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The Tax Impact of Recent Federal Actions Relating to COVID-19

by | Mar 18, 2020 | ,

On March 13, 2020, President Trump signed a Proclamation on Declaring a National Emergency Concerning the Novel Coronavirus Disease (COVID-19) Outbreak under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (the “Stafford Act”).

By invoking the Stafford Act, the President provides the Internal Revenue Service (IRS) and US Department of the Treasury (the “Treasury”) significant authority to offer tax relief to those in federally designated disaster areas. While it is not uncommon for a state or locality to be designated as an emergency or disaster area, the severity of the COVID-19 outbreak has required a national response. The President’s declaration has led the Federal Emergency Management Agency (FEMA) to declare an emergency in every state, territory and certain tribal lands. A list of each declaration is available on FEMA’s website and will be updated as more specific forms of relief are authorized.

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Tax Court Closes Building and Cancels More Trial Sessions

by | Mar 16, 2020 | , ,

As the fallout from the coronavirus (COVID-19) continues, the US Tax Court (Tax Court) has cancelled additional trial sessions. As we previously discussed, the Tax Court last week cancelled all trial sessions for March 2020. Now, the Tax Court has announced that all trial sessions for April 2020 are also cancelled. Additionally, although the Tax Court will remain open to receive mail and accept hand-delivered petitions, the Tax Court building will be closed to visitors.



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Weekly IRS Roundup March 9 – 13, 2020

by | Mar 16, 2020 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of March 9 – 13, 2020.

March 10, 2020: The IRS published a practice unit on how to compute the alternative minimum foreign tax credit. The public unit includes the framework for computing such alternative minimum foreign tax credit under IRC section 59.

March 10, 2020: The IRS released revised instructions for various information returns for 2020. The instructions were updated to reflect the PATH Act accelerating the due date for filing Form 1099 that included nonemployee compensation to January 31. Additionally, Form 1097-BTC, Form 1098-C, Form 1098-F, Form 1098-MA, Form 1098-Q, Form 1099-CAP, Form 1099-LS, Form 1099-LTC, Form 1099-OID, Form 1099-Q, Form 1099-SA, and Form 1099-SB and its instructions have been converted from annual updates to continuous use forms and instructions.

March 11, 2020: The Chief Counsel’s Office adopted 14-point Times New Roman as the standard font for all documents filed with the US Tax Court.

March 11, 2020: The US Tax Court cancelled sessions in a number of cities to contain the spread of Coronavirus. Some major cities cancelled sessions as far out as March 30, 2020. For more coverage, see here.

March 12, 2020: The IRS released clarifications to the 2019 Partner’s Instructions for Schedule K-1. The changes affect Code F IRC section 743(b) positive income adjustments, Code V IRC section 743(b) negative income adjustments, Code AA IRC section 704(c) information, and Code AH information.

March 12, 2020: The IRS released Notice 2020-16, which provides guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under IRC section 417(e)(3), and the 24-month average segment rates under IRC section 430(h)(2). The notice also provides guidance as to the interest rate on 30-year Treasury securities under IRC section 417(e)(3)(A)(ii)(II) for plan years beginning before 2008 and the 30-year Treasury weighted average rate under IRC section 431(c)(6)(E)(ii)(I).

March 13, 2020: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Emily Mussio in our Chicago office for this week’s roundup.



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Coronavirus (COVID-19) Results in Tax Court Trial Sessions Cancellations

by and | Mar 11, 2020 | ,

The coronavirus (COVID-19) has now impacted the operations of the United States Tax Court (Tax Court). This morning, the Tax Court announced that after assessing all relevant factors relating to COVID-19, including travel and public health considerations, the trial sessions for March 16, 2020, March 17, 2020, March 23, 2020, and March 30, 2020, are cancelled. Orders are currently being issued in several cases reflecting the cancellations, which impact trial sessions in the following cities:

  • Boston, Massachusetts
  • Chicago, Illinois
  • Dallas, Texas
  • Hartford, Connecticut
  • Milwaukee, Wisconsin
  • Los Angeles, California
  • Philadelphia, Pennsylvania
  • Pittsburgh, Pennsylvania
  • Provo (Salt Lake City), Utah
  • San Francisco, California

The Tax Court expects the parties to continue to work together to exchange information and address pending issues.

It remains to be seen if the Tax Court will cancel other trial sessions scheduled for April, May and June (the Tax Court does not hold trial sessions in July and August). The Tax Court’s website contains the full listing of trial sessions for the 2020 Winter Trial Sessions and the 2020 Spring Trial Sessions.

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Weekly IRS Roundup March 2 – 6, 2020

by | Mar 9, 2020 | ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of March 2 – 6, 2020.

March 2, 2020: The US Treasury Department and the IRS released tax year 2018 statistics to the public, including both individual income tax returns (Form 1040’s) filed through mid-November of 2019 and filings by charitable organizations through December of 2019. The Treasury Department reported that overall average adjusted gross income (AGI) rose by 5.7% relative to the same period the prior year.

March 6, 2020: The IRS issued final regulations that correct TD 9890, which provides guidance on certain due diligence and reporting rules applicable to persons making certain US source payments to foreign persons and guidance on certain aspects of reporting by foreign financial institutions on US accounts. The correction updates the table of contents entries for Example 4 in Treas. Reg. § 1.1441-6(b)(2)(iv)(D).

March 2, 2020: The IRS issued a revenue procedure providing an exemption from the information reporting requirements under IRC section 6048 for certain US individuals with respect to their transactions with, and ownership of, certain tax-favored foreign retirement trusts and nonretirement savings trusts. The revenue procedure also establishes procedures for eligible individuals to request an abatement of penalties that have been assessed or a refund of penalties that have been paid pursuant to IRC section 6677 for the individuals’ failure to comply with information reporting requirements.

March 4, 2020: The Statistics of Income Division of the IRS released Publication 5398, which reports the AGI percentiles by state for the 2017 tax year. In 2017, the AGI cutoff for the top 1 percent of the US income distribution was $516,714; the average AGI for this group of taxpayers was $1,625,221, with labor income, capital income and business income as their three primary sources of income.

March 6, 2020: The IRS changed the date of a public hearing on proposed regulations under IRC section 274, regarding expenditures related to entertainment, amusement or recreation activities. The public hearing, which was originally scheduled for April 7, 2020, has been rescheduled for April 29, 2020. The IRS requests that comments be received by April 13, 2020.

March 6, 2020: The IRS released Instructions to Schedule D of Form 1040, advising taxpayers who are eligible to roll over gain from empowerment zone assets for 2018 (potentially due to recent legislation restoring the empowerment zone rollover for 2019 and retroactively extending it to 2018) to file an amended return using Form 1040-X. The IRS explained how taxpayers may determine if they are eligible to postpone their gain and, if so, how such taxpayers may report their position to the IRS.

March 6, 2020: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Jenni [...]

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Weekly IRS Roundup February 24 – 28, 2020

by | Mar 2, 2020 | ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of February 24 – 28, 2020.

February 24, 2020: The IRS released final instructions to Form 8978, Partner’s Additional Reporting Year Tax, to reflect changes to the audit procedures of partnerships under the 2015 BBA. Under IRC section 6226, a partnership may elect to have each reviewed year partner take into account the partner’s share of the partnership’s adjustments, instead of the partnership paying the imputed underpayment determined under Section 6221.

February 24, 2020: The IRS issued a news release naming Brendan O’Dell, a senior advisor in the IRS LB&I Division, as the IRS’ new Promoter Investigations Coordinator. O’Dell will coordinate promoter activity across the agency, working with the IRS business units, the Office of Professional Responsibility, Criminal Investigation, Chief Counsel and other IRS offices to ensure coordination of ongoing investigations and the development of new approaches to identify promoters of aggressive tax arrangements.

February 27, 2020: The IRS issued final regulations that correct TD 9885, the base erosion and anti-abuse regulations that were published on December 6, 2019. The corrections clarify two-timing thresholds, stating that the final regulations extend the transition period for meeting the complete QDP reporting requirements until taxable years beginning on or after Monday, June 7, 2021 and that Section 1.6038A-2(b)(7)(ix) applies to taxable years beginning on or after Monday, June 7, 2021.

February 27, 2020: The IRS updated Publication 590-A, which addresses contributions to individual retirement arrangements (IRAs) under IRC section 408A. The IRS provided the correct procedure to determine modified adjusted gross income for Roth IRA purposes.

February 27, 2020: The Treasury and the IRS announced the appointment of Erin M. Collins as the new National Taxpayer Advocate. For our separate discussion of the appointment, as well as other recent tax appointments, see here.

February 28, 2020: The Statistics of Income (SOI) Division of the IRS released the SOI Bulletin for winter 2020. The bulletin focuses on individual foreign-earned income and the foreign tax credit for the 2016 tax year, when the total amount of foreign-earned income reported by US taxpayers decreased by 11.2% from 2011, while the foreign-source gross income reported by US taxpayers during that time increased by 19.5%. The SOI Bulletin provides the most recent data available from various tax and information returns filed by US taxpayers.

