Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of January 7 – 11, 2019. Tax news is very limited because of the government shutdown:

January 7, 2019: The IRS issued a news release confirming that, despite the partial federal government shutdown, it will process tax returns beginning January 28, 2019, and provide refunds to taxpayers as scheduled.

January 7, 2019: The IRS released the final 2018 version of Form 8996, dealing with certification as a qualified opportunity fund under section 1400Z-2 of the Code, enacted in the Tax Cuts and Jobs Act.

January 7, 2019: The IRS issued an announcement cancelling a public hearing—originally scheduled for January 10, 2019—on proposed regulations concerning qualified opportunity funds under section 1400Z-2 of the Code, in light of the partial federal government shutdown.

January 7, 2019: The IRS released final instructions for Form 8992, dealing with the calculation of global intangible low-taxed income under section 951A of the Code, enacted in the Tax Cuts and Jobs Act.

January 8, 2019: The IRS released the final 2018 version of Form 8992, dealing with the calculation of global intangible low-taxed income under section 951A of the Code, enacted in the Tax Cuts and Jobs Act.

January 11, 2019: The IRS issued a news release announcing the start of the IRS Free File program for this filing season and detailing new consumer protections that have been added to the program.

Special thanks to Le Chen in our DC office for this week’s roundup.

As we previously discussed, the United States Tax Court (Tax Court) closed its doors on December 28, 2018, until further notice. However, trial sessions scheduled for the weeks of January 7, and 14, 2019, were to proceed as scheduled. The Tax Court has updated its website to confirm that the trial sessions scheduled for the week of January 14, 2019, will proceed as scheduled, but that trial sessions scheduled for the week of January 28, 2019, in El Paso, Los Angeles, New York, Philadelphia, San Diego, and Lubbock are canceled. A decision regarding the trial sessions for the week of February 4, 2019, will be made on or before January 18, 2019.

As a result of the shutdown, the Tax Court did not issue any Orders or Opinions from December 31, 2018, to January 9, 2019. It started issuing Orders again on January 10, 2019, but no Opinions have been issued since December 27, 2018.

Practice Point: In addition to its impact on governmental agencies, the government shutdown continues to disrupt judicial operations. Some federal courts have continued to issue opinions during this time but activity in many cases has been postponed or canceled.

Clients ask us all of the time, “What is the Joint Committee on Taxation’s (JCT) process for reviewing refund claims granted by the Internal Revenue Service (IRS)?” Recently, the JCT has released an overview of its process. Wait, what? After the IRS has agreed to issue you a refund, there is a congressional committee that has to check the IRS’s work? Yep!

Internal Revenue Code (IRC) §6405 prohibits the IRS/US Department of the Treasury from issuing certain refund payments to taxpayers until 30 days after a “report” is given to the JCT. Only refunds “in excess” of $5 million for corporate taxpayers and $2 million for all other taxpayers (partnerships, individuals, trusts, etc.) are required to be reported to the JCT. A refund claim is an amount listed on an amended return (e.g., Forms 1140X and 1120X), tentative carrybacks (e.g., Forms 1139 and 1045), and refunds attributable to certain disaster losses. Numerous types of refund payments are excepted from JCT review, including refunds claimed on originally filed returns, resulting from litigation and employment taxes. It is important to note that this process is not limited to the IRS Examination stage; it can also occur at the IRS Appeals stage or even in tax court litigation. Continue Reading Joint Committee Releases Overview of Its Refund Review Process

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of December 24, 2018 – January 4, 2019. Tax news is very limited because of the government shut down:

December 31, 2018: The IRS released Notice 2019-09, providing interim guidance on section 4960 of the Code, enacted by the Tax Cuts and Jobs Act, regarding excise taxes on excess remuneration and excess parachute payments paid by certain tax-exempt organizations to covered employees.

December 31, 2018: The IRS released the final 2018 version of Form 8990, dealing with limitations on business interest expense deductions under section 163(j) of the Code.

December 31, 2018: The IRS released final instructions for the 2018 version of Form 1116, dealing with the foreign tax credit, reflecting changes made by the Tax Cuts and Jobs Act.

January 4, 2018: The IRS released final instructions for the 2018 version of Form 8990, dealing with limitations on business interest expense deductions under section 163(j) of the Code, reflecting changes made by the Tax Cuts and Jobs Act.

Special thanks to Le Chen in our DC office for this week’s roundup.

On January 2, 2019, the outgoing Chair of the House Ways and Means Committee, Kevin Brady (R-TX), released the Tax Technical and Clerical Corrections Act (the Bill), addressing several technical issues associated with the Tax Cuts and Jobs Act (P.L. 115-97) (TCJA). The Bill includes certain provisions that, if enacted, would affirm Congress’ intent that taxpayers with an overpayment with respect to an installment payment of the transition tax under Internal Revenue Code (Code) Section 965 should be able to claim a credit or refund with respect to such amount. The provisions in the Bill with respect to Code Section 965 overpayments are largely consistent with similar draft legislation introduced on November 26, 2018 (the Retirement, Savings and Other Tax Relief Act of 2018 and the Taxpayer First Act of 2018, or H.R. 88; see prior discussion here). In particular, the Bill provides that where a taxpayer that made an election under Code Section 965(h)(1) to pay the net tax liability under Section 965 in installments has filed a request for a credit or refund with respect to an overpayment, the Internal Revenue Service cannot take any installment into account as a liability for purposes of determining whether an overpayment exists. If enacted, the Bill would permit taxpayers to claim a refund or credit with respect to an installment payment of the taxpayer’s transition tax under Code Section 965. Continue Reading Section 965 Transition Tax Overpayment Addressed in Technical Corrections

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of December 24 – 28, 2018:

December 28, 2018: The IRS released final regulations concerning the public approval requirement under section 147(f) of the Code for tax-exempt private activity bonds issued by state and local governments.

December 28, 2018: The IRS released proposed regulations addressing when tax-exempt bonds are treated as retired for purposes of sections 103 and 141 through 150 of the Code.

December 28, 2018: The IRS released Revenue Procedure 2019-12, providing safe harbors under section 162 of the Code for certain payments made to organizations described in section 170(c) of the Code, in reaction to the reduction, under the Tax Cuts and Jobs Act, in the deductibility of state and local taxes.

The weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice) was not released by the IRS on Friday. 

Special thanks to Le Chen in our DC office for this week’s roundup.

The United States Tax Court (Tax Court) has announced that it will be shutting down starting today, December 28, 2018 at 11:59 p.m., and will remain closed until further notice. However, trial sessions scheduled for the weeks of January 7 and 14, 2019, will proceed as scheduled. Electronic filing and electronic access to the Tax Court’s docket system will remain available and taxpayers may comply with statutory deadlines for documents required to be paper filed by timely mailing such documents using approved delivery services. Further updates will be provided on the Tax Court’s website.

Practice Point: The government shutdown continues to impact government agencies and the judicial system. For a detailed discussion of the impact of the shutdown on the Internal Revenue Service, see here.

On November 26, 2018, the Internal Revenue Service (IRS) issued proposed regulations (Proposed Regulations) pursuant to section 163(j). Public Law 115-97, the Tax Cuts and Jobs Act (TCJA), amended Internal Revenue Code (Code) Section 163 by modifying paragraph (j) to limit the amount of business interest a taxpayer may deduct for taxable years beginning after December 31, 2017. The amendment generally limits the deduction for business interest to the sum of a taxpayer’s business interest income and thirty percent of a taxpayer’s adjusted taxable income (ATI) for the taxable year.

The Code Section 163(j) limit is also increased by a taxpayer’s “floor plan financing interest,” which is certain interest used to finance the acquisition of motor vehicles held for sale or lease. Code Section 163(j)(8) defines ATI as a taxpayer’s taxable income computed without regard to: any item of income, gain, deduction, or loss which is not properly allocable to a trade or business; any business interest or business interest income; any net operating loss deduction under Code Section 172; the amount of any deduction for qualified business income under Code Section 199A; and in the case of taxable years beginning before January 1, 2022, any deduction allowable for depreciation, amortization, or depletion.

The Proposed Regulations address a variety of issues, including the following:

  • Trade or Business. New Code Section 163(j) defines business interest income and expense as amounts that are “properly allocable to a trade or business,” but it does not define trade or business.” The Proposed Regulations define a “trade or business” by reference to Code Section 162 because Code Section 162(a) provides the “most established and developed definition of trade or business.”
  • Interest. The Proposed Regulations define “interest” broadly to include other ordinary income items similar to interest, such as substitute interest payments in securities lending transactions, loan commitment fees, debt issuance costs, Code Section 707(c) guaranteed payments for the use of capital, and factoring income. Proposed Regulation § 1.163(j)-3 introduces rules, including ordering rules, for the relationship between Code Section 163(j) and other provisions affecting interest.
  • S Corporations. Proposed Regulation § 1.163(j)-6 provides guidance regarding the application of the Code Section 163(j) deduction to partnerships and S corporations.
  • CFCs. The Proposed Regulations provide that Code Section 163(j) may apply to limit the deductibility of a controlled foreign corporation’s (CFC’s) business interest expense, thereby potentially limiting a CFC’s deduction of business interest for purposes of computing subpart F income and tested income under Code Section 951A(c)(2)(A).
  • ECI. The Proposed Regulations also provide that Code Section 163(j) applies to foreign corporations and other foreign persons for purposes of computing income effectively connected with a US trade or business.

The Proposed Regulations provide a variety of other rules. Some of the notable provisions include rules applicable to REITs, RICs, tax-exempt entities and consolidated group members. They also provide rules regarding the disallowed business interest expense carryforwards of C corporations and rules regarding elections for excepted trades or businesses and rules for allocating expenses and income between non-excepted and excepted trades or businesses.

Practice Point: With the amendment of Code Section 163(j), the ability of some taxpayers to deduct interest on intercompany debt has been diminished substantially. This may require a taxpayer to reevaluate funding and capital structures, and may necessitate a new strategy.

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of December 17 – 21, 2018:

December 18, 2018: The IRS issued a news release providing guidance on excess business loss limitations and net operating losses following changes made by the Tax Cuts and Jobs Act.

December 19, 2018: The IRS issued Revenue Ruling 2019-03, providing various prescribed rates for federal income tax purposes for January 2019.

December 19, 2018: The IRS issued Revenue Procedure 2019-06, prescribing discount factors used in computing unpaid losses under section 846 of the Code, as amended by the Tax Cuts and Jobs Act.

December 19, 2018: The IRS issued Notice 2019-04, extending temporary dyed fuel relief, initially provided in Notice 2017-30, through December 31, 2019.

December 20, 2018: The IRS issued proposed regulations implementing anti-hybrid provisions under sections 245A(e) and 267A of the Code, enacted as part of the Tax Cuts and Jobs Act.

December 20, 2018: The IRS issued proposed regulations dealing with the treatment of the sale of US trade or business partnership interests by foreign partners under section 864(c)(8) of the Code, enacted as part of the Tax Cuts and Jobs Act.

December 20, 2018: The IRS issued Revenue Procedure 2019-09, updating guidance on when a taxpayer has provided adequate disclosure of tax positions for the purpose of avoiding penalties.

December 20, 2018: The IRS issued Notice 2019-06, informing taxpayers of its intent to issue proposed regulations addressing special enforcement matters under section 6241(11) of the Code, with regard to the centralized partnership audit regime.

December 21, 2018: The IRS issued final regulations implementing the centralized partnership audit regime under sections 6221 through 6241 of the Code.

December 21, 2018: The IRS issued Revenue Procedure 2019-08, providing guidance on deducting expenses under section 179(a) of the Code and deducting depreciation under section 168(g), as amended by the Tax Cuts and Jobs Act.

December 21, 2018: The IRS issued Notice 2019-05, expanding the list of hardship exemptions from the individual shared responsibility payment under section 5000A of the Code.

December 21, 2018: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Le Chen in our DC office for this week’s roundup.