Daily Tax Update - February 24, 2006

TREASURY SECRETARY WRITES TAX CONFEREES REGARDING CAPITAL GAINS & DIVIDEND PROVISION & REVENUE OFFSETS:
On February 23, Treasury Secretary John Snow wrote Senate Finance Committee Chairman Charles Grassley (R-IA) and House Ways and Means Committee Chairman Bill Thomas (R-CA) expressing the "Administration’s strong support for the extension in this legislation of dividends and capital gains tax relief included in the House-passed bill." Snow expressed concern about the revenue offsets in the Senate-passed bill. Snow said, "The Administration has significant concerns with a number of revenue offset provisions in the Senate-passed bill, especially those that increase the complexity of the tax code or target taxpayers in specific industries. For example, the Administration has strong concerns with the provision in the Senate-passed bill that would codify the ‘economic substance’ doctrine and urges Congress to eliminate this provision from the final legislation." Snow also said that White House advisers would recommend a veto if the final legislation includes an accounting change that raises taxes on large oil firms. The tax reconciliation conferees have not set an official date to convene.

  • The letter can be accessed here.   

IRS ISSUES FINAL REGS REFINING RULES ON CONTROLLED FOREIGN CORPORATION EARNINGS ALLOCATIONS:
On February 22, the IRS issued final regulations (T.D. 9251) under section 951(a) of the Code regarding a United States shareholder's pro rata share of a CFC's subpart F income. These regulations finalize rules proposed on August 25, 2005, which added refinements to more general anti-abuse rules on this subject finalized on August 25, 2005. The newly finalized rules deal with earnings allocations in connection with (a) certain section 304 tax avoidance transactions, (b) situations involving accumulated but unpaid dividends on certain preferred stock, and (c) certain other situations. In sum, the newly finalized rules are intended to ensure that a CFC's earnings and profits for a taxable year attributable to a section 304 transaction will not be allocated in a manner that results in the avoidance of Federal income tax, and that earnings and profits of a CFC are not allocated to certain preferred stock in a manner inconsistent with the economic interest that such stock represents. The regulations are effective for taxable years of a CFC beginning on or after January 1, 2006.

  • The regulations can be accessed here.  

For additional information, contact Philip R. West via email or Stan Smilack via email.

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