Signup To Receive CCH Tax News Headlines Via Email

December 9,  2008

Federal Headlines

Unibody SUVs May Qualify for Exemption from Luxury Car Depreciation Caps

 

In Rev. Proc. 2003-75, 2003-2 CB 1018, the IRS announced a separate set of "luxury car" depreciation limitations for trucks or vans that do not have a gross vehicle weight in excess of 6,000 pounds. In this revenue procedure, the IRS stated: "For purposes of this revenue procedure, the term "trucks and vans" refers to passenger automobiles that are built on a truck chassis, including minivans and sport utility vehicles (SUVs) that are built on a truck chassis."

 

Although Section 2.01 of Rev. Proc. 2003-75 states that the definition applies "for purposes of this revenue procedure," the same definition subsequently appeared in the instructions for Form 4562, Depreciation and Amortization, and in IRS Publication 463, How to Depreciate Property, in the context of determining whether an SUV with a GVWR in excess of 6,000 pounds is a truck that is exempt from the luxury car depreciation caps. Generally, under Code Sec. 280F(d)(5)(B), only trucks and vans in excess of 6,000 GVWR are exempt from the caps.

 

By extending the definition in this manner, the IRS seemed to imply that SUVs and vans built on a car chassis (i.e., unibody) were not eligible for the exemption from the annual depreciation caps under the luxury car rules. Consequently, many practitioners who are aware of this background have not claimed exemption from the luxury car deprecation caps for a heavy SUV built on a unibody.

 

That may now change.

 

The IRS announced the applicable 2008 luxury car depreciation caps in Rev. Proc. 2008-22, I.R.B. 2008-12, 658. For the first time since the release of Rev. Proc. 2003-75, the language indicating that an SUV should be considered to be a truck if it was built on a truck chassis was omitted.

 

In an informal response to a CCH inquiry, the IRS indicated that the language in Rev. Proc. 2003-75 (and the subsequent annual depreciation cap update) was only intended to represent a safe harbor that taxpayers could use to determine whether an SUV qualifies for the higher depreciation caps that apply to trucks and vans with a GVWR of 6000 pounds or less. The IRS either has or will eliminate language in its publications and form instructions that equate an SUV to a truck if it is built on a truck chassis.

 

The IRS has no immediate plans to provide a specific definition of a truck for purposes of the exemption from the depreciation caps for trucks with a GVWR in excess of 6,000 pounds but did indicate that one common-sense approach is to base the definition of a truck on Department of Transportation guidelines.

 

Unfortunately, the Department of Transportation appears to provide several definitions of a truck for various purposes. The question then arises: "Which definition should apply for purposes of the Code Sec. 280F depreciation caps?"

 

The best answer may be to use the definition of a truck that applies for purposes of the gas guzzler tax under Code Sec. 4064. First, there is a certain logic to using consistent definitions of the same term within the Internal Revenue Code whenever possible. More importantly, however, Code Sec. 4064(b)(1); and Code Sec. 280F(d)(5) share an essentially common definition of the term passenger automobiles, which is also included in the regulations at Reg. §1.280F-6(c)and Reg. §48.4064-1(b)(3). The gas guzzler tax does not apply to nonpassenger automobiles, which includes light trucks. Reg. §48.4064-1(b)(3)(iv) states that the definition of a light truck for gas guzzler tax purposes is contained at 49 CFR 523.5 (1978).

 

Those regulations, which are issued by the National Highway Traffic Safety Administration (an agency of the DOT) in connection with CAFÉ (Corporate Average Fuel Economy ) standards define a light truck as a four-wheel vehicle that is designed for off-road operation (has four-wheel drive or is more than 6,000 lbs. GVWR and has physical features consistent with those of a truck); or that is designed to perform at least one of the following functions: (1) transport more than 10 people; (2) provide temporary living quarters; (3) transport property in an open bed; (4) permit greater cargo-carrying capacity than passenger-carrying volume; or (5) can be converted to an open bed vehicle by removal of rear seats to form a flat continuous floor with the use of simple tools.

 

Applying this definition (and to the dismay of environmentalists), virtually every, if not all, heavy SUVs qualify as light trucks exempt from the gas guzzler tax. Annual lists of vehicles subject to the gas guzzler tax are located on the Environmental Protection Agency's website at http://www.epa.gov/fueleconomy/guzzler/index.htm.

 

Given the absence of any specific IRS definition of a truck for purposes of Code Sec. 280F (despite the specific regulatory authority granted in Code Sec. 280F(d)(5)(B)(iii)), it seems unlikely that the IRS would retroactively apply any definition that it may ultimately adopt. Thus, it appears reasonable to claim exemption from the depreciation caps if the manufacturer has or is entitled to categorize an SUV in excess of 6,000 GVWR as a light truck for purposes of the gas guzzler tax.

 

By Ray Suelzer, Jr., CCH News Staff.

IRS Commissioner Rachets Up Campaign Against Foreign Tax Abuses; Announces Withholding as Tier I Issue

 

Citing hard economic times as giving the IRS an even clearer mandate to make certain that multinational corporations are paying their fair share of U.S. taxes, the IRS Commissioner has reported that 2009 will see an aggressive follow through on a variety of foreign-directed initiatives begun this year. Speaking before the 21st Annual George Washington University International Tax Conference in Washington, D.C., on December 8, IRS Commissioner Douglas Shulman announced a renewed focus during 2009 on transfer pricing, hybrid structures such as foreign tax credit generators, and foreign withholding schemes.

 

On the individual tax front, Shulman also promised increased scrutiny of offshore accounts through use of the IRS Qualified Intermediary Program with foreign banks, tips received by its Whistleblower Office, and the Joint International Tax Shelter Information Center. "We cannot allow an environment to develop where wealthy individuals can go offshore and avoid tax without consequences. We cannot allow an environment where large corporations can pay hefty fees and salaries for top talent to engage in overly aggressive shifting of taxable income to low tax jurisdictions," Shulman stated.

Dividends Withholding Abuse

 

In September 2008, Shulman testified before the Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations, during which Chairman Sen. Carl Levin, D-Mich., inquired into how certain notional principal contracts were being marketed by U.S. financial institutions with the claim of enabling their offshore clients to avoid withholding U.S. dividend taxes (TAXDAY, 2008/09/12, C.4). At the time, Shulman reported that some financial institutions were misinterpreting the Notice 97-66, 97-2 CB 328, to mean that there is zero tax on U.S. source dividends paid to a foreign party as long as the transaction is structured in a certain manner. He acknowledged at the time that Notice 97-66 needs to be updated and assured the subcommittee that he had already instructed IRS personnel to work with the Treasury to revise its content.

 

Tier I Compliance Issue. Almost three months later, Shulman has followed through on his promise to Congress by announcing that the issue has been placed onto the Service's list of issues with the highest "Tier I" organizational priority and coordination. The IRS, he stated, will reach out to transactions attempting to circumvent withholding taxes or claiming improper tax treaty withholding rates.

 

Shulman also reported that the IRS is currently reviewing Notice 97-66, the guidance at the center of this controversy. While this process is continuing, he stated, the IRS will continue to carefully examine transactions whose alleged primary purpose is to avoid withholding tax on corporate dividends.

Individual Abuse

 

QI Program. Sen. Levin also held a hearing in July 2008 regarding individuals' use of offshore tax haven banks to avoid U.S. income tax compliance (TAXDAY, 2008/07/18, C.1). The subcommittee heard testimony from two Swiss banks accused of promoting tax evasion schemes and recruiting U.S. clients.

 

To combat this abuse, Shulman reported, the IRS is continuing to hone its Qualified Intermediary (QI) program, whose purpose, he stated, is to provide more detailed information reporting from foreign banks and other financial institutions. In October, the IRS issued proposed amendments to the QI program, requesting public comments (TAXDAY, 2008/10/15, I.1). Shulman outlined how these amendments require financial institutions to improve their evaluation of the risk that a U.S. citizen may use its services to circumvent U.S. taxation and to enlist the services of a U.S. auditor.

 

Whistleblowers. Shulman also touted how the IRS's Whistleblower Office has received many referrals indicating the names of individuals with offshore accounts and the names and practices of financial institutions in countries with notoriously strict bank secrecy laws.

 

Shulman explained that these tips have provided more than just names, often providing information sufficient for the IRS to issue "John Doe" summonses. According to Shulman, these summonses allow the Service to identify unknown noncompliant U.S. taxpayers that often may not be identified through any other means. As an example, he pointed out that the IRS served over 150 John Doe summonses in connection with its offshore credit card project, receiving court approval from several U.S. district courts on every request.

 

By Torie Cole, CCH News Staff

IR-2008-137

 

State Headlines

All States --Sales and Use Tax: SST Board Approves Clothing Threshold, Receives Report on Small Sellers and Vendor Compensation

 

Massachusetts won initial approval from the Streamlined Sales Tax (SST) Governing Board to retain an exemption for sales of clothing priced below a dollar threshold, during a meeting in Providence, Rhode Island, December 5-6, 2008. The Board voted to amend the SST Agreement's general prohibition on caps and thresholds to allow them for sales of clothing in states that had such provisions in effect on January 1, 2006. This amendment is intended to entice Connecticut, Massachusetts, and New York to join the Agreement, and to allow current member Vermont to restore a threshold it eliminated when it joined. However, by a narrow vote, the Board rejected a request by Rhode Island to extend this option to states that want to enact new clothing thresholds. A second vote of the Board must be held before the amendment is final.

 

In other action, the Board heard a report from the task force it appointed to examine issues concerning a small seller threshold and vendor compensation. Prior to the Board meeting, the State and Local Advisory Council (SLAC) met and debated issues including direct mail and replacement taxes.

 
Clothing Threshold Debate

 

The Agreement currently requires a member state to either exempt the full sales price of all clothing or tax the full price, except a state may have price thresholds during sales tax holiday periods and it may treat sales of "fur clothing" differently. Massachusetts State Rep. Mark Falzone told the Board that his state wants to join the Agreement, but it is impeded by the fact that it exempts up to $175 of the sales price of an article of clothing. Massachusetts is prepared to make all the other law changes necessary to comply with the Agreement, Falzone said, but for both revenue and "philosophic" reasons it will not exempt sales of higher-priced clothing.

 

Therefore, Utah, at the request of Massachusetts, submitted a proposed amendment to the Agreement that would allow a member state to exempt clothing with a sales price below a dollar threshold set by the state. Unlike previous versions of this amendment, the one debated in Providence defined the affected product category as "essential clothing," rather than "luxury clothing," changing the focus to the exempt category of items from the non-exempt category. (TAXDAY, 2008/11/21, S.2) Also unlike previous versions, the proposal left the amount of the dollar threshold up to the member state, rather than setting a uniform figure. However, as before, the proposed amendment would require a state to tax the full price of an article of clothing with a sales price over the threshold, rather than just the increment of the price over the threshold. This would require Massachusetts to change its current practice.

 

Falzone was supported at the Providence meeting by a contingent of Massachusetts officials, including the state's Commissioner of Revenue Navjeet Bal. Bal observed that the Massachusetts Commission on Corporate Taxation, which was created by the governor and the Legislature to review and offer recommendations for streamlining the state's current tax laws, recommended that Massachusetts become a full member. (TAXDAY, 2008/01/04, S.15) The Department of Revenue must submit a report to accomplish that goal by December 15, 2008. Falzone also presented a letter from Massachusetts's two U.S. senators, Edward Kennedy and John Kerry, urging the Board to approve the amendment. Sen. Kerry's Legislative Director, John Phillips, joined the meeting by telephone. Phillips, noting that Sen. Kerry is a member of the U.S. Senate Finance Committee, commented that adding additional member states will increase the chance of passing federal SST legislation. However, when pressed by Maureen Riehl of the National Retail Federation, Phillips would not say unequivocally that Sen. Kerry would co-sponsor the federal bill. He did say that passage by the Board of the amendment would mean that Sen. Kerry would be "much more likely to be a sponsor." Phillips added, "I think this is something the Finance Committee could pass in the next Congress."

 

Riehl insisted that the amendment was "too high a price to pay for Massachusetts's participation." She was joined in opposition by Frank Julian, Federated Department Stores, who discussed the complications a clothing threshold creates for retailers. He worried that if Massachusetts is successful, other states will seek exceptions in return for joining the Agreement. "Set the bar low enough and you could bring in every state," Julian stated.

 

Similar points were made during the SLAC debate on the proposal by Fred Nicely, Council On State Taxation (COST), and Jeffrey Hyde, GE Capital. Nicely said the amendment would "take a huge chunk" out of the effort's core values of simplicity and uniformity, and would encourage other states to seek special deals. Hyde added that the point of the project has never been to allow states to replicate their current tax treatment. However, Robin Corrigan, Texas Comptroller of Public Accounts, said that businesses should show restraint in their demands for simplification, similar to the restraint she said the states have shown in the direct mail area in trying to accommodate business needs.

 

Representatives of Apple Inc. and Verizon Wireless supported the Massachusetts proposal. Sean Nicholson, Target, observed that the latest version of the federal SST legislation would require states to eliminate caps and thresholds in return for collection authority. Thus, he said, if an exception is created for Massachusetts now, he hopes the threshold eventually will be eliminated after Congress acts. Riehl, however, wondered if Sen. Kerry would seek to remove that limitation from the next version of the federal bill. Phillips said he did not know the answer to that.

 

Wayne Zakrzewski, JCPenney Corp., said that his company was neutral on the Massachusetts request. However, like Julian, he discussed the compliance burden a threshold poses for retailers. Zakrzewski urged the Board to consider ways of providing liability relief to retailers. Commissioner Bal said Massachusetts would consider that request.

 

During the SLAC debate on the Massachusetts proposal, Joe Thomas, Connecticut Department of Revenue Services, said the prohibition on clothing thresholds was "probably the biggest reason" his state has not moved forward with becoming a member state. Connecticut taxes the full price of clothing with a sales price of $50 or more. New York, which was not represented at the meeting, taxes the full price of clothing with a sales price of $110 or more. Vermont had a similar threshold that it eliminated when it became a member state. Susan Mesner, Vermont Department of Taxes, said that her state might want to take advantage of the amendment to re-enact its threshold.

 

In response to concerns that other states might take advantage of the amendment to enact brand-new clothing thresholds, Bruce Johnson, Utah State Tax Commission, successfully moved to add a clause limiting the option to states that had thresholds on sales of clothing in effect on January 1, 2006. The grandfathered states are Connecticut, Massachusetts, New York, and Vermont.

 

A representative of Rhode Island objected that, given the current economic situation, the state might want to begin taxing clothing over a certain price for the first time, but the grandfather limitation would prohibit it from taking advantage of this amendment. However, Rhode Island's motion to permit any state to enact a cap or threshold on clothing before Dec. 31, 2009, and still be in compliance with the Agreement, was narrowly defeated.

 

The Board then approved the proposed amendment to allow clothing thresholds, with the grandfather limitation included. Only Rhode Island voted against the amendment. Minnesota abstained. However, before approving it, the Board also agreed to a motion by North Dakota State Sen. Dwight Cook to require a second vote of the Board before the amendment becomes final. West Virginia State Del. John Doyle, current president of the Board, agreed to hold the second vote by conference call, probably in February.

 

Sen. Cook and Kansas Revenue Commissioner Joan Wagnon, both of whom voted in favor of the amendment, did so with the warning that they might not support it on the second vote. They want Massachusetts to continue to make its case. In the meantime, one of the Massachusetts legislators present promised that SST-conformity legislation will be introduced early in the next legislative session.

 
Report of Small Seller and Vendor Compensation Task Force

 

The Agreement currently does not include a small seller threshold that would relieve sellers below the threshold from a requirement to collect sales tax on remote sales for member states. Also, the Agreement does not mandate that member states provide vendor compensation to cover the costs of collecting tax. However, both of these features have been required elements in the various federal bills introduced in the last few sessions of Congress that would confer collection authority over remote sales on states in return for their enactment of specified reforms.

 

In response to these anticipated requirements, the Board appointed a Small Seller and Vendor Compensation Task Force, composed of state and business representatives, to gather information concerning these two related features, identify the issues concerning them, and provide principles and a framework to allow the Board to develop a consensus response. The task force has held meetings in person and by telephone to hammer out its conclusions. (TAXDAY, 2008/11/17, S.2) Harley Duncan, KPMG, presented the task force report in Providence.

 

Among the key findings are the following: (1) the two issues must be considered together and in relation to technology and simplifications, (2) the Board should focus on additional simplifications that will reduce costs and foster participation, and (3) technology must be readily available and proven, and states must be serious about paying for the technology to encourage sellers to use it.

 

Furthermore, the task force believes there should be a small seller threshold that, over time, gravitates to a low threshold similar to an "occasional sale" standard. Achieving this low threshold will require improved technology and additional simplifications. The threshold should be simple to understand, based on gross remote sales, provide a 12-month "lookback" period, and give sellers at least one calendar quarter to "ramp up" collection. Sales by both sellers and their affiliates should constitute the measure and the threshold should be phased in over time. Questions remain on how to "certify" a seller's status as a "small seller." Finally, the Board should periodically review the requirements for the threshold. Kansas's Wagnon observed that these findings, which would require continual monitoring, support leaving to the Board the decision on how to define a small seller threshold, rather than including the definition in the federal legislation.

 

On vendor compensation, Duncan said that the Joint Cost of Collection Study prepared by PricewaterhouseCoopers a few years ago provides a reasonable benchmark. However, additional or updated information is desirable, including greater differentiation among large sellers, the effect of the SST simplifications on collection costs, and the relationship of the type of vendor costs to compensation. In determining the reasonableness of compensation, the nature of vendor costs must be considered, including those that are directly proportional to the tax collected and those that are more in the nature of "costs of doing business." Duncan continued that the task force believes reasonable vendor compensation should reflect differences in the size of retailers, which is best achieved through different compensation rates. Furthermore, compensation should reflect the complexity of different state tax structures, such as the number of local rates, the variability of those rates, and sourcing rules.

 

However, Duncan said that a difference of opinion exists among task force members on whether the use of caps can be reasonable. Some retailers believe that compensation for costs that are directly proportional to the amount of tax collected, such as credit card fees on the tax component of the sales price, should not be capped. Some states, to the contrary, believe flexibility is needed and that caps are not per se unreasonable.

 

Duncan concluded that the task force believes there should be a single vendor compensation rate within each member state, the Board should establish the standards and adopt simplifications to drive costs down, and vendor compensation should be used to offset the costs of collection technology. Simplifications can be achieved by centralizing the location of the state-provided databases, enhancing the taxability matrices, and creating a clearinghouse for filing returns and remittances. In addition, an "open market" for private sector certification of technology is important to business. Finally, tax credits should be provided for the implementation costs of the necessary technology.

 

In response to a question from Vermont's Mesner, Duncan said the task force did not think it was necessary to differentiate between nexus and non-nexus sellers in evaluating vendor compensation. He said it is the impression of those who have worked on the federal legislation that the mandate for reasonable vendor compensation is intended to include all sellers.

 

North Dakota's Sen. Cook commented that providing compensation based on the degree of a tax system's complexity may change the current dynamic between businesses and states. It may eliminate the current incentive for businesses to seek greater simplification, he suggested. Zakrzewski said this would be true only if businesses receive full compensation for all expenses, which is not anticipated.

 
Compliance Issues

 

Andy Sabol, North Carolina Department of Revenue, reported to the Board the findings of the Compliance Review and Interpretations Committee (CRIC), which was charged with evaluating the current compliance of member states. States must re-certify their continued compliance with the SST Agreement each year. The CRIC reviews the information supplied by the states and any public comments submitted and then makes recommendations to the Board. Sabol reported that 15 of the 19 full member states were found to be in compliance as of August 1, 2008, and four full member states (Indiana, Iowa, Kentucky, and Michigan) were found to be out of compliance. Tennessee, an associate member, was found in compliance and the other two associate members, Ohio and Utah, were not evaluated at this time. The CRIC review was conducted in a series of five conference calls. (TAXDAY, 2008/11/07, S.1; TAXDAY, 2008/11/17, S.1; TAXDAY, 2008/11/21, S.1; TAXDAY, 2008/11/26, S.1; TAXDAY, 2008/12/03, S.2)

 

Sabol said he hopes to submit a written report to the Board by the end of the year. Then, after a 60-day period for further public comments, the Board will take up the issues identified. COST's Nicely said he was concerned that some states were found in compliance by the CRIC that should not have been. He called for the Board to give the CRIC more definitive guidelines in the future.

 

Meanwhile, Utah's Johnson laid out the procedures to be followed by the Issue Resolution Committee as it takes up the first matter to be referred to it. The Business Advisory Council (BAC) has asked for a reconsideration of the Board's finding that New Jersey's fur tax does not put the state out of compliance with the Agreement. (TAXDAY, 2008/11/05, S.1) Johnson said a hearing with oral arguments will be scheduled for February 13, 2009, on the BAC request, to be held at a convenient location. The parties will be asked to submit written comments in advance. The committee will submit a written recommendation to the Board within 60 days of the hearing. Johnson's request to close to the public the post-hearing deliberations of the committee received initial approval. However, later in the session, President Doyle asked Johnson to withdraw his request because of an unspecified complication and Johnson did so, with some reluctance. Separately, Nicely said that COST requests review by an independent body, rather than by a subset of the Board such as the Issue Resolution Committee. In response, Doyle asked Nicely and Johnson to meet and review the committee process outlined by Johnson.

 
Direct Mail Issues

 

The SLAC debated an amended definition of "delivery charges" that would create a separate toggle for "postage" that is part of the delivery charges for direct mail. Kristi Magill, RSM McGladrey, said this proposed change is intended to allow modification of the existing taxability matrix so that states can better reflect their current treatment of these charges on the matrix. While some further refinements may be necessary, SLAC chair Sherry Harrell said she intends to take a SLAC vote on this proposal in March, possibly by telephone, in order to prepare it for final Board action during the May meeting.

 

The SLAC also reviewed a proposal to amend the sourcing provisions for direct mail to create a distinction between "advertising and promotional direct mail" and "other direct mail." Magill said this distinction is necessary because, without it, there is no uniform sourcing for direct mail; rather it is dependent on how a particular state characterizes a transaction. Larry Wilkie, Minnesota Department of Revenue, commented that it is no longer a "slam dunk" that states will make changes such as these. He said, given the current economic climate, such matters are not a high priority for most state legislatures. Tom Gillaspie, Nebraska Department of Revenue, agreed and added that the more changes are made, the harder it will be to get legislators to enact them. Harrell said that the SLAC will continue working on this proposal during subsequent conference calls.

 
Executive Committee Report

 

President Doyle reported that he continues to seek greater participation by legislators in Board activity. Meanwhile, Kansas's Wagnon provided an update on federal SST legislation, which is expected to be re-introduced early in the next session of Congress. Prior versions have included a requirement that states extend the Agreement simplifications, which include state-level administration, to taxes on telecommunications services. Wagnon mentioned a proposal to extend these simplifications to related businesses in order to put them on the same footing.

 
Other Actions

 

The Board gave final approval to an amended definition of "delivery charges" (unrelated to the proposed change discussed above) and a new definition of "software maintenance contract." The Board also approved three rules related to the latter definition. However, it referred back to the SLAC for further work a rule relating to direct mail.

 

The SLAC plans to hold a conference call in January to discuss further a proposed amendment to the Agreement that would prohibit states from adopting replacement taxes to avoid the intent of the Agreement. The approach taken in the proposed amendment differs from that taken in an alternative amendment on the same subject that received initial approval during the Board's previous meeting. Harrell hopes to complete work on this proposal in time for the Board to take action during its May meeting.

 

The Board's next in-person meeting is scheduled for May 12-14, 2009, in the Washington, D.C. area. The Board plans to meet by conference call prior to that time. The SLAC may meet in person prior to May, or it may instead hold a series of conference calls.

Streamlined Sales Tax Governing Board and State and Local Advisory Council Meetings, Providence, Rhode Island, December 5-6, 2008

 

Wisconsin --Multiple Taxes: Numerous Topics Addressed for Practitioners

 

As a follow-up to recent tax practitioner meetings held around the state, the Wisconsin Department of Revenue has issued a notice discussing a variety of topics concerning sales and use, personal income, and corporation franchise and income taxes.

 
IRC §179 Expense Deduction for Farmers

 

Generally, for Wisconsin tax purposes, the amount that may be expensed under IRC §179 is limited to $25,000, and the phaseout threshold is $200,000. However, an exception is provided for farmers.

 

Effective for taxable years beginning in 2008 and 2009, taxpayers who are actively engaged in farming may claim an increased §179 expense deduction. The amount that may be expensed for tax years beginning in 2008 under §179 is limited to $115,000. The phaseout threshold is $460,000. These amounts will be indexed for inflation for tax years beginning in 2009.

 
Veterans and Surviving Spouses Property Tax Credit

 

In order to claim the veterans and surviving spouses property tax credit, a veteran or surviving spouse must first obtain a verification of eligibility from the Wisconsin Department of Veterans Affairs. This verification of eligibility must be attached to the Wisconsin income tax return for the first year for which the credit is claimed. It does not have to be attached in any subsequent year.

 
IRA Distributions Donated to Charity

 

The federal Emergency Economic Stabilization Act of 2008 (P.L. 110-343) extended for 2008 and 2009 the federal provision allowing certain individuals to distribute up to $100,000 of their IRA balance to charitable organizations without recognizing income and without taking a charitable deduction.

 

This provision of P.L. 110-343 has not been adopted for Wisconsin tax purposes. Accordingly, when filing their 2008 Wisconsin income tax returns, taxpayers who donated an IRA distribution to charity must complete 2008 Wisconsin Schedule I to include the IRA distribution in Wisconsin income. To calculate the Wisconsin itemized deduction credit, a taxpayer should use the amount of charitable deduction that would have been allowed on federal Schedule A without considering P.L. 110-343.

 

The Wisconsin Legislature will be in session beginning in January 2009. Adoption of several federal public laws will be considered during that session. It will probably not be known until July whether this provision relating to IRAs will be adopted retroactively for Wisconsin purposes. If the provision is adopted retroactively, taxpayers who included in income an IRA distribution that was donated to charity may file an amended return (Form 1X) to remove that amount from income and to adjust the itemized deduction credit.

 
Unlawful Discrimination Suits and Attorney Fees

 

Federal law allows a deduction for attorney fees and court costs paid to recover a judgment or settlement for a claim of unlawful discrimination under various provisions of federal, state, and local law listed in IRC §62(e), a claim against the United States government, or a claim under §1862(b)(3)(A) of the Social Security Act. This deduction may be claimed as an adjustment to federal income on Form 1040.

 

The federal treatment of attorney fees and court costs for these unlawful discrimination claims also applies for Wisconsin tax purposes. Full-year Wisconsin residents will file federal Form 1040 and include the amount of the judgment or settlement in income and claim the fees and costs as an adjustment to income. These amounts will then carry over to the Wisconsin Form 1.

 

Effective for taxable years beginning in 2008, part-year residents and nonresidents of Wisconsin may claim the attorney fees and court costs for unlawful discrimination claims as an adjustment to income on Form 1NPR only if the judgment or settlement resulting from the claim is taxable to Wisconsin.

 
Other Topics

 

The notice also discusses the following:

 

-- tax benefits for medical care insurance;

 

-- software vendors supporting electronic filing of corporation and partnership returns;

 

-- the Department's dedicated call-in number and e-mail address for tax practitioner assistance;

 

-- an online application to verify estimated tax payments;

 

-- new underpayment interest exception/waiver codes;

 

-- reasons for electronic filing rejects;

 

-- new electronic filing reject codes;

 

-- Form W-RA requirements;

 

-- a subtraction for certain retirement income beginning in 2009; and

 

-- delinquent tax notices.

 

For the full text of the notice, see http://www.dor.state.wi.us/taxpro/news/pracmeet.html.

Notice, Wisconsin Department of Revenue, December 8, 2008

 
Copyright © 2008, CCH INCORPORATED. All rights reserved.