Interesting tax articles in today’s Wall Street Journal:

• Low-Tax Tiger (op-ed), by Lawrence Kudlow:

A year ago Gov. George Pataki asked me to chair a commission on tax reform that would improve New York state’s outlook for investment, job creation and economic prosperity. After numerous meetings, a review of the existing tax literature, and lengthy deliberation, we have come up with a statement of principles and a series of policy recommendations to promote an investment-friendly state tax structure that could, if implemented, restore New York to a preeminent economic position.

• Change in Law Offers Incentive To Settle With IRS on Shelters, by Tom Herman:

A recent tax-law change creates an additional incentive for thousands of taxpayers to accept an IRS offer to settle tax-shelter battles involving billions of dollars of taxes, penalties and interest. Monday is the deadline for deciding whether to take part in the IRS offer, which was made late last year as part of the government’s crackdown on shelters and other transactions it considers questionable. The IRS says it already knows of more than 4,000 people and businesses that participated in 21 shelters covered by the offer, which allows taxpayers involved to pay reduced penalties.

Tax lawyers predict that many taxpayers will grab the IRS offer, in part because of a little-noticed tax change enacted just a few weeks ago that could sharply reduce the amount of interest many shelter users would have to pay. That provision — buried in what is known as the Gulf Opportunity Zone Act of 2005, which was designed mainly to help the Gulf Coast recover from hurricane devastation — changed the rules for calculating interest on tax debts owed by individuals. In essence, the new law means many taxpayers who accept the IRS settlement offer could save large amounts of interest.

• Bond Tax Haven May Be Closing, by Liz Rappaport:

It looks like the jig is up for some convertible-bond issuers. A provision in the Senate version of the pending tax-relief bill stipulates that companies that issue a certain type of convertible will likely have to pay up in the future, after enjoying four years of tax heaven. Convertible bonds are hybrid securities that pay some interest but allow investors to convert into the issuer’s stock under certain conditions.

The tax law previously allowed these companies to deduct their comparable cost of borrowing in the traditional corporate-bond market, which is typically higher than that in the convertibles market. If the new tax law is enacted with the provision, any company that issues this type of security wouldn’t receive such beneficial treatment….

Companies affected will be those who sell convertible bonds with a contingent-payment feature, meaning they pay different rates of interest at different points in the life of the security, depending on whether the bonds trade above or below a certain price, for example. Passage of the provision would be a death knell for this type of convertible, which was already waning in popularity. By some estimates, slightly less than 25% of the convertible-bond universe employs the contingent-interest payment feature.