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Tax Watch - The latest tax news & developments from Thomson Reuters - Stay InformedFollow us on Twitter.Stay informed on key tax legislative developments with Tax Watch. From time-to-time, articles will also include commentary by distinguished practitioners on various aspects of proposed and potential tax legislation. Get the latest tax news & developments from Thomson Reuters. Have you heard about Thomson Reuters News & Insight? Now there is a current awareness and news experience specifically for today's tax, accounting, corporate finance and audit professionals. Designed to keep up with you, on your computer, Smartphone and tablet, whenever and wherever you need it.
2/15/12 — Deal reportedly reached to extend payroll tax cut.
There are indications the payroll tax cut extension will be cleared by Congress before the end of this week. 2/14/12 — House Republicans introduce "backup plan" for extending payroll tax cut only.
House Democrats were quick to criticize the Republicans' attempt to decouple the payroll tax from the other extenders currently under consideration by the conferees. "There is no reason all three of these priorities cannot proceed at the same time as both the House and Senate agreed," said House Minority Leader Nancy Pelosi (D-CA), in a written statement. "House Republicans chose the go-it-alone path in December to nearly disastrous effect and American families cannot afford a repeat performance," said Sander Levin (D-MI), a conferee on the payroll tax bill. Pelosi didn't rule out support for the backup plan. She said, "We have long proposed bringing this tax cut to the floor without payfors and House Democrats will support it so that taxes are not raised on 160 million working Americans, but this should not be a substitute for the work of the Conference Committee." 2/14/12 — Levin once again introduces carried-interest bill.
The bill is aimed at "carried interest," or a share in the fund's profits—an important part of the incentive package of partner-managers of investment funds structured as partnerships. In exchange for providing the service of managing their investors' assets, fund managers often receive a portion (usually 20%) of the fund's profits (carried interest). Under current law, partner-managers treat their carried interest as low-taxed long-term capital gain. The bill would "clarify" that any income received from a partnership, capital or otherwise, in compensation for services is ordinary income for tax purposes. As a result, managers of investment partnerships who receive carried interest as compensation would pay ordinary income tax rates, rather than capital gains rates, on that compensation. However, under the bill, the capital gains rate would continue to apply to the extent that a manager's allocation of capital gain income represents a return on capital that they have invested in the partnership. In what is billed as a refinement and revision of its previous versions, the current bill would provide that in the case of the sale of manager's interest in an investment management firm, where there is a clearly separable and verifiable element of goodwill—such as where there is a separate management entity—the manager would receive capital gains treatment for that portion of the gain on the sale. The following material can also be found on Checkpoint:
2/8/12 — Senate Finance Committee OKs modified Chairman's Mark to Highway Investment, Job Creation and Economic Growth Act of 2012.
Senate Finance Chair Max Baucus's (D-MT) modified Chairman's Mark (see Article #2032) would among other changes provide parity for employer provided mass transit and parking benefits under Code Sec. 132(f); revised required beginning date under the required minimum distribution rules for 5% owners; a five-year payout for inherited IRAs; and treatment of distributions of debt securities in a tax-free spin-off transaction in the same way as distributions of cash or other property. In response to Republican members' objection to the change that would require a five-year payout for IRAs (rather than over the remaining life expectancy of the designated beneficiary), Baucus indicated his willingness to instead find other offsets. The Senate Finance Committee also approved two amendments to the Chairman's modified mark by voice vote: an amendment offered by Senator Jeff Bingaman (D-NM) that would modify the tax treatment of long-term highway leases; and an amendment offered by Senator Robert Menendez (D-NJ) that would raise the volume cap on private activity bonds for water and wastewater projects. The following material can also be found on Checkpoint:
2/8/12 — No progress in conferees' efforts to extend payroll tax cut.
Dave Camp (R-MI), Chair of the conference, reportedly said that conferees may have to consider new options to pay for the bill, telling conferees that if they couldn't agree on how to pay for the legislation they would have three choices—go outside the scope of the conference to find other offsets, reduce the size of the bill, or not offset the bill at all, which he said the President was not in favor of doing. Meanwhile, Senate Majority Leader Harry Reid (D-NV) is reported to have said that conferees need to reach an agreement by next Monday or Tuesday, "otherwise we'll have to come to the floor with something." 2/7/12 — Congress passes Air Transportation Modernization and Safety Improvement Act.
The FAA Air Transportation Modernization and Safety Improvement Act includes a corporate tax change, relaxed rollover rules for certain airline employees, and many aviation related excise tax changes. For highlights of these tax changes, see Weekly Alert - 02/09/2012. The following material can also be found on Checkpoint:
2/7/12 — Baucus releases modified Chairman's Mark to Highway Investment, Job Creation and Economic Growth Act of 2012.
Here's a brief summary of Baucus's key tax modifications, which are bound to please some taxpayers but anger others: Parity for employer provided mass transit and parking benefits. For 2011, there was parity for exclusion from income for employer-provided mass transit and parking benefits under Code Sec. 132(f). The exclusion was $230 per month for each of these breaks in 2011. However, for 2012, the exclusion under current law is $240 for qualified parking (due to an inflation adjustment) but only $125 for employer-provided transit and vanpooling benefits. The modified Chairman's Mark would extended the parity for qualified transportation fringe benefits for all of 2012. RIA observation: That is, the proposal apparently would increase the 2012 exclusion amount for employer-provided transit and vanpooling benefits to $240. The modified Chairman's Mark would provide that if an employee becomes a 5% owner after age 70 1/2 but before retiring and thus before the employee's RBD with respect to tax favored retirement plans of the employee's employer, the RBD for that employee becomes April 1 following the year that the employee becomes a 5% owner. For this proposed change, if an employee became a 5% owner with respect to a plan year ending before Jan. 1, 2012, and has not retired before 2013, he would be treated as having become a 5% owner in 2013. Otherwise, the proposal would apply on the enactment date without regard to whether the employee became a 5% owner before, on, or after the enactment date.
Five-year payout for inherited IRAs. Under current law, minimum distributions after the death of a qualified plan (e.g., 401(k)) participant or IRA owner depend on whether he died before or after his RBD. (1) If he died on or after his RBD, and designated a nonspouse beneficiary for the account, the IRA balance is paid out over the longer of: the remaining life expectancy of the designated beneficiary, or the remaining life expectancy of the IRA owner. (2) If he dies before his RBD, and designated a nonspouse beneficiary for the account, there are two methods for satisfying the after-death RMD rules: (a) Under the five-year method, the individual's entire account must be distributed no later than December 31 of the calendar year containing the fifth anniversary of his death; and (b) Under the life expectancy method, annual RMDs over the beneficiary's life or over a period not extending beyond his life expectancy, must begin no later than December 31 of the calendar year immediately following the calendar year in which the individual died. More liberal rules apply if the sole beneficiary of the account is the taxpayer's spouse. For example, the spouse may roll over the decedent's IRA into his or her own IRA, or elect to treat the IRA as the spouse's own IRA.
Under the modified Chairman's Mark, with enumerated exceptions, an inherited qualified plan account or IRA would have to paid out to beneficiaries within five years, regardless of whether the employee or IRA owner died before, on, or after his RBD.
The following beneficiaries would be excepted from the 5-year mandatory payout rule: the decedent's surviving spouse; disabled or chronically ill individuals; individuals who are not more than 10 years younger than the employee or IRA owner; and children who have not reached the age of majority.
The proposed accelerated payout of inherited qualified plan or IRA amounts generally would apply for distributions with respect to employees or IRA owners who die after Dec. 31, 2012. For deaths after that date, the proposal would not apply to a qualified annuity which is a binding annuity contract in effect on the enactment date and at all times thereafter.
Reverse Morris Trust transactions. Under current law, taxes are generally imposed on parent corporations that extract value in excess of basis from their subsidiaries before engaging in a tax-free spin-off transaction. Therefore, if a subsidiary corporation distributes cash or other property to its parent in excess of the parent's basis in the subsidiary or if a subsidiary corporation assumes parent debt in excess of the parent's basis in the subsidiary the parent corporation will recognize gain. But taxes are not assessed if a subsidiary corporation distributes its own debt securities to a parent corporation before a spin-off transaction even where the value of these securities would exceed the parent corporation's basis in its subsidiary.
The modified Chairman's Mark would treat distributions of debt securities in a tax-free spin-off transaction in the same way as distributions of cash or other property. Subject to a transition rule, the provision would apply to exchanges after the enactment date.
The following material can also be found on Checkpoint:
2/6/12 — House passes Air Transportation Modernization and Safety Improvement Act, which includes corporate tax change.
H.R. 658 includes a corporate tax change that was carried in the President's budget proposals for FY 2011 and 2012. It concerns Code Sec. 249, which bars a deduction to the issuing corporation for any premium paid upon the repurchase of a bond, debenture, note, or other evidence of indebtedness which is convertible into the stock of (1) the issuing corporation, (2) or a corporation in control of, or controlled by, the issuing corporation. The bar applies to the extent that the repurchase price exceeds an amount equal to the adjusted issue price plus a normal call premium on bonds or other evidences of indebtedness which are not convertible. Currently, for Code Sec. 249 purchases, the term control is defined with reference to the control definition in Code Sec. 368(c).
Effective for repurchases after the enactment date, the bill would modify the definition of "control" by incorporating indirect control relationships described in Code Sec. 1563(a)(1).
For other changes in H.R. 658, see Article #2029.
The following material can also be found on Checkpoint:
2/6/12 — Senate Finance to mark up Highway Investment, Job Creation and Economic Growth Act of 2012.
The changes that would be made by this legislation include:
The following material can also be found on Checkpoint:
2/3/12 — Air Transportation Modernization and Safety Improvement Act includes corporate tax change.
H.R. 658 includes a corporate tax change that was carried in the President's budget proposals for FY 2011 and 2012. It concerns Code Sec. 249, which bars a deduction to the issuing corporation for any premium paid upon the repurchase of a bond, debenture, note, or other evidence of indebtedness which is convertible into the stock of (1) the issuing corporation, (2) or a corporation in control of, or controlled by, the issuing corporation. The bar applies to the extent that the repurchase price exceeds an amount equal to the adjusted issue price plus a normal call premium on bonds or other evidences of indebtedness which are not convertible. Currently, for Code Sec. 249 purchases, the term control is defined with reference to the control definition in Code Sec. 368(c).
Effective for repurchases after the enactment date, the bill would modify the definition of "control" by incorporating indirect control relationships described in Code Sec. 1563(a)(1).
H.R. 658 would make numerous other changes, including the following:
The following material can also be found on Checkpoint:
2/3/12 — House-passed Fiscal Responsibility and Retirement Act would repeal health care reform legislation's CLASS Program.
Background. Sec. 8002 of the Patient Protection and Affordable Care Act (PPACA, P.L. 111-148), created a new, voluntary, self-funded public long-term care (LTC) insurance program, known as the CLASS Independence Benefit Plan. It was established for the purchase of community living assistance services and supports ("CLASS") by individuals with functional limitations. Sec. 3210 of PPACA provides that the CLASS program is treated for Code purposes in the same manner as a qualified long-term care insurance contract for qualified long-term care services. Under Code Sec. 7702B, premiums paid for a qualified long-term care insurance contract generally are deductible as medical expenses on Schedule A, Form 1040, subject to a dollar limit on the deductible amount of the premium per year based on the insured person's age at the end of the tax year.
The Joint Committee on Taxation's explanation of H.R. 1173 quotes a letter, written by U.S. Department of Health and Human Services (HHS) Secretary Kathleen Sebelius to Congress, to the effect that HHS has suspended work on establishment of the CLASS program because of its inability to develop a program meeting the applicable criteria.
CLASS program would be repealed. H.R. 1173 would repeal the statutory provisions relating to the CLASS program, including the provision treating the CLASS Program for Code purposes in the same way as a qualified long-term care insurance contract for qualified long-term care services.
The following material can also be found on Checkpoint:
2/3/12 — Ways & Means Committee OKs American Energy and Infrastructure Jobs Financing Act of 2012.
H.R. 3864 would among other changes extend through Sept. 30, 2016, the expenditure authority for the Highway Trust Fund. It also would extend the motor fuel taxes, and all three non-fuel excise taxes at their current rates through Sept. 30, 2018.
2/3/12 — Conferees continue to grapple with extension of payroll tax cut; bonus depreciation may be extended.
Conferees didn't agree on how bonus depreciation extension provision should be paid for.
Additionally, Senator Max Baucus (D-MT) Vice Chair of the conference and Senator Ben Cardin (D-MD), urged negotiators to consider extending tax breaks that expired at the end of 2011. Baucus said consideration should be given to extending the R&D credit and the education expense provisions. Dave Camp (R-MI), Chair of the conference, said that the provisions would be outside of the scope of the conference, but that he would be willing to discuss them, and that it was possible that the provisions Baucus mentioned might be added to the bill. Again, the major issue will be how to pay for any extenders.
2/1/12 — President signs Airport and Airway Extension Act into law.
The text of H.R. 3800, the "Airport and Airway Extension Act of 2012" can be found on Checkpoint.
2/1/12 — President sends "Startup America Legislative Agenda" to Congress.
A press release on the President's Startup America Legislative Agenda can be found on Checkpoint.
1/27/12 — Congress passes Airport and Airway Extension Act.
1/25/12 — White House details President Obama's proposals for U.S. manufacturing and corporate tax reform.
The following six proposals, which it is hoped Congress will act on immediately, form a revenue-neutral reform package to support manufacturing, discourage outsourcing, and encourage insourcing:
Corporate tax reform. President Obama also proposed a framework for corporate tax reform to encourage greater U.S. investment and eliminate tax advantages for outsourcing by:
The following material can also be found on Checkpoint:
1/24/12 — House passes Airport and Airway Extension Act.
1/18/12 — Another part of the President's health care reform legislation may be repealed.
Background. Sec. 8002 of the Patient Protection and Affordable Care Act (PPACA, P.L. 111-148), created a new, voluntary, self-funded public long-term care (LTC) insurance program, known as the CLASS Independence Benefit Plan. It was established for the purchase of community living assistance services and supports ("CLASS") by individuals with functional limitations. Sec. 3210 of PPACA provides that the CLASS program is treated for Code purposes in the same manner as a qualified long-term care insurance contract for qualified long-term care services. Under Code Sec. 7702B, premiums paid for a qualified long-term care insurance contract generally are deductible as medical expenses on Schedule A, Form 1040, subject to a dollar limit on the deductible amount of the premium per year based on the insured person's age at the end of the tax year.
The Joint Committee on Taxation's explanation of H.R. 1173 quotes a letter, written by U.S. Department of Health and Human Services (HHS) Secretary Kathleen Sebelius to Congress, to the effect that HHS has suspended work on establishment of the CLASS program because of its inability to develop a program meeting the applicable criteria.
CLASS program would be repealed. H.R. 1173 would repeal the statutory provisions relating to the CLASS program, including the provision treating the CLASS Program for Code purposes in the same way as a qualified long-term care insurance contract for qualified long-term care services.
The following material can also be found on Checkpoint:
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