CPAs Provide Expertise for Transfer Pricing Analyses

MAY 2010

Transfer pricing, the process by which multinational companies set arm’s-length prices for cross-border transactions within a corporate group, is complex and consistently ranks as the No. 1 international tax issue facing multinational companies, according to Ernst & Young’s 2009 Global transfer pricing survey. To avoid penalties and potential interest, most tax authorities require taxpayers to prepare annual transfer pricing reports when they file tax returns.

During its infancy, transfer pricing was dominated by economists. However, as global transfer pricing regulations developed, international examiners gained experience and financial accounting standards evolved. Consequently, companies now need experienced tax accountants not only to validate the reliability of the data during tax controversies but also to guide taxpayers during implementation. There is definitely still a role for economists on project teams, but CPAs are probably more conversant with such steps as making a compensating adjustment journal entry or quantifying FIN 48 risks (FASB Interpretation no. 48, Accounting for Uncertainty in Income Taxes, now codified in FASB ASC Topic 740) for financial reporting purposes.

Stuart Rohatiner, CPA, JD

Below are examples of transfer pricing issues where expert accounting skills are important:

Financial reporting. Certain industries have unique accounting revenue and expense treatment, and to calculate the appropriate benchmark ratios for transfer pricing purposes, an accountant needs to analyze the financial statement footnotes and understand which items are characterized as operating, pass-through, etc. For example, the income statements for a professional services firm include a special line item called “reimbursements” under the revenue and cost-of-sales categories. Reimbursements are generally pass-through contractor costs and reimbursed expenses and would likely be excluded from the operating revenue and operating expense calculations for transfer pricing purposes. In addition, with the currently volatile economy and corresponding impact on profitability, companies are increasingly monitoring their taxable income in each jurisdiction and likely making year-end compensating adjustments to the books and records to get profit margins within the arm’s-length ranges.

Transfer pricing audit document requests. The IRS and other tax authorities historically requested that taxpayers provide copies of their transfer pricing reports to support their pricing during audit years. Fast-forward to the current environment, and a typical audit request specifies tying the transfer pricing data from reports to general ledgers, consolidating income statements and balance sheets.

FIN 48 analysis. Public companies and their auditors are now required to analyze the income tax calculations and determine if the company needs to quantify and include in the financial statements any tax exposures that are “more likely than not” to be sustained upon examination. Auditors have increasingly identified transfer pricing risks, especially adjustments and penalties proposed by tax authorities, and forced taxpayers to disclose the details in SEC public filings and book reserves.

Reliability of financial data. Since much of transfer pricing financial analysis involves comparing unaudited financial statements with audited ones, a tax accountant who can validate the reliability of the unaudited data is invaluable, especially in tax controversy settings.

IRS analysis of adjustments and methods. The trend toward an increased focus on the accounting details of intercompany transactions may be a result of the IRS’ hiring international examiners with accounting backgrounds. Whatever the reason, the IRS has placed a new emphasis on reviewing all accounting and functional differences between the taxpayer-tested party and the comparable companies selected in the transfer pricing report. For example, during a recent meeting of a taxpayer with the IRS, the IRS international examiner compared each accounting line item from the taxpayer’s annual report with those of the comparable companies to make sure that adjustments were considered for any differences in functions or risks. Similarly, the examiner insisted on analyzing all potential transfer pricing methods and profit level indicators available, even though the IRS had agreed to the same method and profit level indicator with the taxpayer twice previously and the facts hadn’t changed significantly.

It shouldn’t come as a surprise that with the increasing complexity of transfer pricing and diminishing taxable income of corporations, the level of scrutiny by tax authorities has risen exponentially. In fact, in 2009, the IRS announced plans to hire an additional 800 agents in fiscal 2010 to focus on international examinations, and the agency’s proposed fiscal 2011 budget contains funding for 800 more. The field of transfer pricing will continue to grow and present employment opportunities for practitioners with the desired blend of economics and tax accounting skills.

 By Steve Snyder, CPA/CFF, CVA

Announcement 2010-16 temporarily suspends non-U.S. citizens, residents or domestic entities the requirement to file FBAR forms for 2009 and earlier years.

Part IV – Items of General Interest

FBAR FILING REQUIREMENTS – CONTINUATION OF SUSPENSION OF FBAR

FILING REQUIREMENTS FOR PERSONS WHO ARE NOT UNITED STATES

CITIZENS, UNITED STATES RESIDENTS, OR DOMESTIC ENTITIES

Announcement 2010-16

This Announcement suspends, for persons who are not United States citizens,

United States residents, or domestic entities (corporations, partnerships, trusts, or

estates), the requirement to file Form TD F 90-22.1, Report of Foreign Bank and

Financial Accounts (FBAR), for the 2009 and earlier calendar years.

In October 2008, the Internal Revenue Service published a revised FBAR form

together with accompanying instructions that changed the definition of “United States

person.” The IRS received numerous questions and comments from the public

concerning the changed definition. In response, and to reduce the burden on the public,

the IRS issued Announcement 2009-51, 2009-25 I.R.B. 1105, which directed people to

refer to the definition of “United States person” in the July 2000 version of the FBAR

instructions to determine if they had a filing obligation. This effectively suspended the

filing of FBARs due on June 30, 2009, by persons who were not United States citizens,

United States residents, or domestic entities. Announcement 2009-51 stated that

additional FBAR guidance would be issued for subsequent filing years and invited public

comments concerning the FBAR form and instructions.

Since the issuance of Announcement 2009-51, and receipt of a significant

number of public comments, the Treasury Department has published proposed FBAR

regulations under 31 CFR Part 103, as well as proposed revisions that clarify

instructions for the FBAR (Form TD F 90-22.1). To provide taxpayers with guidance on

who is required to file FBARs due on June 30, 2010, and in particular to provide

immediate guidance to taxpayers on how to answer FBAR-related 2009 federal income

tax return questions (e.g., Schedule B of Form 1040, the “Other Information” section of

Form 1041, Schedule B of Form 1065, and Schedule N of Form 1120), the IRS and

Treasury Department believe it is appropriate to provide the following administrative

relief:

The requirement to file an FBAR due on June 30, 2010, is suspended for

persons who are not United States citizens, United States residents, or domestic

entities. Additionally, all persons may rely on the definition of “United States person”

found in the July 2000 version of the FBAR instructions to determine if they have an

FBAR filing obligation for the 2009 and earlier calendar years. The definition of “United

States person” from the July 2000 version of the FBAR is:  The term “United States person” means (1) a citizen or

resident of the United States, (2) a domestic partnership, (3) a domesticcorporation, or (4) a domestic estate or trust.

This substitution of the definition of “United States person” applies only with respect to

FBARs for the 2009 calendar year and, as originally provided in Announcement 2009-

51, to earlier calendar years.

All other requirements of the 2008 version of the FBAR form and instructions, as

modified by Notice 2010-23, remain in effect until changed by subsequent guidance

issued by the Treasury Department, including the IRS.

EFFECT ON OTHER DOCUMENTS

Announcement 2009-51 is supplemented and superseded.

The principal author of this announcement is Emily M. Lesniak of the Office of

Associate Chief Counsel (Procedure and Administration). For further information

regarding this announcement, contact Emily M. Lesniak at (202) 622-4940 (not a tollfree

call).

Obama Budget to Spark Tax Debates

From Robert Willins, CFO Magazine

President Obama’s prposed 2011 budget is replete with tax proposals replete with tax proposals, many that are “hostile” to business. Here’s a breakdown of the potential changes.

President Obama’s budget submission contains numerous tax proposals, many of them quite “hostile” towards business in general and “high-income” taxpayers in particular. Many of the proposals are aimed at eliminating, or at least curtailing, tax preferences enjoyed by the oil and gas industry. In fact, those changes are designed to add some $39 billion to the government’s coffers over the 10-year projection period.

What follows is a breakdown of proposed tax-rule changes found in the President’s plan.

Domestic Tax Issues
• An extension to the rules for qualifying property placed in service in a taxable year beginning in 2010. A qualifying property is defined as depreciable tangible personal property and certain depreciable real property that is purchased for use in the active conduct of a trade or business. Currently, the rules, which are found in Section 179 of the Internal Revenue Code, are in effect for years beginning in 2008 and 2009. Under the extension, the maximum amount of qualifying inproperty a taxpayer may deduct, rather than capitalize and depreciate, would be $250,000, and the “phase-out” would begin at $800,000. In other words, the deduction is reduced by the amount by which the cost of qualifying property exceeds $800,000.

• An additional first-year depreciation deduction for one year with respect to property both acquired and placed in service during 2010. The first-year deduction equals 50% of the cost of qualifying property, which is tangible property with a “recovery period” of 20 years or less.

• The “Financial Crisis Responsibility Fee” that the President proposed last month has been “memorialized.” The fee would apply to banks, thrifts, bank and thrift holding companies, brokers, and securities dealers. Firms with consolidated assets of less than $50 billion would not be subject to the fee. The assessable base of the fee would include the worldwide consolidated liabilities of financial firms. For this purpose, liabilities would exclude FDIC-assessed deposits and, in the case of insurance companies, certain policy-related liabilities. The fee would be levied at the rate of 15 basis points of the assessable base.

“The one thing that is certain is these proposals will be changed, eliminated, embellished, etc., as they wend their way through Congress.” — Robert Willens

• A ban on the use of the LIFO (last-in, first-out) accounting method. The LIFO method can provide a tax benefit for a taxpayer facing rising inventory costs since, in those cases, the cost of goods sold amount is based on more recent, higher inventory values, resulting in lower taxable income. To be eligible for the LIFO method, a taxpayer must use this method for financial-accounting purposes. Under the proposal, taxpayers that employ the LIFO method would be constrained to “write up” their beginning LIFO inventory to its FIFO (first-in, first-out) value in the first taxable year beginning after December 31, 2011. The onetime increase in gross income, resulting from this write up, would be taken into account, ratably, over 10 years.
• Repeal of the “boot within gain” limitation that is part of current law (see Section 356(a)(1)). The limitation relates to any reorganization in which both stock and “boot” is received by an exchanging target shareholder, but only if the exchange “has the effect of the distribution of a dividend” within the meaning of the tax code (specifically, Section 356(a)(2)). The boot refers to nonqualifying consideration received by the shareholder, such as cash in exchange for stock. Under current law, an exchanging shareholder, in a case in which both stock and boot are received, will recognize the lesser of (1) the realized gain or (2) the boot. Under the proposal, such a shareholder will record the boot as dividend income, even if the boot is in excess of the realized gain. Fortunately, this proposal should have very little impact because it is exceedingly rare that an exchange will have the effect of the distribution of a dividend (see Revenue Ruling 93-61, 1993-2 C.B. 118).

International Tax Provisions
• Deferral of the interest expense deduction that is properly allocated and apportioned to foreign-source income that is not currently subject to U.S. tax. The deferred interest expense would be deductible in a subsequent taxable year in proportion to the amount of the previously deferred income, that is subject to tax during that year.
• A requirement for a U.S. taxpayer to determine its “deemed-paid” foreign tax credits on a consolidated basis based on the aggregate foreign taxes and earnings and profits of all of its foreign subsidiaries.
• A “matching” rule would be adopted to prevent the unwarranted separation of creditable foreign taxes from the associated foreign income.
• A new trigger related to the tax code’s Subpart F. Subpart F is the tax code chapter containing the complex “antideferral” rules that force companies to pay tax on certain foreign-source income in the year it was earned, rather than when the U.S. parent repatriates the profits. The proposal states that if a U.S. person transfers an intangible asset from the United States to a related controlled foreign corporation (CFC) that is subject to a “low foreign effective tax rate,” and there is evidence that the transfer results in “excessive income shifting,” then an amount equal to the “excessive return” would be treated as a category of Subpart F income. As a result, the return would be includable in the gross income of the CFC’s “U.S. shareholders.”
• A provision to “clarify” that intangible property includes “workforce in place,” as well as goodwill and going concern value, in the case of transfers of intangible property to a foreign corporation. For instance, if a U.S. person transfers intangible property to a foreign corporation in certain nonrecognition transactions, the U.S. person is treated as selling the intangible property for a series of payments contingent on the productivity, use, or disposition of the transferred intangible.
• A tightening of the limitation on the deductibility of interest paid by an “expatriated entity” (for example, Tyco and Ingersoll-Rand) to related parties under Section 163(j) of the tax code. In this case, the debt/equity safe harbor would be eliminated, the 50% “adjusted taxable income” threshold would be reduced to 25%, the carryforward for disallowed interest expense would be limited to 10 years, and the carryforward of “excess limitation” would be eliminated.
• New treatment for income earned by foreign persons with respect to equity swaps. Under the proposal, the income would be treated as U.S. source income, and therefore subject to withholding tax to the extent that the income is attributable to, or is calculated by reference to, dividends paid by a domestic corporation. Under current law, this income escapes withholding taxes because income from a “notional principal contract” is sourced based upon the residence of the investor.
Miscellaneous Revenue-Raisers
• A partner’s share of income with respect to a “Services Partnership Interest” (SPI) would be subject to tax as ordinary income, regardless of the character of the income at the partnership level. Moreover, gain recognized on the sale of an SPI would be treated as ordinary income. For this purpose, an SPI is defined as a carried interest held by a person who provides services to the partnership.
• “Black liquor” would be excluded from the definition of cellulosic biofuel. As a result, black liquor would not be eligible for the $1.01 per gallon cellulosic biofuel credit.
• No deduction would be allowed for punitive damages paid or incurred by the taxpayer. This is true even though the activities that gave rise to the lawsuit were performed in the ordinary conduct of the taxpayer’s trade or business (see Revenue Ruling 80-211, 1980-2 C.B. 57).
• A provision to “clarify” that a transaction satisfies the economic substance doctrine. Under the proposal, the doctrine would be satisfied only if the transaction changes, in a “meaningful way” (apart from federal tax effects), the taxpayer’s economic position and the taxpayer has a substantial purpose (other than a federal tax purpose) for entering into the transaction. A transaction would not be treated as having economic substance by reason of its profit potential unless the present value of the “reasonably expected” pretax profit is substantial in relation to the present value of the net federal tax benefits arising from the transaction.

Personal Tax Provisions
• Beginning in 2011, the highest income tax rate would, once again, be 39.6%, and the second-highest rate would be 36%.
• A 20% rate on long-term capital gains and qualified dividend income would apply for married taxpayers with income in excess of $250,000 and for single taxpayers with income exceeding $200,000.
• Itemized deductions would be reduced by 3% of the amount by which one’s adjusted gross income exceeds certain indexed statutory floors ($250,000 for married taxpayers; $200,000 for single taxpayers).
• A limit on the value of all itemized deductions — after they are reduced as described above — by limiting the “tax value” of these deductions to 28% whenever they would otherwise reduce taxable income in the 36% or 39.6% tax bracket.

The vast majority of the revenue the President’s proposals would raise would arise from the application of the personal tax changes described above. The one thing that is certain is these proposals will be changed, eliminated, embellished, etc., as they wend their way through Congress. What emerges in the fall from this legislative process no doubt will be heavily influenced by the fact that the midterm elections are imminent. We will keep you abreast of all relevant budgetary developments.

Contributor Robert Willens, founder and principal of Robert Willens LLC, writes a weekly tax column for CFO.com.

Jackson Pollack website

http://www.manetas.com/pollock/

President Obama Signs Haiti Charitable Contribution

From today’s TaxProf Blog.  Bill President Obama yesterday signed H.R. 4462, A Bill to Accelerate the Income Tax Benefits for Charitable Cash Contributions for the Relief of Victims of the Earthquake in Haiti. From the Joint Committee on Taxation’s Technical Explanation (JCX-2-10): The provision permits taxpayers to treat charitable contributions of cash made after January 11, 2010, and before March 1, 2010, as contributions made on December 31, 2009, if such contributions were for the purpose of providing relief to victims in areas affected by the earthquake in Haiti that occurred on January 12, 2010. Thus, the effect of the provision is to give calendar-year taxpayers who make Haitian earthquake-related charitable contributions of cash after January 11, 2010, and before March 1, 2010, the opportunity to accelerate their tax benefit. Under the provision, such taxpayers may realize the tax benefit of such contributions by taking a deduction on their 2009 tax return. The provision also clarifies the recordkeeping requirement for monetary contributions eligible for the accelerated income tax benefits described above. With respect to such contributions, a telephone bill will also satisfy the recordkeeping requirement if it shows the name of the donee organization, the date of the contribution, and the amount of the contribution. Thus, for example, in the case of a charitable contribution made by text message and chargeable to a telephone or wireless account, a bill from the telecommunications company containing the relevant information will satisfy the recordkeeping requirement.

Your 2009 Tax Organizer is here!

The Google Group Tax Deadlines & Forms is offering a complete professional tax organizer for your income taxes and you can download the pdf file at the link below:

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2010 Predictions from Wall Street and Main Street: Who’s Smarter?

Posted January 10, 2010 – 14:00 by Stacy Johnson in Investment

Is Wall Street any smarter than Main Street when it comes to predicting the direction of the stock market, housing and oil prices?

New Year’s Eve

It’s that time of year again: everybody who’s anybody sits in front of a camera and gives predictions on the year ahead. But just how smart are these “experts”? We do more than give them air time; we go back and see just how smart they are by comparing previous-year predictions with what actually happened.

Every December for the last five years Money Talks News has hooked up with David Wyss, the chief economist for giant research firm Standard & Poors. We sit him down in a studio and ask him what changes he expects for the coming year in three critical consumer categories: stocks, housing and oil.

But then we do something else: we go out, hit the streets and ask the same questions of the first three people we can find willing to talk to us on camera. The idea behind this little experiment is to see if the high-priced experts on Wall Street are really any smarter than a random stranger on the sidewalk. You might be surprised at the results. Watch the following 90-second story and see how Main Street compared to Wall Street with predictions for 2009 and who got it right. Then we’ll get to the predictions for 2010.

How Smart Were They? Predictions from 2009

The first (maybe not so) surprising thing we learned from that story is that when it came to predicting what would happen in 2009, random strangers on the sidewalk gave pretty much identical answers as one of the most experienced economists on Wall Street. And as far as accuracy? Both David Wyss and our people on the street did a decent job of predicting how the year would go for stocks, housing and oil prices, but none hit the nail on the head.

Consider this part of David Wyss’s comment on stocks:

We’re close to a bottom now, and I think we’ve probably hit the worse point already.

When he said that in mid-December of 2008, the Dow Jones Industrial Average was around 8,700, and that’s pretty much where it finished the year. But was it the worse point? Hardly. Several months after he made this prediction the Dow bottomed at 6,440 so it fell an additional 26%. From there it bounced back, however, to end the year at 10,428 for a calendar-year gain of about 19%. That makes his prediction of 10-15% gains look pretty good. But had he said not to invest at all until the market bottom in March, we could be up 62%.

Of course, nobody can accurately predict a market bottom no matter how smart they are. But it’s interesting to note that Wall Street predictions were no more clairvoyant than yours when it came to predicting the direction of stocks last year. Ditto for our other categories. Wyss’s predictions weren’t far off, but then neither were sidewalk amateurs. Oil was around $75/barrel when I got my predictions on tape in mid-December. It ended the year closer to $80, which makes Wall Street’s and Main Street’s prediction of $90 not that far off the mark. Ditto with housing: both professional and amateur guesses of a 10% decline were pretty close to the 8% drop we actually experienced. But 2009 is now behind us: what’s in store for this year? Here’s the story we shot in mid-December 2009 with predictions for 2010.

How Smart Are They? Predictions for 2010

This year Wall Street and Main Street gave different answers. Our Wall Street economist was much more optimistic. Wyss said stocks would rise 12%, and our woman on the street said down 10%. On oil, both Wall Street and Main Street are looking for an increase: Wall Street says $80 per barrel (about where it is right now) and Main Street says between $85 and $90. On housing, our expert was kind of vague, saying only that we might have a bit more decline ahead, but for the year we’d be up. Our more pessimistic man on the street said down another 10%.

We’ll be continuing our tradition by comparing predictions to reality at this time next year — stay tuned. But I’ll leave you with a tidbit of knowledge gained from 10 years as a stock broker, 20 as a money reporter, and 30 as an investor: The only thing accurately predictable is that our world is unpredictable. That’s why I keep some money in the market and some on the sidelines at all times. I own some oil stocks because they’re likely to go up if oil does, offsetting some of the pain of higher gas prices. I regard my home as simply the place where I live, not an investment. And I try to live like I’m going to die tomorrow, but invest like I’m going to live forever. I also keep my debt to a minimum. That’s why I just published Life or Debt 2010.

The Lowdown on Home-Buyer Tax Credits

Wall Street Journal November 12, 2009

By LAURA SAUNDERS

Last week, President Barack Obama signed a law that extends through next spring a temporary tax credit of up to $8,000 for some first-time home buyers, which was due to expire Nov. 30. The law also adds a new tax credit of up to $6,500 for certain repeat home buyers. The package, which the government estimates will cost a total of $11 billion, is intended to help spur housing sales, a critical part of the economy. Here are some answers to common questions about the new rules. Q: What has stayed the same in the new law? 1) First-time home buyers still get a credit of as much as 10% of the purchase price, up to a maximum $8,000. “First-time” means people, including both partners of a married couple, who haven’t owned a principal residence for three years before the purchase. 2) All taxpayers who claim a credit must use the home as a principal residence for the next three consecutive years. 3) The credits offer dollar-for-dollar reductions of tax and are refundable. This means that a taxpayer who doesn’t pay enough tax to offset the credit can get a refund. For example, if you qualify for an $8,000 credit but only owe $5,000 in tax, you could receive a $3,000 check from the Internal Revenue Service. 4) Under the new law, as under the old, 2009 home buyers may claim the credit on either their 2008 or 2009 returns, and 2010 buyers may claim the credit on either their 2009 or 2010 returns. 5) Taxpayers do not qualify for a credit if they buy from a lineal ancestor or descendent, including parents or grandparents and children or grandchildren. Q: What has changed? Several important features took effect as of Nov. 6: 1) To take advantage of the tax credits, a buyer must have a contract in place before May 1, 2010, and the deal must close before July 1, 2010. No further extension is expected. 2) The price of the house is now capped. For purchases made after Nov. 6, no credit is available for any home costing more than $800,000. 3) There is now a tax credit for repeat buyers as well as for first-time buyers. Taxpayers who have lived in one residence for five consecutive years of the past eight can now qualify for a tax credit of as much as 10% of the purchase price, up to a maximum $6,500, of a new principal residence. The new home does not have to cost more than the old one. 4) Income limits for people who qualify for a tax credit are far more generous than under the previous law. For single filers, the credits now phase out between $125,000 and $145,000 of modified adjusted gross income; for married couples, the range is $225,000 to $245,000. For most people, modified adjusted gross income will be the same as adjusted gross income. 5) The new law contains anti-abuse measures designed to stem fraud, which became a problem with the previous home-buyer tax credit. Most buyers must be 18 or older, and no taxpayer may take a credit if he or she is claimed as a dependent on someone else’s return. Taxpayers taking the credit will also have to furnish proof of purchase. According to Robert Dietz of the National Association of Home Builders, this will usually be a HUD-1 form. 6) People taking the tax credit, as under the old law, aren’t allowed to buy a home from a lineal ancestor or descendent. The new law, applying to purchases made after Nov. 6, also says a person may not take a credit if the home is purchased from a spouse or the spouse’s lineal relatives.

Q: If I bought a house last spring or summer, can I get a tax credit? You qualify if you are a first-time buyer and meet the other requirements, but not if you are a repeat buyer. The new credit for repeat buyers applies only to purchases made after Nov. 6.

Q: What is the definition of “principal residence”? If you own more than one home, your principal residence is usually the one where you spend most of your time. In determining residence the IRS may also consider where your family lives and your mailing address for bills and correspondence, among other factors.

Q: Can a principal residence be something besides a conventional house? Yes. A principal residence may also be a condominium, co-op apartment, attached or semi-attached townhouse, or even—if it has eating, sleeping and toilet facilities—a boat, motor home or trailer. Manufactured homes qualify in some states.

Q: Does the person who claims the credit have to use the home as a principal residence? Yes.

Q: If I buy a new home and live in it, do I also have to sell my old one in order to take advantage of the credit? This is unclear. The law appears to allow repeat buyers to retain their old home, for which no tax credit was given, while claiming a credit for the new one. What is clear is that if you buy a new home using the credit, you must use it as your principal residence.

Q: How may the credits be allocated among two or more unmarried buyers? This also is unclear. But if the IRS adopts the rules that applied to the previous tax credit, which are detailed in IRS Notice 2009-12, there is room for planning. The notice says that taxpayers may use “any reasonable manner” to allocate the credit. It even provides an example in which two unmarried buyers allocate the credit to the lower earner in order to qualify for it.

Q: I need the credit refund to help make the down payment. What can I do? There’s no rushing the IRS. But one option is to adjust your current withholding from your paychecks to reflect the fact that you will be taking the credit later. But be careful: If you don’t make the purchase, then you may owe interest and penalties. Consult a tax adviser.

Q: Is it possible to qualify for a credit if I am building a home on a lot I already own? Yes, according to the National Association of Home Builders. The purchase date is usually considered to be the date of first occupancy, so you would need to move in before July 1, 2010.

Q: May I take a credit if I am building a large addition to my home? No; these credits apply only to the purchase of a home.

Q: Are there special rules for the military? Yes. In general, members of the military and foreign service and intelligence communities who are serving overseas on “official extended duty” for at least 90 days during 2009 and the first four months of 2010 have an extra year to take advantage of these credits. Consult a tax adviser who specializes in this area.

Q: Where can I get more information? Go to federalhousingtaxcredit.com, a Web site sponsored by the National Association of Home Builders. You can also look for links from the IRS’s home page, http://www.irs.gov, or search for Homebuyer Credit. Another option is to consult a professional tax adviser. Write to Laura Saunders at laura.saunders@wsj.com

Statement from IRS Commissioner Doug Shulman on Offshore Income

March 26, 2009

My goal has always been clear — to get those taxpayers hiding assets offshore back into the system. We recently provided guidance to our examination personnel who are addressing voluntary disclosure requests involving unreported offshore income. We believe the guidance represents a firm but fair resolution of these cases and will provide consistent treatment for taxpayers. The goal is to have a predictable set of outcomes to encourage people to come forward and take advantage of our voluntary disclosure practice while they still can.

In the guidance to our people, we draw a clear line between those individual taxpayers with offshore accounts who voluntarily come forward to get right with the government and those who continue to fail to meet their tax obligations. People who come in voluntarily will get a fair settlement. We set up a penalty framework that makes sense for them — they need to pay back-taxes and interest for six years, and pay either an accuracy or delinquency penalty on all six years. They will also pay a penalty of 20 percent of the amount in the foreign bank accounts in the year with the highest aggregate account or asset value. Just to be clear, this is 20 percent of the highest asset value of an account anytime in the past six years. This gives taxpayers — and tax practitioners — certainty and consistency in how their case will be handled.

We have instructed our agents to resolve these taxpayers’ cases in a uniform, consistent manner. Those who truly come in voluntarily will pay back taxes, interest and a significant penalty, but can avoid criminal prosecution.

At the same time, we have also provided guidance to our agents who have cases of unreported offshore income when the taxpayer did not come in through our voluntary disclosure practice. In these cases, we are instructing our agents to fully develop these cases, pursuing both civil and criminal avenues, and consider all available penalties including the maximum penalty for the willful failure to file the FBAR report and the fraud penalty.

We believe this is a firm, but fair resolution of these cases. It will make sure that those who hid money offshore pay a significant price, but also allow them to avoid criminal prosecution if they come in voluntarily. As we continue to step up our international enforcement efforts, this is a chance for people to come clean on their own. Our guidance to the field is for the next six months only, after which we will re-evaluate our options.

For taxpayers who continue to hide their head in the sand, the situation will only become more dire. They should come forward now under our voluntary disclosure practice and get right with the government.

Obama agenda: Taxes, not just health care

The president’s next 200 days will be as full, if not fuller, than the first. And tax questions will underlie a lot of key debates ahead.

By Jeanne Sahadi, CNNMoney.com senior writer

Obama’s Money Moves

200 days in, the President is going for broke. Click for analysis of where he’s succeeding – and where he’s not. View interactiveObama: 200 days in office

When he became the 44th president on Jan. 20, Barack Obama inherited the worst economic crisis since the Great Depression. After 200 days, here’s a look at the progress he’s made toward a recovery.
View photos
NEW YORK (CNNMoney.com) — President Obama’s fall agenda has grown larger as some of the biggest decisions — and fights — over health care reform have been punted to September … at the earliest.

But health reform is not the only major initiative he wants to get done. Far from it. There’s climate change. There’s reforming Wall Street. And, of course, there’s passing a budget for 2010 at a time of huge deficits.

Running in the background to all of this will be one of the biggest issues the Obama administration must address: taxes.

“As soon as they can clear health care off the plate, it will be taxes, taxes, taxes,” said Anne Mathias, director of research at Concept Capital’s Washington Research Group.

Health reform taxes: Before health care can be cleared off the plate, Obama will have to answer some key tax questions.

For starters, he will need to be more explicit about what he will accept in terms of increasing taxes to pay for health reform and indicate exactly which of the revenue raisers on the table in Congress he considers deal-breakers.

The president originally proposed limiting the itemized deductions that high-income tax filers could take, an idea that fell flat with lawmakers. He doesn’t like what had been a leading idea in the Senate to help fund reform — taxing what are currently tax-free health benefits that workers receive from their employers. But at various times he has indicated indirectly he might be open to it in some limited form.

Now the idea gaining currency in the Senate is to tax insurers who offer very expensive plans. Critics say such a tax could either be passed on to workers through higher premiums or reduced benefits. In the House, meanwhile, the leading idea is to impose a surtax — or additional tax — on the highest-income households.

“The problem here is there are no good ideas,” said Clint Stretch, managing principal for tax policy at Deloitte Tax.

Translation: Only proposals to cut taxes typically generate support. Winning the debate over a tax hike is guaranteed hard slogging.

Estate taxes: Regardless of what happens with health reform, lawmakers and the administration will have to make a decision about what to do about the estate tax. Otherwise, it will be repealed for one year, starting on Jan. 1, 2010.

Since that’s revenue the country can’t afford to lose, what’s most likely to happen is that Congress will extend the estate tax for one year at the 2009 exemption levels, Mathias and Stretch said. In that case, the first $3.5 million of an individual’s estate would be exempt from the federal estate tax. And the taxable portions of the estate would then be taxed at rates up to 45%.

Then in 2010, lawmakers are likely to address what to do with the estate tax on a more permanent basis. Obama has proposed making the estate tax permanent at the 2009 exemption levels.

But doing so will look like a revenue loser over 10 years. That’s because it would raise less tax money than what’s set to happen under current law. If nothing is done by 2011, the first $1 million of an estate would be exempt from the tax and the top rate would be 55%.

Climate change taxes: Whether or not lawmakers succeed in getting a climate change bill ready for the president’s signature before the year is out, there is likely to be discussion over several revenue issues. For example, what to do with revenue generated from a cap-and-trade program in which carbon-emission permits are bought and sold?

Corporate taxes: Obama has said he wants to close what he calls corporate tax loopholes.

The administration laid out a few proposals to that effect earlier in the year, particularly with regard to U.S. companies doing business overseas. And Obama created a tax reform panel and asked it to make suggestions by Dec. 4 about how to raise more revenue. Corporate tax breaks are a focus for the group.

But it’s not clear how Obama’s corporate tax proposals will fly given that tax writers on Capitol Hill have already crafted many of their own proposals. Some lawmakers only want to curb corporate breaks and simplify the corporate tax code if rates are lowered, a step Obama has not yet proposed.

“The Hill knows where it wants to go on tax reform generally. They want to close the tax gap and they want to do international tax reform,” Stretch said. But he doesn’t envision the changes as big revenue raisers per se. Rather, he said, the overarching goal would be to make U.S. businesses operating abroad more competitive.

“It won’t be about raising revenue, but about lowering rates. The point of doing it is to generate more business,” Stretch said.

Although discussions will be had, he only thinks there’s a 50/50 chance that international corporate tax reform will be completed in the next year.

Kitchen sink taxes: There are a host of tax provisions that, barring lawmaker action, will expire in 2009 and 2010. Many are tax breaks that companies and individuals have come to expect and which lawmakers typically extend every year. Among these are the research and development credit for businesses, relief from the Alternative Minimum Tax for middle- and upper-middle-income families and various renewable energy tax credits.

What’s very possible is that extensions for most such expiring provisions will be bundled into one bill at some point next year. “There’s no way they can get through 2010 without a tax bill,” Mathias said.

The midterm elections provide added incentive, she noted. “Democrats will want to campaign on extending popular provisions.”

First Published: August 5, 2009: 2:54 PM ET