Tax Headlines

1827

New Hampshire ~ Personal Income Tax: Legislature Passes Proposed Constitutional Amendment to Prohibit New Tax

The New Hampshire Senate and House of Representatives have adopted a conference committee report to amend the state constitution to prohibit the levy of an assessment, rate or tax on income earned by a natural person. However, the proposed amendment would not prohibit a tax in effect on January 1, 2012, or a rate adjustment to that tax. The proposed amendment will submitted to voters in November 2012. The amendment must be approved by 2/3 of those voting, and if it is approved, it would become effective when the governor proclaims its adoption. The conference committee report adopted the Senate version. (TAXDAY, 2012/05/24, S.30)

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Alaska ~ Corporate Income Tax: Partnership Income Must Reflect Alaska Depreciation

An Alaska superior court has affirmed an administrative decision that a multinational oil and gas corporation doing business in Alaska and computing corporation income tax liability was required to recalculate distributive income it received from a limited liability company (LLC) based on the Alaska depreciation schedule, rather than the accelerated federal depreciation schedule.

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IRS Unlawfully Disclosed Certain Return Information (Emerging Money Corp., DC Conn.)

The IRS’s assertion, in a letter to participants, that a stock to cash program was a “Ponzi” scheme violated Code Sec. 6103. The IRS’s explanation for including the assertion in the letter was weak and was contradicted by the fact that the IRS did not include the assertion in later versions of the letter. However, the IRS did not violate Code Sec. 6103 when it disclosed to the participants that it was investigating the program promoters and that it believed that the program was an illegal tax shelter. The “own information” exception permitted the IRS to disclose this information to the participants because it affected their own tax liability. Moreover, the IRS needed to inform the participants about its investigation in order to obtain the information it needed in the form of amended tax returns. Therefore, the “investigative” exception also applied.

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Corporation Entitled to Foreign Tax Credit for British Windfall Profits Tax Paid by U.K. Subsidiary; Tax Was Income Tax Under Predominant Character Test (Entergy Corp., CA-5)

The Tax Court properly held that a windfall tax imposed on a corporation’s U.K. subsidiary was a creditable foreign income tax for purposes of the foreign tax credit. Under Reg. §1.901-2(a)(3)(i), a foreign tax is an “income tax” if it is imposed on gross receipts, or an amount not in excess of gross receipts, derives net income by deducting from gross receipts the costs and expenses of earning that income and is not imposed until the taxpayer has actually received the income. The court considered extrinsic evidence of how the tax was actually applied, rather than limiting its analysis to the text of the tax statute. In its design and incidence, the windfall tax was a tax on excess profits, even though it was structured as a tax on the difference between the value that was assigned to the company when it was first privatized, and the profit-making value it subsequently demonstrated.

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Temporary, Proposed Regulations Address Substantial Business Activities of Foreign Corporations (T.D. 9592; NPRM REG-107889-12)

The IRS has issued temporary and proposed regulations regarding whether a foreign corporation has substantial business activities in a foreign country. These regulations affect certain domestic corporations and partnerships, and certain related parties, and foreign corporations that acquire all or substantially all of the properties of those domestic entities. The text of the temporary regulations serves as the text for the proposed regulations.

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Final Regulations Under Code Sec. 7874 Address Surrogate Foreign Corporations (T.D. 9591)

Final regulations have been issued regarding whether a foreign corporation is treated as a surrogate foreign corporation. The final regulations affect certain domestic corporations and partnerships (and certain parties related thereto), and foreign corporations that acquire substantially all of the properties of such domestic corporations or partnerships. The final regulations, which adopt 2009 temporary regulations with some modification, are effective as of June 12, 2012.

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Reid Offers Two Proposals to Fund Student Loan Bill

In a letter to House Speaker John Boehner, R-Ohio, and Senate Minority Leader Mitch McConnell, R-Ky., Senate Majority Leader Harry Reid, D-Nev., on June 7 offered two proposals to pay for the estimated $6-billion cost of a one-year extension of student loan rates, which are scheduled to double on July 1 (TAXDAY, 2012/05/29, C.1). The first proposal expands an offset that recently passed the Senate as part of the transportation jobs bill (Sen 1813). Reid said he believes the combination offers a bipartisan path to break the impasse currently facing the student loan bill (Sen 2343).

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