Directives issued by the IRS Large Business & International Division describe circumstances in which the IRS will not challenge the taxpayer’s position that it has the benefits and burdens of ownership for purposes of the Sec. 199 deduction.
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TOPICS / CORPORATIONS
Deductions
Proposed Regs. Clarify Research Expenditure Eligibility Under Sec. 174
The IRS in September issued proposed regulations clarifying the application of Sec. 174 to the costs to create “pilot models” or prototypes. The proposed rules state that the reason a taxpayer creates a prototype or other product, and not its subsequent sale or use, determines whether it qualifies under Sec. 174.
IRS Issues Repair/Tangible Property Regulations
The IRS issued long-awaited final and proposed regulations regarding the treatment of expenditures incurred in acquiring, producing, or improving tangible assets.
Sec. 199 Deduction and Contract Manufacturing Arrangements: Who Gets the Deduction?
The IRS issued new guidance to examiners in its Large Business & International Division regarding how to determine which taxpayer is entitled to claim the Sec. 199 domestic production activities deduction in a contract manufacturing arrangement.
Repair Regulations Are Finally Issued
The IRS issued long-awaited final and proposed regulations regarding the treatment of expenditures incurred in acquiring, producing, or improving tangible assets.
IRS Explains Sec. 179 Qualified Real Property Allocations and Procedures for Filing Amended Returns
The explained how the retroactive extension of the Sec. 179 rules operates when applied to qualified real property and how to allocate the portion of gain attributable to the qualified real property upon disposition or to calculate any carryover.
Proposed Regulations Change Definition of R&D Expenditures
In proposed regulations , the IRS provided guidance on the treatment under Sec. 174 of R&D expenditures incurred in connection with the development of tangible property, including pilot models.
ATNOLs and Charitable Contribution Carryovers: Which Takes Precedence?
The uncertainty surrounding the ordering rules of the 10% limit on the charitable deduction and the 90% limit on the ATNOL deduction has been affecting more corporate taxpayers as the economy recovers and these corporations start generating current-period taxable income.
IRS Reverses Itself on Applying 70% Safe-Harbor Deduction for Success-Based Fees to Certain Milestone Payments
The IRS offers an elective safe harbor to deduct 70% of qualified success-based fees, and while certain “milestone payments” common to acquisition transactions do not qualify for the safe-harbor election, certain “eligible milestone payments” do.
New Method for Determining Who Gets Sec. 199 Deduction Under Contract Manufacturing Arrangements
The IRS issued new guidance regarding how to determine which taxpayer is entitled to claim the Sec. 199 domestic production activities deduction in a contract manufacturing arrangement.
The Repair Regulations: Considerations for “Downstream” Oil and Gas Businesses
The oil and gas industry faces numerous challenges in applying the fact-intensive rules of the so-called repair regulations to costs incurred to repair and maintain property during its service life.
IRS Addresses Sec. 199 Requirements for Packaging Manufacturer
The exception for packaging, repackaging, labeling, or minor assembly activities does not apply to disqualify the taxpayer’s sales receipts from meeting the MPGE requirement under Sec. 199.
The Challenge of Contributing Off-Spec Food to Charity
Donations of “off-spec” food may not result in a charitable contribution deduction greater than the tax basis of the food inventory because of the difficulty of determining the proper tax basis and FMV for the food.
Establishing the “Fact of the Liability” for Bonus Compensation
A recent IRS legal memorandum serves as a reminder to business taxpayers to consider modifying or updating their employee bonus plans to enable a deduction for bonus compensation accrued in the year of the related services, as provided in Rev. Rul. 2011-29.
Appeals Court Reverses Claims Court, Disallows LILO Deductions
The Federal Circuit issued a decision reversing and remanding a case to the Court of Federal Claims, which had upheld a LILO transaction.
IRS Issues Prop. Regs. on Allocation of Costs Under Simplified Sec. 263A Methods
The IRS has issued proposed regulations on allocating costs to property produced or acquired by a taxpayer for resale.
Prop. Regs. Provide Guidance on Meals and Entertainment Expenditures
Proposed regulations clarify the definition of a reimbursement or other expense allowance arrangement and provide guidance on the applicability of the Sec. 274(e)(3) exception under various circumstances including employer/employee, two-party, and multiparty arrangements.
Nonrefundable Milestone Fees Do Not Qualify as Success-Based
A business can expense 70% of “success-based fees,” meaning amounts that are contingent on the successful closing of a covered transaction. It is important to remember this safe-harbor election can apply to both sides of the transaction.
Controlled Groups and Deductibility of Patronage Dividends
CCA 201228035 addresses specifically the tax treatment of patronage dividends among related parties and/or controlled groups.
Final Regs. Issued on Entertainment Use of Business Aircraft
The IRS issued final regulations relating to the disallowance under Sec. 274 of deductions for the use of business aircraft for entertainment (T.D. 9597).
employee benefits & pensions
Profits interests: The most tax-efficient equity grant to employees
By granting them a profits interest, entities taxed as partnerships can reward employees with equity. Mistakes, however, could cause challenges from taxing authorities.
