Daily Tax Update - September 11, 2008

SENATE SUBCOMMITTEE ON INVESTIGATIONS HOLDS HEARING ON DIVIDEND TAX ABUSE:   Today, the Permanent Subcommittee on Investigations of the Senate Homeland Security and Governmental Affairs Committee held a hearing on “Dividend Tax Abuse: How Offshore Entities Dodge Taxes On US Stock Dividends.” According to the Subcommittee, the purpose of the hearing was to “examine how some financial institutions have designed, marketed, and implemented transactions to enable foreign taxpayers, including offshore hedge funds, to dodge millions of dollars of taxes on US stock dividends.” The hearing also examined “whether current law relating to dividend taxation and withholding should be strengthened.” The Subcommittee issued a report in conjunction with the hearing.

• IRS Commissioner Douglas Shulman said the transactions are under review. Specifically, he said the review of Notice 97-66 “will seek to determine whether it can be modified to retain the original intent—the prevention of the cascading US withholding tax on substitute dividend payments—while preventing structures created to eliminate US withholding tax on substitute dividend payments.”
• Testimony and the report can be accessed here.
• For additional information, contact Philip R. West - pwest@steptoe.com or Matthew D. Lerner - mlerner@steptoe.com 

BAUCUS, GRASSLEY INTRODUCE ENERGY INCENTIVES BILL: Today, Senate Finance Committee Chairman Max Baucus and Ranking Member Chuck Grassley unveiled energy tax legislation that they intend to bring to the Senate for consideration this month. Baucus said, “Congress needs to put aside its differences and move this country toward new forms and sources of energy. We know this bill can be a bipartisan solution for the entire Senate, because it reflects bipartisan success here on the tax-writing committee. This bill has the right tax policy to create thousands of jobs, jump-start alternative energy solutions and finally move America away from our dependence on foreign oil. Senators who support good-paying jobs, energy independence, and America's working families can and should support this bill.”

• The cost of the package is offset in part with reductions in tax breaks for major oil and gas companies. The tax offsets in the package are used entirely for tax relief. 
• The revenue provisions in the bill include:
  • Modification to Section 199. The bill repeals the Section 199 manufacturing deduction for major integrated and state-owned oil and gas companies, while maintaining the 6% rate for other oil and gas companies.
  • Outer Continental Shelf (OCS) Excise Tax. The proposal establishes an excise tax on the removal price of any taxable crude oil or natural gas produced from Federal submerged lands on the OCS in the Gulf of Mexico pursuant to a Federal OCS lease.
  • Modification of Section 907. The proposal eliminates the distinction between foreign oil and gas extraction income (“FOGEI”) and foreign oil related income (“FORI”).
  • Basis Reporting by Brokers on Sales of Stock. This provision creates mandatory basis reporting measures to the IRS by brokers for transactions involving publicly traded securities, such as stock, debt, commodities, derivatives and other items as specified by the Treasury.
  • Oil Spill Liability Trust Fund. The proposal extends the oil spill tax through December 31, 2017, increases the per barrel tax from 5 cents to 12 cents, and repeals the requirement that the tax be suspended when the unobligated balance exceeds $2.7 billion.
• Additional information can be accessed here.

TAX BILL INTRODUCED SEPTEMBER 10^TH:
H.R.6854 : To amend the Internal Revenue Code of 1986 to allow the Secretary of the Treasury to establish the standard mileage rate for use of a passenger automobile for purposes of the charitable contributions deduction and to exclude charitable mileage reimbursements from gross income.
Sponsor: Rep Lewis, John [GA-5] (introduced 9/10/2008)      Cosponsors (1) 

INTERNAL REVENUE SERVICE - CIRCULAR 230 DISCLOSURE:
As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

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