Tax News

CCH (cch.taxgroup.com) reports:

  A Texas Court of Appeals has affirmed a district court's order granting a brochure-fundraising firm's request for injunctive relief to prevent the Texas Comptroller from implementing a new rule that would require the firm to collect and remit sales tax on products sold through school fundraising activities.

  The firm considered its initial sales of fundraising items to school groups as separate from the ultimate sales of the items by the school groups to the end consumers. The firm took the position that its initial sales qualified for exemption (e.g., as sales for resale) and that the school groups were the actual sellers responsible for collecting and remitting any sales tax due on the items.

 

CCH (cch.taxgroup.com) reports:

  Maine Gov. John E. Baldacci has signed tax reform legislation which makes changes to the personal income tax structure and broadens the sales tax base. Preliminary details are below. Full coverage in Tax Day will follow.

 

CCH (cch.taxgroup.com) reports:

  President Obama proposed statutory pay-as-you-go (PAYGO) legislation that would require Congress to pay for new mandatory spending increases or tax cuts. The president also met with lawmakers to discuss health care reform legislation, with the goal of passing a final bill that has bipartisan support. The IRS surprised many observers when it announced it is reviewing the substantiation requirements for employer-provided cell phones. The Service also clarified the new motor vehicle state sales tax deduction and temporarily relaxed the filing requirements for Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR). IRS officials reviewed the filing season and the wash sale rules.

White House

  The PAYGO bill proposed by President Obama on June 8 (TAXDAY, 2009/06/10, W.1) would apply to legislation enacted through the end of 2013. New costs that Congress fails to pay for would be offset by certain mandatory program cuts ordered by the president.

  The legislation would codify House and Senate PAYGO principles, which were adopted in 2007 but did not have the statutory authority to sequester funding. Medicare payments to physicians, the estate and gift tax; the alternative minimum tax (AMT) and tax cuts enacted in 2001 and 2003 would be exempt from the PAYGO statute. PAYGO principles would apply to health care reform legislation, which must be deficit neutral under the president's plan, according to Office of Management and Budget Director Peter Orszag.

  The president met with key members of the Senate Finance Committee and the Health, Education, Labor and Pensions (HELP) Committee on June 10 to discuss health care reform legislation (TAXDAY, 2009/06/11, W.1). 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." The president has indicated he is willing to consider additional revenue sources, if necessary, to finance health care legislation but has not endorsed any specific measures.

  In addition, President Obama and House Ways and Means Committee Democrats have set an October deadline to pass major health care reform legislation that will lower health care costs, expand primary care and provide wellness coverage (TAXDAY, 2009/06/10, C.1). The president suggested that health care reform could be paid for, in part, by a cap on itemized deductions for wealthier taxpayers, but congressional lawmakers are considering plans to cap the income tax exclusion for employer-provided health insurance.

Congress

  On June 9, Ways and Means Chairman Charles B. Rangel, D-N.Y., along with Energy and Commerce Committee Chairman Henry Waxman, D-Calif., and House Education and Labor Committee Chairman George Miller, D-Calif., released a joint outline of the framework for health care reform. Meanwhile, a June 2 letter written by Joint Committee on Taxation Chief Thomas A. Barthold to Senate Finance Committee Chairman Max Baucus, D-Mont., and ranking member Charles E. Grassley, R-Iowa, included a list of possible revenue offsets that would generate between $51.6 billion and $1.17 trillion over 10 years.

  Baucus told reporters on June 9 that he was looking at possibly using either a 50-50 or 60-40 split between taxes and savings to pay for health care reform. Taxing employer-provided health care benefits remains a viable option to raise revenue and Baucus said he would cap the amount that would be subject to the tax and employ a grandfather clause that would take effect several years down the road at an income level that would not impact a significant number of people. He plans to release draft legislation toward the end of the week of June 15 and hold a markup the following week.

  Baucus and Grassley 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 (TAXDAY, 2009/06/12, C.1). The proposal would close the loophole for "black liquor" fuel produced after the date of enactment.

  The Senate Finance Committee will hold a hearing on June 16 to examine tax treatment of emissions allowances in prospective climate change legislation aimed at reducing greenhouse gas emissions. The hearing, "Climate Change Legislation: Tax Considerations," is the latest in a series of Finance Committee hearings on the tax and trade effects of climate change legislation. Witnesses are expected to include: Gary Hufbauer, the Reginald Jones Senior Fellow of the Peterson Institute for International Economics; Keith Butler, the senior vice president of Tax at Duke Energy; and Mark Price, the principal-in-charge of Financial Institutions and Products at Washington National Tax, KPMG LLP.

IRS

  Cell Phones. The IRS announced that it is revisiting the status of employer-provided cell phones as listed property under Code Sec. 280F (Notice 2009-26; TAXDAY, 2009/06/08, I.1). Listed property expenses are subject to strict substantiation rules, showing the amount of the expense, time and place of the use of the listed property and business purpose of the expense. The IRS indicated it is considering several alternative methods to simplify the substantiation requirements. These include a safe harbor percentage and statistical sampling.

  "Cell phones were added to the category of listed property when they were an exclusive perk of executives," Thomas Ochsenschlager, vice president, AICPA, told CCH. The AICPA has supported legislation in Congress to remove employer-provided cell phones from the category of listed property to reflect their widespread use today, Ochsenschlager explained. The House passed such a bill in 2008 but it failed to make it out of the 110th Congress.

  One important item not addressed in Notice 2009-26 is the use of cell phones for email, Jerry Love, CPA, past president of the Texas Society of CPAs, told CCH. "Most business people have cell phone service to access emails." Additionally, many cell phone plans offer unlimited free local and long-distance calling nights and weekends. Personal use of the cell phone during these hours would appear to not cost the employer anything, Love observed.

  Motor Vehicle Sales Tax Deduction. The temporary motor vehicle sales tax deduction is available to taxpayers in all states, including states without a sales tax, the Treasury Department and the IRS announced (IR-2009-60; TAXDAY, 2009/06/11, I.4). 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.

  Wash Sales. Mark Perwien, special counsel, IRS, told practitioners in Washington, D.C. that the basic structure of the
Code Sec. 1091 wash sales rules has not changed since enactment in 1921 (TAXDAY, 2009/06/11, I.5). Recently added rules, such as those in Code Sec. 1091(e), deal with modern-day derivatives in a piecemeal manner.

  Foreign Corporations. Final, temporary and proposed regulations address the treatment of foreign corporations as surrogate foreign corporations (T.D. 9453,
NPRM REG-112994-06; TAXDAY, 2009/06/10, I.3). The regulations affect mainly domestic corporations or partnerships, certain related parties and certain foreign corporations that acquire substantially all of the properties of such domestic corporations or partnerships.

  Foreign Tax Credit. The IRS issued final regulations on the application of the foreign tax limitation for dividends received from a noncontrolled Code Sec. 902 foreign corporation (T.D. 9452;
TAXDAY, 2009/06/11, I.1). The regulations reflect changes made by the American Jobs Creation Act of 2004 (2004 Jobs Act) (P.L. 108-357) and the Gulf Opportunity Zone Act of 2005 (P.L. 109-135). The 2004 Jobs Act provided a special look-through rule 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.

  Filing Season. David Williams, director, IRS Electronic Tax Administration, reported that online filing grew 20 percent during the filing season (TAXDAY, 2009/06/09, I.2). However, participation in the Free File program dropped, despite as many as 100-million taxpayers being eligible for no-cost filing.

  FBAR. The IRS clarified the filing requirements for Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR) (IR-2009-58, Announcement 2009-51; TAXDAY, 2009/06/08, I.5). A recent change in the definition of "United States person" created confusion for filers, the IRS explained. For FBARs due on June 30, 2009, taxpayers should use the prior (July 2000) definition to determine who must file an FBAR.

  "Announcement 2009-51 provides welcome relief relating to who must file an FBAR on or before June 30, 2009," Joseph Calianno, partner, Grant Thornton, LLP, Washington, D.C., told CCH. "The definition of a U.S. person in the 2008 FBAR instructions includes a person in and doing business in the United States. This definition has sparked a great deal of discussion and would treat certain foreign persons, such as nonresident aliens and foreign corporations engaged in certain business activities in the U.S., as U.S. persons for FBAR purposes. As a result, such persons could be required to file an FBAR."

  "The IRS recognized some of the issues posed by this language in the 2008 instructions and the burden that the additional filings would create for the public, and, at least for filings due by June 30, 2009, will permit persons to rely on the definition of U.S. person contained in the instructions of the prior version of the FBAR (the July 2000 version) to determine whether they have an FBAR filing obligation," Calianno noted. "Those instructions defined the term U.S. person to mean a citizen or resident of the U.S., a domestic partnership, a domestic corporation, or a domestic trust or estate."

