Daily Tax Update - June 20, 2006

TAX ACCRUAL WORKPAPERS:
Today's Wall Street Journal contains an article on a summons enforcement tax case brought by IRS against Steptoe's client, Textron, seeking to obtain "tax accrual workpapers." Textron's tax lawyers prepare these workpapers which contain 1) a list of possible contested tax issues identified by the lawyers, and 2) the lawyers' litigation hazards analysis. Textron argues that this is the type of attorney communication that would receive super-protection as attorney work product under Rule 26(b)(3) if sought by an opponent in private party litigation. Textron also maintains that attorney client privilege was not waived when these communications were shared with outside accountants since applicable federal law grants privilege to accountant tax advice. This is a test case for a controversial new IRS policy of requesting tax accrual workpapers in selected situations.

THOMAS INTRODUCES ESTATE TAX RELIEF BILL:
Yesterday, House Ways and Means Committee Chairman Bill Thomas (R-CA) introduced H.R. 5638, the Permanent Estate Tax Relief Act of 2006. Thomas’ bill would increase the exemption amount to $5 million per person effective January  1, 2010. The bill would reduce the rate of tax on estates up to $25 million to the capital gains tax rate (currently 15 percent, set to increase to 20 percent in 2011 unless extended). The bill would also reduce the rate of tax on estates of $25 million or more to twice the capital gains rate (currently 30 percent, set to increase to 40 percent in 2011 unless extended). The bill allows married couples to take full advantage of the $5 million exemption by carrying over any unused exemption to the surviving spouse. The bill also provides for a new 60% deduction for qualified timber capital gains, from the date of enactment through 2010.

  • The House could consider Thomas’ bill on Thursday. Senate Majority Leader Bill Frist (R-TN) has said he wants Senate action by the start of the July 4th recess.
  • A summary of the bill can be accessed here.

TAX BILL INTRODUCED JUNE 19:

  • H.R. 5638 sponsored by Rep. William Thomas (R-CA) would increase the unified credit against the estate tax to an exclusion equivalent of $5,000,000 and repeal the sunset provision for the estate and generation-skipping taxes.

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