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Weekly IRS Roundup June 7 – June 11, 2021

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of June 7, 2021 – June 11, 2021. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

June 7, 2021: The IRS issued a news release announcing it has begun sending letters to inform more than 36 million American families of their potential eligibility to receive monthly Child Tax Credit payments beginning in July, pursuant to the expansion of the Child Tax Credit under the American Rescue Plan Act of 2021 (ARPA).

June 8, 2021: The IRS issued a news release, soliciting applications for 80 vacancies within its Procurement office, including vacancies for contract specialists who assist the IRS in the procurement and administration of third-party contracts.

June 8, 2021: The IRS issued a news release reminding taxpayers who make estimated tax payments that the second installment of estimated taxes for 2021 is due June 15, 2021.

June 9, 2021: The IRS issued a news release announcing the disbursement of more than 2.3 million Economic Impact Payments worth more than $4.2 billion, bringing the total amount of disbursements under ARPA to more than 169 million payments worth approximately $395 billion.

June 10, 2021: The IRS issued Notice 2021-36, announcing that the applicability date for certain regulations under sections 59A and 6038A of the Code, which set forth various reporting requirements with respect to qualified derivative payments (QDPs) for purposes of the base erosion and anti-abuse tax (BEAT), is delayed to the 2023 taxable year.

June 11, 2021: The IRS issued final regulations regarding the new mandatory 60-day postponement of certain tax deadlines due to a federally-declared disaster, enacted as section 7805A(d) of the Code by the Further Consolidated Appropriations Act, 2020.

June 11, 2021: The IRS issued Revenue Ruling 2021-11, providing the semi-annual Standard Industry Fare Level (SIFL) rates and terminal charges used in computing the value of noncommercial flights on employer-provided aircrafts for purposes of the taxation of fringe benefits under section 61 of the Code. The Revenue Ruling provides both unadjusted SIFL rates and SIFL rates adjusted for relief provided to the airline industry by COVID-related legislation.

June 11, 2021: The IRS issued an Action on Decision, announcing it would not acquiesce to TriNet Group, Inc. v. United States, 979 F.3d 1311 (11th Cir. 2020), which held that a professional employer organization (PEO) had “control of the payment of wages” to its clients’ employees and therefore the PEO—not its clients—was the “employer” (under section 3401(d) of the Code) eligible to claim Federal Insurance Contributions Act (FICA) tip tax credits with respect to such wages.

June 11, 2021: The IRS issued a news release and two sets of FAQs, providing assistance to families and small businesses claiming [...]

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Weekly IRS Roundup August 31 – September 4, 2020

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of August 31, 2020 – September 4, 2020. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

September 1, 2020: The IRS released for publication in the federal register final regulations providing additional guidance on the base erosion and anti-abuse tax (BEAT) imposed on certain large corporate taxpayers with respect to certain payments made to foreign related parties. The final regulations affect corporations with substantial gross receipts that make payments to foreign related parties.

September 1, 2020: The IRS announced the launch of the Bipartisan Budget Act (BBA) Centralized Partnership Audit Regime webpage. The Centralized Partnership Audit Regime replaces the Tax Equity and Fiscal Responsibility Act (TEFRA) and the electing large partnership rules. The centralized partnership audit regime, or BBA, is generally effective for tax years beginning January 2018. Under the BBA, the IRS generally assesses and collects any understatement of tax (called an imputed underpayment) at the partnership level.

September 1, 2020: The IRS published a memorandum providing guidance on the Bipartisan Budget Act of 2015 (BBA) until Internal Revenue Manual (IRM) 8.19 is revised. The guidance covers: (1) Appeals TEFRA Team (ATT) and Technical Guidance (TG) referrals; (2) Tax Court rules on BBA partnership proceedings; (3) Tax Computation Specialist (TCS) assistance; (4) Tried Cases and Counsel Settlements; (5) Tax Court Decision Appealed and Final Decision from Appeal; and (6) Department of Justice (DOJ) cases.

September 1, 2020: The IRS announced its intention to issue regulations addressing the application of sections 951 and 951A of the Internal Revenue Code (Code) to certain S corporations (as defined in section 1361(a)(1)) with accumulated earnings and profits, as described in section 316(a)(1) (AE&P). The notice also announces that the US Department of the Treasury and the IRS intend to issue regulations addressing the treatment of qualified improvement property (QIP) under the alternative depreciation system (ADS) of section 168(g) for purposes of calculating qualified business asset investment (QBAI) for purposes of the foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI) provisions. Comments should be submitted by November 2, 2020.

