http://www.abanet.org/tax ABA Section of Taxation Homepage en-us http://www.abanet.org/tax/images/abataxlogo2007.jpg http://www.abanet.org/tax/ http://www.abanet.org/tax/pubpolicy/2008/080508example4.pdf In the preamble (“Preamble”) to the proposed regulations under section 3671 that were issued on January 5, 2005,2 in tandem with the release of the cross-border “A” reorganization regulations proposed on the same day,3 the Internal Revenue Service (the “Service”) and the Department of the Treasury (“Treasury”) requested comments concerning ways in which the principles of sections 367(a)(5) and 1248(f)(1), in conjunction with the new basis and holding period rules of Proposed Regulation section 1.367(b)-13, could be used to preserve the section 1248 amounts in certain reorganizations. http://www.abanet.org/tax/pubpolicy/2008/commentsconcerningguidanceundersection529.pdf These comments respond to the Advance Notice, issued by Treasury and the IRS on January 18, 2008 with respect to section 529, and are substantially the same as the comments submitted by the American College of Trust and Estate Counsel on April 16 and the comments submitted by the American Bar Association Real Property Trust and Estate Law Section on April 23. In the “General Objectives and Premises” section below, we first set forth what we see as the general objectives of the Advance Notice and these comments, along with some general premises that we believe should be taken into consideration in evaluating any proposed rules regarding QTPs and section 529 accounts. http://www.abanet.org/tax/pubpolicy/2008/080505jctfundingltrhouseandsenate.pdf On behalf of the Section of Taxation of the American Bar Association, I respectfully request your assistance in ensuring that the Joint Committee on Taxation receives adequate funding for Fiscal Year 2009. This letter reflects the views of the Section of Taxation. It has not been approved by the Board of Governors or House of Delegates of the American Bar Association, and should not be construed as representing the policy of the American Bar Association. The American Bar Association has consistently supported adequate funding of the IRS to carry out its missions of taxpayer service and enforcement of federal tax laws. The American Bar Association has more than 400,000 members who provide legal services in every State of the Union. Over 21,000 members of the Association also are members of the Section on Taxation. http://www.abanet.org/tax/pubpolicy/2008/080416commentsonproposedandtemregsundercodesec368a1d.pdf On August 22, 2007, the Department of the Treasury and the Internal Revenue Service issued a notice of proposed rulemaking that would implement the principles of Revenue Ruling 2004-43 .1 In response to the request for comments on the Proposed Regulations, we recommend that the final Regulations: 1. Provide that reverse section 704(c)2 gain or loss does not affect existing forward or reverse section 704(c) amounts and modify Proposed Regulation sections 1.704-4(c)(4)(ii)(C)(2) and 1.704-4(c)(4)(ii)(F), Example 3, accordingly. Alternatively, clarify that revaluations affect prior section 704(c) amounts only with respect to mergers and not for any other purpose. 2. Incorporate a rule providing that, if property that was deemed contributed by a transferor partnership in a merger is distributed by the transferee partnership to a former partner of the transferor partnership, sections 704(c)(1)(B) and 737 apply as if the transferor partnership had distributed that property to that former partner. 3. If the Continuing Partner Exception is not adopted, provide standards and accompanying examples to assist taxpayers in determining partners’ undivided interests in property of the transferor partnership, including a safe harbor to be applied on an asset by asset basis. 4. Modify the ordering rules in Proposed Regulation sections 1.704-4(c)(4)(ii)(C)(1) and 1.737-2(b)(1)(ii)(C) to provide that if a transferee partnership distributes or sells less than all of a particular section 704(c) asset after a merger, proportionate amounts (based on relative values) of each partner’s Contributed Amount, Merger Amount, and Residual Amount are deemed distributed or sold, as the case may be. To the extent a distribution is made to the contributing partner, then proportionate amounts (based on relative value) of the Contributed Amount, the Merger Amount, and the Residual Amount deemed contributed by such partner are deemed distributed. 5. Permit partnerships that adopt the safe harbor (see item 3 above) to apply a special rule for determining basis of the undivided interests deemed contributed to the transferee partnership. 6. With respect to the identical ownership exception and the de minimis change in ownership exception in Proposed Regulation sections 1.704-4(c)(4)(ii)(E) and 1.737-2(b)(1)(ii)(E): (i) Clarify that, for purposes of determining whether either exception is satisfied, the partnership’s section 704(b) “book” items, rather than its tax items, are relevant; (ii) Reduce the threshold percentage under the de minimis change in ownership exception from its current 97 percent threshold to an 80 percent threshold; (iii) Eliminate the consideration of liabilities in the IOE and the de minimis change in ownership exception; and (iv) Confirm whether the partners of the transferor and transferee partnerships may restructure in anticipation of a merger to satisfy the requirements of the IOE or the de minimis change in ownership exception. 7. Clarify that the rules for determining the undivided interests that each partner in the transferor partnership is treated as contributing to the transferee partnership apply for purposes of the like-kind exception in section 704(c)(2). 8. Provide that the Regulations are effective only for distributions of property contributed in mergers occurring after January 19, 2005. 9. Include a technical correction to the ordering rules of Proposed Regulation sections 1.704-4(c)(4)(ii)(C)(1) and 1.737-2(b)(1)(ii)(C) to avoid a literal interpretation that would require gain recognition in inappropriate circumstances. http://www.abanet.org/tax/pubpolicy/2008/080501commentscorrectionpgmfornonqualifieddeferredcompensationplanfailuresndersec409A.pdf These Comments are in response to the request by the Internal Revenue Service and the U.S. Department of Treasury in Notice 2007-100, issued on December 3, 2007 ,1 for public comments regarding a correction program for nonqualified deferred compensation plan violations involving section 409A.2 By letter of June 14, 2007 , the Section requested the adoption of a program permitting self-correction of certain failures to comply with section 409A and also requested the adoption of a ruling program. We believe that the self-correction procedures set forth in the Notice provide relief of the type requested by the Prior Letter and others. We appreciate the substantial effort of Treasury and the Service that went into the Notice. http://www.abanet.org/tax/pubpolicy/2008/080501commentsconcerningfinalregsundersec337dconversiontransactions.pdf On March 13, 2003, the Internal Revenue Service and the Department of the Treasury issued final regulations under section 337(d)1 relating to transactions involving the conversion of a C corporation to a real estate investment trust or a regulated investment company or the transfer of property from a C corporation to a REIT or RIC .2 The Final Regulations provide alternative regimes for ensuring that the 1986 repeal of the General Utilities doctrine is not avoided in connection with such conversion transactions. http://www.abanet.org/tax/pubpolicy/2008/080429irsfundingletterhouseandsenate.pdf Dear Chairman Serrano and Congressman Regula: On behalf of the American Bar Association, I respectfully request your assistance in ensuring that the Internal Revenue Service (the “IRS”) receives adequate funding for Fiscal Year 2009. The American Bar Association has consistently supported adequate funding of the IRS to carry out its missions of taxpayer service and enforcement of federal tax laws. The American Bar Association has more than 413,000 members who provide legal services in every State of the Union. Over 21,000 members of the Association also are members of the Section on Taxation. We understand that the Administration’s 2009 Budget includes a substantial increase in funding for the IRS. The IRS Oversight Board has recommended slightly more funding than requested by the Administration. Importantly, the IRS Oversight Board also recommends that any increased amounts actually appropriated to the IRS be allocated in a balanced manner to support three IRS strategic goals of improving taxpayer service, enhancing enforcement of the tax laws, and modernization. We urge you and your Committee to provide the IRS with increased appropriations at least equal to the amount requested by the Administration. We respectfully submit that the increase in funding is essential for the IRS to be able to accomplish its mission, and to continue its recent efforts to address the “tax gap.” Given the complexity of our tax laws, taxpayer services provided by the IRS are critical to ensuring that taxpayers meet their obligations under the law, avoid unintentional mistakes, and obtain the benefits to which they are entitled. The IRS provides assistance to taxpayers in a variety of ways, including outreach and educational programs, tax forms and publications, rulings and regulations, toll-free call centers, the IRS’s website, and taxpayer assistance centers. The IRS Oversight Board has found, and various taxpayer surveys confirm, that the IRS has been making improvements in the services it provides. Nevertheless, the IRS requires adequate funding to sustain its current achievements and to improve on those efforts. http://www.abanet.org/tax/pubpolicy/2008/080429commentsconcerningproposedregulationsundersection125.pdf These Comments respond to the request for comments made by the Internal Revenue Service (the “Service”) and the U.S. Department of Treasury (the “Treasury”) in the notice of proposed rulemaking under section 125 published in the Federal Register1 on August 6, 2007 (the “Proposed Regulations”).2 The Proposed Regulations address general rules and operating procedures for cafeteria plans and flexible spending arrangements. The Section commends the Service and the Treasury for their efforts to address the tax policy and administration issues arising in connection with these plans and arrangements. http://www.abanet.org/tax/pubpolicy/2008/080418commentsonproposedregsconsequencesofcertainmergersundersec704c1band737.pdf On August 22, 2007, the Department of the Treasury and the Internal Revenue Service issued a notice of proposed rulemaking that would implement the principles of Revenue Ruling 2004-43 .1 In response to the request for comments on the Proposed Regulations, we recommend that the final Regulations: 1. Provide that reverse section 704(c)2 gain or loss does not affect existing forward or reverse section 704(c) amounts and modify Proposed Regulation sections 1.704-4(c)(4)(ii)(C)(2) and 1.704-4(c)(4)(ii)(F), Example 3, accordingly. Alternatively, clarify that revaluations affect prior section 704(c) amounts only with respect to mergers and not for any other purpose. 2. Incorporate a rule providing that, if property that was deemed contributed by a transferor partnership in a merger is distributed by the transferee partnership to a former partner of the transferor partnership, sections 704(c)(1)(B) and 737 apply as if the transferor partnership had distributed that property to that former partner. 3. If the Continuing Partner Exception is not adopted, provide standards and accompanying examples to assist taxpayers in determining partners’ undivided interests in property of the transferor partnership, including a safe harbor to be applied on an asset by asset basis. 4. Modify the ordering rules in Proposed Regulation sections 1.704-4(c)(4)(ii)(C)(1) and 1.737-2(b)(1)(ii)(C) to provide that if a transferee partnership distributes or sells less than all of a particular section 704(c) asset after a merger, proportionate amounts (based on relative values) of each partner’s Contributed Amount, Merger Amount, and Residual Amount are deemed distributed or sold, as the case may be. To the extent a distribution is made to the contributing partner, then proportionate amounts (based on relative value) of the Contributed Amount, the Merger Amount, and the Residual Amount deemed contributed by such partner are deemed distributed. 5. Permit partnerships that adopt the safe harbor (see item 3 above) to apply a special rule for determining basis of the undivided interests deemed contributed to the transferee partnership http://www.abanet.org/tax/pubpolicy/2008/080416commentsonproposedandtemregsundercodesec368a1d.pdf On December 19, 2006, the Department of the Treasury (“Treasury”) issued a Notice of Proposed Rule Making1 and Temporary Regulations2 (the “Temporary Regulations”) dealing with one aspect of an “acquisitive” (as distinguished from “divisive”) section 368(a)(1)(D)3 reorganization (hereinafter referred to as an “acquisitive type D reorganization”). Specifically, the Temporary Regulations address the question of when the distribution requirement under sections 368(a)(1)(D) and 354(b)(1)(B) is satisfied if there is no actual distribution of stock and/or securities. The Notice of Proposed Rule Making requested comments on the Temporary Regulations, as well as on several broader issues relating to these reorganizations. We commend Treasury and the Internal Revenue Service (“Service”) for issuing the Temporary Regulations and exploring the other issues raised in the Notice of Proposed Rule Making. We comment here on the Temporary Regulations, on the issues described in the Notice of Proposed Rule Making and related matters. In Part I of this letter, we comment on the principal parts of the Temporary Regulations. We recommend that the Temporary Regulations, when finalized, provide certain modifications and clarifications, including elimination of the nominal share construct or clarification that no consequences flow from the nominal share other than satisfying section 356. http://www.abanet.org/tax/pubpolicy/2008/080403commentson2007amendmentstosec6694taxreturnpreparerpenalty.pdf These Comments address the need for new regulations implementing recent changes to the tax return preparer penalty and the definition of tax return preparer in sections 6694 and 7701(a)(36),1 which provisions were amended by section 8246 of the U.S. Troop Readiness, Veteran’s Care, Katrina Recovery, and Iraq Accountability Appropriations Act of 2007 (the “Act”) in three ways. First, the Act expanded the type of returns covered by section 6694 to include all tax returns instead of only income tax returns. Second, the Act increased the amount of the potential penalty. Third, the Act changed the standards for imposition of the penalty. The Act raised the standard to avoid a penalty under section 6694(a) for undisclosed positions from “realistic possibility of success” (“RPOS”) to require that a preparer must have a “reasonable belief” that the position “would more likely than not be sustained on its merits” (“MLTN”). The Act also raised the penalty standard for disclosed positions from “not frivolous” to “reasonable basis,” thereby aligning that standard with the accuracy-related penalty standard for taxpayers under section 6662. All of the changes made by the Act were effective for returns prepared after May 25, 2007. On June 11, 2007, Internal Revenue Service (the “Service”) issued Notice 2007-54, which provided guidance and transitional relief for all returns and claims for refund due on or before December 31, 2007. On December 31, 2007, the Service issued three additional notices: (i) Notice 2008-11 clarified the effective date provisions in Notice 2007-54; (ii) Notice 2008-12 listed the types of tax returns that must be signed by return preparers pursuant to section 6695; and (iii) Notice 2008-13 provided interim guidance regarding application of section 6694 until revised Regulations are issued. We appreciate the efforts of the Treasury Department and the Service to provide prompt guidance on the amendments made to section 6694 by the Act. In particular, we believe that the approach taken in Notice 2008-13 achieves an appropriate balance between taxpayer and preparer burden and the needs of effective tax administration. http://www.abanet.org/tax/pubpolicy/2008/080229commentsonnewserviceproviderexemptionundersection408b17oferisa.pdf The following Comments pertain to the new "service provider" exemption from the prohibited transaction provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), which exemption was added as section 408(b)(17) by section 611(d) of the Pension Protection Act of 2006 ("PPA '06") (the "Service Provider Exemption"). These Comments are submitted in response to informal requests made by various representatives of Employee Benefits Security Administration of the Department of Labor (the "Department") at public meetings of the American Bar Association Section of Taxation and other public meetings seeking comments on those aspects of PPA '06 affecting ERISA. We recommend that the Department issue regulations or other guidance or authority ("Regulations") that provide that: A. "Adequate consideration" is, for an asset with no established market, defined for purposes of the Service Provider Exemption as fair market value as determined by the applicable plan fiduciary pursuant to commercially reasonable procedures and otherwise in good faith, with a resulting valuation consistent with that which would be used in an arm's length transaction between unrelated parties. B. For ongoing transactions, compliance with the Service Provider Exemption is to be tested only at the time transaction is entered into, modified or renewed. C. Involvement with a plan solely as a directed trustee does not constitute fiduciary status for purposes of the Service Provider Exemption. D. The fiduciary limitation to the Service Provider Exemption does not apply to a transaction by a commingled investment entity in which plan assets are invested if the party in interest is a fiduciary (or an affiliate thereof) to the plan only at the plan level. E. "Affiliate" is, for purposes of the Service Provider Exemption, strictly a person controlling, controlled by or under common control with the fiduciary with respect to the assets involved in the transaction. F. The Service Provider Exemption is available for a transaction with a party in interest if the party in interest is such only because it is a 10% owner, partner or joint-venturer of an entity that is 50% or more owned by an employer whose employees are covered by the plan. G. The Service Provider Exemption (i) is available regardless of what other statutory or administrative exemptions or other prohibited transaction relief might also potentially apply and (ii) applies not only to simple purchases and sales and other straightforward transactions, but also to more complex transactions, as long as they satisfy the applicable requirements. H. A person's status as a fiduciary with respect to plan assets not involved in a particular transaction would not render the Service Provider Exemption inapplicable in respect of that person if all of the other requirements of the Service Provider Exemption are satisfied. http://www.abanet.org/tax/pubpolicy/2008/080129proposedregulationsundersection6011and6111relatingtopatentedtransactions.pdf These Comments are submitted in response to the request for comments contained in the preamble to Proposed Regulation sections 1.6011-4 and 301.6111-3 (the "Proposed Regulations") as published in the Federal Register on September 26, 2007. The Proposed Regulations would add a new category of reportable transactions for patented transactions and make conforming changes to the rules relating to disclosures of reportable transactions by material advisors. The Section commends the Department of the Treasury ("Treasury") and the Internal Revenue Service ("IRS") for their efforts to address the tax policy and administration issues arising in connection with the patenting of tax advice or tax strategies, and for making these much-needed proposals. As long as patents may be granted for inventions that include claims with respect to tax matters, it is essential that Treasury and the IRS receive timely information regarding such claims and their utilization. http://www.abanet.org/tax/pubpolicy/2008/080123commentsconcerningerisabondingrules.pdf The following comments pertain to the changes made in the Pension Protection Act of 2006 ("PPA '06") to the bonding rules under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). These comments are in response to informal requests made by various representatives of Employee Benefits Security Administration ("EBSA") of the Department of Labor at public meetings of the American Bar Association Section of Taxation and other public meetings seeking comments on those aspects of PPA '06 affecting