Daily Tax Update - October 15, 2008

THE DAILY TAX UPDATE WILL BE PUBLISHED ON A PERIODIC BASIS UNTIL CONGRESS RETURNS JANUARY 4, 2009. 

The Service Proposes Amendments to Qualified Intermediary Agreement:  In Announcement 2008-98 released today, the Internal Revenue Service set forth proposed amendments to the Qualified Intermediary Agreement (QI agreement) (an appendix to Rev. Proc. 2000-12, 2000-1 C.B. 387) and to the Guidance for External Auditors of Qualified Intermediaries (an appendix to Rev Proc. 2002-55, 2002-2 C.B. 435). The Service stated that these amendments are intended to ensure that qualified intermediaries (QIs) are taking the steps necessary to comply fully with their obligations under the QI agreement.

The proposed amendments include:

• Requiring QIs to notify the Service whenever the QI becomes aware of a material failure of internal controls that relates to its performance under the QI agreement, any employee allegations of such failures, or any investigation by regulatory authorities of such failures;
• Adding an audit procedure that tests certain accounts for characteristics suggesting that a US person has authority over the account;
• Adding additional procedures for fact gathering by external auditors that relates to the Service’s evaluation of the risk of a material failure of internal controls; and
• Requiring external auditors to associate a US auditor with the audit and to require the US auditor to accept joint responsibility for performance of the procedures under the audit guidance.
• The proposed amendments are to be effective for calendar years beginning after December 31, 2009. The Service asks that comments be submitted on or before February 28, 2009.
• The announcement can be accessed here. 
• For additional information, contact Philip R. West - pwest@steptoe.com  

MISCELLANEOUS GUIDANCE ISSUED TODAY:
Notice 2008-94 provides guidance on certain executive compensation provisions of the Emergency Economic Stabilization Act of 2008, Division A of Public Law No. 110-343 (EESA), which was enacted on October 3, 2008.  Section 302 of EESA added new §§ 162(m)(5) and 280G(e) to the Internal Revenue Code.  Section 162(m) limits the deductibility of compensation paid to certain corporate executives and § 280G provides that a corporate executive’s excess parachute payments are not deductible and imposes (under § 4999) an excise tax on the executive for those amounts. 
 
Notice 2008-100 provides guidance regarding the application of section 382 to loss corporations whose instruments are acquired by the Treasury Department under the Capital Purchase Program pursuant to the Emergency Economic Stabilization Act of 2008, P.L. 110-343.
 
Notice 2008-101 provides clarification that unless and until guidance is issued by the Department of the Treasury and the Internal Revenue Service to the contrary, no amount furnished by the Department of the Treasury to a financial institution pursuant to the Troubled Asset Relief Program of the Emergency Economic Stabilization Act of 2008, Div. A of Pub. Law No. 110-343, which was enacted on October 3, 2008, will be treated as the provision of Federal financial assistance within the meaning of section 597 of the Internal Revenue Code.

Revenue Procedure 2008-65 provides guidance under section 168(k)(4) of the Code, as added by the Housing and Economic Recovery Act of 2008, regarding the election not to claim the 50-percent additional first year depreciation for certain new property acquired after March 31, 2008, and generally placed in service before January 1, 2009, and instead increase the business credit limitation under section 38(c) or alternative minimum tax credit limitation under section 53(c). 

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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