IRS has released its finalized (and revised) Schedule UTP for reporting Uncertain Tax Positions

For those working in the corporate tax arena, you probably remember the controversy surrounding the IRS's January 2010 announcement of their plan to create a new tax form to disclose a taxpayer's "uncertain tax positions" (see http://tax-fishing-and-other.blogspot.com/2010/02/uncertain-tax-positions-policy-of.html).

As you probably also know, they followed that announcement with an advance copy in April of the proposed version of the form, and requested comments on it.  (see http://tax-fishing-and-other.blogspot.com/2010/04/irs-announcement-2010-30-re-disclosure.html).

Well, just last Friday, the IRS released its revised and finalized version of Schedule UTP, along with explanatory Announcements 2010-75 and 2010-76.

First, the "good" news:

To their credit, the IRS made some significant changes to the April draft version of Schedule UTP in response to public comments.  Key among these changes are:

• Five-year phase-in of the reporting requirement based on a corporation’s asset size - As originally proposed in January, the reporting requirement would apply to business taxpayers with total assets of at least $10 million.  In April, the IRS announced that only certain corporations would be required to file the schedule.  With their latest revision, 2010 Schedule UTP filings will generally only be required for corporations that issue (or are included in) audited financial statements and that have at least $100 million of assets.  The asset threshold will be reduced to $50 million starting with 2012 tax years and down to $10 million starting with 2014 tax years.  In addition, the IRS will consider whether to apply the UTP reporting rules to other taxpayers for 2011 or later years (e.g., for pass-through and/or tax-exempt entities).
• No longer being required to report the maximum tax adjustment amounts - While the April draft contemplated that the reporting corporation would disclose a maximum potential tax adjustment (i.e., the maximum US federal income tax liability for the tax position if not sustained upon IRS audit), the IRS ultimately removed this proposed requirement.  It replaced this provision with a requirement for the reporting corporation to rank its UTPs by size (e.g., in descending order), as well as identify those positions that exceed 10% of the total reported positions. The size of the UTP is determined at the affiliated group level.
• No longer being required to report the rationale and nature of uncertainty in the concise description of the position - In response to commentators' concerns, including the fact that such disclosures are not required by FIN 48 (now known as FASB ASC 740-10), the instructions have limited the description of the UTP to "a concise description of the tax position, including a description of the relevant facts affecting the tax treatment of the position and information that reasonably can be expected to apprise the Service of the identity of the tax position and the nature of the issue."  In addition, the final instructions expressly provide that a corporation is not required to include an assessment of the hazards of a tax position or an analysis of the support for or against the tax position.
• No longer being required to report administrative practice tax positions - The finalized instructions eliminated the requirement in the April draft that required reporting corporations to disclose tax positions for which a reserve had not been recorded based on an expectation to litigate or an IRS administrative practice (i.e., the IRS had historically not challenged the position upon audit when dealing with that tax position re that taxpayer or similar taxpayers).

In addition, no change (or merely clarification) was made to the instructions to provide that:

• An affiliated group of corporations filing a consolidated return will file a single Schedule UTP for the affiliated group for each year.
• The affiliated group need not identify the member of the group to which the UTP relates.
• A complete and accurate disclosure of a tax position on the appropriate year's Schedule UTP will be treated by the IRS as if the corporation filed a Form 8275 (Disclosure Statement) or Form 8275-R (Regulation Disclosure Statement) regarding the tax position.  A separate Form 8275 or 8275-R need not be filed to avoid certain accuracy-related penalties with respect to that position.
• Whether a reserve has been recorded for Schedule UTP disclosure is determined by reference to those reserve decisions made by the corporation (or related party) for audited financial statement purposes.  If it was determined that (under applicable accounting standards) either no reserve was required because it was either immaterial or sufficiently certain, then it need not be reported on the schedule.
• Schedule UTP requires the reporting of U.S. federal income tax positions but not foreign or state tax positions.
• Corporations report their own tax positions on Schedule UTP and do not report the tax positions of a related party.
• Tax positions taken in years before 2010 need not be reported in 2010 or a later year even if a reserve is recorded in audited financial statements issued in 2010 or later.
• Schedule UTP need not be filed for short tax years ending in 2010.
• Worldwide assets are used to determine whether a corporation that files a Form 1120-F (including a protective return) must file Schedule UTP.
• The definition of audited financial statement was revised such that an "audited financial statement" is one on which an independent auditor expresses an opinion and that compiled or reviewed financial statements are excluded from the definition of audited financial statement.

