Tax News

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: