Wrapping up July—and Looking Forward to August

Tax Controversy Activities in August:

August 7, 2017: Elizabeth Erickson and Kristen Hazel will be representing McDermott Will & Emery at the 2017 US Captive Awards in Burlington, Vermont. McDermott has been shortlisted in the Law Firm category.

August 8, 2017: Tom Jones is presenting an update on Captive Insurance Tax in Burlington, Vermont, at the Vermont Captive Insurance Association Annual Conference “Mission: Possible”— the largest captive insurance conference in the US by number of paid attendees.

August 18, 2017: Todd Welty is speaking at the Texas Society of Certified Public Accountants Advanced Estate Planning Conference about:

  • Current developments in federal transfer taxes
  • Current state of federal tax reform
  • Proposed changes to state death tax laws and the impact of those changes on estate
  • Gift and trust planning
  • Consistent basis regulations
  • The state of valuation discounts
  • Recent rulings on defined value clauses and charitable gifts

August 23, 2017: Tom Jones is presenting an update on Annual Federal & State Tax at the North Carolina Captive Insurance Association Annual Conference in Charlotte, North Carolina.

Wrapping up July:

Our July 2017 blog posts are available on taxcontroversy360.com, or read each article by clicking on the titles below. To receive the latest on state and local tax news and commentary directly in your inbox as they are posted, click here to subscribe to our email list.

July 14, 2017: Tracking Tax Guidance and Court Cases

July 17, 2017: New IRS CbC Resource

July 18, 2017: Courts Rejects Challenge to OVDP Transition Rules

July 19, 2017: Tax Court Rejects IRS Reliance on “Cursory” Analysis in Revenue Ruling

July 21, 2017: John Doe Intervenes in Virtual Currency Summons Enforcement Case

July 24, 2017: BEWARE: Whistleblowers Can “Out” You to the IRS!

July 26, 2017: Virtual IRS Appeals – A New Frontier?

July 27, 2017: IRS Rules (Again) That Taxpayers Are Not Entitled to Claimed Refined Coal Credits

July 28, 2017: Tax Court Hands Eaton a Complete Victory on the Cancellation of its Advance Pricing Agreements

July 31, 2017: Senate Attempts to Repeal Chevron Deference

In a highly-anticipated Technical Advice Memorandum (TAM) dated March 23, 2017 and released on July 21, 2017, the Internal Revenue Service (IRS) ruled that two taxpayers who had invested in a Limited Liability Company that owned and operated a refined coal facility (the LLC) were not entitled to refined coal production credits they had claimed because their investment in the LLC was structured “solely to facilitate the prohibited purchase of refined coal tax credits.” This analysis marks a departure from the position staked out by the IRS in a number of recent refined coal credit cases, which focused on whether taxpayers claiming refined coal credits were partners in a partnership that owned and operated a refined coal facility.

Continue Reading IRS Rules (Again) That Taxpayers Are Not Entitled to Claimed Refined Coal Credits

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 package that is a qualified film produced by the MVPD.

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