Next, the "bad" (or at least not "good") news:

• Schedule UTP isn't going away, and will apply to an increasing number of taxpayers as time goes on.
• There remain unanswered questions (e.g., issues related to the reporting of tax positions in the year in which a corporation is acquired or disposed of; the level or type of due diligence required to obtain reserve information from a related party or information from a pass-through entity relating to a corporation's uncertain tax position involving the pass-through entity; how penalties will be imposed for reporting failures).
• The Notice of Proposed Rulemaking ("NPRM") published on September 9 expressly authorizes the IRS to require filing of Schedule UTP, but is not expected to be finalized until some time before the end of the year.  This authorization is established pursuant to new Prop. Treas. Reg. section 1.6012-2(a)(4) and (5).

As always, let me know if you have any questions or comments!

Links:

• IRS Announcement 2010-75
• IRS Announcement 2010-76
• Schedule UTP - Uncertain Tax Position Statement
• Schedule UTP - Instructions
• IRS internal directive regarding UTP reporting
• Notice of Proposed Rulemaking (REG-119046-10) at page 415 of the document.
• AICPA article (extensive coverage)

HR 1586 signed into law today - Say hello to some revenue raisers re international taxes

Don't let HR 1586's title(s) ("FAA Air Transportation Modernization and Safety Improvement Act," "Education Jobs and Medicaid Assistance Act," and several others) fool you.  It's chock-full of revenue raisers (i.e., tax increases) mostly in the area of international tax.

Further information (and explanations) will follow, but here are the key revenue offsets and corresponding effective dates:

• Rules to Prevent Splitting Foreign Tax Credits from the Income to Which They Relate - Effective with respect to foreign income taxes paid or accrued by U.S. taxpayers and section 902 corporations in taxable years beginning after December 31, 2010.
• Denial of Foreign Tax Credit with Respect to Foreign Income Not Subject to U.S. Taxation by Reason of Covered Asset Acquisitions - Effective for covered asset acquisitions after December 31, 2010.
• Separate Application of Foreign Tax Credit Limitation, etc., to Items Resourced Under Treaties - Effective for taxable years beginning after the date of enactment (i.e., August 10, 2010).
• Limitation on the Amount of Foreign Taxes Deemed Paid with Respect to Section 956 Inclusions - Effective for acquisitions of United States property after December 31, 2010.
• Special Rule with Respect to Certain Redemptions by Foreign Subsidiaries - Effective for acquisitions after the date of enactment.(i.e., August 10, 2010).
• Modification of Affiliation Rules for Purposes of Rules Allocating Interest Expense - Effective for taxable years beginning after the date of enactment (i.e., August 10, 2010).
• Termination of Special Rules for Interest and Dividends Received from Persons Meeting the 80-Percent Foreign Business Requirements - Effective for taxable years beginning after December 31, 2010.
• Limitation on Extension of Statute of Limitations for Failure to Notify Secretary of Certain Foreign Transfers - Effective for returns filed after March 18, 2010.
• Elimination of Advance Refundability of Earned Income Tax Credit - Effective for taxable years beginning after December 31, 2010.

Source data:

• HR 1586 on Thomas (part of the Library of Congress):  http://bit.ly/ciHQse
• Joint Committee on Taxation's writeup:  http://bit.ly/cEZ5MN

IRS Announcement 2010-30 re disclosure of Uncertain Tax Positions (UTPs)

Just received the following advance release of Announcement 2010-30:

Announcement 2010-30 releases the draft schedule, Schedule UTP, accompanied by draft instructions that provide a further explanation of the Service’s proposal requiring reporting of uncertain tax positions, and invites public comment on the draft schedule and instructions.

Announcement 2010-30 will be in IRB 2010-19, dated May 10, 2010.

The advance is available at http://bit.ly/dn4Ubm but does not include a copy of proposed "Schedule UTP."

EDIT 4/20/10:

The IRS has now uploaded Schedule UTP  http://bit.ly/dugHbf and the instructions http://bit.ly/aHZ7Kn

The New Health Care Law - How Does it Affect You?

As if the entire process and components of the Health Care legislation weren’t confusing enough, the first part (H.R.3590) not only modified itself in certain areas, but the second part (H.R.4872) partially modified the first just one week later!

If you do feel compelled to read through the actual legislation yourself, it’s probably a good idea to first review the Joint Committee’s explanation, which you can find at http://www.jct.gov/publications.html?func=startdown&id=3673 (released on 3/21/10 as document JCX-18-10 and entitled Technical Explanation Of The Revenue Provisions Of The “Reconciliation Act Of 2010,” As Amended, In Combination With The “Patient Protection And Affordable Care Act”).

In an attempt to clarify the overall impact, this overview incorporates the following two Acts that recently became law and addresses the law as it stands after their combined passage. They are as follows:

• H.R.3590 - Patient Protection and Affordable Care Act - signed into law on 3/23/10. (Available at http://hdl.loc.gov/loc.uscongress/legislation.111hr3590)
• H.R.4872 - Health Care and Education Affordability Reconciliation Act of 2010 - signed into law on 3/30/10. (Available at http://hdl.loc.gov/loc.uscongress/legislation.111hr4872)

While the thousands of pages of text in the new law address a host of issues relating to health care related items, including taxes (as well as seemingly unrelated items such as student loans), the key tax issues fall into a handful of categories that affect individuals and businesses:

• New and/or Increased Taxes and Fees
• New and/or Expanded Credits and Incentives
• Deduction/Exclusion Limitations and/or Restrictions
• Information Reporting and Disclosure
• New and/or Expanded Administrative Requirements

Without further ado, here is a brief discussion of the more widely-applicable tax related provisions.

NEW AND/OR INCREASED TAXES AND FEES

   BUSINESSES

• EXCISE TAX ON HIGH COST EMPLOYER-SPONSORED HEALTH COVERAGE
• Imposes a new nondeductible 40% excise tax on “coverage providers” of employer-sponsored health insurance if the aggregate value of such coverage for an employee exceeds a specified threshold. Depending on the type of coverage, “coverage providers” are generally employers, and/or plan administrators.
• The threshold for 2018 for individuals is $10,200 and for families it is $27,500, but will be subject to adjustment for differences in increases in health care costs between 2010 and 2018 compared to projections. In addition, adjustments will be made based on differences in age, gender, and high-risk profession rates.
• Effective for taxable years beginning after 12/31/17.
• IMPOSITION OF ANNUAL FEE ON BRANDED PRESCRIPTION PHARMACEUTICAL MANUFACTURERS AND IMPORTERS
• Imposes an annual nondeductible fee on entities that manufacture and/or import branded prescription drugs for sale to (or attributable to) certain government programs. The multi-billion dollar fees are to be apportioned amongst the covered businesses based on their relative shares of branded prescription drug sales for the prior year (more heavily weighted for businesses with higher sales).
• Effective for calendar years beginning after 12/31/10.
• IMPOSITION OF ANNUAL FEE ON HEALTH INSURANCE PROVIDERS
• Imposes an annual nondeductible fee on certain entities that provide health insurance coverage of United States health risks as part of their business.
• The multi-billion dollar fees are to be apportioned amongst the covered businesses based on their relative shares of their health insurance net written premiums for the prior year (more heavily weighted for businesses with higher sales).
• Effective for calendar years beginning after 12/31/13.
• EMPLOYER RESPONSIBILITY FOR EMPLOYEE COVERAGE
• Requires certain “large” employers (generally those with an average of at least 50 full time employees during the prior calendar year) to offer minimum essential health care coverage. Those failing to do so are generally subject to a nondeductible excise tax of $166.67 per employee per month (in excess of a 30-employee threshold).
• Also imposes a nondeductible excise tax on large employers that do offer employees the opportunity to sign up for minimal essential coverage, but one or more instead purchase coverage through an exchange that allows or pays a premium tax credit or cost-sharing reduction. The penalty for this situation is $250 per employee per month, and is limited to the amount of the first penalty noted above (which also serves as an overall limitation).
• Each of the dollar amounts above will be adjusted for inflation after 2014.
• Effective starting after 12/31/13.
• EXCISE TAX ON MEDICAL DEVICES
• Imposes a 2.3% excise tax on the sale of certain medical devices, to be borne by manufacturers, producers, or importers of covered devices. Taxable medical devices are those defined in section 201(h) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 321) that are intended for humans. This generally means the following:
• An instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including any component, part, or accessory, which is (1) recognized in the official National Formulary, or the United States Pharmacopeia, or any supplement to them, (2) intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals, or (3) intended to affect the structure or any function of the body of man or other animals, and which does not achieve its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of its primary intended purposes. (One example might be an Ultrasonic air embolism monitor used as a monitoring device in the area of Anesthesiology.)
• However, the following items are generally excluded:
• Eyeglasses, contact lenses, hearing aids, and any other items determined to be typically purchased at retail by the general public for their own personal use.
• Effective for sales after 12/31/12.

   INDIVIDUALS

• ADDITIONAL HOSPITAL INSURANCE TAX ON HIGH-INCOME TAXPAYERS
• Imposes an additional 0.9% tax on wages (and self-employment income) of those earning more than a threshold amount. That threshold is $250,000 for joint (or surviving spouse) returns, $125,000 of married-filing-separate returns, and $200,000 for other returns.
• Effective for compensation received in tax years beginning after 12/31/12.
• EXCISE TAX ON INDOOR TANNING SERVICES
• Imposes (on the individual using the services) a 10% tax on the amount paid for the indoor tanning services.
• Effective for services performed on or after 7/1/10.
• INCREASE IN ADDITIONAL TAX ON DISTRIBUTIONS FROM HSAS AND ARCHER MSAS NOT USED FOR QUALIFIED MEDICAL EXPENSES
• Increases from 10% to 20% the additional tax imposed on disqualifying distributions from an HSA or Archer MSA.
• Effective for disqualifying distributions made during tax years starting after 12/31/10.
• EXCISE TAX ON INDIVIDUALS WITHOUT ESSENTIAL HEALTH BENEFITS COVERAGE
• Requires most U.S. citizens and legal residents, as well as their dependents, to maintain a minimum level of health care coverage. Those who do not will generally be subject to a penalty. This penalty is based on household income, with a maximum penalty (per month, per person) of $95 for 2014, $325 for 2015, $695 for 2016, and indexed for inflation thereafter. Penalty amounts for minors (under 18) are 50% of the adult amounts, and the maximum family penalty is 300% of the individual adult penalty (but further limited to certain national averages).
• Effective for tax years starting after 12/31/13.
• UNEARNED INCOME MEDICARE CONTRIBUTION
• Imposes 3.8% Medicare tax on individuals, trusts, and estates with unearned income and that have modified adjusted gross income in excess of certain thresholds.
• For individuals, that tax is based on the lesser of (1) net investment income or (2) modified AGI over $250,000 (for joint or surviving spouse returns; $125,000 for married filing separate; all other individuals have a threshold of $200,000).
• For trusts and estates, the tax is based on the lesser of (1) undistributed net investment income or (2) the excess of AGI over the dollar amount where the highest income tax bracket starts. Caveat: For trusts and estates, the threshold (for 2010) starts at only $11,200, far below the those applicable to individuals.
• Note that tax-free investments (e.g., certain bonds) are exempt from this tax.
• Effective for tax years beginning after 12/31/12.

NEW AND/OR EXPANDED CREDITS AND INCENTIVES

   BUSINESSES

• ESTABLISHMENT OF SIMPLE CAFETERIA PLANS FOR SMALL BUSINESSES
• Provides eligible small employers with a safe harbor exemption from some of the nondiscrimination rules that otherwise apply to cafeteria plans. Eligible employers are generally those that (1) allow all employees to participate and elect any available benefit under the plan, (2) provide a minimum contribution for all non-highly-compensated employees, and (3) have no more than 100 employees (as an average for the 2 prior years).
• Effective for tax years beginning after 12/31/10.
• QUALIFYING THERAPEUTIC DISCOVERY PROJECT CREDIT
• This provision is a real sleeper and has had surprisingly little press despite its generous provisions. It provides a 50% nonrefundable investment tax credit to certain small businesses (with no more than 250 employees) that invest in qualifying “therapeutic discovery” projects in years beginning in 2009 or 2010. Covered projects are those designed to:
• Treat or prevent diseases or conditions via pre-clinical activities, clinical trials, and clinical studies, or carrying out research protocols, for the purpose of obtaining approval of a product under specific sections of the Federal Food, Drug, and Cosmetic Act or the Public Health Service Act;
• Diagnose diseases or conditions or to determine molecular factors related to diseases or conditions by developing molecular diagnostics to guide therapeutic decisions; or
• Develop a product, process or technology to further the delivery or administration of therapeutics.
• Qualified investments are the aggregate amount of costs paid or incurred for the tax year for expenses necessary for and directly related to the conduct of a qualifying therapeutic discovery project, but exclude (1) compensation paid to the CEO and the four highest paid officers other than the CEO, (2) interest expense, (3) facility maintenance expenses, (4) service costs as determined under the uniform capitalization rules, and (5) any other expense determined by the Secretary to be appropriate under the circumstances.
• Alternatively, qualifying taxpayers may generally elect to receive a grant instead of a credit with respect to their qualifying investment.
• Note: This provision is not automatic for potentially qualifying small businesses. It requires potential recipients to apply to the program which is to be established by the Secretary (in consultation with the Department of Health and Human Services) within 60 days after 3/23/10. Following the submission of an application, the Secretary will have 30 days to approve or reject the application. Selection criteria will take into consideration only those projects
• That show reasonable potential to result in new therapies to treat areas of unmet medical need, or to prevent, detect, or treat chronic or acute diseases and conditions, to reduce long-term health care costs in the United States, or to significantly advance the goal of curing cancer within 30 years, and
• That have the greatest potential to create and sustain high quality, high-paying jobs in the United States, and to advance U.S. competitiveness in the fields of life, biological, and medical sciences.
• Effective for amounts paid or incurred in tax years beginning after 12/31/08.

