Insights & News

Tax Insights, October 7, 2015
Tracking Tax News You Need to Know

October 08, 2015

IRS Grants Extension to Elect Taxation as a REIT
The IRS issued Private Letter Ruling 201539008 granting an LLC a 90-day extension from the date of issuance of the ruling to file a Section 856(c)(1) (section references are to the Internal Revenue Code of 1986, as amended) election to be treated as a real estate investment trust (REIT) where it showed good cause for granting an extension. The LLC retained a return preparer to prepare its Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts, making the election under Section 856(c)(1) to be a REIT on its return. The return preparer also prepared a Form 7004 to extend the time for filing the Form 1120-REIT. Due to the administrative burdens associated with the volume of filings during the days immediately preceding the extension filing date, Form 7004 was brought to the return preparer’s mailroom late. Because Form 7004 was not timely filed, the deadline for filing the LLC's federal income tax return, on which the LLC's REIT election was to be made, was not extended from its original due date. Based on the facts and representations submitted, the IRS concluded that the LLC established good cause for granting a reasonable extension of time to file Form 1120-REIT and make the election under Section 856(c)(1) to be taxed as a REIT.

IRS Updates List of Automatic Exchange of Information Countries
The IRS issued Revenue Procedure 2015-50, 2015-42 IRB, which supplements the list of the countries identified in Revenue Procedure 2014-64, 2014-53 IRB 1022, under which the Treasury and IRS have determined that it is appropriate to have an automatic exchange of information relationship with respect to the information collected under Treasury Regulation Sections 1.6049-4(b)(5) and 1.6049-8. Those sections of the regulations require reporting on Forms 1042-S of bank deposit interest paid on or after Jan. 1, 2013, to nonresident alien individuals who are citizens of certain listed countries. Sixteen countries were added to the original list — Brazil, Czech Republic, Estonia, Gibraltar, Hungary, Iceland, India, Latvia, Liechtenstein, Lithuania, Luxembourg, New Zealand, Poland, Slovenia, South Africa and Sweden. The countries were added because they have completed a FATCA-related safeguards assessment. The list of countries likely will be expanded by the IRS as more foreign jurisdictions complete FATCA-related safeguards assessments.

IRS Rules LLC's Employees May Be Included in Member Organization's 403(b) Plan
The IRS issued Private Letter Ruling 201539031 holding that employees of a single-member limited liability company that is a disregarded entity under Section 7701 will be treated as employees of the LLC's single member, which is a Section 501(c)(3) organization, and thus is eligible to participate in the Section 403(b) plan maintained by the organization.

IRS Tax-Exempt and Government Entities Division Releases Areas of Focus
The IRS Tax-Exempt and Government Entities Division has released its priorities list for fiscal year 2016. The release indicates that TE/GE will focus on, in part, simplifying tax forms and improving their digital capabilities, evaluating possible improvements to the Form 1023-EZ process and targeting examinations on likely areas of noncompliance (such as tax-exempt bonds and possible investment limitation violations, Section 403(b)/457(b) plans, private inurement and excess benefit transactions, and unrelated business income tax).

IRS Issues Guidance on Employment Tax Examinations
The IRS issued a memorandum to examiners in the Small Business/Self-Employed (SB/SE) division to clarify and update their responsibilities regarding checking that returns were filed (filing checks) and the scope of all employment tax examinations.

FATCA Agreements With Montserrat and Cambodia Now Available
The Foreign Account Tax Compliance Act agreements between the United States and Montserrat and the United States and Cambodia are now available.

President Extends Internet Tax Freedom Act
On Sept. 30, 2015, President Barack Obama signed H.R. 719, the Continuing Appropriations Act, 2016, into law. The Act provides fiscal year 2016 appropriations for continuing projects and activities of the federal government and extends the Internet Tax Freedom Act through Friday, Dec. 11, 2015. ITFA, a temporary moratorium on states from taxing Internet access or placing discriminatory taxes on e-commerce, was set to expire on Oct. 1, 2015.

