Minor memos

Minor memos

November 11, 2011

There is a chance that any jobs bill on which Congress is able to agree this year will extend a 100% “depreciation bonus” through December 2012. The bonus is the ability to deduct the entire cost of new equipment in the year the equipment is put in service. (For renewable energy projects that benefit from Treasury cash grants or investment credits, 85% of the cost could be deducted.) There would be no other depreciation. President Obama called on Congress in September to extend the 100% bonus. Obama is a Democrat. Eric Cantor, the majority leader in the House, which is Republican controlled, identified the bonus as an area of “potential common agreement” . . . . Europe is considering a financial transactions tax of 0.1% on shares and bonds and 0.01% on derivatives. The European Commission released a formal proposal on September 28. The proposal must be approved by all 27 European Union members to be imposed. Britain is expected to veto the proposal unless it can opt out. One option under discussion is to impose the tax only in the parts of Europe that use the euro. All financial  institutions that are tax residents of countries imposing the tax would have to pay it on transactions in which they are involved, even if the transaction is carried out abroad. Sweden experimented with a financial transactions tax from 1984 to 1991. The tax was reported to have led to an 85% drop in transaction volumes . . . . The parent company of Virgin Airways is moving its trademarks and other brands to Switzerland in a move that is expected to reduce UK taxes for the group . . . . The IRS analyzed in an interesting internal memo made public in August whether a power company could calculate its income from a contract to supply electricity to an aluminum smelter by marking the contract to its market value at the end of each year and reporting the gain or loss as its income. A “dealer in commodities” can use that approach to calculate its income. Electricity is a commodity for this purpose. However, in the particular case, which was under audit, the IRS said what looked in form like a contract to sell electricity was really a tolling agreement. The smelter supplied the fuel the power company used. Therefore, mark-tomarket accounting could not be used for it. The IRS also said the decision whether to use markto-market accounting can be made by each legal entity separately even in cases where all the entities join in filing a consolidated federal income tax return. The memo is Chief Counsel Advice 201132021.