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IRS LB&I Division Announces Its New Year’s Resolutions

by , and | Feb 6, 2019 | , , ,

Each New Year, many of us look back on the previous year’s activities, and determine what we want to accomplish in the coming year – lose weight, start exercising, read more tax articles, etc. The Internal Revenue Service (IRS) Large Business & International (LB&I) Division memorialized its New Year’s resolutions for 2019 in Publication 5319. So, for taxpayers with more than $10 million in assets, you may want listen up and see what the IRS has in store for 2019!

LB&I’s goals come during a time of significant reduction in workforce and increase in responsibilities. LB&I experienced a significant reduction in workforce between October 2017 and October 2018, reducing its workforce by a net of 344 employees (down from 4,868 to 4,524) spread across several positions. This included 18 individuals in leadership, 218 revenue agents and 25 tax examiners. With the exception of tax law specialists, which remained at 24, every other position saw a reduction in personnel. This reduction in personnel comes at critical point for LB&I, as it undoubtedly spent much of its time and resources last year working on guidance necessary to implement the substantial changes made by the Tax Cuts and Jobs Act enacted in late 2017. It will continue to be responsible for training and compliance related to those changes. (more…)



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IRS Releases Practice Units on Permanent Establishments

by and | Jan 31, 2019 | , ,

On January 29 and 30, 2019, the Internal Revenue Service’s Large Business and International (LB&I) division released new Practice Units on Permanent Establishments, which can be found here and here. Permanent Establishments create taxing nexus for foreign businesses doing business in the United States and for those who have “effectively connected income.” The Practice Units provide the IRS’s LB&I audit teams with a general guide on the tax concepts related to permanent establishments. The Practice Units provide examples of the analysis necessary to determine whether a foreign company has a permanent establishment, for example, as a result of its agent concluding contracts on its behalf in the United States. Additionally, the Practice Unit on treaty exemptions describes whether an activity has a preparatory or auxiliary character for purposes of determining whether a foreign enterprise has a US permanent establishment. LB&I auditors will use the Practice Units as tools to help analyze whether a US permanent establishment exists and an income tax adjustment is necessary.

Practice Point: If you have potential PE issues, it is a good idea to look at what your auditors are looking at. The Practice Units are helpful to understand the perspective of IRS auditors on these issues, the types of questions they are likely to ask and the information that they will request.



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Weekly IRS Roundup January 14 – 18, 2019

by | Jan 22, 2019 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of January 14 – 18, 2019.

January 15, 2019: The IRS issued final regulations implementing the transition tax under section 965 of the Code, enacted as part of the Tax Cuts and Jobs Act.

January 15, 2019: The IRS released an updated contingency plan describing its actions and activities in light of the partial federal government shutdown.

January 16, 2019: The IRS released Notice 2019-11, providing a penalty waiver, under certain conditions, for an individual taxpayer’s underpayment of withholding and estimated income tax, in light of the major changes made by the Tax Cuts and Jobs Act.

January 18, 2019: The IRS issued final regulations providing guidance on the deduction for qualified business income under section 199A of the Code, enacted as part of the Tax Cuts and Jobs Act.

January 18, 2019: The IRS released proposed regulations dealing with previously suspended losses and ownership interests in certain entities for purposes of calculating the deduction under section 199A of the Code, enacted as part of the Tax Cuts and Jobs Act.

January 18, 2019: The IRS released Revenue Procedure 2019-11, providing methods for calculating W-2 wages for purposes of the deduction under section 199A of the Code, enacted as part of the Tax Cuts and Jobs Act.

January 18, 2019: The IRS released Notice 2019-07, proposing a safe harbor for rental real estate enterprises for purposes of the deduction under section 199A of the Code, enacted as part of the Tax Cuts and Jobs Act.

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



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Weekly IRS Roundup January 7 – 11, 2019

by | Jan 14, 2019 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of January 7 – 11, 2019. Tax news is very limited because of the government shutdown:

January 7, 2019: The IRS issued a news release confirming that, despite the partial federal government shutdown, it will process tax returns beginning January 28, 2019, and provide refunds to taxpayers as scheduled.

January 7, 2019: The IRS released the final 2018 version of Form 8996, dealing with certification as a qualified opportunity fund under section 1400Z-2 of the Code, enacted in the Tax Cuts and Jobs Act.

January 7, 2019: The IRS issued an announcement cancelling a public hearing—originally scheduled for January 10, 2019—on proposed regulations concerning qualified opportunity funds under section 1400Z-2 of the Code, in light of the partial federal government shutdown.

January 7, 2019: The IRS released final instructions for Form 8992, dealing with the calculation of global intangible low-taxed income under section 951A of the Code, enacted in the Tax Cuts and Jobs Act.

