During the week of December 5, President Obama pushed Congress to extend the current payroll tax cut but warned of a possible veto if unrelated provisions are attached. Congress took steps to pass the tax cut but enactment continued to prove elusive. And, the IRS issued a number of pieces of guidance, including regulations aimed at conduit financing arrangements, low-income community businesses and TIPS and the coupon bond method of accounting.
Republican efforts to tie an extension of the payroll tax cut to unrelated issues, such as construction of the controversial Keystone XL pipeline from Canada to the Gulf Coast, will end in a veto, President Obama warned on December 7 at a joint news session with Canadian Prime Minister Stephen Harper. Speaking a day earlier in Osawatomie, Kansas, Obama made the case for a payroll tax cut, as well as comprehensive tax code reform. He maintained that investing in education, research and manufacturing are not possible while keeping the current tax rates for high-income earners.
The Senate on December 8 rejected a second attempt to pass a payroll tax cut extension bill (Sen 1944), falling short of the 60 votes required to take up a pared-down version of a previously rejected measure (Sen 1917, TAXDAY, 2011/12/06, C.1), as only one Republican joined Democrats in voting for the legislation which fell by a 50-48 margin. Senate Democratic leaders and President Obama vowed to stay in Washington through the Christmas holiday, if necessary, until the legislation is approved.
Following the vote on the Democratic payroll tax extension, the Senate took up for a second time a motion to proceed to a previously rejected Republican alternative (Sen 1931; TAXDAY, 2011/12/02, C.1). The motion was defeated by a vote of 22-76.
The chairmen of the two tax-writing committees convened a joint hearing on December 6 examining ways to stem the use of financial products as a means of tax avoidance. Tax considerations affect decisions related to holding, issuing, and structuring financial instruments, according to a report from the Joint Committee on Taxation (JCX-56-11) as their flexibility creates difficulties in the taxation of certain financial products (TAXDAY, 2011/12/07, C.1). House Ways and Means Committee Chairman David Camp, R-Mich., blamed complexity of tax rules in this area, saying Congress often enacts tax legislation affecting a particular financial product without assessing whether or not other approaches would provide more uniformity and simplicity in the taxation of existing and future financial products.
House Republicans unveiled their plan to cut payroll taxes and extend unemployment insurance benefit on December 9. The Middle Class Tax Relief & Job Creation Act (HR 3630) is expected to be voted on in the House on December 13. Introduced by Ways and Means Chairman Dave Camp, R-Mich., the legislation would reject lower payments for Medicare physicians and set new anti-abuse standards for child tax credits (TAXDAY, 2011/12/12, C.1).
The Treasury Inspector General for Tax Administration (TIGTA) issued several reports:
Although IRS officials took appropriate actions to place levies on the funds of delinquent or underreported taxpayers, the IRS faces several barriers to its effective use of levies to increase taxpayer compliance (TAXDAY, 2011/12/09, T.1). TIGTA found that levy notification and Collection Due Process (CDP) can postpone collection actions; taxpayer privacy rights limit access to taxpayer financial information; strict timing requirements result in multiple repeat levy actions; and the officers must rely on third parties, such as banks and employers, to comply with levy notices.
The IRS has steadily increased the amount of recommended additional tax in its audits of small corporations, but can still improve the quality of its audits (TAXDAY, 2011/12/07, T.1). Notably, IRS examiners could take better advantage of the Service’s automated information systems to perform the required filing checks, and front-line managers could provide more feedback to examiners regarding the quality of their audits.
Computer security remains a material weakness in the IRS’s information technology systems (TAXDAY, 2011/12/06, T.1). TIGTA made no recommendations in its report, stating that progress is being made to protect IRS computer systems and sensitive data, an important objective since the security environment is constantly in flux.
Conduit Financing Arrangements. The IRS released regulations on multiple-party financing arrangements effected through disregarded entities, in order to determine whether those arrangements should be recharacterized as conduit financing arrangements (T.D. 9562; TAXDAY, 2011/12/09, I.2). The regulations are effective and apply to payments made on or after December 9, 2011.
Taxicabs. The IRS has issued an updated Audit Techniques Guide (ATG) for examiners of the cash-intensive taxicab industry (TAXDAY, 2011/12/09, I.4). The ATG contains primary audit issues and audit techniques and other information.
Current Plan Liability. For pension plan years beginning in December 2011, the IRS has released the corporate bond weighted average interest rate, the permissible range of interest rates used to calculate current plan liability and to determine the required contribution under Code Sec. 412(l) for plan years through 2011, and the current corporate bond yield curve and related segment rates for the purpose of establishing a plan’s funding target under Code Sec. 430(h)(2) (Notice 2011-100; TAXDAY, 2011/12/08, I.1).
Alter Ego Status. The IRS Chief Counsel has stated that a federal common law analysis to prove alter ego status is legally correct (CC-2012-002; TAXDAY, 2011/12/08, I.3).
Frivolous CDP Cases. The IRS Chief Counsel has also issued litigating guidelines to handle frivolous issues in Collection Due Process (CDP) cases (CC-2012-003; TAXDAY, 2011/12/08, I.4).
CE Provider Regulations/FAQs. The IRS released the procedures and requirements for becoming an approved continuing education provider or a continuing education accrediting organization (IR-2011-115; Rev. Proc. 2012-12; TAXDAY, 2011/12/07, I.1). The guidance implements the new continuing education requirements for certain tax return preparers that begin in 2012. The IRS also released FAQs for tax return preparers, continuing education providers, and continuing education accrediting organizations.
Low-Income Community Business. The IRS issued final regulations on the requirements of an entity serving certain targeted populations for becoming a qualified active low-income community business for the new markets tax credit (T.D. 9560; TAXDAY, 2011/12/05, I.1).
TIPS and Coupon Bond Method. The IRS followed up earlier guidance by issuing proposed regulations enabling a Treasury Inflation-Protected Security with a bond premium greater than the de minimis amount to use the coupon bond method rather than the more complex discount bond method of accounting (T.D. 9561; NPRM REG-130777-11; TAXDAY, 2011/12/05, I.2).
By Jeff Carlson, Stephen K. Cooper and Jennifer Rodibaugh, CCH News Staff