Simplification Through Additional Reporting Tax Act of 2006

Bills: HR 1500, Investment Tax Simplification Act; HR 1417, Extension of Subpart F Exemption for Active Financing Income; HR 819, Retirement Security for Life Act; HR 3, Transportation Equity Act; S. 732, Safe, Accountable, Flexible, and Efficient Transportation Equity Act; S. 7, Jobs and Growth Tax Relief Act; HR 809 (Permanence of individual income tax rates fro capital gains and dividends); HR 4297, Tax Relief Extension Reconciliation Act of 2005; S. 2020, Tax Relief Act of 2005; H.Con.Res.95, Budget FY2006 Appropriations Resolution; S.Con.Res.18, Budget FY2006 Appropriations Resolution; S. 1159.IS, A bill to amend the Internal Revenue Code of 1986 to permanently extend subpart F exemption for active financing; HR 2471, Economic Development Act of 2005; S 1524, To repeal the sunset on the reduction of capital gains rates for individuals and on the taxation of dividends of individuals at capital gain rates HR 4297, Tax Reconciliation; HR 5367, S 2414, Simplification Through Additional Reporting Tax Act HR 809, S. 1524, Dividend Permanence; S. 1159, HR 1417, permanently extend the subpart F exemption for active financing; S. 2766, Defense Authorization (revenue offset for contingent convertible debt); S. 2020, Tax Relief Act. Congressional Issues: Integration of the corporate and individual income taxes; Reduced taxation of corporate earnings and dividend income; Treatment of payments in lieu of dividends under reduced dividend rates; Treatment of foreign distributions under reduced dividend rates; Capital gains reductions; Permanent reforms of Subpart F with respect to the active financial services income of financial services firms; Proposals to change IRC Section 163(j) (limiting interest deductions of subsidiaries of foreign companies); International tax rules concerning foreign tax credits (interest allocation rules, financial services income basket as “base case” basket for credits relating to permanent tax base differences, 10/50 companies, overall domestic loss); Exclusion for individuals of an amount of capital gains distributions from mutual funds; Withholding tax treatment of earnings of regulated investment companies paid to foreign persons; Reform of Subpart F more generally, territorial tax systems generally; Changes to IRC Section 956 (deemed repatriation); Changes to IRC Section 904(g) (resourcing rules); Relief of double taxation on global dealing operations; Valuation of securities for purposes of mark-to-market tax rules (IRC Section 475); Due date for providing information returns to payees; Electronic provision of information returns to payees; Changes to IRC Section 162(f) (deductibility of settlement payments); Changes to IRC Section 163(l) (disallowance of certain interest payments); Changes to IRC Section 1059 (extraordinary dividends); Changes to the tax treatment of contingent payment convertible debt; Corporate rate reductions; Corporate and individual capital gains issues (e.g., rate reductions, exclusions from income); Pending legislative proposals concerning tax shelters; Internal Revenue Code (“IRC”) Section 6111 (registration of confidential tax shelters); IRC Section 6112 (investor lists and regulations thereunder, as well as associated penalties); IRC Section 6011 (taxpayer disclosure of certain transactions); Joint Committee on Taxation and Treasury studies on corporate tax shelters; Proposals to codify economic substance doctrine; Extension of the R&E tax credit (IRC Section 41) and treatment of expenses of internal use software; Possible legislative proposals relating to hybrid arrangements; Straddle rules and need for “qualified covered calls” exception; Changes to IRC Section 911 (exclusion for individuals of earnings abroad); Tax treatment of income deposit securities; IRC Section 355(e); IRC Section 470 and investment funds; Mutual fund investment in commodity swaps; IRC Section 6701 (tax shelters); IRC Section 409A (deferred compensation); Tax-exempt interest reporting and backup withholding; Basis reporting by brokers; Health savings accounts. Executive Branch Actions: Reduced taxation of dividends (securities lending transactions, treatment of payments in lieu of dividends; qualifying foreign equities, reporting of payments on foreign securities, backup withholding, and treatment of financial intermediaries); Permanent reform of Subpart F, especially with respect to the active financial services income of financial services firms; Reform of Subpart F more generally; Valuation of securities under IRC Section 475 (mark-to-market tax rules); Proposed regulations under IRC Section 482 that would provide rules for allocating among affiliates and sourcing the income from a global dealing operation; OECD Model treaty provision on arbitration; OECD proposals for attribution of profits to permanent establishments; Treaty withholding tax relief for investments through collective investment vehicles; Proposed Section 482 Services Regulations; International reforms, including issues relating to territorial tax system and allocation of deductions to foreign-source income; International tax changes concerning foreign tax credits (e.g., interest allocation rules); Withholding tax treatment of earnings of regulated investment companies paid to foreign persons; IRC Section 956 (concerning making a market in a U.S. affiliate’s securities and other aspects to rationalize rules); IRC Section 904(g) (resourcing of foreign-source income); Pending legislative proposals concerning corporate tax shelters, including codification of economic substance doctrine; Regulations under IRC Sections 6011, 6111 and 6112 (addressing corporate tax shelters); Possible means of prevention of overtaxation of earnings from a global dealing operation (possible change to IRC Section 245(b)); Regulations under Section 1441 of the IRC (and related sections) and subsequent IRS notices concerning reporting and withholding obligations with respect to payments to foreign persons; IRC Section 263(g) (capitalization with respect to straddles); Issues relating to adjusted basis tracking by brokers; Withholding the treatment of Section 302 distributions; Katrina-related “B Notice” and backup withholding issues; Due date for providing information returns to payees generally (including proposal to move date to February 28 for nominees); Penalty relief in case of late, small corrections to 1099s; Electronic provision of information returns to customers; Corporate rate reductions; Corporate and individual capital gains issues generally (e.g., rate reductions, exclusions from income); IRC Section 41 (regulations concerning internal use software and other issues); Treasury Regulation Section 1.904-6 (concerning the allocation of foreign tax credits among various income “baskets”); Changes to IRC Section 162(f); Tax treatment of income deposit securities; Tax treatment of contingent convertible debt; Tax treatment of qualified covered calls; Tax treatment of variable prepaid forwards; Guidance under IRC Section 965 (one-time repatriation provision); ZIRC Section 470 and investment funds; U.S.-Japan income tax treaty (definition of “investment bank” for purposes of Article 11); Information return clearinghouse; IRS Schedule M-3 to Form 1120; Reporting of taxable stock transactions (under IRC Sec. 6043©, 6043A); Withholding with respect to Puerto Rico corporations; United Kingdom anti-arbitrage rules; Withholding on FIRPTA distributions of RICs and REITs; Reporting and backup withholding on tax-exempt interest; Tax consequences of JASDEC /Samurai bond market developments; Implementation of U.S.-Japan tax treaty MOU (definition of “investment bank”); Tax treatment of variable prepaid forwards; Revenue Ruling 2006-1 (commodities swaps and mutual funds); Withholding tax treatment of credit default swaps; Section 482 services regulations.

Client expense: Not reported · Firm income: $2,352,673

Government targets: Commerce, Dept of (DOC), Commodity Futures Trading Commission (CFTC), Federal Reserve System, Government Accountability Office (GAO), HOUSE OF REPRESENTATIVES, Homeland Security, Dept of (DHS), Internal Revenue Service (IRS), Justice, Dept of (DOJ), Labor, Dept of (DOL), Office of Management & Budget (OMB), Patent & Trademark Office (PTO), SENATE, Securities & Exchange Commission (SEC), State Justice Institute, State, Dept of (DOS), Treasury, Dept of, U.S. Trade Representative (USTR), White House Office