Tax News

CCH (cch.taxgroup.com) reports:

  Gov. David A. Paterson signed legislation amending the New York State historic preservation tax credit, available against the corporate and personal income tax. The rehabilitation tax credit program provides incentives to developers, municipalities, businesses and residents to make investments in distressed areas by rehabilitating historic properties that are listed on the State and National Registers of Historic Places. For qualified historic properties, the amended credit will

  -- gradually increase over five years the cap on the commercial credit value from $100,000 to $5 million and the residential credit value from $25,000 to $50,000;

  -- target the credit in "distressed areas" (those located within a Census tract identified at or below 100% of the median family income);

  -- increase the share of qualified rehabilitation costs that commercial property owners can claim for the credit from 6% to 20%; and

  -- offer the preservation tax credit as a rebate for lower income homeowners.

The program will apply to taxable years beginning on or after January 1, 2010, and will sunset in five years on December 31, 2014.

A.B. 9023, Laws 2009, effective July 29, 2009 and applicable as noted

CCH (cch.taxgroup.com) reports:

  By executive order, California Gov. Arnold Schwarzenegger will call a special session of the state General Assembly in September 2009 to consider the recommendations made by the Commission on the 21st Century Economy to improve the state's tax system. The commission is scheduled to deliver a report to the governor and to the General Assembly by September 20 with recommendations to change laws to achieve the following goals:

  (1) establish a 21st century tax structure that fits with the state's 21st century economy;

  (2) stabilize state revenues and reduce volatility;

  (3) promote the long-term economic prosperity of the state and its citizens;

  (4) improve the state's ability to compete successfully with other states and nations for jobs and investments;

  (5) reflect principles of sound tax policy, including simplicity, competitiveness, efficiency, predictability, stability, and ease of compliance and administration; and

  (6) ensure that the tax structure is fair and equitable.

  The initial version of the Commission was created by an order of the governor in 2008. (TAXDAY, 2008/10/31, S.3) The commission has been holding meetings throughout 2009. (TAXDAY, 2009/07/21, S.1)

  Subscribers can view the governor's order that, in part, announces the special session.

Executive Order S-15-09 , Office of California Governor Arnold Schwarznegger, July 29, 2009
 

CCH (cch.taxgroup.com) reports:

  The IRS has finalized proposed regulations (NPRM REG-208199-91), with one minor change, regarding the use of designated summonses and related summonses and the period of limitations on assessment under Code Sec. 6503(j) when a case is brought to enforce or quash such a summons. The regulations affect corporate taxpayers that are examined under the coordinated industry case (CIC) program and served with designated or related summonses, as well as third parties that are served with such summonses for information regarding the corporate examination.

  The final regulations generally provide that the limitations period on assessment is suspended regarding any tax return of a corporation that is the subject of a designated or related summons if a court proceeding to enforce or quash is instituted with respect to that summons. The regulations include guidance on the judicial enforcement period, court proceeding, date when the proceeding is no longer pending, final resolution, compliance, and date when compliance occurs. In addition, the regulations provide special rules addressing the number of designated and related summonses that may be issued, the time within which a court challenge to a covered summons must be brought, the computation of the suspension period when there are multiple proceedings, the computation of the 60-day period when the final day falls on a weekend or holiday, and the interaction of this suspension period with other suspension provisions.

  Regarding the date when compliance occurs, the IRS clarified in the final regulations that the examination team conducting the audit --and that team's management and supervisory chain of command --is the first point of inquiry for any examination matter. Those are the persons who will decide whether the summoned person's production satisfies the court's order.

  Once the final regulations are effective, the IRS will issue Internal Revenue Manual (IRM) procedures under which the IRS will promptly inform the CIC taxpayer of whether the production of summoned information fully complies with the summons. The IRS noted that, even without such IRM procedures, the CIC taxpayer can contact the examining agent to determine when the IRS determined full compliance and when the suspension terminated.

  The regulations are effective and applicable as of July 31, 2009.

T.D. 9455, 2009FED ¶47,024

Other References:

 
Code Sec. 6503

  CCH Reference - 2009FED ¶39,037C

  Tax Research Consultant

  CCH Reference - TRC IRS: 21,114
CCH Reference -
TRC IRS: 30,218
CCH Reference - TRC IRS: 30,218.05
CCH Reference - TRC IRS: 45,204.35
 

CCH (cch.taxgroup.com) reports:

  Senate negotiators failed to meet on July 30 as hopes of forging agreement on sweeping health care reform legislation before the Senate recesses for a month-long break on August 7 began to fade. The slow progress has frustrated Democratic leaders who believe that Senate Finance Committee Chairman Max Baucus, D-Mont., is devoting too much time to Republican concerns in hopes of producing a bipartisan bill. Republican leaders fear that Democrats are seeking to shut them out of the process.

  That pressure led Finance Committee ranking member Charles E. Grassley, R-Iowa, to push back. In a tersely worded statement, Grassley warned that rushing a bill through committee without Republican backing would do more harm than good. "It'll be a lost opportunity if Democratic leaders in Congress and the administration force action on health care legislation that's not ready because of the complexity of the issue and the high stakes in getting it right," stated Grassley.

  The situation in the House was not much better as liberal members threatened to withhold their backing of that chamber's health reform legislation. Still seething over a deal brokered by House Energy and Commerce Committee Chairman Henry A. Waxman, D-Calif., and conservative Democratic Blue Dogs (TAXDAY, 2009/07/30, C.1), members of the Congressional Progressive Caucus (CPC) held a press conference to reiterate their belief that any health care reform must include a public health plan option. The House Energy and Commerce Committee began to mark up its portion of the bill in hopes of wrapping up deliberations prior to the August break scheduled to begin in the House on July 31.

White House

  With growing public wariness over a public health insurance option, the White House is signaling that an alternative to a government-run plan might be acceptable under certain conditions. White House Press Secretary Robert Gibbs, at a press briefing on July 30, said the administration has not drawn a line in the sand as long as the final plan meets President Obama's health care reform goal to ensure choice and competition.

  While the relevant House and Senate Health, Education, Labor and Pensions committees include a public option, the Senate Finance Committee is widely expected to propose a network of nonprofit co-ops instead of a government-run plan. The White House will continue to evaluate each proposal to "see what commonality there might be," Gibbs said.

  Obama has said he will not sign a bill that adds to the deficit in the long run and does not provide affordable and accessible health care insurance. Unless final legislation contains genuine insurance reform, the president will not sign it, Gibbs stressed.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

CCH (cch.taxgroup.com) reports:

  The Illinois Department of Revenue has provided guidance on the sales tax treatment for vehicles purchased in conjunction with the federal government's Car Allowance Rebate System (CARS) program, also known as "cash for clunkers."

  The department has determined that the $3,500 or $4,500 payment from the federal government to the dealer under the CARS program is not taxable for Illinois sales tax purposes because it is a direct government payment to the dealer. The salvage value that the dealer provides for the traded-in vehicle will be treated as a trade-in and therefore is also not taxable for sales tax purposes.

  For example, $20,000 (purchase price of new vehicle) minus $4,500 (federal CARS payment to dealer) and minus $1,000 (salvage value allowed by dealer on traded-in vehicle) would result in $14,500 as the amount subject to sales tax.

  Dealers should combine both payment amounts on Part 6, Line 2 (Total trade in credit or value), of Form ST-556 but keep the amounts separate in their books and records. Manufacturer or dealer incentives remain taxable.

  The announcement can be found on the department's Web site at
http://www.revenue.state.il.us/announcements/cashforclunkers.htm.

"Cash for Clunkers" Announcement , Illinois Department of Revenue, July 27, 2009

CCH (cch.taxgroup.com) reports:

  The IRS has issued proposed regulations relating to contingent fees that may be charged by tax practitioners. The proposed regulations are identical to interim guidance provided in Notice 2008-43, I.R.B. 2008-15, 748. This notice will be declared obsolete when the proposed regulations are published as final regulations in the Federal Register.

  Final regulations currently permit a practitioner to charge a contingent fee for services rendered in connection with the IRS examination of, or challenge to, an amended return or claim for refund or credit when the amended return or claim for refund or credit was filed within 120 days of the taxpayer receiving a written notice of the examination of, or a written challenge to, the original tax return. The proposed regulations would also allow contingent fee arrangements with respect to an amended return or claim for refund or credit if the amended return or claim for refund or credit is filed before the taxpayer receives written notice of the examination or written challenge to the original return (or if the taxpayer never receives such notice or writing). In addition, contingent fees could be charged for services rendered in connection with a "whistle-blowers" claim under Code Sec. 7623.

  The proposed regulations also clarify the definition of a contingent fee to provide that a contingent fee includes a fee that is based on a percentage of the refund reported on a return, that is based on a percentage of the taxes saved, or that otherwise depends on the specific tax result attained. The current regulations state that a contingent fee depends on the specific result attained without directly providing that it is the specific tax result that is relevant. Thus, under the proposed regulations, a fee based on the closing of a transaction or other nontax contingency is permissible.

  A public hearing is scheduled for November 20, 2009, at 10 a.m. Written or electronically generated comments must be received by September 10, 2009. Outlines of topics to be discussed at the public hearing must be received by September 10, 2009.

Proposed Regulations, NPRM REG-113289-08, 2009FED ¶49,425

Proposed Regulations, NPRM REG-113289-08, FINH ¶41,141

Other References:

  Circular 230

  CCH Reference - 2009FED ¶43,566

 
Code Sec. 7852

  CCH Reference - FINH ¶23,122

  Tax Research Consultant

  CCH Reference - TRC IRS: 3,206.05

CCH (cch.taxgroup.com) reports:

  The IRS has ruled that the Forest Health Protection Program (FHPP) administered by the Department of Agriculture to protect forests in the United States is a small watershed program and, therefore, substantially similar to the type of programs described in Code Sec. 126(a)(1) through (8) within the meaning of
Code Sec. 126(a)(9). As a result, all or a portion of the cost-sharing payments received by a taxpayer under the FHPP is eligible to be excluded from gross income to the extent permitted under Code Sec. 126.

Rev. Rul. 2009-23, 2009FED ¶46,435

Other References:

 
Code Sec. 126

  CCH Reference - 2009FED ¶7334.15

  CCH Reference - 2009FED ¶7334.30

  Tax Research Consultant

  CCH Reference - TRC FARM: 3,168.05

CCH (cch.taxgroup.com) reports:

  Supporters of a proposal to levy an excise tax on insurance companies that offer high-end health care plans, often called "Cadillac" plans are picking up support from the White House and key members of Congress. The proposal, offered by Sen. John F. Kerry, D-Mass., would help pay for an estimated $1 trillion health care reform bill. White House Press Secretary Robert Gibbs, at a press briefing on July 27, said the White House is evaluating the insurance tax option that is under consideration by the Senate Finance Committee (SFC) as they craft legislation for a mark-up before the August recess.

  David Axelrod, senior advisor to the president, gave the idea a plug during an appearance July 26 on CBS's "Face the Nation." "The president actually was asked this the other day by Jim Lehrer and what he said was that this was, you know, that this was an intriguing idea to put an excise tax on high-end health care policies, like the ones that the executives at Goldman Sachs have, the $40,000 policies." said Axelrod.

  One member of the Finance Committee, Senate Budget Committee Chairman Kent Conrad, D-N.D., endorsed the plan while appearing on ABC's "This Week." Conrad said there is little choice but to end the insurance subsidy in some form. "I think we've got to. Again, virtually every economist that has come before us has said, you've got to reduce that tax subsidy as part of an overall strategy to really contain costs."

  As the Senate Finance Committee continues struggling to seek a solution to filling a $320-billion gap in revenue needed to cover the estimated $1 trillion cost of health care reform, the Congressional Budget Office on July 25 released a report downplaying the savings hoped for under the administration's proposal for an Independent Medicare Advisory Council (IMAC), which would make recommendations to the president for changing federal payments for Medicare services. The CBO estimated the plan would create savings of only $2 billion, which does little to help the SFC. In addition, lawmakers are loath to give up control of Medicare payments to the White House.

  The House Energy and Commerce Committee is expected to complete its markup of its health reform legislation during the week beginning July 27 but it is doubtful whether they will manage to hold a floor vote before breaking for a long summer recess on July 31. "I don't believe so next week, "said Rep. Jim Cooper, D-Tenn., on "Face the Nation." He added, "We have agreement on 70 or 80 percent of the legislation, but it is important we get the other details right too." Cooper said he does not believe House Speaker Nancy Pelosi, D-Calif., has the votes at this point to ensure passage.

  Gibbs also emphasized that the administration and Congress have reached agreement on 80 percent of reform issues and acknowledged the remaining 20 percent "won't be easy." Areas of consensus are greater access to affordable health care coverage, a deficit-neutral health care reform plan over 10 years and an end to insurance companies denying coverage due to pre-existing medical conditions, Gibbs notes.

  President Obama maintains final legislation will reach his desk in the fall. Gibbs said there are "no intermediate deadlines" for getting the bill through Congress, although Obama initially called on the House and Senate to pass health care reform bills before they started their August recess. "The president is encouraged that we're making progress and I think is satisfied with the path we're on," Gibbs said.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The California Legislature passed two budget trailer bills as part of the budget deal negotiated between Gov. Arnold Schwarzenegger and legislative leaders that, if enacted, would increase personal income tax withholding, accelerate the installment payments for personal income and corporation franchise and income taxes, retroactively revise the estimated tax underpayment penalty to conform the application of withholding credits to the revised estimated tax installment percentages, generally conform to federal backup withholding provisions, and require qualified purchasers to register with the California State Board of Equalization (BOE) for purposes of reporting and paying use taxes.

  Notably absent from the California budget agreement is the so-called Amazon proposal to create a presumption of nexus for online sellers for sales tax purposes under certain circumstances. The governor previously vetoed such a proposal (S.B. 17, Third Extraordinary Session, was vetoed by the governor on June 30, 2009).

CCH (cch.taxgroup.com) reports:

  The Senate is expected to wait until September to take up health care reform legislation. President Obama, who had called for its passage before the August recess, said that he had no problem with this delay as long as work continued during the recess. PAYGO legislation passed the House, but the Senate may not take up the measure. The IRS reminded taxpayers of the temporary tax incentives in the American Recovery and Reinvestment Act of 2009 (2009 Recovery Act) (P.L. 111-5) and finalized filing rules for small exempt organizations. On the international front, the IRS announced that it intends to issue guidance for individuals receiving gifts and bequests from expatriates and a Treasury Department official said that negotiating tax treaties is a priority.

Legislation

  Senate Majority Leader Harry Reid, D-Nev., said on July 23 that the Senate will wait until September to take up health care reform legislation, but he expects that the Senate Finance Committee will mark up its bill before August 7 (TAXDAY, 2009/07/24, C.2). Reid said the delay was in response to numerous complaints from Republican lawmakers that leadership is moving too quickly to pass complex legislation that would have far-reaching impact. Baucus hopes to mark up his health care overhaul during the week beginning August 3, just day days before the Senate leaves for a month-long recess. Baucus continues to hold meetings with a group of six bipartisan members of the Committee who are negotiating the bill. House lawmakers on July 22 voted 265-to-166 to approve the Statutory Pay-As-You-Go Bill of 2009 (2920) (TAXDAY, 2009/07/23, C.1). Under PAYGO, lawmakers would be required to fully offset any new mandatory spending or tax cuts so that the budget deficit will not increase. The Senate may not take up the measure as Senate Budget Committee Chairman Kent Conrad, D-N.D., has said he opposes the bill over concerns about exemptions and the possibility of relinquishing control of budget baselines to the White House.

  President Obama dropped his call for both House and Senate passage of health care reform legislation by the August recess after Senate Majority Leader Harry Reid, D-Nev., announced that the Senate would not be able to meet the president's deadline. Obama said he had no problem with the delay as long as work continued diligently during the month-long recess (TAXDAY, 2009/07/24, C.2). The president said his target date for a final package to reach his desk is the fall.

  Obama began to weigh in on some of the financing options passed by the House Ways and Means Committee and under consideration by the Senate Finance Committee, suggesting that a House proposal to impose a surtax on wealthy households meets his general principle to not raise taxes on the middle class. He also expressed interest in proposals under consideration by the Senate tax-writing panel to cap the tax exclusion for high-end health insurance plans and penalize insurance companies that provide the so-called Cadillac, gold-plated coverage. He stressed he does not support eliminating the tax break altogether and opposes taxing health care benefits on anyone already receiving them (TAXDAY, 2009/07/24, W.1).

IRS/Treasury

  Exempt Organizations. Final regulations detail which small exempt organizations must file Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required To File Form 990 or 990-EZ (T.D. 9454,
TAXDAY, 2009/07/23, I.1). The IRS declined to exclude small exempt organizations that have little or no income.

  Recovery Act. Many of the tax incentives in the 2009 Recovery Act (P.L. 111-5) are temporary; therefore, the IRS encouraged taxpayers to take advantage of them before they sunset (IR-2009-67; TAXDAY, 2009/07/21, I.1). The IRS highlighted the deduction for state and local sales taxes of qualified new vehicle purchases, energy tax incentives, the American Opportunity Tax Credit, the first-time homebuyer credit, and the Making Work Pay Credit.

  Gifts and Bequests. The Heroes Earnings Assistance and Relief Tax Act of 2008 (P.L. 110-245) added new filing and reporting requirements on individuals who received gifts and bequests from expatriates. The IRS announced that it intends to issue guidance in this area (Announcement 2009-57, TAXDAY, 2009/07/20, I.1).

  Tax Treaties. A Treasury Department official said on July 23 that the U.S. is anticipating updating some existing tax treaties and negotiating more tax information exchange agreements (TAXDAY, 2009/07/24, T.1). Treasury International Tax Counsel John Harrington relayed that recent agreements with Luxemburg and Switzerland have focused on information exchanges, rather than resolving all issues.

  Return Preparers. The IRS invited tax professionals and consumers to comment on its review of return preparers (IR-2009-68, Notice 2009-60; TAXDAY, 2009/07/27, I.7). The IRS is holding the first in a series of nationwide public meetings in Washington, D.C. on July 30 (IR-2009-66; TAXDAY, 2009/07/15, I.1).

  Tax Tips. The IRS launched its "Summertime Tax Tips" with tips for job seekers, new business owners, recently married couples, students with summer jobs, and members of the U.S. Armed Forces (TAXDAY, 2009/07/22, I.2.; TAXDAY, 2009/07/23, I.4). The IRS also reminded taxpayers that its website offers many explanations and materials in Spanish.

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

CCH (cch.taxgroup.com) reports:

  The IRS has released proposed regulations on the issuance of Taxpayer Assistance Orders (TAOs) by the National Taxpayer Advocate (NTA) to reflect legislative changes and to provide updated guidance on the administration of TAOs. The regulations are generally effective for TAOs issued on or after the date the final regulations are published. Code Sec. 7811 authorizes the NTA to issue a TAO when a taxpayer is suffering or about to suffer a significant hardship as a result of the manner in which the internal revenue laws are being administered by the IRS. A TAO may be issued by the NTA regardless of whether a taxpayer has submitted an application with the NTA on Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order).

  The proposed regulations provide guidance on what constitutes significant hardship, including specific guidance with regard to the 30-day delay standard. However, a finding by the NTA that a taxpayer is suffering or about to suffer a significant hardship will not automatically result in the issuance of a TAO. The NTA must make a separate determination that the facts and law support relief. If and when a TAO is issued, it acts as an order directing the IRS to either cease any action or take any action under any provision of the internal revenue laws within a specified time. The IRS must comply with the TAO unless it is appealed and then modified or rescinded by the IRS Commissioner, IRS Deputy Commissioner, or the NTA. The TAO may be issued to an office, operating division or function of the IRS, as well as any private collection agency working under contract with the IRS. However, a TAO cannot be issued to the IRS Criminal Investigation (CI) division if the CI division reasonably determines that the TAO would impede its investigation of the taxpayer.

Proposed Regulations, NPRM REG-152166-05, 2009FED ¶49,424

Other References:

 
Code Sec. 7811

  CCH Reference - 2009FED ¶43,308A

  Tax Research Consultant

  CCH Reference - TRC IRS: 3,058.05
CCH Reference -
TRC IRS: 30,220
CCH Reference - TRC IRS: 45,112.20
CCH Reference - TRC IRS: 45,204.50

CCH (cch.taxgroup.com) reports:

  The IRS has released materials used during a series of two-hour training sessions on governance and tax-exempt organizations. The sessions were part of a continuing professional education program for Exempt Organizations examination agents, determinations specialists, tax law specialists and managers (TAXDAY, 2009/06/09. I.1). The materials, which are available on the IRS website at http://www.irs.gov/charities/article/0,,id=208454,00.html, include course outlines, presentation materials, excerpts from the Internal Revenue Manual, policies and practices related to governance of 501(c)(3) organizations and selected portions of Form 990 and its instructions.

CCH (cch.taxgroup.com) reports:

  House Democratic leaders huddled on July 24 to discuss the possibility of bypassing the House Energy and Commerce Committee and taking its massive health reform bill directly to the floor for a vote. The Committee has delayed a markup of its portion of the bill as conservative Democrats known as Blue Dogs have threatened to withhold approval of the measure until they are satisfied that the costs are realistic and manageable. House Energy and Commerce Committee Chairman Henry Waxman, D-Calif., showing frustration with the inability to move the bill, made the threat after a contentious meeting with members of his panel.

  House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., told CCH that he was meeting with House Speaker Nancy Pelosi, D-Calif., to discuss holding the direct floor vote. Rangel also affirmed that the bill would be changed before the vote, but declined to give any details. There had been earlier discussions of raising the threshold for applying a surtax on wealthier Americans as a means to pay for health reform changes, but at the time Rangel dismissed the idea.

  The pressure for the House to act before leaving for its summer recess on July 31 is growing, and the impasse in the House Energy and Commerce Committee may be providing the incentive to move forward. Pelosi on July 23 played down the possibility of bypassing the Committee. "I don't want to do that, "she told reporters following a meeting with House Democratic leaders, but by the next day she was holding meetings to discuss the option.

White House

  President Obama met with Senate Majority Leader Harry Reid, D-Nev., and Senate Finance Committee Chairman Max Baucus, D-Mont., at the White House on July 24. Both Reid and Baucus have said they believe the Finance Committee will be able to complete its mark up of a health care bill before the August recess. White House Press Secretary Robert Gibbs said the White House meeting addressed process and substantive issues but he did not know if they included proposals to tax health care benefits.

  The president at a health care town hall meeting in Shaker Heights, Ohio, on July 23 (TAXDAY, 2009/07/24, W.1) expressed interest in a few of the health care financing options under consideration by the tax-writing panel. Obama said he is willing to consider changes in the tax exclusion on employer-provided benefits and penalizing health insurers that offer high-end health insurance plans, but he does not support eliminating the tax break entirely. He noted that he had not signed off on any particular proposal to change the exclusion.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

White House Press Release: CEA Releases Report on the Economic Effects of Health Care Reform on Small Businesses and Their Employees

Executive Office of the President Council of Economic Advisers Report: The Economic Effects of Health Care Reform on Small Businesses and Their Employees
 

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Gov. Ted Kulongoski has signed legislation that, as previously reported (TAXDAY, 2009/06/16, S.20), increases the Oregon personal income tax rate and phases out the deduction for federal income taxes paid for high-income taxpayers. The legislation also allows a subtraction from federal AGI of up to $2,400 of unemployment compensation received in the 2009 tax year. In effect, Oregon incorporates the exclusion enacted under the federal American Recovery and Reinvestment Act of 2009 (P.L. 111-5).

  For tax years beginning after 2008 and before 2012, the personal income tax rate is 10.8% on taxable income over $125,000 but not over $250,000 and 11% on taxable income over $250,000. For tax years beginning after 2011, the highest tax rate will be 9.9% on taxable income over $125,000.

  For tax years beginning after 2008, federal income taxes paid in excess of a specified limit, less refunds for which a tax benefit was received, must be added back to federal taxable income. The specified limit is reduced for high-income taxpayers to effectively phase out the amount of the federal income tax deduction allowed for Oregon personal income tax purposes.

  Applicable to the 2009 tax year, the Oregon Department of Revenue will waive any penalty or interest that would otherwise apply to taxes due if the penalty or interest is based on underpayment or underreporting that results solely from the above-described law changes.

H.B. 2649, Laws 2009, effective September 28, 2009, applicable as noted

CCH (cch.taxgroup.com) reports:

  Facing significant opposition from large taxpayers and state legislators, the effort to revise the Uniform Division of Income for Tax Purposes Act (UDITPA) has been abandoned by the Uniform Law Commission (ULC). The ULC Scope and Program Committee and Executive Committee accepted the recent recommendations of the UDITPA study committee to end the latter's review of UDITPA without further action. (TAXDAY, 2009/07/01, S.1) Therefore, the study committee is discharged and the ULC will not establish a drafting committee on the topic of revising UDITPA.

  The ULC, formerly known as the National Conference of Commissioners on Uniform State Laws (NCCUSL), is the organization that drafted UDITPA over 50 years ago. As such, the Multistate Tax Commission (MTC) asked the ULC to undertake the effort of revising the Act when the MTC concluded that a revision was necessary. Initially, the ULC accepted the request and formed a drafting committee. When that encountered opposition, the ULC downgraded the effort to a study committee. However, this action did not assuage the effort's opponents, who successfully pressed for a complete end to the ULC review.

  The MTC is expected to continue its own project to revise portions of UDITPA.

Email, Uniform Law Commission, July 21, 2009
 

CCH (cch.taxgroup.com) reports:

  The IRS has posted the first of its 2009 Summertime Tax Tips for taxpayers. The tax tips provide helpful information and guidance regarding the following topics:

  --Job seekers;

  --Taxpayers starting a new business;

  --Those arranging for child care during the school vacation;

  --Recently married taxpayers;

  --Students with summer jobs; and

  --The IRS Spanish language web site, IRS.gov/Espanol.

  Links to related forms, publications, and tax topics are included with the summertime tax tips.

2009 IRS Summertime Tax Tips 2009-01

2009 IRS Summertime Tax Tips 2009-02

2009 IRS Summertime Tax Tips 2009-03

2009 IRS Summertime Tax Tips 2009-04

2009 IRS Summertime Tax Tips 2009-05

2009 IRS Summertime Tax Tips 2009-06
 

CCH (cch.taxgroup.com) reports:

  A tax-exempt credit union's sales of insurance products were substantially related to its tax-exempt purpose of encouraging thrift. Despite the government's expert witness' opinion that the insurance products were too expensive given their relatively low loss-ratios and that sale of the insurance products enriched lending institutions and insurers at the expense of consumers, the jury's conclusion to the contrary was not irrational. The jury could have interpreted "thrift" more broadly and concluded that, even if other kinds of insurance could accomplish the same goals at a lower price, members could nevertheless be engaged in thrift when obtaining insurance against possible losses. Moreover, considering the relatively low actual cost of the insurance products, the government's loss-ratio calculations and reverse competition claims were inconsequential.

Community First Credit Union, DC Wis., 2009-2 USTC ¶50,496

Other References:

 
Code Sec. 513

  CCH Reference - 2009FED ¶22,846.37

  Tax Research Consultant

  CCH Reference - TRC EXEMPT: 12,202
CCH Reference - TRC EXEMPT: 15,056.05
 

CCH (cch.taxgroup.com) reports:

  President Obama assured members of the House Energy and Commerce Committee that health care reform legislation must be deficit-neutral in order for him to sign it, according to Committee Chairman Henry A. Waxman, D-Calif., following a White House meeting on July 21. Rep. Mike Ross, D-Ark., a leading member of the fiscally conservative Blue Dog Coalition, said the president wants final legislation to be deficit-neutral, reduce the rate of health care inflation, cover as many people as possible, make health care coverage affordable and include insurance reform so that pre-existing conditions can no longer preclude coverage.

  Ross said the focus of the White House meeting was on reining in health care costs, but no final decisions were made on cost containment. He said rising health care costs must be brought down to the rate of inflation and that the first priority is to squeeze as many health care savings as possible before taking revenue-raising measures.

  The president, in separate television interviews, indicated that the August deadline for the House and Senate to pass health care bills could slip under certain conditions and that he might be open to penalizing insurance companies that offer Cadillac, gold-plated health insurance plans. He also signaled his possible support for imposing additional taxes on those earning above $250,000.

  "I think that ultimately what we're going to have is a package which will probably include some additional revenue from well-to-do people who can afford to pay a little more so that working families can have a little more security on their health care," Obama said in an interview on NBC's "Today Show" on July 21. On setting an August deadline, the president said that "if you don't set a deadline in this town, nothing happens."

  White House Press Secretary Robert Gibbs, at a press briefing on July 21, said the August deadline was necessary to keep the process moving forward. However, when pressed about the issue in a July 20 interview on PBS's "News Hour With Jim Lehrer," Obama said, "If somebody comes to me and says, "It's basically done. It's going to spill over by a few days or a week," you know, that's different."

SFC Progress

  Senate Finance Committee Chairman Max Baucus, D-Mont., and his team of negotiators spent the day discussing offsets, bringing in Joint Committee on Taxation (JCT) Chief of Staff Thomas A. Barthold to help with determining costs. Sen. Olympia J. Snowe, R-Maine, said discussions were productive and all involved were determined to produce a bipartisan bill. She said there was no talk of deadlines. Baucus described a discussion earlier in the day with President Obama as agreeable, and also pointed out that there was no mention of a timetable or the pace of negotiations. "He seemed very encouraged that progress was taking place," said Baucus.

  Obama has not endorsed Senate Finance Committee financing options to change the exclusion on employer-sponsored health plans, but indicated that he was interested in measures to penalize insurance companies offering overly generous health care packages. "What's being talked about now, I understand, is the possibility of penalizing insurance companies who are offering super, gold-plated, Cadillac plans. I haven't seen the details of this yet, but it may be an approach that doesn't put additional burdens on middle-class families," Obama said in the "Newshour" interview.

PAYGO

  Separately, the administration said it supports House passage of the Statutory Pay-As-You-Go (PAYGO) Bill of 2009 (HR 2920), in the form of a substitute that is expected to be considered by the House Rules Committee. "Statutory PAYGO would hold the federal government to a simple but important principle: new tax or entitlement legislation should be paid for," according to an administration-written policy statement.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

SAP on HR 2920 --Statutory Pay-As-You-Go Act of 2009
 

CCH (cch.taxgroup.com) reports:

  The New York City Department of Finance has issued a memorandum highlighting the substantial changes created by recently enacted legislation (Ch. 201 (A.B. 8867), Laws 2009), which include generally requiring related corporations with substantial intercorporate transactions to file a combined report, regardless of the transfer price for such intercorporate transactions, and phasing in a single sales factor for New York City general corporation tax and unincorporated business tax, as well as for certain taxpayers under the banking corporation tax. (TAXDAY, 2009/07/17, S.30)

CCH (cch.taxgroup.com) reports:

  The Hawaii Department of Taxation has issued an announcement discussing Act 196 (S.B. 1461), Laws 2009, which advanced general excise tax filing and payment due dates, expanded application of the semiweekly deposit schedule for withheld personal income taxes, authorized the director of taxation to impose additional electronic filing and electronic payment requirements, and extended the general excise tax exemption allowed to submanagers of condominium and homeowner associations and to hotel operators and suboperators. Details of the law were previously reported. (TAXDAY, 2009/07/20, S.8)

CCH (cch.taxgroup.com) reports:

  The California Commission on the 21st Century Economy held its sixth public meeting on July 16, 2009, in San Francisco. At the meeting, the Commission further discussed but did not reach a final decision on which tax reform proposals would be included in its package of recommendations that is scheduled to be delivered to Gov. Arnold Schwarzenegger and the Legislature by July 31, 2009.

  The 14-member bipartisan Commission has been meeting since January 2009 and is tasked with presenting a set of recommendations to reform the current California tax structure to stabilize state revenues and reduce volatility, increase the state's competitiveness, promote jobs and growth, and reflect the state's 21st century economy.

CCH (cch.taxgroup.com) reports:

  The IRS has provided a reminder to taxpayers of the various tax breaks made available by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5). In many cases, taxpayers must take action within the 2009 or 2010 calendar years in order to take advantage of the tax benefits.

  --The expanded $8,000 first-time homebuyer credit under Code Sec. 36 requires a home purchase before December 1, 2009.

  --The deduction for the local sales and excise taxes of qualified new vehicle purchases (up to $49,500 in cost) under Code Sec. 164 requires the purchase of the vehicle before January 1, 2010.

  --The 30-percent credit for energy-efficient home improvements under Code Sec. 25C applies to improvements placed into service in 2009 and 2010.

  --The expanded Hope scholarship credit under Code Sec. 25A, temporarily applicable to the first four years of college rather than only the first two, applies to tax years 2009 and 2010.

  --The expansion of education savings plans under Code Sec. 529 to allow for the purchase of computer technology, Internet access and related services applies to 2009 and 2010.

  --Finally, the making work pay credit under Code Sec. 36A provides taxpayers with lower withholding rates in 2009. However, families in which both spouses work or taxpayers with multiple jobs may need to adjust their withholding in order to avoid lower refunds or tax liabilities for 2009.

IR-2009-67,
2009FED ¶46,430

Other References:

 
Code Sec. 25A

  CCH Reference - 2009FED ¶3830.20

 
Code Sec. 25C

  CCH Reference - 2009FED ¶3843.10

 
Code Sec. 36

  CCH Reference - 2009FED ¶4190K.11

 
Code Sec. 36A

  CCH Reference - 2009FED ¶4195.11

 
Code Sec. 164

  CCH Reference - 2009FED ¶9502.35

  CCH Reference - 2009FED ¶9602.7244

  CCH Reference - 2009FED ¶9602.87

 
Code Sec. 529

  CCH Reference - 2009FED ¶22,945.30

  Tax Research Consultant

  CCH Reference - TRC INDIV: 45,104.15
CCH Reference - TRC INDIV: 57,800
CCH Reference - TRC INDIV: 57,950
CCH Reference - TRC INDIV: 58,050
CCH Reference - TRC INDIV: 60,152
CCH Reference - TRC INDIV: 60,204

CCH (cch.taxgroup.com) reports:

  A Congressional Budget Office (CBO) estimate that shows a $250-billion budget deficit under the Democratic health care reform bill does not take into account projected Medicare cost savings, according to House Ways and Means Chairman Charles B. Rangel, D-N.Y., who spoke on CBS News' "Face the Nation" on July 19. Rangel said that the more money lawmakers can cut out of Medicare, the less taxes will have to be raised under the America's Affordable Health Choices Bill of 2009 (HR 3200). The CBO did not score savings from fewer people getting sick or being admitted to the hospital because they receive preventive care, Rangel said. He added that the CBO is obviously using different assumptions that what Ways and Means and the White House are considering.

  Senate Finance Committee member Orrin G. Hatch, R-Utah, speaking on the same program, said that GOP lawmakers are not going to accept a Democratic proposal for a surtax on the wealthy. The Democratic bill will result in small business owners having a 45.7-percent tax rate --an amount that is higher than the corporate tax rate, he said.

  However, Rangel disputed that the small businesses would be hurt by taxes, since the legislation provides tax credits as well as exemptions for smaller firms. He said the bill represents a tax on less that 1 percent of the wealthiest people in America, not on small businesses. Hatch said the Senate Finance negotiations on the health care bill are working on the idea of Chairman Max Baucus, D-Mont., to tax health care benefits that cost over $25,000. Hatch said he does not support that plan, either.

  By Stephen K. Cooper, CCH News Staff

Congressional Budget Office Preliminary Analysis of Estimate of Effects on the Deficit and Effects of Key Provisions of HR 3200, America's Health Choices Act of 2009
 

CCH (cch.taxgroup.com) reports:

  President Obama on July 20 continued to make his case for health care reform in the face of growing criticism in Congress about its potential cost and how it would be paid for. Obama, in remarks at Children's Medical Center in Washington, D.C., maintained that the need for reform is "urgent and indisputable" and that it can be done in 2009 in a way that does not add to the deficit over the next decade.

  "The bill I sign must reflect my commitment and the commitment of Congress to slow the growth of health care costs over the long run. That's how we can ensure that health care reform strengthens our nation's fiscal health at the same time," he stated. In his remarks at the medical center, Obama criticized "health insurance companies and their executives" for reaping "windfall profits from a broken system" while premiums doubled and deductibles and out-of-pocket costs rose sharply over the past 10 years.

  Although there are calls to slow down the process, White House Press Secretary Robert Gibbs said the president believes the House and Senate can pass health care reform bills before the August recess. The president will continue his lobbying efforts throughout the week, including a town hall meeting in Cleveland, Ohio, on July 23 and an evening news conference on July 22.

  By Paula Cruickshank, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The city of Oakland was required to exhaust its administrative remedies before filing suit in federal court for collection of California local transient occupancy taxes. Oakland filed a complaint against a number of online travel companies (OTCs) alleging that they collected taxes from their customers based on the retail price of the rooms but remitted to the city taxes based only on the wholesale price. The city, however, had not yet assessed the tax. The ordinance that Oakland enacted to levy the transient occupancy tax provides an administrative process for assessment and requires the tax administrator to determine and assess the tax against hotel operators. The Court of Appeals held that under California law, exhaustion of administrative remedies is a jurisdictional requirement and absent a clear indication of legislative intent, a court should refrain from inferring a statutory exemption from the state's rule requiring exhaustion. The local ordinance uses mandatory language to impose the city's initial obligation to have the tax administrator assess the tax and give notice of the amount to be assessed. The city argued that exhaustion was excused because the administrative remedy is inadequate and the process would be futile. The Court was not persuaded and found that the city was central to the administrative process. Once a final assessment was made and the tax remained unpaid, the city could then file suit to collect the tax. Although the city also argued that it would not be able to recover on its other claims via the administrative process (i.e., conversion, unfair business practices, unjust enrichment, and imposition of a constructive trust), the city could not file suit in federal court without first exhausting its administrative remedies. The Court ruled, however, that the city's failure to exhaust its administrative remedies is a curable defect and, as such, it affirmed the district court's dismissal for lack of subject matter jurisdiction but remanded the case to the district court so that the dismissal is without prejudice.

Oakland v. Hotels.com, LP , U.S. Court of Appeals for the Ninth Circuit, No. 07-17258, July 16, 2009, ¶404-932

  Other References:

CCH (cch.taxgroup.com) reports:

  The California Franchise Tax Board (FT has extended the deadline for corporation franchise and income taxpayers that are members of a unitary combined reporting group to file Form 3726, DISA and Capital Gain Information, to disclose their deferred intercompany stock account (DISA) balances. In FTB Notice 2009-01 , the FTB indicated that previously unreported DISA balances had to be disclosed on a completed Form 3726 by May 31, 2009. However, subsequent to the issuance of FTB Notice 2009-01 , many taxpayers contacted the FTB stating that they were unable to meet the May 31, 2009 deadline. With that in mind, the FTB has extended the deadline for filing a completed FTB Form 3726 to satisfy the DISA reporting requirement to October 15, 2009. Thereafter, in order to satisfy the requirement, a taxpayer must submit a completed FTB Form 3726 along with an amended tax return, which must be filed before any relevant statute of limitations has expired. Details of the annual disclosure requirement for DISA transactions were previously reported. (TAXDAY, 2009/02/24, S.7, TAXDAY, 2009/02/27, S.4)

   
FTB Notice 2009-05 , California Franchise Tax Board, July 17, 2009
 

CCH (cch.taxgroup.com) reports:

  The House Ways and Means and Senate Health, Education, Labor and Pensions (HELP) Committees each passed separate versions of health care reform legislation as President Obama made a Rose Garden appeal to Congress to pass House and Senate health care reform bills before the August recess. However, several impediments developed over the course of the week of July 13 that could delay his timetable. Settlement talks appear to be continuing between the IRS and Swiss banking giant UBS AG; a federal district court granted their request for additional time to resolve their dispute over the disclosure of account holders. In addition, the IRS updated its rosters of "listed transactions" and "transactions of interest." The Service also announced the first in a series of public meetings about its oversight of return preparers.

Congress

  The Ways and Means Committee approved the America's Affordable Health Choices Bill of 2009 (HR 3200) early on July 17 by a vote of 23 to 18 (TAXDAY, 2009/07/20, C.1). The plan would overhaul the nation's health care system and impose a surtax of $544 billion on wealthier taxpayers. The measure now heads to the House Rules Committee, where it will be amended again before heading to the House floor.

  Three Democrats, Reps. Earl Pomeroy, D-N.D, Ron Kind, D-Wis., and John Tanner, D-Tenn., voted with the Republicans against the measure. House Speaker Nancy Pelosi, D-Calif., told reporters that Democratic leaders are still negotiating to win support from the conservative members of the House Blue Dog Coalition, as well as freshmen Democratic lawmakers. The House provision to raise revenue to help pay for health care reform through a surtax on the wealthy is unlikely to gain any traction in the Senate as several members of the Senate Finance Committee on July 14 let it be known that the provision had little support among Democratic lawmakers.

  The HELP Committee on July 15 passed its $615-billion version of a health care reform bill (TAXDAY, 2009/07/16, C.1). The Affordable Health Choices Bill was approved by a 13 to 10 margin and provides a public insurance option and a pay-or-play mandate for most employers that would require them to provide health insurance for their employees or face a stiff penalty. The measure will eventually be melded with the Senate Finance Committee (SFC) draft legislation before being taken up on the Senate floor.

  The SFC inched closer to completing a draft of its health care reform legislation on July 16 despite news that all reform proposals to date would cause the federal government to spend more on health care more than it would save (TAXDAY, 2009/07/17, C.1). Appearing earlier in the day before the Senate Budget Committee, Congressional Budget Office Director Douglas Elmendorf told the panel that the legislation significantly expands the federal responsibility for health care costs. Elmendorf told lawmakers that the government, however, has two powerful levers for controlling costs: changing Medicare payment rules and limiting the tax exclusion for employer-sponsored insurance. Finance Committee Chairman Max Baucus, D-Mont., later suspended negotiations until July 20, thereby seriously jeopardizing hopes of passing health care reform in the Senate prior to the beginning of the month-long summer recess, which starts on August 7.

  Although the president courted several lawmakers during the week of July 13, there were no visible sign of progress toward meeting his August deadline for completing health care reform. Following a White House meeting on July 16, Sen. Olympia J. Snowe, R-Maine, a swing voter on the Senate Finance Committee (SFC), said it was "overly ambitious" for the Senate to pass a bill before the summer recess. However, she believed it would be possible for the tax-writing panel to finish its mark before the August break and use the summer hiatus for melding the SFC and HELP Committee bills.

  Late in the afternoon on July 17, the president made a brief statement maintaining that health reform will happen in 2009, but acknowledging there would be much debate over its cost and how to pay for it. He warned that failure to act now would lead to crushing long-term deficits and debt.

  The House approved the IRS's fiscal year (FY) 2010 budget on July 16 by a vote of 219-208 (TAXDAY, 2009/07/20, C.2). Under the House bill, the government would allocate $12.1 billion to the IRS for FY 2010.

  Real estate professionals told House lawmakers on July 15 that the first-time homebuyers tax credit enacted in 2008 was unfair to purchasers because less than eight months later Congress passed an even better homebuyer tax credit in the American Recovery and Reinvestment Act of 2009 (P.L. 111-5) that does not have to be repaid (TAXDAY, 2009/07/16, C.2). Charles McMillan, 2009 President of the National Association of Realtors (NAR), told the House Small Business Committee that the NAR questions whether the repayment scheme is sound tax policy, since it is not in the best interest of taxpayers or the IRS to maintain a 15-year repayment and/or recapture program for a provision that was in effect for only eight months.

IRS/Treasury

  Litigation. The IRS's dispute with UBS AG may be headed for resolution (TAXDAY, 2009/07/14, M.1). The U.S. and the Swiss Governments asked a federal district court for additional time to continue discussions about a settlement. The IRS wants the bank to disclose the names of individuals who may have allegedly used their accounts for tax evasion.

  Listed Transactions. The IRS released updated rosters of listed transactions and transactions of interest (Notice 2009-55, TAXDAY, 2009/07/16, I.3; Notice 2009-59, TAXDAY, 2009/07/16, I.4). The listed transaction roster reflects additions and deletions made by the IRS since 2004.

  Return Preparers. The IRS will hold a public meeting in Washington, D.C. on June 30 to hear opinions and suggestions about its oversight of return preparers (IR-2009-66; TAXDAY, 2009/07/15, I.1). Practitioner professional groups and consumer associations are scheduled to speak at the meeting.

  In related news, Karen Hawkins, director of the IRS Office of Profession Responsibility (OPR), indicated that the IRS is taking a wide view of the return preparer community in its study (TAXDAY, 2009/07/15, I.2). The study will focus on preparers but will also look at software manufacturers and banks that engage in refund anticipation loans, Hawkins reported.

  Research Tax Credit. Proposed regulations would simplify the election of the reduced research credit (NPRM REG-130200-08; TAXDAY, 2009/07/16, I.1). The proposed regulations explain that the election is made on Form 6765, Credit for Increasing Research Activities, which should be attached to the return instead of requiring the election to be made "on an original return."

  Offers-in-Compromise. The IRS has revised Form 656, Offer in Compromise, into two new forms to aid ease of use by taxpayers (TAXDAY, 2009/07/16, I.6). The new forms are Form 656, Offer in Compromise, and Form 656-B, Offer in Compromise Booklet.

  Nonprofits. Recent guidance from the IRS should prove helpful to nonprofits, Jane M. Searing, CPA, shareholder, Clark Nuber, PS, Bellevue, Wash., told CCH. In Rev. Proc. 2009-32, I.R.B. 2009-28, 142 (TAXDAY, 2009/07/01, I.2), the IRS issued reliance criteria for private foundations and sponsoring organizations with donor advised funds to determine if a grantee is a public charity and if the grantee is a Type I, II or III supporting organization for purposes of excise taxes imposed on grants by the Pension Protection Act of 2006 (PPA) (P.L. 109-280).

  "We have been telling clients that the IRS Business Master File (BMF) was the best source currently, although not previously cited as an acceptable source," Searing noted. "It is interesting to me that the IRS is allowing organizations to rely upon third party providers to get this information," Searing added. "Organizations obtaining the information this way should include in the contract with the third party that the third party understands how the foundation or donor advised fund sponsor is using the data, that the data will be in the required format, and that the third party will indemnify them from any penalties incurred as a result of relying upon these third party reports for these purposes."

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

CCH (cch.taxgroup.com) reports:

 
Code Sec. 162(k)(1) precluded a corporation from claiming deductions under Code Sec. 404(k)(1) with respect to redemption payments that it made to reacquire its preferred stock from its employee stock ownership plan (ESOP). Code Sec. 162(k)(1) disallows deductions for any amounts paid or incurred by a corporation in connection with the reacquisition of its own stock. Therefore, even if the amounts paid by the corporation were applicable dividends under Code Sec. 404(k)(1), the amounts could not be deducted.

  The corporation's argument that Code Sec. 162(k)(1) did not apply because while the payments to the trust were made in connection with a redemption, the subsequent distribution of the benefits to the participants was not, was rejected. Under Code Sec. 404(k)(2)(A)(ii), dividends must be both paid by the corporation to the plan and distributed in cash to the participants in order to be eligible for the deduction. Although the corporation correctly contended that there would be no allowable deduction under Code Sec. 404(k)(1) without the plan's benefit distribution to the participant, no distribution from the ESOP would be deductible unless the corporation made the dividend payment to the plan.

  Affirming a DC N.J. decision, 2007-2 USTC ¶50,582

Conopco, Inc., CA-3, 2009-2 USTC ¶50,492

Other References:

 
Code Sec. 162

  CCH Reference - 2009FED ¶9052.23

 
Code Sec. 316

  CCH Reference - 2009FED ¶15,704.426

 
Code Sec. 404

  CCH Reference - 2009FED ¶18,371.30

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 75,204

CCH (cch.taxgroup.com) reports:

  The government was enjoined from proceeding with a collection action against an individual during the pendency of the individual's refund proceeding and its request for a stay with respect to the refund proceedings was denied. The individual filed a refund action to recover trust fund recovery penalty taxes he had paid; subsequently, the government brought suit in a different district court to collect the unpaid portion of the trust fund recovery penalty from the individual and another responsible person. Code Sec. 6331(i)(4)(A) prohibits the government from filing a collection action against a refund claimant for any unpaid divisible tax while a refund suit is pending with respect to that individual and that tax. The government could not rely on the exception to Code Sec. 6331(i)(4)(A), which states that the statute does not apply to any "proceeding relating to" the refund proceeding. A collection action will always have some connection, relation and reference to a refund proceeding involving the same taxes and taxpayer; however, taking into consideration the language of the statute, its legislative history and subsequent decisions, the exception was not meant to apply in a collection action against the same taxpayer to recover the same tax at issue in the refund proceeding.

J.D. Nickell, Sr., DC Tex., 2009-2 USTC ¶50,491

Other References:

 
Code Sec. 6331

  CCH Reference - 2009FED ¶38,187.024

  CCH Reference - 2009FED ¶38,187.37

 
Code Sec. 6672

  CCH Reference - 2009FED ¶39,780.74

  Tax Research Consultant

  CCH Reference - TRC IRS: 51,054.25

CCH (cch.taxgroup.com) reports:

  By a vote of 219 to 208, the House late on July 16 approved legislation providing an IRS budget of $12.1 billion for fiscal year (FY) 2010. Four Republicans joined 215 Democrats to vote for the bill; 38 Democrats joined 170 Republicans in voting against the bill. The IRS budget was included in the Financial Services and General Government Appropriations Bill, 2010 (HR 3170). The measure appropriates funds for the Treasury, the White House and executive offices, the judiciary and independent agencies.

  The IRS budget fully funds the Obama administration's budget request and is a $600-million increase over the IRS's FY 2009 budget. The proposed budget includes $5.5 billion for tax enforcement, an increase of $387 billion, and $2.27 billion for taxpayer services, a $19-million decrease that omits one-time costs to provide economic stimulus payments. The taxpayer services budget includes $206 million for the Taxpayer Advocate Service and $680 million for pre-filing taxpayer assistance and education.

  The IRS budget appropriates $4.1 billion for operations support, a 5-percent increase, and $253 million for business systems modernization, a 10-percent increase. The bill provides $149 million for the Treasury Inspector General for Tax Administration and $2 million for the IRS Oversight Board.

  The bill also directs the IRS to make a priority of improving and increasing staffing for taxpayer telephone help lines. The Appropriations Committee report (HRRepNo 111-202) encourages the IRS to continue efforts to ensure that its enforcement actions do not cause unnecessary problems for taxpayers facing economic difficulties. The report also directs the IRS to update the Taxpayer Assistance Blueprint within 90 days of the bill's enactment.

  The committee report noted a recent Government Accountability Office report identifying several information security weaknesses; the bill directs the IRS to institute procedures to safeguard the confidentiality of taxpayer information. The report also spotlights the IRS's plan to study paid tax preparers.

  The Obama administration issued a statement of administration policy (SAP) July 15 that applauded the bill's commitment to stepped-up tax enforcement and improved taxpayer service (TAXDAY, 2009/07/16, O.3). It said that IRS tax enforcement is a critical program supporting the administration's efforts to improve tax fairness and close the tax gap. The SAP estimated that IRS tax fraud efforts recoup $5 for every $1 spent.

  The Senate Appropriations Committee approved an IRS budget of $12.15 billion on July 9 (TAXDAY, 2009/07/10, C.3). The Senate is expected to take up the budget before Congress's August recess.

  By Brant Goldwyn, CCH News Staff

Tax-Related Sections of House Appropriations Committee Report on HR 3170, Financial Services and General Government Appropriations Bill, 2010, HRRepNo 111-202
 

CCH (cch.taxgroup.com) reports:

  The America's Affordable Health Choices Bill of 2009 (HR 3200) was approved by the House Ways and Means Committee early on July 17. By a vote of 23 to 18, the committee approved a plan to overhaul the nation's health care system and impose a surtax of $544 billion on wealthier taxpayers. The next step for the legislation will be to go to the House Rules Committee, where it will be amended again before heading to the House floor.