JCT Releases Report on President Obama's FY 2016 Budget Proposal
President Obama's fiscal 2016 budget proposal would raise $1.21 trillion in revenue over a 10-year period, the Joint Committee on Taxation said in a September report (JCS-2-15) that describes and analyzes the revenue provisions of the president's proposal.

JCT Releases Report on Federal Tax Law Issues Related to Puerto Rico
The Joint Committee on Taxation, in connection with a recent Senate Finance Committee hearing, released a report providing an overview and analysis of U.S. federal tax law relating to Puerto Rico and other U.S. territories (U.S. possessions) and, among other things, a summary of recent prominent changes in Puerto Rico tax law.

CRS Releases Report on Flawed Tax Policies Preceding Puerto Rico's Debt Crisis
The Congressional Research Service report notes that Puerto Rico's debt crisis was caused in part by "an economic structure shaped more by tax advantages than comparative advantages." The report also notes that Puerto Rico has "long relied on special provisions in the U.S. tax code … to stimulate investment."

California FTB Issues Ruling Determining Disposition of Line of Business Is an Occasional Sale
The California Franchise Tax Board held, in Cal. FTB Chief Counsel Ruling No. 2015-01, that the sale of an entire line of business qualified as an “occasional sale” for corporate franchise tax purposes, which required the selling taxpayer to exclude the resulting gross receipts from its California sales factor. The taxpayer operated two lines of business and sold one to an unrelated party while retaining the other. California Code of Regulations, title 18, section 25137(c)(1)(A) requires taxpayers to exclude from the sales factor gross receipts resulting from a transaction that is both (1) “substantial” (a 5 percent or greater decrease to the sales factor denominator would result from excluding the gross receipts) and (2) “occasional” (“outside the taxpayer’s normal course of business and occurs infrequently”). The FTB stated that the transaction was “substantial” because excluding the gross receipts decreased the taxpayer’s denominator by approximately 33 percent. The FTB also found the transaction was “occasional” because (1) the taxpayer’s disposition of an entire line of business was “an extraordinary corporate occurrence” that did not occur in the taxpayer’s regular course of business and (2) the sale was infrequent since it was the only time the taxpayer had disposed of an entire line of business.

Maryland Launches Website Relating to Refunds as a Result of Wynne Decision
Maryland's governor and its comptroller have launched a new new website to help Maryland taxpayers receive refunds as a result of the decision in Comptroller of the Treasury of Maryland v. Wynne, U.S. S. Ct., Dkt. No. 13-485, 05/18/2015 (see our May 27 edition of Tax Insights for a summary of the decision). (Press Release, Maryland Governor's Office, Sept. 28, 2015; Wynne Tax Refund, Maryland Governor's Office.) Maryland residents who filed and paid income taxes to another state in years 2011 through 2014 may be entitled to receive a tax refund against the county portion of their Maryland state income taxes. The decision does not impact Maryland residents who earned only wages or salaries in Washington, D.C., Virginia or West Virginia, because these jurisdictions have reciprocity agreements with Maryland. Although Pennsylvania has reciprocity with Maryland, if a Maryland resident paid an income or wage tax to a local jurisdiction in Pennsylvania on wages or salaries, then a refund may be considered. Taxpayers will neither be contacted nor receive a refund automatically, but must file the relevant forms in order to be considered for a refund.

Pennsylvania Clarifies Depreciation Issues
The Pennsylvania Department of Revenue issued Pennsylvania Tax Update No. 181 clarifying the differences between the federal depreciation deduction and the Pennsylvania depreciation provisions for purposes of Pennsylvania personal income tax.

Alabama Issues Reminder Regarding Sales Tax Annual Certificate of Exemption
The Alabama Department of Revenue issued a reminder that, effective Jan. 1, 2016, groups and organizations that have a statutory exemption from sales, use and lodgings taxes will be required to obtain an annual certificate of exemption (Alabama Form STE-1) from the Alabama Department of Revenue. Any company or individual who fails to obtain this certificate prior to Jan. 1, 2016, or who fails to renew a certificate prior to its expiration, will no longer be allowed to make tax-exempt purchases or rent tax-exempt accommodations.

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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