained some traction when Sen. Charles E. Schumer, D-N.Y., indicated that Democrats were not opposed to the idea and would support making the credit available to all homebuyers.

  Their second priority calls for more tax relief in the form of lowering tax rates for middle- and low-income people. Republicans would cut the 10-percent tax rate and the 15-percent tax rate in half.

  The Senate is scheduled to begin considering amendments on February 3, but the heavy lifting is more likely to begin in the evening on February 5 when Democratic senators return from a day-long retreat. Senate Majority Leader Harry Reid, D-Nev., warned that lawmakers can expect votes late into the evening on February 5 and 6, with a planned final vote by the end of the week of February 2.

  By Jeff Carlson, CCH News Staff

Senate Press Release: The American Recovery and Reinvestment Act of 2009, Creating Jobs, Cutting Taxes and Investing in Our Country's Future

SFC Press Release: Floor Statement of Sen. Baucus (Regarding the American Recovery and Reinvestment Act

American Recovery and Reinvestment Act of 2009, Senate Amendment in the Nature of a Substitute to HR 1

JCT Estimated Budget Effects of the Revenue Provisions Contained in Titles I and III of Sen 350, the American Recovery and Reinvestment Act of 2009, as Reported by the SFC, JCX-16-09
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  An out-of-state taxpayer that operates an Internet site by which customers reserve and submit payment for Indiana hotel rooms is subject to sales and use taxes and county innkeeper's tax on its fees because the service charge is not separately stated. The single price that includes the cost of the room and the taxpayer's fees is a unitary transaction, and therefore the entire charge is taxable. Further, the taxpayer is considered to be a retailer because Indiana law does not require that a person be in the hotel business to be considered a retail merchant in regards to the rental of lodgings.

  The Commerce Clause does not prohibit taxation as the activity has a substantial nexus to Indiana and the taxpayer's specific agreements with Indiana hotels constitute sufficient contacts with the state. Also, the Internet Tax Freedom Act does not apply because there is no discrimination imposed on the taxpayer. The taxpayer receives the same treatment as an Indiana travel agent that fails to separately state its service fee on a transaction completed by non-electronic means.

  Subscribers can view the rulings.

   
 
Letter of Finding 08-0434, Indiana Department of Revenue, January 28, 2009; Letter of Finding 08-0435, Indiana Department of Revenue, January 28, 2009

CCH (cch.taxgroup.com) reports:

  The IRS has provided additional guidance for the application of
Code Sec. 382 to corporations whose instruments are acquired by the Treasury Department under the Emergency Economic Stabilization Act of 2008 (P.L. 110-343) (EESA). The guidance amplifies and supersedes Notice 2008-100, I.R.B. 2008-44, 1081, to address other EESA programs, namely the Capital Purchase Program for publicly-traded issuers (Public CPP), the Capital Purchase Program for private issuers (Private CPP), the Capital Purchase Program for S corporations (S Corp CPP), the Targeted Investment Program (TARP TIP), and the Automotive Industry Financing Program (TARP Auto).

  For federal income tax purposes, any instrument issued to Treasury under these programs, whether owned by Treasury or subsequent holders, will be treated as an instrument of indebtedness if denominated as such, and as stock described in Code Sec. 1504(a)(4) if denominated as preferred stock. Any amount received by an issuer under the programs will be treated as received in its entirety as consideration in exchange for the instruments issued. No instrument will be treated as stock for purposes of Code Sec. 382 while held by Treasury or by other holders, but preferred stock will be treated as stock for purposes of Code Sec. 382(e)(1).

  Also for federal income tax purposes, any warrant to purchase stock acquired by Treasury pursuant to the Public CPP, TARP TIP, and TARP Auto, whether owned by Treasury or subsequent holders, must be treated as an option and not as stock. While held by Treasury, the warrant will not be deemed exercised under Reg. §1.382-4(d)(2). Any warrant to purchase stock acquired by Treasury pursuant to the Private CPP must be treated as an ownership interest in the underlying stock, which will be treated as preferred stock described in Code Sec. 1504(a)(4). Any warrant acquired by Treasury pursuant to the S Corp CPP must be treated as an ownership interest in the underlying indebtedness.

  For purposes of Code Sec. 382, for any stock (except preferred stock) acquired by Treasury under these programs, the ownership represented by the stock on any date it is held by Treasury will not be considered to have increased Treasury's ownership in the issuing corporation over its lowest percentage owned on any earlier date. The stock is considered outstanding for purposes of determining the percentage of stock owned by other five-percent shareholders on a testing date. However, when measuring shifts in ownership by any five-percent shareholder on any testing date occurring on or after the date on which the issuing corporation redeems such stock held by Treasury, the redeemed stock will be treated as if it had never been outstanding.

