Insights & News

Tax Insights, February 17, 2016
Tracking Tax News You Need to Know

February 17, 2016
Non-Guarantor Partner Is Not Allocated Basis for Partnership Debt
In a legal memorandum, the IRS concluded that if a partner guarantees an obligation of the partnership and the guarantee is sufficient to cause the guaranteeing partner to bear the economic risk of loss for that obligation within the meaning of Treasury Regulation Section 1.752-2(b)(1), the guaranteed debt is properly treated as recourse financing for purposes of applying the basis allocation rules of Section 752 (section references are to the Internal Revenue Code of 1986, as amended). Further, when an individual partner guarantees a partnership obligation, the amount of the guaranteed debt no longer meets the definition of “qualified nonrecourse financing” under Section 465(b)(6)(B), and the amount of the guaranteed debt will no longer be includible in the at-risk amount of the other non-guaranteeing partners, if the guarantee is bona fide and enforceable by creditors of the partnership under local law. To the extent the guaranteeing partner has the right under the partnership operating agreement to call for the non-guaranteeing partners to make capital contributions, this right generally will not be sufficient to make the non-guaranteeing partners personally liable with respect to the guaranteed obligation for the purposes of Section 752 and 465.

Nonprofit’s Income Remains Excludable Following Bond Payment
In Private Letter Ruling 201606004, the IRS ruled that a component payment to the holders of a bond that replaced a defaulted bond in an amount no more than originally owed to the holders of the defaulted bond does not benefit private interests more than incidentally for purposes of determining whether the income of the organization otherwise satisfies the requirements for the exclusion under Section 115(1) (income derived from an essential governmental function and all income accrues to a state or a political subdivision of state).

Section 83(b) Election Valid Despite Failure to Attach Copy to Return
In Private Letter Ruling 201606015, the IRS ruled that a taxpayer fulfilled the requirements for a valid election under Section 83(b) when the statement was mailed to the Internal Revenue office, and that taxpayer’s failure to submit a copy of the statement with his tax return did not affect the validity of the election.

Updated 2015-2016 Priority Guidance Plan Adds 10 Projects
The IRS and Treasury have released the second quarter update to the 2015-2016 priority guidance plan, reflecting 10 additional guidance projects, a revision to one project, the suspension of one project and the withdrawal of a project.

President Obama Unveils 2017 Budget
On Feb. 9, President Obama unveiled the 2017 fiscal budget. The 2017 budget includes numerous proposals for tax reform, including a tax on foreign income of U.S. multinationals, a community college partnership tax credit, a crude oil tax and amendments to the 3.8 percent Medicare tax.

IRS Releases International Practice Units
The IRS made available its international practice units on the following topics:

Costa Rica-U.S. FATCA Competent Authority Arrangement Available
The Costa Rican and U.S. competent authorities have signed an arrangement under the two jurisdictions’ 2013 intergovernmental agreement to implement the information reporting and withholding tax provisions of the Foreign Account Tax Compliance Act.

IRS Releases Publication on Tax-Exempt Private Activity Bonds
The IRS has released Publication 4078 (rev. Jan. 2016), Tax-Exempt Private Activity Bonds, which provides to state and local governments that issue tax-exempt bonds and to borrowers or other users of bond proceeds an overview of the general federal tax law rules that apply to municipal financing arrangements commonly known as “qualified private activity bonds.”

IRS Releases Publication on Exempt Bonds for Charities
The IRS has released Publication 4077 (rev. Jan. 2016), Tax-Exempt Bonds for 501(c)(3) Charitable Organizations, which provides state and local governments that issue tax-exempt bonds and 501(c)(3) tax-exempt charitable organizations that use bond proceeds an overview of the special federal tax law rules that apply to municipal financing arrangements commonly known as “qualified 501(c)(3) bonds” under Section 145.

Data Format and Encryption Info Added to FATCA Systems FAQ
The IRS has released a revised list of frequently asked questions on the systems that are used for Foreign Account Tax Compliance Act data, adding a data format question regarding a “Substantial Owner” and providing an update on encryption standards that are being used for FATCA data. Additionally, the IRS will not release a new version of the FATCA Reporting (Form 8966) Schema for 2015.

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 © 2016 Stradley Ronon Stevens & Young, LLP. All rights reserved.

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