   INDIVIDUALS

• EXCLUSION FOR ASSISTANCE PROVIDED TO PARTICIPANTS IN STATE STUDENT LOAN REPAYMENT PROGRAMS FOR CERTAIN HEALTH PROFESSIONALS
• Excludes from income amounts received by individuals under the National Health Service Corps loan repayment program (as well as certain state programs) intended to provide for increased health care availability in underserved areas.
• Effective for amounts received in tax years starting after 12/31/08.
• EXPANSION OF ADOPTION CREDIT AND ADOPTION ASSISTANCE PROGRAMS
• Raises the maximum adoption credit (as well as the income exclusion for employer-provided adoption assistance) to $13,170 for 2010, with additional changes to the inflation adjustment and income limitation threshold for post-2010 years. Also makes the credit refundable starting in 2010.
• The sunset of these provisions (which reduces the amounts to prior, lower amounts) is also delayed by 1 year (i.e., for tax years beginning after 12/31/11).
• PREMIUM ASSISTANCE TAX CREDIT
• Provides a refundable tax credit for individuals and families to help subsidize the purchase of health insurance through an exchange. The amount of the credit is based on the insured person’s income and is generally available for those with household incomes between 100% and 400% of the federal poverty level and who do not receive (or are not offered) health insurance through an employer.
• Effective for tax years ending after 12/31/13.
• REDUCED COST-SHARING FOR INDIVIDUALS ENROLLING IN QUALIFIED HEALTH PLANS
• Establishes a subsidy to help lower-income individuals and families (household incomes between 1 and 4 times the poverty level) afford health care coverage.
• Effective from 3/31/10.

CREDIT/DEDUCTION/EXCLUSION LIMITATIONS AND/OR RESTRICTIONS

   BUSINESSES

• MODIFICATION OF ITEMIZED DEDUCTION FOR MEDICAL EXPENSES
• Increases the lower limit for taking an itemized deduction for unreimbursed medical expenses from 7.5% to 10% of Adjusted Gross Income (for regular tax purposes, but leaves the threshold for AMT purposes unchanged). If taxpayer (or their spouse) reaches age 65 during any of the tax years 2013 through 2016, this increase does not apply to such years.
• Effective for taxable years beginning after 12/31/12.
• LIMITATION ON EXCESSIVE REMUNERATION PAID BY CERTAIN HEALTH INSURANCE PROVIDERS
• Denies a deduction for executive compensation in excess of $500,000 to certain health insurance providers. This generally excludes employers with self-insured plans. In addition, performance-based compensation does not escape this limitation.
• Effective for compensation for tax years beginning after 12/31/12 that are attributable to services performed during years beginning after 12/31/09.
• ELIMINATION OF DEDUCTION FOR EXPENSES ALLOCABLE TO MEDICARE PART D SUBSIDY
• Reduces the deduction for expenses attributable to retiree prescription drug expenses by the amount of the subsidy (to the extent the subsidy is excluded from income).
• Effective for tax years beginning after 12/31/12.
• MODIFICATION OF SECTION 833 TREATMENT OF CERTAIN HEALTH ORGANIZATIONS
• Restricts certain special insurance company tax benefits to those entities satisfying a minimum medical loss ratio of 85% for the year (i.e., the percentage of its total premium revenue expended on reimbursement for clinical services provided to enrollees during the year).
• These rules generally allow Blue Cross, Blue Shield, and similar organizations a deduction of 25% of the year’s claims and liabilities under cost-plus contracts as well as administrative expenses related to such claims and contracts (minus the prior year’s surplus for regular tax), as well as other tax benefits.
• Effective for tax years beginning after 12/31/09.
• ELIMINATION OF UNINTENDED APPLICATION OF CELLULOSIC BIOFUEL PRODUCER CREDIT
• Changes the cellulosic biofuel producer credit so that it no longer applies to unprocessed fuels with specified percentages of water, sediment, or ash content, such as “black liquor.”
• Effective for fuels sold or used after 1/1/10.

   INDIVIDUALS

• DISTRIBUTIONS FOR MEDICINE QUALIFIED ONLY IF FOR PRESCRIBED DRUG OR INSULIN
• Restricts allowable distributions from Health FSAs, HSAs, HRAs, and Archer MSAs to (1) prescribed drugs, including over-the-counter medicines if prescribed by a doctor and (2) insulin.
• Effective for expenses incurred after 12/31/10.
• LIMITATION ON HEALTH FLEXIBLE SPENDING ARRANGEMENTS UNDER CAFETERIA PLANS
• Imposes an upper limit on Health FSAs under cafeteria plans of $2,500 per year (indexed for future inflation).
• Effective for taxable year beginning after 12/31/12.

INFORMATION REPORTING AND DISCLOSURE

   BUSINESSES

• INCLUSION OF COST OF EMPLOYER-SPONSORED HEALTH COVERAGE ON W-2
• Requires employers to disclose the value of health insurance coverage on each employee’s W-2.
• Effective for tax years beginning after 12/31/10.
• EXPANSION OF INFORMATION REPORTING REQUIREMENTS
• Requires businesses to file information returns for all payments totaling $600 or more, even if the recipient is a corporation (but not including tax-exempt corporations).
• Also expands the scope of the type of payments for which reporting is required to include all payments in consideration for property, and other gross proceeds for both property and services.
• Effective for payments made after 12/31/11.

   BUSINESSES AND INDIVIDUALS

• CODIFICATION OF ECONOMIC SUBSTANCE DOCTRINE AND PENALTIES
• Having been discussed for quite some time, places the Economic Substance doctrine into the Code. The Economic Substance doctrine generally stands for the proposition that there should be no tax benefits to the extent that there was no real financial motive aside from saving federal taxes.
• Also establishes an increase in the penalty where the transaction(s) at issue did not have economic substance (i.e., 40% instead of 20%).
• Effective from 3/31/10.

NEW AND/OR EXPANDED ADMINISTRATIVE REQUIREMENTS

   BUSINESSES

• ADDITIONAL REQUIREMENTS FOR CHARITABLE HOSPITALS
• Sets new requirements for charitable hospitals, in addition to those previously established. These include (1) performance of a community health needs assessment once every 3 years, (2) creation/implementation of a written financial assistance policy, (3) limitation on charges billed for emergency or other medically necessary care for those qualifying for financial assistance, and (4) limitation on extraordinary collection efforts without first trying to determine if the responsible persons are eligible for financial assistance.
• Also imposes a penalty of up to $50,000 for failures to conduct the community health needs assessment.
• Generally effective for tax years beginning after 3/23/10, except for the community health needs assessment (effective for tax years beginning after 3/23/12) and the penalty for failure to perform the assessment (effective for failures after 3/23/10).
• TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES
• Increases the amount of the required federal estimated tax due in the 3rd quarter 2014 by 15.75 percentage points.
• Effective from 3/31/10.

As always, I look forward to your questions and comments.

The Reconciliation Act was signed into law today

As you may already know by now, the second part of the Health Care legislation (H.R. 4872 - Health Care and Education Affordability Reconciliation Act of 2010) was signed into law today, March 30, 2010.

While I'm still working on a combined write-up for the Reconciliation Act and the preceding Patient Protection and Affordable Care Act (H.R. 3590), you can access the actual laws here:

• H.R. 3590
• H.R. 4872

Caveat:  H.R. 3590 at times changes its own provisions (e.g., section 9001 is modified by section 10901), and H.R. 4872 goes on to further change H.R. 3590 (e.g., section 1401 of H.R. 4872 further changes section 10901 of H.R. 3590 which modified section 9001 of that Act), so read carefully!  Not exactly easy to follow.

Happy reading...

The Jobs Bill (aka the Health Care bill's quiet sibling)

With all the focus on Health Care legislation, not everyone got the message that on March 18, 2010, President Obama signed into law the Hiring Incentives to Restore Employment Act ("HIRE"). While intended to spur job growth via tax breaks to businesses that add employees and invest in equipment, it also (among other things) imposes new disclosure requirements related to foreign investments. An overview of the more widely-applicable provisions follows. For more detailed information (and we do mean detailed), readers can refer to these official sources:

• The text of H.R. 2847 [http://hdl.loc.gov/loc.uscongress/legislation.111hr4872]
• The Joint Committee on Taxation's technical explanation [http://www.jct.gov/publications.html?func=startdown&id=3648]

Hiring and Retention Incentives

• Payroll Tax Forgiveness for Hiring Unemployed Workers - Eliminates the employer's share of OASDI paid by a qualified employer attributable to wages paid to a qualified individual (starting with the date immediately after enactment, i.e., 3/19/10) through 12/31/10, subject to minor adjustment for wages paid through 3/31/10.
• "OASDI" is the old age, survivors, and disability insurance tax equal to 6.2% of covered wages up to the taxable wage base ($106,800 in 2010), providing a maximum potential benefit to the employer of approximately $6,600.
• A qualified employer is any non-governmental employer (but does include public higher education institutions).
•  A qualified individual is anyone who (1) begins work for a qualified employer after 2/3/10 and before 1/1/11; (2) certifies by signed affidavit that he or she was employed for a total of 40 hours or less during the 60-day period ending on the date such employment began; (3) is not employed to replace another employee of the employer unless such employee separated from employment voluntarily or for cause; and (4) is not a related party with respect to the employer.
  
• Coordination with the Work Opportunity Tax Credit ("WOTC") - Qualified employers may not receive the WOTC with respect to wages paid to a qualified individual during the 1-year period starting with the employee's hire date if such wages qualify under this provision unless the employer expressly elects to forgo the benefits of this provision for that person.

• Business Credit for Retention of Certain Newly Hired Individuals in 2010 - Provides a general business tax credit for each retained "qualified invididual" (as defined above) who (1) is employed on any date during the taxable year; (2) remains employed for a period of not less than 52 consecutive weeks; and (3) receives wages during the last 26 weeks of such period that are least 80% of the wages received during the first 26 weeks of that period. The amount of this credit is the lesser of
• $1,000 or
• 6.2% of the wages paid by the taxpayer to the retained worker during the 52 consecutive week period referred to above.
• The retention credit may not be carried back to a taxable year that begins prior to the date of enactment of this provision.
• This provision is effective from the date of enactment (i.e., 3/18/10).

Section 179 Expensing

• Extends for one year the $250,000 maximum section 179 deduction (and the $800,000 phaseout limit) that would otherwise have dropped to $125,000 (and $500,000) in the absence of this legislation.
• This provision is effective for taxable years beginning after 12/31/09.

Qualified Tax Credit Bonds

• Permits tax credit bond issuers (of Clean Renewable Energy Bonds, Qualified Energy Conservation Bonds, Qualified Zone Academy Bonds, and Qualified School Construction Bonds) to elect to treat such bonds issued after 3/18/10 as Build America Bonds and qualifying for tax credits to be paid to the issuer instead of the holders of such bonds. While primarily applicable to state and local governments, potential purchasers of such bonds should be aware of this provision if they are considering these investments and were counting on possible credits coming to them.

Revenue Raisers

• Foreign Account Tax Compliance

• Reporting and withholding on certain foreign accounts - Adds a new chapter 4 to the Internal Revenue Code (comprising 4 new sections) that impose withholding and reporting requirements on persons making specified types of payments to certain foreign financial institutions and other foreign entities. The general rules are as follows: 

• The statutory withholding rate for withholdable payments to an applicable foreign financial institution or other covered foreign entity is 30%. 

• Withholdable payments generally include "(i) any payment of interest (including any original issue discount), dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, and other fixed or determinable annual or periodical gains, profits, and income, if such payment is from sources within the United States, and (ii) any gross proceeds from the sale or other disposition of any property of a type which can produce interest or dividends from sources within the United States." However, this term excludes any item of income that represents income connected with the conduct of a U.S. trade or business.

• Withholding agents are those "persons, in whatever capacity acting, having the control, receipt, custody, disposal, or payment of any withholdable payment."

• Covered foreign financial institutions are those that do not have an agreement with the U.S. Treasury for the collection, verification, maintenance, and reporting of information about direct or indirect U.S. owners of financial accounts held by that institution. Covered other foreign entities are those that are not covered "foreign financial institutions" as noted above and (1) the beneficial owner of the payment is either that entity or another non-financial foreign entity and (2) the recipient does not qualify for a waiver of withholding. A withholding waiver is generally available if the payee provides the withholding agent with either (a) certification that the beneficial owner does not have substantial U.S. owners or (b) the name, address, and taxpayer ID number of the beneficial owner. In addition, the withholding agent must not know or have reason to know that the information provided is incorrect and must also report the above information to the IRS.

• This provision is generally effective for payments made after 12/31/12.

• Repeal of certain foreign exceptions to registered bond requirements - This provision actually consists of several changes related to foreign-targeted bonds and the corresponding (1) exclusion from withholding on, and (2) deduction of, the interest payments on those bonds if certain tests are met.

• Repeal of exception to denial of deduction for interest on non-registered bonds - Repeals the exception to the denial of a deduction for interest on bonds not issued in registered form. As a result, interest deductions are disallowed attributable to obligations not issued in registered form, unless (1) issued by a natural person, (2) it has a maturity of one year or less, or (3) is not of a type offered to the public.
• An obligation is considered issued in registered form if (1) it is registered with its issuer (or agent) and may only be transferred by surrendering the old instrument and either (a) the reissuance to the new holder or (b) the issuance of a new instrument to the new holder, (2) the right to principal and interest may only be transferred through a book entry system maintained by the issuer (or agent), or (3) it is registered with the issuer (or agent) and may be transferred through both of the foregoing methods.

• Repeal of treatment as portfolio interest - Repeals the portfolio interest exception to withholding on interest from bonds that are not issued in registered form.
• Portfolio interest means any interest (including OID) that is (1) paid on a registered-form obligation and for which the beneficial owner has provided the U.S. withholding agent a statement certifying that the beneficial owner is not a U.S. person, or (2) paid on a non-registered form obligation that meets the foreign targeting requirements of the code. However, it does not include interest received by a 10% shareholder, certain contingent interest, interest received by a controlled foreign corporation from a related person, or certain interest received by a bank on an extension of credit.

• Dematerialized book-entry systems treated as registered form - Permits a debt obligation held through a dematerialized book entry system, or other specified book entry system, to be treated as being held through a book entry system for the purpose of treating the obligation as being in registered form.
• A dematerialized book entry system is one that tracks instruments (usually electronically) without the use of physical certificates.
• Effective for debt obligations issued after the date which is two years after the date of enactment (i.e., starting 3/19/12).

• Disclosure of information with respect to foreign financial assets - Imposes a disclosure requirement on individuals with an interest in a “specified foreign financial asset.” This requirement is met through a statement attached to their tax return for any year in which the aggregate value of all such assets is greater than $50,000.
• “Specified foreign financial assets” are specified accounts at foreign financial institutions. However, the following constitute such assets even if not held in an account at a financial institution: (1) stocks or securities issued by foreign persons, (2) financial instruments or contracts held for investment issued by (or having) a non-U.S. counterparty, and (3) any interest in a foreign entity.
• However, individuals are not required to disclose interests that are held in a custodial account with a U.S. financial institution.
• While the penalty is substantial ($10,000 plus additional amounts for continued failures, up to a maximum of $50,000 for each applicable taxable period), the penalty may be waived if the individual can establish the failure was due to reasonable cause and not willful neglect.
• Effective for taxable years beginning after 3/18/10.

• Penalties for underpayments attributable to undisclosed foreign financial assets - Adds a new 40% penalty on tax understatements related to undisclosed foreign financial assets. Applicable assets are those subject to mandatory information reporting where the disclosure requirements were not met. Applicable understatements are those attributable to any transaction involving such assets.
• Effective for taxable years beginning after 3/18/10.

• Modification of statute of limitations for significant omission of income in connection with foreign assets - Provides for an extended, 6-year, statute of limitations period within which the IRS can assess additional tax on understated income attributable to foreign financial assets. This provision applies if gross income in excess of $5,000 is omitted from an income tax return and that gross income is from assets for which foreign financial asset disclosure is required.
• Effective for returns filed after 3/18/10 as well as for any other return for which the assessment period has not yet expired as of 3/18/10.

• Reporting of activities with respect to passive foreign investment companies ("PFICs") - Imposes an information disclosure requirement on U.S. persons who are PFIC shareholders.
• A PFIC is any foreign corporation if (1) 75% or more of the gross income of the corporation for the taxable year is passive income, or (2) the average percentage of assets held by such corporation during the taxable year which produce passive income or which are held for the production of passive income is at least 50%. Passive income generally includes dividends, interest, royalties, rents, annuities, and net gains on assets that give rise to those types of income.
• Effective from 3/18/10.

• Clarifications with respect to foreign trusts which are treated as having a United States beneficiary - Clarifies, for purposes of determining whether a foreign trust is treated as having a U.S. beneficiary, that amounts should be treated as accumulated for a U.S. person's benefit even if that person's trust interest is contingent on a future event. Also clarifies that discretion to identify beneficiaries may also cause the trust to be treated as having a U.S. beneficiary. This is important in light of disclosure requirements (as noted below).
• Effective from 3/18/10.

• Presumption that foreign trust has United States beneficiary - Generally creates a presumption that a foreign trust has a U.S. beneficiary if a U.S. person directly or indirectly transfers property to a foreign trust, unless the transferor provides satisfactory information to the contrary to the IRS.
• Effective for property transfers after 3/18/10.

• Uncompensated use of trust property - Provides that the use of trust property, including cash, by (1) the U.S. grantor, (2) U.S. beneficiary or (3) any U.S. person related to either of those two must be treated as a distribution to the extent of the fair market value of the property's use to the U.S. grantor or U.S. beneficiary, unless the fair market value of that use is paid to the trust within a reasonable amount of time.
• The provision applies to loans made and uses of property after 3/18/10.

• Reporting requirement of United States owners of foreign trusts - Requires any U.S. person treated as the owner of any portion of a foreign trust to submit IRS-required information and ensure that the trust file a return of its activities and provide such information to its owners and distributees.
• Effective for taxable years beginning after 3/18/10.

• Minimum penalty with respect to failure to report on certain foreign trusts - Increases the minimum penalty for failure to provide timely and complete disclosure on foreign trusts to the greater of $10,000 or 35% of the amount that should have been reported. In the case of failure to properly disclose by the U.S. owner of a foreign trust of the year-end value, the minimum penalty would be the greater of $10,000 or 5% of the amount that should have been reported. 
• Effective for notices and returns required to be filed after December 31, 2009.

• Substitute dividends and dividend equivalent payments received by foreign persons treated as dividends - Treats substitute dividends and dividend equivalents as if they were U.S.-source dividends for purposes of withholding on payments to foreign persons.
• Substitute dividends and dividend equivalent payments are those payments that are economically the same as dividends made with respect to the underlying stock in the context of a securities lending or sale-repurchase transaction.
• Effective for payments made on or after the date that is 180 days after 3/18/10 (i.e., starting 9/14/10).

• Delay in Application of Worldwide Allocation of Interest - Delays the availability date of the one-time election for an affiliated group's domestic members to allocate and apportion interest expense and a worldwide group basis for purposes of determining foreign source income in the context of the foreign tax credit.
• Election may not be made before tax years beginning after 12/31/20.

• Time for Payment of Corporate Estimated Tax - Accelerates the timing of required corporate estimated tax payments due in July, August, or September of 2014, 2015, and 2019. This provision applies to corporations with assets of at least $1 billion as of the end of the preceding year.

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