January 8, 2019: The IRS released the final 2018 version of Form 8992, dealing with the calculation of global intangible low-taxed income under section 951A of the Code, enacted in the Tax Cuts and Jobs Act.

January 11, 2019: The IRS issued a news release announcing the start of the IRS Free File program for this filing season and detailing new consumer protections that have been added to the program.

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



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Joint Committee Releases Overview of Its Refund Review Process

by and | Jan 10, 2019 | , , , , ,

Clients ask us all of the time, “What is the Joint Committee on Taxation’s (JCT) process for reviewing refund claims granted by the Internal Revenue Service (IRS)?” Recently, the JCT has released an overview of its process. Wait, what? After the IRS has agreed to issue you a refund, there is a congressional committee that has to check the IRS’s work? Yep!

Internal Revenue Code (IRC) §6405 prohibits the IRS/US Department of the Treasury from issuing certain refund payments to taxpayers until 30 days after a “report” is given to the JCT. Only refunds “in excess” of $5 million for corporate taxpayers and $2 million for all other taxpayers (partnerships, individuals, trusts, etc.) are required to be reported to the JCT. A refund claim is an amount listed on an amended return (e.g., Forms 1140X and 1120X), tentative carrybacks (e.g., Forms 1139 and 1045), and refunds attributable to certain disaster losses. Numerous types of refund payments are excepted from JCT review, including refunds claimed on originally filed returns, resulting from litigation and employment taxes. It is important to note that this process is not limited to the IRS Examination stage; it can also occur at the IRS Appeals stage or even in tax court litigation. (more…)



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Weekly IRS Roundup December 31, 2018 – January 4, 2019

by | Jan 8, 2019 | ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of December 24, 2018 – January 4, 2019. Tax news is very limited because of the government shut down:

December 31, 2018: The IRS released Notice 2019-09, providing interim guidance on section 4960 of the Code, enacted by the Tax Cuts and Jobs Act, regarding excise taxes on excess remuneration and excess parachute payments paid by certain tax-exempt organizations to covered employees.

December 31, 2018: The IRS released the final 2018 version of Form 8990, dealing with limitations on business interest expense deductions under section 163(j) of the Code.

December 31, 2018: The IRS released final instructions for the 2018 version of Form 1116, dealing with the foreign tax credit, reflecting changes made by the Tax Cuts and Jobs Act.

January 4, 2018: The IRS released final instructions for the 2018 version of Form 8990, dealing with limitations on business interest expense deductions under section 163(j) of the Code, reflecting changes made by the Tax Cuts and Jobs Act.

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



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Section 965 Transition Tax Overpayment Addressed in Technical Corrections

by | Jan 4, 2019 | , , ,

On January 2, 2019, the outgoing Chair of the House Ways and Means Committee, Kevin Brady (R-TX), released the Tax Technical and Clerical Corrections Act (the Bill), addressing several technical issues associated with the Tax Cuts and Jobs Act (P.L. 115-97) (TCJA). The Bill includes certain provisions that, if enacted, would affirm Congress’ intent that taxpayers with an overpayment with respect to an installment payment of the transition tax under Internal Revenue Code (Code) Section 965 should be able to claim a credit or refund with respect to such amount. The provisions in the Bill with respect to Code Section 965 overpayments are largely consistent with similar draft legislation introduced on November 26, 2018 (the Retirement, Savings and Other Tax Relief Act of 2018 and the Taxpayer First Act of 2018, or H.R. 88; see prior discussion here). In particular, the Bill provides that where a taxpayer that made an election under Code Section 965(h)(1) to pay the net tax liability under Section 965 in installments has filed a request for a credit or refund with respect to an overpayment, the Internal Revenue Service cannot take any installment into account as a liability for purposes of determining whether an overpayment exists. If enacted, the Bill would permit taxpayers to claim a refund or credit with respect to an installment payment of the taxpayer’s transition tax under Code Section 965. (more…)



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Tax Reform Insights: IRS Proposes Section 163(j) Regulations – New Business Interest Expenses Deduction Limit

by and | Dec 26, 2018 | , ,

On November 26, 2018, the Internal Revenue Service (IRS) issued proposed regulations (Proposed Regulations) pursuant to section 163(j). Public Law 115-97, the Tax Cuts and Jobs Act (TCJA), amended Internal Revenue Code (Code) Section 163 by modifying paragraph (j) to limit the amount of business interest a taxpayer may deduct for taxable years beginning after December 31, 2017. The amendment generally limits the deduction for business interest to the sum of a taxpayer’s business interest income and thirty percent of a taxpayer’s adjusted taxable income (ATI) for the taxable year.

