Daily Tax Update - April 7, 2011: Federal Government To Close Down Partially If Budget Agreement Not Reached By Midnight Friday

FEDERAL GOVERNMENT TO CLOSE DOWN PARTIALLY IF BUDGET AGREEMENT NOT REACHED BY MIDNIGHT FRIDAY – REID LESS OPTIMISTIC SHUTDOWN CAN BE AVOIDED:  Today, Senate Majority Leader Harry Reid said that he was "not nearly as optimistic — and that’s an understatement — as I was 11 hours ago."  Of a government shutdown, he said "It looks like it's heading in that direction."  Reid added, "The only thing holding up the agreement is ideology.  [Republicans] have drawn a line in the sand...[over] ideology."  If there is no deal by midnight Friday when the current spending authorization measure expires, parts of the government will close down.

  • Today, House Speaker John Boehner said, "I thought we were closer to a number last night than this morning."  Boehner added, "Talks to resolve last year’s budget mess are progressing, but there is no agreement yet. No agreement on the numbers and no agreement on the policy issues that were moved through the House. There’s far more than one provision that’s holding up any agreement, I can tell you that."
  • Congress could pass another short-term spending (continuing resolution) bill to avoid a government shutdown, but Congressional leaders have repeatedly said that they want to avoid that option.  Today, the House passed a continuing resolution (CR) that would fund the government for one week.  The CR includes $12 billion in additional cuts and several policy riders, but Reid called it a "nonstarter" in the Senate and President Obama said that he would veto it.  Reid said that he would only accept a "clean" continuing resolution which would fund the government for several days.  A White House official said, "This bill [new House continuing resolution with an additional $12 billion in cuts and with the policy riders] is a distraction from the real work that would bring us closer to a reasonable compromise for funding the remainder of fiscal year 2011."
  • The federal government has had more than a dozen "shutdowns" since 1977 and some lasted only a few hours.  In 1995 and 1996, a partial shutdown of the Federal government occurred when President Bill Clinton and the Republican-controlled Congress were locked in a protracted budget impasse.  Several hundred thousand "non-essential" federal workers were furloughed for five days in November 1995 and again for twenty-one days from mid-December to early January 1996.
  • As far as the impact of a government shutdown on the IRS, a senior administration official said that "the performance of tax audits will be shut down or suspended for this period."  The government official said that he expects about 800,000 "non-essential" government employees to be furloughed if an agreement is not reached.  The official also said the IRS will still process electronic tax filings, but will not process paper filings, which means a delay for those who filed by paper and are expecting refunds.  Yesterday, IRS Commissioner Doug Shulman said that in the event of a government shutdown, "not all of us [the IRS’s 100,000 employees] will be coming to work."  Shulman said that he couldn’t provide "nuances of who's going to be doing what."  Shulman also said that the IRS is a "huge operation" and added that "funding the government every two weeks is not a great way to operate."  

HOUSE BUDGET COMMITTEE REPORTS FY 2012 RESOLUTION:  Late last night during an eleven-hour marathon markup, the House Budget Committee reported Chairman Paul Ryan’s "Path to Prosperity" budget plan.  The resolution passed along a party line vote of 22 to 16.  Ryan said, "In sharp contrast to the empty promises and diminished future offered by the President’s budget, the budget advanced by the Committee charts a path to prosperity and a secure future for our exceptional nation.  Instead of locking in the spending spree of the last two years, this budget cuts $6.2 trillion in spending from the President’s budget over the next ten years.  Instead of letting deficits spiral out of control, it reduces this year’s $1.6 trillion deficit by one-third and puts an end to the era of trillion-dollar deficits.  Instead of adding $13 trillion to the debt over the next decade and trillions more in years to come, as the President’s budget does, this Path to Prosperity budget takes the steps necessary to avert a debt crisis and provides job creators with the confidence they need to start hiring today."          

  • On the issue of tax reform, the "Path to Prosperity" provides:  "This budget would focus on growth by reforming the nation's outdated tax code, consolidating brackets, lowering tax rates, and assuming top individual and corporate rates of 25%.  It maintains a revenue-neutral approach by clearing out a burdensome tangle of deductions and loopholes that distort economic activity and leave some corporations paying no income taxes at all."
  • A summary of the budget resolution can be accessed here.  

APRIL 13TH WAYS AND MEANS TAX REFORM HEARING TO FOCUS ON INDIVIDUALS AND FAMILIES:  House Ways and Means Committee Chairman Dave Camp announced that the Committee’s next tax reform hearing will be held on April 13.  The hearing will "examine some of the difficulties that individuals and families face in navigating the current tax code, including both compliance burdens and challenges faced in making long-term financial decisions when confronted with confusing, overlapping, and frequently temporary tax preferences."  The witness list has not been announced.

  • In announcing this hearing, Chairman Camp said, "As the deadline for filing individual tax returns approaches, the time for simplifying and stabilizing the tax code for individuals and families is also upon us.  With so many Americans struggling to meet their tax compliance responsibilities, Congress and the President need to work together to achieve a tax system that is fair, simple, and efficient.  While some seem to prefer a ‘business-only’ approach to tax reform, we owe it to the hard-working taxpayers we represent to ensure that they are not left out of this discussion.  This hearing will help the Committee better understand the many problems that plague our tax system as it affects individuals and families across the country."

SHULMAN ANNOUNCES CHANGES TO IRS SENIOR MANAGEMENT STAFF:  Today, IRS Commissioner Doug Shulman announced that Diane Ryan, Appeals Chief, will retire and be replaced by Chris Wagner; Faris Fink will be the Small Business/Self-Employed Division Commissioner; and Ruth Perez will be the SB/SE Deputy Commissioner.  Sheldon Kay will join the IRS as Deputy Chief, Appeals.

IRS RELEASES WINTER 2011 STATISTICS OF INCOME BULLETIN:  The latest Statistics of Income Bulletin, which features preliminary data on 140.5 million individual income tax returns filed for tax year 2009, has been released.  The Statistics of Income (SOI) Division produces the SOI Bulletin on a quarterly basis.  Articles included in the publication provide the most recent data available from various tax and information returns filed by US taxpayers.

  • The document can be accessed here.   

STEPTOE'S TEI MIDYEAR CONFERENCE PRIZE DRAWING ANNOUNCEMENT:  We are pleased to announce the winners of our booth and reception prize drawings during the Tax Executives Institute's 61st Midyear Conference.  We appreciate meeting everyone that attended our reception and stopped by our booth.  The winners are:  Jon Elder, Vice President of Taxes, Dollar Tree, who won the drawing at our reception for the iPad; and Charles Colby, Tax Director - Europe, GE Capital Real Estate, who won the drawing at our booth for the iPod Nano.

MISCELLANEOUS GUIDANCE RELEASED:
Notice 2011-33 provides guidance as to the corporate bond weighted average interest rate and the permissible range of interest rates specified under § 412(b)(5)(B)(ii)(II) of the Internal Revenue Code as in effect for plan years beginning before 2008. It also provides guidance on the corporate bond monthly yield curve (and the corresponding spot segment rates), and the 24-month average segment rates under § 430(h)(2). In addition, this notice provides guidance as to the interest rate on 30-year Treasury securities under § 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008, the 30-year Treasury weighted average rate under § 431(c)(6)(E)(ii)(I), and the minimum present value segment rates under § 417(e)(3)(D) as in effect for plan years beginning after 2007.

TAX BILLS INTRODUCED APRIL 6TH:
1. [112nd] H.R.1380: To amend the Internal Revenue Code of 1986 to encourage alternative energy investments and job creation.
Sponsor: Rep Sullivan, John [OK-1] (introduced 4/6/2011)   Cosponsors (76)
Committees: House Ways and Means; House Science, Space, and Technology; House Energy and Commerce
Latest Major Action: 4/6/2011 Referred to House committee. Status: Referred to the Committee on Ways and Means, and in addition to the Committees on Science, Space, and Technology, and Energy and Commerce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.

2. [112nd] H.R.1384: To amend the Internal Revenue Code of 1986 to temporarily increase the investment tax credit for geothermal energy property.
Sponsor: Rep Heller, Dean [NV-2] (introduced 4/6/2011)   Cosponsors (1)
Committees: House Ways and Means
Latest Major Action: 4/6/2011 Referred to House committee. Status: Referred to the House Committee on Ways and Means.

3. [112nd] H.R.1399: To amend the Internal Revenue Code of 1986 to permanently extend and expand the additional standard deduction for real property taxes for nonitemizers.
Sponsor: Rep Grimm, Michael G. [NY-13] (introduced 4/6/2011)   Cosponsors (1)
Committees: House Ways and Means
Latest Major Action: 4/6/2011 Referred to House committee. Status: Referred to the House Committee on Ways and Means.

4. [112nd] S.748: A bill to amend the Internal Revenue Code of 1986 to expand the definition of cellulosic biofuel to include algae-based biofuel for purposes of the cellulosic biofuel producer credit and the special allowance for cellulosic biofuel plant property.
Sponsor: Sen Nelson, Bill [FL] (introduced 4/6/2011)   Cosponsors (2)
Committees: Senate Finance
Latest Major Action: 4/6/2011 Referred to Senate committee. Status: Read twice and referred to the Committee on Finance.

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.

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