Saturday, July 26, 2008

H.R. 3221

H.R. 3221 would:

          Give the Federal Deposit Insurance Corporation the authority to create so-called bridge institutions for failing savings associations, mirroring a capability that has existed since 1991 for failed banks.

          Give the Federal Housing Administration $300 billion in new lending authority and relax standards to provide affordable, fixed-rate mortgages to an estimated 400,000 debt-ridden homeowners. Any losses would be covered by an affordable housing fund financed by Fannie Mae and Freddie Mac, the government-sponsored companies that finance mortgages.

          Allow the Treasury Department temporary authority to lend money to Fannie and Freddie or buy their stock to avert a collapse of one or both of the mortgage giants. The authority would expire on Dec. 31, 2009.

          Create a new regulator and tighten controls on Fannie and Freddie, including power for the regulator to approve pay packages for company executives. Create a new affordable housing fund drawn from their profits. Permanently raise the limit on the loans they may buy to $625,000 in the highest-cost areas. Allow them to buy loans 15 percent higher than the median home price in certain cities.

          Provide $3.9 billion in grants to the hardest-hit communities for buying and fixing up foreclosed property.

          Modernize the FHA and allow it to back loans for riskier borrowers. Permanently increase the size of loans the agency may insure - currently set to revert to $362,790 by the end of the year - to $625,000 in the highest-cost areas. The agency could insure loans 15 percent higher than the median home price in certain cities.

          Forbid the FHA from insuring mortgages in which the borrower's down payment is paid by the seller, beginning on Oct. 1, 2008. Place a one-year moratorium forbidding the agency from charging premiums based on the riskiness of the homeowner, until Oct. 1, 2009.

          Provide $15 billion in housing tax breaks, including for low-income housing. Give a credit of up to $7,500 for first-time home buyers who purchase residences between April 9, 2008, and July 1, 2009. Allow people who don't itemize their taxes to claim a $500-$1,000 deduction on their 2008 property taxes. (NOTE: The credit is 10 percent of the purchase price or $7,500, whichever is less -- but for married people filing separately, the $7,500 limit becomes $3,500. Unmarried people who jointly purchase a home can divide the $7,500 credit, but how the division is to take place is left to IRS regulation-writers. The credit begins to phase out at the $150,000 income level for joint filers ($75,000 for other filers) and is not available for joint filers with income above $170,000 ($95,000 for other filers). It's also not available to nonresident aliens, those who qualify for a similar District of Columbia credit or those whose financing comes from tax-exempt mortgage revenue bonds. The credit is more of an interest-free loan than a complete giveaway; taxpayers will have to pay back the credit they claim over 15 years.)

          Give states an additional $11 billion in tax-free municipal bond authority for low-interest loans to first-time home buyers, construction of low-income rental housing and refinancing subprime mortgages.

          Offer protection from investor lawsuits for mortgage holders that modify loans to borrowers who are in default or about to default.

          Provide $180 million for pre-foreclosure counseling and legal services for distressed

          Provide Chrysler a corporate tax incentive even though the company is now structured as a partnership not a corporation. The bill does not name Chrysler but rather describes an unnamed automobile manufacturer “that will produce in excess of 675,000 automobiles” between Jan. 1 and June 30, 2008.

Some people may be adversely affected by the bill, including those who buy a vacation home, or who rent out a home while planning to make it their main residence at a later time. Currently, if a second home becomes a principal residence, after two years the owner can sell it and exclude up to $250,000 in gain from their income -- or up to $500,000 for couples filing jointly.

But the bill pro-rates the exclusion between the time that a home is used as a principal residence and the total length of ownership, which includes any "non-qualifying" use as a rental or vacation property. Non-qualifying use before the January 1, 2009, effective date of the provision, isn't used in the calculation, however. Nor are periods after a qualified use of the property or temporary absences of less than two years.

Read the Bill by clicking The American Housing Rescue & Foreclosure Prevention Act link.

Thursday, July 17, 2008

VSP appeal
Ken Starr to Appeal Tax-Exempt Case to Supreme Court

Rancho Cordova, Calif. (July 17, 2008)
By WebCPA staff

VSP Vision Care has hired former U.S. Solicitor General Ken Starr to represent the eye care insurance provider in an appeal to the U.S. Supreme Court on its tax-exempt status.

Starr became famous as an independent counsel investigating Whitewater and other scandals during the Clinton administration and the author of the Starr Report detailing Monica Lewinski's involvement with President Clinton. VSP has added him to its legal team as it files a writ of certiorari to the Supreme Court for a final hearing on its tax-exempt status.

"They take a small number of cases, but we think it's an important case," said spokesman Pat McNeil. "We feel that having a not-for-profit model for health care, along with a for-profit model, is important."

VSP plans to file with the Supreme Court by August 7 and expects to hear in the fall on whether the high court will take the case. McNeil believes the case could set a precedent.

Starr joins an appellate legal team that already includes senior litigation partner Douglas C. Ross of Davis Wright Tremaine LLP, who has represented VSP in the tax matter since 2003, and Thomas A. Fessler, VSP's vice president and general counsel.

"This case is really about determining what guidelines the IRS uses to define what constitutes a tax-exempt not-for-profit organization," said Starr in a statement. "VSP had a tax-exemption for more than 40 years, has not changed their business philosophy or focus on the community, and yet lost their tax-exempt status. In the end, we are simply asking the Supreme Court to recognize the significant community benefit VSP offers to more than 55 million Americans."

In 1960, VSP was granted an exemption from its obligation to pay federal income taxes. In 2003, based on an examination conducted in 1999, the IRS issued a final adverse determination letter, revoking tax-exempt status for VSP's California corporation effective Jan. 1, 2003. VSP has been paying taxes since then while pursuing its so-far unsuccessful appeals.

Tuesday, July 15, 2008

Car donation drops
New Tax Laws Dry up Car Donations

July 15, 2008 (Business Wire) -- Car donations have plummeted since Congress in 2004 tightened the tax rules for claiming charitable deductions, according to a Grant Thornton analysis of new IRS data.

Before 2005, taxpayers who donated a vehicle were allowed to deduct its fair market value. Tax legislation enacted in 2004 changed the rules to generally limit vehicle donation deductions of over $500 to either the actual proceeds from a vehicle's sale or the vehicle's fair market value -- whichever is less.

Recently released IRS statistics reveal the 2004 law had an immediate and drastic affect on car donations. An analysis of the new numbers by Grant Thornton's National Tax Office shows that between tax year 2004 and 2005, car donations of over $500 dropped by two-thirds.

Over 900,000 tax returns claimed deductions for donated automobiles in 2004. In 2005, the last year for which the IRS has detailed data, less than 300,000 tax returns included such claims.. The total amount deducted for all car donations declined from $2.4 billion in 2004 to just a half a billion dollars the following year, a decrease of over 80 percent.

"Congress was concerned that people were inflating the value of donated cars under the old system, claiming full blue book value for vehicles that had been turned down by the local junk yard," said Mel Schwarz of Grant Thornton's National Tax Office in Washington, D.C. "The hope was that charities would still get the same number of cars they could auction for the same amount of money, and the only change would be the elimination of excess charitable deductions. That hope was clearly not recognized."

It is worth noting that the although the total number of car donations fell by 67 percent, and the amount of deductions claimed as a result of such donations fell by over 80 percent, the deduction claimed per car donated only declined by 41 percent. "This suggests a generous tax deduction was not the only thing lost with this change," noted Schwarz.

Donations of vehicles besides automobiles also declined. The number of returns claiming non-car vehicle donations dropped over 25 percent from 2004 to 2005, and the amount claimed in deductions fell from $205 million to $140 million.

The new restrictions on car donations have not dampened Americans' overall generosity. The total amount of deductions claimed for charitable deductions increased from $156 billion in 2004 to $172 billion in 2005. In 2006, the number increased again to $173 billion.

Friday, July 11, 2008

Tax Court not a Real Court
Appeals Court Says Tax Court Is Not a Real Court

Cincinnati (July 11, 2008)
By WebCPA staff

The U.S. Court of Appeals for the Sixth Circuit issued an opinion in a tax dispute that found the U.S. Tax Court is not a court as defined by law.

The case, Mobley v. Commissioner of Internal Revenue, involved an IRS audit of a couple's 2000 tax return in which the IRS increased their tax liability by $32,554. The Mobleys consented to the increased assessment and collection, then filed an amended tax return for 2000, claiming a refund of $27,715. The IRS audited that return as well and disallowed the claim because the couple failed to respond to requests for evidence supporting their claim.

The couple filed a petition with the Tax Court, seeking a redetermination of their income tax for 2000 and asking for the audit to be reopened so they could produce supporting evidence. After changing residence several times, the Mobleys said they had never received actual notice of an audit and never had an opportunity to produce evidence supporting their claims. The Tax Court dismissed the petition, concluding that it lacked jurisdiction because "no notice of deficiency had been issued to petitioners for their taxable year 2000."

The Tax Court also rejected the Mobleys' request to transfer the case to the U.S. District Court for the Eastern District of Kentucky pursuant to 28 U.S.C. Section 1631. It agreed with the appeals court, reasoning that the section "by its terms applies only to a 'court' as defined in 28 U.S.C. Section 610" and that the "Tax Court is not included among the courts listed in 28 U.S.C. Sec. 610."

At stake is whether the Tax Court has authority to transfer a case over which it lacks jurisdiction to a federal district court that otherwise would have jurisdiction over the dispute. The Tax Court was originally known as the Board of Tax Appeals, and was within the Bureau of Internal Revenue, before it became known as a court.

"No one disputes that the Mobleys established at least three of the requirements for a transfer," wrote the appeals court. "The Tax Court lacked jurisdiction over the dispute; a transfer would serve the interest of justice; and the court to which the Mobleys want the case transferred is a court as defined in Section 610-namely, a 'district court of the United States.' The question is whether they satisfied the fourth element: Is the Tax Court, where the claimants initially filed the action, a court as defined in Section 610?... To our knowledge (and counsel's knowledge), every other court to address the issue has agreed that the Tax Court is not a 'court as defined in Section 610.'"

The appeals court ended up agreeing with the Tax Court on the jurisdictional question, saying, "Because the Mobleys do not challenge the Tax Court's jurisdictional ruling and because the Tax Court correctly concluded that it lacked authority to transfer the case under Section 1631, we affirm."