Daily Tax Update - July 27, 2007

STIFF TO REPLACE BROWN AS ACTING IRS COMMISSIONER:  Today, the IRS announced that Linda Stiff will take over as the next acting commissioner of the IRS.  Stiff replaces current acting IRS Commissioner Kevin Brown, who announced yesterday his departure for the American Red Cross.  Stiff is currently the deputy commissioner for operations support at the IRS.

IRS ISSUES FINAL RULES ON CERTAIN NONRECOGNITION TRANSACTIONS UNDER SECTION 1248:  Today, the IRS issued final rules (T.D. 9345) on determining the earnings and profits attributable to stock of current or former controlled foreign corporations that are, or were, involved in certain nonrecognition transactions.  The IRS said the rules are needed to supplement and clarify existing guidance under tax code Section 1248.  Among other issues, they provide that if a foreign partnership sells a corporation's stock, its partners will be treated as selling or exchanging their proportionate share of the stock under Section 1248.

WAYS AND MEANS APPROVES TOBACCO TAX INCREASE AS OFFSET FOR SCHIP PROGRAM:  Today, the House Ways and Means Committee approved a 45 cents-per-pack increase in the federal excise tax on tobacco.  The tobacco tax increase will be used as an offset for legislation that would reauthorize and expand the State Children's Health Insurance Program (SCHIP).  The Senate's SCHIP bill would raise the tobacco tax by 61 cents-per-pack.

HOUSE APPROVES TREATY “LOOPHOLE CLOSER” AS FARM BILL OFFSET: Yesterday, by a vote of 222-202, the House passed a procedural motion making an amendment that would remove the tax benefits given to many foreign companies with U.S. subsidiaries part of a farm reauthorization bill.  Rep. Lloyd Doggett (D-TX) offered the offset proposal that would require U.S. subsidiaries of foreign companies to pay the higher of the withholding rates between a payment made directly to the parent foreign corporation or a payment made to the subsidiary in the treaty country.

  • Republicans opposed the provision and said it was a tax increase that would hurt U.S. manufacturing jobs, while Democrats described it as closing a tax loophole.  Rep. Earl Pomeroy (D-ND) said, “I find it astounding we're going to have people voting against a bill supported by the American Farm Bureau Federation and the National Farmers Union.  They'd rather protect the tax cheaters in Bermuda than help the farmers in this country.”
  • Today, the full House passed the agriculture bill with the tax offset provision by a vote of 231-191.  The Administration stated that it “strongly opposed” the provision.

UK'S TAX TREATY NEGOTIATING PRIORITIES FOR THE YEAR TO MARCH 31, 2008:  The UK Government has announced its treaty negotiating priorities for the year to March 31, 2008.  It plans to complete work on new Protocols with Australia, Mexico, New Zealand and South Africa and new Conventions with Macedonia, Moldova, Slovenia and Thailand.  It intends to progress negotiations with Bahrain, the Cayman Islands, China, Croatia, Germany, Hungary, Luxembourg, Libya, the Netherlands, Peru, and Saudi Arabia.  It also plans to complete work on new Tax Information Exchange Agreements with Anguilla, Bermuda, the British Virgin Islands, Guernsey, Jersey and the Isle of Man and commence negotiations on similar Agreements with Aruba, the Bahamas, the Netherlands Antilles, Panama and the Turks & Caicos Islands. 

TAX BILLS INTRODUCED JULY 26th:
H.R. 3190: To amend the Internal Revenue Code of 1986 to allow individuals to designate that their income, estate, or gift tax payments be spent other than for purposes of supporting the war in Iraq and to provide that amounts so designated shall be used to provide funding for Head Start, to reduce the national debt, and to provide college funding for children of Iraq war veterans. Sponsor: Rep. Velazquez, Nydia M. [NY-12] (introduced 7/26/2007) Cosponsors (None) 

S. 1886 : A bill to provide a refundable and advanceable credit for health insurance through the Internal Revenue Code of 1986, to provide for improved private health insurance access and affordability, and for other purposes. Sponsor: Sen. Burr, Richard [NC] (introduced 7/26/2007) Cosponsors (4)

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
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