Daily Tax Update - March 17, 2010

IRS, TREASURY ISSUE UPDATED 2009-2010 PRIORITY GUIDANCE PLAN: The IRS and Treasury have updated the 2009-2010 priority guidance plan. The IRS and Treasury’s statement said, “In our Joint Statement that accompanied the release of the 2009-2010 Priority Guidance Plan, we indicated that we would update the plan periodically to reflect additional guidance that we intend to publish during the plan year. Updating the plan also provides flexibility throughout the plan year to consider comments received from taxpayers and tax practitioners relating to additional projects and to respond to developments arising during the plan year. The attached update sets forth the guidance on the original 2009-2010 Priority Guidance Plan that we have published. Although the update may indicate that a particular item on the plan has been completed, it is possible that one or more additional projects may be completed in the plan year relating to that item. The update also includes 31 items of additional guidance, some of which have already been published.”

  • The document can be accessed here

WAYS AND MEANS APPROVES SMALL BUSINESS TAX BILL: Today, the House Ways and Means Committee favorably reported the "Small Business and Infrastructure Jobs Tax Act" (H.R. 4849). The Committee voted 25-15 along party lines. The House is expected to consider the legislation as early as next week.

  • The bill includes (1) a 100-percent exclusion of capital gains taxes for small businesses, (2) an extension of Build America Bonds, (3) language excluding bonds financing facilities that furnish water and sewage facilities from state volume caps, and (4) a provision allowing the new markets tax credit to be claimed against the alternative minimum tax with respect to qualified investments made between March 15, 2010 and January 1, 2012.
  • The bill’s offsets include: (1) a limitation on treaty benefits for certain deductible payments, (2) modifying the treatment of securities of a controlled corporation exchanged for assets in certain reorganizations, (3) repealing special rules for interest and dividends received from persons meeting the 80-percent foreign business requirements, (4) increased reporting on expenses related to rental property, and (5) a clarification that current law allowing the IRS to levy 100 percent of any payment due to a vendor for goods or services sold or leased to the federal government would include payments made for the sale or lease of real estate and other types of property not considered “goods or services.”
  • During today’s mark up, the Treasury Department expressed concern over the language in the bill which provides a limitation on treaty benefits for certain deductible payments. Emily McMahon, Deputy Assistant Treasury Secretary for Tax Policy said, “Yes. We are concerned. We do have concerns about the specifics of this provision…and whether it will override…many of our income tax treaties.” McMahon said Treasury would prefer a “more targeted approach,” adding that it is “premature at this point to predict how our treaty partners would react.”  
  • A description of the bill as introduced can be accessed here.

SENATE SENDS HIRE ACT TO PRESIDENT OBAMA FOR SIGNATURE: Today, the Senate passed the Hiring Incentives to Restore Employment ("HIRE") Act, H.R. 2847, with a bipartisan vote of 68 to 29. The bill will now go to President Obama for his signature.

  • Key provisions is the bill include: (1) an exemption from Social Security payroll taxes for every worker hired after February 3, 2010 and before January 1, 2011, who has been unemployed for at least 60 days; (2) extends 2008 and 2009 section 179 expensing thresholds so that taxpayers may elect to write-off up to $250,000 of certain capital expenditures (subject to a phase-out once expenditures exceed $800,000) in 2010 in lieu of depreciating those costs over time; (3) allows issuers to elect to convert these tax credit bonds into a Build America Bond; (4) extends highway and transit programs through calendar year 2010, and transfers $19.5 billion in interest foregone since 1998 from the General Fund to the Highway Trust Fund.
  • The revenue offsets in the bill include modified versions of the information reporting and withholding requirements of the Foreign Account Tax Compliance Act (“FATCA”), which was introduced in October 2009 by Senate Finance Committee Chairman Baucus (D-MT), Senate Finance Committee member John Kerry (D-MA), House Ways and Means Committee Chairman Rangel (D-NY), and House Ways and Means Select Revenue Subcommittee Chairman Richard Neal (D-MA). The new information reporting and withholding requirements will:
  • Require foreign financial institutions (“FFIs”) to enter into an agreement with the IRS or face a 30% withholding tax on all “withholdable payments” made after December 31, 2012;
  • Require the IRS to develop a qualified intermediary (“QI”)-type agreement under which FFIs would obtain, verify, and provide to the IRS information about US. accountholders;
  • Require a FFI that entered into such an agreement with the IRS to obtain information “as is necessary” to determine which, if any, of its accounts are US accounts (effective for payments made after December 31, 2012);
  • Require 30% withholding on certain payments to non-financial foreign entities (effective for payments made after December 31, 2012);
  • Repeal the foreign-targeted exception to registered bond requirements (effective for obligations issued 2 years after enactment);
  • Require all “individuals” holding “specified foreign financial assets” to file a FBAR-like disclosure form with the IRS (effective for taxable years beginning after the date of enactment);
  • Increase the statute of limitations to six years for failure to report certain offshore transactions and income (effective for future returns and past returns for which the former statute of limitations has not passed);
  • Clarify when a foreign trust is considered to have a US beneficiary (effective immediately after enactment),
  • Require regular PFIC reporting (effective immediately after enactment); and
  • Source to the United States any payment made pursuant to a notional principal contract, securities lending, or sale-repurchase transaction that (directly or indirectly) is contingent upon, or determined by reference to, the payment of a dividend from sources within the United States (effective 180 days after enactment).
  • To avoid 30% withholding on payments made after December 31, 2012, FFIs must enter into an agreement with the IRS under which the FFI agrees to:
  • Obtain information from each accountholder “as is necessary” to determine which, if any, of such accounts are US accounts;
  • Comply with such verification and due diligence procedures “as the [IRS] may require” with respect to the identification of US accounts;
  • Comply “with requests by the [IRS] for additional information” with respect to any US account maintained by such institution;
  • In any case in which any foreign law would (but for a specified waiver) prevent the reporting of certain required information, (i) attempt to obtain a valid and effective waiver of such law from each account holder of such account, and (ii) if a waiver is not obtained, close the account; and
  • In the case of any US account maintained by such institution, to report on an annual basis (at such time and in such manner as the IRS may provide) certain information, including the name, address, and tax identification number of each US account holder, the account number, the account balance or value, and (except to the extent provided by the Secretary) the gross receipts and gross withdrawals or payments from the account.
  • The bill will also further delay the implementation of worldwide allocation of interest to taxable years beginning after December 31, 2020. In 2004, Congress provided that, for taxable years beginning after December 31, 2008, a taxpayer could elect to allocate interest expense between United States sources and foreign sources for purposes of determining its foreign tax credit limitation. The phase-in of this rule was then delayed for two years, then delayed for an additional seven years, and now is being delayed another three years.
  • For additional information, contact Philip R. West - pwest@steptoe.com

LEVIN WANTS TO TAKE UP EXPIRING TAX CUTS AND ESTATE TAX AFTER EASTER RECESS: House Ways and Means Chairman Sander Levin said yesterday that he would try to take up the impending expiration of the 2001 and 2003 tax cuts and legislation reinstating the estate tax after the Easter recess. “Here it is, St. Patrick's Day. We ought to do this [estate tax] if not before we leave, then when we come back” from the recess, Levin said. “The sooner we do it, the better.” Levin added that he believes the estate tax legislation should be extended at 2009 rates and should likely be made retroactive to the start of the year. The two-week Congressional recess begins March 29.

Notice 2010-18 assists State Housing Credit Agencies in determining how to reduce the low-income housing tax credit ceiling under § 42(h)(3) of the Internal Revenue Code when credits are exchanged for funds pursuant to section 1602 of the American Recovery and Reinvestment Tax Act of 2009. The Notice also provides guidance concerning the affect of section 1602 funds on building basis and taxpayer income. 

Notice 2010-17 provides the face amount of qualified school construction bonds (QSCBs) allocated by the Department of the Treasury to each State and large local education agency for 2010 under § 54F(d) of the Internal Revenue Code. The Notice supplements Notice 2009-35, 2009-17 I.R.B. 876 (April 27, 2009), and does not contain any other guidance.

H.R.4849: To amend the Internal Revenue Code of 1986 to provide tax incentives for small business job creation, extend the Build America Bonds program, provide other infrastructure job creation tax incentives, and for other purposes.
Sponsor: Rep Levin, Sander M. [MI-12] (introduced 3/16/2010)      Cosponsors (17)

H.R.4850: To amend the Internal Revenue Code of 1986 to allow companies to utilize existing alternative minimum tax credits to create and maintain United States jobs, and for other purposes.
Sponsor: Rep Peters, Gary C. [MI-9] (introduced 3/16/2010)      Cosponsors (3)

H.R.4853: To amend the Internal Revenue Code of 1986 to extend the funding and expenditure authority of the Airport and Airway Trust Fund, to amend title 49, United States Code, to extend authorizations for the airport improvement program, and for other purposes.
Sponsor: Rep Oberstar, James L. [MN-8] (introduced 3/16/2010)      Cosponsors (5)

H.R.4859: To amend the Internal Revenue Code of 1986 to allow the work opportunity credit to small business which hire individuals who are members of the Ready Reserve or National Guard.

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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