federal tax update - ficpa

JUNE 2011 – SEPTEMBER 2012

Federal Tax Update

09/21/2012

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©Thomas Howell Ferguson P.A.

New Legislation

� Leahy-Smith America Invents Act , (P.L. 112-291).� Comprehensive patent reform bill prevents individuals or firms from being able to receive patents on tax strategies.

� 3% Withholding Repeal and Job Creation Act, (P.L. 112-56)� Repeals controversial 3% withholding requirement

on government contractor payments;

� Amends the WOTC to give employers a bigger credit;

� Extends the tax levy on “specified payments” to vendors for goods and services sold or leased to the federal government; and

� Tightens eligibility for the refundable health-related tax credit.

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©Thomas Howell Ferguson P.A. 09/21/2012

New Legislation


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� Middle Class Tax Relief and Job Creation Act of 2012, H.R. 3630

Payroll tax cut extensions through 2012.

� Surface Transportation Extension Act of 2012. P.L. 112-102

Extends through June 30, 2012, excise taxes on: (1) fuel used by certain buses, (2) certain alcohol fuels, (3) gasoline (other than aviation gasoline) and diesel fuel or kerosene, (4) certain heavy trucks and trailers, and (5) tires.

09/21/2012

PPACA Legislation - 2013

� Additional .9% hospital insurance on wages of SE income in excess of $250K for married, $125K for married filing separately, and $200K in other cases. Per new FAQ, WH applies at single, not married threshold.

� New Unearned Income Medicare Contribution Tax (UIMCT) on net investment income of 3.8% on

taxpayers with same thresholds.

� Net investment income = standard, plus gain on investment property, passive activity trade or businesses.

� Does not include a TOB sole proprietor, partnership s corp as long as no NEFSE; however, sale of partnership on s corp, gain as if FMV – basis of assets.

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Most Significant Tax Decision 2012

� Supreme Court , Patient Protection and Affordable Care Act, PL 111-148

� U.S. Constitution, Article 1, section 8 – “Power to lay and collect taxes”

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Individuals – Theft Losses

� Vincentini v. Comm., (CA 6 7/12/2011) -Taxpayer snared in fraudulent investment scheme denied theft loss and hit with penalty.

� Chief Counsel Advice 201213022 - Ponzi scheme losses are theft losses even if taxpayers invested through individuals other than the perpetrator (rule of privity).

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Individuals

� Rundlett, TC Memo 2011-229 - Losses from

timeshare rental activity denied since taxpayers didn't engage in the activity with the bona fide profit objective.

� Mark S. Gardner, TC Memo 2011-137 -Contractor held real estate as investor and realized capital gain on sale of subdivided lots.

� Chief Counsel Advice 201147001 - Income from

cancellation of certain government loans is excluded from gross income where the debt discharge is under a loan provision requiring the student to work in certain underserved areas.

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Individuals – PALs

� Rev Proc 2011-34, 2011-24 IRB� PALS – allows certain taxpayers to make late election to treat all interests

in real estate activities as a single rental real estate activity by filing amended returns.

� Raymond Vandegrift, TC Memo 2012-14� Taxpayer, employed fulltime in an unrelated business, was unable to

corroborate testimony that he devoted more than ½ his work time to real estate.

� Langille v Comm. (CA 11 11/22/2011)� Taxpayer failed to meet more than 50% of personal services or 750-hour

requirement for the real estate professional exception; real estate and law activities did not qualify as a single activity.

� Iversen, TC Memo 2012-19� Taxpayer’s services performed in the management of the ranch activity

were disregarded because of the presence of a full-time paid ranch manager who ran the day-to-day business.

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Individuals

� IR 2012-31

� IRS expands “Fresh Start” initiative.

� Six month grace period on failure to pay penalties for certain wage earners and self-employed individuals.

� Dickerson, TC Memo 2012-60

�Taxable gift of lottery ticket to family corporation where there was no enforceable contract to share lottery prize with family. (Yes, it was a Florida lottery ticket.)

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Individuals – Innocent Spouse

� Notice 2011-70, 2011-32 IRB

� IRS scraps two-year window for equitable innocent spouse relief.