  Finally, for purposes of Code Sec. 382(l)(1), any capital contribution made by Treasury pursuant to the programs will not be considered to have been made as part of a plan whose principal purpose was to avoid or increase any Code Sec. 382 limitation.

  Taxpayers may rely on these rules, which will continue to apply unless and until there is additional guidance.

Notice 2009-14, 2009FED ¶46,262

Other References:

 
Code Sec. 382

  CCH Reference - 2009FED ¶17,115.40

  Tax Research Consultant

  CCH Reference - TRC NOL: 33,050

  CCH Reference - TRC NOL: 33,150

  CCH Reference - TRC REORG: 33,202

  CCH Reference - TRC REORG: 33,208

CCH (cch.taxgroup.com) reports:

  IRS Commissioner Douglas H. Shulman repeated his pledge to help taxpayers struggling during the recession on January 30 and highlighted the earned income tax credit (EITC) as one way for qualifying individuals to pay less tax or get a refund. "We want to go the extra mile to ensure that taxpayers who are eligible for the EITC take the credit," Shulman, who spoke during an IRS teleconference with reporters, said.

Refundable Credit

  The EITC is a refundable credit for lower to moderate-income working individuals and families. When the EITC exceeds the amount of taxes owed, it results in a refund to taxpayers who claim and qualify for the credit.

  The maximum credit for the 2008 tax year is $4,824 for a family with two or more children, $2,917 for a family with one child, and $438 for a qualifying single taxpayer. Income thresholds also apply. The pending American Recovery and Reinvestment Bill (HR 1) would enhance the EITC for taxpayers with three or more qualifying children (TAXDAY, 2009/01/23, C.1).

  "Last year, 24 million Americans received nearly $48 billion from the EITC," Shulman said. Nonetheless, one in four eligible taxpayers fails to claim the EITC each year. "The IRS wants eligible taxpayers to claim this credit." The Service will open many of its Taxpayer Assistance Centers on Saturdays in February to help individuals with the EITC, he added.

  Shulman emphasized that some individuals may be eligible for the EITC for the first time because of job loss or other reductions in income. "This is a significant credit that can make their lives a little easier."

Refund Anticipation Loans

  CCH asked Shulman if individuals may lose some of the EITC's benefit if their refunds are refund anticipation loans (RALs). An RAL is a short-term loan, usually from five to 14 days, based on the taxpayer's expected refund. After the IRS processes the return and issues a refund, the IRS transfers the refund directly to the bank to repay the loan. The fees and interest rates charged by RAL providers have generated criticism from consumer advocates.

  Shulman told CCH that individuals who use the Service's taxpayer assistance centers and its Volunteer Income Tax Assistance (VITA) program would never be sold an RAL. "RALs are not something the IRS promotes."

  "With the IRS Customer Account Data Engine (CADE), individuals who e-file their returns will receive their refunds in five days," Lynn A. Schmidt, EA, Winter Haven, Fla., told CCH. Even with normal e-file processing, refunds are typically generated in 10 days, Schmidt said. These faster processing times should help to dim enthusiasm for RALs.

Recession

  As layoffs increase and the economy falters, more taxpayers may find themselves unable to meet their federal tax obligations. Shulman said that the Service will be sensitive to taxpayers struggling for the first time to be compliant.

  Previously, Shulman had announced that IRS employees will have greater authority to suspend collection actions in cases where taxpayers simply cannot pay because of job loss (TAXDAY, 2009/01/07, I.2). The IRS is also expediting the process to subordinate or remove federal tax liens for distressed taxpayers (TAXDAY, 2008/12/17, I.1).

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

IR-2009-8, 2009FED ¶46,257

IRS Fact Sheet FS-2009-9, 2009FED ¶46,259

Other References:

 
Code Sec. 32

  CCH Reference - 2009FED ¶4082.12

  CCH Reference - 2009FED ¶4082.35

  Tax Research Consultant

  CCH Reference - TRC INDIV: 57,250

CCH (cch.taxgroup.com) reports:

  The IRS has supplemented the schedules of prevailing state-assumed interest rates and applicable federal interest rates set forth in Rev. Rul. 92-19, 1992-1 CB 227, for tax years beginning after December 31, 2007. The information is to be used by insurance companies in computing their reserves for life insurance and supplementary total and permanent disability benefits, as well as individual and group annuities and pure endowments. Rev. Rul. 92-19, 1992-1 CB 227, supplemented, Rev. Rul. 2008-19, I.R.B. 2008-13, 669, modified.

Rev. Rul. 2009-3, 2009FED ¶46,256

Other References:

 
Code Sec. 807

  CCH Reference - 2009FED ¶25,821.30

  CCH Reference - 2009FED ¶25,821.32

 
Code Sec. 7702

  CCH Reference - 2009FED ¶43,155.035

  CCH Reference - 2009FED ¶43,155.55

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 36,162.05

Tax Analysts report:

Tax Analysts report: