IRS Releases Final Regulations on Certain Transfers to Partnerships with Foreign Partners
The IRS has released final Treasury regulations that provide guidance applicable to transfers of appreciated property by U.S. persons to partnerships, both domestic and foreign, with foreign partners related to the transferor. Specifically, the regulations override the general nonrecognition rule when a U.S. person transfers appreciated property to a partnership with a foreign partner related to the transferor, unless the partnership adopts the remedial allocation method and certain other requirements are satisfied. Contributions to partnerships of property with a built-in gain generally are not taxable events to partners under Section 721(a). (Section references are to the Internal Revenue Code of 1986, as amended (the Code).) However, Section 721(c) grants the IRS authority to issue Treasury regulations that provide that Section 721(a) will not apply to gain realized on the transfer of property to a partnership (domestic or foreign) if the gain, when recognized, would be includible in the gross income of a person other than a U.S. person. In 2017, the IRS published regulations related to that authority. In relationship to the 2017 regulations, the IRS received regarding the possible creation of an accidental partnership upon contribution of property. These regulations adopt the rules in the 2017 regulations with certain modifications related to the comment. Specifically, the final regulations address the (1) related party definition, (2) consistent allocation method, (3) reporting requirements and (4) technical terminations of partnerships.
IRS to Consider Relief from Potential Double Taxation Due to Section 965 Repatriation
The IRS, in a news release, announced that it is aware of certain situations that may subject a corporation to double taxation due to the application of the Section 965 repatriation tax. Section 965 was amended by the 2017 Tax Cuts and Jobs Act (TCJA) and generally requires certain U.S. shareholders of certain specified foreign corporations that have untaxed foreign earnings and profits to pay a tax as if those earnings and profits have been repatriated to the U.S. For example, the IRS has determined that where a corporation paid an unusual dividend for business reasons, and not because of the TCJA, the same earnings and profits may be taxed both as a dividend and under section 965. The IRS has asked that taxpayers that have fact patterns in which they may be subject to double taxation contact the IRS.
IRS Releases Guidance on UBIT Claim for Refund
The IRS has released guidance that states that tax-exempt organizations that paid a tax on transportation benefits can seek refunds by filing amended unrelated business income tax (UBIT) returns. Recent legislation retroactively repealed the “parking tax” that was added to the Code as part of the TCJA. The parking tax was imposed at a rate of 21% on parking and transit benefits made available to an exempt organization’s employees regardless of whether the employees paid for those benefits themselves through pretax salary reduction or if local law required an employer to provide the benefits. The IRS permits taxpayers to claim a refund or credit of the UBIT reported on Form 990-T for 2017 or 2018 under Section 512(a)(7) by filing an amended Form 990-T and following other additional instructions included in the announcement.
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