  Three Democrats, Reps. Earl Pomeroy, D-N.D, Ron Kind, D-Wis., and John Tanner, D-Tenn., voted with the Republicans against the measure. House Speaker Nancy Pelosi, D-Calif., told reporters that Democratic leaders are still negotiating to win support from the conservative members of the House Blue Dog Coalition, as well as freshmen Democratic lawmakers.

  In addition, the Congressional Budget Office (CBO) has yet to release a cost estimate of the bill. GOP lawmakers questioned how Democrats could support a 1,018-page health care reform bill when even preliminary CBO estimates show it will increase the federal budget deficit by $1 trillion over 10 years. Pelosi has promised that the bill will be paid for by Medicare and Medicaid cost containment provisions as well as the surtax on the wealthy.

  Under HR 3200, approximately $544 billion in revenues would be raised through a surtax of 5.4 percent on married individuals with adjusted gross income (AGI) over $1 million beginning in 2011; a 1.5-percent surtax on incomes between $500,000 and $1 million; and a 1-percent surtax on incomes from $350,000 to $500,000. The measure is expected to be considered by the full House before the August recess.

  By Stephen K. Cooper, CCH News Staff

Ways and Means Committee Press Release: Ways and Means Passes Historic Health Reform Legislation

House Ways and Means Committee Release: America's Affordable Health Choices Act Section-by-Section Analysis (Updated to Include Changes in the Amendment in Nature of a Substitute)
 

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Legislation has been enacted that increases the New York City sales tax rate from 4% to 4.5%, effective August 1, 2009. It also increases the tax rate on credit rating and reporting services, and on beauty, barbering, and certain other personal services from 4% to 4.5%, and provides that the taxes on these services can only be imposed through November 30, 2011, unless they are renewed. Previously, these taxes could only be imposed through December 31, 2011.

  In addition, the legislation repeals the New York City sales tax exemption for purchases of clothing items priced at $110 or more (the exemption for clothing and footwear costing under $110 is maintained) and applies the full New York City sales tax to the transmission and distribution of electric and natural gas service, even when the electricity or natural gas service is purchased separately from the transmission and distribution service.

Ch. 200 (A.B. 8866), Laws 2009, effective August 1, 2009
 

CCH (cch.taxgroup.com) reports:

  Hawaii Gov. Linda Lingle has vetoed a bill that would have conformed Hawaii general excise tax laws with the Streamlined Sales and Use Tax (SST) Agreement. The Senate voted 23-2 to override the veto, but the House of Representatives declined to override the veto. Therefore, the veto stands.

  If enacted, the legislation would have moved the 0.5% tax on wholesale transactions to a new chapter; added a new chapter on the taxation of imports of property, services, and contracting; moved the 0.15% tax on insurance producers to a new chapter; and eliminated the tax on businesses owned by disabled persons. The legislation also would have provided for destination-based sourcing and amnesty.

  Subscribers can view the bill

S.B. 1678, vetoed by Hawaii Gov. Linda Lingle on July 15, 2009; Telephone Conversation, Hawaii Legislative Reference Bureau, July 16, 2009

CCH (cch.taxgroup.com) reports:

  Requiring federal tax compliance to obtain a state business license can help boost tax collection, the Government Accountability Office (GAO) reported on July 16 ("Tax Compliance: Opportunities Exist to Improve Tax Compliance of Applicants for State Business Licenses (Reference Number: GAO-09-569)"). The GAO examined data-sharing arrangements between the IRS and several states at the request of the Senate Finance Committee.

State Requirements

  The GAO contacted all 50 states and the District of Columbia to inquire if they require tax compliance for business licenses. Twenty states responded that they require compliance with state taxes to obtain a state business license. These requirements exist for one or more industries. Another 20 states reported that they do not require tax compliance for state business licenses. Eight states had no business license requirement at the state level.

California

  The GAO examined in detail the data-sharing arrangement between the IRS and California. Applicants for California business licenses in three industries (farm labor contracting, garment manufacturing and car washing and polishing) must be compliant with federal employment tax obligations. Applicants submit a state business license application and IRS Form 8821, Tax Information Authorization. IRS examiners in Ogden, Utah, check the employment tax status of the applicant. The IRS informs California if the applicant is compliant or not.

  Between 2006 and 2008, the IRS told California that roughly 24 percent of applicants needed to take action to become compliant with their federal employment tax obligations. In some cases, individuals had to file employment tax returns. Collaboration between the IRS and California resulted in the collection of more than $7 million in additional federal revenues.

Compliance

  According to the GAO, the data-sharing arrangement between the IRS and California has been a valuable tool for improving compliance. "Requiring tax compliance makes the businesses think about the consequences of not being tax compliant." Additionally, the data-sharing arrangement can be viewed as a deterrent. "Individuals will learn that they cannot secure a state business license without being compliant in all their tax obligations."

  "This report confirms my initial thinking that we can improve tax compliance through better cooperation between the IRS and state licensing boards," Sen. Max Baucus, D-Mont., said in a statement. Sen. Charles E. Grassley, R-Iowa, urged the IRS to work with all the states on arrangements similar to its data-sharing program with California.

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

GAO Report: Tax Compliance: Opportunities Exist to Improve Tax Compliance of Applicants for State Business Licenses (Reference Number: GAO-09-569)

Senate Finance Committee Release: Baucus, Grassley Call for Federal-State Cooperation in Improving Tax Compliance
 

CCH (cch.taxgroup.com) reports:

  Following a White House meeting with President Obama, Sen.Olympia Snowe, R-Maine, said it would be "overly ambitious" to pass a health care bill on the Senate floor before the August recess. However, she thought the Senate Finance Committee could finish its mark up of the measure by the scheduled summer break and that the Finance and Senate Health, Education, Labor, and Pensions (HELP) committees could spend August melding the two proposals. In response to Snowe's recommended delay, however, White House Deputy Press Secretary Bill Burton said "the president still wants the House and Senate to pass health care reform bills by the August recess."

  Snowe, who is a swing vote on the tax-writing panel, noted the complexity of the bill and said members should not be restrained by a set timeline to finish their work. "It's important to take time to work through these issues," Snowe said. Although she stressed the importance of moving in a "deliberative fashion," Snowe thought Congress should be able to pass a health care reform bill this year.

  The Finance Committee needs to review the ramifications of its proposal to make sure it is not "overloaded with taxes and spending," she advised reporters. Snowe said it is preferable and desirable to win bipartisan support of the Finance Committee bill in order to increase the odds of a bipartisan bill on the Senate floor.

  On the Baucus comments about the president's lack of support for taxing employer-provided health benefits, Burton said there are bound to be "bumps along the way" toward passing House and Senate legislation. He maintained that the president is not favoring the House and HELP bills over the Finance measures that are under consideration. The president is still very committed to reaching agreement on a final package that has bipartisan support, Burton asserted.

  Senate Finance Committee Chairman Max Baucus, D-Mont., inched closer to completing his mark on health care reform July 16 despite news that the legislation would cost more than it would save. Appearing earlier in the day before the Senate Budget Committee, Congressional Budget Office Director Douglas Elmendorf told lawmakers that the reform revenue measures proposed to date would only serve to increase federal spending on health care.

  "In the legislation that has been reported, we have not seen the fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount, and, on the contrary, the legislation significantly expands the federal responsibility for healthcare costs," he said. Elmendorf told the panel that the government has two powerful levers for controlling costs: changing Medicare payment rules and limiting the tax exclusion for employer-sponsored insurance. But the latter option has led to second thoughts among Senate Democrats and was never favored by President Obama.

  "Basically, the president is not helping, "said Baucus following a bipartisan meeting with several members from the Committee. "He does not want the exclusion, and that's making it difficult." Baucus, however, said the proposal was still on the table.

  Key members of the panel continued to meet throughout the day with Baucus, looking for the right combination of health care delivery savings and revenues that Democrats and hopefully some GOP members will accept. Senate Budget Committee Chairman Kent Conrad, D-N.D., said the group was looking at about 10 smaller revenue proposals that could help fill the estimated $320 billion gap.

  Senate Majority Leader Harry Reid, D-Nev. told reporters that he still hopes the Senate can take up health care reform legislation during the week beginning July 27, but that it would depend on whether or not the Senate Finance Committee completes a markup of its bill during the week beginning July 20.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

CCH (cch.taxgroup.com) reports:

  The House Ways and Means Committee was expected to complete consideration late on July 16 of the America's Affordable Health Choices Bill of 2009 (HR 3200), which included a chairman's mark that made changes to the tax treatment of health savings accounts, spousal coverage and other provisions estimated by the Joint Committee on Taxation (JCT) to cost $6 billion. As expected, the health insurance reform measure ran into stiff opposition from Republican lawmakers, who labeled the bill a government takeover of medicine that would harm physician-owned hospitals, tax small businesses into oblivion and worsen the federal budget deficit.

  Democratic lawmakers voted against any attempt by Republicans to impose a week-long delay in order to consider the more than 1,000 page measure, which was introduced on July 14. They also brushed aside Republican concerns that the Congressional Budget Office has not completed an analysis of the cost of the legislation. Under HR 3200, approximately $544 billion in revenues would be raised through a surtax of 5.4 percent on married individuals with adjusted gross income (AGI) over $1 million beginning in 2011; a 1.5-percent surtax on incomes between $500,000 and $1 million; and a 1-percent surtax on incomes from $350,000 to $500,000. The measure is expected to be considered by the full House before the August recess.

  Speaking to reporters during her weekly press conference on July 16, House Speaker Nancy Pelosi, D-Calif., defended the bill's tax provisions, promising that the Medicare cost containment sections would sufficient to fund the measure. The tax increases, Pelosi insisted, would be used for deficit reduction. "I believe that we have an obligation to try to squeeze as much savings out of the system so that we can use as much of the tax of the high income people in our country to reduce the deficit," Pelosi said. "To the extent that we have the cooperation of those who we want to squeeze in the system, we can do less on the tax side." Pelosi said she had not yet seen a letter from House Democratic freshman lawmakers who are reportedly unhappy with the bill's surtax on wealthy taxpayers.

  However, Ways and Means member Wally Herger, R-Calif., charged that the massive tax increases in the bill are no substitute for real fiscal responsibility. He criticized the plans for raising taxes in order to spend even more on a public health care option that will force people out of the private insurance market. GOP concerns were unlikely to win the day however, since Democrats hold an 11-seat majority on the committee. Moreover, the bill is likely to be changed again to build more Democratic support before it reaches the House floor.

  By Stephen K. Cooper, CCH News Staff

Amendment in the Nature of a Substitute to HR 3200, America's Affordable Health Choices Act of 2009

JCT Description of an Amendment in the Nature of a Substitute to the Provisions of HR 3200, The America's Affordable Health Choices Act of 2009, JCX-32-09

JCT Estimated Effects of the Chairman's Amendment in the Nature of a Substitute to the Revenue Provisions of HR 3200, The America's Affordable Health Choices Act of 2009, Scheduled for Markup by the House Ways and Means Committee on July 16, 2009, JCX-33-09

HR 3200, America's Affordable Health Choices Act, Summary of Changes in the Chairman's Amendment in the Nature of a Substitute
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The New Jersey Division of Taxation has issued a notice and new gross (personal) income tax withholding tables to reflect the new income tax rates for all taxpayers with gross income over $400,000. The new withholding rates take effect October 1, 2009; however the withholding rates have been adjusted to take into account that the new tax rates apply for the entire 2009 tax year. All employers are required to withhold at the rate of 12% (the rate at which the withholding rate is capped) from salaries, wages, and other remuneration paid in excess of $400,000 during the remainder of 2009. This new rate takes effect immediately and must be instituted by all employers no later than October 1, 2009. On January 1, 2010, the withholding rate will revert back to the prior rate.

  Two sets of revised withholding tables for the percentage method of withholding are provided. One table is for October 1, 2009, through December 31, 2009, and the second table is for January 1, 2010, and thereafter.

  Subscribers can view the notice and new withholding tables. The percentage method computation rates in Tables A through E are for weekly, biweekly, semimonthly, monthly, daily or miscellaneous, and annual pay periods. Taxpayers who have pay frequencies other than those provided should divide the amount of tax to be withheld under the Annual Pay Period column for each rate table (but not the withholding percentage rate) by the number of pay periods in the year.

Notice , New Jersey Division of Taxation, July 15, 2009
 

CCH (cch.taxgroup.com) reports:

  Proposed regulations have been issued regarding the election for claiming the reduced research credit under Code Sec. 280C(c)(3). The regulations are proposed to apply to tax years ending on or after the date of publication of the Treasury decision adopting these rules as final regulation in the Federal Register.

Procedure

  The proposed regulations would change the procedure for making the election for the reduced research credit under Code Sec. 280C(c)(3)(C). Instead of requiring the election to be made "on an original return," the proposed regulations specify that the election is made on Form 6765, "Credit for Increasing Research Activities," which should be attached to the return.

Controlled Groups

  The proposed regulations also address comments received by the IRS and Treasury Department regarding members of controlled groups. The proposal provides that each member of a controlled group may make the election under Code Sec. 280C(c)(3) after the group credit is computed and allocated under Reg. §§1.41-6(b)(1) and 1.41-6(c) and
Temporary Reg. §§1.41-6T(b)(1) and
1.41-6T(c)(2).

Comments & Hearing

  Written or electronic comments must be received by October 14, 2009. Outlines of topics to be discussed at the public hearing, scheduled for November 4, 2009, at 10:00 a.m. EST, must be received by October 16, 2009.

Proposed Regulations, NPRM REG-130200-08, 2009FED ¶49,423

Other References:

 
Code Sec. 280C

  CCH Reference - 2009FED ¶14,953C

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 54,150

CCH (cch.taxgroup.com) reports:

  The IRS has updated the list of transactions that it has determined to be "listed transactions" for purposes of Reg. §1.6011-4(b)(2) and Code Secs. 6111, 6112, 6662A, 6707, 6707A, and 6708. The notice updates the list of listed transactions in Notice 2004-67, 2004-2 CB 600, adding transactions identified as listed transactions in notices and other guidance released after September 24, 2004, and deleting those that the IRS has previously announced will no longer be considered listed transactions.

  The IRS has determined that transactions that are the same as or substantially similar to transactions described in the notice are tax-avoidance transactions and are, therefore, listed transactions. Consequently, taxpayers may need to disclose their participation in these transactions under Reg. §1.6011-4, and material advisors may need to disclose them under Reg. §301.6111-3.

  Taxpayers who fail to disclose may be subject to penalties under
Code Secs. 6662A and 6707A. Material advisors who fail to disclose may be subject to penalties under Code Sec. 6707. In addition, material advisors must maintain lists of advisees and other information with respect to these listed transactions pursuant to Reg. §301.6112-1. Failure to furnish a required list may subject a material advisor to penalties under Code Sec. 6708. Notice 2004-67, 2004-2 CB 600, is supplemented and superseded.

Notice 2009-59, 2009FED ¶46,429

Other References:

 
Code Sec. 6011

  CCH Reference - 2009FED ¶35,141.78

 
Code Sec. 6111

  CCH Reference - 2009FED ¶37,002.156

 
Code Sec. 6112

  CCH Reference - 2009FED ¶37,022.156

 
Code Sec. 6662A

  CCH Reference - 2009FED ¶39,654E.01

 
Code Sec. 6707

  CCH Reference - 2009FED ¶40,090.20

 
Code Sec. 6707A

  CCH Reference - 2009FED ¶40,093.10

 
Code Sec. 6708

  CCH Reference - 2009FED ¶40,100.10

  Tax Research Consultant

  CCH Reference - TRC FILEBUS: 3052.25

CCH (cch.taxgroup.com) reports:

  The IRS has provided a list of transactions that have been identified by the Service as "transactions of interest." The IRS will consider transactions similar to any of the transactions on the list to be transactions of interest for purposes of Code Secs. 6111, 6112, 6662A, 6707, 6707A and 6708, and Reg. §1.6011-4(b)(6).

  One transaction of interest (initially identified in
Notice 2007-72, 2007-2 CB 544) involves taxpayers who purchase a remainder interest or similar successor member interest directly or indirectly in real property and then transfer such interest to a tax-exempt organization, claiming a charitable contribution deduction significantly higher than the amount paid for the interest. The Treasury and IRS are concerned that taxpayers may be utilizing the contribution of such successor member interests to generate an excessive deduction.

  Another transaction of interest (Notice 2007-73, 2007-2 CB 545) involves certain transactions in which trust grantors attempt to avoid recognizing gain or claiming a tax loss greater than the actual economic loss by purportedly terminating ("toggling off") and then reestablishing ("toggling on") the grantor status of the trust. These terminations and reestablishments usually occur within a brief period of time.

  A third transaction (Notice 2008-99, I.R.B. 2008-47, 1194) involves the creation of a charitable remainder trust, contribution of appreciated assets to the trust by the taxpayer and subsequent sale of the assets by the trust and reinvestment of the proceeds of the sale in different assets such as money market funds or marketable securities. The taxpayer and the charity then sell or dispose of their respective interests in the trust to an unrelated third party for an amount equal to the value of the trust's assets. The trust then terminates, with its assets being distributed to the third party. The taxpayer typically takes the position that this set of transactions results in little or no taxable gain. The IRS believes the transaction improperly manipulates the uniform basis rules to avoid tax on gain from the sale of the appreciated assets in this transaction.

  The last transaction (Notice 2009-7, I.R.B. 2009-3, 312) involves a U.S. taxpayer who owns a controlled foreign corporation (CFC) that holds stock of a lower tier CFC through a domestic partnership that takes a position that subpart F income of a lower tier CFC does not result in income inclusion. The U.S. taxpayer takes the position that the subpart F income of a lower tier CFC was already included in the domestic partnership's income, which is not subject to U.S. tax and, thus, should not be included in the income of the U.S. taxpayer. Without the interposition of the domestic partnership, the subpart F income of the lower tier CFC would be taxable to the U.S. taxpayer. The IRS is concerned that taxpayers are taking the position that the structures described result in no income inclusion under Code Sec. 951. Therefore, the IRS has identified these structures and other substantially similar transactions as transactions of interest that are contrary to the purpose and intent of the provisions of subpart F.

  Generally, persons entering into these transactions on or after November 2, 2006, must disclose their participation in the transaction. Taxpayers who fail to disclose may be subject to civil penalties. Material advisors who make tax statements with respect to transactions of interest may have disclosure and list maintenance obligations.

Notice 2009-55, 2009FED ¶46,428

Other References:

 
Code Sec. 664

  CCH Reference - 2009FED ¶24,468.12

 
Code Sec. 951

  CCH Reference - 2009FED ¶28,474.021

 
Code Sec. 1001

  CCH Reference - 2009FED ¶29,225.1011

 
Code Sec. 1014

  CCH Reference - 2009FED ¶29,380.73

 
Code Sec. 1015

  CCH Reference - 2009FED ¶29,394.14

 
Code Sec. 6011

  CCH Reference - 2009FED ¶35,141.06

  CCH Reference - 2009FED ¶35,141.78

 
Code Sec. 6111

  CCH Reference - 2009FED ¶37,002.157

 
Code Sec. 6112

  CCH Reference - 2009FED ¶37,022.157

  Tax Research Consultant

  CCH Reference - TRC FILEBUS: 9,450.10
CCH Reference - TRC FILEBUS: 9,454.05
 

CCH (cch.taxgroup.com) reports:

  The Senate Health, Education, Labor and Pensions (HELP) Committee on July 15 passed a $615-billion health care reform bill, leaving the heavy lifting, on how to pay for it, up to the Senate Finance Committee. Talks between Finance Committee Chairman Max Baucus, D-Mont., and key members continue, but they have yet to forge agreement on the most acceptable way to raise revenue and fill an estimated $320-billion gap that remains after all reforms are in place and the final cost nears $1 trillion.

  Following early morning talks between Democratic members of the Finance Committee, Sen. Charles E. Schumer, D-N.Y., reasserted that most of the bill would be paid for through cutting costs and not through raising revenue. Schumer said members had spent much of the meeting discussing the need to bring insurance companies into the equation and have them commit to savings in the range of $75 billion to $100 billion, which would resemble similar agreements recently reached between the White House and hospitals and pharmaceutical companies.

  The HELP Committee's Affordable Health Choices Bill, approved 13-10 along strict partisan lines, provides a public insurance option and a pay-or-play mandate for most employers that would require them to provide health insurance for their employees or face a stiff penalty. The sweeping reform reportedly would cover 97 percent of the currently estimated 46-million uninsured and place greater emphasis on preventative care and wellness programs. The marathon markup stretched over 13 working days and saw Democrats approve over 160 Republican amendments.

  When the Senate Finance Committee produces a mark, lawmakers will still face another difficult hurdle, melding the HELP bill with the Finance Committee's final product. That task may prove more difficult than crafting a bipartisan Finance Committee bill, according to several lawmakers, and pressure is mounting. Senate Majority Leader Harry Reid, D-Nev., said he wants to take up a health care reform bill on the Senate floor by the week beginning July 27.

White House Response

  President Obama put Congress on notice that he wants the House and Senate to pass health care reform bills before the August recess. "We are going to be continually talking about this for the next two to three weeks until we've got a bill out of the Senate and we've got a bill out of the House," Obama asserted.

  Following passage of the Senate HELP Committee's health care bill, Obama praised the action taken so far by House and Senate Democrats and said both proposals "will offer stability and security to Americans who have coverage today, and affordable options for Americans who don't." House leaders unveiled their reform plan on July 14 (TAXDAY, 2009/07/15, C.1).

  The president, in remarks in the Rose Garden with members of the American Nurses Association, maintained that the status quo on health care is unsustainable and threatens the stability of families, businesses and government. He praised the House and Senate measures for including a health insurance exchange and a public health insurance option.

  In his statements about the House and Senate health care proposals, Obama has not commented on the tax provisions. White House Press Secretary Robert Gibbs, at a press briefing on July 15, noted that the president has refrained from commenting on any tax-cut proposals beyond his own because he wants to watch the legislative process as it unfolds. The president has proposed limiting certain deductions taken by upper income taxpayers but the proposal has not been well-received in Congress.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

HELP Committee Press Release: In Historic Vote, HELP Committee Approves the Affordable Health Choices Act

SFC Press Release: SFC Republican Tax Counsels Q&A on House Surtax

White House Press Release: Statement by the President on the Health Care Reform Legislation Passed Today by the Senate HELP Committee
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  As previously reported (TAXDAY, 2009/6/18, S.6), Ch. 192 (S.B. 2504), Laws 2009, updated Florida's conformity date to January 1, 2009 and decoupled the Florida corporate income tax from the extension through 2009 by the American Recovery and Reinvestment Act of 2009 (Recovery Act) (P.L. 111-5) of the 50% bonus depreciation and IRC §179 limitations enacted by the Economic Stimulus Act of 2008 (P.L. 110-185) and the Recovery Act provision that allows taxpayers to defer income from the discharge of indebtedness in connection with the reacquisition after December 31, 2008, and before January 1, 2011, of a corporate or business debt instrument. The legislation is operative retroactively to January 1, 2009. Therefore, except for the provisions from which Florida has specifically decoupled, taxpayers filing Florida returns during 2009 will use adjusted federal income as the starting point in computing their Florida corporate income tax.

  Amounts required to be added back may be subtracted in subsequent tax years. If a corporation acquires or merges with another corporation, the acquiring corporation may claim the subtractions in the same manner and to the same extent as the original corporation. In addition, if a corporate taxpayer has a net operating loss in a tax year in which it is entitled to claim a subtraction, it is allowed to increase its net operating loss by the amount of the subtraction. However, if a corporate taxpayer ceases to do business, it may not transfer or otherwise use a subtraction. Corporate taxpayers must create and maintain a schedule reflecting all of the adjustments made and must also report any additions on Schedule I and subtractions on Schedule II of the Florida Corporate Income/Franchise and Emergency Excise Tax Return (Form F-1120) for the current tax year. The schedule should specify the type and amount of the original addition(s) and show all subsequent subtractions by tax year. However, the basis of assets subject to the additions and subtractions for bonus depreciation and IRC §179 is the same for federal and Florida corporate income tax purposes. Therefore, even though the underlying asset(s) may have been sold, fully depreciated, or otherwise disposed of, corporate taxpayers may continue to claim the subtractions over the allowed seven-year period.

Tax Information Publication, No. 09C01-03 , Florida Department of Revenue, July 8, 2009, ¶205-359

  Other References:

  Explanations at ¶10-670

  Explanations at ¶10-685

  Explanations at ¶10-900

CCH (cch.taxgroup.com) reports:

  The IRS has announced that a series of public forums will be held during the summer to gather comments from consumer groups and tax professionals on tax return preparer performance. Comments offered at the forums will assist the IRS in developing return preparer performance standards to help ensure that preparers are qualified and ethical, and provide a high level of service to the public. The IRS plans to assemble a comprehensive set of recommendations by the end of 2009.

  Two public forums will be held on July 30 in Washington, D.C. The first is for consumer groups to provide their recommendations. Organizations such as the AARP, Consumer Federation of America, Center on Budget and Policy Priorities, National Community Tax Coalition and Low Income Tax Clinics have been tapped for this meeting. A second forum is intended for tax professional groups, including the American Institute of Certified Public Accountants, the National Association of Enrolled Agents, the National Association of Tax Professionals, and the National Society of Accountants. Both forums will be held at 9 a.m. in the Ronald Reagan Building's amphitheater; individuals interested in attending are advised to confirm attendance by sending an e-mail to CL.NPL.Communications@irs.gov.

  Other meetings with the IRS will be held later in the summer and fall where comments will be sought from federal and state organizations; IRS advisory groups; unaffiliated and individual return preparers and groups; and private firms that support return preparers. Small groups of preparers will also have a chance to meet with IRS representatives and provide recommendations at the four IRS Nationwide Tax Forums to be held in Orlando, New York, Dallas, and Atlanta in August and September.

IR-2009-66,
2009FED ¶46,426

Other References:

 
Code Sec. 7701

  CCH Reference - 2009FED ¶43,114.20

  Tax Research Consultant

  CCH Reference - TRC IRS: 6,050

CCH (cch.taxgroup.com) reports:

  Declaring the end of health insurance insecurity for all Americans, House leaders on July 14 introduced the America's Affordable Health Choices Bill of 2009 (HR 3200), a comprehensive reform bill that would raise approximately $581.1 billion over 10 years, mostly through a progressive tax on upper income individuals. The 1,018-page measure, which will be marked up by the House Ways and Means Committee on July 16, is also expected to cut Medicare spending by at least $500 billion.

  Committee Chairman Charles B. Rangel, D-N.Y., told reporters that he is hopeful that the final Congressional Budget Office (CBO) estimate of the cost savings in the bill will be large enough to reduce the amount of revenue increases on wealthy Americans. A preliminary estimate of Medicare savings based on an earlier draft of the health care bill shows gross savings from the Medicare program of $500 billion over 10 years. The CBO estimate, released on July 8, shows that solvency of the Medicare Trust Fund would be extended by the bill.

  Under HR 3200, approximately $544 billion in revenues would be raised through a surtax of 5.4 percent on married individuals with adjusted gross income (AGI) over $1 million beginning in 2011; a 1.5-percent surtax on incomes between $500,000 and $1 million; and a 1-percent surtax on incomes from $350,000 to $500,000. According to a committee explanation, the lowest two tax rates would be increased to 2 percent and 3 percent, respectively, if health care cost savings are not achieved by the bill.

  House Majority Leader Steny H. Hoyer, D-Md., said that Congress is on schedule to pass a budget-neutral health care reform bill in 2009. The goal is to pass reform legislation in the House and Senate before the August recess, or the recess will be cancelled, said House Energy and Commerce Chairman Henry Waxman, D-Calif. Then, lawmakers hope to have a bill on the president's desk by the end of the first session of the 111th Congress, Waxman added. House Speaker Nancy Pelosi, D-Calif., said leaders are still negotiating for support from the fiscally conservative members of the Democratic Blue Dog Coalition. She predicted that the final legislation will have a strong public option plan.

  President Obama, in a written statement, said the House proposal will "begin the process of fixing what's broken about our health care system" He noted that the legislation would "lower costs, provide better care for patients, and ensure fair treatment of consumers by the insurance industry."

  Obama said the public option would make health care more affordable and that increasing competition by offering more choices will keep insurance companies honest. The president praised the three key committees involved in drafting the House bill for their "unprecedented cooperation."

GOP Weighs In

  House Minority Leader John Boehner, R-Ohio, immediately criticized the measure, likening it to an unpopular proposal from President Clinton to tax BTUs that passed the House but died in the Senate. "During a deep economic recession, it is criminal malpractice for Democrats to push a government takeover of health care and a new small business tax that will destroy more American jobs," Boehner stated. Republican Study Committee Chairman Tom Price, R-Ga., said the Democrats' plan would interfere with patient care through a massive government takeover of health care. "To pay for this enormous growth of government-run medicine, they seek to ration services for America's seniors on Medicare and levy a massive new tax on American small businesses --our nation's leading engine for job creation," Price said.

  Ways and Means Health Subcommittee Chairman Fortney Pete Stark, D-Calif., predicted that the reform bill will pass the House with only about six Republican votes. The measure also contains other tax provisions, which have already passed the House with some bipartisan support, including delaying implementation of worldwide allocation of interest (which raises $26.1 billion over 10 years), limiting the use of tax havens to avoid U.S. taxation by foreign multinational corporations ($7.5 billion over 10 years), and clarifying the use of the economic substance doctrine ($3.6 billion over 10 years). The measure also requires that employers with annual payrolls exceeding $250,000 would have to pay a payroll penalty of 2 percent if they do not provide health insurance. Firms with annual payrolls above $400,000 would pay an 8-percent penalty. Some small businesses would be eligible for a new small business tax credit to help them provide coverage for their employees.

  According to a preliminary estimate from the CBO and the Joint Committee on Taxation released late on July 14, passage of the health reform measure would result in a net increase in federal deficits of $1,042 billion for fiscal years 2010 through 2019. According to the estimate, most of the increased deficit comes from $438 billion in additional federal outlays for Medicaid and $773 billion in federal subsidies that would be provided to purchase coverage through the new insurance exchanges. The other main element of the proposal that would increase federal deficits is the tax credit for small employers who offer health insurance, which is estimated to reduce revenues by $53 billion over 10 years, the estimate says.

Senate Reaction

  The House plan to raise revenue through a surtax on the wealthy may be a nonstarter in the Senate as several members of the Senate Finance Committee let it be known that the provision had little support among senior lawmakers. "The House is the House. We in the Senate are a different institution," said Senate Finance Committee Chairman Max Baucus, D-Mont., when asked whether he could back a surtax on the wealthy. "I might not agree with their revenues in respect to a policy plan but we expect that there will be differences," Sen. Olympia J. Snowe, R-Maine, a well-known moderate on the committee, told reporters following a private meeting with Baucus. Sen. Ron Wyden, D-Ore., another member of the Finance Committee, said he did not "see any appetite for it" in the Senate. "I don't think it's very likely," added Senate Budget Committee Chairman Kent Conrad, D-N.D., also a member of the Finance panel.

  Senate Democratic leaders are hoping to see health care reform draft legislation by July 16 or July 17, and a markup held the week beginning July 20, according to senior Democratic aides. However, Baucus was unwilling to commit to that deadline. Instead, he promised to have a bill completed before the Senate leaves on August 7 for its summer recess.

  Meanwhile, the Senate Health, Education, Labor and Pensions (HELP) Committee plans to hold a final vote on its health care reform bill early on July 15. The panel late on July 13 approved an amendment that would lower drug costs by creating a pathway for the Food and Drug Administration (FDA) to approve new competitors for biologic drugs, such as vaccines and cancer drugs.

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

Tax-Related Provisions of America's Affordable Health Choices Act of 2009, HR 3200

Press Release: House Democrats Introduce Bill to Provide Quality, Affordable Health Care for All Americans

Summary of America's Affordable Health Choices Act of 2009, HR 3200

Summary and Description of Revenue Provisions in HR 3200

Health Reform at a Glance: Shared Responsibility

Health Reform at a Glance: Paying for Health Care Reform

Health Reform at a Glance: Making Coverage Affordable

CBO Estimate on America's Affordable Health Choices Act

White House Press Release: Statement by the President on the Health Care Reform Introduced in the House

JCT Description of the Revenue Provisions of HR 3200, America's Affordable Health Choices Act of 2009, JCX-30-09

JCT Estimated Effects of the Revenue Provisions of HR 3200, America's Affordable Health Choices Act of 2009, JCX-31-09
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Beginning in 2010, a new tax incentive program is created with refundable corporate and personal income tax credits and property tax incentives for expanding or locating new renewable energy operations in Arizona. The tax credits are available for taxable years beginning after December 31, 2009, through December 31, 2014. Special property tax classifications may be granted through December 31, 2014. The program is scheduled to terminate on January 1, 2016.

  To participate in the tax incentive program, a renewable energy business must submit an application to the Department of Commerce to be certified as a qualifying business.

  For purposes of the tax incentives, renewable energy operations are limited to manufacturing and headquarters for systems and components that are used or useful in manufacturing renewable energy equipment for the generation, storage, testing, research and development, transmission, or distribution of electricity from renewable resources, including specialized crates necessary to package the renewable energy equipment manufactured at the facility.

CCH (cch.taxgroup.com) reports:

  House leaders expect to unveil their massive health care reform bill on July 14, according to House Speaker Nancy Pelosi, D-Calif., who noted that Democratic leaders are still meeting to determine ways to pay for the overhaul. Pelosi and House Majority Whip James E. Clyburn, D-S.C., told reporters that leaders are working out the specifics of the health care reform bill with members of the Democratic caucus. Pelosi said GOP lawmakers would get a chance to amend the legislation during the bill's markup before the House Ways and Means Committee. Pelosi called a press conference to tout components of the health care reform bill, such as eliminating restrictions due to pre-existing conditions, controlling health cost inflation, setting standard benefit options offered through a health exchange market and capping out-of-pocket expenses.

  Clyburn said the legislative process has included six listening sessions for Democrats from different regions of the county to explain how the bill will affect different markets. Pelosi acknowledged that the legislation will require a tax increase in order to show that it is budget neutral for Congressional Budget Office scoring; it will likely achieve enough savings to allow any tax increases to be used for deficit reduction.

  Speaking on NBC's "Meet the Press" program on July 12, Senate Finance Committee member Charles E. Schumer, D-N.Y., said both Republicans and Democrats in the House and Senate have ruled out the possibility of taxing benefits to offset the cost of reform. Schumer said lawmakers are hoping to agree on a plan by July 17 but he declined to give specifics about what lawmakers are suggesting. He said the first option is to cut costs to pay for health reform, and then raise revenues to make up the difference.

  In a July 9 letter to Pelosi and House Majority Leader Steny H. Hoyer, D-Md., the House Blue Dog Coalition laid out its group of principles that it must see in order to support health care reform legislation. Forty members of the group signed the letter promising to vote against the measure unless it is budget neutral. They suggested that House leaders scale back the bill in order to craft more affordable legislation, and that leaders look for ways to find savings within the health care delivery system.

White House

  On health care reform legislation, President Obama said he has "no illusions" that it will be easy to reach the finish line but he maintained "we are going to get this done." The president, at a White House announcement of his U.S. Surgeon General nominee on July 13, said that "inaction is not an option" and would create the biggest health care crisis of all.

  According to a White House spokesman, the president remains confident that a health care bill will reach his desk in 2009. However, White House Press Secretary Robert Gibbs seemed to be less certain Congress that would finish work on both the House and Senate bills before the August recess. At a July 13 press briefing, Gibbs added that the president would consider asking the Senate to stay in session if it did not make sufficient progress by its scheduled recess on August 7.

  On the contentious issue of cost, Obama maintained that the reform plan would not add to the deficit in the long-term and would eventually lower the deficit by slowing the rising cost of Medicare and Medicaid.

  By Stephen K. Cooper and Paula Cruickshank, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  New Hampshire has enacted legislation that prohibits New Hampshire retailers from providing private consumer information to a state for use in the determination of a consumer's or a retailer's sales and use tax liability in that state with respect to a New Hampshire retail purchase transaction, unless that state has provided formal notice to the New Hampshire Commissioner of Revenue Administration of its intention to collect use tax on such transactions and the Department of Justice has determined that the state's sales and use tax statutes:

  -- impose upon its residents a requirement to individually pay sales or use tax on the use, storage, or consumption of goods or services purchased in any other state;

  -- specifically identify the goods and services to which the use tax applies;

  -- require that the retailer or its affiliates have adequate physical presence to establish nexus with that state for the imposition of an obligation of the retailer to determine, collect, and remit tax with respect to purchases by that state's residents;

  -- require every resident to submit an annual statement to that state identifying each item purchased outside the state for use in the state;

  -- require that state or its residents to provide the retailer at the time of a New Hampshire retail purchase transaction with information establishing whether the goods or services purchased are intended to be used, stored, or consumed outside New Hampshire, and provide that this information is irrefutably presumed to be correct and complete and may be relied upon by retailers;

  -- require that state's tax agency to annually audit, investigate, or examine at least 10% of the total use tax returns filed by its residents;

  -- require that state's tax agency to conduct its audit, investigation, or examination practices with respect to residents' use tax returns in a manner that ensures that such practices are applied equally regardless of the state in which the sales transaction occurs, and to file an annual public report demonstrating compliance with this nondiscrimination requirement;

  -- create an irrebuttable presumption that, in the absence of voluntary information by the resident, the goods or services purchased are intended to be used in the state in which they are purchased; and

  -- explicitly impose use tax collection requirements on out-of-state retailers with respect to retail purchase transactions that are completed in those other states.

S.B. 5, Laws 2009, effective July 9, 2009

CCH (cch.taxgroup.com) reports:

  The Louisiana corporate and personal income tax and franchise tax credit for research and development expenses is amended and extended. Specifically, the expiration date of the credit has been extended to December 31, 2013 (previously, 2009). Various definitions have also been amended.

CCH (cch.taxgroup.com) reports:

  The IRS may allow taxpayers to claim a casualty loss deduction for defective Chinese-made drywall, the Service indicated in a recent letter to Sen. Jim Webb, D-Va. Individuals in 21 states have complained of headaches and other health problems from noxious odors they claim are emitted from Chinese-made drywall. However, the IRS appeared to reserve making a final determination pending conclusion of a government investigation into the drywall.

Noxious Odors

  The U.S. Consumer Product Safety Commission (CPSC) has received complaints from more than 600 individuals about defective Chinese-made drywall. The majority of the complaints have come from individuals in Florida, Louisiana and Virginia. Residents of Alabama, Arizona, California, Georgia, Indiana, Kentucky, Louisiana, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Tennessee, Texas, Virginia, Washington, Wisconsin, Wyoming and the District of Columbia have also reported problems with Chinese-made drywall.

  According to the homeowners, putrid odors from the drywall cause irritated and itchy eyes and skin, difficulty breathing, bloody noses and headaches. The odors have also reportedly corroded pipes and electrical equipment. The CPSC, the U.S. Environmental Protection Agency (EPA) and other federal agencies are collecting samples of Chinese-made drywall from affected homeowners. The CPSC indicated that laboratory analysis of the drywall should be completed my mid-September 2009.

Casualty Loss

  In June, Webb and several of his colleagues in the Senate asked the IRS if affected individuals could claim a casualty loss deduction under Code Sec. 165(h). "Taxpayer losses associated with Chinese drywall seem to meet the criteria for the deduction," Webb told the IRS.

  The IRS replied to Webb on July 2, and Webb made the letter public on July 10.

  The IRS noted the CPSC investigation. "If it is determined that Chinese-made drywall emits an unusual or severe concentration of chemical fumes that cause the extreme and unusual damage you describe, affected taxpayers can qualify for a casualty loss deduction," the IRS indicated.

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

IRS Chief Counsel Letter Regarding Chinese-Made Drywall

CCH (cch.taxgroup.com) reports:

  The IRS has issued interim guidance on the procedures that manufacturers must use to certify a vehicle as eligible for the new specified qualified plug-in electric vehicle credit under Code Sec. 30. Guidance is also provided to purchasers of qualified vehicles regarding reliance on the manufacturer's certification in claiming the credit.

 
Code Sec. 30 provides a tax credit for 10 percent of the cost (up to $2,500) of a qualified plug-in electric vehicle placed in service by the taxpayer after February 17, 2009. However, the credit is not available for a vehicle placed in service before 2010 if the credit for a qualified plug-in electric drive motor vehicle under
Code Sec. 30D may be claimed for the vehicle. A qualified plug-in electric vehicle includes certain specified electrically powered two-wheeled, three-wheeled, and low-speed vehicles.

  A manufacturer's certification that a vehicle is eligible for the credit must include a statement that the vehicle is made by the manufacturer, as well as the make, model or other identifier of the vehicle. The certification must also include the vehicle's gross weight, the number of wheels, a statement that the vehicle is propelled to a significant extent by an electric motor that draws electricity from a battery, the kilowatt hour capacity of the battery, and a statement that the battery is capable of being recharged from an external source of electricity. With respect to low speed vehicles, the certification must provide a statement that the vehicle is a low speed vehicle within the meaning of federal regulations, and that the maximum speed attainable by the vehicle in one mile is more than 20 miles per hour but not more than 25 miles per hour on a paved level surface.

  The IRS will review and acknowledge the certification presented by a manufacturer within 30 days of receipt of the certification. A manufacturer's right to provide a certification to future purchases of a vehicle will be withdrawn if the IRS determines that a vehicle is not qualified for the credit. Purchasers who acquire vehicles after the withdrawal date may not rely on the certification. However, purchasers may continue to rely on a certification for a vehicle acquired before the withdrawal date even if the vehicle is not placed in service yet or the credit is claimed after the withdrawal date.

  Except for the withdrawal of acknowledgment by the IRS, purchasers of a qualified electric plug-in vehicle may rely on a manufacturer's certification for purposes of claiming the credit. The purchaser may claim the credit in the certified amount with respect to the vehicle if the following requirements are satisfied:

  the vehicle is acquired after February 17, 2009, and before January 1, 2012;

  the original use of the vehicle commences with the taxpayer;

  the vehicle is acquired for use or lease by the taxpayer, and not for resale; and

  the vehicle is used predominantly in the United States.

Notice 2009-58, 2009FED ¶46,424

Other References:

 
Code Sec. 30

  CCH Reference - 2009FED ¶4056B.01

  Tax Research Consultant

  CCH Reference - TRC INDIV: 58,010

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Alabama Department of Revenue has revised a chart that reflects the latest information concerning the counties and municipalities that have notified the department regarding their participation in the sales tax holiday being held from August 7 through August 9, 2009.

  The updated chart reflects the participation by Cherokee on an annual basis, while Guntersville and Red Bay are only participating in 2009. Also, Jefferson County and Needham are not participating in the tax holiday. Jefferson County had previously announced that it was participating in the tax holiday on a "limited" basis each year.

  The list of participating localities will be updated by the department as it receives information. The chart listing localities that have notified the department regarding their participation in the tax holiday can be found on the department's Web site at
http://www.ador.state.al.us/salestax/STholiday.htm.

Sales Tax Holiday Notice, Alabama Department of Revenue, July 9, 2009
 

CCH (cch.taxgroup.com) reports:

  The U.S. District Court for the Southern District of Florida has denied Swiss banking giant UBS AG's motion to compel the government to provide certain discovery materials in efforts to unearth the names of U.S. taxpayers hiding assets abroad in the firm's accounts. The bank had argued that some of the information requested by the IRS in a "John Doe" summons (TAXDAY, 2009/02/20, M.1) was already within the IRS's possession. As a result, it sought discovery, cross-examination and potential in camera inspection of documents to determine what information was within the IRS's possession. The bank had also argued that there were alternative means of obtaining the information sought by the IRS.

  Instead, the court, in a July 7 order denying the motion to compel disclosure, gave the government a green light to continue with enforcing its John Doe summons, seeking the identities of U.S. customers of UBS for which the firm did not have Forms W-9, Request for Taxpayer Identification of Certification, or accurately and timely filed Forms 1099 reporting to the IRS amounts paid. The court held that enforcement of this summons should not be denied strictly because the IRS was in possession of some of the records sought. The IRS had pointed to controlling law in the Eleventh Circuit ( Davis,
81-1 USTC ¶9193), where appeal of the decision on the motion would lie.

  The court also ruled that reliance on voluntary disclosure and other filings by U.S. taxpayers did not provide an alternative means for the government to obtain the same information. The government had argued that, simply because some U.S. taxpayers had voluntarily disclosed their identities and the existence of a UBS bank account to the IRS, not all of the documents sought by the government's summons were in the IRS's possession. The taxpayer's filing of a TD F 90-22.1, Report of Foreign Bank and Financial Accounts, or disclosure of a secret bank account did not require the taxpayer to produce any of the UBS source documents requested.

  CCH Comment. Also on July 7, the Swiss government filed an amicus curiae brief against the government's efforts to enforce the IRS summons, asserting that UBS would be unable to comply with the summons without violating Swiss law. It stated, "The government of Switzerland will use its legal authority to ensure that the bank cannot be pressured to transmit the information illegally, including if necessary by issuing an order taking effective control of the data at UBS that is the subject of the summons and expressly prohibiting UBS from attempting to comply."

  CCH Comment. In response, House Ways and Means Select Revenue Measures Subcommittee Chairman Richard Neal, D-Mass., released a written statement, saying, "The statement from the Swiss government today does not look like a move toward greater openness to me. And, I don't find their willingness to provide information on tax evaders in the future particularly reassuring.... In my opinion, the current policy of protecting these tax evaders is simply unacceptable."

  By Torie Cole, CCH News Staff

UBS AG, DC Fla., 2009-2 USTC ¶50,478

Ways and Means Select Revenue Measures Subcommittee Press Release: Neal Critical of Swiss Bank Action

Other References:

 
Code Sec. 7602

  CCH Reference - 2009FED ¶42,827.562

  CCH Reference - 2009FED ¶42,827.570

  Tax Research Consultant

  CCH Reference - TRC IRS: 21,364

CCH (cch.taxgroup.com) reports:

  A trust's margin-purchased securities constituted debt-financed property that produced income subject to the unrelated business income tax (UBIT). Reg. §1-514(b)-1(a), which interprets the UBIT to tax both periodic income and capital gains, is consistent with the definition of debt-financed property in
Code Sec. 514(b)(1). Furthermore, Code Sec. 512(b)(4) treats all income derived from debt-financed property as taxable and deriving from an unrelated trade or business. Imposition of the UBIT is also not limited to situations in which an exempt organization's business activities provide it with an unfair competitive advantage over taxable entities. Finally, the "inherent purpose" and "substantially related" exceptions to the UBIT were inapplicable. Although the use of debt-financed property was substantially related to the organization's purpose, selling that property to fund the organization was subject to the UBIT. Moreover, the trust did not establish that it could not support the university by any investment strategy other than the use of margin-purchased securities.

The Henry E. and Nancy Horton Bartels Trust for the Benefit of Cornell University, FedCl, 2009-2 USTC ¶50,475

Other References:

 
Code Sec. 512

  CCH Reference - 2009FED ¶22,837.30

 
Code Sec. 514

  CCH Reference - 2009FED ¶22,859.30

  Tax Research Consultant

  CCH Reference - TRC EXEMPT: 15,050
CCH Reference - TRC EXEMPT: 18,100
CCH Reference - TRC EXEMPT: 18,102.05
CCH Reference - TRC EXEMPT: 18,104
 

CCH (cch.taxgroup.com) reports:

  The Senate Appropriations Committee on July 9 approved a proposed IRS budget of $12.15 billion for fiscal year (FY) 2010. The IRS budget is included in the proposed FY 2010 Treasury budget of $13.5 billion, which includes $152 million for the Treasury Inspector General for Tax Administration. The House Appropriations Committee approved the IRS's budget on July 7 (TAXDAY, 2009/07/09, C.1). Congress is expected to act on the budget before its August recess.

  The Senate Appropriations Subcommittee on Financial Services and General Government, chaired by Sen. Richard Durbin, D-Ill., approved the IRS and Treasury budgets on July 8. The proposed IRS budget exceeds the Service's FY 2009 budget by $550 million (5 percent) and increases the Obama administration's proposal by $26 million, the subcommittee reported in a July 8 news release. The House Appropriations bill provides $2.27 billion for taxpayer services; the Senate Appropriations Committee did not identify the funding for this category.

  The bill fully funds the administration's request of $7.1 billion for IRS enforcement, the subcommittee indicated. This represents a $387-million increase above the FY 2009 level. The budget provides $274 million for business systems modernization (BSM), approximately $20 million above the administration proposal, a spokesman for Durbin said. The IRS Oversight Board has highlighted BSM as an IRS weakness and recommended funding of $400 million (TAXDAY, 2009/07/08, I.3).

  The Senate bill also provides a 2.9-percent cost-of-living increase for federal employees. The administration has proposed a 2-percent increase. "The bill includes several provisions constraining the outsourcing of federal jobs to contractors," the subcommittee reported.

  By Brant Goldwyn, CCH News Staff

CCH (cch.taxgroup.com) reports:

  Senate Finance Committee Chairman Max Baucus, D-Mont., is scrambling to find ways to offset some $320 billion from the estimated $1-trillion price tag of health care overhaul legislation after both Republican and Democrats, including Senate Majority Leader Harry Reid, D-Nev., publicly and privately expressed their reservations over plans to tax employer-provided health benefits. Reid is further pressuring Baucus to hold firm on inclusion of a public health insurance option, despite Finance Committee Republicans' resistance to such a proposal.

  The brewing dissent left Baucus holding open the possibility of raising revenue outside of the health care system and backing down on an earlier pledge not to seek revenue in other areas. Back on the table is discussion of taxing sugared drinks, placing additional taxes on alcohol and tobacco, and levying a surtax on the wealthy, roughly aimed at those earning more than $250,000 a year. Most lawmakers, however, downplayed those options, saying the committee would continue to look for ways to cut costs through savings in other areas.

  "The most difficult issue is paying for it," said Sen. Charles E. Schumer, D-N.Y., adding that "there are lots of options out there to fill the hole." He does not believe the tax on health care benefits is completely without merit, but acknowledged that there will be resistance among Democrats if it cuts too deeply into middle-class pocketbooks. One option is to cap the tax at benefits valued over $25,000, which would raise $90 billion over 10 years. The question now facing lawmakers is what constitutes the middle class, and Schumer was not convinced that the proposed cap would pass that test. "If that still includes the middle class, there will be a lot of concern," he warned.

  Democratic leaders are apparently losing patience with the snail's pace of Baucus' negotiations with Republicans and continued setbacks. Reid wants to complete action on the bill before the month-long summer recess, which is slated to begin for the Senate on August 7. In an effort to move the process forward, he met on July 8 with four Republican heavyweights on the Finance Committee: ranking member Charles E. Grassley, R-Iowa, Olympia J. Snowe, R-Maine, Orrin G. Hatch, R-Utah, and Michael B. Enzi, R-Wyo. "We need to work with Republicans," said Reid the following day. "It's better that we do a bipartisan bill...we are committed to doing this."

  In an effort to deflect charges that he was strong-arming Baucus and cutting Republicans out of the picture, Reid added that he was not going to "draw lines," but was standing by his timetable of completing a health care reform bill by the start of the August recess. As to the difficulties the finance panel is reportedly having over raising revenue to pay for the bill, Reid asserted that lawmakers involved in assembling the bill had already worked out 85-to-90 percent of the needed revenue, mostly through new cost-cutting measures. "We will be able to pay for this in a bipartisan manner," he said.

  Reaching final agreement in a timely manner, however, still seems elusive. Following a meeting with a small group of bipartisan Finance Committee members, Baucus acknowledged that lawmakers are resistant to raising revenue through taxation. "It's difficult, but there is no discouragement," he said. "We are moving the ball forward. We are discussing a lot of revenue options."

  However, Baucus refused to offer a time frame for completion of his mark, saying only that meetings and discussions were ongoing. Other members were also unwilling to offer assurances that the job would be done anytime soon. "We are going through a laundry list and trying to see what is possible," said Snowe.

