Insights & News

Tax Insights, September 2, 2015
Tracking Tax News You Need to Know

September 02, 2015
IRS Clarifies When Outside Basis Is Partnership Item
In emailed advice, the IRS advised that outside basis is a partnership item when a partnership makes a Section 754 election (section references are to the Internal Revenue Code of 1986, as amended) because the partnership itself needs to determine its partners’ outside bases to redetermine the partnership’s own inside basis for the “partnership’s taxable year.”

Music Ministry Loses Exemption
In Private Letter Ruling 201534014, the IRS revoked the tax-exempt status of a Christian music ministry after finding that the organization had paid the personal expenses of its president, which constituted private inurement, a prohibited act under Section 501(c)(3).

Child Care Provider Loses Exemption
In Private Letter Ruling 201534016, the IRS revoked the tax-exempt status of an organization established to provide child care to low-income families after finding that the organization was no longer providing such care. Rather, the organization opened a resale store offering upscale home furnishings to support its mission and goals.

Only Member-Managers of LLC Qualify to Be Tax Matters Partner
In emailed advice, the IRS determined that only an individual who is a member-manager of a limited liability company under Treasury Regulation Section 301.6231(a)(7)-2 is eligible to be the tax matters partner, and unless the nonmember-manager was given authority to sign a statute extension by the tax matters partner, such member may not sign a statute extension to assess other partners.

IRS Releases Several International Practice Units
The IRS on Aug. 21 made available several of its international practice units, including on payee documentation requirements for treaty benefits, on effectively connected income and on the exclusion of a short-term loan held by a controlled foreign corporation from the definition of U.S. property.

IRS Releases Equity-Based Compensation Audit Techniques Guide
The IRS has released an audit techniques guide for examining cases involving “equity-based compensation.” The term equity-based compensation includes any compensation paid to an employee, director or independent contractor that is based on the value of specified stock (generally, the stock of the employer, which may be a corporation or a partnership). The guide provides examples of equity-based compensation, including stock transfers, stock options, stock warrants, restricted stock, restricted stock units, phantom stock plans, stock appreciation rights and other awards whose value is based on the value of specified stock.

IRS Releases Publication on REMICs
The IRS has released Publication 938, Real Estate Mortgage Investment Conduits (REMICs) Reporting Information (And Other Collateralized Debt Obligations (CDOs)), which provides directories relating to REMICs and CDOs that are updated quarterly based on information submitted to the IRS during that quarter.

Proposed Regulations Amend Domestic Production Activities Deduction Rules
The IRS has published proposed regulations (REG-136459-09) on the domestic production activities deduction to provide guidance to taxpayers on amendments made to Section 199 by the Energy Improvement and Extension Act of 2008 and the Tax Extenders and Alternative Minimum Tax Relief Act of 2008, involving oil-related qualified production activities income and qualified films, and the American Taxpayer Relief Act of 2012, involving activities in Puerto Rico. The proposed regulations also provide guidance on determining domestic production gross receipts; the terms manufactured, produced, grown or extracted; contract manufacturing; hedging transactions; construction activities; allocating cost of goods sold; and agricultural and horticultural cooperatives. The Treasury Department and the IRS also issued final and temporary regulations (TD 9731) relating to the allocation of W-2 wages for purposes of the W-2 wage limitation on the amount of a taxpayer’s deduction related to domestic production activities. Specifically, the temporary regulations provide guidance on the allocation of W-2 wages paid by two or more taxpayers that are employers of the same employees during a calendar year, and the determination of W-2 wages if the taxpayer has a short taxable year.

IRS Publishes Proposed Regulations on Bona Fide Residency in U.S. Territories
The IRS has published proposed regulations (REG-109813-11) that would amend the regulations for determining whether an individual is a bona fide resident of a U.S. territory. Under the proposed amendment, an individual would be considered to be present in the relevant U.S. territory for up to 30 days during which the individual is outside of both the United States and the relevant U.S. territory.

IRS Publishes Proposed Regulations on Reportable Transaction Penalty
The IRS has published proposed regulations (REG-103033-11) on the amount of the penalty under Section 6707A for failure to include on a return or statement any information required to be disclosed under Section 6011 regarding a reportable transaction. Under Section 6707A(b)(1), subject to certain minimum and maximum amounts, “the amount of the penalty under subsection (a) with respect to any reportable transaction shall be 75 percent of the decrease in tax shown on the return as a result of such transaction (or which would have resulted from such transaction if such transaction were respected for Federal tax purposes).” The proposed regulations define this decrease in tax generally as the difference between the amount of tax reported on the return as filed and the amount of tax that would be reported on a hypothetical return where the taxpayer did not participate in the reportable transaction. Additionally, the proposed regulations provide that the amount of the penalty will be determined by taking into account the aggregate decrease in tax shown on all of the returns for which disclosure was not provided. Accordingly, under the proposed regulations, the decrease in tax will be determined separately for each year of participation for which only a single disclosure statement was required, and the amount of the penalty will be 75 percent of the aggregate decrease in tax in all years for which disclosure was required, subject to the minimum and maximum penalty amount limitations.

FATCA FAQ Updated to Clarify Registration Requirement
The IRS has updated a list of frequently asked questions on Foreign Account Tax Compliance Act requirements to clarify that unless a specified exception applies, a branch must register as a branch of its owner and not as a separate entity, and to instruct branches registered as separate entities on how to correct their registration.

IRS Submits FATCA Forms for OMB Review
The IRS has submitted for Office of Management and Budget review, and has requested comments on, Form 8957, “Foreign Account Tax Compliance Act (FATCA) Registration”; Form 8966, “FATCA Report”; Form 8966-C, “Cover Sheet for Form 8966 Paper Submissions”; and related Forms 8809 and 8508. Comments are due by Sept. 24.

Information on Incorrect Error Messages Added to FATCA Notifications FAQ
The IRS has updated a list of frequently asked questions on FATCA report notifications that may be sent after files have been processed through the international compliance management model system, adding questions on incorrect messages regarding field-level errors that were sent in some cases due to a system defect.

Grassley Releases Q&As With DOJ Nominee on Church Exemptions
Senate Judiciary Committee Chair Chuck Grassley, R-Iowa, has released questions for the record with Cono Namorato, nominee for assistant attorney general, Justice Department Tax Division, which include questions on how he would reduce the risk of tax fraud, enforce laws governing religiously affiliated Section 501(c)(3) organizations, and enforce provisions under Circular 230.

Maryland Comptroller Releases Summer 2015 Newsletter Highlighting Tax Amnesty Program
The Maryland comptroller has released its summer 2015 revenue newsletter highlighting Maryland’s tax amnesty program (we wrote about the program in our April 22, edition of Tax Insights), 2015 tax changes, tax-free week and rebates.

District of Columbia Adopts List of Tax Havens
The District of Columbia has adopted a budget support bill that includes a list of tax haven countries that must be accounted for when companies file combined reports.

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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