Insights & News

Tax Insights, June 3, 2015
Tracking Tax News You Need to Know

June 03, 2015

IRS Grants Extension for Fund to Elect RIC Status
The IRS ruled, in Private Letter Ruling 201521014, that a fund’s election to be treated as a regulated investment company under Section 851(b) (section references are to the Internal Revenue Code of 1986, as amended) and to treat dividends declared and distributed as spillback dividends will be treated as having been timely made where the fund showed good cause for granting of a reasonable extension. The fund had timely filed for an extension of time to file its federal income tax return, Form 1120-RIC, and the return was delivered timely to be signed and filed. However, due to a clerical error, the return was filed late.

IRS Rules That Ski Lift Towers are Real Property for REIT Purposes

The IRS ruled, in Private Letter Ruling 201521006, that ski lift towers, which were owned by a REIT and designed and constructed to remain permanently in place, are inherently permanent structures qualifying as real property under Section 856.

IRS Rules That Change is Change in Method of Accounting Despite Increase in Basis of Partnership Property
The IRS found, in Chief Counsel Advice 201521012, that an adjustment otherwise constituting a change in accounting method under Sections 446 and 481 constitutes a change in accounting method regardless of whether (1) Taxpayer made an election under Section 754 and (2) Taxpayer’s Section 734(b) basis adjustments would have been different had the new accounting method been used in all taxable years prior to the year of change. Taxpayer, a partnership, purchases and disposes of positions in securities and conducts most of its securities trading under “Basket Transactions” with a bank, with Taxpayer and bank treating Taxpayer’s investment as an “option” to receive a cash settlement amount from bank when the contract expires or is otherwise terminated. Taxpayer, during the period it engaged in the Basket Transactions, redeemed the interests of several withdrawing partners, with the distribution to such partners exceeding the partners’ basis in their interest in Taxpayer; as a result, the withdrawing partners recognized gain under Section 731. Because Taxpayer had an election under Section 754 in effect, Taxpayer increased its basis in its assets under Section 734(b) to account for the withdrawing partners’ Section 731 gain.

The IRS determined that the Basket Transactions lacked the requirements to be treated as options for tax purposes and determined that Taxpayer was the beneficial owner of the securities for tax purposes. The IRS challenged Taxpayer’s deferral of gains, losses, income or deductions associated with the Basket Transactions. If Taxpayer had correctly accounted for the securities under the new accounting method chosen by the IRS, it would have recognized income attributable to the securities earlier, and Taxpayer’s resulting income would have been allocated to all partners, including those whose interests were redeemed, thereby increasing their basis in their interests in Taxpayer under Section 705. These basis increases would have resulted in the redeemed partners recognizing less Section 731 gain upon redemption, and thus Taxpayer’s Section 734(b) adjustments would have been smaller. A change in accounting method under Section 446 occurred when Taxpayer no longer treated the Basket Transactions as options and as a result stopped deferring the gains, losses, income or deductions associated with those transactions.

IRS Rules on Statute of Limitations Where Taxpayer Files Incorrect Employment Tax Return
In a Legal Advice Memorandum 20152101F issued by field attorneys, the IRS provides guidance on the effect on the running of the statute of limitations for assessment where (1) an employer is required to file Form 944 but instead timely files four quarterly Forms 941; (2) an employer is required to file Form 944 but instead timely files Form 941 for the first and second quarters of the year and files nothing for the third or fourth quarters of the year; and (3) an employer is required to file quarterly Form 941 but timely files an annual Form 944 instead. The memorandum cites the Supreme Court’s decision in Germantown Trust Co., 23 AFTR 1084 (1940), and states that “even if a taxpayer files its returns on an incorrect form, the return can nevertheless start the running of the three-year period for [the] IRS to make an assessment.” The memorandum then considers whether the returns filed were valid and on what date the statute of limitations under Section 6501 began to run in the situations described.

IRS Rules Bus Fares Are Not Private Payments
The IRS issued PLR 201519015, holding that payments made by private persons that have little connection to the bond-financed property — in this case, a highway — are not private payments. Therefore, such payments do not count against the private payment limit under Section 141(b)(2). The IRS found that there was little connection between fares paid by bus riders and a bond-financed highway where the fares were unrelated to the degree to which buses would travel the bond-financed portion of the highway

Deadline for Filing FBARs — June 30th — Fast Approaching
Tuesday, June 30, 2015, is the filing due date for FinCEN Report 114, Report of Foreign Bank and Financial Accounts (sometimes referred to as an FBAR). FinCEN Report 114 is available only online through the BSA E-Filing System website. A “U.S. person” is required to file an FBAR if: (1) the U.S. person has a financial interest in, or signature authority over, at least one financial account located outside of the United States; and (2) the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.

IRS Statistics of Income Bulletin Reveals Information on Charitable Contributions
The IRS released the Spring 2015 issue of the Statistics of Income Bulletin containing details on individual income tax returns filed for certain years. The Bulletin states that individual taxpayers who itemized deductions reported almost $43 billion in noncash charitable contributions using IRS Form 8283. The largest contributions, measured by amount, consisted of (1) corporate stock, (2) clothing and (3) household items. Taxpayers age 65 or over accounted for more than a third of all noncash charitable contributions reported on Form 8283 for the year, even though they filed fewer than 16 percent of the Forms 1040 filed with a Form 8283.

U.S.-Colombia FATCA Agreement Released
The FATCA agreement between the U.S. and Colombia is now available.

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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