Federal Tax Headlines

1975

CCH Weekly Report from Washington, D.C.

House Republicans released the GOP budget for fiscal year 2013, which calls for reforming the tax code and eliminating special interest loopholes, while simultaneously lowering tax rates and extending the Bush-era tax cuts. Legislation was also introduced to grant small businesses a 20-percent tax cut and eliminate subsidies for big oil companies. In addition, a Senate Finance subcommittee held a hearing on tax fraud through identity theft. The IRS, meanwhile, announced it will enter into voluntary closing agreements (VCAs) with issuers of qualified student loan bonds that were unable to establish which bond issues the student loans were properly allocable to as purpose investments and that, as a result, could not establish that the bond issues involved were not issues of arbitrage bonds.

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Estate Tax Farmland Special Use Valuation Held to Be Invalid (Frinfock-Ware Est., DC Ill.)

An estate that included qualified property, that represented 68 percent of the adjusted value of the gross estate, but elected special use valuation for property constituting approximately 15 percent of the adjusted value of the gross estate, was entitled to special use valuation under Code Sec. 2032A for the elective property because Reg. §20.2032A-8(a)(2) was found to be invalid.

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User Fee for Processing Application for U.S. Residency Certification Increases Beginning in April, IRS Announces on Website

In a posting to its website, the IRS has changed the user fee schedule contained in Rev. Proc. 2006-35, 2006-2 CB 434, for processing Form 8802, Application for United States Residency Certification. According to the posting, for all Form 8802 applications received with a postmark dated on or after April 1, 2012, a flat rate fee of $85.00 per application will be charged, regardless of the number of certificates requested.

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More Than 400,000 Organizations Automatically Lose Exempt Status, IRS Official Says

More than 400,000 organizations have lost their tax-exempt status under automatic revocation rules, Holly Paz, acting director, rulings and agreements, Exempt Organizations (EO), IRS, said on March 22. Approximately 14,000 of these organizations have applied for retroactive reinstatement, according to Paz, who spoke at the 48th Washington Non-Profit Legal and Tax Conference in Arlington, Va.

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IRS Releases 2011 Data Book (IR-2012-36)

The IRS has released the 2011 IRS Data Book, a snapshot of agency activities for fiscal year 2011. During the fiscal year, the IRS collected $2.4 trillion and processed more than 234-million tax returns. In addition to information on taxes collected and returns processed, the report also includes information about enforcement, taxpayer assistance, and the IRS budget and workforce, among others.

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Losses Disallowed to and Penalties Imposed on Individuals (Barnes, TCM)

A married couple was liable for deficiencies due to readjustment of loss items and basis over several years, and were subject to an accuracy-related penalty. The taxpayers ran several businesses, including an S corporation. Over nine years, the S corporation sustained losses eight times and produced gain once, in the sixth year. On the return for the second year, the taxpayers mistakenly reported a gain instead of deducting a much larger loss, and in the third year, the taxpayers did not reduce their basis by the amount of the loss, which they did not, but were required to, deduct. This affected application of the limit on pass-through losses from an S corporation, which is equal to the shareholder’s basis in the S corporation’s stock under Code Sec. 1366(d)(1)(A), and the error was perpetuated over the following years.

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Cantor Introduces Small Business Tax Bill; Sets Vote on Transportation Measure

House Majority Leader Eric Cantor, R-Va., unveiled legislation on March 21 that would grant a 20-percent tax cut to small businesses with under 500 employees as a way to spur job creation. The $45.9-billion measure would be paid by reduced federal spending included in the recently proposed fiscal year 2013 GOP budget proposal, Cantor told reporters. He said the House will likely vote on the tax bill by April 15. “Current marginal tax rates mean that small businesses are faced with enormous burdens that are sapping capital, resources and time,” Cantor stated.

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Installment Interest Paid by State Under Condemnation Agreement Exempt; Settlement Interest Taxable (DeNaples, CA-3)

The Tax Court erred when it held that two married couples should have included in their gross income installment payment interest paid by a state (Pennsylvania) under a condemnation agreement. The state and the taxpayers negotiated a complete arm’s-length settlement of the state’s claims to the taxpayers’ property and because the taxpayers agreed to a lower variable interest rate for the purpose of extending credit to the state, the state’s obligation arose by voluntary bargaining. Since the state’s obligation to pay interest to the taxpayers arose out of voluntary bargaining, the state’s borrowing authority was implicated and, therefore, the interest was excludable under Code Sec. 103

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Senate Takes Aim Again at Big Oil

Senate Majority Leader Harry Reid, D-Nev., plans to take up another bill aimed at taxing big oil in order to pay for renewable energy tax credits that are set to expire. The Senate on March 19 began the legislative process for the Repeal Big Oil Tax Subsidies Bill (Sen 2204), offered by Sen. Robert Menendez, D-N.J., which would repeal five tax subsidies for the five largest integrated oil and gas companies and use the revenue to extend expired and expiring renewable energy tax incentives.

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