CCH Weekly Report from Washington, D.C.

After the Senate failed to take up competing payroll tax cut extensions, White House Press Secretary Jay Carney said the president, in the days ahead, will take a more active role in his payroll tax cut campaign, although he did not elaborate on what additional steps Obama will take to pressure Republicans to support the tax-cut extension and expansion. House lawmakers passed legislation that would eliminate public financing of presidential campaigns. The IRS, meanwhile, issued proposed regulations providing additional guidance on the tax treatment of certain Treasury Inflation-Protected Securities.

White House

President Obama called the Senate Republican vote on the payroll tax cut “unacceptable” (TAXDAY, 2011/12/02, C.1). The president, in a written statement, said, “It makes absolutely no sense to raise taxes on the middle class at a time when so many are still trying to get back on their feet.” Carney signaled that the president might be open to continuing the payroll tax cut without imposing a high-income tax increase to pay for it. Carney said the president’s proposal to extend and expand the payroll tax cut with an offset of a millionaire’s tax is his “preferred choice,” but the White House spokesman also left the door open to other options, including no pay-for measures at all. He also noted there has been some movement in the right direction by GOP leaders who have begun to publicly acknowledge the economic benefits of continuing the payroll tax cut. Carney stressed that a payroll tax cut extension for working Americans would have a “measurable, direct, positive impact on the economy” in the short term.

Congress

The Senate on December 1 voted against taking up a Democratic payroll tax cut extension measure (Sen 1917) and a Republican alternative (Sen 1931), leaving it up to the leaders of the House and Senate to hammer out a compromise that will pass in both the House and Senate (TAXDAY, 2011/12/02, C.1). With a 60-vote threshold needed to advance the bills, lawmakers first rejected the Democrat plan by a vote of 51 to 49, then the Republican proposal by a 20-to-78 margin. Senate Republicans late on November 30 released a simplified plan to extend the current 4.2-percent payroll tax cut for another year, calling for reduced federal spending to offset the $119.6-billion cost of their proposal. Senate Democrats on November 28 unveiled an extended payroll tax cut proposal that would extend and expand the current 2-percent payroll tax cut that is scheduled to expire on December 31 (TAXDAY, 2011/11/29, C.1). The Middle Class Tax Cut Bill (Sen 1917) would increase the current break to 3.1 percent for one year and cut in half the employer-side Social Security payroll taxes from 6.2 percent to 3.1 percent on the first $5 million of payroll. Firms that add workers would receive a 100-percent payroll tax holiday on their increase in wages.

House lawmakers on December 1 passed legislation that would eliminate public financing of presidential campaigns (TAXDAY, 2011/12/02, C.2). By a vote of 235 to 190, the House passed HR 3463, a bill to eliminate the Election Assistance Program and remove the option of directing $3 towards presidential campaigns when tax returns are filed each year.

Treasury

The Treasury Inspector General for Tax Administration (TIGTA) issued reports finding that:

The IRS’s Modernized e-file (MeF) system, which will replace the current filing technology, needs improvement so that more taxpayers will be able to electronically file their tax returns (TAXDAY 2011/11/29, T.1). TIGTA found that the processes the IRS used to validate and monitor MeF system processing did not ensure the accurate processing of individual tax returns and other performance issues were unresolved.

Taxpayers may have erroneously claimed more than $697 million a year in deductions for investment theft losses that did not appear to qualify, resulting in federal revenue losses of more than $41 million (TAXDAY 2011/11/28, T.1). The IRS estimates that more than 19,200 taxpayers filed tax year 2008 tax returns claiming a total of more than $8 billion in property income casualty and theft loss deductions.

IRS

TIPS Regulations. The IRS has issued proposed regulations providing additional guidance on the tax treatment of certain Treasury Inflation-Protected Securities (T.D. 9561, NPRM REG-130777-11; TAXDAY, 2011/12/05, I.2). The regulations provide that the coupon bond method described in Reg. §1.1275-7(d), relating to Code Sec. 1275, would apply to TIPS issued with more than a de minimis amount of premium.

VCSP FAQs. The IRS updated its FAQs on the Voluntary Classification Settlement Program (VCSP) that it previously issued on September 27, 2011 (TAXDAY, 2011/12/02, I.1). The new version answers an additional seven questions, including whether an unsuccessful application to the program would open up a taxpayer to audit, whether signing a VCSP agreement is the equivalent of an admission of liability, and whether a member of a consolidated group may participate if a fellow member is under IRS audit.

Estate Tax. The IRS has issued a revenue ruling providing that a grantor’s retention of the power, exercisable in a nonfiduciary capacity, to acquire an insurance policy held in trust by substituting other assets of equivalent value will not, by itself, cause the value of the insurance policy to be includible in the grantor’s gross estate under Code Sec. 2042 (Rev. Rul. 2011-28; TAXDAY, 2011/12/02, I.2).

Refund Checks. The IRS announced it has $153.3 million in undelivered tax refund checks that it would like to return to nearly 100,000 taxpayers whose returns could not be delivered due to mailing address errors (IR-2011-113; TAXDAY, 2011/12/01, I.1). Taxpayers who believe their refund check may have been returned to the IRS as undelivered should use the “Where’s My Refund?” tool on http://www.IRS.gov or call 1-800-829-1954. For future tax years, the IRS recommends that taxpayers electronically file their returns.

CIO Change of Address. The IRS announced the Central Insolvency Operations’ mailing address has changed for request submissions for tax refunds or determinations of unpaid tax liability under sections 505(a) and (b) of the Bankruptcy Code (Announcement 2011-77; TAXDAY 2011/12/01, I.3). Effective immediately, the new address is: Centralized Insolvency Operation, P.O. Box 7346, Philadelphia, Pa. 19101-7346.

Retirement Plan Sample Amendment. The IRS issued a sample amendment that may be adopted by retirement plan sponsors to satisfy Code Sec. 436 regarding limitations on the accrual and payment of benefits under certain underfunded, single-employer defined benefit plans (TAXDAY, 2011/11/30, I.1). Under Code Sec. 401(a)(29), single-employer defined benefit plans that are subject to the minimum funding requirements of Code Sec. 412 must meet the requirements of Code Sec. 436, which provide certain limitations with respect to underfunded plans.

Limited Partnership. The IRS proposed regulations further defining an interest “in a limited partnership as a limited partner” for purposes of determining whether a taxpayer materially participates in an activity under Code Sec. 469 (NPRM REG-109369-10; TAXDAY, 2011/11/29, I.1). The proposed regulations provide that an interest in an entity will be treated as an interest in a limited partnership under the code if: (a) the entity in which the interest is held is classified as a partnership for federal income tax purposes; and (b) the holder of the interest does not have rights to manage the entity at all times during the entity’s tax year under the governing agreement or the law of the jurisdiction where the entity was organized.

Over/Underpayment Interest Rates. The IRS announced the interest rates for the calendar quarter beginning January 1, 2012, will remain at 3 percent for overpayments (2 percent in the case of a corporation), 3 percent for underpayments, and 5 percent for large corporate underpayments (IR-2011-112; TAXDAY, 2011/11/29, I.2). The interest rate for the portion of a corporate overpayment exceeding $10,000 will remain at 0.5 percent.

OID Method of Accounting. The IRS provided a proposed revenue procedure that would allow taxpayers to use a simplified method of accounting to allocate original issue discount (OID) on a pool of credit card receivables to an accrual period (TAXDAY, 2011/11/29, I.3). The method generally allocates to an accrual period an amount of unaccrued OID that is proportional to the amount of the stated redemption price at maturity of the pool that is paid by cardholders during the period.

Ponzi Scheme Loss Safe Harbor. The IRS has expanded the safe harbor for investors claiming a theft loss due to a Ponzi scheme by broadening the range of lead figures of a scheme whose theft from investors would qualify their losses (Rev. Proc. 2011-58; TAXDAY, 2011/11/29, I.4). The new revenue procedure includes lead figures against whom a civil complaint has been brought by a state or federal authority that has not been withdrawn. The IRS also made an exception to the nonwithdrawal requirement for indictments or complaints withdrawn due to the lead figure’s death.

Disaster Relief. The IRS has updated its list of regions in Nebraska where victims of May 2011 flooding may receive relief (MIL-2011-06-NE; TAXDAY, 2011/11/29, I.6). Listed regions now include the Omaha Indian Reservation and Thurston County.

Code Sec. 1274A Debt Instruments. The IRS has provided the dollar amounts, increased by the 2012 inflation adjustment, for Code Sec. 1274A debt instruments arising out of sales or exchanges (Rev. Rul. 2011-27; TAXDAY, 2011/11/28, I.3). The 2012 inflation-adjusted amount is $5,339,300 for Code Sec. 1274A(b) qualified debt instruments and $3,813,800 for Code Sec. 1274A(c)(2)(A) cash method debt instruments.

 

By Jeff Carlson, Stephen K. Cooper, Paula Cruickshank and Jennifer J. Rodibaugh, 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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