Joint Committee on Taxation releases description of revenue provisions in President's FY2011 budget proposal

On August 16, Joint Committee on Taxation released its "Description Of Revenue Provisions Contained In The President’s Fiscal Year 2011 Budget Proposal" which is available at http://bit.ly/b6WD70.

The full document runs 521 pages, here's the outline.

Notes:

• Some of the proposed items have already been enacted (e.g., several of the items under "Reform U.S. International Tax System" were part of H.R. 1586 discussed at http://tax-fishing-and-other.blogspot.com/2010/08/hr-1586-signed-into-law-today.html).

• These are the President's revenue (i.e., tax) proposals, not current law (nor necessarily even pending legislation).  Nevertheless, they do provide some insight into the Administration's views and *may* ultimately find their way into future legislation.

I.             INDEX THE INDIVIDUAL ALTERNATIVE MINIMUM TAX AMOUNTS FOR INFLATION

II.            MAKE PERMANENT AND MODIFY CERTAIN TAX CUTS ENACTED IN 2001 AND 2003

A.            Dividends and Capital Gains Tax Rate Structure

B.            Extend Temporary Increase in Expensing for Small Business

C.            Marginal Individual Income Tax Rate Reductions

D.            Child Tax Credit

E.            Increase of Refundable Portion of the Child Credit

F.            Marriage Penalty Relief and Earned Income Tax Credit Simplification

G.           Education Incentives

H.            Modify and Make Permanent the Estate, Gift, and Generation Skipping Transfer Taxes After 2009

I.             Other Incentives for Families and Children (includes extension of the adoption tax credit, employer-provided child care tax credit, and dependent care tax credit)

J.             Reinstate the Overall Limitation on Itemized Deductions and the Personal Exemption Phase-out

III.           TEMPORARY RECOVERY MEASURES

A.            Extend the Making Work Pay Credit for One Year

B.            Provide $250 Economic Recovery Payment and Special Tax Credit

C.            Extend COBRA Health Insurance Premium Assistance

D.            Provide Additional Tax Credits for Investment in Qualified Property Used in a Qualifying Advanced Energy Manufacturing Project

E.            Extend Temporary Bonus Depreciation for Certain Property

F.            Extend Option for Cash Assistance to States in Lieu of Low-Income Housing Tax Credit for 2010

IV.          TAX CUTS FOR FAMILIES AND INDIVIDUALS

A.            Increase in the Earned Income Tax Credit

B.            Expand the Child and Dependent Care Tax Credit

C.            Automatic Enrollment in Individual Retirement Arrangements

D.            Saver’s Credit

E.            Extend American Opportunity Tax Credit

V.            TAX CUTS FOR BUSINESSES

A.            Increase Exclusion of Gain on Sale of Qualified Small Business Stock

B.            Make the Research Credit Permanent

C.            Remove Cell Phones from Listed Property

VI.          OTHER REVENUE CHANGES AND LOOPHOLE CLOSERS

A.            Reform Treatment of Financial Institutions and Products

1.            Impose a financial crisis responsibility fee

2.            Require accrual of the time-value element on forward sale of corporate stock

3.            Require ordinary treatment for dealer activities with respect to section 1256 contract

4.            Modify the definition of control for purposes of the section 249 deduction limitation

B.            Reinstate Superfund Excise Taxes and Corporate Environmental Income Tax

C.            Permanent Extension of Federal Unemployment Surtax

D.            Repeal Last-In, First-Out Inventory Accounting Method

E.            Repeal Gain Limitation on Dividends Received in Reorganization Exchanges

F.            Reform U.S.       International Tax System

1.            Defer deduction of interest expense related to deferred income

2.            Determine the foreign tax credit on a pooling basis

3.            Prevent splitting of foreign income and foreign taxes

4.            Tax currently excess returns associated with transfers of intangibles offshore

5.            Limit shifting of income through intangible property transfers

6.            Disallow the deduction for excess nontaxed reinsurance premiums paid to affiliates

7.            Limit earnings stripping by expatriated entities

8.            Repeal 80/20 company rules

9.            Prevent the avoidance of dividend withholding taxes

10.          Modify the tax rules for dual capacity taxpayers

G.           Combat Under-Reporting of Income on Accounts and Entities in Offshore Jurisdictions

1.            Require reporting of certain transfers of assets to or from foreign financial accounts

2.            Require third-party information reporting regarding the transfer of assets to or from foreign financial accounts and the establishment of foreign financial accounts

H.            Reform Treatment of Insurance Companies and Products

1.            Modify rules that apply to sales of life insurance contracts

2.            Modify dividends received deduction for life insurance company separate accounts

3.            Expand pro rata interest expense disallowance for company-owned life insurance (“COLI”)

4.            Permit partial annuitization of a nonqualified annuity contract

I.             Eliminate Fossil Fuel Tax Preferences

J.             Treat Income of Partners for Performing Services as Ordinary Income

K.            Modify the Cellulosic Biofuel Producer Credit

L.             Eliminate Advance Earned Income Tax Credit

M.          Deny Deduction for Punitive Damages

N.           Repeal the Lower-of-Cost-or-Market Inventory Accounting Method

O.           Reduce the Tax Gap and Make Reforms

1.            Require information reporting on payments to corporations

2.            Require information reporting for rental property expense payments

3.            Require information reporting for private separate accounts

4.            Require a certified taxpayer identification number from contractors and allow certain withholding

5.            Increased information reporting for certain government payments for property and services

6.            Increase information return penalties

7.            Require e-filing by certain large organizations

8.            Implement standards clarifying when employee leasing companies can be held liable for their clients’ Federal employment taxes

9.            Increase certainty with respect to worker classification

10.          Codify economic substance doctrine

11.          Allow assessment of criminal restitution as tax

12.          Revise offer-in-compromise application rules

13.          Allow Internal Revenue Service expanded access to information in the National Directory of New Hires

14.          Make repeated willful failure to file a tax return a felony

15.          Facilitate tax compliance with local jurisdictions

16.          Extension of statute of limitations where state tax adjustment affects Federal tax liability

17.          Improve investigative disclosure statute

18.          Clarify that the bad check penalty applies to electronic checks and other payment forms

19.          Impose a penalty on failure to comply with electronic filing of returns

20.          Require consistency in value for transfer and income tax purposes

21.          Modify rules on transfer tax valuation discounts

22.          Require minimum term for grantor retained annuity trusts (“GRATs”)

VII.         UPPER-INCOME TAX PROVISIONS

A.            Limit the Tax Rate at Which Itemized Deductions Reduce Tax Liability

VIII.        SUPPORT CAPITAL INVESTMENT IN THE INLAND WATERWAYS

IX.           OTHER INITIATIVES

A.            Extend and Modify the New Markets Tax Credit

B.            Reform and Extend Build America Bonds

C.            Restructure Transportation Infrastructure Assistance to New York City

D.            Implement Unemployment Insurance Integrity Legislation

E.            Authorize Post-Levy Due Process

F.            Increase Levy Authority to 100 Percent for Vendor Payments

G.           Allow Offset of Federal Income Tax Refunds to Collect Delinquent State Income Taxes for Out-of-State Residents

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

The Passive Foreign Investment Company (“PFIC”) Provisions – A Quick Q&A

(or “Just when you thought you were safe because your foreign corporation isn’t a CFC…”)

Background – There seems (understandably) to be a fair amount of confusion on how to treat PFICs, whether directly owned by US taxpayers or by entities (e.g., partnerships) in which they have an ownership interest.  The purpose of this Q&A is to clarify some of the questions and provide guidance for further research if needed.  This is not meant to be an exhaustive discussion of the PFIC rules, but simply a starting point.  If you have further questions, please ask someone with experience in this area (e.g., me!).

