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Code Section 965

Weekly IRS Roundup January 13 – 17, 2020

by McDermott Will & Emery | Jan 21, 2020 | IRS Audits, IRS Guidance, Tax Reform, Uncategorized

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of January 13 – 17, 2020.

January 13, 2020: The IRS published an information letter relating to the testamentary transfer to a trust of US Series EE savings bonds purchased by and issued to a decedent. The IRS stated that if the bonds were transferred to the trust because of a death, and if the transferor were either an accrual method taxpayer or a cash method taxpayer who reported interest annually, then the increase in value of the bonds in the year of death up to the date of death must be reported on the decedent’s final return. The IRS provided alternative guidance to cash method transferors that did not annually report their interest.

January 13, 2020: The Chief Counsel’s Office informally advised that for capital contributions where a partnership return is accepted as filed, the IRS may adjust the basis of an affected item at the partner level without opening a partnership-level examination. The Office explained that though the IRS cannot change any partnership-item components of outside basis without opening a TEFRA proceeding, the partnership itself can adjust the overall computation of outside basis, accepting all the partnership-item components as filed, as well as any nonpartnership-item components of outside basis.

January 13, 2020: The IRS updated their FATCA (Foreign Account Tax Compliance Act) IDES (International Data Exchange Services) Technical FAQs page. The update addresses taxpayers that receive an “Invalid Certificate” alert when uploading their digital certificates to the IDES system. The IRS provided a variety of explanations for the error, including that the digital certificate itself may be invalid and that there may be communication errors with the certificate authority.

January 13, 2020: The IRS supplemented the 2019 Instructions for Form 1042-S, which addresses a foreign person’s US source income subject to withholding. The changes reflect the proposed regulations that reduced a taxpayer’s burden with respect to certain requirements under FATCA. The Instructions’ Tax Rate Table was also adjusted to include the revised backup withholding tax rate of 24%, as required by the TCJA.

January 16, 2020: The IRS issued a news release announcing that it will return sequestered funds to businesses that were affected by a recent OMB determination regarding the Balanced Budget and Emergency Deficit Control Act of 1985, as amended. The IRS explained that it will restore any amounts sequestered since 2013 under section 168(k)(4), further stating that taxpayers need not take any action because the IRS has a complete list of all affected taxpayers.

January 17, 2020: The IRS issued a news release announcing that the agency is open to considering relief from double taxation resulting from the application of the repatriation tax under section 965 where there is no significant reduction in the resulting tax by application of foreign tax credits. The IRS explained that it would only be appropriate to provide relief in unique circumstances, such as where [...]

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Weekly IRS Roundup November 4 – 8, 2019

by McDermott Will & Emery | Nov 11, 2019 | IRS Audits, IRS Guidance, Tax Reform, Uncategorized

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.

IRS Issues Transition Tax Compliance Campaign

by McDermott Will & Emery, Kevin Spencer and McDermott Will & Emery | Nov 6, 2019 | IRS Appeals, IRS Audits, IRS Guidance, Tax Reform, Uncategorized

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.

Tax Blog: New Questions and Answers for Section 965

by McDermott Will & Emery | Jul 19, 2019 | IRS Guidance, Tax Reform, Tax Refunds, Uncategorized

The IRS has released new informal guidance (“Questions and Answers”) regarding section 965, containing information on making successive installment payments, filing transfer agreements as a result of certain acceleration or triggering events, and other matters related to S corporation shareholders making the section 965(i) election.

Consistent with prior advice issued by the IRS (see coverage here and here), the Questions and Answers provide that the IRS cannot make a refund or apply as a credit any amount of an installment payment until the entire income tax liability is satisfied (i.e., any overpayments of an installment obligation will be used to satisfy future section 965 installment payments).

The Questions and Answers also provides details on payment obligations with respect to successive installment payments under section 965(h). In particular, the IRS will “make every effort to issue an installment notice and payment voucher” for each successive installment payment, but taxpayers who do not receive a notice may contact the IRS to obtain the amount to be paid.

The Questions and Answers reiterates that transfer agreements will be considered timely filed “only if filed within 30 days of the date that the acceleration event occurs” (i.e., relief is not available under §§ 301.9100-2 or -3 to file a late election).

In addition, S corporation shareholders that previously filed a section 965(i) election may enter into a consent agreement with the IRS within 30 days of the occurrence of the triggering event in order to pay the section 965 net tax liability in eight annual installments. The Questions and Answers clarify that a consent agreement does not take the place of a section 965(h) election, and that S corporation shareholder must also make a section 965(h) election to pay the section 965 net tax liability in eight annual installments. Finally, the Questions and Answers clarifies that the S corporation and the transferor of the S corporation shares remain jointly and severally liable for the section 965 tax liability after making a section 965(h) election to pay in eight annual installments.

Weekly IRS Roundup January 14 – 18, 2019

by McDermott Will & Emery | Jan 22, 2019 | IRS Guidance, Tax Reform, Uncategorized

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of January 14 – 18, 2019.

January 15, 2019: The IRS issued final regulations implementing the transition tax under section 965 of the Code, enacted as part of the Tax Cuts and Jobs Act.

January 15, 2019: The IRS released an updated contingency plan describing its actions and activities in light of the partial federal government shutdown.

January 16, 2019: The IRS released Notice 2019-11, providing a penalty waiver, under certain conditions, for an individual taxpayer’s underpayment of withholding and estimated income tax, in light of the major changes made by the Tax Cuts and Jobs Act.

January 18, 2019: The IRS issued final regulations providing guidance on the deduction for qualified business income under section 199A of the Code, enacted as part of the Tax Cuts and Jobs Act.

January 18, 2019: The IRS released proposed regulations dealing with previously suspended losses and ownership interests in certain entities for purposes of calculating the deduction under section 199A of the Code, enacted as part of the Tax Cuts and Jobs Act.

January 18, 2019: The IRS released Revenue Procedure 2019-11, providing methods for calculating W-2 wages for purposes of the deduction under section 199A of the Code, enacted as part of the Tax Cuts and Jobs Act.

January 18, 2019: The IRS released Notice 2019-07, proposing a safe harbor for rental real estate enterprises for purposes of the deduction under section 199A of the Code, enacted as part of the Tax Cuts and Jobs Act.

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

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

by McDermott Will & Emery | Dec 19, 2018 | IRS Guidance, Tax Reform, Uncategorized

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 October 1 – 5, 2018

by McDermott Will & Emery | Oct 8, 2018 | IRS Guidance, Tax Reform, Uncategorized

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of October 1 – 5, 2018:

October 1, 2018: The IRS announced in Notice 2018-78 that the deadline for the basis election under Treas. Reg. § 1.965-2 was extended from prior to the publication of final Internal Revenue Code (Code) Section 965 regulations to 90 days after the issuance of the final Code Section 965 regulations.

October 3, 2018: The IRS issued Rev. Proc. 2018-53, which sets out the procedure for taxpayers requesting private letter rulings with respect to divisive reorganizations under Code Sections 355 and 368(a)(1)(D).

October 3, 2018: The IRS issued Notice 2018-76 providing transitional guidance on the deductibility of expenses for certain business meals under Code Section 274 in an entertainment context and stated that it intended to publish proposed regulations on the matter. For more information, see our post here.

October 4, 2018: The IRS released a reminder that calendar-year taxpayers who placed qualifying property in service during 2017 but intend to elect not to claim the new 100 percent depreciation deduction under Code Section 168(k) must file the election before October 15, 2018.

October 5, 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 Lee in our DC office for this week’s roundup.

Tax Reform Insight: IRS Slams Door on Refunds/Credits for Taxpayers with Section 965 Transition Tax Liability

by David G. Noren, Lowell D. Yoder, Sandra P. McGill and McDermott Will & Emery | Aug 21, 2018 | IRS Guidance, Tax Reform, Uncategorized

The Internal Revenue Service (IRS) has issued PMTA 2018-016, reaffirming its position that for taxpayers making an election under Internal Revenue Code (Code) Section 965(h) to pay the transition tax over eight years through installment payments, any overpayments of 2017 tax liabilities cannot be used as credits for 2018 estimated tax payments or refunded, unless and until the overpayment amount exceeds the full eight years of installment payments.

The IRS’s position has affected many taxpayers, and practitioners expressed their concerns to the IRS to no avail.

Access the full article.

Tax Reform Insight: IRS Doubles Down on Retention of 2017 Overpayments to Satisfy Future Section 965 Installment Payments

by David G. Noren, Lowell D. Yoder, Sandra P. McGill and McDermott Will & Emery | Jun 19, 2018 | IRS Guidance, Tax Reform, Uncategorized

We previously discussed the Internal Revenue Service’s (IRS) surprising position that for taxpayers making an election under Internal Revenue Code (Code) Section 965(h) to pay the transition tax over 8 years through installment payments, any overpayments of 2017 tax liabilities cannot be used as credits for 2018 estimated tax payments or refunded, unless and until the overpayment amount exceeds the full 8 years of installment payments. The IRS’s position has affected many taxpayers, and practitioners have expressed their concerns to the IRS.

On June 4, 2018, the IRS responded to these concerns. Rather than changing its position, the IRS has doubled down; however, the IRS has taken the small but welcome step of allowing some penalty relief for taxpayers affected by the earlier guidance as set forth in new Questions and Answers 15, 16 and 17.

Based on discussions with the IRS, it appears that the IRS’s position is based on the view that it has broad authority under Code Section 6402 to apply overpayments against other taxes owed, and that Code Section 6403 requires an overpayment of an installment payment to be applied against unpaid installments. Thus, the IRS maintains that the Code Section 965 tax liability is simply a part of the tax year 2017 liability, and it is, except for Code Section 965(h) and a timely election thereunder, payable and due by the due date of the 2017 tax return. Any future installments for the Code Section 965 liability are, in the IRS’s view, not part of a tax for a future tax year that has yet to have been determined, as the tax has already been self-assessed by the taxpayer for 2017. Accordingly, the IRS views any overpayments as being applied within the same tax period to the outstanding Code Section 965 tax owed by the taxpayer even though taxpayers making a timely Code Section 965(h) election are not legally required to make additional payments until subsequent years. (more…)

IRS Releases Second Quarter Update to 2017-2018 Priority Guidance Plan

by Kevin Spencer and McDermott Will & Emery | Feb 9, 2018 | IRS Guidance, Uncategorized

On February 7, 2018, the Department of the Treasury (Treasury) released its second quarter update to the 2017-2018 Priority Guidance Plan to identify tax issues it believes should be addressed through regulations, revenue rulings, revenue procedures, notices and other published administrative guidance. The Priority Guidance Plan contains projects the Treasury hopes to complete during the 12-month period from July 2, 2017 through June 30, 2018. We previously posted on the first quarter 2017-2018 Priority Guidance plan here.

Most of the projects do not involve the issuance of new regulations, instead focus on guidance to taxpayers on a variety of tax issues important to individuals and businesses in the form of: (1) revocations of final, temporary, or proposed regulations (for our prior coverage, see here); (2) notices, revenue rulings and revenue procedures; (3) simplifying and burden reducing amendments to existing regulations; (4) proposed regulations; or (5) final regulations adopting proposed regulations. The initial 2017-2108 Priority Guidance Plan consisted of 198 guidance projects, 30 of which have already been completed. The second quarter update reflects 29 additional projects, including priority items as a result of the Tax Cuts and Jobs Act (TCJA) legislation enacted on December 22, 2017, and guidance published or released from October 13, 2017 through December 31, 2017.

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