Daily Tax Update - October 27, 2009

BAUCUS, RANGEL, KERRY, NEAL OFFER PLAN TO DETER OFFSHORE TAX ABUSE: Today, Senate Finance Committee Chairman Max Baucus, House Ways and Means Committee Chairman Charles Rangel, Senate Finance Committee member John Kerry (D-MA) and Ways and Means Select Revenue Subcommittee Chairman Richard Neal unveiled a comprehensive proposal to “clamp down on tax evasion and improve taxpayer compliance by giving the IRS new administrative tools to detect, deter and discourage offshore tax abuses.” Their statement said, “The Foreign Account Tax Compliance Act would force foreign financial institutions, foreign trusts, and foreign corporations to provide information about their US accountholders, grantors, and owners, respectively. The nonpartisan Joint Committee on Taxation has estimated the provisions of the Foreign Account Tax Compliance Act would prevent US individuals from evading $8.5 billion in US tax over the next ten years.”

• Rep. Neal said, “This bill is a continuation of my efforts to reduce tax evasion by American citizens and bring more transparency to international banking.  Last March, I held a hearing in the Subcommittee on Select Revenue Measures addressing the nexus between bank secrecy and tax avoidance. With billions of dollars in US tax revenue being lost each year due to uncooperative foreign financial institutions, it is clear the issue is reaching its tipping point.  The demand for standards on bank secrecy has even gone international, with British Prime Minister Gordon Brown calling for the beginning of the end of tax havens. As a longtime critic of US individuals and companies engaging in unlawful foreign tax avoidance, I believe this bill provides the Treasury Department with the tools it needs to crack down on those Americans hiding assets overseas.”
• Treasury issued the following statement on the bill, “The legislation introduced today by Chairman Rangel and Chairman Baucus follows through on the Administration's commitment to combating offshore tax evasion and ensuring a level playing field. For too long, individuals have taken advantage of the system by hiding money in accounts overseas, while millions of families and small businesses here at home pay the price. This legislation will reduce the amount of taxes lost through the illegal use of hidden accounts and is the next step in making sure that everyone pays their fair share. This legislation fits well into the Administration's dual-track strategy of improving our domestic tax laws while increasing global cooperation on tax information exchange to help narrow the tax gap and create the fairer tax system we need. We have had great success recently in working with countries around the world to increase tax information exchange as part of the global effort to end offshore tax evasion.”
• Important measures in the proposal include:  
  • The bill requires 30% withholding on payments to foreign financial institutions and other entities unless they acknowledge the accounts’ existence to the IRS and disclose relevant information including account ownership, balances and amounts moving in and out of the accounts. 
  • Individuals and entities would be required to report offshore accounts with values of $50,000 or more on their tax returns. The statute of limitations will be extended to six years when offshore accounts are unreported or misreported. 
  • Advisors who help set up offshore accounts would be required to disclose their activities or pay a penalty. The proposal would also require electronic filing of information reports about withholding on transfers to foreign accounts to enable the IRS to better match reports to tax returns.
  • The bill strengthens rules and penalties with regard to foreign trusts, including rules to determine whether distributions from foreign trusts are going to US beneficiaries and reporting requirements on US transfers to foreign trusts.
  • The legislation clarifies that US dividend payments received by foreign persons are treated as dividends even when couched as another type of distribution in an effort to avoid US taxes.
• For additional information, contact Philip R. West - pwest@steptoe.com
• A summary of the bill can be accessed here.  
• The text of the bill can be accessed here. 

SNOWE DECLINES SUPPORT FOR PUBLIC OPTION OPT-OUT PROVISION: After yesterday’s announcement by Senate Majority Leader Harry Reid that the Senate bill would contain a public insurance option with an opt-out provision for the states, Republican Sen. Olympia Snowe said she would not support the provision. Snowe said, “I am deeply disappointed with the Majority Leader's decision to include a public option as the focus of the legislation. I still believe that a fallback, safety net plan, to be triggered and available immediately in states where insurance companies fail to offer plans that meet the standards of affordability, could have been the road toward achieving a broader bipartisan consensus in the Senate.” When asked why he chose the opt-out provision over the trigger provision favored by Snowe, Reid said, “I think it’s the fairest way to go. I think at this stage in the proceedings, the public option has just received so much attention, and the public option with an opt-out is one that is fair and gives states...if they don’t want to be part of the public option, the option to get out.” The health care reform bill must secure 60 votes in the Senate to advance. 

• Meanwhile, House Majority Leader Hoyer said that he is hopeful to announce the House health care reform bill this week, but offered no details about the content. 

MISCELLANEOUS GUIDANCE RELEASED TODAY:
Revenue Procedure 2009-51 sets forth the procedures for employers who are eligible to file Form 944, Employer’s Annual Federal Tax Return, to request to file Form 944 instead of Forms 941, Employer’s Quarterly Federal Tax Return, for tax years beginning on or after January 1, 2010. In addition, this revenue procedure sets forth the procedures for employers who previously were notified to file Form 944 to request to file Forms 941 instead for tax years beginning on or after January 1, 2010.

TAX BILLS INTRODUCED OCTOBER 26th:
H.R.3931: To amend the Internal Revenue Code of 1986 to extend for 2 years the election to treat the cost of a qualified film or television production as an expense which is not chargeable to a capital account.
Sponsor: Rep Watson, Diane E. [CA-33] (introduced 10/26/2009)      Cosponsors (13)

S.1930: A bill to amend the Internal Revenue Code of 1986 to enhance the administration of, and reduce fraud related to, the first-time homebuyer tax credit, and for other purposes.
Sponsor: Sen Casey, Robert P., Jr. [PA] (introduced 10/26/2009)      Cosponsors (None)

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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