Internal Revenue Code Section 199
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Senior Tax Court Judge Robert A. Wherry, Jr. Retires

On January 3, 2018, Chief Judge Marvel of the US Tax Court (Tax Court) announced that Senior Judge Robert A. Wherry, Jr. fully retired as of January 1, 2018, and would no longer be recalled for judicial service.

Judge Wherry was appointed on April 23, 2003, by President George W. Bush. In 2014, Judge Wherry took senior status and continued to try cases. By statute, the Tax Court is composed of 19 presidentially appointed judges. Judges are appointed for a term of 15 years and after an appointed term has expired, or they reach a specified age, may serve as a “senior judge” if recalled by the Tax Court. The Tax Court also has several special trial judges, who generally preside over small tax cases. (more…)




IRS Releases 2017-2018 Priority Guidance Plan

The US Department of Treasury (Treasury) and Internal Revenue Service (IRS) issue Priority Guidance Plans each year to identify the tax issues they believe should be addressed through regulations, revenue rulings, revenue procedures, notice and other published administrative guidance. On October 20, 2017, the IRS and Treasury released the 2017-2018 Priority Guidance Plan.

  • Part 1 focuses on the eight regulations from 2016 that were identified pursuant to Executive Order 13789 (see here for prior coverage on Treasury’s report in response to this Order) and the intended actions related to those regulations.
  • Part 2 describes certain projects that Treasury and the IRS have identified as burden reducing and that they believe can be completed in the eight and a half months remaining in the plan year.
  • Part 3 describes the various projects related to the implementation of the new statutory partnership audit regime. See here for prior coverage.
  • Part 4 describe specific projects by subject area that will the focus of the balance of Treasury’s and the IRS’s efforts for the plan year.

Practice Point: The Priority Guidance Plan is a useful tool for taxpayers in that it highlights areas in which Treasury and the IRS are focused, both in the short-term and the long-term. Although items in the Priority Guidance Plan are subject to modification, they provide a blueprint for issues that the government views as important. For example, the plan reports guidance projects relating to Internal Revenue Code Section 199, focused on the treatment of computer software and films. These issues have created substantial controversy for the IRS and taxpayers, as we have previously reported. See https://www.taxcontroversy360.com/2017/04/the-irss-assault-on-section-199-computer-software-doesnt-compute/ and https://www.taxcontroversy360.com/2017/03/irs-campaign-focuses-on-definition-of-qualified-film-under-section-199/. Additional guidance would be welcomed.




Run for Cover—IRS Unveils Initial “Campaigns” for LB&I Audits

They’re here!  On January 31, 2017, the Internal Revenue Service (IRS) Large Business & International (LB&I) division released its much-anticipated announcement related to the identification and selection of campaigns.  The initial list identifies 13 compliance issues that LB&I is focused on and lists the specific practice area involved and the lead executive for each campaign.  Prior coverage of audit campaigns can be found here.

The initial list, along with descriptions of each campaign, is as follows:

Domestic Campaigns

  • Section 48C Energy Credits

This campaign is designed to ensure that only taxpayers whose advanced energy projects were approved by the Department of Energy, and who have been allocated a credit by the IRS, are claiming the credit.  Apparently, there has been confusion regarding which taxpayers are entitled to claim the credits.

  • Micro-Captive Insurance

This campaign addresses certain transactions described in Notice 2016-66 in which a taxpayer reduces aggregate taxable income using contracts treated as insurance contracts and a related company that the parties treat as a captive insurance company.  We previously blogged about Notice 2016-66 here. Captive insurance, along with basketing and inbound distribution, were three subject-matter specific campaigns announced during LB&I’s initial rollout last summer, as we discussed in our prior post on the subject.

  • Deferred Variable Annuity Reserves & Life Insurance Reserves

This campaign seeks to address uncertainties on issues important to the life insurance industry, including amounts to be taken into account in determining tax reserves for both deferred variable annuities with guaranteed minimum benefits, and life insurance contracts.

  • Distributors (MVPD’s) and TV Broadcasts

This campaign is targeted at multichannel video programming distributors and television broadcasters that may claim that groups of channels or programs are a qualified film for purposes of the Internal Revenue Code (Code) Section 199 deduction.  The description indicates that LB&I has developed a strategy to identify taxpayers impacted by the issue and that it intends to develop training, including the development of a publicly published practice unit, published guidance, and issue based exams, to aid revenue agents.  It appears that this campaign stems from various private guidance issued in 2010, 2014 and 2016 on these issues.

  • Related Party Transactions

This campaign is focused on transactions among commonly controlled entities that the IRS believes might provide a taxpayer a means to transfer fund from the corporation to related pass-through entities or shareholders.  The campaign is aimed at the mid-market segment.

  • Basket Transactions

This campaign focuses on certain financial transactions described in Notices 2015-73 and 74, which relate to so-called basket transactions.  Basketing was a topic named during LB&I’s initial campaign announcement last summer, along with captive insurance and inbound distribution.

  • Land Developers – Completed Contract Method

This campaign addresses the Service’s concern that large land developers that construct residential communities may improperly be using the completed contract method.  This campaign appears to be a [...]

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IRS Wages ‘Campaigns’ against Taxpayers

Late last year, the Internal Revenue Service’s (IRS’s) Large Business and International (LB&I) division announced that it would restructure its organization. The restructuring was precipitated by shrinking resources and a shifting environment. A primary feature of the restructuring is the end of the continuous audit program (where the IRS audits a large taxpayer year after year for decades) and a move to an issue focused, coordinated attack—to wit, the new IRS “Campaign” methodology. Although this program is clearly in its infancy, practitioners are starting to see how the IRS is implementing their latest project.

In essence, IRS campaigns are a centralized risk identification strategy. The IRS has leveraged its knowledge throughout its system, identified the most serious tax issues and allocated its resources to those issues. The emphasis then, is off specific taxpayers and on to specific tax issues. (more…)




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