Daily Tax Update - December 18, 2009

THE DAILY TAX UPDATE WILL BE PUBLISHED ON A PERIODIC BASIS UNTIL CONGRESS RECONVENES ON JANUARY 19TH.

REID HOPEFUL TO VOTE ON SENATE HEALTH CARE BILL BY CHRISTMAS: A heavy snowfall expected in the Washington area tomorrow could further complicate Senate Majority Leader Harry Reid’s plans to hold several cloture motions on the health care reform bill Saturday and possibly push back the timetable for a final vote. Reid has set a self-imposed pre-Christmas deadline for passing the bill. Reid is still working to gain the support of moderate Democrat Ben Nelson. Nelson said, “I hope we're getting closer" to agreement with Reid over his objections to the bill. Reid needs all 60 members of the Democratic caucus to vote “aye” to hit the required 60-vote threshold for the bill’s passage.

  • Senate Health, Education, Labor and Pensions Chairman Tom Harkin said the latest numbers from the Congressional Budget Office were favorable but expressed concern that Republicans will “keep us here until Christmas Day.” Sen. Olympia Snowe and other Republicans want to postpone the vote until next year. Snowe said that the Democrats' timetable for a pre-Christmas vote was “totally unrealistic.” Minority Leader Mitch McConnell said today, “I think we’ve made it clear we’re not going to expedite the schedule for health care. We don’t want this bill to pass and we’re going to do everything we can not to complete it.”

UPDATED US- ITALY TAX TREATY ENTERS INTO FORCE, TEN YEARS AFTER RATIFICATION: On December 16, 2009, a new US-Italy tax treaty entered into force. The treaty was approved by the Senate and signed by President Clinton in 1999, subject to reservations. First, the United States required that certain “main purpose” language (which would allow tax authorities to deny treaty benefits when the “main purpose, or one of the main purposes,” of the creation or assignment of the rights giving rise to the income was to take advantage of the treaty) be deleted. Second, the treaty omitted a "bank secrecy” rule contained in the US Model treaty, which provides that a country must provide information despite laws or practices of the requested country that would otherwise preclude obtaining such information. The United States ratified the treaty subject to an understanding that the competent authorities have the authority to obtain and provide information held by financial institutions or persons acting in a fiduciary capacity. The Italian government agreed to the reservations and authorized the ratification of the new treaty this year. The provisions of the new treaty include:

  • 5% withholding on certain direct dividends and 15% withholding on other dividends;
  • 0% withholding on certain interest paid to, or guaranteed by, qualified government entities or with respect to certain sales on credit and 10% withholding on all other interest;
  • 0% withholding on royalties for certain literary, artistic, or scientific works, 5% withholding on royalties relating to computer software or equipment, and 8% withholding on all other royalties;
  • An updated limitation on benefits provision; and
  • An arbitration procedure if the competent authorities of the two contracting states fail to reach an agreement over a treaty dispute within two years.
  • The withholding provisions of the treaty will be effective for amounts paid or credited on or after February 1, 2010. The other provisions of the treaty will be effective January 1, 2010.
  • For additional information, contact Philip R. West - pwest@steptoe.com  

MISCELLANEOUS GUIDANCE RELEASED TODAY:
Notice 2010-09 clarifies that, for calendar year 2009, filers of Form 1099-B, Form 1099-S, and certain information on Form 1099-MISC have until February 16, 2010, to report both the information required on these forms and certain other tax information furnished on the same date.

Notice 2010-04 provides guidance and limited penalty relief to middlemen and trustees for transition year reporting for Widely Held Mortgage Trusts (WHMTs). The notice also provides guidance on trust interest holders’ treatment of transition payments; on preparation of Forms 1099 and written tax information statements; and on furnishing tax information packages for certain Non-Mortgage Widely Held Fixed Investment Trusts (NMWHFITs).

Notice 2010-08 provides interim rules doubling the period for submission to the IRS (or an agent or contractor of the IRS) of taxpayer requests for and consents to disclosure of returns and return information under Internal Revenue Code section 6103(c).

Notice 2010-10 provides guidance on the tax-exempt bond provisions for the Midwestern and Hurricane Ike disaster areas under the Heartland Disaster Tax Relief Act of 2008, Subtitle A of Title VII of the Tax Extenders and Alternative Minimum Tax Relief Act of 2008 (Division C of Public Law 110-343, 122 Stat. 3765, enacted on October 3, 2008) (Act) and § 1400N(a) of the Internal Revenue Code, as modified by the Act. This Notice also provides guidance on reimbursement expenditures made with proceeds of tax-exempt bonds issued for Midwestern and Hurricane Ike disaster areas and tax-exempt “Qualified Gulf Opportunity Zone Bonds” issued under § 1400N(a) of the Code. 

TAX BILLS INTRODUCED DECEMBER 17th:
S.2899: A bill to amend the American Recovery and Reinvestment Act of 2009 and the Internal Revenue Code of 1986 to provide incentives for the development of solar energy.
Sponsor: Sen Feinstein, Dianne [CA] (introduced 12/17/2009)      Cosponsors (1)

S.2905: A bill to amend the Internal Revenue Code of 1986 to repeal the reduction in the deductible portion of expenses for business meals and entertainment.
Sponsor: Sen Inouye, Daniel K. [HI] (introduced 12/17/2009)      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
Steptoe & Johnson LLP has one of the largest and most diverse law firm tax practices in the country. The practice covers the entire spectrum of federal taxation, including representation of businesses before the Congress, Treasury and the national office of the IRS; transactional planning for domestic and multinational corporations; complex audit and controversy work for corporations and other business interests contesting IRS adjustments; litigation before the Tax Court, Court of Federal Claims, district courts, courts of appeals and the Supreme Court. The firm's tax practice also encompasses all aspects of employee benefits (ERISA), executive compensation, tax-exempt organizations and charitable giving. Steptoe has an extensive state and local tax practice, representing an array of business clients on complex sales and use tax, corporate income tax and property tax matters, both advising those clients and handling audits, administrative appeals, and litigation for them. Read more information on Steptoe's tax practice.