Document Summaries for the Week of Sept. 14, 2015
Final regs. on regulated investment company controlled groups
Final regulations revise the examples that illustrate how the controlled-group rules apply to regulated investment companies (RICs) and, specifically, how they affect the asset diversification tests for RICs. T.D. 9737 (9/14/15).
Revenue procedure addresses RIC asset diversification requirements
A procedure describes conditions under which the IRS will treat a regulated investment company (RIC) that invests in one or more other RICs as satisfying the asset diversification requirements of Sec. 851(b)(3)(B) (i.e., the 25% tests). Rev. Proc. 2015-45 (9/14/15).
Failure of IRS and accountants to warn taxpayer of illegal or fraudulent conduct precludes extension of statute
The Tax Court held that, while the taxpayer’s reporting of income in prior years may have been improper, evidence provided by the IRS fell short of being clear and convincing as to establishing the fraudulent intent necessary to extend the statute of limitation. The court noted that the actions or inactions of the taxpayer’s accountants and the IRS auditors included no clear warnings to the taxpayer that its conduct was illegal or fraudulent and, to the extent that none of those professionals undertook the task of determining the taxpayer’s correct income, they were complicit in the duration of the improper reporting. Transupport, Inc., T.C. Memo. 2015-179 (9/14/15).
IRS studying issues under Secs. 337(d) and 355
The IRS announced that it is studying issues under Secs. 337(d) and 355 relating to certain distributions, described in Sec. 355, in which property becomes the property of a regulated investment company or a real estate investment trust, in which the active business assets are small relative to other assets, or in which there is a substantial amount of investment assets. The notice describes the transactions of concern and requests comments concerning those transactions. Notice 2015-59 (9/14/15).
Final regs. issued on F reorganizations
The IRS issued final regulations governing tax-free reorganizations under Sec. 368(a)(1)(F) and outbound F reorganizations with foreign corporations. T.D. 9739 (9/18/15) (see related news story).
IRS issues procedures for plan administrators requesting waivers for electronic filing requirement due to economic hardship
The IRS set forth procedures for retirement plan administrators and plan sponsors who are required to file electronically Form 8955-SSA, Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits, and Form 5500-EZ, Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan, to request a waiver of the electronic filing requirement due to economic hardship. Rev. Proc. 2015-47 (9/15/15).
IRS updates weighted average interest rates, yield curves, and segment rates for September
The IRS issued guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Sec. 417(e)(3), and the 24-month average segment rates under Sec. 430(h)(2) for September 2015. In addition, the IRS issued guidance on the interest rate on 30-year Treasury securities under Sec. 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Sec. 431(c)(6)(E)(ii)(I). Notice 2015-61 (9/15/15).
IRS will issue prop. regs relating to health insurance reporting
The IRS announced it intends to propose regulations under Sec. 6055 that will (1) provide that health insurance issuers must report coverage in catastrophic health insurance plans; (2) allow electronic delivery of statements reporting coverage under expatriate health plans, unless the recipient explicitly refuses consent or requests a paper statement; (3) allow filers reporting on insured group health plans to use a truncated taxpayer identification number to identify the employer on the statement furnished to a taxpayer; and (4) specify when a provider of minimum essential coverage is not required to report coverage of an individual who has other minimum essential coverage. Notice 2015-68 (9/17/15).
ESTATES, TRUSTS & GIFTS
Assumption of decedent’s gift tax liability constitutes consideration
The Tax Court held that, in determining the value of a gift by a decedent to her daughters, the assumption of a potential Sec. 2035(b) estate tax liability by the daughters was a detriment to the daughters and a benefit to the decedent such as would be considered by a willing buyer and willing seller in determining a sale price of the transferred property rights. The value of the daughters’ assumption of the potential Sec. 2035(b) estate tax liability was determined using the IRS’s mortality tables and applying interest rates under Sec. 7520 as a discount factor. Steinberg, 145 T.C. No. 7 (9/16/15).
IRS provides guidance on application of Sec. 4944 to investments made by private foundations
The IRS confirmed that under Sec. 4944, when exercising ordinary business care and prudence, private foundation managers may consider all relevant facts and circumstances, including the relationship between the investment and the foundation’s charitable purpose. They are not required to select only investments that offer the highest rate of return, lowest risks, or greatest liquidity, so long as they exercise ordinary business care and prudence in deciding whether to make the investment. Notice 2015-62 (9/15/15).
Regs. to allow information returns in place of contemporaneous written acknowledgments
The IRS issued proposed regulations that, when finalized, would allow charitable organizations to file an information return with the IRS and the donor instead of providing contemporaneous written acknowledgment for donations over $250. REG-138344-13 (9/16/15) (see related news story).
Daughter’s use of rental property precludes deducting expenses in excess of rental income
The Tax Court held that, because a couple’s daughter did not pay fair rental when she lived in their rental property, deductions relating to the rental home were limited to the extent of rental income. While the couple owed additional taxes as a result of this finding, the court said they were not liable for accuracy-related penalties because they relied on their CPA’s advice in the preparation of their return. Okonkwo, T.C. Memo. 2015-181 (9/14/15).
Wife eligible for innocent spouse relief to extent certain items weren’t attributable to her
The Tax Court held that an IRS settlement officer did not abuse her discretion by determining that a couple were not eligible for currently not collectible status but instead qualified for an installment agreement with a $960 monthly payment. The court also concluded that the wife was entitled to relief from joint and several liability for tax years 2008 and 2009 under Sec. 6015(b) to the extent that the tax deficiencies at issue were not attributable to items reported on her Schedules C, Profit or Loss From Business, and on her Schedules A, Itemized Deductions. Scott, T.C. Memo. 2015-180 (9/14/15).
IRS abused its discretion in proceeding with collection action
The Tax Court held that the IRS’s determination to proceed with a collection action against the taxpayer was an abuse of the settlement officer’s discretion and remanded the proceedings so that the taxpayer could be afforded the opportunity to contest the merits of her underlying 2008 tax liability. Canaday, T.C. Summ. 2015-57 (9/15/15).
Annual per-diem rates for travel in 2015–16
The IRS issued its annual update of special per-diem rates for use in substantiating lodging, meals, and incidental business expenses taxpayers incur when traveling away from home in 2015 and 2016. Notice 2015-63 (9/16/15) (see related news story).
Tenth Circuit affirms conviction of oral surgeon who used trusts to conceal income
The Tenth Circuit affirmed the conviction of an oral surgeon who concealed his income from the IRS by using a trust scheme he found on the internet. The surgeon was found guilty of violating Sec. 7212(a) for corruptly endeavoring to obstruct and impede the due administration of the internal revenue laws. Sorensen, No. 14-1366 (10th Cir. 9/14/15).
IRS provides final guidance on per capita distributions to Indian tribe members
The IRS issued final guidance superseding Notice 2014-17, in which the IRS issued interim guidance concerning the federal income tax treatment of per capita distributions made to members of Indian tribes from funds held in trust by the secretary of the Interior. Notice 2015-67 (9/18/15).
Transfer-pricing regulations require consistent valuation of controlled transactions
Temporary regulations on transfer pricing require consistent valuation of controlled transactions for all Code purposes and clarify coordination of Sec. 482 rules with other Code provisions. T.D. 9738 (9/14/15) (see related news story).
Prop. regs. on transfers of foreign goodwill or going-concern value
Proposed regulations narrow the scope of transfers of foreign goodwill or going-concern value that are eligible for nonrecognition of gain or income for transfer-pricing purposes. REG-139483-13 (9/14/15) (see related news story).
Regs. implement rules for dividend equivalents under notional principal contracts
The IRS issued final, temporary, and proposed regulations under Sec. 871(m) on when a payment made pursuant to certain notional principal contracts will be treated as a dividend equivalent and guidance on the substantial-equivalence test. T.D. 9734; REG-127895-14 (9/17/15) (see related news story).
IRS to amend FATCA regulations
The IRS announced it intends to amend the regulations under Secs. 1471–1474 (commonly known as FATCA) to extend: (1) the date for when withholding on gross proceeds and foreign passthrough payments will begin; (2) the use of limited branches and limited foreign financial institutions; and (3) the deadline for a sponsoring entity to register its sponsored entities and redocument such entities with withholding agents. In addition, to reduce compliance burdens on withholding agents that hold collateral as a secured party, the IRS also announced it intends to amend the regulations under Secs. 1471–1474 to modify the rules for grandfathered obligations with respect to collateral. Notice 2015-66 (9/18/15).
IRS adds certain RIC and REIT transactions to no-rule areas
The IRS issued a revenue procedure supplementing Rev. Proc. 2015-3, which sets forth areas in which the IRS will not issue letter rulings or determination letters (i.e., no-rule areas). The revenue procedure adds to the list of no-rule areas any issue relating to the qualification, under Sec. 355 and related provisions of the Code, of certain distributions in which property becomes the property of a regulated investment company (RIC) or a real estate investment trust (REIT), in which the active business assets are small relative to other assets, or in which there is a substantial amount of investment assets. Rev. Proc. 2015-43 (9/14/15).
IRS cannot unilaterally decide what constitutes the administrative record in whistleblower case
The Tax Court held that, even if it were to agree with the IRS that the court’s scope of review in a whistleblower case is the administrative record, the IRS cannot unilaterally decide what constitutes that record. The court found that the IRS’s responses to motions made by the whistleblowers to produce certain documents indicated that the purported administrative record was incomplete. Whistleblower One 10683-13W, 145 T.C. No. 8 (9/16/15).
Couple does not qualify for offer in compromise
The Tax Court agreed with the IRS’s determination to proceed with a proposed collection by levy and held that the proposed collection was not an abuse of discretion. The IRS had concluded that a couple could pay their tax liabilities in full and did not qualify for an offer in compromise on the basis of doubt as to collectability. Thomas, T.C. Memo. 2015-182 (9/16/15).
October AFRs issued
The IRS issued the applicable federal rates for October 2015. Rev. Rul. 2015-21 (9/17/15).
Individual can send PDF of legal advice to Counsel personnel who have a need to know
An individual in the Chief Counsel’s Office confirmed with another individual the decision the two had agreed upon in a telephone conversation that it was permissible for the other individual to send a PDF version of legal advice to Counsel personnel who have a “need to know.” CCA 201538017 (9/18/15).
Chief Counsel’s Office expresses opinion on Gabelli decision
The Office of Chief Counsel expressed its thoughts on the Gabelli decision (Gabelli v. Securities and Exchange Comm’n, 113 S. Ct. 1216 (2013)), a case in which the Supreme Court held that the five-year statute of limitation period for the SEC to bring a civil suit seeking penalties for securities fraud against investment advisers begins to run when the fraud occurs, not when it is discovered. The Chief Counsel’s Office opined that the Court’s opinion does not support the contention that there cannot be an indefinite statute of limitation for civil penalties. CCA 201538018 (9/18/15).
Assessment of Sec. 6676 penalty is not dependent on a deficiency determination
The Office of Chief Counsel advised that an IRS exam team could determine a penalty under Sec. 6676 against the taxpayer for making claims for refund in excessive amounts and that the penalty should be 20% times the amount of the disallowed refund claims. According to the Chief Counsel’s Office, the penalty is not dependent upon a deficiency determination, and the IRS may immediately assess the penalties, without using the Code’s deficiency procedures. CCA 201538019 (9/18/15).
No abusive arbitrage device was used in connection with refunding bonds
The IRS National Office advised that no abusive arbitrage device, as defined in Regs. Sec. 1.148-10(a)(2), was used in connection with certain refunding bonds issued to advance refund a portion of a bond issuer’s outstanding indebtedness. According to the Chief Counsel’s Office, the refunding bonds were not an advance refunding in which a device was employed to obtain a material financial advantage (based on arbitrage) apart from savings attributable to lower interest rates. TAM 201538013 (9/18/15).
IRS addresses issues relating to 50% additional first-year depreciation deduction
The IRS issued guidance on issues related to the enactment of certain provisions of the Tax Increase Prevention Act of 2014, P.L. 113-295, which amended Sec. 168(k)(2) by extending the placed-in-service date for property to qualify for the 50% additional first-year depreciation deduction. Rev. Proc. 2015-48 (9/15/15).
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.