Daily Tax Update - August 17, 2007

THE DAILY TAX UPDATE WILL BE PUBLISHED ON A PERIODIC BASIS UNTIL CONGRESS RETURNS ON SEPTEMBER 4TH

IRS PROPOSES RULES ON MEDICAL, ACCIDENT INSURANCE BENEFITS UNDER QUALIFIED PLANS:  Today, the IRS proposed rules (REG-148393-06) on the tax treatment of payments by qualified plans for medical or accident insurance. The IRS said the rules would affect administrators of, participants in, and beneficiaries of qualified retirement plans.

TREASURY, IRS ISSUE GUIDANCE ON TRANSACTIONS OF INTEREST:  Earlier this week, the Treasury Department and the IRS issued two notices that identify as transactions of interest certain transactions involving “toggling” grantor trusts and certain transactions involving contributions of a successor member interest in a limited liability company.

  • Recently released final regulations about the disclosure of reportable transactions include the new transaction of interest category as one of the reportable transactions subject to disclosure.
  • IRS Chief Counsel Don Korb said, "These are the first two transactions of interest we have published under the new regulatory scheme.  Hopefully, the notices released today will give taxpayers and practitioners a better idea of the types of transactions that we will be identifying as transactions of interest in the future."
  • According to the IRS, “’Toggling’ grantor trust transactions are utilized by grantors of these trusts in an attempt to avoid recognizing gain or to claim a tax loss greater than any actual economic loss by purportedly terminating and then reestablishing the grantor status of the trust. These grantor trust transactions usually occur within a short period of time (typically within 30 days).”
  • The IRS added, “Transactions involving contributions of a successor member interest are utilized by persons to claim charitable contributions that may be excessive.  These transactions arise when a taxpayer acquires a successor member interest, directly or indirectly, in real property, transfers the interest to a tax-exempt organization, and claims a charitable contribution deduction that is significantly higher than the amount that the taxpayer paid for the interest.”
  • The notices can be accessed via:
    http://www.irs.gov/pub/irs-drop/n-07-72.pdf
    http://www.irs.gov/pub/irs-news/n-07-73.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

STEPTOE’S UK AUGUST 2007 TAX LAW UPDATE CAN BE ACCESSED VIA:
http://www.steptoe.com/assets/attachments/3109.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.