Tax News

CCH (cch.taxgroup.com) reports:

  For Oregon corporation excise (income) and personal income tax purposes, otherwise deductible intangible expenses that have been directly or indirectly paid, accrued, or incurred in connection with one or more direct or indirect transactions with one or more related members, and that were received by one or more related members that are not included in the same state tax return as the taxpayer, must be added back to federal taxable income. However, as discussed below, a credit is allowed against the corporate income taxes otherwise due if a related member pays tax on the same income that has been added back.

 

CCH (cch.taxgroup.com) reports:

  On June 18, 2009, after revealing that New Jersey expects to receive $700 million in unanticipated revenue as a result of the Tax Amnesty program authorized in March, Gov. Jon S. Corzine said he wants to apply the funds to property tax relief. Plans to vote on the FY 2010 $28.6 billion budget were halted by the governor who said he had met with legislative leaders and wanted to revise the budget in light of the latest developments to include the proposed property tax relief.

Press Release , Office of Gov. Jon S. Corzine, June 19, 2009

CCH (cch.taxgroup.com) reports:

  During the past week, the Senate approved the "cash for clunkers" program, but Senate Finance Committee Chairman Max Baucus, D-Mont., said on June 17 that health care reform markup may not be held prior to the July 4 recess. The White House, however, did not consider this delay as a sign that health care reform would not pass in 2009. House Democrats introduced PAYGO legislation, while House subcommittees looked into minority participation in the New Market tax credit program. The IRS issued guidance affecting consolidated groups, the plug-in electric drive motor vehicle credit and Recovery Zone Bonds.

Congress

  Lawmakers from the Senate Finance Committee and House Committee on Ways and Means on June 12 asked IRS Commissioner Douglas H. Shulman to suspend certain penalties assessed on small businesses while Congress works on legislation to address what they term an inequitable and unintended consequence in the tax code (TAXDAY, 2009/06/16, C.1). The lawmakers argued that small businesses with investments in listed tax shelter transactions that are generating modest tax benefits have received tax penalties significantly larger than the tax benefits received. The lawmakers requested that Shulman suspend efforts to collect Code Sec. 6707A liabilities while Congress acts to remedy the situation. Code Sec. 6707A was enacted in the American Jobs Creation Act of 2004 (P.L. 108-357) as part of a package of provisions intended to help the IRS detect, deter and shut down tax shelters.

  Senate Finance Committee Chairman Max Baucus, D-Mont., said on June 17 that he would not have his health care reform mark ready by the end of the week of June 15 as initially promised and raised doubts that he would hold a markup prior to the July 4 recess (TAXDAY, 2009/06/18, C.1). Finance Committee Democrats have been scrambling to find ways to bring down the cost, estimated by the Congressional Budget Office (CBO) at nearly $1.6 trillion, to under $1 trillion.

  The Senate on June 18 approved a proposal known as the "cash for clunkers" program, which would provide $1 billion in tax-free vouchers to automobile dealers who participate in the new program aimed at revitalizing sagging vehicle sales (TAXDAY, 2009/06/19, C.3). The program vouchers, worth $3,500 or $4,500, will be given to dealers when consumers trade in an old vehicle for one with higher fuel efficiency and will not be considered taxable income for the purchaser.

  With the New Market Tax Credit (NMTC) program set to expire at the end of 2009, two House subcommittees looked into the issue of whether minority firms are fully participating in the program (TAXDAY, 2009/06/19, C.1). Donna J. Gambrell, director of the Treasury Department's Community Development Financial Institutions Fund, explained the program on June 18 before a joint hearing of the House Ways and Means Select Revenue Measures Subcommittee and the House Financial Services Subcommittee on Domestic Monetary Policy and Technology.

  The hearing was called as a result of a Government Accountability Office (GAO) study which concluded that minority-owned CDEs have not received allocation awards in proportion to their representation in the application pool (TAXDAY, 2009/06/02, M.3). Gambrell said the discrepancy is not attributable to biases in the application review or selection process. Instead, the capacity of each applicant, based on its merit, rather than ownership structure, is what determines whether NMTCs will be awarded.

  House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., has scheduled a June 24 hearing to focus on proposals to reform the health system, including the discussion draft proposal released by Democratic leaders on June 19. The hearing will begin at 10:00 a.m. in the main committee hearing room, 1100 Longworth House Office Building (TAXDAY, 2009/06/19, C.5).

  House Democrats on June 17 introduced President Obama's pay-as-you-go (PAYGO) legislation, which would require Congress to pay for new tax cuts or entitlement programs (TAXDAY, 2009/06/18, C.2) . Democrats will work with the administration to resolve the differences between the president's proposal and existing House rules, said House Majority Leader Steny H. Hoyer, D-Md. Obama's proposal would not trigger a sequester if the net effect with regard to all legislation enacted during a year was that the legislation was paid for over a 10-year period, lawmakers explained.

White House

  The Obama administration does not regard the delay by the Finance Committee as a setback that could keep Congress from passing a health care reform bill this year, according to White House Press Secretary Robert Gibbs (TAXDAY, 2009/06/18, C.1). He noted that Baucus shares the administration's goal to win bipartisan support for a bill that constrains health care costs and is paid for.

  Office of Management and Budget Director Peter Orszag emphasized the positive about the CBO health care cost estimates. Orszag pointed out the CBO policy options that could achieve long-term budget savings and that were included in President Obama's budget or health care reform proposals. They include the creation of accountable care organizations, bundling payments to hospitals and other providers, and expanding the use of wellness and preventive services. Likewise, Gibbs emphasized the common principles held by the BPC and the administration to lower health care costs for families, businesses and governments, guarantee choice of doctors and plans, and provide quality, affordable health care.

  Gibbs noted there are many "moving parts" under consideration in developing a final package. Among those proposals, Gibbs said that establishing nonprofit cooperatives is a constructive idea that should be discussed as part of health care reform deliberations. However, Obama is holding firm about including a public insurance option, insisting that will not mean a government takeover of health care and that it still ensures choice of doctors and competitively priced plans.

IRS

  Employer-provided Cell Phones. On June 16 IRS Commissioner Douglas Shulman announced that the agency supports easing the listed property rules under Code Sec. 280F for employer-provided cell phones. Shulman's announcement came on the heels of the IRS's proposal in Notice 2009-46 (TAXDAY, 2009/06/08, I.1) to simplify the substantiation rules for employer-provided cell phones. To allay confusion that the IRS was planning tougher enforcement of the current rules, Shulman announced that the IRS does not intent to crack down on employer-provided cell phones despite media reports. In the House, legislation (HR 690) has been introduced to remove cell phones from the category of Code Sec. 280F listed property.

  Consolidated Groups. Recently released guidance by the IRS (Rev. Proc. 2009-31, TAXDAY, 2009/06/17, I.1) details the procedures for a consolidated group to elect to account for intercompany transactions on a separate entity basis under
Reg. §1.1502-13(e)(3). Requests must be submitted as a private letter ruling request under provisions of Rev. Proc. 2009-1, I.R.B. 2009-1, 1, and apply to all members of the consolidated group for the consent year. The guidance is substantially similar to previous guidance set forth in Rev. Proc. 97-49, 1997-2 CB 523, except for various procedures regarding the IRS's review of election requests and consideration of whether to grant or revoke an election under the regulation.

  Plug-in Electric Drive Motor Vehicle Credit. The IRS has issued guidance (Notice 2009-54, TAXDAY, 2009/06/15, I.6) for purchasers and manufacturers of the motor vehicles qualifying for the plug-in electric drive motor vehicle credit under Code Sec. 30D. The guidance includes procedures that a vehicle manufacturer needs to follow in order to certify the motor vehicle meets certain requirements to claim the credit, and the amount of the credit allowable for the motor vehicle. The IRS will review and acknowledge the certification by the manufacturer. The guidance also provides that purchasers may rely on the manufacturer's certification in determining whether the credit is allowable for the vehicle, and the amount of the credit itself.

  Recovery Zone Bonds. Treasury and the IRS have issued 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 (TAXDAY, 2009/06/15, I.5). The guidance also provides interim rules specifying the required information reporting associated with Recovery Zone Bonds, defining "issuers" of Recovery Zone Bonds and entities authorized to allocate volume cap to the ultimate beneficiaries, and also providing that the Code Sec. 148(d) definition of "reasonably required reserve or replacement fund" applies.

  TIGTA. A new Treasury Inspector General for Tax Administration (TIGTA) report reveals that IRS collection staff delayed initiating collection activities in 21 percent of cases reviewed by TIGTA ("Enforcement Actions Were Not Always Timely Initiated When Taxpayers Did Not Respond to Contact Attempts or Missed Deadlines," Reference Number: 2009-30-081, TAXDAY, 2009/06/19, T.1). TIGTA concluded, as a result, that IRS collection enforcement tools, including liens, levies and seizures, were either not used or were not used soon enough in approximately 4,250 cases of the 20,270 cases it identified. The IRS agreed with the two recommendations made by TIGTA: (1) issue a memorandum re-emphasizing the IRS policy for effective follow-up responses to missed deadlines; and (2) assess the adequacy of taking enforcement actions as part of the operational reviews of Area Offices.

  International Tax Enforcement. The IRS and tax/law enforcement authorities in the U.S. Virgin Islands recently updated a memorandum of understanding (MOU) to share information and resources in efforts to combat tax evasion (TAXDAY, 2009/06/18, I.2). The revised MOU is expected to be signed in the near future, according to the Justice Department. Under the MOU, the IRS and tax/law enforcement bodies in the U.S. Virgin Islands agree to cooperate in the identification, investigation and prosecution of tax crimes. The IRS Large and Mid-Sized Business (LMS Division and IRS Criminal Investigation will assist the Virgin Islands Internal Revenue Bureau and the Virgin Islands Department of Justice.

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

CCH (cch.taxgroup.com) reports:

  Under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) (P.L. 107-16) the estate tax is scheduled to go from a 45-percent maximum rate and a $3.5 million exclusion in 2009, to total repeal during 2010. Catherine Hughes, attorney-advisor in the Office of Tax Legislative Counsel for Treasury, predicted during a June 18 Grant Thornton webcast on the Obama budget proposal that action to prevent this result is highly likely. In its recent budget proposals in the Treasury "Greenbook," the Obama administration proposed that, instead of a total repeal, the 2009 parameters for the estate tax should be permanently enacted. Hughes gave insights on several aspects of the overall proposal that could eventually survive the vetting process as final legislation takes shape.

Consistency in Value

  The Obama administration budget proposal would require beneficiaries of an estate to report, on disposition, as the basis of property they receive, the fair market value of the asset reported on the decedent's estate tax return. Hughes explained that because the Internal Revenue Code does not currently have any direct provisions tying the fair market value of the property to the recipient's basis, recipients are not directly prevented from manipulating their basis (and therefore their recognized gain or loss) when subsequently selling the property.

  The Obama administration would place one further caveat to this requirement to avoid incorrect reporting. It would allow recipients to use a basis that is less than or equal to the estate tax reported value. "That's a one-sided proposal," Hughes stated. She explained that, "the concern was, if you have a situation where ... the executor reported a value on the estate tax return and the recipient, years later, had reason to believe that the number was overstated on date of death ... when the income tax return of the beneficiary is ... going to be prepared and filed with capital gain or loss reported on the sale of that asset, we didn't want to put the preparer or the taxpayer in the position where they're using, as a basis number, a number they have reason to believe was incorrect and therefore could not meet the standards for the return preparer penalty."

Restrictions on Estate Value

  While restrictions on property generally discount the value of the property and, therefore, the amount of estate tax generated by the asset, Code Sec. 2704(b) lists certain restrictions on property that should be ignored for purposes of valuing an estate. However, certain court decisions and state law amendments have diminished the force of this provision by allowing these discounts to be effectively considered, particularly with regard to partnership interests.

  Calling this issue the "elephant in the living room for estate planners," Hughes reported that the Obama administration's proposal would add another set of restrictions on valuation discounts especially applicable to transferred interests in property. She observed that this amendment would "reinvigorate the intent and the language of the provisions of 2704" and make the statute apply as it was intended.

  The administration's proposal would also prohibit estates from discounting interests in property based on limitations on the right to liquidate to the extent more restrictive than a safe-harbor standard to be set forth in Treasury regulations. Additionally, the proposal calls for regulations to determine when certain interests held by charities and other nonfamily members would be considered held by family members.

  "Because this is such a significant issue, we felt that it would make sense to leave the details to regulations subject to public comment to make sure we got it right instead of letting the statute draw the line from which things would be measured," she said.

  By Torie Cole, CCH News Staff

CCH (cch.taxgroup.com) reports:

  House Democratic leaders unveiled a comprehensive health care reform plan on June 19, calling for the establishment of a public health insurance program that would compete with private insurers to lower costs. The proposal would create a Health Insurance Exchange to provide a functional marketplace for individuals and small employers to comparison shop among private and public insurers. Few details of how the plan would be paid for were announced, and lawmakers said they were awaiting estimates from the Congressional Budget Office.

  In a press conference to announce the discussion draft, House Ways and Means Chairman Charles B. Rangel, D-N.Y., said his committee, along with the House Education and Labor and the House Energy and Commerce committees, would hold hearings and work out final details in the coming weeks. Ways and Means has already scheduled a hearing on the discussion draft on June 24. President Obama, in a written statement, said the House Democrats' proposal is a "major step" toward improving the quality of health care and making it more available and affordable.

  The proposal was almost immediately sharply criticized by the top Republican lawmaker in the House. House Minority Leader John Boehner, R-Ohio, faulted the Democrats' plan for raising taxes, rationing care and empowering government bureaucrats to make key medical decisions. "This plan will make health care more expensive, reduce the quality of care for millions of families and small businesses, cost American jobs, and force untold millions of Americans off their current plans and into a government-run nightmare operated by federal bureaucrats," Boehner charged.

  Rep. Henry Waxman, D-Calif., who chairs the Energy and Commerce panel, said the Democrats were considering changes to the Medicare and Medicaid program, such as forcing pharmaceutical manufacturers to repay excessive profits made on drugs sold to Medicare patients. The bill would impose a tax on individuals and families who do not have their own coverage. In addition, small businesses would get a 50-percent health care credit toward the expense of providing coverage to their employees.

  By Stephen K. Cooper, CCH News Staff

Draft of Health Care Reform Bill Text

House Tri-Committee Health Reform Discussion Draft Summary
 

CCH (cch.taxgroup.com) reports:

  It is not clear how the House Ways and Means Committee will proceed on the president's international tax proposals, a committee staff member indicated June 19. Melissa Mueller, the committee's majority tax counsel, told a group of international tax practitioners that the message has gotten "fuzzy." Speaking at a BNA Tax Management luncheon held at Buchanan, Ingersoll & Rooney P.C. and moderated by Herman Bouma.Mueller, Mueller stressed that she was expressing her own views and was not speaking on behalf of Committee Chairman Charles Rangel, D-N.Y., or Rep. Richard Neal, D-Mass., for whom she works.

  Some view the proposals as addressing tax evasion, while others view the issues as matters of policy, not tax evasion, Mueller said. Neal, for example, has indicated that some proposals, such as deferring U.S. taxes, involve policy choices, not abuse. Reform concerns are growing out of the issue of hidden overseas bank accounts. With the president carrying out his own tax reform study, the Ways and Means Committee may be reluctant to move on some issues until the administration makes its recommendations.

  While some members talk about bringing jobs back to the United States, Mueller noted that companies may have substantial business reasons for locating overseas that do not depend on U.S. taxation. Eliminating deferral will not necessarily bring back jobs.

  Mueller said that changes to the check-the-box (CT rules are now estimated to raise $30 billion in revenue, a sharp decline from the initial estimate of $80 billion. Some practitioners at the luncheon, including Pam Olson of Skadden, Arps, Slate, Meagher & Flom LLP, questioned whether the changes would raise any revenue. Mueller said that foreign tax credit (FTC) proposals are "scored" to raise $40-50 billion in revenue, while changes to the deferral rules are estimated to raise $50-60 billion.

  Michael Durst of Steptoe & Johnson LLP commented that no one knows the economic impact of these proposals. Companies do not know the impact and do not know how to explain their concerns. He suggested that the CTB proposal could increase the overall tax burden on U.S. companies without raising much tax revenue. Barbara Angus of Ernst & Young LLP commented that the CTB and FTC proposals all have an impact on tax deferral, even though they are not labeled in that manner, and that the cumulative impact could be substantial.

  Mueller said that the committee staff has not been briefed on the proposals. She urged the practitioners to have private companies, not just trade groups, contact the committee to discuss the impact of the proposals.

  Mueller mentioned that a value-added tax (VAT) had been identified as a possible revenue-raiser for health reform. Asked about the seriousness of this proposal, Mueller said that the cost of health reform may elicit big proposals, and perhaps this is a time to move on a VAT.

  Asked whether there will be another generation of the "mother of all tax bills," Mueller said that things had changed, and she could not say what might be in the next bill. A reduction in overall corporate tax rates to 28 percent is still a possibility. She indicated that the next tax bill could also address the issue of deferral.

  By Brant Goldwyn, CCH News Staff

Tax Analysts report: