Tax News

CCH (cch.taxgroup.com) reports:

  A Streamlined Sales Tax (SST) panel rejected an interpretation sought by seven states that would have held the January 1, 2010, effective date in the SST Agreement for an origin-sourcing option is a "trigger," rather than a "sunset." (TAXDAY, 2009/08/04, S. 1) By a vote of 3-2, with one member absent, the Compliance Review and Interpretations Committee (CRIC) rejected the interpretation sought by Arizona, New Mexico, Ohio, Tennessee, Texas, Utah, Virginia, and the Virginia Association of Counties. SST Executive Director Scott Peterson told the CRIC members that, having rejected the requested interpretation, they must now explain in writing how they think the relevant provision should be interpreted and hold another vote on that alternative interpretation. The CRIC deferred any further action until their next meeting.

  Background: In an attempt to resolve a long-running controversy, the SST Governing Board amended the Agreement in December 2007 to allow states to qualify for full membership under an origin-sourcing option, effective "on or after January 1, 2010, provided that at least five states which are not full member states on December 31, 2007" make the election to use origin sourcing and are otherwise in substantial compliance with the Agreement. It is now apparent there will not be five states in that position on January 1, 2010.

  In response to questions about how to interpret the effective-date language, the seven states and the Virginia Association of Counties sought an interpretation holding that January 1, 2010, is the earliest date on which qualifying states can become full members (i.e. a "trigger") and not a deadline. Opponents of this interpretation, from the Business Advisory Council (BAC) and, apparently, among some existing member states, take the position that January 1, 2010, was intended as a deadline (i.e. a "sunset"), and that the origin-sourcing option will not be available after that date unless the board further amends the Agreement.

  During a sometimes heated debate, BAC representatives argued that it was inappropriate for the CRIC to take this matter up now, given the expectation that the board will be debating this issue at its annual meeting in September in Oklahoma City. Supporters of hearing the matter responded that the CRIC is supposed to vet such interpretations and that any action it takes does not bind the board. Ultimately, although the CRIC did hold a vote, the requested interpretation was rejected.

  Other action: The CRIC took three other votes during their conference call.

  -- The CRIC voted 4-2 to approve an interpretation sought by Loren Chumley, KPMG, that the value of points, awarded employees as sales incentives and redeemable for merchandise at a reduced price, should be treated as a discount and excluded from the sales price of the merchandise.

  -- The CRIC voted 5-0 not to accept a request to issue an interpretation sought by Denton Childs, Tyson Foods, Inc., related to how Arkansas amended its laws to impose use tax on services in order to conform to the Agreement's destination-based sourcing requirements. The CRIC members had reservations about how the request was drafted, and questions about exactly what they were being asked to determine.

  -- The CRIC voted 5-0 to accept a request to issue an interpretation sought by James Tilton, Alex Lee, Inc., on whether Lucky Charms cereal should be taxed as "candy" because it "bundles" marshmallows (which fit the Agreement's definition of "candy") with oat pieces that contain flour (the presence of which excludes these pieces from the "candy" definition).

  Peterson told the CRIC that his office has begun the process for the annual recertification of member states. He hopes to have completed the process for some states in time for the CRIC to begin its review at its next meeting in two weeks. At that time, Peterson also hopes to have prepared a schedule for the annual review process.

Meeting, Compliance Review and Interpretations Committee, August 13, 2009

CCH (cch.taxgroup.com) reports:

  In a tax shelter case stemming from a John Doe summons issued to a law firm in 2003, the six-year statute of limitations for substantial omissions from gross income under Code Sec. 6501(e) was applied to a partnership return. The partners in the partnership had increased their basis in the partnership with premiums paid on a long position in a foreign currency option without reducing their basis for premiums received from a related and partially offsetting short foreign currency option.

  This increased basis was then transferred to stock distributed to the partners under the carry-over basis rules of Code Sec. 732(b). The high-basis stock was then sold for a large capital loss.

  In attacking the transaction, the IRS applied the extended six-year statute of limitations by virtue of the partners' incorrect accounting for the offsetting foreign currency positions. The foreign currency options were subject to Code Sec. 988 because they were denominated in Japanese yen, a nonfunctional currency. Under Reg. §1.988-1(e), each transaction subject to Code Sec. 988 must be reported and accounted for separately.

  The taxpayers violated this rule by netting the amounts paid and received on the two contracts. The taxpayer's argument that the two contracts were a single transactions due to similar terms was rejected as the long and short options were priced separately and payment on the contracts was determined separately. Failure to report gain and loss on the individual transactions resulted in a substantial omission of gross income and, thus, Code Sec. 6501(e) was applicable.

  However, the IRS motion for summary judgment that the foreign options, and the overall transaction, were shams was denied as it contradicted the Service's argument that the options were subject to Code Sec. 988. Nonetheless, the court refused to state that the a 6-year period of limitations would not apply if the IRS's sham theory were eventually upheld, only that it was not deciding that question in the context of a motion for summary judgment.

  Furthermore, the IRS position in the final partnership administrative adjustment (FPAA) that the foreign currency transactions should be disregarded did not preclude application of the extended statute of limitations even though disregarded transactions cannot create omitted income. The failure to raise the issue of omitted income under Code Sec. 988 on the FPAA did not prevent the court from addressing the issue. In addition, the IRS's alternative argument - that the two options should be combined as one transaction, thus limiting the increase to the partners' basis to the net amount of the two options - was not a concession on the part of IRS that no income was omitted.

  Finally, the partners' reporting of the net loss from the offsetting foreign options on their individual returns was not adequate disclosure for purposes of avoiding the finding of omitted income under
Code Sec. 6501(e)(1)(A)(ii).

Highwood Partners, 133 TC No. 1, Dec. 57,904

Other References:

 
Code Sec. 988

  CCH Reference - 2009FED ¶28,907.021

  CCH Reference - 2009FED ¶28,907.022

  CCH Reference - 2009FED ¶28,907.026

 
Code Sec. 6501

  CCH Reference - 2009FED ¶38,971.55

  CCH Reference - 2009FED ¶38,971.76

  Tax Research Consultant

  CCH Reference - TRC PART: 60,352.10
CCH Reference -
TRC INTL: 3,462
CCH Reference - TRC INTLOUT: 21,100
 

CCH (cch.taxgroup.com) reports:

  The IRS has established a qualifying advanced energy project program under Code Sec. 48C. The IRS has also announced an initial allocation round of the advanced energy project credit under the program. The program serves to encourage taxpayers to establish, expand or re-equip manufacturing facilities for the production of certain energy-related property.

Treasury Department News Release, TDNR TG-262, 2009FED ¶46,447

Notice 2009-72, 2009FED ¶46,448

Other References:

 
Code Sec. 48C

  CCH Reference - 2009FED ¶4695.01

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 51,804

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The new issue of the Journal of State Taxation, now available, includes articles and columns covering the following timely top state tax issues:

CCH (cch.taxgroup.com) reports:

  The IRS plans to issue guidance relating to eligible combined plans under Code Sec. 414(x) and is seeking comments regarding the requirements for such plans. An eligible combined plan provides a vehicle through which an employer can maintain both a defined contribution plan and a defined benefit plan on a combined basis, thus reducing the administrative burdens and costs of maintaining separate plans. The effective date for Code Sec. 414(x) is plan years beginning after December 31, 2009, and any forthcoming guidance would apply prospectively. Comments must be submitted by October 15, 2009.

Notice 2009-71, 2009FED ¶46,446

Other References:

 
Code Sec. 414

  CCH Reference - 2009FED ¶19,198B.01

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 3,500

CCH (cch.taxgroup.com) reports:

  The IRS has requested comments of the proper application of rules governing the creation and maintenance of multiple layers of forward and reverse Code Sec. 704(c) gain and loss to partnerships and tiered partnerships, including in the context of partnership mergers and divisions. The IRS had received numerous comments on proposed regulations issued in 2007 concerning the tax consequences of certain partnership mergers (NPRM REG-143397-05).

  CCH Comment.
Code Sec. 704(c) is intended to prevent the shifting among partners of the precontribution gain attributable to property contributed to a partnership.

  Also, the IRS is aware of practitioners taking different positions based on varying interpretations of Reg. §1.704-3(a)(9). For example, some practitioners have taken the aggregate approach, so that a tiered partnership can be looked though and Code Sec. 704(c) applied as if the partners of the upper tier partnership directly own a portion of the assets of the lower tier partnership. In contrast, under the entity approach favored by some practitioners, the upper tier partnership is treated as owning an interest in the lower tier partnership but is not treated as owning any interest in the property of the lower tier partnership.

  The IRS is asking for comments to clarify the issues raised by the different approaches. The questions relate to issues raised by the revaluation of assets, how tax items should be allocated among the different
Code Sec. 704(c) "layers", how layers should be maintained in a tiered-partnership structure, issues related to mergers and divisions, and international issues.

Notice 2009-70, 2009FED ¶46,445

Other References:

 
Code Sec. 704(c)

  CCH Reference - 2009FED ¶25,135.32

  Tax Research Consultant

  CCH Reference - TRC PART: 9,150

CCH (cch.taxgroup.com) reports:

  The IRS has extended the deadline for governmental retirement plans to be amended to reflect changes in the governing law. Reg. §1.401(b)-1(e)(3) and Rev. Proc. 2007-44, 2007-2 CB 54, generally provide that a plan sponsor has 91 days after its request for a determination letter has been rejected to make necessary retroactive remedial amendments. This 91-day extension may be insufficient for governmental plans if the governing body with authority to amend the plan is unable to do so because it is not in session or for other procedural reasons.

  Under the new procedure, the remedial amendment period extends through the 91st day after the last day of the first regular legislative session beginning more than 120 days after the date on which the application for determination is finally disposed of by the IRS or the Tax Court. The procedure also formalizes an option previously announced by the IRS. The sponsor of an individually designed governmental may elect Cycle E (February 1, 2010, through January 31, 2011) instead of Cycle C (February 1, 2008, through January 31, 2009) as the plan's initial (EGTRRA) remedial amendment cycle.

 
Rev. Proc. 2007-44 is modified.

Rev. Proc. 2009-36, 2009FED ¶46,444

Other References:

 
Code Sec. 401

  CCH Reference - 2009FED ¶17,929.65

 
Statement of Procedural Rules Sec. 601.201

  CCH Reference - 2009FED ¶43,360.2116

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 51,052.20

CCH (cch.taxgroup.com) reports:

  The IRS has clarified its previous guidance (TAXDAY, 2009/05/29, I.3) regarding unemployed veterans and disconnected youth for purposes of the work opportunity tax credit (WOTC). First, an individual who received a high school diploma or GED certificate at least six months prior to the hiring date and who otherwise satisfies the requirements for a disconnected youth will not fail to qualify as a disconnected youth merely because the individual has been employed at times since graduation, as long as that employment was no more than occasional. Second, transition relief is extended for submitting certification requests.

  Generally, a worker cannot be treated as a member of a targeted group unless the employer obtains certification from a designated local agency on or before the day the individual begins work that the individual is a member of a targeted group, or completes a prescreening notice (Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit) on or before the day the individual is offered employment and submits that notice to the designated local agency to request certification not later than 28 days after the individual begins work. Under the extended transition relief, any employer who hires an unemployed veteran or disconnected youth after December 31, 2008, and before September 17, 2009, will be considered to satisfy the deadline if the employer submits the pre-screening notice to the designated local agency to request certification not later than October 17, 2009. Notice 2009-28, I.R.B. 2009-24, 1082, is clarified.

Notice 2009-69, 2009FED ¶46,443

Other References:

 
Code Sec. 51

  CCH Reference - 2009FED ¶4803.03

  CCH Reference - 2009FED ¶4803.04

  CCH Reference - 2009FED ¶4803.64

  CCH Reference - 2009FED ¶4803.65

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 54,258.60
CCH Reference - TRC BUSEXP: 54,262.02
 

CCH (cch.taxgroup.com) reports:

  The IRS could not use the extended six-year limitations period to assess a deficiency where an individual overstated his basis in two S corporations following their sale, thereby lowering the amount of gross income reported on his return. Overstatement of basis is not an omission of gross income for purposes of Code Sec. 6501(e)(1)(A); therefore, the notice of deficiency sent to the taxpayer was untimely because it was not issued within the three-year limitations period.

  Under Colony, Inc. , SCt, 58-2 USTC ¶9593, and Bakersfield Energy Partners, LP , 128 TC 207, Dec. 56,966, the extended limitations period applies where specific income receipts have been "left out" of the gross income computation, not where an understatement results from overstatement of reported basis. The IRS's arguments that
Bakersfield was wrongly decided, and that Colony should be limited to cases involving the sale of goods or services, was rejected.

K.H. Beard, TC Memo. 2009-184, Dec. 57,903(M)

Other References:

 
Code Sec. 6501

  CCH Reference - 2009FED ¶38,971.13

  CCH Reference - 2009FED ¶38,971.76

  Tax Research Consultant

  CCH Reference - TRC IRS: 30,152.15

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Hawaii Department of Taxation has issued a Tax Information Release (TIR) announcing a concurrent voluntary disclosure program for corporate and personal income taxpayers participating in the current Internal Revenue Service (IRS) voluntary disclosure program for undeclared offshore bank account income.

  In March 2009, the IRS announced guidelines for taxpayers making voluntary disclosures of unreported income generated through undeclared offshore bank accounts located in countries outside the United States. The IRS encouraged taxpayers with undisclosed foreign accounts or entities to make a voluntary disclosure to avoid substantial civil penalties and generally eliminate the risk of criminal prosecution. In furtherance of the IRS's efforts, the Department of Taxation is likewise encouraging taxpayers with Hawaii income sourced from undeclared foreign bank accounts to make a voluntary disclosure with the state. Any person submitting a voluntary disclosure with the state pursuant to the TIR will generally not be referred for criminal prosecution or be assessed any civil penalties on any timely and complete submissions. In order for a voluntary disclosure with the state to be timely, the taxpayer must make a timely voluntary disclosure with the IRS pursuant to its offshore undeclared bank account voluntary disclosure guidelines and must make contact with the department's Offshore Voluntary Disclosure Coordinator by the same deadline. As of the date of issuance of the TIR, the deadline for submissions is September 23, 2009.

  Any taxpayer making a voluntary disclosure of undeclared offshore bank account income pursuant to the IRS guidelines that would like to also make a voluntary disclosure with the state should initiate contact with the Department of Taxation by contacting the Offshore Voluntary Disclosure Coordinator at (808) 587-1603 in order to determine whether the taxpayer is eligible for the Hawaii voluntary disclosure program. The coordinator will request the identity of the taxpayer and determine whether the taxpayer is under civil examination or criminal investigation. Persons under civil examination or criminal investigation are not eligible to participate in the Hawaii program; all other taxpayers are eligible. Taxpayers eligible for the Hawaii program must submit the following: a cover letter identifying the taxpayer and the taxpayer's representative and also stating that the voluntary disclosure is being made to resolve unreported offshore Hawaii taxable income pursuant to the TIR and IRS guidelines and that none of the unreported offshore taxable income being reported is illegal source income; a copy of the voluntary disclosure package submitted to the IRS; amended returns for any taxable year for which the statute of limitations remains open, with the marking "OFFSHORE VOLUNTARY DISCLOSURE" on the top of the first page of the return; and full payment of tax and interest due and payable at the time of the submission.

  Beginning October 1, 2009, any taxpayer subsequently audited by the Department of Taxation (or by the IRS where the IRS adjusts for unreported foreign bank account income) that includes adjustments to Hawaii taxable income due to unreported foreign bank account income will be subject to all civil penalties available by law, including the 50% civil fraud, 25% negligence, and 20% substantial understatement penalties. Furthermore, pursuant to Act 166, Laws 2009, taxpayers found to have unreported income from foreign bank accounts will be assessed unpaid taxes and penalties on up to six taxable years where unreported income constitutes 25% or more of the amount stated on a return. Also, the likelihood of referral for criminal investigation increases for those taxpayers that fail to submit a voluntary disclosure and are later selected for examination.

  Persons needing additional information regarding this TIR may contact the Department of Taxation at (808) 587-1577.

Tax Information Release No. 2009-03 , Hawaii Department of Taxation, August 6, 2009, ¶200-757

  Other References:

  Explanations at ¶89-186

CCH (cch.taxgroup.com) reports:

  A deficiency notice issued to an individual partner that recharacterized over $200 million in charitable remainder annuity trust (CRAT) distributions as capital gain income, rather than a return of corpus was invalid because it adjusted affected items that could not be litigated until the Tax Court issued a final decision in the related ongoing partnership-level proceeding. The IRS's motion to dismiss for lack of jurisdiction was, therefore, granted.

  The taxpayer transferred stock to a limited partnership in exchange for a 99-percent limited partnership interest and a .6-percent general partnership interest. The 99-percent limited partnership interest was transferred to a CRAT formed by the taxpayer.. The taxpayer was entitled to monthly distributions as the term beneficiary until the CRAT terminated approximately two years later. The day after forming the CRAT, the partnership entered into a variable forward purchase contract with an investment banking firm, which paid the partnership $198 million for the stock upon execution of the contract although the stated purchase date of the sale was approximately two years later. The CRAT's monthly distributions were reported by the taxpayer as nontaxable return of corpus.

  The IRS determined in its final partnership administrative adjustment (FPAA) that the partnership made a closed and complete sale of the stock when it executed the variable prepaid forward contract and, therefore, pursuant to Code Sec. 664, had approximately $214 million in long-term capital gain, measured by the difference between the $198 million in cash received, plus the contingent right to future appreciation less the partnership's basis in the stock. The tax matters partner immediately filed a petition with the Tax Court which is currently pending. The IRS, however, issued a deficiency notice to the taxpayer on the same day it issued its FPAA. The deficiency notice, which the IRS's motion in this case sought to declare invalid, alleged that the CRAT anti-abuse regulation (Reg. §1.643(a)-8) requires the recharacterization of the distributions as capital gain and treats the CRAT as having sold a pro rata portion of the stock in the tax years it made the distributions.

  According to the court, recharacterization of the CRAT distributions as capital gain under the anti-abuse regulation cited in the notice of deficiency is only possible if the CRAT distributions would otherwise be characterized as corpus in the hands of the taxpayer. The characterization of the distributions as capital gain or a return of capital depended upon a final determination of the partnership gain issue. The deficiency notice, therefore, adjusted affected items that depended upon the outcome of the partnership gain issue in the partnership-level proceeding. Imposition of the accuracy-related penalties also depended upon operation of the anti-abuse regulation and were, therefore, affected items.

S.L. Miller, TC Memo. 2009-182, Dec. 57,901(M)

Other References:

 
Code Sec. 6221

  CCH Reference - 2009FED ¶37,569.12

 
Code Sec. 6231

  CCH Reference - 2009FED ¶37,849.45

  Tax Research Consultant

  CCH Reference - TRC PART: 60,056

CCH (cch.taxgroup.com) reports:

  The IRS has issued procedures that allow a supporting organization under Code Sec. 509(a)(3) to request a change in its public charity classification to a public charity classification under Code Sec. 509(a)(1) and Code Sec. 170(b)(1)(A)(vi) or Code Sec. 509(a)(2) (i.e., churches, schools, hospitals and charities that receive public support). An organization may want to change its status as a result of changes made by the Pension Protection Act of 2006 (P.L. 109-280). Specifically, supporting organizations are not eligible to receive IRA distributions under the provision that allows for such distributions without an inclusion in gross income. Additionally, private foundations are restricted from making distributions to supporting organizations.

  The procedures for requesting a change in public charity classification are consistent with recently issued temporary and proposed regulations that implement the redesign of the Form 990, Return of Organization Exempt from Income Tax. A request for reclassification must made under the rules of Rev. Proc. 2009-4, I.R.B. 2009-1, 118. The request must include a number of specific items and it must be signed under the penalties for perjury by the organization's officer, director, trustee or other authorized official. There is no user fee for the determination letter.

  Formerly, requests for reclassification were made under
Announcement 2006-93, 2006-1 CB 1017 and were processed by the IRS on an expedited basis. Requests submitted under Announcement 2006-93 will be processed, although the announcement is now superseded.

Announcement 2009-62, 2009FED ¶46,442

Other References:

 
Code Sec. 509

  CCH Reference - 2009FED ¶22,812.50

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 66,514
CCH Reference - TRC EXEMPT: 21,202
CCH Reference - TRC EXEMPT: 21,210
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The New Jersey Division of Taxation has adopted a new chapter of administrative and procedural rules to conform to the Streamlined Sales Tax (SST) Agreement. The new rules contain the following: definitions, administration of exemptions, administration of tax returns, rules for remitting tax, certification of service providers and automated systems, registration of sellers, state review and approval of certified automated system software and certain liability relief, confidentiality and privacy protections under Model 1 (Model 1 refers to a seller that has selected a certified service provider as its agent to perform all the seller's sales and use tax functions, other than the seller's obligation to remit tax on its own purchases), and relief from certain liability for purchasers confidentiality and privacy protections under Model 1.

  Subscribers can view the adopted rules.

 
N.J.A.C. 18:24B-1.1, 18:24B-1.2, 18:24B-1.3, 18:24B-1.4, 18:24B-1.5, 18:24B-1.6, 18:24B-1.7, 18:24B-1.8, and 18:24B-1.9, New Jersey Division of Taxation, effective August 3, 2009

CCH (cch.taxgroup.com) reports:

  CCH has recently learned that the California Franchise Tax Board (FT is forwarding refunds from a registered domestic partnership's (RDP) California personal income tax joint return to the Internal Revenue Service (IRS) to satisfy the separate federal tax liability of one of the partners, even though the IRS does not recognize RDPs and requires registered domestic partners to file single returns.

  Upon inquiry, the FTB has stated that under Cal. Rev. & Tax. Code §17021.7, the FTB is required to treat RDPs the same as married persons. The FTB offset procedures are based on the presumption that refunds from joint returns stem from taxes withheld or other refundable credits that are community property in character and, therefore, are subject to offset to the separate tax liabilities of either spouse incurred before or after marriage. The FTB has stated that the only exception would be if the RDP filed a prenuptial agreement or equivalent. In that case, the FTB would attempt to reimburse the spouse or RDP for the amount of refund allocable to the spouse or RDP.

  It is clear that the FTB is following the "letter of the law" in this instance; however, it is questionable whether such action is frustrating the actual intent of the law. The FTB is aware that the IRS is not treating RDPs the same as married taxpayers. The IRS is being inconsistent in its position by refusing to acknowledge RDPs for federal tax purposes, yet taking advantage of the state's community property laws to access state tax refunds from an RDP's joint California return to satisfy a federal tax liability from one of the individual partners. Absent a legislative change, there does not appear to be any clear administrative remedy against the FTB, other than contacting the California Taxpayer Rights Advocate office for possible intervention. The Taxpayer Advocate's office is currently reviewing this matter on a systemic level.

  On the federal side, once the IRS receives the refund, the non-debtor spouse/domestic partner may then want to pursue a return of such spouse's/domestic partner's allocable portion of the refund on the basis that the IRS does not regard the individuals as being married and, therefore, the refund should not be treated as community property for federal income tax purposes. While at first blush it might appear that the non-debtor spouse/partner should file Form 8379, Injured Spouse Allocation, the IRS will likely not process such request given that no federal joint return was ever filed, and the IRS does not regard the non-debtor spouse/partner as a spouse at all under federal tax law.

  Alternately, the non-debtor spouse/partner might want to file Form 9423, Collection Appeal Request , to request Appeals Office assistance, or Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order) , and seek the intervention of the Taxpayer Advocate Service. Such efforts may be constrained by the absence of any definitive guidance from Chief Counsel indicating that while property rights are generally determined under state law, and state law may regard the couple as being married and therefore any refund as community property, the IRS will not treat it as community property for federal income tax purposes. The non-debtor spouse/partner might also consider a wrongful levy action if these administrative remedies are unsuccessful.

  For preparers who advise same sex couples and domestic partners where one spouse/partner owes back federal taxes, it may be appropriate to consider whether the couple should adjust their state withholding now, thereby avoiding any refund on their 2009 California return.

  Subscribers can view the FTB's response to CCH's inquiry.

E-mail, California Franchise Tax Board, August 4, 2009

CCH (cch.taxgroup.com) reports:

  The IRS has extended the due date for certain specified persons to file foreign bank account reports (FBARs) (Forms TD F 90-22.1, Report of Foreign Bank and Financial Accounts) for 2008 and earlier calendar years. Citing additional time needed by the Treasury Department to address issues pertaining to FBAR filing requirements and the need to provide administrative relief for specified persons, the IRS has provided that eligible persons have until June 30, 2010, to file FBARS for 2008, 2009 and earlier calendar years. Specified persons are (1) persons with signature authority over, but no financial interest in, a foreign financial account, and (2) persons with a financial interest in, or signature authority over, a foreign commingled fund.

  Current instruction to the FBAR provide that Form TD F 90-22.1 with respect to a given calendar year must be filed with the Treasury Department on or before June 30 of the succeeding year. Thus, except as provided in prior relief granted by the IRS on its website (www.irs.gov) and the relief granted in this notice, FBARs with respect to the 2008 calendar year should have been filed on or before June 30, 2009. The prior relief provided on the IRS website allowed certain persons who had only recently learned of their filing obligations to file Forms TD F 90-22.1 by September 30, 2009. The new relief supplemented that previous filing extension.

  The Treasury Department intends to issue regulations clarifying the FBAR filing requirements pertaining to the specified persons described above. It is soliciting public comments related to a number of related issues affecting a person's FBAR filing requirements. Comments must be received by the IRS by October 6, 2009.

Notice 2009-62, 2009FED ¶46,441

Other References:

 
Code Sec. 6011

  CCH Reference - 2009FED ¶35,141.48

  Tax Research Consultant

  CCH Reference - TRC FILEBUS: 9,104

CCH (cch.taxgroup.com) reports:

  The IRS has provided domestic asset/liability percentages and domestic investment yields needed by foreign life insurance companies and foreign property and liability insurance companies to compute their minimum effectively connected net investment income under Code Sec. 842(b). This guidance is effective for tax years beginning after December 31, 2007.

  For the first tax year beginning after 2007, the relevant domestic asset/liability percentages are 118.6 percent for foreign life insurance companies and 183.4 percent for foreign property and liability insurance companies. The relevant domestic investment yields are 5.3 percent for foreign life insurance companies and 3.6 percent for foreign property and liability insurance companies. In addition, instructions are set forth for computing foreign insurance companies' estimated tax liabilities for tax years beginning after 2007.

Rev. Proc. 2009-34, 2009FED ¶46,440

Other References:

 
Code Sec. 842

  CCH Reference - 2009FED ¶26,251.70

  CCH Reference - 2009FED ¶26,251.72

  Tax Research Consultant

  CCH Reference - TRC INTLIN: 3,102.25

CCH (cch.taxgroup.com) reports:

  For pension plan years beginning in August 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 August 2009 is 6.48 percent; and the 90-percent to 100-percent permissible range is 5.83 percent to 6.48 percent. The annual rate of interest on 30-year Treasury securities for July 2009, used to determine the minimum present value of a participant's benefit under Code Sec. 417(e)(1) and (2), is 4.41 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 August 2009 are: 5.12 for the first segment; 6.74 for the second segment; and 6.83 for the third segment.

  For plan years beginning in 2009, the funding transitional segment rates for August 2009 are: 5.57 for the first segment; 6.65 for the second segment; and 6.71 for the third segment.

  For plan years beginning in 2009, the minimum present value transitional segment rates for July 2009 are: 4.00 for the first segment; 5.16 for the second segment; and 5.23 for the third segment.

Notice 2009-63, 2009FED ¶46,439

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:

  President Obama on August 7 signed legislation to keep the Highway Trust Fund solvent through the end of fiscal year 2009. The bipartisan measure, HR 3357, which would transfer $7 billion from the General Fund to the Highway Account of the Highway Trust Fund, passed the Senate by a vote of 79-to-17 on July 30 and passed the House by a vote of 363 to 68 on July 29 (TAXDAY, 2009/07/30, C.2). The measure will also provide essential loans to the Unemployment Trust Fund (UTF) to meet a projected shortfall by early August. According to a Ways and Means press release issued late on July 29, the loans are repayable with interest, and the Congressional Budget Office has scored the legislation as having no cost to the federal treasury.

  The president also signed HR 3435, a bill to provide $2 billion in emergency supplemental appropriations for the Consumer Assistance to Recycle and Save Program, aka the Cash-for-Clunkers program. The program provides dealers with refund vouchers worth up to $4,500 when consumers trade in older vehicles with fuel economy ratings of 18 miles per gallon or less. The Senate approved the measure on August 6 by a vote of 60-to-37 (TAXDAY, 2009/08/07, C.1). The Senate voted down six amendments that would have stalled the bill and caused House and Senate members to negotiate a compromise version after the August recess. The House passed the measure before leaving for its recess on July 31 (TAXDAY, 2009/08/03, C.1).

  By Stephen K. Cooper, CCH News Staff

Legislation to Restore Sums to the Highway Trust Fund, Enrolled, as Signed by the President on August 7, 2009, HR 3357

Legislation Making Supplemental Appropriations for Fiscal Year 2009 for the Consumer Assistance to Recycle and Save Program, as Passed by the House on July 31, 2009, HR 3435

Tax Analysts report:

Tax Analysts report:

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  For purposes of the Oregon corporate excise (income), personal income, and certain property tax laws, Oregon generally conforms to the Internal Revenue Code (IRC) as amended and in effect on May 1, 2009 (formerly, December 31, 2008). Thus, except for specific decoupling provisions, Oregon now conforms to the IRC as amended by the federal American Recovery and Reinvestment Act of 2009 (Recovery Act). As previously reported (TAXDAY, 2009/2/18, S.11), Oregon decoupled from the Recovery Act earlier this year. Oregon requires an addition to federal taxable or adjusted gross income for differences between federal and state law resulting from bonus depreciation under IRC §168(k), asset expense election limitations under IRC §179, and income from the discharge of indebtedness under IRC §108. For Oregon income tax purposes, taxpayers must use the amounts allowed under the IRC as in effect on December 31, 2008, prior to any changes made by the Recovery Act. For tax years beginning after 2010, Oregon will conform to the IRC as amended and in effect on May 1, 2009, or if related to the definition of taxable income, as applicable to the tax year of the taxpayer.

CCH (cch.taxgroup.com) reports:

  A Louisiana sales and use tax exemption is enacted for the amount paid by qualifying radiation therapy treatment centers for the purchase, lease, or repair of capital equipment and software used to operate such equipment. Political subdivisions of the state, including parishes and municipalities, are authorized to elect to grant the same exemption. "Capital equipment" is defined as tangible personal property eligible for depreciation for federal income tax purposes that is used in the diagnosis or treatment of cancer patients. Capital equipment includes linear accelerators, PET/CT scanners, imaging devices, and software necessary to operate such equipment. For purposes of the Biomedical Research Foundation in Shreveport, the term is defined as a PET/CT scanner and related equipment for medical diagnosis and the installation of such equipment. A "qualifying radiation therapy center" is defined as a radiation therapy center that is also a nonprofit organization that maintains joint accreditation with a state university by the Commission on Accreditation of Medical Physics Educational Programs, Inc. (CAMPEP) for a graduate medical physics program and that provides facilities and personnel for use for a joint CAMPEP-accredited graduate medical physics program for research, teaching, and clinical training for graduate students. In addition, such a center includes the Biomedical Research Foundation. An exemption certificate must be obtained from the Secretary of the Louisiana Department of Revenue in order for a radiation therapy center to qualify for the exemption.

Act 462 (H.B. 734), Laws 2009, effective July 1, 2009
 

CCH (cch.taxgroup.com) reports:

  The California Franchise Tax Board (FT has announced that it is sending more than 140,000 audit letters to pre-selected individuals who used the head of household (HOH) filing status on their 2008 personal income tax returns. The FTB advises taxpayers who receive an audit letter to promptly submit a completed questionnaire by any of these methods:

  -- go to the FTB's Web site at
http://ftb.ca.gov and use the HOH Audit Letter Web Response page (taxpayers will need their Social Security number and the FTB ID number listed at the top of the questionnaire letter);

  -- fax pages 3 and 4, and any supporting information, to (866) 223-8195; or

  -- mail the questionnaire using the pre-addressed envelope provided with the audit letter.

  Failure to respond could result in a penalty. The FTB provides an HOH self-test, answers to many frequently asked questions, and Publication 1540, CA Head of Household Filing Status, in English and Spanish on its Web site at
http://ftb.ca.gov.

  The HOH filing status generally provides a lower tax assessment for unmarried taxpayers who cared for a dependent for over half the year and paid more than half the cost of maintaining their home. Taxpayers who do not qualify for HOH filing status will have their tax reassessed using either the single or married-filing-separate filing status.

  The FTB notes that filing status mistakes are some of the more common errors on tax returns. Filing status errors are less common on electronically-filed returns, as the state's e-file programs and many other software-based tax preparation programs include a head of household questionnaire that guides taxpayers toward the correct filing status.

News Release , California Franchise Tax Board, August 6, 2009
 

CCH (cch.taxgroup.com) reports:

  The Senate on August 6 approved a bill (HR 3435) that would provide an additional $2 billion for the Cash for Clunkers program that gives consumers a cash incentive to trade in old vehicles for new, higher fuel-efficient models. The measure was approved 60-to-37 and came after lawmakers defeated six amendments that would have altered the original House-passed-version and likely delayed final action until Congress returned from its summer recess in September.

  "We have a choice before us. We're either going to have an extension of the Cash for Clunkers program with a passage of the House bill without any changes in it, or it is going to die," said Sen. Carl Levin, D-Mich., as the Senate prepared to vote on amendments.

  The widely popular program began running out of funds less than a week after it began, prompting the White House and Congress to seek additional funding. The House on July 31 immediately passed a bill providing an additional $2 billion to keep the program running (TAXDAY, 2009/08/03, C.1), but it was uncertain whether the Senate would follow suit before recessing for four weeks. Some senators had objected to more government spending at a time of record federal deficits, while others wanted assurances that Congress would find other means to finance the program instead of using funds earmarked for a clean energy loan guarantee program included in the American Recovery and Reinvestment Act of 2009 (P.L. 111-5). President Obama is expected to sign the measure quickly in order to keep the program running without interruption.

  The initial Cash-for-Clunkers legislation provided $1 billion in tax-free vouchers to automobile dealers who participated in the program. The program vouchers, worth $3,500 or $4,500, are given to dealers when consumers trade in old vehicles for ones with higher fuel efficiency. The vouchers are considered taxable income for the car buyer. Lawmakers created the Cash-for-Clunkers program as part of the Consumer Assistance to Recycle and Save Act of 2009 (CARS Act) (P.L. 111-32) (TAXDAY, 2009/06/25, W.1).

  By Jeff Carlson, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Although New Jersey requires that gross (personal) income tax be imposed at the highest rate on a composite return (NJ-1080C) filed by pass-through entities on behalf of their nonresident owners, the Division of Taxation is allowing the use of two rates in order to encourage nonresident individuals to elect to participate in a composite return. As a result of Ch. 69 (A.B. 4102), Laws 2009, which increased the personal income tax rate on high-income taxpayers, 2009 composite return filers may continue to apply the 6.37% rate for participating individuals with New Jersey sourced income of less than $250,000 each. However, the new highest rate of 10.75% is applied to participants with New Jersey sourced income of $250,000 or more.

   
 
Notice , New Jersey Division of Taxation, August 4, 2009   

CCH (cch.taxgroup.com) reports:

  A taxpayer's request for an installment agreement was remanded to the IRS Appeals Officer to permit a taxpayer to pursue the agreement where the administrative record was hopelessly muddled and the IRS settlement officer handling the case was unavailable for a scheduled telephone conference. The officer abused her discretion where the notice of determination she issued inaccurately stated that the taxpayers had failed to provide sufficient documentation. Moreover, the attachment to the notice stated that the taxpayer had failed to provide any documentation and that the taxpayers "did not present any acceptable alternatives or provide a financial statement." All of these grounds were contradicted by the factual record.

  Furthermore, the settlement officer did not make herself available for a scheduled telephone conference, which was never rescheduled, and was generally not available when the petitioners tried to contact her. In addition, the administrative record in the case was confused and contained so many errors and inconsistencies as to lack a sound basis in fact or law. The settlement officer failed to make any actual determination as to whether the petitioners would qualify for an installment agreement.

S. Meeh, TC Memo. 2009-180, Dec. 57,899(M)

Other References:

 
Code Sec. 6330

  CCH Reference - 2009FED ¶38,184.60

  Tax Research Consultant

  CCH Reference - TRC IRS: 42,120
CCH Reference - TRC IRS: 51,056.25

CCH (cch.taxgroup.com) reports:

  As part of its 2009 Summertime Tax Tips series, the IRS has provided summary sheets for taxpayers with important information on avoiding identity theft, determining if it is necessary to amend a return and obtaining tax refunds that are currently unclaimed or undeliverable.

  In 2009 IRS Summertime Tax Tip 2009-11, the IRS provides a list of some of the ways that a taxpayer's identity could be stolen and the repercussions this could have for the individual's tax records. The IRS points out that it does not initiate contact with a taxpayer by email and cautions that if a taxpayer receives such an email, the taxpayer should report this to the IRS and forward the scam email to hishing@irs.gov.">phishing@irs.gov. Additional information is available on the IRS's Identity Theft Resource Page, and further assistance for those who have been victimized is available from the IRS Identity Protection Specialized Unit at (800) 908-4490.

  When is it necessary to amend your tax return? 2009 IRS Summertime Tax Tip 2009-12 explains that amendment is generally not necessary for math errors or missing forms because the IRS corrects such errors and requests missing forms when it processes an original return. However, filing an amended return is necessary if filing status, dependents, total income or deductions and credits were incorrectly reported. The guidance also cites instances when a taxpayer may elect to file an amended return, such as when a taxpayer is eligible to claim a credit and didn't do so on the original return. The procedure for filing Form 1040X and the applicable time frame are also briefly summarized; additional assistance is available at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676).

  In 2009 IRS Summertime Tax Tip 2009-13, the IRS outlines the procedures for collecting unclaimed refunds and undeliverable refunds. If an individual was not required to file a tax return but had taxes withheld from wages or is eligible for the refundable Earned Income Tax credit (EITC), that individual may obtain a refund by filing a return to claim the refund within three years. Additional guidance about this and the EITC is available at www.IRS.gov. If a taxpayer filed a return and expected a refund check but never received it, the refund may have been returned to the IRS as undeliverable. Procedures for claiming an undeliverable refund and ensuring that the IRS has the taxpayer's current correct address are summarized in the information sheet.

2009 IRS Summertime Tax Tip 2009-11

2009 IRS Summertime Tax Tip 2009-12

2009 IRS Summertime Tax Tip 2009-13
 

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The North Carolina General Assembly's conference committee has presented a proposed budget to the full General Assembly for approval that contains provisions that would enact a new personal and corporate income tax surcharge; partially conform North Carolina income tax provisions to federal provisions enacted in 2008 and 2009; increase the sales and use tax rate; adopt an Amazon provision with a $10,000 threshold; expand the sales tax base on digital property; and increase the alcohol excise and tobacco products tax rates.

  Notably absent from the latest budget deal is the unitary group reporting requirement, which was a hybrid of a combined reporting and a consolidated return approach; expansion of the corporate franchise tax to limited liability companies; and the corporate income tax throwback rule that were proposed in the House's version of the budget bill (see TAXDAY, 2009/06/17, S.3) The conference committee's budget bill passed the first vote of the General Assembly on August 4, 2009, and will be presented for a second vote on August 5, 2009, before being sent to the Governor for her signature.

CCH (cch.taxgroup.com) reports:

  An income tax refund that was traceable to pension, unemployment compensation and Social Security benefits that were exempt under state (Ohio) law was also exempt. The state exemption provisions were clearly designated to protect funds intended primarily for maintenance and support of debtors' families. Therefore, because it was traceable to funds exempt under state and federal statutes, the refund was also exempt.

In re J.W. Sparks, BC-DC Ohio, 2009-2 USTC ¶50,531

Other References:

 
Code Sec. 6402

  CCH Reference - 2009FED ¶38,519.145

 
Code Sec. 6871

  CCH Reference - 2009FED ¶40,630.12

  Tax Research Consultant

  CCH Reference - TRC IRS: 57,060

CCH (cch.taxgroup.com) reports:

  A corporation's claims for damages stemming from the IRS's alleged unauthorized disclosure of return information to the Japanese National Tax Administration were remanded to determine whether any such disclosures were not barred by the statute of limitations. For subject matter to exist under Code Sec. 7431(d), the corporation must have filed its action within two years of the date that the alleged disclosures were discovered, not the date that the corporation realized the disclosures were unauthorized. This two-year limitations period is jurisdictional and was intended to be absolute. Because the district court made no findings of fact determining the dates that the corporation discovered the disclosures, the matter was remanded to determine whether the corporation discovered any disclosures within the two-year statutory period.

  Vacating and remanding a DC Ariz. decision, 2007-1 USTC ¶50,325.

Aloe Vera of America, Inc., CA-9, 2009-2 USTC ¶50,530

Other References:

 
Code Sec. 6103

  CCH Reference - 2009FED ¶36,894.65

  CCH Reference - 2009FED ¶36,894.75

 
Code Sec. 7431

  CCH Reference - 2009FED ¶41,758.10

  Tax Research Consultant

  CCH Reference - TRC IRS: 9,052.10
CCH Reference -
TRC IRS: 9,352
CCH Reference -
TRC IRS: 9,358
 

CCH (cch.taxgroup.com) reports:

  Senate Finance Committee Chairman Max Baucus, D-Mont., said he is confident a health care reform bill will reach the president's desk in 2009 "if we all work together...." Emerging with other Senate leaders from a White House luncheon meeting on August 4, Baucus said he wants a final bill to reform the health insurance industry, cut health care costs and garner 60 votes. When asked by a reporter, he did not say whether a final package must include a specific mechanism, such as a public option or non-profit co-op, to increase coverage for the uninsured.

  Baucus has been working diligently for months with other key senators in an effort to move forward a bipartisan bill that does not lose the support of Democratic members. Sen. Christopher Dodd, D-Conn., stressed that Democrats and GOP members of Congress must come back from the August recess with a "new sense of purpose" to get the bill done.

  By Paula Cruickshank, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  The Franchise Tax Board (FT has clarified the California personal income and corporation franchise and income tax treatment of the federal Car Allowance Rebate System, or "cash for clunkers," voucher benefit provided to purchasers of qualifying new cars and trucks in conjunction with the transfer of an eligible trade-in vehicle to a car dealer. According to the FTB, the transaction will be treated for California income tax purposes as a sale or exchange of the used car that the person delivers, in exchange for consideration of the $3,500 or $4,500 voucher, as the case may be. Persons trading in used cars may offset the applicable amount realized by the basis of the used cars relinquished, which is generally cost, in determining whether they realized gain on the transaction. Personal losses on the sale of personal assets, such as a family car, may not be used to reduce taxable income.

E-mail , California Franchise Tax Board, July 30, 2009, ¶404-951

  Other References:

  Explanations at ¶10-640

  Explanations at ¶16-070

CCH (cch.taxgroup.com) reports:

  A Streamlined Sales Tax (SST) panel has agreed to issue an interpretation on whether the option for SST member states to use origin sourcing expires on January 1, 2010, or remains available after that date. The Compliance Review and Interpretations Committee (CRIC) accepted the request for an interpretation made by the states of Arizona, New Mexico, Ohio, Tennessee, Texas, Utah and Virginia. The Virginia Association of Counties also joined the request.

  The request grows out of a compromise approved by the SST Governing Board in December 2007. Originally, the SST Agreement required full member states to use destination sourcing. However, several states that used origin sourcing argued that making the transition to a destination system posed an insurmountable obstacle preventing them from becoming full members. This group included associate member states Ohio, Tennessee and Utah and nonmembers Texas and Virginia. After considerable resistance from some states and taxpayers, the board ultimately amended the Agreement to allow states to elect to use origin sourcing and still become full members under certain circumstances.

  Among the conditions was that the origin-sourcing option would be effective "on or after January 1, 2010, provided that at least five states which are not full member states on December 31, 2007" made the election to use origin sourcing and otherwise were in substantial compliance with the Agreement. Although Ohio, Tennessee and Utah may meet that standard now, there is no expectation that another two states will do so by January 1, 2010.

  The states requesting the interpretation have asked the CRIC to evaluate the 2007 amendments to the Agreement and decide whether the January 1, 2010 date is a "sunset" or a "trigger." If it is a "sunset," the option to elect to use origin sourcing would expire on January 1, 2010. If it is a "trigger," January 1, 2010, simply would be the earliest possible date that states making the election could become full member states. Under the "trigger" interpretation, states electing to use origin sourcing, which were otherwise in compliance, could become full members at whatever date in the future a fifth state successfully made that election.

  The states seeking the interpretation from the CRIC have asked that it rule the date is a "trigger," not a "sunset." The CRIC is expected to hold an expedited hearing on this issue in the near future, so that the matter can be evaluated by the full board at the upcoming annual meeting in Oklahoma City, September 29-30, 2009.

Meeting, Compliance Review and Interpretations Committee, July 30, 2009

CCH (cch.taxgroup.com) reports:

  The IRS could not use an extended six-year limitations period to assess a deficiency where a partnership allegedly overstated its basis on disposition of an asset, thereby lowering the amount of gross income reported in its return. Overstatement of basis is not an omission of gross income for purposes of Code Sec. 6501(e)(1)(A); therefore, a Notice of Final Partnership Administrative Adjustment (FPAA) was untimely because it was not issued within the three-year limitations period. The interpretation of former Code Sec. 275(c) in Colony, Inc. , SCt, 58-2 USTC ¶9593, controls the interpretation of the substantially identical language in Code Sec. 6501(e)(1)(A). Thus, the decision of the Court of Federal Claims that the FPAA was not time-barred was reversed and remanded.

  The IRS's argument that the Colony, Inc., holding should be limited to the sale of goods or services by a trade or business was rejected because the holding only identifies situations in which a taxpayer omits particular items from gross income. Code Sec. 6501(e)(1)(A) is not limited to any particular type of taxpayer and its general judicial construction was not altered by the addition of Code Sec. 6501(e)(1)(A)(i), which clarifies that an overstatement of basis is not an omission from gross income in the case of a trade or business. Applying the Colony, Inc. , holding did not render Code Sec. 6501(e)(1)(A)(i) and Code Sec. 6501(e)(1)(A)(ii) superfluous because Code Sec. 6501(e)(1)(A) only clarifies that the "omits from gross income" does not extend to an alleged overstatement of basis in property.

  Reversing a FedCl decision, 2007-2 USTC ¶50,803.

Salman Ranch Ltd., CA-FC, 2009-2 USTC ¶50,528

Other References:

 
Code Sec. 6229

  CCH Reference - 2009FED ¶37,749.13

 
Code Sec. 6501

  CCH Reference - 2009FED ¶38,971.13

  CCH Reference - 2009FED ¶38,971.40

  CCH Reference - 2009FED ¶38,971.76

  Tax Research Consultant

  CCH Reference - TRC IRS: 30,152.15
CCH Reference - TRC IRS: 30,152.40
CCH Reference - TRC PART: 60,352.10
 

CCH (cch.taxgroup.com) reports:

  A domestic corporation's request for a redetermination of foreign sales corporation (FSC) commissions allocated to its wholly-owned FSC was properly denied because the FSC's assessment period was closed. The government's interpretation of
Temporary Reg. §1.925(a)-1T(e)(4), which required that the redetermination be filed while both the refund limitations period under Code Sec. 6511 and the Code Sec. 6501 assessment period is open with respect to both the FSC and its related supplier (the domestic corporation), was valid. The
Temporary Reg. §1.925(a)-1T(e)(4) requirement that a redetermination "shall affect" both the FSC and the related supplier necessarily refers to a meaningful tax effect.

  The "shall affect" language in the regulation was ambiguous; however, the government's interpretation of that language was entitled to deference because its interpretation was reasonable and was not inconsistent with any prior governmental interpretation. The government's inability to offset any refund paid to the corporation by assessing and collecting additional taxes from the FSC clearly would have prevented the redetermination from affecting both parties. The taxpayer's interpretation of the "shall affect" language as only requiring that the FSC and related supplier accurately reflect their income and expenses on their books would have rendered the "shall affect" language superflous.

  Affirming a FedCl decision, 2008-2 USTC ¶50,570.

Abbott Laboratories, CA-FC, 2009-2 USTC ¶50,525

Other References:

 
Code Sec. 925

  CCH Reference - 2009FED ¶28,163.60

 
Code Sec. 6511

  CCH Reference - 2009FED ¶39,080.2485

  Tax Research Consultant

  CCH Reference - TRC IRS: 36,052.05

CCH (cch.taxgroup.com) reports:

  The IRS's decision to proceed with the collection of a married couple's unpaid tax liability through a federal tax lien was not an abuse of discretion. The couple had a prior opportunity to dispute their underlying tax liability at a Code Sec. 6330 Collection Due Process hearing and also did not file a Tax Court petition; therefore, they were precluded from disputing their underlying tax liability at a Code Sec. 6320 hearing they requested in response to the notice of federal tax lien. At that hearing, the couple failed to provide any reason why the lien should not be enforced nor any collection alternatives.

C.M. Willock, TC Memo. 2009-178, Dec. 57,897(M)

Other References:

 
Code Sec. 6320

  CCH Reference - 2009FED ¶38,134.89

 
Code Sec. 6330

  CCH Reference - 2009FED ¶38,184.62

  Tax Research Consultant

  CCH Reference - TRC IRS: 51,056.25

CCH (cch.taxgroup.com) reports:

  Senate leaders intent on approving an additional $2 billion in funds for the successful Cash for Clunkers program received a boost when two lawmakers threatening to derail legislation providing the money dropped their objections (TAXDAY, 2009/08/03, C.1). Sens. Dianne Feinstein, D-Calif., and Susan M. Collins, R-Maine, said on August 3 that they believed their goal of achieving higher fuel efficiency through the program had been met.

  The use of an energy loan fund made available through the American Recovery and Reinvestment Act of 2009 (P.L. 111-5) to finance an extension of the program poses a problem to many lawmakers, however, and both Collins and Feinstein said they would seek alternative ways to finance the project. Feinstein suggested the possibility of dipping into funds from the Troubled Asset Relief Program (TARP) to cover the costs, but said the White House was opposed to the idea because it believes there would be legal obstacles to redirecting those funds.

  Sen. Charles E. Schumer, D-N.Y., said that leadership on both sides of the aisle was committed to "getting this done" before leaving for August recess. "There will be more money coming down the pike," said Schumer. Feinstein said she believed there were 60 votes in the Senate to approve the measure (HR 3435) as passed by the House on July 31 (TAXDAY, 2009/08/03, W.1). She said changes to the funding source could occur when Congress returns from recess in September.

  Feinstein and Collins had originally questioned whether the program had achieved its stated goal of having customers trade-in gas guzzling vehicles for more fuel efficient cars. In a July 31 letter to Transportation Secretary Ray LaHood, they requested a detailed analysis of how the program has worked to date, including the make and model of the vehicles purchased, the fuel efficiency of purchased vehicles and the condition of vehicles traded in. They said a report on the sales had indicated most customers were indeed trading in for better fuel efficiency.

  Senate Democrats will hold their weekly policy luncheon at the White House on August 4 to discuss legislative priorities, including health care, the state of the economy, energy legislation and the Cash for Clunkers program. Gibbs warned that the extremely successful vehicle trade-in program is very unlikely to last beyond the end of the week if the Senate does not follow the House's lead to pass legislation for $2 billion more in funding.

  By Jeff Carlson, CCH News Staff

Tax Analysts report:

CCH (cch.taxgroup.com) reports:

  Oregon has enacted a transportation law that extends two corporate excise (income) and/or personal income tax credits, sunsets another corporate and personal income tax credit, and increases the motor fuel tax rate, vehicle registration fees, and motor carrier taxes.

CCH (cch.taxgroup.com) reports:

  The dire fiscal situation facing most states hung over the 42nd Annual Conference of the Multistate Tax Commission (MTC), held in Kansas City, Missouri, July 29, 2009. During the leadership meetings on the following day, the MTC renewed its commitment to examine the Uniform Division of Income for Tax Purposes Act (UDITPA) for possible revision. The MTC members also heard a status report on federal legislation affecting state taxes, including possible Streamlined Sales Tax (SST) authorizing legislation, and received public comment regarding withholding requirements on mobile workers.

CCH (cch.taxgroup.com) reports:

  The IRS has issued proposed regulations updating the questions and answers inReg. §301.7611-1, relating to church tax inquiries and examinations to reflect changes in IRS offices caused by the Internal Revenue Service Restructuring and Reform Act of 1998 (P.L. 105-206). In mandating a restructuring of the IRS from a geographic structure to one based on taxpayer type, Congress provided a saving provision in
P.L. 105-206 to maintain the effectiveness of standing regulations even in the event of positions described in the regulations being eliminated. However, references in the regulations to positions no longer in existence created some confusion; therefore, Reg. §301.7611-1 questions and answers 1, 7, 9, 10, 11, 15, 16 and 17 have been updated to reflect and clarify these changes. The proposed amendments make the following substitutions:

  "Director, Exempt Organizations" for "Regional Commissioner" (answers 1, 7, 9, 15, 17); and

  "Division Counsel/Associate Chief Counsel, Tax Exempt and Government Entities" for "Regional Counsel" (answers 10, 11).

  In addition, references to "the Assistant Commissioner (Employee Plans and Exempt Organizations)" have been replaced by either "the Commissioner, Tax Exempt and Government Entities" or "the Deputy Commissioner, Tax Exempt and Government Entities" (answer 16).

  Written or electronic comments will be considered if they are timely submitted. Requests for a public hearing will be honored if requested in writing by any person timely submitting written or electronic comments. The details of any such public hearing will be published in the Federal Register.

Proposed Regulations, NPRM REG-112756-09, 2009FED ¶49,426

Other References:

 
Code Sec. 7611

  CCH Reference - 2009FED ¶42,912

  Tax Research Consultant

  CCH Reference - TRC IRS: 18,406
CCH Reference - TRC IRS: 18,406.05
CCH Reference - TRC IRS: 18,406.10
CCH Reference - TRC IRS: 18,406.15
CCH Reference - TRC IRS: 18,406.20
CCH Reference - TRC IRS: 18,406.25
CCH Reference - TRC IRS: 18,406.30
CCH Reference -
TRC IRS: 21,202
CCH Reference -
TRC IRS: 21,206
CCH Reference -
TRC IRS: 21,208
 

CCH (cch.taxgroup.com) reports:

  The IRS has issued final regulations that provide guidance regarding the treatment of controlled services transactions under Code Sec. 482 and the allocation of income from intangible property, in particular with respect to contributions by a controlled party to the value of an intangible owned by another controlled party. The final regulations also modify regulations under
Code Sec. 861 with respect to stewardship expenses, so that these provisions are consistent with the changes to the Code Sec. 482 regulations concerning controlled services transactions.

  CCH Comment.
Code Sec. 482 generally provides that the IRS may allocate gross income, deductions and credits between or among two or more taxpayers owned or controlled by the same interests in order to prevent evasion of taxes or to clearly reflect income of a controlled taxpayer. Final, temporary and proposed regulations issued in 2006 relating to the treatment of controlled service transactions, the allocation of income from intangible property, and stewardship expenses generated a number of comments from taxpayers, their representatives, and industry and professional groups.

  Both the format and the substance of the final regulations are generally consistent with the 2006 temporary regulations, and make clear that application of the services cost method (SCM) is a matter within the control of the taxpayer, as previously indicated in Notice 2007-5, 2007-1 CB 269. In order for the SCM to be applicable, the final regulations clarify that the service must be a covered service, cannot be an excluded activity, and cannot be precluded from constituting a covered service by reason of the business judgment rule, and adequate books and records must be maintained with respect to the service.

  Although comments were received requesting that the proposed list of specified covered services be expanded, the final regulations do not add to the list set forth in Rev. Proc. 2007-13, 2007-1 CB 295. In response to comments concerning the business judgement rule, the final regulations clarify that it is determined on a controlled group basis and determined by reference to a trade or business of the controlled group. The final regulations also clarify language concerning the comparable uncontrolled services price method, provide additional guidance concerning the application of the comparable profit split and residual profit split methods to controlled services transactions in Reg. §1.482-9(g) and Reg. §1.482-6(c)(3)(i)(, and clarify certain examples with respect to the profit split method and economic substance considerations.

  The regulations conforming the stewardship expense regulations under Code Sec. 861 are applicable for tax years beginning after December 31, 2006. The Code Sec. 482 regulations are applicable for tax years after July 31, 2009, but may by election be applied retroactively to any tax year beginning after September 10, 2003.

T.D. 9456, 2009FED ¶47,025

Other References:

 
Code Sec. 482

  CCH Reference - 2009FED ¶22,282B

  CCH Reference - 2009FED ¶22,282CK

  CCH Reference - 2009FED ¶22,282D

  CCH Reference - 2009FED ¶22,282EK

  CCH Reference - 2009FED ¶22,282F

  CCH Reference - 2009FED ¶22,282GE

  CCH Reference - 2009FED ¶22,282J

  CCH Reference - 2009FED ¶22,282JK

  CCH Reference - 2009FED ¶22,282N

  CCH Reference - 2009FED ¶22,282R

  CCH Reference - 2009FED ¶22,282SG

  CCH Reference - 2009FED ¶22,282T

  CCH Reference - 2009FED ¶22,282U

 
Code Sec. 861

  CCH Reference - 2009FED ¶27,138

  CCH Reference - 2009FED ¶27,139

  CCH Reference - 2009FED ¶27,140

  CCH Reference - 2009FED ¶27,141

  CCH Reference - 2009FED ¶27,142

  CCH Reference - 2009FED ¶27,143

  CCH Reference - 2009FED ¶27,145

 
Code Sec. 6038A

  CCH Reference - 2009FED ¶35,561A

  CCH Reference - 2009FED ¶35,561C

 
Code Sec. 6662

  CCH Reference - 2009FED ¶39,653C

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 30,104.10
CCH Reference - TRC ACCTNG: 30,106
CCH Reference - TRC INTL: 15,110.10
 

CCH (cch.taxgroup.com) reports:

  Following reports that the "Cash for Clunkers" (CARS) program had been suspended because of depleted funds, Congress and the White House on July 31 scrambled to ensure that consumers can continue to buy cars under the program. The House immediately took up and passed a bill (HR 3435) providing an additional $2 billion to keep the program running. The final vote was 316 to 109.

  The additional funds come from a loan guarantee for clean energy included in the American Recovery and Reinvestment Act of 2009 (2009 Recovery Act) (P.L. 111-5) and would extend the program through September 30, 2010. Rep. Edward J. Markey, D-Mass., one of the co-authors of the "Cash for Clunkers" program, said he would push to ensure that the money is replaced in the environmental fund.

  Sen. Carl Levin, D-Mich., said that the program had proven "hugely successful" and that he had been assured by the White House that consumers could continue to purchase vehicles under the program until further notice. Levin said that the Senate is also going to seek additional funds to extend the program. The Senate will likely take up the measure, which would be open to amendments, during the week beginning August 3. However, passage may not be as smooth in the Senate because some senators plan to seek higher fuel-efficiency standards in the deal.

  Sens. Dianne Feinstein, D-Calif., and Susan M. Collins, R-Maine, on July 31 urged the Department of Transportation to promptly provide Congress with a detailed evaluation of the effectiveness of the CARS program. In a letter to Transportation Secretary Ray LaHood, Feinstein and Collins requested a detailed analysis of how the program has worked to date, including the make and model of the vehicles purchased, the fuel efficiency of purchased vehicles, and the condition of vehicles traded-in. "The tremendous number of sales in the first week of this program demonstrates that the CARS Act (Consumer Assistance to Recycle and Save Act of 2009, approved as part of the 2009 Supplemental Appropriations Act for Iraq, Afghanistan, Pakistan and Pandemic Flu (P.L. 111-32) (TAXDAY, 2009/06/25, W.1)) has succeeded in increasing new vehicle sales, but Congress needs this data in order to determine if the fleet modernization program delivered significant fuel economy gains and oil savings," stated the lawmakers.

  President Obama is "enormously pleased" that the House bill proposes to use $2 billion from energy efficiency funds contained in the
2009 Recovery Act, according to White House Press Secretary Robert Gibbs. Gibbs said the CARS program benefits taxpayers because their new cars are more fuel-efficient.

  Obama on June 24 signed legislation to boost the sale of vehicles at financially strapped U.S. automobile dealerships (TAXDAY, 2009/06/25, W.1). The program provides $1 billion in tax-free vouchers to automobile dealers who participate in the new program. The program vouchers, worth $3,500 or $4,500, are given to dealers when consumers trade in old vehicles for ones with higher fuel efficiency. The vouchers are considered to be taxable income for the dealers but not the customers who purchase a new vehicle.

  Congress created the new program as part of the CARS Act. Generally, the trade-in vehicle must have a fuel economy value of 18 miles-per-gallon (mpg) or less. The vehicle must be in drivable condition and have been continuously insured and registered in the same owner's name for one year before trade-in. Vehicles manufactured more than 25 years ago generally are ineligible for the program. The new law limits the number of vouchers to one per customer, including joint registered owners of a single eligible trade-in vehicle.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

Tax Analysts report:

Tax Analysts report:

Tax Analysts report: