Daily Tax Update - October 6, 2009

IRS ISSUES PROPOSED REGULATIONS REGARDING THE EXTENDED ASSESSMENT LIMITATIONS PERIOD FOR UNDISCLOSED LISTED TRANSACTIONS: Today, the IRS issued proposed regulations under section 6501(c)(10) relating to the exception to the general three-year assessment limitations period for listed transactions that the taxpayer failed to disclose in accordance with section 6011. Section 6501(c)(10) provides that the failure to properly disclose a listed transaction will cause the assessment limitations period for that transaction to end no earlier than one year after the earlier of (i) the date on which the taxpayer furnishes the required information, or (ii) the date that a material advisor furnishes, upon written request, the information required under section 6012 with respect to that taxpayer. Thus, if the information is never furnished, the period of limitations on assessment will remain open, and the tax may be assessed at any time. Section 6501(c)(10) is effective for taxable years with respect to which the assessment limitations period did not expire before October 22, 2004.  

• The proposed regulations explain how to determine whether section 6501(c)(10) applies and, if so, the applicable assessment limitations period. If there was no obligation to disclose a listed transaction, or if the taxpayer complied with its disclosure requirements, then section 6501(c)(10) will not apply. 
• In the case of taxpayers who are partners in partnerships, shareholders in S corporations, or beneficiaries of trusts, section 6501(c)(10) applies separately to each partner, shareholder, or beneficiary. Thus, a disclosure by the entity or another partner, shareholder, or beneficiary will not protect the taxpayer.
• The proposed regulations also provide guidance regarding the disclosures required to begin the one-year period under section 6501(c)(10).  To begin the one-year period, a taxpayer must file the most current version of the Form 8886 for each listed transaction, along with a cover letter signed under penalties of perjury, with the IRS Office of Tax Shelter Analysis.   
• The proposed regulations clarify that the IRS may assess any tax relating to a listed transaction for the taxable year(s) with respect to which the failure to disclose occurred, including adjustments to any item that was affected by the listed transaction even if it was unrelated to the listed transaction (e.g., medical expense deduction that varies upon a change in adjusted gross income). 
• The proposed regulations are effective for taxable years for which the assessment period did not expire before the date the final regulations are published. For prior taxable years, a taxpayer may rely on the proposed regulations or, for taxable years for which the assessment period expired on or after April 8, 2005, a taxpayer may rely on the interim guidance provided in Rev. Proc. 2005-26, 2005-1 C.B. 965.  
• For additional information, contact Matthew D. Lerner - mlerner@steptoe.com or J. Walker Johnson  - wjohnson@steptoe.com.  

IRS REVISES GUIDANCE FOR PARTNERSHIP ALLOCATIONS OF WIND ENERGY PRODUCTION TAX CREDITS: The IRS has released Announcement 2009-69, which revises the safe harbor requirements provided in Rev. Proc. 2007-65 for partnerships in allocating section 45 wind energy production tax credits.

• Section 45 generally provides a tax credit to producers of electricity from qualified energy resources (including wind) who sell the electricity to unrelated parties. Rev. Proc. 2007-65 establishes a safe harbor for certain wind energy partnerships regarding the partnership’s allocation of these tax credits.
• The Announcement revises Rev. Proc. 2007-65 by clarifying that a project developer, investor, or related party may have a contractual right to buy the wind farm, any property included in the wind farm, or an interest in the wind project partnership. However, the contractual right must be negotiated for valid non-tax business reasons at arm’s length by parties with material adverse interests. The purchase price must either be a price that is not less than the fair market value of the property determined at the time of exercise or, if the purchase price is determined before exercise, a price that the parties reasonably believe will not be less than the fair market value at the time the right may be exercised.
• The Announcement also clarifies that a taxpayer subject to section 469 may use passive activity credits from qualified wind facilities only to the extent of their tax liability allocable to passive activities, whether from qualified wind facilities or other sources.
• Additionally, the Announcement revises the second example in Rev. Proc. 2007-65 by providing that the classification of the wind energy LLC as a valid partnership would not be governed by the revenue procedure’s safe harbor.
• For additional information, contact - Aaron P. Nocjar - anocjar@steptoe.com 

PELOSI TARGETS THANKSGIVING FOR HEALTH CARE BILL PASSAGE: Today, House Speaker Nancy Pelosi said that she is hopeful Congress can pass a health care reform bill and get it to the White House by Thanksgiving. Pelosi said, “I would like to see us have this as a Thanksgiving present for the American people, but it will certainly be this year.” Regarding having a public option provision in the final bill, Pelosi said, “I wouldn’t be surprised if the Senate, hearing the public view and why, would move toward a public option, because it saves so much money.” Pelosi added, “The question is, ‘Which form will it take?”

• Meanwhile, members of the Senate Finance Committee are waiting on the final CBO score of the health care bill. Chairman Max Baucus said, “They say they’ll give us the score tomorrow.” A Committee vote is expected later this week.
• Today, Sen. Carl Levin said that he plans to offer an amendment dealing with offshore tax havens when the health care reform bill comes to the Senate floor. Levin has already introduced a separate bill, the “Stop Tax Haven Abuse Act,” designed to stop offshore tax haven and tax shelter abuses.

MISCELLANEOUS GUIDANCE RELEASED TODAY:
Notice 2009-76 providing guidance as to the corporate bond weighted average interest rate and the permissible range of interest rates specified under § 412(b)(5)(B)(ii)(II) of the Internal Revenue Code. It also provides guidance on the corporate bond monthly yield curve (and the corresponding spot segment rates), the 24-month average segment rates, and the funding transitional segment rates under § 430(h)(2). In addition, this notice provides guidance as to the interest rate on 30-year Treasury securities under § 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008, and the minimum present value segment rates under § 417(e)(3)(D) as in effect for plan years beginning after 2007. 

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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