September 1, 2020: The IRS requested comments on Revenue Procedure 2015-40 (that provides guidance for taxpayers who believe that the actions of the United States, a treaty country or both result or will result in taxation that is contrary to the provisions of an applicable tax treaty) to submit the requested information in order to receive assistance from the IRS official acting as the US competent authority. Comments are due on or before November 2, 2020.

September 3, 2020: The IRS released the fourth quarter update to the 2019–2020 Priority Guidance Plan. The fourth quarter update to the 2019-2020 plan reflects 53 additional projects which have been published [...]

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Weekly IRS Roundup February 17 – 21, 2020

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of February 17 – 21, 2020.

February 18, 2020:  The IRS issued a revenue ruling providing various prescribed rates for federal income tax purposes for March 2020, including various applicable federal rates (AFRs) for purposes of IRC section 1274(d) and adjusted AFRs for purposes of IRC section 1288(b) and section 382(f). The revenue ruling also contains the federal rate to determine the present value of annuities and other future interests for purposes of IRC section 7520.

February 19, 2020:  The IRS issued a revenue procedure establishing a safe harbor under which the IRS will treat partnerships as properly allocating, in accordance with IRC section 704(b), the credit for carbon oxide sequestration under IRC section 45Q. In a related news release, the IRS stated that the safe harbor is similar to the safe harbors developed for partnerships receiving the wind energy production tax credit and the rehabilitation credit. The safe harbor will be effective for transactions entered into on or after March 9, 2020, and provides rules that allow for prior transactions to qualify for similar treatment.

February 19, 2020:  The IRS published final regulations that correct TD 9885, the base erosion and anti-abuse regulations that were published on December 6, 2019. The amendments restructure the sentence addressing “a principal purpose” of avoiding a base erosion payment; the amendments also correct Treas. Reg. § 1.6038A-2(g) to say that returns must be included “on or after” June 7, 2021.

February 19, 2020:  The IRS issued a notice providing guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under IRC section 417(e)(3), and the 24-month average segment rates under IRC section 430(h)(2). The notice also provides guidance as to the interest rate on 30-year Treasury securities under IRC section 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under IRC section 431(c)(6)(E)(ii)(I).

February 19, 2020:  The IRS issued a news release reporting that the J5 tax chiefs—leaders from five international tax organizations, including the IRS’ Criminal Investigations unit—met in Sydney this past week to review the J5’s progress in their fight against transnational crime. The J5 was formed upon the OECD’s suggestion and has recently engaged in a globally coordinated “day of action” against an international financial institution suspected of facilitating money laundering and tax evasion.

February 19, 2020:  The Treasury and the Financial Crimes Enforcement Network (FinCEN) released a final rule to reflect inflation adjustments to its civil monetary penalties. The updated penalty adjustment table is listed in 31 CFR Section 1010.821, and it includes civil monetary penalties for various types of violations, including penalties for violations of Bank Secrecy Act requirements.

February 20, 2020:  The IRS released draft instructions to Form 8978, Partner’s Additional Reporting Year Tax, to reflect changes to the audit procedures of partnerships under the 2015 BBA. [...]

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Weekly IRS Roundup December 2 – 6, 2019

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of December 2 – 6, 2019.

December 2, 2019: The IRS issued final regulations providing guidance relating to the determination of the foreign tax credit as well as guidance relating to changes made by the 2017 US tax law. The regulations finalize the proposed regulations that were published on December 7, 2018. The regulations also finalize proposed regulations on overall foreign losses that were published on June 25, 2012, as well as certain portions of proposed regulations published on November 7, 2007, relating to a US taxpayer’s obligation to notify the IRS of a foreign tax redetermination. The final regulations will be effective upon their date of publication in the federal register.

December 2, 2019: The IRS issued proposed regulations that also provide guidance relating to the determination of the foreign tax credit. The proposed regulations relate to the allocation and apportionment of deductions and creditable foreign taxes, to foreign tax redeterminations, to the availability of foreign tax credits under the Transition Tax and to the application of the foreign tax credit limitation to consolidated groups. The IRS has requested that written or electronic comments as well as requests for a public hearing be received by February 5, 2019.

December 2, 2019: The IRS issued final regulations implementing the base erosion and anti-abuse tax (the BEAT tax). The regulations finalize the proposed regulations that were published on December 21, 2018, and provide detailed guidance regarding which taxpayers will be subject to section 59A, the determination of what is a base erosion payment, the method for calculating the base erosion minimum tax amount, and the required BEAT tax resulting from that calculation. The final regulations are effective as of December 6, 2019.

December 2, 2019: The IRS issued proposed regulations that also provide guidance regarding the BEAT tax imposed on certain large corporate taxpayers with respect to certain payments made to foreign related parties. The proposed regulations would affect corporations that have substantial gross receipts that also make payments to foreign related parties. The IRS has requested that written or electronic comments as well as requests for a public hearing be received by February 4, 2020.

December 2, 2019: The IRS issued a revenue procedure that replaced Rev. Proc. 2019-09 and that identifies when a taxpayer’s disclosure on his income tax return with respect to an item or position is adequate both to reduce the understatement of income tax under section 6662(d) (relating to the substantial understatement aspect of the accuracy-related penalty) as well as to avoid the tax return preparer penalty under section 6694(a) (relating to understatements due to unreasonable positions). The IRS explained that this revenue procedure does not apply to other penalty provisions, and that it will apply to any income tax return filed on 2019 tax forms for a taxable year beginning in 2019, and to any income tax return filed in 2020 [...]

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Proposed BEAT Regulations | Tax-Free Transactions May Give Rise to a Liability

On December 13, 2018, US Department of the Treasury and the Internal Revenue Service (IRS) released proposed regulations for the Base Erosion and Anti-Abuse Tax (the BEAT), which was added to the Code as part of the 2017 Tax Act. The proposed regulations provide helpful guidance on a range of important topics and generally go a long way toward a reasonable implementation of a very challenging statute. There is one aspect of the proposed regulations, however, that may be an unwelcome surprise for many taxpayers; the proposed regulations treat stock consideration in non-cash transactions as BEAT “payments,” thereby creating the potential for BEAT liability in situations involving certain liquidations, tax-free reorganizations and other non-cash transactions.

Located in section 59A, the BEAT imposes a minimum tax on US corporations (and certain foreign corporations, which are not the focus of this Insight) that consistently have annual gross receipts of $500 million or more and claim more than a de minimis amount of “base erosion tax benefits” for a taxable year. In general, as base erosion tax benefits increase, a corporate taxpayer’s BEAT liability increases.

The proposed regulations, which are generally proposed to be effective for tax years beginning after December 31, 2017, include guidance for determining the base erosion payments that will give rise to annual base erosion tax benefits. Prop. Reg. § 1.59A-3(b) applies the same four categories of base erosion payments found in section 59A(d) for amounts paid or accrued to a related foreign party. The two categories that should affect the most taxpayers are the general category for currently deductible items and the special category for the acquisition of depreciable or amortizable property. With respect to this latter category, the acquisition price of the property will constitute the base erosion payment, but only the amount of any depreciation or amortization deductions claimed in a tax year will produce a base erosion tax benefit for purposes of computing the BEAT.

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Weekly IRS Roundup December 10 – 14, 2018

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of December 10 –14, 2018:

December 10, 2018: The IRS issued Notice 2018-99, providing interim guidance on sections 274 and 512 of the Code, as amended by the Tax Cuts and Jobs Act, dealing with nondeductibile expenses for employer-provided parking.

December 10, 2018: The IRS issued Notice 2018-100, providing relief to tax-exempt organizations from penalties for underpayments related to nondeductible expenses for employer-provided parking under section 512 of the Code, as amended by the Tax Cuts and Jobs Act.

December 12, 2018: The IRS posted a set of FAQs to its website, answering questions regarding return filing and payment obligations under the transition tax of section 965 of the Code.

December 13, 2018: The IRS issued proposed regulations revising withholding requirements under the Foreign Account Tax Compliance Act (FATCA).

December 13, 2018: The IRS issued proposed regulations providing guidance on the Base Erosion and Anti-Abuse Tax (BEAT) of section 59A of the Code, enacted as part of the Tax Cuts and Jobs Act.

December 13, 2018: The IRS issued Revenue Procedure 2019-10, providing procedures for an insurance company to obtain automatic consent to change its accounting method to comply with section 807(f) of the Code, as amended by the Tax Cuts and Jobs Act.

December 14, 2018: The IRS issued Notice 2018-96, providing a phase-out schedule for the qualified plug-in electric drive motor vehicle credit on vehicles sold by Tesla, Inc.

December 14, 2018: The IRS issued Notice 2019-01, providing initial guidance on issues, arising from the enactment of the Tax Cuts and Jobs Act, related to previously taxed earnings and profits under section 959 of the Code.

December 14, 2018: The IRS issued Notice 2019-02, providing the 2019 optional standard mileage rates for use in computing deductible expenses in operating an automobile, plus related information.

December 14, 2018: The IRS issued Notice 2019-03, providing the monthly update to interest rates used for pension plan funding and distribution purposes.

December 14, 2018: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Le Chen in our DC office for this week’s roundup.




