Insights & News

Tax Insights, November 18, 2015
Tracking Tax News You Need to Know

November 18, 2015
IRS Rules on PTP Qualifying Income
The IRS ruled in Private Letter Ruling 201545002 that income derived by a limited partnership from delivery of water and collection, treatment, and transport of flowback, produced water, and other fluids constitutes qualifying income under Section 7704(d)(1)(E) (section references are to the Internal Revenue Code of 1986, as amended). The ruling does not apply, however, to income derived by the taxpayer from delivery of water, including recycled produced water, to affiliates or third parties where the taxpayer did not also collect and clean, recycle, or otherwise dispose of the delivered water after use.

Supreme Court Declines Review of Limitations on Disclosing Donors
The Supreme Court has declined to review a decision of the Court of Appeals for the Ninth Circuit that the Code's rules limiting disclosure of the names of persons who contribute to tax-exempt organizations do not preclude a state from requiring such organizations operating within it to file reports containing those names with the state's attorney general. Center for Competitive Politics v. Harris, (CA 9 5/1/2015) 115 AFTR 2d 2015-1711, cert denied 11/09/2015. The taxpayer filed its annual California reports, including a copy of its Form 990 and a redacted version of its Schedule B omitting the names and addresses of its contributors. When California wrote the taxpayer requesting an unredacted form, the taxpayer moved to enjoin the attorney general from requiring an unredacted copy of its IRS Form 990 Schedule B as a condition of soliciting funds in California. The taxpayer argued that the attorney general's demand was preempted by Section 6104. The District Court and the Ninth Circuit found that Section 6104 is intended to regulate the IRS and not ban all means of accessing donor information.

IRS Grants Extension of Time to Elect Reduction of Stock Basis Incident to 351 Exchange
The IRS issued Private Letter Ruling 201545013 granting a partnership a 60-day extension from the date the ruling was issued to file a Section 362(e)(2)(C) election, in the manner described in Notice 2005-70, 2005-2 CB 694 or Treasury Regulation Section 1.362-4(d)(3) (if applicable) since the taxpayer acted in good faith and granting relief would not prejudice the government. The information submitted established that the taxpayer reasonably relied on a qualified tax professional who failed to make, or advise the taxpayer to make, the election, and that the request for relief was filed before the failure to timely make the election was discovered by the IRS. Section 362(e)(2)(A) generally provides that if property is transferred to a corporation as a capital contribution or in an exchange to which Section 351 applies and the aggregate adjusted basis of the transferred property would, if not for Section 362(e)(2)(A), exceed the fair market value of such property immediately after the transaction, then the transferee corporation's basis in such property is marked-to-market (and thereby written down to fair market value). Under Section 362(e)(2)(C), however, the transferor and transferee may make a joint election to reduce the transferor's basis in the stock received to its fair market value, and no reduction of the transferee's basis in the property received will be required.

Treasury Department Publishes List of Boycott Countries
The U.S. Treasury Department published a current list of countries that may require participation in, or cooperation with, an international boycott for purposes of Section 999, which denies certain tax benefits to a person who participates in or cooperates with an unsanctioned international boycott. The countries listed are Iraq, Kuwait, Lebanon, Libya, Qatar, Saudi Arabia, Syria, United Arab Emirates and Yemen.

Competent Authority Arrangement to Isle of Man-U.S. IGA Now Available
The Isle of Man and U.S. competent authorities have signed an arrangement under the two countries' intergovernmental agreement to implement FATCA.

FATCA Agreement With Angola Now Available
The FATCA agreement between Angola and the United States is now available.

IRS Releases International Practice Units on CFC Status, Form 5471 and Subpart F Income
The IRS released international practice units on: (a) how to determine whether a taxpayer is a U.S. shareholder in a controlled foreign corporation for U.S. tax purposes; (b) monetary penalties for the failure to file Form 5471, “Information Return of U.S. Persons With Respect to Certain Foreign Corporations”; and (c) Subpart F Income for U.S. Individual Shareholders.

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.

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