Tax News

CCH (cch.taxgroup.com) reports:

  The city of Anaheim was barred from invoking the constitutional pay first requirement in litigation that arose when the city assessed a local transient occupancy tax against a number of online travel companies (OTCs). The pay first rule applies only to actions against the state or an officer of the state and the local ordinance did not contain a similar requirement.

  Under Article XIII, Section 32, of the California Constitution, a taxpayer who wishes to challenge the assessment of a state tax must pay the disputed amount of tax before seeking recourse in the courts to recover the amount assessed. That provision, however, applies only to actions against the state or an officer of the state. After the city assessed the tax and interest against the OTCs, the OTCs, without first paying the assessed amounts, filed actions in superior court that sought mandamus and declaratory relief against the city and its administrative hearing officer. The city cited the pay first rule and demurred to the petitions on the ground that the OTCs had not paid the taxes allegedly due prior to filing suit. The superior court overruled the demurrers and the appellate court denied the city's petition for writ of mandate.

  Moreover, the local transient occupancy tax ordinance did not contain a pay first requirement and it did not provide taxpayers with an adequate remedy at law, such as a refund procedure, to challenge the legality of the tax. As such, the city had no statutory authority to impose a pay first requirement on the OTCs. The city argued that a pay first requirement should be imposed based on the public policy underlying Article XIII, Section 32. The appellate court, however, held that the city could not rely on a public policy argument because the taxes the city seeks to collect from the OTCs do not represent a predictable income stream on which the city has come to rely. Although the transient occupancy tax has been in effect since 1977, the city had sought to collect the tax only from hotel operators until 2007 when the city issued a notice of audit to the OTCs regarding unpaid taxes. The city had not collected any of the taxes it claimed the OTCs owed.

  The appellate court limited its holding to the procedural issue of whether the OTCs could seek mandamus and declaratory relief in the superior court without first paying the taxes. The court did not consider issues relating to the merits of the OTC claims, such as whether they are "operators" as defined in the ordinance, the applicability of Proposition 218, the possibility of criminal sanctions for nonpayment of the tax, or the due process concerns that arise from the fact that the city seeks to impose the transient occupancy tax for a seven-year period in which the OTCs had no notice that the city considered them subject to the tax.

City of Anaheim v. Superior Court of Los Angeles County , California Court of Appeal, Second Appellate District, No. B216250, November 24, 2009, ¶404-019

  Other References:

  Explanations at ¶60-480

CCH (cch.taxgroup.com) reports:

  The California Franchise Tax Board (FT has announced that it will not impose the personal income tax e-pay penalty against taxpayers required to make their tax payments electronically. The FTB states that since the mandatory e-pay requirements were instituted in 2009, compliance has been increasing steadily. However, rather than imposing penalties now, the FTB will continue to focus its efforts on outreach and education so that taxpayers and their representatives can implement processes and procedures to comply with the law. The FTB will continue to monitor compliance levels to determine the appropriate time to begin implementation of the penalty.

Announcement , California Franchise Tax Board, November 24, 2009
 

CCH (cch.taxgroup.com) reports:

  The IRS was required to pay specified taxpayers' costs and attorney fees associated with remand proceedings attributable to the IRS's misconduct during the "Kersting" tax shelter project litigation. The proceedings for which fees and costs were awarded were directly related to the IRS's sanctionable conduct.

  CCH Comment . The IRS attorneys' unreasonable conduct involved arranging secret settlements with two of the test-case plaintiffs involved in the "Kersting" tax shelter test cases. The effect of these settlements was to pay the test-case plaintiffs' attorney to provide the appearance of independent representation of the test-case plaintiffs in the test-case trial. The Ninth Circuit Court of Appeals held that the IRS's conduct was a fraud upon the court ( Dixon , 2003-1 USTC ¶50,194) and remanded the remaining 27 cases to the Tax Court to settle the remaining cases on the same terms as those secretly settled. The Tax Court recently imposed similar sanctions against the IRS with respect to attorneys who worked in the same proceedings on a contingency fee basis ( Dixon,
Dec. 57,766). The Tax Court plans to address fees incurred by other attorneys involved in the proceedings in a future opinion.

  Related decision sub nom Dixon, CA-9, 2003-1 USTC ¶50,194.

R.F. Hongsermeier, TC Memo. 2009-273, Dec. 58,005(M)

Other References:

 
Code Sec. 6673

  CCH Reference - 2009FED ¶39,790.451

  Tax Research Consultant

  CCH Reference - TRC LITIG: 6,816.15

 

CCH (cch.taxgroup.com) reports:

  A married couple was required to include in income Social Security disability benefits received by the wife and was not entitled to exclude discharge of indebtedness income arising from the forgiveness of certain credit card debt. Although the Social Security disability benefits reduced the amount the wife was entitled to receive tax-free under a private long-term disability (LTD) policy, the LTD policy only entitled the wife to receive benefits on top of what she received from Social Security. Pursuant to Code Sec. 86, the Social Security benefits were required to be included in income.

  The credit card debt which was relieved had been incurred for legal fees that the couple's attorney allegedly promised that they would be entitled to recoup. When the couple discovered they were not entitled to recoup such fees, they disputed the credit card charge and were relieved of the liability. Although the couple acknowledged that they were not eligible for any exception under Code Sec. 108 for discharge of indebtedness income, they claimed they should have been entitled to an offsetting theft loss for the attorney's misrepresentation. The couple failed, however, to establish that the alleged misrepresentation constituted a theft. Futhermore, even if such theft had occurred, it would have been deductible in a later year when the litigation concluded and they discovered they were not entitled to recoup the fees.

K.A. Seaver, TC Memo. 2009-270, Dec. 58,002(M)

Other References:

 
Code Sec. 86

  CCH Reference - 2009FED ¶6421.17

 
Code Sec. 108

  CCH Reference - 2009FED ¶7010.25

 
Code Sec. 165

  CCH Reference - 2009FED ¶10,101.103

  Tax Research Consultant

  CCH Reference - TRC INDIV: 6,204
CCH Reference - TRC SALES: 12,150
CCH Reference - TRC INDIV: 54,100
CCH Reference - TRC INDIV: 54,254

 

CCH (cch.taxgroup.com) reports:

  Bracing themselves for a long Senate health care reform debate, President Obama's chief budget and health care reform advisors on November 25 argued that the pending legislation meets the administration's four key criteria for being a fiscally responsible bill. The Senate package: (1) is deficit-neutral; (2) raises revenue by imposing an excise tax on insurers of high-end ("Cadillac") health care policies; (3) establishes an independent commission to improve health care quality and rein in Medicare health care expenditures; and (4) implements delivery system reforms, noted Office of Management and Budget (OM Director Peter Orszag.

  The tax on insurance companies offering Cadillac health plans aims to curtail private insurers' premium increases and encourage employers to seek higher-quality and lower-cost health benefits, Orszag noted in a conference call with reporters. He cited an analysis of the Senate Finance Committee proposal by leading economists who estimated the excise tax would increase workers' take home pay by more than $300 billion over 10 years, or approximately $173 annually per family.

  The findings were included in a letter to President Obama on November 17 from 23 leading economists, including Alice Rivlin, Robert Reischauer, Mark McClellan, and Laura D'Andrea Tyson. "As economists, we believe that it is important to enact health reform, and it is essential that health reform include these four features that will lower health care costs and help reduce deficits over the long term," Henry Aaron of the Brookings Institution stated in the letter.

  By Paula Cruickshank, CCH News Staff

CCH (cch.taxgroup.com) reports:

  The Kentucky Court of Appeals has upheld a circuit court decision that a corporation and its affiliates with no physical presence in Kentucky, but with a 99% ownership interest in a Delaware limited partnership doing business in Kentucky, had taxable nexus with Kentucky and, therefore, was required to pay corporation income tax on its distributive share of partnership income. However, the circuit court was reversed in so far as it concluded that the Kentucky statutory three-factor apportionment formula provided the correct method for calculating the taxes because it reasoned that prohibiting taxpayers from using the three-factor formula would subject the formula to possible constitutional problems. The Kentucky Court of Appeals disagreed, finding that the legislature clearly intended for the amount of tax to be calculated using the three factor formula and that this would not result in extraterritorial values being taxed. The circuit court also erred by granting the corporations immediate payment of their refunds because the applicable Kentucky statute clearly directs payment of refunds only upon final appeal. Finally, the Kentucky Court of Appeals ruled that Kentucky legislation that retroactively changed the date for accrual of interest and the rate of interest on refund claims did not violate the U.S. or Kentucky Constitutions because it rationally furthered a legitimate governmental purpose of raising revenue, it did not constitute an unconstitutional taking of property, and it did not amount to impermissible special legislation.

 

CCH (cch.taxgroup.com) reports:

  Employee benefits and tax accounting issues stand out in the IRS's 2009-2010 Priority Guidance Plan, which the Service released on November 24. The guidance plan describes more than 300 areas in which the Service intends to issue final regulations, proposed regulations and other guidance. Some of the projects have already been completed.

Employee Benefits

  In the employee benefits and related areas, the IRS promised to deliver long-awaited final regulations on cafeteria plans under Code Sec. 125. The Service also plans to issue a notice on a sample cafeteria plan under Code Sec. 125.

  Many of the employee benefits and related guidance projects spring from the Pension Protection Act of 2006 (P.L. 109-280). The IRS intends to issue final regulations on diversification requirements under Code Sec. 401(a)(35), on hybrid plans under Code Secs. 411(a)(13) and 411(b)(5), and final regulations on the determination of the minimum required contributions under
Code Sec. 430.

  Taxpayers can expect more Code Sec. 409A guidance, including guidance on a Code Sec. 409A correction program, the Service reported. The IRS also intends to publish final regulations on income inclusion under Code Sec. 409A.

Tax Accounting

  Tax accounting issues also make up a large part of the priority guidance plan. Among other projects, the IRS intends to issue final regulations under Code Sec. 263(a) regarding the deduction and capitalization of expenditures for tangible assets, proposed regulations under Code Sec. 263(a) regarding the treatment of capitalized transaction costs, and additional guidance under Code Sec. 469 regarding home construction contracts.

International Issues

  The priority guidance plan reflects the IRS's renewed emphasis on international tax issues. The Service intends to issue guidance under Code Sec. 1441 on qualified intermediaries and guidance on cross-border information and filing issues. As in past years, taxpayers can expect guidance on the foreign tax credit.

Partnerships and S Corporations

  In the pass-through area, the IRS intends to issue final regulations on S corporation losses/reduction in tax attributes under Code Sec. 108(b) for discharge of indebtedness income that is excluded from gross income and guidance under Code Sec. 1367 regarding S corporations and back-to-back loans. Taxpayers can also expect final regulations under Code Sec. 108(e)(8) regarding debt satisfied by a partnership interest.

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

Treasury Office of Tax Policy and Internal Revenue Service 2009-2010 Priority Guidance Plan, 2009FED ¶46,543

Other References:

 
Code Sec. 7804

  CCH Reference - 2009FED ¶43,266.49

  Tax Research Consultant

  CCH Reference - TRC IRS: 12,350

CCH (cch.taxgroup.com) reports:

  The IRS has issued a press release noting changes made to the First-Time Homebuyer Credit made by the Worker, Homeownership, and Business Assistance Act of 2009 (P.L. 111-92). Taxpayers who claim the credit on their 2009 returns will not be able to file electronically, but will have to file a paper return. Taxpayers are also reminded that, for qualifying purchases in 2010, they can choose to claim the credit on either their 2009 or 2010 returns. An IRS video on YouTube discusses various rules related to the credit

  The IRS has also announced that a new version of Form 5405, First-Time Homebuyer Credit, will be released sometime in the next few weeks. Taxpayers who purchase homes after November 6, 2009, or who claim the credit on their 2009 returns must use this new form. Qualifying taxpayers who purchase a principal residence on or before November 6, 2009, and who claim the credit on an original or amended 2008 return may use the current version of Form 5405.

IR-2009-108,
2009FED ¶46,540

Other References:

 
Code Sec. 36

  CCH Reference - 2009FED ¶4190.11

  Tax Research Consultant

  CCH Reference - TRC INDIV: 57,950

 

CCH (cch.taxgroup.com) reports:

  The IRS has issued final regulations relating to the payment of tax liabilities through installment agreements. The regulations reflect changes to the law made by the Taxpayer Bill of Rights II (P.L. 104-168), the Internal Revenue Service Restructuring and Reform Act of 1998 (P.L. 105-206) and the American Jobs Creation Act of 2004 (P.L. 108-357). The final regulations generally adopt proposed regulations issued in March 2007 (NPRM REG-100841-97), with revisions to two provisions made in response to comments received by the IRS. The regulations are effective November 25, 2009.

  The final regulations adopt without change procedures set forth in the proposed regulations regarding submission and consideration by the IRS of proposed installment agreements, and acceptance, form and terms of installment agreements. The regulations provide that a proposed installment agreement must be submitted according to the procedures prescribed by the IRS, and becomes pending when it is accepted for processing. An installment agreement request is not accepted until the IRS notifies the taxpayer or the taxpayer's representative of the acceptance.

  The final regulations clarify that partial payment agreements do not reduce the amount of taxes, interest or penalties owed. They also clarify that the IRS may enter into agreements that end before the expiration of the period of limitations on collection. Thus, a partial payment installment agreement ending before the expiration of the collection period of limitations would allow the IRS to collect the balance of the tax liability after the agreement expired. However, the preamble to the final regulations notes that the IRS does not currently enter into partial payment installment agreements that expire before the end of the collection statute and has no plans to do so routinely in the future. The final regulations also require the IRS to review partial payment agreements every two years to determine whether the financial condition of the taxpayer has significantly changed. Further, the regulations provide that, while an installment agreement is in effect, the IRS may require the taxpayer to provide updated financial information at any time.

  In addition, the final regulations provide that the IRS may not notify a taxpayer of the rejection of an installment agreement until an independent review of the proposed rejection is completed. The final regulations also allow taxpayers to appeal a rejection of an installment agreement to the IRS Office of Appeals within 30 days of being notified of the rejection.

  The IRS may modify or terminate an installment agreement if it determines that the taxpayer's financial condition has significantly changed or if the taxpayer fails to meet certain requirements. The proposed regulations provided that the IRS may modify or terminate an installment agreement if the taxpayer fails to provide a financial condition update requested by the Service. The final regulations clarify that the IRS may terminate an installment agreement only if the taxpayer provides materially inaccurate or incomplete information in connection with a requested financial update. Further, the final regulations modify the rule provided in the proposed regulations to explicitly allow taxpayers to request a modification or termination of an existing installment agreement. Additionally, the final regulations clarify that a taxpayer must comply with the terms of an existing installment agreement while a request for modification is being considered, and that a proposed modification will not result in a suspension of the statute of limitations on collection.

  The final regulations generally prohibit the IRS from taking any collection activity while a proposed installment agreement is pending, while an installment agreement is in effect, or during the 30-day period following the rejection of a proposed installment agreement or the termination of an installment agreement. Further, the final regulations provide that the statute of limitations on collection under Code Sec. 6502 is suspended while a proposed installment agreement is pending, plus 30 days following a rejection of a proposed installment agreement, and during any appeal. The final regulations also provide that each taxpayer with an installment agreement must also be provided with an annual statement showing the balance due at the beginning of the year, the payments made during the year, and the remaining balance due at the end of the year.

T.D. 9473, 2009FED ¶47,041

T.D. 9473, FINH ¶41,128

Other References:

 
Code Sec. 6159

  CCH Reference - 2009FED ¶37,180DF

  CCH Reference - 2009FED ¶37,180E

  CCH Reference - FINH ¶20,562

  CCH Reference - FINH ¶20,565

 
Code Sec. 6331

  CCH Reference - 2009FED ¶38,186K

  CCH Reference - FINH ¶21,160

  Tax Research Consultant

  CCH Reference - TRC FILEIND: 21,154.40

  CCH Reference - TRC FILEBUS: 6,104.40

  CCH Reference - TRC IRS: 45,112.15

 

CCH (cch.taxgroup.com) reports:

  Proposed regulations relating to awards of administrative costs and attorney's fees under Code Sec. 7430 have been issued. The proposed regulations reflect the amendments to Code Sec. 7430 made by the Taxpayer Relief Act of 1997 (P.L. 105-34) and the IRS Restructuring and Reform Act of 1998 (P.L. 105-206).

  CCH Comment.
Code Sec. 7430 provides that a prevailing party in any administrative or court proceeding that is brought by or against the United States in connection with the determination, collection, or refund of any tax may be awarded a judgment or settlement for reasonable administrative or litigation costs incurred in connection with the proceeding. To recover attorney's fees and costs, an individual taxpayer cannot have a net worth in excess of $2 million at the time of the filing of the civil action. Pursuant to Code Sec. 7430(c)(4)(D)(ii), joint filers are treated as two separate individuals for purposes of computing the net worth limitation.

  Under the proposed regulations, net worth is calculated using the fair market value of assets to provide a more accurate assessment of a taxpayer's actual and current net worth as of the administrative proceeding date. The proposed regulations also specify which net worth and size limitations apply when a taxpayer is an owner of an unincorporated business, and clarify the net worth requirement in cases involving partnerships subject to the unified audit and litigation procedures of Code Secs. 6221 through 6234 (the TEFRA partnership procedures).

  The proposed regulations address the period for recovery of administrative costs, which generally entitles the taxpayer to recover costs incurred after a notice of proposed deficiency (a "30-day letter") is mailed to the taxpayer. They clarify that such costs are recoverable only if at least one issue (other than recovery of costs) remains in dispute. The proposed regulations also address procedural requirements with respect to presenting an application with the IRS or, upon receiving an adverse decision from the IRS with respect to such application, filing a petition with the Tax Court to recover administrative costs.

  Comments on the proposed regulations have been requested. A public hearing on the proposals is scheduled for March 10, 2010.

Proposed Regulations, NPRM REG-111833-99, 2009FED ¶49,438

Proposed Regulations, NPRM REG-111833-99, FINH ¶41,144

Other References:

 
Code Sec. 7430

  CCH Reference - 2009FED ¶41,741C

  CCH Reference - 2009FED ¶41,742AC

  CCH Reference - 2009FED ¶41,742BC

  CCH Reference - 2009FED ¶41,742CC

  CCH Reference - 2009FED ¶41,742DC

  CCH Reference - 2009FED ¶41,742EC

  CCH Reference - 2009FED ¶41,742FC

  CCH Reference - 2009FED ¶41,742HC

  CCH Reference - FINH ¶22,392

  CCH Reference - FINH ¶22,397

  CCH Reference - FINH ¶22,405

  CCH Reference - FINH ¶22,412

  CCH Reference - FINH ¶22,417

  CCH Reference - FINH ¶22,422

  CCH Reference - FINH ¶22,427

  CCH Reference - FINH ¶22,432

  Tax Research Consultant

  CCH Reference - TRC LITIG: 3,154
CCH Reference - TRC LITIG: 3,154.20
 

CCH (cch.taxgroup.com) reports:

  In a 4-1 decision, the Utah Supreme Court held that the statute that imposes the state's Sexually Explicit Business and Escort Service Tax is a content-neutral law that imposes only incidental burdens on some expression, but is unreasonably vague with respect to the imposition of the tax on escort service providers.

  The case was filed by a group of erotic dancing clubs and escort service agencies to obtain a permanent injunction against the enforcement of the tax, and a declaratory judgment that the tax violates their First Amendment rights under the U.S. Constitution. The tax is a 10% gross receipts tax imposed on businesses whose employees or independent contractors perform services while nude or partially nude for 30 days or more per year, or provide companionship to another individual in exchange for compensation. Proceeds from the tax are used to provide treatment for convicted sex offenders. A district court granted summary judgment in favor of the Utah State Tax Commission. The plaintiffs appealed to the state supreme court.

 

CCH (cch.taxgroup.com) reports:

  The IRS properly determined withholding tax deficiencies and additions to tax with respect to a U.S. corporation. The burden of proof to overcome the presumption that the IRS's determinations of tax liability were correct remained with the taxpayer corporation. Although interest paid by the taxpayer to a corporation wholly owned and operated by the People's Republic of China was incorrectly included in the IRS's notice of deficiency, the IRS's determination was not arbitrary. In fact, the IRS had relied on information reported by the taxpayer in its Forms 5472, Information Return of a 25 Percent Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. Consequently, the burden to prove the correct amount of taxes owed did not shift to the government.

  The U.S.-China tax treaty did not exempt the taxpayer corporation from the requirement to withhold tax on its interest payments to a Hong Kong-based subsidiary of the Chinese corporation. The treaty was inapplicable because the subsidiary principally conducted its business in and filed its returns as a resident of Hong Kong, prior to its acquisition by the People's Republic of China. A loan from the Hong Kong subsidiary was not in substance a loan from the Chinese corporation. Moreover, the loan agreement did not mention an agency relationship or that the Chinese corporation guaranteed the debt or controlled the loan in any way.

  The taxpayer was liable for additions to tax for failure to file Forms 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, because it did not establish reasonable cause for such failure. The corporation's reliance on incorrect advice from its president did not absolve it from its duty to file returns. Even if the advice it received regarding withholding had been correct, it was still required to file the returns. The taxpayer did not show that it sought professional advice regarding filing.

  Affirming the Tax Court, 95 TCM 1228, Dec. 57,367(M), TC Memo. 2008-62.

New York Guangdong Finance Inc., CA-5, 2009-2 USTC ¶50,757

Other References:

 
Code Sec. 894

  CCH Reference - 2009FED ¶2300.57

  CCH Reference - 2009FED ¶26,870.20

 
Code Sec. 1442

  CCH Reference - 2009FED ¶32,723.198

 
Code Sec. 1461

  CCH Reference - 2009FED ¶32,828.20

 
Code Sec. 6203

  CCH Reference - 2009FED ¶37,514.27

 
Code Sec. 6651

  CCH Reference - 2009FED ¶39,475.23

  CCH Reference - 2009FED ¶39,475.355

  CCH Reference - 2009FED ¶39,475.42

  Tax Research Consultant

  CCH Reference - TRC PENALTY: 3,060.55
CCH Reference - TRC EXPAT: 15,052.15
CCH Reference - TRC EXPAT: 15,102.10
CCH Reference -
TRC INTL: 18,250
CCH Reference - TRC IRS: 27,210.05
 

CCH (cch.taxgroup.com) reports:

  The IRS has announced that the interest rates for the calendar quarter beginning January 1, 2010, will remain at 4 percent for overpayments (3 percent in the case of a corporation), 4 percent for underpayments and 6 percent for large corporate underpayments. The interest rate for the portion of a corporate overpayment exceeding $10,000 remains at 1.5 percent. The interest rates are computed by using the federal short-term rate based on daily compounding determined during October 2009.

 
Code Sec. 6621 provides that the rate of interest is to be determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus three percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus three percentage points, and the overpayment rate is the federal short-term rate plus two percentage points. The rate for large corporate underpayments is the federal short-term rate plus five percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a tax period is the federal short-term rate plus one half of a percentage point.

IR-2009-107,
2009FED ¶46,537

Rev. Rul. 2009-37, 2009FED ¶46,538

Rev. Rul. 2009-37, FINH ¶30,633

Rev. Rul. 2009-37, ETR ¶66,884

Other References:

 
Code Sec. 6601

  CCH Reference - 2009FED ¶174.01

  CCH Reference - 2009FED ¶175.01

  CCH Reference - 2009FED ¶175.30

 
Code Sec. 6621

  CCH Reference - 2009FED ¶39,455.01

  CCH Reference - 2009FED ¶39,455.51

  CCH Reference - FINH ¶21,685.01

  CCH Reference - FINH ¶21,685.30

  CCH Reference - ETR ¶102

  CCH Reference - ETR ¶50,615.01

 
Code Sec. 6622

  CCH Reference - 2009FED ¶39,465.01

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 33,204.15
CCH Reference - TRC PENALTY: 9,152
 

CCH (cch.taxgroup.com) reports:

  The IRS has finalized, with modifications, proposed regulations under Code Secs. 411(d)(6) and
4980F providing guidance on the application of the notice requirements for plan amendments that are allowed to provide for reduction in benefits accrued before the plan amendment's applicable amendment date. The final regulations reflect changes made by the Pension Protection Act of 2006 (2006 PPA) (P.L. 109-280). The final regulations apply also for purposes of ERISA Sec. 204(g) and (h), which contain rules parallel to the rules in Code Secs. 411(d)(6) and
4980F, respectively.

Background

 
Code Sec. 411(d)(6) generally provides that a plan is treated as not satisfying the Code Sec. 411 minimum vesting requirements if the accrued benefit of a participant is decreased by an amendment of the plan, other than an amendment described in Code Sec. 412(d)(2), ERISA Sec. 4281, or any other applicable law. ERISA Act sec. 204(g) contains parallel rules to Code Sec. 411(d)(6). Act Sec. 1107 of P.L. 109-280 provides that any plan amendment made pursuant to a change made by P.L. 109-280 may be retroactively effective and, except as provided by the IRS, does not violate the anti-cutback rules of Code Sec. 411(d)(6) or ERISA Act sec. 204(g) if, in addition to satisfying the conditions specified in Act sec. 1107(b)(2) of P.L. 109-280, the amendment is made on or before the last day of the first plan year beginning on or after January 1, 2009 (January 1, 2011, with respect to governmental plans).

 
Code Sec. 4980F imposes an excise tax when a plan administrator fails to provide timely notice of a plan amendment that provides for a significant reduction in the rate of future benefit accrual. Except as provided in regulations, the notice must be provided within a reasonable time before the effective date of the plan amendment. ERISA Act sec. 204(h) contains parallel rules to Code Sec. 4980F, and a notice required under any of these two provisions is generally referred to as a "section 204(h) notice". P.L. 109-280 amended Code Sec. 4980F and ERISA Act sec. 204(h) to require that a section 204(h) notice be provided to any employer that has an obligation to contribute to a plan. P.L. 109-280 also provided that, in the case of a plan amendment adopted in order to comply with the rules in Act Sec. 402 of P.L. 109-280 (i.e., funding rules for plans maintained by an employer that is a commercial passenger airline or the principal business of which is providing catering services to a commercial passenger airline), any notice required under Code Sec. 4980F(e) or ERISA Act sec. 204(h) must be provided within 15 days of the effective date of the plan amendment.

  In addition to the section 204(h) notice requirement, both the Code and ERISA include a number of other notice requirements to provide information to certain parties (such as participants, beneficiaries, and contributing employers) regarding the potential effect of a plan amendment that is permitted to reduce or eliminate previously accrued benefits.

Final Regulations

  To reflect the changes made by P.L. 109-280, the final regulations clarify that the requirement that a section 204(h) notice be given to contributing employers applies only to employers in a multiemployer plan, not to employers in a single employer plan. For certain plans maintained by an employer that is a commercial passenger airline or the principal business of which is providing catering services to a commercial passenger airline, a section 204(h) notice must be provided at least 15 days before the effective date of the amendment. The final rules also retain the proposal that no section 204(h) notice is required if a defined benefit plan is amended to reflect changes to the Code Sec. 417(e)(3) applicable interest or mortality assumptions made by P.L. 109-280.

  In addition, the final regulations provide a conforming amendment to the current regulations under Code Sec. 411(d)(6) to include Act sec. 1107 of P.L. 109-280 as a statutory exception to the general anti-cutback rule in Code Sec. 411(d)(6). Moreover, in the case of an amendment that is permitted to be adopted retroactively, the effective date of the amendment, for purposes of Code Sec. 4980F, is the date the amendment is put into effect on an operational basis under the plan, so that a section 204(h) notice must generally be provided at least 45 days before the date the amendment is put into effect on an operational basis (15 days for multiemployer plans). The cross-references in Reg. §54.4980F-1, Q&A-7(b), are also revised to provide that any plan amendment that is permitted to eliminate or reduce a Code Sec. 411(d)(6) protected benefit under certain provisions, is not an amendment for which a section 204(h) notice is required.

  The final regulations further provide that for any section 204(h) notice that is required to be provided in connection with an amendment to a Code Sec. 411(a)(13)(C) statutory hybrid plan that is first effective before January 1, 2009, and that limits the amount of a distribution to the account balance under Code Sec. 411(a)(13)(A), a section 204(h) notice does not fail to be timely if the notice is provided at least 30 days before the date the amendment is first effective. This special timing rule reflects the 30-day timing rule described in
Notice 2007-6, 2007-1 CB 272. The final regulations permit the use of this transitional timing rule through the end of 2008. Thereafter, the general 45-day timing rule applies to such amendments.

  To eliminate the need for a plan to provide multiple notices at different dates and with substantially the same function and information to affected persons, the final regulations provide that, with respect to an amendment that triggers a section 204(h) notice requirement as well as another statutory notice requirement listed in the regulations, if a plan provides the latter notice in accordance with the applicable standards for such a notice, then the plan is treated as having timely complied with the requirement to provide a section 204(h) notice. However, this special treatment does not apply if a plan is amended to implement benefit reductions independent of the reductions permitted under the relevant notice requirement. The final regulations remove the proposed rule under which the timing and content of a Code Sec. 432(e)(8)(C) notice for a multiemployer plan in a critical status would also satisfy such requirements for a section 204(h) notice because such interaction will be addressed in a separate guidance. The regulations, however, add the Code Sec. 432(b)(3)(D) notice to the list of similarly-situated benefit reduction notices.

  Finally, the regulations delegate authority to the IRS to publish revenue rulings, notices, or other guidance under Code Sec. 4980F, which would also apply to ERISA Act sec. 204(h), that the IRS determines to be necessary or appropriate for a plan amendment that applies with respect to benefits accrued before the applicable amendment date but that does not violate Code Sec. 411(d)(6). This delegation authority provides the IRS with greater flexibility to develop special rules to address special circumstances in the future, such as future statutory changes, and also extends to circumstances in which such a plan amendment may require another notice in addition to a section 204(h) notice.

Effective and Applicability Dates

  The final regulations generally apply to section 204(h) amendments that are effective on or after January 1, 2008. With respect to the timing rules on providing a section 204(h) notice for a plan amendment that has a retroactive effective date, the final rules generally apply to plan amendments adopted in plan years beginning after July 1, 2008. With respect to any amendment to a lump sum-based benefit formula, the special rules under the regulations relating to an amendment that applies to benefits accrued before the applicable amendment date apply to amendments adopted after December 21, 2006. In addition, the special 30-day limit timing rule for providing a section 204(h) notice applies to such amendments effective on or after December 21, 2006, and no later than December 31, 2008. The IRS anticipates issuing guidance in the near future relating to the application of Code Sec. 4980F to plan amendments that are adopted to comply with the Code Sec. 411(b)(5)((i) requirements regarding market rates of return. This future guidance may provide a special timing rule for when a section 204(h) notice must be provided.

T.D. 9472, 2009FED ¶47,040

Other References:

 
Code Sec. 411

  CCH Reference - 2009FED ¶19,072

 
Code Sec. 4980F

  CCH Reference - 2009FED ¶34,618B

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 15,404.05
CCH Reference - TRC RETIRE: 36,154.20
 

CCH (cch.taxgroup.com) reports:

  Proposed regulations relating to information-reporting requirements under new Code Sec. 6050W for issuers of credit, debit, gift and similar payment cards have been issued. The regulations provide guidance to interpret the definitions used in the statute and contain numerous illustrative examples.

