Daily Tax Update - October 8, 2009

IRS ISSUES FINAL REGULATIONS ON FUNDING RULES AND BENEFIT LIMITS FOR PENSION PLANS: The IRS has issued final regulations describing how to determine the value of plan assets and benefit liabilities under the funding requirements for single-employer defined benefit plans set forth in section 430 of the Internal Revenue Code. The regulations also address the rules for imposing benefit restrictions on certain underfunded defined benefit plans as required under section 436 of the Code. Both of these sections were added to the Code by the Pension Protection Act of 2006. 

• The regulations generally reflect the proposed regulations published in August and December 2007. The regulations do not address all provisions of section 430; certain of these provisions (like the minimum required contributions) were addressed in proposed regulations issued in April 2008, and those regulations will be finalized later. The final regulations are effective October 15, 2009, and apply to plan years beginning on or after January 1, 2010. For periods in which these Code sections are effective (for example, section 436 applies to plan years beginning on or after January 1, 2008), taxpayers can rely on the final regulations or, in certain cases, on the proposed regulations.
• The final regulations provide guidance on the determination of assets and liabilities for purposes of applying the new funding rules of section 430, including rules for determining the funding target and the target normal cost of a plan, and rules for a plan’s valuation date and the value of plan assets. They specify the interest rates and assumptions that are to be used to determine present value and to make other calculations.
• The regulations also provide guidance on the benefit restriction provisions of section 436 of the Code. A plan satisfies Code section 436 only if the plan meets the requirements established in the final regulations, including the requirement that plan specify the limitations on accelerated distributions and on plan amendments that increase benefits in cases where a plan is underfunded by a stated amount. The regulations are not specific as to the scope of amendments that are required, and the Preamble states that the Treasury Department is considering whether to provide model language. Under the Pension Protection Act, however, plan amendments must be made by the last day of the first plan year beginning on or after January 1, 2009 (January 1, 2011 for government plans). 
• The regulations also describe how section 436 applies to new and terminated plans, how the plan should be operated when the restrictions cease to apply, and how to apply the limits to benefits paid upon unpredictable contingent events.
• For additional information, contact Anne E. Moran - amoran@steptoe.com  

CBO SCORES FINANCE HEALTH BILL AT $829 BILLION:  The Congressional Budget Office released its cost estimates for Chairman Baucus’ health care reform bill. The bill was scored at $829 billion over 10 years, $55 billion more than Baucus' original Mark. According to the CBO, the measure would reduce the federal deficit by $81 billion over 10 years.

• Ranking Finance member Charles Grassley said, “I worry that some of my colleagues will focus only on the deficit-neutral piece of CBO’s document. A celebration of the deficit effects masks who pays the bills. This package includes hundreds of billions of dollars in new taxes and fees. Most Americans with health insurance will see their premiums increase. That's according to CBO and [the Joint Committee on Taxation], the non-partisan experts. Premiums would increase as early as 2010, before most of the health reforms, including tax credits to help people pay for health insurance, take effect. Uninsured individuals would pay a tax for not obtaining government-approved health insurance. Employers who already offer health insurance would face a penalty if their workers choose subsidy-eligible insurance. With all of this, the bill spends nearly a $1 trillion and still leaves 25 million people without health insurance. That's not much bang for the buck. When people have been laid off or are worried about getting laid off, the idea of new taxes on employers and individuals should concern all of us. I'd like to see Congress insure more Americans with less stress on the weakest economy, including family finances, in decades.”
• Senate Majority Leader Harry Reid said that the Senate Finance Committee will wait until next week to vote on the health care reform bill.

MISCELLANEOUS GUIDANCE RELEASED TODAY:
Notice 2009-83 provides guidance on determining eligibility for the carbon dioxide sequestration credit under section 45Q and the amount of the credit, as well as rules regarding adequate security measures for secure geological storage of CO2. The notice also sets forth a separate reporting requirement for taxpayers claiming the section 45Q credit. 

TAX BILL INTRODUCED OCTOBER 7^TH:
H.R.3746: To amend the Internal Revenue Code of 1986 to provide tax incentives for making homes more water-efficient, for building new water-efficient homes, for public water conservation, and for other purposes.
Sponsor: Rep Berkley, Shelley [NV-1] (introduced 10/7/2009)      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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