ERISA. We recommend that EBSA issue regulations that provide that: A. the increased bond amount does not apply to any plan official solely because a plan holds an interest in a diversified collective investment fund - such as a mutual fund, bank collective investment fund, insurance company separate account, hedge fund or any other diversified investment fund - that holds employer securities of sponsors of plans investing in the fund; and B. the increased bond amount applies only to those plan officials who actually handle employer securities. http://www.abanet.org/tax/pubpolicy/2007/071115legislativechangesimpactingstandardsforimpositionofpenalties.pdf On May 25, 2007, President Bush signed into law H.R. 2206 (Public Law No. 110-28), which among other things amended section 6694 to expand the penalty for tax return preparers and change the standard for imposition of the penalty from "realistic possibility of success" to "a reasonable belief that a position is more likely than not correct." We commend the efforts of Congress to address overly aggressive tax planning and to provide the Internal Revenue Service (the "Service") with sufficient tools to detect and combat abusive tax shelters. However, we regret that the amendment to section 6694 was not fully explored through public hearings and comment prior to enactment. These Comments address several concerns with the new law. First, due to the significant complexity of the Code and the Treasury Regulations, as well as the lack of clear guidance interpreting many of those provisions, many situations arise where it simply is not possible for return preparers to conclude that any position is more likely than not correct. As a result, return preparers (and thus their clients) are likely to incur significantly greater compliance costs, and also are likely to file so many disclosure statements that the disclosures will become practically meaningless. Second, because the amendment to section 6694 established a higher standard for return preparers than is imposed on taxpayers, it creates the potential for conflicts of interest between return preparers and taxpayers. Third, the amended statute is ambiguous in several respects, including the extent to which it can or should be applied to "non-signing" preparers. We understand that your Committee may be considering an amendment to section 6662 to increase the standard for imposition of the accuracy related penalty to match the standard established for tax return preparers in section 6694 as amended by Public Law No. 110-28. We understand that such a change may be motivated, in part, by a desire to avoid the conflicts that can arise between return preparers and taxpayers under current law, and we agree that the penalty standards for return preparers and taxpayers should be aligned. However, we respectfully submit that a "more likely than not" standard is not advisable given the complexity and ambiguity inherent in our tax system and the potential costs and problems that will be created by such a standard. We recommend that the penalty standard for both return preparers and taxpayers should be substantial authority. http://www.abanet.org/tax/pubpolicy/2007/071113commentshr2834.pdf These comments submitted on behalf of the American Bar Association's Section of Taxation (the 'Section'), address H.R. 2834, a bill that would recharacterize income allocations of partnerships as ordinary income to the extent that the allocations are made with respect to an interest in a partnership received for services (i.e., a 'carried interest'). On June 22, 2007, Representative Sander M. Levin (D-MI) introduced H.R. 2834 with 21 co-sponsors. On August 3, 2007, Representative John B. Larson (D-CT) introduced H.R. 3417 to 'Establish the Commission on the Tax Treatment of Hedge Funds and Private Equity.' The Senate Committee on Finance held hearings on issues similar to those covered by H.R. 2834 on July 11, 2007, July 31, 2007, and September 6, 2007. A hearing on similar issues also was held by the House Committee on Ways and Means on September 6, 2007. H.R. 2834 would recharacterize income allocations of a partnership as ordinary income to the extent the allocation is made with respect to a carried interest. We understand that H.R. 2834, and other similar bills under consideration by the Senate Committee on Finance and the House Committee on Ways and Means, have been introduced to address tax policy issues that have arisen through recent discussion and debate regarding the nature of compensation earned by managers of certain investment funds. The current rules regarding the taxation of carried interests have developed over more than thirty years, and the principles underlying those rules apply to a wide variety of partnerships. In light of the significance of these rules, the Tax Section established a task force to study the history and rationale behind the current rules and to identify and consider the interpretative and administrative issues that may arise if legislation such as that embodied in H.R. 2834 were to be enacted. The task force consists of lawyers with considerable expertise in the taxation of partnerships, real estate, cross-border transactions, oil and gas ventures, and employee benefits matters. These Comments provide a brief background on the current rules regarding the taxation of carried interests and the provisions of H.R. 2834 that would alter those rules. The Comments then discuss and analyze a number of interpretative and administrative issues that, to the extent not addressed legislatively, likely will require the issuance of regulations or other guidance by the Treasury Department ('Treasury') and the Internal Revenue Service (the 'Service'). http://www.abanet.org/tax/pubpolicy/2007/071023reg12822406.pdf We are writing on behalf of both the American Bar Association Section of Real Property, Trust and Estate Law and the American Bar Association Section of Taxation concerning the proposed regulations issued on July 27, 2007, by the United States Treasury Department ('Treasury') and the Internal Revenue Service ('Service') relating to which costs incurred by estates or non-grantor trusts are subject to the 2-percent floor for miscellaneous itemized deductions under section 67(e) (the 'Proposed Regulations'). The interpretation of section 67(e) will be before the United States Supreme Court in the current term (Rudkin v. Commissioner, 467 F.3d 149 (2nd Cir. 2006), cert. granted sub nom. Knight v. Commissioner (S. Ct. Doc. No. 06-1286)). Therefore, we respectfully request that the Treasury and the Service consider deferring 1) the submission date for the comments on the Proposed Regulations, 2) the hearing date for the comments on the Proposed Regulations, and 3) any action on the Proposed Regulations all until after the Court has issued its decision in the Knight case. This will afford the public the opportunity to take into account the effect, if any, of the Court's conclusions when submitting comments on the Proposed Regulations. http://www.abanet.org/tax/pubpolicy/2007/071005commentsirsnotice200739sec822americanjobscreationact2004.pdf On April 23, 2007, the Internal Revenue Service issued Notice 2007-39, 2007-20 I.R.B. 1243 (the Notice), to provide guidance to practitioners, employers, firms, and other entities that may be subject to monetary penalties under 31 U.S.C.§ 330 as added by Section 822 of the American Jobs Creation Act of 2004. These Comments are submitted in response to the request for comments contained in the Notice. We respectfully submit the following Comments: 1. The substance of Notice 2007-39 should be incorporated into Circular 230. 2. The rules, when finalized, should provide more certainty as to when monetary penalties will apply and should clarify that such penalties will be used only to redress Circular 230 misconduct. 3. The combined maximum penalty for misconduct should be limited to 100 percent of fees or gross income regardless of the authority under which the penalty is asserted. Alternatively, referrals to the IRS Office of Professional Responsibility ('OPR') under section 66941 should be not be mandatory, but discretionary. 4. Monetary penalties should apply only to employers, firms, or other entities that engage in providing tax services or advice to others. 5. The rules, when finalized, should incorporate the exact language from the statute with regard to calculating the maximum amount of penalty. The basis for separately determining the maximum monetary penalty to be imposed on each practitioner and (if applicable) on each employer, firm, or entity should be clearly articulated. 6. The rules, when finalized, should clarify when and how mitigating factors listed in the Notice should or must be taken into account, and how such mitigating factors will influence the final determination of a case. 7. The rules, when finalized, should include the procedures that OPR will follow in determining and imposing monetary penalties. 8. Example 2 should be clarified to set forth explicitly facts sufficient to establish when a practitioner has violated Circular 230. http://www.abanet.org/tax/pubpolicy/2007/071004draftofredesignedform990fortaxexemptorgs.pdf On June 14, 2007, the Internal Revenue Service (the “Service”) released for public comment the first fundamental redesign of Form 990, the annual information return for tax-exempt organizations required under section 6033, in more than 25 years. The discussion draft of the redesigned Form 990 includes a “Core Form,” which all exempt organizations required to file will complete, and fifteen new Schedules, which will be completed as needed by the filing organization, depending upon its activities. In addition to the new form, the Service also released 47 pages of instructions to the Core Form, instructions to the various schedules (the “Instructions”), a five page Highlights of Redesigned Form 990 (the “Highlights”), a nine page Draft Form 990 Redesign – Glossary (the “Glossary”), and a five page Background Paper Redesigned Form 990 (the “Background Paper”). These Comments respond to the Service’s request for comments on the discussion draft of the Form 990, especially as to its goals of increased information transparency and use as a tool for increasing compliance. http://www.abanet.org/tax/pubpolicy/2007/070828lowincomehousingregs.pdf On June 19, 2007, the Internal Revenue Service (“Service”) and Department of the Treasury (“Treasury”) issued proposed regulations under section 421 (the “Proposed Regulations”). 2 The Proposed Regulations provide a formula for determining the purchase price amount of a low-income housing building when such building is purchased pursuant to a “qualified contract,” as such term is defined in section 42(h)(6)(F). The Section commends the Service and the Treasury for the well-considered Proposed Regulations addressing this issue. These Comments address the calculation of the qualified contract price for both the low-income and non low-income portions of a building, procedural issues concerning qualified contracts, and provide general comments on other topics raised in the preamble to the Proposed Regulations (the “Preamble”). Specifically, we recommend that the Regulations, when finalized: 1. Clarify that an appraisal should be used to determine the fair market value of the non low-income portion of a building, address the treatment of underlying land in leased-land situations by requiring a determination of the fair market value of the remaining lease term, and establish a tiebreaking procedure to minimize potential disputes concerning fair market value. 2. Explicitly address situations where insufficient documentation exists to establish whether debt was incurred for qualifying building costs. In such cases, a reasonable allocation or other presumption could eliminate potential disputes. We also believe it is inconsistent with the policies supporting enactment of section 42(h)(6) to discount below-market indebtedness for purposes of determining the qualified contract price. Lastly, we recommend that the Proposed Regulations should not “double count” reductions to the qualified contract price that could result from the treatment of certain project reserves. 3. Address the terms, conditions and time period allowed for closing for purposes of defining a “bona fide contract.” 4. Clarify certain rules relating to qualified contracts. http://www.abanet.org/tax/pubpolicy/2007/070921ircsec409arelatingtocompliancedeadline.pdf These Comments address the deadline for compliance with section 409A and the transition relief provided in Notice 2007-78, 2007-41 I.R.B. (October 9, 2007).1 These Comments are submitted in response to informal requests by the Department of Treasury (“Treasury”) and the Internal Revenue Service (the “Service”) for comments concerning the final Regulations published on April 17, 2007 (the “Final Regulations”). We appreciate the opportunity to submit these Comments, and we commend the efforts of both Treasury and the Service in (i) providing comprehensive guidance and rules under this new far-reaching statute and (ii) extending the applicability date for some of the documentation requirements under the Final Regulations. We also commend Treasury and the Service for the issuance of Notice 2007-78, and its recognition of the difficulties of taxpayers to amend existing plans to comply with the Final Regulations by the December 31, 2007 deadline. For the reasons discussed below, we respectfully submit that Notice 2007-78 does not provide sufficient relief, and we recommend that Treasury and the Service delay for one additional year the applicability date for compliance with all aspects of the Final Regulations to January 1, 2009 and, at the same time, extend to December 31, 2008, all of the current transition relief which expires at 2007 year end on the same terms and conditions as set out in Section 3 of Notice 2006-79. http://www.abanet.org/tax/pubpolicy/2007/070919surveyrptirsappeals.pdf The ABA Section of Taxation (“Tax Section”) decided to survey its membership to determine the members’ experience relating to the perceived independence of the Internal Revenue Service’s (“IRS” or “Service”) Appeals Division (“IRS Appeals” or “Appeals.”) In that regard, a seven-page survey instrument was developed by the Committee on Administrative Practice and a “Blue Ribbon” panel of members to solicit opinions from Tax Section members who have had experience with Appeals in the recent past regarding the independence of the IRS Appeals process from the examination, collection, and the enforcement functions of the IRS. Over 560 Section members responded to the initial evaluation questions in the survey, and they provided over 70 pages of comments about the positive and negative aspects of their recent experiences with IRS Appeals. http://www.abanet.org/tax/pubpolicy/2007/070919proposedregsundersec152e.pdf These Comments are submitted in response to the request for comments contained in the preamble to the proposed regulations (the “Proposed Regulations”) under Regulation section 1.152-4 as published in the Federal Register on May 2, 2007.1 The Proposed Regulations reflect amendments made by the Working Families Tax Relief Act of 2004 and the Gulf Opportunity Zone Act of 2005, and provide guidance on issues that have arisen in the administration of section 152(e).2 Section 152(e) provides a special rule for claiming a child as a dependent for Federal income tax purposes in the case of parents who are divorced, separated, or live apart at all times during the last six months of the calendar year. In such situations the Code provides that if (a) the child receives over one-half of the child’s support from the child’s parents, (b) the child is in the custody of one or both parents for more than one-half of the calendar year, and (c) the custodial parent signs a written release that the noncustodial parent attaches to his or her tax return, then the child is deemed to be the qualifying child or qualifying relative of the noncustodial parent for purposes of the dependent exemption under section 151(c) and the child tax credit under section 24. The Proposed Regulations chiefly interpret and clarify the third statutory requirement. http://www.abanet.org/tax/pubpolicy/2007/070831sec1367irc.pdf These Comments relate to the request for comments contained in the preamble to the proposed regulations (the “Proposed Regulations”) relating to the treatment of “open account debt” under Regulation section 1.1367-2 as published in the Federal Register on April 12, 2007. The preamble to the Proposed Regulations makes clear that the Treasury Department (“Treasury”) and the Internal Revenue Service (the “Service”) have drafted the Proposed Regulations, at least in part, in response to a 2005 Tax Court memorandum decision, Brooks v. Commissioner, T.C. Memo. 2005-204. We believe that the Proposed Regulations represent an inappropriately broad response to the results of this case. The Proposed Regulations, if adopted as final regulations, would significantly increase the recordkeeping burdens imposed on S corporations (which most frequently constitute small businesses) and their shareholders, creating substantial compliance burdens for a host of taxpayers that are not engaging in any tax abuse or avoidance. Similarly, the Proposed Regulations would create a trap for unwary taxpayers that cannot afford to pay sophisticated advisors for assistance in interpreting the regulatory requirements or tracking daily balances of debt. Broadly imposing such compliance burdens would contravene the purpose of the open account debt rules, which the Service itself recognizes to be “to provide administrative simplicity for S corporations.” We do not believe the Brooks decision presents the type of significant opportunity for abuse that necessarily requires a change in the Regulations. Nonetheless, to the extent the Treasury and Service conclude that it is necessary to amend the Regulations in response to the Brooks decision, we believe that their concerns could be addressed through a substantially more limited rule that imposes less of a compliance burden on small businesses. Specifically, we recommend that, instead of modifying the definition of open account debt in the manner set forth in the Proposed Regulations, the Treasury and Service instead add a regulatory anti-abuse rule that precludes netting advances and repayments in certain situations. http://www.abanet.org/tax/pubpolicy/2007/070820commentsresptonoticereqform70.pdf By Notice and request for comments published in the Federal Register on June 4, 2007 (the "Notice"), the Internal Revenue Service ("Service") invited comments concerning Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return ("Form 709").1 The Notice invited comments on: (1) whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; (2) the accuracy of the agency’s estimate of the burden of the collection of information; (3) ways to enhance the quality, utility, and clarity of the information to be collected; (4) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology; and (5) estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information. Our comments are intended to enhance the quality, utility and clarity of the information to be collected. We also hope that our suggested changes will make Form 709 and the Instructions for Form 709 (the "Instructions") simpler. http://www.abanet.org/tax/pubpolicy/2007/070806cmtsrqstsubcomovrsghtwaysandmeanscompenprotact2006.pdf The Pension Protection Act of 2006TPF1FPT (the “PPA”) contained numerous provisions affecting tax-exempt organizations described in section 501(c)(3).TPF2FPT On June 12, 2007, the Subcommittee on Oversight of the Ways and Means Committee of the United States House of Representatives issued an Advisory, inviting comments on those provisions of the PPA, including on how these provisions may affect charitable efforts and the difficulties that have arisen in implementing these provisions. We welcome the Oversight Subcommittee’s consideration of these issues and their impact on donor advised funds, supporting organizations, their donors and the organizations they support. In reaction to reports of abuses by a few organizations, the PPA imposed a great many new restrictions and penalties on donor advised funds and supporting organizations. Most of those reported abuses violated pre-PPA Code provisions, which suggests that at least certain of the PPA’s changes may not have been necessary. The PPA places significant new compliance burdens on donor advised funds, supporting organizations, their donors, and the organizations they support. These provisions are discouraging many well-accepted and commendable charitable activities. The PPA also places significant additional demands on the Service’s limited enforcement resources. We welcome the Oversight Subcommittee’s consideration of the need for balance between correcting abuses and placing additional burdens on legitimate, nonabusive charitable activities, and commend the Oversight Subcommittee to do so in a transparent manner through public hearings and open comments. http://www.abanet.org/tax/pubpolicy/2007/070801irs200721treasurystudy.pdf The Pension Protection Act of 2006,1 (“Act”), enacted on August 17, 2006, contained a number of provisions relating to charitable organizations classified as section 509(a)(3)2 supporting organizations (“SOs”), and donor advised funds held by charitable organizations. Section 1226 of the Act requires the Department of the Treasury (“Treasury”) and the Internal Revenue Service (the “Service”) to conduct a study on the operations of donor advised funds and SOs. On February 2, 2007, the Service issued Notice 2007-21,3 which invites public comment in connection with that study on a number of issues relating to donor advised funds and SOs. Our specific recommendations are as follows: 1. With respect to donor advised funds, we recommend that Treasury not impose any distribution requirement, either on an aggregate basis or on a fund-by-fund basis, on sponsoring organizations that hold donor advised funds. If any distribution requirement is deemed necessary, however, we recommend that it be imposed on an aggregate, rather than on a fund-by-fund basis. We further recommend that to the extent that any distribution requirement is based on the value of assets within a donor advised fund or funds, the requirement should include rules similar to those applicable to private foundations with respect to the distribution requirements under section 4942. 