Daily Tax Update - January 8, 2007

STEPTOE TAX ATTORNEYS DISCUSS COLTEC DECISION AND ITS POTENTIAL CONSEQUENCES: In an article published in the November-December 2006 issue of The Tax Executive, Mark J. Silverman, Matthew D. Lerner, and Gregory N. Kidder of Steptoe & Johnson LLP analyze the Federal Circuit’s application of the economic substance doctrine in Coltec v. United States, 434 F.3d 1340 (Fed. Cir. 2006). The article, "The Economic Substance Doctrine: Sorting Through the Federal Circuit’s "We Know It When We See It" Ruling," analyzes the reasoning used to disregard the contingent liability transaction at issue in the case and raises significant questions about how that reasoning may be applied to other business transactions. The authors discuss different ways of interpreting the Coltec opinion and argue that the potential expansive reach of the economic substance test articulated in the opinion combined with the application of that test on a step-by-step basis raises questions with respect to virtually all tax planning. The authors also discuss a series of transactions and the difficulties of reconciling the Coltec opinion with the established tax consequences of these transactions.

In an article published in the November-December 2006 issue of , Mark J. Silverman, Matthew D. Lerner, and Gregory N. Kidder of Steptoe & Johnson LLP analyze the Federal Circuit’s application of the economic substance doctrine in , 434 F.3d 1340 (Fed. Cir. 2006). The article, "The Economic Substance Doctrine: Sorting Through the Federal Circuit’s "We Know It When We See It" Ruling," analyzes the reasoning used to disregard the contingent liability transaction at issue in the case and raises significant questions about how that reasoning may be applied to other business transactions. The authors discuss different ways of interpreting the opinion and argue that the potential expansive reach of the economic substance test articulated in the opinion combined with the application of that test on a step-by-step basis raises questions with respect to virtually all tax planning. The authors also discuss a series of transactions and the difficulties of reconciling the opinion with the established tax consequences of these transactions.

PARTNERSHIP RETURNS CAN BE FILED ELECTRONICALLY: Today, the IRS announced that partnership taxpayers can electronically file tax year 2006 Form 1065, U.S. Return of Partnership Income, and Form 1065-B, U.S. Return of Income for Electing Large Partnerships. The IRS anticipates more than 400,000 partnerships will e-File in 2007. Most of those partnerships are not mandated to e-File but are encouraged to do so for the e-Filing benefits.

  • IRS Commissioner Mark Everson said, "Electronic filing is a key component to modernizing our tax system. E-File improves the speed and accuracy of tax return filing, and we encourage partnership taxpayers to take advantage of this enhanced system."
  • Additional information can be accessed via: http://www.irs.gov/businesses/small/article/0,,id=165162,00.html

TAX BILLS INTRODUCED JANUARY 5TH CAN BE ACCESSED VIA
http://www.steptoe.com/assets/attachments/2777.pdf

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.