Focus on Tax - FOT-07-10

October 2007

		Final Dual Consolidated Loss Regulations Close Some Doors but Leave Some Ajar

		Vendor Beware: Drop Shipments May Result in Unexpected Sales Tax Collection Obligations

		IRS Provides Safe Harbor for Depreciation of Rotable Spare Parts

		When Derivative Benefits and Zero Withholding on Dividends Collide: Are Any Treaty Benefits Available?

		Zealous Prosecution and Its Aftermath: Arthur Andersen Remembered

Final Dual Consolidated Loss Regulations Close Some Doors but Leave Some Ajar


Congress originally enacted Code Sec. 1503(d) to prevent corporate taxpayers from taking a deduction in two different jurisdictions for a single economic loss. Yet, Congress did not seek to target every loss. Instead, it only sought to target certain losses, referred to as dual consolidated losses that it believed were being used inappropriately in the U.S. and abroad. In their column in the upcoming November issue of Taxes-The Tax Magazine, Gregg D. Lemein, John D. McDonald, and Stewart R. Lipeles illustrate abuses, summarize regulations, and explain restrictions on dual consolidated losses.
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Related publications of interest include:

Tax Shelter Alert
Tax Advisors and Return Preparers in IRS Crosshairs: New Return Preparer Standards and Circular 230 Monetary Penalties
Tax Accrual Workpapers in the Aftermath of Textron


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Vendor Beware: Drop Shipments May Result in Unexpected Sales Tax Collection Obligations


Lean inventories are essential to reduce business costs and remain competitive. Conversely, with the proliferation of the Internet marketplace, customers expect immediate delivery. Drop shipments are an attractive way to satisfy these conflicting business demands. But, as Phyllis J. Shambaugh notes in an article in Corporate Business Taxation Monthly, vendors that drop ship merchandise to the ultimate consumer on behalf of their customer may create an unexpected obligation to collect and remit sales tax to the state in which the ultimate consumer lives.
Read this article from Corporate Business Taxation Monthly
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Related publications of interest include:

Drop Shipments: Taxation, Compliance and Planning
Sales and Use Tax Nexus: Practical Insights and Strategies
Surviving a Sales and Use Tax Audit


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IRS Provides Safe Harbor for Depreciation of Rotable Spare Parts


In Rev. Proc. 2007-48, IRB 2007-29, 1, the IRS provided a safe harbor method of accounting to treat rotable spare parts as depreciable assets, rather than as inventory, in accordance with Rev. Rul. 2003-37, 2003-1 CB 717, effective for tax years ending on or after Dec. 31, 2006. A taxpayer may request to change its method of accounting for treating rotable spare parts by filing a Form 3115, Application for Change in Accounting Method. An article in Federal Tax Course Letter details requirements for the change and describes the safe harbor method of accounting.
Read this article from Federal Tax Course Letter
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Related publications of interest include:

Multistate Guide to Sales and Use Tax: Manufacturing (2008)
Practical Guide to Research and Development Tax Incentives--Federal, State, and Foreign (2nd Edition)
Top Federal Tax Issues for 2008 CPE Course


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When Derivative Benefits and Zero Withholding on Dividends Collide: Are Any Treaty Benefits Available?


A number of U.S. income tax treaties include a "derivative benefits' provision that allows a corporation that does not otherwise satisfy the requirements of the treaty's Limitation on Benefits article to qualify for the treaty benefits if, among other requirements, substantially all of the corporation's shares are owned by seven or fewer "equivalent beneficiaries." Where derivative benefits are sought for dividends, interesting problems arise if the corporation seeking such treaty access would be entitled to zero withholding but the would-be equivalent beneficiary is not. The language of the applicable treaty provisions would appear to deny treaty benefits in this situation, but, as Michael J. Miller discusses in his column in the International Tax Journal, appearances may be deceiving.
Read this article from the International Tax Journal
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Related publications of interest include:

Practical Guide to U.S. Taxation of International Transactions (Sixth Edition)
International Taxation: U.S. Taxation of Foreign Persons and Foreign Income (Fourth Edition)
Transfer Pricing Rules and Compliance Handbook


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Zealous Prosecution and Its Aftermath: Arthur Andersen Remembered


Two years after the Supreme Court decision in Arthur Andersen, the case stands as a testimonial to the power of government prosecutors. Prior to its indictment, Andersen was a $9 billion "big five" accounting firm with hundreds of partners and more than 28,000 employees. Although the decision vacated Andersen's felony conviction, the reversal has not seen Andersen return as a viable business on even a small scale or restored either partners' investments or employees' jobs. Claudia Hill, in her Journal of Tax Practice & Procedure article, highlights the justices' terse rebuke of the government's actions.
Read this article from the Journal of Tax Practice & Procedure
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Related publications of interest include:

Accountants' SEC Practice Manual
Enron & Beyond: Technical Analysis of Accounting Corporate Governance and Securities Issues
SOX 404 for Small, Publicly Held Companies, with CD (2008)


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Taxes-The Tax Magazine


Insightful articles and columns on current tax issues, trends and hot topics

Corporate Business Taxation Monthly


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Federal Tax Course Letter


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International Tax Journal


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Journal of Tax Practice and Procedure


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