Daily Tax Update - May 27, 2010

VOTES LACKING IN HOUSE FOR NEW SCALED-DOWN EXTENDERS BILL: Early this afternoon, a group of conservative House Democrats (“Blue Dogs”) said that they would not support the slimmed-down extenders package that was released last night because not enough of the $143 billion bill is paid for and it would thus increase the deficit. Blue Dog member Rep. Stephanie Herseth Sandlin (D-SD) said that many of the group’s members are “firm no's” at this point. Sandlin noted, “What I do know is they don't have 218.” The group was urging the House leadership to pass a short-term unemployment extension and return to the tax bill after the Memorial Day recess. Sandlin added, “It seems to me that given the timetable we’re on, we’re going to have to grapple with this after Memorial Day. While [we have] been invited to share our concerns and leadership has listened, not everyone is hearing us.”

• The new, scaled-down $143 billion manager's amendment reduces Medicare physician reimbursements and unemployment benefits. The manager’s amendment also clarifies that, with respect to the provision on the taxation of boot received in reorganizations, “the Secretary of the Treasury may add to the types of reorganizations in which the earnings and profits of each party to the reorganization are taken into account in determining dividend treatment.” The manager’s amendment also includes an increase to 34 cents per barrel of the Oil Spill Liability Trust fund tax.
• There have been discussions from Senate Finance members to try to offer an amendment on the Senate floor to delay the effective date for the carried interest provision and tax only 60 percent of fund manager profits at the higher ordinary income rate, down from 75 percent in the current proposal. If that provision passes the Senate or any other changes are made to the House bill, the House will have to vote on the bill again.
• The Senate vote will occur after the House vote, but timing is uncertain. When House Speaker Nancy Pelosi was asked earlier this afternoon if the House would still vote on the extenders package today, she replied, “I don’t know about that—it depends on how long defense (the defense authorization bill) takes.”
• The summary of the manager’s amendment can be accessed here.

US SIGNS PROTOCOL TO MULTILATERAL TREATY ON MUTUAL ADMINISTRATIVE ASSISTANCE IN TAX MATTERS: Today, the Treasury Department announced that the United States, along with sixteen other countries, has signed a Protocol to the Convention on Mutual Administrative Assistance on Tax Matters. 

• The Protocol allows countries that are not members of the OECD or the Council of Europe to become parties to the Convention, subject to unanimous consent by the existing parties. According to the revised Preamble to the Convention, “[c]onsidering that a new co-operative environment has emerged and that it is desirable that a multilateral instrument is made available to allow the widest number of States to obtain the benefits of the new co-operative environment and at the same time implement the highest international standards of co-operation in the tax field.”
• Under the Protocol, the parties shall exchange information “that is foreseeably relevant for the administration or enforcement of their domestic laws concerning taxes covered by this Convention.” Under the prior version, the parties were to exchange information that was foreseeably relevant to “the assessment and collection of tax, and the recovery and enforcement of tax claims; and prosecution [before an administrative or judicial body].”
• The Protocol reduces the level of detail required in making a request for information. Under the prior convention, a request for assistance was required to include “the name, address, and any other particulars assisting in the identification of the person in respect of whom the request is made.” Under the Protocol, the request must include a name, address, or other particulars.
• The Protocol shall enter into force on the first day of the month following the expiration of a period of three months after the date on which five parties to the Convention ratify the Protocol.
• The protocol can be accessed here. http://www.treas.gov/press/releases/reports/oecd%20maa%20tax%202010.pdf
• For additional information, contact Philip R. West - pwest@steptoe.com.

MISCELLANEOUS GUIDANCE RELEASED TODAY:
Notice 2010-39 solicits comments regarding the application of certain requirements imposed by new section 501(r), added to the Internal Revenue Code (Code) by section 9007(a) of the Patient Protection and Affordable Care Act (Affordable Care Act), enacted March 23, 2010, Pub. L. No. 111-148.

TAX BILL INTRODUCED MAY 26^TH
S.3430: A bill to amend the Internal Revenue Code of 1986 to expand the tip tax credit to employers of cosmetologists and to promote tax compliance in the cosmetology sector.
Sponsor: Sen Snowe, Olympia J. [ME] (introduced 5/26/2010)      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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