Daily Tax Update - January 19, 2010

CONGRESS RETURNS TO FACE BUSY AGENDA – SENATE SUPERMAJORITY AT STAKE IN MASSACHUSETTS RACE: Congress returns amid continued negotiations over the fate of the health care reform bill. House and Senate negotiators are holding discussions with the White House over numerous outstanding issues and are hopeful to complete negotiations by the end of this week. 

  • However, the special election today in Massachusetts for the Senate seat of the late Sen. Ted Kennedy will impact the future of the health care reform bill. If Republican candidate Scott Brown defeats Democrat Martha Coakley, Republicans will have 41 votes in the Senate, which would end the Democrats’ filibuster-proof 60-vote majority and complicate Democrats' efforts on the health care bill and other legislation. Today, House Majority Leader Steny Hoyer said that it was possible that Democrats could complete work on the bill in the next 15 days, before the deadline for the election results to be certified by the Massachusetts Secretary of State. One option for advancing the bill is for the House to pass the Senate bill and then send it straight to the President’s desk. Hoyer suggested that he might be willing to consider that option. Hoyer said, “I think moving ahead on health care is essential.... I think clearly the Senate bill is better than nothing.”
  • Once Congress completes action on health care, it is expected to turn to the estate tax, which was repealed January 1, 2010. The House passed a bill last year that would permanently extend the estate tax at its 2009 levels, i.e., a 45-percent tax rate and a $3.5 million exemption ($7 million for couples), but the Senate failed to act before the session ended. Earlier this month, when House Ways and Means Chairman Charles Rangel was asked whether the tax would be made retroactive, Rangel replied, “I don't like retroactivity, but you never can tell.” A spokesman for Senate Finance Chairman Max Baucus said earlier this month, “Sen. Baucus is in contact with Chairman Rangel and continues to work with Sen. Grassley to develop a viable, fiscally-responsible proposal that provides a seamless fix with the fewest disruptions and administrative problems. His goal remains addressing it quickly and in the most complete and permanent way possible that is fair to American taxpayers.”

STEPTOE TAX LAWYERS SILVERMAN AND VARMA PUBLISH ARTICLE “THE FUTURE OF TAX PLANNING:  FROM COLTEC TO SCHERING-PLOUGH” IN TAX NOTES: In "The Future of Tax Planning: From Coltec to Schering-Plough," Mark J. Silverman and Amanda P. Varma examine the recent district court decision in Schering-Plough v. United States, in which the court determined that Schering-Plough's swap-and-assignment transactions: (1) were loans in substance, (2) lacked economic substance, and (3) did not comport with the overall intent of subpart F under the court's newly created doctrine: "assimilation with applicable tax laws." The report considers the impact of Schering-Plough and Coltec, as well as the likely codification of the economic substance doctrine, on future tax planning. The authors also examine economic substance codification and argue that if a taxpayer has acted in good faith and reasonably attempted to comply with the tax law, the taxpayer should not automatically be subject to a 40 percent penalty for failing to anticipate the novel tests of the next Coltec or Schering-Plough.

  • The entire article can be accessed here.

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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