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For the first time, the Senate on December 14 approved income tax treaties that would require mandatory binding arbitration. The arbitration provisions were included in the U.S.-Belgium Income Tax Treaty and a protocol to the U.S.-Germany income tax treaty. Both the Bush administration and the U.S. business community support the binding arbitration process. Some senators on the Foreign Relations Committee initially had opposed it. Binding arbitration will come up again in 2008 in a new protocol with Canada. The provision is not yet part of Treasury's 2006 model income tax treaty.
The binding arbitration process takes effect automatically after two years if the countries' competent authorities cannot reach agreement. Each side picks an arbitrator, who then pick a third arbitrator. The panel must choose one side's offer or the other; it cannot compromise them. The panel's decision will not be precedent.
Oren Penn of PricewaterhouseCoopers told CCH that it is not intended that the provision will be used. The all-or-nothing nature of a decision is designed to encourage countries to come to an agreement.
By Brant Goldwyn, CCH News Staff
All federal tax lien documents filed in public records offices will contain partially redacted taxpayer Social Security numbers (SSNs) as of January 6, 2008, the IRS has announced on its website. The Service is redacting taxpayer SSNs to help prevent identity theft.
Liens
The IRS files liens publicly to give notice that a lien exists. The IRS generally must file a notice of lien on real property in one office in the state, county or other government subdivision designated by state law for filing. If state law does not designate only one office for filing federal tax liens, the IRS must file the notice with the U.S. district court for the judicial district in which the property is located.
Similarly, the IRS must file the notice as to personal property, whether tangible or intangible, in one office, as designated by the laws of the state in which the property is situated. In some jurisdictions, the IRS uses an automated lien filing system that permits electronic filing.
Last Four Digits
Only the last four digits of the taxpayer's SSN will appear on all federal tax lien documents, effective January 6, 2008. SSNs will appear as "XXX-XX-NNNN." The redacted format will appear on lien documents issued electronically and on documents issued to taxpayers and their representatives, the Service explained. However, the new policy will not apply to employer identification numbers (EINs).
The IRS frequently uses taxpayer SSNs as an identifier. The Service predicted that the switch to a redacted format will not hinder its customer services.
Previous Action
The latest move follows a similar one where the IRS began partially redacting taxpayer SSNs for notices of federal tax lien recorded after January 1, 2006. The IRS subsequently surveyed various recording offices and discovered that they could accommodate partial redactions of taxpayer SSNs on tax lien documents.
Identity Theft
The dangers of identity theft prompted the IRS to take these steps. "The increasing problem of identity theft poses significant privacy concerns for public documents that include a social security number," the Service explained.
"A Social Security number is the key to getting an individual's personal information," Scott Myers, CPA, president of the Pittsburgh chapter of the Pennsylvania Institute of Certified Public Accountants (PICPA), told CCH. "Once a thief has that number, it's easy to get the person's name, address and name of employer. With that information, a thief can secure a credit card." The Federal Trade Commission estimates that nine million Americans have been victims of identity theft. "Frankly, I am surprised it's so low," Myers added.
By George L. Yaksick, Jr., CCH News Staff
IRS to Partially Redact All Federal Tax Lien Document SSNs Effective January 6, 2008
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The Arkansas Department of Finance and Administration has promulgated a rule to implement and administer the corporate and personal income tax credit for geotourism investment in the lower Mississippi River delta region. Details of the credit were reported earlier. (TAXDAY, 2007/04/05, S.5)
To claim the credit, a geotourism-supporting business must apply to the Department on the prescribed form and include information regarding the amount invested and adequate documentary proof (e.g., invoices, contracts, bank statements). A copy of the form is included with the rule. The Arkansas Department of Parks and Tourism will determine if the investment meets the statutory criteria. If the investment qualifies, written certification will be provided to the Department. The Department will provide taxpayers with an "Income Tax Credit Memorandum" based on the investment; this memorandum should be attached to the tax return when the credit is first claimed.
Owners of pass-through entities (PTEs) may claim the credit. If the PTE is an S corporation, Ark. Code Sec. 26-51-409, as in effect for the taxable year in which the credit is earned, will apply to allocate the credit. If the PTE is a partnership or limited liability company, then the entity agreement will determine the taxpayer's distributive share of the credit. However, if the agreement does not have a substantial economic effect or does not provide for credit allocation, then the credit will be allocated according to the partner's or member's interest, pursuant to IRC §704(b), as in effect January 1, 1995. When completing the application, PTEs are requested to provide the names, addresses, and ownership percentages of all owners.
The Act creating and authorizing the credit expires at the end of 2011. However, if a business is approved into the program before December 31, 2011, then the investment may be made after 2011. The taxpayer would be eligible for the credit provided that all the other requirements are met.
The regulation also provides new definitions for "invest," "RV parks," "transient lodging facilities," and "transient guests." The definition of "geotourism-supporting business" includes examples of pumpkin patches or crop mazes. Finally, the definition of "economically distressed area" is enhanced to list the specific Arkansas counties of Chicot, Desha, Lee, Phillips, and St. Francis.
Subscribers to CCH Tax Research NetWork may view the regulation.
Rule 2007-9, Arkansas Department of Finance and Administration, effective December 17, 2007; Arkansas State Revenue Tax Quarterly, Volume XIII, No. 4, Arkansas Department of Finance & Administration, Revenue Division, October --December 2007.
The Texas Comptroller has posted rules, as filed for adoption with the Texas Register on December 11, 2007, for the revised Texas franchise tax, also known as the margin tax. The rules will be published in the Texas Register on December 28, 2007. These rules will become effective January 1, 2008, and will appear in the Texas Administrative Code at that time. The rules implement H.B. 3, Third Called Session, Laws 2006, and H.B. 3928, Laws 2007, both of which revised the franchise tax.
The rules cover a multitude of topics, including, but not limited to:
-- a list of entities that are, and are not, taxable;
-- the treatment of passive entities;
-- information regarding exemptions; and
-- various filing requirements.
The rules also provide a nonexclusive list of common activities that will create nexus and subject a taxable entity to Texas franchise tax. The rules identify the formula for calculating compensation to be subtracted from revenue. General rules are provided for determining combined taxable margin and apportionment. In addition to giving the apportionment formula, the rules provide for two exceptions to the formula and provide rules for reporting gross receipts.
The rules state that the additional tax rate is determined by Tax Code §171.002 and is to be applied to taxable margin for the period from the day after the last day for which the tax under Ch. 171 Tax Code, was based on a previous report through the date the taxable entity no longer has sufficient nexus with Texas to be subject to the franchise tax.
The rules also address credits to the Texas franchise tax. The rules detail (1) the requirement that a credit schedule be filed, (2) the tax limitations for the credits, (3) the carryforward and report limitation for the research and development credit, (4) the carryforward and report limitation for the jobs creation credit, and (5) installment, carryforward, and report limitation for the investment credit. They additionally relate to an investment credit for certain enterprise projects and detail the calculation of the credit and the limitations. The rules also establish guidelines for calculating the temporary credit for business loss carryforwards.
The rules, as filed for adoption with the Texas Register on December 11, 2007, are available on the Comptroller's Web site at http://www.window.state.tx.us/taxinfo/franchise/new_rules/.
34 TAC 3.581 through 34 TAC 3.595, Texas Comptroller of Public Accounts, effective January 1, 2008.
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