Insights & News

Tax Insights, June 29, 2016
Tracking Tax News You Need to Know

June 29, 2016
IRS Grants Extension to C Corporation to File Deemed Sale Election Upon Conversion to RIC
The Internal Revenue Service permitted, in Private Letter Ruling 201625009, the common parent of a consolidated group an extension to file a deemed sale election under Treasury Regulation Section 1.337(d)-7(c)(1) to recognize gain and loss on property it held as a C corporation prior to its conversion to a regulated investment company (RIC) where the taxpayer acted in good faith and granting relief would not prejudice the government's interests.

The corporation was formed under a state law corporation statute. The corporation later underwent an initial public offering (IPO) and elected to be a RIC under Section 851 (section references are to the Internal Revenue Code of 1986, as amended). As a result of the IPO and the RIC election, the corporation ceased to be a member of the common parent consolidated group. A deemed sale election under Treasury Regulation Section 1.337(d)-7(c), for the corporation to recognize gain and loss on the property it held as a C corporation prior to its conversion to a RIC, was required to be attached to the common parent consolidated group's return for the taxable year in which the deemed sale occurred. However, the election was not filed. Information submitted to the IRS established that the common parent reasonably relied on a qualified tax professional who failed to make or advise the common parent 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. Based on the facts and information submitted, including affidavits and representations, the IRS concluded that the common parent illustrated that it acted reasonably and in good faith and that granting relief would not prejudice the interests of the government. Accordingly, an extension of time to file the election was granted.

Treasury Commences Treaty Protocol Negotiations With Luxembourg
The Treasury Department announced that the United States and Luxembourg are negotiating a protocol to amend the Luxembourg-U.S. tax treaty, and Luxembourg has introduced a bill in parliament with the proposed text of an amendment to be included in the protocol.

IRS Issues Guidance on Penalties for Form 1041 K-1 with Incorrect Identification Number
In Program Manager Technical Advice 2016-007, the IRS has set out which penalties apply when a Form 1041, Schedule K-1 (Estate or Trust Beneficiary's Share of Income, Deductions, Credits, etc.), with an incorrect taxpayer information number (TIN) is filed with the IRS and when such a form is furnished to a beneficiary.

Sole Owner of Disregarded Entity Might Be Required to Provide EIN
Program Manager Technical Advice 2016-008 (PMTA) has concluded that the IRS has the authority to modify tax return forms and instructions under Section 6011(a) and Treasury Regulation Section 1.6011-1(a) to require the sole owner of a disregarded entity to provide the entity's employer identification number (EIN) on the owner's tax return. The PMTA also suggests potential revisions to the relevant forms and instructions in order to promote effective tax administration. However, the PMTA finds that a return filed without the additional EIN would still be a valid return for purposes of both the statute of limitations and the failure-to-file penalties.

Pennsylvania DOR Updates Notice of Taxable and Exempt Property for Sales Tax Purposes
The Pennsylvania Department of Revenue has published an updated Notice of Taxable and Exempt Property for sales tax purposes.

Delaware Updates LLC Act and LP Act
Delaware has amended the Delaware Limited Liability Company Act (the LLC Act) and the Delaware Revised Uniform Limited Partnership Act (the LP Act) to keep them current. The changes made to the LLC Act and the LP Act include provision of a method for effecting service of legal process upon a series of an LLC or an LP. If service of process is made upon the registered agent of an LLC or an LP on behalf of any such series, the process must include the name of the LLC or LP and the name of the series. The legislation also amends various provisions of the LLC Act and the LP Act requiring written consent to an action or matter, thereby permitting consent to the specified action or matter by means other than a writing. L. 2016, H372 (c. 271), effective 08/01/2016 – LLC Act, and L. 2016, H367 (c. 269), effective 08/01/2016 – LP Act.

District of Columbia Changes Withholding Requirements and Forms
The District of Columbia Office of Tax and Revenue (OTR) is making changes to its withholding filing requirements and tax returns for the 2017 filing year by more closely aligning with the federal 941 process. Taxpayers who file Form FR900M ("Employer/Payor Withholding Tax Monthly Return") will not be required to file monthly withholding tax returns; instead, they will be required to file the new FR900Q ("Quarterly Return"). However, monthly payment due dates remain unchanged. Payments are still due the 20th of the following month. In addition, the OTR is providing a new option to bulk file using FR900Q. There are no changes to the 2016 FR900A and FR900B for the 2016 filing year. An additional new feature is a stand-alone annual (nonpayroll) return, FR900NP for nonpayroll-only taxpayers, such as financial institutions making 401(k) or pension distributions. This new return is aligned with federal regulations and IRS Form 945, and can be filed online through the new tax portal, MyTax.DC. (See Press Release, Office of Tax and Revenue, 06/21/2016.)

New Jersey Tax Court Rules on Property Tax Exemption
The New Jersey Tax Court, in Savage Mills Enterprises LLC v. Borough of Little Silver, Tax Ct., Dkt. No. 008737-2015, 06/21/2016, has ruled that while a partial exemption may be granted where the lessor is the tax-exempt entity and the lessee/tenant is a for-profit lessor, there is no provision in that section that grants a partial tax exemption where the for-profit entity is the lessor and the tax-exempt entity is the lessee. N.J. Rev. Stat. Section 54:4-3.6 provides that if any portion of a building that is used for a charitable purpose is leased to profit-making organizations, the exemption is limited to the nonleased portion. There is no provision of an exemption in that section where the lessor is the for-profit entity.

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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