Document Summaries for the Week of June 6, 2016
Rules issued for applying COD rules in bankruptcy cases
The IRS issued final regulations that provide rules for determining who is the “taxpayer” for purposes of applying the Sec. 108 discharge-of-indebtedness rules to a grantor trust or disregarded entity if the debt discharge occurs in a bankruptcy case or while the taxpayer is insolvent. T.D. 9771 (6/9/16) (see related news story).
Regulations curtail REIT spinoffs
The IRS issued temporary and proposed regulations that implement the restrictions on tax-free real estate investment trust (REIT) spinoffs enacted last year and further curtail attempts to circumvent the new rules. T.D. 9770, REG-126452-15 (6/7/16) (see related news story).
Safe-harbor election for success-based fees not available in Sec. 338(h)(10) asset sale
The Office of Chief Counsel held that, when an acquired corporation elects to treat a stock sale as an asset sale under Sec. 338(h)(10), the acquired corporation cannot use the safe-harbor election under Rev. Proc. 2011-29 to allocate success-based fees paid in conjunction with the acquisition. The Chief Counsel’s Office noted that the election is available only for covered transactions under Regs. Sec. 1.263(a)-5(e)(3) and does not apply to an acquired taxpayer in an asset acquisition. CCA 201624021 (6/10/16).
Court agrees that IRS Sec. 482 allocations were arbitrary, capricious, or unreasonable
The Tax Court agreed with a medical device company that IRS allocations of income from intercompany licenses for intangible property required to manufacture medical devices were arbitrary, capricious, or unreasonable. However, the court made its own adjustments after concluding that neither party’s transfer-pricing analysis was reasonable. Medtronic, Inc., T.C. Memo. 2016-112 (6/9/16).
Transfers of property to facilitate electricity transmission are contributions to capital
IRS guidance provides a safe harbor for transfers of property from either an electricity generation or cogeneration facility or an energy storage facility to a regulated public utility, used to facilitate the transmission of electricity over the utility’s transmission system, to be treated as a contribution to the capital of a corporation under Sec. 118(a), and not a contribution in aid of construction (CIAC) under Sec. 118(b). The guidance supersedes Notice 88-129, Notice 90-60, and Notice 2001-82, and modifies Rev. Proc. 2016-29 to include the accounting method change in this notice. Notice 2016-36 (6/10/16).
Taxpayer has constructive distribution from life insurance contract
The Tax Court held that, upon the termination of a life insurance policy, a taxpayer received a constructive distribution of approximately $238,000, of which approximately $150,000 was includible in income because it exceeded his investment in the contract. The taxpayer and his wife were also liable for accuracy-related and failure-to-file penalties. The accuracy-related penalty applied because it was unreasonable for the couple to conclude that they had no tax liability based on several IRS employees’ and unpaid tax professionals’ refusal to confirm that the amount stated on the Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., was taxable, especially since another tax preparer had said the amount was taxable. Mallory, T.C. Memo. 2016-110 (6/6/16).
Couple cannot blame tax prep software for mistakes on their return; substantial-understatement penalties upheld
The Tax Court upheld most of the deficiency assessments the IRS made against a couple because the couple could not show they were entitled to many of the expenses deducted on their tax returns. The court rejected the taxpayers’ claim that their use of tax preparation software caused the mistakes and upheld substantial-understatement penalty assessments after noting that the couple’s substantiation of expenses largely fell short of what was required. Powell, T.C. Memo. 2016-111 (6/8/16).
IRS rules on qualified property indebtedness
The IRS ruled on two situations involving individual taxpayers who had debt forgiven on property used in their real property trades or businesses, determining in each situation whether the canceled debt was qualified real property business indebtedness. Rev. Rul. 2016-15 (6/10/16) (see related news story).
IRS reopens Get Transcript Online application
The IRS announced that it has reopened its Get Transcript Online service for taxpayers, with improved security and authentication procedures. IR-2016-85, FS-2016-20 (6/7/16) (see related news story).
Quarterly interest rates on tax overpayments and underpayments issued for third quarter
The The IRS announced the interest rates that will apply for the calendar quarter beginning July 1, 2016. Rev. Rul. 2016-12 (6/6/16).
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.