Daily Tax Update - December 23, 2009


IRS AND TREASURY ISSUE FINAL REGULATIONS ON APPORTIONMENT OF TAX ITEMS AMONG MEMBERS OF A CONTROLLED GROUP OF CORPORATIONS: Yesterday, the IRS and Treasury issued final regulations that provide guidance to corporations that are component members of a controlled group of corporations and to consolidated groups filing life-nonlife Federal income tax returns. Proposed regulations in 2006 provided guidance to taxpayers for determining which corporations are included in a controlled group of corporations. Proposed regulations in 2007 provided guidance on calculating and apportioning the section 11(b)(1) additional tax under section 1561 for component members of a controlled group of corporations and consolidated groups filing life-nonlife federal income tax returns. The final regulations generally adopt the proposed regulations issued in 2006 and 2007 without substantive change, but make several clarifying amendments. In particular, the final regulations contain the following additional clarifications.

  • The final regulations provide that only the positive taxable income or positive alternative minimum taxable income of the component members of a controlled group of corporations shall be combined for purposes of determining the amount of the additional tax imposed by section 11(b)(1) and the reduction in the alternative minimum tax exemption amount under section 55(d)(3).
  • The final regulations provide that a component member that has a short taxable year that does not include a December 31st date calculates its additional tax and alternative minimum tax liability on its own income.
  • The final regulations also clarify the rules under which an apportionment plan is terminated.
  • The regulations can be accessed here
  • For additional information, contact Mark J. Silverman - msilverman@steptoe.com or Lisa M. Zarlenga - lzarlenga@steptoe.com.

SENATE TO HOLD HEALTH CARE VOTE TOMORROW MORNING: An agreement has been reached between Senate Minority Leader Mitch McConnell and Senate Majority Leader Harry Reid that will allow for a vote on Reid’s health care reform bill tomorrow morning at 7:00 a.m. Once the Senate passes the bill, a House–Senate conference committee must reconcile the differences in the two bills following the first of the year, after which each chamber must pass the conference report bill.

GRASSLEY VOWS TO HOLD UP TREASURY NOMINEES UNTIL SMALL BUSINESSES GET FAIR TAX TREATMENT: Today, Ranking Finance member Charles Grassley said that he is “putting the Treasury Department, including the IRS, on notice that he will hold up all Treasury nominees until the agency treats small businesses fairly regarding certain tax penalties.” Grassley said, “Treasury is quick to help out big banks but slow to act when small businesses need fair treatment. There seems to be a double standard and a failure to recognize that small businesses are just as critical to the economy as big banks, if not more critical. Small businesses create 70 percent of all net new jobs. If we don’t recognize that, we’re shooting ourselves in the foot.” Grassley’s letter to Treasury Secretary Geithner and IRS Commissioner Shulman said, “I am writing to express my disappointment with actions taken by both the Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) with respect to Internal Revenue Code (IRC) sections 382 and 6707A. On November 18, 2008, I wrote to then Secretary Paulson regarding Notice 2008-83, which changed the rules governing the deductibility of losses under IRC section 382(h). The facts and circumstances surrounding the issuance of that Notice raised concerns about the independence and merits of the decision.”

  • Although the Finance Committee favorably reported the nominations of several Treasury Department nominees today, including Michael Mundaca to be Treasury Assistant Secretary for Tax Policy, it is unclear when the vote will be held by the full Senate.
  • Grassley’s letter can be accessed here

BAUCUS AND GRASSLEY EXPRESS SUPPORT FOR PROMPT ACTION ON EXTENDERS: On December 22, Senate Finance Committee Chairman Max Baucus and Ranking Member Chuck Grassley sent a letter to Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell regarding Congressional adjournment this year without acting on extending the expiring tax provisions. Baucus and Grassley issued the following statement, “Although the House and Senate were unable to come to agreement on a package to extend several expiring tax provisions before Congress adjourned, these measures must be addressed as soon as possible. These expiring tax provisions help American families and businesses and address some of our most urgent national priorities, including job creation, at a critical time in our nation’s economic recovery. Expiration of these provisions makes it difficult for taxpayers to fully and effectively realize the intended benefits by creating uncertainty and complexity in the tax law. In an effort to provide a seamless extension of these provisions with the fewest disruptions and administrative problems, we will take up legislation as quickly as possible in the new year.”

Revenue Procedure 2010-12 extends, by two years, the period for temporary guidance regarding certain stock distributions by publicly traded corporations that are regulated investment companies (RICs) or real estate investment trusts (REITs). For stock dividends declared on or after January 1, 2008 and before December 31, 2011, the Service will treat a stock distribution by a publicly traded RIC or REIT pursuant to a stock-in-lieu-of-money election (under the terms defined in the revenue procedure) as a distribution of property to which section 301 applies by reason of section 305(b), and the amount of such distribution of stock will be considered to equal the amount of the money which could have been received instead. In addition, the distribution will not be a preferential dividend under section 562(c).

Notice 2010-03 modifies Notice 2008-55, 2008-27 I.R.B. 11 (July 7, 2008), to extend the date by which an initial liquidity facility may be added to support certain auction rate preferred stock from December 31, 2009 to December 31, 2010.

Revenue Procedure 2010-11 modifies the conditions established in Rev. Proc. 80-59, 1980-2 C.B. 855, under which a trustee of a blind trust meets the requirements of section 102(f)(3) of the Appendix to Title 5 of the United States Code (or any successor provision of the United States Code) may execute and file an income tax return on behalf of any individual described in section 101(f) of the Appendix to Title 5 of the United States Code (or any successor provision of the United States Code) ("eligible individual").

Notice 2010-07 modifies Notice 2008-88, 2008-42 I.R.B. 933 (Oct. 20, 2008) to extend the expiration dates from Dec. 31, 2009 to Dec. 31, 2010 of certain temporary rules allowing state and local governmental issuers to purchase and hold their own tax-exempt bonds under special reissuance standards for tax-exempt bonds. Notice 2008-88 amended and supplemented Notice 2008-41, 2008-15 I.R.B. 742 (April 14, 2008), regarding reissuance standards for tax-exempt bonds to expand the circumstances and time periods during which the Treasury Department and the Internal Revenue Service would treat a tax-exempt bond that is purchased by its state or local governmental issuer as continuing in effect without resulting in a reissuance or retirement of the purchased bond solely for purposes of § 103 and §§ 141 through 150 of the Internal Revenue Code, as amended.

Revenue Ruling 2010-02 provides the dollar amounts, increased by the 2010 inflation adjustment, for 1274A of the Internal Revenue Code.

Revenue Ruling 2010-01 provides various prescribed rates for federal income tax purposes including the applicable federal interest rates, the adjusted applicable federal interest rates, the adjusted federal long-term rate, the adjusted federal long-term tax-exempt rate. These rates are determined as prescribed by § 1274. The rates are published monthly for purposes of sections 42, 382, 412, 1288, 1274, 7520, 7872, and various other sections of the Internal Revenue Code.

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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