Insights & News

Tax Insights, June 1, 2016
Tracking Tax News You Need to Know

June 01, 2016
Publications
JCT Releases Report on Debt and Equity
The Joint Committee on Taxation (JCT) released a report titled “Debt and Equity: Corporate Integration Considerations.” The report provides an overview of the Federal income tax rules relating to debt and equity and some of the tax incentives each provides.

NY State Bar Association Issues Report on NPC Regs
The New York State Bar Association Tax Section has submitted a report on temporary and proposed regulations (T.D. 9719, REG-102656-15) on notional principal contracts (NPCs) with nonperiodic payments, warning that the regulations will be difficult to implement and will impose significant withholding and reporting burdens on NPC counterparties. Under the regulations, an NPC with one or more nonperiodic payments is required, with some exceptions, to bifurcate the contract into a loan component and an on-market, level payment swap.

IRS Releases Report on TY 2013 Corporate Tax Returns
The IRS has released its report on corporate income tax returns for TY 2013. The report shows, in part, the growth of electronic filing, the high percentage of corporations using a calendar year, the continuing strength of passthroughs, and the handful of large corporations (those with more than $2.5 billion in assets) that contribute the bulk of total corporate income tax.

Grassley Announces Results of Inquiry Into Nonprofit Hospital
Sen. Chuck Grassley (R-Iowa) released the results of his 16-month-long inquiry into a Missouri non-profit hospital exempt from federal income tax as a 501(c)(3) organization for aggressively suing low-income patients. As a result of Sen. Grassley’s inquiry, Mosaic Life-Care approved debt forgiveness for 5,070 patients totaling $16.9 million.

Hawaii Publishes Information on Voluntary Disclosure Program
The Hawaii Department of Taxation has published a Tax Information Release (Hawaii Tax Information Release No. 2016-02, 05/25/2016) to provide information about, and establish procedures for, the voluntary disclosure process. The Department maintains a voluntary disclosure process as an informal practice allowing taxpayers to voluntarily disclose any liability for all Hawaii taxes. If a taxpayer voluntarily reveals any tax liabilities to the Department, the taxpayer can avoid criminal tax investigation, a civil audit, assessment, and collection. Additionally, the Department may waive penalties and some interest. The release addresses what constitutes a voluntary disclosure, eligibility for the voluntary disclosure process, the look-back period, filing requirements, penalties and interest, applicable tax types, how to initiate the voluntary disclosure process, and who taxpayers should contact to make a voluntary disclosure.

New York Releases Additional Franchise Tax FAQ
The NY Department of Taxation and Finance has added new information to its “Corporate Tax Reform FAQs” Web page. The new item informs Article 9-A filers that the Department will not impose the underpayment of estimated tax penalty for the tax periods beginning on or after January 1, 2015 and before January 1, 2016. Any underpayment penalty paid during this period will be treated as an overpayment of tax.

Pennsylvania Commonwealth Court Rules Construction Contractor Subject to Sales Tax
The Pennsylvania Commonwealth Court ruled in Strongstown B&K Enterprises, Inc. v. Commw., Pa. Commw. Ct. Dkt. No. 400 F.R. 2013, 05/20/2016 (opinion not reported), that a construction contractor that purchased fabricated aluminum road signs, posts, and related hardware (road signs) and installed them along roads and the Pennsylvania Turnpike pursuant to contracts with PennDot and various Pennsylvania municipalities, is not entitled to an exemption from use tax. Under 72 Pa. Stat. Ann. Section 7202(a)(17) a construction contractor is liable for the payment of use tax on tangible personal property and services used pursuant to a construction contract regardless of whether the services or tangible personal property are transferred, unless an exemption applies. The court analyzed the applicability of the exemption for building machinery and equipment, but found that road signs are not specifically listed in the definition of building machinery and equipment, and do not appear to fall within the five general types of equipment listed. The court also considered whether the signs constitute a control system for traffic and parking lot and building access under 72 Pa. Stat. Ann. Section 7201(pp)(6). However, there was no evidence that the signs work together, are in a network either with each other or with other traffic devices, or, are electrically networked with other traffic devices to control traffic. The court rejected the taxpayer’s argument that the signs were exempt as purchases for resale because the taxpayer was not a vendor but a construction contractor, and exclusions for construction contractors are currently limited to building machinery and equipment.

Pennsylvania Amends Law Relating to Education Tax Credits
Pennsylvania has amended provisions related to educational improvement and opportunity scholarship tax credits to provide that tax credits awarded to a business firm making a contribution to a scholarship organization, prekindergarten scholarship organization, opportunity scholarship organization or educational improvement organization in fiscal year 2015-2016 may be used in the taxable year in which the business firm submitted a completed application, or in the taxable year in which the contribution was made (as determined by the business firm) (L. 2016, H1589 (Act 25), effective 04/25/2016).

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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