Daily Tax Update - December 10, 2009

UK PROPOSES NEW BANK PAYROLL TAX: On December 9, UK Chancellor of the Exchequer Alistair Darling announced several new tax measures as part of his 2009 Pre-Budget Report. Among the tax measures is a new ‘bank payroll tax’ that would apply to its banking sector (i.e. to banks (including investment banks), building societies and other financial businesses (the "institution(s)") undertaking regulated activity under the Financial Services and Markets Act 2000 (broadly undertaking any of the following in the UK: accepting deposits, dealing in investments as principal, dealing in investments as agent, arranging deals in investments, safeguarding and administering investments, and dealing with regulated mortgage contracts)).

  • The tax, 50 percent of the bonus, would also apply to UK branches of foreign institutions that provide a bonus exceeding £25,000 to any of its employees who are wholly or mainly concerned (whether directly or indirectly) with regulated activities or the lending of money (if their activities are not already regulated). The bank payroll tax will apply to discretionary and certain contractual bonuses paid or agreed to be paid between December 9, 2009 and April 5, 2010. The tax is payable by the institution, not the employee, and the tax is not deductible in calculating the profits of that institution.
  • The tax does not apply to: (i) contractual bonuses where the payer has no discretion as to the amount of the bonus pursuant to a contract in force on December 9, 2009; and (ii) regular salary, wages or benefits. However where an obligation to pay or provide the bonus arises on or after December 9, 2009, the bonus will be subject to the bank payroll tax.
  • The draft legislation has anti-avoidance measures and various other provisions to ensure that these rules are not circumvented. The draft legislation remains subject to the scrutiny of the UK's Parliament as it makes its way through its processes to become law.

IRS ANNOUNCES REMEDIAL AMENDMENT PERIOD AND RELIANCE FOR SECTION 403(b) PLANS:  Today, the IRS announced (Ann. 2009-89) that it plans to publish revenue procedures for (1) obtaining an opinion letter that the form of a prototype or other pre-approved plan meets the requirements of section 403(b), and (2) obtaining an individual determination letter for a section 403(b) plan. In the meantime, the Announcement provides for a remedial amendment period and reliance for employers that, pursuant to the upcoming revenue procedures, either adopt a preapproved plan with a favorable opinion letter or apply for an individual determination letter when available. The IRS said that employers may rely on this Announcement and should not request ruling or determination letters on the form of their section 403(b) plans at this time, pending publication of the revenue procedures.

IRS NAMES NEW DIRECTOR FOR RESEARCH, ANALYSIS AND STATISTICS: Today, the IRS announced that Rosemary D. Marcuss has been named the new Internal Revenue Service Director for Research, Analysis and Statistics (IR-2009-115). Marcuss comes to the IRS from the Bureau of Economic Analysis, US Department of Commerce, where she served as Deputy Director. She will replace former Director Mark Mazur, who moved to the Treasury Department earlier this year. “Cutting-edge research supports virtually everything the IRS does,” IRS Commissioner Doug Shulman said. “Rosemary’s background in statistics and tax policy, coupled with her experience as a strong leader, will help the IRS execute on its mission.” 

MISCELLANEOUS GUIDANCE ISSUED:

Notice 2010-1 provides a special rule for certain domestic life insurance companies whose principal place of business is in a foreign country and whose stock is purchased by another corporation. Under this special rule, if an election under tax code Section 338 is made to treat the purchase as an asset purchase rather than a stock purchase, then, notwithstanding the general rule under Section 338, the acquired corporation is treated as the same corporation before and after the transaction for purposes of tax code Section 807(e)(4).

Rev. Proc. 2009-39 illustrates the application of the interest-free adjustment and claim for refund processes under the final regulations (T.D. 9405) promulgated by a final rule issued in June 2008. T.D. 9405 amended the process for making interest-free adjustments of employment taxes under tax code Sections 6205 and 6413, and claiming refunds of employment taxes under Sections 6402 and 6414.

TAX BILLS INTRODUCED DECEMBER 9th:

H.R.4256 : To amend the American Recovery and Reinvestment Tax Act of 2009 to allow specified energy property grants to real estate investment trusts without regard to the ratable share income limitations.
Sponsor: Rep Sanchez, Linda T. [CA-39] (introduced 12/9/2009) Cosponsors (3)

H.R.4258 : To amend the Internal Revenue Code of 1986 to allow a business credit for donations for vocational educational purposes.
Sponsor: Rep Young, Don [AK] (introduced 12/9/2009) Cosponsors (None)

S.2854 : A bill to amend the Internal Revenue Code of 1986 to extend and modify the credit for new qualified hybrid motor vehicles, and for other purposes.
Sponsor: Sen Kohl, Herb [WI] (introduced 12/9/2009) Cosponsors (1)

S.2857 : A bill to amend the Internal Revenue Code of 1986 to expand the qualifying advanced energy project credit.
Sponsor: Sen Bingaman, Jeff [NM] (introduced 12/9/2009) Cosponsors (3)

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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