Insights & News

Tax Insights, March 9, 2016
Tracking Tax News You Need to Know

March 10, 2016

Liquidation Sale of Assets Will Not Be Prohibited REIT Transaction
In Private Letter Ruling 201609004, the IRS ruled that the proposed sale of assets by a taxpayer, a real estate investment trust (REIT), pursuant to a plan of liquidation will not constitute prohibited transactions under Section 857(b)(6)(B) (section references are to the Internal Revenue Code of 1986, as amended). Section 857(b)(6)(A) imposes a 100 percent tax on a REIT’s net income from prohibited transactions. The liquidation was to facilitate the winding down and dissolution of the REIT’s controlling shareholder.

IRS Not Required to Make Separate Transfer Pricing Adjustments
In Guidant LLC et al. v. Commissioner, 146 T.C. No. 5, the Tax Court ruled that neither Section 482 nor the regulations thereunder require that the IRS, when exercising its authority under Section 482, always determine the true separate taxable income of each controlled taxpayer in a consolidated group contemporaneously with the making of the resulting adjustments. Additionally, Section 482 and the regulations thereunder allow the IRS, when exercising its authority under Section 482, to aggregate one or more related transactions instead of making specific adjustments with respect to each type of transaction. The taxpayers, a group of U.S. corporations which filed consolidated federal income tax returns, asserted that the IRS’ adjustments were arbitrary, capricious and unreasonable as a matter of law when they determined their true consolidated taxable income (CTI) by posting all of the adjustments to the separate taxable income of their parent (which increased pro tanto their CTI) and without making any specific adjustment to any subsidiary’s separate taxable income. Taxpayers also argued that the IRS’ Section 482 adjustments were arbitrary, capricious and unreasonable because the IRS did not make separate adjustments for each transfer of tangible property, transfer of intangible property and provision of service.

Foundation’s Asset Transfers Not Self-Dealing
In Private Letter Ruling 201609001, a foundation recognized as an organization described in Section 501(c)(3) and classified as a private foundation under Section 509 requested nine rulings in connection with its proposed transfer of 40 percent of its assets to two new private foundations to be governed and operated by one of the foundation’s founder’s children and certain of each child’s family members. Among other rulings, the IRS ruled that the proposed transfer of the foundation’s assets to the new private foundations will qualify as transfers of assets described in Section 507(b)(2) (transfer of assets of any private foundation to another private foundation pursuant to any liquidation, merger, redemption, recapitalization or other adjustment, organization or reorganization; the transferee foundation is not treated as a newly created organization) and will not be described in Section 507(a) (relating to termination of private foundation status). Additionally, the transfer will be in furtherance of the foundation’s Section 501(c)(3) purposes and will not give rise to gross investment income. Further, the foundation will not be deemed to have engaged in any acts of self-dealing under Section 4941 by effectuating the proposed transfers of assets and the contemplated transaction, including the formation of the newly created private foundations and the payment by the foundation of reasonable expenses necessary to effect such transactions.

Memo Updates Procedures on Exempt Organization Revocations After PATH Act
The IRS released a memorandum to provide revised procedures to employees resulting from the enactment of the Protecting Americans from Tax Hikes Act of 2015 (PATH Act), P.L. 114-113, Section 406 of the PATH Act expands declaratory judgment rights under Section 7428 to all Section 501(c) organizations regardless of paragraph (including, for example, social welfare organizations, trade associations, title holding companies, etc.), and to Section 501(d) organizations (certain religious and apostolic organizations). The memo notes that all revocations of Sections 501(c) or 501(d) organizations will follow the same procedures and processes as those previously used for Section 501(c)(3) organizations. As a result of these expanded rights, modifications of tax-exempt status (such as modifying a recognized Section 501(c)(4) exemption to a Section 501(c)(7)) are no longer applicable. Rather, the IRS will revoke (or treat as a revocation for declaratory judgment purposes) any organization that no longer qualifies under the section for which tax exemption was granted or self-declared.

Colombia-U.S. FATCA IGA Competent Authority Plan Available
The Colombian and U.S. competent authorities have signed an arrangement under the two nations’ 2015 intergovernmental agreement to implement the information reporting and withholding tax provisions of the Foreign Account Tax Compliance Act.

IRS Removes Some Restrictions on Income From Cuba
The IRS has issued Rev. Rul. 2016-8, 2016-11 IRB 1, removing Cuba from the list of countries subject to special restrictions under Sections 901(j) and 952(a)(5), including the denial of a foreign tax credit for income taxes paid to Cuba and disallowance of the deferral on income earned in Cuba through a controlled foreign corporation.

FinCEN Proposes Revising FBAR Rules for Financial Professionals
FinCEN is proposing to revise the regulations implementing the Bank Secrecy Act regarding Reports of Foreign Bank and Financial Accounts (“FBAR”). The proposed rule would expand and clarify the exemptions for certain U.S. persons with signature or other authority over foreign financial accounts. In addition, the proposed rule would remove the special rules permitting limited account information to be reported when a U.S. person has financial interest in or signature authority over 25 or more foreign financial accounts. The proposed rule would also make several other changes, including a change to the filing date for FBAR reports due in 2017 and a revision to reflect electronic filing of FBARs.

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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