Tax News

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Hawaii Department of Taxation has announced that it is offering a "Tax Fresh Start Program," running from May 27, 2009 through June 26, 2009, to provide an opportunity for eligible taxpayers to pay back taxes to the state while avoiding penalties and potentially avoiding referral for criminal prosecution. It also offers a 50% reduction in interest from the statutory rate of 8% per annum to 4% per annum. The program is available to all eligible taxpayers owing eligible Hawaii taxes for any taxable period ending before 2008, either because the taxpayer failed to file a return for the taxable period, or previously filed a return for the taxable period but underreported the amount of Hawaii tax due.

  The program covers all taxes that are administered by the department, including the general excise tax, use tax, income tax, and transient accommodations tax, among others. The program may not be used for tax liabilities that are already known to the department. Taxpayers already in a payment plan with the department or who have received a tax bill from the department cannot participate in this program for the tax liability that is the subject of that bill. The taxpayer may, however, report additional liability for that tax period as an underreporter under the Tax Fresh Start Program.

  A taxpayer is ineligible for participation in the program if any of the following applies:

  -- the taxpayer is currently under audit by the department;

  -- the taxpayer is currently under criminal investigation;

  -- the taxpayer is a party to any civil or criminal litigation that is pending on May 27, 2009 with the department;

  -- the taxpayer is currently in the department's collection program;

  -- the taxpayer has been contacted by the department concerning a return for any reason, including a return that has not been filed or an apparent understatement of income;

  -- the taxpayer is under audit by the federal government or has been notified of such an examination; or

  -- the taxpayer has been criminally prosecuted by the criminal investigations unit, or is currently under court jurisdiction.

  If a taxpayer is not eligible for the Tax Fresh Start Program for a particular Hawaii Tax or for a particular taxable period, the taxpayer may still be eligible to apply for participation in the program for a different tax or for a different taxable period. Taxpayers are advised that payment under the Fresh Start Tax Program constitutes an express and absolute relinquishment of any and all administrative and judicial rights of appeal.

  Taxpayers with questions about the program may visit the department's Web site at
www.hawaii.gov/tax.

  Subscribers can view the release, an overview of the Fresh Start Tax Program, and questions and answers regarding the program.

 
News Release , Hawaii Department of Taxation, May 27, 2009

CCH (cch.taxgroup.com) reports:

  While expressing doubt about the feasibility of revising the Uniform Division of Income for Tax Purposes Act (UDITPA), the chair of the committee appointed to study that revision has asked that the committee be given until January 2010 to continue to explore the issue. Dale Higer, chair of the Uniform Law Commission (ULC) Study Committee to Revise UDITPA, included his request in a May 26 report to the chair of the ULC Scope and Program Committee. Higer, a commissioner from Idaho, summarized the study committee's March meeting in Chicago, during which taxpayer representatives and their legislative supporters continued to express their opposition to the ULC's revision effort. (TAXDAY, 2009/03/31, S.1)

  During a conference call on May 14, study committee members generally agreed that UDITPA needs to be updated. However, several members, including Higer, believe that "any effort to revise UDITPA will result in total resistance by affected taxpayers." A consultant to the committee disagreed, believing that, if the committee announced plans to move forward, affected taxpayers would participate in the drafting process. As a result of the conference call, Higer has asked to have until January 2010 to "explore with elected executive and legislative leaders of the states the need to revise UDITPA."

  The study committee is soliciting comments from the public on its "tentative" recommendation to have until January 2010 to continue its work. Written comments should be submitted no later than June 22 to john.sebert@nccusl.org or lucy.grelle@nccusl.org.

  Higer attached to his report a memorandum from the study committee's reporters: Prof. Richard Pomp, University of Connecticut Law School, and Prentiss Willson, a consultant formerly with Morrison & Foerster and Ernst & Young. Saying that the ULC is "at a crossroads," Pomp and Willson stated: "No one disagrees that [UDITPA] is deeply flawed. The [ULC] faces two polar choices: fix it, or repeal it." They rejected the proposal, raised during the Chicago meeting, of changing the uniform act into a model act. The ULC encourages states to select from the sections of a model act those that fit them and there is no obligation to work for uniform adoption in all states. This is unlike the rules governing a uniform act. If the committee proceeds with the revision, Pomp and Willson suggested a set of priorities to guide the work.

  Subscribers can view the study committee report and the memorandum from Pomp and Willson.

  Email, Uniform Law Commission, May 28, 2009

CCH (cch.taxgroup.com) reports:

  The IRS has provided guidance on the extension of the Work Opportunity Tax Credit (WOTC) to unemployed veterans and disconnected youth who begin work for an employer during 2009 and 2010. Transition relief from certification requirements is also available for workers hired during the first part of 2009.

Unemployed Veterans

  The guidance reiterates the statutory definition of an "unemployed veteran" as any veteran who is certified by the designated local agency (such as a state workforce agency) as having been discharged or released from active duty in the Armed Forces at any time during the five-year period ending on the hiring date, and as being in receipt of unemployment compensation under state or federal law for not less than four weeks during the one-year period ending on the hiring date. A "veteran" is any individual who is certified by the designated local agency as having served on active duty (other than active duty for training) in the Armed Forces of the United States for a period of more than 180 days or as having been discharged or released from active duty in the Armed Forces for a service-connected disability.

Disconnected Youths

  The guidance reiterates the statutory definition of a "disconnected youth" as any individual who is certified by the designated local agency as being between the ages of 16 and 25 on the hiring date; as not having been regularly employed or regularly attended any secondary, technical, or post-secondary school during the six-month period preceding the hiring date; and as not readily employable by reason of lacking a sufficient number of basic skills. The guidance provides that an individual was not regularly employed if, during each consecutive three-month period within the six months preceding the hiring date, the individual earned less than an amount equal to the gross amount the individual would have earned working at the minimum wage for 30 hours every week during the three-month period.

  An individual was not regularly attending school if the individual states in writing that during the six months preceding the hiring date, he or she has not attended a secondary, technical or postsecondary school for more than an average of 10 hours per week, not counting periods during which the school is closed for scheduled vacations. A general education development (GED) program does not qualify as a secondary school.

  Finally, an individual is not readily employable by reason of lacking a sufficient number of basic skills if the individual states in writing that he or she (i) does not have a certificate of graduation from a secondary school or a GED Certificate; or (ii) has a certificate of graduation from a secondary school or a GED certificate that was awarded no less than six months preceding the hiring date, but has not held a job or been admitted to a technical school or post-secondary school since receiving the certificate. Thus, the WOTC for disaffected youth extends to high school graduates who have been unemployed for at least six months since finishing school.

Transitional Relief

  Generally, a worker cannot be treated as a member of a targeted group that qualifies for the WOTC unless the employer obtains certification from a designated local agency on or before the day the individual begins work that the individual is a member of a targeted group, or completes a pre-screening notice (IRS Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit) on or before the day the individual is offered employment and submits that notice to the designated local agency to request certification not later than 28 days after the individual begins work. However, any employer who hires an unemployed veteran or a disconnected youth after December 31, 2008, and before July 17, 2009, will be considered to satisfy the certification deadline if the employer submits the pre-screening notice to the designated local agency to request certification not later than August 17, 2009. The IRS also announced that a revised Form 8850 is now available on the IRS website.

IR-2009-55,
2009FED ¶46,383

Notice 2009-28, 2009FED ¶46,384

Other References:

 
Code Sec. 51

  CCH Reference - 2009FED ¶4803.03

  CCH Reference - 2009FED ¶4803.65

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 54,258.55
CCH Reference - TRC BUSEXP: 54,258.60

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Kansas Gov. Mark Parkinson has signed legislation that amends several statute of limitation provisions relating to income taxes and makes a number of adjustments to various corporate, personal, insurance premiums, and financial institutions privilege tax credits. These changes are discussed in more detail below.

CCH (cch.taxgroup.com) reports:

  Sec. 19138, Rev. & Tax. Code, which imposes a 20% penalty on any taxpayer with an understatement of California corporation franchise or income tax in excess of $1 million for any taxable year beginning after 2002, does not violate state or federal constitutional provisions, according to a California superior court. A nonprofit organization, which includes among its members more than 200 corporations subject to California corporation franchise and income tax laws, filed suit challenging the constitutionality of Sec. 19138, alleging that the statute (1) violated Art. XIIIA, Sec. 3 (Proposition 13), of the California Constitution, because the penalty was in effect a tax or a change in state taxes that was not passed by at least two-thirds of the members of each house of the Legislature; (2) violated Art. IV, Sec. 8(b), of the California Constitution, because S.B. x1 28, which enacted the provision, was not printed and distributed to members of the Assembly and Senate before it was passed, and/or because the Senate dispensed with the constitutional reading requirement by resolution without a two-thirds roll-call vote; (3) was facially unconstitutional under the Excessive Fines Clause of the Eighth Amendment to the U.S. Constitution because the amount of the penalty was grossly disproportionate to the gravity of the offense; (4) violated substantive due process guarantees of the Fourteenth Amendment to the U.S. Constitution because the statute was vague and retroactive; (5) violated procedural due process rights because Sec. 19138(e) afforded no pre- or post-payment review, except on the grounds that the penalty was not properly computed by the Franchise Tax Board (FT; (6) violated the Commerce Clause of the U.S. Constitution because the statute disproportionately burdened interstate commerce; and (7) was unconstitutional under the Equal Protection Clause of the U.S. Constitution because the statute discriminated against interstate businesses in favor of similarly situated intrastate businesses.

CCH (cch.taxgroup.com) reports:

An IRS Appeals officer correctly upheld the filing of a notice of tax lien against a tax attorney and his wife who filed their joint return more than two years after the due date and made no payment with the filing. Penalties for failure to timely file and for failure to pay were also imposed. The attorney did not substantiate his argument that the IRS had not credited the couple with two substantial payments. Furthermore, in some of their ten prior tax years of untimely filing, the IRS had abated the couple's penalties and interest; the couple contended that if this abatement had been applied consistently over the ten prior tax years, they would have had an overpayment credit to offset against their current tax liability. However, the couple did not present credible evidence regarding the appropriateness of any further abatement for a prior year, and an abatement in a prior year does not establish entitlement to an abatement in any other year. Finally, the couple's argument that they were not liable for any penalties because the husband's criminal investigation and subsequent incarceration were reasonable cause for the untimely filing and the failure to pay was rejected. Incarceration alone does not constitute reasonable cause for purposes of the penalties.
M.E. Kohn, TC Memo 2009-117, Dec. 57,833(M)
 
Other References:
 
Code Sec. 6330
 
CCH Reference - 2009FED ¶38,184.62
 
Code Sec. 6651
 
CCH Reference - 2009FED ¶39,475.56
 
Tax Research Consultant
 
CCH Reference - TRC IRS: 45,102
CCH Reference - TRC PENALTY: 3,050
 

CCH (cch.taxgroup.com) reports:

The IRS has issued guidance concerning the treatment of employer-owned life insurance contracts under Code Secs. 101(j) and 6039I . The guidance, issued in question-and-answer format, addresses the definition of the term "employer-owned life insurance contract," exceptions to the application of Code Sec. 101(j)(1) , satisfaction of the notice and consent requirements of Code Sec. 101(j)(4) , a transition rule for life insurance contracts issued after August 17, 2006, pursuant to a Code Sec. 1035 exchange, and information reporting under Code Sec. 6039I and Form 8925.

The guidance is effective June 15, 2009. However, the IRS will not challenge a taxpayer who made a good-faith effort to comply with Code Sec. 101(j) based on a reasonable interpretation of that provision before June 15, 2009.

Notice 2009-48, 2009FED ¶46,377

Other References:

Code Sec. 101

CCH Reference - 2009FED ¶6504.022

CCH Reference - 2009FED ¶6504.503

Code Sec. 6039I

CCH Reference - 2009FED ¶35,699F.01

CCH Reference - 2009FED ¶35,699F.075

Tax Research Consultant

CCH Reference - TRC INDIV: 30,304

CCH Reference - TRC FILEBUS: 9,376

 
CCH Reference - TRC INTL: 30,077
 

CCH (cch.taxgroup.com) reports:

The IRS has released a proposed safe harbor addressing the application of life insurance rules to policies that mature after the insured individual attains the age of 100. The IRS has also requested comments on the proposal, as well as on the treatment of amounts received under a life insurance contract after it has matured.

Proposed Safe Harbor

Under the proposed safe harbor, the IRS would not challenge the qualification of a life inusrance contract, or assert that a contract is a modified endowment contract (MEC), as long as the contract satisfies the applicable statutory requirements using all of these Age 100 Testing Methodologies:

1. All determination, other than the cash value corridor, would assume that the contract will mature by the date the insured attains age 100, notwithstanding a later contractual maturity date.

2. The net single premium determined for purposes of the cash value accumulation test, and the necessary premiums would assume an endowment on the date the insured attains age 100.

3. The guideline level premium would assume premium payments through the date the insured attains age 99.

4. The sum of the guideline level premiums would increase through a date no earlier than the date the insured attains age 95, and no later than the date the insured attains age 99. Thereafter, premium payments would be allowed and would be tested against this limit, but the sum of the guideline level premiums would not change.

5. In the case of a contract issued or materially changed within fewer than seven years of the insured's attaining age 100, the net level premium would be computed assuming level annual premium payments over the number of years between the date the contract is issued or materially changed and the date the insured attains age 100.

6. If the net level premium is computed over a period of less than seven years because of an issuance or material change within fewer than seven years of the insured's attaining age 100, the sum of the net level premiums would increase through attained age 100. Thereafter, the sum of the net level premiums would not increase, but premium payments would be allowed and would be tested against this limit for the remainder of the seven-year period.

7. The rules concerning reductions in benefits within the first seven contract years would apply whether or not a contract is issued or materially changed fewer than seven years before the date the insured attains age 100.

8. A change in benefits under (or in other terms of) a life insurance contract that occurs on or after the date the insured attains age 100 would not be treated as a material change or as an adjustment event.

9. Notwithstanding these methodologies, a contract that remains in force would additionally be required to provide at all times a death benefit equal to or greater than 105 percent of the cash value.

Comments Requested

Comments are requested concerning the proposed safe harbor, and additional issues that may arise in situations where a life insurance contract matures after the insured has attained age 100. Comments should be submitted in writing on or before October 13, 2009, and should contain a reference to Notice 2009-47.

Notice 2009-47, 2009FED ¶46,376

Other References:

Code Sec. 7702

CCH Reference - 2009FED ¶43,155.55

Code Sec. 7702A

CCH Reference - 2009FED ¶43,165.50

Tax Research Consultant

CCH Reference - TRC INDIV: 30,400
 

CCH (cch.taxgroup.com) reports:

  The IRS has issued a final regulation that provides guidance for determining which corporations are included in a controlled group of corporations. The regulation adopts without substantive changes a temporary and proposed regulation that was issued on December 22, 2006 (T.D. 9304; NPRM REG-161919-05), and amended on December 26, 2007 (T.D. 9369; NPRM REG-161919-05). The temporary regulation, Temporary Reg. 1.1563-1T, expired on May 26, 2009. Other proposed regulations that were published as part of T.D. 9304 were not adopted; their status will be addressed at a later date.

  The final regulation reflects the modified definition of a brother-sister controlled group under Code Sec. 1563(a)(2) by the American Jobs Creation Act of 2004 (P.L. 108-357). The regulation further clarifies that an S corporation is treated as an excluded member of a controlled group for purposes of any tax benefit item to which it is not subject. In addition, if one or more life insurance companies are members of an affiliated group for the consolidated return year for which a Code Sec. 1504(c)(2) election is in effect, then those members are not treated as either excluded members of the controlled group or as members of a separate life insurance controlled group. Rather, any eligible members are treated as members of the consolidated group, and any ineligible members are treated, along with the eligible and includible members of the consolidated group, as members of a life-nonlife controlled group.

  The regulation applies to tax years beginning on or after May 26, 2009. However, taxpayers may apply the regulation to tax years beginning prior to May 26, 2009, using Temporary Reg. 1.1563-1T.

   
T.D. 9451, 2009FED ¶47,019
 
Other References:
 
Code Sec. 1563
 
CCH Reference - 2009FED ¶33,361C
 
CCH Reference - 2009FED ¶33,363
 
Tax Research Consultant
 
CCH Reference - TRC CCORP: 42,202
 
CCH Reference - TRC CCORP: 42,204
 

CCH (cch.taxgroup.com) reports:

  Kansas Gov. Mark Parkinson has signed legislation that amends several statute of limitation provisions relating to income taxes and makes a number of adjustments to various corporate, personal, insurance premiums, and financial institutions privilege tax credits. These changes are discussed in more detail below.

CCH (cch.taxgroup.com) reports:

  Sec. 19138, Rev. & Tax. Code, which imposes a 20% penalty on any taxpayer with an understatement of California corporation franchise or income tax in excess of $1 million for any taxable year beginning after 2002, does not violate state or federal constitutional provisions, according to a California superior court. A nonprofit organization, which includes among its members more than 200 corporations subject to California corporation franchise and income tax laws, filed suit challenging the constitutionality of Sec. 19138, alleging that the statute (1) violated Art. XIIIA, Sec. 3 (Proposition 13), of the California Constitution, because the penalty was in effect a tax or a change in state taxes that was not passed by at least two-thirds of the members of each house of the Legislature; (2) violated Art. IV, Sec. 8(b), of the California Constitution, because S.B. x1 28, which enacted the provision, was not printed and distributed to members of the Assembly and Senate before it was passed, and/or because the Senate dispensed with the constitutional reading requirement by resolution without a two-thirds roll-call vote; (3) was facially unconstitutional under the Excessive Fines Clause of the Eighth Amendment to the U.S. Constitution because the amount of the penalty was grossly disproportionate to the gravity of the offense; (4) violated substantive due process guarantees of the Fourteenth Amendment to the U.S. Constitution because the statute was vague and retroactive; (5) violated procedural due process rights because Sec. 19138(e) afforded no pre- or post-payment review, except on the grounds that the penalty was not properly computed by the Franchise Tax Board (FT; (6) violated the Commerce Clause of the U.S. Constitution because the statute disproportionately burdened interstate commerce; and (7) was unconstitutional under the Equal Protection Clause of the U.S. Constitution because the statute discriminated against interstate businesses in favor of similarly situated intrastate businesses.

CCH (cch.taxgroup.com) reports:

An IRS Appeals officer correctly upheld the filing of a notice of tax lien against a tax attorney and his wife who filed their joint return more than two years after the due date and made no payment with the filing. Penalties for failure to timely file and for failure to pay were also imposed. The attorney did not substantiate his argument that the IRS had not credited the couple with two substantial payments. Furthermore, in some of their ten prior tax years of untimely filing, the IRS had abated the couple's penalties and interest; the couple contended that if this abatement had been applied consistently over the ten prior tax years, they would have had an overpayment credit to offset against their current tax liability. However, the couple did not present credible evidence regarding the appropriateness of any further abatement for a prior year, and an abatement in a prior year does not establish entitlement to an abatement in any other year. Finally, the couple's argument that they were not liable for any penalties because the husband's criminal investigation and subsequent incarceration were reasonable cause for the untimely filing and the failure to pay was rejected. Incarceration alone does not constitute reasonable cause for purposes of the penalties.
M.E. Kohn, TC Memo 2009-117, Dec. 57,833(M)
 
Other References:
 
Code Sec. 6330
 
CCH Reference - 2009FED ¶38,184.62
 
Code Sec. 6651
 
CCH Reference - 2009FED ¶39,475.56
 
Tax Research Consultant
 
CCH Reference - TRC IRS: 45,102
CCH Reference - TRC PENALTY: 3,050
 

CCH (cch.taxgroup.com) reports:

The IRS has issued guidance concerning the treatment of employer-owned life insurance contracts under Code Secs. 101(j) and 6039I . The guidance, issued in question-and-answer format, addresses the definition of the term "employer-owned life insurance contract," exceptions to the application of Code Sec. 101(j)(1) , satisfaction of the notice and consent requirements of Code Sec. 101(j)(4) , a transition rule for life insurance contracts issued after August 17, 2006, pursuant to a Code Sec. 1035 exchange, and information reporting under Code Sec. 6039I and Form 8925.

The guidance is effective June 15, 2009. However, the IRS will not challenge a taxpayer who made a good-faith effort to comply with Code Sec. 101(j) based on a reasonable interpretation of that provision before June 15, 2009.

Notice 2009-48, 2009FED ¶46,377

Other References:

Code Sec. 101

CCH Reference - 2009FED ¶6504.022

CCH Reference - 2009FED ¶6504.503

Code Sec. 6039I

CCH Reference - 2009FED ¶35,699F.01

CCH Reference - 2009FED ¶35,699F.075

Tax Research Consultant

CCH Reference - TRC INDIV: 30,304

CCH Reference - TRC FILEBUS: 9,376

 
CCH Reference - TRC INTL: 30,077
 

CCH (cch.taxgroup.com) reports:

The IRS has released a proposed safe harbor addressing the application of life insurance rules to policies that mature after the insured individual attains the age of 100. The IRS has also requested comments on the proposal, as well as on the treatment of amounts received under a life insurance contract after it has matured.

Proposed Safe Harbor

Under the proposed safe harbor, the IRS would not challenge the qualification of a life inusrance contract, or assert that a contract is a modified endowment contract (MEC), as long as the contract satisfies the applicable statutory requirements using all of these Age 100 Testing Methodologies:

1. All determination, other than the cash value corridor, would assume that the contract will mature by the date the insured attains age 100, notwithstanding a later contractual maturity date.

2. The net single premium determined for purposes of the cash value accumulation test, and the necessary premiums would assume an endowment on the date the insured attains age 100.

3. The guideline level premium would assume premium payments through the date the insured attains age 99.

4. The sum of the guideline level premiums would increase through a date no earlier than the date the insured attains age 95, and no later than the date the insured attains age 99. Thereafter, premium payments would be allowed and would be tested against this limit, but the sum of the guideline level premiums would not change.

5. In the case of a contract issued or materially changed within fewer than seven years of the insured's attaining age 100, the net level premium would be computed assuming level annual premium payments over the number of years between the date the contract is issued or materially changed and the date the insured attains age 100.

6. If the net level premium is computed over a period of less than seven years because of an issuance or material change within fewer than seven years of the insured's attaining age 100, the sum of the net level premiums would increase through attained age 100. Thereafter, the sum of the net level premiums would not increase, but premium payments would be allowed and would be tested against this limit for the remainder of the seven-year period.

7. The rules concerning reductions in benefits within the first seven contract years would apply whether or not a contract is issued or materially changed fewer than seven years before the date the insured attains age 100.

8. A change in benefits under (or in other terms of) a life insurance contract that occurs on or after the date the insured attains age 100 would not be treated as a material change or as an adjustment event.

9. Notwithstanding these methodologies, a contract that remains in force would additionally be required to provide at all times a death benefit equal to or greater than 105 percent of the cash value.

Comments Requested

Comments are requested concerning the proposed safe harbor, and additional issues that may arise in situations where a life insurance contract matures after the insured has attained age 100. Comments should be submitted in writing on or before October 13, 2009, and should contain a reference to Notice 2009-47.

Notice 2009-47, 2009FED ¶46,376

Other References:

Code Sec. 7702

CCH Reference - 2009FED ¶43,155.55

Code Sec. 7702A

CCH Reference - 2009FED ¶43,165.50

Tax Research Consultant

CCH Reference - TRC INDIV: 30,400
 

CCH (cch.taxgroup.com) reports:

  The IRS has issued a final regulation that provides guidance for determining which corporations are included in a controlled group of corporations. The regulation adopts without substantive changes a temporary and proposed regulation that was issued on December 22, 2006 (T.D. 9304; NPRM REG-161919-05), and amended on December 26, 2007 (T.D. 9369; NPRM REG-161919-05). The temporary regulation, Temporary Reg. 1.1563-1T, expired on May 26, 2009. Other proposed regulations that were published as part of T.D. 9304 were not adopted; their status will be addressed at a later date.

  The final regulation reflects the modified definition of a brother-sister controlled group under Code Sec. 1563(a)(2) by the American Jobs Creation Act of 2004 (P.L. 108-357). The regulation further clarifies that an S corporation is treated as an excluded member of a controlled group for purposes of any tax benefit item to which it is not subject. In addition, if one or more life insurance companies are members of an affiliated group for the consolidated return year for which a Code Sec. 1504(c)(2) election is in effect, then those members are not treated as either excluded members of the controlled group or as members of a separate life insurance controlled group. Rather, any eligible members are treated as members of the consolidated group, and any ineligible members are treated, along with the eligible and includible members of the consolidated group, as members of a life-nonlife controlled group.

  The regulation applies to tax years beginning on or after May 26, 2009. However, taxpayers may apply the regulation to tax years beginning prior to May 26, 2009, using Temporary Reg. 1.1563-1T.

   
T.D. 9451, 2009FED ¶47,019
 
Other References:
 
Code Sec. 1563
 
CCH Reference - 2009FED ¶33,361C
 
CCH Reference - 2009FED ¶33,363
 
Tax Research Consultant
 
CCH Reference - TRC CCORP: 42,202
 
CCH Reference - TRC CCORP: 42,204
 

CCH (cch.taxgroup.com) reports:

  Kansas Gov. Mark Parkinson has signed legislation that amends several statute of limitation provisions relating to income taxes and makes a number of adjustments to various corporate, personal, insurance premiums, and financial institutions privilege tax credits. These changes are discussed in more detail below.

CCH (cch.taxgroup.com) reports:

  Sec. 19138, Rev. & Tax. Code, which imposes a 20% penalty on any taxpayer with an understatement of California corporation franchise or income tax in excess of $1 million for any taxable year beginning after 2002, does not violate state or federal constitutional provisions, according to a California superior court. A nonprofit organization, which includes among its members more than 200 corporations subject to California corporation franchise and income tax laws, filed suit challenging the constitutionality of Sec. 19138, alleging that the statute (1) violated Art. XIIIA, Sec. 3 (Proposition 13), of the California Constitution, because the penalty was in effect a tax or a change in state taxes that was not passed by at least two-thirds of the members of each house of the Legislature; (2) violated Art. IV, Sec. 8(b), of the California Constitution, because S.B. x1 28, which enacted the provision, was not printed and distributed to members of the Assembly and Senate before it was passed, and/or because the Senate dispensed with the constitutional reading requirement by resolution without a two-thirds roll-call vote; (3) was facially unconstitutional under the Excessive Fines Clause of the Eighth Amendment to the U.S. Constitution because the amount of the penalty was grossly disproportionate to the gravity of the offense; (4) violated substantive due process guarantees of the Fourteenth Amendment to the U.S. Constitution because the statute was vague and retroactive; (5) violated procedural due process rights because Sec. 19138(e) afforded no pre- or post-payment review, except on the grounds that the penalty was not properly computed by the Franchise Tax Board (FT; (6) violated the Commerce Clause of the U.S. Constitution because the statute disproportionately burdened interstate commerce; and (7) was unconstitutional under the Equal Protection Clause of the U.S. Constitution because the statute discriminated against interstate businesses in favor of similarly situated intrastate businesses.

CCH (cch.taxgroup.com) reports:

An IRS Appeals officer correctly upheld the filing of a notice of tax lien against a tax attorney and his wife who filed their joint return more than two years after the due date and made no payment with the filing. Penalties for failure to timely file and for failure to pay were also imposed. The attorney did not substantiate his argument that the IRS had not credited the couple with two substantial payments. Furthermore, in some of their ten prior tax years of untimely filing, the IRS had abated the couple's penalties and interest; the couple contended that if this abatement had been applied consistently over the ten prior tax years, they would have had an overpayment credit to offset against their current tax liability. However, the couple did not present credible evidence regarding the appropriateness of any further abatement for a prior year, and an abatement in a prior year does not establish entitlement to an abatement in any other year. Finally, the couple's argument that they were not liable for any penalties because the husband's criminal investigation and subsequent incarceration were reasonable cause for the untimely filing and the failure to pay was rejected. Incarceration alone does not constitute reasonable cause for purposes of the penalties.
M.E. Kohn, TC Memo 2009-117, Dec. 57,833(M)
 
Other References:
 
Code Sec. 6330
 
CCH Reference - 2009FED ¶38,184.62
 
Code Sec. 6651
 
CCH Reference - 2009FED ¶39,475.56
 
Tax Research Consultant
 
CCH Reference - TRC IRS: 45,102
CCH Reference - TRC PENALTY: 3,050
 

CCH (cch.taxgroup.com) reports:

The IRS has issued guidance concerning the treatment of employer-owned life insurance contracts under Code Secs. 101(j) and 6039I . The guidance, issued in question-and-answer format, addresses the definition of the term "employer-owned life insurance contract," exceptions to the application of Code Sec. 101(j)(1) , satisfaction of the notice and consent requirements of Code Sec. 101(j)(4) , a transition rule for life insurance contracts issued after August 17, 2006, pursuant to a Code Sec. 1035 exchange, and information reporting under Code Sec. 6039I and Form 8925.

The guidance is effective June 15, 2009. However, the IRS will not challenge a taxpayer who made a good-faith effort to comply with Code Sec. 101(j) based on a reasonable interpretation of that provision before June 15, 2009.

Notice 2009-48, 2009FED ¶46,377

Other References:

Code Sec. 101

CCH Reference - 2009FED ¶6504.022

CCH Reference - 2009FED ¶6504.503

Code Sec. 6039I

CCH Reference - 2009FED ¶35,699F.01

CCH Reference - 2009FED ¶35,699F.075

Tax Research Consultant

CCH Reference - TRC INDIV: 30,304

CCH Reference - TRC FILEBUS: 9,376

 
CCH Reference - TRC INTL: 30,077
 

CCH (cch.taxgroup.com) reports:

The IRS has released a proposed safe harbor addressing the application of life insurance rules to policies that mature after the insured individual attains the age of 100. The IRS has also requested comments on the proposal, as well as on the treatment of amounts received under a life insurance contract after it has matured.

Proposed Safe Harbor

Under the proposed safe harbor, the IRS would not challenge the qualification of a life inusrance contract, or assert that a contract is a modified endowment contract (MEC), as long as the contract satisfies the applicable statutory requirements using all of these Age 100 Testing Methodologies:

1. All determination, other than the cash value corridor, would assume that the contract will mature by the date the insured attains age 100, notwithstanding a later contractual maturity date.

2. The net single premium determined for purposes of the cash value accumulation test, and the necessary premiums would assume an endowment on the date the insured attains age 100.

3. The guideline level premium would assume premium payments through the date the insured attains age 99.

4. The sum of the guideline level premiums would increase through a date no earlier than the date the insured attains age 95, and no later than the date the insured attains age 99. Thereafter, premium payments would be allowed and would be tested against this limit, but the sum of the guideline level premiums would not change.

5. In the case of a contract issued or materially changed within fewer than seven years of the insured's attaining age 100, the net level premium would be computed assuming level annual premium payments over the number of years between the date the contract is issued or materially changed and the date the insured attains age 100.

6. If the net level premium is computed over a period of less than seven years because of an issuance or material change within fewer than seven years of the insured's attaining age 100, the sum of the net level premiums would increase through attained age 100. Thereafter, the sum of the net level premiums would not increase, but premium payments would be allowed and would be tested against this limit for the remainder of the seven-year period.

7. The rules concerning reductions in benefits within the first seven contract years would apply whether or not a contract is issued or materially changed fewer than seven years before the date the insured attains age 100.

8. A change in benefits under (or in other terms of) a life insurance contract that occurs on or after the date the insured attains age 100 would not be treated as a material change or as an adjustment event.

9. Notwithstanding these methodologies, a contract that remains in force would additionally be required to provide at all times a death benefit equal to or greater than 105 percent of the cash value.

Comments Requested

Comments are requested concerning the proposed safe harbor, and additional issues that may arise in situations where a life insurance contract matures after the insured has attained age 100. Comments should be submitted in writing on or before October 13, 2009, and should contain a reference to Notice 2009-47.

Notice 2009-47, 2009FED ¶46,376

Other References:

Code Sec. 7702

CCH Reference - 2009FED ¶43,155.55

Code Sec. 7702A

CCH Reference - 2009FED ¶43,165.50

Tax Research Consultant

CCH Reference - TRC INDIV: 30,400
 

CCH (cch.taxgroup.com) reports:

The IRS has issued a final regulation that provides guidance for determining which corporations are included in a controlled group of corporations. The regulation adopts without substantive changes a temporary and proposed regulation that was issued on December 22, 2006 (T.D. 9304; NPRM REG-161919-05), and amended on December 26, 2007 (T.D. 9369; NPRM REG-161919-05). The temporary regulation, Temporary Reg. 1.1563-1T, expired on May 26, 2009. Other proposed regulations that were published as part of T.D. 9304 were not adopted; their status will be addressed at a later date.
The final regulation reflects the modified definition of a brother-sister controlled group under Code Sec. 1563(a)(2) by the American Jobs Creation Act of 2004 (P.L. 108-357). The regulation further clarifies that an S corporation is treated as an excluded member of a controlled group for purposes of any tax benefit item to which it is not subject. In addition, if one or more life insurance companies are members of an affiliated group for the consolidated return year for which a Code Sec. 1504(c)(2) election is in effect, then those members are not treated as either excluded members of the controlled group or as members of a separate life insurance controlled group. Rather, any eligible members are treated as members of the consolidated group, and any ineligible members are treated, along with the eligible and includible members of the consolidated group, as members of a life-nonlife controlled group.
 
The regulation applies to tax years beginning on or after May 26, 2009. However, taxpayers may apply the regulation to tax years beginning prior to May 26, 2009, using Temporary Reg. 1.1563-1T.
 
T.D. 9451, 2009FED ¶47,019
 
Other References:
 
Code Sec. 1563
 
CCH Reference - 2009FED ¶33,361C
 
CCH Reference - 2009FED ¶33,363
 
Tax Research Consultant
 
CCH Reference - TRC CCORP: 42,202
 
CCH Reference - TRC CCORP: 42,204
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  For purposes of the credit against Maryland corporate income tax for biotechnology investments, the definition of "qualified investor" has been expanded to include individuals. The legislation also clarifies that the taxable year for which the credit may be claimed is the taxable year in which the investment is made. Further clarified is that the recapture of the credit is within 2 years from the close of the taxable year for which the credit is claimed.

  Subscribers can view the legislation.
 

Ch. 606 (H.B. 493), Laws 2009, effective July 1, 2009
 

CCH (cch.taxgroup.com) reports:

  Maryland has enacted legislation that decouples from a provision of the American Recovery and Reinvestment Act of 2009 (Recovery Act) (P.L. 111-5) that allows taxpayers to defer income from the discharge of indebtedness in connection with the reacquisition after December 31, 2008, and before January 1, 2011, of a corporate or business debt instrument. The amendment applies to any taxable year to which IRC Sec. 108(i), as amended by the Recovery Act, applies.

  Subscribers can view the legislation.
 
Ch. 487 (H.B. 101), Laws 2009, applicable as noted

CCH (cch.taxgroup.com) reports:

  Senate Finance Committee Chairman Max Baucus, D-Mont., and ranking member Charles E. Grassley, R-Iowa, on May 18 released policy options for financing reform of the health care system with potential funding sources through changing the exclusion for employer-provided health insurance and increasing taxes on alcoholic beverages and imposing an excise tax on sugar-sweetened beverages. However, during his campaign, President Obama said he was opposed to taxing employee health care benefits. The IRS, meanwhile, reminded taxpayers of small business tax incentives in recently passed legislation and issued guidance for regulated investment companies (RICs) and real estate investment trusts (REITs). Testifying before Congress, IRS Commissioner Douglas H. Shulman pledged to use additional funding to close the tax gap. The Treasury Inspector General for Tax Administration (TIGTA) examined the Service's oversight of political activities by exempt organizations.

Congress

  In addition to changing the exclusion for employer-provided health insurance, Baucus and Grassley also suggested other funding sources, including increasing taxes on alcoholic beverages and imposing an excise tax on sugar-sweetened beverages (TAXDAY, 2009/05/19, C.1). Following a closed-door meeting of committee members on May 20, Baucus told reporters that tax increases were broadly unpopular among members but all options remained on the table. He has also proposed modifying health savings accounts (HSAs), modifying or eliminating flexible spending accounts (FSAs), standardizing the definition of qualified medical expenses or modifying the itemized deduction for medical expenses by raising the 7.5-percent floor for claiming deductions. Also under consideration is elimination of the itemized deduction for medical expenses. Baucus said he plans to hold a markup of healthcare reform legislation by the end of June.

  During the campaign, President Obama said he was opposed to taxing employee health care benefits. Obama is "deeply skeptical of any reform that taxes benefits," according to Linda Douglass, a spokeswoman at the White House Office of Health Reform. Douglass said that the administration is discussing options with Congress, but the president believes that health care reform should "build upon the existing employer-based health care system."

  A panel of financial experts testified before the House Subcommittee on Select Revenue Measures on May 21 that the municipal bond market is beginning to show signs of recovery, in part because of the effects of the American Recovery and Reinvestment Act of 2009 (P.L. 111-5) (TAXDAY, 2009/05/26, C.1). The Build America Bonds program included in the 2009 Recovery Act has expanded the pool of investors and increased market access for state and local governments, the experts said. Alan Krueger, Treasury Assistant Secretary for Economic Policy, said Treasury is working on new compliance procedures for the new bond program as well as a long-term guidance on credit stripping.

  House lawmakers are again waiting for their Senate counterparts to take action on an FAA reauthorization bill (TAXDAY, 2009/05/26, C.2). By a vote of 277 to 136, the House agreed on May 21 to pass HR 915, the FAA Reauthorization Bill of 2009. The current FAA reauthorization expires in September 2009, but Senate inaction could force lawmakers to continue their habit of passing temporary extensions while they work out differences. Senate lawmakers have just recently started to draft their own version of the legislation (TAXDAY,2009/05/14, C.1).

  GOP lawmakers on May 20 introduced health care reform legislation that would shift health care tax benefits to individuals and families in the form of a tax rebate worth about $2,200 for individuals and $5,700 for families (TAXDAY, 2009/05/26, C.4). The Patients' Choice Bill of 2009 would, however, eliminate the current unlimited exclusion for employer-provided health care.

IRS/Treasury

  Business Tax Incentives. To mark Small Business Week, the IRS highlighted some of the business provisions in the American Recovery and Reinvestment Act of 2009 (2009 Recovery Act) (P.L. 111-5) and other recent tax legislation (IR-2009-51, FS-2009-11; TAXDAY, 2009/05/21, I.3). Under the 2009 Recovery Act, qualified businesses may be eligible for an extended net operating loss (NOL) carryback. Bonus depreciation and enhanced Code Sec. 179 expensing is also available for 2009.

  REITs. The IRS provided procedures for which the filing by a regulated investment company (RIC) or a real estate investment trust (REIT) of Form 8927, Determination Under Section 860(e)(4) by a Qualified Investment Entity, is treated as a self-determination for purposes of the deficiency dividend procedures of Code Sec. 860 (Rev. Proc. 2009-28; TAXDAY, 2009/05/18, I.1).

  Tax Enforcement. Shulman told the House Appropriations Subcommittee on Financial Services and General Government on May 19 that the Service could collect an additional $2 billion in revenue if it could hire more enforcement personnel (TAXDAY, 2009/04/20, C.1). Shulman also promised to improve customer service.

  Treasury Secretary Timothy F. Geithner echoed Shulman's words on May 21. Geithner told lawmakers that the Treasury Department and the IRS will step up international tax enforcement (TAXDAY, 2009/05/26, C.3). Geithner also told Congress that the administration will not seek any major revenue increases until 2011. However, once the economy has recovered, the nation must put its "fiscal house in order," Geithner said

  TIGTA. The Treasury Inspector General for Tax Administration (TIGTA) gave the IRS generally positive marks for its Political Activities Compliance Initiative (TAXDAY, 2009/05/19, T.1).

  By Jeff Carlson, Stephen K. Cooper, Paula Cruickshank and George L. Yaksick, Jr., CCH News Staff

CCH (cch.taxgroup.com) reports:

  A deficiency notice adjusting only partnership items or affected items for one tax year did not confer jurisdiction on the Tax Court because it was issued before the partnership-level proceedings concerning the same issues, although for different tax years, had concluded. The notice of deficiency determined deficiencies and penalties that flowed from a previously issued final partnership administrative adjustment (FPAA), but the partnership-level case contesting the FPAA's determinations had not been resolved. No assessment of a deficiency attributable to any partnership item could be made until the partnership level proceeding was completed; consequently, the deficiency notice adjusting affected items was invalid.

Bausch & Lomb Incorporated, TC Memo. 2009-112, Dec. 57,828(M)

Other References:

 
Code Sec. 6221

  CCH Reference - 2009FED ¶37,569.12

  Tax Research Consultant

  CCH Reference - TRC PART: 60,056
CCH Reference -
TRC PART: 60,558
CCH Reference -
TRC LITIG: 7,150
 

CCH (cch.taxgroup.com) reports:

  Loan transactions made by two limited liability companies (LLCs) under a Son of BOSS tax-shelter scheme lacked economic substance; therefore, they were disregarded for tax purposes. The loan agreements between a bank and the LLCs failed the economic substance test because there was no reasonable expectation that the loan transactions would produce a profit. The bank's documentation and internal communications showed that the bank did not intend the funding amount to be used as leverage for high-risk foreign currency trading; rather, the funds were to be used for relatively risk-free time deposits and to create massive tax benefits for the law partners.

  Further, the government lacked standing to appeal the district court's ruling that neither Code Sec. 752 nor Reg. §1.752-6 operated to eliminate the claimed tax benefits arising from the partnerships' participation in the loan transactions. The government received the relief it requested; therefore, the government could not appeal the judgment. Furthermore, the district court's decisions regarding economic substance and penalties were independent of the ruling that the loan premiums were not liabilities under Code Sec. 752; thus, the government was also not aggrieved by any adverse collateral estoppel implications.

  The district court had jurisdiction to determine that accuracy-related penalties should not be imposed on the partnerships. The government's challenge to the court's jurisdiction over the issues of the individual partners' reasonable cause and good faith defenses to the imposition of penalties was rejected. The court could consider such defenses at the partnership level because they were asserted by the LLCs' managing partners on behalf of the partnerships.

  However, in determining whether the operating expenses and fees were deductible, the district court erred by failing to consider which partners effectively controlled the management of the partnerships' affairs at the time the transactions occurred. The court incorrectly attributed the managing partners' motive to the partnerships; instead, it was required to determine the partnerships' profit motive, regardless of whether the operating expenses were borne any one partner.

  The district court also incorrectly concluded that interest payments associated with the loans were deductible because they were real economic losses. However, since the loan transactions lacked economic substance, the loans did not constitute indebtedness; therefore, the partnerships could not deduct the interest paid under Code Sec. 163.

  Finally, Code Sec. 6230(d)(5) did not authorize the court to order a refund in a readjustment action brought under Code Sec. 6226. Rather, the partnerships were required to seek a refund through administrative proceedings.

  Affirming in part, vacating and remanding in part, a DC Tex. decision, 2007-1 USTC ¶50,223.

Klamath Strategic Investment Fund, CA-5, 2009-1 USTC ¶50,395

Other References:

 
Code Sec. 163

  CCH Reference - 2009FED ¶9104.264

 
Code Sec. 212

  CCH Reference - 2009FED ¶12,523.243

 
Code Sec. 704

  CCH Reference - 2009FED ¶25,124.23

 
Code Sec. 752

  CCH Reference - 2009FED ¶25,526.17

 
Code Sec. 6221

  CCH Reference - 2009FED ¶37,569.12

 
Code Sec. 6226

  CCH Reference - 2009FED ¶37,709.01

 
Code Sec. 6230

  CCH Reference - 2009FED ¶37,769.15

 
Code Sec. 6662

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

  CCH Reference - 2009FED ¶39,652.72

  CCH Reference - 2009FED ¶39,654.20

 
Code Sec. 6664

  CCH Reference - 2009FED ¶39,661.65

 
Code Sec. 7805

  CCH Reference - 2009FED ¶43,282.169

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 30,168
CCH Reference -
TRC SALES: 3,154
CCH Reference -
TRC PART: 3,158
CCH Reference -
TRC PART: 60,552
CCH Reference - TRC PENALTY: 3,106.05
CCH Reference - TRC PENALTY: 3,106.10
CCH Reference - TRC PENALTY: 3,10.6.15
CCH Reference - TRC PENALTY: 3,116
 

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Under recently enacted Colorado legislation, a mutual fund service corporation that provides management, distribution, and administrative services for a regulated investment company must source mutual fund sales to Colorado for corporate income tax purposes based on the percentage of shareholders in the regulated investment company that are domiciled in the state. Previously, mutual fund service corporations were required to apportion income to Colorado. Additionally, the sourcing requirement now applies to all mutual fund service corporations, rather than just those that derive more than 50% of gross income from mutual fund advisory services.

  Subscribers may view the text of the bill.
 
H.B. 1311, Laws 2009, effective May 18, 2009
 

CCH (cch.taxgroup.com) reports:

  California voters on May 19, 2009, rejected a budget stabilization proposition that would have extended the sunset date of personal income tax and sales and use tax increases and would have led to the sunset of vehicle license fee increases sooner. (TAXDAY, 2009/02/23, S.4)

  As a result, the increased personal income tax and alternative minimum tax rates and the reduction in the dependent credit that begin with the 2009 taxable year will end after tax year 2010, rather than remaining in effect through the 2012 taxable year.

  The additional 1% sales and use tax that took effect on April 1, 2009, will expire on July 1, 2011, rather than one year later.

  The annual vehicle license fee increases that took effect on May 19, 2009, will continue through June 30, 2013, rather than expiring two years earlier.

Proposition 1A , rejected by California voters, May 19, 2009

CCH (cch.taxgroup.com) reports:

  The IRS has reminded small businesses of the tax savings available to them under the American Recovery and Reinvestment Act of 2009 (2009 Recovery Act) (P.L. 111-5).

  Small businesses may recover some capital expenses faster. The 2009 Recovery Act extended the 50-percent special depreciation allowance that was available for 2008 acquisitions to acquisitions of qualifying property in 2009, allowing businesses to immediately deduct half the adjusted basis of qualifying property. Also extended to 2009 is the ability of corporations that acquire eligible business property to accelerate certain tax credits in lieu of a bonus depreciation deduction. In addition, taxpayers may continue to expense up to $250,000 (rather than $133,000) of qualifying property under Code Sec. 179.

  Other provisions favorable to small businesses include:

  Businesses with net operating losses for 2008 may carry them back five years, rather than the usual two.

  Individual small business owners may be able to defer paying their 2009 estimated tax obligations until the end of the year.

  Employers who provide a 65-percent COBRA premium subsidy (as required by the 2009 Recovery Act) to former employees who were involuntarily terminated may claim a credit for this subsidy. In addition, such employers may reduce their employment tax deposits by the amount of the credit.

  The 2009 Recovery Act also contains business-favorable provisions related to: the discharge of business indebtedness, exclusion of gain on the sale of small business stock, the built-in gains of S corporations, commuter fringe benefits and various energy credits.

IR-2009-51,
2009FED ¶46,373

IRS Fact Sheet FS-2009-11, 2009FED ¶46,374

Other References:

 
Code Sec. 25C

  CCH Reference - 2009FED ¶3843.10

 
Code Sec. 25D

  CCH Reference - 2009FED ¶3847.001

 
Code Sec. 30C

  CCH Reference - 2009FED ¶4059K.10

 
Code Sec. 45

  CCH Reference - 2009FED ¶4415.30

 
Code Sec. 48

  CCH Reference - 2009FED ¶4671.001

  CCH Reference - 2009FED ¶4671.021

  CCH Reference - 2009FED ¶4671.045

 
Code Sec. 54C

  CCH Reference - 2009FED ¶4900.20

 
Code Sec. 108

  CCH Reference - 2009FED ¶7010.35

 
Code Sec. 132

  CCH Reference - 2009FED ¶7438.70

  CCH Reference - 2009FED ¶7438.75

 
Code Sec. 139C

  CCH Reference - 2009FED ¶7649M.001

 
Code Sec. 168

  CCH Reference - 2009FED ¶11,279.19

 
Code Sec. 172

  CCH Reference - 2009FED ¶12,014.3307

 
Code Sec. 179

  CCH Reference - 2009FED ¶12,126.57

 
Code Sec. 1202

  CCH Reference - 2009FED ¶30,375.01

 
Code Sec. 1374

  CCH Reference - 2009FED ¶32,203.25

 
Code Sec. 6432

  CCH Reference - 2009FED ¶38,940.025

 
Code Sec. 6654

  CCH Reference - 2009FED ¶39,560.75

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 45,154.55
CCH Reference - TRC BUSEXP: 54,550
CCH Reference - TRC BUSEXP: 54,558
CCH Reference - TRC BUSEXP: 55,806
CCH Reference - TRC COMPEN: 36,350
CCH Reference - TRC COMPEN: 36,354
CCH Reference - TRC COMPEN: 45,206.45
CCH Reference -
TRC DEPR: 3,600
CCH Reference -
TRC DEPR: 3,606
CCH Reference -
TRC DEPR: 12,104
CCH Reference - TRC FILEIND: 15,352
CCH Reference - TRC INDIV: 57,758
CCH Reference - TRC INDIV: 57,852
CCH Reference - TRC SALES: 12,252
CCH Reference - TRC SALES: 15,302.05
CCH Reference -
TRC SCORP: 356

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  A North Carolina corporate income statute regarding subsidiaries and affiliated corporations provides the Secretary of Revenue with the authority to require combined reporting if he finds as a fact that a report by a corporation does not disclose the true earnings of the corporation on its business carried on in the state.

CCH (cch.taxgroup.com) reports:

  The Minnesota House of Representatives and the Senate have passed an omnibus tax bill, H.F. 2323, reported out of a tax conference committee, that proposes an adjustment to personal income tax brackets; a surtax on certain interest income; an income tax credit for investments in certain businesses; and an increase in the fermented malt beverages tax. It does not include other provisions that, as previously reported, were included in the omnibus tax bills passed by the Senate on April 24, 2009, and the House on April 25, 2009. (TAXDAY, 2009/04/28, S.12)

CCH (cch.taxgroup.com) reports:

  The Georgetown University Law Center held its 32nd Annual Advanced State and Local Tax Institute on May 14 and 15, 2009, in Washington, DC. The program included panel discussions concerning a wide variety of state tax issues, including bankrupt or insolvent companies, nexus standards, penalties, financial instruments, economic and state budgetary conditions, tax shelters, administering gross receipts taxes, mergers and acquisitions, and litigation strategies.

CCH (cch.taxgroup.com) reports:

  Certain leasehold improvements made by a partnership to a hotel property owned by a city were substitutes for rent and were deductible under Code Sec. 162. The express language of the lease agreements and the surrounding circumstances evidenced the parties' intention that the improvements be substitutes for rent.

  The government's argument that rent credits should be limited in duration and amount was not supported by case law and was inconsistent with the intent of the parties to the lease. Further, the taxpayer's transfer of the improvements to the lessor was not illusory because the benefits and burdens surrounding the eligible improvements shifted from the taxpayer to the city in the year the improvements were transferred and credited against rent. Moreover, the rent credit arrangement had a subjective business purpose and had objective economic substance. The negotiation of the lease agreements to include rent credits provided the taxpayer with a significant benefit independent of any tax considerations in that the taxpayer was able to make necessary improvements to the hotel and reduce its rent on the basis of its cash outlay for the improvements. Further, the record reflected that the parties to the lease had valid business reasons for choosing the rent credit structure over other alternatives.

  The taxpayer's method of accounting for the improvements made in lieu of rent clearly reflected income; the IRS's determination to the contrary was an abuse of discretion. Although treating the cost of improvements as a rent expense, rather than depreciating the costs, enabled the taxpayer to increase its current deductions and reduce its taxable income in the year of the rent credit, the taxpayer consistently accounted for the improvements using an approved accounting method. Moreover, the taxpayer's change from depreciating to deducting the cost of an eligible improvement in the year in which it received a rent credit for the improvement was not a change in accounting method. When the taxpayer received a rent credit for the cost of an eligible improvement, the depreciable interest in the improvement was transferred to the lessor and the taxpayer treated that transfer as the deemed sale of the eligible improvement. By recognizing gain to the extent that the rent credit exceeded the depreciated basis in the improvement, the taxpayer effectively recaptured any depreciation it had previously claimed on that improvement. Because there was no chance of accounting method, the IRS's proposed adjustment under
Code Sec. 481 was improper.

Hopkins Partners, TC Memo. 2009-107, Dec. 57,823(M)

Other References:

 
Code Sec. 162

  CCH Reference - 2009FED ¶8630.42

  CCH Reference - 2009FED ¶8754.218

 
Code Sec. 446

  CCH Reference - 2009FED ¶20,620.208

  CCH Reference - 2009FED ¶20,620.239

 
Code Sec. 481

  CCH Reference - 2009FED ¶22,277.38

  Tax Research Consultant

  CCH Reference - TRC REAL: 12,302

  CCH Reference - TRC SALES: 42,254

  CCH Reference - TRC ACCTNG: 200

  CCH Reference - TRC ACCTNG: 21,050

CCH (cch.taxgroup.com) reports:

  Various prescribed rates for federal income tax purposes for June 2009 have been provided by the IRS. The annual short-term, mid-term and long-term applicable federal interest rates (AFRs) are 0.75 percent, 2.25 percent and 3.88 percent, respectively. The semiannual short-term, mid-term and long-term AFRs are 0.75 percent, 2.24 percent and 3.88 percent, respectively. Quarterly short-term, mid-term and long-term AFRs are 0.75 percent, 2.23 percent and 3.82 percent, respectively. Finally, the monthly short-term, mid-term and long-term rates are 0.75 percent, 2.23 percent and 3.81 percent, respectively.

  The short-term, mid-term and long-term adjusted applicable federal rates (adjusted AFR) for June 2009 for purposes of Code Sec. 1288(b) are 0.75 percent, 2.05 percent and 4.28 percent, respectively, when annual compounding is used.

  Additionally, the Code Sec. 382 adjusted federal long-term rate is 4.28 percent, and the long-term tax-exempt rate is 4.61 percent. The Code Sec. 42(b)(2) appropriate percentage for the 70-percent present-value, low-income housing credit is 7.71 percent, and the appropriate percentage for the 30-percent present-value, low-income housing credit is 3.30 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 2.80 percent.

Rev. Rul. 2009-16, 2009FED ¶46,371

Rev. Rul. 2009-16, FINH ¶30,620

Other References:

 
Code Sec. 42

  CCH Reference - 2009FED ¶173.02

  CCH Reference - 2009FED ¶176.01

  CCH Reference - 2009FED ¶4385.03

 
Code Sec. 382

  CCH Reference - 2009FED ¶17,115.28

 
Code Sec. 1274

  CCH Reference - 2009FED ¶31,310.05

 
Code Sec. 7520

  CCH Reference - 2009FED ¶42,785.45

  CCH Reference - FINH ¶22,630.05

 
Code Sec. 7872

  CCH Reference - FINH ¶18,950.05

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 36,162.05

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  On May 16, 2009, Minnesota Gov. Tim Pawlenty signed legislation that generally conforms Minnesota's corporate franchise tax, individual income tax, and estate tax to federal tax administrative provisions made between December 31, 2008, and March 31, 2009 (specifically, the American Recovery and Reinvestment Act of 2009 (P.L. 111-5)).

  Minnesota has not adopted the extension of bonus depreciation or increased §179 amounts, but will continue to follow its requirement that taxpayers add back to taxable income 80% of the additional expensing or depreciation amount in the first tax year and then subtract one-fifth of the amount added back in each of the five following tax years.

  Provisions of the Recovery Act that allow the deduction of motor vehicle sales taxes as an itemized deduction for individuals who choose to deduct state income taxes, and as an additional standard deduction for non-itemizers for certain purchases, as well as the deduction of the first $2,400 of unemployment compensation, are not adopted by Minnesota. Instead, effective for tax years beginning after 2008, additions to taxable income are required of personal income taxpayers. The addition for motor vehicle sales taxes must not be more than total itemized deductions in excess of the standard deduction.

  Additionally, Minnesota has not adopted the provision allowing the deferral of discharge of indebtedness income resulting from reacquisition of business indebtedness in 2009 and 2010. Effective for taxable years ending after 2008, additions to taxable income and corresponding subtractions are required for individuals and corporations.

  In addition to the federal conformity update, the legislation makes various miscellaneous changes, including extending the time for filing estate tax returns and requiring qualified intermediaries to report to the Commissioner of Internal Revenue on §1031 exchanges.

  Sales and use tax changes (TAXDAY, 2009/05/19, S.8) and property tax changes (TAXDAY, 2009/05/19, S.10) are covered in separate stories.

  Subscribers can view the bill.

H.F. 1298, Laws 2009, effective May 17, 2009, except as noted

CCH (cch.taxgroup.com) reports:

  Wisconsin was accepted as a full member of the Streamlined Sales and Use Tax (SST) Agreement by the SST Governing Board, meeting in Arlington, Virginia, on May 12, 2009. In other action, the board debated the current compliance status of the member states, and ultimately found Iowa out of compliance. The board also approved provisions related to delivery charges, direct mail sourcing, uniform returns, and replacement taxes, and it adopted an interpretation, opposed by industry, related to software license upgrades. The board also referred several proposals to various panels for study in anticipation of federal legislation being introduced soon that would confer collection authority on the SST member states. The meeting in Arlington was followed by a day of Capitol Hill lobbying on behalf of this legislation by the state and business participants in the board meeting.

CCH (cch.taxgroup.com) reports:

  Adjustments from a married couple's partnership claimed on their amended return were partnership items over which the Tax Court lacked jurisdiction in the partner-level proceeding since the amended return did not qualify as a partner administrative adjustment request (AAR). The taxpayers did not intend to file the amended return as an AAR since they indicated on that return that they were amending their individual tax return simply to conform it to amended Schedules K-1 received from their partnership. They also included neither the amended Schedules K-1 nor Form 8082 that would have indicated that the taxpayers were filing the amended return as other than an amended return.

  In addition, the amended return did not substantially comply with the requirements for an AAR because it was not filed in the manner required for a Form 8082 and did not include all the information required to be provided on a Form 8082. A copy of the amended return was not filed with the Service center where the partnership return was filed and the amended return did not list the partnership's address, the partnership tax year to which the requested adjustments related and a detailed explanation of the specific reasons for the requested adjustments. Because the amended return did not qualify as a partner AAR, the claimed adjustments remained partnership items and the Tax Court lacked jurisdiction to decide the propriety of these adjustments in the partner-level deficiency proceeding.

H. Samueli, 132 TC No. 16, Dec. 57,816

Other References:

 
Code Sec. 6227

  CCH Reference - 2009FED ¶37,720.10

 
Code Sec. 7442

  CCH Reference - 2009FED ¶42,058.1535

  Tax Research Consultant

  CCH Reference - TRC PART: 60,306
CCH Reference -
TRC LITIG: 6,100
 

CCH (cch.taxgroup.com) reports:

  Senate Finance Committee Chairman Max Baucus, D-Mont., and ranking member Charles E. Grassley, R-Iowa, on May 18 released policy options for financing reform of the health care system. The areas of potential funding sources include savings achieved through reevaluating current health tax subsidies and changing non-health tax provisions.

  Leading the list are five proposals for changing the exclusion for employer-provided health insurance. The options include capping the exclusion based on the value of health insurance policy or the income level of the employee eligible for the exclusion, capping the exclusion based on both the value of the health insurance policy and income level, converting the employer-provided health insurance exclusion to an individual tax deduction or credit, and grandfathering existing plans so that benefits provided under existing collective bargaining agreements are not limited.

  The committee has also proposed modifying health savings accounts (HSA) either by restricting contributions to the lesser of the individual's deductible or the statutory limit, increasing the penalty for withdrawing from an HSA for non-medical expenses from 10 percent to 20 percent, or requiring certification from the employer or from an independent third party that HSA withdrawals were made for medical expenses. Modifying or eliminating flexible spending accounts (FSAs) is another option under consideration, along with standardizing the definition of qualified medical expenses or modifying the itemized deduction for medical expenses by raising the 7.5-percent floor for claiming deductions. Also under consideration is elimination of the itemized deduction for medical expenses.

  Other proposals include modifying the special deduction for non-profit Blues and the FICA tax exemption for students, extending the Medicare payroll tax to all state and local government employees and modifying the rules pertaining to nonprofit hospitals. Lawmakers are also considering lifestyle tax proposals, including increasing taxes on alcoholic beverages and imposing an excise tax on sugar-sweetened beverages.

  "Reforming the system will likely require an upfront investment, but I'm confident it will pay dividends in the future for our health, our economic competitiveness, and our federal budget, "said Baucus. "The bottom line is that we can't afford not to act." Baucus and Grassley plan to hold a meeting of Finance Committee members to "walk through" the financing policy options on May 20.

  By Jeff Carlson, CCH News Staff

SFC Press Release: Baucus, Grassley Release Policy Options for Financing Comprehensive Health Care Reform

SFC Description of Policy Options --Financing Comprehensive Health Care Reform: Proposed Health System Savings and Revenue Options

SFC Description of Policy Options --Expanding Health Care Coverage: Proposals to Provide Affordable Coverage to All Americans
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  For Colorado corporate income tax purposes, the taxpayer, a marketer and processor of prepaid debit cards and prepaid debit card services, was considered a financial institution and required to apportion income accordingly. In Colorado, income generated by credit card operations of financial institutions is apportioned between and among states based on the billing address of the cardholder or the commercial domicile of the merchant, and not on the location of the infrastructure and labor costs incurred by the taxpayer to provide those credit card services. Although 1 CCR 201-3(l)(2)(h)(10) does not specifically address debit cards or prepaid card operations, the taxpayer was determined to be a financial institution under the regulation because the debit cards at issue operate and generate fees in substantially the same manner as credit card operation. The taxpayer also issues debit cards carrying the Visa or MasterCard acceptance mark and the fees the taxpayer charges cardholders are similar to the fees typically charged to credit cardholders. The differences between the operations of debit/prepaid cards and credit cards did not warrant the use of a fundamentally different apportionment methodology. However, it is important to note that the Colorado Department of Revenue is in the process of modifying the current financial institution regulation to be consistent with the single factor methodology adopted for tax years beginning on or after January 1, 2009, and will use the receipts factor methodology of the current regulation for apportioning income in the interim.

PLR-2009-002 , Colorado Department of Revenue, March 25, 2009, ¶200-892

  Other References:

  Explanations at ¶11-540

CCH (cch.taxgroup.com) reports:

  CCH Tax and Accounting is hosting a live two-hour audio seminar, New York Residency/Personal Income Tax , on Tuesday, May 19, 2009, at 1 p.m. Eastern; noon Central; 10 a.m. Pacific. This two-hour CCH Audio Seminar, presented by Timothy Noonan, Esq., a noted New York tax practitioner and author of the column "Noonan's Notes on Tax Practice" in State Tax Notes , will help participants understand the rules, requirements, issues and opportunities in working through New York's residency tests and associated personal income taxation. Mr. Noonan will go beyond the residency fundamentals and provide practical insight into the audit process itself.

  Program topics include the following:

  -- overview of New York's residency tests,

  -- New York's Audit Guidelines and Residency Audit Program,

  -- review of recent cases and rulings,

  -- the nuts and bolts of a residency audit,

  -- income allocation issues for nonresidents, including an update on recent changes to the taxation of stock option income, and

  -- residency issues in other states.

  The learning objectives include:

  -- develop a solid base of knowledge related to New York's residency requirements,

  -- understand the issues facing New York residents and nonresidents, and

  -- recognize the issues associated with the New York residency audit program and process.

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

CCH (cch.taxgroup.com) reports:

  The IRS has issued proposed regulations concerning certain matching contributions under Code Secs. 401(k) and 403(b) by cash or deferred arrangements (CODAs). The regulations are proposed to apply to plan amendments adopted after May 18, 2009, and may be relied on for guidance pending issuance of final regulations. If the final regulations, when adopted, contain provisions that are more restrictive than the proposed regulations, such provisions will not be given retroactive effect.

  The proposed regulations would permit employers sponsoring safe harbor plans described in Code Secs. 401(k)(12) or (13) that incur a substantial business hardship to reduce or suspend safe harbor nonelective contributions during a plan year. This would be an alternative to terminating the safe harbor plan in such a situation.

  CCH Comment. Under Code Sec. 412(c) the factors that define a substantial business hardship with respect to minimum funding requirements include whether: (1) the employer is operating at an economic loss; (2) there is substantial unemployment or underemployment in the employer's industry; (3) sales and profits in the industry are depressed or declining; and (4) it is reasonable to expect that the plan will be continued only if the waiver to satisfy minimum funding requirements is granted.

  In order to be eligible for such reduction or suspension of nonelective contributions, the proposed regulations would provide that the employer must make certain plan amendments, provide at least 30 days' prior notice to all eligible employees of the reduction or suspension and its consequences, and provide such employees with a reasonable opportunity to change their cash or deferred and employee contribution elections.

  CCH Comment. Because of the 30 days' notice requirement, the plan cannot be amended at the end of the plan year so the plan must prorate the otherwise applicable compensation limits under Code Sec. 401(a)(17). Also, by amending the plan to reduce or suspend safe harbor contributions, the plan will be subject to the Code Sec. 416 top-heavy rules.

Comments, Hearing

  A public hearing concerning the proposed regulations has been scheduled for September 23, 2009, beginning at 10:00 a.m. in the IRS Auditorium, Internal Revenue Building, 1111 Constitution Ave. NW., Washington, DC. Anyone wishing to present oral comments at the hearing must submit an original and eight copies of written or electronic comments, an outline of topics, and the amount of time to be devoted to each topic by August 19, 2009.

Proposed Regulations, NPRM REG-115699-09, 2009FED ¶49,421

Other References:

 
Code Sec. 401

  CCH Reference - 2009FED ¶18,109C

  CCH Reference - 2009FED ¶18,111D

  CCH Reference - 2009FED ¶18,120E

  CCH Reference - 2009FED ¶18,122F

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 27,152.25
 

CCH (cch.taxgroup.com) reports:

  The IRS has provided procedures for which the filing by a regulated investment company (RIC) or a real estate investment trust (REIT) of Form 8927, Determination Under Section 860(e)(4) by a Qualified Investment Entity, is treated as a "self-determination" for purposes of the deficiency dividend procedures of Code Sec. 860.

  Under Code Sec. 860, a qualified investment entity, i.e., a RIC or a REIT, may avoid being disqualified as a special tax entity or being subject to tax on deficiency dividends (other than interest and penalties) if a "determination" results in an adjustment, which could preclude compliance with the normal income distribution requirements. Essentially, an amount deductible as a deficiency dividend is included in computing the deduction for dividends paid. A RIC or REIT that uses the deficiency dividends procedures is subject to interest and penalties on the amount of the adjustment, but only up to the amount of the deficiency deduction allowed.

  A "determination," as defined under Code Sec. 860(e), includes: (1) a final decision of the Tax Court or any other court of competent jurisdiction, (2) a closing agreement (Code Sec. 7121), and (3) a tax liability agreement signed by the IRS and the taxpayer. There is, also, a fourth category of determination, a statement of "self-determination," which is a statement by the taxpayer attached to its amendment or supplement to the tax return for the relevant tax year (Code Sec. 860(e)(4)).

  According to the IRS, Congress expected that statements of self-determination would be filed within a reasonable time after the taxpayer discovers the existence of a deficiency. While this expectation is not the type of requirement to which the timely-mailing-as-timely-filing rules of Code Sec. 7502 would normally apply (a statement that is required to be filed "within a prescribed period or on or before a prescribed date"), the new procedures, nevertheless, apply certain principles contained in Code Sec. 7502 and the regulations thereunder.

  The new procedures provide that, if a RIC or REIT properly completes Form 8927 and files it in accordance with the applicable instructions, the form will be treated as a statement of self-determination and, therefore, will constitute a "determination" under Code Sec. 860(e). The procedures apply certain principles contained within the timely-mailing-as-timely-filing rules of Code Sec. 7502. Thus, if Form 8927 is sent by U.S. mail or by proper use of a private delivery service (PDS), then the date of the determination is the postmark date determined using the principles of Reg. §301.7502-1(c) (regarding registered and certified mail) and any applicable guidance (as enumerated in the procedures) regarding designated PDSs. If the Form 8927 is filed with the IRS by any other means, then the date of the determination is the date the form is received by the IRS.

  CCH Comment. Because Form 8927 is considered a "determination" for purposes of Code Sec. 860(e) only if it is delivered to the IRS, taxpayers are advised to request a return receipt or other comparable evidence of actual receipt by the IRS. If the taxpayer does not have proof of actual delivery to the IRS, prima facie evidence of delivery of the Form 8927 is the same as evidence that would be prima facie evidence of delivery of a document under the principles of
Code Sec. 7502(c) and Reg. §301.7502-1(e).

  The IRS warned that, even if a valid determination has been made under Code Sec. 860(e), a deficiency dividend distribution must satisfy the rules under Code Sec. 860(f)(1). Thus, the distribution must be made on or after the date of the determination (as determined under these procedures) and on or before the date that is 90 days after the date of the determination.

Rev. Proc. 2009-28, 2009FED ¶46,370

Other References:

 
Code Sec. 860

  CCH Reference - 2009FED ¶26,584.01

 
Code Sec. 7502

  CCH Reference - 2009FED ¶46,625.021

  CCH Reference - 2009FED ¶46,625.435

  Tax Research Consultant

  CCH Reference - TRC RIC: 3,500
CCH Reference -
TRC RIC: 6,106
 

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Washington legislation provides business and occupation (B&O) tax incentives for biomass energy, solar energy, and radioactive waste cleanup. The legislation also expands the investment cost recovery incentive program for renewable energy systems and contains a public utilities tax incentive for log transportation businesses.

CCH (cch.taxgroup.com) reports:

  Georgia has enacted a new credit against personal income tax for a limited period of time for the purchase of an eligible single-family residence made during the six month period commencing on June 1, 2009, and ending on November 30, 2009. The amount of the credit is the lesser of 1.2% of the purchase price or $1,800. Additionally, the amount of credit claimed in a single tax year cannot exceed the lesser of the taxpayer's income tax liability or one-third of the total amount of the credit. Any excess or unused credit amount may be carried forward to succeeding years' tax liability.

  Subscribers can view the legislation.

H.B. 261, Laws 2009, effective May 11, 2009, applicable as noted
 

CCH (cch.taxgroup.com) reports:

  Georgia has amended its credit against personal and corporate income tax for teleworking expenses by extending the credit to taxable years beginning in 2010 and 2011 (formerly, 2008 and 2009). The aggregate amount of tax credits also is increased to $2.5 million (formerly, $2 million) for the extended period.

  Subscribers can view the text of the legislation.

H.B. 186, Laws 2009, effective May 11, 2009

CCH (cch.taxgroup.com) reports:

  The Treasury and IRS have released the 2010 inflation adjusted amounts for health savings accounts under Code Sec. 223(g). For calendar year 2010, the annual limitation on deductions under Code Sec. 223(b)(2) for an individual with self-only coverage under a high-deductible plan is $3,050 ($6,150 for an individual with family coverage). A "high deductible health plan" is defined in Code Sec. 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,200 for self-only coverage or $2,400 for family coverage and annual out-of-pocket expenses (deductibles, co-payments and other amounts, but not premiums) which do not exceed $5,950 for self-only coverage or $11,900 for family coverage.

Rev. Proc. 2009-29, 2009FED ¶46,369

Other References:

 
Code Sec. 223

  CCH Reference - 2009FED ¶12,785.033

  CCH Reference - 2009FED ¶12,785.25

  Tax Research Consultant

  CCH Reference - TRC INDIV: 42,452.05
CCH Reference - TRC COMPEN: 45,064.15
 

CCH (cch.taxgroup.com) reports:

  The IRS has announced new withholding adjustment procedures for pension plans. The new procedures for pensions will make withholding more accurate for pension recipients. This change will help some pensioners avoid a smaller refund next spring or even a balance due in limited situations.

  The new procedures are not mandatory and pension payors may continue to use the February 2009 withholding tables. For those plans that adopt the new procedures, withholding on pension payments will be automatically adjusted. The IRS is also encouraging pension payors who choose to implement the new withholding adjustment procedures to contact retirees who previously submitted a Form W-4P, Withholding Certificate for Pension or Annuity Payments, requesting additional withholding after the February withholding tables were issued.

  The newly announced procedures apply only to pension payments but the IRS is gearing up for a wider outreach campaign to educate pensioners and other taxpayers about the withholding tables and other matters.

IR-2009-50,
2009FED ¶46,368

Notice 1036-P (May 2009), Additional Withholding for Pensions for 2009

Other References:

 
Code Sec. 3405

  CCH Reference - 2009FED ¶33,622.04

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 42,700

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Vermont Legislature has forwarded an appropriations bill to the governor that contains many of the key personal income, corporate, income, franchise, sales and use, property, and tobacco tax proposals contained in H.B. 442. which, as previously reported, was passed by the Senate on May 1, 2009. (TAXDAY, 2009/05/01, S.17) Major differences from the Senate version of H.B. 442 include:

  -- a new personal income tax addition adjustment for the 2009 taxable year only of the amount of the federal deduction taken for sales and use tax on the purchase of a new vehicle;

  -- a new personal income subtraction adjustment for the recapture of state and local income tax deductions not taken against Vermont income tax; and

  -- an amended reduction in the education property tax rate. For fiscal year 2010 only, the education property tax rate per $100 would be reduced to $1.35 (currently, $1.59) for nonresidential property and $0.86 (currently, $1.10) for homestead property.

  Provisions that were proposed in H.B. 442, but that are no longer contained in the appropriations bill sent to the Governor, include:

  -- a new satellite programming tax;

  -- a sales and use tax on clothing articles costing $110 or more;

  -- an increase in the tax on spirituous liquors; and

  -- a property tax adjustment cap.

  Subscribers can view the full text of the May 9, 2009, edition of the Journal of the House, which contains the complete committee report.
 
H.B. 441, Laws 2009, as passed by the Vermont Legislature on May 9, 2009

CCH (cch.taxgroup.com) reports:

  An omnibus public finance bill that would make numerous changes to corporate income, personal income, sales and use, property, and other taxes has been passed by the Minnesota Senate, and has been repassed by the House of Representatives as amended by the Senate, on May 12, 2009. The provisions were amended to H.F. 1298 by the conference committee for H.F. 2323, which as previously reported, passed the House of Representative on April 25, 2009, and the Senate on April 28, 2009. (TAXDAY, 2009/04/28, S.12)

  Significant tax-related provisions of H.F. 1298 are discussed below.

CCH (cch.taxgroup.com) reports:

CCH (cch.taxgroup.com) reports:

  Aviation experts testifying before Senate lawmakers on May 13 commented favorably on the FAA Reauthorization Bill of 2009 (HR 915) but said that funding for the FAA's Next Generation Air Traffic Control System included in the bill must still be settled. In testimony before the Senate Subcommittee on Aviation Operations, Safety, and Security, James C. May, president of the Air Transport Association of America, Inc. (ATA), said he does not support using the Airport and Airway Trust Fund to pay for the FAA's Next Generation Air Transportation System (NextGen).

  Subcommittee Chairman Byron Dorgan, D-N.D., said Senate lawmakers are just beginning the process of drafting their version of the FAA Reauthorization Bill and they expect to have the process completed within the next few weeks. Dorgan added that he is committed to having the bill passed by the Senate during the 111th Congress. The House Transportation and Infrastructure Committee approved HR 915 on March 5. The bill would provide $70 billion to the FAA and federal aviation infrastructure programs for the next four years.

  May called on Senate lawmakers to make funding of the current air traffic control (ATC) system more equitable to reflect usage of service. According to FAA and IRS data, airlines and their customers contributed $11 billion to the trust fund, while a 2005 FAA cost allocation report shows that they accounted for only two-thirds of costs, May told lawmakers. Conversely, business jets, including general aviation, turbine aircraft and fractional aircraft, contributed only $573 million, or 5 percent of trust fund revenue, but accounted for 17 percent of costs. He said that the FAA provides the same air traffic control services to commercial fights and private aircraft.

  Revenues in the trust fund come from airline passenger ticket taxes and fuel taxes. However, contributions to the trust fund are not keeping pace with rising airport construction costs due to lower levels of travel during the current economic recession combined with rising fuel prices that decrease the amount of fuel purchased by airlines. The Obama administration has suggested that user fees be used to generate a larger portion of trust fund revenues, but lawmakers have reacted coolly to that proposal. The current authorizations and taxes supporting the trust fund expire on September 30, 2009.

  Meanwhile, Charles M. Barclay, president of the American Association of Airport Executives, asked lawmakers to work toward making relief from the alternative minimum tax (AMT) part of permanent tax law. Barclay noted that the recently passed American Recovery and Reinvestment Act of 2009 (P.L. 111-5) includes a provision that eliminated the AMT penalty on private activity bonds that airports issue in the next two years.

  By Stephen K. Cooper, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Legislation has been enacted relating to the computation of Georgia personal and corporate income taxes that requires a taxpayer to add back all expenses and costs paid, accrued, or incurred to a captive real estate investment trust (REIT), applicable to taxable years beginning on or after January 1, 2010. The amount of the adjustment is reduced, but not below zero, to the extent the corresponding expenses and costs received as income by the captive REIT are reduced by expenses paid, accrued, or incurred to persons that are not related members. The law also provides for a reduction of the adjustment, but not below zero, to the extent that the corresponding expenses and costs are received as income in an arm's length transaction by the captive REIT and to the extent that such income is allocated or apportioned, or both, to and taxed by Georgia or another state that imposes a tax on or measured by the income of the captive REIT. In addition, the Commissioner is authorized to reverse the adjustment, in whole or in part, when the taxpayer and Commissioner agree in writing to use an alternative method of apportionment. The adjustment applies to a corporation that files a separate return with Georgia and to the separate taxable income computation of each member of a Georgia consolidated return. The penalty for failure to make the adjustment is 10% of the additional tax owed, in addition to other penalties imposed.

  Subscribers can view the law.

  Act 170 (H.B. 379), Laws 2009, effective May 5, 2009, applicable as noted
 

CCH (cch.taxgroup.com) reports:

  Wisconsin will become an associate member of the Streamlined Sales Tax (SST) Agreement, effective July 1, 2009, and a full member, effective October 1, 2009. The SST Governing Board approved Wisconsin's membership petition during its meeting in Arlington, Virginia, on May 12, 2009.

SST Governing Board Meeting, Arlington, Virginia, May 12, 2009

CCH (cch.taxgroup.com) reports:

  A certified public accountant (CPA) was permanently enjoined from preparing returns claiming that mariners were entitled to deductions for meal expenses while working on board a ship, even though no meal expenses were actually incurred. The injunction was necessary to prevent recurrence because the CPA acted in a manner contrary to the assurances he provided to the government, and continued to claim deductions for deep sea mariners in spite of clear contradictory authority.

  The CPA incorrectly argued that mariners did not have to incur meal expenses in order to claim a deduction because the regulations under
Code Sec. 274 allow certain expenses to be deemed substantiated without documentation. However, the regulations do not eliminate the requirement that expenses must be incurred before they can be deducted. His position regarding the deduction was unreasonable, not supported by substantial authority and had less than a one in three chance of being sustained on the merits.

  The CPA's discussions with government officials regarding deductions for common carrier meals, his interactions with IRS attorneys, his reliance on the advice of other attorneys, and "no change" audit letters issued by the IRS did not support a good faith defense under Code Sec. 6694. The audit letters had no precedential value, and the individuals he contacted did not fall within the definition of a preparer. Further, reliance on their advice was unreasonable because they did not have all the relevant facts.

  Affirming an unreported DC Calif. decision.

M.A. Kapp, CA-9, 2009-1 USTC ¶50,376

Other References:

 
Code Sec. 6694

  CCH Reference - 2009FED ¶39,960.60

 
Code Sec. 7407

  CCH Reference - 2009FED ¶41,668.10

  Tax Research Consultant

  CCH Reference - TRC IRS: 6,156.05
CCH Reference -
TRC IRS: 6,200

CCH (cch.taxgroup.com) reports:

  The 2009 report of the Board of Trustees of the Social Security Trust Funds released on May 12 shows that expenses are outpacing income for the Medicare and Social Security programs. In order to make up the shortfall, the annual report suggests either cutting benefits or raising payroll taxes. The report notes that the financial imbalance has been made worse by the current economic recession. The report projects a two-year drop in the Medicare solvency date, from 2019 to 2017. Congressional lawmakers were quick to express their commitment to keeping the Social Security program running smoothly and operating in a fiscally sound manner.

Report Results

  "Social Security could be brought into actuarial balance over the next 75 years with changes equivalent to an immediate 16-percent increase in the payroll tax (from a rate of 12.4 percent to 14.4 percent) or an immediate reduction in benefits of 13 percent or some combination of the two," the report says. Even greater changes would be necessary after 75 years since the projected longevity of Americans will result in longer retirements, the report states. Moreover, while both Medicare and Social Security costs will grow substantially faster than the economy, payroll tax revenue will not keep pace. The amount collected from taxing Old-Age and Survivors and Disability Insurance (OASDI) benefits will increase only gradually as the number of beneficiaries subject to taxation grows, the report says.

Congressional Reaction

  House Ways and Means Social Security Subcommittee Chairman John S. Tanner, D-Tenn., and ranking member Sam Johnson, R-Tex., assured seniors that their benefits will be paid. "Today's report shows that the recession is affecting Social Security just as it is affecting so many other parts of our economy. However, nothing in today's report should give seniors a reason to be concerned that their benefits will not be paid in full," the lawmakers said.

  House Minority Leader John Boehner, R-Ohio, said the report underscored the need for immediate action. "The Social Security and Medicare Trustees have repeatedly warned Congress and the American people that the programs must be reformed or future benefits will be threatened, and today's report is the most dramatic warning yet. Congress can't sit idly by while these programs go bankrupt; we must act now," he said.

  The social security report can be found on the Social Security Administration website at http://www.ssa.gov/OACT/TR/2009/tr09.pdf.

  The medicare report can be found on the Centers for Medicare and Medicaid Services website at http://www.cms.hhs.gov/ReportsTrustFunds/downloads/tr2009.pdf.

  By Stephen K. Cooper, CCH News Staff
 

CCH (cch.taxgroup.com) reports:

  In the third of three roundtable discussions on health care reform, the Senate Finance Committee on May 12 turned to the current tax treatment of health care and considered, among other proposals, ways to modify the current unlimited exclusion for employer-provided health care as a way to raise revenue. Committee Chairman Max Baucus, D-Mont., said he also wants to look at tax-preferred health accounts and the itemized deduction for health expenses to make sure that those benefits are structured fairly and efficiently.

  Baucus made clear that elimination of the exclusion was off the table but that there is room for modification. "We are not going to eliminate the exclusion... but the current tax exclusion is not perfect," he said.

  As lawmakers consider the prohibitive costs of reforming health care and making it available to all, many have begun to consider compromises. Some form of the exclusion proposal still remains in play and is backed by Tax Policy Center Director Leonard E. Burman, who said that, although the policy would be undesirable as a stand-alone measure because tens of millions of Americans would likely lose their health insurance, eliminating the exclusion would raise a lot of revenue, an estimated $240 billion in 2010 and over $3.5 trillion over 10 years. "I don't see how you can get a package that's going to fully get there without touching the exclusion," stated Robert Greenstein, executive director of the Center on Budget and Policy Priorities.

  According to Burman, a less draconian measure would be to cap the exclusion and deduction for the self-employed at the 90th percentile. Alternatively, the exclusion could be capped.

  Another option offered by Burman to raise revenue to help finance health care reform includes replacing itemized deductions with a 15-percent tax credit for those who choose not to take the standard deduction. The rationale for the change, as with the Obama administration's proposal to limit the benefit of itemized deductions to 28 percent, is that itemized deductions largely represent subsidy programs, rather than adjustments in the ability to pay tax.

  Edward Kleinbard, chief of staff for the Joint Committee on Taxation, noted that the president's fiscal year 2010 budget proposes limiting the rates at which taxpayers may benefit from itemized deductions. Opponents have argued that such a limitation is inappropriate to the extent that the deductions, such as those for medical expenses, casualty or theft losses, or local taxes, are designed to reflect more accurately a taxpayer's ability to pay. "If this is the case, then no adjustment should be made to the deductions, and any concern about fairness or progressiveness should be addressed through the marginal tax rate structure," said Kleinbard.

  Other options advanced by Burman include an increase in the Social Security payroll tax rate on both employers and employees by 1 percentage point or a value-added tax (VAT).

  Michael F. Jacobson, executive director of the Center for Science in the Public Interest, said the best way to promote health and reduce health-care costs is to levy taxes that would both promote health and generate revenues that could help fund expanded health-care coverage. He suggested imposing a new excise tax on non-diet soft drinks, including both carbonated and noncarbonated beverages. A tax of one cent per 12-ounce can would raise about $1.5 billion per year, and a tax of one cent per ounce would raise about $17 billion per year. The higher rates would reduce consumption and help slow the obesity epidemic, he said. Jacobson also suggested that Congress raise alcohol excise taxes, taxing all products equally on the basis of their alcohol content, and index tax rates for inflation.

White House Response

  White House Press Secretary Robert Gibbs declined to comment on any of the tax-related health care proposals under discussion in the Senate. However, he noted that, during the presidential campaign, President Obama said he was opposed to taxing employer-based health insurance.

  The president wants to preserve the employer-based health care system "but done in a way that envisions significant reform in how we're spending money," Gibbs said at a press briefing on May 12. He stressed that health care costs are rising at an unsustainable rate and that the problem must be addressed by both the public and private sector. He also maintained it is possible to make "sustainable progress in cutting the cost of health care without raising taxes."

  By Jeff Carlson and Paula Cruickshank, CCH News Staff
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Overriding Gov. Linda Lingle's veto, the Hawaii Legislature has enacted legislation that increases the personal income tax rates for high-income taxpayers, as well as the standard deduction and personal exemption amounts. The increase in tax rates applies for taxable years beginning after December 31, 2008. The increases in the standard deduction and personal exemption amounts apply to taxable years beginning after December 31, 2010. All of the changes will be repealed on December 31, 2015.

  New 9%, 10%, and 11% tax brackets are added for joint filers and surviving spouses with taxable income over $300,000, heads of households with taxable income over $225,000, and single taxpayers and married individuals filing separately with taxable income over $150,000.

  The standard deduction amount is increased to $4,400 (currently, $4,000) for joint filers and surviving spouses, $3,212 (currently, $2,920) for heads of households, and $2,200 (currently, $2,000) for single taxpayers and married individuals filing separately. The personal exemption amount is increased to $1,144 (currently, $1,040).

  No penalty or interest shall be imposed with respect to any underpayment of tax by a taxpayer or employer that is attributable to the increase in tax rates until the later of (1) 90 days after the legislation becomes law or (2) immediately after the legislation becomes law, when the taxpayer's estimated tax payment is due.

  Subscribers can view the text of the legislation.

H.B. 1747, Laws 2009, effective May 8, 2009, and applicable as noted
 

CCH (cch.taxgroup.com) reports:

  Treasury Department officials again discussed on May 11 President Obama's ambitious tax reform road-map, including reinstating the 36- and 39.6-percent top tax rates, creating a permanent making work pay credit and extending more tax incentives, largely targeted to middle-income families. To pay for the tax cuts, the administration is urging Congress to reform the U.S. international tax system, codify the economic substance doctrine and repeal the last-in, first-out (LIFO) method of accounting for inventories. "The president's budget promotes fiscal responsibility, tax fairness and economic growth," Treasury officials said at a press briefing in Washington, D.C.

  Obama released a broad outline of his fiscal year (FY) 2010 federal budget proposals in February (TAXDAY, 2009/02/27, W.1; TAXDAY, 2009/02/27, T.2). At that time, the administration announced that more details would be forthcoming. The Treasury Department released Analytical Perspectives, Budget of the U.S. Government, Fiscal Year 2010 and
General Explanations of the Administration's Fiscal Year 2010 Revenue Proposals on May 11. Some of the president's proposals, however, have already been rejected by Congress.

International Tax Reform

  As expected, the bulk of revenue raised would come from reforming the U.S. international tax system. Obama had announced his international tax reforms during the week of May 4 (TAXDAY, 2009/05/05, W.1).

  According to the administration, the international reform proposals would generate nearly $200 billion in income over 10 years. The international tax proposals include reforming the check-the-box rules, deferring deductions related to deferred income, repealing the 80/20 company rules and preventing the use of debt-equity swaps to avoid dividend withholding taxes. "The proposals take on unjust loopholes and tax breaks," a Treasury official said.

  "The president is not calling for complete repeal of the deferral rules," a Treasury official added. "The proposal is less than 30 percent of what complete repeal of deferral would be."

Foreign Tax Credit

  Obama has also proposed foreign tax credit reforms. A U.S. taxpayer would generally determine its deemed paid foreign tax on the amount of the consolidated earnings and profits of the foreign subsidiaries repatriated to the taxpayer in the tax year.

  "The administration is targeting a U.S. corporation's ability to manage its foreign tax credit through dividend distributions from its foreign subsidiaries," Joseph Calianno, CPA, Grant Thornton, LLP, Washington, D.C. told CCH. "In essence, this proposal is designed to create a blended rate when there are dividend distributions from foreign subsidiaries."

Higher Income Individuals

  Lower marginal income tax rates enacted in the Economic Growth and Tax Relief Reconciliation Act of 2001 (P.L. 107-16) will expire after 2010. Congress is expected go along with Obama's proposal to extend the lower rates except for the two highest rates. The pre-2001 top rates of 36 and 39.6 percent would return after 2010 for single individuals with incomes above $200,000 and married couples filing jointly with incomes above $250,000. The administration also proposes to expand the 28-percent bracket to ensure there is no tax increase on middle-income taxpayers.

  A Treasury official said that estimates of three million individuals being impacted by the higher rates "seem high." Approximately 2 percent of filers would fall in the higher rate brackets, the official indicated.

  In related news, the administration would impose a 20-percent tax rate on capital gains and dividends for individuals with incomes above $200,000 and married couples filing jointly with incomes above $250,000. The higher rates would take effect after 2010. Lower rates would apply to individuals and married couples whose incomes are below the $200,000/$250,000 thresholds.

Individual Incentives

  The centerpiece of Obama's economic stimulus package (the American Recovery and Reinvestment Act of 2009, P.L. 111-5) is the making work pay credit. The administration renewed its call for Congress to make the credit, which generates refunds of up to $400 for qualified individuals and $800 for married couples filing jointly, permanent after 2010. Income phaseouts would be indexed for inflation; however, the rate at which the credit phases out would be reduced from 2 percent to 1.6 percent as of the 2011 tax year. The cost of a permanent making work pay credit would be offset, the administration projected, with revenues from climate-change legislation.

  Additional tax incentives targeted to individuals are a permanent enhanced child tax credit, an expanded earned income tax credit (EITC), mandatory automatic enrollment in IRAs, a permanent American opportunity education tax credit, and an expanded saver's credit. The advanced EITC, however; would be eliminated. Treasury officials said that the advanced EITC has not reached its potential; only 3 percent of eligible individuals participate (TAXDAY, 2009/05/08, W.1). The president's budget also assumes that Congress will continue to "patch" the alternative minimum tax (AMT) and permanently extend estate tax relief at 2009 levels.

Extenders

  The administration appears to be taking a cautious approach to extending so-called tax extenders. These are popular but temporary tax breaks, such as the state and local sales tax deduction, the teacher's classroom expense deduction and others. "Our general approach on the extenders is to extend them for a two-year period." Treasury officials said.

  Some new temporary tax breaks, including the first-time homebuyer credit and the deduction for motor vehicle state sales and use taxes, are not included in the administration's FY 2010 budget request. The administration also does not recommend extending premium assistance for COBRA continuation coverage.

  Also absent from the proposals are more consumer and business tax energy incentives. The administration would repeal the Code Sec. 199 domestic production activities deduction for oil and gas production along with other tax breaks for oil and gas production. "One of the greatest opportunities for renewable energy is the expansion of solar panels in homes," former Rep. Phil English, now senior government relations advisor at Arent Fox, LLP, Washington, D.C., told CCH.

Business Incentives

  Business incentives are few in number but Treasury officials predicted that they would generate roughly $100 billion in savings for businesses. The administration proposes eliminating capital gains tax on investments in small business stock and making permanent the research tax credit (TAXDAY, 2009/04/28, W.1).

  The administration also is calling for an unspecified expansion of the net operating loss (NOL) carryback rules. P.L. 111-5 allows qualified small businesses to carry back NOLs from the 2008 tax year three, four or five years. At this time, it is unclear if the administration would make the expanded carryback provision available to all businesses or merely increase the current cap of $15 million in average gross receipts.

More Revenue Raisers

  In addition to raising revenue from international tax reforms, the administration proposes taxing carried interest as ordinary income. Revenue would also be raised by codifying the economic substance doctrine. Under the administration's proposal, a transaction must have objective economic purpose and a business purpose to satisfy the economic substance doctrine. Additionally, taxpayers that currently use the LIFO method would be required to write up their beginning LIFO inventory to its first-in, first-out (FIFO) value in the first tax year beginning after December 31, 2011. The administration also called for repeal of the lower-of-cost-or-market (LCM) and subnormal goods methods.

  The administration would boost tax collection through expanded information reporting, such as requiring information reporting on payments to corporations and for private separate accounts of life insurance companies (TAXDAY, 2009/04/30, C.1). In a taxpayer-friendly move, the administration would abolish the current requirement that an initial periodic offer-in-compromise include a refundable payment. A new penalty for failing to comply with electronic filing requirements would be created.

  Tax collections are expected to decrease during the recession. Raffaele Mari, CPA, Corona Del Mar, Calif., told CCH that he has seen overall taxable income levels that are lower than prior years. "W-2 income, self-employment income and small business taxable income are lower than prior years as the recession appears to be impacting both individual and business taxpayers." Bonuses and other incentives have been eliminated in many companies, Mari added.

Congressional Action

  Many of the administration's proposals have already received a lukewarm reception in Congress. The leaders of the House and Senate tax-writing committees have indicated their reluctance to limit itemized deductions (including mortgage interest and charitable deductions) to 28 percent for higher income individuals. Lawmakers also have rejected the administration's previous calls for a permanent making work pay credit (TAXDAY, 2009/03/26, C.1). Past proposals to eliminate LIFO have also failed to gain traction in Congress.

Deficit Projections

  The federal deficit in FY 2009 and FY 2010 is expected to be $90 billion higher each year than the administration's February forecast, according to detailed budget documents released by the Office of Management and Budget (OM on May 11. The higher deficit numbers are due largely to lower projected receipts and new information on the administration's financial stabilization efforts undertaken through the Troubled Asset Relief Program (TARP) and the FDIC, noted OMB Director Peter Orszag. He noted that, overall, federal revenue estimates decreased between $30 billion and $50 billion in 2009 and 2010 compared to the February projections.

  The economic assumptions remain the same as in February but will be revisited as part of the mid-session review in the summer. Orszag, in a May 11 blog on the OMB website, stressed that the May revisions have not changed the administration's key priorities to invest in education, health care reform and clean energy or its goal to cut the federal deficit in half over the next four years and provide a middle-class tax cut for 95 percent of U.S. taxpayers.

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

Treasury Department News Release, TDNR TG-125

Treasury Department General Explanations of the Administration's Fiscal Year 2010 Revenue Proposals (Green Book)

OMB Press Release: Last but Not Least - The Final Installment of the FY 2010 Budget

OMB: Analytical Perspectives --Budget of the U.S. Government, Fiscal Year 2010

OMB Updated Summary Tables, May 2009 --Budget of the U.S. Government, Fiscal Year 2010

CCH (cch.taxgroup.com) reports:

  Distributions from a wife's individual retirement account (IRA) that satisfied the statutory exception for higher education expenses were not a modification of her election to receive a series of substantially equal periodic payments and did not trigger the recapture tax under Code Sec. 72(t)(4). Although the additional distributions for higher education expenses were made within five years of the first annual periodic payment and before the wife had attained age 59-1/2, they did not result in a change in the method of calculating the annual periodic payments. Thus, the five-year rule prohibiting modifications was not violated and the substantially equal periodic payment exception continued to apply.

G.T. Benz, 132 TC No. 15, Dec. 57,810

Other References:

 
Code Sec. 72

  CCH Reference - 2009FED ¶6140.775

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 66,454
CCH Reference - TRC RETIRE: 66,454.05
CCH Reference - TRC RETIRE: 66,454.15
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Hawaii Senate has re-passed S.B. 1678, which proposes to conform Hawaii general excise tax laws with the Streamlined Sales and Use Tax (SST) Agreement. The Senate also passed H.B. 1405, which proposes to tax some Internet sales by expanding the definition of "engaging" in business and creating a rebuttable presumption for Hawaii general excise tax nexus purposes, similar to New York's so-called Amazon law, and also proposes to create a nexus presumption for purposes of imposing Hawaii taxes on out-of-state persons and entities conducting business in the state and a severability provision. The Senate passed the conference committee drafts that were previously approved by the House of Representatives and thus they have the approval of the full Legislature. (TAXDAY, 2009/05/07, S.18)

CCH (cch.taxgroup.com) reports:

  CCH Tax and Accounting is hosting a live two-hour audio seminar, Multistate Income Taxation: Determining Tax Base and Using the Unitary Tests, on Tuesday, May 12, 2009, at 1 p.m. Eastern; noon Central; 10 a.m. Pacific. This two-hour CCH Audio Seminar is the first of a three-part series on multistate income taxation presented by noted state tax experts, educators and authors, John C. Healy, M.S.T., CPA, and Bruce Nelson, M.A., CPA. This seminar will demonstrate how to calculate a state's taxable base, defining its scope by determining what is in and what is out of taxable income. Also, the various unitary tests for combined reporting will be explored and the tax base and the unitary concept will be pulled together by addressing the various filing methods: separate, consolidated, and combined.

  Program topics include the following:

  -- Beginning with federal taxable income-is it always appropriate?

  -- Additions to the tax base, including bonus depreciation, related party transactions, state and municipal interest income, state income taxes, and net operating losses

  -- Subtractions from the tax base, including federal and state income taxes, expenses related to nontaxable income, federal interest income, state tax refunds, and the dividends received deduction

  -- Guidelines for filing separate and consolidated returns

  -- Applying the unitary tests: the three unities of ownership, use, and operation, the contribution/dependency tests, factors of profitability

  The learning objectives include:

  -- understanding which activities of a multistate corporation can create income tax nexus

  -- understanding how state taxable income is generally calculated

  -- gaining awareness of the unitary tests

  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
Multistate Corporate Tax Course (2009 edition).
 

CCH (cch.taxgroup.com) reports:

  The IRS has recommended nonacquiescence in the case of L.A. Cox, CA-10, 2008-1 USTC ¶50,165, in which the Tenth Circuit Court of Appeals held that an IRS Appeals officer was disqualified from conducting a Collection Due Process (CDP) hearing regarding a married couple's tax liabilities for two tax years because the officer had considered those liabilities during a CDP hearing for a prior year. The Tenth Circuit ruled that the officer's consideration of those liabilities was "prior involvement" prohibited under Code Sec. 6330(b)(3). In a footnote, the Tenth Circuit stated that its holding would, by implication, invalidate the current version of Reg. §301.6330-1(d)(2), which expressly excludes prior CDP hearings from the definition of "prior involvement."

  The IRS determined that the Tenth Circuit erred by failing to give proper deference to the Service's construction of "involvement" in the regulations. The conclusion that "involvement" has a plain meaning is incorrect because the term is not defined in the statute or legislative history and is inherently ambiguous.

  An Appeals officer is not legally precluded by the "no prior involvement" language from conducting a taxpayer's CDP hearing for a given tax year because he considered the taxpayer's compliance history when evaluating eligibility for collection alternatives during a prior CDP hearing. There is no disqualifying involvement when the same officer holds consecutive CDP hearings for the same taxpayer who has accrued new unpaid tax liabilities. Instead, "prior involvement" refers to an Appeals officer having considered the tax year at issue in a prior non -CDP context, such as when the Appeals officer worked on collection of the tax as a revenue officer.

AOD 2009-01,
2009FED ¶46,366

AOD 2009-01, IRPO ¶51,284

Other References:

 
Code Sec. 6330

  CCH Reference - 2009FED ¶38,184.16

  CCH Reference - 2009FED ¶38,184.28

 
Code Sec. 7521

  CCH Reference - 2009FED ¶42,791.30

  Tax Research Consultant

  CCH Reference - TRC IRS: 51,056.15
 

CCH (cch.taxgroup.com) reports:

  The IRS has published the inflation adjustment factors and reference prices to be used in computing the renewable electricity production credit for calendar year 2009. The inflation adjustment factors and references prices apply to sales in calendar year 2009 of kilowatt hours of electricity produced in the United States or a U.S. possession from qualified energy resources.

  The inflation adjustment factor for calendar year 2009 is 1.4171 for qualified energy resources and refined coal, and 1.0830 for Indian coal. The reference price for calendar year 2009 is 4.32 cents per kilowatt hour for facilities producing electricity from wind. The reference price for fuel used as feedstock within the meaning of Code Sec. 45(c)(7)(A) is $39.72 per ton for calendar year 2009. The reference prices for facilities producing electricity from closed-loop biomass, open-loop biomass, geothermal energy, solar energy, small irrigation power, municipal solid waste, qualified hydropower production, marine and hydrokinetic energy have not been determined for calendar year 2009.

  The amount of the credit for calendar year 2009 is 2.1 cents per kilowatt hour on sales of electricity produced from wind energy, closed-loop biomass, geothermal energy and solar energy, and 1.1 cent per kilowatt hour on sales of electricity produced from open-loop biomass, small irrigation power, landfill gas, trash combustion, qualified hydropower, marine and hydrokinetic energy facilities. The credit for refined coal production is $6.20 per ton of qualified refined coal sold in 2009. The credit for steel industry fuel is $2.00 per barrel-of-oil equivalent of steel industry fuel sold. The credit for Indian coal production is $1.625 per ton of Indian coal sold in 2009.

  The renewable electricity production credit is not subject to a phaseout under Code Sec. 45(b) for electricity sold during calendar year 2009. This is because the 2009 reference prices do not exceed the base amounts multiplied by the inflation adjustment factor.

Notice 2009-40, 2009FED ¶46,365

Other References:

 
Code Sec. 45

  CCH Reference - 2009FED ¶4415.25

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 54,550
CCH Reference - TRC BUSEXP: 54,554
CCH Reference - TRC BUSEXP: 54,554.05

CCH (cch.taxgroup.com) reports:

  For pension plan years beginning in May 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 May 2009 is 6.43 percent; and the 90-percent to 100-percent permissible range is 5.78 percent to 6.43 percent. The annual rate of interest on 30-year Treasury securities for April 2009, used to determine the minimum present value of a participant's benefit under Code Sec. 417(e)(1) and (2), is 3.76 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 May 2009 are: 5.33 for the first segment; 6.68 for the second segment; and 6.82 for the third segment.

  For plan years beginning in 2009, the funding transitional segment rates for May 2009 are: 5.70 for the first segment; 6.60 for the second segment; and 6.69 for the third segment.

  For plan years beginning in 2009, the minimum present value transitional segment rates for April 2009 are: 4.30 for the first segment; 5.12 for the second segment; and 5.02 for the third segment.

Notice 2009-45, 2009FED ¶46,364

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
 

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The New York Department of Taxation and Finance has issued three notices concerning personal income tax payments affected by recent law changes that temporarily increased the tax rate for certain taxpayers and reduced the New York itemized deduction for taxpayers having New York adjusted gross income exceeding $1 million.

CCH (cch.taxgroup.com) reports:

  Maryland Gov. Martin O'Malley has signed legislation that provides an amnesty period from September 1 through October 30, 2009, for taxpayers who failed to file a return or pay personal income, corporate income, withholding, sales and use, or admissions and amusement taxes. The comptroller will waive civil penalties (except previously assessed fraud penalties) and half the interest due if a taxpayer files all delinquent returns and pays all tax and half the interest due, or enters into an agreement with the comptroller, during the amnesty period. Amnesty is not available to taxpayers who have more than 500 U.S. employees, who participated in the 2001 Maryland amnesty program, or who were eligible for the 2004 Delaware holding company settlement period. Taxpayers cannot be charged with a criminal tax offense arising out of any return filed or tax paid during the amnesty period, but amnesty does not apply to criminal charges that are already pending or under investigation.

  Subscribers can view S.B. 552.

 
S.B. 552, effective June 1, 2009
 

CCH (cch.taxgroup.com) reports:

  The IRS has clarified in two situations whether an entity, initially taxed as a partnership but becomes a corporation for tax purposes, is eligible to elect to be taxed as an S corporation effective for its first tax year as a corporation. In the first situation an unincorporated entity formed on the first day of Year 1 that is classified as a partnership for federal tax purposes elects, effective on the first day of Year 2, to be treated as an association that is taxed as a corporation for federal tax purposes. On the first day of the second month of Year 2, the entity files an election under Code Sec. 1362(a) to be taxed as an S corporation, effective on the first day of Year 2. Every person holding stock in the entity on the first day of Year 2 also holds stock at the time the S election is made.

  In the second situation, a calendar-year taxpayer, organized on the first day of Year 1 as an unincorporated entity that is classified as a partnership for federal tax purposes, converts into a corporation under a state law formless conversion statute, effective on the first day of Year 2. On the first day of the second month of Year 2, the entity files an election under Code Sec. 1362(a) to be taxed as an S corporation, effective on the first day of Year 2. As in the first situation, every person holding stock in the entity on the first day of Year 2 also holds stock at the time the S election is made.

  In both situations the entity is deemed to contribute all of its assets and liabilities to a corporation in exchange for stock and immediately thereafter liquidate by distributing the stock to its partners In both situations, the partnership's tax year is also deemed to end on the last day of Year 1, and the corporation's first tax year is considered to begin on the first day of Year 2. Thus, in neither situation will the partnership be deemed to own the stock of the corporation during any portion of the corporation's first tax year.

  When the unincorporated entity becomes a corporation for federal tax purposes on the first day of Year 2, it becomes eligible, in both situations, to elect to be taxed as an S corporation effective its first tax year. The partnership's tax year ends immediately before the close of the last day of Year 1, and the corporation's first tax year begins at the start of the first day Year 2. Accordingly, the corporation will not be deemed to have an intervening short tax year in which it was a C corporation.

Rev. Rul. 2009-15, 2009FED ¶46,363

Other References:

 
Code Sec. 1361

  CCH Reference - 2009FED ¶32,026.809

 
Code Sec. 1362

  CCH Reference - 2009FED ¶32.053.36

  CCH Reference - 2009FED ¶32,053.58

  Tax Research Consultant

  CCH Reference - TRC SCORP: 202
CCH Reference -
TRC SCORP: 204

CCH (cch.taxgroup.com) reports:

  The Obama administration has proposed eliminating the advanced earned income tax credit program (AEITC), citing its very high error rate and use by only 3 percent of EITC-eligible taxpayers. The AEITC program was among 121 terminations, reductions or other areas of savings totaling $17 billion in fiscal year (FY) 2010 that were identified by the Office of Management and Budget (OM in a budget document released on May 7. Ending the AEITC program would save an estimated $872 million over the next 10 years. According to a GAO report issued in August 2007, 80 percent of AEITC recipients did not comply with at least one program requirement. Treasury Secretary Timothy Geithner also defended the president's proposal.

  OMB Director Peter Orszag, at a press briefing on the budget document, noted that the $17 billion in savings is roughly split between defense and nondefense programs. Orszag called the proposed cutbacks "an important step, but it is only a step in the process." He said that the administration would continue to look for additional program savings and efficiencies.

  The administration proposed to terminate $26 billion in oil and gas company tax preferences over the next 10 years. Since oil and gas are internationally traded commodities, their prices are determined on the world market and tax subsidies generally do not cut consumer prices significantly for products, such as gasoline and home heating oil, according to the budget document. White House Press Secretary Robert Gibbs pointed to the healthy profits made by oil and gas corporations and maintained they can afford to explore, drill, produce and bring their products to market without tax breaks.

  The budget document listed eight "unjustified tax loopholes" benefiting oil and gas companies: the enhanced oil recovery credit; marginal well tax credit; expensing of intangible drilling costs; deduction for tertiary injectants; passive loss exemption for working interests in oil and natural gas properties; manufacturing tax deduction for oil and natural gas companies; percentage depletion for oil and natural gas; and the preferential time period for geological and geophysical amortization for independent producers.

  The administration also proposed additional IRS funding for enhanced tax enforcement activities. For example, the IRS would expand compliance work in the international tax area, including cross-border transactions, according to the OMB. Details of the budget proposals were released in an OMB document, entitled "Terminations, Reductions and Savings."

Congressional Reaction

  Senate leaders praised the administration's line-by-line review of the federal budget, saying it will help make the government more efficient, eliminate programs that are not working and shift resources to initiatives that benefit the middle-class. "President Obama has reaffirmed his pledge to cut waste, end programs that do not work and ensure that Americans' tax dollars are spent wisely, "said Senate Majority Leader Harry Reid, D-Nev. "As important as program terminations and cuts are, we should not lose sight of the far larger threat to our nation's finances --the combination of the retiring baby-boom generation, rising health care costs and our outdated and inefficient revenue system, "added Senate Budget Committee Chairman Kent Conrad, D-N.D.

Treasury

  Geithner highlighted the hike in enforcement dollars for the IRS under the president's proposed FY 2010 budget. The president called on Congress to increase the IRS's enforcement budget by nearly $400 million (TAXDAY, 2009/04/30, C.1). The IRS's total enforcement budget would be roughly $5.5 billion for FY 2010.

  Obama also recommended that the Service hire 800 more enforcement personnel (TAXDAY, 2009/05/01, W.1). Geithner said that $128 million would be allocated to hire these new employees who would specialize in preventing international tax evasion among businesses and wealthy individuals. "In total, new enforcement initiatives will generate $2 billion in additional annual revenue once the new hiring is complete in fiscal year 2012," Geithner predicted.

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

White House Budget Fact Sheet and Link

Treasury Department News Release, TDNR TG-122
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

The Tax Court had jurisdiction to determine whether trust fund recovery penalty assessments against the majority shareholder of a home health care corporation were proper, as part of its review of a Collection Due Process (CDP) hearing. The taxpayer did not receive IRS Letter 1153, the notice of intent to assess a trust fund recovery penalty, and so did not have an opportunity to contest the liabilities before the CDP hearing.

Although the notice was mailed by certified mail to the taxpayer's last known address, the letter was returned to the IRS undelivered and marked unclaimed. Additionally, the IRS did not present any evidence that the notice was received, but refused by the taxpayer. The taxpayer also did not have an opportunity before the CDP hearing to dispute the underlying tax liabilities at the time her Form 843 was reviewed. The CDP hearing and the Appeals review of her Form 843 abatement request were simultaneous and the taxpayer challenged her liability for the penalties at the hearing. A CAP pre-lien filing request did not rise to the level of an opportunity to dispute the underlying liability because the Appeals officer limited review to the propriety of filing the notice of liens.

The taxpayer was, however, liable for the trust fund penalties. For purposes of imposing the penalties, the notice requirement was satisfied by a proper mailing of Letter 1153 to the taxpayer's last known address. As the majority shareholder, and an officer and employee of the corporation who had the authority to hire and fire employees, write checks and manage the corporation, the taxpayer possessed six indicia of a responsible person. While initially unaware of the bookkeeper's failure to remit employment taxes, once she became aware, she continued to authorize payments to other creditors. Accordingly, her failure to pay over employment taxes was willful and the defense of reasonable cause was not available to her.

Finally, the Appeals officer correctly determined that the IRS could proceed with the collection action. The trust fund recovery penalty assessment was not invalidated by the taxpayer's failure to receive the Letter 1153. The handling of the corporation's installment agreement default and rejection of an offer-in-compromise had no bearing on the IRS's discretion to pursue trust fund recovery penalties. All legal and procedural requirements with respect to the proposed lien were complied with and the IRS was not prohibited from filing a notice of federal tax lien while the taxpayer was perfecting her Form 843 abatement request.

M.M. Mason, 132 TC No. 14, Dec. 57,807

Other References:

Code Sec. 6321

CCH Reference - 2009FED ¶38,136.101

Code Sec. 6330

CCH Reference - 2009FED ¶38,184.50

Code Sec. 6672

CCH Reference - 2009FED ¶39,780.21

CCH Reference - 2009FED ¶39,780.705

CCH Reference - 2009FED ¶39,780.853

Tax Research Consultant

CCH Reference - TRC IRS: 51,056.25
CCH Reference - TRC PENALTY: 3,150
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Massachusetts Commissioner of Revenue improperly adjusted the income of a parent corporation where the parent received fair compensation for the services which it provided to its subsidiaries, applicable to the calculation of the state's corporation excise tax. However, royalty income paid to a subsidiary for use of the company logo was properly reallocated by the Commissioner to the parent corporation since the transfer of the license agreements and purported transfer of the logo were sham transactions that had resulted in an improper assignment of income. Further, another subsidiary was entitled to abatements because it properly applied the alternative apportionment methodology that had been approved by the Commissioner and the Commissioner's adjustments to the numerator of the subsidiary's sales factor were improper.

IDC Research Inc. v. Commissioner of Revenue , Massachusetts Appellate Tax Board, Nos. C267868; C268725; C271245, April 17, 2009, ¶401-335

  Other References:

  Explanations at ¶10-520

CCH (cch.taxgroup.com) reports:

  Colorado Gov. Bill Ritter has signed legislation creating a corporate and personal income tax credit to encourage job growth in the state, effective for tax years 2009-2018. To qualify for the credit, taxpayers must create at least 20 new jobs in urban areas or five new jobs in an enhanced rural enterprise zone. The created jobs must pay at least 110% of the county wage in which the taxpayer is located and be retained for at least one year.

  The credit is equal to 50% of the amount the employer is required to pay in federal social security and Medicare taxes on the created jobs. Additionally, the nonrefundable credit may be carried forward for ten years, or through tax year 2024. Taxpayers seeking to claim the credit must file an application with the Colorado Economic Development Commission and provide documentation that, if not for the credit, the jobs would not have been created in Colorado.

  As previously reported, the enactment of the Colorado job growth tax credit was among Gov. Ritter's top priorities for the 2009 legislative session (TAXDAY, 2008/12/23, S.8).

  Subscribers may view the text of the legislation, as well as a press release from Gov. Ritter on H.B. 1001.

H.B. 1001, Laws 2009, effective 91 days after the adjournment of the 2009 General Assembly, unless a referendum is filed; Press Release , Office of Colorado Governor Bill Ritter, May 4, 2009
 

CCH (cch.taxgroup.com) reports:

  United Stated Bureau of Customs and Border Protection officials who first denied, then revoked, a duty-free retailer's authority to sell duty-free gasoline were entitled to qualified immunity from the allegations made by the retailer. Under the Tariff Act, only merchandise that has been assessed federal tax or duty is ineligible for entry into a bonded warehouse and duty-free sale. The retailer, stating a
Bivens claim, alleged that the officials violated its constitutional rights under the Export Clause of the United Stated Constitution because they never determined whether any tax was actually assessed under Code Sec. 4081 on the retailer's fuel. The U.S. Court of Appeals for the Federal Circuit affirmed in 2005 that Customs should have first determined that a tax had been assessed on the retailer's gasoline before revoking the retailer's authority to sell it duty-free ( Ammex, Inc. v. U.S. , 2005-2 USTC ¶70,243).

  The officials were entitled to qualified immunity, however, because this was not the type of case where any reasonable official would know he or she was violating a clearly established right. The officials made their decision to revoke the retailer's authority to sell duty-free gasoline in reliance on a letter from the IRS. Further, the Federal Circuit found that their decision was reasonable because of the IRS's guidance. Finally, the officials revoked the retailer's authority in a procedurally transparent and open way, following Customs' published notice.

Ammex Inc., DC Mich., 2009-1 USTC ¶70,284

Other References:

 
Code Sec. 4081

  CCH Reference - ETR ¶8925.25

  Tax Research Consultant

  CCH Reference - TRC IRS: 18,450

CCH (cch.taxgroup.com) reports:

  The IRS has clarified that utility costs paid by a tenant based on actual consumption in a sub-metered rent-restricted unit are treated as paid directly by the tenant for purposes of Code Sec. 42(g)(2)((ii). In order to qualify as a rent-restricted unit the gross rent for a unit in a low-income housing project may not exceed 30 percent of the imputed income limitation applicable to the unit. When utility costs are paid directly by the tenant, a utility allowance is added to the gross rent for that unit. Reg. §1.42-10, which was amended by
T.D. 9420 (TAXDAY, 2008/07/28, I.3), sets forth the circumstances under which gross rent includes a utility allowance and provides rules for determining the applicable utility allowance. Under the regulation, if the cost of any utility other than telephone, cable television or internet is paid directly by the tenant, and not by the owner of the building, the gross rent for the unit includes a utility allowance.

  The guidance provides that for purposes of Reg. §1.42-10(a), utility costs paid by a tenant based on actual consumption in a sub-metered rent-restricted unit are treated as paid directly by the tenant, and not by or through the owner of the building. For Rural Housing Service (RHS) assisted buildings, buildings with RHS tenant assistance, Department of Housing and Urban Development (HUD) regulated buildings, and rent-restricted buildings in other buildings occupied by tenants receiving HUD rental assistance, the applicable RHS or HUD rules apply. For all other tenants in rent-restricted units in other buildings under Reg. §1.42-10(b)(4)(ii):

  (1) the utility rates charged to tenants in each sub-metered rent-restricted unit must be limited to the utility company rates incurred by the building owners or their agents;

  (2) if building owners or their agents charge tenants a reasonable fee (not to exceed $5 per unit per month) for the administrative costs of sub-metering, then the fee will not be considered gross rent under Code Sec. 42(g)(2); and

  (3) if the costs for sewerage are based on the tenants' actual water consumption determined with a sub-metering system and the sewerage costs are on a combined water and sewerage bill, then the tenants' sewerage costs are treated as paid directly by the tenants.

  The guidance is effective for utility allowances subject to the effective date in Reg. §1.42-12(a)(4). Building owners or their agents may rely on the guidance for any utility allowances effective no earlier than the first day of the building owner's tax year beginning on or after July 29, 2008. The Treasury Department and IRS invite taxpayers to submit written comments on issues relating to this guidance.

Notice 2009-44, 2009FED ¶46,361

Other References:

 
Code Sec. 42

  CCH Reference - 2009FED ¶4385.025

  CCH Reference - 2009FED ¶4385.55

  CCH Reference - 2009FED ¶4385.77

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 54,214.10

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  In a lawsuit alleging a scheme to avoid New York cigarette taxes, the U.S. Supreme Court has agreed to decide whether a city can meet the standing requirements of the Racketeer Influenced and Corrupt Organizations (RICO) Act, 18 U.S.C. §§1961-68, by alleging non-payment of taxes. New York City alleged in a civil RICO action that it lost tax revenue as the result of the defendants' participation in a "pattern of racketeering activity" by out-of-state cigarette retailers that involved a failure to comply with the requirements of the federal Jenkins Act, 15 U.S.C. §§375-78, to report sales of cigarettes to state residents. In order to maintain a civil RICO action, and recover treble damages, a plaintiff must show an injury to its "business or property." The defendants asserted that New York City's loss of tax revenue was not an injury that was incurred as a party to a commercial transaction and, therefore, the city lacked standing to bring a RICO action. However, the U.S. Court of Appeals for the Second Circuit held that lost taxes can constitute injury to "business or property" for purposes of RICO standing.

  This is the third time in the last four years that the U.S. Supreme Court has agreed to review a RICO dispute arising in a state-tax context. The previous decisions were in Anza v. Ideal Steel Supply Corp., 547 U.S. 451 (2006), and Bridge v. Phoenix Bond & Indemnity Co., 128 S. Ct. 2131 (2008).

  Subscribers can view the petition that was just granted.

Hemi Group, LLC v. New York City, U.S. Supreme Court, Dkt. 08-969, petition for certiorari granted May 4, 2009
 

CCH (cch.taxgroup.com) reports:

  The criminal conviction of a corporation's president and sole shareholder for willful failure to collect and pay employment and withholding taxes collaterally estopped the corporation from contending that temporary workers hired by the corporation were actually the employees of its clients and from denying its liability for the payment of the taxes.

  The corporation was engaged in the business of providing temporary skilled and unskilled laborers to approximately 250 client companies. The contracts between the corporation and its clients provided that the corporation was the employer of the workers and specifically provided that the corporation was responsible for withholding and the collection and payment of employment taxes. The corporation, however, paid most of its workers in cash. Its employment tax returns only reflected the withholding and employment taxes of those few workers who chose to be paid by check.

  Even if the corporation had not been precluded from making these arguments, the court indicated that it would have classified the workers as the corporation's common law employees or, alternatively, as its statutory employees since the corporation set the salaries of the temporary laborers and paid their wages.

  In determining, the amount of underwithheld income tax, the IRS did not act unreasonably in using the same rate used by the corporation for the workers paid by check from which it withhheld income tax.

  Finally, the fraud penalty was imposed . The corporation was collaterally estopped from denying fraud due to the president's conviction for conspiracy to defraud the United States in connection with the willful failure to collect and pay the employment and withholding taxes. Even in the absence of the conviction, clear and convincing evidence before the court supported imposition of the penalty. Furthermore, since fraud was found, the three-year statute of limitations for assessing and collecting employment taxes did not apply.

Hi-Q Personnel, Inc., 132 TC No.13, Dec. 57,806

Other References:

 
Code Sec. 3401

  CCH Reference - 2009FED ¶33,538.5685

 
Code Sec. 3402

  CCH Reference - 2009FED ¶33,544.15

  CCH Reference - 2009FED ¶33,544.20

 
Code Sec. 3403

  CCH Reference - 2009FED ¶33,593.25

 
Code Sec. 6501

  CCH Reference - 2009FED ¶38,967.284

 
Code Sec. 6663

  CCH Reference - 2009FED ¶39,658.35

  Tax Research Consultant

  CCH Reference - TRC PAYROLL: 3,052
CCH Reference - TRC PAYROLL: 6,252
CCH Reference - TRC PAYROLL: 6,350
CCH Reference - TRC LITIG: 3,054.35
CCH Reference -
TRC IRS: 27,212

CCH (cch.taxgroup.com) reports:

  The IRS has provided additional guidance on the issuance of letter rulings in response to requests for rulings on portions of integrated transactions relating to corporate divisions under Code Sec. 355. Under prior guidance contained in Rev. Proc. 2009-1, I.R.B. 2009-1, 1, and Rev. Proc. 2009-3, I.R.B. 2009-1, 87, the IRS would not issue a letter ruling on part of an integrated transaction unless part of the transaction fell under a no-rule area, as described in Rev. Proc. 2009-3. However, under a pilot program applicable to ruling requests postmarked or received by the IRS after May 4, 2009, the IRS may issue a ruling on a single part of an integrated transaction relating to corporate divisions.

  Under the new guidance, taxpayers may request rulings on one or more issues that are solely under the jurisdiction of the Associate Chief Counsel (Corporate), are significant and involve the tax consequences or characterization of a transaction in the context of a Code Sec. 355 distribution. The IRS may issue a letter ruling on such an issue without ruling on the larger transaction.

  Whether an issue is significant will continue to be controlled by §3.01(38) of Rev. Proc. 2009-3, except that, prior to preparing the ruling request, taxpayers should call the Office of the Associate Chief Counsel (Corporate) to discuss whether a letter ruling will be issued that only involves that specific significant issue.

  Also, taxpayers may request and the IRS may issue rulings on a particular issue under a code or regulation section rather than a ruling that addresses all aspects under a code or regulation section.

  All prior policies regarding the nonissuance of letter rulings, in particular, no-rule issues, will continue to apply. Additionally, the IRS will not issue a ruling on a significant issue where there is no reorganization plan (nonplan issue) unless an adverse ruling on the nonplan issue would result in a direct or indirect acquisition by one or more persons of stock representing a 50-percent or greater interest in either the distributing or controlled corporation under a Code Sec. 355(e) reorganization plan. Subject to certain conditions, the IRS will issue rulings regarding the effect of a redemption under Code Sec. 355(e).

 
Rev. Procs. 2009-1 and 2009-3 are amplified.

Rev. Proc. 2009-25, 2009FED ¶46,360

Other References:

 
Code Sec. 355

  CCH Reference - 2009FED ¶16,466.27

  CCH Reference - 2009FED ¶16,466.923

 
Code Sec. 367

  CCH Reference - 2009FED ¶16,667.25

 
Code Sec. 368

  CCH Reference - 2009FED ¶16,753.53

  Tax Research Consultant

  CCH Reference - TRC CCORP: 39,400

CCH (cch.taxgroup.com) reports:

  The IRS is inviting the public to suggest tax issues that need clarification to be considered for inclusion on the 2009 --2010 Guidance Priority List. This list will indicate the guidance that the Treasury Department and the IRS intend to issue from July 1, 2009, through June 30, 2010. Recommendations can be submitted at any time; however, only those submitted by May 31, 2009, will be considered for inclusion in the original 2009-2010 Guidance Priority List.

  Recommendations need not be in any particular format but should briefly describe the recommended guidance and explain the need for it. An analysis of how the issue should be resolved may also be included. In reviewing recommendations and selecting projects for inclusion on the list, the Treasury and the IRS will consider whether the recommended guidance would resolve significant issues relevant to many taxpayers, promote sound tax administration, reduce controversy and lessen burdens on taxpayers or the IRS, whether it can be drafted in a way that will be easy for taxpayers to understand and apply and whether it can be uniformly administered by the IRS.

Notice 2009-43, 2009FED ¶46,359

Other References:

 
Code Sec. 7805

  CCH Reference - 2009FED ¶43,282.119

  Tax Research Consultant

  CCH Reference - TRC IRS: 12,350

CCH (cch.taxgroup.com) reports:

  President Obama on May 4 announced a series of proposals designed to curb off-shore tax havens and remove tax incentives, which he said throughout his presidential campaign encourage corporations to shift jobs overseas. In remarks at an international tax forum, Obama said the administration proposals are "a downpayment on the larger tax reform we need to make our tax system simpler and fairer and more efficient for individuals and corporations." The administration plans to announce additional international tax reform measures as part of the more detailed fiscal year budget plan that will be released later in May, according to a White House release.

Overseas Jobs

  The Obama plan would remove tax advantages for investing overseas by reforming deferral rules so that companies cannot claim deductions --with the exception of the research and experimentation (R&E) expenses --on their U.S. tax returns for supporting offshore investments until they pay taxes on offshore profits. The administration would use a portion of the revenue to make permanent the R&E tax credit that is set to expire at the end of 2009.

  The plan also would close foreign tax credit loopholes that currently allow U.S. businesses that pay foreign taxes on overseas profits to claim a credit against their U.S. taxes for the foreign taxes paid. These combined proposals would raise $101.3 billion over ten years, according to the White House document.

Overseas Tax Havens

  A second component of the plan is designed to crack down on overseas tax havens, raising a total of $95.2 billion over ten years. Under the plan, the administration proposes to reform "check-the-box" rules to require certain foreign subsidiaries to be considered as separate corporations for U.S. tax purposes

  The administration plan calls for a comprehensive package of disclosure and enforcement measures to make it more difficult for financial institutions and wealthy individuals to evade taxes. It would require foreign banks doing business with the U.S. to sign an agreement with the IRS to become a qualified intermediary (QI) and share as much information about their U.S. customers as U.S. financial institutions do. Obama also proposes to tighten reporting standards for overseas investments and increase penalties to be imposed on individuals who do not report foreign accounts.

  To provide the IRS with the necessary tools to prosecute international tax-evasion schemes, the plan would double penalties for failure to report overseas investments, extend the statute of limitations for international tax enforcement and increase the reporting requirement on international investors, particularly QIs. The president's fiscal year 2010 budget includes IRS funding to hire 800 new staff specifically for international tax enforcement.

  White House Press Secretary Robert Gibbs said that Obama's proposals are designed to be passed this year and do not necessarily have to be part of the reconciliation process. In response to widespread opposition by corporations and business groups to the deferral provision, Gibbs noted that businesses would benefit from making the R&E tax credit permanent since it would provide some certainty to business investment. He also maintained that the proposal would not put U.S. corporations at a competitive disadvantage or result in job losses in the U.S.

  Many businesses contend that deferrals level the playing field for U.S. companies competing in global markets. One bit of good news for businesses is that the president remains open to lowering corporate tax rates if paid for by loophole closings, Gibbs confirmed.

Senate Reaction

  Senate reaction to Obama's proposals was mixed. Senate Finance Committee Chairman Max Baucus, D-Mont., said more study is required to see how American companies will be influenced by the suggested policies. "I want to make certain that our tax policies are fair and support the global competitiveness of U.S. businesses," he said. Finance Committee ranking member Charles E. Grassley, R-Iowa said the proposals have to be vetted carefully, and Congress needs to look at whether the proposals will cause U.S. workers to lose their jobs and if they will lead U.S. companies to fall behind foreign competition and become more vulnerable to foreign acquisition. "To the extent the president continues on the road of cracking down on tax abuse, he can count on my support," said Grassley. "But, if he's using tax shelters as a stalking horse to raise taxes on corporations at the cost of U.S. jobs, he'll lose me," the senator said.

  Only Senate Budget Committee Chairman Kent Conrad, D-N.D., expressed full support for the president's initiatives. "Far too many big corporations and wealthy individuals have been using offshore tax havens to evade paying taxes that they owe," said Conrad. "This abuse has to stop."

House Reaction

  House Ways and Means Committee ranking member Dave Camp, R-Mich., said Obama's proposal would cause American firms to be taken over by their foreign competitors. Camp said raising taxes on firms like Caterpillar and Cisco during a recession is the wrong action to take. That viewpoint was echoed by National Association of Manufacturers (NAM) President John Engler, who called the Obama plan a disaster. Although Engler said he supports a permanent R&E tax credit, the president's plan will destroy U.S. jobs and undermine the ability of firms to compete overseas.

  Meanwhile, House Majority Leader Steny Hoyer, D-Md., said the proposal would prohibit America's wealthiest taxpayers from avoiding their fair share of taxes. Hoyer said that reducing the use of tax havens and providing additional resources to crack down on abuses of international tax laws will save American taxpayers billions of dollars. House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., added that he supports Obama's effort to reform international tax laws that allow companies to invest overseas and keep their money abroad through the use of tax havens.

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

White House Press Release --Leveling The Playing Field: Curbing Tax Havens and Removing Tax Incentives for Shifting Jobs Overseas

Senate Finance Committee Memorandum: Baucus Statement on President's International Tax Proposals

House Ways and Means Committee Release: Congress Will Work with Obama Administration to Close Loopholes, Strengthen Investment Opportunities and Job Creation in America

White House Press Release --Remarks by the President on International Tax Policy Reform

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Legislation signed by Gov. John Hoeven reduces the North Dakota personal and corporate income tax rates, effective for tax years beginning after 2008.

CCH (cch.taxgroup.com) reports:

  Beginning May 1, 2009, and ending July 31, 2009, taxpayers that participate in the City of Los Angeles' tax amnesty program may avoid tax penalties of up to 40% that are imposed as a result of a taxpayer's nonreporting, underreporting, underpayment, or nonpayment of the following Los Angeles municipal taxes:

  -- business taxes;

  -- telephone, electricity, and gas users taxes;

  -- commercial tenants occupancy taxes

  -- transient occupancy taxes; and

  -- parking occupancy taxes.

  To participate, taxpayers must file an application between May 1, 2009, and July 31, 2009, and must pay all outstanding taxes, including interest and any applicable fees, other than penalties. In addition, the taxpayer must file completed tax statements or returns for all periods and taxes for which the taxpayer has not previously filed a tax statement or return and/or file completed amended tax statements or returns for all periods for which the taxpayer underreported the taxes due. Taxpayers who have an outstanding business tax liability may enter into an installment agreement if unable to pay the delinquent taxes in full.

  Additional information, including applications, penalty waiver forms, and answers to frequently asked questions can be found on the City of Los Angeles Department of Finance's Web site at
http://www.lacity.org/finance/amnesty/index.html.

  Subscribers can view the full text of the amnesty provisions.

Ordinance No. 180, 598, effective April 19, 2009, and applicable as noted above

CCH (cch.taxgroup.com) reports:

  The regulatory actuarial tables used for the valuation of annuities, interests for life or terms of years and remainder or reversionary interests in property have been revised to reflect the most recent mortality experience available (2000). These regulations affect the valuation of inter vivos and testamentary transfers of interests dependant on one or more measuring lives and are generally effective May 1, 2009.

  Pursuant to Code Sec. 7520(c)(3), the IRS is required to revise the tables at least once in each 10-year period. Revised Tables S (Single Life Remainder Factors) and U(1) (Unitrust Single Life Remainder Factors), effective for transfers for which the valuation date is on or after May 1, 2009, are based on data compiled from the 2000 census as set forth in Life Table 2000CM, and make conforming amendments to various provisions to reflect the revised tables. No changes have been made to Tables B, D, F(4.2) through F(14.0), J, and K, which are not based on mortality experience.

  IRS Publications 1457 (Actuarial Valuation Version 3A), 1458 (Actuarial Valuation Version 3, and 1459 (Actuarial Valuation Version 3C) contain complete sets of actuarial tables that include factors not contained in the regulations (TAXDAY, 2009/04/30, I.4). The full text of these publications are available electronically on the IRS website at www.irs.gov.

  Although generally effective for annuities, interests for life or terms of years, and remainder or reversionary interests valued on or after May 1, 2009, the regulations provide transitional rules intended to alleviate adverse consequences resulting from the regulatory changes. For gift tax purposes, if a transfer's valuation date is after April 30, 2009, but before July 1, 2009, the donor may determine the value of the gift and/or any applicable charitable deduction under tables based on either Table 90CM or 2000CM. Similarly, for estate tax purposes, if the decedent dies after April 30, 2009, and before July 1, 2009, the value of any interest and/or applicable charitable deduction may be determined under tables based on either Table 90CM or Table 2000CM, at the option of the decedent's executor. However, the Code Sec. 7520 interest rate utilized is the appropriate rate for the month in which the valuation date occurs.

  With respect to charitable deductions, if the valuation date occurs after April 30, 2009, and before July 1 2009, and the executor or the donor elects to use the applicable federal rate (AFR) for March 2009 or April 2009, valuation tables based on 90CM must be used. If the May 2009 or June 2009 AFR rate is elected, valuation tables based on either 90CM or 2000CM may be used. However, if the valuation occurs after June 30, 2009, the executor or donor must used the tables based on 2000CM, even if a prior month's AFR is elected.

  For estate tax purposes, the estate of a mentally incompetent decedent may elect to value the property interest included in the gross estate under (1) the mortality table and interest rate in effect at the time the decedent became mentally incompetent, or (2) the mortality table and interest rate in effect on the decedent's date of death if the decedent was under a mental incapacity that existed on May 1, 2009, and continued uninterrupted until the date of death, or the decedent died within 90 days of regaining competency after April 30, 2009.

  The text of the temporary regulations also serves as the comment document for a notice of proposed rulemaking. The IRS and Treasury Department are requesting comments concerning the proposed regulations. Written and electronic comments and requests for a public hearing on the proposed regulations must be received by August 5, 2009. Written comments should be sent to CCA:LPDR (REG-107845-07), IRS, Room 5205, PO Box 7604, Ben Franklin Station, Washington, D.C. 20044. Electronic comments may be submitted via the Federal eRulemaking Portal at www.regulations.gov (REG-107845-08).

T.D. 9448, 2009FED ¶47,017

T.D. 9448, FINH ¶43,125

Proposed Regulations, NPRM REG-107845-08, 2009FED ¶49,420

Proposed Regulations, NPRM REG-107845-08, FINH ¶41,140

Other References:

 
Code Sec. 170A

  CCH Reference - 2009FED ¶11,681

  CCH Reference - 2009FED ¶11,683

  CCH Reference - 2009FED ¶11,701

 
Code Sec. 642

  CCH Reference - 2009FED ¶24,294

  CCH Reference - 2009FED ¶24,294C

  CCH Reference - 2009FED ¶24,294E

  CCH Reference - FINH ¶16,725

  CCH Reference - FINH ¶16,730

  CCH Reference - FINH ¶16,735

  CCH Reference - FINH ¶16,750

 
Code Sec. 664

  CCH Reference - 2009FED ¶24,461

  CCH Reference - 2009FED ¶24,464

  CCH Reference - 2009FED ¶24,466

  CCH Reference - 2009FED ¶24,466C

  CCH Reference - 2009FED ¶24,466E

  CCH Reference - FINH ¶16,975

  CCH Reference - FINH ¶17,025

  CCH Reference - FINH ¶17,030

  CCH Reference - FINH ¶17,035

  CCH Reference - FINH ¶17,050

 
Code Sec. 2031

  CCH Reference - 2009FED ¶15,904

  CCH Reference - 2009FED ¶15,904A

  CCH Reference - 2009FED ¶15,904B

  CCH Reference - FINH ¶3025

  CCH Reference - FINH ¶3435

  CCH Reference - FINH ¶3440

  CCH Reference - FINH ¶3445

  CCH Reference - FINH ¶3485

 
Code Sec. 2032

  CCH Reference - FINH ¶3830

  CCH Reference - FINH ¶3835

  CCH Reference - FINH ¶3845

 
Code Sec. 2055

  CCH Reference - FINH ¶6390

  CCH Reference - FINH ¶6395

  CCH Reference - FINH ¶6405

 
Code Sec. 2056A

  CCH Reference - FINH ¶7120

  CCH Reference - FINH ¶7125

  CCH Reference - FINH ¶7130

 
Code Sec. 2512

  CCH Reference - FINH ¶10,636

  CCH Reference - FINH ¶10,784

  CCH Reference - FINH ¶10,790

  CCH Reference - FINH ¶10,794

  CCH Reference - FINH ¶10,811

 
Code Sec. 2522

  CCH Reference - FINH ¶11,608

  CCH Reference - FINH ¶11,615

  CCH Reference - FINH ¶11,618

 
Code Sec. 7520

  CCH Reference - 2009FED ¶42,782

  CCH Reference - 2009FED ¶42,782A

  CCH Reference - 2009FED ¶42,782B

  CCH Reference - 2009FED ¶42,782C

  CCH Reference - FINH ¶22,585

  CCH Reference - FINH ¶22,587

  CCH Reference - FINH ¶22,589

  CCH Reference - FINH ¶22,610

  CCH Reference - FINH ¶22,612

  CCH Reference - FINH ¶22,613

  Tax Research Consultant

  CCH Reference - TRC VALUE: 18,104

CCH (cch.taxgroup.com) reports:

  The IRS has clarified the character and amount of income that must be recognized under Code Sec. 72 on the surrender of a life insurance policy in one situation and the sale of such a policy in two situations. In the first situation, the policy owner received income in the amount of the difference between the surrender value of the policy and the aggregate premiums paid on the contract. Since the surrender of a life insurance contract does not produce capital gain, the income was ordinary income.

  In the second situation, the taxpayer sold the life insurance contract to an unrelated party. Under Code Sec. 1001, the gain realized from selling property is the excess of the amount realized over the adjusted basis of the property. The taxpayer's basis in the contract was determined under Code Secs. 1011 and 1012, as adjusted under Code Sec. 1016. Thus, his basis was the amount of premiums paid minus the amount paid by the insurer for cost-of-insurance charges. The taxpayer was required recognize as income the sale amount minus the adjusted basis.

  To determine the character of the income, the IRS applied the "substitute for ordinary income" doctrine. Under that doctrine, "property" as used in Code Sec. 1221 does not include rights or claims to ordinary income. Application of the substitute for ordinary income doctrine is limited to the amount that would be recognized as ordinary income on surrender of the policy, and income received on sale of a life insurance policy may qualify as gain from the sale of a capital asset to the extent that it exceeds the cash surrender value minus the premiums paid (that is, the "inside build-up" under the contract). Thus, of the income received, the amount equalling the inside buildup on the contract was taxed as ordinary income. The excess was taxed as long-term capital gain.

  In the third situation, the taxpayer sold a 15-year term life insurance contract without cash surrender value to a third party. The taxpayer's adjusted basis in the contract was the total premiums paid minus charges for the provision of insurance before the sale. The monthly cost of the insurance is, absent other evidence, presumed to be the amount of the premium paid for that month. Because the policy had no cash value, there was no inside buildup, and the "substitute for ordinary income" doctrine did not apply. Because the contract was not excluded from the definition of capital asset under Code Sec. 1221, and was held by the taxpayer for more than a year, the sales proceeds minus the taxpayer's basis in the contract were taxed as long-term capital gain.

Rev. Rul. 2009-13, 2009FED ¶46,357

Other References:

 
Code Sec. 61

  CCH Reference - 2009FED ¶5504.2665

 
Code Sec. 72

  CCH Reference - 2009FED ¶6140.79

 
Code Sec. 1001

  CCH Reference - 2009FED ¶29,225.1027

 
Code Sec. 1011

  CCH Reference - 2009FED ¶29,313.26

 
Code Sec. 1012

  CCH Reference - 2009FED ¶29,335.01

 
Code Sec. 1016

  CCH Reference - 2009FED ¶29,412.023

 
Code Sec. 1221

  CCH Reference - 2009FED ¶30,422.184

 
Code Sec. 1222

  CCH Reference - 2009FED ¶30,442.23

  Tax Research Consultant

  CCH Reference - TRC INDIV: 30,100
CCH Reference - TRC IRS: 48,110.50
 

CCH (cch.taxgroup.com) reports:

  The IRS has announced it is seeking eight new members for the Internal Revenue Service Advisory Council (IRSAC). IRSAC is a panel of private-sector tax professionals, such as attorneys, CPAs, enrolled agents, actuaries, appraisers and others, that provides a forum for discussion and feedback for IRS officials and also submits recommendations regarding tax administration in an annual report. Applications will be accepted from May 1 to June 16 for a three-year term beginning in January 2010. Applications may be submitted by mail or by fax. The application form is available online at www.irs.ustreas.gov/taxpros/article/0,,id=181791,00.html.

IR-2009-47

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Vermont Senate has passed its version of an omnibus tax bill that contains many of the personal income, corporate income, franchise, sales and use, property, and tobacco tax proposals contained in the bill passed by the House of Representatives (TAXDAY, 2009/04/17, S.20) with the notable exception that the Senate version of the bill does not include a personal income tax surcharge. The Senate version contains a proposed reduction in the personal income tax rate and a modified version of the House's amnesty program. In addition, like the House version of the bill, the Senate version contains a franchise tax on digital business entities, a corporate income tax on federally-exempt corporations, a sales and use tax on digital products, and a reduction in the education property tax rate.

  In addition, other major changes contained in the bill passed by the Senate would:

  -- revise the personal income tax capital gains deduction;

  -- impose sales tax on articles of clothing costing $110 or more;

  -- eliminate the sales and use tax bracket schedule;

  -- increase various tobacco and alcohol taxes;

  -- increase the property tax adjustment cap; and

  -- impose a new satellite programming tax.

  Other changes proposed by the House are also included; however, the Senate version would not repeal the Vermont seed capital fund credit against personal and corporate income taxes.

  The House did not concur in the Senate amendments and the bill is now before a conference committee to reconcile the different versions.

CCH (cch.taxgroup.com) reports:

  Provisions in the General County Assessment Law and the Second Class County Assessment Law that permit Pennsylvania property tax to be assessed on unadjusted base year valuations violate the Uniformity Clause of the Pennsylvania Constitution, to the extent that they permit valuations from a base year to be used indefinitely, according to the Pennsylvania Supreme Court. While the trial court held that use of a base year assessment system was facially unconstitutional, the Supreme Court held that the base year method is unconstitutional only when use of a base year assessment over a prolonged period of time results in inequitable taxation. Concluding it was the role of the General Assembly to fashion a more comprehensive and constitutionally sound scheme, the court did not articulate a standard for determining the point at which an unadjusted base system becomes constitutionally problematic.

  The court held that Allegheny County's scheme, under which a base year assessment may be used indefinitely and property is assessed at an estimated predetermined ratio (EPR) of 100% of its base year valuation, violates the Uniformity Clause because there was ample evidence that use of this system has resulted in significant disparities in assessed value to current actual value ratios and placed an inequitable tax burden on taxpayers whose property values have declined. The court rejected the county's contention that application of a common standard ( i.e., the assessed value of all property is 100% of the base year fair market value) satisfied the Uniformity Clause, and concluded that applying the same ratio to outdated base year values, where the current actual value of a substantial number of properties has changed dramatically, in effect creates the same disparity as applying different ratios to current actual values.

  The county's appeals process, which allows assessment adjustments through the use of the common level ratio (CLR) rather than the EPR, does not preserve uniformity. The county cannot satisfy the proportionality requirement by shifting the burden of achieving uniformity to the taxpayer, particularly when inequity has become pervasive. Successful appeals by over-assessed property owners do not decease the values of over-assessed properties whose owners did not appeal, nor do they increase the assessments of under-assessed properties whose owners have no reason to appeal.

  The county failed to prove that any lack of uniformity was rationally related to a legitimate government interest in preserving a stable and predictable tax assessment system. Lack of uniformity resulting from use of an outdated base year assessment cannot be characterized as a classification in order to excuse nonuniformity, and even if disparate treatment ( i.e., classification) was permissible, the county has not based this supposed classification on any legitimate distinction. The county's interest in stability and predictability cannot justify a tax scheme that routinely taxes property owners with declining property values at a higher rate of assessed-to-actual value than property owners with appreciating property values. Even if such a governmental interest was valid, the county failed to demonstrate how this classification (overburdened property owners with declining property values) is rationally related to its interest in stability and predictability.

  The court remanded the case and directed the trial court to monitor the progress of a countywide reassessment and set a timetable for its completion.

Clifton v. Allegheny County , Pennsylvania Supreme Court, Nos. 20 WAP 2007 and 21 WAP 2007, April 29, 2009, ¶203-899

  Other References:

  Explanations at ¶20-610

CCH (cch.taxgroup.com) reports:

  The Florida House of Representatives has passed proposed legislation that, as previously reported (TAXDAY, 2009/4/29, S.6), would decouple, for corporate income tax purposes, from the extension through 2009 by the American Recovery and Reinvestment Act of 2009 (Recovery Act) (P.L. 111-5) of the 50% bonus depreciation and IRC §179 limitations enacted by the Economic Stimulus Act of 2008 (P.L. 110-185). The proposed legislation would also decouple from a Recovery Act provision that allows taxpayers to defer income from the discharge of indebtedness in connection with the reacquisition after December 31, 2008, and before January 1, 2011, of a corporate or business debt instrument. If enacted, the legislation would be operative retroactively to January 1, 2009.

  In addition, the proposed legislation would update Florida's conformity date to January 1, 2009 (formerly, January 1, 2008).

  Subscribers can view S.B. 2504.

  S.B. 2504, as passed by the Florida House of Representatives on April 29, 2009

CCH (cch.taxgroup.com) reports:

  The IRS has provided guidance with respect to the United States and area median gross income figures that issuers of qualified mortgage revenue bonds and mortgage credit certificates must use to compute housing cost/income ratio. The ratio is used to determine if an area is a high housing cost area that qualifies for an upward adjustment of the income limitations for the bonds and certificates. On March 19, 2009, the Department of Housing and Urban Development (HUD) released the median gross income for the United States, the states, and statistical areas within the states; these figures can be obtained by calling the HUD reference service at 1-800-245-2691, or from HUD's website at http:huduser.org/datasets/il.html. The IRS published the most recent nationwide average purchase prices and average area purchase price safe harbor limitations in Rev. Proc. 2009-18, I.R.B. 2009-11, 686 (TAXDAY 2009/02/25, I.1).

  When computing the housing cost/income ratio, issuers of qualified mortgage bonds and mortgage credit certificates must use $64,000 as the median gross income for the United States and they must use the area median gross income figures released by HUD on March 19, 2009. Issuers generally must use the United States and area median gross income figures for commitments to provide financing that are made, or (if the purchase precedes the financing commitment) for residences that are purchased, in the period that begins on March 19, 2009, and ends on the date when these United States and area median gross income figures are rendered obsolete by a new revenue procedure. However, issuers may continue to rely on the United States and area median gross income figures specified in Rev. Proc. 2009-18 with respect to bonds originally sold and nonissued bond amounts elected not later than May 28, 2009, if the commitments or purchases are made not later than July 27, 2009.

 
Rev. Proc. 2009-18 is otherwise obsoleted. This guidance does not affect the effective date provisions of Rev. Rul. 86-124, 1986-2 C.B. 27.

Rev. Proc. 2009-27, 2009FED ¶46,354

Other References:

 
Code Sec. 25

  CCH Reference - 2009FED ¶3809.20

 
Code Sec. 143

  CCH Reference - 2009FED ¶7786.752

  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 IRS has extended the time period for making elections described in Act Secs. 204 and 205 of the Worker, Retiree, and Employer Recovery Act of 2008 (P.L. 110-458) from April 30, 2009, to June 30, 2009. Under P.L. 110-458, a plan sponsor may elect to temporarily freeze a plan's status in order to maintain the same status as it had in the plan's prior year or elect an extension of the funding improvement or rehabilitation plan for plans with a plan year beginning in 2008 or 2009.

  Under Notice 2009-31, I.R.B. 2009-16, 856, these elections were required to be made by the date 30 days after the due date of the annual certification or April 30, 2009, whichever comes later, but before the last day of the plan year and under no circumstances any earlier than April 30, 2009. References to "April 30, 2009" have been changed to "June 30, 2009."

  Additionally, if, as of the applicable deadline for making an election, a plan sponsor has been unable to reach agreement as to whether to make an election and the decision must be resolved through arbitration, if the plan sponsor makes an election by the deadline that is contingent on the resolution of the arbitration, and if the resolution is to not make an election, then the IRS will automatically approve a request to revoke the election. Notice 2009-31 is modified.

Notice 2009-42, 2009FED ¶46,353

Other References:

 
Code Sec. 432

  CCH Reference - 2009FED ¶20,201.021

 
Code Sec. 4971

  CCH Reference - 2009FED ¶34,324.19

  CCH Reference - 2009FED ¶34,324.20

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 57,202
CCH Reference - TRC RETIRE: 57,212

Tax Analysts report: