Daily Tax Update - January 5, 2005

Treasury, IRS Issue Clarifications of Transition Rules For Deferred Compensation Plans Under 409A
Today, the Treasury Department and IRS issued clarifications to Notice 2005-1, which provide additional guidance regarding transition rules under section 409A for nonqualified deferred compensation plans. An advance version of Notice 2005-1 was released to the public on December 20, 2004. Two clarifications are being added to the transition rules in the notice.

Tax Reform Commission Members Expected to be Announced Soon
Yesterday, White House press secretary Scott McClellan said that the members of the President’s tax reform commission will be selected within a few days. McClellan said, "It's just a matter of getting everything in place. We'll be announcing it very soon. . . . I think you're talking about a matter of days that it's off from what our original target was."

  • Former Senators Connie Mack (R-FL) and John Breaux (D-LA) are expected to be named to lead the commission to suggest changes to overhaul the tax system.

Baucus, Grassley to Introduce Tsunami Tax Relief Bill
Ranking Senate Finance Committee member Max Baucus (D-MT) and Committee Chairman Charles Grassley (R-IA) plan to introduce a bill that would extend the period of time that Americans can make charitable donations in order to assist victims of the tsunami. The bill would allow taxpayers to claim a tax deduction in tax year 2004 for donations made for tsunami disaster relief until January 31, 2005.  The proposal would be limited to cash contributions. The Senate is expected to pass the bill this week. At this time, a companion bill has not been introduced in the House.

  • Baucus said, "A little over a week ago, the world endured a tragedy of epic proportions. Americans want to know how they can help to alleviate the pain suffered by victims of this disaster and rewarding them with a tax deduction will make it easier for cash donations to reach those in need quickly. Giving individuals an even greater incentive to give during the next month will help mobilize the great relief work currently underway in Southeast Asia."

IRS Updates New Sales Tax Publication
Today, the IRS announced today that it has updated the optional sales tax tables in Publication 600 for Arkansas, California, and Virginia. The "American Jobs Creation Act of 2004" authorized the sales tax deduction as an option for those who itemize deductions, letting them choose between deductions for state and local income or sales taxes.

  • Additional information can be accessed here.   

IRS Releases 2005 Tax Fact Sheets
The IRS has released several 2005 filing season tax fact sheets, including ones on the new tax law changes and expanded electronic filing services.

  • The fact sheets can be accessed here.   

Tax Bills Introduced January 4:

  • H.R. 17 sponsored by Rep. J.D. Hayworth (R-AZ) would allow a credit for residential solar energy property.
  • H.R. 25 sponsored by Rep. John Linder (R-GA) would promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national sales tax to be administered primarily by the States.
  • H.R. 36 sponsored by Rep. Steve King (R-IA) would provide for a small agri-biodiesel producer credit and improve the small ethanol producer credit. 
  • H.R. 37 sponsored by Rep. Steve King (R-IA) would allow a deduction for premiums for high deductible health plans required with respect to health savings accounts.
  • H.R. 41 sponsored by Rep. Barrett Gresham (R-SC) would establish a commission on tax reform.
  • H.R. 51 sponsored by Rep. Michel Burgess (R-TX) would increase the dollar limitation on employer-provided group term life insurance that can be excluded from the gross income of the employee.
  • H.R. 64 sponsored by Rep. Christopher Cox (R-CA) would repeal the Federal death tax, including the estate and gift taxes and the tax on generation-skipping transfers.
  • H.R. 66 sponsored by Rep. Christopher Cox (R-CA) would improve health care choice by providing for the tax deductibility of medical expenses by individuals.
  • H.R. 117 sponsored by Rep. Rush Holt (D-NJ) would make higher education more affordable by providing a tax deduction for higher education expenses.
  • H.R. 118 sponsored by Rep. Darlene Hooley (D-OR) would provide a refundable tax credit to small businesses for the costs of qualified health insurance.
  • H.R. 119 sponsored by Rep. Darlene Hooley (D-OR) would provide a credit to employers for hiring new employees.
  • H.R. 137 sponsored by Rep. Peter King (R-NY) would repeal the 1993 increase in income taxes on Social Security benefits.
  • H.R. 141 sponsored by Rep. John McHugh (R-NY) would provide for a permanent extension of the credit for producing electricity from wind.
  • H.R. 142 sponsored by Rep. John McHugh (R-NY) would provide a tax credit for farmers' investments in value-added agriculture.
  • H.R. 179 sponsored by Rep. Ron Paul (R-TX) would repeal the 1993 increase in taxes on Social Security benefits.
  • H.R. 180 sponsored by Rep. Ron Paul (R-TX) would repeal the inclusion in gross income of Social Security benefits.
  • H.R. 183 sponsored by Rep. Joseph Pitts (R-PA) would make the repeal of the estate tax permanent.
  • H.R. 195 sponsored by Rep. Jim Saxton (R-NJ) would repeal the required beginning date for distributions from individual retirement plans and for distributions of elective deferrals under qualified cash or deferred arrangements.
  • H.R. 196 sponsored by Rep. Jim Saxton (R-NJ) would allow individuals to defer recognition of reinvested capital gains distributions from regulated investment companies.
  • H.R. 206 sponsored by Rep. Jose Serrano (D-NY) would provide a business credit relating to the use of clean-fuel vehicles by businesses within areas designated as nonattainment areas under the Clean Air Act.
  • H.R. 210 sponsored by Rep. Jose Serrano (D-NY) would provide for designation of overpayments and contributions to the United States Library Trust Fund, and for other purposes.
  • H.R. 217 sponsored by Rep. Cliff Stearns (R-FL) would repeal the 2 percent excise tax on the net investment income of tax-exempt foundations.
  • H.R. 219 sponsored by Rep. Cliff Stearns (R-FL) would allow a deduction for amounts paid for health insurance and prescription drug costs of individuals.
  • H.R. 221 sponsored by Rep. Cliff Stearns (R-FL) would exclude from gross income certain interest amounts received by individuals.
  • H.R. 235 sponsored by Rep. Walter B. Jones, Jr. (R-NC) would protect the religious free exercise and free speech rights of churches and other houses of worship.
  • H.R. 237 sponsored by Rep. Edolphus Towns (D-NY) would deny the exemption from income tax for social clubs found to be practicing prohibited discrimination.
  • H.R. 238 sponsored by Rep. Edolphus Towns (D-NY) would designate educational empowerment zones in certain low-income areas and to give a tax incentive to attract teachers to work in such areas.

Additional Information

Steptoe & Johnson LLP’s recent tax alerts, speeches, and articles
Previous editions of the Daily Tax Update
Treasury Department news releases and fact sheets
IRS news releases and fact sheets

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