Daily Tax Update - February 12, 2009

SENATE VOTE ON STIMULUS BILL COULD OCCUR TONIGHT:  Although many details of the $790 billion economic stimulus plan are still unavailable, the Senate could vote on the conference report later tonight. If the Senate vote does not occur tonight, it is unlikely to occur until Saturday. The House is expected to vote tomorrow. 

  • The stimulus bill contains 35-percent tax cuts and hundreds of billions in spending for infrastructure, education, health care, unemployment aid, and other assistance. The bill would provide $400 per-worker tax credit for lower- and middle-income taxpayers. Couples would receive $800. 
  • A summary of the tax provisions in the bill can be accessed here.   
  • According to an earlier release from House Speaker Pelosi, the stimulus bill provides:
    • Tax Relief for American Families
    • “Provides immediate and sustained tax relief to 95 percent of American workers through the Making Work Pay Tax Cut, a refundable tax credit of up to $400 per worker ($800 per couple filing jointly).
    • Cuts taxes for the families of millions of children through an expansion of the child tax credit (allowing families to begin qualifying for the child tax credit with every dollar earned over $3,000).
    • Expands the Earned Income Tax Credit by providing tax relief to families with three or more children and increasing marriage penalty relief.
    • Helps more than 4 million additional students attend college with a new, partially refundable $2,500 tax credit for families.
    • Protects 26 million middle-class families from being hit by the AMT.
    • Helps first-time homebuyers and strengthens the housing market by enhancing the current credit for first-time home purchases with the removal of the repayment requirement.
    • Provides incentives to buy new cars, including light trucks and SUVs, with a tax deduction for State and local sales taxes paid on the purchase.
    • Temporarily suspends the taxation of some unemployment benefits.
    • Business Tax Incentives to Create Jobs and Spur Investment
    • Helps businesses quickly recover costs of new capital investments by extending the bonus depreciation and increased small business expensing for businesses making investments in plants and equipment in 2009.
    • Includes a variety of provisions to help small business, including small business expensing for investment in new plants and equipment, loss carry back for small businesses, a delay of the 3 percent withholding tax on payments to businesses that sell goods or services to governments, and a cut in the capital gains tax cut for investors in small businesses who hold stock for more than five years.
    • Provides assistance to companies looking to reduce their debt burdens by delaying the tax on businesses that have discharged indebtedness, which will help these companies strengthen their balance sheets and obtain resources to invest in job creation.
    • Provides incentives to create new jobs with tax credits for hiring recently discharged unemployed veterans and youth that have been out of work and out of school for the six months prior to hire.”

PROPOSED REGULATIONS ALLOW IRS TO REMOVE ITEMS ATTRIBUTABLE TO LISTED TRANSACTIONS FROM TEFRA PARTNERSHIP PROCEEDINGS:  Today, the IRS and Treasury issued proposed regulations under section 6231 that allow the IRS to treat partnership items relating to a listed transaction (as defined in Treas. Reg. § 1.6011-4(b)(2)) as nonpartnership items, which would remove such items from the unified partnership audit and litigation procedures of the Code (the “TEFRA partnership procedures”). The IRS and Treasury reasoned that, “[u]nlike the tax shelters of the 1970s,…the recent generation of tax avoidance transactions often uses combinations of trusts, S corporations, limited liability companies, partnerships, and other entities, many times arranged in tiers, for the tax benefit of a single investor or a small group of investors. The application of the TEFRA partnership procedures to these tax avoidance transactions often results in multiple proceedings that complicate the ultimate determination of the investors’ tax liabilities and consume significant administrative resources.”

  • The proposed regulations provide that the IRS will make determinations regarding whether to convert partnership items to nonpartnership items on a partnership-by-partnership and partner-by-partner basis. 
  • The fact that a transaction becomes a listed transaction after the date on which the taxpayer engages in the transaction does not preclude the conversion of partnership items to nonpartnership items under the proposed regulations.
  • The regulations, when finalized, are proposed to apply to any taxable period ending on or after the date final regulations are published in the Federal Register.
  • For additional information, contact Mark J. Silverman - msilverman@steptoe.com, Matthew D. Lerner - mlerner@steptoe.com or Aaron P. Nocjaranocjar@steptoe.com
  • The regulations can be accessed here.

MISCELLANEOUS GUIDANCE ISSUED TODAY:
Revenue Procedure 2009-18 provides issuers of qualified mortgage bonds, as defined in section 143(a) of the Internal Revenue Code, and issuers of mortgage credit certificates, as defined in section 25(c), with (1) the nationwide average purchase price for residences located in the United States, and (2) average area purchase price safe harbors for residences located in statistical areas in each state, the District of Columbia, Puerto Rico, the Northern Mariana Islands, American Samoa, the Virgin Islands, and Guam.

TAX BILLS INTRODUCED FEBRUARY 11TH:
H.R.982: To terminate the Internal Revenue Code of 1986.
Sponsor: Rep Goodlatte, Bob [VA-6] (introduced 2/11/2009)      Cosponsors (65)

H.R.998: To amend the Internal Revenue Code of 1986 to provide for the creation of disaster protection funds by property and casualty insurance companies for the payment of policyholders' claims arising from future catastrophic events.
Sponsor: Rep Rooney, Thomas J. [FL-16] (introduced 2/11/2009)      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
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