February 28, 2020: The IRS released a revenue ruling and a related news release announcing that interest rates under IRC section 6621 will remain the same for the calendar quarter beginning April 1, 2020. IRC section 6621 establishes the interest rates on overpayments and underpayments of tax, including a specific rate for large corporate underpayments. The revenue ruling will appear in the Internal Revenue Bulletin 2020-12, dated March 16, 2020.

February 28, 2020: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Jenni [...]

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New Tax Appointments

by and | Feb 28, 2020 | ,

This has been a busy week in the tax appointments world, with the appointment of the new National Taxpayer Advocate (NTA), the reappointment of Chief Judge Foley as Chief Judge of the United States Tax Court (Tax Court), and the confirmation of Travis Greaves to the Tax Court.

On February 27, 2020, the Treasury and the Internal Revenue Service (IRS) announced the appointment of Erin M. Collins as the new NTA. Ms. Collins fills the vacancy created by the retirement of Nina Olson last summer. Ms. Collins spent 20 years as a Managing Director for KPMG’s Tax Controversy Practices for the Western Area and was an IRS Chief Counsel attorney for 15 years.

On February 24, 2020, the Tax Court announced the re-election of Chief Judge Foley to a 2-year term starting June 1, 2020. Chief Judge Foley was originally elected as Chief Judge effective June 1, 2018.

Finally, the Senate confirmed Travis Greaves to be a Judge of the Tax Court for a 15-year term. For our prior post on Mr. Greaves’ nomination by the White House, see here. Two other nominees, Alina Ionescu and Christian Weiler, are currently awaiting action by the Senate Finance Committee.



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Supreme Court Tackles Tax-Related Cases

by and | Feb 26, 2020 | , , , , ,

The United States Supreme Court has picked up the pace this week, already issuing eight regular opinions and four opinions relating to orders as of today. We discuss the tax-related items here.

In Rodriguez v. FDIC, the question was how to decide which member of a consolidated group of corporations is entitled to a tax refund. The Internal Revenue Service (IRS) issued a refund to the designated agent of an affiliated group, but the dispute centered on how that refund should be distributed among the group’s members. Some courts have looked at state law to resolve the distribution issue while others crafted a federal common law rule providing that, in the absence of an unambiguous tax allocation agreement, the refund belongs to the group member responsible for the losses that led to the refund. The Supreme Court rejected the latter common law rule, finding that it was not a legitimate exercise of federal common lawmaking. In reaching its decision, the Court noted that federal judges may craft such types of rules only in limited areas and it must be “necessary to protect uniquely federal interest.” The Court, however, did not decide who, in the case before it, was entitled to the refund, but remanded the case for further proceedings.

In Baldwin v. United States, Justice Thomas dissented from the denial of certiorari in a case asking the Court to reconsider National Cable & Telecommunications Assn. v. Brand X Internet Services, 545 U.S. 967 (2005). We previously discussed Baldwin here, in which the US Court of Appeals for the Ninth Circuit held that, under Brand X, its prior construction of Internal Revenue Code section 7502 did not preclude a different interpretation by the IRS because the prior construction was based on filling a statutory gap in a reasonable manner. Because the IRS’s subsequent regulatory interpretation was reasonable (in light of ambiguous statutory language), the Ninth Circuit effectively overruled its prior precedent and accepted the IRS’s subsequent contrary interpretation.

Justice Thomas, the author of Brand X, had a change of heart and wrote that his dissent that the prior opinion appeared to be inconsistent with the Constitution, the Administrative Procedure Act (APA) and traditional tools of statutory construction. In his dissent, he called into question the continuing viability of Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), expressing the view that Chevron “is in serious tension with the Constitution, the APA, and over 100 years of judicial decisions.”

Practice Point: These latest developments from the Supreme Court should be noted by taxpayers and practitioners. As with the highly contested opinion in Kisor v. Wilkie last term, it is clear that many Justices are uncomfortable with granting a high level of deference to government agencies. Deference issues continue to be in the forefront in several tax cases, and likely will continue to be highly relevant in forthcoming challenges to many regulations in the wake of tax reform in 2017.



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Weekly IRS Roundup February 17 – 21, 2020

by | Feb 24, 2020 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of February 17 – 21, 2020.

February 18, 2020:  The IRS issued a revenue ruling providing various prescribed rates for federal income tax purposes for March 2020, including various applicable federal rates (AFRs) for purposes of IRC section 1274(d) and adjusted AFRs for purposes of IRC section 1288(b) and section 382(f). The revenue ruling also contains the federal rate to determine the present value of annuities and other future interests for purposes of IRC section 7520.

February 19, 2020:  The IRS issued a revenue procedure establishing a safe harbor under which the IRS will treat partnerships as properly allocating, in accordance with IRC section 704(b), the credit for carbon oxide sequestration under IRC section 45Q. In a related news release, the IRS stated that the safe harbor is similar to the safe harbors developed for partnerships receiving the wind energy production tax credit and the rehabilitation credit. The safe harbor will be effective for transactions entered into on or after March 9, 2020, and provides rules that allow for prior transactions to qualify for similar treatment.

February 19, 2020:  The IRS published final regulations that correct TD 9885, the base erosion and anti-abuse regulations that were published on December 6, 2019. The amendments restructure the sentence addressing “a principal purpose” of avoiding a base erosion payment; the amendments also correct Treas. Reg. § 1.6038A-2(g) to say that returns must be included “on or after” June 7, 2021.

February 19, 2020:  The IRS issued a notice providing guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under IRC section 417(e)(3), and the 24-month average segment rates under IRC section 430(h)(2). The notice also provides guidance as to the interest rate on 30-year Treasury securities under IRC section 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under IRC section 431(c)(6)(E)(ii)(I).

February 19, 2020:  The IRS issued a news release reporting that the J5 tax chiefs—leaders from five international tax organizations, including the IRS’ Criminal Investigations unit—met in Sydney this past week to review the J5’s progress in their fight against transnational crime. The J5 was formed upon the OECD’s suggestion and has recently engaged in a globally coordinated “day of action” against an international financial institution suspected of facilitating money laundering and tax evasion.

February 19, 2020:  The Treasury and the Financial Crimes Enforcement Network (FinCEN) released a final rule to reflect inflation adjustments to its civil monetary penalties. The updated penalty adjustment table is listed in 31 CFR Section 1010.821, and it includes civil monetary penalties for various types of violations, including penalties for violations of Bank Secrecy Act requirements.

February 20, 2020:  The IRS released draft instructions to Form 8978, Partner’s Additional Reporting Year Tax, to reflect changes to the audit procedures of partnerships under the 2015 BBA. [...]

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Weekly IRS Roundup February 10 – 14, 2020

by | Feb 18, 2020 | , , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of February 10 – 14, 2020.

February 10, 2020:  The IRS issued a revenue ruling providing guidance regarding how to determine the adjusted basis life of insurance contracts under IRC section 1011 and 1012 given the recent amendments to IRC section 1016(a), which the Tax Cuts and Jobs Act amended to provide that in determining the basis of a life insurance contract or an annuity contract, no adjustment is made for mortality, expense, or other reasonable charges incurred under the contract. The IRS updated Revenue Ruling 2009-13 and 2009-14 to reflect these changes.

February 10, 2020:  The Joint Committee on Taxation released a report addressing domestic corporations’ federal tax receipts and tax liabilities. The report summarized the present law and accounting rules regarding corporate taxation, specifically addressing behavioral responses relating to recent tax changes, including the acceleration of deductions, deferral of income, and treatment of NOLs and NOL carryovers. The House Committee on Ways and Means discussed the report in a public hearing on February 11, 2020.

February 10, 2020:  The Treasury published a notice of a current list of countries that require or may require participation in, or cooperation with, an international boycott within the meaning of IRC section 999(b)(3). The countries include Iraq, Kuwait, Lebanon, Libya, Qatar, Saudi Arabia, Syria, United Arab Emirates and Yemen.

February 11, 2020:  The Joint Committee on Taxation released a report addressing an amendment that would provide for additional reporting by certain investors with respect to certain specified medical care providers. Under the proposal, reporting persons are required to file annual information returns with respect to certain specified medical care providers in which the reporting person holds an interest. The House Committee on Ways and Means discussed the report in a public hearing on February 12, 2020.

February 13, 2020:  The IRS published proposed regulations that provide guidance for employers concerning the amount of federal income tax to withhold from employee’s wages, implementing recent changes due to the Tax Cuts and Jobs Act and the redesigned 2020 Form W-4 and related IRS publications. In a related news release, the IRS stated that employees who have a Form W-4 on file with their employer from years prior to 2020 generally will continue to have their withholding determined based on that form.

February 14, 2020:  The IRS released final regulations to correct final regulations contained in T.D. 9891, which was published on January 23, 2020, and provided guidance applicable to transfers of appreciated property by US persons to partnerships with foreign partners related to the transferor. The regulations are scheduled to be published in the Federal Register on February 18, 2020.

February 14, 2020: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

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

 



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