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Weekly IRS Roundup July 6 – July 10, 2020

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of July 6, 2020 – July 10, 2020. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

July 6, 2020: The IRS added new frequently asked questions on the treatment of grants or loans to businesses through the Coronavirus Relief Fund established by the Coronavirus Aid, Relief and Economic Security (CARES) Act. The IRS stated that a government grant is taxable because the grant generally is not excluded from the business’s gross income except in narrow circumstances. A government loan, however, generally is not included in gross income except to the extent it is forgiven. If a government forgives all or a portion of the loan, then the amount forgiven is included in gross income and taxable unless an exclusion applies. If an exclusion applies, the IRS indicated the taxpayer may lose an equivalent amount of tax attributes.

July 6, 2020: The IRS added frequently asked questions on the treatment of grants or loans to health care providers through the Provider Relief Fund established by the CARES Act. The IRS stated that payments from this fund do not qualify as a qualified disaster relief payment under section 139 of the Internal Revenue Code (IRC) and, in turn, are includible in gross income. The IRS also stated that a tax-exempt recipient generally is not subject to tax on a fund payment unless the amount is a reimbursement to an unrelated trade or business under section 511.

July 6, 2020: The IRS added content to its Large Business & International (LB&I) Active Campaign covering section 965 for individuals. In connection with the transition to a participation exemption system, certain individuals had an obligation to include in gross income (and report) their pro rata share of the untaxed earnings and profits of certain directly and indirectly owned foreign corporations. The IRS indicated it will address noncompliance through soft letters and examinations.

July 7, 2020: The IRS issued a news release reminding tax-exempt organizations that certain forms they file with the IRS are due on July 15, 2020, including Form 990. Tax-exempt organizations that need additional time to file beyond the July 15 deadline can request an automatic extension by filing Form 8868. The IRS also indicated that extending the time for filing a return does not extend the time for paying tax.

July 8, 2020: The IRS issued a news release reminding certain taxpayers to restart their tax payments by July 15. Some taxpayers took advantage of tax relief measures under the People First Initiative and did not make previously owed tax payments between March 25 and July 15. The IRS also set forth what taxpayers should do to resume their payment agreements to the IRS, including Installment Agreements, Offers in Compromise and [...]

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LB&I Announces Five New Campaigns

On July 2, 2018, the Internal Revenue Service (IRS) Large Business and International (LB&I) Division announced the identification and selection of five new campaigns. These new campaigns follow the initial 13 campaigns announced on January 31, 2017, followed by 11 campaigns announced on November 3, 2017, 5 campaigns announced on March 13, 2018, and six campaigns announced on May 21, 2018.

The following are the five new LB&I campaigns by title and description:

  • Restoration of Sequestered AMT Credit Carryforward

LB&I is initiating a campaign for taxpayers improperly restoring the sequestered Alternative Minimum Tax (AMT) credit to the subsequent tax year. Refunds issued or applied to a subsequent year’s tax, pursuant to IRC Section 168(k)(4), are subject to sequestration and are a permanent loss of refundable credits. Taxpayers may not restore the sequestered amounts to their AMT credit carryforward. Soft letters will be mailed to taxpayers who are identified as making improper restorations of sequestered amounts. Taxpayers will be monitored for subsequent compliance. The goal of this campaign is to educate taxpayers on the proper treatment of sequestered AMT credits and request that taxpayers self-correct.

  • S Corporation Distributions

S Corporations and their shareholders are required to properly report the tax consequences of distributions. We have identified three issues that are part of this campaign. The first issue occurs when an S Corporation fails to report gain upon the distribution of appreciated property to a shareholder. The second issue occurs when an S Corporation fails to determine that a distribution, whether in cash or property, is properly taxable as a dividend. The third issue occurs when a shareholder fails to report non-dividend distributions in excess of their stock basis that are subject to taxation. The treatment streams for this campaign include issue-based examinations, tax form change suggestions, and stakeholder outreach.

  • Virtual Currency

US persons are subject to tax on worldwide income from all sources including transactions involving virtual currency. IRS Notice 2014-21 states that virtual currency is property for federal tax purposes and provides information on the US federal tax implications of convertible virtual currency transactions. The Virtual Currency Compliance campaign will address noncompliance related to the use of virtual currency through multiple treatment streams including outreach and examinations. The compliance activities will follow the general tax principles applicable to all transactions in property, as outlined in Notice 2014-21. The IRS will continue to consider and solicit taxpayer and practitioner feedback in education efforts, future guidance, and development of Practice Units. Taxpayers with unreported virtual currency transactions are urged to correct their returns as soon as practical. The IRS is not contemplating a voluntary disclosure program specifically to address tax non-compliance involving virtual currency.

  • Repatriation via Foreign Triangular Reorganizations

In December 2016, the IRS issued Notice 2016-73 which curtails the claimed “tax-free” repatriation of basis and untaxed CFC earnings [...]

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IRS Continues to Barrage Taxpayers with New Campaigns

On November 3, 2017, the Internal Revenue Service (IRS) Large Business and International (LB&I) division identified 11 new examination compliance “campaigns.” We have extensively discussed LB&I’s “campaign” examination process, including posts on Understanding LB&I “Campaigns” and Run for Cover – IRS Unveils Initial “Campaigns” for LB&I Audits.

