Insights & News

Tax Insights, August 26, 2015
Tracking Tax News You Need to Know

August 26, 2015
Court of Appeals for the Federal Circuit Holds Refund Claim for Disputed Foreign Credits Time-Barred
In Albemarle Corp. v. U.S., the Court of Appeals for the Federal Circuit affirmed the decision of the Court of Federal Claims by holding that when foreign taxes are contested, the 10-year statute of limitations period under Section 6511(d)(3)(A) (section references are to the Internal Revenue Code of 1986, as amended) for filing claims for foreign tax credits commences with the date for filing the return for the year in which the foreign taxes originated, not for the year in which the taxes were finalized and actually paid or accrued. Consequently, the taxpayer’s claim for refund for 1998 was not timely filed. The Court of Appeals also held the taxpayer’s claim for refund for 1997 was untimely under the prior law version of the 10-year limitations period.

Section 6511(d)(3)(A) provides that the limitations period is 10 years (as opposed to the general three-year limitations period under Section 6511(a)) for claims for refund or credit that relate to overpayments attributable to the payment or accrual to a foreign country or U.S. possession of taxes for which a foreign tax credit is allowed against U.S. income under Section 901 or a tax treaty. The 10-year period in Section 6511(d)(3)(A) runs “from the date prescribed by law for filing the return for the year in which such taxes were actually paid or accrued” (as that section was amended by the Taxpayer Relief Act of 1997, effective for taxes paid or accrued in tax years beginning after the Aug. 5, 1997, enactment date). Under the previous version of Section 6511(d)(3)(A), the 10-year period ran from the date “prescribed by law for filing the return for the year with respect to which the [refund] claim was made.”

IRS Finds That Related Entity’s Management of Hotel Will Not Cause Taxable REIT Subsidiary to Lose Qualification
In Private Letter Ruling 201533006, the IRS determined that a taxable REIT subsidiary’s (TRS’s) acquisition of an equity interest in a limited liability company that leased a hotel property but turned over all management responsibilities to an independent contractor would not adversely impact the TRS’s status as a TRS. The ruling reviews the ownership structure of the various entities and applies the attribution rules of Section 318 as modified by Section 856(d)(5).

IRS Finds That Captive Insurance Company’s Policies Are Not Insurance
The IRS publicly released ILM 201533011 on Aug. 14 (dated May 6, 2015), concluding that several of a captive insurance company’s policies (10-year excess loss policies issued by a captive insurance company to affiliated (brother-sister) companies) do not qualify as insurance for federal income tax purposes because they do not shift any risk from the group entities to the taxpayer and the arrangement is not insurance in its commonly accepted sense.

IRS Announces Early Interaction Initiative for Payroll Taxes
In an e-News for Payroll Professionals release, the IRS’s Collection Division announced a new program called “Early Interaction Initiative” (EII). The intent of EII is to assist employers in satisfying their payroll tax responsibilities and resolve issues before they become major problems for the business. When an employer’s payroll tax deposits decline, the IRS will send a letter stating that it has reviewed the employer’s federal payroll tax deposit history and noted a decrease. The letter will ask the employer to contact the IRS and explain the reason for the decrease in deposits. In addition, the letter will remind employers of their payroll tax responsibilities, advise them of the consequences of not complying with those responsibilities, and provide assistance to help them comply.

IRS Releases Fact Sheet on Worker Classification
The IRS released a fact sheet (FS-2015-21) on how to determine whether workers are providing services as employees or independent contractors.

IRS Revises Guidance on Reproduction Requirements for Substitute Forms
The IRS issued Announcement 2015-18, 2015-33 IRB 198 updating Revenue Procedure 2015-35 on the specifications for the private printing of red-ink substitutes for the 2015 revisions of some information returns; specifically, the announcement provides information on increased penalties for failure to file correct information returns under Section 6721.

IRS Adds Compliance Information to FATCA FAQ
The IRS has updated a list of frequently asked questions on general issues associated with the Foreign Account Tax Compliance Act requirements. The IRS added a general compliance question on when a Form W-8 will be considered to have been scanned and received electronically by a withholding agent.

FATCA Agreements Available — St. Vincent and Grenadines and Slovakia
The FATCA agreement between the U.S. and St. Vincent and Grenadines and the FATCA agreement between the U.S. and Slovakia are both now available.

Alabama Enacts Legislation Establishing Factor-Presence Nexus
Alabama has enacted legislation establishing a factor-presence nexus standard for business activity for purposes of the income tax, the business privilege tax, and the financial institution excises tax. (L. 2015, H49 (Act 505), effective for tax years beginning after Dec. 31, 2014 .) Substantial nexus is established if any of the following thresholds are exceeded during the tax period: (1) a dollar amount of $50,000 of property; (2) a dollar amount of $50,000 of payroll; (3) a dollar amount of $500,000 of sales; or (4) 25% of total property, total payroll, or total sales. The thresholds are subject to an upward adjustment in subsequent years depending on the percentage change in the Consumer Price Index.

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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