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Supreme Court Rules Against Taxpayers in IRC Section 965 Case

On June 20, 2024, the Supreme Court of the United States issued a 7-2 opinion in Moore v. United States, 602 U.S. __ (2024), ruling in favor of the Internal Revenue Service (IRS).

Moore concerned whether US Congress and the IRS could tax US shareholders of controlled foreign corporations (CFCs) on those corporations’ earnings even though the earnings were not distributed to the shareholders. The case specifically focused on the so-called “mandatory repatriation tax” under Internal Revenue Code (IRC) Section 965, a one-time tax on certain undistributed income of a CFC that is payable not by the CFC but by its US shareholders. Some viewed the case as hinging upon whether Congress has the power to tax economic gains that have not been “realized.” (i.e., In the case of a house whose value has appreciated from $500,000 to $600,000, the increased value is “realized” only when the house is sold and the additional $100,000 reaches the taxpayer’s coffers.)

However, Justice Brett Kavanaugh, joined by Chief Justice John Roberts and Justices Sonia Sotomayor, Elena Kagan and Ketanji Brown Jackson, rejected that position on the ground that the mandatory repatriation tax “does tax realized income,” albeit income realized by a CFC. On this basis, they reasoned that the question at issue was whether Congress has the power to attribute realized income of a CFC to (and tax) US shareholders on their respective shares of the undistributed income. This group of justices ultimately decided Congress does have the power.

The majority went out of its way to avoid expressing any opinion as to whether Congress can tax unrealized appreciation, with Justice Amy Coney Barrett’s concurrence and Justice Clarence Thomas’s dissent asserting that it cannot. Perhaps the Court was signaling a distaste for the Billionaire Minimum Income Tax proposed by US President Joe Biden, which would impose a minimum 20% tax on the total income of the wealthiest American households, including both realized and unrealized amounts, among other Democratic proposals.

Practice Point: We previously noted that certain taxpayers should consider filing protective refund claims contingent on the possibility that Moore would be decided in favor of the taxpayers. In light of the case’s outcome, however, those protective claims are now moot.




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Weekly IRS Roundup June 3 – June 7, 2024

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of June 3, 2024 – June 7, 2024.

June 3, 2024: The IRS released Internal Revenue Bulletin 2024-23, which includes Revenue Procedure 2024-23. The revenue procedure provides an updated list of tax accounting method changes for which IRS consent will be automatically granted pursuant to Form 3115, Application for Change in Accounting Method.

June 5, 2024: The IRS announced it has accepted more than one million taxpayer submissions via the Document Upload Tool since it launched in 2021. The Document Upload Tool enables taxpayers and tax professionals to securely upload required tax documents online at IRS.gov.

June 5, 2024: The IRS outlined factors to help taxpayers distinguish hobbies from true business activities and reminded them that payments received for goods and services through payment apps, such as Cash App and Venmo, are taxable income.

June 5, 2024: The IRS issued Notice 2024-46, which provides that payments made by Norfolk Southern to individuals affected by the 2023 train derailment incident in East Palestine, Ohio, are considered “qualified disaster relief payments,” which should be excluded from gross income if they are not otherwise covered by insurance.

June 6, 2024: The IRS announced that eligible contractors who build new energy efficient homes or substantially reconstruct existing homes into qualified energy efficient homes may be eligible for a tax credit of up to $5,000 per home. The credit amount depends on the type of home, the home’s energy efficiency and the date the home was purchased or leased.

June 7, 2024: The IRS issued Notice 2024-48, which provides the requirements for qualifying under the Statistical Area Category or the Coal Closure Category in Notice 2023-29 to determine taxpayers’ eligibility for the Energy Community Bonus Credit amounts or rates under Internal Revenue Code (Code) §§ 45, 45Y, 48 and 48E.

June 7, 2024: The IRS issued Revenue Procedure 2024-26, which provides additional procedures for qualified manufacturers of new clean vehicles to submit records demonstrating their compliance with certain requirements under Code §§ 30D(d) and (e) to be eligible for the clean vehicle tax credit.

June 7, 2024: The IRS extended the deadline to file federal individual and business tax returns and make tax payments for certain individuals and businesses in Kentucky that were affected by severe weather that started April 2, 2024. The new deadline is November 1, 2024. The extended deadline is available to taxpayers in any area designated by the Federal Emergency Management Agency (FEMA), including individuals and households that reside or have a business in the following counties: Boyd, Carter, Fayette, Greenup, Henry, Jefferson, Jessamine, Mason, Oldham, Union and Whitley.

June 7, 2024: The IRS extended the deadline to file federal individual and business tax returns and make [...]

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Weekly IRS Roundup May 27 – May 31, 2024

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of May 27, 2024 – May 31, 2024.

May 28, 2024: The IRS released Internal Revenue Bulletin 2024-22, which includes the following:

  • Revenue Procedure 2024-25, which provides the inflation-adjusted limits related to health savings accounts and high deductible health plans under 223 of the Internal Revenue Code (Code) for calendar year 2025.
  • Treasury Decision 9995, which provides final regulations on clean vehicle tax credits under Code § 25E and 30D for the purchase of qualifying new and previously owned clean vehicles and the transfer and receipt of previously owned clean vehicle credits, effective July 5, 2024.
  • Treasury Decision 9996, which provides final regulations on obtaining extensions for allocating generation-skipping transfer (GST) tax exemptions and making specific GST-related elections for individuals and estates that did not make timely allocations or elections. By obtaining an extension, the effective date of a taxpayer’s GST-related election or allocation may date back to the original transfer date.

May 28, 2024: The IRS reminded US citizens and resident aliens abroad, including those with dual citizenship or on duty in the military, to file their 2023 federal income tax return by June 17, 2024.

May 28, 2024: The IRS announced that the application portal for the 2024 Low-Income Communities Bonus Credit Program, which increases the amount of energy investment tax credits for clean energy investments in low-income communities and on Native American land, is open for submissions.

May 29, 2024: The IRS released proposed regulations on the new technology-neutral clean electricity production tax credit in Code § 45Y and the clean electricity investment tax credit in Code § 48E, which are available for projects placed in service after December 31, 2024. The regulations provide rules for calculating greenhouse gas emissions rates, petitioning for provisional emissions rates and determining eligibility for these credits.

May 29, 2024: The IRS reminded taxpayers that certain common summertime activities, such as part-time work, business travel and home improvements, may result in tax benefits and reporting requirements.

May 30, 2024: The IRS announced that Direct File, a tax preparation program that allows eligible taxpayers to file their federal income tax returns for free directly through the IRS, will become a permanent option beginning in the 2025 filing season.

May 30, 2024: The IRS announced Fumino (Fumi) Tamaki as its new Chief Taxpayer Experience Officer.

May 31, 2024: The IRS issued Notice 2024-49, which provides the registration requirements for the Code § 45Z Clean Fuel Production Credit for clean fuels produced beginning January 1, 2025. The IRS urges qualifying fuel producers to register by July 15, 2024, since, among other requirements, fuel producers seeking to claim the credit must be registered at the time the fuel is produced.

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Weekly IRS Roundup May 20 – May 24, 2024

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of May 20, 2024 – May 24, 2024.

May 20, 2024: The IRS released Internal Revenue Bulletin 2024-21, which includes the following:

  • Treasury Decision 9992, which includes final regulations on the standards under which a qualified investment entity, such as a real estate investment entity, would be “domestically controlled” for purposes of 897(h)(2) of the Internal Revenue Code (Code), effective as of April 25, 2024. The final regulations are generally consistent with the proposed regulations previously issued on December 29, 2022, and include a 10-year transition rule for certain existing structures.
  • Notice 2024-37, which provides guidance on the availability of the Sustainable Aviation Fuel (SAF) Tax Credit found in Code 40B as both an income tax credit and an excise tax credit under Code §§ 6426 and 6427. The notice also provides additional safe harbors under which the SAF’s life cycle greenhouse gas emissions reduction percentage can be calculated.
  • Revenue Procedure 2024-24, which provides procedures for requesting private letter rulings for transactions intended to qualify under Code 355 as tax-free spin-offs. The guidance was accompanied by Notice 2024-38, which requests taxpayer comments with respect to all provisions in the guidance.
  • Announcement 2024-18, which lists disciplinary sanctions for certain professionals, including lawyers, certified public accountants and appraisers, for violating the regulations governing practice before the IRS set out in Circular 230.
  • Announcement 2024-21, which revokes the Code § 501(c)(3) determination for specified organizations and stipulates that contributions made to said organizations by individual donors are no longer deductible under Code § 170(b)(1)(A).
  • Supplemental guidance accompanying the proposed regulations from December 26, 2023, relating to the Code 45V tax credit for the production of clean hydrogen and the Code § 48(a)(15) election to treat clean hydrogen production facilities as energy property.

May 20, 2024: The IRS was recognized for its financial management and performance reporting in its 2023 Agency Financial Report.

