Daily Tax Update - March 19, 2009

HOUSE PASSES BILL IMPOSING 90% SURTAX ON TARP BONUSES:  Today, by a vote of 328 to 93, the House approved legislation (H.R. 1586) that would impose a 90% excise tax on bonuses paid after December 31, 2008, by Fannie Mae, Freddie Man, and companies that have received over $5 billion in TARP funds. Six Democrats voted against the bill and 85 Republicans voted for the measure.

  • The tax would also apply to bonuses paid by entities affiliated with these companies. Three-fourths of the TARP funds that have been spent went to companies that would be covered by this bill. This tax will not apply to any bonus that is returned to the company in the same taxable year that the bonus is paid. The bill would not affect taxpayers with adjusted gross income below $125,000 ($250,000 for joint filers) or employees of companies that have received $5 billion or less in TARP funds. When asked why the legislation doesn’t impose a 100% tax, the bill’s sponsor, House Ways and Means Committee Chairman Charles Rangel said, “We figured that the local and state governments would take care of the other 10 percent.”
  • Senate Finance Committee Chairman Max Baucus and ranking member Charles Grassley introduced their bill today. For companies that received TARP funds, the Baucus-Grassley bill would impose a 35 percent excise tax on both employers and employees, on retention bonuses and other bonuses. The proposal would also put a cap on the amount of income employees of these companies are allowed to defer tax free. Small banks as defined by the tax code and entities that received less than $100 million in TARP funds would be exempt from the legislation. It is unclear when Senate action may occur.

HALF OF LARGEST TARP RECIPIENTS OWE BACK TAXES:  The House Ways and Means Oversight Subcommittee has found that 13 of the 23 largest recipients of Troubled Asset Relief Program funds have unpaid tax bills. Subcommittee Chairman John Lewis said, “We found that 13 of them owed more than $220 million in unpaid federal taxes. Two companies owe over $100 million each. How can this be? If we looked at all 470 recipients, how much would they owe?” Lewis added, “To get money from Treasury, banks and others must sign a contract that states they have no material unpaid taxes. Treasury did not ask these banks and companies to turn over their tax records. Treasury relied on the signed statements when it agreed to invest billions of taxpayer dollars.” Lewis said that the disclosure is “a disgrace,” saying, “The American people are fed up, they are fired up, and they're not going to take it anymore.”

LABOR DEPARTMENT ISSUES MODEL NOTICES REFLECTING NEW COBRA CONTINUATION SUBSIDY:  Today, the Labor Department issued model notices for employers and insurers that provide continued health coverage to their former employees and their beneficiaries. There are four alternative notices to be used depending on the individual circumstances of the entity sending the notices. Although these model notices were issued in connection with the changes in the ARRA that provide for a federal subsidy of COBRA premiums for individuals who are involuntarily terminated, the DOL has explained that these general notices must be sent to all qualifying beneficiaries who experience a COBRA qualifying event, regardless of whether they were involuntarily terminated. Special election Notices for persons who were terminated September 1, 2008 through February 16, 2009 and who may be eligible to elect the subsidized COBRA starting after ARRA's enactment must be provided by April 18, 2009.  

TAX BILLS INTRODUCED MARCH 18TH:
H.R.1579: To amend the Internal Revenue Code of 1986 to allow a credit against income tax for contributions to a trust used to provide need-based college scholarships.
Sponsor: Rep Fattah, Chaka [PA-2] (introduced 3/18/2009)      Cosponsors (None)

H.R.1594: To amend the Internal Revenue Code of 1986 to limit the deductibility of excessive rates of executive compensation.
Sponsor: Rep Lee, Barbara [CA-9] (introduced 3/18/2009)      Cosponsors (3)

H.R.1596: To amend the Internal Revenue Code of 1986 to provide an exclusion from gross income for AmeriCorps educational awards.
Sponsor: Rep Lewis, John [GA-5] (introduced 3/18/2009)      Cosponsors (31)

H.R.1598: To amend the Internal Revenue Code of 1986 to impose a higher rate of tax on bonuses paid by businesses receiving TARP funds.
Sponsor: Rep Moore, Gwen [WI-4] (introduced 3/18/2009)      Cosponsors (None)

S.632: A bill to amend the Internal Revenue Code of 1986 to require that the payment of the manufacturers' excise tax on recreational equipment be paid quarterly.
Sponsor: Sen Baucus, Max [MT] (introduced 3/18/2009)      Cosponsors (6)

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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