Daily Tax Update - March 23, 2011: Mundaca: Repatriation Should Be Considered In Context Of Tax Reform


MUNDACA: REPATRIATION SHOULD BE CONSIDERED IN CONTEXT OF TAX REFORM:  Today, in a Treasury Department website blog, Assistant Treasury Secretary for Tax Policy Michael Mundaca expressed support for the Administration’s position that "it would not be sensible to consider a repatriation holiday outside of that [comprehensive tax reform] context."  

  • Mundaca said, "The President has called upon us all – Republicans and Democrats, his Administration and Congress, businesses and other stakeholders to come together to enact comprehensive tax reform that lowers our high statutory corporate tax rate and improves the tax system for the US corporate community as a whole.  Comprehensive, long-term reform has the potential to benefit businesses across the United States, and make our economy more competitive. That is why a broad range of businesses have expressed a willingness to answer the President’s challenge and come together to make our principal focus an overhaul our corporate tax code.  A narrow group of businesses has suggested that instead, our primary focus should be a temporary repatriation tax holiday – an idea tried a few years ago that gave a select group of US multinational corporations a temporary, substantial tax break on their overseas profits.  However, letting our eye off the ball of comprehensive tax reform in favor of a temporary measure of this kind would be a mistake."  Mundaca continued, "Although advocates argue that a repatriation holiday could be costless or even raise tax revenue, the official Congressional scorekeeper, the Joint Committee on Taxation, estimated before enactment that the 2004 repatriation holiday would actually cost billions of dollars.  In 2009, when this idea was being pushed once again, Senator Baucus indicated during Floor debates that the cost of a new holiday had increased to $30 billion, presumably because a second holiday would encourage further erosion of the US tax base through shifting of profits overseas.  Moreover, according to outside estimates, just five firms got over one-quarter of the tax benefits of the repatriation holiday, and just 15 firms got more than 50 percent of the benefits.  To pay for giving this large tax cut once again to a small group of US companies without increasing the deficit, we would have to raise taxes on other US businesses."  Mundaca concluded, "Today, when US corporations have ready access to cash they have accumulated and are holding here in the United States, it is even harder to make the case that a repatriation holiday will unlock new investment and job creation…We are in the process of trying to build consensus among lawmakers, the public, and the private sector, including a broad section of the business community to do just that.  The tax treatment of overseas earnings could be considered as a part of broader corporate tax reform, but as Secretary Geithner has said, it would not be sensible to consider a repatriation holiday outside of that context.  Comprehensive reform can be done.  We should not allow ourselves to be distracted from that goal."
  • Mundaca’s blog can be accessed here
  • In a speech earlier this week, House Majority Leader Eric Cantor (R-VA) said that he supports a repatriation holiday.  Cantor said, "It’s wrong that American companies are paying taxes at rates that are 50% higher than even those in Europe.  We must make America competitive again by lowering the corporate tax rate to at least 25% - equal to our competitors.  And we will do it as part of fundamental tax reform, which will minimize the impact on government revenues.  Forging consensus on this type of fundamental tax reform will take time, so in the meantime I propose that we allow US multinational companies to bring back almost $1.2 trillion in overseas profits at a lower tax so they can invest in our economy here at home."
  • Cantor’s remarks can be accessed here
  • For additional information, contact Philip R. West at pwest@steptoe.com or Mark J. Silverman at msilverman@steptoe.com.

IRS PROVIDES SCHEDULE UTP FREQUENTLY ASKED QUESTIONS:  Today, the IRS released several "Frequently Asked Questions on Schedule UTP" on its website.   According to the IRS, "These frequently asked questions supplement the information contained in the 2010 instructions and in the other guidance issued on Schedule UTP.  The FAQs address some of the issues that taxpayers and practitioners have raised about Schedule UTP and related guidance.  Additional FAQs may be forthcoming to address other issues."

FINANCE HEARING TO CONSIDER HOW COMPLEXITY, UNCERTAINTY, DESIGN AFFECT TAXPAYERS’ USE OF TAX INCENTIVES:  On March 30, the Senate Finance Committee will continue its series of hearings on tax reform by considering whether tax incentives actually work, or whether they reward behavior that would have occurred anyway at a hearing titled "How Do Complexity, Uncertainty and Other Factors Impact Responses to Tax Incentives."  At the hearing, Committee Chairman Max Baucus will ask about the extent to which taxpayers change their choices in response to tax incentives intended by Congress to encourage activities like retirement saving, charitable giving and investment.  He will ask the witnesses about how responses to tax incentives are affected by the tax code’s complexity caused by the 15,000 changes made since the 1986 Tax Reform Act, uncertainty brought on by legislative battles over reauthorizations and expirations, and overall design and administration.  Baucus will also ask about low-cost ways to increase responsiveness to tax incentives.

The witnesses at the hearing will be:

  • Dr. Eric J. Toder, Institute Fellow, Urban Institute, Co-Director, Urban Institute-Brookings Institution Tax Policy Center;
  • Dr. Raj Chetty, Professor, Department of Economics, Harvard University; and 
  • Dr. Robert Carroll, Principal, Quantitative Economics and Statistics, Ernst & Young, LLP.

Notice 2011-24 updates the rules relating to the qualifying advanced coal project program under § 48A and the qualifying gasification project program under § 48B of the Internal Revenue Code.  Specifically, this notice applies to any qualifying project that includes equipment that separates and sequesters such project’s total carbon dioxide emissions.  Except as specifically provided in this notice, the qualifying advanced coal project program and the qualifying gasification project program will be conducted in the manner and under the procedures provided in Notice 2009-24, 2009-16 I.R.B. 817, and Notice 2009-23.

Notice 2011-25 modifies Notice 2009-83, 2009-44 I.R.B. 588, by removing section 4.07 of the Notice. Section 4.07 provided that for purposes of § 45Q of the Internal Revenue Code, qualified carbon dioxide (CO2) does not include CO2 that is captured and sequestered in a project as required under an agreement entered into in connection with the qualifying advanced coal project program of § 48A or the qualifying gasification project program of § 48B.

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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