Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of November 4–8, 2019.

November 4, 2019: The IRS posted a new Large Business and International active compliance campaign on Section 965 transition tax as enacted under the 2017 TCJA. The IRS stated that the goal of the campaign is to promote compliance with Section 965. The treatment stream will include conducting examinations as well as providing technical assistance to teams on Section 965, with a focus on identifying and addressing taxpayer populations with potential material compliance risk. The IRS anticipates that returns selected as part of the Section 965 campaign will also be risked and, if appropriate, examined for other material issues, especially issues related to TCJA planning.  For our coverage of this campaign, see here.

November 6, 2019: The IRS issued a Revenue Procedure and a News Release announcing the tax year 2020 annual inflation adjustments for more than 60 tax provisions, including the tax rate schedules and other tax changes. The tax year 2020 adjustments are generally used on tax returns filed in 2021.

November 8, 2019: The IRS published Proposed Regulations providing guidance relating to the life expectancy and distribution period tables that are used to calculate required minimum distributions from qualified retirement plans, individual retirement accounts and annuities, and certain other tax-favored employer-provided retirement arrangements. The life expectancy tables and applicable distribution period tables were developed based on mortality rates for 2021 and would provide longer life expectancies than the tables in the existing regulations. Public comments regarding the contemplated rules must be received by January 7, 2020.

November 8, 2019: The IRS released a Revenue Procedure providing the list of automatic changes to which the automatic change procedures in Revenue Procedure 2015-13, as clarified and modified by other listed guidance. The revenue procedure is effective for a Form 3115 filed on or after November 8, 2019, for a year of change ending on or after March 31, 2019. It supersedes the previous list in Rev. Proc. 2018-31.

November 8, 2019: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Robbie Alipour and Jenni Saperstein in our Chicago office for this week’s roundup.

On November 6, 2019, President Trump announced his intent to nominate Ms. Alina Ionescu Marshall and Mr. Christian N. Weiler to serve as Judges on the United States Tax Court (Tax Court). Mr. Travis Greaves was previously approved by the Senate Finance Committee to be a Tax Court Judge and is awaiting confirmation by the Senate. Judge Mark V. Holmes, who is currently a senior Judge on the Tax Court, was previously renominated by President Trump and is awaiting action by the Senate Finance Committee. For our prior coverage related to Mr. Greaves and Judge Holmes, see here.

According to the White House Announcement and other publicly available information, Ms. Marshall is currently Counsel to the Chief Judge of the Tax Court in Washington, DC, a position she has been in since 2013. Prior to that, she was an associate at West & Feinberg, P.C. (2012–2013), clerked at the Tax Court (2010–2012), was an associate at Freshfields Bruckhaus Deringer US LLP (2004–2009), and was an associate at Milbank, Tweed, Hadley & McCloy LLP (2002–2004). She also was an Adjunct Professor of Law at Georgetown University Law Center (2011–2013). Ms. Marshall obtained a JD from the University of Pennsylvania Law School (2002) and her undergraduate degree from Yale University (1999).

According to the White House Announcement and other publicly available information, Mr. Weiler is currently a partner at Weiler & Rees, LLC, in New Orleans, where he has practiced since 2006. His practice includes all areas of tax law, with an emphasis on tax controversy and litigation matters. Mr. Weiler obtained an LLM from Southern Methodist University Dedman School of Law (2006), a JD from Loyola University New Orleans College of Law (2005), and his undergraduate degree from Louisiana State University (2001).

The Tax Court is composed of 19 presidentially appointed members, as well as senior judges serving on recall and special trial judges. Currently, there are 17 presidentially appointed members, meaning that two vacancies exist. At first blush, it seems odd that there are four candidates for two vacancies.  However, under IRC Section 7447(b)(1), Tax Court Judges are subject to mandatory retirement upon attaining the age of 70. Judge L. Paige Marvel and Judge Albert G. Lauber will both turn 70 within the next few months; thus, it appears that the two new nominations will be for their positions on the Tax Court.

Practice Point: Since being sworn in, President Trump has nominated eight individuals to be Tax Court Judges (four nominees have previously been confirmed), and has taken an approach of announcing the nominations earlier rather than later. For more information on the Tax Court appointment and reappointment process, see here. As the make-up of the Tax Court changes, it is important for taxpayers and practitioners that may be appearing before the new Judges to familiarize themselves with the Judges and stay informed of recent developments regarding the Court.

On November 4, 2019, the Internal Revenue Service (IRS) announced a new Large Business and International (LB&I) compliance campaign regarding Section’s 965 transition tax under the Tax Cuts and Jobs Act (TCJA). This is one of several dozen compliance campaigns that LB&I has announced since the initial 13 campaigns were identified in 2017, and is part of LB&I’s larger goals of improving return selection, identifying issues representing a risk of noncompliance and making the greatest use of limited resources. We have written at length regarding the IRS’s campaigns. Click here for prior coverage of the IRS’s campaigns. This announcement comes just over a month after the Treasury Inspector General for Tax Administration (TIGTA) issued a report questioning the effectiveness and efficiency of campaign issue selection. We wrote about the TIGTA report here. The IRS is presumably heeding TIGTA’s recommendation and is focused on Section 965 because of the substantial dollars associated with compliance. A list of all campaigns can be found here (the newest campaign is found under the tab “IRC 965”).

Section 965 was part of tax reform in the TCJA. It generally imposes a transition tax on a US shareholder’s pro rata share of accumulated earnings and profits of certain foreign corporations, as if those earnings had been repatriated to the US. The new campaign will focus examinations on US-based multinational companies’ 2017 and 2018 returns to ensure compliance with the transition tax in Section 965. The campaign will also provide technical assistance to IRS teams working on Section 965 issues, with a focus on identifying and addressing taxpayer populations with potential material compliance risk.

Practice Point: Multinational taxpayers should be mindful of this new campaign and aware of any compliance issues they may face. Taxpayers should be aware that returns selected for the transition tax campaign will also be examined for other material issues, especially those related to TCJA planning.

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of October 28 – November 1, 2019.

October 30, 2019: The IRS issued an Action on Decision in which it recommended nonacquiesence in a franchise transfer case Greenteam Materials Recovery Facility PN v. Commissioner, T.C. Memo 2017-2012, which held that certain partnerships’ contracts qualified as franchises under section 1253 and were therefore entitled to capital-gains treatment. The IRS stated that both case law and the plain language of section 1253 provide that the sale or exchange of a franchise that is not otherwise a capital asset under section 1221 is not treated as the sale or exchange of a capital asset under section 1253(a) merely because the transferor does not retain any significant power, right, or continuing interest in the franchise.

October 31, 2019: The IRS and the Department of the Treasury issued an advanced notice of proposed rulemaking (ANPRM) announcing their intent to issue “more streamlined and targeted” proposed regulations regarding the treatment of certain interests in corporations as stock or indebtedness. The ANPRM indicates that the proposed regulations would substantially modify the funding rule and eliminate the per se application of the funding rule. Therefore, a debt instrument would not be treated as funding a distribution or economically similar transaction solely due to temporal proximity. The proposed regulations instead would apply the funding rule to a debt instrument only if its issuance has a sufficient factual connection to a distribution to a member of the taxpayer’s expanded group or an economically similar transaction. Thus, a debt instrument issued without such a connection to a distribution or similar transaction would not be treated as stock. The proposed regulations would apply only to tax years beginning on or after the date those rules are finalized. Public comments regarding the contemplated rules must be received by February 3, 2020.

October 31, 2019: The IRS released a Treasury Decision that removes the section 385 documentation regulations, which set forth minimum documentation requirements that ordinarily must be satisfied for certain related-party interests in a corporation to be treated as indebtedness for federal tax purposes. According to the Treasury Decision, it was “determined that the burdens imposed on taxpayers by the [documentation rules] outweigh the regulations’ intended benefits.” But Treasury and the IRS, however, continue to evaluate documentation-related issues, and may subsequently propose a substantially simplified and streamlined version with a prospective effective date.

November 1, 2019: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Robbie Alipour and Jenni Saperstein in our Chicago office for this week’s roundup.

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of October 21 – 25, 2019.

October 21, 2019: The IRS issued a news release in which it announced the launch of its second annual International Charity Fraud Awareness Week. The IRS joined an international coalition to raise awareness and share practices to help charities and other not-for-profit organizations avoid fraud and stop financial crime. The campaign features an online hub where counter-fraud experts can share webinars, help sheets and case studies.

October 22, 2019: The IRS provided procedures to Chief Counsel attorneys for working and coordinating cases with issues involving virtual currency, including digital assets, digital currency, crypto-assets, and cryptocurrency. Issues that involve virtual currency that are not addressed by Notice 2014-21 or other public guidance, and that involve novel issues or issues likely to attract national attention are required to be coordinated with the National Office.

 October 23, 2019: The IRS released a fact sheet in which it explained that certain tax treatments and employment tax rules can apply to family members working in the family business. The fact sheet stated that if spouses carry on a business together and share in its profits and losses, they may be partners whether or not they have a formal partnership agreement. It further explained how spouses can make a qualified joint venture election if they wish to avoid partnership status.

October 24, 2019: The IRS released two issue snapshots on self-dealing of Private Foundations involving the sale or exchange of property and on self-dealing of Private Foundations involving the lending of money or another extension of credit.

October 25, 2019: The IRS issued final regulations providing guidance on new information reporting obligations under section 6050Y related to reportable policy sales of life insurance contracts and payments of reportable death benefits. No reporting is required under section 6050Y for reportable policy sales made and reportable death benefits paid after December 31, 2017, and before January 1, 2019. The final regulations also provide guidance on the amount of death benefits excluded from gross income under section 101 following a reportable policy sale.  The final regulations affect parties involved in certain life insurance contract transactions, including reportable policy sales, transfers of life insurance contracts to foreign persons, and payments of reportable death benefits. The final regulations are scheduled to be published in the Federal Register on October 31, 2019.

October 25, 2019: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Robbie Alipour and Jenni Saperstein in our Chicago office for this week’s roundup.

On September 28, 2019, the Treasury Inspector General for Tax Administration (TIGTA) issued a report titled Initial Compliance Results Warrant a More Data-Driven Approach to Campaign Issue Selection.

As the name of the report describes, the TIGTA analyzed whether the Internal Revenue Service (IRS) audit campaigns were effective and efficiently administered. We have written at length regarding the IRS’s “campaign” methodology:

The report questions how the IRS selected the campaigns it has unleashed on taxpayers. Upon inspection, it appears that the IRS did not have a systematic approach to choosing which issue would become a campaign. Instead, the approach was seemingly ad hoc, and was open to employee suggestions instead of empirical analysis. The TGITA suggests that going forward the IRS use a more data-driven selection process for its campaigns. The idea would be to analyze where the IRS could get the biggest bang for its resource bucks in terms of dollars as well as compliance goals. Accordingly, the TGITA recommends the IRS adopt a formal process for selecting and prioritizing issues for campaigns, and the IRS use actionable metrics, based in part on compliance results, to select the most productive inventory.

Practice Point:  We have heard in the past that some campaigns were based on issues that revenue agents and other field personnel identified, but it was never clear whether the IRS was applying a systematic approach. We expect now that the IRS will be more mindful with its approach, focusing on issues with substantial dollars associated with them, and also where the IRS wants to ensure taxpayer compliance with the Internal Revenue Code.

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of October 14 – October 18, 2019.

October 15, 2019: The IRS published a news release that discusses several tax benefits available to military families as part of National Work and Family Month.  

October 15, 2019: The IRS published guidance on corporate bond weighted average interest rates and the permissible range of interest rates used to calculate pension plan minimum funding for plan years beginning in October 2019. The IRS updated the yield curve and 24-month segment rates, the 30-year Treasury securities interest rates, and the minimum present value segment rates. 

October 16, 2019: The IRS released a Statistics of Income Bulletin. The statistics show how many Forms 709 were filed in 2018. The report also indicates the amount of gifts given by asset type and gender, including stocks, bonds, real estate, partnership and other business interests. 

October 16, 2019: The IRS published a statement on how it handles passport certifications for people with significant tax debt. In July, the IRS temporarily suspended passport certification procedures on passports for anyone who had a case open with the Taxpayer Advocate Service (TAS). After initially agreeing to that request, the IRS has now reversed its position. The IRS has determined that a blanket, systemic exception for anyone with an open TAS case is overly broad and could undermine the effectiveness of the statute enacted by Congress in the Fixing America’s Surface Transportation Act to collect a seriously delinquent tax debt. 

October 18, 2019: The IRS published interim guidance on partnership audit procedures. The memorandum provides guidance for appeals employees on new case procedures for different phases of the Bipartisan Budget Act of 2015 (BBA) centralized partnership audit regime, including: (1) Early Election into BBA; (2) Administrative Adjustment Request; (3) Notice of Proposed Partnership Adjustment ; (4) Modification Disputes; and (5) Notice of Final Partnership Adjustment.

October 18, 2019: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Robbie Alipour in our Chicago office for this week’s roundup.

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of October 7 – October 11, 2019.

October 7, 2019: The IRS announced that taxpayers who requested the six-month filing extension should complete their tax returns and file on or before the October 15 deadline.

October 8, 2019: The Treasury and the IRS released the 2019–2020 Priority Guidance Plan that sets forth guidance priorities. This plan prioritizes implementation of the Tax Cuts and Jobs Act, Pub. L. 115-97, 131 Stat. 2054 and of the Taxpayer First Act, Pub. L. 116-25, 133 Stat. 981, enacted on July 1, 2019. In addition, the 2019–2020 Priority Guidance Plan reflects the deregulatory policies and reforms described in Section 1 of Executive Order 13789 (April 21, 2017; 82 FR 19317) and Executive Order 13777 (February 24, 2017; 82 FR 12285).

October 9, 2019: The Treasury and the IRS published a correction to a notice of proposed rulemaking (REG-104870-18) that was published in the Federal Register on September 9, 2019. The proposed regulations cover the timing of an income inclusion under section 451 and reflect changes made by the Tax Cuts and Jobs Act.

October 9, 2019: The Treasury and the IRS published a notice of public hearing on proposed regulations, which cross-references temporary regulations under section 245A that limit the dividends received deduction available for certain dividends received from current or former controlled foreign corporations. The public hearing is being held on Friday, November 22, 2019. The IRS must receive outlines of the topics to be discussed at the public hearing by Monday, November 11, 2019.

October 9, 2019: The Treasury and the IRS issued proposed regulations that provide guidance on the tax consequences of the transition to the use of reference rates other than interbank offered rates (IBORs) in debt instruments and non-debt contracts. The proposed regulations address the possibility that an alteration of the terms of a debt instrument or a modification of the terms of other types of contracts to replace an IBOR to which the terms of the debt instrument or other contract refers with a new reference rate could result in the realization of income, deduction, gain, or loss for federal income tax purposes or could result in other tax consequences. The proposed regulations will affect parties to debt instruments and other contracts that reference an IBOR.

October 9, 2019:  The IRS issued guidance on the taxation of cryptocurrencies by releasing Rev. Proc. 2019-24 and Frequently Asked Questions on Virtual Currency Transactions. For a more detailed discussion of this guidance, see our post here. 

October 10, 2019: The IRS published draft instructions for Form 1040 and the new Form 1040-SR available to taxpayers age 65 and older.

October 11, 2019: The IRS published its nonacquiescence with GreenTeam Materials Recovery Facility PN v. Commissioner, T.C. Memo 2017-122 and, generally, indicated it will not follow the decision in disposing of cases involving other taxpayers. The IRS disagrees with the holding that the transfer of a non-capital asset is treated as the sale or exchange of a capital asset under section 1253(a) if the transferor does not retain any significant power, right or continuing interest in the asset.

October 11, 2019: The IRS issued a notice providing that taxpayers may relying on the October 2016 proposed regulations under section 385 on characterizing certain corporate interests as stock or indebtedness. The temporary regulations expire on October 13, 2019. A taxpayer may rely on the proposed regulations until further notice is given, if the taxpayer consistently applies the rules in the proposed regulations in their entirety.

October 11, 2019: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Robbie Alipour in our Chicago office for this week’s roundup.

It took five years, but the Internal Revenue Service (IRS) has finally released some guidance on the taxation of cryptocurrencies! On October 9, 2019, the IRS released Revenue Ruling 2019-24 and several “frequently asked questions” (and answers) which deal with some (but not all) of the federal income tax issues involved with cryptocurrencies.

Over the years, we have reported on the issues involved with cryptocurrencies, including the potential controversies that have ensued because of a lack of guidance.

The new guidance is welcomed by tax professionals and taxpayers. The guidance adopts traditional tax principles to deal with some of the unique aspects of cryptocurrencies. For example, the guidance addresses the tax treatment of so-called “hard forks” and whether the value of the “fork” which is “airdropped” into the taxpayer’s wallet constitutes taxable income.

Practice Point: Cryptocurrencies are a brave new world for most of us. Having thoughtful, current guidance is helpful to tax professionals and taxpayers, and will (hopefully) lead to better and more efficient administration of our tax system.

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of September 30 – October 4, 2019.

September 30, 2019: The IRS published a draft of the tax year 2019: (i) Form 1065, US Return of Partnership Income; (ii) its Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc.; (iii) Form 1120-S, US Income Tax Return for an S Corporation; and (iv) its Schedule K-1, Shareholder’s Share of Income, Deductions, Credits, etc. The IRS intends the changes to the form and schedule to improve the quality of the information reported by partnerships both to the IRS and the partners of such entities and to improve the data available for the IRS’s compliance selection processes. This draft gives tax practitioners a preview of the changes and software providers the information they need to update systems before the final version of the updated forms and schedules are released in December. There is a limited window period (30 days) for taxpayers to provide comments on the forms to the IRS.

October 1, 2019: The Treasury and the IRS issued a revenue procedure that limits the inquiries required by US persons to determine whether certain foreign corporations are controlled foreign corporations. The revenue procedure also allows certain unrelated minority US shareholders to rely on specified financial statement information to calculate their subpart F and GILTI inclusions and satisfy reporting requirements with respect to certain CFCs if more detailed tax information is not available. It also provides penalty relief to taxpayers in the specified circumstances. The revenue procedure announces that the IRS intends to amend the instructions for Form 5471 to reduce the amount of information that certain unrelated minority US shareholders of the CFC are required to provide. It will also limit the filing requirements of US shareholders who only constructively own stock of the CFC solely due to downward attribution from another person.

October 2, 2019: The Treasury and the IRS released proposed regulations relating to the modification of section 958(b) by the TCJA. The proposed regulations provide relief to taxpayers affected by the repeal of section 958(b)(4), which provided that the downward attribution rules of section 318 were not to be applied so as to consider a United States person as owning stock owned by a foreign person. The regulations also propose modifications to existing regulations that are intended to ensure that the operation of certain rules is consistent with their application before the repeal of section 958(b)(4). The proposed regulations affect United States persons that have ownership interests in or that make or receive payments to or from certain foreign corporations. The modifications relate to the following: (i) section 267 (Deduction for Certain Payments to Foreign Related Persons); (ii) section 332 (Liquidation of Applicable Holding Company); (iii) section 367(a) (Triggering Event Exception for other Dispositions or Events under Treas. Reg. § 1.367(a)-8(k)(14)); (iv) section 672 (CFC’s Ownership of a Trust); (v) section 706 (Taxable Year of a Partnership); (vi) section 863 (Space and Ocean Income and International Communications Income of a CFC); (vii) section 904 (Look-Through Rules and Active Rents and Royalties Exception to Categorization as Passive Category Income); (viii) section 958 (Rules for Determining Stock Ownership); (ix) section 1297 (PFIC Asset Test); and (x) section 6049 (Chapter 61 Reporting Provisions). Written or electronic comments and requests for a public hearing must be received by December 2, 2019.

October 2, 2019: The Treasury and the IRS released a correction to the notice of proposed rulemaking (REG-130700-14) for the section 861 regulations published in the Federal Register on August 14, 2019. The proposed regulations relate to classification of cloud transactions and transactions involving digital content. The correction provides that the notice of proposed rulemaking contains errors that may prove to be misleading and need to be clarified.

October 2, 2019: The IRS released a Statistics of Income Bulletin. The Fall 2019 edition of IRS Publication 6292, Fiscal Year Return Projections for the United States, provides US-level projections of the number of tax returns expected to be filed in Fiscal Year (FY) 2019 through FY 2026 by: (1) major return categories; and (2) business operating divisions.

October 4, 2019: The Treasury and the IRS released final regulations concerning how partnership liabilities are allocated for disguised sale purposes. The regulations replace existing temporary regulations with final regulations that were in effect prior to the temporary regulations and affect partnerships and their partners.

October 4, 2019: The Treasury and the IRS released final regulations addressing when certain obligations to restore a deficit balance in a partner’s capital account are disregarded under section 704, when partnership liabilities are treated as recourse liabilities under section 752, and how bottom dollar payment obligations are treated under section 752. The final regulations provide guidance necessary for a partnership to allocate its liabilities among its partners and affect partnerships and their partners.

October 4, 2019: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Robbie Alipour in our Chicago office for this week’s roundup.