Document Summaries for the Week of Aug. 31, 2015
IRS explains calculation of taxpayer’s unearned premium reserve
For a taxpayer’s Form 1120PC, U.S. Property and Casualty Insurance Company Income Tax Return, the Chief Counsel’s Office advised that at the end of the taxpayer’s 2009 tax year, the taxpayer will have an unearned premium reserve equal to the portion of the gross premium written that is attributable to insurance coverage for the unexpired period of any pre-2010 contract and, unless the taxpayer uses the advance premium method, for gross premiums received in 2009 for contracts that begin in 2010. Additionally, at the end of the 2009 tax year, the taxpayer retains its loss reserve for a fair and reasonable estimate of the amount it will be required to pay on pre-2010 contracts. CCA 201536024 (9/4/15).
New prop. regs. on minimum value and employer health plans
The IRS issued proposed regulations that partially replace 2013 proposed regulations on determining whether health coverage under an eligible employer-sponsored plan provides minimum value. Under the new proposed rules, employer-sponsored health plan benefits must include substantial coverage of inpatient hospital and physician services for the plan to count as providing minimum value. REG-143800-14 (9/1/15) (see related news story).
Regs. govern participant vote to suspend multiemployer pension plan benefits
The IRS issued temporary and proposed regulations governing the administration of a vote by multiemployer pension plan participants to approve a suspension of benefits when the plan is projected to have insufficient funds to pay full benefits. T.D. 9735; REG-123640-15 (9/2/15).
ESTATES, TRUSTS & GIFTS
Farm Credit System Bank loan rates for special-use valuation announced
The IRS released a list of the average annual effective interest rates on new loans from the Farm Credit System Bank, which are used to calculate the special use value of property used as a farm for Sec. 2032A purposes. Additionally, the IRS issued a list of the states within each Farm Credit System Bank Territory. Rev. Rul. 2015-18 (8/24/15).
Organizations that lost tax-exempt status announced
The IRS listed organizations for which it has revoked qualifications for tax-exempt status under Secs. 501(c)(3) and 170(c)(2). Those organizations are no longer eligible to receive tax-deductible contributions under Sec. 170(b)(1)(A). Announcement 2015-21 (8/24/15).
Taxpayer cannot use principal residence exclusion to reduce gain on reacquisition of residence
The Eighth Circuit affirmed the Tax Court and held that the taxpayer could not use the principal-residence exclusion of Sec. 121 to exclude from income amounts received as liquidated damages on the reacquisition of his principal residence after the buyers defaulted on the installment note used to purchase the property. DeBough, No. 14-3036 (8th Cir. 8/28/15).
Regs. aim to prevent Sec. 956 avoidance by CFCs
Temporary and proposed regulations amend the anti-avoidance rules that prevent controlled foreign corporations (CFCs) from avoiding the application of Sec. 956, under which a CFC’s U.S. shareholder must include in gross income amounts relating to the CFC. T.D. 9733; REG-155164-09 (9/2/15) (see related news story).
IRS clarifies “legging-out” rules for terminations of qualified hedging transactions
Final regulations provide that if a taxpayer has identified multiple hedges as being part of a qualified hedging transaction, and the taxpayer has terminated at least one but less than all of the hedges (including a portion of one or more of the hedges), the taxpayer must treat the remaining hedges as having been sold for fair market value on the date the terminated hedge was disposed of. T.D. 9736 (9/3/15) (see related news story)
IRS does not always follow proper procedures for seizure sales
The Treasury Inspector General for Tax Administration released a report finding that the IRS does not always follow proper procedures when selling seized property and recommending changes. TIGTA Rep’t No. 2015-30-036 (8/31/15).
Officer of managing member of an LLC can sign Form 1120
The Office of Chief Counsel advised that an officer of the sole remaining member of a limited liability company (LLC), which is the manager of the taxpayer (another LLC), has authority to sign the Form 1120, U.S. Corporation Income Tax Return, for the taxpayer. The Chief Counsel’s Office also explained that the taxpayer would in any event be estopped from claiming in the future that the officer did not have authority to sign the return. CCA 201536025 (9/4/15).
IRS can give vendor access to foreign financial institution database
The Office of Chief Counsel advised that the IRS can give a vendor access to its foreign financial institution database for demonstration purposes to determine whether to enter into a contract with the vendor to provide technical services to help identify gaps in registration and compliance with the Foreign Account Tax Compliance Act. The disclosures are allowable under Sec. 6103(k)(6). CCA 201536023 (9/4/15).
Payment in pawnshop business transaction is subject to information reporting
The Office of Chief Counsel advised that a payment for property under a contract with a pawnshop business that can be cancelled at a later date is nonetheless a “retail sale” for purposes of defining “cash” under Sec. 6050I, which requires reporting of “cash” receipts of more than $10,000. The Chief Counsel’s Office also noted that IRS Publication 1544, Reporting Cash Payments of Over $10,000, states on page 1, “For example, you may have to file Form 8300 if you are . . . a pawnbroker.” CCA 201536022 (9/4/15).
Tax payments to IRS after expiration of statute of limitation are considered overpayments even if no liability existed
The Office of Chief Counsel advised that a tax payment made to the IRS after the expiration of the statute-of-limitation period is considered an overpayment even if there was no tax liability. Further, the IRS has the authority to refund overpayments but only within the applicable statute-of-limitation period. A payment made after the assessment statute expiration date may be refunded to the taxpayer, but only within the limitations set forth in Sec. 6511. CCA 201536020 (9/4/15).
No authority exists for disclosing taxpayer’s return to state bar authorities
The Office of Chief Counsel advised that there is no authority to disclose a taxpayer’s return or return information to state bar authorities, absent consent from the taxpayer involved, but a Tax Court petition is public information and probably can be disclosed. Form 2848, Power of Attorney and Declaration of Representative, probably cannot be disclosed without the taxpayer’s consent. CCA 201536019 (9/4/15).
Protections IRS accords return information satisfy protections accorded by Right to Financial Privacy Act
The Office of Chief Counsel advised that, to protect certain information, the protections that the IRS accords return information would more than satisfy any protections accorded by the Right to Financial Privacy Act, P.L. 95-630. CCA 201536018 (9/4/15).
Interest rates on over- and underpayments of tax in Q4
The IRS announced the interest rates for overpayments and underpayments of tax for the fourth quarter of 2015; they remain unchanged from the third-quarter rates. Rev. Rul. 2015-17 (9/4/15)
STATE & LOCAL
Florida’s rental tax violates tenets of federal Indian law; utility tax does not
The Eleventh Circuit partially reversed a district court by holding that, with respect to matters occurring on Seminole Tribe lands, Florida’s utility tax does not violate the tenets of federal Indian law. However, the court upheld the district court’s holding that Florida’s rental tax, as it involves activities on Tribe land, does violate the tenets of federal Indian law. Seminole Tribe of Fla. v. Stranburg, No. 14-14524 (11th Cir. 8/26/15).
Court upholds denial of injunction but remands for consideration of other arguments
The Sixth Circuit agreed with a district court that there was no reasonable cause to believe a violation of the Railroad Revitalization and Regulatory Reform Act of 1976, P.L. 94-210, had occurred, and therefore there was no reason to grant the request of several railroads for a preliminary injunction against the application of the Tennessee diesel fuel tax on rail carriers. However, the court found that, in light of the fact that the railroads presented alternative arguments that potentially had merit, it was appropriate for the district court to consider those arguments’ merits on remand. BNSF Ry. Co. v. Tennessee Dep’t of Rev., No. 14-06285 (6th Cir. 8/28/15).
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.