� Notice 2012-8 , 2012-4 IRB

�Proposed rev proc will update criteria used in making determinations and revise factors for granting relief. Will expand how IRS will take into account abuse and financial control by the non-requesting spouse.

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Individuals - Homes

� Sophy (2012), 138 TC No. 8

� Interest limitations for acquisition and home equity indebtedness are applied on a per-residence basis, not a per-individual basis.

� Chief Counsel Advice 201201017

�Any reasonable method in allocating debt in excess of the acquisition and home equity debt limitation can be used until regs are issued.

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Individuals - Homes

� Theodore R. Rolfs and Julia A Gallagher, (CA 7 2/8/2012)

�Benefit of demotion services exceeded the value of the hours, therefore no charitable contribution deduction allowed.

� Foster, (2012) 138 TC No. 4

�Part-time use of old home after listed for sale prevented use of first-time homebuyer tax credit for the purchase of a replacement home.

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Individuals

� Preamble to Prop Reg 10/06/2011 , Prop Reg § 1.6695-2 � Require paid tax return preparers to file a due diligence checklist, Form 8867, with any federal return claiming the Earned Income Credit (EIC).

� New Form 8949 replaces Form 1040, Schedule D-1� The sale or exchange of a capital asset not reported on another form or schedule.

� Gains from involuntary conversions (other than from casualty or theft) of capital assets not held for business or profit.

� Nonbusiness bad debts.

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Individuals – TOB expenses

� PLR 201152005� Premiums paid with after-tax dollars for private supplemental

unemployment insurance are trade or business expenses deductible under Code Sec. 162.

� AOD 2011-006, 12/21/2011� Acquiescence with the Tax Court’s decision in Mayo (2011)

§ 165(d) limits deduction for wagering losses , but does not limit deduction for expenses incurred to engage in the trade or business of gambling – they are deductible under Code Sec. 162.

� Saunders, TC Memo 2012-200� No deduction for construction worker traveling to five temporary

work sites. Treated as commuting.

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Individuals

� Decrescenzo, TC Memo 2012-51

Net earnings from self-employment cannot be offset with a net operating loss carryforward.

� Todd, II v Comm. (CA 5 8/16/2012) Shareholder loan from life insurance policy was a taxable dividend.

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Individuals

� . § 32(c) – Earned Income Credit T.D. 9570, 12/19/2011, Reg. § 1.6695-2

Final regs require TRP to file a due diligence checklist, Form 8867, with any federal return claiming the Earned Income Credit; toughening of due diligence requirements for preparers

� Leah Carlebach and Uriel Fried, (2012) 139 TC No. 1 To qualify as a dependent, an individual must be a citizen or resident of the U.S. at some time during the year.

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Code Sections

§83(b) – Restricted Property

� Rev Proc 2012-29

Sample language and examples of how to make 83(b) election to recognize restricted property into income.

§41 – Alternative Simplified Research Credit

� T.D. 9528, 06/09/2011 ; Reg. § 1.41-6 , Reg. § 1.41-8 , Reg. § 1.41-9 .

Final regs issued on how to elect and calculate the alternative simplified research credit.

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Code Sections


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§162 – Trade or Business Expenses

� Preamble to Prop Reg 04/24/2012; Prop Reg §1.162-31, Prop Reg §1.262 - Reliance regs permitting certain non-away-from-home lodging expenses to be deductible by employer and tax-free working condition fringe to employee.

� Fuhrman, TC Memo 2011-236 - Taxpayer couldn't deduct management fees paid by one related entity to another.

� F.W. Services & Subsidiaries v Comm., (CA 5 1/25/2012) -Amounts in reserve to pay deductibles were not deductible as insurance premiums.

09/21/2012

Code Sections


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§162/263 – Repair RegsT.D. 9564, 12/23/2011 (§ 162, § 167, § 168,§ 263)

� Unit of property� Capitalization standards� Transaction costs� De minimis rule� Material supplies� MACRS, GAA

� Rev Proc 2012-19 Method changes for costs to maintain or improve property; and for costs to acquire or produce tangible property.� Transaction costs� De minimis rules,

materials, and supplies

� Rev Proc 2012-20MACRS, including GAAs and dispositions

09/21/2012

Code Sections

§163(a) – NA General Partnership & Subsidiaries, et al, TC Memo 2012-172

$932M interest deduction on related party advance. More characteristics of debt than equity.

