Daily Tax Update - November 16, 2009

SENATE AWAITS CBO HEALTH CARE COST ESTIMATES: Senate Majority Leader Harry Reid is waiting on the Congressional Budget Office to score the Senate health care reform bill. Reid is hopeful to get the cost estimates early this week and has filed a procedural motion that could allow the Senate to take up the bill later this week. A vote on cloture on the motion to proceed cannot occur until Thursday at the earliest.  

• A Democratic aide said, “Our goal remains to be able to be on this bill by the time we leave. We hope that we don't have to stay until Thanksgiving, but the fact of the matter is we are still awaiting a CBO score. Then this has to be vetted through our Caucus. There are procedural mechanisms that we need to go through. Republicans could make us wait 30 hours before a motion to proceed.”
• Meanwhile, now that the House has passed its health care reform bill, it may take up a permanent extension of the estate tax at 2009 limits this week. The Estate Tax Relief Act (H.R. 3905) gradually increases the current exemption from $3.5 million to $5 million by 2019, and indexes the exemption for inflation in future years. Over the same time period, the estate tax rate is reduced from 45% to 35%.

BILL TO END DISPROPORTIONATE TAXES ON SMALL BUSINESSES INTRODUCED: Today, Senate Finance Chairman Max Baucus and Ranking member Charles Grassley introduced legislation to help ensure penalties assessed by the IRS on tax shelter investments are in proportion to the tax benefits received. Baucus said, “Congress needs to do its part to make sure the tax code treats the affected businesses fairly. Our proposal would ensure that tax penalties are in line with the received tax benefits in an effort to avoid any extra burden on businesses already strapped in the down economy. This is an issue of tax fairness and we need to move forward on this bill as quickly as possible.”   

The bill revises Internal Revenue Code section 6707A so that the penalty for failure to disclose a reportable transaction to the IRS is commensurate with the tax benefit received from the transaction. Reportable transactions are transactions that the IRS has identified as listed tax shelters or that have characteristics of tax shelters, including large losses or confidentiality agreements. The penalty would be 75 percent of the tax benefit received, with a minimum penalty of $10,000 for corporations and $5,000 for individuals, and a maximum penalty of $200,000 for corporations and $100,000 for individuals. The proposal also requires the IRS to submit a report annually to the Senate Finance Committee and the Committee on Ways and Means in the House of Representatives on various tax shelter penalties assessed by the IRS during the preceding year.

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.

STEPTOE & JOHNSON LLP - TAX PRACTICE
Steptoe & Johnson LLP has one of the largest and most diverse law firm tax practices in the country. The practice covers the entire spectrum of federal taxation, including representation of businesses before the Congress, Treasury and the national office of the IRS; transactional planning for domestic and multinational corporations; complex audit and controversy work for corporations and other business interests contesting IRS adjustments; litigation before the Tax Court, Court of Federal Claims, district courts, courts of appeals and the Supreme Court. The firm's tax practice also encompasses all aspects of employee benefits (ERISA), executive compensation, tax-exempt organizations and charitable giving. Steptoe has an extensive state and local tax practice, representing an array of business clients on complex sales and use tax, corporate income tax and property tax matters, both advising those clients and handling audits, administrative appeals, and litigation for them. Read more information on Steptoe's tax practice.

• Learn more about the members of the tax practice group.