Internal Revenue Service

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of September 17 – 21, 2018:

September 17, 2018: The Treasury Inspector General for Tax Administration (TIGTA) released a report reviewing whether the IRS complied with legal and internal guidelines governing the seizure of property for unpaid taxes.

September 17, 2018: TIGTA released a second report compiling statistical information reported by the IRS in order to provide information about how the IRS uses its compliance resources and the resulting tax collections.

September 18, 2018: The IRS published Revenue Ruling 2018-17, which provides the applicable federal interest rate for October 2018 and other interest rates.

September 19, 2018: The IRS published Revenue Procedure 2018-49, which allows taxpayers that early adopted a method of revenue recognition to change such method to one described in Section 16.11 of Revenue Procedure 2018-31. This is a very important method change that affects many taxpayers who have to comply with ASC 606.

September 20, 2018: The IRS announced in Notice 2018-72 that it intends to amend the section 871(m) regulations to delay the effective date of certain provisions.

September 21, 2018: Treasury and the IRS published proposed regulations that would remove from the section 385 regulations minimum documentation requirements that must be satisfied for certain related-party debt to be respected as such for tax purposes. We previously commented on this here.

September 21, 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 Kevin Hall in our DC office for this week’s roundup.

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

September 10, 2018: The IRS announced the following five new Large Business & International compliance campaigns: (1) Internal Revenue Code (Code) Section 199 Claims Risk Review; (2) Syndicated Conservation Easement Transactions; (3) Foreign Base Company Sales Income: Manufacturing Branch Rules; (4) Form 1120F Interest Expense/Home Office Expense; and (5) Individuals Employed by Foreign Governments and International Organizations. We discuss these new campaigns in more detail here and have reported about previous LB&I campaigns in the below blog posts.

September 13, 2018: Treasury and the IRS released proposed regulations under Code Section 951A, the new tax on global intangible low-taxed income earned by controlled foreign corporations. The proposed regulations include a number of anti-abuse provisions.

September 13, 2018: The IRS published Revenue Procedure 2018-48, which provides guidance regarding how certain amounts included in income under Code Sections 951(a)(1) and 986(c) are treated for purposes of determining whether a REIT satisfies the Code Section 856(c)(2) gross income test.

September 14, 2018: The IRS issued Notice 2018-73, which provides updated interests rates and guidance regarding the corporate bond monthly yield curve.

September 14, 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 Kevin Hall in our DC office for this week’s roundup.

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of September 3 – 7, 2018:

September 4, 2018: The IRS reminded taxpayers that they have until September 28, 2018, to apply for the Offshore Voluntary Disclosure Program.

September 5, 2018: In response to taxpayer inquiries, the IRS clarified that taxpayers generally can deduct business-related payments to charities or governmental entities even if they also receive a state or local tax credit.

September 6, 2018: The IRS released a Practice Unit on “Determining an Individual’s Residency for Treaty Purposes.”

September 6, 2018: The IRS published Revenue Procedure 2018-47, which provides guidance to regulated investment companies regarding the application of the section 4982 excise tax to amounts included in income under the new Internal Revenue Code (Code) Section 965 transition tax.

September 7, 2018: The IRS published Revenue Ruling 2018-25, establishing the interest rates applicable to over- and under-payments of tax.

September 7, 2018: The IRS released PMTA 2018-016, concluding that it can use it math error authority, not only on intake and before refunds have been issued, but also anytime within the three-year statute of limitations period under Code Section 6501(a).

September 7, 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 Kevin Hall in our DC office for this week’s roundup.

On August 27, 2018, the Internal Revenue Service (IRS) announced that the Compliance Assurance Process (CAP) program will continue, with some modifications.  As we previously discussed, the IRS began an assessment of the CAP program in August 2016 to determine if any recalibration was needed.

CAP is an IRS program that seeks to identify and resolve tax issues through open, cooperative, and transparent interaction between the IRS and Large Business and International (LB&I) taxpayers prior to the filing of a return.  The goal of CAP is greater certainty of the treatment of tax positions sooner and with less administrative burden than conventional post-file audits.  The program began in 2005, and became permanent in 2011.  Several notable taxpayers publically disclose their involvement in the CAP program. Continue Reading IRS Announces That CAP Will Continue

On August 21, 2018, the IRS issued guidance regarding recent statutory changes made to Section 162(m) of the Internal Revenue Code. Overall, Notice 2018-68 strictly interprets the Section 162(m) grandfathering rule under the Tax Cuts and Jobs Act.

Public companies and other issuers subject to these deduction limitations will want to closely consider this guidance in connection with filing upcoming periodic reports with securities regulators. Further action to support existing tax positions or adjustments to deferred tax asset reporting in financial statements may be warranted in light of this guidance.

Access the full article.

Earlier this year, the Internal Revenue Service (IRS) announced the ending of the 2014 Offshore Voluntary Disclosure Program (OVDP), its formal amnesty program for taxpayers with previously undisclosed interests in foreign assets and financial accounts. The program deadline is September 28, 2018, and all submissions must be substantially completed by that deadline. Partial or “placeholder” submissions will not qualify. All requests for preclearance into the program must be submitted by Friday, August 24, 2018.

A number of other disclosure options will remain available after September 28, 2018, including the popular IRS streamlined compliance procedures. Regardless, taxpayers with potential questions or concerns regarding reporting of their foreign holdings should seek advice immediately in light of upcoming deadlines.

The Internal Revenue Service (IRS) has issued PMTA 2018-016, reaffirming its position that for taxpayers making an election under Internal Revenue Code (Code) Section 965(h) to pay the transition tax over eight 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 eight years of installment payments.

The IRS’s position has affected many taxpayers, and practitioners expressed their concerns to the IRS to no avail.

Access the full article.

 

We previously posted on the Order by the US District Court for the Western District of Texas in Chamber of Commerce of the United States of America, et al. v. Internal Revenue Service, Dkt. No. 1:16-CV-944-LY (W.D. Tex. Sept. 29, 2017). To recap, the district court held that Treas. Reg. § 1.7874-8T was unlawfully issued because it violated the Administrative Procedures Act (APA) by not providing affected parties with notice and an opportunity to comment on the temporary regulations. In addition to the APA analysis, the court’s Order was noteworthy for its conclusion that the plaintiff’s claims were not barred by the Anti-Injunction Act because the regulations did not involve assessment or collection of tax.

As we updated our readers, the government appealed the Order to the Court of Appeals for the Fifth Circuit. However, the case was stayed while the regulation underwent notice and comment. And, on July 11, 2018, Treasury and the Internal Revenue Service issued final regulations addressing inversion standards. On July 26, 2018, the government moved to dismiss its appeal with prejudice as moot. The Fifth Circuit has granted the government’s motion, thus ending the dispute.

Because the case was dismissed by the Fifth Circuit, the district court’s Order remains on the books. But what value does that Order have? As a technical matter, district court opinions are not precedential. However, lack of precedential value does not render the Order meaningless. If another court addressing a similar issue were to find the district court’s analysis to be well-reasoned and thorough, it might consider it persuasive on deciding the issue. One would certainly expect that a subsequent court would, at a minimum, have to address the Order if faced with a similar issue. For more reading on the precedential and persuasive value of opinions and order, see here.

Practice Point: The Order in the Chamber of Commerce case may be helpful to taxpayers desiring to challenge regulations on APA grounds and provides authority for a pre-enforcement challenge. It remains to be seen whether other courts will find the Order persuasive.

On July 18, 2018, the Internal Revenue Service (IRS) released a Practice Unit advising IRS agents on the framework to follow in analyzing the tax treatment of transaction costs incurred by taxpayers in executing business practices. The latest Practice Unit provides guidance to IRS examiners in determining whether transaction costs must be capitalized or can be immediately deducted, and focuses on the so-called INDOPCO regulations contained in Treasury Regulation § 1.263-5. (For more information and background, see here.)

According to the Practice Unit, there is a three-step process applied to analyze a transaction costs issue:

  1. Determine whether the taxpayer is the proper legal entity to take the transaction costs into account for tax purposes;
  2. Determine whether the costs facilitate the transaction; and
  3. Determine how the taxpayer should treat facilitative costs it must capitalize.

The key considerations and outcomes for each step are illustrated in the Practice Unit as follows:

Practice Point: Determining whether transaction costs must be capitalized or can be deducted is sometimes a difficult process. The IRS has attempted to create bright-line rules in this area, but invariably there are factual situations not covered by the INDOPCO regulations and disputes that may arise. Understanding the IRS’s approach to examining transaction costs, as set forth in this Practice Unit, may assist taxpayers under examination in resolving these types of issues.