Daily Tax Update - July 01, 2005

BAUCUS INTRODUCES BILL ON TAX HAVENS:
Senate Finance Committee ranking member Max Baucus (D-MT) introduced legislation that would modify a provision in the 2003 dividend tax cuts to prevent shareholders of certain foreign companies from getting a lower tax rate on dividend income. The provision currently allows certain companies to pay a reduced tax on dividend income, even though the companies pay little or no corporate tax.

  • In introducing the bill on the floor of the Senate, Baucus said, "Current law…allows dividends from ‘qualified’ foreign corporations to benefit from these lower rates if the company is based in a U.S. possession, or based in a country with which the U.S. has a tax treaty, or has stock which is traded on a U.S. stock exchange.  Senator Jeffords, Senator Kerry, and I have become concerned that the definition of qualifying foreign corporations is overly broad and may encompass companies in tax haven countries with little or no tax system.  Providing this special benefit for such companies simply because its stock is traded on a U.S. exchange does not meet with the original intent of the legislative change.  Our bill would shut down this loophole by modifying the ‘stock exchange’ test to only allow this special rate for companies based in countries with a comprehensive income tax system.  By doing this, we will address a current inequity between dividend-paying stocks and make sure that only stock of companies subject to tax at the corporate level enjoys this preferential rate." 

TAX BILLS INTRODUCED JUNE 30:

  • HR. 3152 sponsored by Rep. Russ Carnahan (D-MO) would provide tax incentives for the production of qualified hybrid motor vehicles.
  • H.R. 3159 sponsored by Rep. Phil English (R-PA) would modify the rehabilitation credit and the low-income housing credit.
  • H.R. 3162 sponsored by Rep. Mark Foley (R-FL) would restore the 80-percent deduction for meal and entertainment expenses.
  • H.R. 3164 sponsored by Rep. Bart Gordon (D-TN) would make geothermal heat pump systems eligible for the energy credit.
  • H.R. 3167 sponsored by Rep. Peter Hoekstra (R-MI) would require that each employer show on the W-2 form of each employee the employer's share of taxes for old-age, survivors, and disability insurance and for hospital insurance for the employee as well as the total amount of such taxes for such employee.
  • H.R. 3180 sponsored by Rep. Ron Paul (R-TX) would allow a deduction for qualified attorney fees in computing minimum tax.
  • H.R. 3181 sponsored by Rep. Ron Paul (R-TX) would exclude from gross income qualified attorney fees.
  • H.R. 3194 sponsored by Rep. Nydia Velazquez (D-NY) would provide incentives for employer-provided employee housing assistance.
  • S. 1359 sponsored by Sen. Gordon Smith (R-OR) would increase retirement savings and security, facilitate the provision of guaranteed retirement income for life, and make the retirement plan rules simpler and more equitable.
  • S. 1360 sponsored by Sen. Gordon Smith (R-OR) would extend the exclusion from gross income for employer-provided health coverage to designated plan beneficiaries of employees.
  • S. 1363 sponsored by Sen. Max Baucus (D-MT) would prevent dividends received from corporations in tax havens from receiving a reduced tax rate.
  • S. 1365 sponsored by Sen. John Rockefeller (D-WV) would improve the health coverage tax credit.
  • S. 1366 sponsored by Sen. Byron Dorgan (D-ND) would allow tax-free distributions from individual retirement accounts for charitable purposes.

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