US Department of the Treasury Archives

US Department of the Treasury

Weekly IRS Roundup June 24 – June 28, 2024

by Kevin Spencer, Evan Walters and Sama Kaseer | Jul 2, 2024 | IRS Audits, IRS Guidance, Tax Reform, Tax Refunds

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of June 24, 2024 – June 28, 2024.

June 24, 2024: The IRS released Internal Revenue Bulletin 2024-26, which includes the following:

Notice 2024-45, which provides the inflation adjustment factors and applicable amounts for the credit for Clean Hydrogen Production Tax Credit under § 45V of the Internal Revenue Code (Code) for calendar years 2023 and 2024.
Notice 2024-46, which provides that payments made by Norfolk Southern to individuals affected by the 2023 train derailment incident in East Palestine, Ohio, are considered “qualified disaster relief payments” under Code § 139, which should be excluded from gross income if they are not otherwise covered by insurance.
Notice 2024-50, which adds polyoxymethylene to the list of “taxable substances” subject to an excise tax under Code § 4672(a). The effective date of this modification for purposes of Code § 4662(e) refund claims is July 1, 2022.
Notice 2024-51, which provides the 2023 reference price under Code § 45K(d)(2)(C), applicable in determining the credit amounts provided under Code § 43 and § 45I and that percentage depletion for oil and natural gas produced from marginal properties and oil credits under Code § 613A.

June 25, 2024: The IRS apologized to hedge fund manager Ken Griffith and other taxpayers affected by the tax data leak perpetrated by former IRS contractor Charles Littlejohn.

June 26, 2024: The IRS highlighted challenges it encountered during the 2024 filing season and objectives for the upcoming fiscal year in a semi-annual report to Congress. Among other issues, the IRS identified delays in issuing refunds to identity theft victims, misleading telephone measures that lead to poor resource allocation decisions, and delays in processing Employee Retention Credit claims as key taxpayer challenges.

June 26, 2024: The IRS announced it will mail time-limited settlement offers in July 2024 to eligible taxpayers who participated in Syndicated Conservation Easements and substantially similar transactions that are under audit. The settlement offer will require substantial concession of income tax benefits and the application of penalties.

June 26, 2024: The IRS, through its Electronic Tax Administration Advisory Committee, released its 2024 annual report, which contains a total of 12 recommendations for Congress and the IRS to help improve tax administration.

June 27, 2024: The IRS extended the deadline to file federal individual and business tax returns and make tax payments for certain individuals and businesses in Mississippi that were affected by severe weather since April 8, 2024. The new deadline is November 1, 2024. The extended deadline is available to taxpayers in any area designated by the Federal Emergency Management Agency (FEMA), including individuals and households that reside or have a business in Hancock, Hinds, Humphreys, Madison, Neshoba and Scott counties.

June 28, 2024: The [...]

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IRS Changes Position on Approval for Assertion of Codified Economic Substance Doctrine

by Mike Tenenboym | Apr 29, 2022 | IRS Audits, IRS Guidance

In March 2010, Congress codified the economic substance doctrine in Internal Revenue Code (Code) Section 7701(o). The codification clarified that a conjunctive analysis applies in determining if the doctrine applies. The codified economic substance doctrine applies when a transaction does not have economic substance or lacks a business purpose. When the doctrine applies, a taxpayer is subject to a 20% strict liability penalty (40% in the case of undisclosed transactions) on any underpayment attributable to the disallowed tax benefit claimed.

Congress acknowledged that the codified economic substance doctrine should be applied sparingly, and the Joint Committee on Taxation, in a report issued prior to the enactment of the doctrine, provided detailed guidance on when the doctrine should apply. The Internal Revenue Service (IRS) issued guidance shortly after the codification acknowledging these points. The IRS also put in place detailed procedures for examiners to follow in determining whether to assert the codified economic substance doctrine.

One of the procedures put in place was the approval by the Director, Field Operation before the codified economic substance doctrine could be formally asserted. An approval request was to be made after consultation with the revenue agent’s manager and local counsel. Additionally, taxpayers were to be provided “the opportunity to explain their position.”

