Document Summaries for the Week of July 20, 2015


Tax Court addresses consolidated group’s reduction of NOLs by COD income

When a member of a consolidated group excluded cancellation-of-debt income during a consolidated return year before Temp. Regs. Sec. 1.1502-28T’s effective date, the net operating loss (NOL) subject to reduction under Sec. 108(b)(2)(A) is the entire consolidated NOL of the consolidated group. Marvel Entertainment, LLC, 145 T.C. No. 2 (7/21/15)


Employee Benefits

IRS announces changes to employee benefits determination letter program

To more efficiently direct its limited resources, beginning Jan. 1, 2017, the IRS will change the Employee Plans determination letter program to eliminate the staggered five-year determination letter remedial amendment cycles for individually designed plans and limit the scope of the determination letter program for individually designed plans to initial plan qualification and qualification upon plan termination. Announcement 2015-19 (7/21/15)


Estates, Trusts & Gifts

Seventh Circuit affirms Tax Court’s refusal to vacate estate’s prior IRS settlement

The Seventh Circuit held that the Tax Court did not abuse its discretion in denying an estate’s request to vacate a prior settlement between the estate and the IRS on the basis that some of the estate’s beneficiaries had subsequently filed additional lawsuits and, if those beneficiaries prevailed in state court, the original settlement would bar the estate from claiming an estate tax refund for any additional amounts paid to those beneficiaries. Billhartz, No. 14-1216 (7th Cir. 7/23/15)


Excise Taxes

Buyers of used heavy highway vehicles cannot continue to suspend excise tax

In program manager technical assistance, the IRS Office of Chief Counsel concluded that a buyer who purchases a used highway motor vehicle cannot continue to suspend tax on the vehicle under Sec. 4483(d) if the tax is suspended as of the date of transfer but the buyer does not have evidence of the number of miles the vehicle was driven between the beginning of the current tax period and the date of transfer. Also, a buyer who purchases a used highway motor vehicle that the buyer expects to use primarily for farming purposes and on public highways for more than 5,000 miles but less than 7,500 miles for the entire tax period cannot suspend the excise tax on heavy highway vehicles under Sec. 4483(d)(5) if the vehicle was not registered with the state as a highway motor vehicle used for farming purposes from the beginning of the tax period until the date of transfer. PMTA 2015-08 (3/23/15)



Income from stock equivalent plan was ordinary income

The Tax Court held that the taxpayers’ 2007 income from a stock equivalent plan was properly characterized as ordinary income. In addition, because the taxpayers did not have reasonable cause for filing their tax return late, they were liable for the failure-to-file penalty. Stout, T.C. Memo. 2015-133 (7/21/15)

Taxpayers cannot unilaterally change reporting of earnout payments

The Federal Claims Court agreed with the IRS and held that a couple could not amend their returns to reclassify earnout payments from wages to capital gain. Permitting them to do so without seeking IRS consent under Sec. 446(e) would grant them and all similar taxpayers a license to freely change from one reporting treatment of earnout rights to another—or more generally, between open and closed methods of accounting—when hindsight shows it might be financially advantageous. Greiner, No. 13-520T (Fed. Cl. 7/22/15)



Deemed dividend is measured by taking into account all U.S. E&P

The Office of Chief Counsel advised that, in an acquisition by a newly formed domestic subsidiary in which the subsidiary used stock of the parent to acquire a target company, it supported applying the anti-abuse rule in Regs. Sec. 1.367(b)-10(d) so that the amount of the parent’s deemed dividend (and withholding tax) would be measured by taking into account all U.S. earnings and profits (E&P) (including the accumulated E&P of the target), not just current E&P. CCA 201530020 (7/24/15)

Foreign TMP can be selected with IRS permission

The Office of Chief Counsel advised that a partnership can select a foreign tax matters partner (TMP), but only with IRS permission. If the TMP is overseas and has no U.S. presence through which the IRS can secure partnership books and records, the request “probably” should be denied. CCA 201530018 (7/24/15)


IRS Procedure

Guidance on venue for appeals in Tax Court cases

The IRS Office of Chief Counsel provided guidance on the proper appellate venue for collection due process, innocent spouse, interest abatement, and other nondeficiency cases in light of the decision in Byers, 740 F.3d 668 (D.C. Cir. 2014). CC-2015-006 (6/30/15)

No abuse of discretion in denying taxpayer a face-to-face hearing

The Tax Court held that the IRS’s denial the taxpayer a face-to-face hearing was not an abuse of discretion where the taxpayer failed to file delinquent tax returns and to provide requested financial information. McRae, T.C. Memo. 2015-132 (7/20/15)

Sec. 6103 protections in the International Data Exchange Service

The IRS Office of Chief Counsel advised when tax return data transmitted to and from foreign tax administrations using the International Data Exchange Service (IDES) is subject to the Sec. 6103 confidentiality requirements. Information the IRS provides b to foreign tax administrations is already protected return information by the time it is transmitted. The Office of Chief Counsel believes Sec. 6103 protection arises on the inbound transfer of information when the information is uploaded to IDES. AM 2015-005 (7/17/15)

Political activities referral committee operations clarified

In a memo to IRS managers, the director of exempt organizations clarified the composition and operations of the Political Activities Referral Committee (PARC). TEGE-04-0715-0018 (7/17/15)

Guidance issued on conducting examinations of Direct Pay Bonds

The IRS provided guidance to its tax-exempt bond examiners and managers on conducting examinations of Direct Pay Bonds. TEGE-04-0715-0019 (7/20/15)

Final regs. issued on proper place to file refund claims

Final regulations generally require taxpayers filing claims for refund or credit to file their claim with the IRS service center at which the taxpayers currently would be required to file a tax return for the type of tax to which the claims relate. T.D. 9727 (7/23/15) (see related news story)

Bankruptcy of tier partnership does not convert partnership items

The Office of Chief Counsel advised that the bankruptcy of a tier partnership does not convert the partnership items for the indirect partners to nonpartnership items or make TEFRA inapplicable. CCA 201530021 (7/24/15)



Proposed regs. define disguised payments for services

The IRS issued proposed regulations that would apply a nonexclusive six-factor test to determine whether payments from a partnership to a partner are disguised payments for services that are not rendered in the partner’s capacity as a partner in the partnership. REG-115452-14 (7/22/15) (see related news story)

Small partnership exception to TEFRA applies absent affirmative election

The Office of Chief Counsel advised that if a partnership has 10 or fewer partners, all of whom are individuals (other than nonresident aliens) or C corporations (including a state law “corporation sole”), the small partnership exception to TEFRA applies absent an affirmative election to be governed by the TEFRA provisions. CCA 201530019 (7/24/15)

Tax Insider Articles


Business meal deductions after the TCJA

This article discusses the history of the deduction of business meal expenses and the new rules under the TCJA and the regulations and provides a framework for documenting and substantiating the deduction.


Quirks spurred by COVID-19 tax relief

This article discusses some procedural and administrative quirks that have emerged with the new tax legislative, regulatory, and procedural guidance related to COVID-19.