The Code Section 163(j) limit is also increased by a taxpayer’s “floor plan financing interest,” which is certain interest used to finance the acquisition of motor vehicles held for sale or lease. Code Section 163(j)(8) defines ATI as a taxpayer’s taxable income computed without regard to: any item of income, gain, deduction, or loss which is not properly allocable to a trade or business; any business interest or business interest income; any net operating loss deduction under Code Section 172; the amount of any deduction for qualified business income under Code Section 199A; and in the case of taxable years beginning before January 1, 2022, any deduction allowable for depreciation, amortization, or depletion.

The Proposed Regulations address a variety of issues, including the following:

  • Trade or Business. New Code Section 163(j) defines business interest income and expense as amounts that are “properly allocable to a trade or business,” but it does not define trade or business.” The Proposed Regulations define a “trade or business” by reference to Code Section 162 because Code Section 162(a) provides the “most established and developed definition of trade or business.”
  • Interest. The Proposed Regulations define “interest” broadly to include other ordinary income items similar to interest, such as substitute interest payments in securities lending transactions, loan commitment fees, debt issuance costs, Code Section 707(c) guaranteed payments for the use of capital, and factoring income. Proposed Regulation § 1.163(j)-3 introduces rules, including ordering rules, for the relationship between Code Section 163(j) and other provisions affecting interest.
  • S Corporations. Proposed Regulation § 1.163(j)-6 provides guidance regarding the application of the Code Section 163(j) deduction to partnerships and S corporations.
  • CFCs. The Proposed Regulations provide that Code Section 163(j) may apply to limit the deductibility of a controlled foreign corporation’s (CFC’s) business interest expense, thereby potentially limiting a CFC’s deduction of business interest for purposes of computing subpart F income and tested income under Code Section 951A(c)(2)(A).
  • ECI. The Proposed Regulations also provide that Code Section 163(j) applies to foreign corporations and other foreign persons for purposes of computing income effectively connected with a US trade or business.

The Proposed Regulations provide a variety of other rules. Some of the notable provisions include rules applicable to REITs, RICs, tax-exempt entities and consolidated group members. They also provide rules regarding the disallowed business interest expense carryforwards of C corporations and rules regarding elections for excepted trades or businesses and rules for allocating expenses and [...]

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Congress Allows Transfer of Improperly Filed Cases to Tax Court

by | Dec 21, 2018 | , , , ,

Taxes and tax litigation can be complex and confusing. Taxpayers have the option of filing a petition in the United States Tax Court (Tax Court) prior to payment of any asserted deficiency. Alternatively, taxpayers can pay the deficiency, file a claim for refund with the Internal Revenue Service and, if that claim is denied or more than six months have elapsed, file a complaint in local District Court or the Court of Federal Claims requesting a refund. These forum rules sometimes trip up taxpayers and can lead to the filing of a suit in the wrong court.

In the Protecting Access to the Courts for Taxpayers Act (H.R. 3996), Congress has provided relief for taxpayers in this type of situation through an amendment to 28 USC section 1631:

Whenever a civil action is filed in a court as defined in section 610 of this title or an appeal, including a petition for review of administrative action, is noticed for or filed with such a court and that court finds that there is a want of jurisdiction, the court shall, if it is in the interest of justice, transfer such action or appeal to any other such court (or, for cases within the jurisdiction of the United States Tax Court) in which the action or appeal could have been brought at the time it was filed or noticed, and the action or appeal shall proceed as if it had been filed in or noticed for the court to which it is transferred on the date upon which it was actually filed in or noticed for the court from which it is transferred.

Practice Point: Allowing improperly filed cases to be transferred to the Tax Court is a welcome development for taxpayers. The amendment to 28 USC section 1631 protects taxpayers in situations where a complaint is filed within 90 days of receipt of a Notice of Deficiency in a refund jurisdiction when it should have been filed in the Tax Court.



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Weekly IRS Roundup December 3 – 7, 2018

by | Dec 10, 2018 | , ,

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

December 4, 2018: The IRS issued a news release granting taxpayers an extra day, until Thursday, December 6, 2018, to file any return or pay any tax originally due on Wednesday, December 5, 2018, in light of the Executive Order closing all federal agencies on December 5, 2018, as a mark of respect for President George H.W. Bush.

December 4, 2018: The IRS issued Notice 2018-95, providing transition relief from the “once-in-always-in” condition for excluding part-time employees under Treas. Reg. § 1.403(b)-5(b)(4)(iii)(B).

December 6, 2018: The IRS in Revenue Ruling 2018-32 released the interest rates for underpayments and overpayments applicable for the calendar quarter beginning January 1, 2019.

December 7, 2018: The IRS issued Notice 2018-97, providing initial guidance on the application of section 83(i) of the Code, enacted in the Tax Cuts and Jobs Act, which allows qualified employees of privately held corporations to defer paying income tax—for up to five years—on the value of qualified stock options and restricted stock units granted to them by their employers.

December 7, 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.



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