Insights & News

Tax Insights, August 19, 2015
Tracking Tax News You Need to Know

August 19, 2015
Extension Granted to Treat Company as Taxable REIT Subsidiary
In PLR 201532006, the IRS ruled that the taxpayer, which is a real estate investment trust (REIT), and its subsidiary have shown good cause for granting a reasonable extension of time to elect under Section 856(l) (all section references are to the Internal Revenue Code of 1986, as amended) to treat the subsidiary as a taxable REIT subsidiary of the taxpayer.

Info on 2015 XML Reporting Schema Added to FATCA Systems FAQ
The IRS has released a revised list of frequently asked questions on the systems that are used for Foreign Account Tax Compliance Act (FATCA) data, including on the XML schema for FATCA reporting, which will not be updated for 2015. According to the FAQ, 2015 tax year information will be reported on the existing 1.1 version of the schema.

Instructions Posted on Creating FATCA File With Multiple Entities
The IRS has posted to its website instructions for creating an XML file that includes multiple sponsored entities to be uploaded to the FATCA online registration system later in 2015.

IRS Provides Procedures for Requesting, Obtaining APAs
The IRS has provided guidance in Rev. Proc. 2015-41 on requesting and obtaining advance pricing agreements (APAs) and on the administration of executed APAs from the Advance Pricing and Mutual Agreement (APMA) program. A proposed version of the revenue procedure was released for public comment in Notice 2013-79, 2013-2 C.B. 653. The revenue procedure clarifies that if APMA requires, as a condition of continuing with the APA process, that the taxpayer expand the proposed scope of its APA request to cover interrelated matters, APMA will do so with due regard to considerations of principled, effective and efficient tax administration and only after considering the views of the taxpayer and the applicable foreign competent authority. In the interest of efficient tax administration, rollback years may be formally covered within an APA. The revenue procedure also provides expanded guidance as to when an APA request will be considered complete. The required contents of APA requests that were specified in the Appendix of the proposed revenue procedure have been refined but generally retained. As stated in Notice 2013-79, taxpayers are required to execute consent agreements to extend the period of limitations for assessment of tax for each year of the proposed APA term, and the required consent could be either general or restricted. The revenue procedure increases the user fees for APA requests and provides that total user fees may be reduced for multiple APA requests filed by the same controlled group within a 60-day period.

IRS Issues Guidance on Requesting Competent Authority Assistance
The IRS has issued Rev. Proc. 2015-40 to provide guidance on the process of requesting and obtaining assistance under U.S. tax treaties. A proposed version of the revenue procedure was released for public comment in Notice 2013-78, 2013-50 I.R.B. 633. The revenue procedure limits the scope of requests to which mandatory prefiling procedures apply to requests involving taxpayer-initiated positions. To ensure that taxpayers have broad access to the U.S. competent authority to resolve disputes under U.S. tax treaties, taxpayers will not be required under the revenue procedure to expand the scope of a competent authority request to include interrelated issues as a condition of receiving competent authority assistance. The revenue procedure clarifies that the U.S. competent authority may consult with taxpayers with respect to certain additional issues that may arise in connection with competent authority requests. The revenue procedure provides additional guidance on requesting discretionary determinations under the limitation on benefits articles of U.S. tax treaties. Consistent with the objective of providing taxpayers with broad access to the U.S. competent authority to resolve disputes under U.S. tax treaties, the U.S. competent authority will not condition assistance on the taxpayer’s notification of the U.S. competent authority, or on obtaining its concurrence, with respect to signing a standard Form 870 (Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment) with IRS Examination. The revenue procedure provides additional information about the process followed by the U.S. competent authority in conducting its review under the simultaneous appeals procedure and clarifies and refines the bases on which the U.S. competent authority may decline to accept a competent authority request or may cease providing assistance. Finally, the revenue procedure increases the user fee for requests for discretionary limitation of benefits relief from $27,500 to $37,000.

IRS Issues Final Regulations on Determining Basis in CRT Interests
Final regulations (T.D. 9729) provide a special rule for determining the basis in certain charitable remainder trust (CRT) term interests in transactions to which Section 1001(e)(3) applies; i.e., the sale or other disposition of the CRT term interest is part of a transaction in which all interests in the CRT are transferred. In these cases, the final regulations provide that the basis of a term interest of a taxable beneficiary is the portion of the adjusted uniform basis assignable to that interest reduced by the portion of the sum of the following amounts assignable to that interest: (1) the amount of undistributed net ordinary income described in Section 664(b)(1); and (2) the amount of undistributed net capital gain described in Section 664(b)(2). The final regulations do not affect the CRT’s basis in its assets, but rather are for the purpose of determining a taxable beneficiary’s gain arising from a transaction described in Section 1001(e)(3). The rules in these final regulations are limited in application to charitable remainder annuity trusts and charitable remainder unitrusts as defined in Section 664. The final regulations apply to sales and other dispositions of interests in CRTs occurring on or after Jan. 16, 2014, except for sales or dispositions occurring pursuant to a binding commitment entered into before Jan. 16, 2014.

Regulations Eliminate Automatic Filing Extensions for Some Returns
The IRS has published final and temporary regulations (T.D. 9730) that remove the automatic extension of time to file information returns on forms in the W-2 series (except Form W-2G). The temporary regulations allow only a single 30-day non-automatic extension of time to file these information returns. These changes are being implemented to accelerate the filing of forms in the W-2 series (except Form W-2G) so they are available earlier in the filing season for use in the IRS’s identity theft and refund fraud detection processes. In addition, the temporary regulations update the list of information returns subject to the rules regarding extensions of time to file. The substance of the temporary regulations is included in the proposed regulations (REG-132075-14). The regulations apply to requests for extensions of time to file information returns due after Dec. 31, 2016.

Mark-to-Market Election Guidance Submitted for OMB Review
The IRS has submitted for Office of Management and Budget review, and has requested comments on, Rev. Proc. 99-17, which provides procedures for electing the mark-to-market method of accounting under Section 475(e) or (f). Comments are due by Sept. 8.

Court Upholds Penalty, Disallowance of Losses From DAD Transaction

The U.S. Court of Federal Claims in Russian Recovery Fund Ltd. et al. v. United States; No. 1:06-cv-00030 sustained a final partnership administrative adjustment disallowing approximately $50 million of losses claimed by the taxpayer on its partnership return involving a distressed asset/debt (DAD) transaction. The court also sustained penalties imposed by the IRS for “gross valuation misstatement,” rejecting the taxpayer’s argument that it reasonably relied on tax advice.


Information contained in this publication should not be construed as legal advice or opinion or as a substitute for the advice of counsel. The articles by these authors may have first appeared in other publications. The content provided is for educational and informational purposes for the use of clients and others who may be interested in the subject matter. We recommend that readers seek specific advice from counsel about particular matters of interest.

Copyright © 2015 Stradley Ronon Stevens & Young, LLP. All rights reserved.

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