2. With respect to SOs, we recommend that Treasury consider applying a distribution requirement for non-functionally integrated Type III SOs similar to that under current law for private operating foundations, i.e., the lesser of 85% of net income or 85% of the fair market value of assets (i.e., 4-1/4% of asset value), with a minimum distribution requirement of 3-1/3% of asset value. We further recommend that any such distribution requirement be phased in over a period of years, and that Treasury provide special transition rules for charitable trusts that must institute judicial or other proceedings under state law in order to comply with new federal tax law distribution requirements. Finally, we recommend that Treasury provide rules similar to those applicable to private foundations with respect to the distribution requirements under section 4942. http://www.abanet.org/tax/pubpolicy/2007/070724regrelatingforclaimsagainstestatesec2053.pdf These Comments address proposed regulations (the “Proposed Regulations”) relating to the deductibility of claims against an estate under section 20531 as published on April 23, 2007.2 We commend the Department of the Treasury (“Treasury”) and the Internal Revenue Service (the "Service") for the extensive and well-considered Proposed Regulations addressing the deductibility of claims under section 2053. Despite credible arguments in favor of the date of death valuation approach for claims against an estate, we recognize that Treasury and the Service thoughtfully considered and rejected those arguments in favor of the view that the amount of a deduction for a claim against an estate be limited to the amount ultimately paid by the estate. Therefore, except in a few specific instances, we have limited these Comments to making the approach adopted by the Service in the Proposed Regulations clearer and more workable. http://www.abanet.org/tax/pubpolicy/2007/070710pmtinlieuoftaxes.pdf These Comments relate to the request for comments contained in the preamble to the proposed regulations (the “Proposed Regulations”) relating to payments in lieu of taxes (“PILOTs”) under Reg. § 1.141-4 as published in the Federal Register on October 19, 2006.1 In particular, these Comments address the stated concern in the preamble that existing standards potentially could be interpreted in an unduly broad manner to provide favorable treatment for certain payments in lieu of taxes that may have an insufficient link to generally applicable taxes. http://www.abanet.org/tax/pubpolicy/2007/070702regsrelatingtopmtoftaxliabilities.pdf These Comments address Proposed Regulations § 301.6159-1 governing agreements for the payment of tax liabilities in installments (“installment agreements”) under section 6159.1 The Comments are in response to the solicitation for comments in a notice of proposed rulemaking published on March 5, 2007. The Proposed Regulations amend a prior notice of proposed rulemaking published on December 31, 1997,3 to reflect changes made to section 6159 by the Internal Revenue Service Restructuring and Reform Act of 1998 (“RRA of 1998”) and by the American Jobs Creation Act of 2004 (“AJCA of 2004”),4 and modify existing Regulations adopted in 1994.5 These changes, which include the creation of partial pay and guaranteed installment agreements, necessitated a more comprehensive set of guidelines. The Section commends the Internal Revenue Service (the “Service”) for its effort in clarifying the procedural requirements and the taxpayers’ rights and obligations with respect to installment agreements. However, we are concerned that some of the rules or requirements under the Proposed Regulations are too vague, are unduly burdensome, or fail to address the realities that face taxpayers seeking to enter into installment agreements with the Service. http://www.abanet.org/tax/pubpolicy/2007/070618_guidanceprioritylist.pdf Dear Assistant Secretary Solomon and Chief Counsel Korb: The American Bar Association Section of Taxation welcomes the opportunity to provide recommendations of guidance for inclusion in the 2007-2008 Treasury-IRS Guidance Priority List. These recommendations represent the views of the American Bar Association Section of Taxation. They have not been approved by the Board of Governors or the House of Delegates of the American Bar Association and should not be construed as representing the policy of the American Bar Association. The enclosed list contains recommendations made by the members of various committees within the Section of Taxation. I hope you find the suggestions helpful as you formulate the new Priority Guidance List. The recommendations include items in the following areas of practice: Affiliated and Related Corporations Low Income Taxpayers Capital Recovery and Leasing Partnerships and LLCs Corporate Tax S Corporations Employee Benefits Standards of Tax Practice Energy and Environmental Taxes Tax Accounting Exempt Organizations http://www.abanet.org/tax/pubpolicy/2007/070614_improvedtaxadminsec409a.pdf The following recommendations (“Recommendations”) are submitted on behalf of the American Bar Association Section of Taxation (the “Section”) and have not been approved by the House of Delegates or Board of Governors of the American Bar Association. Accordingly, the Recommendations should not be construed as representing the position of the American Bar Association. We commend the Internal Revenue Service (the “Service”) and the U.S. Department of Treasury (“Treasury”) for the extensive and well considered final regulations under section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).1 The final regulations issued on April 17, 2007, under section 409A addressed numerous issues and were responsive to many of the comments.2 This letter is in response to a written request for comments on the need and authority for a correction program applicable to section 409A inadvertent non-compliance. In light of the broad scope of section 409A, its direct impact on service providers and the administrative burden on service recipients, we believe that there will be inevitably inadvertent errors despite the best efforts of both to comply with the Regulations. Furthermore, although there has been a continual effort to publicize the impact of the Regulations on employee plans, arrangements and contracts, we believe that the small business community and their advisors are still largely unaware of section 409A. http://www.abanet.org/tax/pubpolicy/2007/070611_td9242.pdf We commend the Department of the Treasury (“Treasury”) and the Internal Revenue Service (the “Service”) for the final regulations under Reg. § 1.368-2(b)(1)1(the “Regulations”), which reflect the culmination of a long-term effort to modernize section 368(a)(1)(A). In response to several residual issues raised by Treasury and the Service in the preamble to the Regulations (the “Preamble”), we respectfully submit these Comments. The Comments are divided into three Parts. Part I contains an introduction; Part II sets forth the scope of our Comments; and Part III contains our detailed Comments. The primary recommendations contained in these Comments can be summarized as follows: 1. State Law Conversions. We recommend that a stock acquisition followed by a state law conversion of the target corporation into a disregarded entity should be permitted to qualify as a statutory merger under section 368(a)(1)(A). We believe this recommendation should be implemented by changing the operative language of Reg. § 1.368-2(b)(1)(ii)(B) to state that the combining entity of the transferor unit must cease its separate existence for “federal income tax” purposes (rather than for “all” purposes). 2. Entity Classification Elections. We also recommend that a stock acquisition followed by a “check-the-box” election to change the tax status of the target corporation to a disregarded entity should not be permitted to qualify as a statutory merger under section 368(a)(1)(A). However, in an effort to promote transactional efficiency and other meaningful non-tax objectives, as well as to promote the tax policy objective of providing consistent tax treatment to transactions with similar results, we urge Treasury and the Service to recommend that Congress remove the word “statutory” from section 368(a)(1)(A). We also suggest that Treasury seek a grant of regulatory authority from Congress to interpret and implement section 368(a)(1)(A) in light of this proposed change to the statute. 