On April 22, 2022, the IRS’s Large Business & International (LB&I) Division issued a memorandum—LB&I-04-0422-0014—to all LB&I and Small Business/Self Employed examination employees (Updated Guidance). The Updated Guidance removes the requirement to obtain executive approval before asserting the codified economic substance doctrine. The Updated Guidance states that this change aligns penalties for lack of economic substance with other assessable penalties which do not require executive approval. However, the changes do not remove the supervisory approval requirement under Code Section 6751.

In connection with the Updated Guidance, revisions are being made to the relevant provisions of the Internal Revenue Manual (IRM). The IRM revisions eliminate some of the considerations previously set forth in the four-step process that revenue agents were required to undertake in determining whether the doctrine should be applied.

Practice Points: Although the Updated Guidance has no impact on the substance of the codified economic substance doctrine itself, the change is disappointing news. As a result of the relaxed rules for the doctrine’s assertion, taxpayers can reasonably assume that the doctrine may more frequently be asserted on audit. Thus, it is now even more important to properly document transactions to demonstrate they have sufficient economic substance and a business purpose.

Weekly IRS Roundup September 20 – 24, 2021

by McDermott Will & Emery | Sep 27, 2021 | IRS Guidance, Tax Reform, Tax Refunds

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of September 20 – 24, 2021. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

September 22, 2021: The US Department of the Treasury (Treasury) and the IRS published final regulations under IRC § 301. The regulations update existing regulations under IRC § 301 to reflect statutory changes made by the Technical and Miscellaneous Revenue Act of 1988, which changes provide that the amount of a distribution of property made by a corporation to its shareholder is the fair market value of the distributed property. The regulations affect shareholders that receive a distribution of property from a corporation.

September 22, 2021: The IRS introduced a new webpage that provides information to taxpayers whose large refunds are subject to further review by the Joint Committee on Taxation.

September 22, 2021: The IRS released instructions for Form 1065, U.S. Return of Partnership Income, to reflect the addition of Schedules K-2 and K-3. The new schedules assist partnerships in providing partners with the information necessary for the partners to complete their returns with respect to the international tax provisions of the IRC. The IRS also released related instructions for Form 1120-S, U.S. Income Tax Return for an S Corporation, to reflect Schedules K-2 and K-3, which assist with reporting items of international tax relevance from the operation of an S corporation.

September 24, 2021: The Treasury Department and the IRS published final regulations under IRC under sections 250 and 951A addressing the calculation of qualified business asset investment for qualified improvement property under the alternative depreciation system. The regulations also deal with the transition rules relating to the impact on loss accounts of net operating loss carrybacks allowed by the Coronavirus Aid, Relief, and Economic Security Act. The final regulations affect United States shareholders of controlled foreign corporations, domestic corporations eligible for the section 250 deduction and taxpayers that claim credits or deductions for foreign income taxes.

September 24, 2021: 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 in our Chicago office for this week’s roundup.

Weekly IRS Roundup September 6 – September 10, 2021

by McDermott Will & Emery | Sep 13, 2021 | IRS Guidance, Tax Reform

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of September 6, 2021 – September 10, 2021. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

September 7, 2021: The US Department of the Treasury and the IRS issued Notice 2021-53, which provides guidance to employers on reporting the amount of qualified sick and family leave wages paid to employees in 2021 on Form W-2.

September 7, 2021: The IRS announced that the deadline for third quarter estimated tax payments is September 15, 2021.

September 8, 2021: The IRS postponed various tax filing and payment deadlines for victims of Hurricane Ida in parts of New York and New Jersey. Victims now have until January 3, 2022, to file various individual and business tax returns and make tax payments for deadlines that occurred starting on September 1, 2021.

September 9, 2021: The IRS postponed various tax filing and payment deadlines for victims of Hurricane Ida in parts of Mississippi. Victims now have until November 1, 2021, to file various individual and business tax returns and make tax payments that were originally due October 15, 2021.

September 10, 2021: The IRS announced that the cost of home testing for COVID-19 is an eligible medical expense that can be paid or reimbursed under health flexible spending arrangements, health savings accounts, health reimbursement arrangements or Archer medical savings accounts.

September 10, 2021: The IRS issued temporary regulations authorizing the assessment of any erroneous refund of employment tax credits paid under Internal Revenue Code § 3131, 3132 and 3134.

September 10, 2021: 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.

Biden Spending Proposal Calls for 10% IRS Budget Increase

by Kevin Spencer, Brian Moore and McDermott Will & Emery | Apr 21, 2021 | IRS Appeals, IRS Audits, IRS Guidance

The Biden Administration has requested a $1.2 billion increase in funding for the Internal Revenue Service (IRS) as part of its proposal for Fiscal Year 2022 (FY 2022) discretionary funding released in a letter from Office of Management and Budget Acting Director Shalanda Young on April 9, 2021. The additional funding would bring the IRS FY 2022 budget to $13.2 billion, which represents a 10.4% increase over the 2021 enacted budget.

The additional funding would be used to increase IRS enforcement, especially for oversight of high-income individuals and corporate tax returns to ensure compliance with existing tax laws. The discretionary request also seeks an additional $417 million to fund a multiyear tax enforcement initiative aimed at increasing tax compliance and revenues. In total, the discretionary request would increase resources for tax enforcement by nearly $1 billion. Other funds appropriated to the IRS would be used for development and improvement of online tools and better telephone and in-person customer service for taxpayers.

Apart from IRS spending, the discretionary spending proposal includes $191 million for the US Department of the Treasury’s Financial Crimes Enforcement Network to create a database that tracks the ownership and control of certain companies and organizations.

The discretionary spending proposal is intended as a starting point for congressional appropriators and will be followed by the president’s full budget proposal—including tax changes and pay-fors—later in the spring.

Practice Point: We believe that the US Congress is likely to appropriate additional funds for tax enforcement in the FY 2022 budget. Taxpayers should begin preparing for additional IRS audits and scrutiny of return positions. Such preparation may include examining prior tax return positions and ensuring they have audit-ready files.

The Next Normal — Tax Responses to COVID-19

by McDermott Will & Emery | Jun 18, 2020 | IRS Guidance

The coronavirus (COVID-19) pandemic has thrown our personal and professional lives into a constant state of change, as we deal with social distancing, e-learning, remote working, and Zoom. In this American Bar Association article, Andrew R. Roberson, a partner in US and International Tax at McDermott Will & Emery, describes how the constant change or “next normal” rings true in the tax world as well, both for taxpayers and practitioners, as we all adapt to today’s challenges.

Access the full article.

Joint Committee Releases Overview of Its Refund Review Process

by Kevin Spencer and McDermott Will & Emery | Jan 10, 2019 | IRS Appeals, IRS Audits, IRS Guidance, Settlements, Tax Refunds, Uncategorized

Clients ask us all of the time, “What is the Joint Committee on Taxation’s (JCT) process for reviewing refund claims granted by the Internal Revenue Service (IRS)?” Recently, the JCT has released an overview of its process. Wait, what? After the IRS has agreed to issue you a refund, there is a congressional committee that has to check the IRS’s work? Yep!

Internal Revenue Code (IRC) §6405 prohibits the IRS/US Department of the Treasury from issuing certain refund payments to taxpayers until 30 days after a “report” is given to the JCT. Only refunds “in excess” of $5 million for corporate taxpayers and $2 million for all other taxpayers (partnerships, individuals, trusts, etc.) are required to be reported to the JCT. A refund claim is an amount listed on an amended return (e.g., Forms 1140X and 1120X), tentative carrybacks (e.g., Forms 1139 and 1045), and refunds attributable to certain disaster losses. Numerous types of refund payments are excepted from JCT review, including refunds claimed on originally filed returns, resulting from litigation and employment taxes. It is important to note that this process is not limited to the IRS Examination stage; it can also occur at the IRS Appeals stage or even in tax court litigation. (more…)

Proposed Regulations under Section 956 Provide Benefits for Corporate Taxpayers

by Bradford E. LaBonte, Lowell D. Yoder and Timothy S. Shuman | Nov 20, 2018 | IRS Guidance, Tax Reform, Uncategorized

On October 31, 2018, the Internal Revenue Service (IRS) and US Department of the Treasury (Treasury) released proposed regulations (REG-114540-18) (the Proposed Regulations) that would prevent, in many cases, income inclusions for corporate US shareholders of controlled foreign corporations (CFCs) under section 956. As a result, among other considerations, the Proposed Regulations could significantly expand the ability of corporate US affiliates to benefit from credit support of CFCs.

Read the full article.

Alta Wind: Federal Circuit Reverses Trial Court and Kicks Case Back to Answer Primary Issue

by Kevin Spencer and Philip Tingle | Aug 6, 2018 | Appellate Courts, Court Procedure Matters, Transfer Pricing Resource, Trial Courts, Uncategorized

On July 27, 2018, the US Court of Appeals for the Federal Circuit in Alta Wind v. United States, reversed and remanded what had been a resounding victory for renewable energy. The US Court of Federal Claims had ruled that the plaintiff was entitled to claim a Section 1603 cash grant on the total amount paid for wind energy assets, including the value of certain power purchase agreements (PPAs).

We have reported on the Alta Wind case several times in the past two years:

Government Appeal of Alta Wind Supports Decision to File Suit Now

Court Awards $206 Million to Alta Wind Projects in Section 1603 Grant Litigation; Smaller Award to Biomass Facility

Act Now To Preserve Your Section 1603 Grant

SOL and the 1603 Cash Grant – File Now or Forever Hold Your Peace

In reversing the trial court, the appellate court failed to answer the substantive question of whether a PPA that is part of the sale of a renewable energy facility is creditable for purposes of the Section 1603 cash grant.

Trial Court Decision

The Court of Federal Claims awarded the plaintiff damages of more than $206 million with respect to the cash grant under Section 1603 of the American Recovery and Reinvestment Act of 2009 (the Section 1603 Grant). The court held that the government had underpaid the plaintiff its Section 1603 Grants arising from the development and purchase of large wind facilities when it refused to include the value of certain PPAs in the plaintiffs’ eligible basis for the cash grants. The trial court rejected the government’s argument that the plaintiffs’ basis was limited solely to development and construction costs. Instead, the court agreed with the plaintiffs that the arm’s-length purchase price of the projects prior to their placed-in-service date informed the projects’ creditable value. The court also determined that the PPAs specific to the wind facilities should not be treated as ineligible intangible property for purposes of the Section 1603 Grant. This meant that any value associated with the PPAs would be creditable for purposes of the Section 1603 Grant.

Federal Circuit Reverses and Remands

The government appealed its loss to the Federal Circuit. In its opinion, the Federal Circuit reversed the trial court’s decision, and remanded the case back to the trial court with instructions. The Federal Circuit held that the purchase of the wind facilities should be properly treated as “applicable asset acquisitions” for purposes of Internal Revenue Code (IRC) section 1060, and the purchase prices must be allocated using the so-called “residual method.” The residual method requires a taxpayer to allocate the purchase price among seven categories. The purpose of the allocation is to discern what amount of a purchase price should be ascribed to each category of assets, which may have significance for other parts of the IRC. For example, if the purchase price includes depreciable [...]

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A Look at Treasury’s Recent Efforts to Reform Regulation

by McDermott Will & Emery | Jun 7, 2018 | IRS Guidance, Tax Reform, Uncategorized

Just 10 days after his inauguration, President Trump signed Executive Order 13771, establishing the tenet of deregulation to be adopted by the Trump administration. Executive Order 13771 outlined the Trump administration’s vision for reducing regulation and controlling regulatory costs, and established a principle that for every one new regulation issued at least two prior regulations be identified for elimination — the “one in, two out” principle. President Trump’s Call for Reducing Tax Regulatory Burdens.

Access the full article.

Originally published in Law360, June 2018.

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