Daily Tax Update - April 3, 2009

 

THE DAILY TAX UPDATE WILL BE PUBLISHED ON A PERIODIC BASIS UNTIL CONGRESS RETURNS FROM ITS SPRING RECESS ON APRIL 20TH. 

HOUSE AND SENATE APPROVE $3.5 TRILLION BUDGET RESOLUTIONS:  Both the House and Senate approved differing versions of FY 2010 budget resolutions. House Budget Chairman John Spratt said he hopes to have a conference “as soon as possible.” Spratt added, “I haven't seen the final product from the Senate...but from what I understand we are not that far apart, so hopefully we can write a resolution quickly.” It will be up the tax-writing committees to specify the tax provisions within the budget parameters once the resolutions are reconciled. Both House and Senate resolutions include deficit-neutral “reserve funds” for middle-income tax relief, healthcare, energy, and education legislation. The House budget resolution also includes a provision that requires the House to pass statutory pay/go rules. 

  • The House budget resolution cuts $1.8 trillion in taxes for middle-income taxpayers by extending the 2001 and 2003 income tax cuts for those making under $250,000 per year. It also protects American families who would be hit with the alternative minimum tax in 2010. Among the tax relief included in the budget is an expansion of the Earned Income Tax Credit, which provides tax relief to millions of American families with three or more children. Additionally, it makes college more affordable by making the $2,500 American Opportunity Tax Credit permanent.
  • Yesterday, the Senate approved an amendment by Senators Blanche Lincoln and Jon Kyl to lower the estate tax. The provision would reduce the rate from 45% to 35% next year and lift the exemption to $5 million, up from $3.5 million, which the budget would make permanent. The Senate subsequently approved an amendment by Senator Dick Durbin to condition any further cut to the estate tax on middle-income earners getting an equal tax break.
  • The conference committee must also deal with the differing AMT patch provisions in the House and Senate bills. The Senate bill assumes that an AMT patch would be enacted without offsets through 2012. Unless the House passes a statutory pay/go provision, it can not vote on an AMT patch without offsets.

LEVIN REINTRODUCES CARRIED INTEREST TAX REFORM LEGISLATION:  Today, Rep. Sander Levin (D-MI) reintroduced legislation (H.R. 1935) to tax carried interest compensation at the same ordinary income tax rates paid by other Americans. Currently, the managers of private investment partnerships are able to receive compensation for these services at the much lower capital gains tax rate rather that the ordinary income tax rate by virtue of their fund’s partnership structure.

  • Levin said, “This is a basic issue of fairness. Fund managers are receiving compensation for managing their investors’ money. They should not pay the 15% capital gains rate on their compensation when millions of other hard-working  Americans, many of whose income is performance-based, pay ordinary rates of up to 35%. The President’s budget recognizes that this is unfair. The House of Representatives has recognized that it is unfair, and this year I hope we can act to change the law.” Levin added, “This proposal is not about taxing investment, it’s about ensuring that all compensation is treated equally for tax purposes. Anyone who actually invests money in these funds will continue to receive capital gains treatment, including the managers. So there is no reason to expect that the amount of capital available for these kinds of investments will be reduced.”
  • The legislation clarifies that any income received from a partnership, capital or otherwise, in compensation for services provided by the employee is subject to ordinary tax rates. As a result, the managers of investment partnerships who receive a carried interest as compensation will pay regular income tax rates rather than capital gains rates on that compensation. The capital gains rate will continue to apply to the extent that the managers’ income represents a reasonable return on capital they have actually invested themselves in the partnership.
  • Additional information can be accessed here.          

SNOWE, BAUCUS INTRODUCE BILL TO EXPAND NOL CARRYBACKS:  Yesterday, Senate Finance Committee member Olympia Snowe and Finance Committee Chairman Max Baucus introduced the Net Operating Loss (NOL) Carryback Act (S.823). The legislation would allow formerly profitable businesses to carryback losses incurred in 2008 and 2009 for five years. The bill would expand current law to include small, medium, and large firms. In addition, the Snowe-Baucus initiative would block companies that receive cash from the Trouble Asset Relief Program (TARP) from utilizing the tax incentive. 

  • Snowe said, “While the recently enacted economic stimulus bill included a modest NOL carryback provision to assist smaller firms, this legislation will help any company that has losses from 2008 or 2009 carry back those losses to offset taxes paid in the previous five years when they were profitable. This will go a long way in helping to keep more workers on payroll and stabilize overall operations.”

MISCELLANEOUS GUIDANCE ISSUED TODAY:
Notice 2009-34 extends until Sept. 30, 2009, the time for making biodiesel claims on biodiesel that was certified under the old ASTM D6751 standard from April 1, 2009, as set forth in Notice 2008-110, 2008-51 I.R.B. 1298. 

Notice 2009-34 will be in IRB 2009-17  DATED:  April 27, 2009 

Notice 2009-26 provides guidance on the issuance of Build America Bonds. It will be published in Internal Revenue Bulletin 2009-16 on April 20, 2009.
 
Notice 2009-30 sets the maximum face amounts of the Qualified Zone Academy Bonds (QZABs). It will be published in Internal Revenue Bulletin 2009-16 on April 20, 2009.
 
Notice 2009-35 sets the maximum face amounts of the Qualified School Construction Bonds (QSCBs). It will be published in Internal Revenue Bulletin 2009-17 on April 27, 2009.

TAX BILLS INTRODUCED APRIL 2nd:
H.R.1888: To amend the Internal Revenue Code of 1986 to allow a credit against income tax to vehicle fleet operators for purchasing tires made from recycled rubber.
Sponsor: Rep Johnson, Henry C. “Hank,” Jr. [GA-4] (introduced 4/2/2009)      Cosponsors (4)

H.R.1891: To amend the Internal Revenue Code of 1986 to allow an above-the-line deduction for half of an individual's long-term care insurance premiums.
Sponsor: Rep Alexander, Rodney [LA-5] (introduced 4/2/2009)      Cosponsors (None)

H.R.1896: To amend the Internal Revenue Code of 1986 to clarify that installment sales treatment shall not fail to apply to property acquired for conservation purposes by a State or local government or certain tax-exempt organizations merely because purchase funds are held in a sinking or similar fund pursuant to State law.
Sponsor: Rep Bishop, Timothy H. [NY-1] (introduced 4/2/2009)      Cosponsors (1)

H.R.1897: To amend the Internal Revenue Code of 1986 to provide a tax credit to employers for the costs of implementing wellness programs, and for other purposes.
Sponsor: Rep Blumenauer, Earl [OR-3] (introduced 4/2/2009)      Cosponsors (1)

H.R.1904: To amend the Internal Revenue Code of 1986 to allow individual taxpayers to designate a portion of income taxes to fund the improvement of barriers at the United States border, and for other purposes.
Sponsor: Rep Capito, Shelley Moore [WV-2] (introduced 4/2/2009)      Cosponsors (4)

H.R.1908: To amend the Internal Revenue Code of 1986 to provide a credit for property certified by the Environmental Protection Agency under the WaterSense program.
Sponsor: Rep Coffman, Mike [CO-6] (introduced 4/2/2009)      Cosponsors (4)

H.R.1912: To amend the Internal Revenue Code of 1986 to allow a credit against income tax for qualified conservation contributions which include National Scenic Trails.
Sponsor: Rep Connolly, Gerald E. “Gerry” [VA-11] (introduced 4/2/2009)      Cosponsors (2)

H.R.1919: To amend the Internal Revenue Code of 1986 to repeal the withholding of income and social security taxes.
Sponsor: Rep Foxx, Virginia [NC-5] (introduced 4/2/2009)      Cosponsors (11)

H.R.1935: To amend the Internal Revenue Code of 1986 to provide for the treatment of partnership interests held by partners providing services.
Sponsor: Rep Levin, Sander M. [MI-12] (introduced 4/2/2009)      Cosponsors (None)

H.R.1943: To amend the Internal Revenue Code of 1986 to provide for adjustments in the individual income tax rates to reflect regional differences in the cost-of-living.
Sponsor: Rep Nadler, Jerrold [NY-8] (introduced 4/2/2009)      Cosponsors (2)

H.R.1944: To amend the Internal Revenue Code of 1986 to permanently extend the subpart F exemption for active financing income.
Sponsor: Rep Neal, Richard E. [MA-2] (introduced 4/2/2009)      Cosponsors (5)

H.R.1948: To amend the Internal Revenue Code of 1986 to allow reimbursement from flexible spending accounts for certain dental products.
Sponsor: Rep Pascrell, Bill, Jr. [NJ-8] (introduced 4/2/2009)      Cosponsors (9)

H.R.1949: To amend the Internal Revenue Code of 1986 to provide a tax credit for elementary and secondary school teachers.
Sponsor: Rep Paul, Ron [TX-14] (introduced 4/2/2009)      Cosponsors (1)

H.R.1950: To amend the Internal Revenue Code of 1986 to provide a tax credit for professional school personnel in prekindergarten, kindergarten, and grades 1 through 12.
Sponsor: Rep Paul, Ron [TX-14] (introduced 4/2/2009)      Cosponsors (1)

H.R.1951: To amend the Internal Revenue Code of 1986 to allow individuals a credit against income tax for tuition and related expenses for public and nonpublic elementary and secondary education.
Sponsor: Rep Paul, Ron [TX-14] (introduced 4/2/2009)      Cosponsors (1)

H.R.1952: To amend the Internal Revenue Code of 1986 to allow a credit against income tax for amounts contributed to charitable organizations which provide elementary or secondary school scholarships and for contributions of, and for, instructional materials and materials for extracurricular activities.
Sponsor: Rep Paul, Ron [TX-14] (introduced 4/2/2009)      Cosponsors (1)

H.R.1953: To amend the Internal Revenue Code of 1986 to allow the Hope Scholarship Credit to be used for elementary and secondary education expenses.
Sponsor: Rep Paul, Ron [TX-14] (introduced 4/2/2009)      Cosponsors (1)

H.R.1954: To amend the Internal Revenue Code of 1986 to make higher education more affordable by providing a full tax deduction for higher education expenses and interest on student loans.
Sponsor: Rep Paul, Ron [TX-14] (introduced 4/2/2009)      Cosponsors (1)

H.R.1955: To amend the Internal Revenue Code of 1986 to exclude from gross income amounts received on the sale of animals which are raised and sold as part of an educational program.
Sponsor: Rep Paul, Ron [TX-14] (introduced 4/2/2009)      Cosponsors (3)

H.R.1956: To amend the Internal Revenue Code of 1986 to allow an offset against income tax refunds to pay for State judicial debts that are past-due.
Sponsor: Rep Paulsen, Erik [MN-3] (introduced 4/2/2009)      Cosponsors (2)

H.R.1957: To amend the Internal Revenue Code of 1986 to provide a higher education tuition credit in place of existing education tax incentives.
Sponsor: Rep Peters, Gary C. [MI-9] (introduced 4/2/2009)      Cosponsors (None)

H.R.1961: To amend the Internal Revenue Code of 1986 to expand the availability of the saver's credit, to make the credit refundable, and to make Federal matching contributions into the retirement savings of the taxpayer.
Sponsor: Rep Pomeroy, Earl [ND] (introduced 4/2/2009)      Cosponsors (7)

H.R.1968: To amend the Internal Revenue Code of 1986 to increase the limitation on capital losses to $10,500 and to index such limitation to inflation.
Sponsor: Rep Sensenbrenner, F. James, Jr. [WI-5] (introduced 4/2/2009)      Cosponsors (None)

H.R.1974: To amend the Internal Revenue Code of 1986 to make permanent the depreciation classification of motorsports entertainment complexes.
Sponsor: Rep Thompson, Mike [CA-1] (introduced 4/2/2009)      Cosponsors (29)

S.781: A bill to amend the Internal Revenue Code of 1986 to provide for collegiate housing and infrastructure grants.
Sponsor: Sen Roberts, Pat [KS] (introduced 4/2/2009)      Cosponsors (10)

S.798: A bill to amend the Internal Revenue Code of 1986 to permanently extend existing elective tax treatment for Alaska Native Settlement Trusts.
Sponsor: Sen Murkowski, Lisa [AK] (introduced 4/2/2009)      Cosponsors (1)

S.802: A bill to amend the Internal Revenue Code of 1986 to allow Indian tribes to transfer the credit for electricity produced from renewable resources.
Sponsor: Sen Johnson, Tim [SD] (introduced 4/2/2009)      Cosponsors (None)

S.803: A bill to amend the Internal Revenue Code of 1986 to provide a tax credit to employers for the costs of implementing wellness programs, and for other purposes.
Sponsor: Sen Harkin, Tom [IA] (introduced 4/2/2009)      Cosponsors (2)

S.812: A bill to amend the Internal Revenue Code of 1986 to make permanent the special rule for contributions of qualified conservation contributions.
Sponsor: Sen Baucus, Max [MT] (introduced 4/2/2009)      Cosponsors (1)

S.823: A bill to amend the Internal Revenue Code of 1986 to allow a 5-year carryback of operating losses, and for other purposes.
Sponsor: Sen Snowe, Olympia J. [ME] (introduced 4/2/2009)      Cosponsors (7)

S.825: A bill to amend the Internal Revenue Code of 1986 to restore, increase, and make permanent the exclusion from gross income for amounts received under qualified group legal services plans.
Sponsor: Sen Lincoln, Blanche L. [AR] (introduced 4/2/2009)      Cosponsors (1)

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.

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