1.            What is a PFIC and why is that classification relevant?

A PFIC (short for Passive Foreign Investment Company) is a foreign corporation that meets either an asset test (at least 50% of the foreign corporation’s assets either actually produce, or are held to produce, passive income) or an income test (at least 75% of the foreign corporation’s gross income is passive income).  PFICs are subject to special rules meant to limit a US taxpayer’s benefit from deferring income earned by the PFIC (e.g., section 1291, which imposes an interest charge on “excess distributions”).

Passive income in this context is any income treated as “foreign personal holding company income” under section 954(c).  This generally (but with exceptions) includes dividends, interest, royalties, rents, annuities, net gains on property that give rise to the aforementioned items, certain net commodity transaction gains, certain net foreign currency gains, income equivalent to interest and dividends, certain net derivative gains, and certain personal service contracts that can be fulfilled by others.

While there are a number of exceptions to these general rules, they are beyond the scope of this Q&A.  For further information, please start with sections 1291 through 1298.

2.            What is a QEF and why is it relevant?

A QEF (short for Qualified Electing Fund) is a PFIC for which the US shareholders (whether direct or indirect) have elected under section 1295 to recognize their proportionate share of the PFIC’s current earnings and profits (as ordinary earnings and net long-term capital gain, as the case may be).  Please see below for further information.

In addition, a QEF election (if made for the year in which the electing US shareholder first held the PFIC’s stock) will generally prevent the application of the otherwise-required anti-deferral rules (e.g., section 1291).

3.            How is a PFIC’s US shareholder taxed if the PFIC does not have a QEF election in place?

If no QEF election was made, the US shareholder will generally be taxed as follows:

·         Income/gains earned by the PFIC – No impact.

·         Deductions/losses incurred by the PFIC – No impact.

·         Distributions by the PFIC:

o    Distributions by the PFIC will be treated as dividends to the extent of the US shareholder’s share of the PFIC’s E&P (short for “Earnings & Profits”), with any excess applied first against stock basis (until zero) and then to capital gain.

o    In addition, “excess distributions” are subjected to the interest charge rules of section 1291 (as well as a historical lookback/grossup re the taxes that would have been paid, using the highest applicable ordinary income rates for those years).  This requires the US shareholder to track taxable distributions for the preceding 3 years and if the current year distributions exceed 125% of that 3-year average, the excess is considered an “excess distribution.”

Note:  If the US shareholder held the stock for less than 3 years, they use the average for that shorter preceding period.  In addition, there can be no excess distributions in the 1^st year in which the US shareholder held the PFIC’s stock.

Note: All distributions “in respect of stock” of the PFIC are included for purposes of determining excess distributions, even if those amounts would otherwise have been nontaxable to the US shareholder (e.g., distributions in excess of the PFIC’s E&P which would otherwise have been treated as returns of capital).

·         Gain on disposition of the PFIC stock by the US shareholder – Treated as an excess distribution in its entirety, which includes taxation at ordinary income rates.

·         Loss on disposition of the PFIC stock by the US shareholder – Treated as a capital loss.

4.            How is a PFIC’s US shareholder taxed if the PFIC has a QEF election in place?

If a QEF election was made, the US shareholder will generally be taxed as follows (but see also the comment below regarding situations in which the US shareholder doesn’t make the QEF election with respect to a particular PFIC in the 1st year of stockholding):

·         Income/gains earned by the PFIC – Included in income and an increase to basis in PFIC stock.

o    Ordinary income – As ordinary income, the US shareholder's pro rata share of the ordinary earnings of the QEF for such year.

o    Capital gain – As long-term capital gain, the US shareholder's pro rata share of the net capital gain of the QEF for such year.

·         Deductions/losses incurred by the PFIC – No impact.

·         Distributions by the PFIC:

o    Distributions of previously recognized/taxed income – Excluded from income, but reduces basis in PFIC stock.

o    Distributions of current-year recognized/taxed income – Excluded from income, but reduces basis in PFIC stock.

o    Distributions in excess of cumulatively recognized/taxed income – Reduces basis in PFIC stock as a return of capital; amounts in excess of basis are capital gains.