  By Jeff Carlson, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Florida property tax relief measure known as the "Save Our Homes" Amendment was constitutionally valid and did not violate a nonresident's rights under the Equal Protection Clause, the Privileges and Immunities Clause, or the Commerce Clause. The taxpayers argued that the existence of a benefit for homestead property, when combined with the tax treatment of non-homestead property, gave Florida residents a tax advantage. However, a Florida resident who owned vacation property or business property in the state would not be entitled to claim any tax benefit and would be in the same position with respect to that property as a nonresident. The tax benefit was based on the way the property was used, not on the status of the landowner as a resident or nonresident.

  Additionally, the trial court had jurisdiction over the case because the 60 day time period that taxpayers had to contest a property tax assessment or the denial of an exemption did not apply to litigation that involved the validity of the tax laws.

  Subscribers can view the full text of the opinion.
Lanning v. Pilcher , Florida Court of Appeal, First District, No. 1D07-6564, July 8, 2009

CCH (cch.taxgroup.com) reports:

  CCH Tax and Accounting is hosting a live two-hour audio seminar, Multistate Income Taxation: Individuals and Passthroughs, on Tuesday, July 14, 2009, at 1 p.m. Eastern; noon Central; 10 a.m. Pacific. This two-hour CCH Audio Seminar is the final program of a three-part series on multistate income taxation presented by noted state tax experts, educators and authors, John C. Healy, M.S.T., CPA, and Bruce Nelson, M.A., CPA. This seminar will provide background and a look at the latest developments and trends in multistate income tax relating to individual and passthrough taxpayers.

  Program topics include the following:

  -- Calculating nonresident state tax credits

  -- Residency, nonresidents, incentive stock options and other deferred compensation

  -- Factor flow-through for S corporations, limited liability companies and partnerships

  -- Apportionment and allocation --at the partner or partnership level?

  -- Nexus and tax credits with nonincome based tax jurisdictions

  The learning objectives include:

  -- understand the distinctions between nexus and residency

  -- develop an approach to analyze passthrough income issues

  -- gain awareness of recently instituted state taxing structures

  Registration can be completed online at
http://www.krm.com/cch or by calling 1-800-775-7654. Participants can receive two hours of CPE credit for an additional $25 per person. Firms registering for this audio seminar will also receive a free issue of CCH's Journal of Passthrough Entities.

CCH (cch.taxgroup.com) reports:

CCH (cch.taxgroup.com) reports:

  For pension plan years beginning in July 2009, the IRS has released the corporate bond weighted average interest rate, the permissible range of interest rates used to calculate current plan liability and to determine the required contribution under Code Sec. 412(l) for plan years through 2009, and the current corporate bond yield curve and related segment rates for the purpose of establishing a plan's funding target under
Code Sec . 430(h)(2).

  The corporate bond weighted average interest rate for plan years beginning in July 2009 is 6.47 percent; and the 90-percent to 100-percent permissible range is 5.83 percent to 6.47 percent. The annual rate of interest on 30-year Treasury securities for June 2009, used to determine the minimum present value of a participant's benefit under Code Sec. 417(e)(1) and (2), is 4.52 percent.

  For plans electing not to use the transitional rule under Code Sec. 430(h)(2)(G), or for plans whose first year begins after 2009, the 24-month average segments rates for July 2009 are: 5.21 for the first segment; 6.74 for the second segment; and 6.84 for the third segment.

  For plan years beginning in 2009, the funding transitional segment rates for July 2009 are: 5.63 for the first segment; 6.65 for the second segment; and 6.72 for the third segment.

  For plan years beginning in 2009, the minimum present value transitional segment rates for June 2009 are: 4.27 for the first segment; 5.35 for the second segment; and 5.33 for the third segment.

Notice 2009-57, 2009FED ¶46,423

Other References:

 
Code Sec. 401

  CCH Reference - 2009FED ¶17,730.40

 
Code Sec. 412

  CCH Reference - 2009FED ¶19,125.505

 
Code Sec. 417

 
Code Sec. 430

  CCH Reference - 2009FED ¶20,161.30

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 15,304.05
CCH Reference - TRC RETIRE: 15,304.10
CCH Reference - TRC RETIRE: 30,556
 

CCH (cch.taxgroup.com) reports:

  The House Appropriations Committee late on July 7 approved an IRS budget of $12.1 billion for fiscal year (FY) 2010. The proposed budget is a $600-million increase (5.2 percent) over the Service's FY 2009 budget and fully funds the administration's budget request. According to the committee's tentative schedule, the House will take up the financial services bill on July 17, including the IRS budget.

  The IRS budget provides an increase of $387 million for tax enforcement to $5.5 billion, Committee Chairman David R. Obey, D-Wis., reported in a written statement. "Among other things, the increase is for the administration's initiative to target wealthy individuals and businesses who avoid U.S. taxes by parking money in overseas tax havens," Obey indicated. "In enforcing our tax laws, we need to be sure we're going after the big fish as well as the little ones," Financial Services and General Government Subcommittee Chairman José E. Serrano, D-N.Y., said in a written statement.

  The budget provides $2.27 billion for taxpayer services, $4 million above the administration's request and $19 million below FY 2009, which included additional costs to make economic stimulus payments. The FY 2010 figure includes $680 million for prefiling assistance and education, an increase of $19 million, and $206 million for the IRS Taxpayer Advocate, an increase of $13 million.

  The proposed IRS appropriation also includes $4.1 billion for operations support, a 5-percent increase; $253 million for business systems modernization (BSM), a 10-percent increase, and $15 million for administering the health insurance tax credit. The bill "works to make it easier for honest Americans to file their taxes while it beefs up IRS enforcement to catch tax cheats," Obey said.

  The IRS Oversight Board on June 7 released a report to Congress that recommended an IRS budget of $12.5 billion for FY 2010 (TAXDAY, 2009/07/08, I.3). The Board's budget included $400 million for BSM, a $147-million increase over the administration request, to speed up the development of the IRS's information technology program to support the tax administration system. The Board also recommended a $184-million increase in IRS infrastructure initiatives and an additional $32 million for taxpayer service. It agreed with the administration's proposal for tax enforcement.

  By Brant Goldwyn, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Delaware Division of Revenue is authorized to establish a voluntary tax compliance initiative to encourage the voluntary disclosure and payment of corporate and personal income, gross receipts, realty transfer, public utilities, lodging, use, estate, gift, income on estate and gift taxes, occupational license fees and tax, contractors' license fees and tax, manufacturers' license fees and tax, retail and wholesale merchants' license fees and tax, and tobacco products license fees and tax. The initiative is applicable to the period that runs from September 1, 2009 through October 30, 2009.

  A taxpayer who has a current outstanding liability for tax periods before January 1, 2009, and makes payment during the initiative period or enters into a payment plan and makes payment before June 30, 2010, will have the penalty and interest for late return filing waived. A non-filer who files returns will have any tax, penalty and interest for non-filed returns for any period prior to January 1, 2004, waived. Provisions concerning the 50% limitation on the penalty for failure to file timely tax returns and the 75% limitation on the penalty for any fraudulent tax returns are removed, effective for tax years beginning after December 31, 2009. In addition, the period for which interest accrues on an amended refund is changed to 46 days after the receipt of the amended tax return (formerly, 46 days after the original return was filed), also effective for tax years beginning after December 31, 2009.

H.B. 268, Laws 2009, effective as noted above
 

CCH (cch.taxgroup.com) reports:

CCH (cch.taxgroup.com) reports:

  IRS Commissioner Douglas H. Shulman announced that the Service will not undertake any collection enforcement action of penalties assessed under Code Sec. 6707A through September 30, 2009, on cases where the annual tax benefit from the transaction is less than $100,000 for individuals or $200,000 for other taxpayers per year. Shulman made the announcement in a July 6 letter responding to a request by House Ways and Means Oversight Subcommittee Chairman John Lewis, D-Ga., and other lawmakers to suspend these collection activities.

  "I am dismayed by the feedback that I have received from some of the most seasoned IRS examination professionals that this statutory provision, in certain cases, requires them to assess penalties that are way out of line with penalties for other similar cases of non-compliance," said Shulman in his letter.

  However, Shulman added that, since the penalty determination is related to the underlying transaction, and the IRS can only determine the amount of tax benefit through examination, the Service will continue its examination of such cases.

Lawmakers' Concerns

  In a letter dated June 12 (TAXDAY, 2009/06/16, C.1), lawmakers from the Senate Finance Committee (SFC) and House Ways and Means Committee had asked Shulman to direct the IRS to suspend the collection of tax shelter penalties under Code Sec. 6707A assessed on small businesses while Congress works to create legislation to lessen the significant financial impact of these penalties on small businesses. According to lawmakers, small businesses with investments in listed tax shelter transactions that created modest tax benefits were faced with tax penalties that were significantly larger than the tax benefits received. This situation was sparked, according to lawmakers, by business owners who bought benefit plans that actually were prohibited tax shelters without realizing it, then were hit with large penalties on audit. In their June 12 letter, the lawmakers asked Shulman to "use discretion provided to the IRS with its effective administration authority to suspend efforts to collect [Code Sec.] 6707A liabilities...while Congress acts to remedy this situation."

  CCH Comment. During a June 4 subcommittee hearing in Washington, D.C., in which Shulman testified, some subcommittee members had questioned whether Shulman's initiative to crack down on tax shelters was disproportionately geared toward small businesses (TAXDAY, 2009/06/05, C.1). At that time, Shulman had responded that it was Congress that enacted such a draconian provision and that the IRS had little discretion in enforcing the penalty.

Disproportionate Penalties

  When the Code Sec. 6707A penalties were enacted in the American Jobs Creation Act of 2004 (2004 Jobs Act) (P.L. 108-357), the disproportionate consequences were not anticipated. However, many transactions now under IRS examination "involve tax benefits that are minor when compared to the statutory penalty amounts of $100,000 (for individuals) and $200,000 (for other taxpayers) per year," said Shulman in his July 6 letter to Congressman Lewis. SFC ranking member Charles E. Grassley, R-Iowa, stated that, when he advanced legislation to shut down tax shelters as part of the 2004 Jobs Act, he "did not intend to bankrupt small businesses that had no ill intent." Grassley's focus, on the other hand, had been "big corporations that were actively seeking to hide their participation in tax shelters."

Forthcoming Legislation

  Members of the Ways and Means Committee intend to introduce bipartisan, bicameral legislation to modify the law and make the penalties more proportionate to the tax benefits. This legislative effort was the catalyst for the lawmakers' request that the IRS suspend collection actions against small businesses. The Small Business Tax Relief Bill of 2009 (Sen 1381), introduced by Grassley, contains provisions to amend the tax code to provide relief to small businesses. The relief would be applied retroactively to cover situations now in collection.

  "I'm glad the IRS has decided to do what is fair and to allow Congress to correct the unintentional consequences of a law intended to target big corporations," said Lewis.

  By H. Goehausen, CCH News Staff

Ways and Means Oversight Subcommittee Press Release: Lawmakers Applaud IRS Decision to Suspend Collection of Penalties on Small Businesses

Letter from IRS Commissioner Shulman

SFC Press Release: Grassley Comments on IRS Suspension of Certain Penalties

SFC Press Release: Baucus, Grassley Applaud IRS Suspension of Certain Penalties on Small Businesses
 

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Rhode Island Gov. Donald L. Carcieri has signed the budget bill which (1) decouples the calculation of the corporate and personal income taxes from the federal provision deferring the recognition of income from the discharge of business indebtedness (CODI), (2) eliminates the lower tax rates for capital gains, (3) requires e-filing for personal income withholding tax in certain circumstances, (4) expands the failure to pay penalty, (5) makes the qualifications for the Jobs Development Act more stringent, and (6) increases certain insurance company fees. Sales and use tax provisions (TAXDAY, 20090702-S.25) and motor fuel and estate tax provisions (TAXDAY, 20090702-S.24) are reported separately.

CCH (cch.taxgroup.com) reports:

  The budget bill signed by Rhode Island Gov. Donald Carcieri establishes a presumption of nexus for sales and use tax nexus purposes, requires electronic sales and use tax payments for some taxpayers, and amends hospital licensing fees.

CCH (cch.taxgroup.com) reports:

  The Indiana budget bill makes numerous changes to corporate and personal income tax, franchise and capital stock tax, and insurance companies gross premiums tax laws as summarized below.

CCH (cch.taxgroup.com) reports:

  The IRS properly credited five checks toward the outstanding tax liability of a law firm and not the individual tax liability of an attorney and his wife. For the tax year at issue, the taxpayer/husband was improperly characterized as an independent contractor rather than an employee of his law firm and the IRS determined that the couple failed to report income and improperly claimed deduction. The taxpayers requested a collection due process (CDP) hearing after the IRS sent a notice of intent to levy. Although one of the disputed checks was not presented to the Appeals Officer, the Tax Court could consider it because the Tax Court did not follow the record rule, and therefore, could consider evidence not produced at the CDP hearing as long as it was relevant. Since the IRS did not make an evidentiary objection to the check at trial, any objection for relevance was waived. Because the taxpayers received a notice of deficiency, their underlying tax liability could not be challenged in the CDP hearing. Questions about whether a particular check could be credited to a taxpayer's account for a particular tax year, however, were not challenges to the taxpayer's underlying tax liability. The Appeal's officer's determination to the contrary was a harmless error of law and not an abuse of discretion because the IRS did correctly credit the checks against liabilities other than the taxpayers' unpaid individual tax liability for the tax year at issue. The taxpayers payments were voluntary and so their designations controlled. Designations on the checks, such as the employer identification number of the law firm that was liable for the employment taxes with respect to the taxpayer, supported a conclusion that the payments were meant to pay the law firm's tax debt, not the taxpayers' individual tax debt. Although one check arguably could have been for the payment of trust fund recovery penalty against the taxpayer as a responsible person for his law firm, the liability was for a tax year outside of the CDP hearing and the Tax Court lacked jursidiction over those taxes

  The taxpayers failed to present evidence that the employment taxes were overpaid prior to the year at issue and that the overpayment should be credited toward their individual deficiency. The taxpayers presented no evidence of their income from earlier years nor stated how the amounts should be credited or how the credits reduced the deficiency. Finally, the Appeals officer did not abuse her discretion in refusing to send the Social Security Administration information about the taxpayer's additional income. The issue was not related to an unpaid tax or levy and so was an issue that could not be raised at a CDP hearing.

Y.R. Kovacevich, Dec. 57,879(M)

Other References:

 
Code Sec. 6330

  CCH Reference - 2009FED ¶38,184.12

  Tax Research Consultant

  CCH Reference - TRC IRS: 51,056.25

CCH (cch.taxgroup.com) reports:

  The IRS Office of Chief Counsel issued guidance to its attorneys with respect to the scope and standard of review in cases involving requests for relief from joint and several liability under Code Sec. 6015(f). In Porter I (Dec. 57,439), and Porter II (Dec. 57,792), the Tax Court ruled that it would make its own de novo determination regarding whether a requesting spouse is entitled to relief, and that it would not be limited to evidence in the administrative record. The IRS disagrees with these holdings, and the guidance instructs government attorneys to continue to argue that the scope of the Tax Court's review is limited to issues and evidence presented before IRS Appeals or Examination. Government attorneys are to raise scope and standard of review arguments whenever appropriate, noting the IRS's disagreement with the Porter opinions.

  In addition, the guidance urges the expeditious identification of all cases in which a taxpayer raises relief from joint and several liability for the first time in a petition to the Tax Court following receipt of a notice of deficiency, or when the taxpayer files a petition after six months from filing a claim for relief with the IRS but before a determination on the claim is issued. The Cincinnati Centralized Innocent Spouse Operations (CCISO) should be requested to make a determination with respect to these cases. If CCISO determines the petitioner is not entitled to relief, a status report should be filed with the Tax Court setting forth the IRS's determination and attaching CCISO's written analysis as an exhibit.

Chief Counsel Notice CC-2009-021

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The $29 billion state budget signed by New Jersey Gov. Jon S. Corzinebudge on June 29, 2009, imposes additional corporation (business) taxes (CBTs) and personal income taxes; increases taxes on cigarettes and alcohol, except beer; and eliminates property tax rebates for certain individuals. The budget includes funding that is dependant upon the passage of separate legislative measures, as indicated, below. A.B. 4102, A.B. 4103, and A.B. 4104 also were signed by the governor on June 29, 2009.

CCH (cch.taxgroup.com) reports:

  A committee reviewing the Uniform Division of Income for Tax Purposes Act (UDITPA) for possible revision voted 5-2 to recommend that its study of UDITPA terminate in the face of intense opposition from some taxpayers and state legislators. The vote by the study committee appointed by the Uniform Law Commission (ULC) came during a June 30 conference call. The committee included a proviso that its recommendation may be revisited if circumstances change. The recommendation will be considered by the ULC leadership during its annual meeting in Santa Fe, New Mexico, July 9-16.

CCH (cch.taxgroup.com) reports:

  An individual acting as a branch manager and a member of a broker-dealer company's branch office servicing day traders could deduct as ordinary and necessary business expenses commission rate adjustments paid to his brother's limited liability company (LLC). The taxpayer negotiated the commission rate adjustments with all the customers, including his brother's LLC, which was the branch office's biggest customer, at arm's-length to keep the customers when they complained of the untimeliness of the broker-dealer company's commission rebates. It was a common practice in the day trading industry to lower commissions to attract and retain customers, and the broker-dealer company offered commission rebates to customers upon requests by branch managers. Whether the taxpayer or the broker-dealer company paid the commission rebates did not change the economics. Because the commission rate adjustments were expenses that would be expected of someone trying to increase and maintain business in the highly competitive world of day trading and were appropriate and helpful to keep customers trading through the branch office, they qualified as ordinary and necessary business expenses.