3. Mergers that Cause a Partnership to be Reclassified as a Disregarded Entity. The Regulations conclude that the merger of a corporate partner into the partnership or into its other corporate partner, which results in the former partnership becoming a disregarded entity, should qualify as a statutory merger under section 368(a)(1)(A). We agree with this conclusion. Furthermore, we recommend that in these transactions, the partnership should terminate following the merger. If this construct is adopted, the target corporation would be treated as transferring all of its assets, including the partnership interest, to the acquiring corporation, and the partnership would be deemed to make a liquidating distribution to the acquiring corporation as the sole partner. http://www.abanet.org/tax/pubpolicy/2007/070604irsnotice2006109.pdf The Pension Protection Act of 20061 (“Pension Protection Act”), enacted on August 17, 2006, contained a number of provisions relating to charitable organizations classified as section 509(a)(3)2 supporting organizations (“SOs”) and to donor advised funds held by charitable organizations. Some provisions, particularly those regarding section 4958 “intermediate sanctions” and section 4943 “excess business holdings,” affect both donor advised funds and SOs. Other provisions affect private foundations and donor advised funds that make grants to SOs, which must be able to ascertain the tax status of a potential grantee in order to identify the procedures required for making a grant and the tax consequences of making the grant. On December 4, 2006 the Internal Revenue Service (the “Service”) issued Notice 2006-1093 providing interim guidance concerning several of the provisions affecting donor advised funds and SOs, and private foundations that make grants to SOs. Notice 2006-109 also requested comments regarding the Notice and suggestions for future guidance with respect to changes regarding donor advised funds and SOs. Notice 2006-109 provided useful interim guidance to help private foundations and donor advised funds determine the status of potential grantees. Additional guidance is needed in this area, however, to provide streamlined and practical procedures for private foundations and donor advised funds to determine when a potential grantee is an SO and how the SO will be classified. Guidance is needed in other areas as well to provide clear definitions and to resolve ambiguity. With respect to the new provisions concerning donor advised funds, guidance is needed regarding the definition of a donor advised fund, and regarding the circumstances under which excise taxes will be imposed under new sections 4966 and 4967 on tax-exempt sponsoring organizations (and in some cases their foundation managers) that operate donor advised funds. With respect to the new provisions concerning SOs, guidance is needed regarding the factors that indicate that a person directly or indirectly controls a supported organization, the definition of a Type III functionally integrated SO, the circumstances under which a charitable trust may qualify as a Type III SO under the “responsiveness test,” and the application of the Pension Protection Act to SOs in existence before the Tax Reform Act of 1969. In addition, guidance is needed concerning the application of new excise taxes under section 4958 and the application of the excess business holdings rules under section 4943 to both donor advised funds and SOs. http://www.abanet.org/tax/pubpolicy/2007/070425ircsec409atimingofincome.pdf The following Comments pertain to Internal Revenue Service Notices 2005-1,1 2005-94,2 and 2006-1003 and Regulations sections 1.409A-1 through -6,4 addressing the application of section 409A of the Internal Revenue Code 1986, as amended (the “Code”), to nonqualified deferred compensation plans. The following Comments are in response to a request by the Department of Treasury (the “Treasury”) and the Internal Revenue Service (the “Service”) for comments with respect to the calculation and timing of income inclusion under section 409A. Our recommendations regarding future notices or regulations (“Regulations”) to be published by the Treasury with respect to section 409A are as follows: A. We recommend that Regulations, when finalized, provide that where there is a failure to satisfy the section 409A(a)(2), (3), and (4) requirements, the determination of the amount of compensation deferred for a taxable year and all preceding taxable years be made as of the last day of the taxable year of the failure (the “Income Inclusion Date”). B. We recommend that Regulations, when finalized, provide that where there is a failure to satisfy the section 409A(a)(2), (3), and (4) requirements, the amount of the compensation deferred for a taxable year and all preceding taxable years and included in income be determined in a manner similar to that under the methodology set forth in Regulation § 1.409A-6(a)(3) http://www.abanet.org/tax/pubpolicy/2007/070425notice2006_14.pdf In Notice 2006-14,1 the Internal Revenue Service (the “Service”) proposed possible modifications to the regulations promulgated under section 751(b) and requested comments on those proposed modifications, as well as alternative proposals.2 We believe the approach suggested in Notice 2006-14 is far superior to the rules found in the existing section 751(b) regulations. We believe, however, that alternatives exist that might better address the concerns underlying section 751(b). Alternatively, refinements to the Service’s proposals may better capture the transactions to which section 751(b) should apply. Such alternatives and refinements are discussed below. We wish to make clear, however, that as between continuing the existing section 751(b) regulations and adopting the proposals set forth in Notice 2006-14, we strongly believe that the proposals in Notice 2006-14 are superior. http://www.abanet.org/tax/pubpolicy/2007/070423tempandpropsec482regs.pdf The following Comments relate to the Temporary and Proposed Regulations under section 4821 for intercompany services ("Temporary Regulations"). Our Comments and suggestions focus on the following parts of the Temporary Regulations: • Services Cost Method (Temp. Reg. § 1.482-9T(b)(1)) • Shared Services Agreements (Temp. Reg. § 1.482-9T(b)(5)) • “Significant Contribution Services” (Temp. Reg. § 1.482-9T(b)(2)) • Definition of Low-Margin Covered Services (Temp. Reg. § 1.482-9T(b)(4)(ii)) • Comparable Uncontrolled Services Price (Temp. Reg. § 1.482-9(c)) • Cost of Services Plus Method (Temp. Reg. § 1.482-9(e)) • Profit Split Method (Temp. Reg. § 1.482-6T and 1.482-9T(g)) • Other Transfer Pricing Methods for the Provision of Services (Temp. Reg. § 1.482- 9T(d), (h)) • Income Attributable to Intangible Property (Temp. Reg. § 1.482-1T(d), 1.482-4T(f), 1.482-8T) • Shareholder Activities (Temp. Reg. § 1.482-9T(l)) • Stock-Based Compensation (Temp. Reg. § 1.482-9T(b)(e)(f)(g)) • Contingent-Payment Contractual Terms for Services (Temp. Reg. § 1.482-9T(i)) • Economic Substance Principles (Temp. Reg. § 1.482-1T(d)) • Coordination with Transfer Pricing Rules for Other Transactions (Temp. Reg. § 1.482-9T(m)) • Delay of Effective Date ; Transition Rules (Temp. Reg. § 1.482-9T(n)) http://www.abanet.org/tax/pubpolicy/2007/070413amendmentstorevisionsform2.pdf On January 16, 2007, Chief Judge John O. Colvin announced proposed amendments to the Court’s Rules of Practice and Procedure (the “Rules”) regarding privacy and public access to electronic case files. The Press Release also announced “various conforming and miscellaneous amendments to its Rules and forms.” The Section has provided comments to the proposed amendments regarding privacy and public access. These Comments supplement those comments and address proposed revisions to Form 2, and other issues raised by Title XVII of the Rules, entitled “Small Tax Cases.” http://www.abanet.org/tax/pubpolicy/2007/070413pvypubaccesseleccasefiles.pdf The Section endorses the Court’s voluntary compliance with the E-Government Act of 2002, Pub. L. 107-347, sec. 205, 116 Stat. 2913, concerning online public access to electronic documents, and commends the Court’s privacy and security safeguards for taxpayer-identifying information. The specific issue of concern is the inclusion of sensitive or confidential information, such as Social Security numbers, in Court filings. The proposed amendments to the rules will improve the accessibility of electronic filings and will protect taxpayer privacy while also allowing the Internal Revenue Service (the “Service”) to obtain taxpayer identification numbers for the purpose of processing and tracking Court filings. http://www.abanet.org/tax/pubpolicy/2007/070412codificationeconsubdoc.pdf We continue to have substantial reservations about recent versions of legislation codifying the economic substance doctrine. For the reasons set forth in our April 2003 Comments, we continue to believe that any codification of this judicial doctrine should be limited to clarifying that when a court determines that the economic substance doctrine does apply, (i) the taxpayer must establish that the non-tax considerations in the transaction were substantial in relation to the potential tax benefits; and (ii) in evaluating the potential economic profit from the transaction, all costs associated with the transaction (including fees paid to promoters and advisers) should be taken into account. Legislation limited to these points would provide important clarifications to the doctrine without needlessly disrupting legitimate business transactions and tax planning. We appreciate, however, that a more expansive and detailed codification of the economic substance doctrine is viewed by some as an important additional step in combating tax shelters. The comments that follow are based on the proposed codification of the economic substance doctrine contained in Section 803 of the Telephone Excise Tax Repeal Act of 2005 (S. 1321), as reported to the Senate by the Senate Committee on Finance on September 15, 2006 (the “S. 1321 version”). The S. 1321 version generally follows the CARE Act version, and some of the concerns expressed in our April 2003 Comments to the CARE Act version that continue to be relevant are summarized at the end of these comments. http://www.abanet.org/tax/pubpolicy/2007/070410proposedrevisionofrevproc8642.pdf Rev. Proc. 86-42, 1986-2 C.B. 722, requires specific representations in requests for rulings as to certain reorganizations under section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). The purpose of the representations is to facilitate the filing and processing of ruling requests by ensuring that the requests themselves are as complete as possible, and that taxpayers have considered the factual requirements for such rulings. http://www.abanet.org/tax/pubpolicy/2007/070410ltrtohouseandsenatesubcommitteeonfinancialservicesandgeneralgov.pdf Letters to both Senate and House Subcommittees on the Financial Services and General Government on Internal Revenue Service Funding. http://www.abanet.org/tax/pubpolicy/2007/070330form8857.pdf These comments relate to the proposed revised Internal Revenue Service (“IRS”) Form 