Insights & News

Tax Insights, March 7, 2018
IRS Blocks Carried Interest Planning Opportunity

March 07, 2018
IRS Announced New Carried Interest Rule Cannot Be Avoided by Using S Corporation
The IRS announced in Notice 2018-18, 2018-12 IRB and an accompanying News Release (IR 2018-37) that taxpayers cannot avoid the rule contained in the Tax Cuts and Jobs Act (TCJA) that a “carried interest” must be held for a minimum of three years in order to obtain long-term capital gain by using an S corporation to hold the interest.

LB&I Issues Memo on Delinquent Forms 1120-F
The IRS’s Large Business and International Division (LB&I) has issued guidelines to its employees on handling delinquent Forms 1120-F and waiver requests under Treasury Regulation Section 1.882-4(a)(3)(ii) of foreign corporations engaged in a U.S. trade or business. The regulation provides the IRS with authority to waive the applicable filing deadlines, satisfaction of which is generally required for a foreign corporation to claim deductions and credits, if the corporation shows that it acted reasonably and in good faith in failing to file a U.S. return.

IRS Finds Taxes Paid by Misclassified Workers Reduces Employer’s Liability
In emailed advice, the IRS concluded that self-employment taxes incorrectly paid by workers misclassified as nonemployees may offset the employer’s liability for the employee portion of FICA when Section 3509 of the Internal Revenue Code of 1986, as amended, does not apply but does not reduce the employer’s liability for penalties or additions to tax.

IRS Extends Certain QI/WP/WT Certification Due Dates
The IRS announced that the Qualified Intermediary (QI), Withholding Foreign Partnership (WP), and Withholding Foreign Trust (WT) application and account management system will be open to accept QI/WP/WT certifications beginning in early April. The IRS also indicated that certain entities with 2018 deadlines have extra time to provide their certifications.

FATCA FAQ Addresses Consolidated Compliance Program
The IRS has updated a list of FAQs on FATCA requirements to confirm that a group of qualified intermediaries under common ownership or a group of withholding foreign partnerships with a common sponsoring entity may reduce their compliance burden by using a consolidated compliance program at the IRS’s discretion.

IRS Releases Updated Withholding Calculator and New Form W-4
The IRS has released an updated withholding calculator on its website and a new version of Form W-4 to help taxpayers check their 2018 withholding in light of changes made by the TCJA. The IRS also issued a series of frequently asked questions on the withholding calculator.

IRS Releases Practice Unit on Business Unit’s Functional Currency
The IRS released an international practice unit describing the steps for making a determination regarding a qualified business unit’s functional currency.

CRS Updates Overview of Tax-Exempt Bonds
The Congressional Research Service updated a report on tax-exempt bonds to reflect various updated estimates and the enactment of the TCJA, which repeals the authority to issue tax credit bonds and advanced refunding bonds.

AICPA Sends Suggested TCJA Technical Corrections to Congress
On Feb. 22, the American Institute of Certified Public Accountants sent a letter to the chairmen and ranking members of the Senate Finance Committee and the House Ways and Means Committee suggesting technical corrections to the TCJA.

NYSBA Tax Section Submits Report on Donor-Advised Funds
The New York State Bar Association Tax Section submitted a report in response to a request for comments on various issues concerning donor-advised funds. The report makes recommendations based on the view that private foundations and donor-advised funds should be subject to consistent rules in similar situations.

NJ Issues Voluntary Disclosure Agreement Guidelines
The Division of Taxation (Division) published guidelines with respect to voluntary disclosure agreements (VDAs) for gross income tax purposes. Eligible applicants for VDAs include New Jersey residents and New Jersey nonresidents. Ineligible applicants include any taxpayer (1) currently under criminal investigation; (2) contacted by the Division regarding delinquencies or deficiencies; or (3) amending a previously filed individual return. To participate in the VDA process, the taxpayer must request a VDA in writing and state both the tax years involved and the reason for not filing the pertinent tax returns. The Division will review the request and make a determination on whether a VDA can be offered. If a VDA is appropriate, the Division will send the taxpayer a letter of confirmation. If the request has been made anonymously, the taxpayer must disclose his or her name, address and Social Security number once the confirmation letter is received. The Division will then draft a VDA and send it to the taxpayer for his or her signature. 

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 © 2018 Stradley Ronon Stevens & Young, LLP. All rights reserved.

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