Daily Tax Update - July 12, 2011: "Gulf" Still Exists Between Dems and GOP on Deficit Reduction

"GULF" STILL EXISTS BETWEEN DEMS AND GOP ON DEFICIT REDUCTION:  President Obama admitted yesterday that there is still a "gulf" between the two sides in deficit reduction talks.  House Minority Whip Steny Hoyer said yesterday that Democrats would not vote for any deficit reduction package that did not include revenue raisers — whether that deal is a large $4 trillion package or a smaller $2.5 trillion proposal. 

  • Today, House Speaker John Boehner reiterated his stance against taxes:  "There are no tax increases on the table."  Boehner added, "This debt limit increase is his [Obama’s] problem and I think it's time for him to lead by putting his plan on the table -- something that the Congress can pass."  Obama and the congressional negotiators have vowed to meet every day until they reach an agreement on a package. 

Treasury Secretary Timothy Geithner said today that he wants a deal on the debt ceiling by the end of the week."  Geithner said, "We know we don't have a lot of time, and we want to wrap up the broad outlines of the agreement by the end of this week, certainly by the end of next week."  He said that he was confident that the debt ceiling will be raised by the August 2 deadline.  Geithner said, "Default is not an option, failure is not an option, and they understand that -- Speaker (John) Boehner and Minority Leader (Mitch) McConnell -- absolutely understand we need to move in advance of the deadline on August 2nd.  What's at stake is whether we can put together a long-term fiscal plan that's good for the economy."

LEVIN INTRODUCES "STOP TAX HAVEN ABUSE ACT":  Today, Sen. Carl Levin, together with cosponsors Senator Bill Nelson, Sanders, Shaheen, and Whitehouse, introduced legislation to close "offshore tax loopholes" and strengthen offshore tax enforcement.  Levin stated, "Uncle Sam can’t afford offshore tax abuses that are robbing the Treasury of $100 billion in lost revenue yearly and increasing the tax burden on honest, hardworking Americans."  Levin added, "Offshore tax abuses are not only undermining public confidence in our tax system, but increasing the tax burden on middle America. People are sick and tired of tax dodgers using offshore trickery and abusive tax shelters to avoid paying their fair share.  This bill offers powerful new tools to combat offshore and tax shelter abuses, raise revenues, and eliminate incentives to send US profits and jobs offshore.  Its provisions, which can help stop the $100 billion per year drain on the Treasury, will hopefully be part of any deficit reduction package this year, but should be passed in any event."

  • The bill would:
    • Authorize the Treasury Secretary to take special measures against foreign jurisdictions or financial institutions that "impede US tax enforcement," including allowing Treasury to instruct US financial institutions not to authorize credit card transactions involving a designated foreign jurisdiction or financial institution.
    • Strengthen the Foreign Account Tax Compliance Act, including by expanding the types of accounts that must be reported, clarifying that withholding agents must take into account information obtained under anti-money laundering, anti-corruption, or similar obligations in determining whether an account is directly or indirectly owned by a US person, and allowing the IRS to disclose account information reported under FATCA to federal law enforcement agencies.
    • Create rebuttable presumptions that would presume US taxpayer control of offshore entities that they form or do business with, unless the taxpayer presents clear and convincing evidence to the contrary. 
    • Treat corporations whose management and control are located primarily in the United States as domestic corporations for tax purposes.
    • Treat credit default swap ("CDS") payments sent offshore from the United States as taxable US source income. 
    • Deem US dollars and other assets kept offshore by foreign subsidiaries of US corporations and that are deposited into accounts physically located in the United States (e.g., correspondent accounts) as taxable distributions by the foreign subsidiaries to their US parents.
    • Require multinational corporations to include information on a country-by-country basis in their filings with the Securities and Exchange Commission in order to, according to Senator Levin, "increase transparency and facilitate IRS inquiries into transfer pricing, foreign tax credits, and abusive offshore tax shelters."
    • Strengthen the IRS’s ability to use John Doe summons to uncover taxpayers operating in offshore jurisdictions, including allowing a court to presume that a summons involving a class of accounts at an institution that has not entered into a FATCA agreement with the IRS raises tax compliance issues.
    • Prohibit tax practitioners from charging fees calculated according to tax savings.
    • Strengthen the Circular 230 tax practitioner standards by instructing Treasury to impose standards applicable to written advice with respect to any listed transaction or plan "which has a potential for tax avoidance or evasion."
    • Strengthen penalties on tax shelter promoters and "aider and abettors" of tax evasion by increasing the maximum fine to 150% of gross income derived from the relevant activity.
  • Senator Levin’s floor statement also commented on the Foreign Account Tax Compliance Act: "Last year also saw enactment of the Baucus-Rangel Foreign Account Tax Compliance Act or FATCA, which is a tough new law designed to flush out hidden offshore bank accounts.  Foreign banks are currently engaged in a massive lobbying effort to weaken its disclosure requirements, but US banks have had it with foreign banks using secrecy to attract US clients and want those banks to have to meet the same disclosure requirements US banks do.  The Administration is so far resisting calls to water down the provisions."
  • Additional information on the bill can be accessed here.
  • The text of the bill can be accessed here.

IMMELT SUPPORTIVE OF TEMPORARY REPATRIATION HOLIDAY:  Yesterday, the chair of President Obama's Advisory Council on Jobs and Competitiveness endorsed a temporary tax holiday for repatriated corporate earnings and said it would lead to domestic jobs.  In remarks to the Chamber of Commerce, Immelt characterized the debate in Congress as a "conversation" rather than clear movement toward a bill.   Immelt said, "Can it really be that good to have a trillion dollars in cash some place other than the United States right now? The more time we sit with high unemployment, the more people are going to ask those questions. . . . Done the right way, repatriation will create jobs in the United States, and I truly believe that."  Immelt said he that he does not support explicitly linking the holiday to companies' hiring, but said that jobs "need to be considered in any kind of repatriation strategy."

IRS TO CONTACT 100,000 TAX PREPARERS ON PTIN COMPLIANCE ISSUES:  The IRS said today that it will begin contacting about 100,000 tax return preparers who failed to follow the new PTIN requirements.  According to the IRS, "As part of its new oversight program of the nation’s tax return preparation industry, the Internal Revenue Service today announced it will send letters to approximately 100,000 tax return preparers who prepared returns in 2011 but failed to follow new requirements.  In 2010, the IRS launched an initiative to increase its oversight of the tax return preparation industry and regulate the conduct of tax return preparers.  All paid tax return preparers must obtain a Preparer Tax Identification Number (PTIN) and, when required to do so, sign their names and include their PTINs on the returns and refund claims they prepare for compensation."  The IRS added, "Starting July 7, 2011, the IRS began sending letters to about 100,000 tax return preparers who either used outdated PTINs or used social security numbers as identifying numbers on returns they prepared this filing season.  The letters explain the new oversight program, inform preparers of how to register for a new PTIN, or renew an old PTIN, and where to get assistance."

  • IRS Commissioner Doug Shulman stated, "The vast majority of federal tax return preparers complied with the rules.  Obviously, some preparers did not get the word, so these letters provide additional information so they can register as soon as possible.  We owe it to the compliant tax preparers to make sure that everyone is on a level playing field."

JOINT COMMITTEE RELEASES TWO DEBT EQUITY REPORTS – WITNESS LIST ANNOUNCED:  In conjunction with tomorrow’s joint hearing by Ways and Means and Finance on the taxation of debt and equity, the Joint Committee on Taxation has released two documents: 

Present Law and Background Relating to Tax Treatment of Business Debt
Present Law and Background Relating to Tax Treatment of Household Debt

  • The witnesses for tomorrow’s hearing are:
    • Mr. Thomas Barthold, Chief of Staff, Joint Committee on Taxation
    • Dr. Mihir A. Desai, Mizuho Financial Group Professor of Finance, Harvard Business School
    • The Honorable Pamela F. Olson, Partner, Skadden, Arps, Slate, Meagher & Flom, and former Assistant Secretary of the Treasury for Tax Policy
    • Mr. Victor Fleischer, Associate Professor of Law, University of Colorado Law School
    • Dr. Simon Johnson, Ronald A. Kurtz Professor of Entrepreneurship, Massachusetts Institute of Technology, Sloan School of Management, and former Economic Counselor and Director of the Research Department at the International Monetary Fund

TAX BILLS INTRODUCED JULY 11TH:

1.[112nd] H.R.2488 : To amend the Internal Revenue Code of 1986 to allow a $1,000 refundable credit for individuals who are bona fide volunteer members of volunteer firefighting and emergency medical service organizations.
Sponsor: Rep Hinchey, Maurice D. [NY-22] (introduced 7/11/2011) Cosponsors (8)
Committees: House Ways and Means
Latest Major Action: 7/11/2011 Referred to House committee. Status: Referred to the House Committee on Ways and Means.

2. [112nd] H.R.2491 : To amend the Internal Revenue Code of 1986 to allow refunds of Federal motor fuel excise taxes on fuels used in mobile mammography vehicles.
Sponsor: Rep Luetkemeyer, Blaine [MO-9] (introduced 7/11/2011) Cosponsors (1)
Committees: House Ways and Means
Latest Major Action: 7/11/2011 Referred to House committee. Status: Referred to the House Committee on Ways and Means.

3. [112nd] H.R.2495 : To amend the Internal Revenue Code of 1986 to eliminate certain tax expenditures.
Sponsor: Rep Tierney, John F. [MA-6] (introduced 7/11/2011) Cosponsors (4)
Committees: House Ways and Means
Latest Major Action: 7/11/2011 Referred to House committee. Status: Referred to the House Committee on Ways and Means.

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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