Daily Tax Update - July 29, 2011: Boehner Adds Balanced Budget Amendment To Debt Plan

TREASURY, IRS ISSUE FINAL REGULATIONS REGARDING METHODS OF ACCOUNTING FOR CERTAIN CORPORATE ACQUISITIONS:  The Treasury Department and the IRS have issued final regulations that clarify and simplify the rules regarding the accounting methods to be used following certain corporate reorganizations and tax-free liquidations under section 381(a).  The final regulations adopt the proposed regulations, issued November 16, 2007, with modifications.  The final regulations apply to corporate reorganizations and tax-free liquidations described in section 381(a) that occur on or after 30 days after publication of the final regulations in the Federal Register.

BOEHNER ADDS BALANCED BUDGET AMENDMENT TO DEBT PLAN – VOTE EXPECTED LATER TODAY:  House Speaker John Boehner pulled his debt-reduction plan from the House floor late last night after it became apparent that there were not enough votes to pass it.  Members of the Tea Party have forced Boehner to come up with greater cuts in federal spending before agreeing to raise the debt ceiling. 

  • A House vote on the revised bill is expected later today.  Boehner’s revised bill is a modified version of the "Cut, Cap and Balance" plan that would create a two-step debt ceiling increase. The new modifications would make the second increase in the debt limit next year subject to the House and Senate first passing a balanced budget amendment to the Constitution.
  • If the House bill passes, Senate Majority Leader Harry Reid said that he will immediately move to put it aside, setting the stage for the Senate to vote this weekend on a possible compromise to avert a default. 
  • Earlier today, President Obama said, "What’s clear now is that any solution to avoid default must be bipartisan.  It must have the support of both parties that were sent here to represent the American people – not just one faction.  It will have to have the support of both the House and the Senate.  And there are multiple ways to resolve this problem.  Senator Reid, a Democrat, has introduced a plan in the Senate that contains cuts agreed upon by both parties.  Senator McConnell, a Republican, offered a solution that could get us through this.  There are plenty of modifications we can make to either of these plans in order to get them passed through both the House and the Senate and would allow me to sign them into law.  And today I urge Democrats and Republicans in the Senate to find common ground on a plan that can get support – that can get support from both parties in the House – a plan that I can sign by Tuesday. Now, keep in mind, this is not a situation where the two parties are miles apart.  We’re in rough agreement about how much spending can be cut responsibly as a first step toward reducing our deficit.  We agree on a process where the next step is a debate in the coming months on tax reform and entitlement reform – and I’m ready and willing to have that debate.  And if we need to put in place some kind of enforcement mechanism to hold us all accountable for making these reforms, I’ll support that too if it’s done in a smart and balanced way."  Obama added, "So there are plenty of ways out of this mess.  But we are almost out of time.  We need to reach a compromise by Tuesday so that our country will have the ability to pay its bills on time, as we always have – bills that include monthly Social Security checks, veterans’ benefits and the government contracts we’ve signed with thousands of businesses.  Keep in mind, if we don’t do that, if we don’t come to an agreement, we could lose our country’s AAA credit rating, not because we didn’t have the capacity to pay our bills – we do – but because we didn’t have a AAA political system to match our AAA credit rating."  The President concluded, "And for my part, our administration will be continuing to work with Democrats and Republicans all weekend long until we find a solution.  The time for putting party first is over.  The time for compromise on behalf of the American people is now.  And I am confident that we can solve this problem.  I’m confident that we will solve this problem.  For all the intrigue and all the drama that’s taking place on Capitol Hill right now, I’m confident that common sense and cooler heads will prevail.  But as I said earlier, we are now running out of time.  It’s important for everybody to step up and show the leadership that the American people expect."
  • Late last night, Senate Majority Leader Harry Reid criticized the House for failing to act on Boehner’s bill.  Reid said, "I apologize to everyone for the late hour, but we've been waiting for the House to conduct their business and they're having trouble conducting it.  As a result of their not sending us the material we needed, we are going to have to wait until tomorrow to do our work."
  • Both the House and Senate plan to remain in session through the weekend in order to try to avert a government default by August 2. 

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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