Daily Tax Update - March 18, 2010

CBO SCORES HEALTH CARE REFORM COST AT $940 BILLION WHILE REPUBLICANS CONTINUE EFFORTS TO DERAIL BILL: The Congressional Budget Office has scored the Democratic health care reform bill at a cost of $940 billion over a decade.  The bill expands health insurance coverage to 32 million Americans.  In total, the bill is estimated to save $130 billion over the first 10 years and $1.2 trillion over the second decade.  A vote in the House could occur Sunday.

  • House Democratic Whip James Clyburn said, “We are absolutely giddy over the great news that we've gotten from the CBO.”    House Republican Leader John Boehner countered, "They're still going to spend a trillion dollars so we impose government-run health care on the American people.”
  • Meanwhile, President Obama said yesterday that he was not concerned with the procedural aspects of how the health care bill might be passed.  Obama said, “I don't spend a lot of time worrying about what the procedural rules are in the House or Senate.  What I can tell you is that the vote that's taken in the House will be a vote for health care reform.  And if people vote yes, whatever form that takes, that is going to be a vote for health care reform.  And I don't think we should pretend otherwise.  And if they don't, if they vote against it, then they're going to be voting against health care reform and they're going to be voting in favor of the status quo.” The President added, “So Washington gets very concerned with these procedures in Congress, whether Republicans are in charge or Democrats are in charge.” Under “deem and pass,” the Senate-passed health bill would be "deemed" to have passed if House members vote in favor of the reconciliation bill. Obama expressed confidence that the health care bill will pass. Obama said, “And the reason I'm confident that it's going to pass is because it's the right thing to do. And yes, I have said that this is an ugly process. It was ugly when Republicans were in charge. It was ugly when Democrats were in charge."  
  • However, Republicans have vowed to continue to try to block the bill from moving forward by offering a resolution to force a vote on the Senate-passed bill and utilizing other techniques. The Republican resolution to force a vote on the Senate bill was defeated in the House today, but 28 Democrats voted in support of the Republican resolution.  Senate Minority Whip Jon Kyl expressed confidence the reconciliation bill could be blocked in the Senate. Kyl said, “We’re not going to get into how we’re going to deal with a bill that we don’t even think is going to come over here. The points-of-order issue is really important, because they expect to fix a bill with a process that really isn’t going to end up fixing it. And, House Democrats need to know that. ... They think that their reconciliation bill is going to be adopted by the Senate. It’s going to look very different by the time we’re done with it.”
  • Senate Minority Leader Mitch McConnell said, “It’s not too late. All we need is enough Democrats in the House of Representatives to do the right thing for the American people.” McConnell also said, “Our plan is for it not to come to the Senate and for it to be defeated in the House in the next few days.”

IRS ISSUES INTERIM GUIDANCE ON MEASUREMENT OF CONTINUITY OF INTEREST IN REORGANIZATIONS: Today, the IRS issued Notice 2010-25, which provides taxpayers with interim guidance for the period between the expiration of temporary regulations and the issuance of replacement guidance.

  • On March 20, 2007, the IRS and Treasury published temporary and proposed regulations that provide guidance on the measurement of continuity of interest for corporate reorganizations where the value of the target corporation's stock fluctuates between the date the agreement is signed and the date the transaction is closed. On March 19, 2010, the temporary regulations, Temp. Treas. Reg. § 1.368-1T(e)(2), will expire.
  • The Notice provides that, after the expiration of the temporary regulations and prior to the issuance of new regulations, taxpayers may apply the rules set forth in the proposed regulations (which are the same as the temporary regulations). However, under the Notice, all corporations and transferees involved in a reorganization must elect to apply the provisions of the proposed regulations. This requirement will be satisfied if none of the specified parties adopts treatment inconsistent with this election.
  • For additional information, contact Mark J. Silverman - msilverman@steptoe.com or Lisa M. Zarlenga - lzarlenga@steptoe.com.

PRESIDENT SIGNS HIRE ACT INTO LAW: President Obama signed the Hiring Incentives to Restore Employment (HIRE) Act, H.R. 2847 into law today.

  • Additional information on the bill can be accessed here and here

Announcement 2010-19 applies to trusts that met the requirements to be classified as a Type III supporting organization for taxable years beginning after 2007, but erroneously filed Form 990-PF and paid section 4940 tax for the 2008 taxable year. It provides procedures for requesting a ruling that such a trust was and continues to be a Type III supporting organization described in section 509(a)(3) and to obtain a refund of any section 4940 tax paid with respect to its 2008 taxable year. This announcement also describes procedures for charitable trusts that became private foundations after August 16, 2007, and wish to terminate their private foundation status under section 507(b)(1)(B) by operating as Type III supporting organizations.

Revenue Ruling 2010-11 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.

H.R.4873: To exempt the natural aging process in the determination of the production period for distilled spirits under section 263A of the Internal Revenue Code of 1986.
Sponsor: Rep Chandler, Ben [KY-6] (introduced 3/17/2010)      Cosponsors (5)

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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