Daily Tax Update - July 11, 2005

CONGRESS FACES BUSY AGENDA:
As Congress returns today from its week-long recess, it is left with only three weeks before its month-long August recess to act on several tax packages, including the conference reports for the highway and energy bills, both of which contain substantial tax provisions, as well as a Senate compromise on the estate tax.

  • Congress passed the shortest of its eight extensions of transportation funding on June 30, which gives highway bill conferees until July 19 to push a conference report through both the House and Senate. Conferees reportedly have made significant progress on the funding portions of the bill, and taxwriters and their staff have indicated that completion of the tax title should go quickly once the funding portion is complete.
  • On July 1, the Senate named conferees to the energy bill conference committee. The House is expected to name its conferees this week. President Bush has indicated that he wants an energy bill sent to his desk before the end of July.
  • Negotiations between Senate Finance Committee ranking member Max Baucus (D-MT) and Sen. Jon Kyl (R-AZ) regarding the estate tax repeal are also expected to resume this week.

Treasury, IRS Issue Final Regulations on LIFO Recapture:
Today, Treasury and the IRS issued final regulations with respect to the LIFO recapture rules of Section 1363(d), which apply to a C corporation holding LIFO inventory that converts to an S corporation. The final regulations adopt an aggregate approach to determining the amount of LIFO recapture where LIFO inventory is held indirectly through a partnership. The final regulations apply to S elections and transfers made on or after August 13, 2004.

IRS ANNOUNCES STRONG TURNOUT FOR TAX SHELTER SETTLEMENT INITIATIVES:
Today, the IRS announced that it has received a strong turnout for the executive stock option settlement initiative launched in February. The initiative provided corporate executives and their companies a means to resolve an abusive tax transaction involving the transfer of stock options to family controlled partnerships. The settlement required executives to include 100 percent of their stock option compensation in income, pay applicable interest, income and employment taxes, and pay a 10-percent penalty.

  • IRS Commissioner Mark W. Everson said "When we announced this initiative in February, we wanted to give corporations and executives a chance to turn the page and make things right. The vast majority of those involved chose to come forward under the settlement’s tough terms. The response reflects higher standards for corporate governance and less tolerance for abusive tax transactions."
  • The IRS also released the latest figures on its 2004 Son of Boss settlement offer. The taxes, interest, and penalties collected from this initiative now exceed $3.7 billion; Commissioner Everson expects the final figure to be closer to $4 billion. So far, more than 100 Son of Boss cases are in court, and the IRS expects the first cases to go to trial by early fall.

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