TAX COURT: ROTH IRA CAN'T OWN S CORPORATION STOCK

On September 30, 2009, the Tax Court took 26 pages to decide that a Roth IRA is not a qualified S corporation shareholder -- a lot of effort to come to an obvious answer. While that seems like a long road to get to the right place, it could have been worse. Four of the Tax Court judges took 31 pages to get to the wrong answer, in dissent.

U.S. Corporate Tax Rate Is 2nd Highest in Industrialized World

New data from the Organization for Economic Cooperation and Development (OECD) shows that the U.S. corporate tax rate has fallen even further out of step with the rest of the industrialized world as countries such as Canada, the Czech Republic, Korea, and Sweden have cut their corporate rates in 2009, lowering the average statutory corporate tax rate of all OECD nations to 26.5%.

With a combined federal and state corporate tax rate of 39.1%, the U.S. continues to impose the second-highest overall corporate rate among industrialized countries. Only Japan's 39.5% combined rate is higher. As the chart below indicates, the weighted average (accounting for country size) corporate rate of non-U.S. OECD nations is now below 30% for the first time in history. 2009 marks the 12th consecutive year in which the average corporate tax rate of non-U.S. OECD nations has been below the U.S. rate.

IRS Launches Tax Return Preparer Review

IR-2009-57, June 4, 2009

WASHINGTON — IRS Commissioner Doug Shulman announced today that by the end of 2009, he will propose a comprehensive set of recommendations to help the Internal Revenue Service better leverage the tax return preparer community with the twin goals of increasing taxpayer compliance and ensuring uniform and high ethical standards of conduct for tax preparers.
Some of the potential recommendations could focus on a new model for the regulation of tax return preparers; service and outreach for return preparers; education and training of return preparers; and enforcement related to return preparer misconduct. The Commissioner will submit recommendations to the Treasury Secretary and the President by the end of the year.
“Tax return preparers help Americans with one of their biggest financial transactions each year. We must ensure that all preparers are ethical, provide good service and are qualified,” Shulman said. “At the end the day, tax preparers and the associated industry must be part of our overall game plan to strengthen the integrity of the tax system.”

The first part of this groundbreaking effort will involve fact finding and receiving input from a large and diverse constituent community that includes those that are licensed by state and federal authorities — such as enrolled agents, lawyers and accountants — as well as unlicensed tax preparers and software vendors. The effort will also seek input and dialog with consumer groups and taxpayers.

“We plan to have a transparent and open dialogue about the issues,” Shulman said. “At this early and critical stage of the process, we need to hear from the broadest possible range of stakeholders.”

Later this year, the IRS plans to hold a number of open meetings in Washington and around the country with constituent groups. More information, including schedules and agendas for public meetings, will be posted on the “Tax Professionals” page on this Web site and will be communicated to stakeholder groups.

Obama Administration Proposes $60 billion in New Tax Increases

WASHINGTON -- The Obama administration will propose $60 billion in new tax increases over 10 years on wealthy estates, businesses and others to make up for shortfalls in its fund to pay for an expensive overhaul of the health-care system. The measures go beyond plans the White House has announced in the past few weeks. Officials said that upon further analysis they realized that they had overestimated savings and tax increases proposed in February to help pay the bill. Some of the changes will be announced Saturday, with the full proposals coming Monday when the White House releases a detailed analysis of its budget blueprint. Administration officials described the new proposals not as tax increases, but as eliminating "tax loopholes."

One element would raise an estimated $24 billion over 10 years by tightening estate-tax rules, giving taxpayers less flexibility to minimize their liability on inherited goods by claiming a different value on the same item for different transactions.

A second element, which would raise $10 billion over 10 years, would require businesses and others who make payments to corporations to report such payments to the Internal Revenue Service. Under current law, payments to individuals are required to be reported on a 1099 form, but no such requirements exist for similar payments to corporations. The goal is to make sure that the recipient corporations report all their taxable income.

How to pay for a health-care overhaul estimated to cost more than a trillion dollars over a decade is one of the trickiest questions facing the administration and Congress. The White House has proposed a combination of health-care spending cuts and tax increases.

In February, the administration identified $634 billion over 10 years to set aside in a health-care "reserve fund," enough to cover about half the total cost. The money would be needed to pay for new subsidies to help people buy insurance, among other things.

The cuts to government health-care spending are controversial because they mean lower payments for various providers, and they are not expected to raise anywhere near enough money to pay the full tab.

President Barack Obama's main tax proposal -- to cap deductions for the wealthy -- has been all but dismissed by key members of Congress, but officials Friday said they are sticking with it.
The matter was made more challenging after further analysis, when officials realized that their proposals did not actually raise $634 billion.

The spending cuts, originally estimated at saving $316 billion, would actually save only $309 billion, a White House official said. The tax increases, originally estimated at $318 billion, would actually raise $267 billion. That leaves a gap of $58 billion over 10 years. To make up the gap, officials found about $60 billion in new taxes. On Friday, they detailed about $35 billion of that to The Wall Street Journal and said they would reveal the rest of the proposals on Monday.
The provision regarding estates would prevent taxpayers from using two different valuations for the same items. Under current law, the White House official said, some people estimate a particular inherited item at one value for the purposes of the estate tax, but estimate the value of the same item at a higher amount when reporting it as a gift.

That is because the incentive is to undervalue items when paying the estate tax. But the incentive is to overvalue them when reporting gifts, so that the basis will be higher when calculating capital gains if the item is sold. Under the proposal, taxpayers would have to use the same value for both purposes.

The administration is also proposing to more quickly kill what it calls the "paper company loophole." The tax code gives a tax credit to companies that develop alternative fuels if they mix biological products with other fuel. The official said that paper manufacturers have figured out that if they add some gasoline to the sludge they have long produced and used as a fuel that they can qualify. The change will raise less than $1 billion over 10 years.