Daily Tax Update - September 24, 2009

UNITED STATES AND SWITZERLAND SIGN TREATY PROTOCOL ALLOWING GREATER EXCHANGE OF TAX INFORMATION:  Yesterday, Treasury Secretary Timothy Geithner and Swiss Ambassador to the United States Urs Ziswiler signed a protocol expanding the exchange of information allowed under the 1996 Switzerland-US Income Tax Treaty (“Treaty”). The protocol also provides for mandatory arbitration of certain unresolved cases and addresses issues concerning the cross-border taxation of individual retirement accounts (IRAs).

• Previously, exchange of information was authorized only to the extent the information was necessary to prevent “tax fraud or the like.” Under the protocol, exchange of information is generally permitted to the extent the information is relevant to the administration or enforcement of the requesting country’s domestic laws relating to taxes that are covered by the treaty. The protocol provides that the tax authorities can enforce disclosure of information required by the treaty notwithstanding any contrary provisions in their domestic laws (e.g., bank secrecy laws) and notwithstanding certain limitations in the treaty that might otherwise be used as a defense to disclosure. The protocol requires a specific request identifying the taxpayer involved, and does not require automatic or spontaneous exchanges of information.
• The protocol also amends article 25 of the Treaty to provide for binding arbitration of unresolved competent authority cases, unless the competent authorities agree that the particular case is not suitable for determination by arbitration. Diplomatic notes attached to the protocol set out the rules and procedures for implementing the arbitration provision, including the appointment of an arbitration panel, the timeline for submitting a proposed resolution and position paper, the handling of confidential information, and the splitting of arbitrator’s fees and expenses.
• Additionally, the protocol amends article 10 of the Treaty to eliminate withholding tax on cross-border dividend payments to pension plans and IRAs.
• The information exchange provisions are effective for requests made on or after the date of entry into force of the convention:
  • For information protected by bank secrecy, for information relating to any date beginning on or after September 23, 2009; and
  • For information not protected by bank secrecy, for information relating to taxable periods beginning on or after January 1, 2010. 
• Additional information can be accessed here.
• For additional information, contact Philip R. West - pwest@steptoe.com

PELOSI “REFINING” HOUSE HEALTH CARE REFORM BILL:  House Speaker Nancy Pelosi is in the process of combining parts of health care legislation written by three House Committees. House Democratic Caucus Chairman John Larson said, "[Speaker Pelosi] has been very adamant about making sure that we have a bill for people to examine next week. I believe, as the speaker has suggested, that we will have a bill next week. That won't be the final answer but it will be something that can now say, 'OK, is this something we can all coalesce around.’” Larson added, “This is the refining process.” Larson explained that while House Democrats were taking a look at what the Senate is doing, House action is not dependent on the Senate’s action. Larson said, “Honestly, we don't worry about the Senate.”

• Members of the House conservative Blue Dog Coalition expressed “dismay” with the House provision providing for a public insurance option.  Coalition member Stephanie Herseth Sandlin said, “There was quite a bit of dismay.  We sort of feel like we're getting mixed messages.” Herseth Sandlin added, “If the leadership feels they have the votes for H.R. 3200 (the health care reform bill), then they don't need to negotiate (with us) and bring this to a vote. Right now I don't think they have the votes to pass H.R. 3200.”
• Meanwhile, the markup in the Senate Finance Committee continues.

MISCELLANEOUS GUIDANCE ISSUED TODAY:
Notice 2009-82 provides relief for people who have already received a 2009 required minimum distribution this year. Individuals generally have until the later of Nov. 30, 2009, or 60 days after the date the distribution was received, to roll over the distribution. The notice also provides guidance for retirement plan sponsors. It contains two sample plan amendments that plan sponsors may adopt or use to amend their plans to either stop or continue 2009 required minimum distributions. Both sample amendments provide that participants and beneficiaries can choose to receive or not to receive 2009 required minimum distributions. Also, both sample amendments allow the employer to offer direct rollover options of certain 2009 required minimum distributions.

REG-155929-06 (released yesterday) contains proposed regulations regarding the requirements to qualify as a Type III supporting organization that is operated in connection with one or more supported organizations. The regulations reflect changes to the law made by the Pension Protection Act of 2006. The regulations will affect Type III supporting organizations and their supported organizations.  

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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