CCH Weekly Report from Washington, D.C.

At a jobs summit sponsored by the U.S. Chamber of Commerce, Chamber President and CEO Thomas Donahoe urged Congress to pass a temporary extension of the 2001 and 2003 tax cuts, saying it would boost investor, business and consumer confidence and spur economic growth. In addition, Jacob “Jack” Lew has been nominated to succeed Peter Orszag as Office of Management and Budget (OMB) director. Highlights from the IRS include assistance for Gulf oil spill victims, health services regulations and instructions for bankruptcy estates filing tax refund claims.

White House

As a growing federal deficit weighs heavily on the White House and Congress, President Obama announced Lew as his nominee to succeed Orszag as Director of the OMB. Lew was former budget director in the Clinton administration from 1998 to 2001. Obama praised Lew’s previous tenure at the OMB, noting that he was the “only budget director in history to preside over a budget surplus for three consecutive years.”

In an open letter to President Obama and Congress on July 15, the U.S. Chamber of Commerce warned that existing tax and regulatory policies are “eroding our competitive position globally, as other nations take steps to cut taxes, reduce regulations and restrain the appetites of government”.

Speaking at the July 14 jobs summit, Alan Simpson and Erskine Bowles, co-chairmen of the president’s bipartisan fiscal commission, admitted that the panel had a slim chance of reaching agreement on measures to rein in the ballooning federal deficit. “The odds for success are minimal,” Simpson acknowledged. Fourteen out of 18 members of the commission must vote in favor of final recommendations, which face a December 2010 deadline. Both the Senate and House must cast an up-or-down vote to adopt the panel’s plan. If approved by both chambers, Bowles said he would like to see the commission recommendations take effect in the beginning of 2012.

Meanwhile, Obama is open to lowering corporate tax rates as part of comprehensive tax reform, but believes that restructuring the tax code and closing tax loopholes “can and should be done simultaneously,” White House Press Secretary Robert Gibbs said. In addition to the Chamber’s vocal concerns, the Business Roundtable recently warned that the administration’s tax and regulatory policies are dampening economic growth, stifling job creation and making the United States less competitive in foreign markets. Specifically, the Roundtable listed corporate tax rates, international tax increases and tax deferrals as its chief concerns.

Congress

The Senate voted 60-to-39 to approve the Dodd-Frank Wall Street Reform and Consumer Protection Act (HR 4173). The bill, which President Obama is expected to sign, passed largely along party lines.

The Senate Finance Committee on July 14 heard testimony from a panel of economic experts who debated the pros and cons of extending tax cuts enacted in 2001 and 2003. Leonard E. Burman, an economist from Syracuse University, told lawmakers that a combination of tax increases and spending cuts would be necessary to address the nation’s growing budget deficit. Simply increasing taxes on wealthier Americans will not raise enough revenues to address federal spending on entitlement programs for the growing number of retiring baby boomers, said former Congressional Budget Office Director Douglas Holtz-Eakin.

The Finance committee hearing was called to lay the groundwork for legislation addressing the 2001 and 2003 tax cuts, which expire at the end of 2010. Lawmakers mostly said that an overarching tax reform plan would be the best way to raise the necessary revenues to address the budget deficit. So far, Democratic leaders, including House Speaker Nancy Pelosi, D-Calif., have not disclosed whether Congress would address the tax issues before or after the upcoming November elections. Senate GOP lawmakers are pushing for quick action.

Treasury Department

The Treasury announced a study of payroll tax credit and exemption claims during the week of July 12, in addition to several reports from the Treasury Inspector General for Tax Administration (TIGTA).

HIRE Act Provisions. The Treasury reported that, according to Current Popular Survey data, employers have hired approximately 4.5 million new workers since the effective date of the Hiring Incentives to Restore Employment (HIRE) Act (P.L. 111-147), enabling them to claim an estimated $8.5 billion in payroll tax exemptions and credits (TDNR TG-773, Treasury Department Estimates of Newly Hired Employees Eligible for the HIRE Act Tax Exemption). Treasury Assistant Secretary for Economic Policy and Chief Economist Alan Krueger stated during a telephone press conference that the Treasury would continue to make similar estimates on a monthly basis.

TIGTA Reports. TIGTA released several reports:

IRS Financial Management. TIGTA reported on July 9 that, while the IRS Oversight Board has improved the Service’s internal financial management, the Board failed to adequately follow required financial procedures and controls (“The Internal Revenue Service Oversight Board Has Taken Actions to Improve Its Financial Management, but Continuing Weaknesses Identified” (Reference number: 2010-10-052)).

Net Operating Losses. TIGTA also reported on July 14 that the IRS has effectively processed 44,000 claims involving the extended five-year net operating loss carryback allowance provided by the American Recovery and Reinvestment Act of 2009 (P.L. 111-5) and the Worker, Homeownership, and Business Assistance Act of 2009 (P.L. 111-92) providing over $3 billion in taxpayer refunds (“The Implementation of the Five-Year Net Operating Loss Carryback Claim Provisions Were Generally Effective” (Reference Number: 2010-41-070)).

IRS Mail. As part of its Fiscal Year 2009 Annual Audit Plan, TIGTA stated in a July 15 report that approximately 19.3 million pieces of undelivered mail sent by the IRS during the fiscal year cost taxpayers an estimated $57.9 million due to multiplying interest and penalties (“TIGTA Report: Current Practices Are Preventing a Reduction in the Volume of Undeliverable Mail” (Reference Number: 2010-40-055)).

IRS

Gulf Coast Oil Spill. The IRS issued several announcements pertaining to taxpayers affected by the Deepwater Horizon oil rig explosion and subsequent oil spill in the Gulf of Mexico:

Special Assistance Day. The IRS announced the times and locations of the Taxpayer Assistance Centers participating in its July 17 Special Assistance Day for taxpayers affected by the British Petroleum oil spill (IR-2010-85, IRS Summertime Tax Tip 2010-09 –IRS Special Assistance Day for Gulf Oil Spill Victims).

UST Clean-up program. The IRS issued a directive indicating that, while it remains a Tier I coordinated tax compliance issue, tax treatment of State remediation reimbursements for the clean-up of leaking underground storage tanks (USTs) has been moved from active to monitoring status (IRS LMSB Tier I Issue: IRC §118 Abuse Directive #9).

Health Services Regulations. The Treasury and the IRS released proposed and temporary regulations on the Patient Protection and Affordable Care Act (P.L. 111-152) provisions regarding preventative health services (T.D. 9493, NPRM REG-120391-10). The rules address group health plans and group health insurance issuers offering insurance coverage in the group and individual markets for plan or policy years beginning on or after September 23, 2010.

Bankruptcy Estates. A new procedure is now available for requesting a tax refund by trustees or debtors in possession of a bankruptcy estate (Rev. Proc. 2010-27).

Cellulosic Biofuel Producer Credit. The IRS Office of Chief Counsel issued an advice memorandum addressing claims for the Code Sec. 40(b)(6) cellulosic biofuel producer credit for black liquor sold or used before January 1, 2010 (IRS Advice Memorandum AM-2010-002).

Abatement Claims. The IRS Office of Chief Counsel also announced the IRS’s litigation position this week in Tax Court disputes over claims for the Code Sec. 6404(a)(1) abatement of tax liabilities, interest, and penalties (Chief Counsel Notice CC-2010-012). According to Chief Counsel, tax assessments are excessive if they exceed the correct liability as determined by proper application of the law. Additionally, IRS attorneys must oppose any argument that a legally correct assessment is excessive because it is unfair.

Correspondence Examinations. Mike Landsmann, senior IRS tax analyst, Examination Policy, described the IRS’s correspondence audit process during a July 14 IRS teleconference. Landsmann reported on how the IRS is selecting cases for examination and spoke about common related questions that practitioners submit to the Service.

By Sarah Borchersen-Keto, Torie Cole, Stephen K. Cooper and Paula Cruickshank, CCH News Staff

AUTHOR

Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and local expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy and efficiency. Wolters Kluwer Tax and Accounting is part of Wolters Kluwer N.V. (AEX: WKL), a global leader in information services and solutions for professionals in the health, tax and accounting, risk and compliance, finance and legal sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services. Wolters Kluwer reported 2016 annual revenues of €4.3 billion. The company, headquartered in Alphen aan den Rijn, the Netherlands, serves customers in over 180 countries, maintains operations in over 40 countries and employs 19,000 people worldwide. Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt program. The ADRs are traded on the over-the-counter market in the U.S. (WTKWY).

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