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July 28, 2009

Federal Headlines

Excise Tax on Insurers Gains Steam at White House

 

Supporters of a proposal to levy an excise tax on insurance companies that offer high-end health care plans, often called "Cadillac" plans are picking up support from the White House and key members of Congress. The proposal, offered by Sen. John F. Kerry, D-Mass., would help pay for an estimated $1 trillion health care reform bill. White House Press Secretary Robert Gibbs, at a press briefing on July 27, said the White House is evaluating the insurance tax option that is under consideration by the Senate Finance Committee (SFC) as they craft legislation for a mark-up before the August recess.

 

David Axelrod, senior advisor to the president, gave the idea a plug during an appearance July 26 on CBS's "Face the Nation." "The president actually was asked this the other day by Jim Lehrer and what he said was that this was, you know, that this was an intriguing idea to put an excise tax on high-end health care policies, like the ones that the executives at Goldman Sachs have, the $40,000 policies." said Axelrod.

 

One member of the Finance Committee, Senate Budget Committee Chairman Kent Conrad, D-N.D., endorsed the plan while appearing on ABC's "This Week." Conrad said there is little choice but to end the insurance subsidy in some form. "I think we've got to. Again, virtually every economist that has come before us has said, you've got to reduce that tax subsidy as part of an overall strategy to really contain costs."

 

As the Senate Finance Committee continues struggling to seek a solution to filling a $320-billion gap in revenue needed to cover the estimated $1 trillion cost of health care reform, the Congressional Budget Office on July 25 released a report downplaying the savings hoped for under the administration's proposal for an Independent Medicare Advisory Council (IMAC), which would make recommendations to the president for changing federal payments for Medicare services. The CBO estimated the plan would create savings of only $2 billion, which does little to help the SFC. In addition, lawmakers are loath to give up control of Medicare payments to the White House.

 

The House Energy and Commerce Committee is expected to complete its markup of its health reform legislation during the week beginning July 27 but it is doubtful whether they will manage to hold a floor vote before breaking for a long summer recess on July 31. "I don't believe so next week, "said Rep. Jim Cooper, D-Tenn., on "Face the Nation." He added, "We have agreement on 70 or 80 percent of the legislation, but it is important we get the other details right too." Cooper said he does not believe House Speaker Nancy Pelosi, D-Calif., has the votes at this point to ensure passage.

 

Gibbs also emphasized that the administration and Congress have reached agreement on 80 percent of reform issues and acknowledged the remaining 20 percent "won't be easy." Areas of consensus are greater access to affordable health care coverage, a deficit-neutral health care reform plan over 10 years and an end to insurance companies denying coverage due to pre-existing medical conditions, Gibbs notes.

 

President Obama maintains final legislation will reach his desk in the fall. Gibbs said there are "no intermediate deadlines" for getting the bill through Congress, although Obama initially called on the House and Senate to pass health care reform bills before they started their August recess. "The president is encouraged that we're making progress and I think is satisfied with the path we're on," Gibbs said.

 

By Jeff Carlson and Paula Cruickshank, CCH News Staff

Cost-Share Payments Received Under FHPP May Be Excluded from Income (Rev. Rul. 2009-23)

 

The IRS has ruled that the Forest Health Protection Program (FHPP) administered by the Department of Agriculture to protect forests in the United States is a small watershed program and, therefore, substantially similar to the type of programs described in Code Sec. 126(a)(1) through (8) within the meaning of Code Sec. 126(a)(9). As a result, all or a portion of the cost-sharing payments received by a taxpayer under the FHPP is eligible to be excluded from gross income to the extent permitted under Code Sec. 126.

Rev. Rul. 2009-23, 2009FED ¶46,435

Other References:

 

Code Sec. 126

 

CCH Reference - 2009FED ¶7334.15

 

CCH Reference - 2009FED ¶7334.30

 

Tax Research Consultant

 

CCH Reference - TRC FARM: 3,168.05

Proposed Regs Would Expand Definition of Allowable Tax Professional Contigent Fees (NPRM REG-113289-08)

 

The IRS has issued proposed regulations relating to contingent fees that may be charged by tax practitioners. The proposed regulations are identical to interim guidance provided in Notice 2008-43, I.R.B. 2008-15, 748. This notice will be declared obsolete when the proposed regulations are published as final regulations in the Federal Register.

 

Final regulations currently permit a practitioner to charge a contingent fee for services rendered in connection with the IRS examination of, or challenge to, an amended return or claim for refund or credit when the amended return or claim for refund or credit was filed within 120 days of the taxpayer receiving a written notice of the examination of, or a written challenge to, the original tax return. The proposed regulations would also allow contingent fee arrangements with respect to an amended return or claim for refund or credit if the amended return or claim for refund or credit is filed before the taxpayer receives written notice of the examination or written challenge to the original return (or if the taxpayer never receives such notice or writing). In addition, contingent fees could be charged for services rendered in connection with a "whistle-blowers" claim under Code Sec. 7623.

 

The proposed regulations also clarify the definition of a contingent fee to provide that a contingent fee includes a fee that is based on a percentage of the refund reported on a return, that is based on a percentage of the taxes saved, or that otherwise depends on the specific tax result attained. The current regulations state that a contingent fee depends on the specific result attained without directly providing that it is the specific tax result that is relevant. Thus, under the proposed regulations, a fee based on the closing of a transaction or other nontax contingency is permissible.

 

A public hearing is scheduled for November 20, 2009, at 10 a.m. Written or electronically generated comments must be received by September 10, 2009. Outlines of topics to be discussed at the public hearing must be received by September 10, 2009.

Proposed Regulations, NPRM REG-113289-08, 2009FED ¶49,425

Proposed Regulations, NPRM REG-113289-08, FINH ¶41,141

Other References:

 

Circular 230

 

CCH Reference - 2009FED ¶43,566

 

Code Sec. 7852

 

CCH Reference - FINH ¶23,122

 

Tax Research Consultant

 

CCH Reference - TRC IRS: 3,206.05

 
 

State Headlines

Illinois --Sales and Use Tax: "Cash for Clunkers" Payments Not Taxable

 

The Illinois Department of Revenue has provided guidance on the sales tax treatment for vehicles purchased in conjunction with the federal government's Car Allowance Rebate System (CARS) program, also known as "cash for clunkers."

 

The department has determined that the $3,500 or $4,500 payment from the federal government to the dealer under the CARS program is not taxable for Illinois sales tax purposes because it is a direct government payment to the dealer. The salvage value that the dealer provides for the traded-in vehicle will be treated as a trade-in and therefore is also not taxable for sales tax purposes.

 

For example, $20,000 (purchase price of new vehicle) minus $4,500 (federal CARS payment to dealer) and minus $1,000 (salvage value allowed by dealer on traded-in vehicle) would result in $14,500 as the amount subject to sales tax.

 

Dealers should combine both payment amounts on Part 6, Line 2 (Total trade in credit or value), of Form ST-556 but keep the amounts separate in their books and records. Manufacturer or dealer incentives remain taxable.

 

The announcement can be found on the department's Web site at http://www.revenue.state.il.us/announcements/cashforclunkers.htm.

"Cash for Clunkers" Announcement, Illinois Department of Revenue, July 27, 2009

Michigan --Corporate Income Tax: Interest Income Was Properly Taxed In Michigan

 

A national banking association that was based in Pennsylvania was properly assessed Michigan single business tax (SBT) on earned interest income from loans secured by real property located in Michigan, as well as from unsecured loans provided to Michigan customers, because the interest income was received as a result of business activity in Michigan. The issue in this case was how to interpret the applicable statutory provision for determining whether the interest payments in question should be included in the association's SBT tax base.

 

The association claimed that the applicable statute indicated that only the interest received by the association in the state of Michigan can be included when calculating its SBT tax base. The association argued that because it did not physically come into possession of the cash or check used as payment on a loan within the borders of the state of Michigan, it did not receive the interest income within the state of Michigan and, therefore, the interest income was improperly included in its SBT tax base.

 

The Michigan Court of Appeals was not convinced that the association's interpretation of the applicable statute was correct. It seemed illogical that the Legislature would intend to exempt from taxation interest income earned on loans secured by Michigan property or made to Michigan customers simply because the payments on these loans were sent to an out-of-state mailing address. The association's interpretation would set up a perfect loophole by allowing any financial institution to avoid paying taxes on interest earned from loans made to Michigan customers or secured by Michigan property simply by requiring its lendees to mail their payment checks to a post office box in another state.

 

The court concluded that gross business income of whatever kind must be sourced to the state where a taxpayer engaged in the business activity that resulted in that income. In this case, the association received interest income as a result of business activity within Michigan.

PNC Bank National Association v. Department of Treasury, Michigan Court of Appeals, No. 283560, July 23, 2009, ¶401-436

 

Other References:

 

Explanations at ¶11-540
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