 
Code Sec. 6050W, as added by the Housing Assistance Act of 2008 (P.L. 110-289), requires payment settlement entities (e.g., a bank) to annually report payments to participating payees (e.g., a merchant) in settlement of reportable payment transactions (e.g,. a credit or debit card transaction). The reporting requirement also applies to transactions settled through third-party payments networks, such as third-party organizations that settle online transactions (e.g., PayPal).

  Information reporting will begin to apply to 2011 transactions. Form 1099-K has been proposed for this purpose and is now available in draft form.

  Form 1099-K will be prepared for each calendar year and report the gross amount of reportable transactions for the year and for each month of the year. The inclusion of monthly amounts on the return filed with the IRS and the copy furnished to the payee will help fiscal-year payees reconcile payment carD and third-party network transaction receipts. The gross amount of a transaction is not reduced by fees, chargebacks, refunds, or any other amount.

  Payees may be given an electronic version of the form but only pursuant to current rules which require affirmative written consent.

  Individuals who use payment cards are not affected by the reporting requirements. No personal information regarding a payment card user is given to the IRS.

  Under the proposals, a payment card includes, but is not limited to, credit cards, debit cards, and stored-value cards (e.g., gift cards or similar cards with a prepaid value). A payment card also includes the acceptance as payment of any account number or other indicia associated with a payment card. A payment card issued in connection with a flexible spending arrangement or a health reimbursement arrangement is not exempted from the reporting requirements.

  Transactions using a stored-valued card that a network of persons has agreed to accept as payment (such as card issued by a college that may be used at specified local merchants) are subject to reporting. However, transactions involving a person (e.g., merchant) related to the issuer are excepted from the reporting requirements.

  A payment settlement entity may be a domestic or a foreign entity. A payment settlement entity that is not a U.S. payor or U.S. middleman is not required to report payments to participating payees that do not have a U.S. address so long as the payment settlement entity neither knows nor has reason to know that the participating payee is a U.S. person. Other payment settlement entities are exempt from the reporting requirements only if they obtain specified documentation from a payee with a foreign address establishing that the payee is a foreign person.

  An electronic payment facilitator (i.e., a person that contracts to make payments on behalf of a payment settlement entity) is subject to the reporting requirements and is liable for any penalties for failure to comply with those requirements. The facilitator's failure to comply with the reporting requirements will not cause the payment settlement entity to be liable for penalties.

  Under a de minimIs rule, a third-party settlement organization must report payments made to a participating payee only if its aggregate payments to that payee from third-party network transactions exceed $20,000 and the aggregate number of those transactions with the payee exceeds 200. This de minimIs exception does not apply to payments in settlement of payment card transactions. The IRS is seeking comments on whether the de minimIs exception should be mandatory or voluntary.

  Payments made to governmental units are subject to the reporting requirements under the proposals. No exception is provided for payments made using transit cards, electronic tool collection systems, and similar electronic payment mechanisms. The IRS seeks comments on the impact the regulations would have on government units that use such payment methods.

  The proposals clarify that health carriers operating health care networks, in-house accounts payable departments, and automated clearinghouse networks are not subject to the reporting requirements under the third-party payment network rules.

  Pursuant to rules for aggregated payees, the proposals require a corporation that receives payment from a bank for credit card sales transacted at its independently owned franchise stores to report the gross amount of the reportable transactions settled through the corporation. The corporation is required to separately report the gross amount of reportable transactions allocable to each franchise store.

  Under the proposals, any payment card transaction that would otherwise be reportable under both Code Sec. 6041 (relating to information at source) and new Code Sec. 6050W are excepted from the Code Sec. 6041 reporting requirements. This relief, however, does not apply to third-party network transactions. No further exceptions from duplicating reporting are provided.

  The proposed regulations also provide guidance on backup withholding requirements for reportable amounts that are paid after December 31, 2011.

  The proposals would be effective on the date published as final regulations in the Federal Register and would generally apply to returns for calendar years beginning after December 31, 2010.

  Comments on the proposed regulations must be received by January 25, 2010, and may be submitted electronically by mail or hand-delivered to the IRS.

  A public hearing on the proposals is scheduled for February 10, 2010.

IR-2009-106,
2009FED ¶46,535

Proposed Regulations, NPRM REG-139255-08, 2009FED ¶49,437

Other References:

 
Code Sec. 3406

  CCH Reference - 2009FED ¶33,640AD

  CCH Reference - 2009FED ¶33,640CD

  CCH Reference - 2009FED ¶33,641BG

  CCH Reference - 2009FED ¶33,641EC

 
Code Sec. 6041

  CCH Reference - 2009FED ¶35,821C

 
Code Sec. 6050W

  CCH Reference - 2009FED ¶36,381C

 
Code Sec. 6051

  CCH Reference - 2009FED ¶36,424AC

 
Code Sec. 6721

  CCH Reference - 2009FED ¶40,213C

 
Code Sec. 6722

  CCH Reference - 2009FED ¶40,232C

  Tax Research Consultant

  CCH Reference - TRC FILEBUS: 9,320
CCH Reference - TRC FILEBUS: 18,050
CCH Reference - TRC PENALTY: 3,204.05
 

CCH (cch.taxgroup.com) reports:

  After the Senate agreed to begin debate on health care reform on November 21 (TAXDAY, 2009/11/23, C.1), lawmakers took to the airwaves early the next morning to debate the legislation's prospects for passage. Speaking on CBS News' "Face the Nation," Sen. Jon Kyl, R-Ariz., and Sen. Charles E. Schumer, D-N.Y., disagreed over whether nonwealthy Americans would have to pay more taxes if the health care bill becomes law. Kyl maintained that taxes on pharmaceuticals and medical devices in the bill would be passed on to average consumers, while Schumer said only those earning over $250,000 would pay taxes on some cosmetic medical procedures, like botox.

  On NBC's "Meet the Press," Sen. Kay Bailey Hutchinson, R-Tex., said that GOP lawmakers would try to stop the bill from passing by telling Americans that their taxes are going to rise, their premiums are going to increase and their Medicare benefits are going to be cut. However, Sen. Dianne Feinstein, D-Calif., said lawmakers will be able to make changes once the bill becomes law, noting that the benefits and tax credits in the health reform would be incremental.

Economy

  Meanwhile, on the economic front, the Obama administration said it will continue to work with Congress to see what can be done to stimulate the economy. White House officials, however, have not indicated support for a second stimulus package. As for a stock transaction tax proposed by some in Congress (TAXDAY, 2009/11/20, C.2), the administration is not prepared to support the proposal, according to White House Deputy Press Secretary Jennifer Psaki. Lawmakers such as Rep. Peter DeFazio, D-Ore., have suggested taxing stock transactions to raise money to provide for unemployment benefits, infrastructure projects and other tax breaks for businesses.

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

CCH (cch.taxgroup.com) reports:

  Iowa Gov. Chet Culver announced that he has ordered a review of each of Iowa's 30 tax credit programs. To complete the review, the governor has asked the directors of six state agencies that oversee tax credit programs to submit a review of their respective tax credit programs. Specifically, the governor has asked for submissions to include the following information: (1) a general description of the purpose of the tax credit; (2) minimum, maximum, and average value of tax credits issued; (3) contingency liability for each tax credit; (4) the number of tax credits issued each year; (5) the number of individuals and/or businesses served by the tax credit; (6) whether the tax credit is transferable and, if so, how many times; (7) whether the tax credit is refundable; (8) processes for oversight and regulation of the tax credit; (9) the return on investment for the tax credit; (10) data on the fiscal impact of the tax credit for the past ten years, if available; and (11) a description of what information is currently made available to the public for the tax credit(s) administered by each agency.