·         Gain on disposition of the PFIC stock by the US shareholder – Treated as a capital gain (long or short as the facts dictate).

·         Loss on disposition of the PFIC stock by the US shareholder – Treated as a capital loss.

5.            What if the PFIC is also a CFC (a Controlled Foreign Corporation)?

A CFC is defined under section 957(a) and is a foreign corporation controlled (more than 50%) by US shareholders that each own at least 10% of the foreign corporation.

If a PFIC is also a CFC, section 1297(d)(1) generally treats the foreign corporation as not being a PFIC during the “qualified portion” of such shareholder’s holding period with respect to stock in that corporation.  The “qualified portion” means the portion of the shareholder’s holding period which is after 12/31/97, and during which the shareholder is a “United States shareholder” (i.e., owns at least 10% of the foreign corporation) and the foreign corporation is a CFC.

Caveat:  Just because a CFC isn’t generally subject to the PFIC rules doesn’t mean there aren’t issues to deal with.  There are, but they are beyond the scope of this Q&A.

6.            Who makes the QEF election, and when/how is it made?

The QEF election may only be made by the first US person (including a domestic partnership, S corporation, or estate) that is a direct or indirect shareholder of the PFIC.  For example, if a US individual (“USI”) is a partner in a US partnership (“USP”), which is a partner in a foreign partnership (“FP”), which is a shareholder in a PFIC, the QEF election could only be made by the US partnership (“USP”).

A US shareholder generally must make a QEF election by the due date (including extensions) for filing the US shareholder’s federal income tax return for the first year to which the election is desired to apply.  The election will then apply to that (and all subsequent) years of that foreign corporation.  The election is made by completing the applicable parts of Form 8621 (instructions here) and attaching it to the US shareholder’s timely-filed federal income tax return.

7.            Is the QEF election required to be made in the first year the US shareholder owns the PFIC stock?

No.  However, if the US shareholder does not make the election in the 1^st year of holding the stock, it will be subject to both the section 1291 rules and the QEF rules.

8.            If the US shareholder doesn’t make the QEF election with respect to a particular PFIC in the 1^st year of stockholding, how can they avoid the section 1291 rules?

There are several ways to do so, including (but not limited to) the following:

·         Deemed sale election – The US shareholder may prospectively treat the PFIC as if it had been a QEF from the 1^st year in which they held stock (i.e., a “pedigreed PFIC”) by electing under section 1291(d)(2)(A) to recognize gain on the sale of that PFIC’s stock on the first day of the year for its fair market value (with the gain, if any, treated as an excess distribution for section 1291 purposes).  Caveat:  The US shareholder must meet 3 tests to qualify for this election:

o    The PFIC becomes a QEF with respect to the US shareholder for a taxable year which begins after December 31, 1986,

o    The US shareholder holds stock in that PFIC on the first day of such taxable year, and

o    The US shareholder establishes to the IRS’s satisfaction the fair market value of such stock on such first day.

·         Deemed dividend election – The US shareholder may prospectively treat the PFIC as if it had been a QEF from the 1^st year in which they held stock (i.e., a “pedigreed PFIC”) by electing under section 1291(d)(2)(B) to include in gross income as a dividend an amount equal to the portion of the post-1986 earnings and profits of such company attributable to the stock in the PFIC. This amount will be treated as an excess distribution.  Note/Caveat:  The US shareholder must meet 3 tests to qualify for this election, but this election is generally relevant to less-than-10% US shareholders due to the elimination of the CFC/PFIC overlap (as noted above) in 1997.

o    The PFIC becomes a QEF with respect to the US shareholder for a taxable year which begins after December 31, 1986,

o    The US shareholder holds stock in that PFIC on the first day of such taxable year, and

o    The PFIC is a CFC.

·         Retroactive election – The US shareholder may retroactively treat the PFIC as if it had been a QEF from the 1^st year in which they held stock (i.e., a “pedigreed PFIC”) by electing under Treas. Reg. section 1.1295-3(b) if they:

o    Reasonably believed that as of the election due date the foreign corporation was not a PFIC for its taxable year that ended during the retroactive election year;

o    Filed a Protective Statement with respect to the PFIC, applicable to the retroactive election year, in which the shareholder described the basis for their reasonable belief and extended the periods of limitations on the assessment of PFIC-related taxes for all taxable years of the shareholder to which the Protective Statement applies; and

o    Complied with any other terms and conditions of the Protective Statement.

9.            Do dividends from a PFIC qualify for the federal 15% capital gains tax rate (whether or not a QEF election has been made)?

No.  Section 1(h)(11)(C)(iii) specifically excludes dividends from a PFIC from the special beneficial rate.

10.         Does California conform to these rules?

No.  As a result, you will often see differences in both income recognized (as well as differences in stock basis) between federal and California.  California taxes distributions from a PFIC when made to the US shareholder.

Therapeutic Discovery Project Tax Credit / Grant - IRS Releases Form 8942, Instructions, and Additional Guidance

More information to follow as soon as I've had a chance to review, but in the interim:

• Form 8942: http://bit.ly/cNFF2Y
• Form 8942 instructions: http://bit.ly/9hdjI9
• IRS Q&A: http://bit.ly/depaMx

Let me know if you have any questions, I'd love to help!

 

How's this for Random and Fishing (Library of Congress)

Did you know that the Library of Congress has a YouTube channel where it stores old (and I mean really old) videos and cartoons?  Here's a link to a 1903 video of a guy bass fishing: http://www.youtube.com/user/LibraryOfCongress#p/u/114/93RpuHxFY2g.

The main channel has hundreds of old (and apparently recent) videos and is at http://www.youtube.com/user/LibraryOfCongress.  Very cool!

IRS News Release IR-2010-69 reminds taxpayers of several recent tax incentives for small business

Pretty self-explanatory, but worth reviewing in case your business might be able to take advantage of one or more of these incentives.  Original release at http://bit.ly/bAEW2J

Recent Legislation Offers Special Tax Incentives for Small Businesses to Provide Health Care, Hire New Workers


Videos
HIRE Act: English
Small Business Health Care Tax Credit: English


IR-2010-69, May 28, 2010


WASHINGTON — In recognition of National Small Business Week, the Internal Revenue Service encourages small businesses to take advantage of tax-saving opportunities included in recently enacted federal legislation.


A variety of business tax deductions and credits were created, extended and expanded by the American Recovery and Reinvestment Act of 2009 (ARRA), this year’s Hiring Incentives to Restore Employment (HIRE) Act and the Affordable Care Act. Because some of these changes are only available this year, eligible businesses only have a few months to take action and save on their taxes. Here is a rundown of some of the key provisions.


New Health Care Tax Credit Helps Small Employers


The small business health care tax credit, created under the Affordable Care Act, is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.


The credit takes effect this year and is generally available to small employers that pay at least half the cost of single coverage for their employees in 2010. The credit is specifically targeted to help small employers that primarily employ low- and moderate-income workers.


For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers. The maximum credit goes to smaller employers ­­–– those with 10 or fewer full-time equivalent (FTE) employees ––­­ paying annual average wages of $25,000 or less. The credit is completely phased out for employers with more than 25 FTEs or with average wages of more than $50,000.


Because the eligibility rules are based in part on the number of FTEs, not the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals. More information about the credit, including a step-by-step guide and answers to frequently asked questions, is available on the IRS website.


Two New Benefits for Employers that Hire and Retain Recently Unemployed


Employers who hire unemployed workers this year (after Feb. 3, 2010, and before Jan. 1, 2011) may qualify for a 6.2-percent payroll tax incentive, in effect exempting them from the employer’s share of Social Security tax on wages paid to these workers after March 18. In addition, for each qualified employee retained for at least a year whose wages did not significantly decrease in the second half of the year, businesses may claim a new hire retention credit of up to $1,000 per worker on their income tax return.


These tax benefits are especially helpful to employers who are adding positions to their payrolls. New hires filling existing positions also qualify but only if the workers they are replacing left voluntarily or for cause. Family members and other relatives generally do not qualify.


Employers must get a signed statement from each eligible new hire, certifying under penalties of perjury, that he or she was not employed for more than 40 hours during the 60 days before beginning employment with that employer. IRS Form W-11 can be used to meet this requirement. Further details, including answers to frequently asked questions, are posted on IRS.gov.


Work Opportunity Tax Credit Aids Employers That Hire Certain Workers


The work opportunity tax credit (WOTC) offers tax savings to businesses that hire employees belonging to various targeted groups. These groups include people ages 18 to 39 living in designated communities in 43 states and the District of Columbia, recipients of various types of public assistance, certain veterans, ex-felons and certain youth workers. The instructions for Form 8850 detail the requirements for each of these groups.


Certification by the state workforce agency is generally required. Normally, a business must file Form 8850 with the state workforce agency within 28 days after the eligible worker begins work.


An eligible employer can claim both the WOTC and the new hire retention credit for the same employee. However, an employer may not claim both the payroll tax exemption and the WOTC for the same employee. Therefore, any employer that chooses to apply the exemption to wages paid to a qualified employee may not receive the WOTC on any wages paid to that employee during the one-year period beginning on the employee’s hiring date.


Exclusion of Gain on the Sale of Certain Small Business Stock


An extra incentive is now available to individuals who invest in small businesses. Investors in qualified small business stock can exclude 75 percent of the gain upon sale of the stock. This increased exclusion applies only if the qualified small business stock is acquired after Feb. 17, 2009, and before Jan. 1, 2011, and held for more than five years. For previously-acquired stock, the exclusion rate remains at 50 percent in most cases.


COBRA Credit


Employers that provide the 65 percent COBRA premium subsidy to eligible former employees can claim credit for this subsidy on their quarterly or annual payroll tax returns. To help avoid imposing an unnecessary cash-flow burden, affected employers can reduce their payroll tax deposits by the amount of the credit. For details, see the instructions for Form 941.


Small business owners can find a variety of helpful on-line resources in the Small Business and Self-Employed Tax Center on IRS.gov.

IRS releases guidance on Therapeutic Discovery Project Credit / Grant

This morning, the IRS released advance guidance on the Therapeutic Discovery Project Credit / Grant.

A few items stand out:

• Applications must be filed on Form 8942 (and in conformity with the form's instructions) and each project must be applied for separately.
• That form is expected to be released no later than June 21, and applications must be filed (i.e., postmarked) no later than July 21.
• The Department of Health & Human Services seems to be the primary determiner of which projects should be funded.
• There will be a $5 million per-taxpayer limitation on allocations of credits/grants (for 2009 and 2010 together), regardless of the number of projects sponsored.
• In the first round of allocations, the IRS will approve or deny applications no later than October 29, 2010 and will notify taxpayers by letter.
• Taxpayers will not have a right to Conference or Appeal related to any matters under the Notice.  i.e., all decisions are final.
• The 250-employee limit includes both full-time and part-time employees (but not leased employees).
• Taxpayers are required to inform the IRS of any significant changes in plans that arise prior to the date of IRS certification of the projects.  A significant change is any change (including any change that would affect the continuing accuracy of a statement made in the application) that a reasonable person would conclude might have influenced HHS’ evaluation.
• Grant applicants must provide a DUNS number with their application.  If the applicant does not already have a DUNS number, it may request one at no cost by calling the dedicated toll-free DUNS Number request line at 1-866-705-5711.
• Grant applicants must also register with the Central Contractor Registration ("CCR"). To register, go to
  http://www.ccr.gov/startregistration.aspx. The registration must be completed before a payment can be made.
• Approved credit and grant applicants are advised that the IRS will publicly disclose their identities, and the amount of their credit or grant.
• The statute authorizes public disclosure of more information for taxpayers awarded grants than for those awarded credits (e.g., types of projects).  As a result, the IRS requests authorization to publish such information for approved projects awarded credits.  While such consent is not required to receive a credit allocation, it's not clear whether withholding it could have any impact on a borderline project being approved.
• Unnecessarily elaborate applications are discouraged and brochures or other presentations are not permitted as part of the applications and will not be considered.

The release read as follows:

Notice 2010-45 establishes the qualifying therapeutic discovery project program under § 48D of the Internal Revenue Code.   Section 9023(a) of the Patient Protection and Affordable Care Act (Act) added § 48D to the Code as part of the investment credit under § 46.  Section 48D provides a nonrefundable tax credit equal to 50 percent of an eligible taxpayer’s qualified investment in a qualifying therapeutic discovery project.  Under section 9023(e) of the Act, an eligible taxpayer may elect to receive a grant in lieu of credits.  Section 48D(d)(1)(B) limits the total amount of credits or grants to be allocated under the program to $1 billion during the two-year period from 2009 through 2010.  The Service, in consultation with Department of Health and Human Services, will award certifications for qualified investments.  The credits or grants will only be available to taxpayers having 250 or fewer full-time and part-time employees.

Notice 2010-45 will appear [in] IRB 2010-23, dated June 7, 2010. 

link to Notice:   http://bit.ly/aDH2li

Draft application for Therapeutic Discovery Project Tax Credit (or Grant)

Many of you have heard about the very lucrative Therapeutic Discovery Project Tax Credit, which can alternatively be taken as a nontaxable (for federal income tax purposes) grant.

Unfortunately, there has been no official guidance (except for the text of new IRC section 48D itself) about how taxpayers will be able to apply for an allocation from the $1 billion available for the program.  Treasury has until May 21, 2010 to provide that guidance.  However, since (a) there is a limited pool of funds available, (b) the promised turnaround time for application review is 30 days from receipt by Treasury, and (c) there is likely to be a mad rush to apply, it makes sense for all qualified taxpayers to submit their applications as soon as possible.

For that reason, I've prepared a draft  and unofficial application for use in gathering the information until further information becomes available.  The standard caveats apply (i.e., my version is not official, use at your own risk, talk to your professional tax advisor before taking any action on this, etc.).  Nevertheless, I hope you find it useful in starting the application process.  If you do use it, I'd love to hear from you.  If you want to use it for others, please go ahead and do so but (1) please keep my attribution on it, and (2) please provide caveats to your users as well.

Quick recap of my post from April 5 on this subject:

• QUALIFYING THERAPEUTIC DISCOVERY PROJECT CREDIT
• 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.

http://www.docstoc.com/docs/document-preview.aspx?doc_id=37142261

IRS releases new Form 3115 for tax accounting method changes

The IRS issued today an advance copy of Announcement 2010-32 (which will be published in Internal Revenue Bulletin 2010-19 on May 10, 2010) discussing the new December 2009 revision of Form 3115, which is required for both automatic tax accounting method changes as well as non-automatic tax accounting method change requests.

In short, the IRS will generally accept either the new or the old (December 2003) version through May 30, 2010, after which it will only accept the December 2009 version.  Nevertheless, taxpayers are urged to use the new version before the deadline.

All links are to Adobe Acrobat (PDF) files.

• Copy of Announcement 2010-32 is available at http://bit.ly/btMBtS

• Copy of December 2009 version of Form 3115 is available at http://bit.ly/bTLbbz

• Copy of December 2009 version of Form 3115 instructions is available at http://bit.ly/dvBdnT

I hope to get a chance soon to review the specific changes between the old and new versions and will update when I'm done.

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