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McDermott’s Real-Time Tax Disputes Insights
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McDermott’s Real-Time Tax Disputes Insights
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Section 965 Transition Tax Overpayment Addressed in Technical Corrections

by | Jan 4, 2019 | , , ,

On January 2, 2019, the outgoing Chair of the House Ways and Means Committee, Kevin Brady (R-TX), released the Tax Technical and Clerical Corrections Act (the Bill), addressing several technical issues associated with the Tax Cuts and Jobs Act (P.L. 115-97) (TCJA). The Bill includes certain provisions that, if enacted, would affirm Congress’ intent that taxpayers with an overpayment with respect to an installment payment of the transition tax under Internal Revenue Code (Code) Section 965 should be able to claim a credit or refund with respect to such amount. The provisions in the Bill with respect to Code Section 965 overpayments are largely consistent with similar draft legislation introduced on November 26, 2018 (the Retirement, Savings and Other Tax Relief Act of 2018 and the Taxpayer First Act of 2018, or H.R. 88; see prior discussion here). In particular, the Bill provides that where a taxpayer that made an election under Code Section 965(h)(1) to pay the net tax liability under Section 965 in installments has filed a request for a credit or refund with respect to an overpayment, the Internal Revenue Service cannot take any installment into account as a liability for purposes of determining whether an overpayment exists. If enacted, the Bill would permit taxpayers to claim a refund or credit with respect to an installment payment of the taxpayer’s transition tax under Code Section 965. (more…)



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Weekly IRS Roundup December 24 – 28, 2018

by | Dec 31, 2018 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of December 24 – 28, 2018:

December 28, 2018: The IRS released final regulations concerning the public approval requirement under section 147(f) of the Code for tax-exempt private activity bonds issued by state and local governments.

December 28, 2018: The IRS released proposed regulations addressing when tax-exempt bonds are treated as retired for purposes of sections 103 and 141 through 150 of the Code.

December 28, 2018: The IRS released Revenue Procedure 2019-12, providing safe harbors under section 162 of the Code for certain payments made to organizations described in section 170(c) of the Code, in reaction to the reduction, under the Tax Cuts and Jobs Act, in the deductibility of state and local taxes.

The weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice) was not released by the IRS on Friday. 

Special thanks to Le Chen in our DC office for this week’s roundup.



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Tax Reform Insights: IRS Proposes Section 163(j) Regulations – New Business Interest Expenses Deduction Limit

by and | Dec 26, 2018 | , ,

On November 26, 2018, the Internal Revenue Service (IRS) issued proposed regulations (Proposed Regulations) pursuant to section 163(j). Public Law 115-97, the Tax Cuts and Jobs Act (TCJA), amended Internal Revenue Code (Code) Section 163 by modifying paragraph (j) to limit the amount of business interest a taxpayer may deduct for taxable years beginning after December 31, 2017. The amendment generally limits the deduction for business interest to the sum of a taxpayer’s business interest income and thirty percent of a taxpayer’s adjusted taxable income (ATI) for the taxable year.

The Code Section 163(j) limit is also increased by a taxpayer’s “floor plan financing interest,” which is certain interest used to finance the acquisition of motor vehicles held for sale or lease. Code Section 163(j)(8) defines ATI as a taxpayer’s taxable income computed without regard to: any item of income, gain, deduction, or loss which is not properly allocable to a trade or business; any business interest or business interest income; any net operating loss deduction under Code Section 172; the amount of any deduction for qualified business income under Code Section 199A; and in the case of taxable years beginning before January 1, 2022, any deduction allowable for depreciation, amortization, or depletion.

The Proposed Regulations address a variety of issues, including the following:

  • Trade or Business. New Code Section 163(j) defines business interest income and expense as amounts that are “properly allocable to a trade or business,” but it does not define trade or business.” The Proposed Regulations define a “trade or business” by reference to Code Section 162 because Code Section 162(a) provides the “most established and developed definition of trade or business.”
  • Interest. The Proposed Regulations define “interest” broadly to include other ordinary income items similar to interest, such as substitute interest payments in securities lending transactions, loan commitment fees, debt issuance costs, Code Section 707(c) guaranteed payments for the use of capital, and factoring income. Proposed Regulation § 1.163(j)-3 introduces rules, including ordering rules, for the relationship between Code Section 163(j) and other provisions affecting interest.
  • S Corporations. Proposed Regulation § 1.163(j)-6 provides guidance regarding the application of the Code Section 163(j) deduction to partnerships and S corporations.
  • CFCs. The Proposed Regulations provide that Code Section 163(j) may apply to limit the deductibility of a controlled foreign corporation’s (CFC’s) business interest expense, thereby potentially limiting a CFC’s deduction of business interest for purposes of computing subpart F income and tested income under Code Section 951A(c)(2)(A).
  • ECI. The Proposed Regulations also provide that Code Section 163(j) applies to foreign corporations and other foreign persons for purposes of computing income effectively connected with a US trade or business.

The Proposed Regulations provide a variety of other rules. Some of the notable provisions include rules applicable to REITs, RICs, tax-exempt entities and consolidated group members. They also provide rules regarding the disallowed business interest expense carryforwards of C corporations and rules regarding elections for excepted trades or businesses and rules for allocating expenses and [...]

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Congress Allows Transfer of Improperly Filed Cases to Tax Court

by | Dec 21, 2018 | , , , ,

Taxes and tax litigation can be complex and confusing. Taxpayers have the option of filing a petition in the United States Tax Court (Tax Court) prior to payment of any asserted deficiency. Alternatively, taxpayers can pay the deficiency, file a claim for refund with the Internal Revenue Service and, if that claim is denied or more than six months have elapsed, file a complaint in local District Court or the Court of Federal Claims requesting a refund. These forum rules sometimes trip up taxpayers and can lead to the filing of a suit in the wrong court.

In the Protecting Access to the Courts for Taxpayers Act (H.R. 3996), Congress has provided relief for taxpayers in this type of situation through an amendment to 28 USC section 1631:

Whenever a civil action is filed in a court as defined in section 610 of this title or an appeal, including a petition for review of administrative action, is noticed for or filed with such a court and that court finds that there is a want of jurisdiction, the court shall, if it is in the interest of justice, transfer such action or appeal to any other such court (or, for cases within the jurisdiction of the United States Tax Court) in which the action or appeal could have been brought at the time it was filed or noticed, and the action or appeal shall proceed as if it had been filed in or noticed for the court to which it is transferred on the date upon which it was actually filed in or noticed for the court from which it is transferred.

Practice Point: Allowing improperly filed cases to be transferred to the Tax Court is a welcome development for taxpayers. The amendment to 28 USC section 1631 protects taxpayers in situations where a complaint is filed within 90 days of receipt of a Notice of Deficiency in a refund jurisdiction when it should have been filed in the Tax Court.



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Proposed BEAT Regulations | Tax-Free Transactions May Give Rise to a Liability

by , and | Dec 20, 2018 | , ,

On December 13, 2018, US Department of the Treasury and the Internal Revenue Service (IRS) released proposed regulations for the Base Erosion and Anti-Abuse Tax (the BEAT), which was added to the Code as part of the 2017 Tax Act. The proposed regulations provide helpful guidance on a range of important topics and generally go a long way toward a reasonable implementation of a very challenging statute. There is one aspect of the proposed regulations, however, that may be an unwelcome surprise for many taxpayers; the proposed regulations treat stock consideration in non-cash transactions as BEAT “payments,” thereby creating the potential for BEAT liability in situations involving certain liquidations, tax-free reorganizations and other non-cash transactions.

Located in section 59A, the BEAT imposes a minimum tax on US corporations (and certain foreign corporations, which are not the focus of this Insight) that consistently have annual gross receipts of $500 million or more and claim more than a de minimis amount of “base erosion tax benefits” for a taxable year. In general, as base erosion tax benefits increase, a corporate taxpayer’s BEAT liability increases.

The proposed regulations, which are generally proposed to be effective for tax years beginning after December 31, 2017, include guidance for determining the base erosion payments that will give rise to annual base erosion tax benefits. Prop. Reg. § 1.59A-3(b) applies the same four categories of base erosion payments found in section 59A(d) for amounts paid or accrued to a related foreign party. The two categories that should affect the most taxpayers are the general category for currently deductible items and the special category for the acquisition of depreciable or amortizable property. With respect to this latter category, the acquisition price of the property will constitute the base erosion payment, but only the amount of any depreciation or amortization deductions claimed in a tax year will produce a base erosion tax benefit for purposes of computing the BEAT.

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Tax Reform Insight: Congress Offers a Glimmer of Hope for Taxpayers with Section 965 Transition Tax Overpayment

by | Dec 19, 2018 | , ,

Recently proposed legislation would provide taxpayers who made an election under Internal Revenue Code (Code) Section 965(h) to pay the transition tax over eight years through installment payments the ability to claim a refund or credit of any overpayment with respect to such amounts.

If enacted, taxpayers would be able to claim a refund or credit on an overpayment with respect to their first installment payment under Code Section 965(h).

On November 26, 2018, House Ways and Means Committee Chair Kevin Brady, R-Texas, introduced the Retirement, Savings and Other Tax Relief Act of 2018 and the Taxpayer First Act of 2018 (H.R. 88), which was subsequently revised on December 17, 2018 (the Bill). The Bill is a broad tax package that includes certain tax extenders, retirement savings proposals, Internal Revenue Service (IRS) improvement legislation and several technical corrections to the Tax Cuts and Jobs Act (P.L. 115-97).

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Weekly IRS Roundup December 10 – 14, 2018

by | Dec 17, 2018 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of December 10 –14, 2018:

December 10, 2018: The IRS issued Notice 2018-99, providing interim guidance on sections 274 and 512 of the Code, as amended by the Tax Cuts and Jobs Act, dealing with nondeductibile expenses for employer-provided parking.

December 10, 2018: The IRS issued Notice 2018-100, providing relief to tax-exempt organizations from penalties for underpayments related to nondeductible expenses for employer-provided parking under section 512 of the Code, as amended by the Tax Cuts and Jobs Act.

December 12, 2018: The IRS posted a set of FAQs to its website, answering questions regarding return filing and payment obligations under the transition tax of section 965 of the Code.

December 13, 2018: The IRS issued proposed regulations revising withholding requirements under the Foreign Account Tax Compliance Act (FATCA).

December 13, 2018: The IRS issued proposed regulations providing guidance on the Base Erosion and Anti-Abuse Tax (BEAT) of section 59A of the Code, enacted as part of the Tax Cuts and Jobs Act.

December 13, 2018: The IRS issued Revenue Procedure 2019-10, providing procedures for an insurance company to obtain automatic consent to change its accounting method to comply with section 807(f) of the Code, as amended by the Tax Cuts and Jobs Act.

December 14, 2018: The IRS issued Notice 2018-96, providing a phase-out schedule for the qualified plug-in electric drive motor vehicle credit on vehicles sold by Tesla, Inc.

December 14, 2018: The IRS issued Notice 2019-01, providing initial guidance on issues, arising from the enactment of the Tax Cuts and Jobs Act, related to previously taxed earnings and profits under section 959 of the Code.

December 14, 2018: The IRS issued Notice 2019-02, providing the 2019 optional standard mileage rates for use in computing deductible expenses in operating an automobile, plus related information.

December 14, 2018: The IRS issued Notice 2019-03, providing the monthly update to interest rates used for pension plan funding and distribution purposes.

December 14, 2018: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Le Chen in our DC office for this week’s roundup.



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Weekly IRS Roundup December 3 – 7, 2018

by | Dec 10, 2018 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of December 3 – 7, 2018:

December 4, 2018: The IRS issued a news release granting taxpayers an extra day, until Thursday, December 6, 2018, to file any return or pay any tax originally due on Wednesday, December 5, 2018, in light of the Executive Order closing all federal agencies on December 5, 2018, as a mark of respect for President George H.W. Bush.

December 4, 2018: The IRS issued Notice 2018-95, providing transition relief from the “once-in-always-in” condition for excluding part-time employees under Treas. Reg. § 1.403(b)-5(b)(4)(iii)(B).

December 6, 2018: The IRS in Revenue Ruling 2018-32 released the interest rates for underpayments and overpayments applicable for the calendar quarter beginning January 1, 2019.

December 7, 2018: The IRS issued Notice 2018-97, providing initial guidance on the application of section 83(i) of the Code, enacted in the Tax Cuts and Jobs Act, which allows qualified employees of privately held corporations to defer paying income tax—for up to five years—on the value of qualified stock options and restricted stock units granted to them by their employers.

December 7, 2018: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Le Chen in our DC office for this week’s roundup.



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Weekly IRS Roundup November 26 – 30, 2018

by | Dec 3, 2018 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of November 26 – 30, 2018:

November 26, 2018: The IRS issued the proposed regulations under Code Section 163(j) regarding the limitations on business interest expense deductions after the enactment of the Tax Cuts and Jobs Act.

November 26, 2018: The IRS released basic questions and answers regarding the limitations on business interest deductions under Code Section 163(j).

November 27, 2018: The IRS issued Revenue Procedure 2018-59, which provides a safe harbor that allows taxpayers to treat certain infrastructure trades or businesses as real property trades or businesses solely for purposes of qualifying as an electing real property trade or business under Code Section 163(j)(7)(B).

November 28, 2018: The IRS issued the proposed regulations under Code Section 904, providing guidance on the new foreign tax credits rules as amended by the Tax Cuts and Jobs Act.

November 29, 2018: The IRS issued Revenue Procedure 2018-60, which provides the procedures to obtain the automatic consent of the Commissioner under Code Section 446 and Treasury Regulation Section 1.446-1(e) to change a method of accounting to comply with Code Section 451(b), as amended by the Tax Cuts and Jobs Act.

November 30, 2018: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandum and Chief Counsel Advice).

Special thanks to Alex Cheng-Yi Lee in our DC office for this week’s roundup.



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Weekly IRS Roundup November 19 – 23, 2018

by | Nov 26, 2018 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of November 19 – 23, 2018:

November 19, 2018: The IRS in a news release reminds taxpayers that the non-recognition treatment for like-kind exchanges under Code Section 1031 is now limited to certain exchanges of real property.

November 19, 2018: The IRS issued the final regulations under Code Section 267A on allocating costs to certain property produced or acquired for resale by a taxpayer.

November 19, 2018: The IRS issued Revenue Procedure 2018-56, expanding the list of changes of methods of accounting for which the taxpayers may obtain automatic consent under the regulations of Code Section 267A.

November 20, 2018: The IRS issued a notice to request comments on Form W-8CE, Notice of Expatriation and Waiver of Treaty Benefits, which the taxpayers use to notify expatriating payers of information necessary to determine the proper tax treatment of their payments.

November 20, 2018: The IRS in IRS Tax Reform Tax Tip 2018-179 advises that certain taxpayers may benefit from converting an S corporation into a C corporation due to the new, 21 percent tax rate.

November 23, 2018: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandum and Chief Counsel Advice).

Special thanks to Alex Cheng-Yi Lee in our DC office for this week’s roundup.



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