Congress passed the Conference Report on Military Construction, Veterans Affairs, and Consolidated Appropriations Act (HR 2055, HRRepNo 112-331), which contains funding for the Treasury and the IRS, sending the measure to President Obama for his signature. In addition, during a rare weekend session, the Senate passed an amended version of the Middle Class Tax Relief and Job Creation Bill (HR 3630), which extends for two months the payroll tax cut, unemployment benefits and Medicare payments to doctors. House action is expected on December 19.
The House, by a vote of 296 to 121, passed the Conference Report on Military Construction, Veterans Affairs, and Consolidated Appropriations Act (HR 2055, HRRepNo 112-331) on December 16 (TAXDAY, 2011/12/19, C.2). The Senate approved the measure on December 17 by a 67-to-32 margin. The omnibus spending bill includes $12.2 billion in funding for the Treasury Department, including $11.8 billion for the IRS.
In a rare weekend session, the Senate on December 17 passed an amended version of the Middle Class Tax Relief and Job Creation Bill (HR 3630), which extends for two months the payroll tax cut, unemployment benefits and Medicare payments to doctors. The $33-billion cost of the tax cut measure over 10 years is covered by increased fees for government-backed loans and mortgages made by Fannie Mae and Freddie Mac. Senate lawmakers first approved an amendment providing for a two-month extension by a vote of 89 to 10, and then approved the bill by unanimous consent. The House is expected to take-up the measure on December 19.
“While this agreement is for two months, it is my expectation, in fact, it would be inexcusable for Congress not to further extend this middle-class tax cut for the rest of the year. Hopefully it is done with as little drama as possible when they get back in January,” President Obama said in a prepared statement to reporters at the White House.
The House approved HR 3630 on December 13, but negotiations continued on whether to include a GOP-backed provision to allow construction of the Keystone pipeline in the Senate version of the measure (TAXDAY, 2011/12/14, C.1). Senate Majority Leader Harry Reid, D-Nev., had indicated on December 13 that there would be no vote in the Senate on an omnibus spending package to fund federal agencies unless an agreement was reached on a measure extending a payroll tax cut and unemployment benefits (TAXDAY, 2011/12/14, C.2). Reid then said that he planned to include a $35-billion package of tax extenders set to expire at the end of 2011 to the bill. Democratic leaders in both the House and Senate said they were concerned that Republicans might approve the must-pass spending bill, then leave town for the holiday recess without addressing an extension of the payroll tax cut.
Congressional leaders began closing in on a compromise on December 16, with Senate Democrats reportedly backing down on their demand to pay for the payroll tax cut with a surtax on millionaires after meeting with President Obama on December 14 (TAXDAY, 2011/12/16, C.1).
Two votes on December 14 to amend the U.S. constitution to require a balanced federal budget failed to win the approval of two-thirds of Senate lawmakers (TAXDAY, 2011/12/15, C.1). The first proposal, offered by Senate Finance Committee ranking member Orrin G. Hatch, R-Utah, fell by a 21-to-79 margin. A second proposal, offered by Sen. Mark Udall, D-Colo., was defeated by a vote of 47 to 53. Both measures were opposed by the Obama administration.
The Senate Finance Subcommittee on Energy, Natural Resources and Infrastructure examined the effect of short-term extensions on alternative technology investment, domestic manufacturing and jobs at a December 14 hearing (TAXDAY, 2011/12/15, C.2). Energy producers asked lawmakers to continue incentives, despite concerns over federal budget woes. Subcommittee Chairman Jeff Bingaman, D-N.M., noted that 10 energy tax provisions expire at the end of 2011 and at least another five expire in 2012. Several reasons exist for the U.S. to maintain and expand policies to aggressively diversify its energy resources, according to Bingaman, including price stability, energy security, economic growth and environmental concerns.
The Treasury Inspector General for Tax Administration (TIGTA) issued a report identifying some refund problems and taxpayer schemes (TAXDAY 2011/12/16, T.1). Additionally, some IRS employees were found not to have received sufficient training in fraud awareness. TIGTA recommended that the IRS use certain database filters to deal with potentially questionable refunds and increased fraud awareness training for certain employees.
Corporate Reorganization. The IRS issued final regulations regarding the continuity of interest requirement for corporate reorganizations (T.D. 9565; TAXDAY 2011/12/19, I.1). The final regulations made only minor changes to the 2007 temporary regulations, they clarify that a shareholder election does not prevent a contract from satisfying the general definition of fixed consideration if that requirement is otherwise met, and modify Example 9 to address a more typical fact pattern.
Foreign Financial Assets/Form 8939/Proposed Regs. The IRS announced that it will soon release Form 8938, Statement of Specified Foreign Financial Assets (IR-2011-117; TAXDAY 2011/12/16, I.1). The IRS issued temporary and proposed regulations providing guidance for reporting assets on the form (T.D. 9567, NPRM REG-130302-10; TAXDAY 2011/12/15, I.1). The new form will be used in the 2012 tax filing season to report specified foreign financial assets for tax year 2011, and it will be filed by taxpayers with specific types and amounts of foreign financial assets or foreign accounts.
FBCSI Income. The IRS issued final regulations on foreign base company sales income (FBCSI) when personal property sold by a controlled foreign corporation (CFC) is purchased, sold, manufactured, produced, constructed, grown or extracted by a CFC branch (or branches) (T.D. 9563; TAXDAY 2011/12/16, I.7). The final regulations provide guidance on the application of the branch rule under Code Sec. 954(d)(2), particularly with respect to a CFC that has multiple branches.
PTIN Renewal. The IRS reminded tax return preparers to renew their 2011 Preparer Tax Identification Numbers (PTINs) for 2012 before all 2011 PTINs expire on December 31, 2011 (IR-2011-119; TAXDAY 2011/12/16, I.8). All PTINS must be renewed annually. Tips to retrieve user IDs and passwords are given to help preparers make the online process for PTIN application a smoother operation.
Charitable Contribution Tips. Several year-end tips have been released for individuals and businesses interested in making tax deductible charitable contributions (IR-2011-118; TAXDAY 2011/12/16, I.5). The tips include guidelines for special charitable contributions by certain IRA owners age 70-1/2 and up, donations of clothing and household items, and monetary donations.
All Events Test Clarification. A revenue ruling has been issued on the treatment of certain liabilities under the Code Sec. 461(h)(3) recurring item exception to the economic performance requirement of the all events test (Rev. Rul. 2012-1; TAXDAY 2011/12/15, I.1). The 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.
Excise Tax Relief for IRA Owners. The IRS announced temporary relief for certain IRA owners who have signed certain indemnification agreements or granted certain security interests to brokers similar to those described in DOL Advisory Opinions 2009-03A and 2011-09A (Ann. 2011-81; TAXDAY 2011/12/13, I.3). For now, the IRS generally will not take into account the consequences that might have resulted from a transaction prohibited by Code Sec. 4975 in determining an IRA’s tax consequences from an indemnification or cross-collateralization agreement.
Cumulative List/Plan Qualification. The IRS published the 2011 Cumulative List of Changes in Plan Qualification Requirements (Notice 2011-97; TAXDAY 2011/12/13, I.4). The 2011 Cumulative List informs plan sponsors and practitioners of issues the IRS has specifically identified for review when determining whether individually designed single-employer plans filing in Cycle B have been properly updated.
Fraud Case Nonacquiescence. The IRS Chief Counsel recommended nonacquiescence to the Tax Court’s decision in W. Norris, Dec. 58,694(M) (AOD-2011-5; TAXDAY 2011/12/13, I.5). The IRS believes that the Tax Court’s approach in evaluating evidence of fraud employed an artificial and rigid system of scoring in place of a consideration of the taxpayer’s entire course of conduct.
Standard Mileage Rates. The 2012 optional standard mileage rates that employees, self-employed individuals, and other taxpayers can use to compute deductible costs of operating automobiles (including vans, pickups and panel trucks) for business, medical, moving and charitable purposes have been released (IR-2011-116, Notice 2012-1; TAXDAY 2011/12/12, I.3).
Employment Tax Final Regulations. The IRS released final regulations on the Employers’ Annual Federal Tax Program and the requirements for depositing Social Security, Medicare and withheld federal income taxes (T.D. 9566; TAXDAY 2011/12/12, I.1). The final regulations allow some employers to file an annual return (Form 944) in lieu of a quarterly return (Form 941) and provide guidance on lookback periods and deposit requirements for employers required to file Forms 941 and 944.
Identity Theft PIN. The IRS is providing a six-digit identity protection personal identification number (IP PIN) to victims of tax-related identity theft who have had their identities verified by the IRS to avoid delays in processing their federal returns (TAXDAY 2011/12/12, I.2). An individual who receives IRS Letter 4869CS issuing an IP PIN will need to enter the IP PIN on his or her tax return in order to avoid processing delays.
By Jeff Carlson, Stephen K. Cooper, Paula Cruickshank and Jennifer J. Rodibaugh, CCH News Staff