Tax News

CCH (cch.taxgroup.com) reports:

  Recently approved District of Columbia permanent legislation provides for several changes affecting the corporate and personal income and sales and use tax provisions. Specifically, the legislation approves combined reporting, decoupling, the disallowance of certain related party transactions, tax amnesty, a reduction of the threshold for electronic payments, and a freeze on the standard deduction and personal exemption amounts until 2013. Additionally, the legislation increases the general sales and use tax rate to 6% (previously, 5.75%), for the period beginning October 1, 2009, and ending September 30, 2012, amends the taxation of premium cigars, and repeals the District's sales tax holiday.

  Details regarding the corporate and personal income tax changes were previously reported on an emergency basis. (TAXDAY, 2009/08/28, S.4 ; TAXDAY, 2009/10/30, S.3) Details regarding the sales and use tax changes were also previously reported on an emergency basis. (TAXDAY, 2009/08/28, S.6; TAXDAY, 2009/10/29, S.5)

Act 18-255 (D.C.B. 18-255), Laws 2009, approved December 18, 2009, effective after a 30-day congressional review period
 

CCH (cch.taxgroup.com) reports:

  The Tax Court did not have jurisdiction over a deficiency redetermination because the deficiency notice was not sent to the estate's last known address; consequently, it was invalid under Code Sec. 6212. At the time the estate tax return was filed, the estate's executor listed one office address; however, several years later, a revenue agent who was investigating the decedent's income tax return notified the estate tax examiner that the IRS's computer records indicated that the executor had a new residential address. The examiner was deemed to be aware of the estate's new address at the time the deficiency notice was issued because information available through the use of the IRS's computer system is attributable to the IRS's agents, and the examiner was specifically told that the executor had a new address. Furthermore, the examiner failed to use reasonable care and diligence to ascertain the estate's last known address and mail the deficiency notice to that address.

P. Rule Est., TC Memo. 2009-309, Dec. 58,047(M)

Other References:

 
Code Sec. 6212

  CCH Reference - 2009FED ¶37,544.28

  CCH Reference - FINH ¶20,755.10

  CCH Reference - FINH ¶20,755.40

 
Code Sec. 6213

  CCH Reference - 2009FED ¶37,549.5083

 
Code Sec. 7701

  CCH Reference - FINH ¶22,815.01

  Tax Research Consultant

  CCH Reference - TRC IRS: 27,150

CCH Reference -
TRC IRS: 27,156

 

CCH (cch.taxgroup.com) reports:

  The IRS has issued further guidance on issues related to Code Sec. 7216. The IRS had previously issued final, temporary and proposed regulations that provide updated guidance concerning the disclosure and use of tax return information by tax return preparers under Code Sec. 7216 (T.D. 9478, NPRM REG-131028-09; TAXDAY, 2009/12/30, I.2).

Notice 2010-4

  In Notice 2010-4, the IRS addressed three issues with respect to the use of taxpayer information to solicit new business from previous or existing clients.

  Changes in law that could result in amended returns. A tax return preparer may use tax return information to contact taxpayers to inform them of changes in tax law that could affect the income tax liability on the taxpayers' returns that were previously prepared or processed by this tax preparer. Code Sec. 7216 does not prohibit the use of tax return information to prepare a "tax return," and, under Reg. §301.7216-1(b)(1), a tax return includes an amended return. Accordingly, the preparer could use client tax return information to identify affected taxpayers, inform them regarding the change in tax law, advise whether it would be appropriate for them to file amended income tax returns, and assist in the preparation and filing of any amended returns.

  Accountant or lawyer seeking to give compliance advice. A tax return preparer who is also an accountant may use tax return information to determine who might be affected by a prospective tax rule change in order to contact potentially affected taxpayers for whom the accountant/preparer reasonably expected to provide accounting services in the next year. The contact would notify these taxpayers of the change, explain how the change may affect them, and advise them with regard to actions they may take in response to the change. Reg. §301.7216-2(h)(1)(i) allows a preparer who is lawfully engaged in the practice of law or accountancy to use tax return information to provide other legal or accounting services to the taxpayer, and such services could include advice related to current and future income tax compliance.

  Disclosure of taxpayer list to auxiliary service provider. Finally, tax return preparers may disclose their taxpayer lists kept under Reg. §301.7216-2(n) to a third party service provider holding itself out as providing services that include creation, publication, and distribution of newsletters, bulletins, or similar communications to taxpayers whose tax returns the tax return preparers have prepared or processed containing tax information and general business and economic information or analysis for educational purposes or for purposes of soliciting additional tax return preparation services for the tax return preparer. Although restrictions apply to transfers of taxpayer lists under Reg. §301.7216-2(n), a preparer is allowed under Reg. §301.7216-2(d)(1) to disclose, without taxpayer consent, tax return information to another tax return preparer located in the United States for the purpose of obtaining auxiliary services in connection with the preparation of any tax return, so long as the services provided are not substantive determinations or advice affecting the tax liability reported by taxpayers. The service provider, is prohibited from the further use or disclosure of the tax return information for purposes other than those related to the provision of the auxiliary services or as otherwise expressly permitted under
Code Secs. 6713 and Code Sec. 7216.

Rev. Rul. 2010-5

  In Notice 2010-5, the IRS discussed disclosure of information to tax return preparer insurance carriers. The IRS held that tax return preparers will not be liable for criminal penalties under Code Sec. 7216 and civil penalties under Code Sec. 6713 with respect to certain disclosures of tax return information made to the preparer's professional liability insurance carrier. Under Reg. §301.7216-2(a)(1), a tax return preparer may disclose, without taxpayer consent, tax return information to another tax return preparer located in the United States in order to obtain auxillary services, not involving substantive determinations or tax advice. Disclosures, without taxpayer consent, may also be made to an attorney for the purpose of obtaining legal advice under Reg. §301.7216-2(g).

  A professional liability insurance policy purchased by a return preparer is an auxiliary service provided in connection with the preparation of tax returns; thus, the insurance carrier is a tax return preparer. Accordingly, disclosures necessary for price quotes or to otherwise obtain or maintain professional liability insurance coverage will not result in penalties. This could include a list of client names and description of the services provided, Similarly, disclosures made to the insurance carrier as required for purposes of reporting and investigating claims or for the carrier's selection of an attorney to represent the return preparer will not result in penalties. This could include client names, a description of the services provided, a description of the claim or potential claim, and if necessary, copies of returns relevant to the claims. In both cases, disclosures beyond those that are necessary for the provision of the auxiliary services are prohibited. Finally, a return preparer may make disclosures to the selected attorney related to the claim or potential claim or in seeking legal advice from an attorney who is not a representative of the carrier, without taxpayer consent.

IR-2009-121,
2010FED ¶46,224

Rev. Rul 2010-4, 2010FED ¶46,225

Rev. Rul 2010-5, 2010FED ¶46,226

Other References:

 
Code Sec. 6713

  CCH Reference - 2009FED ¶40,160.021

 
Code Sec. 7216

  CCH Reference - 2009FED ¶40,370.027

  CCH Reference - 2009FED ¶41,370.30

  CCH Reference - 2009FED ¶41,370.60

  Tax Research Consultant

  CCH Reference - TRC IRS: 66,360.10
CCH Reference - TRC IRS: 66,360.15
 

CCH (cch.taxgroup.com) reports:

  Final, temporary and proposed regulations have been issued that provide updated guidance concerning the disclosure and use of tax return information by tax return preparers under Code Sec. 7216. The regulations address the use of information related to lists for solicitation of tax return business, the limited right to disclose, without the taxpayer's consent, certain statistical compilations in connection with, or in support of, a preparer's business, and the disclosure and use of return information in connection with performing conflict reviews.

  CCH Comment.
Code Sec. 7216 imposes a criminal penalty on preparers who knowingly or recklessly disclose any information furnished by taxpayers for the preparation of a return, or use any such information for any purpose other than the preparation of the return or declaration, subject to several exceptions. One exception, under the previously issued final regulations, allowed a preparer to use statistical compilations of anonymous return information in support of the preparer's tax return preparation business. However, the regulation also prohibited the disclosure of all statistical compilations, both taxpayer-identifying and anonymous, unless the disclosure was made in order to comply with financial accounting or regulatory reporting requirements or occurs in connection with the sale or other disposition of the compiler's tax return preparation business.

  The regulations provide a limited expansion of the right, without the taxpayer's written consent, to use and include certain information in lists for the solicitation of tax return business. They permit the information included in such lists to reflect the taxpayer entity classification or type, including individual status, and the taxpayer retrun form number (such as Form 1040, U.S. Individual Income Tax Return, or Form 1220, U.S. Corporation Income Tax Return). The regulations specify that additional information that may be included in such lists can be contained in future guidance issued by the IRS.

  While the regulations provide some expansion of the information contained in the lists used for the solicitation of tax return business, they clarify that such lists may not be used to solicit non-return preparation services. Moreover, auxiliary service providers, such as companies providing tax return preparation software, may not use any return information received to compile and maintain a list of taxpayers for the auxiliary service provider's own use, such as marketing to clients of the preparer.

  The regulations also provide clarification of the rules concerning transfers of such lists. A transfer is permitted if it takes place in conjunction with the sale or other disposition of the compiler's tax return preparation business. The regulations specify that due diligence conducted by the prospective buyer of the business is considered "in conjunction with the sale or other disposition". The buyer is, however, bound by the same provisions with respect to the use and disclosure of such list.

  The regulations supercede the interim guidance contained in Notice 2009-13, IRB 2009-6, 447, (TAXDAY 2009/01/19, I.6) which permitted a preparer to use tax return information to produce a statistical compilation of data in connection with the internal management or support of the preparer's tax return preparation business.
Notice 2009-13 provided that any disclosure of a statistical compilation had to be in a form that could not be associated with, or otherwise identify, directly or indirectly, a particular taxpayer. To further protect anonymity, the disclosure had to not disclose cells containing data from fewer than 25 tax returns.

  Under the regulations, disclosure of cells containing data from ten or more tax returns is permitted. The regulations clarify that a preparer is permitted to disclose an anonymous statistical compilation for bona fide research or public policy discussions concerning state or federal taxation or requiring data acquired during the return preparation process. However, the regulations prohibit, in the context of marketing or advertising, the use or disclosure of any part of a statistical compilation that identifies the dollar amount of refunds, credits, or deductions associated with tax returns, regardless of whether the data are statistical, averaged, aggregated or anonymous.

  Finally, the regulations permit the use and disclosure of information, without the taxpayer's written consent, for purposes of conflict of interest reviews, but only to the extent necessary to accomplish the review. The regulations specify that such reviews include reviews undertaken to comply with requirements established by federal, state or local law, agency, boards and commissions. It also includes reviews by professional association ethics committee and boards. While such reviews may take place outside the United States, if disclosure is made in connection with such foreign reviews, the disclosing and receiving preparers must have adequate procedures in place to maintain the confidentiality of the disclosed information.

  The text of the temporary regulations also serves as the text of the proposed regulations. Written or electronic comments and requests for a public hearing must be received by February 27, 2010.

T.D. 9478, 2010FED ¶47,008

Proposed Regulations, NPRM REG-131028-09, 2010FED ¶49,441

Other References:

 
Code Sec. 7216

  CCH Reference - 2009FED ¶41,365A

  CCH Reference - 2009FED ¶41,365E

  CCH Reference - 2009FED ¶41,367C

  CCH Reference - 2009FED ¶41,367G

  Tax Research Consultant

  CCH Reference - TRC IRS: 66,360.10
CCH Reference - TRC IRS: 66,360.15
 

CCH (cch.taxgroup.com) reports:

  The IRS has issued final, temporary and proposed regulations addressing the use of controlled corporations to avoid the application of
Code Sec. 304. The regulations apply to transactions that are entered into with a principal purpose of avoiding the application of Code Sec. 304 to a corporation that is controlled by the issuing corporation in the transaction, or to a corporation that controls the acquiring corporation in the transaction. The regulations affect shareholders treated as receiving distributions in redemption of stock by reason of Code Sec. 304, and are effective on December 29, 2009.

Background

 
Code Sec. 304(a)(1) generally provides that if one or more persons are in control of each of two corporations, and one such corporation acquires stock of the other corporation in exchange for property from the person or persons so in control, the property is treated as received in redemption of the stock of the acquiring corporation. Code Sec. 304(a)(2) generally provides that if in exchange for property, the acquiring corporation acquires stock of the issuing corporation from a shareholder of the issuing corporation, and the issuing corporation controls the acquiring corporation, the shareholder is treated as receiving the property in redemption of the stock of the issuing corporation. Under Code Sec. 304(b)(2), the determination of the amount of the distribution that is a dividend is made as if the property were distributed by the acquiring corporation to the extent of its earnings and profits, and then by the issuing corporation to the extend of its earnings and profits. If the acquiring corporation is foreign, the amount of earnings and profits that are taken into account for this purpose are limited by Code Sec. 304(b)(5).

  In June 1988, the IRS issued Temporary Reg. §1.304-4T to address transactions that are entered into with a principal purpose of avoiding the application of Code Sec. 304. The regulation provided that for purposes of determining the amount constituting a dividend and source thereof, a corporation (deemed acquiring corporation) will, at the discretion of an IRS District Director (now known as the Director of Field Operations), be considered to have acquired for property the stock of another corporation that is controlled by the deemed acquiring corporation, if one of the principal purposes for creating, organizing, or funding the acquiring corporation, through capital contributions or debt, is to avoid the application of Code Sec. 304 to the deemed acquiring corporation

Final and Temporary Regulations

  The final and temporary regulations provide an anti-avoidance rule similar to Temporary Reg. §1.304-4T, but that applies to transactions entered into with a principal purpose of avoiding the treatment of a corporation as the issuing corporation. The regulations provide that for purposes of determining the amount of a property distribution that is a dividend, and the source thereof, under Code Sec. 304(b)(2), the acquiring corporation will be treated as acquiring for property the stock of a corporation (deemed issuing corporation) that is controlled by the issuing corporation, if, in connection with the acquisition by the acquiring corporation, the issuing corporation acquired stock of the deemed issuing corporation with a principal purpose of avoiding the application of
Code Sec. 304 to the deemed issuing corporation.

  The regulations also modify Temporary Reg. §1.304-4T to make the anti-avoidance rule self-executing, rather than at the discretion of the District Director (Director of Field Operations). Further, the regulations clarify that the anti-avoidance rule may apply even if the funding for the acquiring corporation is from an unrelated party.

Proposed Regulations

  The text of the temporary regulations also serves as the text of the proposed regulations. Comments and requests for a public hearing must be received by March 29, 2010.

T.D. 9477, 2010FED ¶47,007

Proposed Regulations, NPRM REG-132232-08, 2010FED ¶49,440

Other References:

 
Code Sec. 304

  CCH Reference - 2009FED ¶15,377CJ

  CCH Reference - 2009FED ¶15,377D

  Tax Research Consultant

  CCH Reference - TRC CCORP: 21,452

  CCH Reference - TRC CCORP: 21,454

  CCH Reference - TRC CCORP: 24,060

 

CCH (cch.taxgroup.com) reports:

  The Ohio Department of Taxation has issued a sales and use tax information release to explain changes to the way sales of tangible personal property and services are sourced. Beginning January 1, 2010, Ohio vendors that had previously switched to destination sourcing for delivery sales must source their sales to the location where the order was received. Remote sales made by Ohio vendors, via mail order, telephone, or the Internet, must also be sourced to the location where the order was received. Sales by out-of-state vendors must be sourced to the location where the purchaser receives the tangible personal property. Sales of taxable services will be sourced to the location where the consumer receives the service, no matter where the service provider is located.

  Vendors that converted to destination sourcing and received compensation for making the change may qualify for compensation for converting back to origin sourcing. Vendors will not be subject to penalties relating to the sourcing change as long as the changes are completed by April 1, 2010. Beginning January 1, 2010, consumers who remit Ohio sales tax to the seller at the rate applicable where the order was received or where the consumer received the property will not be subject to any additional sales or use tax on the transaction.
 
Sales and Use Tax: Information Release ST 2009-03 , Ohio Department of Taxation, December 2009
 

CCH (cch.taxgroup.com) reports:

  The London International Financial Futures and Options Exchange (LIFFE), a regulated exchange of the United Kingdom, has been recognized by the IRS as a qualified board or exchange within the meaning of
Code Sec. 1256(g)(7)(C). A taxpayer may change to the Code Sec. 1256 mark-to-market accounting method for the first tax year during which the taxpayer holds LIFFE contract that was entered into on or after January 1, 2010. Although the change in treatment of LIFFE contracts is a change in method of accounting, taxpayers do not need to file Form 3115, Application for Change in Accounting Method, to make this change. The change is made on a cut-off basis and no Code Sec. 481(a) adjustment is required.

Rev. Rul. 2010-3, 2010FED ¶46,221

Other References:

 
Code Sec. 1256

  CCH Reference - 2009FED ¶31,107.021

  CCH Reference - 2009FED ¶31,107.70

  Tax Research Consultant

  CCH Reference - TRC SALES: 48,100

CCH (cch.taxgroup.com) reports:

  The IRS has further extended the application of the regulations described in Notice 2008-91, 2008-2 CB 1001 regarding the elective exclusion of certain obligations held by controlled foreign corporations (CFCs) from the definition of the term "obligation" for purposes of Code Sec. 956 (Notice 2010-12). Thus, these regulations will apply to the tax year of a CFC that immediately follows the last tax year of the CFC to which the regulations described in Notice 2008-91 could apply without regard to Notice 2010-12. Such regulations, however, will not apply to a tax year of a CFC beginning on or after January 1, 2011, and the IRS does not anticipate extending the application of these regulations to any additional periods. The IRS has also extended the application of Rev. Proc. 2008-26, 2008-1 CB 1014 to any day during calendar year 2010, for which it is relevant whether securities are readily marketable for purposes of Code Sec. 956(c)(2)(J) (in addition to any day during calendar years 2007, 2008 and 2009).

  In Notice 2008-91, the IRS announced that it intends to issue regulations under Code Sec. 956(e) that will allow a CFC to choose to exclude from the definition of the term "obligation" an obligation held by the CFC that would constitute an investment in U.S. property, provided the obligation is collected within 60 days from the time it is incurred. This exclusion will not apply, however, if the CFC holds for 180 or more calendar days during its tax year obligations that, without regard to the 60 day rule, would constitute an investment in U.S. property. Notice 2008-91 provides that the elective exclusion will apply for the first two tax years of a CFC ending after October 3, 2008. It will not, however, apply to tax years of a CFC beginning after December 31, 2009. The IRS subsequently issued Notice 2009-10, 2009-1 CB 419 to provide that the regulations described in Notice 2008-91 will also apply to the third consecutive tax year of a CFC, if any, that ends after October 3, 2008, and on or before December 31, 2009.

 
Rev. Proc. 2008-26 generally applies to determine whether securities are "readily marketable" for purposes of Code Sec. 956(c)(2)(J) for any day during calendar years 2007 or 2008, for which it is relevant whether securities are readily marketable for purposes of that provision. Notice 2009-10 subsequently extended that period to include any such day during calendar year 2009.

Notice 2010-12, 2010FED ¶46,220

Other References:

 
Code Sec. 956

  CCH Reference - 2009FED ¶28,576.023

  CCH Reference - 2009FED ¶28,576.35

  Tax Research Consultant

  CCH Reference - TRC INTLOUT: 9,256.15

CCH (cch.taxgroup.com) reports:

  The IRS has extended the temporary suspension of the rule disallowing the deduction of interest from certain applicable high yield discount obligations (AHYDOs). Generally, under Code Sec. 163(e)(5), a corporation may not deduct the "disqualified portion" of original issue discount (OID) on an AHYDO issued after July 10, 1989. However, the American Recovery and Reinvestment Act of 2009 (P.L. 111-5) suspended this rule for any AHYDO issued during the period beginning September 1, 2008, and ending December 31, 2009, in exchange for an obligation which is not an AHYDO from the same issuer. Pursuant to authority provided to it under the legislation, the Secretary of Treasury and IRS are extending the temporary suspension of the AHYDO rules to December 31, 2010, for any AHYDO that:

  --is issued after December 31, 2009, and before January 1, 2010, in exchange for an obligation which is not an AHYDO from the same issuer;

  --does not pay contingent interest;

  --is not issued to a related person;

  --the issue price of which is determined under the OID rules; and

  --would not otherwise be an AHYDO if its issue price were increased by the amount of any discharge of indebtedness income realized by the issuer upon the exchange.

Notice 2010-11, 2010FED ¶46,219

Other References:

 
Code Sec. 163

  CCH Reference - 2009FED ¶9303.12

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 36,262

CCH (cch.taxgroup.com) reports:

  An airline company's second refund claim seeking additional refunds of Illinois use tax erroneously paid on exempt aviation fuel used on international flights was barred because it was filed after the statute of limitations and the taxpayer had not entered into an agreement with the Department of Revenue to extend the limitations period.

  The Court of Appeals reversed a circuit court ruling and held that the second refund claim was not an amendment to the taxpayer's first refund claim, which was timely filed, but rather was a separate claim, based upon different transactions with different factual and legal predicates.

 

CCH (cch.taxgroup.com) reports:

  In a United States District Court case brought by Monroe County on behalf of a class of Florida counties against various on-line travel companies (OTCs) that allegedly failed to remit county tourist development taxes (TDTs), the court granted the OTCs' motion to dismiss the county's claim for permanent injunctive relief, but denied the OTCs' motion to dismiss the county's other claims. The county claimed that injunctive relief was necessary because it lacked an adequate remedy at law and would suffer irreparable harm without a permanent injunction and that these two elements are presumed satisfied when a government seeks to enforce its police power. However, the county was seeking to enforce its taxing power and not its police power; it had a host of administrative, civil, and criminal enforcement remedies to ensure compliance with its tax laws; and it failed to prove that it would suffer irreparable harm without the injunction. Also, the proposed injunction would require a federal district court to indefinitely oversee a municipal tax ordinance, which is not appropriate to the court's function.

 

CCH (cch.taxgroup.com) reports:

 
The statute of limitations for assessing tax against married taxpayers who formed a partnership that engaged in a listed transaction but failed to properly disclose the transaction on their income tax return or the partnership's income tax return remained open by reason of Code Sec. 6501(c)(10), as added by American Jobs Creation Act of 2004 (P.L. 108-357) (Jobs Act).

  This provision extends the limitations period until one year after the required disclosure statement is provided. The taxpayer's contention that the effective date of Code Sec. 6501(c)(10) provided by Act Section 814(b) of the Jobs Act was inapplicable was rejected. Further arguments that regulations requiring the identification of listed transactions on a taxpayer's tax return were invalid as a result of IRS's failure to comply with various administrative requirements related to the issuance of the regulations also failed.

  In a transaction that occurred in 2001, the taxpayers generated funds through the short sale of borrowed Treasury notes and contributed the funds and obligation to cover the short sale to a partnership in exchange for partnership interests. They each claimed a basis in their partnership interest that included the short sale proceeds, unreduced by the obligation to cover the short sale. Upon disposition of their partnership interests, they claimed substantial tax losses even though there was no economic loss.

  The court determined that the transaction was a listed transaction because it was substantially similar to the Son-of-Boss transactions described in Notice 2000-44, 2000-2 CB 255. These transactions involve the generation of funds through the creation of a liability and the contribution of the funds or an asset purchased with the funds and the associated liability to a partnership without any adjustment in the basis of the partnership interest received for the liability.

  The taxpayers' filed their 2001 income tax return more than three years before the issuance of the IRS's final partnership administrative adjustment (FPAA). Consequently, the general limitations period had expired. The IRS, however, contended that the transaction was a listed transaction described in Code Sec. 6707A(c)(2) and that the failure of the partners or partnership to disclose the transaction on their tax returns triggered the extended limitation periods of Code Sec. 6501(c)(10). If a taxpayer fails to include a statement required under Code Sec. 6011 with respect to a listed transaction as defined in Code Sec. 6707A(c)(2), as added by the Jobs Act, Code Sec. 6501(c)(1) extends the limitations period until one year after the statement is provided.

 
Code Sec. 6501(c)(10) was made effective for tax years "with respect to which the period for assessing a deficiency did not expire before" October 22, 2004. On October 22, 2004, the period for assessing a deficiency with respect to the taxpayers' 2001 tax year was open. Therefore, if the effective date provided in Act Section 814(b) applied,Code Sec. 6501(c)(10) extended the limitations period for the taxpayers' 2001 tax year.

  However, the taxpayers argued that, because Code Sec. 6707A, which imposes a penalty for failure to include information with respect to a reportable or listed transaction as required by Code Sec. 6011, is effective for returns and statements the due date for which is after October 22, 2004, and which were not filed before that date, Code Sec. 6501(c)(10) cannot apply to any transaction for which a return or statement was due on or before October 22, 2004.

  The court rejected this argument noting the different purposes of the effective dates in the two provisions. Code Sec. 6707A was enacted to impose a penalty prospectively on a taxpayer who failed to meet the reporting requirements of Code Sec. 6011 with respect to listed transactions. The effective date of Code Sec. 6501(c)(10) was intended to keep open limitations periods that had not yet expired as of October 22, 2004, if the taxpayer failed to make the required Code Sec. 6011 disclosure of involvement in a listed transactions on a return that was due before that date.

  The court noted that extending an unexpired limitations period is not an impermissible retroactive action. Further, application of the effective date for Code Sec. 6707A to Code Sec. 6501(c)(10) would render the stated effective date of Code Sec. 6510(c) meaningless. If Congress had intended Code Sec. 6501(c)(10) to apply to a transaction for which a statement was due after October 22, 2004, it could have expressly done so.

  The court also rejected the taxpayers' arguments that Temporary Reg. §1.6011-4T, which applied to the tax year at issue and required disclosure of participation in listed transactions, was invalid by reason of the IRS's determination that the regulation was not a significant regulatory action requiring review by the Office of Management and Budget in accordance with Executive Order 12866, 3 C.F.R. 638 (1994). That Executive Order specifically denies taxpayers the authority to challenge such a determination.

  Further, the IRS's decision that the regulations would not have significant economic impact on a substantial number of small entities and was, therefore, exempted from the preparation of a regulatory flexibility analysis otherwise required by the Regulatory Flexibility Act (5 U.S.C. section 603-604) was proper. Finally, the use of a cross reference in the final regulations to incorporate the rules of the temporary regulations for transactions prior to the generally applicable effective date of the final regulations was not a violation of the notice and comment requirements of the Administrative Procedure Act.

BLAK Investments, 133 TC No. 19, Dec. 58,039

Other References:

 
Code Sec. 6011

  CCH Reference - 2009FED ¶35,141.70

 
Code Sec. 6501

  CCH Reference - 2009FED ¶38,967.328

  Tax Research Consultant

  CCH Reference - TRC FILEBUS: 3,052.20
CCH Reference - TRC PENALTY: 3,252.106
 

CCH (cch.taxgroup.com) reports:

  The IRS has released the inflation-adjusted air transportation tax rates for tax years beginning in 2010. For calendar year 2010, the
Code Sec. 4261(b) excise tax on the amount paid for each domestic flight segment of taxable transportation by air increases to $3.70, up from $3.60 in 2009. The
Code Sec. 4261(c) excise tax on any amount paid for transportation of persons by air will remain at $16.10 for international travel beginning or ending in the United States. For a domestic flight segment beginning or ending in Alaska or Hawaii, the Code Sec. 4261(c) tax applies to departures at the rate of $8.10, up from $8.00 in 2009.

  The vehicle for announcing the other 2010 inflation adjustments, Rev. Proc. 2009-50, which was issued on October 15, 2009, did not include 2010 adjusted tax rates for the air transportation taxes imposed by Code Sec. 4261(b) and
(c). This is because the Fiscal Year 2010 Federal Aviation Administration Extension Act (P.L. 111-69) extended these taxes only through December 31, 2009. However, on December 16, President Obama signed the Fiscal Year 2010 Federal Aviation Administration Extension Act, Part II (P.L. 111-116), which extended the authority to collect the air transportation excise taxes through March 31, 2010.

IR-2009-120, ETR ¶66,888

Other References:

 
Code Sec. 4261

  CCH Reference - ETR ¶19,305.014

  CCH Reference - ETR ¶19,305.02

  CCH Reference - ETR ¶19,305.495

  Tax Research Consultant

  CCH Reference - TRC EXCISE: 9,102.05
CCH Reference - TRC EXCISE: 9,104.05

 

CCH (cch.taxgroup.com) reports:

 
The IRS has issued temporary guidance that covers stock distributions by publicly traded real estate investment trusts (REITs) and regulated investment companies (RICs). The new guidance expands upon previously issued guidance in Rev. Proc. 2009-15, I.R.B. 2009-4, 356.

  As under the prior guidance, if a RIC or REIT makes a qualifying distribution, the IRS will treat the distribution of stock as a dividend. The amount of such stock distribution will be treated as equal to the amount of money that could have been received instead of stock.

  The new guidance further provides that, if a RIC or REIT makes a qualifying distribution and some shareholders receive a combination of stock and money that differs from the combination received by other shareholders and if the fair market value of the stock on the date of distribution differs from the amount of money that could have been received instead, those differences do not cause the distribution to be treated as a preferential dividend.

  A qualifying distribution must meet all of the following requirements:

  (1) the distribution is made by the corporation to its shareholders with respect to its stock;

  (2) stock of the corporation is publicly traded on an established securities market in the United States;

  (3) the distribution is declared on or before December 31, 2012, with respect to a tax year ending on or before December 31, 2011 (subject to special timing rules for certain distributions, including distributions made after the close of the tax year);

  (4) pursuant to such declaration, each shareholder may elect to receive the shareholder's entire entitlement under the declaration in either money or stock of the distributing corporation of equivalent value, subject to a limitation on the amount of money to be distributed in the aggregate to all shareholders with the value of the distributed shares determined under the formula in item (5), below;

  (5) the calculation of the number of shares to be received by any shareholder will be determined over a period of two weeks ending as close as practicable to the payment date based upon a formula utilizing market prices that is designed to equate in value the number of shares to be received with the amount of money that could be received instead; and

  (6) with respect to any shareholder participating in a dividend reinvestment plan (DRIP), the DRIP applies only to the extent that, in the absence of the DRIP, the shareholder would have received the distribution in money under item (4), above.

  The new temporary guidance is effective with respect to distributions declared on of after January 1, 2008. Rev. Proc. 2009-15, I.R.B. 2009-4, 356, is amplified and superseded.

Rev. Proc. 2010-12, 2010FED ¶46,217

Other References:

 
Code Sec. 305

  CCH Reference - 2009FED ¶15,402.1385

 
Code Sec. 852

  CCH Reference - 2009FED ¶26,433.26

 
Code Sec. 857

  CCH Reference - 2009FED ¶26,533.025

  Tax Research Consultant

  CCH Reference - TRC RIC: 3,202
CCH Reference -
TRC RIC: 6,150

CCH (cch.taxgroup.com) reports:

  The Senate on December 24 passed its sweeping health care reform legislation, the Patient Protection and Affordable Care Bill (HR 3590) by a vote of 60 to 39. The vote set the stage for a contentious conference with the House to merge the two chambers' respective versions of the bill.

  Calling Senate passage of the health care reform bill "a historic vote," President Obama said that Congress is "finally poised to deliver on the promise of real, meaningful health insurance reform that will bring additional security and stability to the American people." The president noted that, if a final bill is enacted, it will be "the most important piece of social policy since the Social Security Act in the 1930s, and the most important reform of our health care system since Medicare passed in the 1960s."

Conference Issues

  Liberal House Democrats are unhappy that the Senate jettisoned a public insurance option. They are also opposed to language in the Senate bill that prohibits the use of federal funds to pay for abortions, a key concession necessary to win the vote of Sen. Ben Nelson, D-Neb. The moderate lawmaker has warned that significant changes to the Senate version could cause him to vote against the final bill, leaving Senate Democratic leaders short of the necessary 60 votes required for passing the measure.

  The House and the Senate also differ on how to pay for the reform package. The Senate bill raises most of the revenue for health care reform by imposing a 40-percent surtax on high-cost employer-sponsored health plans. House members from states with strong union supporters oppose the tax on so-called "Cadillac" plans and they have threatened to withhold their support of a final bill if the provision is included.

  The House bill would raise revenue through a 5.4-percent surtax on high-income earners and the Senate has openly rejected that plan. Democratic aides believe, however, that both sides will eventually compromise on revenue provisions and have suggested that conferees will likely consider raising the income threshold for high-end insurance plans.

  Democratic staff members will begin laying the framework for negotiations during the week starting on December 28 and conferees are expected to return to Washington the first week of January 2010. House Speaker Nancy Pelosi, D-Calif., has indicated that she would like to complete work on the health care reform package in time for President Obama's State of the Union address, traditionally delivered at the end of January. The White House has set no deadline for when it expects to see the final bill.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

CCH (cch.taxgroup.com) reports:

  A U.S. district court dismissed for lack of standing consolidated putative class actions that claimed that several wireless phone companies and other entities involved with the sale of wireless telecommunication services had engaged in the unfair and deceptive practice of charging consumers California sales tax on the full retail value of wireless phones that were advertised as "free" or at substantial discounts, in violation of California's Unfair Competition Law and False Advertising Law. The court found that the plaintiffs that brought the claims did not suffer injury as the direct result of the phone companies' advertisements as the evidence presented indicated that :

  -- one of the plaintiffs based her claim on an in-store purchase that she said she entered into as a result of an Internet advertisement that specifically limited the offer to on-line sales and stated that sales tax charges were extra;

  -- one of the plaintiffs stated that he probably would have purchased the phones even if he had known that sales taxes would be charged on basis of the phones' full retail value; and

  -- one of the plaintiffs had a history of trading in her phone every two years when her contract expired, and therefore could not show that her purchase of the phone was the result of the phone companies' advertisement.

  
Laster v. T-Mobile USA, Inc. , United States District Court, Southern District of California, No. 05cv1167, December 14, 2009

CCH (cch.taxgroup.com) reports:

  The IRS has finalized regulations that provide guidance to corporations that are component members of a controlled group of corporations regarding the apportionment of tax benefit items and the amount and type of information that they are required to submit with their returns. The final regulations also provide guidance to consolidated groups filing life-nonlife federal income tax returns. The regulations are effective on the date of publication in the Federal Register.

Code Sec. 1502 Regulations

  Under the final Code Sec. 1502 regulations, if a consolidated group is treated collectively as being one component member of a controlled group or if each member of a consolidated group is treated as being a separate member of a controlled group, then Code Sec. 1561 applies to determine the portion of the consolidated accumulated earnings credit to be allocated to the group or each member. The final regulations under Code Sec. 1502 also set forth certain filing requirements for consolidated income tax returns for a life-nonlife consolidated group by the common parent. These regulations generally apply to consolidated federal income tax returns due (without extensions) on or after December 21, 2009. However, a consolidated group may apply the regulations to any consolidated federal income tax return filed on or after December 21, 2009.

Code Sec. 1561 Regulations

  The final regulations under Code Sec. 1561 provide: (1) general rules regarding certain tax benefits available to the component members of a controlled group of corporations, (2) special rules for allocating reductions of certain Code Sec. 1561(a) tax benefit items, and (3) filing requirements related to the allocation of
Code Sec. 1561(a) tax items. These regulations generally apply to any tax year beginning on or after December 21, 2009. However, taxpayers may apply the regulations to any federal income tax return filed on or after December 21, 2009. For tax years beginning before December 21, 2009, the former temporary regulations apply.

  The general rules in the final regulations provide that the amount of tax items set forth in Code Sec. 1561(a) that are available to any of the component members of a controlled group shall be determined as if the component members were a single corporation. Certain other tax items, such as the Code Sec. 11(b)(1) additional tax and the Code Sec. 55(d)(3) phaseout of the alternative minimum tax (AMT) exemption amount will be determined by combining the positive taxable income or positive alternative minimum taxable income (AMTI) of the component members of such group and then allocating the amount of such items among the members.

  The special rules in the final regulations provide detailed guidance on the calculation of the Code Sec. 11(b)(1) additional tax and the apportionment of the additional tax under the proportionate method or the FIFO method. Detailed guidance is also provided on the calculation of the reduction set forth in Code Sec. 55(d)(3) to the amount exempted from the AMT. Any reduction to the exemption amount shall be apportioned to the component members of a controlled group in the same manner that the amount of the exemption provided in
Code Sec. 55(d)(2) to the AMT was allocated under Code Sec. 1561(a). Additional rules for short tax years and examples are also provided.

  The filing requirements in the Code Sec. 1561 final regulations generally provide that, for each tax year that a corporation is a component member of the same controlled group of corporation on December 31st (its testing date), such corporation and all other component members of such group each must file Schedule O or any successor form with the federal income tax return for that component member's tax year that includes a particular testing date. Each such corporation must file the form with its return whether or not there is an apportionment plan in effect or any change is made to the group's apportionment of its Code Sec. 1561(a) tax benefit items from the previous year. An exception applies if any of the component members of a controlled group are also members of a consolidated group. Additional rules provide guidance where no apportionment plan is in effect and guidance on how component members of a controlled group adopt an apportionment plan or an amendment of an apportionment plan.

T.D. 9476, 2010FED ¶47,006

Other References:

 
Code Sec. 924

  CCH Reference - 2009FED ¶28,144

 
Code Sec. 1502

  CCH Reference - 2009FED ¶33,190

  CCH Reference - 2009FED ¶33,193

 
Code Sec. 1561

  CCH Reference - 2009FED ¶33,341

  CCH Reference - 2009FED ¶33,342

  CCH Reference - 2009FED ¶33,344

  CCH Reference - 2009FED ¶33,345

  Tax Research Consultant

  CCH Reference - TRC CCORP: 42,050

  CCH Reference - TRC CCORP: 42,052.05

  CCH Reference - TRC CCORP: 42,052.10

  CCH Reference - TRC CCORP: 42,054.05

  CCH Reference - TRC CCORP: 42,054.10

  CCH Reference - TRC CCORP: 42,058

  CCH Reference - TRC CCORP: 42,204

  CCH Reference - TRC CCORP: 42,206

  CCH Reference - TRC CCORP: 45,054.10

  CCH Reference - TRC CCORP: 45,502

  CCH Reference - TRC CONSOL: 7,106

CCH (cch.taxgroup.com) reports:

  Unemployed workers will be eligible for an additional two months of COBRA premium assistance for their health insurance coverage, under the Department of Defense Appropriations Act, 2010 (HR 3326; P.L. 111-118) signed by President Obama on December 19. The COBRA benefits were scheduled to expire after December 31, but House lawmakers voted 395-to-34 to extend the benefits as part of the defense spending measure on December 16. Senate lawmakers cleared the measure for the president's signature on December 19 by a vote of 88 to 10.

  Extended eligibility for the 65-percent COBRA premium subsidy was originally enacted as part of the American Recovery and Reinvestment Act of 2009 (2009 Recovery Act) (P.L. 111-5). Under the new law, employees must have faced involuntary termination between September 1, 2008, and February 28, 2010, in order to qualify for the COBRA benefits. House lawmakers had also attempted to extend the COBRA benefits for six months in the Jobs for Main Street Bill of 2010, which is part of the Commerce, Justice, Science, and Related Agencies Appropriations Act, 2010 (HR 2847) on December 16, but Senate lawmakers declined to consider that bill while the chamber was in the midst of debate on health care reform legislation.

  CCH Comment. Information on the COBRA extension is available in the CCH Tax Briefing on the House-approved Tax Extenders Bill of 2009 (HR 4213). The CCH Tax Briefing update on the Tax Extenders Bill of 2009 can be found at
http://CCHGroup.com/Legislation/TaxExtendersActof2009.pdf.

  By Stephen K. Cooper, CCH News Staff

Commerce, Justice, Science, and Related Agencies Appropriations Bill, 2010, HR 2847
 

CCH (cch.taxgroup.com) reports:

  The Senate on December 22 approved, by a 60-to-39 margin, a motion to end debate on the Patient Protection and Affordable Care Bill (HR 3590), setting the stage for a final vote early on December 24. Leaders decided to move up the vote in order to recess earlier for the holidays.

  With the Senate progressing toward passage of their $871-billion health care reform package and breaking for the rest of the year, Senate Finance Committee Chairman Max Baucus, D-Mont., and ranking member Charles E. Grassley, R-Iowa, issued a joint statement declaring their intent to address expiring tax provisions early in 2010. "Although the House and Senate were unable to come to agreement on a package to extend several expiring tax provisions before Congress adjourned, these measures must be addressed as soon as possible," stated the lawmakers. "In an effort to provide a seamless extension of these provisions with the fewest disruptions and administrative problems, we will take up legislation as quickly as possible in the New Year."

  In addition, the senior lawmakers sent a letter to Senate Majority Harry Reid, D-Nev., and Senate Minority Leader Mitch McConnell, R-Ky., informing them of their plan to immediately pursue the extension of the popular tax credits. "We write to inform you that early in the next year, we intend to address the extension of various tax provisions expiring on or before December 31, 2009. We intend to extend the provisions without a gap in coverage, just as the House did on December 9th of this year."

  Baucus later told reporters that fixing the estate tax, which Congress also failed to address in 2009, was critical, and that he would like to see it taken up as part of tax reform legislation expected sometime in 2010. Democratic leaders in both chambers had initially planned to attach a short-term extension at 2009 levels to the Department of Defense appropriations bill, but they abandoned that plan when it became apparent that they did not have the necessary 60 votes in the Senate required for passage. President Obama signed the measure into law on December 19 (P.L. 111-118).

Obama to Remain in Town

  President Obama on December 22 said he would not leave Washington, D.C., until the Senate finished its work on HR 3590. Noting the sacrifices that are being made to get the measure done, the president offered to remain in town to provide "any encouragement and last-minute help, if necessary." The White House did not elaborate on what kind of eleventh hour help the president had in mind.

  White House Press Secretary Robert Gibbs, at a press briefing on December 22, hailed the Senate legislation, noting it would make fundamental changes in health care coverage by reforming the insurance system and offering access to care to 30 million people who are now uninsured. He stressed that the proposal is fiscally responsible and reduces the federal deficit.

  Gibbs depicted as "delusional" criticism that the White House pressured the Congressional Budget Office (CBO) into underestimating the cost of the legislation. According to CBO estimates, the health care reform bill would lower the deficit by $132 billion over the first 10 years and up to $1.3 trillion in the second decade.

  Speaking confidently about the prospects of the bill's passage, Gibbs several times told reporters that enactment of health care reform legislation is no longer a question of "if," but "when." When asked whether the president would like the bill to be signed into law before his State of the Union address in January, Gibbs said he did not know the date of the address, but then added that the president wants to sign the bill as soon as Congress sends it to him.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

SFC Press Release: Baucus-Grassley Statement Regarding Extending Expiring Tax Provisions

CBO Letter to Sen. Reid Regarding Financial Impact of Senate Amendment 2786

Correction to CBO Letter to Sen. Reid Regarding Financial Impact of Senate Amendment 2786

Floor Speech of Sen. Chuck Grassley: Tax Cuts v. Tax Increases
 

CCH (cch.taxgroup.com) reports:

  The Senate late on December 20 approved by a 60-40 margin a procedural motion that will allow a vote on a manager's amendment to the Patient Protection and Affordable Care Bill (HR 3590), paving the way for final passage before Christmas. The vote came after Sen. Ben Nelson, D-Neb., made a deal on December 19 with Senate Majority Leader Harry Reid, D-Nev., on language in the bill regarding federal funding of abortion, and gave Democrats the 60 votes they needed to advance the bill.

  The manager's package negotiated by Reid over the past several days incorporates the abortion language Nelson demanded and several other changes from the original bill approved by the Senate Finance Committee, including new tax provisions. The amendment adds $12 billion in small business tax cuts slated to take effect in 2010, an expansion of the adoption tax credit and a new 10-percent tax on tanning salon services.

  Nelson said he still can withhold his support of the health care reform bill if a conference to merge the House and Senate versions significantly alters the measure approved by the Senate. Senate Finance Committee Chairman Max Baucus, D-Mont., said after the procedural vote that the conference report will have to resemble the Senate's legislation in order to achieve final passage in that chamber. The conference is expected to take place shortly after lawmakers return from the Christmas recess on January 5, 2010.

  Health, Education, Labor and Pensions Chairman Tom Harkin, D-Iowa, said leadership was still considering whether to hold a full formal conference, or an abbreviated conference where changes are negotiated in private and then presented to conferees for a vote. How to pay for the health care overhaul will prove one of the more contentious items in the conference, said Harkin, a conferee designee due to his chairmanship of the one of the committees that wrote the bill.

  The Senate bill raises revenue for health care reform by imposing a 40-percent surtax on high-end employer-sponsored health plans and increasing the Medicare tax to 2.35 percent for couples with adjusted gross incomes (AGI) over $250,000 a year and individuals with AGI over $200,000. The typical premium threshold for the so-called "Cadillac plans" begins at $8,500 for individuals and $23,000 for a family. The House bill would impose a 5.4-percent surtax on high-income earners, hitting couples with adjusted gross incomes over $1 million and individuals with AGI over $500,000.

White House Reaction

  President Obama on December 21 said the Senate vote "has moved us closer to reform that makes a tremendous difference for families, for seniors, for businesses, and for the country as a whole." Obama noted that the bill would provide tax credits to small businesses and individuals who are not covered by their employer and cannot afford to buy insurance on their own.

  Countering criticism about the cost of the measure, the president pointed to Congressional Budget Office estimates that the health care reform bill would lower the deficit by $132 billion over the first 10 years and up to $1.3 trillion in the second decade. "For all those who are continually carping about how this is somehow a big-spending government bill, that argument that opponents are making against this bill does not hold water," Obama contended.

  The White House in recent days has equated the insurance reform provisions in the Senate proposal with the Patient's Bill of Rights legislation that Congress failed to approve for several years. Only this time, the president is counting on a different outcome and that a health care reform bill reaches his desk as soon as possible. "After a nearly century-long struggle, we are on the cusp of making health care reform a reality in the United States of America," Obama said in remarks on December 19.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

Manager's Amendment to the Patient Protection and Affordable Care Act (HR 3590)

White House Press Release: Statement by the President on Health Care and Climate Change

White House Press Release: Remarks by the President on the Save Award and Making Government More Efficient and Effective

JCT Estimated Revenue Effects of the Manager's Amendment to the Revenue Provisions Contained in the Patient Protection and Affordable Care Act
 

CCH (cch.taxgroup.com) reports:

  Virginia Gov. Timothy M. Kaine has unveiled a 2010-2012 biennial budget that includes a proposal to end the annual $950 million local personal property car tax payment that the state makes to localities to offset some portion of local car tax bills for the first $20,000 in value of personal vehicles. He also recommended getting rid of the car tax completely and suggested that the right way to do this was to impose a 1% personal income tax surcharge in Virginia and give 100% of the revenue to local governments in exchange for their agreement to completely eliminate the property tax on all personal cars, trucks, and motorcycles.

  The proposed budget assumes revenue due to an increase in the monthly landline and wireless E-911 fees and captures revenue from a proposal to increase the gross premium insurance tax applicable to property and casualty insurance. Further, the budget proposes to eliminate the sales tax dealer discount for retailers.

  In addition, Virginia will join 20 other states and decouple corporate income taxes from the federal income tax deduction for domestic production activities that are allowed under §199 of the Internal Revenue Code. The governor also proposed moving the date of conformity for taxpayers to file their taxes.

  The governor's news release can be found at
http://www.governor.virginia.gov/MediaRelations/NewsReleases/viewRelease.cfm?id=1172.

News Release, Virginia Gov. Timothy M. Kaine, December 18, 2009
 

CCH (cch.taxgroup.com) reports:

  The Social Security Administration has announced that the contribution and benefit base for 2010 remuneration and self-employment income is $106,800. The "old law" contribution and benefit base is $79,200. The "old law" base is used by the Railroad Retirement program to determine certain tax liabilities and tier II benefits, by the Pension Benefit Guaranty Corporation to determine the maximum amount of pension guaranteed under ERISA, and by the Social Security Administration to determine a year of coverage in computing certain benefits. Also, the domestic employee coverage threshold amount for 2010 has been determined to be $1,700.

Notice 2009-80, 2010FED ¶46,209

Other References:

 
Code Sec. 408

  CCH Reference - 2009FED ¶113

  CCH Reference - 2009FED ¶114

  CCH Reference - 2009FED ¶780.07

  CCH Reference - 2009FED ¶18,922.0249

 
Code Sec. 1401

  CCH Reference - 2009FED ¶32,543.01

  CCH Reference - 2009FED ¶32,543.07

  CCH Reference - 2009FED ¶32,543.26

 
Code Sec. 1402

  CCH Reference - 2009FED ¶32,580.01

 
Code Sec. 3401

  CCH Reference - 2009FED ¶33,506.024

  CCH Reference - 2009FED ¶33,506.054

 
Code Sec. 3510

  CCH Reference - 2009FED ¶33,828.01

  CCH Reference - 2009FED ¶33,828.30

 
Code Sec. 6017

  CCH Reference - 2009FED ¶35,203.01

 
Code Sec. 6041

  CCH Reference - 2009FED ¶35,836.20

  Tax Research Consultant

  CCH Reference - TRC INDIV: 63,052

  CCH Reference - TRC COMPEN: 27,056

  CCH Reference - TRC PAYROLL: 3,106

  CCH Reference - TRC PAYROLL: 3,180

  CCH Reference - TRC PAYROLL: 3,358

  CCH Reference - TRC PAYROLL: 9,052

  CCH Reference - TRC PAYROLL: 9,158

  CCH Reference - TRC PAYROLL: 9,204

 

CCH (cch.taxgroup.com) reports:

  The IRS has released interim guidance that extends the period for submitting taxpayer authorizations permitting disclosure of return information under Code Sec. 6103(c) to the IRS or an agent or contractor of the IRS. The interim rules, which will apply until the regulations under Code Sec. 6103(c) are amended, extend the period within which a signed and dated authorization must be received by the IRS from 60 to 120 days. The 60-day limit has proven problematic because some of the institutions assisting taxpayers have had difficulty obtaining and submitting the written authorizations within that time period. The interim rules apply to all such authorizations executed on or after the date that is 60 days prior to the publication of this guidance in the Internal Revenue Bulletin, which will be on January 19, 2010.

Notice 2010-8,
2010FED ¶46,206

Other References:

 
Code Sec. 6103

  CCH Reference - 2009FED ¶36,894.72

  Tax Research Consultant

  CCH Reference - TRC IRS: 9,104

CCH (cch.taxgroup.com) reports:

  The IRS has issued guidance regarding the reporting requirements of widely held fixed investment trusts (WHFITs). The new guidance provides interim rules on transition payments for trustees and "middlemen" with respect to WHFITs and trust interest holders (TIHs) and also limited penalty relief for trustees and middlemen. A middleman for this purpose is a person who hold interests in a WHFIT, but is not the ultimate beneficial owner of such interest. The guidance also provides rules for: inclusion of summary totals of WHFIT interest, dividend and miscellaneous income on Form 1099; the format of the written tax information statement required to be provided to TIHs; and the obligations of trustees and middlemen for information reporting with respect to certain non-mortgage WHFITs (NMWHFITs).

 
Reg. §1.671-5 contains the WHFIT reporting rules. The IRS had previously informed trustees and middlemen of WHFITs in Notice 2008-77, IRB 2008-40, 814, that it would not assess penalties as a result of failure to comply with WHFIT reporting rules with respect to calendar year 2008. In the new guidance, the IRS states that trustees and middlemen must comply with the Reg. §1.671-5 rules, except as provided in the new guidance.

  Under the rules, the trustee or middleman of the WHFIT must report income paid to the beneficial owner as of the record date, rather than the payment date, as had often been the previous practice. To avoid confusion, a trustee or middleman who transitions to the new rules must provide the TIH with a statement that it is transitioning from reporting based on payment dates to reporting based on record dates and that the record date was in the previous calendar year, even though the payment date is in the current year, and the TIH must include the relevant payment as a Code Sec. 481(a) adjustment. Because the IRS recognizes that the trustees and middlemen may not have time to modify their reporting systems to report payments that span the 2008 and 2009 calendar years, it will not sanction them for 2009 for a failure to comply with Reg. §1.671-5(d), (e), and (g)(2).

  A change in recognizing trust income in the year of the payment date to the year of the record date is a change in accounting method under Code Sec. 446(e), which would normally require IRS approval. In the guidance, the IRS gives consent to all cash method TIHs to make this change.

  The new guidance also sets out procedures for information reporting with respect to WHFIT income. Middlemen and trustees may report such information on Form 1099-INT, Form 1099-DIV, or Form 1099-MISC, as appropriate, with a summary total included on Form 1099. Information may be furnished to TIHs via electronic and composite statements and may include summary totals, provided such statement provides enough information to the TIH to enable it to properly report its income.

  Finally, the IRS determined that a trustee or middleman may satisfy its reporting requirements under Reg. §1.671-5(e) by providing a TIH of a royalty or commodity trust (two types of NMWFITs) with the address of a website where information can be found sufficient to meet the requirements of that regulation, if the middleman or trustee also provides the TIH with the option of receiving a written statement containing such information.

Notice 2010-4,
2010FED ¶46,205

Other References:

 
Code Sec. 671

  CCH Reference - 2009FED ¶24,686.0525

  CCH Reference - 2009FED ¶24,686.86

  Tax Research Consultant

  CCH Reference - TRC ESTTRUST: 36,300

CCH (cch.taxgroup.com) reports:

  Senate Majority Leader Harry Reid, D-Nev., has laid out the steps he plans to take to pass the Senate's $848-billion sweeping health care reform overhaul before Christmas. With the expected unveiling on December 19 of his manager's amendment, which includes all the changes negotiated with members over the past several weeks, and, hopefully, the approval of moderate holdout Sen. Ben Nelson, D-Nev., Reid plans to begin the procedural steps that will likely lead to final passage before December 25. If Reid fails to lock in all 60 votes from caucus members, however, the health care reform debate could be pushed into the final week of December while leadership continues to negotiate problem areas.

  The three-step process, according to an internal memo circulated by Senate Assistant Majority Leader Richard J. Durbin, D-Ill., would begin with Reid filing cloture on his manager's amendment, a substitute amendment, and the underlying bill (HR 3590) on December 19. Procedural rules would call for a vote on the manager's amendment late on December 21, followed by a vote on the Reid substitute amendment on December 22. On December 23, lawmakers would vote to approve cloture, which limits debate, on the health reform measure. Assuming all goes smoothly, the Senate could proceed to a final vote on the bill on December 24.

  By Jeff Carlson, CCH News Staff

CCH (cch.taxgroup.com) reports:

  Meeting by conference call on December 17, the Streamlined Sales Tax (SST) Governing Board gave final approval to an amendment to the SST Agreement that relates to the organization's membership structure. The board also confirmed that Indiana and Iowa are out of compliance with the Agreement at this time, gave initial approval to a standard for documenting exemptions, and agreed to consider if the taxation of online travel companies is within its remit.

 

CCH (cch.taxgroup.com) reports:

  The IRS has issued a reminder to individual taxpayers who are considering buying a new car that they have until Dec. 31 to take advantage of a tax break that may not be available in 2010. Taxpayers who buy a qualifying new motor vehicle after Feb. 16, 2009, can deduct the state or local sales or excise taxes they paid on the first $49,500 of the purchase price. Qualifying motor vehicles include new passenger automobiles, light trucks, motorcycles, and motor homes.

  The deduction is reduced for joint filers with modified adjusted gross incomes between $250,000 and $260,000 and other taxpayers with modified adjusted gross incomes between $125,000 and $135,000. Taxpayers with higher incomes do not qualify.

  Taxpayers who take the standard deduction need to complete Schedule L and attach it to Form 1040 or Form 1040A to increase the standard deduction by the allowable amount of state or local sales or excise taxes paid on the purchase of the new vehicle and to check the box on line 40b on Form 1040 or line 24b on Form 1040A. Taxpayers who itemize should include the allowable amount of state or local sales or excise taxes from the purchase of the vehicle on Form 1040, Schedule A.

IR 2009-119

CCH (cch.taxgroup.com) reports:

  The IRS has adopted final regulations that clarify when the stock distribution requirements of Code Sec. 368(a)(1)(D) (Type-D reorganizations) and Code Sec. 354(b)(1)( (nonrecognition of gain or loss) are considered satisfied even though no qualifying stock or securities are actually issued. Under the final regulations (which generally adopt temporary regulations issued in December 2006 (T.D. 9303, 2007-1 CB 379, clarified by T.D. 9313, 2007-1 CB 805)), the distribution requirements for a Type-D reorganization are satisfied and a nominal share of stock is deemed issued if:

  the same person or persons own, directly or indirectly, all of the stock of the transferor and transferee corporations in identical proportions; and

  there is only a de minimis variation in shareholder identity or proportionality of ownership in the transferor and transferee corporations (Reg. §1.368-2(l)(2), as added by the new regulations.

  Companion regulations under Code Sec. 358 are also issued which hold that in Type-D reorganizations where the property received consists solely of nonqualifying property equal to the value of the transferred assets (i.e., none of the consideration is stock or securities of the transferee), the shareholder may designate the share of stock of the transferee that they already hold to which the basis, if any, of the surrendered stock or securities of the transferor will attach (Reg. §1.358-2(a)(2)(iii), as added by T.D. 9475, December 17, 2009). In addition, the IRS has added a new example to the intercompany transaction regulations extending these Type-D reorganization rules to consolidated groups (Reg. §1.1502-13(f)(7), as amended by the new rules.

  The IRS request comments on the application of these rules to reorganizations involving foreign corporations or shareholders. Specifically, the IRS is soliciting comments on:

  whether any Code Sec. 1248 amount attributable to the stock of the transferor corporation can be preserved in the nominal share deemed issued by the transferee corporation;

  the manner in which earnings and profits (E&P) are (or should be) taken into account for purposes ofCode Sec. 902 when an exchanging shareholder recognizes gain under Code Sec. 356(a) that is treated as a dividend from the E&P of the transferor and transferee corporations;

  whether and how Code Sec. 902 should apply when an exchanging shareholder does not actually own stock in the transferee corporation but the exchanging shareholder recognizes gain under Code Sec. 356(a) that is treated as a dividend from the E&P of the transferee corporation (including whether a limitation similar to Code Sec. 304(b)(5) is appropriate in such cases);

  whether and how, under Code Sec. 959, an exchanging shareholder should be able to access previously taxed E&P of a foreign transferor and/or transferee corporation before any nonpreviously taxed E&P of either corporation; and

  whether and how Code Sec. 897 applies if the transferor corporation is a United States real property holding corporation with at least one foreign shareholder.

  The final regulations are effective December 17, 2009, and apply to transactions occurring on or after the effective date. For transactions occurring before December 17, 2009, taxpayers should rely on Temporary Reg. §1.368-2T(l), prior to removal by T.D. 9475. However, taxpayers may, in certain circumstances, apply the new rules to transactions occurring before December 17, 2009 (Reg. §1.368-2(l)(4), as added by the new rules.

T.D. 9475, 2010FED ¶47,005

Other References:

 
Code Sec. 354

  CCH Reference - 2009FED ¶16,433.021

 
Code Sec. 358

  CCH Reference - 2009FED ¶16,553.01

 
Code Sec. 368

  CCH Reference - 2009FED ¶16,753.0253

 
Code Sec. 1502

  CCH Reference - 2009FED ¶33,168.0236

  Tax Research Consultant

  CCH Reference - TRC REORG: 18,052.15

CCH (cch.taxgroup.com) reports:

  The IRS plans to issue proposed regulations to amend its arbitrage regulations under Code Sec. 148 to make it easier for state perpetual trust funds to provide credit enhancement for municipal bonds in the wake of the financial crises.

  Arbitrage restrictions apply to the proceeds of state and local tax-exempt bond issues, and to replacement proceeds associated with those bond issues. Replacement proceeds can include funds pledged to provide assurance to investors that the principal and interest of the original issue will be paid. If certain requirements are met, an exception to the arbitrage rules applies under Reg. §1.148-11(d)(1) for perpetual trust funds set up by states to enhance the credit worthiness of its general issue bonds. One of the requirements is that, in the event there is a deposit in the fund to bolster the fund in light of the new obligation, the outstanding amount of the bonds guaranteed by the fund must not exceed 250 percent of the lower of cost or fair market value of the fund prior to the deposit.

  The IRS notes that the value of perpetual trust funds has been adversely affected by the financial crises, which in turn under these regulations adversely affects the ability of such funds to provide credit enhancement in the municipal bond market. Accordingly, the IRS plans to issue proposed regulations to amend this rule to change the amount to 500 percent of the total cost of the assets held by the fund as of December 16, 2009. Taxpayers can rely on the changed amount for bonds sold on or after December 16, 2009, and before the effective date of future regulations or guidance.

  Comment: The IRS intends for the new rule to completely take the place of the current rule rather than provide an optional means of satisfying the regulatory requirements.

  The IRS has asked for comments on the rule change, and on any other regulation under Code Sec. 148 that may impede an issuer's ability to obtain credit enhancement.

Notice 2010-5,
2010FED ¶46,204

Other References:

 
Code Sec. 148

  CCH Reference - 2009FED ¶7889.08

  CCH Reference - 2009FED ¶7889.18

  Tax Research Consultant

  CCH Reference - TRC SALES: 51,500

CCH (cch.taxgroup.com) reports:

  Proposed regulations relating to reporting sales of securities by brokers and determining the basis of securities have been issued. The proposed regulations reflect the changes made by the Emergency Economic Stabilization Act of 2008 (P.L. 110-343) to the determination of cost basis under Code Sec. 1012, and the additional broker reporting requirements of Code Sec. 6045 (g). They also reflect the additions of Code Secs. 6045A (requiring basis information for transfers of covered securities to be reported to the receiving broker) and 6045B (relating to information reporting in connection with organizations actions such as mergers or stock splits) made by P.L. 110-343, and conforming amendments to the list of returns in Code Sec. 6724 for which penalties may be imposed if the new reporting obligations are not met.

  The proposed regulations address the changes toCode Sec. 6045 that require brokers to show the gross proceeds of a covered security, together with information about the customer's adjusted basis in the security and whether any gain or loss is long-term or short-term. Covered securities are stock, notes, bonds debentures, other debt instruments, and certain commodities and other financial instruments (collectively "specified securities") held in certain accounts and acquired on or after an applicable date.

  CCH Comment. The applicable date of the reporting depends on the type of specified security that is sold. For stock of a corporation, other than stock in a regulated investment company (RIC), or stock acquired in connection with a dividend reinvestment plan (DRP), the applicable date is January 1, 2011. For stock in a RIC, or stock acquired in connection with a DRP, the applicable date is January 1, 2012. For any other specified security, the applicable date is January 1, 2013, or a later date determined by the Secretary. The reporting rules related to options transactions apply only to options granted or acquired on or after January 1, 2013. The proposed regulations would clarify that for this purpose a security that the issuer classifies as stock is treated as stock, but if no classification is made by the issuer, it is not considered stock unless the broker knows, or has reason to know, that the specified security is stock.

  Pursuant to the proposed regulations, all brokers required to report basis and the character of gain or loss as long or short term would use the new version of Form 1099-B, "Proceeds from Broker and Barter Exchange Transactions." The basis that brokers are required to report would be the total amount paid by a customer or credited against a customer's account as a result of the acquisition of securities adjusted for commissions and the effects of other transactions occurring within the account. The proposed regulations also would require brokers to adjust the basis they report to take into account the information received on a Code Sec. 6045A transfer statement, as well as information received pursuant to a Code Sec. 6045B statement related to organizational actions.

  A broker would not, however, be required under the proposed regulations to adjust the reported basis for transactions, elections, or events occurring outside the account. The proposed regulations further clarify that a broker would not be required to report adjusted basis, and whether any gain or loss on a sale is long-term or short-term, for securities that are excepted from reporting under Code Sec. 6045 at the time of their acquisition, such as certain securities purchased by tax-exempt organizations. Moreover, a broker who either fails to receive a transfer statement, or receives an incomplete statement, would be permitted to treat the underlying security as a noncovered security if the broker requests a complete statement and none is forthcoming prior to the sale or transfer of the security.

  CCH Comment. If, however, the broker receives such information after reporting the sale, the proposed regulations require the broker to file a corrected Form 1099-B. Similarly, if a broker receives the Code Sec. 6045B organization action statement after reporting the sale, the broker would be required to file a corrected Form 1099-B to report any necessary adjustments to basis.

  To streamline the information-reporting requirements, the proposed regulations maintain the current requirement that brokers report a sale of securities within an account on one return, even if the sale involves multiple acquisitions. The proposed regulations would provide brokers with the option of voluntarily undertaking reporting for noncovered securities on a security-by-security basis, but no penalties would be imposed for the failure to report such information correctly if the broker indicates on the Form 1099-B that it is for a noncovered security.

  CCH Comment. Because brokers must report whether any gain or loss on the sale of a covered security is short-term or long-term, and because noncovered securities must be reported separately from covered securities to avoid treatment as covered securities, a single sale in an account could necessitate as many as three returns if the sale included covered securities held more than a year, covered securities held one year or less, and noncovered securities.

  The proposed regulations address how a broker determines the basis required to be reported, including clarification of how to do so for sales of less than the entire position of a security in an account. This generally would require use of the customer's instructions either identifying the security sold, or requesting that average basis be used to make such computation. If no instruction is provided by the customer, the proposed regulations would require the broker to report basis using a first in first out (FIFO) method, except for stock eligible for averaging, in which case the broker must use the default basis determination method.

  Under present law, as set forth in Rev. Rul. 67-436, 1967-2 CB 266, the requirement that stock be identified at the time of sale or transfer is satisfied if such identification is made by the time of delivery within four days of the sale date. Consistent with this, the proposed regulations provide that a taxpayer makes an adequate identification of stock at the time of sale, transfer, delivery, or distribution if the taxpayer identifies the stock no later than the earlier of the settlement date or the time for settlement under Securities and Exchange Commission regulations. Rev. Rul. 67-436 will be obsoleted when the proposed regulations are finalized.

  Proposed special average basis method rules are provided for DRP stock, which allow a customer to elect to select such method using specified rules for all identical shares (generally defined as shares with the same Committee on Uniform Security Identification Procedures, or CUSIP) acquired after December 31, 2010. These rules would require the customer to report gain or loss consistent with such election. Absent such election, the broker would be required to use the default basis determination method, which the customer must also use in computing gain or loss.

  The proposed regulations further address how to compute average basis for various transactions and accounts (including definitions of an account, and the treatment of identical stock held in two separate accounts), the rules governing a single-account election for RICs and DRPs, the time and manner of making an average basis method election and revoking such election, and how to change to another permissible method.

  The proposed regulations also provide guidance with respect to various reporting obligations including wash sales, short sales, sales by S corporations and reporting to trust interest holders in a widely held fixed instrument trust. They further address reporting required in connection with transfers of gifted, inherited and borrowed securities (in the case of short sales). Clarification of the Code Sec. 6045B reporting obligations is also supplied and would require a reporting issuer to identify itself and the security on the return and provide information about the organizational action. Domestic and foreign issuers would also be required to furnish a written information statement about the organizational action to nonexempt recipients, or their nominees. These return filing and information statements would be waived, however, if the issuer posts a timely statement with the required information in a readily accessible format on its primary public website.

  Finally, the proposed regulations update the penalty provision regulations to reflect the new Code Secs. 6045A and 6045B reporting obligations, and clarify that any failure to report correct information arising from reliance on such statements is deemed to be due to reasonable cause for purposes of the Code Secs. 6721 and 6722 penalties. If the broker takes into account information from a customer or third party other than as shown on statements, and the broker neither knows nor has reason to know that the information is incorrect, then the broker would be deemed to have relied on the information in good faith.

  Comments on the proposed regulations have been requested. A public hearing on the proposals is scheduled for February 17, 2010.

IR-2009-118,
2010FED ¶46,203

Proposed Regulations, NPRM REG-101896-09, 2010FED ¶49,439

Other References:

 
Code Sec. 408

  CCH Reference - 2009FED ¶18,916G

 
Code Sec. 1012

  CCH Reference - 2009FED ¶29,331C

 
Code Sec. 3406

  CCH Reference - 2009FED ¶33,641A

 
Code Sec. 6039

  CCH Reference - 2009FED ¶35,602G

 
Code Sec. 6042

  CCH Reference - 2009FED ¶35,867C

 
Code Sec. 6044

  CCH Reference - 2009FED ¶35,909C

 
Code Sec. 6045

  CCH Reference - 2009FED ¶35,923G

  CCH Reference - 2009FED ¶35,926BC

  CCH Reference - 2009FED ¶35,926G

  CCH Reference - 2009FED ¶35,929A

  CCH Reference - 2009FED ¶35,929D

 
Code Sec. 6045A

  CCH Reference - 2009FED ¶35,932C

 
Code Sec. 6045B

  CCH Reference - 2009FED ¶35,935C

 
Code Sec. 6049

  CCH Reference - 2009FED ¶36,035C

 
Code Sec. 6051

  CCH Reference - 2009FED ¶36,424C

 
Code Sec. 6721

  CCH Reference - 2009FED ¶40,213C

 
Code Sec. 6722

  CCH Reference - 2009FED ¶40,232C

  Tax Research Consultant

  CCH Reference - TRC FILEBUS: 9,256
CCH Reference -
TRC SALES: 6,068
 

CCH (cch.taxgroup.com) reports:

  The Massachusetts Department of Revenue has issued guidance explaining the impact of federal changes on the state's corporate excise and personal income tax. Specifically, state legislation adopted the new federal exclusion from gross income allowed by the federal American Recovery and Reinvestment Act of 2009 ("ARRA") for the COBRA subsidy for certain involuntarily terminated employees and their families. In addition, the legislation included provisions decoupling Massachusetts tax law from certain federal tax law changes made by ARRA.

  The state's corporate excise provisions generally reference the Internal Revenue Code ("Code") as amended and in effect for the current year. For personal income tax purposes, the pertinent Massachusetts provisions generally adopt the Code as amended and in effect on January 1, 2005; however, the Massachusetts personal income tax adopts the current Code with respect to certain sections.

 

CCH (cch.taxgroup.com) reports:

  As Senate Democrats try to reach an agreement on a package that can garner the 60 votes necessary to end a filibuster, President Obama said he is "cautiously optimistic" that Congress will pass health care reform legislation "on our watch." Obama noted that while there are still disagreements that need to be resolved within the next few days, he remained confident that a bill will pass "because it's right for America."

  Following a White House meeting with fellow members of the Senate Democratic caucus on December 15, Senate Democratic Whip Richard J. Durbin, D-Ill., indicated that senators decided to drop the controversial Medicare buy-in proposal, after one of the key voters, Sen. Joseph I. Lieberman, I-Conn., said he opposed it.

  Meanwhile, Obama reaffirmed his support for the Patient Protection and Affordable Care Bill (HR 3590), noting that it meets all the necessary principles for making insurance available for 30 million currently uninsured Americans without increasing the federal deficit.

Senate Action

  The Senate on December 15 approved, by a 97-to-1 margin, an amendment offered by Senate Finance Committee Chairman Max Baucus, D-Mont., that would ensure no family with an adjusted gross income of less than $250,000 would face any tax increases under HR 3590. The amendment was offered in order to counter a proposal by Sen. Mike Crapo, R-Ida., that would send the health care overhaul legislation back to the Finance Committee in order to allow that panel to strip out tax-related provisions. Crapo claimed the health care reform measure would lead to tax increases for middle-class families. Crapo's amendment to recommit the legislation, which required 60 votes for adoption, was defeated by a vote of 45-to-54.

  Baucus argued that the Joint Committee on Taxation estimated that tax credits in the health reform bill would reduce taxes by $40 billion, or approximately $440 per individual, in 2017.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

SFC Release: The Patient Protection and Affordable Care Act --What American Families, Small Businesses and Workers Get Right Away
 

CCH (cch.taxgroup.com) reports:

  The Issue Resolution Committee of the Streamlined Sales Tax (SST) Governing Board heard oral arguments on two pending matters during the committee's inaugural meeting, which was held by conference call on December 14. The matters relate to Nevada's compliance with the SST Agreement and the proper characterization of software license upgrades. Other petitions relating to the compliance of North Dakota, Rhode Island and Vermont were withdrawn by the Business Advisory Council (BAC) after those states resolved the matters in dispute. (TAXDAY, 2009/12/04, S.1)

  The committee is chaired by R. Bruce Johnson, Utah State Tax Commission. The other members are Tom Gillaspie, Nebraska Department of Revenue; Erica Mani, West Virginia Department of Revenue; and Robert Thompson, Oklahoma Tax Commission. Any person may petition the board to invoke the issue resolution process if certain enumerated matters are at issue, including matters related to a member state's compliance with the Agreement and interpretation issues. Petitions are heard by the Issue Resolution Committee, which makes recommendations to the board. After considering the recommendations, the board then makes a final determination.

  The BAC filed a petition arising from the board's failure to find Nevada out of compliance with the Agreement during the 2008 recertification process. (TAXDAY, 2009/09/01, S.1) On behalf of the BAC, Fred Nicely, Council On State Taxation, argued that Nevada's inability to process ACH credit payments, as required by §319(c) of the Agreement, puts the state out of compliance. While the state can process ACH debit payments, Nicely argued that is insufficient, adding that taxpayers prefer ACH credit transactions because they are more secure and easier to correct in the event of error than ACH debit payments. On behalf of Nevada, Dino DiCianno, Nevada Department of Taxation, admitted that the state does not have the ability currently to accept ACH credit payments. He said the Legislature failed to act on his request for funding to complete the necessary interface in 2009 and that now it is unlikely he can obtain the funding prior to 2011, when the Legislature next meets in regular session.

  Mark Nebergall, Software Finance and Tax Executives Council (SoFTEC), filed a petition seeking to have the board reconsider its adoption of an opinion holding that the purchase of software license upgrades should be treated the same as the original purchase of a software license (which may be considered the purchase of "tangible personal property" or "computer software"). (TAXDAY, 2009/05/19, S.1) Nebergall argued that this opinion was not a proper interpretation of any provision of the Agreement and that the board should, instead, hold that software license upgrades are intangible personal property. The opposing side was presented by Myles Vosberg, North Dakota Office of State Tax Commissioner, who chairs the Compliance Review and Interpretations Committee (CRIC). The CRIC issued the original opinion (TAXDAY, 2009/01/16, S.1) that later was adopted by the board over Nebergall's objection.

  Under the guidelines laid out by Johnson at the beginning of the call, the Issue Resolution Committee will issue its recommendations within 60 days. The Governing Board then will have 60 days after that to meet and act on those recommendations.

Conference call, Streamlined Sales Tax Issue Resolution Committee, December 14, 2009
 

CCH (cch.taxgroup.com) reports:

  Stock transferred by a decedent to a family limited partnership (FLP) was not includible in the decedent's gross estate under Code Sec. 2036(a) because the transfer was a bona fide sale for adequate and full consideration. The decedent and his advisors decided to create the FLP in order to consolidate and protect his stock holdings in an insurance company, namely by preventing his grandsons from selling their shares of stock and protecting his son's shares from potential claims incident to divorce. The protection from creditors and potential dissipation was a legitimate and significant nontax reason for the creation of the FLP. The creation of the FLP was the result of an arm's-length transaction. Furthermore, the decedent received an interest in the FLP that represented adequate and full consideration because: (1) the participants in the FLP received interests proportionate to the value of the property each contributed; (2) the respective contributed assets were properly credited to the transferors' capital accounts; (3) distributions required negative adjustments to distributee capital accounts; and (4) there was a legitimate and significant nontax reason for formation of the FLP. Consequently, the decedent's transfer of stock to the FLP satisfied the bona fide sale exception.

  The decedent's surviving spouse died less than five months after the decedent, before the marital trust could be funded with shares of the FLP. Pursuant to the decedent's testamentary documents, a pecuniary marital trust was created for the spouse. Because the trust was to terminate on the her death, it was never funded. However, in order to calculate the spouse's gross estate, the value of the trust had to be established. The amount of the pecuniary bequest was not ascertainable until the after the determination of the decedent's estate tax liability, which was not calculated the spouse's death. The executor used the spouse's death as the date in which the trust was funded because that was the last possible date that the funding could occur, as it was not possible to fund the marital trust after the spouse's death. Moreover, if the spouse had survived and requested that the trust be funded with cash, the FLP shares would have been sold for their current fair market value. Accordingly, the executor use of the spouse's date of death when determining the date in which the marital trust was funded was proper.

  The deduction of the interest paid by the spouse's estate to the FLP was not a necessary expense under Reg. §20.2053-3(a). In order to satisfy liabilities of the spouse's estate, which included federal and state estate taxes and a charitable bequest from the decedent's estate, without receiving a large distribution from the FLP, the executor obtained a $71-million loan from the FLP. It was noted that the repayment of the loan would require a sale of the insurance stock attributable to the spouse's interest in the FLP. Therefore, it was determined that the only difference between the redemption of the stock and the loan was that the loan created a $20-million interest deduction, which was offset by a smaller income tax expense to the other partners. Furthermore, the principal beneficiary of the estate was also the majority share holder. Thus, the beneficiary was making interest payments to himself. In addition, when the shares of the insurance stock were sold, only half of the expenses incurred were deductible. In order to repay the loan, a secondary offering of one-third of the insurance stock was made. The spouse's estate's indirect ownership of the stock through the FLP was sufficient to deduct the sale under Reg. §20.2053-3(d)(2). However, it was held that only a portion of the funds generated by the secondary offering were directly used by the spouse's estate. The attorney's fees, administrative costs, and other fees associated with the satisfaction of the decedent's charitable bequest were not deductible by the spouse's estate.

S.P. Black, Jr., Est., Dec. 58,018

Other References:

 
Code Sec. 2036

  CCH Reference - FINH ¶4955.701

  CCH Reference - FINH ¶4955.712

 
Code Sec. 2044

  CCH Reference - FINH ¶5940.05

  CCH Reference - FINH ¶5940.10

 
Code Sec. 2053

  CCH Reference - FINH ¶6120.12

  CCH Reference - FINH¶6140.65

  CCH Reference - FINH ¶6160.53

 
Code Sec. 2056

  CCH Reference - FINH ¶6120.12

  CCH Reference - FINH¶6140.65

  CCH Reference - FINH ¶6850.45

  Tax Research Consultant

  CCH Reference - TRC ESTGIFT: 18,100
CCH Reference - TRC ESTGIFT: 39,150
CCH Reference - TRC ESTGIFT: 42,350

 

CCH (cch.taxgroup.com) reports:

  The IRS has delayed the effective date of Rev. Rul. 2006-57, 2006-2 CB 911, which provides guidance to employers on the use of smartcards, debit or credit cards, or other electronic media to provide qualified transportation fringe benefits under Code Sec. 132(a)(5) and
(f). The guidance is intended to provide relief to mass transit providers that have been unable to update their present systems in order to comply with the revenue ruling guidelines prior to the current effective date of January 1, 2010. The effective date is delayed until January 1, 2011. However, employers and employees may rely on Rev. Rul. 2006-57 with respect to transactions occurring prior to January 1, 2011.

Notice 2009-95, 2010FED ¶46,202

Other References:

 
Code Sec. 132

  CCH Reference - 2009FED ¶7438.054

  CCH Reference - 2009FED ¶7438.75

  Tax Research Consultant

  CCH Reference - TRC COMPEN: 36,354

CCH (cch.taxgroup.com) reports:

  The IRS has issued additional guidance on the application of Code Sec. 382 and other provisions of law to corporations whose instruments are acquired by the Treasury Department under the following programs established pursuant to the Emergency Economic Stabilization Act of 2008 (P.L. 110-343) (the EESA programs):

  (1) the Capital Purchase Program for publicly traded issuers (Public CPP);

  (2) the Capital Purchase Program for private issuers (Private CPP);

  (3) the Capital Purchase Program for S corporations (S Corp CPP);

  (4) the Targeted Investment Program (TARP TIP);

  (5) the Asset Guarantee Program;

  (6) the Systemically Significant Failing Institutions Program;

  (7) the Automotive Industry Financing Program; and

  (8) the Capital Assistance Program for publicly traded issuers (TARP CAP).

  The guidance amplifies and supersedes Notice 2009-38, I.R.B. 2009-18, 901 (TAXDAY, 2009/04/14, I.4), to address the treatment under Code Sec. 382 of stock sold by the Treasury to public shareholders. Where the Treasury sells stock that was issued to it under one of the EESA programs, and the sale creates a public group, that public group's ownership in the corporation is not to be considered as having increased solely because of the sale. However, the public group's ownership in the corporation will be considered to have increased pursuant to any other transaction. The stock is considered outstanding for purposes of determining the percentage of stock owned by other five-percent shareholders on any testing date, and Code Sec. 382 applies to the public group in the same manner as any other public group.

  The following guidance is retained from Notice 2009-38 without changes:

  Generally, for all federal income tax purposes, any instrument issued to the Treasury under the EESA programs, other than TARP CAP, will be treated as an instrument of indebtedness if denominated as such, and as stock described in Code Sec. 1504(a)(4) if denominated as preferred stock. Such instruments will not be treated as stock for purposes of Code Sec. 382, except that
Code Sec. 1504(a)(4) preferred stock will be treated as stock for purposes of
Code Sec. 382(e)(1). The classification of any instrument issued to the Treasury pursuant to TARP CAP will be determined under general federal tax law principles.

  In addition, any warrant to purchase stock issued to the Treasury under any of the EESA programs, except Private CPP and S Corp CPP, will be treated as an option (and not as stock). While held by the Treasury, such a warrant will not be deemed exercised under Reg. §1.382-4(d)(2). Any warrant to purchase stock issued under the Private CPP will be treated as an ownership interest in the underlying stock, which will be treated as Code Sec. 1504(a)(4) preferred stock. Any warrant issued pursuant to the S Corp CPP will be treated as an ownership interest in the underlying indebtedness.

  For purposes of Code Sec. 382, the ownership represented by any stock (other than Code Sec. 1504(a)(4) preferred stock) issued to the Treasury under the EESA programs on any date on which it is held by the Treasury will not be considered to have caused the Treasury's ownership in the issuing corporation to have increased over its lowest percentage owned on any earlier date. Such stock will be generally considered outstanding for purposes of determining the percentage of stock owned by other five-percent shareholders on a testing date. However, any stock that was issued to the Treasury under the EESA programs and subsequently redeemed by the issuing corporation will be treated as if it had never been outstanding in measuring shifts in ownership by any five-percent shareholder on any testing date occurring on or after the redemption date.

  Any capital contribution made by the Treasury pursuant to the EESA programs will be exempt from the Code Sec. 382(l)(1) anti-stuffing rule and will not be considered to have been made as part of a plan a principal purpose of which was to avoid or increase any Code Sec. 382 limitation. Also, any amount received by a corporate issuer in exchange for instruments issued to the Treasury under the EESA programs will be treated as received, in its entirety, as consideration for such instruments.

  Finally, the above rules, except for the rules for the characterization of instruments and warrants for federal tax purposes, will also apply to "covered instruments" as though such instruments were acquired by the Treasury under the EESA programs. Covered instruments include any instruments acquired by the Treasury in exchange for instruments issued to the Treasury under the EESA programs. Any instruments acquired by the Treasury in exchange for covered instruments will also be treated as covered instruments.

  The IRS intends to issue regulations implementing certain of the rules described in the new guidance. Pending the issuance of further guidance, taxpayers may rely on the new rules. However, any future contrary guidance will not apply to any instrument that was issued to the Treasury under the EESA programs, or acquired by the Treasury in an exchange for such an interest as provided in this guidance, prior to the publication of the contrary guidance or under a binding contract entered into prior to the publication of that guidance.

Notice 2010-2,
2010FED ¶46,201

Other References:

 
Code Sec. 382

  CCH Reference - 2009FED ¶17,115.0225

  CCH Reference - 2009FED ¶17,115.026

  CCH Reference - 2009FED ¶17,115.40

  CCH Reference - 2009FED ¶17,115.45

  CCH Reference - 2009FED ¶17,115.73

  Tax Research Consultant

  CCH Reference - TRC NOL: 33,050
CCH Reference -
TRC NOL: 33,152
CCH Reference - TRC REORG: 33,202
CCH Reference - TRC REORG: 33,208
 

CCH (cch.taxgroup.com) reports:

  Senate Majority Leader Harry Reid's, D-Nev., plan to pass a sweeping $848-billion health care reform bill before Christmas suffered a serious setback over the weekend as several key lawmakers voiced their objections to recent changes in the bill and threatened to withhold their support for the measure. Independent Joseph I. Lieberman, I-Conn., who has already stated that he would not support a bill that contains a public option, said on December 13 that he opposes the latest compromise proposal that expands Medicare eligibility to people between the ages of 55 and 64.

  Speaking on CBS's "Face the Nation," Lieberman said he would have "a hard time" voting for a bill that contains a Medicare buy-in. "We've got to stop adding to the bill," he said. "We've got to start subtracting some controversial things."

  Lieberman said the proposal contains many of the same ills as the public option: mainly, that it would end up costing the U.S. taxpayer. "It has some of the same infirmities that the public option did," he said. "It will add taxpayer costs."

  In a joint appearance with Lieberman, moderate Ben Nelson, D-Neb., who also opposes the public option, said he, too, has problems with the Medicare buy-in plan. "I am concerned that it's the forerunner of single payor, the ultimate single-payor plan, maybe, even more directly than the public option," he said.

  Sen. Claire McCaskill, D-Mo., joined the chorus of lawmakers who hold reservations about the price tag of Reid's latest gambit to secure 60 votes for passage of his health care reform measure. She said on "Fox News Sunday" that she would not vote for the bill if the proposal would lead to an increase in health care spending. "I have to be assured that this is going to bring down the deficit and it's going to bring down health care costs," said McCaskill.

  Reid is expecting within days a cost estimate from the Congressional Budget Office (CBO) of the compromise agreement, which he hopes will allay concerns that the Medicare expansion would add to the cost of the plan.

  By Jeff Carlson, CCH News Staff

CCH (cch.taxgroup.com) reports:

  The Kentucky Department of Revenue offers personal income tax filing guidance to military spouses who fall under the federal Military Residency Relief Act of 2009 (P.L. 111-97), legislation signed by President Barack Obama on November 11, 2009. The Act is effective beginning with taxable year 2009 and prohibits a servicemember's spouse from 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 both the servicemember and the spouse. The Act also prohibits a spouse's income from being deemed income earned in a tax jurisdiction if the spouse is not a resident or domiciliary of the jurisdiction when the spouse is in the jurisdiction solely to be with a servicemember serving under military orders.

  For 2009, military spouses to whom the Act applies should file Form 740-NP (Kentucky Individual Income Tax Nonresident or Part-Year Resident Return) to obtain a refund of Kentucky income tax withheld from their 2009 pay. The income should not be reported as taxable on the Kentucky income tax return, and "MILITARY SPOUSE" should be written across the top of the return. For 2010, military spouses should file the newly updated Form K-4 (Employee's Withholding Exemption Certificate) with their employer to claim the exemption from withholding of Kentucky income tax. The updated form is available at
http://revenue.ky.gov/forms/curwhfrms.htm. Taxpayer assistance is available at (502) 564-4581.

Hot Topics , Kentucky Department of Revenue, December 11, 2009
 

CCH (cch.taxgroup.com) reports:

  The IRS has adopted final regulations relating to the reduction in taxable income under section 302 of the Katrina Emergency Tax Relief Act of 2005 (KETRA) (P.L. 109-73) and section 702 of the Heartland Disaster Tax Relief Act of 2008 (HDTRA) (Title VII of Division C of P.L. 110-343). The regulations finalize 2006 temporary regulations that affected taxpayers who provide housing in their principal residences to individuals displaced by Hurricane Katrina. The reach of the final regulations has been expanded to also cover taxpayers who provide housing in their principal residences to individuals displaced due to a 2008 Midwestern disaster.

