Insights & News

Tax Insights, July 8, 2015
Tracking Tax News You Need to Know

July 08, 2015
U.S. Tax Court Issues Decision on Investor Control Doctrine – No Tax Deferral Permitted
In Webber v. Commissioner 144 T.C. 17 (2015), the U.S. Tax Court held that, under the “investor control doctrine,” a taxpayer who established a grantor trust that purchased private placement variable life insurance policies insuring the lives of two elderly relatives was the owner of the investments in the separate accounts underlying the policies. Since the policyholder is viewed as the owner of the investments, the income from the investments is not considered to be derived under a life insurance contract. The effect of the decision is that the policyholder is taxed currently on the investment income in the year in which such income is earned (i.e., tax is not deferred). The Tax Court focused on the powers that the taxpayer retained, such as the power to direct investments, the power to vote shares and exercise other options with respect to investments, the power to extract cash from the separate accounts, and the power in other ways to derive “effective benefit” from the investments in the separate accounts. The Tax Court found that the enactment of Section 817(h) (section references are to the Internal Revenue Code of 1986, as amended), which contains diversification requirements aimed at limiting investor control, did not displace the bedrock investor control doctrine. The Tax Court found that the IRS’s public and private rulings based on this doctrine during the years following the enactment of Section 817(h) demonstrated the continuing validity of the doctrine.

IRS Releases Specifications for Certain Substitute Information Returns
The IRS released Revenue Procedure 2015-35, 2015-26 IRB 1142 containing the specifications for the private printing of red-ink substitutes for the 2015 revisions of certain information returns. The IRS will reproduce the Revenue Procedure as the next revision of IRS Publication 1179 (General Rules and Specifications for Substitute Forms 1096, 1098, 1099, 5498, and Certain Other Information Returns).

IRS Releases Updated Application for Qualified Intermediary Status
IRS has released an updated Form 14345 (Application for Qualified Intermediary, Withholding Foreign Partnership, or Withholding Foreign Trust). The form was modified to include Foreign Account Tax Compliance Act (FATCA) information.

IRS Issues Notice on Compliance With Financial Assistance Policy for Charitable Hospitals
The IRS issued Notice 2015-46 providing guidance on how charitable hospitals can comply with the requirement in Section 1.501(r)-4(b)(1)(iii)(F) of the Treasury Regulations requiring a hospital to include a provider list in its financial assistance policy. The list must include any providers (e.g., doctors) providing emergency or other medically necessary care in the hospital and specify which providers are and are not covered by the hospital’s financial assistance policy. Compliance with the requirement is necessary for charitable hospitals to maintain tax-exempt status.

NJ Tax Court Upholds Denial of Real Estate Tax Exemption to Nonprofit Hospital
In AHS Hospital Corp. d/b/a Morristown Memorial Hospital v. Town of Morristown, the New Jersey Tax Court upheld the decision of the Town of Morristown to withdraw the real property tax exemption of Morristown Memorial Hospital (a member of the Atlantic Health Care System). Morristown rejected Morristown Memorial Hospital’s claims for property tax exemptions for tax years 2006 through 2008. Although the Tax Court concluded that almost all of the hospital’s property was being used for hospital use (an exempt purpose), the Tax Court focused on whether the health care activities at the hospital were being conducted for profit. The Tax Court found that the hospital maintained relationships with a number of affiliated and unaffiliated for-profit entities and owned all the stock in several for-profit physician practices. The hospital provided loans to the practices, and the employees of the practices were employees of the hospital. Based on these facts and others, the Tax Court stated, “By entangling its activities and operations with those of for-profit entities, the Hospital allowed its property to be used for a profit. This commingling of effort and activities with for-profit entities was significant, and a substantial benefit was conferred upon for-profit entities as a result.”

Connecticut Enacts Budget Bill Containing Unitary Combined Reporting
Connecticut adopted a budget bill, H7061, enacting, in part, unitary combined reporting. The law was amended by S1502, a budget implementation bill enacted on June 29 by a special session of the Connecticut General Assembly. In addition to unitary combined reporting, the budget bill extends the 20 percent corporate surcharge and limits the net operating loss carryforward for corporations.

Indiana Announces Further Details on Tax Amnesty Program

Indiana Governor Mike Pence announced that the Indiana Department of Revenue will conduct its tax amnesty program from Sept. 15, 2015, through Nov. 16, 2015, and both individual and business taxpayers are eligible to pay past-due base tax liabilities without penalty, interest or collection fees. Recently enacted legislation, L. 2015, H1001, which we wrote about in our May 20, 2015, edition of Tax Insights, authorizes tax amnesty for existing tax liabilities, for all tax types managed by the Department of Revenue, for periods ending prior to Jan. 1, 2013.

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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