  The governor also has asked that the directors serve on a review panel and submit a report to the governor addressing oversight, accountability, transparency, public reporting, and cost-benefit of the programs, and which programs should be continued, curtailed, and/or eliminated. Iowa Department of Management (IDOM) Director Dick Oshlo has been named to chair the panel. The review will be due to IDOM at the close of business on December 4, 2009. The panel will hold two public meetings to discuss the review in Des Moines and Cedar Rapids the week of December 7, 2009. Dates and locations of the public meetings are yet to be determined.

  The text of the press release is available at
http://www.governor.iowa.gov/index.php/press_releases/single/194/.

Release , Iowa Governor's Office, November 19, 2009
 

CCH (cch.taxgroup.com) reports:

  The IRS has issued guidance describing when and how taxpayers can elect to carry back applicable net operating losses (NOLs) under relief provided by section 13 of the Worker, Homeownership, and Business Assistance Act of 2009 (P.L. 111-92). Section 13 of the Act amended Code Sec. 172(b)(1)(H) to allow taxpayers to elect to carry back applicable NOLs for a period of three, four or five years, or a loss from operation for four or five years, to offset taxable income in those previous years. In addition, section 13 amended Code Sec. 810(b) to allow losses from the operations of life insurance companies to be treated in the same manner as NOLs.

  Any NOL or loss from operations carried back five years can only offset a maximum of 50 percent of the taxpayer's taxable income for that fifth preceding year. This relief is available to all taxpayers with business losses except those that received payments under the Troubled Asset Relief Program (TARP), and applies to taxpayers that incurred NOLs or losses from operations in tax years ending after December 31, 2007, and before January 1, 2010.

IR-2009-105,
2009FED ¶46,533

Rev. Proc. 2009-52, 2009FED ¶46,534

Other References:

 
Code Sec. 172

  CCH Reference - 2009FED ¶12,014.3245

  CCH Reference - 2009FED ¶12,014.331

 
Code Sec. 810

  CCH Reference - 2009FED ¶25,879.85

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 45,154
CCH Reference - TRC NOL: 6,154.15
CCH Reference - TRC NOL: 12,103.15
 

CCH (cch.taxgroup.com) reports:

  A table outlining the base period Treasury bill rate for the period that ended on September 30, 2009, has been released by the IRS. The base period T-bill rate for the covered period is 0.630 percent. The figures in the table are to be used to determine the amount of interest to be paid each year by a shareholder of a domestic international sales corporation (DISC). Such amount is equal to the product of the shareholders' DISC-related deferred tax liability for the year and the base period T-bill rate.

Rev. Rul. 2009-36, 2009FED ¶46,532

Other References:

 
Code Sec. 995

  CCH Reference - 2009FED ¶29,033.20

  Tax Research Consultant

  CCH Reference - TRC INTLOUT: 15,512

CCH (cch.taxgroup.com) reports:

  The Senate on Nov. 21 approved by a 60-39 margin a procedural motion to take up a sweeping $849 billion health care reform measure, but some moderate Democrats said their vote to proceed does not ensure their support for final passage. The full Senate returns from Thanksgiving recess on Nov. 30, and lawmakers are expected to engage in a lengthy debate stretching into late December.

  Senate Democratic leadership warned that if the bill is not finished by the holidays, the Senate could take an abbreviated break and quickly return to work "We have to finish it in the Senate or it's going to be maybe a long lunch break over Christmas," Majority Whip Dick Durbin, D-Ill., said Nov. 22 on NBC's "Meet The Press."

  Durbin said it would still be possible to pass the legislation if debate slips into early January, but cautioned that the process would become more complicated. "It becomes more complex because both the president and the Congress want to shift from this critically important issue, which is central to our economy, to the economy and jobs."

  Central issues to the looming debate include whether or not to provide a public option, statutory language disallowing any federal funding for abortions, and a 40-percent tax on high end insurance plans that could hit middle income earners. Democratic leaders are expected to negotiate with moderate Democrats on a compromise solution regarding a government sponsored health insurance plan.

  Republicans will likely remain united in their drive to kill the bill, although Democratic leaders are holding out hope that one or two GOP members may relent and vote for final passage. Some Republican votes may be critical to passing health reform if Reid cannot ultimately win the support of some wavering Democrats.

  Senate Finance Committee Chairman Max Baucus, D-Mont., who guided his Committee through passage of that panel's portion of health reform legislation, said lawmakers now have the chance to fully address the growing health care crisis. "Now, on this floor, we have the opportunity to consider this plan. We have the chance to make it even better. We hope to have a full debate," said Baucus.

  Following the vote, the White House issued a statement praising the Senate's decision to proceed. "The President is gratified that the Senate has acted to begin consideration of health insurance reform legislation. Tonight's historic vote brings us one step closer to ending insurance company abuses, reining in spiraling health care costs, providing stability and security to those with health insurance, and extending quality health coverage to those who lack it. The President looks forward to a thorough and productive debate."

  CCH Comment. CCH's Tax Briefing on the Senate's Health Care Bill can be found at
http://tax.cchgroup.com/Legislation/Heathcare-Reform-Nov-19-2009.pdf.

  By Jeff Carlson, CCH News Staff

SAP on HR 3590 --Patient Protection and Affordable Care Act
 

CCH (cch.taxgroup.com) reports:

  Shipping charges on purchases of merchandise from a certain retailer's Internet store were properly included in the selling price of the merchandise and thus were subject to Illinois retailers' occupation (sales) and use tax. In so ruling, the Illinois Supreme Court affirmed the judgment of an appellate court affirming the dismissal of the plaintiffs' class action complaints.

 

CCH (cch.taxgroup.com) reports:

  The Military Spouses Residency Relief Act (MSRRA) (Public Law 111-97) was signed into law on November 11, 2009 and may affect the California income tax filing requirements for spouses of military personnel. This new law is effective for taxable year 2009. The MSRRA allows the same residency benefits permitted to military personnel under the Servicemembers Civil Relief Act (SCRA) to also apply to a military spouses non-military service income, under certain circumstances.

  The Franchise Tax Board (FT is currently updating its Publication 1032 (Tax Information for Military Personnel) with guidelines on the impacts of the MSRRA. The revised Pub. 1032 is expected before the end of 2009.

  CCH Note: The MSRRA prohibits a servicemember's spouse from either losing or acquiring a residence or domicile for purposes of taxation because he or she is absent or present in any U.S. tax jurisdiction solely to be with the servicemember in compliance with the servicemember's military orders, if the residence or domicile is the same for the servicemember and the spouse. P.L. 111-97 also prohibits a spouse's income from being considered income earned in a tax jurisdiction if the spouse is not a resident or domiciliary of such jurisdiction when the spouse is in that jurisdiction solely to be with a servicemember serving under military orders.

Announcement , California Franchise Tax Board, November 19, 2009
 

CCH (cch.taxgroup.com) reports:

  The IRS has created a pilot program allowing filers of information returns to truncate an individual payee's nine-digit identifying number on paper payee statements for calendar years 2009 and 2010 if the filers meet certain requirements. The pilot program is available only to paper payee statements in the Form 1098 series, Form 1099 series and Form 5498 series, which report payments or distributions made to an individual during a calendar year.

  The three types of identifying numbers applicable to individuals are social security numbers, IRS individual taxpayer identification numbers and IRS adoption taxpayer identification numbers. These numbers are sensitive personal information; consequently, a risk exists that the information could be misappropriated from a payee statement and misused in various ways, possibly to facilitate identify theft. The pilot program is an effort to minimize this risk. If requirements regarding the type of information return and the type of identifying number are met, the identifying number is truncated by replacing the first five digits of the nine-digit number with asterisks or Xs.

  The IRS invites interested parties to comment on the pilot program by submitting comments by May 1, 2010.

Notice 2009-93, 2009FED ¶46,531

Other References:

 
Code Sec. 6041

  CCH Reference - 2009FED ¶35,836.30

 
Code Sec. 6045

  CCH Reference - 2009FED ¶35,930.28

 
Code Sec. 6050H

  CCH Reference - 2009FED ¶36,186.075

 
Code Sec. 6722

  CCH Reference - 2009FED ¶40,240.021

  CCH Reference - 2009FED ¶40,240.40

  Tax Research Consultant

  CCH Reference - TRC: FILEBUS: 12,106

CCH (cch.taxgroup.com) reports:

  Democratic lawmakers are considering a proposal to institute a stock transaction tax in order to raise revenue to pay for job creation efforts, such as new spending on infrastructure, broadband expansion or providing new tax incentives to employers, according to House Speaker Nancy Pelosi, D-Calif. Pelosi told reporters during her weekly press conference on November 19 that some Democrats have suggested a stock transaction tax, but no decisions have yet been made to pursue that idea.

  Pelosi cautioned that such a tax might have drawbacks and would have to be part of an international rule in which other nations are involved. She explained that a stock transaction tax has long been suggested during international financial meetings, but U.S. officials have always resisted that effort. Now House Democrats are taking a closer look at the tax, even though it has yet to become a high priority for the Democratic Caucus, Pelosi said.

  One effort is being led by Rep. Peter DeFazio, D-Ore., who is seeking support for his legislation to raise $150 billion by imposing a .25-percent tax on stock transactions and a .02-percent tax on other transactions, including swaps, credit default swaps and options. Approximately half of the tax revenues would be used for deficit reduction and the remaining amount would go to a" job creation reserve" to fund the creation of good jobs, according to a Dear Colleague letter from DeFazio to other lawmakers. "The tax appropriately disincentivizes excessive speculation because much of the excessive risk on Wall Street is high-volume short-term speculative trading," he said in the letter.

  Houses Minority Whip Eric Cantor, R-Va., said the stock transaction tax is a bad idea, given that the U.S. financial markets are still recovering during the recession. Rep. Randy Neugebauer, R-Tex., said a tax on capital would lead to higher interest rates for small businesses seeking to borrow. Cantor and Neugebauer spoke during a meeting of the GOP Economic Solutions Group, which hopes to deliver a set of proposals to President Obama before he begins his economic tour in early December. Rep. Kevin Brady, R-Tex., said lawmakers are considering tax cuts for small businesses and permanent tax relief.

  By Stephen K. Cooper, CCH News Staff

CCH (cch.taxgroup.com) reports:

  The Senate is expected to hold an important procedural vote on the evening of November 21 to determine whether lawmakers will begin debate on an $849-billion health care reform bill unveiled by Democratic leaders (TAXDAY, 2009/11/19, C.2). Senate Majority Leader Harry Reid, D-Nev., filed a cloture motion on November 19 that sets up the vote two days later. If he is successful in reaching the necessary 60 votes, Reid will then be able to start work on the Patient Protection and Affordable Care Bill, which will be considered as a substitute amendment to House bill HR 3590.

  If the Senate vote is approved, the chances for final passage of health reform is strengthened; however, Reid will need 58 Democrats and two Independents to support the measure. No Republican lawmakers are expected to vote for the health care reform bill. Speaking on the Senate floor, Reid promised that the legislation would provide health care for 30 million Americans who are currently uninsured. Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, said the bill might have trouble getting 60 Senate votes because it imposes new fees and taxes that will cause insurance premium increases as early as 2010.

  By Stephen K. Cooper, CCH News Staff

CBO Letter Providing Estimates of the Direct Spending and Revenue Effects of the Patient Protection and Affordable Care Act
 

CCH (cch.taxgroup.com) reports:

  A trial court's decision concerning a NASCAR racing team's eligibility to qualify as an eligible business for purposes of the former Article 3A William S. Lee business expansion credits against North Carolina corporation franchise tax was reversed and remanded to the Office of Administrative Hearings because both the trial court and the secretary of revenue utilized the wrong legal standard in determining whether the taxpayer qualified for the credit. In addition, the trial court failed to apply the proper legal standard in reviewing the secretary of revenue's final decision. The trial court made its own independent factual inquiry, when the proper standard of review was to determine whether the Tax Review Board's findings were supported by the evidence taken as a whole. The trial court did not have the authority to make its own independent review.

  During the tax years at issue, only those taxpayers whose primary business was manufacturing were eligible to claim the credit. The taxpayer had indicated it was an automobile manufacturer when it initially applied for the credits, however it listed its primary business as a racing team on both its federal and North Carolina tax returns and the evidence indicated that the majority of its revenues were from racing-related activities. The Department of Revenue originally denied the credit. Upon review, the secretary of the department reversed the department's initial determination. When the department appealed to the Tax Review Board, the board upheld the department's original denial, and the taxpayer appealed the board's decision.

  The appellate court determined that both the board and the trial court erred in their interpretation of what criteria were to be used to determine whether a taxpayer's primary business was in manufacturing. The trial court and the department based their decision as to what was the taxpayer's primary business based upon the percentage of the taxpayers' revenues that were attributable to its manufacturing activities. However, both the North American Industrial Classification System (NAICS) Code guidelines and the department's own guidelines required that serious consideration be given to a taxpayer's relative share of current production costs and capital investment in manufacturing to its overall current production costs and capital investment. From the record it appeared that this inquiry was not made by either the department or the trial court.

  The appellate court instructed that, on remand, the decision as to whether or not the business was primarily engaged in manufacturing should not be based solely upon the taxpayer's share of current production costs of capital investment. Rather, the department should also examine whether the share of production costs and capital investments would be the proper basis of determining whether the taxpayer was primarily engaged in manufacturing, and if not, the department should examine all the relevant factors and totality of circumstances to determine the taxpayer's principal product or group of products.

North Carolina Department of Revenue v. Bill Davis Racing , North Carolina Court of Appeals, No. COA08-1387, November 17, 2009, ¶202-461

  Other References:

  Explanations at 12-001

CCH (cch.taxgroup.com) reports:

  The Georgia Department of Revenue has amended its net taxable income rule for individuals regarding the procedure for a taxpayer entitled to a refund of personal income taxes as a result of a net operating loss (NOL) carryback. The rule provides that a taxpayer, entitled to a refund by reason of an NOL carryback, must file an NOL carryback adjustment claim for refund on Form 500-NOL within three years after the due date for filing the income tax return for the taxable year in which the loss was incurred (including extensions). The commissioner will determine the amount of the tax decrease attributable to the carryback adjustment within 90 days from the last day of the month in which the claim for refund was filed.

  Subscribers can view the regulation.

   
Reg. Sec. 560-7-4-.01, Georgia Department of Revenue, effective November 25, 2009

CCH (cch.taxgroup.com) reports:

  Working with the "new cars" and "new trucks" components of the October 2009 Consumer Price Index, CCH has calculated the unofficial depreciation limits on automobiles first put into use during the 2010 tax year for business and investment purposes. Based on those inflation-adjusted computations (as specified under Code Sec. 280F(d)(7)(), the 2010 Code Sec. 280F limits on the amounts of depreciation deductions for passenger automobiles will rise from 2009 levels (after remaining stagnant for the 2008-2009 period). The 2010 depreciation limits for trucks and vans will also rise from 2009 levels (after having dropped in 2009 from 2008 levels).

  CCH Comment. The truck index for October 2009, upon which the 2010 truck and van depreciation amounts are computed, was 140.897, once again on the rise after seeing the October 2007 level of 139.513 drop to 133.640 for October 2008. For the same periods, the car index rose to 137.851 in October 2009 after falling from 135.169 to 134.837 between 2007 and 2008.

  CCH Comment. The IRS officially announced the depreciation limits for 2009 in April 2009. The expectation is that the IRS will release the 2010 figures under a similar timetable.

  CCH Comment. Congress, to date, has not extended 2009 bonus depreciation into 2010 for vehicles placed in service in 2010. Bonus depreciation (which is elective) has allowed taxpayers in 2009 to add another $8,000 to the maximum first-year depreciation limits ($10,960 for new passenger automobiles and $11,060 for qualifying new trucks/vans).

Passenger Auto Depreciation Caps

  The unofficial annual maximum depreciation amounts for passenger automobiles first placed in service in calendar year 2010 are:

  $3,060 for the first tax year (up from $2,960 in 2008 and 2009);

  $4,900 for the second tax year (up from $4,800 in 2008 and 2009);

  $2,950 for the third tax year (up from $2,850 in 2008 and 2009); and

  $1,775 for each tax year thereafter (same as 2008 and 2009 due to rounding rules).

Depreciation Caps for Trucks and Vans

  The indexing computations under Code Sec. 280F typically call for a higher depreciation deduction for trucks and vans. The computations for 2010 follow that pattern. The unofficial 2010 amounts are projected to be:

  $3,160 for the first tax year (up from $3,060 in 2009, and back to the same level as in 2008);

  $5,100 for the second tax year (up from $4,900 in 2009, and back to the same level as in 2008);

  $3,050 for the third tax year (up from $2,950 in 2009, and back to the same level as in 2008); and

  $1,875 for each tax year thereafter (up from $1,775 in 2009, and back to the same level as in 2008).

  To qualify for the truck and van depreciation deduction, a vehicle must be a passenger vehicle built on a truck chassis with an unloaded gross weight of over 6,000 pounds. A vehicle built on an automobile chassis is classified as an automobile, regardless of weight and even if its manufacturer calls it an SUV.

  By George Jones, CCH News Staff

CCH (cch.taxgroup.com) reports:

 

CCH (cch.taxgroup.com) reports:

  Treasury Secretary Timothy F. Geithner presided over the Small Business Financing Forum presented by the Treasury Department and the Small Business Administration (SBA) on November 18 in Washington, D.C. While the program was aimed at exploring financing issues, recent tax cuts were highlighted as a potential method by which the government could help small businesses increase their cash flow during the current tough economic environment.

Economic Stimulus Effort

  The forum was part of the administration's push to brainstorm ways in which the government could help ease access to credit for small businesses. "Without increased access to credit for American families and small businesses, growth will be weaker, companies will defer long term investments and we will not be able to create a recovery that is self-sustaining and led by private demand," Geithner explained.

NOL Relief

  In his opening remarks, Geithner highlighted the enhanced net operating loss (NOL) carryback rules under the American Recovery and Reinvestment Act of 2009 (the 2009 Recovery Act) (P.L. 111-5) for small businesses. These were recently extended to the 2009 tax year by the Worker, Homeownership, and Business Assistance Act of 2009 (P.L. 111-92). "We need to provide direct help to small businesses," Geithner stated in his prepared opening remarks. "We've done that through the Recovery Act by establishing targeted tax relief to small businesses, allowing them to write off more of their expenses and to earn an instant refund on their taxes by "carrying back" their losses five years instead of two."

New Markets Tax Credit

  Additionally, Geithner pointed out that the 2009 Recovery Act enhanced the New Markets Tax Credit. Code Sec. 45D allows the tax credit for taxpayers investing in entities whose primary mission is to provide investment capital for low-income communities or persons. "The Recovery Act provided...an additional $3 billion in New Market Tax Credit investments to support small businesses as they spur growth in those struggling communities," Geithner stated.

Continued Efforts

  Despite some economists' reports that the country's recession may already be at, or will soon come to, an end, Geithner indicated that the Treasury will continue to prompt tax cuts that make small businesses more liquid. Nevertheless, the main focus of the forum was financing opportunities and Geithner stayed on message in that regard in his closing remarks: "No jobs without growth. No growth without credit." He stated that President Obama would soon receive a conference report on the results of the forum, which would be publicly available for review.

  By Torie Cole, CCH News Staff

CCH (cch.taxgroup.com) reports:

  Senate Majority Leader Harry Reid, D-Nev., plans to officially unveil an $849-billion health care reform package on November 19, but Democratic holdouts may spoil his plan to immediately take up the measure on the Senate floor. Reid vetted the measure to his caucus late on November 18 after receiving a final cost analysis by the Congressional Budget Office (CBO).

  The 10-year cost of the revised legislation comes in well below the $900-billion threshold set by President Obama and would cut the federal budget deficit by $127 billion over 10 years. The plan would reduce the number of the uninsured by 31 million by making coverage available to 94 percent of eligible Americans, according to a Senate Democratic leadership aide. Reid plans to hold a procedural vote on November 20 or possibly November 21 that would allow the Senate to proceed to the bill but he needs all Democrats and the two Independents to reach the required 60-vote threshold.

  Sens. Ben Nelson, D-Neb., Blanche Lincoln, D-Ark., and Mary L. Landrieu, D-La, continue to harbor reservations and have not committed to backing the measure. Reid believes the three will eventually back the move to take up the bill, but the wavering lawmakers could balk at a second procedural vote, which would block a filibuster by limiting the time allotted for debate.

  Nelson said he needed time to review the bill before making his decision. He told reporters he would not support a final bill that included a public option or allowed public funds to be used to pay for abortions. He left open the possibility that his concerns could be addressed through the amendment process during floor debate. Landrieu told reporters that she would make her decision after taking time to read the bill. In addition to the three questionable Democrats, Reid faces another dilemma in scheduling the test vote as Senate Finance Committee Chairman Max Baucus, D-Mont., returned home on November 18 due to a family emergency. It is uncertain when he will return.

  Nelson also expressed concern about the excise tax on high-end insurance plans, although Reid adjusted the 40-percent excise tax on such plans by raising the threshold at which insurers would pay the fee. The tax now applies to family plans costing $23,000 or more and individual plans priced over $8,500, a $2,000 and $500 increase, respectively. The lost revenue would be made up with a 0.5-percent increase in the Medicare payroll tax for couples with incomes over $250,000 and individuals with earnings over $200,000. The provision would raise $54 billion over 10 years. Reid also added a new 5-percent tax on cosmetic surgery that would raise an addition $5 billion.

  The revised legislation also slices in half the tax on medical devices from $40 billion to $20 billion. Additional changes to health care tax incentives include capping flexible spending account (FSA) contributions, conforming definitions of deductible medical expenses and changing penalties for health spending account (HSA) spending that is not devoted to health care.

  The $849-billion price tag of the measure, which merges the legislation approved by the Senate Finance Committee and the Health, Education, Labor and Pensions (HELP) Committee, is lower than the $1,052 trillion House-approved measure, and slightly higher than the $829-billion Finance Committee package. With rising concern over the overall health of the economy and increased federal spending, Democratic leaders are touting the fact that Reid's bill cuts the federal budget deficit more than the House and Senate Finance Committee proposals. The House bill would reduce the deficit by $111 billion while the Senate versions would reduce the federal debt by $82 billion.

  By Jeff Carlson, CCH News Staff

CCH (cch.taxgroup.com) reports:

  Continued rising unemployment in the U.S. is prompting House Democratic leaders to consider a jobs bill before lawmakers leave Washington and end the first session of the 111th Congress on December 18, according to House Majority Leader Steny H. Hoyer, D-Md. Hoyer told reporters on November 17 that a second stimulus bill is unlikely, but lawmakers might consider taking some type of legislative action to boost jobs. He declined to list specific proposals that might be under consideration.

  House committees might be asked to produce some ideas for lawmakers to consider, such as more spending on infrastructure or some targeted tax incentives, according to Hoyer. "There are a lot of options available. We are discussing those." Hoyer also indicated that the long-term deficit concerns must be balanced against the need to spur job growth. President Obama supported a jobs tax credit earlier in 2009, but some Democratic lawmakers greeted the idea negatively and the proposal was not included in the American Recovery and Reinvestment Act of 2009 (P.L. 111-5). House Republicans, including GOP Whip Eric Cantor, R-Va., said that a Democratic effort to produce a job creation bill is an admission that the first stimulus bill did not work. Cantor, however, said Republicans want to work with Democrats to produce a jobs bill.

  By Stephen K. Cooper, CCH News Staff