Tax Headlines

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California ~ Corporate Income Tax: Unitary Partner’s Gain From Sale of Partnership Interest Ineligible for Intercompany Transaction Deferment

In response to a question submitted by a related group of corporations, limited liability companies (LLCs), and partnerships that were undergoing a series of restructurings for non-California corporation franchise and income tax purposes, the Franchise Tax Board (FTB) has issued a chief counsel ruling in which it has taken the position that the gain from the sale of a partnership interest to a corporation by an LLC that is owned by another partnership would not qualify for the combined reporting intercompany transaction deferment, even though all of the entities were unitary and would be included in the combined reporting group if all the entities were corporations.

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CCH Weekly Report from Washington, D.C.

With lawmakers on their August recess, the Congressional Budget Office (CBO) issued a report indicating that the federal budget deficit for the first 10 months of fiscal year (FY) 2012 will be lower than the corresponding period in 2011, largely due to higher tax revenue from corporations and individuals. In addition, Senate Finance Committee ranking member Orrin G. Hatch, R-Utah, asked the IRS to keep politics out of any decision to issue rules on the tax treatment of nonprofits. Meanwhile, a Treasury Inspector General for Tax Administration (TIGTA) report said that IRS supervisors urged employees to ignore potential fraud in a program that reviews and verifies applications for Individual Taxpayer Identification Numbers (ITINs).

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Contributions to Purported Multiemployer Welfare Benefit Trust Not Deductible Business Expense; S Corporation Owners Not Subjected to Double Taxation; Negligence Penalty Properly Imposed (Curcio, CA-6)

The Tax Court properly concluded that contributions made by close corporations to a multiple-employer welfare benefit plan were payments on behalf of the business owners personally and, thus, were not deductible ordinary and necessary business expenses. The owners, who were the only employees covered by the plan, argued that the plan provided preretirement life insurance to covered employees. However, plan contributions made by the taxpayers’ businesses were made for the taxpayers’ personal benefit and not in furtherance of a profit objective or for any viable business purpose.

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Michigan ~ Corporate Income Tax: Business Not Unitary; Profits Properly Included in Sales Factor

Affirming the lower court, the Court of Appeals determined that a taxpayer and its subsidiary were not unitary and that certain profits were properly included in the sales factor under the former Michigan single business tax. In 2001, the taxpayer sold its ownership interest in a subsidiary to an outside company; this sale resulted in a capital gain of about $2 billion.

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California ~ Corporate Income Tax: Court Vacates Decision in Gillette, Orders Rehearing

On its own motion, and for good cause, a California court of appeal has vacated its earlier decision in Gillette v. Franchise Tax Board and ordered a rehearing in the taxpayer’s challenge to the FTB’s position that despite California’s participation in the Multistate Tax Compact (MTC), California taxpayers were required to utilize the double-weighted sales tax formula to apportion their net business income for corporation franchise and income tax purposes. In the decision that was vacated, the court had ruled that the FTB’s interpretation was incorrect and that so long as California was a member of the MTC, taxpayers could elect to utilize the MTC’s equally-weighted apportionment formula (TAXDAY, 2012/07/25, S.7 )

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IRS Had Authority to Abate Interest on Erroneous Refund; Refusal to Abate Interest Not an Abuse of Discretion Where Taxpayer Error Contributed to Erroneous Refund (Allcorn, III, TC)

The IRS had authority to abate interest on an erroneous refund. However, it did not abuse its discretion when it denied an individual’s request to abate interest assessed on the refund. The individual had mistakenly added an estimated tax payment to the income tax withheld reported on line 62 of his Form 1040 income tax return instead of listing it as an estimated tax payment on line 63, and that mistake contributed to the issuance of the refund.

When the IRS realized that the refund was issued in error, it informed the individual

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