European Partner Joins Tax in the City® for Last Seattle Event of 2018

On September 12, 2018, McDermott held the second Tax in the City® Seattle event this year and was pleased to welcome our partner Nina Siewert from our Frankfurt office to join US panelists Elizabeth Chao, Britt Haxton, Kristen Hazel, Sandra McGill and Diann Smith. The team’s key takeaways include:

  • Taxation of the Digital Economy – In March, the European Union proposed a 3 percent interim tax on digital services and a long-term expansion to the definition of a permanent establishment to include a “significant digital presence.” These proposals are unlikely to be passed during 2018. In the meantime, individual countries have passed or are considering unilateral measures to tax digital services.
  • Post-Wayfair – The Supreme Court’s Wayfair decision is good news for states, brick and mortar retailers and software compliance companies, and bad news for online retailers, start-ups and marketplace providers. Its impact on localities and foreign sellers remain to be seen.
  • Taxation of Multinationals: New Developments in US Tax Reform – Taxpayers should consider issues related to the new Base Erosion and Anti-Abuse Tax (BEAT), including whether royalties can be excluded from the BEAT, whether netting or a look-through concept should apply to BEAT; and how BEAT applies to cost-sharing agreements. The section 965 proposed regulations provide guidance about how basis adjustments apply to controlled foreign corporations (CFCs).
  • The Multilateral Instrument (MLI) – US taxpayers should be familiar with the MLI, which goes into effect in 2019. In order for the MLI to apply, both countries must sign the MLI and must opt into the same treaty provisions.

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Tax in the City® Seattle Proves to be the Largest Turnout to Date

The second meeting of McDermott’s Tax in the City® initiative in Seattle was held on May 22, 2018 at the Amazon headquarters. McDermott established Tax in the City® in 2014 as a discussion and networking group for women in tax aimed to foster collaboration and mentorship, and to facilitate in-person connections and roundtable events around the country. With the highest attendance rate of any Tax in the City® event to date, the May meeting featured a CLE/CPE presentation about Ethical Considerations around Tax Reform by Elizabeth Chao, Kirsten Hazel, Jane May and Erin Turley, followed by a roundtable discussion about recent tax reform insights led by Britt HaxtonSandra McGill and Diann Smith.

Here’s what we covered at last week’s Tax in the City® Seattle:

  • Tax Reform: Ethical Considerations – Because of tax reform, taxpayers face increased uncertainty and will likely face increased IRS/state scrutiny for their 2017 & 2018 returns. Therefore, it’s crucial for taxpayers to be intentional about post-reform planning and compliance, including by coordinating among various departments (federal tax, state and local tax, employee benefits, treasury, operations, etc.). Taxpayers should understand the weight of various IRS/state revenue authority guidance, the IRS’s authority to issue retroactive regulations within 18 months of passing legislation, and how to take reasonable positions in the absence of guidance. They should also understand when the IRS has longer than three years to assess tax, including when there is an omission of global intangible low taxed income (GILTI) or when the tax relates to the section 965 transition tax.
  • Tax Reform Changes to Employee Compensation and Benefit Deductions – Post-tax reform, all employees of US public companies, private companies with US publicly traded debt, and foreign issuers with ADRs traded on the US market are covered employees subject to the $1 million limit for deductible compensation. Though a grandfather rule applies if existing contracts are not materially modified, key questions about how to apply this rule remain. Tax reform eliminated the employer deduction for transportation subsidies (other than bicycle subsidies). It also reduced employers’ ability to deduct meal and entertainment expenses, and removed employers’ and employees’ ability to deduct moving expenses.
  • Supreme Court Update: Wayfair – Jurisdiction to Tax – Following the Wayfair oral arguments, it is difficult to predict whether the Supreme Court will uphold as constitutional South Dakota’s tax on online retailers. Wayfair raises the fundamental question of when the courts should settle tax issues, and when they should wait for Congress to act.
  • Interaction of Cross-Border Tax Reform Provisions – Income of a US multinational is subject to varying rates of US tax depending on where it is earned. The US parent’s income from selling to US customers will be subject to the full rate of 21 percent and its income from selling to foreign customers will generally be subject to the foreign derived intangible income (FDII) rate of 13.125 percent. If the income is earned by a [...]

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The New Base Erosion Minimum Tax

The recently enacted 2017 tax reform act imposes a new “base erosion and anti-abuse tax” (BEAT) on large corporations. The BEAT operates as a limited-scope alternative minimum tax, applied by adding back to taxable income certain deductible payments made to related foreign persons. Although positioned as an anti-abuse rule, the BEAT presents challenges for a wide range of common business structures employed by both non-US-based and US-based multinationals.

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Tax Reform Conference Committee Reaches Agreement

A House-Senate conference committee has reached agreement on a compromise version of the Tax Cuts and Jobs Act, which includes substantial changes to the corporate and international business taxation rules. The stage now appears to be set for final passage and enactment of the legislation before the end of 2017.

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