Daily Tax Update - September 24, 2008

PRESIDENT TO ADDRESS NATION TONIGHT ON FINANCIAL BAILOUT PLAN:  Tonight at 9:00 p.m., President Bush is scheduled to address the nation on the $700 billion financial rescue plan.  The White House press secretary said, “This is a huge moment for America and if we don't take decisive and bold action, we could be facing financial calamity.”  
Republican Minority Leader John Boehner said, “The American people are furious about the fact that Congress is being asked to put up some $700 billion to help stem off this economic crisis.”  However, Boehner added, “Congress has a responsibility to act.”  Boehner added that he hoped a bipartisan plan could be passed within the next few days.

Today, Federal Reserve Chairman Ben Bernanke said, “The intensification of financial stress in recent weeks, which will make lenders still more cautious about extending credit to households and business, could prove a significant further drag on growth.  The downside risks to the outlook thus remain a significant concern."  Bernanke added, ”Stabilization of our financial system is an essential precondition for economic recovery.  I urge the Congress to act quickly to address the grave threats to financial stability that we currently face."

SENATE APPROVES TAX EXTENDERS/AMT BILL:  Last night, the Senate passed H.R. 6049, the Tax Extenders and Alternative Minimum Tax Relief Act of 2008, by a vote of 93-2 vote.  Today, the House postponed action on the Senate-passed extenders bill in the hope of working out an agreement. The House is expected to vote on the non-offset AMT patch bill later today.

The Joint Committee on Taxation’s summary of the House bills can be accessed here.

Today, ranking Senate Finance Committee member Charles Grassley said, “The House is trying to play games with extenders and tax relief.  The Senate extenders bill was drafted in consultation with House members and includes House members’ priorities. .  . What’s more, the Senate compromise is the only package that the White House has indicated the President will sign.  It’s time to focus on making law on these time-sensitive issues.  The House can’t ignore the fact that if they approve the Senate package, it will become law.  All the other machinations and maneuvers won’t.”

The Senate bill includes the following elements:

• Clean energy tax incentives totaling approximately $18 billion, fully paid for by several offset provisions including a delay of the tax deduction for domestic manufacturing activities of major American oil and gas companies.  Another offset provision tightens the rules by which oil and gas companies pay taxes on income earned overseas, and makes general fund monies available with increased payments into the oil spill liability trust fund as new drilling is considered.  The incentives are also funded in part by a one year extension of the Federal Unemployment Tax Act surtax at the current level, and by increasing reporting requirements for brokers on sales of stock.
• An increase in the income threshold at which Americans become subject to the higher alternative minimum tax.  This measure would protect more than 21 million taxpayers from higher taxes at a cost of $64 billion.   The cost of the AMT “patch” is not offset.
• Extensions of expiring family and business tax cuts and other policies – including an expansion of the child tax credit, legislation providing parity for mental health treatment in the U.S. health care system, and tax relief for victims of natural disasters.  Extensions of expiring tax cuts are partially offset by requiring hedge fund managers and others to account for deferred compensation – income held in offshore accounts and other corporate structures – as it accrues, rather than avoiding appropriate and timely income taxes. 

SENATE RATIFIES TAX TREATIES WITH CANADA, BULGARIA AND ICELAND:  Last night, the Senate ratified, by voice vote, tax treaties with Canada, Bulgaria, and Iceland.

For additional information, contact Philip R. West.
 
MISCELLANEOUS GUIDANCE RELEASED TODAY: Revenue Procedure 2008-58 provides guidance regarding the treatment of taxpayers accepting certain settlements of potential legal claims relating to auction rate securities. 

TAX BILLS INTRODUCED SEPTEMBER 23rd:

• H.R.7005 : To amend the Internal Revenue Code of 1986 to provide alternative minimum tax relief for individuals for 2008.
  Sponsor: Rep Rangel, Charles B. [NY-15] (introduced 9/23/2008)      Cosponsors (14)
  
• H.R.7006 : To amend the Internal Revenue Code of 1986 to provide disaster assistance relief.
  Sponsor: Rep Rangel, Charles B. [NY-15] (introduced 9/23/2008)      Cosponsors (11)
  
• H.R.7009 : To amend the Internal Revenue Code of 1986 to allow employers a credit against income tax for the cost of telecommuting equipment and expenses.
  Sponsor: Rep Bean, Melissa L. [IL-8] (introduced 9/23/2008)      Cosponsors (5)
• H.R.7010 : To amend the Internal Revenue Code of 1986 to provide a refundable, advanceable tax credit for health insurance costs of individuals with COBRA continuation coverage by reason of termination of employment.
  Sponsor: Rep Bean, Melissa L. [IL-8] (introduced 9/23/2008)      Cosponsors (7)
  
• H.R.7019 : To amend the Internal Revenue Code of 1986 to consolidate the current education tax incentives as one credit against income tax for qualified tuition and related expenses.
  Sponsor: Rep Israel, Steve [NY-2] (introduced 9/23/2008)      Cosponsors (5)
  
• H.R.7021 : To amend the Internal Revenue Code of 1986 to provide tax benefits to individuals who have been wrongfully incarcerated.
  Sponsor: Rep Larson, John B. [CT-1] (introduced 9/23/2008)      Cosponsors (2)
  
• H.R.7025 : To amend the Internal Revenue Code of 1986 to reduce the threshold for the allowance of the deduction for medical expenses.
  Sponsor: Rep Sensenbrenner, F. James, Jr. [WI-5] (introduced 9/23/2008)      Cosponsors (None)
• S.3544 : A bill to amend the Internal Revenue Code of 1986 to extend the financing of the Superfund.
  Sponsor: Sen Clinton, Hillary Rodham [NY] (introduced 9/23/2008)      Cosponsors (8)
  

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.

STEPTOE & JOHNSON LLP - TAX PRACTICE
Steptoe & Johnson LLP has one of the largest and most diverse law firm tax practices in the country. The practice covers the entire spectrum of federal taxation, including representation of businesses before the Congress, Treasury and the national office of the IRS; transactional planning for domestic and multinational corporations; complex audit and controversy work for corporations and other business interests contesting IRS adjustments; litigation before the Tax Court, Court of Federal Claims, district courts, courts of appeals and the Supreme Court. The firm's tax practice also encompasses all aspects of employee benefits (ERISA), executive compensation, tax-exempt organizations and charitable giving. Steptoe has an extensive state and local tax practice, representing an array of business clients on complex sales and use tax, corporate income tax and property tax matters, both advising those clients and handling audits, administrative appeals, and litigation for them. Read more information on Steptoe's tax practice.