Daily Tax Update - January 17, 2008


IRS ISSUES GUIDANCE ON SO-CALLED INTERMEDIARY TRANSACTION TAX SHELTER:  Today, the IRS issued Notice 2008-20, which modifies the original identification of the so-called Intermediary Transaction Tax Shelter and the persons who constitute participants in such transaction.

  • In Notice 2001-16, the IRS identified the so-called Intermediary Transaction Tax Shelter as a listed transaction. Subsequently, the IRS received taxpayer comments suggesting that such identification could result in over-disclosure or under-disclosure of the transaction. To address these concerns, the IRS, in Notice 2008-20, identifies the four necessary components of the so-called Intermediary Transaction Tax Shelter. According to the notice, a transaction must have all four of these components to be treated as the same as, or substantially similar to, the so-called Intermediary Transaction Tax Shelter.
  • Notice 2008-20 also narrows the circumstances under which a person constitutes a participant in the so-called Intermediary Transaction Tax Shelter under Treas. Reg. § 1.6011-4(c)(3)(i)(A).
  • Notice 2008-20 is effective as of January 17, 2008 and is applicable to returns and statements due under Section 6011 or Section 6111 after January 17, 2008.
  • The notice can be accessed via:
  • For additional information, contact Mark J. Silvermanmsilverman@steptoe.com or Matthew D. Lerner – mlerner@steptoe.com.

SENATE FINANCE COMMITTEE SCHEDULES ECONOMIC STIMULUS HEARINGS:  Next week, the Senate Finance Committee will hold a series of hearings entitled, “Strengthening America’s Economy: Stimulus That Makes Sense.” The hearings will be on January 22 and 24 and feature economic experts testifying on possible ways to "kick-start [the] economy."

According to the Committee, the hearings will focus on:

  • “whether the state of the nation’s economy demands a stimulus package;
  • if so, what measures would provide the best and most immediate economic boost; and
  • where timely, temporary efforts should be targeted – with options for individual taxpayers, businesses, housing, and other sectors.”
  • Today, House Speaker Nancy Pelosi (D-CA) predicted that Congress would agree on the tenets of an economic stimulus package before President Bush's January 28 State of the Union address. Pelosi said, “We hope by then we will already have in place the legislative initiative appropriate to spark economic growth. We may not be able to get all the technical legislative aspects down in two weeks [but] I would hope before the month is out, one month from now, we will be watching the effects of the legislation.”
  • President Bush is expected to outline his views on the parameters of his economic stimulus plan tomorrow. The House Democratic leadership said that an economic stimulus package of between $100 and $125 billion in spending and tax proposals is under consideration. House Financial Services Chairman Barney Frank (D-MA) met earlier this week with House Democratic leaders and other committee chairmen to discuss possible stimulus proposals. He said, “Pay/go could be a problem.” Frank added, “People understand that it is consistent with pay/go to spend some up front and offset it a year, two, three years down the road.” He suggested that for a stimulus package to be effective it should be approved by “early April at the latest.”
  • House Ways and Means Committee Chairman Charles Rangel (D-NY) said, “Pay/go is inconsistent with trying to resolve a recession.” Some members of the Blue Dog Coalition suggested that they are willing to consider exemptions to pay/go for a stimulus package.

NATWEST AFFIRMED:  On January 15, the US Court of Appeals for the Federal Circuit affirmed the Court of Federal Claims in NatWest's long-running dispute over the interaction of the UK Treaty with Treas. Reg. section 1.882-5. (National Westminster Bank PLC v. United States, Fed. Cir., No. 2007-5028, 1/15/08). Barring Supreme Court review, the decision should finally bring to a close a case in which NatWest claimed successfully that the formula in the regulation was inconsistent with the arm's length approach mandated by the business profits article of the then-effective treaty. The treaty was subsequently amended to render the issue effectively moot.

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.

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