Insights & News

Tax Insights, July 29, 2015
Tracking Tax News You Need to Know

July 29, 2015
Publications
IRS Releases Proposed Regulations on Disguised Payments for Services Potentially Impacting Partnerships and Their Partners
The IRS released proposed regulations regarding when an arrangement will be treated as a disguised payment for services under Section 707(a)(2)(A) (Section references are to the Internal Revenue Code of 1986, as amended). The regulations propose, in part, a test based on Section 707(a)(2)(A)’s legislative history pursuant to which payments made under an arrangement that lacks “significant entrepreneurial risk” would be treated as disguised payments for services. If adopted, the proposed regulations would treat an arrangement as a disguised payment for services if (a) a person (service provider), either in a partner capacity or in anticipation of being a partner, performs services (directly or through his or her delegate) to or for the benefit of the partnership; (b) there is a related direct or indirect allocation and distribution to the service provider; and (c) the performance of the services and the allocation and distribution, when viewed together, are properly characterized as a transaction occurring between the partnership and a person acting other than in that person’s capacity as a partner. The proposed regulations could have an impact on certain private equity arrangements, such as management fee waivers and cashless conversions. In a management fee waiver, a private equity or hedge fund manager contractually waives his or her right to a fixed fee for managing the fund’s investments in exchange for a separate substitute profits interest in the fund and a special distribution on that interest.

JCT Summarizes Extenders Bill Released by Senate Finance Committee
The Joint Committee on Taxation released a report on July 17 (JCX-101-15) summarizing legislation to be marked up by the Senate Finance Committee that would extend for two years expiring individual, business and energy tax provisions. Among the provisions included are the extension of the treatment of certain dividends of regulated investment companies (RICs) (the proposal extends the rules exempting from gross-basis tax and from withholding of such tax the interest-related dividends and short-term capital gain dividends received by a foreign person from a RIC to dividends with respect to taxable years of a RIC beginning before Jan. 1, 2017) and the extension of RIC-qualified investment entity treatment under Foreign Investment in Real Property Tax Act (FIRPTA) through Dec. 31, 2016, for those situations in which that inclusion would otherwise have expired after Dec. 31, 2014.

IRS Amends Notices on Basket Option Contracts and Basket Contracts
We wrote to you about notices that the IRS released on basket option contracts and basket contracts in the July 15 edition of Tax Insights. The IRS has amended those notices to create a transition rule allowing more time for making reportable transaction disclosures with respect to such contracts. The amended notices can be found here: 2015-47, 2015-30 IRB and 2015-48, 2015-30 IRB.

Kansas Announces Tax Amnesty Program
The Kansas Department of Revenue announced that it will begin accepting applications on Sept. 1, 2015, for a tax amnesty program covering tax liabilities due and unpaid for tax periods ending on or before Dec. 31, 2013. The program will commence Sept. 1 and terminate on Oct. 15, 2015. The amnesty program applies to the following taxes: corporate income, individual income, fiduciary income, privilege, estate, retailers’ sales, compensating use, withholding and estimated, cigarette and tobacco, liquor drink, liquor enforcement and mineral severance. Eligible individuals or businesses able to participate in the program include those that did not file a required tax return or report, understated the tax liability on a previously filed return or have an outstanding balance.

GAO Issues Report on IRS’s Selection Process for Audits of Exempt Organizations
The Government Accountability Office (GAO) released a report on the IRS’s criteria, processes and controls for selecting exempt organizations for examination. The GAO found several control deficiencies that could potentially increase the risk of an organization being subjected to an examination for unfair reasons, such as the organization’s religious, educational, political or other views.

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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