Britain gets tougher on foreign takeovers
The UK government said over the weekend it would stiffen laws governing foreign takeovers of British companies, potentially raising new hurdles for overseas acquirers amid heightened interest in British companies as takeover targets, Peter Evans of the Wall Street Journalwrote on Sunday.
The new rules – which the government hasn't detailed, but announced in general terms on Sunday – come after US drug company Pfizer Inc. failed to seal a nearly $120 billion deal to buy rival AstraZeneca PLC. The UK government wasn't hostile to that bid but said it would scrutinize it closely as concerns emerged over potential job cuts in Britain.
Vince Cable, business secretary in the Conservative-Liberal Democrat government of Prime Minister David Cameron, said that he intends to increase protection for British companies during takeover negotiations when the “national interest” is at stake.
Evans wrote that the new tack comes amid a frenzy of trans-Atlantic deal talks and agreements. Part of that is being driven by US companies seeking partners that will allow them to relocate out of the United States into a more favorable tax regime. Targets for these so-called inversions have included a number of British companies, which enjoy a generally lower tax rate than those in the United States. Many other targets have been in Ireland.
Cable said he wanted to pass the laws as soon as possible – without saying precisely when – because he expected the string of takeover bids by foreign firms for UK companies to continue.
Renaissance probed by Senate panel on tax maneuver
Zachary R. Mider and Richard Rubin of Bloombergreported on Saturday that a Senate investigative panel will hold a hearing on July 22 to probe tax maneuvers by Renaissance Technologies LLC, the hedge fund started by billionaire James Simons, according to two people familiar with the matter.
The hearing will focus on a trading strategy Renaissance used that converted its profits from rapid trading into lower-taxed, long-term capital gains, Mider and Rubin wrote. The strategy, which involved transactions with such banks as Barclays PLC and Deutsche Bank AG, is also being questioned by the IRS.
Senator Carl Levin (D-MI), who is chairman of the Senate Permanent Subcommittee on Investigations, has been probing tax avoidance moves by wealthy individuals as well as corporations, such as Apple Inc. and Caterpillar Inc.
Under current law, profits from short-term capital gains are taxed at marginal federal rates of up to 44.4 percent, compared with a 23.8 percent top rate for long-term capital gains. For some of the years in question, the two rates were 35 percent and 15 percent, respectively, Mider and Rubin noted.
The IRS contends that the arrangement Renaissance’s Medallion fund had with the banks, in which the fund owned option contracts rather than the underlying financial instruments, is a ruse and that the fund investors owe taxes at the higher rate.
Renaissance said in a statement that the tax treatment under Senate scrutiny “is appropriate under current law,” according to the article.
Highway-Fund tug-of-war seen sending House bill to Obama
Bloomberg also reported on Saturday that lawmakers’ fight over how to fund roads and transit probably will end with legislation from the Republican-led House sent to President Obama, leadership aides in both parties said.
House and Senate leaders have been collaborating on a strategy for preventing the Highway Trust Fund from running dry at the height of the summer road-construction season. While bills approved on July 10 by committees in both chambers are similar, the Democratic-led Senate’s version contains tax proposals seen as obstacles in the House, James Rowley of Bloomberg noted in a July 12 article.
Both chambers’ measures would be financed by higher customs fees and by letting companies delay contributions to employee pension plans. Those provisions were vetted in the House before the measure was approved by the Ways and Means Committee, said the aides who spoke on condition of anonymity to discuss internal deliberations, according to the article.
The House bill, HR 5021, is scheduled for a vote this week. Senate leaders are prepared to try to clear that measure if Senate Finance Committee Chairman Ron Wyden’s (D-OR) version doesn’t gain much support, said the aides.
Republicans probably won’t support the Senate proposal because it would raise an additional $3.4 billion in tax revenue over 10 years with tax-compliance measures, according to a Republican aide who spoke on condition of anonymity to discuss the deliberations, according to the article.
[For some additional reading, the Wall Street Journalreported that some governors are upset with inaction on highway funding. Also, here are editorials about the highway fund from the Chicago Tribune and the Washington Post.]
Judge demands answers about Lerner’s hard drive
A federal judge signaled on Friday that he would force IRS officials to say under oath what happened to former agency official Lois Lerner’s crashed hard drive, wrote Bernie Becker of The Hill.
US District Judge Reggie Walton said he also wanted the government to outline the qualifications of investigators looking into what happened to emails missing because of the hard drive crash, according to the article. The judge revealed his intentions during a hearing about a lawsuit that a conservative group, True the Vote, filed against the IRS.
This marked the second time in as many days that a federal judge required the government to file a report under oath about Lerner’s missing emails. Judge Emmet Sullivan, also of the US District Court in Washington, ruled on Thursday that the IRS had to explain under oath how some of Lerner’s emails went missing.
True the Vote, which applied for and eventually received tax-exempt status, has accused the IRS of targeting it for its conservative beliefs, Becker wrote. The IRS has acknowledged improperly scrutinizing Tea Party groups seeking tax-exempt status.
At a hearing on Friday, Walton warned government lawyers that he wanted a quick turnaround on that information, saying he would likely require it by the end of this upcoming week.
Obamacare’s next court threat
The Hill also reported on Sunday that a federal appeals court is poised to rule in a case that could blow a gaping hole in Obamacare's scheme for providing health care coverage.
The plaintiffs in Halbig v. Burwell argue that the health care law does not authorize the IRS to offer premium subsidies on the federal exchanges, Elise Viebeck of The Hill noted in a July 13 article.
The issue strikes at the heart of the Affordable Care Act’s insurance benefits and could potentially end financial help for nearly 5 million enrollees – if the plaintiffs succeed. Legal experts have generally looked askance at the lawsuit, which has a losing record in federal court so far, Viebeck wrote.
But some believe that a looming decision by the US Court of Appeals for the DC Circuit could break that trend. A ruling could come on Tuesday.
Either way, Viebeck noted, it’s a case that could wind up at the US Supreme Court.
IRS to rubber-stamp tax-exempt status for most charities after scandal
Massimo Calabresi of Timewrote on Sunday that amid ongoing controversy over its scrutiny of nonprofits, the IRS has decided it will no longer screen approximately 80 percent of the organizations seeking tax-exempt charitable status each year, a change that will ease the creation of small charities while doing away with a review intended to counter fraud and prevent political and other noncharitable groups from misusing the tax code.
As of July 1, any group that pays a $400 fee and declares on a three-page online form that it has annual income of less than $50,000, total assets of less than $250,000, and is in compliance with the tax code requirements of a charity will automatically be allowed to accept donations that are tax deductible for the donors. Previously the groups had to fill out a detailed 26-page form, submit multiple supporting documents, and provide a narrative description of their intended activities, Calabresi noted.
In an interview with Time, IRS Commissioner John Koskinen said the change would result in “efficiencies [that] will translate into a faster and better review” of bigger nonprofits, while clearing a 66,000-application backlog that has resulted in yearlong waits for groups seeking to start a charity. He said the new short form, Form 1023-EZ, comes with 20 pages of instructions that make clear the requirements and limitations of being a charitable organization. Koskinen said that on the new short form, “people certify that they’ve gone through the instructions” under penalty of perjury, according to the article.
While charity groups agree the old process for receiving tax-exempt status was too cumbersome, they and others worry that now organizations with no true charitable purpose will seek to become charities.
“It’s easier to get tax-exempt status under 1023-EZ than it is to get a library card,” said Tim Delaney, president and CEO of the Council of Nonprofits, according to the article. As a result, Delaney said, bad actors “will be able to operate in the name of the charity, and the IRS will never be the wiser because they’re not looking at the underlying documentation.”
Bennet, Perlmutter to IRS: Quit fining pot shops for cash tax payments
Senator Michael Bennet (D-CO) and Representative Ed Perlmutter (D-CO) asked the IRS on Friday to stop assessing a 10 percent penalty on legal marijuana businesses that are forced to pay federal withholding taxes in cash for lack of banking services, David Migoya of the Denver Postreported.
In a joint letter to IRS Commissioner John Koskinen, Bennet and Perlmutter noted that pot shops in Colorado often have little choice but to pay employee withholding taxes in cash because banks won't take their business.
IRS rules require the taxes to be paid via the Electronic Federal Tax Payment System. Businesses that don't comply face a 10 percent penalty.
News of the practice came to light recently, when Migoya reported on July 2 about a Denver medical marijuana dispensary Allgreens LLC’s legal efforts to challenge the IRS penalties.
“Given these current challenges, we request the IRS waive this 10 percent penalty for marijuana businesses at least on a temporary basis until there is greater clarity whether [they] have sufficient access to the banking system to meet their obligations” to pay via the electronic system, the two wrote, according to Migoya’s article on July 11.
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