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Online Home | Site Search | Tax News & Views |Stapled REITs, Foreign Tax Credit Scale-back, Schmidt Baking to Pay for IRS ReformFriday, March 27, 1998 OnLine Curtailing the foreign tax credit and freezing the grandfathered status of stapled real estate investment trusts would be added to the Internal Revenue Service restructuring bill under a proposal offered by Senate Finance Committee Chairman Bill Roth, R-Del., late March 26. Roth’s $20 billion restructuring bill, to be considered by the Senate Finance Committee March 31, is about three times as large as the $6 billion House-approved proposal, to which Roth already has added penalty and more innocent spouse relief proposals. Like the House bill, Roth’s plan would reverse the Schmidt Baking decision that allowed an accrual-basis taxpayer to take an immediate deduction for certain vacation pay expenses. The bill also raises money by using the analysis to reverse the treatment of vacation pay to prevent taxpayers from taking a deduction for severance pay. The proposal also would clarify and expand mathematical procedures to deny invalid claims of the dependent care, the child care, and the earned income tax credits. |
Everybody wants the tax credit carryback The foreign tax credit carryback would be limited to one year and the carryforward would be extended to seven years, effective for tax years ending after the date of enactment. The education IRA bill (S.1133), which has been the subject of a Democratic filibuster, also uses the foreign tax credit as an offset. The REIT proposal would limit the tax benefits of the existing stapled REITs that qualify under the 1984 tax act's grandfather rules. Grandfathered properties generally are those properties that had been acquired by a member of the REIT group on or before March 26, 1998. In addition, grandfathered properties include properties acquired by a member of the REIT group after March 26, 1998, pursuant to a written agreement that was binding on March 26, 1998, and all times thereafter. Also included in Roth’s package are technical corrections to the Taxpayer Relief Act of 1997 and other recently enacted laws. Accounting problem The cost of the proposal would be offset only for the first five years as required by Senate Finance Committee rules, but not for a 10-year period as required for a bill to be considered on the Senate floor. Roth wanted to increase the excise tax on cigarettes to pay for the bill over the 10-year period, but Senate Majority Leader Trent Lott, R-Miss., objected, Senate sources said. To make the bill comply with Senate rules, either additional revenue offsets will have to be found when the bill reaches the floor, the bill will have to be scaled back, or Senate rules will have to be waived, which needs support from 60 senators. Senate Minority Leader Tom Daschle, D-S.D., indicated Democrats plan to raise a procedural point of order against the IRS restructuring bill when it reaches the Senate floor. "I don’t think you can offset the costs of this bill in the manner Sen. Roth proposed," Daschle told reporters March 26. IRS reform Among the penalty changes in Roth’s bill are proposals to suspend the failure to file penalty for those entering installment agreements, and to suspend interest and penalties until 21 days after a notice of deficiency, if the IRS does not contact the taxpayer in writing specifying a problem with a particular tax return within one year after the return is timely filed. The IRS oversight board also would have greater investigative authority under Roth’s proposal than under the House bill because the board would be granted limited authority to review specific taxpayer information. Only the IRS has such Section 6103 authority under current law. The Treasury secretary and the Treasury Department’s labor union chief would not be represented on the board, under Roth’s plan. The proposal also would grant the IRS oversight board "big picture" authority over IRS law enforcement and collection procedures, according to the outline. The House bill specifically prohibited the board from getting involved in enforcement and collection issues, and the Clinton Administration raised concerns about conflicts of interest that could arise if the board had authority over such matters. Is burden of proof too broad? Under the proposal, the burden of proof also would shift from the taxpayer to the IRS, as under the House bill, but only if the taxpayer introduces credible evidence with respect to a factual issue relevant to ascertaining income tax liability and if the taxpayer meets other requirements. Witnesses at Senate Finance Committee hearings expressed concern that the House bill’s burden of proof provision was drawn too broadly and could cause the IRS to step up enforcement to overcome the proposed judicial advantage that would be enjoyed by taxpayers if the provision was enacted. In the Senate’s version of the IRS bill, the current tax code provisions on innocent spouses also would be overhauled and would be replaced with a system under which each spouse would be proportionately liable for the tax he or she owes. The American Bar Association and other groups proposed proportionate liability. The proposal would extend the present law attorney-client privilege of confidentiality
to tax advice that is furnished to a client-taxpayer by any individual who is authorized
under federal law to practice before the Internal Revenue Service if such practice is
subject to regulation under the Internal Revenue Code. |
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