Tax News

CCH (cch.taxgroup.com) reports:

  A Massachusetts corporation excise taxpayer's abatement of tax was upheld by the state's highest court, where the tax-free liquidation of a subsidiary by the parent corporation pursuant to IRC Sec. 332 did not result in the disposition of assets for purposes of the parent retaining the state investment tax credit of its liquidated subsidiary. IRC Sec. 332 provides that no gain or loss is to be recognized on the receipt by a corporation of property distributed in a complete liquidation of another corporation. The tax-free liquidation of the subsidiary by the parent was merely a change in form and not in the basis of the assets upon which the investment tax credit was based. The Massachusetts Department of Revenue sought recapture of the investment tax credit because they asserted that the assets underlying the investment tax credit were disposed of before the end of their useful life.

  Subscribers can view the case.

 
Commissioner of Revenue v. The Gillette Company , Supreme Judicial Court of Massachusetts, SJC-10298, June 11, 2009
 

CCH (cch.taxgroup.com) reports:

  The Iowa Department of Revenue has issued guidance regarding Iowa personal income tax return filing, employee tax-exempt benefits, and inheritance tax law for same-sex marriage couples.

  Beginning with tax year 2009, same-sex spouses should file their Iowa income tax returns as married persons, either jointly or separately. Since federal law does not recognize same-sex marriage, same-sex spouses must still file separately for federal tax purposes. For federal purposes, spouses in a same-sex marriage should file either as single filers, or as head of household. For Iowa purposes, same-sex spouses have three options for filing their Iowa income taxes: (1) a married filing jointly Iowa return; (2) a married filing separately Iowa return; or (3) a married filing separately on a combined Iowa return. Same-sex spouses who file their federal taxes as head of household will generally not be eligible to file their Iowa taxes as head of household.

  The federal and state tax treatment of certain employee benefits will also now differ under Iowa law. Because federal law does not recognize same-sex marriage, certain benefits that are tax-exempt when extended to opposite sex spouses and the children of opposite sex spouses will generally be taxable federally when they are provided for same-sex spouses and their children. For Iowa tax purposes, if an employee benefit is tax-exempt when extended to the opposite sex spouse of an employee, or to the children of the spouse, the benefit is tax-exempt when extended to a same-sex spouse or to the children of the spouse.

  The Iowa inheritance tax implications for same-sex spouses are now the same as they are for opposite sex spouses. The vast majority of Iowa's inheritance tax law already uses the term "spouse" rather than husband and wife. Regardless of the terminology, the primary determinant of tax treatment will be based upon the relationship to the decedent; for example, either legally married or not legally married.

  Subscribers may read the text of the guidance:

  Release , Iowa Department of Revenue, June 10, 2009
 

CCH (cch.taxgroup.com) reports:

  The IRS's recent studies in the tax-exempt sector look to "where the money is," Ronald J. Schultz, senior technical advisor, IRS Tax-Exempt and Government Entities (TE/GE) Division, said on June 11. The IRS completed a study of tax-exempt hospitals in February (TAXDAY, 2009/02/13, I.2) and is currently reviewing the activities of tax-exempt colleges and universities (IR-2008-112; TAXDAY, 2008/10/02, I.2). Schultz spoke at the AICPA National Not-for-Profit Industry Conference in Washington, D.C.

Hospitals

  In 2006, the IRS sent questionnaires to more than 500 nonprofit hospitals. The Service used the information from the questionnaires and from audits of some of the hospitals to develop a detailed report on the community benefit standard and executive compensation (IRS Exempt Organizations (TE/GE) Hospital Compliance Project Final Report). At that time, the IRS did not recommend any changes to the community benefit standard that hospitals must meet to be tax-exempt.

  "The diversity we found in the study is very relevant to whether we have a facts and circumstances exemption standard, rather than a bright-line standard," Schultz said. A bright-line exemption standard would be easier for the IRS to administer, he added.

  The Service may also look at different tests for exemption, Schultz indicated. The activities of a teaching hospital, for example, may be different from the work of a hospital that is the only medical facility in a small town.

  Hospitals, colleges and universities are among the wealthiest exempt organizations. In May, Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, called for an overhaul of the tax exemption for nonprofit hospitals. "As we talk about the tax incentives for health insurance, I want us to also consider the billions of dollars of tax benefits conferred to nonprofit hospitals." Grassley has also urged lawmakers to revisit the exemption status of nonprofit colleges and universities.

Colleges

  In October 2008, the IRS sent compliance questionnaires to more than 400 private and public colleges and universities (TAXDAY, 2008/10/02, I.2). The IRS is requesting information about endowments, executive compensation and unrelated business income. "The college study asks for more details about executive compensation than the hospital study," Schultz said. The Service anticipates issuing an interim report on its college study by the end of 2009.

  "We are trying to do examinations in the study that will not be traditional examinations," Schultz said. "In the executive compensation area, we will look for excess compensation and also learn about comparability studies."

Form 990

  In other news, Schultz said that practitioners can expect few changes in the 2009 Form 990, Return of Organization Exempt from Income Tax. The 2008 Form 990 reflected a major overhaul of the form (TAXDAY, 2008/12/29, I.2).

  "We get a lot of Form 990 questions," Schultz said. "People are not reading the instructions." In response, the Service has posted frequently asked questions (FAQs) about Form 990 on its website (www.irs.gov). Additional FAQs covering related groups and many of the schedules for Form 990 will be posted in the future.

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

IRS Form 990, Part VI - Governance, Management, and Disclosure, Frequently Asked Questions and Tips

IRS Form 990 Part VII and Schedule J - Reporting Executive Compensation, Frequently Asked Questions and Tips
 

CCH (cch.taxgroup.com) reports:

  Senate Finance Committee Chairman Max Baucus, D-Mont., and ranking member Charles E. Grassley, R-Iowa, on June 11 released a legislative staff draft proposal to clarify the types of fuels that qualify for the alternative fuels tax credit and eliminate from eligibility fuel derived from the processing of paper or pulp. The proposal would close the loophole for "black liquor" fuel produced after the date of enactment.

  The proposal comes in response to reports that paper mills have been adding diesel fuel to "black liquor," a byproduct of the paper-making process, in order to qualify for the tax credit for biomass-based fuel under Code Sec. 6426 (TAXDAY, 2009/04/24, C.1).

  Passed originally as part of the 2005 highway bill, the alternative fuels tax credit consists of a 50-cent per gallon refundable credit for a range of fuels, including liquefied petroleum gas, compressed or liquefied natural gas, liquefied hydrogen, liquid fuel derived from coal and biomass-based fuel. The purpose of releasing the preliminary draft is to obtain stakeholder input on issues including those related to the legislation's effective date, the definition of "black liquor" and the means of closing the loophole.

  "This credit was not meant to provide a boon to companies for a process they've already been doing for several decades," said Baucus in a statement. "Our measure ensures this tax credit is used consistently as the law intended, not through an unintended loophole."

  By Jeff Carlson, CCH News Staff

Senate Finance Committee Release: Baucus, Grassley Release Staff Draft of Legislation to Close Alternative Fuels Tax Credit Loophole

Senate Finance Committee Preliminary Draft of Prohibition on Alternative Fuel Credit and Alternative Fuel Mixture Credit for Black Liquor
 

Tax Analysts report: