Tax Blog/Blawg

TaxBlawg’s Guest Commentator, David L. Bernard, is the former Vice President of Taxes for Kimberly-Clark Corporation, a past president of the Tax Executives Institute, and a periodic contributor to TaxBlawg.

Transfer pricing among affiliated companies is the classic “double-edged sword”. When carefully designed, transfer pricing practices can cut a company’s effective tax rate (“ETR”) with little risk of interference from tax authorities. When done poorly, transfer pricing can devolve into a mess of  ETR-killing practices.  As quickly as one edge can save a company money, the other edge can cut short a tax professional’s career.

Representative Donna Edwards introduced a bill [H.R. 631] titled “Working for Adequate Gains for Employment in Services Act” (WAGES Act), that would increase the minimum federal cash wage rate for tipped employees from $2.13 per hour to $3.75 per hour.  Since 1966, the Fair Labor Standards Act (FLSA) has allowed employers to use a combination of a cash wage and tips to meet their minimum wage obligations under federal law for “tipped employees.”  Employers may currently pay tipped employees as little as $2.13 per hour and still be in compliance with the FLSA if they credit tips ...

According to the Department of Homeland Security, the federal government has started its crackdown on businesses suspected of hiring illegal immigrants.  Federal agents are expected to visit companies to verify employees' identity and eligibility for employment in the United States.  Documentation, such as Forms I-9 will be reviewed.

ICE is not expected to name the companies listed in its audit plans but may identify the specific sectors that will be targeted.

Companies should manage these audits carefully because there is a significant potential for the findings to result in ...

On February 9, 2011, the third appellate court in as many weeks issued an opinion addressing whether an overstatement of basis extends the statute of limitations for assessment to six years under section 6501(e)(1)(A).  In Burks v. United States, No. 09-11061 (Feb. 9, 2011) (opinion here), the Fifth Circuit joined the majority of circuit courts that have addressed the issue (including the Fourth, Ninth, and Federal Circuits, as well as the Tax Court) by holding that an overstatement of basis does not trigger the extended statute.  At this point, only the Seventh Circuit has held to the contrary, and the Seventh Circuit’s recent precedent lies on a broad and now-questionable reading of Fifth Circuit precedent, Phinney v. Chambers 392 F.2d 680 (5th Cir. 1968), which the Fifth Circuit confined to its narrow facts.

Will Employers Get a Payroll Holiday?

Senator Rob Portman, a Republican from Ohio, introduced Senate Bill 12 which would offer a temporary employer payroll tax cut.  The Portman bill proposes a one-year, 2 percentage-point reduction in the payroll taxes paid by employers.  Portman contends that such a payroll holiday would be a job-creation device.

Businesses should closely monitor this legislation because of the potential cost savings associated with it and compliance issues.

Yet another appellate court has weighed in on whether an overstatement of basis constitutes an omission of gross income subject to the six-year statute of limitations under Code section 6501(e)(1)(A).  Home Concrete v. United States, No. 09-2353 (4th Cir. Feb. 7, 2011). This time, the Fourth Circuit Court of Appeals sided with the Ninth (Bakersfield Energy Partners LP v. Comm’r, 568 F.3d 767 (9th Cir. 2009)) and Federal Circuits (Salman Ranch Ltd. v. United States, 573 F.3d 1362 (Fed. Cir. 2009)), as well as the Tax Court (Intermountain Insurance Services v. Comm’r, T.C. Memo ...

The IRS recently announced in Notice 2011-12 that Notice 2009-91 will not apply to wages paid after December 31, 2010. 

Previously, Notice 2009-91 revised the withholding calculation rules for nonresident alien employees performing services within the United States.  Notice 2009-91 revised the rules to take into account changes made in the withholding tables to reflect the section 36A Making Work Pay Credit.  However, the Making Work Pay Credit does not apply to tax years beginning after December 31, 2010. 

Notice 2011-12 provides that for wages paid after December 31, 2010 ...

Businesses should continue to monitor this legislation because the new Form 1099 requirement will have a significant impact on compliance and legislation in this regard could alleviate some of the complexity and costs associated with the new requirement.