Daily Tax Update - December 14, 2005

Senate Majority Leader Bill Frist (R-TN) said yesterday that although the Senate plans to bring up a stand-alone bill to extend alternative minimum tax relief for one year, it would not likely receive sufficient votes to overcome procedural hurdles in the limited amount of time before adjournment. Frist said, "In all likelihood, we will not be able to finalize that until we get back [from recess]." Senate Assistant Minority Leader Richard Durbin (D-IL) said, "Relief is definitely needed. The problem, of course, is how it's packaged." Congress is expected to adjourn for the year by this weekend.

  • Yesterday, Acting House Majority Leader Roy Blunt (R-MO) encouraged the Senate to act on the AMT relief bill this year. Blunt said, "I would think it'd be possible to get 60 votes."
  • The chances for a bill providing hurricane relief tax incentives to pass Congress before adjournment are good. In addition, it is likely that Congress will approve a package extending several expiring tax provisions that were excluded from the tax reconciliation bills because of Senate budget rules.
  • Conferees to the tax reconciliation bills are expected to named and a meeting is expected to be held before adjournment this weekend, but final action is not expected to conclude until 2006.

Today, House Ways and Means Committee Chairman Bill Thomas (R-CA), ranking member Charles Rangel (D-NY), Senate Finance Committee Chairman Charles Grassley (R-IA) and ranking member Max Baucus (D-MT) wrote Treasury Secretary Snow regarding Section 470, which was enacted as part of the American Jobs Creation Act of 2004. Their letter states, "Specifically, Section 470 as currently drafted applies not only to abusive SILO transactions, but also may apply to certain non-abusive transactions in which partnerships or other pass-thru entities are treated as holding tax-exempt use property solely as a result of the application of Section 168(h)(6)." The letter continues, "Our staffs, in consultation with your staff and the staff of the Joint Committee on Taxation, have been working to develop legislation that would exempt non-abusive transactions engaged in by partnerships and other pass-thru entities from the application of Section 470 while minimizing the potential for the abusive transactions that Section 470 was intended to prevent (including, but not limited to, the use of a partnership to engage in a so-called 'synthetic SILO' transaction). As the process of developing an appropriate rule continues, we ask that you consider extending the transition relief provided by Notice 2005-29 for an additional year (i.e., for taxable years that begin before January 1, 2006).  We note that, regardless of any transition relief, abusive transactions involving partnerships and other pass-thru entities remain subject to challenge under other provisions of the tax law.  Furthermore, future legislation could, regardless of any transition relief, address the tax treatment of abusive transactions entered into previously."


  • H.R. 4511 sponsored by Rep. Eric Cantor (R-VA) would allow the use of flexible spending and health reimbursement arrangements in combination with health savings accounts.
  • S. 2086 sponsored by Sen. Frank Lautenberg (D-MJ) would modify the definition of compensation for purposes of determining the limits on contributions to individual retirement accounts and annuities.
  • S. 2092 sponsored by Sen. Max Baucus (D-MT) would authorize review by the Joint Committee on Tax of Federal income tax returns of United States Supreme Court nominees.

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 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