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US Senators Propose Tax Shelter Crackdown January 16, 2007

Posted by notapundit in Congress, Politics, US News.

WASHINGTON (Dow Jones)–U.S. Senate tax writers may add major corporate provisions such as cracking down on a leasing tax shelter or denying tax deductions for fines and punitive damages to an $8 billion U.S. small business tax relief bill.

The Senate Finance Committee is scheduled Wednesday to consider the “Small Business and Work Opportunity Act of 2007,” a bill designed to assist small businesses in absorbing the cost of a minimum-wage increase.

Senate Finance Committee Chairman Max Baucus, D-Mont., said small business tax benefits will be fully offset with revenue raising provisions, such as anti-tax abuse measures. Details of these revenue-raising items were posted on the Senate tax panel’s Web site over the weekend.

Baucus’ staff removed the document from the Web site late Tuesday morning, after several reporters and lobbyists had downloaded copies of the document. Finance spokeswoman Carol Guthrie said the document “was posted prematurely.”

“These are offsets the committee is considering,” Guthrie said of the corporate revenue provisions. The committee intends to release a modified bill, perhaps later Tuesday.

Baucus released details of the tax-cut provisions late Friday, but didn’t describe potential revenue-raising measures.

Major tax breaks include extending a tax credit to offset the cost of hiring disadvantaged workers. The bill also would allow retailers and restaurant owners to more quickly write off the costs of remodeling leased buildings.

According to the draft document posted on the Finance Committee Web site, the panel is considering a provision to restrict a tax shelter known as the sale-in, lease-out transaction involving foreign property. This measure, targeting “SILO” tax shelters, would raise an estimated $4.1 billion over 10 years.

According to the finance committee summary, the bill would prevent “future losses on foreign tax exempt use property for leases entered into on or before March 12, 2004.” Congress in 2004 sought to crack down on these leasing tax shelters, but the law mainly restricted leases entered into after March 12, 2004.

Another item under consideration would target corporate inversions, which involve U.S. companies incorporating in overseas tax havens to reduce their U.S. taxes. A 2004 tax bill sought to restrict such transactions after March 4, 2003. The Senate bill moves back the effective date to March 20, 2002. This measure raises an estimated $1.2 billion over 10 years.

Another item being considered would modify the tax treatment of contingent payment convertible debt instruments. The measure addresses calculation of original issue discount. This would raise about $448 million over 10 years.

The proposal also would specify that civil regulatory fines and penalties, as well as punitive damages from a lawsuit, aren’t deductible on federal tax returns. Both measures would raise about $544 million over 10 years.

The proposal also would limit certain deferred compensation practices, which companies use to spread out the timing of bonuses and other payments to executives. The bill would limit annual deferral of an individual to a “nonqualified deferred compensation” arrangement to $1 million or the average taxable compensation for the previous five years. This would raise $806 million over 10 years.

By Rob Wells, Dow Jones Newswires


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