Daily Tax Update - August 4, 2009

THE DAILY TAX UPDATE WILL BE PUBLISHED ON A PERIODIC BASIS UNTIL CONGRESS RETURNS FROM ITS AUGUST RECESS ON SEPTEMBER 8TH.

SENATE FINANCE REPUBLICANS PUSH BACK AGAINST SEPTEMBER 15TH HEALTH CARE DEADLINE:  With the Senate scheduled to break for its month-long recess at the end of this week, the bipartisan group of six Finance Committee members negotiating a health care reform bill continue to meet. Finance Chairman Max Baucus has said he would like to report a bill by “around September 15.” Baucus said yesterday, “We've got to have some kind of stopping point here. There's got to be some kind of realistic time when we've got to make decisions.”

  • However, Republicans on the Committee are resisting setting a firm deadline. Republican Committee member Mike Enzi said, “I have not and will not agree to an artificial deadline because I am committed to getting healthcare reform right, not finishing a bill by some arbitrary date.” Ranking member Charles Grassley added, “If we get a bill on the Senate floor by the third or fourth week of September, it's probably going to take two weeks. Probably take a month to negotiate the difference between the House and Senate provisions, so I would suggest the middle of November.”
  • Meanwhile, House Democratic leaders and three committee chairmen are meeting during the recess to try to merge the three bills passed by their committees. The House is hopeful to pass a bill in mid-September.

THE NEW SECTION 482 REGULATIONS ON INTERCOMPANY SERVICES:  In August 2006, the IRS released extensive temporary regulations that sought primarily to clarify when taxpayers could achieve arm’s length reimbursement of services costs simply by reimbursing costs, rather than also including a markup. Among the most important innovations of the new regulations were:

(i)         restatement of the “cost only” safe harbor so as to preclude R&D costs from the safe harbor, but otherwise to provide “bright line” rules permitting cost-only treatment of many administrative expenses; 

(ii)          a statement that costs related to stock options generally must be included in “costs” reimbursed under services arrangements; 

(iii)        a statement that financial guarantees are not a “service” that can be reimbursed on a cost-only basis (although the Temporary Regulations left open many questions governing the treatment of financial guarantees); and  

(iv)       a restriction of the definition of stewardship expenses (called “shareholder expenses” in the Temporary Regulations) for tax purposes, providing generally that activities give rise to stewardship expenses only if the activities “solely” benefit the shareholder in its capacity as such.

  • Last week, in order to prevent the Temporary Regulations from “sunsetting,” the IRS released substitute regulations in final form. Changes from the Temporary Regulations generally were minor and technical in nature, and the basic policy calls described above remain essentially unchanged. In releasing the new regulations, the IRS indicated that it is working on regulations governing financial guarantees, although no timetable has been provided.
  • For additional information, contact Michael C. Durstmdurst@steptoe.com, Philip R. Westpwest@steptoe.com   

IRS SEEKS NEW ISSUES FOR INDUSTRY ISSUE RESOLUTION PROGRAM: Yesterday, the IRS said that it is interested in receiving suggestions from business taxpayers, associations and other interested parties to submit to the Industry Issue Resolution (IIR) Program tax issues for resolution that involve a controversy, dispute or an unnecessary burden on business taxpayers.

  • According to the IRS, “The objective of the IIR program is to resolve through issuance of new and improved guidance business tax issues common to significant numbers of taxpayers. In past years, issues have been submitted by associations and others representing both small and large business taxpayers, resulting in tax guidance that has affected thousands of taxpayers. Submissions received are reviewed semi-annually with selections next being made from issues submitted by Aug. 31, 2009.”
  • Additional information can be accessed here

MISCELLANEOUS GUIDANCE RELEASED:
REG-152166-05 (released August 3) withdraws the notice of proposed rulemaking published on April 19, 1996, in the Federal Register and contains proposed regulations relating to the issuance of Taxpayer Assistance Orders (TAOs). The IRS is issuing these proposed regulations to provide guidance relating to the issuance of a TAO. These proposed regulations are necessary because the existing regulations do not reflect changes to the law made by the Taxpayer Bill of Rights II (TBOR 2), the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 98), the Community Renewal Tax Relief Act of 2000, and the American Jobs Creation Act of 2004 (AJCA). 

TAX BILLS INTRODUCED JULY 31st:
H.R.3439: To amend the Internal Revenue Code of 1986 to impose an excise tax on certain proceeds received on SILO and LILO transactions.
Sponsor: Rep Lewis, John [GA-5] (introduced 7/31/2009)      Cosponsors (3)

H.R.3440: To amend the Internal Revenue Code of 1986 to allow dealers in real estate to use the installment sales method.
Sponsor: Rep Pascrell, Bill, Jr. [NJ-8] (introduced 7/31/2009)      Cosponsors (4)

H.R.3443: To amend the Internal Revenue Code of 1986 to modify the private activity bond rules to except certain uses of intellectual property from the definition of private business use.
Sponsor: Rep Cleaver, Emanuel [MO-5] (introduced 7/31/2009)      Cosponsors (None)

H.R.3445: To amend the Internal Revenue Code of 1986 to allow baby formula to be reimbursed under a health flexible spending arrangement if the mother has had a mastectomy and is medically unable to breastfeed.
Sponsor: Rep Wasserman Schultz, Debbie [FL-20] (introduced 7/31/2009)      Cosponsors (1)

H.R.3447: To amend the Internal Revenue Code of 1986 to implement on-going appropriations for withdrawals from the Harbor Maintenance Trust Fund, and for other purposes.
Sponsor: Rep Richardson, Laura [CA-37] (introduced 7/31/2009)      Cosponsors (None)

H.R.3460: To amend the Clean Air Act to include algae-based biofuel in the renewable fuel program and amend the Internal Revenue Code of 1986 to include algae-based biofuel in the cellulosic biofuel producer credit.
Sponsor: Rep Bilbray, Brian P. [CA-50] (introduced 7/31/2009)      Cosponsors (8)

H.R.3462: To amend the Internal Revenue Code of 1986 to encourage the use of corrosion prevention and mitigation measures in the construction and maintenance of business energy-related property.
Sponsor: Rep Brady, Kevin [TX-8] (introduced 7/31/2009)      Cosponsors (3)

H.R.3468: To amend the Internal Revenue Code of 1986, the Public Health Service Act, and the Employee Retirement Income Security Act of 1974 to promote the use of prevention and wellness programs.
Sponsor: Rep Castle, Michael N. [DE] (introduced 7/31/2009)      Cosponsors (2)

H.R.3478: To amend the Internal Revenue Code of 1986 to modify rules relating to health savings accounts, to provide payments for a health savings account and for a high deductible health plan instead of entitlement to benefits under Medicare, Medicaid, and SCHIP, to give more control and coverage to patients, to lower health care costs through increased price transparency, and to require immigrants to have a health savings account and high deductible health coverage at time of admission.
Sponsor: Rep Gohmert, Louie [TX-1] (introduced 7/31/2009)      Cosponsors (None)

H.R.3486: To amend the Internal Revenue Code of 1986 to exempt certain shipping from the harbor maintenance tax.
Sponsor: Rep Higgins, Brian [NY-27] (introduced 7/31/2009)      Cosponsors (12)

H.R.3490: To amend the Internal Revenue Code of 1986 to provide tax incentives for employer-provided wellness programs.
Sponsor: Rep Johnson, Timothy V. [IL-15] (introduced 7/31/2009)      Cosponsors (1)

H.R.3497: To amend the Internal Revenue Code of 1986 to provide that indebtedness incurred by a partnership in acquiring securities and commodities is not treated as acquisition indebtedness for purposes of determining the unrelated business taxable income of organizations which are partners with limited liability.
Sponsor: Rep Levin, Sander M. [MI-12] (introduced 7/31/2009)      Cosponsors (2)

H.R.3500: To amend the Internal Revenue Code of 1986 to extend and modify the benefits available in empowerment zones and other tax-incentive areas.
Sponsor: Rep Maffei, Daniel B. [NY-25] (introduced 7/31/2009)      Cosponsors (None)

H.R.3501: To amend the Internal Revenue Code of 1986 to allow a deduction for pet care expenses.
Sponsor: Rep McCotter, Thaddeus G. [MI-11] (introduced 7/31/2009)      Cosponsors (None)

H.R.3508: To amend the Internal Revenue Code of 1986 to provide for improved treatment of HSA account provisions, and for other purposes.
Sponsor: Rep Paulsen, Erik [MN-3] (introduced 7/31/2009)      Cosponsors (19)

H.R.3516: To amend the Internal Revenue Code of 1986 to provide for rollover of gain from divesting certain qualified securities of business entities engaged in Iran or Sudan discouraged activities.
Sponsor: Rep Sherman, Brad [CA-27] (introduced 7/31/2009)      Cosponsors (18)

H.R.3520: To amend the Internal Revenue Code of 1986 to exclude capital gains on sales and exchanges of residences purchased in a foreclosure sale.
Sponsor: Rep Smith, Adrian [NE-3] (introduced 7/31/2009)      Cosponsors (2)

H.R.3524: To amend the Internal Revenue Code of 1986 to provide an exclusion from the gross estate for certain farmlands and lands subject to qualified conservation easements, and for other purposes.
Sponsor: Rep Thompson, Mike [CA-1] (introduced 7/31/2009)      Cosponsors (1)

H.R.3525: To amend the Internal Revenue Code of 1986 to provide for the treatment of bonds issued to finance renewable energy resource facilities, conservation and efficiency facilities, and other specified greenhouse gas emission technologies.
Sponsor: Rep Thompson, Mike [CA-1] (introduced 7/31/2009)      Cosponsors (1)

H.R.3530: To amend the Internal Revenue Code of 1986 to provide a Federal income tax credit for the purchase of certain nonroad equipment.
Sponsor: Rep Welch, Peter [VT] (introduced 7/31/2009)      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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