The IRS identified the 11 new campaigns “through LB&I data analysis and suggestions from IRS compliance employees.” The new campaigns are:

  • Form 1120-F Chapter 3 and Chapter 4 Withholding Campaign
  • Swiss Bank Program Campaign
  • Foreign Earned Income Exclusion Campaign
  • Verification of Form 1042-S Credit Claimed on Form 1040NR
  • Agricultural Chemicals Security Credit Campaign
  • Deferral of Cancellation of Indebtedness Income Campaign
  • Energy Efficient Commercial Building Property Campaign
  • Corporate Direct (Section 901) Foreign Tax Credit
  • Section 956 Avoidance
  • Economic Development Incentives Campaign
  • Individual Foreign Tax Credit (Form 1116)

Practice Point:  The IRS’s salvo represents the “second wave” of LB&I’s issue-focused compliance work.  Indeed, the IRS noted that “[m]ore campaigns will continue to be identified, approved and launched in the coming months.” It is clear that the IRS is focusing its resources on these campaigns, and has developed significant internal expertise on these issues. If you have one of the identified issues, consider being proactive and preparing an audit ready-file as the issue will likely be examined.




LB&I’s Final Campaigns Webinar: Section 48C Energy Credits and Completed Contract Method for Land Developers

On June 20, 2017, the Internal Revenue Service (IRS) Large Business and International Division (LB&I) hosted its final webinar regarding LB&I Campaigns. Our previous coverage of LB&I Campaigns can be found here. The webinar focused on two campaigns:  (1) Section 48C Energy Credits and (2) Land Developers – Completed Contract Method.

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Understanding LB&I “Campaigns” – The Second Webinar

On March 28, 2017, EY and the Internal Revenue Service (IRS) held a joint webcast presenting the Large Business & International’s (LB&I) new “Campaign” examination process. This was the IRS’s second in a planned eight-part series about Campaigns. The IRS speakers for the presentation were Tina Meaux (Assistant Deputy Commissioner Compliance Integration) and Kathy Robbins (Enterprise Activity Practice Area). We previously blogged about Campaigns on February 1, 2017 (link), and the first Campaigns webinar on March 8, 2017 (link).

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IRS Campaign Focuses on Definition of “Qualified Film” Under Section 199

On January 31, the Internal Revenue Service (IRS) announced 13 Large Business & International (LB&I) “campaigns.”  One campaign targets deductions claimed by multi-channel video programming distributors (MVPDs) and TV broadcasters under section 199 of the Internal Revenue Code (IRC).  According to the IRS’s campaign announcement, these taxpayers make several erroneous claims, including that (1) groups of channels or programs constitute “qualified films” eligible for the section 199 domestic production activities deduction, and (2) MVPDs and TV broadcasters are producers of a qualified film when they distribute channels and subscription packages that include third-party content.

IRC section 199(a) provides for a deduction equal to 9 percent of the lesser of a taxpayer’s “qualified production activities income” (QPAI) for a taxable year and its taxable income for that year.  A taxpayer’s QPAI is the excess of its “domestic production gross receipts” (DPGR) over the sum of the cost of goods sold and other expenses, losses or deductions allocable to such receipts.  IRC section 199(c)(1).  DPGR includes gross receipts of the taxpayer which are derived from any lease, rental, license, sale, exchange, or other disposition of “any qualified film produced by the taxpayer.”  IRC section 199(c)(4)(A)(i)(II).  A “qualified film” is “any property described in section 168(f)(3) if not less than 50 percent of the total compensation relating to the production of such property is compensation for services performed in the United States by actors, production personnel, directors and producers.”  IRC section 199(c)(6).  However, “qualified film” does not include property with respect to which records are required to be maintained under 18 U.S.C. § 2257 (i.e., sexually explicit materials).  Id.  Under regulations issued in 2006, “qualified film” also includes “live or delayed television programming.”  Treas. Reg. § 1.199-3(k)(1); see also Notice 2005-14, 2005-1 C.B. 498, §§ 3.04(9)(a), 4.04(9)(a). “Qualified film” includes “any copyrights, trademarks, or other intangibles with respect to such film.”  IRC section 199(c)(6).  The “methods and means of distributing a qualified film” have no effect on the availability of the section 199 deduction.  Id.  IRC section 168(f)(3), entitled “Films and Video Tape,” provides an exclusion from accelerated depreciation for “[a]ny motion picture film or video tape.”

Though the January 31 announcement did not explain the IRS’s position on these issues in detail, the IRS rejected both claims in two Technical Advice Memoranda (TAMs) issued in late 2016.  The IRS determined in TAM 201646004 (Nov.10, 2016) and TAM 201647007 (Nov.18, 2016) (the 2016 TAMs) that a subscription package of multiple channels of video programming transmitted by an MVPD to its customers via signal is not a “qualified film” as defined in IRC section 199(c)(6) and Treas. Reg. § 1.199-3(k)(1).  It also determined that an MVPD’s gross receipts from its subscription package are not from the disposition of a qualified film produced by the MVPD and are therefore not DPRG included in calculating a section 199 deduction.  The MVPD would only have DPRG from the subscription package to the extent its gross receipts are derived from an individual film or episode within the subscription [...]

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