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Weekly IRS Roundup December 9 – 13, 2019

by | Dec 17, 2019 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of December 9 – 13, 2019.

December 10, 2019: The IRS issued a notice providing that the requirement to report partners’ shares of partnership capital on the tax basis method will not be effective for 2019 for partnership taxable years beginning in calendar 2019. Instead, the requirements will be effective beginning in 2020 (for partnership taxable years that begin on or after January 1, 2020). The notice also defines a partner’s share of “net unrecognized Section 704(c) gain or loss” for purposes of partnership reporting.

December 10, 2019: The Joint Committee on Taxation released a report detailing proposed provisions of the “Restoring Tax Fairness for States and Localities Act.” The bill would increase the maximum state and local tax deduction that married couples can claim in 2019 and would eliminate the limitations on the maximum state and local tax deduction in 2020 and 2021. The bill would also increase the top marginal individual income tax rate under temporary rules.

December 11, 2019: The IRS issued a notice providing guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under section 417(e)(3), and the 24-month average segment rates under section 430(h)(2). The notice also provides guidance regarding both the interest rate on 30-year Treasury securities under section 417(e)(3) as well as the 30-year Treasury weighted average rate under section 431(c)(6).

December 13, 2019: The IRS issued proposed regulations that provide amendments to regulations under sections 162, 164 and 170 of the IRC. The proposed regulations reflect current law regarding the application of section 162 to a taxpayer that makes a payment or transfer to an entity described in section 170(c) for a business purpose; the regulations also provide safe harbors under section 162 to provide certainty for such payments. The regulations also provide a safe harbor under section 164 for payments made to an entity described in section 170(c) by individuals who itemize deductions and receive or expect to receive a state or local tax credit in return. The proposed regulations are scheduled to be published in the Federal Register on December 17, 2019. Public comments regarding the contemplated rules must be received by January 31, 2020.

December 13, 2019: The IRS released a revenue procedure clarifying that all plan amendments that both relate to a plan’s hardship distribution provisions and that are effective no later than January 1, 2020, shall be treated as integral to the required amendments under newly-updated sections 401(k) and 401(m). The revenue procedure also extended the deadline for pre-approved plans to adopt an interim amendment relating to those regulations.

December 13, 2019: The IRS released a revenue ruling providing that the base period T-bill rate for the period ending September 30, 2019, is 2.32%. Section 995(f)(1) of the IRC provides that a shareholder of a domestic international sales corporation (a “DISC”) shall pay annual interest equal to [...]

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Weekly IRS Roundup December 2 – 6, 2019

by | Dec 9, 2019 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of December 2 – 6, 2019.

December 2, 2019: The IRS issued final regulations providing guidance relating to the determination of the foreign tax credit as well as guidance relating to changes made by the 2017 US tax law. The regulations finalize the proposed regulations that were published on December 7, 2018. The regulations also finalize proposed regulations on overall foreign losses that were published on June 25, 2012, as well as certain portions of proposed regulations published on November 7, 2007, relating to a US taxpayer’s obligation to notify the IRS of a foreign tax redetermination. The final regulations will be effective upon their date of publication in the federal register.

December 2, 2019: The IRS issued proposed regulations that also provide guidance relating to the determination of the foreign tax credit. The proposed regulations relate to the allocation and apportionment of deductions and creditable foreign taxes, to foreign tax redeterminations, to the availability of foreign tax credits under the Transition Tax and to the application of the foreign tax credit limitation to consolidated groups. The IRS has requested that written or electronic comments as well as requests for a public hearing be received by February 5, 2019.

December 2, 2019: The IRS issued final regulations implementing the base erosion and anti-abuse tax (the BEAT tax). The regulations finalize the proposed regulations that were published on December 21, 2018, and provide detailed guidance regarding which taxpayers will be subject to section 59A, the determination of what is a base erosion payment, the method for calculating the base erosion minimum tax amount, and the required BEAT tax resulting from that calculation. The final regulations are effective as of December 6, 2019.

December 2, 2019: The IRS issued proposed regulations that also provide guidance regarding the BEAT tax imposed on certain large corporate taxpayers with respect to certain payments made to foreign related parties. The proposed regulations would affect corporations that have substantial gross receipts that also make payments to foreign related parties. The IRS has requested that written or electronic comments as well as requests for a public hearing be received by February 4, 2020.

December 2, 2019: The IRS issued a revenue procedure that replaced Rev. Proc. 2019-09 and that identifies when a taxpayer’s disclosure on his income tax return with respect to an item or position is adequate both to reduce the understatement of income tax under section 6662(d) (relating to the substantial understatement aspect of the accuracy-related penalty) as well as to avoid the tax return preparer penalty under section 6694(a) (relating to understatements due to unreasonable positions). The IRS explained that this revenue procedure does not apply to other penalty provisions, and that it will apply to any income tax return filed on 2019 tax forms for a taxable year beginning in 2019, and to any income tax return filed in 2020 [...]

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Weekly IRS Roundup November 25 – 29, 2019

by | Dec 2, 2019 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of November 25 – 29, 2019.

November 26, 2019: The IRS issued a News Release regarding a Revenue Procedure that updates the rules for using per diem rates to substantiate, under section 274 and Treas. Reg. § 1.274-5,  the amount of ordinary and necessary business expenses paid or incurred while traveling away from home, including employees’ lodging, meals, and incidental expenses. The IRS noted that taxpayers are not required to use a method described in the Revenue Procedure and may instead substantiate actual allowable expenses provided they maintain adequate records.

November 26, 2019: The IRS released the Fall 2019 Statistics of Income Bulletin, which is issued quarterly by the Statistics of Income Division of the IRS and provides the most recent statistics available from tax and information returns filed by US taxpayers. The bulletin focused on high-income individual income tax return data from 2016, individual noncash charitable contributions from 2017, and partnership returns from 2017.

November 26, 2019: The IRS issued Interim Guidance under Internal Revenue Manual 4.31.9 that outlines field examination procedures for use by LB&I and SB/SE employees when auditing partnership returns under the centralized partnership audit regime. The guidance applies to partnerships for taxable years beginning after December 31, 2017, and partnerships that elect into the BBA regime for taxable years beginning after November 2, 2015, and before January 1, 2018.

November 26, 2019: The IRS issued Interim Guidance under Internal Revenue Manual 11.3.13 that provides guidance on processing FOIA requests for access to tax records protected by section 6103 where required identification or authorization has not been established by the requester. Effective immediately, such requests will be denied citing FOIA exemption (b)(3)/ section 6103 and appeal rights will be granted.

November 26, 2019: The IRS issued a News Release noting the approaching tax filing season and cautioning taxpayers not to rely on receiving refunds by a certain date. The IRS explained that though most refunds are issued in less than 21 days, various transactions—including year-end and holiday bonuses, stock dividends, capital gain distributions from mutual funds and stocks, bonds, virtual currency, and real estate sold at a profit—can delay a taxpayer’s refund.

November 29, 2019: The IRS released a Treasury Decision in which it announced a correcting amendment to final regulations and removal of temporary regulations (T.D. 9623) that were published in the Federal Register on July 3, 2013. The final regulations relate to the application of section 108(i) to partnerships and S corporations and provide guidance regarding the deferral of discharge of indebtedness income and original issue discount deductions by a partnership or an S corporation with respect to reacquisitions of applicable debt instruments after December 31, 2008 and before January 1, 2011. The amendment removes the sectional authority for Treas. Reg. § 1.108(i)-2T to read as follows: “Authority: 26 U.S.C. 7805, unless otherwise noted.”

November 29, 2019: The [...]

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Weekly IRS Roundup November 4 – 8, 2019

by | Nov 11, 2019 | , , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of November 4–8, 2019.

November 4, 2019: The IRS posted a new Large Business and International active compliance campaign on Section 965 transition tax as enacted under the 2017 TCJA. The IRS stated that the goal of the campaign is to promote compliance with Section 965. The treatment stream will include conducting examinations as well as providing technical assistance to teams on Section 965, with a focus on identifying and addressing taxpayer populations with potential material compliance risk. The IRS anticipates that returns selected as part of the Section 965 campaign will also be risked and, if appropriate, examined for other material issues, especially issues related to TCJA planning.  For our coverage of this campaign, see here.

November 6, 2019: The IRS issued a Revenue Procedure and a News Release announcing the tax year 2020 annual inflation adjustments for more than 60 tax provisions, including the tax rate schedules and other tax changes. The tax year 2020 adjustments are generally used on tax returns filed in 2021.

November 8, 2019: The IRS published Proposed Regulations providing guidance relating to the life expectancy and distribution period tables that are used to calculate required minimum distributions from qualified retirement plans, individual retirement accounts and annuities, and certain other tax-favored employer-provided retirement arrangements. The life expectancy tables and applicable distribution period tables were developed based on mortality rates for 2021 and would provide longer life expectancies than the tables in the existing regulations. Public comments regarding the contemplated rules must be received by January 7, 2020.

November 8, 2019: The IRS released a Revenue Procedure providing the list of automatic changes to which the automatic change procedures in Revenue Procedure 2015-13, as clarified and modified by other listed guidance. The revenue procedure is effective for a Form 3115 filed on or after November 8, 2019, for a year of change ending on or after March 31, 2019. It supersedes the previous list in Rev. Proc. 2018-31.

November 8, 2019: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Robbie Alipour and Jenni Saperstein in our Chicago office for this week’s roundup.



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IRS Issues Transition Tax Compliance Campaign

by , and | Nov 6, 2019 | , , , ,

On November 4, 2019, the Internal Revenue Service (IRS) announced a new Large Business and International (LB&I) compliance campaign regarding Section’s 965 transition tax under the Tax Cuts and Jobs Act (TCJA). This is one of several dozen compliance campaigns that LB&I has announced since the initial 13 campaigns were identified in 2017, and is part of LB&I’s larger goals of improving return selection, identifying issues representing a risk of noncompliance and making the greatest use of limited resources. We have written at length regarding the IRS’s campaigns. Click here for prior coverage of the IRS’s campaigns. This announcement comes just over a month after the Treasury Inspector General for Tax Administration (TIGTA) issued a report questioning the effectiveness and efficiency of campaign issue selection. We wrote about the TIGTA report here. The IRS is presumably heeding TIGTA’s recommendation and is focused on Section 965 because of the substantial dollars associated with compliance. A list of all campaigns can be found here (the newest campaign is found under the tab “IRC 965”).

Section 965 was part of tax reform in the TCJA. It generally imposes a transition tax on a US shareholder’s pro rata share of accumulated earnings and profits of certain foreign corporations, as if those earnings had been repatriated to the US. The new campaign will focus examinations on US-based multinational companies’ 2017 and 2018 returns to ensure compliance with the transition tax in Section 965. The campaign will also provide technical assistance to IRS teams working on Section 965 issues, with a focus on identifying and addressing taxpayer populations with potential material compliance risk.

Practice Point: Multinational taxpayers should be mindful of this new campaign and aware of any compliance issues they may face. Taxpayers should be aware that returns selected for the transition tax campaign will also be examined for other material issues, especially those related to TCJA planning.



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Government Questions the Benefits of IRS Audit Campaigns

by and | Oct 25, 2019 | , , ,

On September 28, 2019, the Treasury Inspector General for Tax Administration (TIGTA) issued a report titled Initial Compliance Results Warrant a More Data-Driven Approach to Campaign Issue Selection.

As the name of the report describes, the TIGTA analyzed whether the Internal Revenue Service (IRS) audit campaigns were effective and efficiently administered. We have written at length regarding the IRS’s “campaign” methodology:

The report questions how the IRS selected the campaigns it has unleashed on taxpayers. Upon inspection, it appears that the IRS did not have a systematic approach to choosing which issue would become a campaign. Instead, the approach was seemingly ad hoc, and was open to employee suggestions instead of empirical analysis. The TGITA suggests that going forward the IRS use a more data-driven selection process for its campaigns. The idea would be to analyze where the IRS could get the biggest bang for its resource bucks in terms of dollars as well as compliance goals. Accordingly, the TGITA recommends the IRS adopt a formal process for selecting and prioritizing issues for campaigns, and the IRS use actionable metrics, based in part on compliance results, to select the most productive inventory.

Practice Point:  We have heard in the past that some campaigns were based on issues that revenue agents and other field personnel identified, but it was never clear whether the IRS was applying a systematic approach. We expect now that the IRS will be more mindful with its approach, focusing on issues with substantial dollars associated with them, and also where the IRS wants to ensure taxpayer compliance with the Internal Revenue Code.



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Finally the IRS Clarifies Its Position on Cryptocurrency

by and | Oct 10, 2019 | , , , ,

It took five years, but the Internal Revenue Service (IRS) has finally released some guidance on the taxation of cryptocurrencies! On October 9, 2019, the IRS released Revenue Ruling 2019-24 and several “frequently asked questions” (and answers) which deal with some (but not all) of the federal income tax issues involved with cryptocurrencies.

Over the years, we have reported on the issues involved with cryptocurrencies, including the potential controversies that have ensued because of a lack of guidance.

The new guidance is welcomed by tax professionals and taxpayers. The guidance adopts traditional tax principles to deal with some of the unique aspects of cryptocurrencies. For example, the guidance addresses the tax treatment of so-called “hard forks” and whether the value of the “fork” which is “airdropped” into the taxpayer’s wallet constitutes taxable income.

Practice Point: Cryptocurrencies are a brave new world for most of us. Having thoughtful, current guidance is helpful to tax professionals and taxpayers, and will (hopefully) lead to better and more efficient administration of our tax system.



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Weekly IRS Roundup September 16 – 20, 2019

by | Sep 23, 2019 | , , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of September 16 – 20, 2019.

September 16, 2019: The IRS issued a news release about time-limited settlement offers made to eligible taxpayers under audit who participated in certain micro-captive insurance transactions.

September 17, 2019: The Treasury and the IRS released a Chief Counsel Notice advising Chief Counsel attorneys about the prior Policy Statement on the Tax Regulatory Process issued by the Treasury and the IRS on March 5, 2019. We previously wrote about the Policy Statement here. The Chief Counsel Notice advises that any matter implicating any aspect of the Policy Statement must be coordinated with the Office of Associate Chief Counsel (Procedure & Administration).

September 17, 2019: The IRS issued a notice expanding the emergency housing and compliance monitoring relief that is provided in Rev. Proc. 2014-49, 2014-37 I.R.B. 535, and Rev. Proc. 2014-50, 2014-37 I.R.B. 540 to Butte, Los Angeles and Ventura counties in California due to the California wildfires.

September 17, 2019: The IRS set September 24, 2019, as the Federal Register publication date for final and proposed regulations on increase of benefit and expansion of qualifying property for additional first year depreciation deduction.

September 18, 2019: The IRS released a revenue ruling prescribing various rates for federal income tax purposes for October 2019: (1) applicable federal rates for purposes of section 1274(d); (2) adjusted applicable federal rates for purposes of section 1288(b); (3) adjusted federal long-term rate and the long-term tax-exempt rate described in section 382(f); (4) appropriate percentages for determining the low-income housing credit described in section 42(b)(1); and (5) the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of section 7520.

September 19, 2019: The IRS issued final regulations amending the rules relating to hardship distributions from section 401(k) plans. The final regulations reflect statutory changes affecting section 401(k) plans, including changes made by the Bipartisan Budget Act of 2018. The regulations affect participants in, beneficiaries of, employers maintaining and administrators of plans that include cash or deferred arrangements or provide for employee or matching contributions.

September 2019: The IRS released a Statistics of Income Bulletin focusing on gift taxes. The article provides data on donors, donees, and types and amounts of gifts given during 2010 to 2016.

Special thanks to Robbie Alipour in our Chicago office for this week’s roundup.



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The Internal Revenue Service Is Expanding the 2020 Compliance Assurance Process

by and | Sep 17, 2019 | , , ,

The Large Business and International Division of the Internal Revenue Service (IRS) developed the Compliance Assurance Process (CAP) program to improve large corporate taxpayer compliance with US federal tax obligations through the use of real-time issue resolution tools and techniques.

On September 12, 2019, the IRS announced that it was accepting applications—for the first time since 2015—from new corporate taxpayers that meet the eligibility requirements for the CAP program. The application period for the 2020 CAP year begins on September 16, 2019, and ends on October 31, 2019. Generally, applicants must meet the following requirements in order to be eligible to apply for CAP: (1) applicants must have assets of $10 million or more; (2) applicants must be a US publicly traded corporation with a legal requirement to prepare and submit SEC Forms 10-K, 10-Q, and 8-K; and (3) the applicant must not be under investigation by, or in litigation with, any government agency that would otherwise limit the IRS’s access to current tax records.

Taxpayers interested in applying for the 2020 CAP year must submit an application with several forms:

  • Form 14234 – CAP Application
  • Form 14234-A – CAP Research Credit Questionnaire
  • Form 14234-B – Material Intercompany Transactions Template
  • Form 14234-C – Taxpayer Initial Issues List
  • Form 14234-D – Tax Control Framework Questionnaire

If the taxpayer also meets the eligibility and suitability criteria, the application will be forwarded for an evaluation of the application. Accepted taxpayers will be notified in writing by the Territory Manager assigned to the taxpayer.

However, acceptance is not automatic; the IRS, in its sole discretion, may reject the application when warrants by the facts and circumstances of the application or in the interest of sound tax administration. If an application is rejected, the taxpayer will be notified in writing and provided with the reasons why it was not accepted.

Further information regarding the IRS’s CAP program may be found here. Earlier coverage of the IRS’s 2018 recalibration of the CAP program can be found here.

Practice Point: The CAP program is a valued tool for many large corporate taxpayers. Eligible taxpayers that are interested in the CAP program for 2020 should prepare and submit an application as soon as possible.



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IRS Resumes Examinations of Stock Based Compensation in Cost Sharing Agreements

by , and | Aug 8, 2019 | , , ,

On July 31, 2019, the Internal Revenue Service (IRS) Large Business and International (LB&I) division formally withdrew its Directive (LB&I-04-0118-005) instructing examiners on transfer pricing selection related to stock based compensation (SBC) in Cost Sharing Arrangements (CSAS). See here for IRS Notice of Withdrawal.

The Directive was issued January 12, 2018, after the Tax Court’s opinion in Altera which invalidated Treasury Regulation § 1.482-7A(d)(2). The IRS appealed Altera and issued Directive LB&I-04-0118-005, which we previously discussed here. The Directive instructed examiners to “[s]top opening issues related to stock-based compensation (SBC) included in cost-sharing arrangements (CSAS) intangible development costs (IDCs) until the Ninth Circuit issues an opinion in the Altera case on appeal.” At the time, the IRS indicated that it would issue further guidance once Altera was finally decided. On June 7, 2019, the Ninth Circuit reversed the Tax Court’s decision. (more…)



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