Daily Tax Update - July 12, 2007

IRS FINALIZES RULES ON DISTRIBUTIONS OF FOREIGN CORPORATION PARTNERSHIP INCOME: Today, the IRS finalized proposed rules (REG-106418-05) on distributions of foreign corporation partnership income without change and removed corresponding temporary rules (T.D. 9240).  Today’s final rules address whether a controlled foreign corporation's distribution of partnership income is excluded from foreign personal holding company income as qualifying insurance income under section 954(i).  The rules provide that a controlled foreign corporation's distributive share of partnership income qualifies for the exception if the corporation is a qualifying insurance company and the income of the partnership would have been qualified insurance income if received by the corporation directly.

IRS FINALIZES INFORMATION REPORTING RULES FOR FOREIGN, FOREIGN-OWNED DOMESTIC CORPORATIONS: Today, the IRS finalized proposed rules (REG-109512-05) without change putting in place new reporting requirements and penalties for information returns filed by foreign corporations and foreign-owned domestic corporations.

  • The IRS also removed corresponding temporary regulations (T.D. 9268). Today’s final rules (T.D. 9338) implement penalty and other changes originally enacted under the Taxpayer Rights Act of 1997. They expand the information taxpayers must report for related-party transactions by foreign and foreign-owned companies, including both sales and purchases of tangible property.  In the preamble to the final rules, IRS said it still is considering requiring taxpayers to report more information relating to earnings stripping transactions.
  • For additional information, contact Stanley Smilack - ssmilack@steptoe.com  or  Philip R. West -  pwest@steptoe.com
  • The regulations can be accessed via: http://www.steptoe.com/assets/attachments/3073.PDF 

TRANSFER PRICING DOCUMENTATION DEADLINE ON SEPTEMBER 15, 2007 FOR CALENDAR YEAR TAXPAYERS:  To avoid penalties, taxpayers should have appropriate documentation of their transfer pricing methodologies and results by the time they file their tax returns.  For calendar year taxpayers, this means that the documentation must be completed by September 15.  IRS agents have been instructed to look critically at this documentation, so companies may want to reconsider the standards they have used in the past for determining whether their documentation is rigorous and specific enough.  Steptoe's transfer pricing group is available and particularly well-situated to assist with that work.  Click here for more information 

TAX BILLS INTRODUCED JULY 11TH:
H.R. 2990: To amend the Internal Revenue Code of 1986 to make geothermal heat pump systems eligible for the energy credit and the residential energy efficient property credit.
Sponsor: Rep. Doggett, Lloyd [TX-25] (introduced 7/11/2007)      Cosponsors (1)

H.R. 3003: To amend the Internal Revenue Code of 1986 to provide tax incentives to encourage diversity of ownership of telecommunications businesses, and for other purposes.
Sponsor: Rep. Rangel, Charles B. [NY-15] (introduced 7/11/2007)      Cosponsors (None)

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.