Daily Tax Update - January 9, 2009

OBAMA – “WE WILL EMBRACE ALL ECONOMIC PLANS PRESENTED”:  Today, President-elect Obama responded to a few questions from reporters on his economic stimulus plan after he announced several national security advisers.  Obama again called on Congress to quickly pass the stimulus plan. Obama said, “For the sake of our economy and our people, this is the time to act without delay.” Obama also explained that he is willing to consider other ideas. Obama said, “Just show me. If you can show me that something is going to work, I will welcome it. If it works better than something I've proposed, I'll welcome it.”

  • Yesterday’s speech by Obama on the economy was short on specifics about the stimulus plan and he did not cite the total cost. Senate Democrats have made it clear that they intend to put their imprint on Obama’s plan. After yesterday’s meeting with chief political adviser David Axelrod and National Economic Council Director-designate Lawrence Summers, several Senators voiced concerns about the composition of the plan. Senator Tom Harkin (D-IA) said, “I am a little concerned by the way Mr. Summers and others are going on this. To me it still looks like more of this trickle down – 'if we just put it at the top, it will trickle down.” Harkin added, "A number of people in there said, 'We have to have programs that actually create jobs and put people to work'...Quite frankly, because of the economy, if someone gives you a tax break you're probably saving that money. You are going to salt that away, you are not going to spend it."
  • Senate Majority Leader Reid added, “Summers understands that we have views on different issues and I think this is a work in progress, as it should be. I think he learned a lot about how we feel, and I think he's going to learn more on Sunday. There is nothing written in stone.”
  • Senate Finance Committee Chairman Max Baucus said, “I think when all is said and done, we will pass a package that is fairly close to the proposal that we've all been discussing here. However, it will be improved upon. But it is going to take a lot of intense vigorous discussions back and forth in the mutual search for what is right, what is most efficient, what works best, what creates the most jobs. We've got to do this right so there is a very intense effort to try to find what is right."
  • Yesterday, Finance Committee staff outlined some initial targets for the Committee’s proposal which is still in the early stages of discussion. Baucus’ plan contains about $274 billion in tax cuts, including $188 billion for individuals, $76 billion for businesses, and $10 billion targeted toward energy incentives. About $48 billion would go to fiscal relief to states.

Service Provides Guidance on Nonqualified Deferred Compensation For Certain Foreign Corporations and Certain Partnerships with Foreign or Tax-Exempt Partners:  On January 8, 2009, the Internal Revenue Service released Notice 2009-8 to provide interim guidance on the application of the newly enacted section 457A to nonqualified deferred compensation plans of nonqualified entities. Notice 2009-8 defines a “nonqualified entity” as: (1) any foreign corporation unless substantially all of its income is effectively connected with the conduct of a US trade or business, or subject to a comprehensive foreign income tax; and (2) any partnership unless substantially all of its income is allocated to persons other than foreign persons not subject to a comprehensive foreign income tax, and organizations which are exempt from US tax. For purposes of section 457A, “nonqualified deferred compensation plan” has the same meaning as provided under section 409A(d), subject to certain modifications explained in Notice 2009-8.

  • Section 457A, which applies to deferred compensation for services performed after December 31, 2008, was enacted by Congress in October 2008 as part of the Tax Extenders and AMT Relief Act of 2008.
  • Section 457A generally provides that any compensation that is deferred under a nonqualified deferred compensation plan of a nonqualified entity is includible in gross income when there is no substantial risk of forfeiture of the rights to such compensation. Section 457A does, however, include an exception when the amount of the deferred compensation is not determinable.
  • In anticipation of issuing additional guidance, Treasury and the IRS have requested comments on the topics addressed in Notice 2009-8, as well as any other section 457A issues, including certain specific topics listed in the Notice.
  • For additional information, contact Anne E. Moran – amoran@steptoe.com or Don Wellington – dwellington@steptoe.com 
  • The notice can be accessed here.

Notice 2009-02 provides guidance as to the corporate bond weighted average interest rate and the permissible range of interest rates specified under § 412(b)(5)(B)(ii)(II) of the Internal Revenue Code. It also provides guidance on the corporate bond monthly yield curve (and the corresponding spot segment rates), the 24-month average segment rates, and the funding transitional segment rates under § 430(h)(2). In addition, this notice provides guidance as to the interest rate on 30-year Treasury securities under § 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008, and the minimum present value segment rates under § 417(e)(3)(D) as in effect for plan years beginning after 2007.

Notice 2009-09 provides guidance to financial institutions on the reporting rules applicable to required minimum distributions (“RMDs”) for 2009 in light of the enactment of the Worker, Retiree, and Employer Recovery Act of 2008, P.L. 110-458 (the Act). Section 201 of the Act waives any RMDs for 2009 from individual retirement arrangements (IRAs) and retirement plans that hold participant benefits in individual accounts. This notice modifies the reporting requirements applicable to RMDs from IRAs to reflect the waiver of the RMD rules for 2009.

H.R.301: To amend the Internal Revenue Code of 1986 to prevent pending tax increases and to provide additional tax reductions to stimulate economic growth.
Sponsor: Rep Neugebauer, Randy [TX-19] (introduced 1/8/2009)      Cosponsors (None)

H.R.308: To amend the Internal Revenue Code of 1986 to provide a credit against tax for hurricane and tornado mitigation expenditures.
Sponsor: Rep Bilirakis, Gus M. [FL-9] (introduced 1/8/2009)      Cosponsors (1)

H.R.309: To amend the Internal Revenue Code of 1986 to allow certain current and former service members to receive a refundable credit for the purchase of a principal residence.
Sponsor: Rep Bilirakis, Gus M. [FL-9] (introduced 1/8/2009)      Cosponsors (1)

H.R.312: To amend the Internal Revenue Code of 1986 to extend the credit for electricity produced from certain renewable resources.
Sponsor: Rep Braley, Bruce L. [IA-1] (introduced 1/8/2009)      Cosponsors (None)

 H.R.341: To amend the Internal Revenue Code of 1986 to suspend the running of periods of limitation for credit or refund of overpayment of Federal income tax by veterans while their service-connected compensation determinations are pending with the Secretary of Veterans Affairs.
Sponsor: Rep Platts, Todd Russell [PA-19] (introduced 1/8/2009)      Cosponsors (None)

H.R.342: To amend the Internal Revenue Code of 1986 to provide for an enhanced deduction for qualified residence interest on acquisition indebtedness for heritage homes.
Sponsor: Rep Platts, Todd Russell [PA-19] (introduced 1/8/2009)      Cosponsors (None)

H.R.343: To amend the Internal Revenue Code of 1986 to allow volunteer firefighters a deduction for personal safety clothing.
Sponsor: Rep Platts, Todd Russell [PA-19] (introduced 1/8/2009)      Cosponsors (None)

 H.R.344: To amend the Internal Revenue Code of 1986 to allow a full deduction for meals and lodging in connection with medical care.
Sponsor: Rep Platts, Todd Russell [PA-19] (introduced 1/8/2009)      Cosponsors (None)

H.R.345: To amend the Internal Revenue Code of 1986 to increase the standard mileage rate for charitable purposes to the standard mileage rate established by the Secretary of the Treasury for business purposes.
Sponsor: Rep Platts, Todd Russell [PA-19] (introduced 1/8/2009)      Cosponsors (None)

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 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.