Tax News

CCH (cch.taxgroup.com) reports:

  Legislation has been enacted that phases-in the personal income tax rate reductions enacted by H.B. 441, Laws 2009 (TAXDAY 2009/06/03, S.32), phases-in and modifies the personal income tax capital gains deduction amendments made by H.B. 441, and enacts a new research and development credit against personal and corporate income taxes. A separate story discusses the sales and use tax provisions enacted by the legislation. (TAXDAY, 2009/06/11, S.18)

 

CCH (cch.taxgroup.com) reports:

  Proposed legislation would, if enacted, increase the Oregon corporation excise (income) tax rate, increase the minimum corporation excise tax rate, impose a minimum tax on S corporations and partnerships, and increase various filing fees.

 

CCH (cch.taxgroup.com) reports:

  As a growing number of U.S. households make the switch from landlines to mobile phones, congressional lawmakers are looking at ways to stop state and local governments from using the switch to boost their tax revenues. At a hearing of the U.S. House Judiciary Subcommittee on Commercial and Administrative Law on June 9, lawmakers heard support from industry experts for the Cell Tax Fairness Act of 2009 (H.R. 1521). (TAXDAY, 2009/03/19, S.1) Introduced by Rep. Zoe Lofgren, D-Calif., the bipartisan measure has already drawn 112 cosponsors. Similar legislation was introduced in the U.S. Senate on June 4. (TAXDAY, 2009/06/10, S.2) The bill seeks to stop states from increasing cell phone tax rates above general business tax rates. State and local governments are able to raise cell phone tax rates, the bill's sponsors say, simply because cell phone users are less likely to understand or complain about taxes and other fees that are "hidden" in their monthly bills.

  A panel of state experts appearing before the subcommittee made generally favorable remarks about the legislation, but was hard pressed to give examples of other areas that state governments could tax in order to make up revenue foregone as the result of a moratorium on increases in cell phone taxation. However, the experts maintained that cell phone taxes, as they are currently imposed, regressively affect those earning between $20,000 and $40,000, who use their phones for Internet access rather than cable or digital subscriber line services. Wireless services are a necessity and should not be taxed at 18%, like alcohol and tobacco, said Indiana State Rep. Mara Candelaria Reardon.

  Rep. Melvin Watt, D-N.C., said he did not believe that cell phones are being unfairly taxed. He questioned whether the taxation of mobile phones is any different from the taxation of landlines. Simply having different rates between telecommunications services and other general services is not evidence of discriminatory taxation, he said. Another argument raised by Don Stapley, who sits on the Maricopa County (Arizona) Board of Supervisors, was that H.R. 1521 is an example of inappropriate federal preemption of state law. States and localities should be free to adjust their revenues without interference from Congress, he told lawmakers.

  By Stephen K. Cooper, CCH News Staff

Hearing, U.S. House Judiciary Subcommittee on Commercial and Administrative Law, June 9, 2009
 

CCH (cch.taxgroup.com) reports:

  The Justice Department filed an indictment on June 8 charging seven individuals, three former shareholders of a law firm, the former CEO and a former tax partner of a national accounting firm and two former foreign bankers, with tax fraud, conspiracy and related crimes arising out of tax shelters promoted by the law firm, accounting firm and bank. According to the indictment, filed in a federal district court in Manhattan, the seven defendants, and unnamed coconspirators, participated in a scheme to defraud the IRS by designing, marketing, implementing and defending fraudulent tax shelters, which were used by wealthy individuals with multimillion-dollar taxable income in order to eliminate or reduce the taxes they would have to pay the IRS. Details about the allegations can be found on the Department of Justice website at http://www.usdoj.gov/opa/pr/2009/June/09-tax-569.html.

CCH (cch.taxgroup.com) reports:

  The IRS and the Treasury Department have announced that a tax break for the purchase of new motor vehicles is available in states that do not have a state sales tax. Pursuant to the American Recovery and Reinvestment Act of 2009 (P.L. 111-5), qualifying taxpayers who buy a new motor vehicle this year may generally deduct state or local sales or excise taxes paid on the purchase.

  According to the IRS, purchases made in states without a sales tax can also qualify for the deduction. Taxpayers who purchase a new motor vehicle in states that do not have state sales taxes are entitled to deduct other fees or taxes imposed by the state or local government. The fees or taxes must be assessed on the purchase of the vehicle and must be based on the vehicle's sales price or as a per unit fee.

  Other requirements apply, of course, in order to qualify for the deduction. For example, modified adjusted gross income phaseouts apply, and the vehicle must be purchased after February 16, 2009, and before January 1, 2010. The deduction is limited to fees or taxes paid on up to $49,500 of the purchase price a qualified new car, light truck, motor home or motorcycle.

