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News and miscellaneous legal topics – 2007

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Various legal items emphasizing Missouri and federal taxes, archived from the RSS ("rich site summary") feed xlm logo

I re-started limited posts after stopping posting new items on June 10, 2007. new 11/2/08

Streamlined Sales Tax (SST):

The Tax Court decided the IRS was not barred from assessing liabilities calculated through TEFRA partnership level adjustments made more than 3 years after filing new 6/7/07

of the partnership return, finding that IRC § § 6229 and 6501 provide alternative periods within which to assess tax with respect to partnership items, with the later expiring period governing. G-5 Investment Partnership, 128 TC No. 15; Kligfeld Holdings, 128 TC No. 16

Annual fee paid by a investors on their brokerage accounts in lieu of commissions on each trade is not a "carrying charge" new 6/7/07

IRS Chief Counsel ruled in an advice memorandum that the annual fee paid by a investors on their brokerage accounts in lieu of commissions on each trade is not a "carrying charge" for the account can only be treated as a Schedule A miscellaneous itemized deduction, which is subject to an overall two percent adjusted gross income (AGI) floor. Taxpayers may not elect to capitalize the fees under Regulation § 1.266-1(b) and add the amount to the basis of their investments pro rata. CCA 200721015

Oklahoma enacted legislation conforming state law with the Streamlined Sales and Use Tax (SST) Agreement. S.B. 1076, Laws 2007, effective November 1, 2007. new 5/31/07

The Multistate Tax Commission (MTC) announced Indiana will join as an associate member, and Maryland and West Virginia will become sovereignty members. News Release, Multistate Tax Commission, May 2007. new 5/31/07

U.S. Supreme Court to review Kentucky exemption of the interest on Kentucky bonds while taxing the interest on other states' bonds new 5/31/07

and their localities from corporate and personal income taxes, violates the Commerce Clause. The Kentucky Court of Appeals 3-judge appellate panel vacated the trial court's judgment in favor of the Department and held that Kentucky's bond taxation system is facially unconstitutional under the Commerce Clause because it affords more favorable tax treatment to in-state bonds than to out-of-state bonds. The Kentucky Supreme Court turned down the Department's request for review, and its petition to the U.S. Supreme Court followed. Kentucky Department of Revenue v. Davis, U.S. Supreme Court, Dkt. 06-666, petition for certiorari granted May 21, 2007.

The Universal Higher Education and Lifetime Learning Bill new 5/31/07

will be introduced on May 23, and will consolidate the Hope Scholarship, the Lifetime Learning Credit and the deduction for tuition and fees with a goal of simplification.

IRC § 355(b)(3), enacted by the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA new 5/31/07

applies the active trade or business requirement to the "separate affiliated group" (SAG) of the distributing and controlled corporations with members treated as one corporation, and a look-through rule is applied to determine whether the SAG conducts an active trade or business.

Employer's proposed addition of a "catastrophic casualty losses" to its medical leave-sharing plan includible in the donor employees' gross income new 5/31/07

An employer's proposed addition of a "catastrophic casualty losses" (not necessarily involving a personal or family medical emergency so as to be a qualified "medical emergency.") to its medical leave-sharing plan would result in payments of donated benefits being includible in the donor employees' gross income as "wages" subject to withholding taxes as assigned income. Assigned income treatment does not apply to bona-fide employer-sponsored (medical) leave-sharing plans or qualified major disaster leave-sharing programs. Under Rev. Rul. 90-29 amounts paid to an employee under a medical leave-sharing plan are includible in the recipient's gross income under IRC § 61 and subject to withholding taxes. A donor employee is not subject to income or withholding taxes and may not claim an expense, loss deduction, or charitable contribution upon surrender to a medical leave-sharing plan. PLR 200720017.

Owner of single-member LLC not electing to be treated as a corporation may be held personally liable for the LLC's unpaid payroll taxes new 5/31/07

The 2nd Circuit Court of Appeals held a single-member limited liability company (LLC) owner who failed to elect LLC be treated as a corporation under IRS check-the-box regulations may be held personally liable for the LLC's unpaid payroll taxes. McNamee, CA-2 May 23, 2007.

The Small Business and Work Opportunity Tax Act of 2007 (H.R. 2206)new 5/31/07

which is part of a larger war spending bill, passed Congress on May 24 and was signed by President Bush May 25, 2007. Congress enacted the $4.8 billion in tax incentives to help businesses absorb the cost of a higher federal minimum wage. The new law increases the small business expensing dollar limitation to $125,000, and raises the investment limitation to $500,000 for tax years beginning in 2007 through 2010, both indexed for inflation. A package of S corp reforms address passive investment income, the reserve method of accounting by banks that are S corps, sales of an interest in a QSub, and the computing of taxable income of the S portion of an electing small business trust (ESBT). The new law expands the kiddie tax to apply to children who are under age 19 or who are full-time students under age 24 (14 in 2005, under 18 in 2006). The Work Opportunity Tax Credit (WOTC) is one of several tax incentives to encourage employers to hire challenged individuals, including physical disabilities, economically challenged, covering more veterans and some other targeted groups.