§170 – Charitable Contributions

� Mohamed, TC Memo 2012-152 -Lack of proper appraisals causes denial of substantiated 18.5 M charitable deductions. Individual did own appraisal therefore denied in total. No ability to cure.

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Code Sections

§195 – Start Up Costs

� T.D. 9542, 08/16/2011; Reg. § 1.195-1, Reg. §1248-1; Reg. § 1.709-1 – Final regs on election to deduct start up expenses and organization costs.

§197 – Intangibles

� Legal Advice 20114703F- Abbreviated New Drug Applications are franchises and their cost to obtain is amortizable over 15 years.

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Code Sections

§199 – Domestic Manufacturing Deduction

� LB&I Directive - Guidance for Examiners

� Three-step process to determine who has benefits and burdens of ownership.

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Code Sections

§274 TD 9597, 07/31/2012; Reg. § 1.274-9-10

� Final regs on use of planes by personnel

Prop Reg § 1.274-2

� Proposed regs on reimbursement arrangements between three parties.

§280F – Listed Property

� Notice 2011-72, 2011-38 IRB� Cell phones primarily for noncompensatory business reasons, neither

the business nor personal use of the phone results in income to the employee, and no recordkeeping of usage is required.

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Code Sections


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§446 – Change in Accounting Methods

� Bosamia, (CA 5 10/24/2011)

Code Sec. 481 adjustment can be made for closed years.

� Rev Proc 2012-39, 2012-41 IRB –rules modified to reflect final Code Sec. 381(a) changes

§448 – (NAE) Nonaccrual-experience Method

� Rev Proc 2011-46, 2011-42 IRB

With “applicable financial statement” (AFS, see below) may compute its uncollectible amount under the NAE book safe harbor method = AFS that is attributable to current year NAE-eligible accounts receivable times 95%.

09/21/2012

Code Sections

§453 – Installment Sales

� PLR 201144005 - Terms of installment sale eased without triggering recognition of gain or loss.

§461 – Advance payments

� LB&I-04-0111-018, “Memorandum for Industry Directors” - Failure to obtain consent not fatal to certain accounting method changes for advance payments.

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Code Sections

§461 – All Events Test

� Rev Rul 2011-29, 2011-49 IRB

“Fact of the liability” prong of all events test is met for bonuses that are payable to a group of employees that cannot revert to the employer, even though the identity of any particular bonus recipient or the amount payable to that individual recipient is not known until after the end of the tax year.

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Code Sections

§461(h)(3)– Recurring Item Exception

� Rev Rul 2012-1, 2012-2 IRB

One year lease or service contract, amortized for GAAP, deducted for tax.

For recurring item exception to apply, service contract had to be either immaterial, or taxpayer had to show that deducting it an earlier year was a better matching of expense to the related income.

Change off of the recurring item election must be made in accordance with Code Sec. 446.

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Code Sections

§469(h) – Material participation

� Wilson, TC Memo 2012-101

� Uyemura, TC Memo 2012-102

� Lum, TC Memo 2012-103

Losses and credits for “micro-utility” solar water heaters systems were denied because the activity was managed and run by others, and there was no record of material participation.

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Code Sections

§482 – Cost Sharing Arrangements

� T.D. 9568, 12/16/2011; Reg § 1.482-1,-2,-4,-7,-8, and -9; Reg § 301.7701-2 - Final regs on cost sharing arrangements, changes and clarifications to 2008 temporary regs.

� T.D. 9569, 12/19/2011; Reg § 1.482-7, -7T, Prop Reg § 1.482-7 - Final and temporary regs implementing the differential income stream as a consideration for determining arm’s length results in connection with a cost sharing arrangement. Interrelationship of the discount rates and financial projections.

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Code Sections

� T.D. 9538, 07/21/2011 ; Reg. § 1.1001-4T ;

� Regs permit more tax-free modifications of derivative contracts (response to Dodd Frank).

� JCX-41-11, Present Law And Background Relating To Tax Treatment Of Business Debt

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Code Sections

§861 – Interest Expense Allocation and Apportionment

� T.D. 9571, 01/13/2012, Reg. § 1.861-9T-11T

Revises existing temporary regs for 10% greater interest in a partnership, clarifies use of FMV method, and reflects changes to the definition of an affiliated corporation.

§1060 – Asset Allocation

� Peco Foods Inc. et al., TC Memo 2012-18

Taxpayer bound by asset allocation schedule used in purchase; cost segregation study could not be utilized.

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Statute of Limitations


�Amended return showing “corrected income” will not avoid 6-year assessment period. IRS will look to original returns.

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Code Sections

§1259(a)(1) – Constructive sale of an appreciated financial position

Anschutz Company, (CA 10 12/17/2011)

Variable prepaid contract transactions that incorporated a share-lending agreement were integrated and therefore were current taxable sales and not a lending agreement under Code Sec. 1058.

Calloway v Comm, CA 1 8/23/2012 Derivium Capital contract to monetize IBM stock was constructive sale

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Statute of Limitations – Judicial Deference to Temporary Regs

Home Concrete & Supply, LLC (Sup Ct 4/25/2012)

� In a 5-4 decision, overstatement of basis isn’t an omission of gross income for purposes of 6-year limitations period.

� Courts earlier decision in Colony was substantially identical and IRS is not allowed Chevron deference as they got in Mayo of last year.

� Court also “slaps” IRS for issuing retroactive temporary regs.

� IRS may now seek law change.

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Corporations

� Frequently Asked Questions on Schedule UTP, released on July 19, 2011.

� T.D. 9510, 12/13/2010; Reg § 1.6012-2

�Final regs for uncertain tax positions.

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Corporations

� T.D. 9565 12/16/2011; Reg § 1.368-1

Final reg on continuity of interest requirement for corporation reorganizations. Adopt 2007 temp regs with minor changes. Proposed regs also issued covering the signing rule.

� T.D. 9583, 4/13/2012; Reg § 1.267(f)-1

Final regs under Code Sec. 267 and 1502 dealing with timing principles for intercompany sales or exchanges between members of a consolidated group.

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Corporations

� Prop Reg 4/13/2012 §1.312-11; Reg § 1.312-10 Property transferred from one corporation to another where no gain or loss is recognized, no allocation of the transferor’s E&P is made to the transferee unless the transfer is described under Cod Sec. 381(a).

� TD 9594, 06/19/2012; Reg §1.1502-13 – final regs modify election under which a consolidated group can avoid taking an intercompany item into account.

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Corporations

� PLR 201126002 Warrants issued to shareholder not treated as “exercised for Code Sec. 382 purposes.

� Preamble to Prop Reg 10/21/2011 ; Prop Reg § 1.1502-91 Proposed controlled group regs modify net unrealized built-in gain and loss for Code Sec. 382 purposes.

� T.D. 9534, 07/29/2011; Reg §1.381(a)-1 et alFinal regs clarify inventory accounting method carryovers in reorganizations.

� T.D. 9548, 10/19/2011; Reg §1.355-0,-1,-2Final regs provide guidance on the hot stock rule for corporate divisions.

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Corporations

� IRS releases Form 8937 to report organization actions affecting security holders’ basis

� Notice 2012-11, 2012-5 IRB

Since late release, filing requirements can be satisfied for 2011 by either posting the Form or required information on the issuer’s primary public website.

Either way, S Corps can satisfy the reporting requirement on a timely filed Schedule K-1 for each shareholder and a timely copy to all parties.

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S Corporations

� Prop Reg § 1.1366-2, -5; 6/11/2012

Proposed codification to replace “actual economic outlay” test with general federal tax principles for bona fide debt. IRS is aiming at back to back loans and their loss in Maquire.

� Maguire, TC Memo 2012-160

Distribution of accounts receivable from one S corp recontributed to second S corp increased basis in second S Corp.

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S Corporations

� PLR 201126023

Domestication of a foreign corporation was a tax-free reorganization and corporation was allowed S election.

� Allen L. Davis, et al. TC Memo 2011-286

Property transferred does not have to be as “compensation” to trigger Code Sec. 83. Brothers granted dad options in S Corp for his banking connections. Brothers took deduction, dad did not report income. IRS backed dad and lost.

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S Corporations

� Taproot Administrative Services, Inc. (CA 9 3/21/2012)

In a close decision, Roth IRA was not an eligible shareholder. Taxpayer taxed as a C Corporation.


S Corp failed to report required information on Form 5471’s. Statute extended for both corporation and majority shareholders to three years after information was provided.

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Pass-Throughs

Proposed entity-level tax on large pass-throughs to fund drop in corporate tax rate

� Assets and receipts method

� Profit-based measure

� Employment-based measure

� Composite measure

� Industry measure

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Partnerships

Preamble to Prop Reg 10/24/2011� IRS will remove de minimis partner rule for determining substantiality of allocation under 704.

� Final regs (old) A de minimis partner is any partner, including a look-through entity, that owns, directly or indirectly, less than 10% of the capital and profits of a partnership, and who is allocated less than 10% of each partnership item of income, gain, loss, deduction, and credit.

� Proposal – no de minimis.

Historic Boardwalk Hall, LLC , CA 3 08/27/2012 Investor wasn’t bona fide partner entitled to take rehabilitation tax credits

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Partnerships

§108 – Cancellation of Debt

� T.D. 9557, 11/15/2011 ; Reg § 1.108-8 , Reg § 1.721-1 , Reg § 1.704-2 - Final regs issued on partnership's debt-for-equity exchange with creditors.

§469 – Limited Partner Interest for PAL extended to LLCs

� Preamble to Prop Reg 11/28/2011 ; Prop Reg §1.469-5 - Under the new definition, more partnership interests could escape treatment as passive interests.

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Partnerships

� Rev Proc 2012-27, 2012-10 IRB

� Allows partnerships to provide K-1s electronically to partners.

� How required consent from the partners can be provided electronically.

� How partners are to be informed about changes in software.

� How partnership is to provide instructions about accessing and printing electronic statements.

� Partnership’s responsibility if the K-1 is electronically undeliverable.

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Partnerships

� Zeluck, TC Memo 2012-98

� Debt for §465(e) no longer considered genuine debt. Lack of payment history and lack of enforcement on collection. Accuracy penalty levied.

� TIFD III-E, Inc., (CA 2 1/24/2012)

� Latest decision in Castle Harbour (CH) case pertaining to debt/equity issue in a partnership. In CH-1, District court ruled for TP, CH-2, CA-2 reversed and remanded, CH-3 district court again found for TP, ruled reasonable cause. CH-4, reversed district court again and imposed penalties.

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Partnerships

� McLauchlan, TC Memo 2011-289

Attorney denied deductions for various law partnership expenses that he paid personally and not through reimbursable plan within partnership.

� Legal Advice Associate Chief Counsel 2012-002

Owner of wholly-owned disregarded entity not allowed to split interest into separate classes and allocate basis, income, loss, deductions, and credits among those classes.

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Partnerships

Carried Interest

� Tax at ordinary income rate income received by partners for performing investment management services for a partnership.

� Targets partner-managers of investment funds structured as partnerships. Managers typically receive 20% of a funds' profits (carried interest) currently taxed at capital gain rates.

� Problem: definition of investment partnerships, service interests, complexity.

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Estates and Trusts

� Preamble to TD 9593, 06/15/2012; Prop Reg §1.20-2020-1T-2T-3T et al. Temporary regs to explain portability for post 2010 pre 2013 estates.

� Estate of Paul H. Liljestrand, TC Memo 2011-259 - No bona fide sale to FLP due to lack of nontax reason for transfer.

� Marshall Nafiy

Revocable Trust (CA 9 2/15/2012) - Estate could not deduct projected state income tax.

� PLR 201124008 - Trust’s distribution of annuity contracts to beneficiaries won’t be gratuitous transfer.

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Estates and Trusts

� Notice 2011-66, 2011-35 IRB - Long-awaited detailed guidance issued on electing zero estate tax for 2010 decedents.

� Notice 2012-21, 2012-10 IRB - Extension of deadline up to 15 months to make portability election to pass decedent’s unused exclusion to the surviving spouse.

� Preamble to Prop Reg 09/06/2011 Prop Reg § 1.67-4 - More estate and trust costs would escape 2% floor under new proposed regs.

� Final Form 706 for 2011 decedents.

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Estates and Trusts

� Notice 2011-101, 2011-52 IRB

� IRS requesting comments on when a decanting between two irrevocable trusts should not be subject to income, estate and gift, or GST taxes.

� Estate of Duncan, TC Memo 2011-255

� Tax Court returns to traditional Graegin loan

principles.

� Gallagher, TC memo 2011-148

� Detail explanation of valuation of an interest in a pass-through entity, discussion of how to treat tax obligations of investors.

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Estates and Trusts

� Dickow v US (CA 1 08/19/2011) cert denied 01/09/2012 Second six-month extension for estate awaiting appraisals was denied. Refund claim filed within time of second extension held invalid.

� Rev Rul 2011-28, 2011-49 IRB 830

Non-fiduciary power to acquire insurance policy by substituting other assets will not cause the value of the policy to be includible in gross estate.

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Tax-Exempts

� Preamble to Prop Reg 4/18/2012, Prop Reg §53.4944-3

Nine new examples that illustrate investments that qualify as program-related investments of private foundations that are not subject to excise tax.

� T.D. 9581, 02/28/2012; Reg §301.6104(a)-1, Reg §301.6110-1

Final regs reflect IRS loss in 2003 Tax Analysts v. IRS ( (i.e., rulings that deny or revoke an organization’s tax-exempt status are public records.)

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Tax-Exempts


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� Florida Independent Colleges and Universities Risk Management Association, Inc. (DC DC 3/22/2012)

Corporation formed to facilitate insurance to its exempt members was denied exempt status due to its self-insuring a certain level of risk.

� Ocean Pines Association (CA 4 3/2/2012) Fourth Circuit confirms Tax Court decision that income from a beach club and rental parking lots was UBTI since they were not open to the general public.

� Rev Proc 2011-36, 2011-25 IRB

Guidance for reinstatement of tax-exempt status, including retroactive reinstatement.

09/21/2012

International


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� T.D. 9529, 06/09/2011; Reg. §1.6038-1T-2T

Temporary regs remove duplicate Form 5472 filing requirement.

� T.D. 9535, 07/13/2011; T.D. 9536, 7/14/2011; Reg §1.901-1

Final and temporary regs disallow artificially-generated foreign tax credits.

� Form 8938, Statement of Specified Foreign Financial Assts is released. Additional guidance in Q&A format released in June, 2012.

� T.D. 9567, 2/21/2012; Reg 1.6038D

Temporary regs on reporting requirements for foreign assets.

09/21/2012

International


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� T.D. 9592 06/07/2012 Prop Reg. § 1.7874.-3, 3T New corporate inversion temp regs include bright line substantial business activities test.

� T.D. 9591, 06/07/12; Reg §1.7874-2901-1

Final regs on corporate inversions.

� Form 8938, Statement of Specified Foreign Financial Assts is released.

� T.D. 9567, 2/21/2012; Reg 1.6038D

Temporary regs on reporting requirements for foreign assets.

09/21/2012

International

� T.D. 9576, 02/09/2012; Reg § 1.706-1, Reg § 1.901-2

Final regs clarifying application of legal liability where foreign law imposes tax on the income of one person but requires another person to remit the tax with guidance on foreign consolidated groups, reverse hybrids and hybrid identities.

� T.D. 9577, 02/09/2012; Reg § 1.704-1T, Reg § 1.909-1T-2-3-4-5-6.

Temporary and final regs on application of Code Sec. 909, foreign tax credit splitter rules.

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International

� Notice 2012-15, 2012-9 IRB

Notice that IRS will issue regs that apply foreign transfer provisions under 367(a) and 367(b) to Code Sec. 304 transactions (redemptions through the use of related corporations).

� Preamble to Prop Reg 02/08/2012; Prop Reg § 1.1471-1-2-3-4-5-6; § 1.1472-1; etc.

FACTA regs. Among other things, refines definition of financial accounts to focus on traditional bank, brokerage, money market accounts, and interest in investment vehicles.

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International


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IR 2012-5

� Re-opens offshore voluntary disclosure program (OVDP).

� Key differences: no set deadline to apply, highest penalty rate raised to 27.5%. IRS cautions it reserves the right to change the terms of the program at any time.

Taxpayer Advocate Directive (TAD) 2011-1, 08/16/2011

� Alleges unfair treatment of certain participants in the 2009 OVDP. Claims IRS directives were to treat all participants as tax cheats.