  Section 702 of HDTRA, enacted on October 3, 2008, applied section 302 of KETRA to the Midwestern disaster. The Midwestern disaster area is an area with respect to which a major disaster was declared by the president under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (P.L. 100-707) by reason of severe storms, tornadoes or flooding on or after May 20, 2008, and before August 1, 2008, in the following states: Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska and Wisconsin. The applicable disaster date for each state in the Midwestern disaster area is the date of the severe storm, tornado, or flooding giving rise to the presidential declaration for that state. The reduction in taxable income for providing housing to a displaced individual in a Midwestern disaster area applies to tax years beginning in 2008 or 2009.

  The final regulations, in addition to expanding the scope of the temporary regulations to include taxpayers who provide housing in their principal residences to Midwestern disaster displaced individuals, clarify that the limitations on the reduction in taxable income apply separately to the Hurricane Katrina disaster area and the Midwestern disaster area. As a result, a taxpayer who, for example, provides housing to both Hurricane Katrina and Midwestern disaster displaced individuals may reduce taxable income by up to $2,000 for providing housing to Midwestern disaster displaced individuals, even though the taxpayer reduced taxable income for providing housing to Hurricane Katrina displaced individuals.

  The temporary regulations provided that the maximum dollar limitation for a married individual who files separately is $1,000. The final regulations provide that the maximum dollar limitation is $2,000 for married taxpayers filing jointly or separately. Married taxpayers filing separately may allocate the $2,000 between both returns.

  The final regulations authorize the IRS to apply these rules in additional guidance of general applicability if Congress extends relief under section 302 of KETRA to other future disaster areas.

  The final regulations apply to tax years ending after December 11, 2006. Taxpayers who, after filing their tax returns for 2006 or 2008 as married filing separately, want to apply the rule allowing them to allocate the $2,000 maximum limitation between them may do so by filing amended returns, so long as the period of limitations on credit or refund under Code Sec. 6511 has not expired.

T.D. 9474, 2009FED ¶47,042

Other References:

 
Code Sec. 151

  CCH Reference - 2009FED ¶8004M

  Tax Research Consultant

  CCH Reference - TRC FILEIND: 6,050

CCH (cch.taxgroup.com) reports:

  The IRS has published the 2009 Cumulative List of Changes in Plan Qualification Requirements (2009 Cumulative List). The 2009 Cumulative List informs plan sponsors and practitioners of issues the IRS has specifically identified for review when determining whether individually designed single-employer plans filing in Cycle E have been properly updated. The 2009 Cumulative List reflects changes made by a number of recent laws, including the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), (P.L. 107-16) (with technical corrections made by the Job Creation and Worker Assistance Act of 2002 (JCWAA) (P.L. 104-147), the Pension Funding Equity Act of 2004 (PFEA), (P.L. 108-218), the American Jobs Creation Act of 2004 (AJCA), (P.L. 108-357), the Katrina Emergency Tax Relief Act of 2005 (KETRA), (P.L. 109-73), the Gulf Opportunity Zone Act of 2005 (GOZA), (P.L. 109-135), the Pension Protection Act of 2006 (PPA '06), (P.L. 109-280), the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007, (P.L. 110-28), the Heroes Earnings Assistance and Relief Act of 2008 (HEART Act), (P.L. 110-245), the Emergency Economic Stabilization Act of 2008 (EESA), (P.L. 110-343), and the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA), (P.L. 110-458).

  In order to be qualified, a plan must comply with all relevant qualification requirements, not just those on the 2009 Cumulative List. The IRS will not review plan language for guidance issued after October 1, 2009, statutes enacted after October 1, 2009, qualification requirements first effective in 2011 or later, or statutory provisions first effective in 2010, for which no guidance is identified in the 2009 Cumulative List. Thus, sponsors of pre-approved plans may not rely on opinion or advisory letters with respect to any guidance issued after October 1, 2009, unless that guidance is on the 2009 Cumulative List. The 2009 Cumulative List does not extend the deadline by which a plan must be amended to comply with any statutory, regulatory or guidance changes.

Notice 2009-98,
2009FED ¶46,560

Other References:

 
Code Sec. 401

  CCH Reference - 2009FED ¶17,507.041

  CCH Reference - 2009FED ¶17,507.15

  CCH Reference - 2009FED ¶17,507.2531

  CCH Reference - 2009FED ¶17,929.024

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 51,052.20
CCH Reference - TRC RETIRE: 51,100
CCH Reference - TRC RETIRE: 66,058.10

CCH (cch.taxgroup.com) reports:

  The IRS has extended the deadline for amending qualified retirement plans to meet certain requirements of the Internal Revenue Code that were added by the Pension Protection Act of 2006 (P.L. 109-280), and subsequently modified by the Worker, Retiree, and Employer Recovery Act of 2008 (P.L. 110-458). The deadline is extended to the last day of the first plan year that begins on or after January 1, 2010.

  This extension applies to: (1) the deadline for amending single-employer defined benefit plans to meet the requirements of Code Secs. 401(a)(29) and
436, relating to funding-based limits on benefits and benefit accruals under single-employer plans; (2) the deadline for amending cash balance and other applicable defined benefit plans, within the meaning of Code Sec. 411(a)(13)(C), to meet the requirements of Code Sec. 411(a)(13) (other than Code Sec. 411(a)(13)(A)) and Code Sec. 411(b)(5), relating to vesting and other special rules applicable to these plans; and (3) the deadline for amending applicable defined contribution plans, within the meaning of Code Sec. 401(a)(35)(E), to meet the requirements of Code Sec. 401(a)(35), relating to diversification requirements for certain defined contribution plans.

  The IRS has also provided for the anti-cutback requirements of Code Sec. 411(d)(6) for amendments that are adopted by the extended deadline for amending a plan to meet the requirements of Code Secs. 401(a)(29) and
436. The IRS expects that limited Code Sec. 411(d)(6) relief will be granted for amendments that are adopted by the extended deadline for amending a plan to meet the requirements of Code Sec. 411(b)(5) once final regulations under Code Secs. 411(a)(13) and 411(b)(5) are issued.

  The IRS's review of an application for a determination letter that is submitted before February 1, 2011, will not take into account the requirements of Code Secs. 401(a)(29) and
436. After January 31, 2009, and before February 1, 2011, the IRS will take into account the requirements of Code Secs. 401(a)(35), 411(a)(13) (including
Code Sec. 411(a)(13)(A)), or 411(b)(5), only if the plan has been amended to meet those requirements.

  Section 5.07(2) of Rev. Proc. 2007-44, I.R.B. 2007-28, 54, is modified. Notice 2008-108, 2008-2 CB 1275, is modified to provide that the Service's review of an application for a determination letter submitted during the submission period beginning on February 1, 2009, will take into account the requirements of Code Secs. 401(a)(35), 411(a)(13) (including
Code Sec. 411(a)(13)(A)), or 411(b)(5), only if the plan has been amended to meet those requirements.

Notice 2009-97, 2009FED ¶46,559

Other References:

 
Code Sec. 401

  CCH Reference - 2009FED ¶17,507.041

  CCH Reference - 2009FED ¶17,507.2531

 
Code Sec. 411

  CCH Reference - 2009FED ¶19,076.23

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 15,050
CCH Reference - TRC RETIRE: 51,052.05
 

CCH (cch.taxgroup.com) reports:

  The IRS has issued guidance permitting a Troubled Asset Relief Program (TARP) recipient to comply with an advisory opinion of the Special Master under certain circumstances without triggering adverse tax consequences under Code Sec. 409A. However, this guidance is applicable only for TARP recipients and the service providers of such TARP recipients and is only effective to the extent that an arrangement involving compensation paid by a TARP recipient to a one of its service providers is addressed in an advisory opinion issued by the Special Master pursuant to the Emergency Economic Stabilization Act of 2008 (Division A of P.L. 110-343) after September 30, 2009.

  In addition, because the Treasury Department and the IRS believe that further guidance is both appropriate and necessary, they have announced their intent to issue regulations that will (1) permit changes in the time and form of payment of nonqualified deferred compensation, including the acceleration of payments under a nonqualified deferred compensation plan by a TARP recipient, to the extent necessary to comply with an advisory opinion or other determination issued by the Special Master, and (2) specify when a payment that is delayed due to conditions imposed by such an advisory opinion or determination will not cause an amount to fail to qualify as a short-term deferral under Code Sec. 409A(a)(3) or Reg. §1.409A-3(j).

Notice 2009-92, 2009FED ¶46,558

Other References:

 
Code Sec. 409A

  CCH Reference - 2009FED ¶18,960.20

  CCH Reference - 2009FED ¶18,960.22

  Tax Research Consultant

  CCH Reference - TRC COMPEN: 15,056.30
CCH Reference - TRC COMPEN: 15,060
CCH Reference - TRC COMPEN: 15,062.05
 

CCH (cch.taxgroup.com) reports:

  The Utah Supreme Court has ruled that a limitation against retroactive application of the severance tax valuation holding in
ExxonMobil Corp. v. Utah State Tax Commission, Utah Supreme Court, 86 P.3d 706, 2003 UT 53, November 25, 2003, does not apply to severance tax deficiency actions but continues to apply to refund actions initiated by taxpayers. The court handed down the ruling in a case where an oil company sought a refund of severance taxes. At issue in the case were valuation methods and the commission's proration of an annual tax exemption.

 

CCH (cch.taxgroup.com) reports:

  The New York Department of Taxation and Finance has reversed its previous policy that excluded alcoholic beverage wholesalers from the statutory requirement of collecting and maintaining sales tax Resale Certificates (ST-120) for sales made to retailers. Starting February 15, 2010, alcoholic beverage wholesalers must get a properly completed Resale Certificate when they sell otherwise taxable products for resale (e.g., beer, wine, liquor) to an alcoholic beverage retailer.

  Previously enacted legislation required wholesalers of alcoholic beverages licensed by the New York State Liquor Authority to annually report certain information to the Department of Taxation and Finance, including:

  -- identifying information about their customers, including sales tax Certificate of Authority (COA) number or federal identification number, and

  -- information regarding sales to such customers.

  Some wholesalers have reported difficulty obtaining COA numbers or federal identification numbers. To address this concern, the department has changed its policy. Thus, for every sale made on or after February 15, 2010, without the collection of sales or use tax, wholesalers must obtain and maintain a properly completed ST-120 Resale Certificate or other appropriate exemption document.

  Because a Resale Certificate includes the retailer's COA number, wholesalers who obtain and maintain Resale Certificates will be able to satisfy the new legislation's reporting requirements. In addition, reporting the COA number will make it unnecessary for wholesalers to get federal identification numbers from customers.

  Penalties for noncompliance: Wholesalers may be held liable for the sales tax due, along with penalties and interest, on all transactions that are not supported by proper exemption documentation.

  The notice and alert can be found on the department's Web site at
http://www.tax.state.ny.us/enforcement/audit/alcbev.htm.

Notice, Alcoholic Beverage Wholesaler Annual Reporting Requirements, New York Department of Taxation and Finance, December 7, 2009; Audit Division Alert, New York Department of Taxation and Finance, December 3, 2009
 

CCH (cch.taxgroup.com) reports:

  The comparable uncontrolled transaction (CUT) method, used to calculate a buy-in payment for certain preexisting intangibles made by a foreign subsidiary corporation to its parent, pursuant to a cost sharing arrangement for the development and manufacture of storage management software products, was found to be the best method for determining such buy-in payment. The IRS's determination that the buy-in payment should have been calculated using an income method, and the factors it used in making its calculations under such method, were found to be arbitrary, capricious and unreasonable.

  The IRS relied on the testimony of an expert at was found to be unsupported, unreliable, and unconvincing. The expert used the wrong useful life for the product and the wrong discount rate.

  Moreover, the notice of deficiency relied on a report by a non-witness expert that resulted in a valuation one third higher than the valuation the IRS subsequently claimed at trial. This, together with other factors, suggested that the deficiency notice was arbitrary, capricious and unreasonable. Such other factors included a concession at trial by the IRS's expert that the beta factor he used by the in calculating the appropriate discount rate for the buy-in payment was erroneous.

  The IRS's modified computation of the correct buy-in payment in its amendment to its answer was also arbitrary, capricious and unreasonable. It relied on an assumption that the transfer of preexisting intangibles was akin to a sale of the US parent's business to its foreign subsidiary, that short-lived intangibles should be valued as though they would have perpetual life, and that subsequently developed, rather than just preexisting intangibles, should be factored in. This approach was found to be unreliable. Moreover, the IRS allocation took into account items not transferred or of insignificant value, as well as rights to future co-developed intangibles in violation of Reg. §1.482-7(g)(2). It also employed the wrong useful life, discount rate and growth rate in computing the appropriate buy-in payment.

  By contrast, the CUT method employed by the taxpayer satisfied the best method rule of Reg. §1.482-1(c) and was found to be essentially reliable. Certain adjustments were, however, made, including the starting royalty rate, the appropriate useful life of the preexisting product intangibles, the royalty degradation rate, the value assigned to trademark intangibles and sales agreements, and the appropriate discount rate.

Veritas Software Corp., 133 TC No. 14, Dec. 58,016

Other References:

 
Code Sec. 482

  CCH Reference - 2009FED ¶22,283.107

  CCH Reference - 2009FED ¶22,283.48

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 30,102.10
CCH Reference -
TRC INTL: 15,104
CCH Reference - TRC INTL: 15,104.10
 

CCH (cch.taxgroup.com) reports:

  The IRS has added an exception under Reg. §1.338-1(b)(2) to the provision that treats a new target corporation as a new corporation unrelated to the old target if a Code Sec. 338 election is made. In the case of a life insurance company, for purposes of Code Sec. 807(e)(4), the new target and the old target will be treated as the same corporation.

Notice 2010-1,
2009FED ¶46,557

Other References:

 
Code Sec. 338

  CCH Reference - 2009FED ¶16,288.32

 
Code Sec. 807

  CCH Reference - 2009FED ¶25,821.40

  Tax Research Consultant

  CCH Reference - TRC CCORP: 30,252

CCH (cch.taxgroup.com) reports:

  The IRS has issued guidance regarding how an employer corrects employment tax reporting errors using the interest-free adjustment and refund claim processes under Code Secs. 6205, 6402, 6413 and 6414 in a number of situations. The guidance refers to corrections made pursuant to Code Secs. 6205 and 6413 of underpayments or overpayments, respectively, resulting from employment tax reporting errors as having been made using the adjustment process. It also refers to corrections made pursuant to Code Secs. 6402 and 6414 of overpayments resulting from employment tax reporting errors as having been made using the refund claim process, and analyzes the applicable regulations.

  Situations. Ten situations were analyzed: (1) an underpayment of Federal Insurance Contributions Act (FICA) tax and income tax withholding (ITW) when the error is not ascertained in the year the wages were paid; (2) an overpayment of ITW when the error is ascertained in the same year the wages were paid; (3) both an overpayment and an underpayment of FICA tax for the same tax period; (4) an underpayment of FICA tax when the employer's filing requirement has changed; (5) an underpayment of FICA tax and ITW resulting from a failure to file an employment tax return because the employer failed to treat any workers as employees; (6) an overpayment of FICA tax on wages paid to a household employee; (7) an overpayment of FICA tax when the error is ascertained close to the expiration of the period of limitations on credit or refund; (8) an underpayment of FICA tax and ITW ascertained in the course of an employment tax examination; (9) an underpayment of FICA tax and ITW ascertained in the course of the appeals process; and (10) an underpayment of FICA tax and ITW resulting from the misclassification of employees ascertained in the course of the appeals process.

  As a result of T.D. 9405 and the new guidance, Rev. Rul. 75-464, 1975-2 CB 474, is no longer determinative of when interest-free adjustments are made in the context of an employment tax examination and is obsolete.

Rev. Rul. 2009-39, 2009FED ¶46,556

Other References:

 
Code Sec. 6205

  CCH Reference - 2009FED ¶37,523.10

 
Code Sec. 6402

  CCH Reference - 2009FED ¶38,519.395

 
Code Sec. 6413

  CCH Reference - 2009FED ¶38,770.35

 
Code Sec. 6414

  Tax Research Consultant

  CCH Reference - TRC IRS: 33,108
CCH Reference - TRC PAYROLL: 9,308
 

CCH (cch.taxgroup.com) reports:

  The IRS has issued guidance regarding Code Sec. 403(b) plans which provides for a remedial amendment period and reliance for employers that, pursuant to upcoming revenue procedures, either adopt a pre-approved plan with a favorable opinion letter or apply for an individual determination letter when available. The IRS expects to publish, within the next few months, a procedure for obtaining an opinion letter that the form of a prototype or other "pre-approved plan" meets the requirements of Code Sec. 403(b) and the regulations thereunder. The procedure will reflect the IRS's consideration of comments it has received on the draft revenue procedure that was provided in Announcement 2009-34 (TAXDAY, 2009/04/15, I.1). Subsequently, the IRS intends to publish a procedure for obtaining an individual determination letter for a Code Sec. 403(b) plan.

  If the relevant condition under Notice 2009-3, I.R.B. 2009-2, 250, with respect to adopting a plan on or before December 31, 2009, is met, and, pursuant to the upcoming revenue procedures, the employer sponsoring the plan either adopts a pre-approved plan that has received a favorable opinion letter from the IRS or applies for an individual determination letter when available, the employer will have a remedial amendment period in which to amend the plan to correct any form defects retroactive to January 1, 2010. Also, beginning January 1, 2010, the form of the employer's written plan will be considered to satisfy the requirements of
Code Sec. 403(b) and the regulations, provided that, during the remedial amendment period, the pre-approved plan is adopted retroactive to January 1, 2010 or the plan is amended to correct any defects in the form of the plan retroactive to January 1, 2010.

  The remedial amendment provision will be included in the upcoming revenue procedures. Also, the revenue procedures will address the time-frames for adopting a pre-approved plan or applying for a determination letter and other details regarding the remedial amendment period. Employers may continue to rely on the model plan language in Rev. Proc. 2007-71, I.R.B. 2007-51, 1184.

  Employers may rely on the new guidance prior to publication of the revenue procedure for pre-approved Code Sec. 403(b) plans. Employers should not request ruling or determination letters on the form of their
Code Sec. 403(b) plans at this time, pending publication of the revenue procedure for pre-approved Code Sec. 403(b) plans and additional procedures on applying for individual determination letters for Code Sec. 403(b) plans.

Announcement 2009-89, 2009FED ¶46,555

Other References:

 
Code Sec. 403

  CCH Reference - 2009FED ¶18,282.077

  CCH Reference - 2009FED ¶18,282.11

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 9,050
CCH Reference - TRC RETIRE: 51,100
 

CCH (cch.taxgroup.com) reports:

  Senate lawmakers on December 10 passed the Fiscal Year 2010 Federal Aviation Administration Extension Act, Part II (HR 4217). The measure extends the financing and spending authority of the Airport and Airway Trust Fund for three months, to March 31, 2010. The previous long-term FAA reauthorization act, the Vision 100--Century of Aviation Reauthorization Act (P.L. 108-176) expired on September 30, 2007, and the FAA's current funding authority was set to expire on December 31. The House has passed a long-term FAA funding bill, but the Senate has not, resulting in the need for a series of short-term extension acts.

CCH (cch.taxgroup.com) reports:

  The Rhode Island Department of Revenue has announced that the 2010 personal income withholding tax tables are available to calculate the appropriate withholding amounts. The annual exemption amount for 2010 is $3,650.

Rhode Island Employer's Income Tax Withholding Tables , Rhode Island Department of Revenue, December 2009
 

CCH (cch.taxgroup.com) reports:

  Colorado Secretary of State Bernie Buescher announced on December 4, 2009, that Proposed Initiatives 10 and 12 were found to be sufficient for inclusion on the November 2, 2010 general election ballot.

 

CCH (cch.taxgroup.com) reports:

  Senate Democrats said late on December 8 that they have reached agreement on a possible compromise on a public option in the health reform bill that could end the current impasse and lead to final passage of the measure. The proposal would drop an opt-in government-run plan as proposed by Senate Majority Leader Harry Reid, D-Nev., and, instead, offer an array of a health insurance policies provided by private health insurers and administered by the Office of Personnel Management (OPM), which handles benefits for federal employees. A government-run insurance program would be created in instances where private insurers fail to provide affordable choices. In order to mollify its liberal base, which strongly advocated for a public option, negotiators also proposed expanding Medicare eligibility to people aged 55 to 64.

  Not all 10 members of the negotiating team are fully satisfied with the tentative agreement, but they agreed to allow it to move forward. Reid said he would send the proposal to the Congressional Budget Office for cost estimates, a process that could take days, before fully vetting the details with members of his caucus.

  "I know not all 10 senators in the room agree on every single detail of this, nor will all 60 members of my caucus," said Reid. "But I know we all appreciate the hard work that these progressives and moderates have done to move this historic debate forward."

  President Obama said the Democrats "made progress last night with a creative new framework" that he said he believes "will pave the way for final passage" of health care reform legislation. Although details of the compromise have yet to be officially released, White House Press Secretary Robert Gibbs, at a press briefing on December 9, said he thought requiring the OPM to administer the health insurance plan and requiring coverage to be akin to the Federal Employee Health Benefits Program (FEHBP) "fit together in a way that might be difficult to break apart."

  At this point in the process, Gibbs declined to say whether the White House prefers the Senate compromise to the House version, which contains a public option. He indicated that the primary focus at the moment is to get the bill out of the Senate and into conference.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

SFC Release: The Patient Protection and Affordable Care Act --Cutting Taxes, Making Health Care Affordable
 

CCH (cch.taxgroup.com) reports:

  House lawmakers approved the Tax Extenders Bill of 2009 (HR 4213) on December 9. The 241-to-181 vote to pass the measure came after Democrats spent the day defending their decision to include $31 billion in new taxes to offset the extension of expiring tax provisions. Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., said that extending the tax provisions would boost job creation during the recession. However, Rep. Tom Price, D-Ga., speaking on behalf of the House Republican Study Committee, noted that the extensions in the bill are long-standing policy and should not be offset by revenue increases.

  "These tax extensions, such as the research and development credit for businesses, are simply a continuation of long-standing policies," Price said. "The argument that they need to be offset with new tax hikes is just an excuse to push more taxpayer money into federal coffers." But Rangel said Democrats are simply trying to stop people from taking unfair advantage of the tax code, particularly investment managers who would face higher taxes on income from carried interest under the legislation.

FAA Extension

  In other tax action, House lawmakers on December 8 passed the Fiscal Year 2010 Federal Aviation Administration Extension Act, Part II (HR 4217) by a voice vote. The measure would provide a three-month extension for the financing and spending authority of the Airport and Airway Trust Fund, which expires on December 31. House Transportation Committee Chairman James L. Oberstar, D-Minn., said the aviation taxes support the trust fund, which funds a substantial portion of the FAA's budget. "With an uncommitted cash balance of just $251 million at the end of FY 2009, any lapse in the aviation taxes could put the solvency of the trust fund at risk," Oberstar said. He noted that the previous long-term FAA reauthorization act, the Vision 100--Century of Aviation Reauthorization Act (P.L. 108-176) expired on September 30, 2007. The House has passed a long-term funding bill, but the Senate has not, resulting in the need for a series of short-term extension acts that, unfortunately, continues to this day, Oberstar said.

  By Stephen K. Cooper, CCH News Staff

Ways and Means Press Release: House Passes Tax Extenders Act

Fiscal Year 2010 Federal Aviation Administration Extension Act, Part II, as Passed by the House on December 8, 2009, HR 4217
 

CCH (cch.taxgroup.com) reports:

  Massachusetts Gov. Deval Patrick has released a proposed budget for fiscal year 2010 that would:

  -- eliminate existing sales tax exemptions on alcoholic beverages, sweetened beverages, and candy;

  -- increase the state meals and hotel occupancy taxes by 1%;

  -- authorize cities and towns to impose a 1% local option tax on meals and increase local option hotel taxes by 1%;

  -- eliminate property tax "loopholes" applicable to telecommunications companies;

  -- increase motor vehicle registration fees; and

  -- require disclosure, on the tax credit disclosure/accountability Web site currently being developed, of the names of taxpayers who receive refundable or transferable tax credits and the number of jobs created through these credits.

  Budget documents are available on the Governor's Web site at
http://www.mass.gov/bb/h1/fy10h1/msg10/hdefault.htm.

FY2010 Budget Narrative , Massachusetts Gov. Deval Patrick, January 28, 2009
 

CCH (cch.taxgroup.com) reports:

  The California Franchise Tax Board has issued a legal ruling clarifying the application of the real estate mortgage investment conduit (REMIC) excess inclusion rules for members of a California franchise tax unitary combined reporting group. The minimal amount of a California noneconomic residual interest (NERI) holder's excess income from a REMIC that is reported on the NERI holder's tax return must be determined on a post-apportioned basis if the NERI holder is included in a California combined report. Furthermore, the minimal excess income amount is not included in the NERI holder's gross income or taxable income for purposes of calculating the NERI holder's California net operating loss carryforward.

Legal Ruling 2009-01 , California Franchise Tax Board, January 26, 2009,
¶404-839

  Other References:

  Explanations at ¶10-365

CCH (cch.taxgroup.com) reports:

  A corporation that redeemed shares of its common stock held by a trust that in turn used the proceeds to satisfy distributions to terminated employees who cashed out of an employee stock ownership plan (ESOP) was not entitled to a tax deduction under Code Sec. 404(k)(1) for the payments to the employees.

  Under the terms of the ESOPs set up by the corporation, when a participant left the corporate employer, the ESOP trust distributed to the participant in cash or stock the value of the participant's ESOP account. If the participant elected cash, the trust would ask the corporation to purchase its own stock from the trust to fund the distribution. The corporation would buy the stock and make the payments (which the parties agreed were equivalent to dividends for purposes of Code Secs. 301 and 316). The trust then distributed the cash to the participant.

  These two steps - the payment of a dividend to the trust followed by the distribution of the amount to the participant - meant that the payments were applicable dividends under Code Sec. 404(k)(2)(A)(ii), and such dividends are normally deductible under Code Sec. 404(k)(1). However, Code Sec. 162(k)(1), which prohibits otherwise allowable deductions by a corporation for amounts paid in connection with reaquiring its own stock, prohibited the corporation from claiming the deduction.

  CCH Comment. The IRS pointed out in Rev. Rul. 2001-6, 2001-1 CB 491, which prohibited a deduction under a similar set of facts, that application of Code Sec. 404(k) to redemption amounts would allow employers to claim deductions for payments that do not represent true economic costs, and it would eliminate important rights and protections for recipients of ESOP distributions, including the right to reduce taxes by using the return of basis provisions under Code Sec. 72, the right to make rollovers of ESOP distributions received upon separation from service, and the protection against involuntary cash-outs.

  CCH Comment. The court declined to follow the Ninth Circuit's decision in Boise Cascade Corp. , CA-9, 2003-1 USTC ¶50,472; rather, it is in line with the Tax Court's recent decision in Ralston Purina Co. , 131 TC --, No. 4, Dec. 57,534, as well as
Reg. §§1.62(k)-1(c), and 1.404(k)-3, which the IRS issued in response to Boise . The district court's take in General Mills, Inc. , DC Minn., 2008-1 USTC ¶50,141, essentially followed the holding in Boise Cascade that Code Sec. 162(k)(1) would only apply, if at all, to the initial step (the payment made to the trust in the stock repurchase), which by itself is not otherwise deductible.

  Also, the district court concluded that Code Sec. 162(k)(1) only prohibits deductions for fees and expenses that are necessary and incident to the repurchase of the stock, rather than the amount paid for the stock itself. The Court of Appeals rejected both positions.

  CCH Comment. An approach not taken by the Court of Appeals was to use Code Sec. 404(k)(5)(A), under which the IRS can disallow a Code Sec. 404(k)(1) deduction for tax-avoidance reasons. This was the approach advocated by the concurring opinion in Ralston Purina .

  Reversing and remanding a DC Minn. decision, 2008-1 USTC ¶50,141.

General Mills, Inc. & Subsidiaries, CA-8, 2009-1 USTC ¶50,177

Other References:

 
Code Sec. 162

  CCH Reference - 2009FED ¶9052.01

  CCH Reference - 2009FED ¶9052.23

 
Code Sec. 404

  CCH Reference - 2009FED ¶18,371.30

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 75,204

CCH (cch.taxgroup.com) reports:

  An accrual based parent corporation was required to include in its consolidated income deferred payments from the sale of barges manufactured by its subsidiary. Under the contract to sell the barges, a portion of the payments were due 18 months after the delivery of each barge. The deferred payments were excluded by the parent because they were withheld by customers in order to offset agreed-upon damages incurred under a previous barge sale contract.

  As an accrual basis taxpayer, the parent was required to accrue the deferred payments for the barges in the year that all of the events occurred to fix the right to the income. The delivery of the barges unconditionally fixed the right to receive the full contract price, including the deferred payments, in the year of delivery. The customers' offset claim did not prevent the accrual of the income. The customers did not dispute the fact or the amount of the obligation under the contract and there was no question as to whether the right to receive income was vitiated by a contractual provision for withholding a portion of the sales price. The offset claims affected only the timing of the receipt of the income under the contract and not the right to receive the income. Moreover, the deferred payments did not fall within the income-accrual exception because there was no evidence that the deferred payments were uncollectible as a result of insolvency, bankruptcy or other financial conditions of the customers. It was only in the tax year after the barges had been delivered and the right to income had been fixed that the customers asserted their right to an offset for the damages from the previous contract.

  Additionally, the withheld deferred payments could not be deducted in the year as an amount transferred to satisfy a contested liability in the tax year the income accrued. The withholding of the deferred payments did not constitute a transfer of property in the same tax year in satisfaction of a liability. In the year the barges were delivered and the income accrued, the deferred payments were not yet due and so could not have been withheld. Additionally, the withholding of the deferred payments did not constitute a transfer. The deferred payments withheld by the customers were not in the control of the subsidiary. In the year the income accrued, there was no order of any competent legal authority to force the subsidiary to transfer the funds that were owed.

Trinity Industries, Inc., 132 TC No. 2, Dec. 57,718

Other References:

 
Code Sec. 451

  CCH Reference - 2009FED ¶21,005.756

 
Code Sec. 461

  CCH Reference - 2009FED ¶21,817.225

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 9,050

  CCH Reference - TRC ACCTNG: 12,058
 

CCH (cch.taxgroup.com) reports:

  Calling it an investment in America's future, House Democratic leaders successfully passed the American Recovery and Reinvestment Bill of 2009 (HR 1) on January 28. The party-line vote of 244 to 188 came at the end of a day-long legislative session in which GOP lawmakers sought to portray the measure as an ineffective, tax-and-spend liberal package that would do little to help end the U.S. recession, create jobs or help struggling families. The House action was the latest step in an effort to get economic stimulus legislation to President Obama's desk before the Presidents Day recess in mid-February. The Senate is expected to shortly vote on its version of the legislation, which includes different tax provisions and might win more GOP support.

  The centerpiece of the tax provisions in the House's $825 billion bill is the Making Work Pay tax credit, which would provide a $145.3 billion refundable credit to families and individuals in their paychecks. The provision, which GOP lawmakers wanted to replace with targeted tax incentives and a cut in marginal tax rates, was intended to help middle-income taxpayers who did not benefit from the tax policies supported by former President Bush in the last eight years, Democrats charged. Congress is saying, in effect, that trickle-down economics has not worked, said Rep. John Lewis, D-Ga., who is a member of the House Ways and Means Committee. "We are saying that the people's resources should be used to benefit the greatest number of citizens in their time of need," he added.

  Eleven Democrats voted against the bill. The measure ran into trouble with the conservative House Democratic Blue Dog Coalition, which favors following pay-as-you-go (PAYGO) budget rules as a way to shrink the budget deficit. Rep. Charlie Melancon, D-La., said he voted for the measure following a commitment by the Obama administration that it will support efforts to follow PAYGO rules.

  Democrats soundly defeated an alternative proposal from Ways and Means ranking member Dave Camp, R-Mich., and Rep. Tom Price, R-Ga. GOP lawmakers said they raised their concerns about HR 1 with Obama, but the bill still includes unnecessary federal spending. "The bulk of the tax cuts are simply rebate checks --$10 a week for individuals and $20 a week for couples. We tried rebate checks last year and they simply don't work," said Ways and Means member Paul Ryan, R-Wis.

  President Obama said he was grateful for the House vote on the economic package but hopes the Senate will "strengthen" the plan before it reaches his desk. Obama said the House package will provide "billions of dollars of immediate tax relief "to working families and save or create 3 million jobs over the new few years. Obama did not explain what areas of the bill need to be changed but stressed the importance of moving on the package swiftly. Earlier in the day after a meeting with business leaders (TAXDAY, 2009/01/29, W.1), the president said he hoped to sign an economic recovery bill "in the next few weeks."

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

American Recovery and Reinvestment Tax Act of 2009, as Reported by the House Ways and Means Committee, HR 598

Ways and Means Press Release: Economic Recovery Plan Passes House of Representatives

Ways and Means Press Release: Ways & Means Democrats Support American Recovery and Reinvestment Plan

White House Press Release: Statement of the President on the House Passage of the American Recovery and Reinvestment Act

SFC Press Release: Finance Panel Votes to Create Jobs, Cut Taxes for Working Families and Small Businesses in Economic Recovery Plan
 

CCH (cch.taxgroup.com) reports:

  The Senate Finance Committee on January 27 approved its portion of an $825 billion economic stimulus bill, the American Recovery and Reinvestment Bill of 2009, and potentially boosted the total cost to nearly $900 billion after agreeing to include a one-year patch for the alternative minimum tax (AMT). The $69.8 billion price tag of the fix is not offset and its inclusion could possibly serve to mollify Republicans who have complained that the package contains too much spending and not enough tax cuts. The final vote was 14 to 9.

  Committee Chairman Max Baucus, D-Mont., has been under intense pressure to include more Republican proposals, and he has done so, tacking on several modifications before presenting the bill to the committee. Such changes include loosening net operating loss carryback requirements, extending the deferred business tax debt repayment period from four years to eight years and expanding credits for broadband development and hybrid electric plug-ins. Bank acquisitions lost a tax break as Baucus restricted the utilization of Code Sec. 382 rules for transactions occurring after January 16, 2009. The provision raises approximately $7 billion in revenue.

  In his opening statement, Baucus had urged members not to delay in moving the bill in a timely fashion. "Congress needs to act quickly and in a unified fashion to address the economic woes in this country," he said.

  Committee members initially offered over 216 amendments to the Chairman's Mark, but the panel eventually considered less than 30, approving only the AMT patch. Sen. Robert Menendez, D-N.J., had earlier filed a different version of an AMT amendment, but modified his amendment to mirror an amendment offered by ranking member Charles E. Grassley, R-Iowa. The economic stimulus bill passed on January 22 by the House Ways and Means Committee did not address the AMT (TAXDAY, 2009/01/23, C.1).

  The stimulus package in its present form faces an uncertain future though, as President Obama on January 27 met with Republicans in both chambers to hear their proposals and hopefully craft a more bipartisan bill. Stopping short of making any promises, Obama called the meetings "constructive" and acknowledged that GOP members had "legitimate philosophical differences." He assured them that the bill was still a work in progress, despite House plans to hold a vote on its version on January 28. "The key right now is to make sure that we keep politics to a minimum," said Obama.

Obama Tax Cuts

  According to White House Press Secretary Robert Gibbs, the president has not refused to compromise with GOP lawmakers on tax cuts, and his economic advisors will evaluate any proposals advanced by them. When asked about the AMT patch proposed by Grassley, the White House spokesman maintained that the administration's Making Work Pay tax credit would serve as a greater stimulus to the economy.

  The president ran on a tax policy that lower-income workers whose wages have stagnated or declined are the ones who are most likely to spend any additional earnings they receive from tax breaks, Gibbs said at a press briefing on January 27. He noted that Obama supports the AMT patch, but believes it should be taken up separately from the economic recovery package, since it is directed at upper-middle-income taxpayers. Gibbs said the most important thing about the House vote on the economic package and Senate action is "keeping the process moving." He maintained that Obama is open to making some changes in the bill and believes "we are on track" to finish a stimulus bill that will garner bipartisan support by the Presidents Day recess.

  Separately, Office of Management and Budget Director Peter Orszag sent a letter to Congress outlining the major principles of the president's economic plan. Among the measures to maintain fiscal discipline in the future, Orszag said any proposals in the economic package to make temporary tax cuts permanent will be paid for, and further details will be included in the president's forthcoming budget request to Congress in February.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

JCT Description of the Chairman's Modification to the Revenue Provisions of the American Recovery and Reinvestment Tax Act of 2009, JCX-12-09

JCT Estimated Revenue Effects of the Chairman's Mark, as Modified, of the American Recovery and Reinvestment Tax Act of 2009, Scheduled for Markup by the Senate Finance Committee on January 27, 2009, JCX-13-09

SFC Press Release: Finance Panel Votes to Create Jobs, Cut Taxes for Working Families and Small Businesses in Economic Recovery Plan

SFC Press Release: Modifications to Titles II --V of the Chairman's Mark, The American Recovery and Reinvestment Act of 2009

SFC Press Release: Statement of SFC Ranking Member Charles E. Grassley on Committee Markup of Stimulus Bill

House Ways and Means Press Release: Economic Recovery Plan Creates Jobs, Provides Tax Cuts to Families and Businesses

OMB Director Orszag's Letter to House Appropriations Committee Chairman Obey
 

CCH (cch.taxgroup.com) reports:

  A bill has been introduced in the Arkansas Legislature that would replace destination-based sourcing with origin-based sourcing for Arkansas sales and use tax purposes. Under the proposed legislation, a retail sale would be sourced to the seller's business location, beginning July 1, 2009.

  If a purchaser picks up the good in Arkansas in his or her own conveyance, sales tax must be collected. If property is sold by a seller in Arkansas and the seller is required under the terms of the sales contract to deliver the property by common carrier, U.S. Postal Service, or in the seller's own conveyance to a point outside the state for consumption and use, the transaction would not be subject to sales or use tax and may be deducted. If a taxable service is performed in Arkansas, sales or use tax must be collected based on the location where the service is performed.

 

CCH (cch.taxgroup.com) reports:

  In a case engendering widespread interest, a taxpayer has asked the U.S. Supreme Court to consider its challenge to an Alabama statute requiring that certain royalty payments to related parties be added back to income subject to the state's corporate income tax. At present, approximately 20 states have some version of an addback statute, all of which could be put at risk if the high court decides to accept the taxpayer's request.

  Background: In 2001, Alabama enacted its addback statute, which requires a corporation to add back to its taxable income otherwise deductible intangible expenses paid to related members of its corporate group. The statute includes exceptions to this addback requirement, including an exception when the corresponding income is subject to a tax based on net income in Alabama or any other state.

  The taxpayer, a clothing manufacturer with operations in Alabama, did not add back to its 2001 Alabama income royalties paid to related companies for the use of their trademarks. The related companies are Delaware corporations that do not file Alabama income tax returns. Delaware does not tax royalty payments. The Alabama Department of Revenue issued an additional assessment based on its determination that the taxpayer was required to add back a portion of the deductions taken for the royalty payments.

  The taxpayer challenged the addback statute in state court on state statutory and federal constitutional grounds. The challenge was successful at the trial court level on the statutory grounds. However, the Court of Civil Appeals reversed. In addressing the constitutional challenges, the appellate court held that the addback statute does not discriminate against interstate commerce because the subject-to-tax exception does not benefit in-state corporations to the detriment of out-of-state corporations. Also, the court held the taxpayer had not demonstrated that the addback statute resulted in taxation of income that is not fairly attributable to Alabama. (TAXDAY, 2008/02/13, S.2) The Alabama Supreme Court affirmed, adopting the appellate court's opinion as its own. (TAXDAY, 2008/09/23, S.1)

  Questions presented: The taxpayer has asked the U.S. Supreme Court to consider two questions: (1) whether Alabama's addback statute discriminates against interstate commerce in violation of the Commerce Clause by denying a deduction for ordinary business expenses because they are paid to corporations located outside Alabama in a state that has chosen not to tax those payments, and (2) whether the statute violates the federal Due Process and Commerce Clauses by denying a deduction for ordinary business expenses paid to corporations located outside Alabama based on the tax policy of the state in which those corporations are located.

  Subscribers to CCH Tax Research NetWork can view the petition.
 
VFJ Ventures, Inc. v. Surtees, U.S. Supreme Court, Dkt. 08-916, petition for certiorari filed January 21, 2009
 

CCH (cch.taxgroup.com) reports:

  An airline mechanic was not entitled to deductions for vehicle, meal and lodging expenses because he was not "away from home" when the expenses were incurred. Although his positions in three other cities lasted for very short periods of time, each of those stays was indefinite in nature; thus, the taxpayer did not have a business reason to be living in two places. The taxpayer was expected to locate his home for tax purposes at his major post of duty so as to minimize the amount of business travel away from home. His decision to do otherwise was not motivated by business necessity.

  Affirming the Tax Court, 93 TCM 1363, Dec. 56,969(M), TC Memo. 2007-152.

D.A. Wilbert, CA-7, 2009-1 USTC ¶50,171

Other References:

 
Code Sec. 162

  CCH Reference - 2009FED ¶8570.1248

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 24,050

CCH (cch.taxgroup.com) reports:

  Timothy F. Geithner won confirmation in the Senate late on January 26 to serve as Secretary of the Treasury despite revelations about previous tax return errors involving self-employment taxes. Geithner had earlier told the Senate Finance Committee that his "[mistakes] were careless, avoidable, but completely unintentional" (TAXDAY, 2009/01/23, C.2). The Senate voted 60 to 34 to confirm the former Federal Reserve official. Geithner was sworn in immediately after the vote.

High Expectations

  Geithner's supporters expect him to playing a leading role in the economic recovery. "These are extraordinary times that require extraordinary action," President Obama said. Geithner will help Obama implement the pending $825 billion economic stimulus package along with overseeing disbursement of the remaining $350 billion in bailout funds authorized by the Emergency Economic Stabilization Act of 2008 (P.L. 110-343).

  "His portfolio, knowledge and skills make him uniquely qualified to serve and is sorely needed by the nation as we face the current economic crisis," Sen. Orrin G. Hatch, R-Utah, said before the confirmation vote. "He is intimately familiar with all arms of U.S. economic policymaking."

Opposition Lingers

  Geithner was able to overcome opposition from some powerful lawmakers, including Sen. Mike Enzi, R-Wyo., who, on January 22, echoed the thoughts of many taxpayers. "How do I explain to my constituents that I voted to confirm someone who will make them pay taxes, but sometimes does not pay his own taxes?"

Swearing In

  Geithner was sworn in as Treasury Secretary shortly after the Senate vote. President Obama and members of his economic team were in attendance at the swearing in ceremony at the Treasury Department. Obama made brief remarks, noting work must start immediately to repair the economy. Geitner said, "Treasury's tradition is to defend the integrity of policy, to respect the constraints imposed by limited resources, and to limit government intervention to where it is essential to protect our financial system and improve the lives of the American people."

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

CCH (cch.taxgroup.com) reports:

  Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, has filed amendments to the economic stimulus legislation set for committee consideration on January 27 that would either extend or make permanent the wind energy tax credit and ease access to loans for higher education. He said his clean energy proposals would maintain the option for producers to take either the production tax credit (PTC) or investment tax credit (ITC) for 2009 and 2010.

  Grassley is also proposing a new 10-year carryback of the credit, either the PTC or ITC, depending on a wind energy company's election. The House bill has a provision to elect the PTC or the ITC in 2009 and 2010, but only allows a one-year carryback. Senate Finance Committee Chairman Max Baucus, D-Mont. included in his Mark the same election and a five-year carryback of either the PTC or the ITC.

  In addition, Grassley filed three tuition-assistance amendments. One proposal would giveCode Sec. 529 participants the opportunity to change investments up to four times a year. The proposed amendment builds on a December 2008 decision by the Treasury Department to allow Code Sec. 529 account holders to change investment options twice a year (Notice 2009-1; TAXDAY, 2008/12/24, I.2). The second education amendment prevents states receiving Federal Medical Assistance Percentage (FMAP) funds from increasing tuition at publicly funded universities during the period of time that the enhanced federal funding is in effect. A third Grassley amendment would increase the level of the proposed American Opportunity Tax Credit from $2,500 to $3,250 for single filers with incomes between $50,000 and $80,000 annually

  By Jeff Carlson, CCH News Staff

SFC Release: Grassley Works to Bolster Wind Energy Production and Create Jobs in Wind Energy Sector

SFC Release: Grassley Works to Increase Access to College and Jobs
 

CCH (cch.taxgroup.com) reports:

  President Obama will meet with House and Senate Republicans on their turf on January 27, hearing their recommendations on what should be in a final economic recovery package. Obama has scheduled separate meetings on Capitol Hill with the House and Senate GOP caucuses hoping to garner support for legislation that has drawn criticism from Republican lawmakers for containing too much spending and not enough tax cuts.

  If House and Senate Republicans come forward with tax cuts that would improve the existing plan, the White House is willing to consider them, according to White House Press Secretary Robert Gibbs on January 26. However, he maintained that the $825 billion House package containing $275 billion in tax cuts is a "pretty good balance" of tax and spending provisions.

  The House Ways and Means Committee approved the tax title to the American Recovery and Reinvestment Bill of 2009 (HR 598) on January 22 (TAXDAY, 2009/01/23, C.1). Gibbs noted that the House measure already includes several tax cuts supported by GOP lawmakers, such as the five-year carryback of net operating losses. Some House Republicans are pressing for a 5-percent income tax rate cut for taxpayers in the 10-percent and 15-percent tax bracket. They argue that lower tax rates would bolster the economy and reach more taxpayers than the $145.3 billion Making Work Pay tax credit of $500 to individuals and $1,000 to couples.

COBRA Tax Credit Heading

  The White House released further details about the Obama economic plan in a report released on January 24. The report includes a new tax credit proposal to help newly unemployed workers keep their health insurance through COBRA and a new Medicaid option for low-income individuals who lack access to the stopgap insurance. Combined, the proposals could help to provide coverage for almost 8.5 million people, according to the White House report, entitled "Recovery Plan Metrics Report."

  The Obama plan also contains several measures that are in the Ways and Means package. They include a new $2,500 partially refundable higher education tax credit and a $1,000 "Making Work Pay" tax credit. The White House said the Making Work Pay tax cut would benefit 95 percent of workers and their families. Under the proposed higher education tax credit, nearly 20 percent of high school seniors who are not eligible under current law would qualify for at least a portion of the tax cut. Obama also proposes to expand the child tax credit. According to the White House report, the plan would provide a new tax cut to more than 6 million children and increase the existing credit for more than 10 million children.

  By Paula Cruickshank, CCH News Staff

American Recovery and Reinvestment Act of 2009, HR 1

White House Release: Recovery Plan Metrics Report

Code Finding List for HR 598, American Recovery and Reinvestment Tax Act of 2009, as of January 25, 2009
 

CCH (cch.taxgroup.com) reports:

  As previously reported, a new online service called "My Tax Account" for filing Wisconsin personal income tax withholding, sales and use tax, premier resort area tax, local exposition tax, and rental vehicle fee returns is scheduled to be launched in February 2009. (TAXDAY, 2008/12/04, S.37; TAXDAY, 2009/01/12, S.29) A Wisconsin Department of Revenue news release discusses the online services provided by "My Tax Account"; how taxpayers can sign up for the service; how taxpayers can authorize their representatives to act for them; the transition from the EFT Registration and Payment System and Sales Internet Process (SIP) to "My Tax Account"; and other matters.

 

CCH (cch.taxgroup.com) reports:

  The California Franchise Tax Board (FT has outlined the potential relief available to taxpayers facing financial hardships who are delinquent on their personal income taxes.

  The FTB can assist taxpayers by establishing payment plans, granting relief from state tax liens, or delaying some collection actions. The FTB can generally grant relief from state tax liens within two weeks for financially distressed homeowners trying to sell or refinance their homes. The FTB may be able to remove its tax lien to assist a homeowner to complete a home sale when a home sells for less than the loan balance. The tax lien remains in effect on any other property the taxpayer currently holds or later acquires. The FTB can also help individuals who are refinancing or modifying an existing home loan by allowing the new or modified loan to have priority over the tax lien.

  For additional lien information, look under the "Bills and Notices" tab on the FTB's Web site at
www.ftb.ca.gov. Information concerning installment payments can also be found on the FTB's Web site or by calling the FTB at 800-689-4776

Press Release, California Franchise Tax Board, January 23, 2009

CCH (cch.taxgroup.com) reports:

  The IRS has provided additional guidance to clarify the rules regarding the effects of making the Code Sec. 168(k)(4) election not to claim bonus depreciation, the time and manner for making the election, the allocation of the credit limitation increases among the members of a controlled group, the effect of the election on partnerships with corporate partners that make the election, the applicability of this election for S corporations, and the election under Act §3081(b) of the Housing and Economic Recovery Act of 2008 (P.L. 110-289) by certain automotive partnerships. Except for these certain automotive partnerships, only a corporation may elect to apply Code Sec. 168(k)(4). This guidance supplements earlier guidance contained in Rev. Proc. 2008-65, I.R.B. 2008-44, 1082.

  The election is made by the taxpayer for its first tax year ending after March 31, 2008, and applies to all eligible qualified property placed in service by the taxpayer in the taxpayer's first tax year ending after March 31, 2008, and in any subsequent tax year. When the election is made, the corporation forgoes the 50 percent additional first year depreciation deduction and instead increases the limitations under both the general business credit (Code Sec. 38(c)) and the alternative minimum tax (Code Sec. 53(c)). This will enable a corporation to claim unused credits from tax years beginning prior to 2006 that are allocable to research expenditures or AMT liabilities. The guidance clarifies that --to the extent that a corporation is allowed the business or AMT credit in an amount allocable to the aggregate increases in the credit limitation as a result of the Code Sec. 168(k)(4) election --any such amounts will be treated as overpayment (within the meaning of Code Sec. 6401(b)) and refundable to the taxpayer.

  The guidance clarifies that generally a corporate taxpayer must make the election by the due date, including extensions, of its federal income tax return for its first tax year ending after March 31, 2008, even if the taxpayer does not place in service any eligible qualified property during the first tax year ending after that date. Special rules are included for taxpayers whose first tax year ending after March 31, 2008, ends before December 31, 2008.

  The guidance also describes the necessity for an electing taxpayer to allocate the bonus depreciation amount between the business credit limitation under Code Sec. 38(c) and the AMT credit limitation under Code Sec. 53(c). Different allocations may be used for different tax years.

  In addition, the guidance clarifies that an S corporation is allowed to make this election, but any increases in the business or AMT credit limitations that result from the election must be applied at the corporate level, and not at the shareholder level.

Rev. Proc. 2009-16, 2009FED ¶46,255

Other References:

 
Code Sec. 168

  CCH Reference - 2009FED ¶11,279.058

  CCH Reference - 2009FED ¶11,279.19

  Tax Research Consultant

  CCH Reference - TRC DEPR: 3,600
CCH Reference -
TRC DEPR: 3,606
 

CCH (cch.taxgroup.com) reports:

  The IRS has released a fact sheet highlighting provisions of the National Disaster Relief Act of 2008, Subtitle B of Title VII of the Emergency Economic Stabilization Act of 2008 (P.L. 110-343), which provide tax relief for victims of federally declared disasters occurring after December 31, 2007, and before January 1, 2010. The National Disaster Relief Act, which provides numerous tax benefits that may be used by anyone who is affected by a federally declared disaster, effectively replaces the former strategy of providing targeted benefits for disaster victims in the weeks or months following the incident.

  Major provisions of the National Disaster Relief Act include:

  --an expansion of the availability of the casualty loss deduction to include not only individual taxpayers who itemize but, also, those who claim the standard deduction;

  --an increase, for tax years beginning in 2009, in the amount by which all individual taxpayers must reduce their personal casualty losses from each casualty from $100 to $500 (the $100 floor returns for tax years beginning after 2009);

  --a waiver of the requirement that the net casualty loss deduction be allowed only if the casualty loss exceeds 10 percent of the individual's adjusted gross income;

  --the creation of a special five-year net operating loss carryback period for qualified disaster losses; and

  --increases in the charitable mileage deduction and in the charitable use of a vehicle allowance.

  Other important provisions in the National Disaster Relief Act for business taxpayers include:

  --an election to deduct, rather than capitalize, certain qualified disaster cleanup expenses;

  --a waiver of certain mortgage revenue bond requirements for affected business taxpayers and permission to use the bond proceeds for rebuilding;

  --a new set of disaster private activity bonds for business reconstruction;

  --a deduction for 50 percent of the cost of qualifying property in addition to the regular depreciation allowance that is normally available; and

  --an increase in the limits that can be expensed for qualifying Code Sec. 179 property.

  Certain provisions of the National Disaster Relief Act do not apply to the Midwestern disaster area, i.e., disasters affecting the Midwest that were declared from May 20, 2008 through July 31, 2008. That is because the Heartland and Hurricane Ike Disaster Relief Act, part of the same legislation that resulted in the National Disaster Relief Act, provides other tax benefits.

IRS Fact Sheet FS-2009-8, 2009FED ¶46,254

Other References:

 
Code Sec. 63

  CCH Reference - 2009FED ¶6023.033

 
Code Sec. 143

  CCH Reference - 2009FED ¶7786.025

  CCH Reference - 2009FED ¶7786.073

 
Code Sec. 165

  CCH Reference - 2009FED ¶10,005.01

  CCH Reference - 2009FED ¶10,005.041

 
Code Sec. 168

  CCH Reference - 2009FED ¶11,279.001

 
Code Sec. 172

  CCH Reference - 2009FED ¶12,014.061

 
Code Sec. 179

  CCH Reference - 2009FED ¶12,126.01

  CCH Reference - 2009FED ¶12,126.03

  CCH Reference - 2009FED ¶12,126.0325

 
Code Sec. 198A

  CCH Reference - 2009FED ¶12,467.01

  Tax Research Consultant

  CCH Reference - TRC INDIV: 54,200
CCH Reference - TRC INDIV: 54,300
CCH Reference - TRC BUSEXP: 45,154.05
CCH Reference - TRC BUSEXP: 57,300
CCH Reference - TRC BUSEXP: 57,304.45
CCH Reference -
TRC DEPR: 3,600
 

CCH (cch.taxgroup.com) reports:

  Senate Finance Committee Chairman Max Baucus, D-Mont., on January 23 unveiled an economic recovery tax package, the American Recovery and Reinvestment Act of 2009, which includes $275 billion in tax cuts for individuals and businesses, in addition to investments in renewable energy, infrastructure projects, and health care. The release came a day after the House Ways and Means approved a slightly different version of the economic stimulus legislation (HR 598) (TAXDAY, 2009/01/23, C.1), setting the stage for more negotiations before Congress can approve the measure and send it to President Obama before the President's Day recess beginning on February 13.

  Most provisions in the competing bills are the same. Differences in ideology and costs explain the differing provisions. The total dollars in tax cuts are the same in the House and Senate versions, but Baucus lays out almost $11 billion more than his counterpart Charles B. Rangel, D-N.Y., does for green energy incentives. A tax break highly favored by the business community that allows companies to carry back net operating losses (NOLs) over two years, was increased to five years in the Baucus mark. Rangel made a last-minute change in his mark and offered companies the five-year option with a permanent 10-percent reduction in the value of their NOLs.

  During the Ways and Means markup on January 22 House Democrats defeated a Republican amendment that would have temporarily cut taxes on jobless benefits for two years, but the Senate version includes an altered version of the proposal that would temporarily suspend federal income tax on the first $2,400 of unemployment benefits per recipient. The provision would be in effect only for 2009 and is estimated to cost $4.7 billion over ten years. In the Senate bill the income threshold for the refundable child tax credit would be lowered to $6,000, while the House bill would eliminate the threshold.

  Notably missing from both bills is a fix for the alternative minimum tax (AMT). Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, said that he will be fighting during the markup on January 27 to include an AMT patch in the legislation. "Without it, at least 24 million middle-income families will face a tax increase, and that's the last thing anyone needs right now," he said.

  Additional business tax cuts and investments include delayed recognition of certain cancellation of debt income, extension of bonus depreciation, elective expensing (Code Sec. 179), and monetization of accumulated AMT and R&amp credits in lieu of bonus depreciation, an expansion of the work opportunity tax credit (WOTC), new markets tax credit and industrial development bonds, and an increase in the exclusion for small business capital gains.

  Tax breaks for individuals include the making work pay credit which would provide an individual tax credit in the amount of 6.2 percent of earned income, expansion of the earned income tax credit and the refundable child tax credit, creation of a $2,500 higher education tax credit, inclusion of computers as qualified education expenses in Code Sec. 529 education plans, and a homeownership tax credit.

JCT Description of the American Recovery and Reinvestment Tax Act of 2009, JCX-10-09

JCT Estimated Budget Effects of the American Recovery and Reinvestment Tax Act of 2009, Scheduled for Markup by the Senate Finance Committee on January 27, 2009,
JCX-11-09

SFC Release: Stimulus Legislation Memorandum
 

CCH (cch.taxgroup.com) reports:

  The White House and Congress appear to be "on target" in enacting an economic recovery package by the President's Day holiday recess in mid-February, President Obama stated at a meeting with congressional leaders from both parties on January 23. Obama acknowledged the differences between the parties on the size of the spending portion of the package and the makeup of the tax cuts, but he maintained both parties are unified in their goal to enact a package quickly that gets the economy moving again.

  "What I think unifies this group is a recognition that we are experiencing an unprecedented, perhaps, economic crisis that has to be dealt with, and dealt with rapidly," the president stated.

  Senate Minority Leader Mitch McConnell, R-Ky., said Congress should be able to meet the mid-February deadline. Borrowing a line from House Speaker Nancy Pelosi, D-Calif., McConnell said a final package should be "timely, temporary and targeted." Senate Majority Leader Harry Reid, D-Nev., maintained "there was not a single person in the room" that felt they could not work out this problem.

  Although there is general agreement about the broad goals, House Minority Leader John A. Boehner, R-Ohio, pressed the case for lower tax rates and criticized some of the spending proposals for the length of time they would take to bolster the economy. "Some of the provisions do not spend out quickly enough," Boehner said.

  The White House took issue with critics that contend a large proportion of the stimulus plan would not jump-start the economy in the near term. A recently released Congressional Budget Office (CBO) report concluded that about 25 percent of the $825-billion package would not be spent until 2011 at the earliest.

  White House Press Secretary Robert Gibbs maintained that the package is stimulative. "Seventy-five percent of this money will be spent in the next 18 months to create jobs and to get people working and to get the economy moving again," Gibbs maintained.

  Office of Management and Budget Director Peter Orszag noted that the CBO report focused on a spending component of the package dealing primarily with public infrastructure projects. In a letter to Senate Budget Committee Chairman Kent Conrad, D-N.D., on January 22, Orszag noted, "At least 75 percent of the overall package (including the tax component and other provisions not analyzed in the CBO report) will be spent over the next year and a half (the rest of the fiscal year 2009 and fiscal 2010)."

  Pelosi said House Democrats are willing to review any "constructive suggestions" offered by GOP lawmakers. She added that there are several Republican-backed tax cuts already in the House Ways and Means Committee markup (HR 598), including the provision on net operating loss carrybacks.

  The president added that the economic plan will be only "one leg in at a least three-legged stool." Obama's economic advisors are expected to make recommendations shortly on implementing the second half of the financial rescue package. Gibbs said the main principles of the financial stabilization measures are to open up bank lending to consumers and assist homeowners in avoiding foreclosure.

  By Paula Cruickshank, CCH News Staff

White House Press Release: Letter from OMB Director Peter R. Orszag to Senate Budget Committee Chairman Kent Conrad

 

CCH (cch.taxgroup.com) reports:

  The New York Legislature has passed a tax amnesty measure (A.B. 21, Laws 2009, Fourth Special Session) on December 2, 2009, that would allow the Department of Taxation and Finance to administer an accounts receivable discount program, for certain outstanding tax, fee, or surcharge liabilities, that are or were imposed under the Tax Law and administered by the department. The measure awaits Gov. David A. Paterson's signature.

  Under the program, penalties would be reduced by 50% for delinquent assessments that are overdue for between three years and six years. In addition, penalties would be reduced by 80% for delinquent assessments that are overdue for more than six years. The limited forgiveness period would probably take place in the last quarter of FY 2009-10.

  Subscribers can view the full text of A.B. 21.

   
  A.B. 21, Laws 2009, Fourth Special Session; Fact Sheet: $2.7 Billion Enacted Deficit Reduction Legislation , Office of New York Gov. David Paterson, December 3, 2009

CCH (cch.taxgroup.com) reports:

  Massachusetts Governor Deval Patrick has signed legislation authorizing a two-month tax amnesty program, during which penalties for failure to timely file or pay Massachusetts taxes will be waived if the taxpayer files all outstanding returns and makes payments as required by the Commissioner of Revenue. The amnesty program will begin on a date to be determined by the commissioner and will end no later than June 30, 2010. The scope of the program, including the particular tax types and periods covered and any limited look-back period for unfiled returns, will be determined by the commissioner. Amnesty will not apply to penalties that the commissioner does not have the sole authority to waive, including penalties applicable to fuel taxes administered under the International Fuel Tax Agreement and local option portions of taxes collected for the benefit of cities, towns, or state governmental authorities. Any taxpayer who has been the subject of a tax-related criminal investigation or prosecution is not eligible for amnesty. Eligible taxpayers who fail to come forward under the program and pay tax owed will be subject to an additional penalty of $500.

Ch. 166 (H.B. 4359), Laws 2009, effective November 24, 2009

CCH (cch.taxgroup.com) reports:

  A small business tax credit to employers who hire new workers and a temporary payroll tax holiday were among tax incentive ideas discussed at a White House jobs summit on December 3. President Obama said he will speak in greater detail the week of December 7 on several new job creation ideas, including tax-cut proposals. He is scheduled to make a speech on the economy at the Brookings Institution in Washington, D.C., on December 8.

  At a breakout session on small business job growth, Treasury Secretary Timothy F. Geithner said the administration is open to ideas to extend or modify existing tax cuts and new tax incentives. One participant criticized a payroll tax holiday, saying it was too broad-based, and that targeted tax incentives would be more effective.

  The White House summit invited representatives from small business, large firms, labor, community lenders and economists to discuss regulatory, financial and tax measures that could create new jobs. Breakout sessions addressed energy, trade, small business and infrastructure jobs. With respect to energy jobs, the president stressed the job potential of green technology but also noted that the price of carbon must be determined first before the administration can "make a big push" on green jobs.

  The president, in opening remarks, emphasized that the private sector is the ultimate engine of job creation, although the federal government plays a critical role in establishing the conditions for economic growth. Obama said that the measurement of a real economic recovery is when the private sector begins to invest again. "Only when our businesses start hiring again and people start spending again and families start seeing improvement in their own lives again that we're going to have the kind of economy that we want, "he noted.

Grassley Introduced Jobs Bill

  Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, seized the occasion to introduce what he termed a jobs bill. The Clean Renewable Energy Advancement Tax Extension Jobs (CREATE Jobs) Bill of 2009 would extend the tax credit for the production of electricity from wind and open-loop biomass through December 31, 2016. The legislation would also increase the amount of bond authority for new clean renewable energy bonds. Such bonds are used to finance facilities that generate electricity from wind, closed-loop biomass, open-loop biomass, geothermal, small irrigation, hydropower, landfill gas, marine renewable and municipal trash combustion facilities.

  In addition, the proposed legislation extends bonus depreciation for one year. The current 50-percent first-year bonus depreciation allowance expires at the end of 2009.

  " Green energy is a real bright spot in our economic future," Grassley said. "We need to keep up the momentum for job creation, a clean environment, and energy independence. Getting these tax incentives extended is important to help businesses secure the loans they need to make the investments necessary to create jobs."

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

SFC Press Release: Grassley Continues Push for Job Creation With Bill to Extend Renewable Energy, Key Business Tax Incentives
 

CCH (cch.taxgroup.com) reports:

  The IRS has released the 2010 optional standard mileage rates that employees, self-employed individuals and other taxpayers can use to compute deductible costs of operating automobiles (including vans, pickups and panel trucks) for business, medical, moving and charitable purposes. The revenue procedure also provides substantiation rules for employees' local travel or transportation expenses when a payor (an employer, its agent, or a third party) provides a mileage allowance under a reimbursement or other expense allowance arrangement. Finally, the procedure explains the fixed and variable rate allowance (FAVR) rules that payors can use to reimburse business expenses paid or incurred with respect to an automobile owned or leased by an employee. The mileage rates are all lower than they were for 2009, reflecting generally lower transportation costs.

  The updated rates are effective for deductible transportation expenses paid or incurred on or after January 1, 2010; and for mileage allowances or reimbursements paid to, or transportation expenses paid or incurred by, an employee or a charitable volunteer on or after January 1, 2010. Rev. Proc. 2008-72, I.R.B. 2008-50, 1286, is superseded.

Business Mileage Rate

  The standard mileage rate for business mileage in 2010 will be 50 cents per mile. When a taxpayer uses this mileage rate for automobiles the taxpayer owns, depreciation will be considered to have been allowed at a rate of 23 cents per mile. This depreciation reduces the taxpayer's basis in the automobile.

  A taxpayer computes a deduction using the business standard mileage rate on a yearly basis, in lieu of computing the fixed and variable automobile costs allocable to business purposes, such as depreciation, lease payments, maintenance and repairs, tires, gasoline, oil, insurance, and license and registration fees. However, the taxpayer may continue to claim separate allowable deductions for parking fees and tolls, interest relating to the purchase of the automobile, and state and local personal property taxes. The standard business mileage rate may not be used for automobiles used for hire (such as taxicabs) or when five or more automobiles are owned or leased and used simultaneously by the taxpayer (such as in fleet operations). Rules providing for substantiation of an employee's ordinary and necessary expenses for local travel or transportation away from home are also provided. Such expenses will be deemed substantiated when the employer, its agent or a third-party provider provides a mileage allowance under a reimbursement or other expense allowance arrangement.

Medical, Moving Mileage Rate

  The standard mileage rate for medical and moving expenses will be 16.5 cents per mile.

Charitable Mileage Rate

  The standard mileage rate for charitable purposes will remain at 14 cents per mile.

IR-2009-111, FED ¶46,547

Rev. Proc. 2009-54, FED ¶46,548

Other References:

 
Code Sec. 61

  CCH Reference - 2009FED ¶1090.11

  CCH Reference - 2009FED ¶1201.24

  CCH Reference - 2009FED ¶5907.0325

 
Code Sec. 62

  CCH Reference - 2009FED ¶6006.0324

 
Code Sec. 162

  CCH Reference - 2009FED ¶8590.021

  CCH Reference - 2009FED ¶8590.55

 
Code Sec. 170

  CCH Reference - 2009FED ¶11,620.029

  CCH Reference - 2009FED ¶11,620.6744

 
Code Sec. 213

  CCH Reference - 2009FED ¶12,543.82

 
Code Sec. 217

  CCH Reference - 2009FED ¶12,623.021

  CCH Reference - 2009FED ¶12,623.11

 
Code Sec. 274

  CCH Reference - 2009FED ¶14,417.043

  CCH Reference - 2009FED ¶14,417.045

  CCH Reference - 2009FED ¶14,417.046

  CCH Reference - 2009FED ¶14,417.047

  CCH Reference - 2009FED ¶14,417.048

  CCH Reference - 2009FED ¶14,417.05

  CCH Reference - 2009FED ¶14,417.051

  CCH Reference - 2009FED ¶14,417.052

  CCH Reference - 2009FED ¶14,417.053

  CCH Reference - 2009FED ¶14,417.50

 
Code Sec. 1016

  CCH Reference - 2009FED ¶29,412.385

  Tax Research Consultant

  CCH Reference - TRC INDIV: 36,056.15
CCH Reference - TRC INDIV: 36,164
CCH Reference - TRC INDIV: 39,106.10
CCH Reference - TRC INDIV: 42,158
CCH Reference - TRC INDIV: 51,056.15
CCH Reference - TRC BUSEXP: 24,506.05
CCH Reference - TRC BUSEXP: 24,506.10
CCH Reference - TRC BUSEXP: 24,510
CCH Reference - TRC BUSEXP: 24,906.25
CCH Reference - TRC BUSEXP: 24,912.10
CCH Reference - TRC DEPR: 3,252.15
CCH Reference -
TRC FARM: 9,074

CCH (cch.taxgroup.com) reports:

  House lawmakers approved the Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Bill of 2009 (HR 4154) by a vote of 225-to-200 on December 3. The legislation would permanently extend the current exemption for estates up to $3.5 million per individual and $7 million for married couples and set a maximum rate of 45 percent on estates above this threshold.

  House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., said the bill would provide certainty for businesses. In addition, the measure would repeal the enactment of carryover basis rules that would require many heirs to pay additional taxes on built-in gains of property inherited starting in 2010.

  "This bill simply continues present law at current rates and exemptions. But it does not abolish the estate tax altogether, which would be a severe mistake," said House Majority Leader Steny H. Hoyer, D-Md. He noted that a permanent repeal of all estate taxes would cost billions of dollars and only benefit a small number of wealthy families. Hoyer explained that, although HR 4154 is not paid for, lawmakers were able to add the statutory pay-as-you-go (PAYGO) rules to the measure. HR 4154 includes the Statutory PAYGO Bill of 2009 (HR 2920) that passed the House in July (TAXDAY, 2009/07/23, C.1).

  Ways and Means ranking member Dave Camp, R-Mich., who did not vote for the bill, said HR 4154 extends the current rates, which he termed as excessively high. Since the tax rate is not indexed for inflation, it will affect more families each year, according to Camp. Based on historical inflation data, the value of the estate tax exemption could thus be cut in half with every passing generation, GOP lawmakers said. If current law is not changed, the estate tax will disappear in 2010 for one year. He said the bill is unlikely to reach the president's desk before the end of 2009, since the Senate is fully engaged in the health care reform debate.

  By Stephen K. Cooper, CCH News Staff

House Passes Permanent Estate Tax Relief for Families, Farmers, and Small Businesses

House Rules Committee Report Providing for Consideration of HR 4154, the Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009,
HRRepNo 111-350

Joint Committee on Taxation Technical Explanation of HR 4154, the Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009, JCX-57-09

Joint Committee on Taxation Estimated Revenue Effects of HR 4154, the Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009,
JCX-58-09
 

CCH (cch.taxgroup.com) reports:

  The Georgia Department of Revenue has amended its personal income tax rule covering the withholding on distributions to nonresident members of partnerships, S corporations, and limited liability companies. The rule conforms to statutory changes that reduced the penalty from 100% to 25% on pass-through entities that fail to withhold tax on distributions. Withholding is required with respect to distributions paid, or distributions credited but not paid, to a nonresident member. The due date for taxes deducted and withheld on distributions credited but not paid by the entity to its nonresident members is the due date for filing the income tax return for the entity. In lieu of withholding, the entity may elect to file a composite income tax return for one or all of its nonresident members using Form IT-CR.

  Subscribers to CCH Tax Research NetWork can view the regulation.

Reg. Sec. 560-7-8-.34 , Georgia Department of Revenue, effective January 18, 2009

 

CCH (cch.taxgroup.com) reports:

  The California Franchise Tax Board (FT has addressed frequently asked questions (FAQs) regarding the new penalty applicable for taxable years beginning on or after January 1, 2003, to corporations that have an understatement of California corporation franchise or income tax in excess of $1 million. Details of the new law were previously reported. (TAXDAY, 2008/10/02, S.2)

  The FAQs address questions regarding what the penalty is, what an understatement of tax is, what tax years are subject to the penalty, who is subject to the penalty, how the penalty is computed, when the FTB will assess the penalty, and more.

  The penalty is 20% of the entire amount of the understatement. The understatement is measured by the difference between the tax reported on the original return or shown on an amended return, filed on or before the extended due date, and the correct tax liability.

  For the purpose of this penalty for taxable years 2003-2007, a taxpayer can file an amended return and pay the tax shown on the amended return by May 31, 2009, to treat the tax shown on the amended return as tax shown on the original return. This will increase the self-assessed tax base against which the understatement is measured to reduce the likelihood of receiving this penalty for these taxable years.

  The FTB will issue an FTB Notice and provide additional FAQs in the near future to prescribe procedures on the following subjects:

  -- the filing of amended returns under Rev. & Tax. Code Sec. 19138(b);

  -- the payment of the amount shown on the amended return under Rev. & Tax. Code Sec. 19138(b); and

  -- the method to alleviate the burden of filing amended returns in situations involving pending, disputed, and final proposed assessments.

  Concerns and recommendations related to the FAQs should be sent via e-mail to Ting Lee at ting.lee@ftb.ca.gov.

  Subscribers to CCH Tax Research NetWork can view the FTB release.

Large Corporate Understatement Penalty FAQs , California Franchise Tax Board, January 21, 2009

 

CCH (cch.taxgroup.com) reports:

  The U.S. Court of Appeals for the First Circuit has upheld a federal court's decision that the taxpayer's tax accrual workpapers, the contents of which were communicated to an independent auditor, were not revealed to an adversarial party and, therefore, did not forfeit protection under the work product privilege. However, the court vacated and remanded the lower court's determination that the communications were not a complete waiver of the privilege. On remand, the lower court must decide to what extent the independent auditor's own workpapers can be disclosed without violating the taxpayer's work product privilege.

  CCH Comment. Kevin Kenworthy, partner, Miller & Chevalier, Washington, D.C., commented immediately after the release of the First Circuit's opinion that "while the Appeals Court has ruled largely affirming the decision in favor of Textron, the fight is not over yet. While in many respects the court made a favorable decision for taxpayers, the dust has not settled. The case could go as far as the U.S. Supreme Court and Textron could end up losing. Corporate taxpayers need to continue watching the case because a final verdict against Textron could give the IRS an extra tool to find out what companies really believe about their tax returns."

Work Product Protection Applied

  The First Circuit upheld the district court's ruling that documents prepared by Textron for the purpose of calculating its tax reserves were protected by the work product privilege. The taxpayer prepared its tax accrual workpapers in anticipation of litigation because they would not have been created "but for the prospect of litigation." The taxpayer's tax accrual workpapers would not have been prepared "but for" the need to estimate the likelihood of success in litigation in order to establish a reserve fund to cover positions for which the taxpayer could foresee disputes with the IRS. Anticipation of a tax dispute with the IRS could qualify as anticipation of litigation for purposes of the work product doctrine. The resolution of disputes through adversarial administrative processes such as proceedings before the IRS Appeals Board met the definition of litigation.

  The IRS's argument that the taxpayer's legal requirement to calculate and report a tax reserve fund rendered the tax accrual workpapers as prepared in the ordinary course of business versus in anticipation of litigation was rejected. The workpapers were "dual purpose" documents protected by the work product doctrine because "the business purpose derives from and is inextricably relate to anticipating litigation."

No Specific Litigation Reporting Required

  The court also ruled that the taxpayer should not be required to report a particular instance of litigation for each prepared tax accrual workpaper in order to prevent the work product doctrine from growing so broad as to swallow the attorney-client privilege. Such a requirement would offer protection under the work product privilege to only "the cantankerous and combative taxpayer who intends to thoroughly litigate every position. "

Independent Auditor

  The taxpayer did not waive protection under the work product privilege by showing its tax accrual workpapers to an independent auditor. The taxpayer's relationship with the auditor did not waive this protection, as it was not adversarial but, rather, cooperative in nature. The appellate court reasoned that this was different from a previous case ( Massachusetts Institute of Technology, CA-1, 97-2 USTC ¶50,955), where an auditor reviewed a client's financial statements to identify litigious disputes it would subsequently have with the client.

  However, despite the work product protection of the taxpayer's tax accrual workpapers, the independent auditor itself may be required to disclose its own resulting workpapers. The IRS argued that, despite any professional confidentiality obligations, the auditor may be required to disclose information to the Securities and Exchange Commission to protect stockholders or respond to valid subpoenas. While this is true, the court found that the remaining issue was whether disclosure of the auditor's workpapers to the IRS would substantially increase the risk that the contents of the taxpayer's workpapers would be disclosed to "an adversary."

  Although the IRS had requested the auditor's tax accrual workpapers, the lower court made no factual rulings on their contents. Thus, the court remanded to the case to the lower court to perform an in camera inspection or testimonial proceeding on the documents to make this assessment.

  Affirming in part, reversing in part and remanding a DC R.I. decision, 2007-2 USTC ¶50,605.

  By Torie Cole, CCH News Staff

Textron Inc., CA-1, 2009-1 USTC ¶50,167

Other References:

 
Code Sec. 7525

  CCH Reference - 2009FED ¶42,816F.25

 
Code Sec. 7602

  CCH Reference - 2009FED ¶42,827.33

  CCH Reference - 2009FED ¶42,827.5036

  Tax Research Consultant

  CCH Reference - TRC IRS: 21,400

  CCH Reference - TRC IRS: 21,402.35

  CCH Reference - TRC IRS: 21,404

 

CCH (cch.taxgroup.com) reports:

  The massive economic stimulus bill made its way through the House Ways and Means Committee on January 22, with lawmakers approving the $275 billion measure by a vote of 24 to 13. Democrats rejected dozens of GOP amendments to Chairman Charles B. Rangel's, D-N.Y., chairman's mark of the American Recovery and Reinvestment Tax Bill of 2009 (HR 598). Ranking member Dave Camp, R-Mich., said the best chance for Republican lawmakers to influence the bill is to persuade President Obama that a 5-percent income tax rate cut for taxpayers in the 10 percent and 15 percent tax brackets would be a more effective way to stimulate the economy and reach a larger number of Americans. Rangel and the House Democratic leadership believe that the $145.3 billion Making Work Pay tax credit of $500 to individuals and $1,000 to couples is a better plan.

  Rangel said the tax bill will be married to a larger spending bill package now under consideration by the House Energy and Commerce and the House Appropriations committees. The combined legislation, which will then be called the American Recovery and Reinvestment Bill (HR 1), will reach a vote on the House floor on January 28. Since the legislation is moving so quickly, without the benefit of committee hearings, Camp said that he hopes Obama will prevail on Senate lawmakers to modify the bill with their tax proposals. He acknowledged that House Speaker Nancy Pelosi, D-Calif., has tasked Rangel with moving the legislation as quickly as possible.

  In an attempt to assuage criticism of the tax proposal by GOP lawmakers, Rangel offered to hold an informal, bipartisan meeting with Republicans and Obama administration officials. The meeting, which has not been scheduled, would seek to determine an estimate of the number of jobs created by the proposed legislation. Rangel said he was forced to skip the regular hearing process in order for Congress to get a finished bill to Obama's desk before Presidents Day in February.

  The committee voted on a modified version of the tax legislation that was released by Rangel late on January 21, which revised the original version of HR 589. The Joint Committee on Taxation also released update revenue estimates of the modified legislation. The revised tax bill would allow companies a five-year carryback period for operating losses. It would expand qualified school construction bonds, qualified energy conservation tax credit bonds and recovery zone economic development bonds and recovery zone facility bonds. The measure also clarifies that Notice 2008-83, I.R.B. 2008-42, 905 (TAXDAY, 2008/10/01, I.2, which allows financial institutions to use net unrealized built-in losses after an ownership change, shall have the force and effect of law with respect to new and previously announced ownership changes of companies occurring after January 16, 2009.

  By Stephen K. Cooper, CCH News Staff

Chairman's Amendment in the Nature of a Substitute to HR 598

Summary of Changes in the Chairman's Amendment in the Nature of a Substitute to HR 598

Ways and Means Passes Economic Recovery Legislation

Neal Welcomes Ways and Means Committee Passage of Economic Stimulus Proposal

JCT Description of Title I of HR 598, the American Recovery and Reinvestment Tax Act of 2009,
JCX-5-09

JCT Description of Title III of HR 598, the Health Insurance Assistance for the Unemployed Act of 2009, JCX-6-09

JCT Estimated Budget Effects of the Revenue Provisions in Titles I and III of HR 598, the American Recovery and Reinvestment Tax Act of 2009, JCX-7-09

JCT Description of the Chairman's Amendment in the Nature of a Substitute to Titles I and III of HR 598, JCX-8-09

JCT Estimated Budget Effects of the Chairman's Amendment in the Nature of a Substitute to HR 598, the American Recovery And Reinvestment Tax Act of 2009, JCX-9-09

 

CCH (cch.taxgroup.com) reports:

  The Wyoming Department of Revenue has been ordered to allow a refund or credit for Wyoming sales taxes that were collected by a telecommunications provider from Wyoming customers on federal customer access line charges (CALC).

 

CCH (cch.taxgroup.com) reports:

  On January 20, 2009, New Mexico Governor Bill Richardson delivered his 2009 State of the State address. While the Governor stated that his proposed budget does not raise taxes, he did call for increasing or expanding several specific credits, including the renewable energy production credit, advanced energy credit, rural health care practitioner credit, hybrid vehicle credit, and child day care credit.

  Subscribers to CCH Tax Research NetWork can view the text of the speech.
 
Press Release , New Mexico Governor's Office, January 20, 2009

 

CCH (cch.taxgroup.com) reports:

  CCH Tax and Accounting is hosting a live two-hour audio seminar, The New Michigan Business Tax, on Thursday, January 29, 2009, at 1 p.m. Eastern; noon Central; 10 a.m. Pacific. This two-hour CCH Audio Seminar is presented by seasoned Michigan tax practitioners Terry Conley and Ralph Ourlian of Grant Thornton, and will provide an in-depth and practical update on the latest Michigan Business Tax (MBT) changes passed on December 19, 2008, and the filing of MBT returns. This practical review will discuss the new MBT structure and its impact on in-state and out-of-state businesses, how the MBT is computed, and the issues and challenges that the MBT presents for dealing with business taxes and compliance. In addition, the new forms will be covered as taxpayers get closer to the filing of the MBT returns. The common forms and the flow of the computations will also be discussed, as well as the impact of the newly passed legislation and its effect on gross receipts.

  Program topics include the following:

  -- the MBT's structure and its major components,

  -- single factor sales apportionment,

  -- unitary reporting,

  -- lower nexus threshold,

  -- a heavy emphasis on credits,

  -- new forms and computation of the MBT, and

  -- new changes to the MBT.

  The learning objectives include:

  -- gaining a practical understanding of the recent Michigan tax developments affecting business entities,

  -- learning the key issues and concerns regarding compliance that the MBT presents for companies,

  -- understanding how the MBT is computed, and

  -- learning how to gather the information to maximize available deductions.

  Registration can be completed online at
http://www.krm.com/cch or by calling 1-800-775-7654. Participants can receive two hours of CPE credit for an additional $25 per person. Firms registering for this audio seminar will also receive a copy of CCH's
Guidebook to Michigan Taxes (2009).

CCH (cch.taxgroup.com) reports:

  The House Ways and Means Committee plans to mark up the American Recovery and Reinvestment Tax Bill of 2009 (HR 598) on January 22, despite criticism from House GOP lawmakers who object to some of the tax provisions in the bill. Committee ranking member Dave Camp, R-Mich., and House Minority Leader John Boehner, R-Ohio, said the legislation should undergo the normal committee hearings, thereby giving lawmakers the chance to receive views from industry experts.

  Boehner and Camp were joined by other House Republicans at a press briefing on January 21 where lawmakers said they planned to meet with President Obama and present their own ideas for more effective tax incentives to provide economic stimulus. In particular, Camp objected to the Making Work Pay tax credit in the measure because it would provide a greater tax incentive to people than the amount they actually paid in taxes. Instead, House Republican Whip Eric Cantor, R-Va., said that Obama should consider other tax incentives for families, small businesses, self-employed workers and entrepreneurs.

  Cantor said they planned to let Obama know that House Republicans are opposed to the Democratic economic stimulus legislation, especially since more than $500 billion is targeted to new government spending. The largest item in the tax bill is a two-year Making Work Pay tax credit, which would cost $145.3 billion over 10 years (TAXDAY, 2009/01/16, C.1). Members of the House Republican Study Committee introduced their own legislation, the Economic Recovery and Middle Class Relief Bill (HR 470), on January 13. Among other things, the GOP legislation would provide a 5-percent, across-the-board income tax cut, increase the child tax credit to $5,000, repeal the alternative minimum tax and make permanent the current 15-percent tax rate on capital gains and dividends.

  By Stephen K. Cooper, CCH News Staff

CCH (cch.taxgroup.com) reports:

  A married couple was properly denied a deduction for suspended passive losses on their S corporation stock because the stock became worthless two years prior to the year asserted by the couple. The couple claimed that the stock became worthless in the year a lawsuit filed by the corporation was settled because they expected that a recovery would have allowed the corporation to resume its prior activities. However, they failed to demonstrate the reasonableness of their belief that the lawsuit represented potential value for the corporation. The couple did not provide any evidence regarding the merits of the lawsuit or how the damages were calculated. Contrary to the couple's assertion, the corporation's hope that it would prevail in the lawsuit was not the same as the corporation's reasonable expectation that its future operations would succeed. Moreover, the private construction projects carried out by a division of the corporation did not demonstrate that the corporation retained any value. There was no evidence of how much work the division was doing, whether it was viable, or whether it could have reasonably generated enough money to allow the corporation to resume its public projects.

  Affirming a DC Ill., decision, 2007-2 USTC ¶50,680.

A. Bilthouse, CA-7, 2009-1 USTC ¶50,158

Other References:

 
Code Sec. 165

  CCH Reference - 2009FED ¶10,001.103

  CCH Reference - 2009FED ¶10,001.43

 
Code Sec. 469

  CCH Reference - 2009FED ¶21,966.70

 
Code Sec. 1366

  CCH Reference - 2009FED ¶32,084.425

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 30,262
CCH Reference - TRC BUSEXP: 30,262.30
 

CCH (cch.taxgroup.com) reports:

  The IRS has set forth the maximum allowable values of employer-provided automobiles, including trucks and vans, first made available to employees for personal use in calendar year 2009 for which the vehicle cents-per-mile valuation rule of Reg. §1.61-21(e) and the fleet-average valuation rule of Reg. §1.61-21(d), may be applicable. The maximum value for use of the vehicle cents-per-mile valuation rule is $15,000 for a passenger automobile and $15,200 for a truck or van. The maximum value for use of the fleet-average valuation rule is $19,900 for a passenger automobile and $19,900 for a truck or van.

Rev. Proc. 2009-12, 2009FED ¶46,251

Other References:

 
Code Sec. 61

  CCH Reference - 2009FED ¶1201.235

  CCH Reference - 2009FED ¶1201.24

  CCH Reference - 2009FED ¶5907.0325

  CCH Reference - 2009FED ¶5907.033

  CCH Reference - 2009FED ¶5907.80

  Tax Research Consultant

  CCH Reference - TRC COMPEN: 33,152.10
CCH Reference - TRC COMPEN: 33,154.05
 

CCH (cch.taxgroup.com) reports:

  President Barack Obama, in his inaugural address on January 20, reaffirmed the need to take "bold and swift" action to address the economic crisis in the United States. The 44th President of the United States said that overcoming the difficult challenges ahead will take time but the challenges "will be met."

  As the new president takes office amid a deepening U.S. recession, rising unemployment and financial market turmoil, he maintained that his administration will advance the measures necessary to create jobs and lay the groundwork for economic growth. "We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together," Obama said.

  Obama, in his remarks, cited the current financial crisis, the deteriorating housing market and business failures. He attributed the ""badly weakened" economy to "greed and irresponsibility on the part of some, but also our collective failure to make hard choices."

  In an effort to further stabilize the financial and housing markets, President Bush, at the behest of Obama, made a formal request to Congress on January 12 to release the second $350 billion tranche of the Troubled Asset Relief Program (TARP). The Senate approved the request, which granted the Obama administration access to the TARP funds

  On the role of the federal government, Obama stressed that the issue is not its size or scope but how well it works. Echoing the goals set by recent administrations to eliminate unnecessary federal programs --an effort which met with very limited success --Obama said the White House would keep the federal programs that work and end the unnecessary ones. He also maintained that there will be accountability and transparency over how U.S. taxpayer dollars are managed and spent.

  Obama ended his speech on a confident note. "In the face of our common dangers, in this winter of our hardship, let us remember these timeless words. With hope and virtue, let us brave once more the icy currents, and endure what storms may come." He stated that future generations will look back on this time in history and say that "we carried forth that great gift of freedom and delivered it safely" to them.

  By Paula Cruickshank, CCH News Staff