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October 10,  2008

Federal Headlines

Treasury Security Rate Set for Computing Current Plan Liability for October 2008 (Notice 2008-93)

 

For pension plan years beginning in October 2008, the IRS has released the corporate bond weighted average interest rate, the permissible range of interest rates used to calculate current plan liability and to determine the required contribution under Code Sec. 412(l) for plan years through 2008, and the current corporate bond yield curve and related segment rates for the purpose of establishing a plan's funding target under Code Sec. 430(h)(2).

 

The corporate bond weighted average interest rate for plan years beginning in October 2008 is 6.14 percent; the 90-percent to 100-percent permissible range is 5.52 percent to 6.14 percent. The annual rate of interest on 30-year Treasury securities for September 2008, used to determine the minimum present value of a participant's benefit under Code Sec. 417(e)(1) and (2), is 4.27 percent.

 

For plans electing not to use the transitional rule under Code Sec. 430(h)(2)(G) or for plans whose first year begins after 2008, the 24-month average segments rates for October 2008 are: 5.09 for the first segment, 6.16 for the second segment, and 6.58 for the third segment.

 

For plan years beginning in 2008, the funding transitional segment rates for October 2008 are: 5.79 for the first segment, 6.15 for the second segment, and 6.29 for the third segment. For plan years beginning in 2009, the funding transitional segment rates are: 5.44 for the first segment, 6.15 for the second segment, and 6.43 for the third segment.

 

For plan years beginning in 2008, the minimum present value transitional segment rates for October 2008 are: 4.59 for the first segment, 4.89 for the second segment, and 4.79 for the third segment. For plan years beginning in 2009, the minimum present value transitional segment rates are: 4.91 for the first segment, 5.50 for the second segment, and 5.31 for the third segment.

Notice 2008-93, 2008FED ¶46,611

Other References:

 

Code Sec. 401

 

CCH Reference - 2008FED ¶17,730.40

 

Code Sec. 412

 

CCH Reference - 2008FED ¶19,125.505

 

Code Sec. 417

 

 

 

Code Sec. 430

 

CCH Reference - 2008FED ¶20,161.30

 

Tax Research Consultant

 

CCH Reference - TRC RETIRE: 15,304.05

CCH Reference - TRC RETIRE: 15,304.10

CCH Reference - TRC RETIRE: 30,556

 

Net Capital Losses Excluded from Alternative Tax Net Operating Loss Calculation (Palahnuk, CA-2)

 

A married couple could not include net capital losses when calculating their alternative tax net operating loss (ATNOL) under Code Sec. 56(d). The Tax Court properly rejected the taxpayers' claim that Code Sec. 56(d) allowed them to fully deduct capital losses notwithstanding the limitations on capital loss deductions in Code Secs. 172(c), 172(d) and 1211(b). The capital loss limitations under Code Sec. 172 were not only applicable to the regular income tax regime, but also applied to the alternative minimum tax (AMT), unless explicitly excluded. Significantly, Code Sec. 56(d) actually directs taxpayers to calculate NOL under Code Sec. 172(c) with AMT-adjusted figures.

 

Further, Code Sec. 56(d) did not provided an exception to the Code Sec. 172 limitation on deducting net capital losses. Moreover, the taxpayers did not point to any statute or rule that specifically excluded the application of Code Secs. 172(c), 172(d) and 1211(b) or authorized the inclusion of net capital losses when calculating an ATNOL. Finally, Congress enacted the AMT to ensure that high-income taxpayers could not avoid significant tax liability through the use of exclusions, deductions and credits; therefore, it could not have intended that taxpayers be permitted to deduct net capital losses for AMT purposes when they had accumulated a substantial tax credit.

 

Affirming, per curiam, the Tax Court, Dec. 56,644, 127 TC 118.

J.N. Palahnuk, CA-2, 2008-2 USTC ¶50,577

Other References:

 

Code Sec. 55

 

CCH Reference - 2008FED ¶5101.14

 

Code Sec. 56

 

CCH Reference - 2008FED ¶5210.57

 

CCH Reference - 2008FED ¶5210.63

 

Code Sec. 172

 

CCH Reference - 2008FED ¶12,014.4015

 

Code Sec. 1211

 

CCH Reference - 2008FED ¶30,392.15

 

Tax Research Consultant

 

CCH Reference - TRC FILEIND: 30,156.05

CCH Reference - TRC FILEIND: 30,158

CCH Reference - TRC SALES: 15,202.50

 

State Headlines

California --Personal Income Tax: Mortgage Forgiveness Debt Relief Law Clarified

 

The California Franchise Tax Board (FTB) has clarified recently enacted legislation (S.B. 1055) that partially conforms California personal income tax law to federal amendments made by the Mortgage Forgiveness Debt Relief Act of 2007 (P.L. 110-142) allowing an exclusion from gross income for discharge of an individual's qualified principal residence indebtedness. Details of the legislation were previously reported.

 
California-Federal Differences

 

The FTB notes that while the California legislation is similar to federal law, there are important differences. The California law covers qualified debt forgiven in 2007 and 2008. The federal law, which originally covered debt forgiven from 2007 through 2009, was extended by the Emergency Economic Stabilization Act of 2008 (H.R. 1424) to cover debt forgiven from 2007 through 2012.

 

The California law limits the amount of qualified principal residence indebtedness to $800,000 for taxpayers who file as married/registered domestic partners (RDP) filing jointly, single, head of household, or widow/widower, and to $400,000 for taxpayers who file as married/RDP filing separately. Also, the California law limits debt relief to $250,000 for taxpayers who file as married/RDP filing jointly, single, head of household, or widow/widower, and to $125,000 for taxpayers who file as married/RDP filing separately. The federal law, on the other hand, limits the amount of qualified principal residence indebtedness to $2 million for taxpayers who file as married filing jointly, single, head of household, or widow/widower, and to $1 million for taxpayers who file as married filing separately. Furthermore, the federal law does not limit the debt relief amount.

 
Claim for Relief on Original 2007 or 2008 Tax Return

 

A taxpayer can file for debt relief on an original 2007 or 2008 Form 540, California Resident Income Tax Return, or Form 540NR, California Nonresident or Part-Year Resident Income Tax Return. If the amount of debt relief for federal purposes is more than the California limit, the taxpayer must include the amount in excess of the California limit on Schedule CA (540/540NR), line 21f, column (C). If the amount of debt relief for federal purposes is the same as the California limit, then no adjustment is necessary on Schedule CA (540/540NR). A copy of the taxpayer's federal return, including Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) must be included with the original California return.

 
Claim for Relief on Previously Filed 2007 Tax Return

 

A taxpayer who has already filed a 2007 California tax return must file a Form 540X, Amended Individual Income Tax Return, in order to claim debt relief. If the amount of debt relief for federal purposes is more than the California limit, the taxpayer must include the amount in excess of the California limit on Schedule CA (540/540NR), line 21f, column (C). If the amount of debt relief for federal purposes is the same as the California limit, then no adjustment is necessary on Schedule CA (540/540NR). On Form 540X, the taxpayer should simply enter on line 2e, column (B), the amount originally entered on Schedule CA (540/540NR), line 21f, column (C).

Announcement, California Franchise Tax Board, October 8, 2008.

 

Illinois --Corporate, Personal Income Taxes: Pass-Through Entity Withholding for Nonresidents Explained

 

The Illinois Department of Revenue explains the new law that requires partnerships, S corporations, and trusts to make corporate and personal income tax payments on behalf of their nonresident partners, shareholders, and beneficiaries beginning with tax years ending on or after December 31, 2008. A pass-through entity (PTE) is required to make a payment based on its nonresident owners' shares of apportioned Illinois business income and the PTE is then required to notify the nonresident owner of the amount of payment made.

 

Specifically, the bulletin provides detailed information concerning what the PTEs and nonresident owners (including tiered ownership) are required to do, how the PTE payment is calculated, due dates, forms used, and claim and filing information.

Informational Bulletin FY 2009-02, Illinois Department of Revenue, October 2008, ¶401-915

 

Other References:

 

Explanations at ¶10-215

 

Explanations at ¶10-220

 

Explanations at ¶10-225

 

Explanations at ¶10-240

 

Explanations at ¶89-104

 
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