Daily Tax Update - December 13, 2011: House Passes Payroll Tax Bill With Controversial Offsets

HOUSE PASSES PAYROLL TAX CUT BILL WITH CONTROVERSIAL OFFSETS:  Today, the House passed a bill (H.R. 3630, the Middle Class Tax Relief and Job Creation Act of 2011) to extend both the 2 percentage point cut in employee Social Security taxes and 100 percent bonus depreciation through 2012. The bill passed by a vote of 234-193. The bill’s offsets include a provision for a pay freeze on federal workers through fiscal year 2013 and a controversial provision to accelerate the Keystone XL oil pipeline.  President Obama has vowed to veto any payroll tax cut extension bill with "extraneous" provisions.

  • Although Congress is scheduled to adjourn at the end of this week, it is unclear whether the House will stay in session a few days next week to wait for Senate action on the bill.  House Speaker John Boehner said, "I think we’re going to have to wait until a little later in the week to see what the Senate is going to do."
  • Democrats said that the bill would not pass the Senate.  House Rules ranking member Louise Slaughter said, "The good news is that this will never make it past our colleagues in the United States Senate."  Senate Majority Leader Harry Reid said that if the provision to expedite the Keystone pipeline project is included in the House bill it is "doomed to failure."  Reid stated, "In effect, as some have said, what they are trying to do is kill the hostage.  The hostage is the Keystone pipeline.  And if they push this through, it is bound and doomed to failure."
  • House Majority Leader Eric Cantor said that the bill "is not our dream proposal — believe me.  But it is and does represent a middle ground. ... It's time for the president to compromise as well."
  • This afternoon, Senate Majority Leader Harry Reid said that the tax extenders will be included in the Senate's payroll tax bill. However, Reid did not specify which extenders would be included.

IRS FACT SHEET PROVIDES INFORMATION FOR US CITIZENS OR DUAL CITIZENS RESIDING OUTSIDE THE U.S: The IRS has released a fact sheet (FS-2011-13) providing information about federal income tax return and foreign bank account report filing requirements, how to file the returns and reports, and potential penalties in light of the IRS's awareness that many dual citizens have failed to file.

  • According to the fact sheet, "The IRS is aware that some taxpayers who are dual citizens of the United States and a foreign country may have failed to timely file United States federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs), despite being required to do so. Some of those taxpayers are now aware of their filing obligations and seek to come into compliance with the law. This fact sheet summarizes information about federal income tax return and FBAR filing requirements, how to file a federal income tax return or FBAR, and potential penalties. Note that penalties will not be imposed in all cases. As discussed in more detail below, taxpayers who owe no US tax (e.g., due to the application of the foreign earned income exclusion or foreign tax credits) will owe no failure to file or failure to pay penalties. In addition, no FBAR penalty applies in the case of a violation that the IRS determines was due to reasonable cause." It does not affect FATCA.
  • Additional information can be accessed via: http://www.irs.gov/newsroom/article/0,,id=250788,00.html
  • For additional information, contact Philip R. West - pwest@steptoe.comCatherine W. Wilkinson - cwilkinson@steptoe.com, Stanley Smilack - ssmilack@steptoe.com  or Matthew D. Lerner - mlerner@steptoe.com

MISCELLANEOUS GUIDANCE RELEASED:

Revenue Ruling 2012-01 clarifies the treatment of certain liabilities under the section 461(h)(3) recurring item exception to the economic performance requirement of the all events test.  Under the all events test, an accrual method taxpayer can accrue a liability in the year in which the liability is fixed and determinable and economic performance has occurred.  Under the recurring item exception, a taxpayer can accrue a liability in the year it is fixed and determinable, regardless of economic performance, if the taxpayer satisfies certain conditions, including that either the liability (1) is not material, or (2) better matched to the related income in the earlier year.  The revenue ruling clarifies the "not material" and "better matching" requirements in the context of a one-year lease liability and a one-year service contract liability.  For service contract type liabilities, the recurring item exception applies differently depending on whether the contract is for the provision of services as distinguished from insurance or warranty type contracts.  For liabilities arising out of the provision of services to the taxpayer, the revenue ruling makes clear that the taxpayer must satisfy either the "not material" or "better matching" requirement.  For liabilities arising out of the provision of insurance, warranty or similar service contract liabilities, the better matching requirement is deemed to be met.

Notice 2011-97 identifies statutory, regulatory, and guidance changes that must be taken into account in submissions by  retirement  plan sponsors. 

Announcement 2011-81 provides temporary relief with respect to Individual Retirement Accounts (IRAs) in circumstances in which the IRAs’ owners have signed certain indemnification agreements or granted certain security interests in accounts that may have an effect on their IRAs.

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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