8857 and related instructions. The Form represents a good effort to reduce the statutory standards to a checklist format, but we believe some changes can be made to further strengthen this effort. We have three overall concerns with the form which are reflected in our Comments on the form and in the suggested alternatives. First, some questions assume the requesting spouse has signed the joint return. There are occasions in which a requesting spouse has signed a return under duress from an abusive spouse. The second area of concern is that with respect to many items, Form 8857 requires the requesting spouse to submit documentation along with the form. The third, related concern is that many requesting spouses will be unrepresented, and less educated and/or capable than average in reading, understanding, and responding to forms. http://www.abanet.org/tax/pubpolicy/2007/statmenthearingontherevenueincreasingmeasuresinthesmallbusinessandWorkOpportunityActof2007.pdf This statement is submitted on behalf of the Section of Taxation of the American Bar Association. It has not been approved by the House of Delegates or the Board of Governors of the American Bar Association. Accordingly, it should not be construed as representing the policy of the American Bar Association. The Section of Taxation appreciates the opportunity to provide input to the Committee on Ways and Means on the revenue increase measures in the “Small Business and Work Opportunity Act of 2007”—the Senate-passed version of H.R. 2. Our comments address the limit on the amount of annual deferrals under nonqualified deferred compensation plans that would be added to section 409ATPF1FPT by section 206 of the Bill. http://www.abanet.org/tax/pubpolicy/2007/070321proposedamendmentstotheRulesoftheUSCourtofFederalClaims.pdf This proposal is submitted on behalf of the Section of Taxation of the American Bar Association concerning the assignment and processing of “indirectly-related” tax cases and possible amendments to the Rules of the United States Court of Federal Claims (“RCFC”). We prepared this proposal in response to your presentation at the May 2006 meeting of the American Bar Association Section of Taxation in Washington, DC during the Court Procedure Practice Committee program, in which you requested comments on such amendments. The views expressed in this letter have not been approved by the Board of Governors or the House of Delegates of the American Bar Association and should not be construed as representing the policy of the American Bar Association. http://www.abanet.orgtax/pubpolicy/2007/070322regsonidentityofthetaxpayerforpurposesofsec901and903.pdf These Comments address the proposed regulations 1relating to the determination of who is considered to pay a foreign tax for purposes of sections 901 and 903 of the Internal Revenue Code of 1986, as amended. The Proposed Regulations address transactions that involve the separation of foreign taxes from related foreign income. The Proposed Regulations would amend the section 901 Regulations regarding the identity of the person considered to pay a foreign tax for U.S. federal income tax purposes. Existing Regulations, issued in 1983 , treat the person upon whom foreign law imposes legal liability for the tax as the taxpayer. The Proposed Regulations would amend the existing regulations generally to treat foreign law as imposing legal liability on the person whom foreign law requires to take into account the income subject to the foreign tax. The Proposed Regulations for this purpose would treat foreign law as allocating income among a group of persons that compute their income on a combined basis. The Proposed Regulations also would provide special rules for determining the identity of the taxpayer in the case of so-called “hybrid” and “reverse-hybrid” structures, the tax characterization of which differs between U.S. and foreign law. http://www.abanet.org/tax/pubpolicy/2007/070315jctreport.pdf On October 19, 2006, the Senate Finance Committee released an August 3, 2006 report on Additional Options to Improve Tax Compliance that was prepared by the staff of the Joint Committee on Taxation . The 2006 JCT Report states that “[s]tudies suggest the misreporting of tax basis is contributing to the tax gap” and that the lack of mandatory basis reporting “creates the opportunity for inadvertent and intentional overstatement of basis.”1 The 2006 JCT Report concludes that “[i]mposing a basis reporting requirement, where administratively feasible, should ameliorate the problems of inadvertent and intentional basis misreporting[,] . . . should increase the accuracy of gain and loss measurement[,] and should reduce the tax gap.”2 We agree that increased reporting with respect to the cost of securities would increase the accuracy of gain or loss measurement and decrease intentional basis misreporting. We believe, however, that imposing mandatory “adjusted-basis” reporting may be impractical because, in many instances, the broker executing the sale transaction will not be able to observe3 all of the information necessary to compute the correct adjusted basis for its customers. These comments are submitted on behalf of the American Bar Association Section of Taxation and have not been approved by the House of Delegates or Board of Governors of the American Bar Association. Accordingly, they should not be construed as representing the position of the American Bar Association. http://www.abanet.org/tax/pubpolicy/2007/proposedregsundesec60116111and6112.pdf On November 1, 2006, the Internal Revenue Service (“IRS”) and the Department of Treasury (“Treasury”) issued proposed regulations (the “Proposed Regulations”) under Internal Revenue Code sections 6011, 6111, and 61121 concerning “reportable transactions” and requested public comment, particularly concerning “how the regulations can be targeted to capture useful information about potentially abusive transactions while minimizing the burden imposed on taxpayers and material advisors.”2 The IRS and Treasury also amended temporary and final regulations under sections 6011, 6111, and 6112 relating to the process for obtaining a ruling concerning whether a transaction is reportable.3 The following comments (“Comments”) address issues relating to the requirements of sections 6011, 6111, and 6112, as set forth in the Proposed Regulations, and offer suggestions for reducing the burden of compliance and improving disclosure. These Comments also address the changes to the ruling process and its corresponding effect on reporting obligations. These Comments supplement our earlier comments concerning reportable transactions and material advisors submitted by letters dated January 26, 2005 and dated February 7, 2005.4 http://www.abanet.org/tax/pubpolicy/2007/proceduresforrequestingaccountingmethodchanges.pdf Taxpayers desiring to change a method of accounting must first obtain the consent of the Internal Revenue Service (the “Service”). The Tax Section of the American Bar Association (the “Tax Section”) has a number of concerns about the current procedures that apply to taxpayers making such requests and the Service’s practice in reviewing and granting or denying such requests. The Tax Section sets forth a proposal for revising the current accounting method change procedures to address the concerns. Under the proposal, all taxpayer requests for changes in methods of accounting would be made under the automatic consent procedures currently in effect for many requests today, except as otherwise specifically provided by the Service. The Service would retain authority to identify in published guidance specific method changes that could be made only under the advance consent procedures. Taxpayers changing a method of accounting under the automatic procedures would receive audit protection for their old method, but would not receive a ruling for their proposed method. Taxpayers who desire certainty regarding their proposed method or the application of their proposed method to certain fact patterns would be permitted to request a private letter ruling addressing those issues. In addition, taxpayers would have the option to request advance consent to make a method change under an “accelerated track” procedure. http://www.abanet.org/tax/pubpolicy/2007/iIncreasesincivilandcriminalpenaltiesins349smallbusinessandworkpportunityactof2007house.pdf These Comments address certain proposed increases in civil and criminal penalties contained in S. 349, the Small Business and Work Opportunity Act of 2007 (the “Senate Bill”), currently pending in Congress. While we recognize the overall need to increase voluntary tax compliance, we believe that these proposals should be eliminated because they would tend to discourage rather than encourage voluntary compliance, would create unnecessary complexity and would permit the Internal Revenue Service (“IRS”) to impose penalties unilaterally without opportunity for judicial review. For these reasons we believe the proposals are inadvisable as drafted and should not be adopted. Rather, we urge that tax enforcement efforts focus on programs that encourage nonfilers to get back into compliance and that increase the likelihood that tax returns will be subject to examination. http://www.abanet.org/tax/pubpolicy/2007/civilandcriminalpenaltiess349smallbusandwrkoppact2007.pdf These Comments address certain proposed increases in civil and criminal penalties contained in S. 349, the Small Business and Work Opportunity Act of 2007 (the “Senate Bill”), currently pending in Congress. While we recognize the overall need to increase voluntary tax compliance, we believe that these proposals should be eliminated because they would tend to discourage rather than encourage voluntary compliance, would create unnecessary complexity and would permit the Internal Revenue Service (“IRS”) to impose penalties unilaterally without opportunity for judicial review. For these reasons we believe the proposals are inadvisable as drafted and should not be adopted. Rather, we urge that tax enforcement efforts focus on programs that encourage nonfilers to get back into compliance and that increase the likelihood that tax returns will be subject to examination. http://www.abanet.org/tax/pubpolicy/2007/regulationsundersection1221a4.pdf On August 7, 2006, the Department of Treasury and the Internal Revenue Service (the “Service”) issued proposed regulations that would interpret section 1221(a)(4)2 as not excluding from capital asset treatment notes and accounts receivable obtained by a creditor in an originated lending transaction or purchased by it in a secondary market. As a result, the Proposed Regulations would preclude, for taxpayers not covered by section 582(c) or 475, ordinary income or loss treatment on a sale of such notes and accounts receivable. Furthermore, because the Proposed Regulations would treat such receivables as capital assets, they would preclude the holders from obtaining the efficiencies of tax hedging under sections 1221(b)(2) and 1221(a)(7), and Regulation section 1.1221-2(b), making it difficult or impossible to manage the risks associated with holding the receivables. We respectfully submit that the Proposed Regulations should not be made final, in particular because they would reverse well-established case law. http://www.abanet.org/tax/pubpolicy/2007/newcategoryreportabletransactionoveringpatentedtaxstrategies.pdf These comments concern the creation of a new category of reportable transaction for transactions that use patented tax strategies. These Comments have been prepared in response to the request for comments on creating a new category of reportable transaction for transactions that use patented tax advice or tax strategies. The request is set forth in the preamble to the proposed regulations on disclosure of reportable transactions by taxpayers under section 6011 of the Internal Revenue Code of 1986, as amended ,1 published in the Federal Register on November 2, 2006. 71 Fed. Reg. 64488, 64490. The Section commends the Internal Revenue Service for soliciting input on this critical subject. These Comments make recommendations regarding the following: Creation of a new category of reportable transaction for transactions that use patented tax strategies; Expansion of the material advisor rules to include persons who license tax patents to others or who provide tax statements regarding tax patents; Consideration of whether the IRS should receive patent applications pertaining to tax strategies at the time the applications are filed with the United States Patent and Trademark Office. http://www.abanet.org/tax/pubpolicy/2007/070206abaltrlegislativeprocess.pdf http://www.abanet.org/tax/pubpolicy/2007/070205sec4965ofirscodeof1986.pdf Section 4965, added to the Code as part of the Tax Increase Prevention and Reconciliation Act of 2005, imposes a punitive excise tax on tax-exempt entities (including certain benefit plans) that are parties to prohibited tax shelter transactions. The excise tax applies irrespective of whether the tax-exempt entity knew or had reason to know that a transaction was a prohibited tax shelter transaction. A separate excise tax applies to any entity manager who approved the exempt organization’s becoming a party to the transaction, while knowing or having reason to know that the transaction was a prohibited tax shelter transaction. It is not clear under section 4965 whether, in many common situations, a transaction is a prohibited tax shelter transaction, or when a tax-exempt entity is a party to such transaction. As a result, section 4965 has the potential to disrupt many existing and appropriate market practices, unless guidance is provided to address these issues. Enclosed are comments concerning section 4965 of the Internal Revenue Code of 1986. These comments represent the views of the American Bar Association Section of Taxation. http://www.abanet.org/tax/pubpolicy/2007/070202-ltrlegislativeprocess.pdf I am writing on behalf of the American Bar Association to express our concern regarding the inclusion of new revenue provisions in the Senate Minimum Wage Bill as reported out of the Finance Committee and subsequently approved by the Senate without the benefit of public hearings or public comment. We believe strongly that proposed amendments to the tax laws should be exposed for public comment, preferably through hearings, before Committee action. Failure to follow this procedure deprives affected taxpayers and the public generally of the opportunity to evaluate a proposed amendment and to communicate their assessment to the Committee. http://www.abanet.org/tax/pubpolicy/2007/2007ABAIRSfundingsenate.pdf http://www.abanet.org/tax/pubpolicy/2007/2007ABAIRSFundingHouse.pdf http://www.abanet.org/tax/pubpolicy/2007/070116-tempandproposedregsec902corps.pdf As a result of the heightened investment in emerging markets and the requirements of local ownership, it seems that the number of 10/50 corporations is on the rise. As companies look at ways to grow their businesses and stay competitive, joint ventures are an increasingly attractive option. Absent a check-the-box election to treat a company as a partnership, many joint venture entities become 10/50 corporations. Accordingly, rules that ease compliance burdens and allow a U.S.-based multinational to utilize its foreign tax credits with respect to distributions from 10/50 corporations on a basis comparable with other direct investments will reduce distortions in U.S. companies’ international investment decisions. Enclosed are comments concerning temporary and proposed regulations relating to applications of separate limitations to Dividends from noncontrolled section 902 corporations. http://www.abanet.org/tax/pubpolicy/2006/122906substantialitycomments.pdf On November 18, 2005, the Internal Revenue Service (“IRS”) and the Treasury Department (“Treasury”) issued proposed regulations under section 704(b) (the “Proposed Regulations”).1 The Proposed Regulations provide rules for testing the “substantial economic effect” of partnership allocations where one or more of the partners is a “look-through” entity, which, under the Proposed Regulations, would include other partnerships, S corporations, members of a consolidated group, and, in certain cases, controlled foreign corporations .2 The Proposed Regulations are the product of the IRS and Treasury’s concern that, in determining whether partnership allocations have substantial economic effect within the meaning of section 704(b), taxpayers have not been taking into account the interaction of partnership allocations with the tax attributes of the owners of look-through entities that are partners. In the preamble to the Proposed Regulations, the IRS and Treasury requested comments regarding specific issues related to the Proposed Regulations. The Section appreciates the opportunity to respond to those specific requests and to comment on other aspects of the Proposed Regulations. http://www.abanet.org/tax/pubpolicy/2006/1211067216privacytechnicalcomments.pdf Enclosed are Comments concerning Proposed Regulations under Code Section 7216. These Comments represent the views of the American Bar Association Section of Taxation. They have not been approved by the Board of Governors or the House of Delegates of the American Bar Association and should not be construed as representing the policy of the American Bar Association. http://www.abanet.org/tax/pubpolicy/2006/120406proposedregscostsharing.pdf Enclosed are comments on Proposed Regulations for Cost Sharing Arrangements. These comments represent the views of the American Bar Association Section of Taxation. They have not been approved by the Board of Governors or the House of Delegates of the American Bar Association and should not be construed as representing the policy of the American Bar Association. http://www.abanet.org/tax/pubpolicy/2006/113006scorpbankcomments.pdf Enclosed are comments on proposed regulations under section 1363(b), regarding the application of certain banking provisions to S corporations and qualified subchapter S subsidiaries, as prepared by members of the Committees on S Corporations and Banking and Savings Institutions. These comments represent the views of the American Bar Association Section of Taxation. They have not been approved by the Board of Governors or the House of Delegates of the American Bar Association and should not be construed as representing the policy of the American Bar Association. http://www.abanet.org/tax/pubpolicy/2006/061114faustcomments.pdf Enclosed are comments concerning Proposed Regulations Relating to Dual Consolidated Losses (Prop. Reg. §1.1503(d)-1-1.1503(d)-6). These comments represent the views of the American Bar Association Section of Taxation. They have not been approved by the Board of Governors or the House of Delegates of the American Bar Association and should not be construed as representing the policy of the American Bar Association. http://www.abanet.org/tax/pubpolicy/2006/061113commentsonproposedamendmenttorule173.pdf The following submission is made on behalf of the Section of Taxation1 of the American Bar Association in response to the United States Tax Court’s (“Court”) request for public comment on its proposed revisions to the United States Tax Court Rules of Practice and Procedure, Rule 173. The views expressed in this letter have not been approved by the Board of Governors or the House of Delegates of the American Bar Association and should not be construed as representing the policy of the American Bar Association. http://www.abanet.org/tax/pubpolicy/2006/061031hr6264ands4026.pdf Enclosed are comments on the proposals included in H.R. 6264 and S.4026 related to the application of Code section 470 to partnerships and proposed clarification of the term “separate affiliated group” in section 355(b)(3). These comments represent the views of the American Bar Association Section of Taxation. They have not been approved by the Board of Governors or the House of Delegates of the American Bar Association and should not be construed as representing the policy of the American Bar Association. http://www.abanet.org/tax/pubpolicy/2006/061026notice200668requirementofpartialpaymentwithsubmissionofofferincompromise.pdf Enclosed are comments in response to Notice 2006-68 regarding the requirements of partial payment with the submission of offers in compromise. These comments represent the views of the American Bar Association Section of Taxation. They have not been approved by the Board of Governors or the House of Delegates of the American Bar Association and should not be construed as representing the policy of the American Bar Association. http://www.abanet.org/tax/pubpolicy/2006/101606notice2006-68.pdf Comments in Response to Notice 2006-68 Regarding Definition of Low-Income and Waiver Authority Under Section 7122 (c)(2)(C) (10/06) http://www.abanet.org/tax/pubpolicy/2006/irsoversight91506.pdf Letter to IRS Oversight Board Measuring IRS Progress in Meeting Long Term Goals (09/06) Re: Measuring the Service's Progress in Meeting its Long-Term Goals