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.