Daily Tax Update - April 6, 2011: Government Shutdown Looming

GOVERNMENT SHUTDOWN LOOMING AS CONGRESS WORKS TO RESOLVE BUDGET DISPUTES:  President Obama said that it would be "inexcusable" for Congress to fail to avert a government shutdown at the end of this week.  Obama added, "We are now at a point where there’s no excuse to extend this further.  We don’t have time for games.  We don’t have time for trying to score political points or maneuvering or positioning."

  • The current stopgap spending resolution is set to expire on April 8.   House Speaker John Boehner said yesterday that he wants to cut another $40 billion from the current fiscal year spending levels.  Today, Senate Majority Leader Harry Reid said negotiations were proceeding "nonstop."  Reid added, "We stand here with fewer than 72 hours on the clock.  It’s time to get to work."
  • However, House Republican leaders were not optimistic yesterday that an agreement could be worked out.  House Majority Leader Eric Cantor said, "I don’t think that’s even a likelihood.  It appears that the Senate does want to shut down the government."  Meanwhile, another Senate Democratic leader expressed optimism today that a shutdown would not occur.  Sen. Dick Durbin said, "I feel better today than I did yesterday.  There’s a direct negotiation.  There have been things put on the table that had not been discussed before, and I think that we’re moving toward closure."
  • According to a senior OMB official, if the government shuts down, electronic filings of tax returns would continue, but the IRS would not process paper tax returns or refunds.  The OMB official said, "We need to be able to collect the money that is owed to the US government.  That's the same process that issues electronic refunds.  So electronic refunds and collection of money will continue."  All taxpayers still will be required to file or seek an extension by midnight April 18, even though processing of some refunds would be suspended.  All taxes are due April 18 because April 15 is a holiday in the District of Columbia.

JOINT TAX COMMITTEE HOLDS ROUNDTABLE ON TAX REFORM:  Today, the Joint Committee on Taxation held a roundtable discussion on tax reform.  In an opening statement, Rep. Dave Camp, the Chairman of the House Ways and Means Committee, said, "The ‘86 Act remains the basis of our system of taxation.  But it is, in some sense, a shell of its former self.  In the intervening years, Members of Congress – from both sides of the aisle – have loaded the tax code with a dizzying array of credits, deductions, exclusions, and exemptions.  While the merits of each of these changes can be debated, discussed and analyzed, the overall effect of those changes on the tax code itself is beyond question.  With nearly 4,500 changes in the last decade alone, the code is too complex.  And, with Americans spending over 6 billion hours and over $160 billion annually to comply with the code, it is too costly and too burdensome. Clearly, the time for comprehensive reform has come, and I am committed to finding a path forward."  Camp added, "I am under no illusion that the task before us will be easy.  Nor can it be a partisan exercise.  Instead, it will require the active participation of the American people, the Administration, and all Members of the House and Senate – beginning with the House Ways and Means and the Senate Finance committees.  And, that is why we are here today.  Sen. Baucus and I wanted to host this roundtable in order to engage in a results-driven dialogue about tax reform."

  • The Honorable James A. Baker III and the Honorable Richard “Dick” Gephardt made remarks at the forum.  Baker and Gephardt said that bipartisan cooperation is needed to advance tax reform efforts and that efforts to reform the tax code should be separated from the discussions over deficit reduction.  Baker said, "I think the American people desperately want to see a decent tax code. They hate this tax code, and quite understandably."  Baker added that the tax reform discussions should not be linked to what he called the "debt bomb."  Baker added, "This is a separate undertaking that has plenty of merit to stand on its own two feet."
  • After the meeting, Camp said, "We’re trying to set principles and ideas, and try to get a framework we can both work in, both House and Senate.  So that’s our mission right now."
  • For additional information, contact Philip R. West at pwest@steptoe.com.

IRS ISSUES FINAL REGULATIONS ON REDUCTON OF FOREIGN TAX CREDIT LIMITATION CATEGORIES:  Today, the IRS issued final regulations (T.D. 9521) on the reduction of the number of separate foreign tax credit limitation categories under section 904(d).  Changes to the applicable law were made by the American Jobs Creation Act of 2004 (AJCA) reducing the number of section 904(d) separate categories from eight to two, effective for taxable years beginning after December 31, 2006. These regulations finalize with minor changes temporary and proposed regulations issued in 2007 governing the transition to the reduced basket regime. 

PRESIDENT EXPECTED TO SIGN BILL REPEALING ENHANCED FORM 1099 REPORTING REQUIREMENTS:  President Obama is expected to sign legislation (H.R. 4) into law that repeals the provision in the new health care law that expands Form 1099 information reporting requirements.  The bill is paid for by imposing new limits on the amounts required for repayment of advance premium assistance tax credits for health insurance.  The Senate approved the House-passed bill earlier this week.

  • The Administration said earlier that it had "serious concerns" about the offset provision changing the premium assistance tax credits and will work with Congress at "improving the tax credit policy in this legislation to ensure we protect small businesses and middle-class families."
  • A White House spokesman said, "As the President said during the State of the Union, we are open to working with Republicans and Democrats to improve the health reform law and we are pleased Congress has acted to correct a flaw that placed an unnecessary bookkeeping burden on small businesses.  Small businesses are the engine of our economy and eliminating the 1099 reporting requirement is the right thing to do."

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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