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Weekly IRS Roundup November 4 – 8, 2019

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...

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IRS Issues Transition Tax Compliance Campaign

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...

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Tax Blog: New Questions and Answers for Section 965

The IRS has released new informal guidance (“Questions and Answers”) regarding section 965, containing information on making successive installment payments, filing transfer agreements as a result of certain acceleration or triggering events, and other matters related to S corporation shareholders making the section 965(i) election. Consistent with prior advice issued by the IRS (see coverage here and here), the Questions and Answers provide that the IRS cannot make a refund or apply as a credit any amount of an installment payment until the entire income tax liability is satisfied (i.e., any overpayments of an installment obligation will be used to satisfy future section 965 installment payments). The Questions and Answers also provides details on payment obligations with respect to successive installment payments under section 965(h). In particular, the IRS will “make every effort to issue an installment notice and payment voucher” for each successive...

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Second Circuit Weighs in on Tax Court’s Refund Jurisdiction

Borenstein v. Commissioner is an interesting opinion involving the intersection of canons of statutory construction and jurisdiction. Recently, the US Court of Appeals for the Second Circuit reversed the US Tax Court’s holding in Borenstein that the court lacked jurisdiction to order a refund of an undisputed overpayment made by the taxpayer. The case, which we discussed in a prior post, involved interpreting statutory provisions dealing with claims for a refund after a notice of deficiency was issued. The Tax Court’s holding was based on the application of the plain meaning rule to Internal Revenue Code (Code) Section 6512(b)(3), which limit its jurisdiction to order refunds of overpayments. In the Tax Court proceeding, the taxpayer and the government disagreed on the interpretation of the words “(with extensions)” in Code section 6512(b)(3) which provides that the Tax Court has jurisdiction to order a refund of overpayments made during the three years...

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Tax Court Rules State Corporate Incentives Are NOT Taxable Income Under Federal Law

Many states and localities give incentives for business to move or transact in their locations. There has always been a question of whether these incentives are taxable income under federal income tax law. Internal Revenue Code (IRC) section 118, as amended by the Tax Cuts and Jobs Act, P.L. 115-97, provides that “[i]n the case of a corporation, gross income does not include any contribution to the capital of the taxpayer….(b) For purposes of subsection (a), the term “contribution to the capital of the taxpayer” does not include—…(2) any contribution by any governmental entity or civic group (other than a contribution made by a shareholder as such).” In a recent case, the US Tax Court ruled that certain cash grants given by the State of New Jersey fit squarely within IRC section 118, and were not taxable to the corporate taxpayer. Brokertec Holdings, Inc. v. Commissioner, T.C. Memo. 2019-32. Brokertec Holdings is a financial services company based in Jersey...

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Reasonable Cause for E-Filing Errors?

Tax return filing season is fast approaching, and taxpayers big and small are preparing to file their returns. A recent US Court of Appeals for the Fifth Circuit decision, Haynes v. United States, No. 17-50816 (5th Cir. Jan. 29, 2019), indicates that many of those taxpayers will face uncertainty if their returns are late due to preparer errors or technological issues when electronically filed (e-filed). The court in Haynes declined to rule on whether the Supreme Court decision in United States v. Boyle, 469 US 241 (1985), applied to e-filing a tax return. The court instead remanded the case to resolve factual issues. In declining to examine the application of Boyle, the decision leaves in place uncertainty for many taxpayers who e-file their returns. Internal Revenue Code Section 6651(a)(1) excuses a taxpayer from penalties for failure to file a return on time if they show the failure was “due to reasonable cause and not due to willful neglect.” In Boyle, an...

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Weekly IRS Roundup February 25 – March 1, 2019

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of February 25 – March 1, 2019. February 25, 2019: The IRS issued Revenue Ruling 2019-05, announcing the interest rates for underpayments and overpayments under section 6621 of the Code, applicable for the calendar quarter beginning April 1, 2019. February 26, 2019: The IRS issued a news release as part of its new Tax Time Guide series, providing information and online resources to help taxpayers understand the changes made by the Tax Cuts and Jobs Act. February 27, 2019: The IRS released final regulations amending the utility allowance regulations concerning the low-income housing credit under section 42 of the Code. February 27, 2019: The IRS issued a news release reminding taxpayers who owe federal taxes about potential restrictions on their ability to obtain or renew passports. February 27, 2019: The IRS scheduled a public hearing...

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