May 21, 2024: The IRS provided an overview of tax deductions, housing allowances and other tax benefits that homeowners can use to save money and offset related costs.

May 22, 2024: The IRS provided year-round tax planning pointers to help taxpayers stay organized and facilitate their tax planning. Among other things, the IRS suggests creating a system to keep tax records together; checking withholdings using the IRS withholding estimator; and notifying USPS, employers and the IRS of any address or name changes.

May 22, 2024: The IRS announced that the Qualifying Advanced Energy Project Credit Program Applicant Portal (Code § 48C Portal), which provides a tax credit for investments in advanced energy projects, is open for concept paper submissions. Submissions [...]

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United States v. Eaton: IRS Summons Power Overrides EU Privacy Laws

A US federal district court judge recently endorsed the broad investigative powers of the Internal Revenue Service (IRS) in United States v. Eaton Corp., No. 1:23-mc-00037, May 16, 2024 (N.D. Ohio). During its audit of Eaton’s transfer pricing of a royalty arrangement with Eaton’s Irish affiliate, the IRS sought performance evaluations of certain employees of the affiliate. Eaton declined to provide the evaluations citing relevancy and legal objections based on EU privacy laws. The IRS subsequently served Eaton with an administrative summons seeking the evaluations.

In the ensuing summons enforcement action, Eaton initially prevailed before a magistrate judge on both grounds. However, the IRS persuaded the district court judge to reject the magistrate’s recommendation and enforce the summons.

The district court judge rejected Eaton’s position that a heightened relevancy standard applies when the IRS seeks personal information, such as employee valuations. The judge distinguished between civil discovery disputes where such a standard might apply and summons enforcement disputes, which engage the broad authority of the IRS to seek information that may be relevant to its audit. While the IRS’s case for relevancy could have been stronger, the judge nonetheless found that the IRS had sufficiently supported the connection between potential information in the evaluations and its audit of the royalty arrangement.

The district court judge also ruled that the European Union’s General Data Protection Regulation (GDPR) did not bar the IRS’s legitimate exercise of its audit powers. The judge acknowledged that the GDPR generally prohibits the transfer of personal information, such as employee valuations, outside of the EU. However, the judge also found that exceptions to that prohibition applied where the IRS properly requested the information as part of its audit function and the EU Member State (in this case Ireland) had entered into a treaty with the United States that addressed corporate cross-border relationships and sought generally to combat tax evasion by resident entities. Comity concerns did not prevent enforcement of the summons according to the judge.

Practice Point: Given the effort the IRS expended in this case to obtain marginally relevant information, we clearly see the effects of increased audit resources at work and of the IRS’s mandate to target large corporate taxpayers. While there are certainly instances in every audit where a taxpayer should not expend resources just to fight a battle, the difficulty in cases like this is that absent this decision, Eaton likely felt bound to adhere to the GDPR for the sake of the employees working for its Irish affiliate.




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Weekly IRS Roundup May 13 – May 17, 2024

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of May 13, 2024 – May 17, 2024.

May 13, 2024: The IRS released Internal Revenue Bulletin 2024-20, which includes proposed regulations concerning the excise tax on stock buybacks under § 4501 of the Internal Revenue Code (Code). The proposed regulations are generally consistent with the guidance previously provided in Notice 2023-2. The proposed regulations also include guidance on reporting and payment of the Code § 4501 excise tax.

May 14, 2024: The IRS announced that, contrary to recent reports, there will be no changes to Native American tribes’ access to federal tax payment offsets through state arrangements.

May 14, 2024: The IRS reminded US citizens and resident aliens living abroad to file and pay their taxes.

May 14, 2024: The IRS warned taxpayers not to fall for inaccurate social media advice and tax scams centered around the Fuel Tax Credit, the Sick and Family Leave Credit and household employment taxes that led taxpayers to file inflated refund claims during the 2023 tax season.

May 14, 2024: The IRS released census tract geographic identifiers that are eligible for Code § 30C using 2015 and 2020 delineations of census tract boundaries, which can be accessed at Appendix A and Appendix B, respectively.

May 15, 2024: The IRS reminded businesses to check their tax returns for signs of incorrect Employee Retention Credit (ERC) claims and listed signs that an ERC claim could be incorrect.

May 15, 2024: The IRS released Notice 2024-42, which specifies updated static mortality tables for defined benefit pension plans under Employee Retirement Income Security Act of 1974 (ERISA) provisions for valuation dates occurring during the 2025 calendar year. The notice also includes a modified unisex version of the mortality tables for determining minimum present values under ERISA for distributions with annuity starting dates that occur during stability periods beginning in the 2025 calendar year.

May 15, 2024: The IRS released Revenue Ruling 2024-12, which provides the June 2024 applicable federal rates.

May 15, 2024: The IRS released Notice 2024-40, which provides the 24-month average corporate bond segment rates for May 2024, the yield curve and segment rates for single-employer plans and the 30-year Treasury securities interest rates.

May 16, 2024: The IRS released Notice 2024-41, which modifies Section 3.04 of Notice 2023-38 by revising the contents of the “Applicable Projects” list. The notice also provides a safe harbor under which taxpayers may elect to qualify for the domestic content bonus credit. Learn more here.

May 16, 2024: The IRS extended the deadline to file federal individual and business tax returns and make tax payments for certain individuals and businesses in Ohio that [...]

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Weekly IRS Roundup May 6 – May 10, 2024

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of May 6, 2024 – May 10, 2024.

May 6, 2024: The IRS released Internal Revenue Bulletin 2024-19, which includes the following:

  • Revenue Ruling 2024-09, which provides the May 2024 applicable federal rates.
  • Notice 2024-35, which provides guidance related to certain specified required minimum distributions for certain stock bonus, pension and profit-sharing plans described in Internal Revenue Code (Code) § 401(a). The notice also announces that the IRS intends to issue related final regulations that will apply for calendar years beginning on or after January 1, 2025.
  • Revenue Procedure 2024-20, which provides the domestic asset and liability percentages and domestic investment yields needed by foreign life insurance companies, foreign property and liability insurance companies to compute their minimum effectively connected net investment income under Code § 842(b). The revenue procedure also provides instructions for computing foreign insurance companies’ estimated tax liabilities.
  • Treasury Decision 9990, which amends the definition of short-term, limited-duration insurance for purposes of exclusion from the definition of “individual health insurance coverage” under the Public Health Service Act and provides regulations regarding requirements for hospital indemnity or other fixed indemnity insurance to be considered an excepted benefit in the group and individual health insurance markets.
  • Revenue Procedure 2024-21, which provides issuers of qualified mortgage bonds (as defined in § 143(a)) and issuers of mortgage credit certificates (as defined in § 25(c)) with the nationwide average purchase price for residences located in the United States and the average area purchase price safe harbors for residences located in statistical areas in each state, the District of Columbia and US territories.
  • Announcement 2024-20, which revokes the § 501(c)(3) determination for specified organizations and stipulates that contributions made to said organizations by individual donors are no longer deductible under Code § 170(b)(1)(A).

May 6, 2024: The IRS recognized two of its teams that reached the finals for the Samuel J. Heyman Service to America Medals as part of the 2024 Public Service Recognition Week. These teams included the Paperless Processing Initiative Team for its efforts to digitize IRS correspondence and two CI special agents for spearheading an investigation that led to a $3.4 billion cryptocurrency seizure and forfeiture.

May 6, 2024: The IRS reminded one million taxpayers who did not file their 2020 tax returns that they may still be eligible for a refund if they file by the May 17, 2024, deadline. The IRS estimates that more than $1 billion in refunds remain unclaimed as a result.

May 6, 2024: The IRS provided general tips for taxpayers upon receipt of mail from the IRS. In particular, taxpayers should remember to carefully read all IRS letters, save copies for their records and timely dispute notices where applicable.

May 6, 2024: The IRS
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Understanding the IRC’s Excessive Refund Claim Penalty

Recently, the Internal Revenue Service (IRS) has been asserting the Internal Revenue Code Section 6676 penalty much more frequently in examinations and in court. For example, in 2023, a government counterclaim in the US District Court for the Middle District of Georgia sought to recover Section 6676 penalties in Townley v. United States. And, internal IRS guidance requires examiners to consider whether to assert the penalty in every case in which a refund is disallowed.

In light of these factors, and major questions being raised in high-profile tax cases like Moore v. United States, which is currently pending before the Supreme Court of the United States, taxpayers are wondering whether the penalty can be asserted as a protective refund claim.

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Weekly IRS Roundup April 29 – May 3, 2024

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of April 29, 2024 – May 3, 2024.

April 29, 2024: The IRS released Internal Revenue Bulletin 2024-18, which includes the following:

  • Notice 2024-33, which provides a limited waiver of the addition to tax under Section 6655 of the Internal Revenue Code (Code) to the extent the addition to tax would be attributable to an underpayment of estimated corporate alternative minimum tax under Section 55 due April 15, 2024.
  • Notice 2024-34, which provides guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Section 417(e)(3) of the Code, the 24-month average segment rates under Section 430(h)(2), the interest rate on 30-year Treasury securities under 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 Section 431(c)(6)(E)(ii)(I).

April 29, 2024: The IRS issued Notice 2024-36, which provides guidance on the procedures for allocating credits under Section 48C and announces a second round of credits under Section 48C(e) for participation in the Qualifying Advanced Energy Project Credit program.

April 29, 2024: The IRS reminded small businesses to take advantage of the many tax resources available to them through the Small Business and Self-Employed Tax Center on IRS.gov.

April 30, 2024: The IRS announced that it is accepting applications for Tax Counseling for the Elderly and Volunteer Income Tax Assistance grants, which allows eligible organizations to apply for annual funding to provide free federal tax return preparation assistance for up to three years.

April 30, 2024: The IRS issued Notice 2024-37, which provides additional guidance and safe harbors regarding sustainable aviation fuel credits under Sections 40B and 6426(k) of the Code.

May 1, 2024: The IRS warned taxpayers and tax professionals about common scams and schemes, including online account help from third-party scammers, phishing, unscrupulous tax return preparers, offer in compromise mills and employee retention credit scams.

May 1, 2024: The IRS encouraged entrepreneurs to put data security safeguards in place to protect their financial, personal and employee information from scams and cybercriminals.

May 1, 2024: The IRS reminded taxpayers that it provides relief when an emergency measures declaration is issued, supplementing governmental efforts to provide emergency services. The IRS also provides relief when a major disaster declaration offering “individual assistance” is issued, which allows individuals and households to apply to the Federal Emergency Management Agency for financial and direct services.

May 1, 2024: The IRS issued Revenue Procedure 2024-24, which outlines procedures for requesting private letter rulings involving “spin-off” transactions subject to Section 355. Notice 2024-38, issued in conjunction with Revenue Procedure 2024-24, requests feedback on these procedures.

May 1, 2024: The IRS reminded taxpayers to [...]

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Weekly IRS Roundup April 22 – April 26, 2024

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of April 22, 2024 – April 26, 2024.

April 22, 2024: The IRS released Internal Revenue Bulletin 2024-17, which includes the following:

  • Proposed regulations, which would facilitate the transfer of tax return information to the US Census Bureau and permit the disclosure of additional tax return information to the US Secretary of Commerce.
  • Announcement 2024-19, which provides guidance on the federal income tax treatment for amounts paid toward the purchase of energy efficient property and improvements under the US Department of Energy’s Home Energy Rebates program pursuant to the Inflation Reduction Act of 2022.

April 22, 2024: The IRS encouraged tax professionals to register for the 2024 IRS Nationwide Tax Forum, which is coming to Chicago, Orlando, Baltimore, Dallas and San Diego this summer.

April 23, 2024: The IRS announced that it will accept applications for Low Income Taxpayer Clinic matching grants until June 12, 2024. Funding and performance of these grants will occur from January 1, 2025, to December 31, 2025.

April 23, 2024: The IRS reminded taxpayers that it offers resources to help those who may be unable to pay their tax bill in total and that payments are still due by the April 15 deadline, even if a taxpayer requested an extension to file a tax return.

April 24, 2024: The IRS announced the formation of a new Alternative Dispute Resolution Program Management Office, which will collaborate with the IRS Business Operating Divisions to help taxpayers resolve tax disputes earlier and more efficiently.

April 24, 2024: The IRS reminded taxpayers to consider applying for an offer in compromise, which settles a tax debt for less than the full amount owed, if they cannot pay their full tax debt or if paying would cause financial hardship.

April 25, 2024: The IRS issued final regulations on the transfer of the eligible manufacturing investment, clean energy investment and production tax credits, including specific rules for partnerships and S corporations.

April 25, 2024: The IRS advised taxpayers that they can file an amended federal tax return if they discover a math error, missing income or another mistake.

April 25, 2024: The IRS announced that it will create new, fully electronic processes and systems, update legacy systems, and improve compliance and fraud mitigation.

April 26, 2024: The IRS announced the closure of the Direct File pilot, with several hundred thousand taxpayers across 12 states signing up for Direct File accounts and more than 140,000 taxpayers filing their federal tax returns using the new service.

April 26, 2024: The IRS reminded taxpayers that they have the right to a fair and just tax system under the
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