Daily Tax Update - November 17, 2009

IRS AND JUSTICE DEPARTMENT ANNOUNCE RESULTS OF UBS SETTLEMENT AND VOLUNTARY DISCLOSURE PROGRAM: Today, the Justice Department and IRS announced that over 14,700 taxpayers have come forward to report previously-undisclosed foreign bank accounts under the voluntary disclosure program that the IRS implemented following the UBS settlement. The Justice Department said that this figure “represents almost double the initial numbers the IRS announced in October and dwarfs the number of voluntary disclosures received in 2008.”

• Justice Deputy Attorney General Ogden said, “The Department of Justice is pleased with the extraordinary results achieved from this landmark settlement. The message to American taxpayers is clear: the era of bank secrecy and hidden assets is over. We will continue to work closely with the IRS and our international partners to ensure that our tax laws are enforced fully and fairly, and that the rule of law is vindicated. We congratulate the IRS and the Department’s Tax Division, as well as our partners in the Swiss government, for this achievement.”
• The Department of Justice and IRS also made public the criteria to be used in determining which accountholders will be subject to disclosure through the US-Swiss tax treaty exchange of information process, pursuant to the settlement in the United States' John Doe summons enforcement action against UBS. The criteria cover accounts of various amounts and types, including bank-only accounts, custody accounts in which securities or other investment assets were held, and offshore company nominee accounts through which an individual held beneficial ownership. 
• According to IRS documents, the exchange of information process will require the disclosure of US persons with undisclosed accounts containing at least 1 million Swiss francs (about $985,300) for which a reasonable suspicion of “tax fraud or the like” can be demonstrated. For this purpose, “tax fraud or the like” includes underreporting of income based on a "scheme of lies” (a term previously described in a 2003 Mutual Agreement between the United States and Switzerland), the submission of incorrect documents, or a US person's failure to provide a Form W-9 for accounts generating revenue of more than 100,000 Swiss francs (about $98,500) per annum for a three-year period. In addition, the identities of US persons will be disclosed under the exchange of information process if such persons “beneficially owned” offshore company accounts and for which a reasonable suspicion of "tax fraud or the like” can be demonstrated. In such case, “tax fraud or the like” includes underreporting of income based on a “scheme of lies,” submission of incorrect documents if the account holds at least 250,000 Swiss francs (about $246,300), where the US accountholder has failed to prove that he has met his statutory tax reporting requirements, or where the offshore company has been in existence for at least three years and generated more than 100,000 Swiss francs (about $98,500) per annum for a three-year period. 
• The criteria were released in the form of an annex. The document can be accessed here. 
• For additional information, contact Philip R. West - pwest@steptoe.com or Catherine W. Wilkinson - cwilkinson@steptoe.com

HOUSE ACTION ON ESTATE TAX DELAYED: The House will not act on consideration of estate tax legislation until after the Thanksgiving recess. House Ways and Means Chairman Charles Rangel said that he will continue to press for a permanent fix.

IRS ISSUES FINAL REGULATIONS ON INFORMATION REPORTING REQUIREMENTS UNDER SECTION 6039: Yesterday, the IRS issued final regulations providing guidance on the return and information statement requirements under section 6039 of the Internal Revenue Code. These regulations affect corporations that issue statutory stock options (incentive stock options and employee stock purchase plans). The regulations reflect changes made to section 6039 by the Tax Relief and Health Care Act of 2006.

• Section 6039 requires corporations to file an information return with the IRS and to provide an information statement to employees following i) a corporation’s transfer of stock pursuant to the exercise of an incentive stock option described in section 422(b) and ii) the transfer of stock by the employee where stock was acquired pursuant to the exercise of an option described in section 423(c). The final regulations, like the proposed regulations, modify the reporting requirements that currently apply and address special situations (such as registration using book entry or through brokerage accounts). The final regulations also provide that if the exercise price per share of an option is not fixed or determinable on the date the option was granted, the return and information statement must include the exercise price per share determined as if the option were exercised on the date the option was granted.
• The IRS information reporting return requirements are waived for 2007, 2008, and 2009. For future years the returns must be filed in accordance with the guidelines and procedures set forth in the instructions to Form 3921 and 3922 (the IRS expects to release the forms in the near future). However, the requirement to provide an information statement to employees does apply for 2007, 2008, and 2009. Statements must be provided to each person on or before January 31 of the year following the calendar year for which the statement is required.
• For additional information, contact Anne E. Moran - amoran@steptoe.com or Elinor C. Ramey - eramey@steptoe.com
• The regulations can be accessed here.

IRS ISSUES FINAL REGULATIONS ON EMPLOYEE STOCK PURCHASE PLANS: Yesterday, the IRS issued final regulations providing guidance on employee stock purchase plans authorized under section 423 of the Code and options granted under such plans. These regulations update guidance on section 423 and provide certain clarifying rules relating to the options issued under these plans. Specific provisions address multiple offerings under one plan, employees covered by the plan, and the calculation of the maximum number of shares that may be purchased by an employee. In addition, the regulations clarify that new shareholder approval is required for an employee stock purchase plan if there is a change in the shares with respect to which options are issued or a change in the granting corporation.

• The final regulations are effective November 17, 2009 and will apply to any options granted under an employee stock purchase plan on or after January 1, 2010. Taxpayers can rely on the final regulations for the treatment of any statutory option granted prior to January 1, 2010.
• For additional information, contact Anne E. Moran - amoran@steptoe.com or Elinor C. Ramey - eramey@steptoe.com  
• The regulations can be accessed here.

MISCELLANEOUS GUIDANCE RELEASED TODAY:
Revenue Ruling 2009-38 provides various prescribed rates for federal income tax purposes including the applicable federal interest rates, the adjusted applicable federal interest rates, the adjusted federal long-term rate, the adjusted federal long-term tax-exempt rate. These rates are determined as prescribed by § 1274. 

The rates are published monthly for purposes of sections 42, 382, 412, 1288, 1274, 7520, 7872, and various other sections of the Internal Revenue Code.

TAX BILLS INTRODUCED NOVEMBER 16^TH:
H.R.4068: To amend the Internal Revenue Code of 1986 to limit the penalty for failure to disclose reportable transactions based on resulting tax benefits, and for other purposes.
Sponsor: Rep Lewis, John [GA-5] (introduced 11/16/2009)      Cosponsors (1)

H.R.4069: To amend the Internal Revenue Code of 1986 to allow S corporations the deduction for charitable contributions of inventory.
Sponsor: Rep Hare, Phil [IL-17] (introduced 11/16/2009)      Cosponsors (1)

H.R.4070: To amend the Internal Revenue Code of 1986 to modify the incentives for the production of biodiesel.
Sponsor: Rep Pomeroy, Earl [ND] (introduced 11/16/2009)      Cosponsors (1)

H.R.4074: To amend the Internal Revenue Code of 1986 to eliminate the temporary increase in unemployment tax.
Sponsor: Rep Burgess, Michael C. [TX-26] (introduced 11/16/2009)      Cosponsors (None)

H.R.4075: To amend the Internal Revenue Code of 1986 to extend and expand the deduction for certain expenses of elementary and secondary school teachers.
Sponsor: Rep Graves, Sam [MO-6] (introduced 11/16/2009)      Cosponsors (4)

S.2771: A bill to amend the Internal Revenue Code of 1986 to limit the penalty for failure to disclose reportable transactions based on resulting tax benefits, and for other purposes.
Sponsor: Sen Baucus, Max [MT] (introduced 11/16/2009)      Cosponsors (2)

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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