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Weekly IRS Roundup August 17 – August 21, 2020

by McDermott Will & Emery | Aug 26, 2020 | IRS Guidance, Tax Reform

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of August 17, 2020 – August 21, 2020. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

August 19, 2020: The IRS requested comments from large corporate taxpayers currently utilizing the procedures under Revenue Procedure 94-69 to disclose changes in tax positions after the opening of an examination. The IRS is considering obsoleting Revenue Procedure 94-69, which is available to a small group of large corporate taxpayers. Revenue Procedure 94-69 provides special procedures for taxpayers that are subject to the (former) Coordinated Examination Program to show additional tax due or make disclosures to avoid the imposition of accuracy-related penalties for negligence, disregard of rules or regulations or substantial understatement of income tax under sections 6662(b)(1) and (b)(2). Comments are due by October 19, 2020.

August 19, 2020: The IRS published a practice unit concerning the taxability of distributions from an S corporation that either (1) does not have accumulated earnings and profits (AE&P), or (2) makes distributions from sources other than AE&P; that is, nondividend distributions made from the accumulated adjustments account, other adjustments account or a shareholder-level previously taxed income account from before 1983 to the extent it still exists. The practice unit also addresses what items to consider to determine the taxability of nondividend distributions, liquidating distributions and sale-or-exchange redemption distributions.

August 19, 2020: The IRS published a practice unit concerning the last-in first-out (LIFO) pooling method and taxpayers who may elect to compute opening and closing inventories for goods using LIFO.

August 20, 2020: The IRS published a memorandum concerning guidance for Taxpayer Advocate Service (TAS) employees on the types of cases accepted into TAS under Criteria 9 – Public Policy. The Taxpayer Advocate is adding four cases that fit the policy; (1) organizations where the IRS automatically revoked their tax-exempt status for failure to file an annual return or notice for three consecutive years; (2) cases involving any tax account-related issue referred to TAS from a Congressional office, including limited Economic Impact Payment (EIP) issues; (3) cases involving revocation, limitation or denial of a passport; and (4) cases that have been referred to a Private Collection Agency for collection of a federal tax debt.

August 20, 2020: The IRS published corrections to Treasury Decision 9614, which was published in the Federal Register on Tuesday, March 19, 2013. Treasury Decision 9614 contained final regulations that apply to transfers of certain property by a domestic corporation to a foreign corporation in certain nonrecognition exchanges, or to distributions of stock of certain foreign corporations by a domestic corporation in certain nonrecognition distributions. The corrections are effective on August 20, 2020.

August 21, 2020: The IRS announced it has temporarily stopped mailing notices to taxpayers with [...]

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Weekly IRS Roundup August 10 – August 14, 2020

by McDermott Will & Emery | Aug 18, 2020 | IRS Guidance, Tax Reform

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of August 10, 2020 – August 14, 2020. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

August 10, 2020: The IRS published corrections to a notice of proposed rulemaking related to section 245A(e) (Hybrid Dividends) that was published in the Federal Register on April 8, 2020. The notice contained proposed regulations that adjust hybrid deduction accounts to take into account earnings and profits of a controlled foreign corporation that are included in income by a US shareholder. The corrections are effective on August 11, 2020.

August 10, 2020: The IRS published corrections to final regulations from Treasury Decision 9896 that were published in the Federal Register on Wednesday, April 8, 2020. The final regulations provide guidance regarding hybrid dividends and certain amounts paid or accrued pursuant to hybrid arrangements, which generally involve arrangements whereby US and foreign tax law classify a transaction or entity differently for tax purposes. The correction is effective on August 12, 2020.

August 12, 2020: The IRS published a memorandum that modifies Taxpayer Advocate Service (TAS) case acceptance criteria for cases involving Economic Impact Payments (EIPs).

August 12, 2020: The IRS announced changes to user fees relating to certain requests for letter rulings and determinations that will take effect on January 4, 2021. The increased user fees described in this announcement will be reflected in Rev. Proc. 2021-4, which will be published in Internal Revenue Bulletin 2021-1 on January 4, 2021.

August 13, 2020: The IRS published a practice unit concerning the identification, review of the computation and determination of the circumstances when section 986(c) recognition is appropriate in the pre-Tax Cuts and Jobs Act (TCJA) environment. The practice unit addresses two issues: (1) Did the taxpayer correctly compute section 986(c) exchange gain or loss on the distribution of previously taxed earnings and profits (PTEP) to its US parent?; and (2) Was the distribution of previously taxed earnings and profits to the US parent resulting in the section 986(c) exchange gain or loss part of a step transaction that should be collapsed, a transaction lacking a business purpose and/or a transaction that lacks economic substance?

August 14, 2020: The IRS released Internal Revenue Bulletin 2020-34, dated August 17, 2020, containing the following: (1) REG-111879-20 (Employment Tax); (2) TD 9904 (Employment Tax); (3) REG-112042-19 (Excise Tax); (4) Notice 2020-58 (Income Tax); and (5) REG-132766-18 (Income Tax).

August 14, 2020: The IRS published corrections to final regulations (TD 9885) that were published in the Federal Register on Friday, December 6, 2019. The final regulations implement the base erosion and anti-abuse tax, which is designed to prevent the reduction of tax liability by certain large corporate taxpayers through certain payments [...]

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Weekly IRS Roundup June 8 – June 12, 2020

by McDermott Will & Emery | Jun 15, 2020 | IRS Guidance

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of June 8 – June 12, 2020. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

June 9, 2020: The IRS published a reminder for taxpayers that estimated tax payments for tax year 2020, originally due April 15 and June 15, are now due July 15. Any individual or corporation that has a quarterly estimated tax payment due has until July 15 to make that payment without penalty.

June 11, 2020: The IRS released Notice 2020-46 to address that cash payments employers make to charitable organizations that provide relief to victims of the COVID-19 pandemic in exchange for sick, vacation, or personal leave which their employees forgo will not be treated as compensation. Additionally, the employees will not be treated as receiving the value of the leave as income and cannot claim a deduction for the leave that they donated to their employer.

June 12, 2020: The IRS and Treasury issued proposed regulations to amend the existing regulations to add a definition of real property to reflect statutory changes and the Tax Cuts and Jobs Act (TCJA) limiting IRC § 1031 to exchanges of real property. Written or electronic comments and requests for a public hearing must be received by August 11, 2020.

June 12, 2020: The IRS issued Notice 2020-49 to provide tax relief for certain taxpayers affected by the COVID-19 pandemic involved in new markets tax credit transactions under IRC § 45D(a). Specifically, the notice provides guidance for community development entities (CDEs) and qualified active low-income community businesses (QALICBs) investing and conducting businesses in low-income communities. The notice postpones to December 31, 2020, the due dates for making investments, making reinvestments, and expending amounts for construction of real property under IRC § 45D due to be performed or expended on or after April 1, 2020, and before December 31, 2020.

June 12, 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.

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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Code Sec. 367(a) and (d) After the TCJA

by Lowell D. Yoder | Jan 3, 2020 | IRS Guidance, Uncategorized

Code Sec. 367(a) and (d) subject to taxation a transfer of tangible and intangible property by a U.S. person to a foreign corporation in an otherwise tax-free transaction. While for many years exceptions were provided for transfers of certain types of property, the Tax Cuts and Jobs Act (“TCJA”) amended Code Sec. 367, removing the exceptions and broadening the definition of intangible property.

Specifically, Code Sec. 367(a)(1) provides generally that gain realized on the transfer of property by a U.S. person to a foreign corporation is subject to taxation. Former Code Sec. 367(a)(3) had provided an exception for property transferred to a foreign corporation for use in an active trade or business outside the United States. For example, this exception was available for the transfer of a foreign plant and equipment. The exception did not apply to a transfer of inventory, accounts receivable, intangible property within the meaning of former Code Sec. 936(h)(3) (B), or foreign currency. The TCJA eliminated this exception, such that gain on a transfer of property by a US person to a foreign corporation is now subject to immediate taxation, except for property subject to Code Sec. 367(d).

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Originally published by International Tax Journal: November/December 2019

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.

Weekly IRS Roundup October 7 – October 11, 2019

by McDermott Will & Emery | Oct 14, 2019 | IRS Guidance, Uncategorized

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of October 7 – October 11, 2019.

October 7, 2019: The IRS announced that taxpayers who requested the six-month filing extension should complete their tax returns and file on or before the October 15 deadline.

October 8, 2019: The Treasury and the IRS released the 2019–2020 Priority Guidance Plan that sets forth guidance priorities. This plan prioritizes implementation of the Tax Cuts and Jobs Act, Pub. L. 115-97, 131 Stat. 2054 and of the Taxpayer First Act, Pub. L. 116-25, 133 Stat. 981, enacted on July 1, 2019. In addition, the 2019–2020 Priority Guidance Plan reflects the deregulatory policies and reforms described in Section 1 of Executive Order 13789 (April 21, 2017; 82 FR 19317) and Executive Order 13777 (February 24, 2017; 82 FR 12285).

October 9, 2019: The Treasury and the IRS published a correction to a notice of proposed rulemaking (REG-104870-18) that was published in the Federal Register on September 9, 2019. The proposed regulations cover the timing of an income inclusion under section 451 and reflect changes made by the Tax Cuts and Jobs Act.

October 9, 2019: The Treasury and the IRS published a notice of public hearing on proposed regulations, which cross-references temporary regulations under section 245A that limit the dividends received deduction available for certain dividends received from current or former controlled foreign corporations. The public hearing is being held on Friday, November 22, 2019. The IRS must receive outlines of the topics to be discussed at the public hearing by Monday, November 11, 2019.

October 9, 2019: The Treasury and the IRS issued proposed regulations that provide guidance on the tax consequences of the transition to the use of reference rates other than interbank offered rates (IBORs) in debt instruments and non-debt contracts. The proposed regulations address the possibility that an alteration of the terms of a debt instrument or a modification of the terms of other types of contracts to replace an IBOR to which the terms of the debt instrument or other contract refers with a new reference rate could result in the realization of income, deduction, gain, or loss for federal income tax purposes or could result in other tax consequences. The proposed regulations will affect parties to debt instruments and other contracts that reference an IBOR.

October 9, 2019: The IRS issued guidance on the taxation of cryptocurrencies by releasing Rev. Proc. 2019-24 and Frequently Asked Questions on Virtual Currency Transactions. For a more detailed discussion of this guidance, see our post here.

October 10, 2019: The IRS published draft instructions for Form 1040 and the new Form 1040-SR available to taxpayers age 65 and older.

October 11, 2019: The IRS published its nonacquiescence with GreenTeam Materials Recovery Facility PN v. Commissioner, T.C. Memo 2017-122 and, generally, indicated it will not follow the decision in disposing of cases involving other [...]

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Weekly IRS Roundup September 30 – October 4, 2019

by McDermott Will & Emery | Oct 8, 2019 | IRS Guidance, Uncategorized

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of September 30 – October 4, 2019.

September 30, 2019: The IRS published a draft of the tax year 2019: (i) Form 1065, US Return of Partnership Income; (ii) its Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc.; (iii) Form 1120-S, US Income Tax Return for an S Corporation; and (iv) its Schedule K-1, Shareholder’s Share of Income, Deductions, Credits, etc. The IRS intends the changes to the form and schedule to improve the quality of the information reported by partnerships both to the IRS and the partners of such entities and to improve the data available for the IRS’s compliance selection processes. This draft gives tax practitioners a preview of the changes and software providers the information they need to update systems before the final version of the updated forms and schedules are released in December. There is a limited window period (30 days) for taxpayers to provide comments on the forms to the IRS.

October 1, 2019: The Treasury and the IRS issued a revenue procedure that limits the inquiries required by US persons to determine whether certain foreign corporations are controlled foreign corporations. The revenue procedure also allows certain unrelated minority US shareholders to rely on specified financial statement information to calculate their subpart F and GILTI inclusions and satisfy reporting requirements with respect to certain CFCs if more detailed tax information is not available. It also provides penalty relief to taxpayers in the specified circumstances. The revenue procedure announces that the IRS intends to amend the instructions for Form 5471 to reduce the amount of information that certain unrelated minority US shareholders of the CFC are required to provide. It will also limit the filing requirements of US shareholders who only constructively own stock of the CFC solely due to downward attribution from another person.

October 2, 2019: The Treasury and the IRS released proposed regulations relating to the modification of section 958(b) by the TCJA. The proposed regulations provide relief to taxpayers affected by the repeal of section 958(b)(4), which provided that the downward attribution rules of section 318 were not to be applied so as to consider a United States person as owning stock owned by a foreign person. The regulations also propose modifications to existing regulations that are intended to ensure that the operation of certain rules is consistent with their application before the repeal of section 958(b)(4). The proposed regulations affect United States persons that have ownership interests in or that make or receive payments to or from certain foreign corporations. The modifications relate to the following: (i) section 267 (Deduction for Certain Payments to Foreign Related Persons); (ii) section 332 (Liquidation of Applicable Holding Company); (iii) section 367(a) (Triggering Event Exception for other Dispositions or Events under Treas. Reg. § 1.367(a)-8(k)(14)); (iv) section 672 (CFC’s Ownership of a Trust); (v) section 706 (Taxable Year of a Partnership); (vi) section 863 [...]

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Tax Court Rules State Corporate Incentives Are NOT Taxable Income Under Federal Law

by Kevin Spencer and Le Chen | Apr 11, 2019 | Court Procedure Matters, Tax Reform, Trial Courts, Uncategorized

Many states and localities give incentives for business to move or transact in their locations. There has always been a question of whether these incentives are taxable income under federal income tax law. Internal Revenue Code (IRC) section 118, as amended by the Tax Cuts and Jobs Act, P.L. 115-97, provides that “[i]n the case of a corporation, gross income does not include any contribution to the capital of the taxpayer….(b) For purposes of subsection (a), the term “contribution to the capital of the taxpayer” does not include—…(2) any contribution by any governmental entity or civic group (other than a contribution made by a shareholder as such).”

In a recent case, the US Tax Court ruled that certain cash grants given by the State of New Jersey fit squarely within IRC section 118, and were not taxable to the corporate taxpayer. Brokertec Holdings, Inc. v. Commissioner, T.C. Memo. 2019-32.

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