Daily Tax Update - January 5, 2011: 112th Congress Convenes - House Passes "Cut-Go"

112th CONGRESS CONVENES – HOUSE PASSES “CUT-GO”: Today, the new members of the House and Senate were sworn in and Rep. John Boehner (R-OH) was officially elected Speaker of the House. Rep. Eric Cantor (R-VA) is the new House Majority Leader. In remarks today, Boehner said, "Our aim will be to give government back to the people. In seeking this goal, we will part with some of the rituals that have come to characterize this institution under majorities Republican and Democratic alike. We will dispense with the conventional wisdom that bigger bills are always better; that fast legislating is good legislating; that allowing additional amendments and open debate makes the legislative process 'less efficient' than our forefathers intended. These misconceptions have been the basis for the rituals of modern Washington. The American people have not been well served by them." Boehner added, "We will not always get it right. We will not always agree on what is right. A great deal of scar tissue has built up on both sides of the aisle. We cannot ignore that, nor should we. My belief has always been, we can disagree without being disagreeable to each other. That’s why it is critical this institution operate in a manner that permits a free exchange of ideas, and resolves our honest differences through a fair debate and a fair vote. We may have different – sometimes, very different – ideas for how to go about achieving the common good, but it is our shared goal. It is why we serve."

  • A key priority of Republicans is to repeal President Obama’s health care reform act and a House vote is scheduled on January 12. The House is expected to pass the bill repealing the health care law, but not the Senate. Because Senate passage is unlikely, House Republicans plan to offer numerous bills cutting funds for the implementation of various provisions in the new health care act.
  • Republicans are also beginning to identify $100 billion in spending cuts that they plan to offer. The new Budget Committee Chairman, Rep. Paul Ryan (R-WI), said "We're going to be reducing all domestic discretionary spending. I cannot tell you by which amount or which programs."
  • Today, the House passed a new rules package changing the way the House operates, including an alternative to the Democrats "pay-as-you-go," which ensured that every new spending measure was paid for. The new "cut-as-you-go" provision put forth by Republicans requires that any new spending provision be offset only by spending cuts and not by tax increases. Offsets for tax cuts would not be required. Boehner said, "Under this 'CutGO' rule, if it is your intention to create a new government program, you must also terminate or reduce spending on an existing government program of equal or greater size - in the very same bill." Cantor added, "I think you could sum up what our new majority is going to be about by saying it is a 'cut and grow' majority. We are going to be about cutting spending and cutting the job-killing regulations that this administration has been about over the last two years."
  • Yesterday, House leaders said that they want tax reform be a top priority this Congress. Cantor said, "Tax reform could be a significant boost to our competitiveness. And I'm hopeful and expect the president to put some action behind his statements towards working together on tax reform." Cantor added, "You know, I think anything having to do with tax reform has to be looked at through the prism of how do we make sure that we get our economy back on stable footing. And that means to grow jobs, that means to increase access to capital, that means adding to certainty without somehow skewing the efficient flow of capital." House Minority Leader Steny Hoyer (D-MD) said, "The tax code is inefficient, cumbersome, complicated, costly for Americans and American business. Hopefully, we can reach a bipartisan consensus on how to [reform the system] by reducing preferences and reducing rates."
  • Today, National Taxpayer Advocate Nina Olson released her annual report to Congress, identifying the need for tax reform as the number one priority in tax administration. Olson said, "There has been near universal agreement for years that the tax code is broken and needs to be fixed. Yet no broad-based attempt to reform the tax code has been made. This report documents the burdens the tax code imposes on taxpayers and explores why many taxpayers may nevertheless feel wedded to key aspects of the current system, undermining efforts at reform."
  • The report can be accessed here.
  • The Republican’s "Pledge To America" can be accessed here.
  • The 2011 House calendar can be accessed here.
  • The 2011 Senate calendar can be accessed here.

IRS EXTENDS FILING DEADLINE TO APRIL 18: The IRS announced that taxpayers have until April 18 to file their tax returns. The IRS stated, "Taxpayers will have until Monday, April 18 to file their 2010 tax returns and pay any tax due because Emancipation Day, a holiday observed in the District of Columbia, falls this year on Friday, April 15. By law, District of Columbia holidays impact tax deadlines in the same way that federal holidays do; therefore, all taxpayers will have three extra days to file this year. Taxpayers requesting an extension will have until October 17 to file their 2010 tax returns."

  • Additional information can be accessed here
Revenue Procedure 2011-16 provides a safe harbor to real estate investment trusts (REITs) with respect to how interest on certain loans secured by real estate that have been modified in response to default or reasonably foreseeable default will be treated for purposes of the income tests under sections 856(c)(2) and (3) of the Internal Revenue Code. The revenue procedure also provides a safe harbor regarding the treatment of certain mortgage loans for purposes of the 75 percent asset test under section 856(c)(4)(A).

Revenue Procedure 2011-17 provides a safe harbor method of accounting for the treatment of gift cards issued to customers in exchange for returned merchandise. The rev. proc. allows these taxpayers to treat the issuance of a gift card in exchange for returned goods as (1) the payment of a cash refund in the amount of the gift card, and (2) the sale of a gift card in the amount of the gift card. The taxpayer then may account for the amount deemed received for the sale of the gift card under § 1.451-5 or Rev. Proc. 2004-34.

Revenue Procedure 2011-18 extends the advance payment deferral method of accounting of Rev. Proc. 2004-34, 2004-1 C.B. 991, to accrual method taxpayers who sell gift cards that may be redeemed by another entity under a gift card service agreement. Rev. Proc. 2011-18 allows a taxpayer to apply the deferral method to a sale of a gift card (or gift certificate) if (1) the taxpayer is primarily liable to the customer (or holder of the gift card) for the value of the card until redemption or expiration, and (2) the gift card is redeemable by the taxpayer or by any other entity that is legally obligated to the taxpayer to accept the gift card from a customer as payment.

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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