During the week of November 7, the Senate approved a bill that includes tax credits for employers who hire unemployed veterans just days after President Obama urged lawmakers to pass such legislation. The IRS, meanwhile, adopted regulations providing rules for disclosure of listed transactions and transactions of interest regarding the generation-skipping transfer (GST) tax. In addition, IRS Commissioner Douglas H. Shulman announced that the IRS has delayed its plan to fingerprint certain preparers who apply for preparer tax identification numbers.
President Obama on November 7 had called on Congress to pass tax credits for employers who hire unemployed veterans of the wars in Iraq and Afghanistan at a time when nearly three-million former service members are transitioning to civilian life (TAXDAY, 2011/11/08, C.1). “Our veterans did their jobs. It’s time for Congress to do theirs,” Obama said at a Rose Garden event attended by former service members and representatives of veterans’ organizations that support the hiring incentives.
The president urged lawmakers to “put our veterans back to work, and pass this element of the jobs package that benefits our veterans and gives businesses an incentive to hire veterans.” Currently, the unemployment rate for veterans is higher than that for civilian job seekers. The president proposed the hiring incentives as part the American Jobs Bill that he unveiled in September (TAXDAY, 2011/09/09, W.1).
The Senate on November 10 approved legislation (HR 674) by a 95-to-0 margin that would repeal the 3-percent withholding tax imposed on federal contractors (TAXDAY, 2011/11/11, C.1). A Democratic amendment, the VOW to Hire Heroes Bill, provides tax credits for employers who hire military veterans and increases existing tax credits for companies that hire veterans with service-connected disabilities. The withholding tax repeal would cost $11.2 billion over 10 years, offset by changing the calculation of modified adjusted gross income in determining eligibility for some health care credits.
The VOW to Hire Heroes Bill of 2011 provides a tax credit of up to $5,600 for hiring veterans who have been looking for a job for more than six months, in addition to a $2,400 credit for veterans unemployed more than four weeks, but less than six months. The measure also calls for a tax credit of up to $9,600 for hiring veterans with service-connected disabilities who have been looking for a job for more than six months. The $1.6-billion cost of the legislation is offset by delaying scheduled fee reductions on mortgage applications for loans guaranteed by the Department of Veterans Affairs.
The Treasury Inspector General for Tax Administration (TIGTA) issued reports during the week of November 7 that found:
The IRS, in response to the intentional airplane crash into an IRS building in Austin, Texas, timely provided extensive personnel services to assess and support employee needs, identified temporary office space and provided the furnishings and equipment needed for the employees to resume work within 18 calendar days of the incident (TAXDAY 2011/11/11, T.1).
The IRS has not taken action on 47 percent of a statistical sample of 62 past-due, low-yield tax cases recalled after a private debt collection program ended (TAXDAY 2011/11/10, T.1). TIGTA estimates that the IRS may not collect an additional $103.2 million per year from similar cases in its inventory that would have otherwise been assigned to the private debt collection program.
The IRS could potentially collect additional revenue each year by reducing by seven days the time that elapses between notices it sends to taxpayers who owe taxes (TAXDAY 2011/11/09, T.1). TIGTA estimated the IRS could potentially collect an additional $363 million each year, although a study of the impact of time reduction would be needed to quantify the benefits.
Claims for the Small Business Health Care Credit have been lower than anticipated, even though the IRS made extensive efforts to educate taxpayers and tax professionals about it (TAXDAY 2011/11/08, T.1). To address the complex legislation on qualification for and computation of the credit, the IRS had issued detailed guidance in Notice 2010-44, I.R.B. 2010-22, 717, and Notice 2010-82, I.R.B. 2010-51, 857.
GST Tax. The IRS adopted regulations providing rules for disclosure of listed transactions and transactions of interest regarding the generation-skipping transfer (GST) tax (T.D. 9556; TAXDAY 2011/11/11, I.1). The final regulations provide that, if a transaction is identified as a listed transaction or transaction of interest and such a transaction involves the GST tax, the transaction must be disclosed in a manner consistent with the instructions in the published guidance.
IRS Nonacquiescence. The IRS Chief Counsel has recommended nonacquiescence to the Third Circuit’s unpublished opinion in A.I. Appleton, Jr., CA-3, 2011-1 USTC ¶50,429 (AOD-2011-04; TAXDAY 2011/11/11, I.2). Although the Third Circuit determined that the Tax Court abused its discretion when it denied the U.S Virgin Islands (USVI) permission to intervene in a proceeding between a Virgin Islands resident and the IRS, the Chief Counsel argues that the USVI does not administer any provision of the Internal Revenue Code.
Method of Accounting. The IRS Large Business and International (LB&I) Division provided guidance to assist in examinations of taxpayers that have changed their method of accounting (TAXDAY 2011/11/11, I.3). During the examination of a return filed for its first or second tax year ending after April 29, 2010, examiners are directed that, if the taxpayer meets certain requirements, they are not to assert that the taxpayer’s present method of accounting for advance payments is not a proper deferral method solely on the grounds that the taxpayer failed to obtain the “Consent of Director.”
Deduction for Bonuses. The IRS issued a revenue ruling stating that an employer using the accrual method of accounting may take a deduction in the current year for a fixed amount of bonuses payable to a group of employees even though the employer does not know which of the employees will receive a bonus or the amount of any particular bonus until after the end of the tax year (Rev. Rul. 2011-29; TAXDAY 2011/11/10, I.2). However, any change in a taxpayer’s treatment of bonuses to conform with this revenue ruling is a change in accounting method that must be made in accordance with the tax code and applicable administrative procedures.
Disaster Notices. The IRS has extended return-filing and payment deadlines in parts of Virginia for victims of the earthquake that took place on August 23, 2011 (VA-2011-22; TAXDAY 2011/11/09, I.3).
Preparer Oversight/UTP Developments. IRS Commissioner Douglas H. Shulman announced that the IRS has delayed its plan to fingerprint certain preparers who apply for preparer tax identification numbers (IR-2011-108; TAXDAY 2011/11/09, I.6). Further, he reported that the IRS will soon be sending letters to return preparers identified as “high risk.” He also said the Schedule UTP has been a success so far, with the IRS receiving nearly 1,500 schedules containing 3,000 disclosures.
Retained Right in Trusts. The IRS issued final regulations providing the computation required to calculate the amount includible in a decedent’s gross estate if the decedent retained a right to receive an annuity or other payment after the death of the current recipient (T.D. 9555; TAXDAY 2011/11/08, I.1). The amount includible is the greater of: (1) the amount of corpus required to generate sufficient income to pay the annual amount due to the decedent at death; or (2) the amount of corpus required to generate sufficient income to pay the annuity, unitrust or other payment that the decedent would have been entitled to receive if the decedent had survived the other beneficiary, reduced by the present value of the other beneficiary’s interest.
Convention Expenses. The IRS has updated those listed areas that are considered to be within the North American area for purposes of the Code Sec. 274(h) limitation on deductions for convention expenses (Rev. Rul. 2011-26; TAXDAY 2011/11/07, I.1). The limitation applies to expenses incurred in connection with a convention, seminar, or similar meeting held outside the North American area.
Nonbusiness Energy Property Credit. The IRS withdrew the right of a wood-burning furnace manufacturer to certify that its hydronic outdoor wood-burning furnaces qualify for the nonbusiness energy property credit under Code Sec. 25C (Announcement 2011-73; TAXDAY 2011/11/07, I.2). The IRS found that the furnaces, measured as using a lower heating value, failed to meet the efficiency ratings of at least 75 percent.
By Jeff Carlson, Paula Cruickshank and Jennifer J. Rodibaugh, CCH News Staff