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Weekly IRS Roundup: June 18 – 22

by | Jun 25, 2018 | ,

Presented below is our weekly roundup for June 18-22, 2018 on significant IRS guidance and relevant tax matters.

June 18, 2018: The IRS issued Internal Revenue Bulletin No. 2018-25 including: Rev. Rul. 2018-17 (withholding and reporting payments from IRAs to state unclaimed property funds under Internal Revenue Code (Code) Section 3405); and REG-102951-16 (proposing amendments to rules for determining whether information returns must be filed electronically).

June 18, 2018: In IR-2018-139 the IRS stated that people with disabilities can now put more money into their tax-favored ABLE accounts and may, for the first time, qualify for the Saver’s Credit for low- and moderate-income workers.

June 19, 2018: The IRS published Rev. Rul. 2018-19 listing the applicable federal interest rates for July 2018.

June 19, 2018: The IRS proposed regulation REG-131186-17 to reinstate T.D. 9787, including allocations of excess nonrecourse liabilities of a partnership among other changes and removing T.D. 9788.

June 19, 2018: The IRS released a Practice Unit on “Interest Capitalization for Self-Constructed Assets,” which identifies taxpayers subject to Code Section 263A(f) and covers the steps involved in determining how much interest must be capitalized to the basis of designated property.

June 20, 2018: IRS published Rev. Proc. 2018-35 modifying Rev. Proc. 2018-31, to not apply Section 263A to replanting costs for lost or damaged citrus plants pursuant to Code Section 263A(d)(2)(C).

June 21, 2018: The IRS published Notice 2018-48 listing the population census tracts designations by the Treasury for qualified opportunity zones relevant to new Code Section 1400Z-2.

June 22, 2018: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandum and Chief Counsel Advice).

Special thanks to Christy Vouri-Misso and Greg Berson in our DC office for this week’s round-up.



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Don’t File Fraudulent Returns Because Amending Them Will Not Help

by , and | Jun 22, 2018 | , , ,

The US Tax Court (Tax Court), in a short opinion, provided a reminder to taxpayers that penalties for filing fraudulent returns cannot be avoided by subsequently filing amended returns. In Gaskin v. Commissioner, TC Memo 2018-89, the taxpayer admitted his original returns were fraudulent. While under criminal investigation, he attempted to cure the fraudulent filings by filing amended returns, reporting more than $100,000 of additional tax. Ultimately, the tax due exceeded the amount reported on the amended returns.

Despite admitting his original fraud, the taxpayer argued that the fraud penalty did not apply because the tax due only modestly exceeded the tax reported on his amended returns. The Tax Court disagreed. Relying on the regulations and Supreme Court precedent, the court held that the amount of the underpayment and the fraudulent intent are both determined by reference to original—not amended—returns. It therefore upheld imposition of the fraud penalty.

Practice Point: Don’t file fraudulent returns! All joking aside, this case reminds us that although filing an amended return can cure some infirmities on your return, you have to be very careful in choosing whether to amend a return. As long as you did your best to accurately calculate your tax due on your original return, you are not required to amend that return if you later find out you were wrong. This is true even if the statute of limitations is still open. Indeed, there is no requirement to amend a return. However, there may be reasons to file an amended return; for example, if you know that you will need to base a future return’s position on a previous return’s position (e.g., the amount of earnings and profits stated on the return). Taxpayers need to be mindful, however, that if you amend your return, it must be accurate to the best of your knowledge when you sign it as to all items and any other errors discovered after the original return was filed must also be corrected. Accordingly, you cannot amend only the favorable positions discovered after you filed your original return.



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IRS Is “All Hands on Deck” to Provide Guidance Related to Tax Reform

by and | Jun 20, 2018 | , ,

In the wake of tax reform, taxpayers and practitioners alike are anxious for guidance and clarification on how the new laws impact transactions and reporting positions. The Internal Revenue Service (IRS) has previously stated that implementing tax reform is its highest priority, but that issuing guidance on the entire bill would likely take a substantial amount of time. Since December 2017, the IRS has published a host of notices, revenue procedures and administrative guidance. In some instances, the guidance was mechanical (e.g., Notice 2018-38), and in others it was more substantive (e.g., Notice 2018-28, Notice 2018-18, Rev. Proc. 2018-26).

On May 31, 2018, the IRS announced an “all hands on deck” effort to implement tax reform through 11 groups working closely with the Treasury Department. The IRS originally stated that it did not plan to release any more proposed regulations before the end of the year. Instead, it would issue tax Forms (with instructions) that would need to be filed by taxpayers before the end of the year. On June 7, 2018, the IRS explained that it does plan to issue proposed regulations “covering all major portions” of the bill starting in September and ending in December 2018 (the IRS specifically plans to finalize the temporary aggregation regulations by September to stop them from sunsetting). The IRS reported it is in “very good shape” to meet these deadlines. Additionally, at a recent American Bar Association Section of Taxation meeting, IRS international counsel acknowledged year-end financial reporting for global companies and stated that international tax regulations are intended to be released in the fall instead of the end of the year. Regulations under Internal Code Section 965 are planned for issuance this summer, and other areas of guidance include global intangible low-tax income, also known as the GILTI tax.

(more…)



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Tax Reform Insight: IRS Doubles Down on Retention of 2017 Overpayments to Satisfy Future Section 965 Installment Payments

by , , and | Jun 19, 2018 | , ,

We previously discussed the Internal Revenue Service’s (IRS) surprising position that for taxpayers making an election under Internal Revenue Code (Code) Section 965(h) to pay the transition tax over 8 years through installment payments, any overpayments of 2017 tax liabilities cannot be used as credits for 2018 estimated tax payments or refunded, unless and until the overpayment amount exceeds the full 8 years of installment payments. The IRS’s position has affected many taxpayers, and practitioners have expressed their concerns to the IRS.

On June 4, 2018, the IRS responded to these concerns. Rather than changing its position, the IRS has doubled down; however, the IRS has taken the small but welcome step of allowing some penalty relief for taxpayers affected by the earlier guidance as set forth in new Questions and Answers 15, 16 and 17.

Based on discussions with the IRS, it appears that the IRS’s position is based on the view that it has broad authority under Code Section 6402 to apply overpayments against other taxes owed, and that Code Section 6403 requires an overpayment of an installment payment to be applied against unpaid installments. Thus, the IRS maintains that the Code Section 965 tax liability is simply a part of the tax year 2017 liability, and it is, except for Code Section 965(h) and a timely election thereunder, payable and due by the due date of the 2017 tax return. Any future installments for the Code Section 965 liability are, in the IRS’s view, not part of a tax for a future tax year that has yet to have been determined, as the tax has already been self-assessed by the taxpayer for 2017. Accordingly, the IRS views any overpayments as being applied within the same tax period to the outstanding Code Section 965 tax owed by the taxpayer even though taxpayers making a timely Code Section 965(h) election are not legally required to make additional payments until subsequent years. (more…)



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Yeehaw! McDermott’s Tax Weekly Round Up

by | Jun 18, 2018 | , ,

Here’s what happened in the world of IRS guidance for the week June 11 – 15, 2018.

June 11, 2018: The IRS issued Notice 2018-55 describing potential proposed regulations that would offer relief to some private colleges and universities by providing a stepped-up basis rule that could reduce the amount of gain subject to a new 1.4 percent excise tax on their endowments.

June 12, 2018: The IRS issued proposed regulations, under Code section 148 applicable to tax-exempt and other tax-advantaged bonds, aimed to restrict arbitrage investments and providing an exception to the definition of investment-type property for capital projects that further the public purpose for which the bonds were issued.

June 12, 2018: Pursuant to its continuing effort to reduce paperwork, the IRS requested comments on a number of published guidance, including: Rev. Proc. 2003-33 (extension of time to file a section 338 election to treat stock purchases as asset acquisitions); TD 8379 and TD 9407 (regulations regarding the manner and method of reporting and paying the excise tax on the receipt of greenmail); TD 8791 (relating to charitable remainder trusts and to special valuation rules for transfers of interests in trusts); and, TD 8571 (relating to the reporting of certain information relating to payments of mortgage interest). All comments are due by August 13, 2018.

June 15, 2018: The IRS announced the corporate bond monthly yield curve, the 24-month average segments rats, the 30-year Treasury securities interest rate, the 30-year Treasury weighted average rate, and the minimum present-value segment rates in Notice 2018-56.

June 15, 2018: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandum and Chief Counsel Advice).

Special thanks to Christy Vouri and Greg Berson in our DC office for this week’s round-up.



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Weekly IRS Round-up: June 4 – 8

by | Jun 11, 2018 | , ,

In order to continue to keep our readers informed on tax matters, we will be rolling out weekly posts on significant Internal Revenue Service (IRS) guidance and relevant tax cases. This post marks our first round-up of IRS guidance for the week June 4 – 8, 2018.

June 4, 2018: The IRS issued 3 new FAQs (supplementing the original 14 tax reform FAQs) which announce that it will waive certain late-payment penalties relating to the section 965 transition tax.

June 4, 2018: The IRS issued Internal Revenue Bulletin No. 2018-23 including: Rev. Proc. 2018-32 (combining guidance for grantors and contributors to tax-exempt organizations); Rev. Proc. 2018-34 (providing indexing adjustments for certain provisions under section 36B); Rev. Rul. 2018-14 (obsoleting Rev. Rul. 68-59, 1968-1 C.B. 273); Rev. Rul 2018-15 (obsoleting Rev. Rul. 74-487, 1974-2 C.B. 82; Rev. Rul. 75-211, 1975-1 C.B. 86; Rev. Rul. 77-115, 1977-1 C.B. 154; Rev. Rul. 77-407, 1977-2 C.B. 77; and, Rev. Rul. 80-11, 1980-1 C.B. 58); and Rev. Rul. 2018-16 (providing the prescribed federal interest rates for June 2018).

June 7, 2018: The IRS issued an early release draft of Form W-4, Employee’s Withholding Allowance Certificate seeking comments from industry.

June 7, 2018: With hurricane season underway, the IRS warns taxpayers that scammers often try to take advantage of the generosity of taxpayers who want to help victims of major disasters.

June 8, 2018: The IRS issued final regulations under sections 337 and 732 that: (1) prevent a corporate partner from avoiding corporate-level gain through transactions with a partnership involving equity interests of the partner or certain related entities, (2) allow consolidated group members that are partners in the same partnership to aggregate their bases in stock for certain purposes and (3) that may require certain corporations that engage in gain elimination transactions to reduce the basis of corporate assets or to recognize gain.

June 8, 2018: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandum and Chief Counsel Advice).

Special thanks to Christy Vouri-Misso in our DC office for this week’s round-up.



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A Look at Treasury’s Recent Efforts to Reform Regulation

by | Jun 7, 2018 | , ,

Just 10 days after his inauguration, President Trump signed Executive Order 13771, establishing the tenet of deregulation to be adopted by the Trump administration. Executive Order 13771 outlined the Trump administration’s vision for reducing regulation and controlling regulatory costs, and established a principle that for every one new regulation issued at least two prior regulations be identified for elimination — the “one in, two out” principle. President Trump’s Call for Reducing Tax Regulatory Burdens.

Access the full article.

Originally published in Law360, June 2018.



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IRS Implementation of Tax Reform Continues to Move Forward

by | May 24, 2018 | , ,

The Internal Revenue Service (IRS) has been busy in recent months working on implementing the recent tax reform legislation. The latest announcement by the IRS focuses on the $10,000 cap on the amount of state and local taxes that can be deducted for federal income tax purposes. In a press release and release of guidance in the form of Notice 2018-54, the IRS announced that proposed regulations will be issued addressing this issue to help taxpayers understand the relationship between federal charitable contribution deductions in exchange for a tax credit against state and local taxes owed. The press release, Notice and forthcoming proposed regulations are in response to workarounds by various high property tax states allowing local governments to set up charitable organizations that can accept property tax statements. Based on these materials, it is anticipated that the IRS will disagree with the workarounds:

The Treasury Department and the IRS intend to propose regulations addressing the federal income tax treatment of transfers to funds controlled by state and local governments (or other state-specified transferees) that the transferor can treat in whole or in part as satisfying state and local tax obligations. The proposed regulations will make clear that the requirements of the Internal Revenue Code, informed by substance-over-form principles, govern the federal income tax treatment of such transfers. The proposed regulations will assist taxpayers in understanding the relationship between the federal charitable contribution deduction and the new statutory limitation on the deduction for state and local tax payments.

The IRS’s website provides information on the latest IRS news releases, fact sheets and statements. Additionally, we have a dedicated webpage with insights on significant developments related to tax reform.



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LB&I Announces Six New Campaigns

by and | May 22, 2018 | , ,

On May 21, 2018, the Internal Revenue Service (IRS) Large Business and International Division (LB&I) announced the identification and selection of six new campaigns. These new campaigns follow the initial 13 campaigns announced on January 31, 2017, followed by 11 campaigns announced on November 3, 2017, and 5 campaigns announced on March 13, 2018. (more…)



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IRS Holding 2017 Overpayments to Satisfy Future Section 965 Liabilities

by , and | May 9, 2018 | ,

In a surprising development, the Internal Revenue Service (IRS) has announced that if a taxpayer’s 2017 payments, including estimated tax payments, exceed its 2017 net income tax liability described under Internal Revenue Code (Code) Section 965(h)(6)(A)(ii) (its net income tax determined without regard to Code Section 965) and the first annual installment (due in 2018) pursuant to an election under Code Section 965(h), the taxpayer may not receive a refund or credit of any portion of properly applied 2017 tax payments unless—and until—the amount of payments exceeds the entire unpaid 2017 income tax liability, including all amounts to be paid in installments under Code Section 965(h) in subsequent years. Thus, for taxpayers making an election under Code Section 965(h) to pay the transition tax over 8 years through installment payments, any overpayments of 2017 tax liabilities cannot be used as credits for 2018 estimated tax payments or refunded, unless and until the overpayment amount exceeds the full 8 years of installment payments.

The IRS’s position, announced on April 13, 2018 (the last business day before the normal due date for the filing of 2018 individual income tax returns), effectively allows the IRS to deprive taxpayers of the use of funds and credits for overpayments for a potentially multi-year period. This position is at odds with the normal practice of allowing refunds or credits of overpayments and arguably violates Code Section 7803(a), which provides for certain taxpayer rights. This position also would seem to be in conflict with Code Section 965(h) itself, allowing the Code Section 965 transition tax liability to be paid in eight backloaded installments rather than immediately. The AICPA sent a letter to the IRS on April 19, 2018, urging the IRS to change its position to avoid the “detrimental impact on all affected taxpayers, including individuals, small businesses and large corporations.” We are hopeful that the IRS will reconsider this misguided policy, but in the meantime, taxpayers need to be aware of it. Please contact one of McDermott’s lawyers if you think you might be affected by the IRS’s position on this subject.



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