Tax News

CCH (cch.taxgroup.com) reports:

  The Wisconsin Assembly has passed its version of the 2009-11 budget bill, which would make numerous sales and use, personal income, and corporation franchise and income tax changes, including those described below. In addition, the bill would impose an oil company assessment.

CCH (cch.taxgroup.com) reports:

  The North Carolina House passed a version of the budget bill on June 13, 2009, that, if enacted, would adopt two higher personal income tax brackets, treat unitary business groups as a single taxpayer for corporate income tax purposes, extend the corporation franchise tax to apply to limited liability entities, require a corporate income tax interest expense addback for financial institutions, increase the state sales and use tax rate, extend the definition of nexus for sales tax purposes, expand the sales and use tax base, and increase the excise tax on alcoholic beverages. The Senate failed to concur in the House version of the bill and a conference committee has been appointed.

CCH (cch.taxgroup.com) reports:

  The Georgia Supreme Court has ruled in favor of the city of Columbus, Georgia, in the city's action against online travel company Expedia.com to collect unpaid hotel occupancy taxes. Previously, a superior court had issued an order compelling Expedia to collect the city's hotel occupancy taxes based on the prices its online consumers pay on Expedia.com rather than the wholesale prices Expedia contracts for with hotels. (TAXDAY, 2009/09/25, S.8) The action filed by Columbus is similar to an action filed by the city of Atlanta against online travel companies seeking payment of hotel occupancy taxes. That case currently awaits trial following remand by the supreme court for adjudication of the Atlanta's claim on the merits.(TAXDAY, 2009/06/04, S.12; TAXDAY, 2009/03/24, S.7)

  As Expedia contracted with the city of Columbus hotels to collect hotel occupancy taxes, it was obligated to remit the taxes to the appropriate authority. For purposes of the tax statute, it does not matter that Expedia is not a hotel or motel. Further, the tax should be applied to the rate charged by Expedia,, not to the wholesale rate negotiated between Expedia and the hotels because the city ordinance imposes the tax on the rate charged to the public. The undisclosed facilitation fee is also taxable because there is no means to identify the amount charged as a fee from the total charge for the room. According to the statute, the entire amount charged for a room is taxable.

Expedia, Inc. v. City of Columbus , Supreme Court of Georgia, No. S09A0567, June 15, 2009, ¶200-669

  Other References:

  Explanations at ¶60-480

CCH (cch.taxgroup.com) reports:

  A federal district court applied incorrect definitions for "discovering information" and "process of experimentation" in determining that several S corporations' projects did not involve qualified research for purposes of the research tax credit. The corporations relied on definitions contained in regulations adopted subsequent to the year at issue and those regulations expressly permitted taxpayers to rely on those provisions for prior years.

  While denying the credit, the trial court also stated that some of the corporations' activities may have constituted qualified research. Therefore, on remand, the trial court was required to apply the correct definitions to determine whether any qualified research occurred and, where records were inadequate, to estimate the expenses related to that research. Finally, the court was required to make factual determinations on whether a shareholder bonus was part of wages reasonably attributable to qualified research.

  Vacating and remanding a DC Tex. decision, 2008-2 USTC ¶50,583.

A.R. McFerrin, CA-5, 2009-1 USTC ¶50,430

Other References:

 
Code Sec. 41

  CCH Reference - 2009FED ¶4362.25

  CCH Reference - 2009FED ¶4362.33

 
Code Sec. 6001

  CCH Reference - 2009FED ¶35,111.35

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 3,166
CCH Reference - TRC BUSEXP: 54,158.05
CCH Reference - TRC BUSEXP: 54,158.10
 

CCH (cch.taxgroup.com) reports:

  Proceeds from the sale of a subdivision lot were entitled to capital gain treatment because the lot was held for investment purposes, not held primarily for sale to customers in the ordinary course of business. The taxpayers, a married couple, spent very little time selling portions of land they had originally purchased to build their home and sold only a few lots over the course of several years. Their primary business was the design and administering of 401(k) plans and trusts. Furthermore, the taxpayers were not liable for the accuracy-related penalty because they properly claimed capital gains treatment from the sale of the lot at issue and maintained adequate records. The couple was not entitled to a claimed loss from the sale of two lots because they had abandoned the issue.

B.A. Rice, TC Memo. 2009-142, Dec. 57,860(M)

Other References:

 
Code Sec. 1221

  CCH Reference - 2009FED ¶30,422.6987

 
Code Sec. 6662

  CCH Reference - 2009FED ¶39,651D.25

  Tax Research Consultant

  CCH Reference - TRC REAL: 15,050
CCH Reference - TRC PENALTY: 3104
 

CCH (cch.taxgroup.com) reports:

  IRS Commissioner Douglas H. Shulman said on June 16 that the Service supports easing the listed property rules under Code Sec. 280F for employer-provided cell phones. Shulman's announcement came just one week after the IRS proposed simplifying the substantiation rules (Notice 2009-46; TAXDAY, 2009/06/08, I.1). Shulman also stressed that the IRS is not "cracking down" on employer-provided cell phones, contrary to some media reports.

Listed Property

  Under current rules, employer-provided cell phones used for business purposes are excluded from the employee's gross income and the cell phone expense is a deductible business expense for the employer if substantiation requirements are met. Personal use, however, is included in the employee's gross income. In Notice 2009-46, the IRS announced several proposals to simplify the substantiation rules. These included a minimal personal use method, a safe harbor method and a statistical sampling method.

  The IRS's announcement was welcomed by businesses and practitioners. "Businesses need flexibility," Karen Facer-Mee, CPA, president of the Greater Philadelphia Chapter of the Pennsylvania Institute of CPAs (PICPA), told CCH. "Employers have different cell phone usage among different departments. Cell phone use by the individuals in the sales department is going to be different from cell phone use by administrative personnel."

  At the same time, confusion arose whether the IRS was intending tougher enforcement of the current rules. "Some have incorrectly implied that the IRS is cracking down on employee use of employer-provided cell phones," Shulman said in a statement. "To the contrary, the IRS is attempting to simplify the rules and eliminate uncertainty for businesses and individuals."

Pending Legislation

  Shulman called on Congress to reform the listed property rules as they apply to cell phones. "Treasury Secretary Timothy Geithner and I ask that Congress act to make clear that there will be no tax consequence to employers or employees for personal use of work-related devices such as cell phones provided by employers." Shulman added that technological changes since 1989 have made the current rules obsolete.

  In the House, Rep. Sam Johnson, R-Tex., has introduced legislation (HR 690) to remove cell phones from the category of listed property under Code Sec. 280F. The bill has has 33 co-sponsors and has been referred to the House Ways and Means Committee. Sen. John Kerry, D-Mass., has introduced similar legislation (Sen 144) in the Senate; his bill has 45 co-sponsors and has been referred to the Senate Finance Committee.

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

Statement of IRS Commissioner Shulman Regarding Employer-Provided Cell Phones
 

CCH (cch.taxgroup.com) reports:

  The IRS has released guidance detailing the procedures for a consolidated group to elect under Reg. §1.1502-13(e)(3) to account for intercompany transactions on a separate entity basis. These requests must be submitted as a private letter ruling request under the provisions of Rev. Proc. 2009-1, IRB 2009-1, 1, and apply to all members of the consolidated group for the consent year (and generally for all subsequent taxable years).

  The election may generally be revoked without IRS consent provided certain reporting requirements are met. Automatic revocation occurs if the effect on consolidated taxable income or liability is greater than 5 percent for each of the two taxable years preceding the current year. In addition, the IRS can revoke or modify the election if the circumstances under which the ruling was granted have changed substantially and it is determined that single entity reporting is necessary in order to clearly reflect income and tax liability.

  This new guidance is substantially the same as previous guidance in Rev. Proc. 97-49, 1997-2 CB 523, except that: (1) the IRS will now look at consolidated tax liability as well as consolidated taxable income in determining whether to grant or revoke an election under Reg. §1.1502-13(e)(3); and (2) the IRS's review of election requests and revocations will now look for a 5-percent impact on consolidated tax liability and income as opposed to a 10-percent impact.

  Elections under Reg. §1.1502-13(e)(3) are not available for transactions between members of a controlled group under Code Sec. 267(f).

 
Rev. Proc. 97-49, 1997-2 CB 523, is modified and superseded.

Rev. Proc. 2009-31, 2009FED ¶46,406

Other References:

 
Code Sec. 1502

  CCH Reference - 2009FED ¶33,168.721

  CCH Reference - 2009FED ¶43,360.35

  Tax Research Consultant

  CCH Reference - TRC CONSOL: 39,306

Tax Analysts report: