Tax Newsletter - 2007

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November 7, 2008


Federal Headlines

FinCEN Proposes Reorganization of Bank Secrecy Act Regulations (RIN-1506-0092) The Financial Crimes Enforcement Network (FinCEN) is proposing to move the Bank Secrecy Act (BSA) to a new chapter within Title 31 of the Code of Federal Regulations. The Chapter would be organized by financial entity (e.g., banks, casinos, etc.) for ease of use and to facilitate compliance. The regulations were promulgated under the BSA and the USA PATRIOT Act. With its own chapter, FinCEN will be listed separately in the Federal Docket Management System (FDMS), an electronic document repository. The FDMS allows enabling departments and agencies to post all rulemaking and nonrulemaking documents for public access and comments. The existing rules would also be reorganized in order to add value to the financial institutions and law enforcement agencies by making them easier to find. FinCEN also proposes to make some technical corrections and update references, mailing addresses and points of contact. Under the new structure, definitions and regulatory obligations applicable to a number of persons or regulated financial institutions will be located in a part titled "General Provisions." Regulatory obligations applicable to a particular industry will be located in an industry-specificpart. Additionally, provisions currently divided into several layers of subparagraphs throughout a particular Part 103 subpart will be grouped together by topic and given a separate number. There will also be a consistent numbering and division of sections within subparts. For example, each regulatory section in Subpart A will contain definitions and be numbered 10xx.1xx. Thus, for Part 1028 for operators of credit card systems, Subpart A (1028.100) is on definitions; Subpart B (1028.210) is on programs; Subpart C (1028.310-1028.330) is on reports required; Subpart D (1028.410) is on records required; Subpart D is on special information-sharing procedures to deter money laundering and terrorist activity and Subpart F is on special standards of diligence and special measures. Proposed Regulations, RIN-1506-0092, 2008FED ¶49,838 Other References: 31 USC CCH Reference - 2008FED ¶36,551A CCH Reference - 2008FED ¶36,551AE CCH Reference - 2008FED ¶36,551AH CCH Reference - 2008FED ¶36,551AK CCH Reference - 2008FED ¶36,551AP CCH Reference - 2008FED ¶36,551AT CCH Reference - 2008FED ¶36,551B CCH Reference - 2008FED ¶36,551BE CCH Reference - 2008FED ¶36,551BH CCH Reference - 2008FED ¶36,551BK CCH Reference - 2008FED ¶36,551BP CCH Reference - 2008FED ¶36,551BT CCH Reference - 2008FED ¶36,551C CCH Reference - 2008FED ¶36,551CE CCH Reference - 2008FED ¶36,551CH CCH Reference - 2008FED ¶36,551CK CCH Reference - 2008FED ¶36,551CP CCH Reference - 2008FED ¶36,551CT CCH Reference - 2008FED ¶36,551D CCH Reference - 2008FED ¶36,551DE CCH Reference - 2008FED ¶36,551DH CCH Reference - 2008FED ¶36,551DK CCH Reference - 2008FED ¶36,551DP CCH Reference - 2008FED ¶36,551DT CCH Reference - 2008FED ¶36,551E CCH Reference - 2008FED ¶36,551EE CCH Reference - 2008FED ¶36,551EH CCH Reference - 2008FED ¶36,551EK CCH Reference - 2008FED ¶36,551EP CCH Reference - 2008FED ¶36,551ET CCH Reference - 2008FED ¶36,551F CCH Reference - 2008FED ¶36,551FE CCH Reference - 2008FED ¶36,551FH CCH Reference - 2008FED ¶36,551FK CCH Reference - 2008FED ¶36,551FP CCH Reference - 2008FED ¶36,551FT CCH Reference - 2008FED ¶36,551G CCH Reference - 2008FED ¶36,551GE CCH Reference - 2008FED ¶36,551GH CCH Reference - 2008FED ¶36,551GK CCH Reference - 2008FED ¶36,551GP CCH Reference - 2008FED ¶36,551GT CCH Reference - 2008FED ¶36,551H CCH Reference - 2008FED ¶36,551HE CCH Reference - 2008FED ¶36,551HH CCH Reference - 2008FED ¶36,551HK CCH Reference - 2008FED ¶36,551HP CCH Reference - 2008FED ¶36,551HT CCH Reference - 2008FED ¶36,551I CCH Reference - 2008FED ¶36,551IE CCH Reference - 2008FED ¶36,551IH CCH Reference - 2008FED ¶36,551IK CCH Reference - 2008FED ¶36,551IP CCH Reference - 2008FED ¶36,551IT CCH Reference - 2008FED ¶36,551J CCH Reference - 2008FED ¶36,551JE CCH Reference - 2008FED ¶36,551JH CCH Reference - 2008FED ¶36,551JK CCH Reference - 2008FED ¶36,551JP CCH Reference - 2008FED ¶36,551JT CCH Reference - 2008FED ¶36,551K CCH Reference - 2008FED ¶36,551KE CCH Reference - 2008FED ¶36,551KH CCH Reference - 2008FED ¶36,551KK CCH Reference - 2008FED ¶36,551KP CCH Reference - 2008FED ¶36,551KT CCH Reference - ¶2008FED ¶36,551L CCH Reference - 2008FED ¶36,551LE CCH Reference - 2008FED ¶36,551LH CCH Reference - 2008FED ¶36,551LK CCH Reference - 2008FED ¶36,551LP CCH Reference - 2008FED ¶36,551LT CCH Reference - 2008FED ¶36,551M CCH Reference - 2008FED ¶36,551ME CCH Reference - 2008FED ¶36,551MH CCH Reference - 2008FED ¶36,551MK CCH Reference - 2008FED ¶36,551MP CCH Reference - 2008FED ¶36,551MT CCH Reference - 2008FED ¶36,551N CCH Reference - 2008FED ¶36,551NE CCH Reference - 2008FED ¶36,551NH CCH Reference - 2008FED ¶36,551NK CCH Reference - 2008FED ¶36,551NP CCH Reference - 2008FED ¶36,551NT CCH Reference - 2008FED ¶36,551O CCH Reference - 2008FED ¶36,551OE CCH Reference - 2008FED ¶36,551OH CCH Reference - 2008FED ¶36,551OK CCH Reference - 2008FED ¶36,551OP CCH Reference - 2008FED ¶36,551OT CCH Reference - 2008FED ¶36,551P CCH Reference - 2008FED ¶36,551PE CCH Reference - 2008FED ¶36,551PH CCH Reference - 2008FED ¶36,551PK CCH Reference - 2008FED ¶36,551PT CCH Reference - 2008FED ¶36,551Q CCH Reference - 2008FED ¶36,551QE CCH Reference - 2008FED ¶36,551QH CCH Reference - 2008FED ¶36,551QK CCH Reference - 2008FED ¶36,551QT CCH Reference - 2008FED ¶36,551R CCH Reference - 2008FED ¶36,551RE CCH Reference - 2008FED ¶36,551RH CCH Reference - 2008FED ¶36,551RP CCH Reference - 2008FED ¶36,551RT CCH Reference - 2008FED ¶36,551S CCH Reference - 2008FED ¶36,551SE CCH Reference - 2008FED ¶36,551SH CCH Reference - 2008FED ¶36,551SP CCH Reference - 2008FED ¶36,551ST CCH Reference - 2008FED ¶36,551T CCH Reference - 2008FED ¶36,551TE CCH Reference - 2008FED ¶36,551TH CCH Reference - 2008FED ¶36,551TP CCH Reference - 2008FED ¶36,551TT CCH Reference - 2008FED ¶36,551U CCH Reference - 2008FED ¶36,551UE CCH Reference - 2008FED ¶36,551UH CCH Reference - 2008FED ¶36,551UP CCH Reference - 2008FED ¶36,551UT CCH Reference - 2008FED ¶36,551V CCH Reference - 2008FED ¶36,551VE CCH Reference - 2008FED ¶36,551VH CCH Reference - 2008FED ¶36,551VK CCH Reference - 2008FED ¶36,551VP CCH Reference - 2008FED ¶36,551VT CCH Reference - 2008FED ¶36,551W CCH Reference - 2008FED ¶36,551WE CCH Reference - 2008FED ¶36,551WH CCH Reference - 2008FED ¶36,551WK CCH Reference - 2008FED ¶36,551WP CCH Reference - 2008FED ¶36,551WT CCH Reference - 2008FED ¶36,551X CCH Reference - 2008FED ¶36,551XE CCH Reference - 2008FED ¶36,551XH CCH Reference - 2008FED ¶36,551XK CCH Reference - 2008FED ¶36,551XP CCH Reference - 2008FED ¶36,551XT CCH Reference - 2008FED ¶36,551Y CCH Reference - 2008FED ¶36,551YE CCH Reference - 2008FED ¶36,551YH CCH Reference - 2008FED ¶36,551YK CCH Reference - 2008FED ¶36,551YP CCH Reference - 2008FED ¶36,551YT CCH Reference - 2008FED ¶36,551Z CCH Reference - 2008FED ¶36,552A CCH Reference - 2008FED ¶36,552AE CCH Reference - 2008FED ¶36,552AH CCH Reference - 2008FED ¶36,552AK CCH Reference - 2008FED ¶36,552AP CCH Reference - 2008FED ¶36,552AT CCH Reference - 2008FED ¶36,552B CCH Reference - 2008FED ¶36,552BE CCH Reference - 2008FED ¶36,552BH CCH Reference - 2008FED ¶36,552BK CCH Reference - 2008FED ¶36,552BP CCH Reference - 2008FED ¶36,552BT CCH Reference - 2008FED ¶36,552C CCH Reference - 2008FED ¶36,552CE CCH Reference - 2008FED ¶36,552CH CCH Reference - 2008FED ¶36,552CK CCH Reference - 2008FED ¶36,552CP CCH Reference - 2008FED ¶36,552CT CCH Reference - 2008FED ¶36,552D CCH Reference - 2008FED ¶36,552DE CCH Reference - 2008FED ¶36,552DH CCH Reference - 2008FED ¶36,552DK CCH Reference - 2008FED ¶36,552DP CCH Reference - 2008FED ¶36,552DT CCH Reference - 2008FED ¶36,552E CCH Reference - 2008FED ¶36,552EE CCH Reference - 2008FED ¶36,552EH CCH Reference - 2008FED ¶36,552EK CCH Reference - 2008FED ¶36,552EP CCH Reference - 2008FED ¶36,552ET CCH Reference - 2008FED ¶36,552F CCH Reference - 2008FED ¶36,552FE CCH Reference - 2008FED ¶36,552FH CCH Reference - 2008FED ¶36,552FK CCH Reference - 2008FED ¶36,552FP CCH Reference - 2008FED ¶36,552G CCH Reference - 2008FED ¶36,552GE CCH Reference - 2008FED ¶36,552GH CCH Reference - 2008FED ¶36,552GK CCH Reference - 2008FED ¶36,552GP CCH Reference - 2008FED ¶36,552GT CCH Reference - 2008FED ¶36,552H CCH Reference - 2008FED ¶36,552HE CCH Reference - 2008FED ¶36,552HH CCH Reference - 2008FED ¶36,552HK CCH Reference - 2008FED ¶36,552HP CCH Reference - 2008FED ¶36,552HT CCH Reference - 2008FED ¶36,552I CCH Reference - 2008FED ¶36,552IE CCH Reference - 2008FED ¶36,552IH CCH Reference - 2008FED ¶36,552IK CCH Reference - 2008FED ¶36,552IP CCH Reference - 2008FED ¶36,552IT CCH Reference - 2008FED ¶36,552J CCH Reference - 2008FED ¶36,552JE CCH Reference - 2008FED ¶36,552JH CCH Reference - 2008FED ¶36,552JK CCH Reference - 2008FED ¶36,552JP CCH Reference - 2008FED ¶36,552JT CCH Reference - 2008FED ¶36,552K CCH Reference - 2008FED ¶36,552KE CCH Reference - 2008FED ¶36,552KH CCH Reference - 2008FED ¶36,552KP CCH Reference - 2008FED ¶36,552KT CCH Reference - 2008FED ¶36,552L CCH Reference - 2008FED ¶36,552LE CCH Reference - 2008FED ¶36,552LH CCH Reference - 2008FED ¶36,552LK CCH Reference - 2008FED ¶36,552LP CCH Reference - 2008FED ¶36,552LT CCH Reference - 2008FED ¶36,552M CCH Reference - 2008FED ¶36,552ME CCH Reference - 2008FED ¶36,552MH CCH Reference - 2008FED ¶36,552MK CCH Reference - 2008FED ¶36,552MP CCH Reference - 2008FED ¶36,552MT CCH Reference - 2008FED ¶36,552N CCH Reference - 2008FED ¶36,552NE CCH Reference - 2008FED ¶36,552NH CCH Reference - 2008FED ¶36,552NK CCH Reference - 2008FED ¶36,552NP CCH Reference - 2008FED ¶36,552NT CCH Reference - 2008FED ¶36,552O CCH Reference - 2008FED ¶36,552OE CCH Reference - 2008FED ¶36,552OH CCH Reference - 2008FED ¶36,552OP CCH Reference - 2008FED ¶36,552OT CCH Reference - 2008FED ¶36,552Q CCH Reference - 2008FED ¶36,552QE CCH Reference - 2008FED ¶36,552QH CCH Reference - 2008FED ¶36,552QK CCH Reference - 2008FED ¶36,552QT CCH Reference - 2008FED ¶36,552R CCH Reference - 2008FED ¶36,552RE CCH Reference - 2008FED ¶36,552RH CCH Reference - 2008FED ¶36,552RK CCH Reference - 2008FED ¶36,552RP CCH Reference - 2008FED ¶36,552RT CCH Reference - 2008FED ¶36,552S CCH Reference - 2008FED ¶36,552SE CCH Reference - 2008FED ¶36,552SH CCH Reference - 2008FED ¶36,552SP CCH Reference - 2008FED ¶36,552ST CCH Reference - 2008FED ¶36,552T CCH Reference - 2008FED ¶36,552TE CCH Reference - 2008FED ¶36,552TH CCH Reference - 2008FED ¶36,552TK CCH Reference - 2008FED ¶36,552TP CCH Reference - 2008FED ¶36,552TT CCH Reference - 2008FED ¶36,552U CCH Reference - 2008FED ¶36,552UE CCH Reference - 2008FED ¶36,552UH CCH Reference - 2008FED ¶36,552UK CCH Reference - 2008FED ¶36,552UP CCH Reference - 2008FED ¶36,552UT CCH Reference - 2008FED ¶36,552V CCH Reference - 2008FED ¶36,552VE CCH Reference - 2008FED ¶36,552VH CCH Reference - 2008FED ¶36,552VK CCH Reference - 2008FED ¶36,552VP CCH Reference - 2008FED ¶36,552VT CCH Reference - 2008FED ¶36,552W CCH Reference - 2008FED ¶36,552WE Rejection of Offer-in-Compromise Not Abuse of Discretion (Bennett, TCM) The IRS's decision to reject an individual's offer in compromise (OIC) and to treat the individual's tax liability as currently-not-collectible was not an abuse of discretion. The taxpayer's OIC was based on doubt as to collectability. The IRS concluded that acceptance of the offer would not be in the best interest of the government under Internal Revenue Manual (IRM) sec. 5.8.7.6(5) because there were still several years on the collection statutes, the taxpayer's earning capacity over the next few years and the fact the her business had the ability to generate a large profit in the near future. L.B. Bennett, TC Memo 2008-251, Dec. 57,579(M) Other References: Code Sec. 6330 CCH Reference - 2008FED ¶38,184.60 CCH Reference - 2008FED ¶38,184.62 Tax Research Consultant CCH Reference - TRC IRS: 42,120 CCH Reference - TRC IRS: 51,056.25
State Headlines

All States --Sales and Use Tax: Three of Five SST Member States Evaluated Found Out of Compliance A committee charged with evaluating the current compliance of member states with the Streamlined Sales and Use Tax (SST) Agreement found three of the five states it examined during a November 6 conference call to be out of compliance with the Agreement. The Compliance Review and Interpretations Committee (CRIC) found that Indiana, Iowa, and Kentucky were not in compliance with the Agreement, while Arkansas and Kansas were found to be in compliance. The CRIC recessed the meeting after finishing its review of these five states and plans to continue evaluating the remaining member states in a conference call on November 14, 2008. The CRIC was evaluating the member states in alphabetical order. There are currently 19 full member states and three associate member states. The associate member states are not required to be reviewed at this time. A state is in compliance with the Agreement if the effect of the state's laws, rules, regulations, and policies is substantially compliant with each of the requirements set forth in the Agreement. Each full member state is required to annually re-certify its continuing compliance on August 1 of each year. The SST Governing Board charged the CRIC with evaluating these re-certifications. The CRIC's findings will be presented to the Board, which may perform an independent evaluation. If the Board finds a state out of compliance, it may impose sanctions on the state until it is back in compliance. Currently, New Jersey is the only state to have been found out of compliance by the Board, in action independent of this annual re-certification process, and sanctions will be imposed on the state if it is not back in compliance by January 1, 2009. During its review, the CRIC considered public comments from the Business Advisory Council (BAC) and was assisted in its evaluation by Executive Director Scott Peterson and Pam Cook, an SST consultant. -- Arkansas was determined to have fully resolved problems previously identified with its conformity. -- Indiana has not enacted the current definition of "sales price" in the Agreement. Although a representative of the state said that the definition will be amended during the 2009 session of the Indiana Legislature, the CRIC determined that it had to make its finding based on the state's current law. -- Iowa was found to have problems with its "sales price" definition similar to those of Indiana and to have shortcomings in its telecommunications provisions. -- No problems were found with Kansas' compliance. -- Kentucky was found out of compliance because it has a use-based exemption for hospital beds that is contrary to restrictions in the Agreement. Richard Dobson, Kentucky Department of Revenue, said the Legislature will be asked during the next session to expand the exemption in such a way that it will satisfy the Agreement's requirements. The CRIC members debated whether any of the shortcomings identified would cause the Board to find that any of the three states were not "substantially" compliant. Ultimately, however, it seemed the CRIC would leave the substantiality determination to the Board. Because of notice requirements, the Board is not expected to take up any of these compliance issues at its next meeting in Providence, Rhode Island, on December 5-6, 2008. Instead, the matter may have to await the Board's subsequent scheduled meeting in May 2009, unless the Executive Committee decides to convene an earlier session. Teleconference, Compliance Review and Interpretations Committee, November 6, 2008. Arizona --Corporate Income Tax: Gain From Sale of Stock Was Apportionable Business Income Gain from the sale of stock in a foreign subsidiary owned by a holding company was apportionable business income for Arizona corporate income tax purposes. The taxpayer argued that the gain on the sale of stock was not apportionable because: (1) the stock sold was in a foreign subsidiary and, under Arizona's water's edge statute, the latter could not be part of a unitary group; (2) the holding company that owned and sold the stock was not engaged in any business operations, and, therefore was not operationally integrated with the taxpayer's regular trade or business and was not unitary with the same; (3) the Department of Revenue could not look through the holding company to the business activities of the foreign subsidiary it held to determine the holding company's regular trade or business; and (4) even if the holding company was unitary with the taxpayer, the gain from the sale of the foreign subsidiary stock was a nonbusiness gain. Further, the taxpayer argued that it would be unconstitutional to tax the gain because the fourth prong of the Complete Auto Transit test was not met. However, the threshold characteristics of a unitary business, common ownership, common management and reconciled accounting systems were present with the taxpayer and the holding company and foreign subsidiary. A foreign subsidiary can be a part of the unitary group, although its income is not taxable because of Arizona's water's edge statute. A letter to the taxpayer's shareholders discussed several factors indicating substantial integration at the basic operational level between the parent and the taxpayer's other entities. Also, there appeared to be vertical development of a product and transfer of products and technological data. The holding company was performing a unitary function for the group by holding (and selling) the stock of the lower tier operating company which would have been a unitary business asset of the parent if it were held by the parent directly. To separate the holding company for combined reporting purposes placed too much emphasis on the form of corporate structure, when the substance was that the holding company and the two operating companies, the parent and the foreign subsidiary, were engaged in one unitary business. Because the holding company was participating in the unitary business, this was not a "look through" case. Furthermore, because the foreign subsidiary was a unitary subsidiary, the sale of its stock was business income. Finally, the assessment did not violate the fourth prong of the Complete Auto Transit test, as the taxpayer did not provide sufficient evidence to prove that extraterritorial values were being taxed by Arizona in the proposed assessment. Even if the foreign subsidiary and holding company were not unitary in the enterprise sense with the parent, the controlling ownership the holding company had in the foreign subsidiary constituted an operational function or purpose. Therefore, the stock in the foreign subsidiary was a unitary asset of the parent and the gain or loss from its sale could be taxed as a part of the apportionable income the same as any other business income of the combined group. Subscribers to CCH Tax Research NetWork can view the text of the decision. Case No. 200600091-C, Arizona Department of Revenue, Division of Hearing Officer, September 8, 2008. California --Multiple Taxes: Special Session Called to Address Budget Emergency, Stimulate Employment California Governor Arnold Schwarzenegger has called a special session of the Legislature to address the state's budget shortfall and stimulate employment in the state, and he is asking for a combination of budget cuts, revenue increases, and targeted actions, including proposals to -- increase the state sales tax from 5% to 6.5% for three years; -- broaden the sales and use tax base to include certain services; -- impose an oil severance tax upon any oil producer that extracts oil from the earth or water in the state; -- increase the alcohol excise tax by five cents per drink; and -- provide targeted corporation franchise and income and personal income tax credits to the film and television industry to help keep production in California, focusing on new production and production returning to the state. Subscribers to CCH Tax Research NetWork can view the text of the press releases. Press Releases, Office of the Governor, November 6, 2008.

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