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

CCH (cch.taxgroup.com) reports:

  The IRS has issued guidance relating to the new qualified plug-in electric drive motor vehicle credit under Code Sec. 30D. The guidance includes the procedures for a vehicle manufacturer to certify that the motor vehicle meets certain requirements that must be satisfied to claim the new qualified plug-in electric drive motor vehicle credit and the amount of the credit allowable for that motor vehicle. It also provides guidance to purchasers of the motor vehicles regarding reliance on the manufacturer's certification in determining whether the credit is allowable for the vehicle and the amount of the credit.

  The credit, as provided in Code Sec. 30D, is equal to the sum of $2,500 plus $417 for each kilowatt hour of traction battery capacity in excess of 4 kilowatt hours. The amount of credit allowed depends on the gross vehicle weight rating. The credit phases out over the second calendar quarter following the calendar quarter in which at least 250,000 qualifying vehicle have been sold for use in the U.S. A credit allowed under Code Sec. 30D means no credit will be allowed for that vehicle under Code Sec. 30.

  The credit applies to qualified vehicles which otherwise meet the requirements of Code Sec. 30D and are placed into service by the taxpayer in a tax year beginning after December 31, 2008, and acquired by the taxpayer on or before December 31, 2009.

  The guidance provides when the certification is permitted by the vehicle manufacturer and when a purchaser may rely on the manufacturer's certification. The content required of the certification is addressed and includes a listing of statements pertinent to the identification and capacity of the vehicle. Special requirements pertain to passenger vehicles, low speed vehicles, and light trucks. The IRS will review and acknowledge the certification presented by a manufacturer. Manufacturers are required to report quarterly, under penalty of perjury, on the number of vehicles sold. Failure by the manufacturer to file a timely report may cause withdrawal by the IRS of the acknowledgment of the manufacturer's certification and purchasers will not be entitled to rely on the manufacturer's certification for purposes of the credit.

Notice 2009-54, 2009FED ¶46,404

Other References:

 
Code Sec. 30D

  CCH Reference - 2009FED ¶4059P.021

  CCH Reference - 2009FED ¶4059P.023

  Tax Research Consultant

  CCH Reference - TRC INDIV: 58,002
CCH Reference - TRC INDIV: 58,008
 

CCH (cch.taxgroup.com) reports:

  The IRS and Treasury Department have provided guidance on the maximum face amount of Recovery Zone Bonds, both Recovery Zone Economic Development Bonds and Recovery Zone Facility Bonds, that may be issued by each state and counties and large municipalities within each state before January 1, 2011, under Code Secs. 1400U-2 and
1400U-3, as provided in Code Sec. 1400U-1. The guidance also provides certain interim guidance for Recovery Zone Bonds that may be relied on pending the promulgation and effective date of future administrative or regulatory guidance.

 
Code Secs. 1400U-1,
1400U-2 and
1400U-3 were enacted under the American Recovery and Reinvestment Act of 2009 (2009 Recovery Act) (P.L. 111-5). Recovery Zone Bonds generally provide tax incentives for state and local governmental borrowing at lower borrowing costs to promote job creation and economic recovery that is targeted to areas particularly affected by job losses. The 2009 Recovery Act provides $25 billion for recovery zone bonds: $10 billion for Recovery Zone Economic Development Bonds and $15 billion for Recovery Zone Facility Bonds. The guidance includes a table showing the allocation among the states of national volume caps for both types of Recovery Zone Bonds.

  The guidance also contains interim rules providing that the Code Sec. 148(d) definition of "reasonably required reserve or replacement Fund" shall apply, specifying necessary information reporting associated with Recovery Zone Bonds and defining issuers of Recovery Zone Bonds and entities authorized to allocate volume cap to the ultimate beneficiaries. Moreover, if, under Code Sec. 1400U-1(a)(3)(A), a county or large municipality waives any portion of a volume cap allocation received, it may reallocate the waived volume cap in any reasonable manner. Any state, county, or large municipality that receives a volume cap allocation for Recovery Zone Bonds may make designations of recovery zones in any reasonable manner.

  Allocations of national volume cap for Recovery Zone Bonds are effective for bonds issued on or after February 17, 2009.

Notice 2009-50, 2009FED ¶46,403

Treasury Department News Release, TDNR TG-168, 2009FED ¶46,405

Ways and Means News Release: State, Local Governments to Receive $25 Billion Under Recovery Zone Bond Program

Other References:

 
Code Sec. 1400U-1

  CCH Reference - 2009FED ¶32,520.01

 
Code Sec. 1400U-2

  CCH Reference - 2009FED ¶32,523.01

 
Code Sec. 1400U-3

  CCH Reference - 2009FED ¶32,526.01

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 57,350

Tax Analysts report: