Tax News

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.