IR-2009-60,
2009FED ¶46,399

Other References:

 
Code Sec. 164

  CCH Reference - 2009FED ¶9502.0385

  CCH Reference - 2009FED ¶9502.35

  CCH Reference - 2009FED ¶9502.70

  CCH Reference - 2009FED ¶9602.7244

  CCH Reference - 2009FED ¶9602.87

  Tax Research Consultant

  CCH Reference - TRC INDIV: 45,104.15

CCH (cch.taxgroup.com) reports:

  The Treasury and IRS have issued final regulations regarding the application of the separate foreign tax credit limitation for dividends received from a noncontrolled Code Sec. 902 foreign corporation (10/50 corporation). The regulations reflect changes made by the American Jobs Creation Act of 2004 (P.L. 108-357) and the Gulf Opportunity Zone Act of 2005 (P.L. 109-135). The regulations are effective on June 11, 2009.

  The American Jobs Creation Act provided that special look-through treatment applied to dividends paid by a 10/50 corporation to a domestic corporation, for dividends paid after 2002, regardless of when the earnings and profits were accumulated. A special transitional rule allowed taxpayers to elect out of the retroactive application of the look-through rules. Specifically, a taxpayer could elect not to have the look-through rules apply to tax years of a 10/50 corporation beginning after December 31, 2002, and before January 1, 2005.

  Under the regulations, dividends paid by a 10/50 corporation to a domestic corporation that meets the stock ownership requirements are treated as income in a separate category in proportion to the ratio of earnings and profits of the 10/50 corporation attributable to each category to total earnings and profits of the 10/50 corporation. Additionally, if the look-through character of the dividend is not substantiated to the satisfaction of the IRS, the dividend is treated as passive income, if the IRS determines that the look-through character of the dividend cannot reasonably be determined based on available information. The dividend will also be treated as passive income if it is received or accrued by a domestic shareholder or paid by a foreign corporation that does not meet the stock ownership requirements in Code Sec. 902.

  CCH Comment. The temporary regulations provided that if the taxpayer failed to substantiate the dividend treatment, the IRS could, without further action, treat the dividend as passive income. The rule was changed to conform to the rule that applies for inadequate substantiation under the transition rules for the treatment of non-look-through pools of a 10/50 corporation or controlled foreign corporation (CFC) in post-2002 tax years in Reg. §1.904-7(f)(4)(iii).

  The resourcing rules that require the resourcing of certain foreign source income of U.S.-owned foreign corporations also apply to 10/50 corporations that meet the definition of a U.S.-owned foreign corporation. The final regulations include a new rule for resourcing subpart F inclusions of a U.S. shareholder under Code Sec. 951(a)(1)(A) or PFIC inclusions under Code Sec. 1293 of a domestic corporate shareholder of a 10/50 corporation that is a qualified electing fund.

Transition Rules

  Under transition rules, any undistributed earnings and foreign taxes in non-look-through pools of a 10/50 corporation that were accumulated and paid as of the end of the 10/50 corporation's last pre-2003 tax year are treated as if they were accumulated and paid during a period in which a distribution would be eligible for look-through treatment. This requires that the taxpayer make a reasonable and good faith effort to reconstruct the non-look-through pools of earnings and taxes. Reconstruction is based on reasonably available books and records and other relevant information.

  Under a safe harbor method, a taxpayer may reconstruct the non-look-through pools using the same percentages the taxpayer uses to properly characterize the stock of the 10/50 corporation in the separate categories for purposes of apportioning the taxpayer's interest expense in its first tax year ending after the first day of the 10/50 corporation's first post-2002 tax year. The final regulations include guidance on how the safe harbor method election is made and the time frame for making the election.

  A taxpayer can choose to use the safe harbor method on either the timely filed or amended tax returns or during audit. If it is chosen on an amended return or during an audit, appropriate adjustments to eliminate any duplicate benefits arising from the application of the safe harbor method to tax years that are not open for assessment must be made. The taxpayer simply employs the safe harbor method, no separate statement is required. The final regulations also clarify that the safe harbor method is only available as a transition rule for taxpayers who were required to characterize stock of the foreign corporation for purposes of apportioning interest expense in the taxpayer's first tax year ending after the first day of the foreign corporation's first post-2002 tax year. The safe harbor does not apply to determine the treatment of earnings accumulated by a foreign corporation that did not have a shareholder entitled to look-through treatment in that year.

  The regulations also extend look-through treatment to dividends paid out of earnings and profits accumulated in non-look-through periods during which the 10/50 corporation or a CFC had no qualifying shareholder (pre-acquisition earnings) and do not restrict look-through treatment of dividends paid to a new qualifying shareholder of an existing 10/50 corporation. Overall foreign loss accounts (OFLs) and separate limitation loss (SLL) accounts in a separate category for 10/50 dividends are recaptured in subsequent years out of income in the same separate categories in which the stock of the 10/50 corporation is characterized for purposes of apportioning interest expense for the first tax year ending after the first day of the 10/50 corporation's first post-2002 tax year.

Accounting Elections, Etc.

  For purposes of the accounting elections under Code Sec. 964, the majority corporate shareholder of a 10/50 corporation may make an election, adopt a method of accounting or tax year or change a method of accounting or tax year on behalf of the 10/50 corporation. The same actions may be taken by the controlling U.S. shareholders of a CFC. The final regulations simplify the final regulations by providing that where a U.S. shareholder changes a method of accounting or tax year on behalf of a CFC of which it is a sole shareholder. the shareholder is not required file the statement required to be filed with each domestic shareholder's tax return, if the information that would otherwise be required is included in Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, Form 3115, Application for Change in Accounting Method or Form 1128, Application to Adopt, Change or Retain a Tax Year. Finally, the final regulations provide that adjustments to the appropriate separate categories of earnings and profits must be made under Code Sec. 481 to prevent the duplication or omission of amounts attributable to previous years that would otherwise result in a change in accounting. The details of the adjustment are found in Rev. Proc. 2008-52, I.R.B. 2008-36, 587.

T.D. 9452, 2009FED ¶47,022

Other References:

 
Code Sec. 861

  CCH Reference - 2009FED ¶27,139C

  CCH Reference - 2009FED ¶27,140

  CCH Reference - 2009FED ¶27,142C

  CCH Reference - 2009FED ¶27,143

 
Code Sec. 902

  CCH Reference - 2009FED ¶27,840C

  CCH Reference - 2009FED ¶27,840CA

 
Code Sec. 904

  CCH Reference - 2009FED ¶27,881

  CCH Reference - 2009FED ¶27,883

  CCH Reference - 2009FED ¶27,883A

  CCH Reference - 2009FED ¶27,885

  CCH Reference - 2009FED ¶27,885A

  CCH Reference - 2009FED ¶27,886

  CCH Reference - 2009FED ¶27,886D

  CCH Reference - 2009FED ¶27,888

  CCH Reference - 2009FED ¶27,888D

  CCH Reference - 2009FED ¶27,892

  CCH Reference - 2009FED ¶27,900

  CCH Reference - 2009FED ¶27,900A

 
Code Sec. 964

  CCH Reference - 2009FED ¶28,711

  CCH Reference - 2009FED ¶28,712

 
Code Sec. 989

  CCH Reference - 2009FED ¶28,922

  Tax Research Consultant

  CCH Reference - TRC INTLOUT: 6,204

CCH (cch.taxgroup.com) reports:

  President Obama on June 10 met with key members of the Senate Finance Committee and the Health, Education, Labor and Pensions (HELP) Committee to discuss health care reform legislation with the goal of passing a final bill that has bipartisan support. Following the White House meeting, Sen. Christopher Dodd, D-Conn., a leading member of the HELP Committee, said both committees will work in the coming days to "develop a single product."

  Senate Finance Committee Chairman Max Baucus, D-Mont., stressed that "we are all flexible," including on an implementation date of any possible health care financing options. Baucus said the federal lawmakers are taking a "practical and pragmatic" approach to crafting legislation.

  According to Sen. Charles E. Grassley, R-Iowa, ranking member of the tax-writing panel, the president indicated he is flexible about the components in a health care measure. However, Grassley expressed misgivings about calling support for a final measure "bipartisan" if it only draws the approval of a handful of Republicans.

  Sen. Michael Enzi, R-Wyo., ranking member of the HELP committee, said he is concerned about the time line for finishing a bill and how it will be paid for. Baucus and Dodd hope to have a final bill sent to the president by October. White House Press Secretary Robert Gibbs said the president is "anxious to let the legislative process work" and pleased that the committees drafting legislation appear to be making progress.

  Taxing employer-provided health care benefits remains a viable option for both Obama and Congress, although Baucus has said he would cap the amount that would be subject to the tax. He also told reporters on June 9 that he is looking at possibly using either a 50-50 or 60-40 split between taxes and savings to pay for the bill. Baucus said he would mitigate the costs to beneficiaries through a grandfather clause that would take effect several years down the road and at an income level that would not impact a significant number of people. The senior tax writer plans to release draft legislation toward the end of the week beginning on June 15 and hold a markup the following week.

  In a related matter, HELP Committee Chairman Edward M. Kennedy, D-Mass., released that committee's draft version of health care reform legislation, the "Affordable Health Choices Act." The measure provides health care tax credits for low and moderate income individuals to purchase health insurance, credits for small businesses that make contributions to employee health insurance, and credits for long term care health insurance. The HELP Committee is slated to begin a markup on June 16.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

Tax-Related Title of Affordable Health Choices Act
 

Tax Analysts report: