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IRS Targets Private Foundations That May Be Used by Wealthy Taxpayers in Tax Planning

by , and | Jun 26, 2020 | , , ,

​In remarks at the NYU Tax Controversy Forum on June 18, 2020, Internal Revenue Service (IRS) officials indicated that the agency is analyzing the use of private foundations for tax planning. Ms. Tamera Ripperda, who is the commissioner of the Tax Exempt and Government Entities (TEGE) Division and previously served as the industry director for the Global High Wealth in the Large Business and International (LB&I) Division, said the agency is focusing on cross-division collaborations to target high-income, high-wealth taxpayers.

The TEGE Division has trained more than 400 LB&I agents this year on the use of private foundations in tax planning for high-net-worth individuals. Additionally, the divisions are using data analytics to identify linkages between LB&I and TEGE cases. Commissioner Ripparda stated that TEGE has identified more than 1,000 private foundations “that have linkages or that are interwoven into these global high-wealth enterprises,” and the IRS will likely examine many of these entities.

Practice Point: Several years ago, the IRS launched its “Wealth Squad,” a team of agents trained in looking through entities and tax structures to focus on the overall strategy of ultra-wealthy taxpayer to reduce their tax incidence. (See this link for more information on that program.) The IRS’s examination of private foundations as a tool to reduce taxes for wealthy is the next chapter for the IRS to crack down on perceived abuse. It is clear that lawmakers and US Treasury officials are increasingly focused on perceived lax enforcement and low audit rates of high-income, high-wealth taxpayers. Taxpayers who use private foundations in their planning should begin working with their tax advisers now to review potential exposure and make sure they are prepared for an expected IRS audit.



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Weekly IRS Roundup April 27 – May 1, 2020

by | May 5, 2020 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of April 27 – May 1, 2020. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

April 28, 2020: The IRS published Large Business and International (LB&I) Process Unit on the substantiation of foreign tax credits for individuals. For an individual to claim a foreign tax credit, individual taxpayers must submit Form 1116 with their US federal income tax return. At the request of the IRS, the taxpayer must provide evidence supporting the foreign taxes claimed on Form 1116.

April 28, 2020: The IRS published LB&I Concept Unit on the installment method under IRC § 453. An installment sale occurs when a seller receives at least one payment in a tax year after the disposition. An installment sale is reported on a Form 6252.

April 30, 2020: The IRS issued Revenue Procedure 2020-29, temporarily allowing for the electronic submission of letter ruling requests, closing agreements, determination letters, information letters from the IRS Office of Chief Counsel, and for determination letters issued by the IRS LB&I Division.

April 30, 2020: The IRS published Notice 2020-32, which provides guidance regarding the deductibility of certain otherwise deductible expenses incurred in a taxpayer’s trade or business when the taxpayer receives a loan (covered loan) pursuant to the Paycheck Protection Program under § 7(a)(36) of the Small Business Act. Notice 2020-32 provides that no deduction is allowed for US federal income tax purposes if the payment of the expense results in forgiveness of a covered loan pursuant to § 1106(b) of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

May 1, 2020: The IRS released Notice 2020-36, which contains a proposed revenue procedure to update the procedures under which recognition of exemption from federal income tax for organizations described in IRC § 501(c) may be obtained on a group basis for subordinate organizations affiliated with and under the general supervision or control of a central organization. The proposed revenue procedure would modify and supersede Revenue Procedure 80-27, 1980-1 C.B. 677 (as modified by Rev. Proc. 96-40, 1996-2 C.B. 301).

May 1, 2020: The Department of Treasury and IRS released a notification that a public hearing is being held on Wednesday May 20, 2020 via teleconference. The public hearing will be on the proposed regulations that provide guidance relating to the allocation and apportionment of deductions and creditable foreign taxes, the definition of financial services income, foreign tax redeterminations, availability of foreign tax credits under the transition tax, and the application of the foreign tax credit limitation to consolidated groups. The IRS must receive speakers’ outlines of the topics to be discussed at the public hearing by Monday, May 11, 2020. If no outlines are received by May 11, 2020, the public hearing will be cancelled.

May 1, 2020: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, [...]

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Despite NOL Carrybacks, IRS Continues to Deny Refunds of Section 965 Transition Tax Overpayments

by | Apr 29, 2020 | ,

In a series of frequently asked questions (FAQs) addressing the interaction of recently enacted net operating loss (NOL) carryback provisions and section 965, the IRS stated that taxpayers may not receive a refund of any section 965 tax payment unless and until the payment exceeds the “entire income tax liability for section 965.” The IRS further stated that such amount “includes all amounts to be paid in installments under section 965(h) in subsequent years.” This position – that taxpayers are not entitled to a refund of an overpayment of the section 965 tax liability unless and until the overpayment amount exceeds the full eight years of installment payments – is consistent with the IRS’s previously published position in PMTA 2018-016 (and as discussed in our prior analyses, here and here).

Access the full article. 



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New Revenue Ruling 2020-8 Helps Taxpayers Seek COVID-19 Tax Refund Claims

by and | Apr 23, 2020 | , ,

Recently, in Revenue Ruling 2020-8, the Internal Revenue Service (IRS) announced that it was suspending Revenue Ruling 71-533, which had addressed the interaction of two Internal Revenue Code (IRC) provisions regarding limitations periods on refund claims, pending reconsideration of the holding of the earlier Revenue Ruling.

Under IRC section 6511(d)(2)(A), a taxpayer generally must make a refund claim relating to an overpayment attributable to a net operating loss (NOL) carryback no later than three years after the taxable year in which the NOL was generated. Under IRC section 6511(d)(3)(A), a taxpayer generally must make a refund claim relating to an overpayment attributable to a foreign tax credit carryback no later than ten years after the taxable year in which the foreign taxes were paid.

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IRS Flexes Its Administrative Summons Power in Recent Tax Case

by and | Apr 22, 2020 | , , ,

The United States Court of Appeals for the Tenth Circuit’s recent opinion in Standing Akimbo, LLC v. United States, No. 19-1049 (10th Cir. April 7, 2020), reminds us of the Internal Revenue Service’s (IRS) ability to obtain the information it needs to examine taxpayers’ returns using its powerful summons tool.

In May 2017, the IRS began auditing Standing Akimbo, LLC (Standing Akimbo), a Colorado limited liability company operating as a medical-marijuana dispensary. The audit focused on whether Standing Akimbo improperly claimed business deductions that were prohibited under Internal Revenue Code (IRC) section 280E. Generally, IRC section 280E provides that no deduction or credit is allowed for any amount paid or incurred in the carrying of a business if such business trafficks in controlled substances that are prohibited by Federal law. While legal under Colorado law, marijuana is still classified as a controlled substance under Federal law, and specifically the Controlled Substances Act. As a pass-through entity, any adjustments to Standing Akimbo’s returns would affect its owners’ (Taxpayers) individual tax returns.

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More Guidance on CARES Act Refund Claims

by and | Apr 14, 2020 | , ,

On April 8, 2020, the Internal Revenue Service (IRS) released a statement telling taxpayers that guidance would be forthcoming on refund claims related to the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act. Consistent with that promise, on April 13, 2020, the IRS issued guidance describing temporary procedures permitting the submission via fax of Form 1139, Corporation Application for Tentative Refund, and Form 1045, Application for Tentative Refund. For our prior discussion of CARES Act refund guidance issued by the IRS, see here.

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CARES Act Update: IRS Provides Guidance to Partnerships to Take Advantage of Liquidity Benefits

by , and | Apr 13, 2020 | , ,

On April 8, 2020, the Internal Revenue Service (IRS) issued Rev. Proc. 2020-23 in response to the Coronavirus Aid, Relief and Economic Security (CARES) Act. Rev. Proc. 2020-23 eases restrictions on partnerships’ ability to file amended tax returns and issue amended Schedules K-1 in order for their partners to avail themselves of the retroactive tax relief provided by the CARES Act.

Access the full article.



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Weekly IRS Roundup April 6 – 10, 2020

by | Apr 13, 2020 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of April 6 – 10, 2020. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

April 8, 2020: The IRS announced that four LB&I campaigns related to agricultural chemicals security credit, partial disposition election for buildings, restoration of sequestered alternative minimum tax credit carryforward and work opportunity tax credit have been retired. Even though these issues are no longer LB&I campaigns, such issues may still be identified and included in the scope of an LB&I examination.

April 8, 2020: The IRS released Revenue Procedure 2020-23, allowing for eligible partnerships to file amended partnership returns for taxable years beginning in 2018 and 2019 by using Form 1065, US Return of Partnership Income, checking the “Amended Return” box and issuing an amended Schedule K-1 to each of its partners.

April 9, 2020: The IRS issued Revenue Procedure 2020-24, which provides guidance regarding (i) an election under section 172(b)(3) to waive the carryback period for a net operating loss (NOL) arising in a taxable year beginning after December 31, 2017 and before January 1, 2020, (ii) excluding from the carryback period any taxable year in which the taxpayer has a section 965(a) inclusion, and (iii) for an NOL incurred in a taxable year that began before January 1, 2018 and ended after December 31, 2017, waiving or reducing the carryback period or revoking a prior election to waive the carryback period.

April 9, 2020: The IRS released Notice 2020-26, which provides for a six-month extension for the deadline for filing an application for a tentative carryback adjustment under section 6411 with respect to the carryback of an NOL that arose in any taxable year that began during calendar year 2018 and that ended on or before June 30, 2019.

April 10, 2020: The IRS issued Revenue Procedure 2020-22 to provide guidance regarding the election under section 163(j)(7)(B) to be an electing real property trade or business and the election under section 163(j)(7)(C) to be an electing farming business for purposes of the business interest expense deduction limitation under section 163(j).

April 10, 2020: The IRS and the Treasury Department launched a new web tool to allow people who do not normally file a tax return to register for Economic Impact Payments. The new web tool is intended to be simple and only take taxpayers a few minutes to register.

April 10, 2020: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Emily Mussio in our Chicago office for this week’s roundup.



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IRS Postpones Virtually All Deadlines Until July 15, 2020, in Response to COVID-19

by , , and | Apr 10, 2020 | , ,

In Notice 2020-23, the Internal Revenue Service further expanded relief for taxpayers in response to the Coronavirus (COVID-19) pandemic. Individuals, corporations, trusts, estates and other taxpayers that ordinarily would have had a filing, payment or other deadline between April 1, 2020, and July 15, 2020, now qualify for an extension.

Access the full article.



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CARES Act Refund Claim Guidance

by and | Apr 10, 2020 | , ,

The Coronavirus Aid, Relief and Economic Security Act, or CARES Act, provides tax relief to taxpayers in certain situations. Some of these provisions may generate refunds for prior years, such as the relaxation of restrictions on the use of net operating losses (NOLs) and interest deductions as well as the retroactive availability of additional depreciation related to qualified improvement property. For our prior discussions of these, and other CARES Act provisions, see here.

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