  The court rejected the IRS's alternative argument that the commission rate adjustments were illegal payments under Code Sec. 162(c)(2) made in violation of federal law implemented by NASD Rule 2110. The payments were not commission-sharing payments made in return for referrals of business, and the IRS failed to show that they would be classified as such by the NASD or that the payments would result in the taxpayer's being subject to a civil or criminal penalty or losing his license. Such payments were also not illegal per se since the IRS could not cite any statute or regulation specifically prohibiting them.

  The IRS's argument that the taxpayer's payments to his brother's LLC lacked economic substance since they were returned to the taxpayer in later years was also rejected since the later payments represented repayment of a principal and interest on a loan extended by the taxpayer to the LLC and a share of the LLC's profits made in the years when the taxpayer became responsible for operating and maintaining a new trading software at the LLC. The IRS also could not establish that the commission rate adjustment arrangement was not an arm's-length arrangement. These payments were necessary and legitimate business expenses, indistinguishable from those made to unrelated parties, and resulted in net commissions to the LLC comparable to those the LLC could have negotiated directly with the broker-dealer company or any other broker-dealer.

  Further, the taxpayer did not have to include in gross income trading gains generated from a subaccount with his brother's LLC since he had no ownership interest in, or rights to, the subaccount and never received any funds from the subaccount. The taxpayer did not have an agreement with the LLC giving him rights to a share of the subaccount gains while traders who were entitled to subaccount gains had written agreements with the LLC setting the terms of the profit splits and also received Schedules K-1 reflecting their portions of the subaccount gains. The subaccount belonged to the LLC and all the gains generated in the subaccount were ultimately passed to the taxpayer's brother.

  Since all of the taxpayer's records were accurate and thorough, except for two commission rate adjustments that were mistakenly deducted in the tax year at issue even though they were not, in fact, paid until the following year, the taxpayer was not liable for the accuracy-related penalty for negligence under Code Sec. 6662(a).

J.T. Manning, TC Memo. 2009-157, Dec. 57,876(M)

Other References:

 
Code Sec. 61

  CCH Reference - 2009FED ¶5504.198

  CCH Reference - 2009FED ¶5504.20

 
Code Sec. 162

  CCH Reference - 2009FED ¶8520.517

  CCH Reference - 2009FED ¶8858.01

 
Code Sec. 6662

  CCH Reference - 2009FED ¶39,651G.31

  Tax Research Consultant

  CCH Reference - TR INDIV: 6,050

CCH Reference - TRC BUSEXP: 3,100
CCH Reference - TRC PENALTY: 3,106
 

CCH (cch.taxgroup.com) reports:

  A husband and wife who owned, directly or through other entities, interests in seven limited liability partnerships (LLPs), two limited liability companies (LLCs), and two tenancies in common (TICs) were not limited partners in limited partnerships with respect to such interests; accordingly, the couple was not subject to Code Sec. 469(h)(2) and companion temporary regulations, which presumptively treat losses from certain limited partnerships as passive.

  CCH Comment.
Code Sec. 469(h)(2), enacted in 1986, and Temporary Reg. §1.469-5T(e)(1) and (2), adopted in 1988, predate the existence of LLPs, and the widespread availability of LLCs. Thus, they only contemplate limited or general partnership interests in a limited partnership entity, the nature of which is dependent on an identity between the management rights and liability exposure of the entity's owners. Limited partners of a limited partnership do not participate in the management of the business and do not have personal liability for the debts of the partnership. Entities such as LLPs and LLCs, however, offer owners the ability to materially participate in the management of the business, while at the same time enjoying limited liability for its obligations.

  Although the couple may have had limited liability with respect to all of the LLC and LLP investments, this did not preclude them under state law, as limited partners in a limited partnership would have been, from materially participating in the entities' businesses. Accordingly, in applying the material participation tests under the passive loss rules, the taxpayers were considered to be general partners, not limited partners. Similarly, the TIC properties were not limited partnerships, and the couple's interests in the TIC properties were not limited partnership interests.

  While the couple was identified on certain Schedules K-1, Partner's Share of Income, Deductions, Credits, etc, for the LLPs and one of the TIC properties as being a "limited partner" with respect to such investments, and the couple might have thereby potentially avoided self-employment tax because limited partner distributive shares are not considered self-employment income, this did not require that the couple be regarded as limited partners for purposes of the passive loss rules. The Schedule K-1 form did not provide the option of identifying their interests in the LLPs as that of a "limited liability partner," and the description on the K-1s did not conclusively establish the nature of their interests.

P.D. Garnett, 132 TC No. 19, Dec. 57,875

Other References:

 
Code Sec. 469

  CCH Reference - 2009FED ¶21,966.028

  CCH Reference - 2009FED ¶21,966.53

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 33,160
CCH Reference - TRC BUSEXP: 33,160.10
 

CCH (cch.taxgroup.com) reports:

  An IRS revenue procedure provides guidance on the election by corporations not to claim the 50-percent additional depreciation allowance (bonus depreciation) (Code Sec. 168(k)) on property acquired after March 31, 2008 (eligible qualified property), and instead to claim accelerated research and/or alternative minimum tax (AMT) credit carryforwards from tax years that began before January 1, 2006. The guidance specifically deals with the special elections for "extension property" contained in Code Sec. 168(k)(4)(H). The guidance covers property eligible for the elections, the time and manner for making elections, and the computation of the bonus depreciation amount (i.e., the amount by which the Code Sec. 38(c) business credit and Code Sec. 53(c) AMT credit limitations are increased if the elections are or are not made.

  CCH Comment. Extension property is property that is eligible for bonus depreciation solely by reason of the extension of the bonus depreciation provision by the American Recovery and Reinvestment Act of 2009 (P.L. 111-5). Thus, extension property generally consists of property placed in service in 2009 that is eligible for bonus depreciation.

  The special rules for extension property allow a corporation that made the Code Sec. 168(k)(4) election in its first tax year that ended after March 31, 2008, with respect to bonus depreciation property placed in service after that date to elect not to have the election apply to extension property. If the corporation does not elect to exclude extension property, then a "bonus depreciation amount" is computed separately for bonus depreciation property which is extension property and for bonus depreciation property which is not extension property.

  CCH Comment. The amount of additional research credit and/or AMT credit that a corporation may claim if it elects to forgo bonus depreciation is determined by increasing the Code Sec. 38(c) business credit and Code Sec. 53(c) AMT credit limitations by the bonus depreciation amount for the tax year.

  The second special rule for extension property allows a corporation that did not make a Code Sec. 168(k)(4) election for its first tax year ending after March 31, 2008, to make the election for its first tax year ending after December 31, 2008. If this election is made a bonus depreciation amount is only computed with respect to extension property.

  Definitions relating to extension property . Under the guidance, eligible qualified property is not extension property if:

  --The eligible qualified property is acquired by the taxpayer after March 31, 2008, and placed in service by the taxpayer before January 1, 2009;

  --The eligible qualified property meets the requirements of Code Sec. 168(k)(2)(, is acquired by the taxpayer after March 31, 2008, and is placed in service by the taxpayer before January 1, 2010; or

  --The eligible qualified property meets the requirements of Code Sec. 168(k)(2)(C), is acquired by the taxpayer after March 31, 2008, and is placed in service by the taxpayer before January 1, 2010.

  Extension property is eligible qualified property that:

  --Is acquired by the taxpayer after March 31, 2008, is placed in service by the taxpayer after December 31, 2008, and before January 1, 2010, and is not described in items (2) and (3) above;

  --Meets the requirements of Code Sec. 168(k)(2)(, is acquired by the taxpayer after March 31, 2008, and is placed in service by the taxpayer after December 31, 2009, and before January 1, 2011; or

  --Meets the requirements of Code Sec. 168(k)(2)(C), is acquired by the taxpayer after March 31, 2008, and is placed in service by the taxpayer after December 31, 2009, and before January 1, 2011.

  Election not to apply the Code Sec. 168(k)(4) election to extension property. The election not to apply the Code Sec. 168(k)(4) election to extension property must be made by the due date (including extensions) of the income tax return for the corporation's first tax year ending after December 31, 2008. If a corporation has already filed that return and did not make the election not to apply the Code Sec. 168(k)(4) election to extension property it may make a late election by following the procedures contained in Sec. 4.04 of Rev. Proc. 2009-33. The corporation must attach a statement indicating that is is making the election not to apply its Code Sec. 168(k)(4) election to extension property. Separate written notification of the election must be made to any partnership in which the corporation is a partner on or before the due date (including extensions) of the corporation's return for its first tax year ending after December 31, 2008, or by the date it files its return containing a late election.

  If all members of a controlled group are members of an affiliated group that files a consolidated return, the common parent of the consolidated group makes the election for the group on the consolidated return. Special rules apply when separate federal income tax returns are filed by some or all members of a controlled group.

  If a corporation that made the Code Sec. 168(k)(4) election for its first tax year ending after March 31, 2008, elects not to have that election apply to extension property, the election will exclude extension property placed in service in its first tax year ending after December 31, 2008 and in any subsequent tax year. Even if the corporation does not place any extension property in service in its first tax year ending after December 31, 2008, it must make the election not to apply the Code Sec. 168(k)(4) election to extension property for that tax year if it wishes to apply such election to extension property placed in service in a subsequent tax year.

  Bonus depreciation amount for extension property. If a corporation does not elect to not to apply its Code Sec. 168(k)(4) election to extension property, a separate bonus depreciation amount is computed for eligible qualified property that is not extension property (non-extension property) and eligible qualified proeprty that is extension property (extension property). In general, the computation rules described in
Rev. Proc. 2008-65, I.R.B. 2008-44, 1082, are used to determine these amounts by applying the rules separately to non-extension and extension property. The maximum bonus depreciation amounts is limited to $30 million for non-extension property and $30 million for extension property. Similar rules apply to controlled groups except that the computation rules described in Rev. Proc. 2009-16, I.R.B. 2009-6, 449, for controlled groups are used.

  Election to apply Code Sec. 168(k)(4) election only to extension property. A corporation that did not make the Code Sec. 168(k)(4) election for its first tax year ending after March 31, 2008, may make the election to apply the election only to extension property (the "extension property election").

  The extension property election must be made by the due date (including extensions) of the income tax return for the corporation's first tax year ending after December 31, 2008. A late election may be made by a corporation that filed its return for its first tax year ending after December 31, 2008, pursuant to section 6.06 of this Rev. Proc. 2009-33.

  A C corporation makes the election by:

  --Claiming the refundable AMT and/or research credit on the appropriate line of Form 1120, U.S. Corporation Income Tax Return, for the its first tax year ending after December 31, 2008;

  --Filing, with the Form 1120, the Form 3800, General Business Credit, or Form 8827, Credit for Prior Year Minimum Tax --Corporations, or both, as applicable, for its first tax year ending after December 31, 2008;

  --Filing, with the Form 1120, Form 4562, Depreciation and Amortization (Including Information on Listed Property), for its first tax year ending after December 31, 2008, indicating that it used the straight-line method and did not claim the bonus depreciation deduction for any extension property; and

  --Providing written notification to any partnership in which it is a partner that it is making the Code Sec. 168(k)(4) extension property election on or before the due date (including extensions) of its federal income tax return for its first tax year ending after December 31, 2008, or by the date it files its income tax return containing a late election.

  An S corporation makes the election by:

  Making appropriate adjustments to the appropriate line of the Form 1120S, U.S. Income Tax Return for an S Corporation, for its first tax year ending after December 31, 2008, to reflect the results from making the extension property election;

  Attaching a statement to the return indicating that it is making the extension property election and a statement showing the computation of the increases to the business credit and AMT credit limitations that result from making the election;

  Filing, with the Form 1120S, Form 4562 indicating that the taxpayer used the straight-line method and did not claim the bonus depreciation deduction for all extension property; and

  Providing written notification to any partnership in which it is a partner that it is making the extension property election on or before the due date (including extensions) of its federal income tax return for its first tax year ending after December 31, 2008, or by the date it filed its income tax return containing a late election.

  If the extension property election is made, it applies to all extension property placed in service by the corporation in the its first tax year ending after December 31, 2008, and in any subsequent tax year. Even if the corporation does not place any extension property in service in its first tax year ending after December 31, 2008, it must make the extension property election for that tax year if it wishes to apply the election to extension property placed in service in a subsequent tax year.

  If all members of a controlled group are members of a consolidated group, the common parent makes the extension property election. If a controlled group includes members of a consolidated group, the consolidated group is treated as a single member of the controlled group and the election is made by the common parent. Special election procedures apply to a member of a controlled group that makes the extension property election. The guidance also explains the manner of determining the members of a controlled group for the first tax year ending after December 31, 2008 and subsequent tax years.

  The bonus depreciation amount is generally computed in the manner provided in Rev. Proc. 2008-65 by only taking into account extension property. S corporations will generally follow the rules previously issued for S corporations in Rev. Proc. 2009-16. If a corporation making the extension property eletion is a partner in a partnership, the partnership must provde the corporation with sufficient information to determine its appropriate distributive share of partnership items relating to any extension property placed in service during the tax year.

 
Code Sec. 168(k)(4) election by corporation with short succeeding tax year. The new guidance also modifies section 3.02(1)(a)(ii) of Rev. Proc. 2009-16 to address how a corporation whose first tax year ending after March 31, 2008, ends before December 31, 2008, makes the Code Sec. 168(k)(4) election when the corporation's succeeding tax year is a short tax year. That section generally provides that if a taxpayer's first tax year ending after March 31, 2008, ends before December 31, 2008, the corporation must file an amended federal income tax return on or before the due date (without regard to extensions) of the corporation's original federal income tax return for the succeeding tax year in order to claim the refundable credit resulting from a Code Sec. 168(k)(4) election. The modified guidance provides that if the succeeding tax year is a short tax year, the amended return must be filed on or before the earlier of (1) 30 days after the due date (excluding extensions) of the corporation's income tax return for its first tax year ending after March 31, 2008 or (2) 180 days after the due date (excluding extensions) of the corporation's income tax return for the succeeding tax year.

Rev. Proc. 2009-33, 2009FED ¶46,419

Other References:

 
Code Sec. 168

  CCH Reference - 2009FED ¶11,279.058

  CCH Reference - 2009FED ¶11,279.19

  Tax Research Consultant

  CCH Reference - TRC DEPR: 3,600

  CCH Reference - TRC DEPR: 3,606

CCH (cch.taxgroup.com) reports:

  The IRS has issued guidance providing reliance criteria for private foundations and sponsoring organizations that maintain donor-advised funds in determining whether a potential grantee is an organization described in Code Sec. 509(a)(1),
(2) or (3) for purposes of the excise taxes imposed on grants to certain supporting organizations under
Code Secs. 4942, 4945 and 4966.

  The Pension Protection Act of 2006 (P.L. 109-280) enacted new rules regarding grants by private foundations to certain types of supporting organizations. Under previously issued guidance in Notice 2006-109, 2006-2 CB 1121, for purposes of Code Secs. 4942, 4945 and 4966, a grantor acting in good faith may rely on information from the IRS Business Master File (BMF) or the grantee's current IRS letter recognizing the grantee as exempt from federal income tax and indicating the grantee's public charity classification in determining whether the grantee is a public charity under Code Sec. 509(a)(1),
(2) or (3). The IRS subsequently posted a document on its website clarifying how a grantor may access BMF data and providing that a private foundation or sponsoring organization may use a third party to obtain BMF data as long as certain requirements are met.

  The new guidance provides that, in determining whether a public charity is classified under Code Sec. 509(a)(1),
(2) or (3), a private foundation or a sponsoring organization that maintains a donor advised fund, acting in good faith, may rely on either: (1) the grantee's current IRS letter recognizing the grantee as exempt from federal income tax and indicating the grantee's public charity classification; or (2) information from the BMF.

  A grantor may download the BMF directly from the IRS website and store the relevant information in hard copy or electronically. A grantor may also obtain the BMF information from a third party, so long as the following requirements are met:

  (1) The third party must provide a report to the grantor that includes the grantee's name, Employer Identification Number and public charity classification, a statement that the information is from the most current update of the BMF and the BMF revision date and the date and time the information was provided to the grantor; and

  (2) The report must be in a form that the grantor can store in hard copy or electronically.

  The portions of section 3.01 of Notice 2006-109, 2006-2 CB 1121, that relate to reliance for purposes of determining whether a grantee is a public charity under Code Sec. 509(a)(1),
(2) or (3), are superseded.

Rev. Proc. 2009-32, 2009FED ¶46,418

Other References:

 
Code Sec. 509

  CCH Reference - 2009FED ¶22,812.50

 
Code Sec. 4942

  CCH Reference - 2009FED ¶34,047.034

  CCH Reference - 2009FED ¶34,047.67

 
Code Sec. 4945

  CCH Reference - 2009FED ¶34,107.43

 
Code Sec. 4966

  CCH Reference - 2009FED ¶34,317C.01

  CCH Reference - 2009FED ¶34,317C.20

  Tax Research Consultant

  CCH Reference - TRC EXEMPT: 21,210

  CCH Reference - TRC EXEMPT: 24,400

  CCH Reference - TRC EXEMPT: 33,150

Tax Analysts report: