Reid Unveils $849-Billion Health Care Reform Bill

Senate Majority Leader Harry Reid, D-Nev., plans to officially unveil an $849-billion health care reform package on November 19, but Democratic holdouts may spoil his plan to immediately take up the measure on the Senate floor. Reid vetted the measure to his caucus late on November 18 after receiving a final cost analysis by the Congressional Budget Office (CBO).

The 10-year cost of the revised legislation comes in well below the $900-billion threshold set by President Obama and would cut the federal budget deficit by $127 billion over 10 years. The plan would reduce the number of the uninsured by 31 million by making coverage available to 94 percent of eligible Americans, according to a Senate Democratic leadership aide. Reid plans to hold a procedural vote on November 20 or possibly November 21 that would allow the Senate to proceed to the bill but he needs all Democrats and the two Independents to reach the required 60-vote threshold.

Sens. Ben Nelson, D-Neb., Blanche Lincoln, D-Ark., and Mary L. Landrieu, D-La, continue to harbor reservations and have not committed to backing the measure. Reid believes the three will eventually back the move to take up the bill, but the wavering lawmakers could balk at a second procedural vote, which would block a filibuster by limiting the time allotted for debate.

Nelson said he needed time to review the bill before making his decision. He told reporters he would not support a final bill that included a public option or allowed public funds to be used to pay for abortions. He left open the possibility that his concerns could be addressed through the amendment process during floor debate. Landrieu told reporters that she would make her decision after taking time to read the bill. In addition to the three questionable Democrats, Reid faces another dilemma in scheduling the test vote as Senate Finance Committee Chairman Max Baucus, D-Mont., returned home on November 18 due to a family emergency. It is uncertain when he will return.

Nelson also expressed concern about the excise tax on high-end insurance plans, although Reid adjusted the 40-percent excise tax on such plans by raising the threshold at which insurers would pay the fee. The tax now applies to family plans costing $23,000 or more and individual plans priced over $8,500, a $2,000 and $500 increase, respectively. The lost revenue would be made up with a 0.5-percent increase in the Medicare payroll tax for couples with incomes over $250,000 and individuals with earnings over $200,000. The provision would raise $54 billion over 10 years. Reid also added a new 5-percent tax on cosmetic surgery that would raise an addition $5 billion.

The revised legislation also slices in half the tax on medical devices from $40 billion to $20 billion. Additional changes to health care tax incentives include capping flexible spending account (FSA) contributions, conforming definitions of deductible medical expenses and changing penalties for health spending account (HSA) spending that is not devoted to health care.

The $849-billion price tag of the measure, which merges the legislation approved by the Senate Finance Committee and the Health, Education, Labor and Pensions (HELP) Committee, is lower than the $1,052 trillion House-approved measure, and slightly higher than the $829-billion Finance Committee package. With rising concern over the overall health of the economy and increased federal spending, Democratic leaders are touting the fact that Reid's bill cuts the federal budget deficit more than the House and Senate Finance Committee proposals. The House bill would reduce the deficit by $111 billion while the Senate versions would reduce the federal debt by $82 billion.

By Jeff Carlson, CCH News Staff

Treasury/SBA Highlight Role of Tax Cuts During Small Business Financing Forum

Treasury Secretary Timothy F. Geithner presided over the Small Business Financing Forum presented by the Treasury Department and the Small Business Administration (SBA) on November 18 in Washington, D.C. While the program was aimed at exploring financing issues, recent tax cuts were highlighted as a potential method by which the government could help small businesses increase their cash flow during the current tough economic environment.

Economic Stimulus Effort

The forum was part of the administration's push to brainstorm ways in which the government could help ease access to credit for small businesses. "Without increased access to credit for American families and small businesses, growth will be weaker, companies will defer long term investments and we will not be able to create a recovery that is self-sustaining and led by private demand," Geithner explained.

NOL Relief

In his opening remarks, Geithner highlighted the enhanced net operating loss (NOL) carryback rules under the American Recovery and Reinvestment Act of 2009 (the 2009 Recovery Act) (P.L. 111-5) for small businesses. These were recently extended to the 2009 tax year by the Worker, Homeownership, and Business Assistance Act of 2009 (P.L. 111-92). "We need to provide direct help to small businesses," Geithner stated in his prepared opening remarks. "We've done that through the Recovery Act by establishing targeted tax relief to small businesses, allowing them to write off more of their expenses and to earn an instant refund on their taxes by "carrying back" their losses five years instead of two."

New Markets Tax Credit

Additionally, Geithner pointed out that the 2009 Recovery Act enhanced the New Markets Tax Credit. Code Sec. 45D allows the tax credit for taxpayers investing in entities whose primary mission is to provide investment capital for low-income communities or persons. "The Recovery Act provided...an additional $3 billion in New Market Tax Credit investments to support small businesses as they spur growth in those struggling communities," Geithner stated.

Continued Efforts

Despite some economists' reports that the country's recession may already be at, or will soon come to, an end, Geithner indicated that the Treasury will continue to prompt tax cuts that make small businesses more liquid. Nevertheless, the main focus of the forum was financing opportunities and Geithner stayed on message in that regard in his closing remarks: "No jobs without growth. No growth without credit." He stated that President Obama would soon receive a conference report on the results of the forum, which would be publicly available for review.

By Torie Cole, CCH News Staff

Taxpayer Not Entitled to Litigation and Administrative Costs or Apology from IRS (Caldwell, TCS)

An individual who was entitled to an alimony deduction after the IRS conceded the issue was not entitled to an apology from the IRS or reasonable litigation and administrative costs. The Tax Court did not have jurisdiction to require the IRS to apologize to the taxpayer or change its procedures prospectively. The Tax Court was not, either through Code Sec. 7430 or otherwise, authorized to grant this type of relief. The taxpayer also failed to establish that he was entitled to an award of litigation or administrative costs. He had not properly filed a motion for costs as required by the Tax Court rules and did not indicate what administrative or litigation costs he incurred, aside from a filing fee. The taxpayer also declined the Tax Court's offer to schedule a hearing and discuss the case and motion. Back references: 2009FED ¶41,743.10 and ¶42,391.65.

K.R. Caldwell, TC Summary Opinion 2009-169

Tax Research Consultant

CCH Reference - TRC LITIG: 6,814

CCH Projects Increases in Inflation-Adjusted Depreciation Caps for Vehicles Placed in Service in 2010

Working with the "new cars" and "new trucks" components of the October 2009 Consumer Price Index, CCH has calculated the unofficial depreciation limits on automobiles first put into use during the 2010 tax year for business and investment purposes. Based on those inflation-adjusted computations (as specified under Code Sec. 280F(d)(7)(B)), the 2010 Code Sec. 280F limits on the amounts of depreciation deductions for passenger automobiles will rise from 2009 levels (after remaining stagnant for the 2008-2009 period). The 2010 depreciation limits for trucks and vans will also rise from 2009 levels (after having dropped in 2009 from 2008 levels).

CCH Comment. The truck index for October 2009, upon which the 2010 truck and van depreciation amounts are computed, was 140.897, once again on the rise after seeing the October 2007 level of 139.513 drop to 133.640 for October 2008. For the same periods, the car index rose to 137.851 in October 2009 after falling from 135.169 to 134.837 between 2007 and 2008.

CCH Comment. The IRS officially announced the depreciation limits for 2009 in April 2009. The expectation is that the IRS will release the 2010 figures under a similar timetable.

CCH Comment. Congress, to date, has not extended 2009 bonus depreciation into 2010 for vehicles placed in service in 2010. Bonus depreciation (which is elective) has allowed taxpayers in 2009 to add another $8,000 to the maximum first-year depreciation limits ($10,960 for new passenger automobiles and $11,060 for qualifying new trucks/vans).

Passenger Auto Depreciation Caps

The unofficial annual maximum depreciation amounts for passenger automobiles first placed in service in calendar year 2010 are:

$3,060 for the first tax year (up from $2,960 in 2008 and 2009);

$4,900 for the second tax year (up from $4,800 in 2008 and 2009);

$2,950 for the third tax year (up from $2,850 in 2008 and 2009); and

$1,775 for each tax year thereafter (same as 2008 and 2009 due to rounding rules).

Depreciation Caps for Trucks and Vans

The indexing computations under Code Sec. 280F typically call for a higher depreciation deduction for trucks and vans. The computations for 2010 follow that pattern. The unofficial 2010 amounts are projected to be:

$3,160 for the first tax year (up from $3,060 in 2009, and back to the same level as in 2008);

$5,100 for the second tax year (up from $4,900 in 2009, and back to the same level as in 2008);

$3,050 for the third tax year (up from $2,950 in 2009, and back to the same level as in 2008); and

$1,875 for each tax year thereafter (up from $1,775 in 2009, and back to the same level as in 2008).

To qualify for the truck and van depreciation deduction, a vehicle must be a passenger vehicle built on a truck chassis with an unloaded gross weight of over 6,000 pounds. A vehicle built on an automobile chassis is classified as an automobile, regardless of weight and even if its manufacturer calls it an SUV.

By George Jones, CCH News Staff

North Carolina --Corporate Income Tax: Eligibility for Former William S. Lee Business Expansion Credits Unresolved

A trial court's decision concerning a NASCAR racing team's eligibility to qualify as an eligible business for purposes of the former Article 3A William S. Lee business expansion credits against North Carolina corporation franchise tax was reversed and remanded to the Office of Administrative Hearings because both the trial court and the secretary of revenue utilized the wrong legal standard in determining whether the taxpayer qualified for the credit. In addition, the trial court failed to apply the proper legal standard in reviewing the secretary of revenue's final decision. The trial court made its own independent factual inquiry, when the proper standard of review was to determine whether the Tax Review Board's findings were supported by the evidence taken as a whole. The trial court did not have the authority to make its own independent review.

During the tax years at issue, only those taxpayers whose primary business was manufacturing were eligible to claim the credit. The taxpayer had indicated it was an automobile manufacturer when it initially applied for the credits, however it listed its primary business as a racing team on both its federal and North Carolina tax returns and the evidence indicated that the majority of its revenues were from racing-related activities. The Department of Revenue originally denied the credit. Upon review, the secretary of the department reversed the department's initial determination. When the department appealed to the Tax Review Board, the board upheld the department's original denial, and the taxpayer appealed the board's decision.

The appellate court determined that both the board and the trial court erred in their interpretation of what criteria were to be used to determine whether a taxpayer's primary business was in manufacturing. The trial court and the department based their decision as to what was the taxpayer's primary business based upon the percentage of the taxpayers' revenues that were attributable to its manufacturing activities. However, both the North American Industrial Classification System (NAICS) Code guidelines and the department's own guidelines required that serious consideration be given to a taxpayer's relative share of current production costs and capital investment in manufacturing to its overall current production costs and capital investment. From the record it appeared that this inquiry was not made by either the department or the trial court.

The appellate court instructed that, on remand, the decision as to whether or not the business was primarily engaged in manufacturing should not be based solely upon the taxpayer's share of current production costs of capital investment. Rather, the department should also examine whether the share of production costs and capital investments would be the proper basis of determining whether the taxpayer was primarily engaged in manufacturing, and if not, the department should examine all the relevant factors and totality of circumstances to determine the taxpayer's principal product or group of products.

Other References:

Explanations at 12-001

Oregon --Corporate, Personal Income Taxes: Ballot Measures for Tax Increase Proposals Must Be Modified

The Oregon Supreme Court has decided that the ballot titles, "yes" and "no" vote statements, summaries, and explanations for Measure 66, which would enact the personal income tax increases that was adopted by the Legislature by Ch. 714 (H.B. 2649), Laws 2009, and Measure 67, which would increase the corporate income and minimum tax rates and impose a minimum tax on partnerships that was adopted by the Legislature by Ch. 745 (H.B. 3405, Laws 2009, must be modified by the Attorney General. The ballot titles, "yes" vote statements, summaries, and explanations contain the phrase "maintains funds currently budgeted for education, health care, public safety, other services ". The Court agreed with the petitioners that, because the legislation will not take effect unless approved by the voters, the word "maintains" inaccurately implies that funds necessary for the described services are already legally available and that disapproval of the measures will nullify currently available revenue. Therefore, the Court directed the Attorney General to change the word to "provides" for both measures. Similarly, the word "reduces" in the "no" vote statement must be stricken and the "no" vote statement must be amended to read "Leaves amount currently budgeted for education, health care, public safety, other services underfunded by estimated $472 million" for Measure 66 and "Leaves amount currently budgeted for education, health care, public safety, other services underfunded by estimated $255 million" for Measure 67.

McCormick v. Kroeger, Attorney General, Oregon Supreme Court, No. S057932, November 13, 2009, ¶400-931; Livingston v. Kroeger, Attorney General, Oregon Supreme Court, No. S057934, November 13, 2009, ¶400-932

Other References:

Explanations at ¶10-380

Explanations at ¶15-365