NASAA proposal to allow franchisors to register franchise disclosure documents prepared pursuant to the new FTC franchise disclosure rule in all states requiring registration new 5/25/07

The North American Securities Administrators Association (NASAA) released a proposal on May 9, 2007 to allow franchisors to register franchise disclosure documents prepared pursuant to the new FTC franchise disclosure rule in all states requiring registration for public comment. "The public comment period will remain open for 14 days. Comments on the proposal are invited, and written comments should be sent to Dale Cantone, Chair of the Franchise and Business Opportunity Project Group. To facilitate consideration of comments, please include copies of your comment to each member of the Project Group and the NASAA Legal Department."

FTC post FAQ on amended Franchise Rule. new 5/23/07

North Dakota delayed the implementation of destination-based sourcing new 5/16/07

of florist sales for sales and use tax purposes from December 31, 2007, to December 31, 2009. This provision does not conform with the Streamlined Sales and Use Tax (SST) Agreement, although North Dakota is a full member state.

California corporation's receipts for services performed entirely outside Michigan for real estate improvement projects in Michigan were taxable Michigan sales new 5/16/07

The Michigan Supreme Court held that a California corporation's receipts for engineering and architectural services performed entirely outside Michigan for real estate improvement projects constructed in Michigan were taxable sales subject to the single business tax, Fluor Enterprises, Inc. v. Department of Treasury, Michigan Supreme Court, No. 129149, May 2, 2007.

A contractor making improvements to real property is the final user and consumer of the materials and supplies used new 5/9/07

should pay sales tax on its purchases and not charge sales tax to the owners of real property contracting for the improvement to their real property. Letter Ruling No. LR3685, Missouri Department of Revenue, March 12, 2007.

Missouri credit for donations to food pantry new 5/9/07

Missouri enacted a corporate income and personal income tax nonrefundable credit equal to one-half the value of the donation, up to $2,500 per taxpayer for donations to food pantries, and the existing credit for donations to residential treatment agencies is revised to include cash, publicly traded stocks and bonds, and real estate (previously, only monetary donations. H.B. 453, Laws 2007, effective August 28, 2007.

Streamlined Sales and Use Tax (SST) Agreement:

President Bush vetoed the U.S. Troop Readiness, Veterans' Health, and Iraq Accountability Act, 2007 (H.R. 1591) on May 1. new 5/9/07

The bill included nearly $5 billion in business tax incentives. new 5/9/07

The 7th Circuit Finds Collection Period Was Extended By Oral Offer For Installment Payments.

It was sufficient that the IRS presented an affidavit that computer records indicated such an offer. An installment agreement (which also stops the limitations period from running) must be in writing to be an effective "approved" agreement, negotiations do not need to be in writing to stop the running of the statute of limitations while negotiations, whether successful or not, are in progress. Seagrave, CA-7, May 3, 2007, 2007-1 USTC ¶50,479.

IRS proposed regulations clarifying how to determine the dependency exemption between divorced/separated parents new 5/9/07

The IRS released proposed regulations clarifying how to determine the dependency exemption between divorced/separated parents as a result of amendments to the Working Families Tax Relief Act of 2004 and the Gulf Opportunity Zone Act of 2005. A noncustodial parent may deduct an exemption amount for a qualifying child, if the custodial parent releases the claim to exemption. A custodial parent is the parent with whom the child resides for the greater number of nights during the calendar year. If a child is temporarily absent from a parent's home, the child is viewed as residing with the parent with whom the child usually resides on that night(s). If a child resides with each parent for an equal amount of time during the year, the parent with the higher adjusted gross income for that year is treated as the custodial parent. A custodial parent may release an exemption claim for a child by signing a written declaration that he or she will not claim the child as a dependent. The noncustodial parent must attach the declaration to his or her return to claim the dependency exemption. The proposed regulations provide that a custodial parent who released an exemption claim may revoke the release for future tax years by giving written notice of the revocation to the noncustodial parent. Published in the Federal Register on May 2, 2007.

The Tax Court found a supporting organization whose sole activity was to carry on a business and give its income to a tax-exempt organization was not tax-exempt itself. CRSO v. Commissioner, 128 TC --, No. 12, April 30, 2007. new 5/9/07

IRS proposes regulation for active trade or business new 5/9/07

IRS proposed regulations explain the application of the active trade or business requirement to a tax-free spin off of a subsidiary corporation to the shareholders of the parent corporation. The regulations also explain § 355(b)(3), published in the Federal Register on May 8, 2007.

