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Weekly IRS Roundup February 3 – 7, 2020

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of February 3 – 7, 2020.

February 3, 2020:  The IRS and the Departments of Labor and Health and Human Services jointly announced frequently asked questions about the implementation of the Affordable Care Act. The agencies noted that they are tasked with developing standards for use by a group health plan and a health insurance issuer offering group or individual health insurance coverage in compiling a summary of benefits and coverage (SBC). The 2021 iterations of the SBC template, instructions, coverage example guide and narratives—all of which have been recently released—must be used beginning with the first day of the first open enrollment period for any plan year beginning on or after January 1, 2021.

February 4, 2020:  The IRS issued an issue snapshot regarding self-dealing under IRC section 4941(d), focusing largely on the furnishing of goods, services or facilities between a private foundation and a disqualified person. The IRS provided resources and guidance that delineate exceptions to the excise tax that typically applies to any direct or indirect act of self-dealing under IRC section 4941. The IRS also provided issue indicators and audit tips on the subject.

February 5, 2020:  The IRS published final regulations regarding special valuation rules for employers and employees to use in determining the amount to include in an employee’s gross income for personal use of an employer-provided vehicle. These regulations incorporate changes made by the Tax Cuts and Jobs Act. The regulations became effective upon publication.

February 6, 2020:  The IRS published final regulations correcting Treasury Decision 9884, which addressed the effect of recent legislative changes to the basic exclusion amount allowable in computing federal gift and estate taxes. These regulations affect donors of gifts made after 2017 and the estates of decedents dying after 2017. The regulations became effective upon publication.

February 6, 2020:  The IRS released draft Instructions to Form 1118, Foreign Tax Credit for Corporations, to reflect the recently published final regulations. The Instructions note a change in the manner in which foreign source exchange losses are reported on Schedule A. They also note that since most domestic partnerships and S corporations are no longer required to include amounts under IRC section 951A, most domestic corporations will only need to complete one line in Schedule D.

February 7, 2020:  The IRS issued a notice releasing the 2018 and 2019 inflation adjustment factors used to determine the availability of the Indian coal production credit under IRC section 45. The 2020 Further Consolidated Appropriations Act extended the credit period for Indian coal production.

February 7, 2020: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Jenni Saperstein in our Chicago office for this week’s roundup.


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IRS Resumes Examinations of Stock Based Compensation in Cost Sharing Agreements

On July 31, 2019, the Internal Revenue Service (IRS) Large Business and International (LB&I) division formally withdrew its Directive (LB&I-04-0118-005) instructing examiners on transfer pricing selection related to stock based compensation (SBC) in Cost Sharing Arrangements (CSAS). See here for IRS Notice of Withdrawal.

The Directive was issued January 12, 2018, after the Tax Court’s opinion in Altera which invalidated Treasury Regulation § 1.482-7A(d)(2). The IRS appealed Altera and issued Directive LB&I-04-0118-005, which we previously discussed here. The Directive instructed examiners to “[s]top opening issues related to stock-based compensation (SBC) included in cost-sharing arrangements (CSAS) intangible development costs (IDCs) until the Ninth Circuit issues an opinion in the Altera case on appeal.” At the time, the IRS indicated that it would issue further guidance once Altera was finally decided. On June 7, 2019, the Ninth Circuit reversed the Tax Court’s decision. (more…)

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