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.