A Missouri property owner's wife was entitled to the statutorily required notice of the right to redeem the property after it was successfully purchased by a corporation in a delinquent Missouri property tax sale new 5/3/07

The husband purchased the property prior to marriage and was the only record owner having never added his wife's name as an owner. The property was refinanced and the couple executed a deed of trust indicating that the wife had an interest in the property, The applicable notification provision requires notice to be given to any person who holds a publicly recorded deed of trust. The corporation failed to comply with the mandatory notice requirements and, therefore, lost all interest in the property. Glasgow Enterprises, Inc. v. Brooks, Missouri Court of Appeals, Eastern District, No. ED88327, April 17, 2007.

Construction services that transformed a warehouse building to a different use did not qualify as "original construction" new 5/3/07

Construction services that transformed a warehouse building to a different use by installing new walls, flooring, and ceilings, did not qualify as "original construction" for Kansas sales tax purposes and were, therefore, taxable, so the general contractor was required to charge sales tax on its labor services when it billed the owner for work that was done and was required to pay sales tax to its subcontractors. Private Letter Ruling No. P-2007-003, Kansas Department of Revenue, April 5, 2007.

Streamlined Sales and Use Tax (SST) Agreement: new 5/3/07

The Texas comptroller announced an amnesty program waiving penalties and interest new 5/3/07

for taxpayers who underreported or not yet permitted for tax will be offered from June 15 to August 15, 2007, information available on the comptroller's Web site.

Kentucky sales and use tax provisions are amended to conform with the Streamlined Sales and Use Tax (SST) Agreement. Ch. 141 (H.B. 360), Laws 2007, effective July 1, 2007. new 5/3/07

Final Code Sec. § 409A regulations regarding deferred compensation have been issued. new 4/25/07

Qualified higher education expenses paid in a year other than the year an early IRA distribution occurred do not reduce10% additional tax new 4/25/07

The Tax Court issued a decision upholding the rule that qualified higher education expenses paid in a year other than the year an early IRA distribution occurred do not reduce the amount of the early IRA distribution subject to the 10% additional tax. Duronio, Dkt. No. 13719-04, TC Memo. 2007-90, April 17, 2007.

The IRS issued "hobby loss" Fact Sheet FS-2007-18, April 16, 2007 (deductions for activities not engaged in for profit) new 4/25/07

See also IRS Publication 535, Business Expenses. Taxpayers may deduct ordinary (common and accepted in the taxpayer's trade or business) and necessary (appropriate for the business) expenses for conducting a trade or business. Generally, an activity qualifies as a business if carried on with the reasonable expectation of earning a profit. Taxpayers should consider the following factors:

The IRS presumes that an activity is carried on for profit if it makes a profit during at least 3 of the last 5 tax years, including the current year, and at least 2 of the last 7 years for activities consisting primarily of breeding, showing, training or racing horses. Losses from a not for profit activity may not be used to offset other income. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations, but does not apply to corporations other than S corporations.

Deductions for hobby activities are claimed as itemized deductions on Schedule A (Form 1040). These deductions must be taken in the following order and only to the extent stated in each of 3 categories:

The IRS released the depreciation limits ("luxury auto limits") for business automobiles, trucks and vans first placed in service in 2007 new 4/18/07

along with the annual inclusion amounts for vehicles first leased in 2007, Rev. Proc. 2007-30. This year's guidance no longer provides tables for electric automobiles placed in service between December 31, 2001 and January 1, 2007 which are provided in Code Sec. 280F(a)(1)(C). Thus,. Three separate deductions are covered by the 2007 dollar caps.

Passenger automobiles:

Trucks and vans (vehicle built on a truck chassis with an unloaded gross weight of over 6,000 pounds. Vehicles built on an automobile chassis are classified as an automobile irrespective of weight even if its manufacturer designates it an SUV, The American Jobs Creation Act of 2004 limits the cost of an SUV that may be expensed under IRC § 179 to $25,000 if the SUV is exempt from the depreciation limits under § 280F.)

The Sixth Circuit Court of Appeals, agreeing with the district court, rejected a challenge to the "check-the-box" business entity classification regulations new 4/18/07

Taxpayer did not elect to treat the LLCs as corporations for federal tax purposes, which resulted in the IRS treating them as sole proprietorships/disregarded entities, and the taxpayer was personally liable for the unpaid employment taxes. Subsequently, the IRS moved to enforce liens against his property to collect the taxes. Littriello, CA-6, April 13, 2007.

The IRS has issued a warning regarding a newly discovered tax scam new 4/18/07

in which return-preparation web sites fool taxpayers into thinking they are filing tax information with a member of the Free File Alliance. The taxpayer's information is used to file a return, but the bank account numbers are changed so that refunds are deposited elsewhere. IR-2007-87.

School operated in furtherance of the private interests of its founder/executive director not exempt new 4/18/07

The IRS properly revoked the exempt status of a Texas corporation that operated a school that was not operated exclusively for exempt purposes, but was instead operated in furtherance of the private interests of its founder/executive director. Rameses School of San Antonio, Texas, TC Memo. 2007-85, CCH Dec. 56,894(M), April 10, 2007.

6 governors recommend required reporting new 4/18/07

According to the Center on Budget and Policy Priorities newsletter, April 5, 2007, reported by CCH, 6 governors (Iowa, Massachusetts, Michigan, New York, North Carolina and Pennsylvania) have recommended adoption of combined reporting, requiring parents and subsidiaries to add their profits together, and 4 states (Vermont, Texas, New york and West Virginia) have joined the 16 that have used combined reporting for decades.

Streamlined Sales and Use Tax (SST) Agreement:

Income tax credit for special needs child adoption expenses is amendednew 4/18/07

Regulation § 12 CSR 10-400.200, Missouri Department of Revenue, concerning the Missouri corporate income and personal income tax credit for special needs child adoption expenses is amended, effective May 30, 2007, to reflect changes made by S.B. 1229, Laws 2006, revising the tax credit application deadline and making the unclaimed portion of the resident adoption tax credit allocation available for children-in-crisis tax credits. Regulation § 12 CSR 10-400.210 is adopted, explaining the application process and allocation of funds for the Missouri corporate income and personal income tax credit enacted by S.B. 1229, Laws 2006, for verified contributions to qualified child crisis care agencies. In order to claim the tax credit, a taxpayer must submit, with the taxpayer's tax return, a contribution verification certification provided by the qualified agency receiving the contribution.

Missouri company's low-income housing tax credits claimed but not utilized due to a large NOL were transferable to another taxpayer new 4/18/07

Letter Ruling No. LR3628, Missouri Department of Revenue, February 8, 2007 held a Missouri company's low-income housing tax credits claimed on the company's 2003 and 2004 tax returns, but not utilized due to a large 2005 net operating loss carried back to 2003 and 2004, were transferable to another taxpayer for use for Missouri corporate income or personal income tax purposes. The net operating loss deduction eliminated any 2003 or 2004 tax liability against which the tax credits could be applied and freed up the tax credits to be transferred or carried forward.

Feasibility study and draft legislation to bring Massachusetts into compliance with the Streamlined Sales and Use Tax Agreement new 4/11/07

Proposed legislation directs the Massachusetts Department of Revenue to prepare a feasibility study and draft legislation to bring Massachusetts into compliance with the Streamlined Sales and Use Tax Agreement by December 1, 2009. S.B. 1757, as introduced January 10, 2007.

Connecticut legislation to bring it into compliance with the Streamlined Sales and Use Tax Agreement new 4/4/07

Legislation introduced in Connecticut requires the Connecticut Commissioner of Revenue Services to take the steps necessary to bring the state into compliance with the Streamlined Sales and Use Tax (SST) Agreement so that the state could apply for membership by October 1, 2007, but does not contain statutory changes to come into actual conformity with the Agreement. Another SST bill, Senate. S.B. 1452, was introduced in the Connecticut Senate on March 21, 2007 for conformity.

The Streamlined Sales Tax (SST) Agreement:

The Missouri Department of Social Services has readopted previously adopted emergency regulations to implement the tax credits for contributions new 3/21/07

to qualified residential treatment agencies, pregnancy resource centers, and centers for victims of domestic violence. Reg. § § 13 CSR 35-100.010, 35-100.020, and 40-79-010, Missouri Department of Social Services, effective March 30, 2007.

Streamlined Sales and Use Tax (SST) Agreement compliance legislation: new 3/21/07

The California State Board of Equalization issued a newsletter discussing the applicability of sales tax to drop shipment transactions new 3/21/07

where out-of-state retailers not registered to collect California tax that sells the product to the California consumer and have suppliers ship products directly to the retailers' California customers, finding that sales tax is due on those transactions and the drop shipper must report and pay tax measured by the retail selling price of the property paid by the California consumer to the true retailer. Tax Information Bulletin, California State Board of Equalization, March 2007.

The U.S. Supreme Court has been asked to decide whether the Commerce Clause permits a state to impose corporate income and franchise taxes new 3/21/07

Lanco, Inc. v. Director, Division of Taxation, U.S. Supreme Court, petition for certiorari filed March 9, 2007; MBNA America Bank, N.A. v. Tax Commissioner of the State of West Virginia, U.S. Supreme Court, Dkt. 06-1228, petition for certiorari filed March 8, 2007. In MBNA America Bank, N.A., 640 S.E.2d 226 (2006), the West Virginia Supreme Court of Appeals held the state could impose corporate net income and business franchise taxes on a bank's gross receipts from West Virginia customers, even though the bank had no physical presence in the state. In Lanco, Inc., 908 A.2d 176 (2006), the New Jersey Supreme Court held that New Jersey may apply its corporation business tax to income from the licensing of intangibles in the state, notwithstanding the taxpayer's lack of a physical presence in New Jersey.

Corporations, including S corporations, preparing calendar-year 2006 income-tax returns with a March 15 due date, should use the posted interest factors, rather than those in the instructions for Form 8913, Credit for Telephone Excise Tax Paid. new 3/21/07

By law, the interest rates that apply to corporate tax overpayments are lower than those that apply to other taxpayers. The interest factors in the Form 8913 instructions apply to non-corporate taxpayers with an April 17 filing deadline, including individuals, estates, trusts and partnerships that are basing their refund request on the actual amount of tax paid. IRS News Release IR-2007-56, March 12, 2007.

Under § 527(j), certain tax-exempt political organizations must report information about contributions received and expenditures made by the organizations periodically on Form 8872, Political Organization Report of Contributions and Expenditures. new 3/21/07

Reports are due either monthly or semi-annually in odd-numbered years and either monthly or quarterly in even-numbered years. Rev. Proc. 2007-27 provides a "safe harbor" for establishing that failure to report certain contributor information was due to reasonable cause and not due to willful neglect, and qualifies for relief under § 527(l)(2)In addition, certain pre- and post-election reports are required. Even if a tax-exempt political organization does not meet the requirements of the safe harbor, the Service still may exercise its authority under section 527(l) if it determines that the failure is due to reasonable cause and not willful neglect. All the following requirements must be met:

  1. All fundraising solicitations by (or on behalf of) the tax-exempt political organization contain a clear request (in a conspicuous and easily recognizable format) for the contributor's address and, if the contributor is an individual, the contributor's occupation and employer (consistent with the instructions for Form 8872) and include a statement that the political organization is subject to Federal taxes and penalties if it fails to disclose this information to the Service. A fundraising solicitation includes any solicitation of contributions or gifts in written (including electronically such as via the internet or by facsimile or email) or printed form, by television or radio, or by telephone.
  2. For each contribution for which the contributor has not provided the required information, such as the contributor's address, occupation and employer, the tax-exempt political organization makes a written (including electronically such as via the internet or by facsimile or email) request, or an oral request memorialized in writing, to the contributor for the required information within 30 days of receipt of the contribution. The information request may thank the contributor for the contribution, but must not include material on any other subject or an additional solicitation. Each information request must include a statement that the tax-exempt political organization is subject to Federal taxes and penalties if it fails to disclose this information to the Service. In addition, each information request that is not oral or electronic must include a pre-addressed return envelope or postcard. Each oral or electronic information request must include the mailing or Internet address to which the required information should be submitted instead of a pre-addressed return envelope or postcard.
  3. If the contributor has not responded to the information request by the due date of the Form 8872 and in the tax-exempt political organization's records, including contributor records, fundraising records or previously filed Forms 8872, the tax-exempt political organization has information about the contributor that is requested by the Form 8872, the organization must report such information on the Form 8872.
  4. If any missing or corrected contributor information is received after the contribution has been disclosed on Form 8872, the tax-exempt political organization files an amended Form 8872 including the additional information within 30 days of receipt of the information, unless the information is received less than 30 days and more than 2 business days before an election, in which case the tax-exempt political organization files an amended Form 8872 including the additional information no later than 2 business days before the election.
  5. The tax-exempt political organization discloses all the required information on Forms 8872 with respect to at least 85 percent of the total dollar amount of contributions it received during the calendar year.
  6. The political organization keeps contemporaneous records sufficient to substantiate that it has complied with subparagraphs (1) through (5).

The IRS is reminding small tax-exempts that for tax periods beginning after December 31, 2006, exempt organizations whose gross receipts are normally less than $25,000 must file an annual notice. Social Security Administration Reporter, Spring 2007. new 3/13/07

The Tax Court held that a corporation providing tax preparation and bookkeeping services should be treated as a qualified personal service corporation (QPSC) new 3/13/07

because it performed substantially all of its activities in the "field of accounting" rather than specifically "public accounting", so the QPSC flat tax rate applied rather than the graduated corporate tax rates. Rainbow Tax Service Inc., 128 T.C. No. 5.

The Tax Court imputed fraud by a preparer on taxpayer to extend the statute of limitations new 3/13/07

holding that it is not excessively demanding for taxpayers to review their returns for apparent erroneous information, and that it is their duty to do so. Allen, 128 TC No. 4.

The IRS has revised offer in compromise form. new 3/13/07

IR-2007-50, FS-2007-16. The Form 656 package was last revised in 2004, and the new form retains the taxpayer burden reduction features while adding significant changes as a result of the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA). These changes include:

Form 656, Offer in Compromise

Fact Sheet 2007-16, Revisions to Form 656, Offer in Compromise

Streamlined Sales and Use Tax (SST) Agreement: new 3/8/07

The IRS informal policy toward timely voluntary disclosure in filing un-filed returns which does not guarantee immunity from criminal prosecution but normally results in the IRS not recommending criminal prosecution. new 3/8/07

A voluntary disclosure cannot be anonymous, must be truthful, timely and complete, and the taxpayer must cooperate with the IRS to determine correct tax liability and make good faith arrangements to pay in full tax, interest and penalties. It is advisable to file 6 years of returns. To be timely, the taxpayer must file a return with the IRS before the IRS notifies the taxpayer that it intends to initiate an investigation, and before it has initiated an investigation, has received information from an informant or other 3rd party about the taxpayer's noncompliance, or has acquired information about the taxpayer's noncompliance from a criminal enforcement action. A taxpayer who contacts the IRS about a voluntary disclosure may be directed to the Criminal Investigation function for an evaluation of the disclosure. Late returns should be highly accurate since they have significant audit potential. Counsel may seek a waiver of penalties before disclosing the taxpayer's identity and identification number.


Statute of limitations on assessment of parter for partnership items new 3/8/07

The Federal Circuit Court of Appeals has ruled that the 3-year period of limitations in Code Sec. 6229(a) for assessing tax on any person that is attributable to a partnership item is a minimum period for making the assessment and is not itself a separate statute of limitations that may foreclose assessment by the IRS, so the IRS did not have to assess tax against the partners within 3 years after the partnership filed its tax return. AD Global Fund, LLC, CA-Fed., March 2, 2007.

The IRS has released extensive final regulations governing the depreciation of modified accelerated cost recovery system (MACRS) property acquired and relinquished in a like-kind exchange or an involuntary conversion new 3/8/07

The final regulations generally follow the temporary regulations in force since 2004, and simplify the rules (but are still complex) for property nearing the end of a recovery period or involving a previous election out. The final regulations do not settle the issue of how to handle depreciation in deferred exchanges, and do not address whether a middleman such as an exchange accommodation titleholder is entitled to depreciation, but make clear the IRS does not consider it appropriate for a taxpayer to take depreciation on relinquished MACRS property during the period between the disposition of the property and the acquisition and ownership of the replacement property. The final regulations also do not tackle the allocation of basis among multiple properties involved in like-kind exchanges or involuntary conversion. The final regulations operate to determine depreciation of such basis only once basis property is determined or allocated under section 1031 or 1033. T.D. 9314.

The IRS replaces installment agreement regulations to reflect important legislative changes new 3/8/07

allowing the IRS to enter into full or partial payment installments agreements of any unpaid tax, applicable on the date final regulations are published in the Federal Register.

Proposed Amendments of Regulations (REG-100841-97), published in the Federal Register on March 5, 2007.

The IRS is increasing its enforcement focus on nonprofit executive compensation. new 3/3/07

Isolated sale of real property in Oregon may satisfy the nexus requirements new 3/3/07

The Oregon Department of Revenue has amended a regulation to provide that an isolated sale of real property in Oregon may satisfy the nexus requirements of the U.S. Constitution Due Process Clause for corporate income tax purposes. OAR 150-318.020(2), Oregon Department of Revenue, effective January 1, 2007.

An out-of-state broker that contracted with independent truck drivers to make deliveries in Pennsylvania and other states for third party vendors had sufficient nexus with the state to be subject to the Pennsylvania franchise tax new 2/24/07

The broker was doing business in and employing capital within Pennsylvania because it engaged in the transportation of property in and through the state. In addition, the broker was using and employing property in the state to accomplish its corporate purposes through its trucking lease agreements, which provided it with quiet and peaceful use and possession of the leased equipment. Cruise International Corp. v. Pennsylvania, Pennsylvania Commonwealth Court, No. 667 F.R. 2004, January 18, 2007.

Retooled Appeals Settlement Guidelines For Family Limited Partnerships ("FLP") now in force new 2/15/07

The latest settlement guidelines, which were effective on October 20, 2006, address four main issues involved in the under valuation of assets, including whether:

  1. the fair market value (FMV) of transfers of FLP or corporation interests by death or gift is properly discounted from the pro rata value of the underlying assets;
  2. the fair market value at date of death of Code Sections 2036 or 2038 transfers should be included in the gross estate;
  3. there is an indirect gift of the underlying assets, rather than the FLP interest where the transfers of assets to the FLP occurred either before, at the same time, or after the gifts of the FLP interests were made to family members; and
  4. an accuracy-related penalty under Code Sec. 6662 is applicable to any portion of the deficiency.

Each case is factually unique, specific facts and circumstances must be determined on a case by case basis, and the law in this area is still developing.

The IRS has made its workshops and resources for small and mid-sized charitable organizations available on the web, for free, completely anonymous, and without registration. new 2/2/07

IRS Warns Taxpayers About Return Preparer Fraud new 2/1/07

Return preparer fraud generally involves the preparation and filing of false income tax returns by preparers who claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions on returns prepared for their clients. This includes inflated requests for the special one-time refund of the long-distance telephone tax. Preparers may also manipulate income figures to obtain tax credits, such as the Earned Income Tax Credit, fraudulently. FS-2007-12, January 2007.

The Internal Revenue Service announced that it has updated its online tool to help taxpayers determine whether they may owe the Alternative Minimum Tax (AMT). IR-2007-18, Jan. 26, 2007. new 2/1/07

The Internal Revenue Service is providing a new online tool to help individual taxpayers determine whether they might benefit by electing to deduct their state and local general sales taxes. IR-2007–19, Jan. 29, 2007. new 2/1/07

The Streamlined Sales Tax Project web site welcomed the States of Rhode Island and Vermont as full members of the Streamline Sales Tax Governing Board on 1/1/07. new 1/25/07

The Tax Court is in the process of complying with the E-Government Act of 2002 new 1/25/07

requiring federal courts to establish and maintain web sites with rules of the court, docket information for each case, the substance of all written opinions issued by the court, and access to documents filed with the court. To address potential privacy concerns individuals filing documents with personal information would not include taxpayer identification numbers, dates of birth, names of minor children, and financial account numbers. The court is also considering changing the rules for corporations, trusts, estates, and other entities to not require taxpayer identification numbers. Under the proposed plan, parties and their counsel would have remote electronic access to any part of the case file but public online access would be limited to docket records and opinions. The court expects to solve contractual issues with reporting companies prohibiting it from making bench opinions available online and publish the opinions within a year. Orders that do not cite statutes, cases, or regulations and relate to routine procedural matters will not be published. Full public access to electronic versions of these orders would only be available at the clerk's office during the court's regular business hours.

The Federal Trade Commission has approved amendments to the Franchise Rule new 1/23/07

which was originally promulgated in 1978. The amended Rule has a phased-in effective date: as of July 1, 2007, franchisors may follow the amended Rule, or they may continue their current practice of complying with the original Rule or individual state franchise disclosure laws that require an Uniform Franchise Offering Circular (“UFOC”); but by July 1, 2008, they will be required to follow the amended Rule only. A primary goal in amending the Rule was to harmonize the federal Rule with state franchise disclosure laws, to adapt to changes in the marketing of franchises and new technologies, and reducing compliance costs where possible. News release; Federal Register Notice Containing the Final Rule Language and the Statement of Basis and Purpose Text (pdf).

The Executive Office of the U.S. Trustees has notified the Courts that it plans to update its means test information web page by Friday, January 19, 2007 new 1/18/07

The State Median Family Income figures will be revised to reflect Consumer Price Index data to be published by the Bureau of Labor Statistics. The Schedules of Actual Administrative Expenses of Administering a Chapter 13 Plan will be updated at the same time. Bankruptcy cases filed on or after February 1, 2007 must use the adjusted figures. The Internal Revenue Service has not yet established a planned release date for the 2007 National and Local Expense Standards.

The Missouri Department of Revenue provides 2 no-cost methods for taxpayers to check the status of Missouri personal income tax returns new 1/18/07

To use either service, enter:

2006 Tax-Exempt Interest Reporting new 1/14/07

Beginning in 2006, state and local governments are required to report interest paid on tax-exempt state and local bonds on Form 1099-INT, Interest Income. This amount must be shown on your tax return and is for information only.

Missouri property tax sale was set aside new 1/11/07

A Missouri property tax sale was set aside because the amounts paid (less than 10% of the discounted value of the land)for the parcels of property were grossly inadequate. Although no set percentage of value constitutes grossly inadequate consideration, Missouri cases suggest that consideration that is less than 10% of the value of the land in a forced tax sale is constructive fraud or amounts to confiscation. In the Matter of Manager of the Division of Finance of Jackson County, Missouri v. LA-SHA Consulting, Inc., Missouri Court of Appeals, Western District, Nos. WD66385, WD66386, and WD66387, December 26, 2006.

Missouri notice of proposed personal income tax deficiency assessments by certified or registered mail could become final without the taxpayer receiving actual notice

The Missouri Court of Appeals held on re-hearing that the taxpayer's claim that the statute that allowed for notice of proposed personal income tax deficiency assessments by certified or registered mail to become final without the taxpayer receiving actual notice of the assessment or the right to challenge the assessment violated her right to Due Process under the U.S. and Missouri Constitutions was not so legally or factually insubstantial as to be plainly without merit, and was, therefore, more than merely colorable, such that exclusive jurisdiction over her claim rested with the Missouri Supreme Court. State of Missouri v. Elliott, Missouri Court of Appeals, Western District, No. WD65782, December 26, 2006. new 1/11/07

IRS releases maximum vehicle FMV amounts new 1/11/07

for cents-per-mile ($15,100, up from $15,000 in 2006, for a passenger automobile, and $16,100, down from $16,400 in 2006, for a truck or van) and fleet ($20,100 for a passenger automobile and $21,000 for a truck or van) for computing 2007 personal use fringe benefits value. Rev. Proc. 2007-11

Congressional Budget Office Historical Effective Federal Tax Rates: 1979 to 2004 in html, pdf and xls new 1/9/07

An out-of-state company that produced web sites for customers nationwide was deemed to be engaged in business in Texas new 1/3/07

by virtue of having 2 employees working from their homes in Texas (telecommuters), and was responsible for collecting Texas sales tax on web sites it created and hosted for Texas customers from when the employees began operating from their home offices in Texas. Letter No. 200611818L, Texas Comptroller of Public Accounts, November 16, 2006.

An out-of-state company that sells extended service contracts to New York customers through third-party retailers at New York locations is considered to have sufficient nexus new 1/3/07

with New York to require the company to register for sales tax purposes and to collect the sales or use tax on any sales of taxable service contracts it makes in New York. The service providers, whether acting as independent contractors, agents, or in another representative capacity, are considered to be acting on behalf of the company in New York. TSB-A-06(29)S, New York Commissioner of Taxation and Finance, November 30, 2006.

Procedures to obtain automatic consent to change their method of accounting for property disposed of during the year of the change new 1/3/07

Rev. Proc. 2007-16 sets out procedures to obtain automatic consent to change their method of accounting for property disposed of during the year of the change and for which the taxpayer claimed less than the depreciation allowable in the year of change or any prior year for tax years ending on or after December 26, 2006. The procedures are not available if the taxpayer deducted the cost of the property as an expense. Taxpayers can request the change in accounting method on an original return or on an amended return for the year of change by filing Form 3115. In the latter case, the taxpayer should adjust its taxable income to reflect the proposed change. There are transition rules for Forms 3115 filed before December 26, 2006. Taxpayers wanting to change their method of accounting for depreciation or amortization should follow Rev. Proc. 2002-9 to request automatic IRS consent. Rev. Proc. 2002-9 must be followed if the taxpayer used the impermissible method for at least two years preceding the year of the change (of accounting method).

The IRS issued Final Regulations that identify acts constituting a change in accounting method in T.D. 9307 new 1/3/07

(The regulations do not change the procedures for obtaining consent to make a change in accounting method), including:

Acts NOT including a change in accounting method include:

Higher IRS user fees for installment agreements were made permanent. T.D. 9306, IR-2006-196.

IRS Updates Telephone Tax Refund Rules with Notice 2007-11new 1/3/07

amplifying, clarifying, and modifying Notice 2006-50, 2006-25 I.R.B. 1141, that provided that the tax imposed by § 4251 (relating to communications excise tax) does not apply to amounts paid for long distance service and bundled service (collectively, nontaxable service) and also provides that taxpayers may request a credit or refund of tax on nontaxable service that was billed to the taxpayer after February 28, 2003, and before August 1, 2006, only on their 2006 federal income tax returns.

Conditions to allowance of standard amount. if any person filing the return, or any dependent listed on the return:

  1. Paid for any nontaxable service (other than for a prepaid telephone card or prepaid cellular telephone) that was billed to the taxpayer after February 28, 2003, and before August 1, 2006;
  2. Paid all federal communications excise taxes billed by their telecommunications provider after February 28, 2003, and before August 1, 2006;
  3. Has not received a credit or refund of these taxes from the telecommunications provider;
  4. Has not requested a credit or refund from the telecommunications provider or, if so requested, has withdrawn any such request; and
  5. Did not file any other claim or request for credit or refund with the IRS for the federal communications excise tax for a period after February 28, 2003.

The appropriate standard amount is based on the number of exemptions taxpayers are entitled on their 2006 Form 1040 Series federal income tax return (other than the 2006 Form 1040 EZ), but not including taxpayer's dependent who has filed or plans to file) a separate request for credit or refund of federal communications excise tax – the credit for: 1 exemption is $30; 2 exemptions is $40; 3 exemptions is $50; and 4 or more exemptions is $60.

Tax is imposed on the amounts paid for the local-only service, and the IRS is only refunding the long-distance portion of the federal telephone excise tax for tax billed after February 1, 2003 and before August 1, 2006.

The definition of bundled service is clarified to read as follows: Bundled (land line and wireless (cellular)) service is local and long distance service provided under a plan that does not separately state the charge for the local telephone service. Bundled service includes plans that provide both local and long distance service for either a flat monthly fee or a charge that varies with the elapsed transmission time for which the service is used. Prepaid cellular telephones will be treated as nontaxable service unless the terms of the prepaid telephone service expressly state it is for local-only service.

Individuals who do not have to file a federal income tax return and who meet the conditions may file Form 1040EZ-T to request the refund, and if requesting a refund of actual amounts completing and attaching Form 8913 .

Telecommunications providers have no obligation to supply their customers with those customers' telecommunications bills.

The Business and Nonprofit Estimation Method (EM) (optional, taxpayers may use the actual amounts paid for federal communications excise tax for nontaxable service to determine the amount of their credit or refund) allows eligible entities to:

Requests that do not follow the provisions of this notice (whether filed before or after its publication):

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