Insights & News

Tax Insights, February 11, 2015
Tracking Tax News You Need to Know

February 11, 2015
Proposed IRS Regulations to Address Charter School Retirement Plan
Notice 2015-7 announces the IRS and Treasury Department anticipate issuing proposed regulations under Section 414(d) of the Internal Revenue Code (the Code) to define the term “governmental plan.” The Notice describes specific rules that the IRS and the Treasury Department are considering proposing that relate to whether a state or local retirement system that covers employees of a charter school is a governmental plan within the meaning of Code Section 414(d). The Notice can be found here.

Court Rules That “Placed in Service” Does Not Equate to “Open for Business”
In Stine v. USA, the U.S. District Court for the Western District of Louisiana held that “placed in service” does not equate to “open for business” – contrary to the IRS’s argument that Treasury Regulation Section 1.167(a)-11(e)(1)(i), which defines when property is “first placed in service,” requires, in the case of a building containing a retail store, that the store be open for business in order for the building to be considered placed in service.

Rehab Tax Credit Passthrough Results in Lessee Income Equal to 100 Percent of Credit
In Chief Counsel Advice 201505038, the IRS concluded that where a lessor qualifies for the Code Section 47 rehabilitation credit but elects to treat the lessee as qualifying for the credit, the lessee must include in the lessee’s gross income, over a period of time, 100 percent of the credit amount, regardless of a drafting error in the statute. The IRS supported this conclusion by pointing to certain statements in the Bluebook for the Tax Equity and Fiscal Responsibility Act of 1982, and the rule of statutory interpretation that statutes should be read to avoid making any provision “superfluous, void, or insignificant.”

IRS Voices Its Nonacquiescence With Cases Permitting Partner Exclusion of Partnership’s Debt Cancellation Income
In Action on Decision 2015-01, the IRS announced its nonacquiescence with four Tax Court cases that held a partner, who guaranteed the debt of a partnership and was not in bankruptcy in the partner’s individual capacity, could exclude from gross income, pursuant to Code Section 108(a), partnership debt discharged in a Title 11 case of the partnership. The Action on Decision can be found here.

New FATCA FAQs; Individual Account Opening; Self-Certification
The IRS has updated its FAQs to include information on general compliance issues associated with FATCA. Newly added FAQs 10 addresses a foreign financial institution’s requirement to obtain a self-certification before it may open new individual accounts under FATCA. The question asks if a Reporting Model 1 FFI or a Reporting Model 2 FFI that is applying the due diligence procedures in section III, paragraph B, of Annex I of the IGA cannot obtain a self-certification upon the opening of a New Individual Account, can the FFI open the account and treat it as a U.S. Reportable Account? The IRS answers this question “no.” Under section III, paragraph B, of Annex I of the IGA, the FFI must obtain a self-certification at account opening, and if it does not, it cannot open the account. The FAQs can be found here.

Proposed Regulations Issued on Nonrecognition of Gain or Loss on Certain Dispositions of Installment Obligations
Proposed regulations were recently issued relating to the nonrecognition of gain or loss on certain dispositions of an installment obligation. Under the proposed regulations, a transferor generally does not recognize gain or loss on certain dispositions of an installment obligation if gain or loss is not recognized on the disposition under another provision of the Code. The proposed regulations also provide that this general rule does not apply to the satisfaction of an installment obligation. For example, an installment obligation of an issuer, such as a corporation or partnership, is satisfied when the holder transfers the obligation to the issuer for an equity interest in the issuer. The proposed regulations can be found here.

IRS Denies Tax Exemption to “Action” Organization
In PLR 201505042, the IRS refused to recognize as a 501(c)(3) organization an organization created to raise awareness of how technology can be used to improve government transparency. The ruling concludes that the organization is an “action” organization because its primary activity is advocating for the adoption of a particular doctrine or theory that can become effective only through legislation. The ruling can be found here.

President Obama FY 2016 Budget Contains Old & New Provisions
On Feb. 2, President Obama released his federal budget proposals for FY 2016. The Treasury Department followed by releasing its “General Explanations of the Administration’s Fiscal Year 2016 Revenue Proposals.” The budget contains both old and new provisions. For example, the proposals would (i) increase the top capital gains and dividend tax rates to 28 percent (24.2 percent plus 3.8 percent net investment income tax) and apply the 28 percent rate for couples whose income is more than $500,000 annually; (ii) impose tax on carried interests as ordinary income, rather than capital gains; (iii) impose a 19 percent minimum tax on future foreign earnings of U.S. companies and a 14 percent deemed repatriation rate for cash currently held offshore; and (iv) modify and permanently extend the new markets tax credit. The Fiscal Year 2016 Budget of the U.S. Government can be found here, and the General Explanations of the Administration’s Fiscal Year 2016 Revenue Proposals can be found here.

IRS Releases Draft Instructions for 2015 Form 1042-S
The IRS has released draft instructions for the 2015 Form 1042-S, “Foreign Person’s U.S. Source Income Subject to Withholding.” The draft instructions can be found here.

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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