Daily Tax Update - April 27, 2010

NATIONAL COMMISSION ON FISCAL RESPONSIBILITY AND REFORM HOLDS FIRST MEETING: Today, the President’s bipartisan debt commission panel, the National Commission on Fiscal Responsibility and Reform, held its first meeting. President Obama and the co-chairs said that nothing is off the table to help reduce the deficit. The Commission is charged with identifying policies and proposing recommendations designed to balance the budget, excluding interest payments on the debt, by 2015. The report is due by December 1, 2010.

  • In an interview yesterday, former Clinton Chief of Staff Erskine Bowles and former Wyoming Sen. Alan Simpson, the co-chairs of the panel, highlighted some of the challenges the commission will face. Simpson said, “Nothing is off the table. Absolutely nothing.” Simpson also said that a VAT should not be an additional tax on top of the income tax. Simpson said, “To drag this specter of the value added tax like a dead rat through the room without doing something with the income tax is a fakery.” Simpson added, “What is this value added tax? I haven't the slightest idea but if you're going [to] mess around in that area or flat tax, you're going to adjust the other tax in accordance.” Simpson said that obtaining a consensus among the bipartisan panel will be a challenge because it takes 14 votes out of 18 members to approve a recommendation. Simpson said, “This is a suicide mission.”
  • Bowles concurred, “Let's see if we can persuade people to trust each other, come together, and really take some of these tough stands to bring down spending. Everything has to be on the table, whether it's revenue or spending. I personally would like to go after spending first.” On the issue of a VAT, Bowles said, “I think there are many good arguments that you can make for a value added tax or a consumption tax, as opposed to a tax on wages.”
  • Today, the President opened the Commission’s meeting. The President said, “Now, I’ve said that it’s important that we not restrict the review or the recommendations that this commission comes up with in any way. Everything has to be on the table. And I just met briefly with the commission and said the same thing to them. Of course, this means that all of you, our friends in the media, will ask me and others once a week or once a day about what we’re willing to rule out or rule in when it comes to the recommendations of the commission. That’s an old Washington game and it’s one that has made it all but impossible in the past for people to sit down and have an honest discussion about putting our country on a more secure fiscal footing. So I want to deliver this message today: We’re not playing that game. I’m not going to say what’s in. I’m not going to say what’s out. I want this commission to be free to do its work.”
  • OMB Director Peter Orszag said, “The options to further reduce the deficit may not be popular, but they are necessary. Success will require a commitment from both parties to engage in constructive and honest dialogue, and I look forward to working with the Commission in the weeks and months ahead.”
  • Regarding a VAT, House Budget Committee ranking member, Paul Ryan said, “If you look at the math of all of this, spending is the culprit. You cannot tax your way out of this problem, so I don't think we should go down that path.”
  • The President’s remarks can be accessed here

ISSUES GUIDANCE ON TAX TREATMENT OF HEALTH CARE BENEFITS FOR CHILDREN UNDER 27: Today, the IRS issued Notice 2010-38, which provides guidance on the tax treatment of health coverage for children up to age 27 under the new health care law. According to the IRS, “This expanded health care tax benefit applies to various workplace and retiree health plans. It also applies to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return. Employees who have children who will not have reached age 27 by the end of the year are eligible for the new tax benefit from March 30, 2010, forward, if the children are already covered under the employer’s plan or are added to the employer’s plan at any time. For this purpose, a child includes a son, daughter, stepchild, adopted child or eligible foster child. This new age 27 standard replaces the lower age limits that applied under prior tax law, as well as the requirement that a child generally qualify as a dependent for tax purposes. The notice says that employers with cafeteria plans may permit employees to immediately make pre-tax salary reduction contributions to provide coverage for children under age 27, even if the cafeteria plan has not yet been amended to cover these individuals. Plan sponsors then have until the end of 2010 to amend their cafeteria plan language to incorporate this change.”

  • The IRS added, “In addition to changing the tax rules as described above, the Affordable Care Act also requires plans that provide dependent coverage of children to continue to make the coverage available for an adult child until the child turns age 26. The extended coverage must be provided not later than plan years beginning on or after Sept. 23, 2010. The favorable tax treatment described in the notice applies to that extended coverage.”
  • For additional information, contact Anne E. Moran - amoran@steptoe.com.

TAX BILL INTRODUCED APRIL 26TH:
H.R.5142: To amend the Internal Revenue Code of 1986 to provide for an investment tax credit for biofuel facilities, and for other purposes.
Sponsor: Rep Schwartz, Allyson Y. [PA-13] (introduced 4/26/2010)      Cosponsors (2)

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
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