09/21/2012

International

� PPL Corporation & Subsidiaries (CA 3 12/22/2011)

Third circuit reverses Tax Court – U.K. windfall tax is not a creditable tax for foreign tax credit purposes.

� Rodriquez (2011) 137 TC No. 14

Code Sec. 956 amounts included in gross income (for investing E&P in U.S. property) are not qualified dividends subject to a preferential tax rate.

� FinCEN Notices

More time for employees to file FBARs (6/30/2013).

E-file FBARS delayed one year to 6/30/2013.

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International

� FACTA model agreements

� Final regs - Recapture of overall domestic losses

� Prop regs clarifying high-tax kickout and overall foreign loss recapture rules

62


Benefits

PLR 201213016

� Noncancellable rider included in an annuity contract, which would provide certain long-term care benefits will constitute insurance. Long-term care benefits will be excludable from owner’s gross income. Investment in annuity not reduced by long-term benefits.

Labor Reg 2550.408b-2(c)

� Final rules, effective 7/1/2012, on fee disclosures that must be furnished to plan fiduciaries in order for contract or arrangement to be “reasonable”. Several significant modifications to interim final rules.

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Benefits

Prop Regs 02/02/2012 :

� § 1.417(e)-1 - Allow plans to simplify the treatment of split options of an annuity and a more accelerated form.

� § 1.401(a)(9)-5 - Removes impediment for purchasing a deferred longevity annuity under a qualified defined contribution plan.

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Benefits

� Rev Rul 2012-3, 2012-8 IRB - Resolves uncertainty as to how and when spousal consent provisions apply for pre- and post-retirement survivor benefits.

� Rev Rul 2012-4, 2012-8 IRB - Guidance that lump-sum distributions from 401(k) can be rolled into defined benefit plans to receive an annuity from that plan.

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Health Care

� Notice 2011-73, 2011-40 IRB� Proposed safe harbor determines if post-2013 employer health

coverage is “affordable”. 9.5% of W-2 wages from the employer rather than 9.5% of household income as the Code provides.

� Rev Proc 2012-11, 2012-7 IRB; T.D. 9574, 02/06/2012; Reg § 1.501(c)(29)-1T� Procedures under which qualified nonprofit health insurance

issuers may apply for tax-exempt status.

� T.D. 9575, 02/09/2012, Reg § 54.9815-2715� Implementation guidance with regard to disclosures required for

summary of benefits and coverage, notice of modifications, and uniform glossary.

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Health Care

� Notice 2012-9, 2012-4 IRB

� Additional guidance for reporting on W-2 employer sponsored health coverage.

� Notice 2012-17, 2012-9 IRB

� FAQ on rules for automatic enrollment, employer shared responsibility, and the 90-day limitation on waiting period.

� Notice 2012-58 and 2012-59, 2012-41 IRB

� Interim guidance on shared responsibility rules for employers and new guidance on 90-day waiting period limit for employer health coverage.

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Payroll

� Jenkins, (Ct Fed Cl 09/15/2011) Responsible person penalty upheld against majority owner and financier of company.

� Cuda, (DC PA 10/04/2011)Trust fund penalty upheld against non-profit's director of operations.

� Medical Practice Solutions LLC, Carolyn Britton, Sole Member, (CA 1 8/24/2010) cert denied 06/06/2011Supreme Court won't review decision validating “check-the-box” regs where taxpayer claimed entity was not disregarded for payroll tax liability.

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Payroll

� Seven W. Enterprises, Inc. & Subsidiaries and Highland Supply Corporation & Subsidiaries, (2011) 136 TC No. 26 Corporations couldn't rely on employee-tax professional to avoid the accuracy-related penalty.

� SBSE 05-0711-044 –“Issuing Interim Guidance for Trust Fund Recovery Penalty Investigations for Third-Party Payer Cases ,7/1/11”

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Payroll

� Ann. 2011-42, 2011-32 IRB - IRS to scrap “high-low” simplified per-diem rates for business travel.

� “Memorandum of Understanding between the Internal Revenue Service and the U.S. Department of Labor”

IRS, DOL to share information on workers misclassified as independent contractors.

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Payroll

� Ann. 2011-64, 2011-41 IRB ; FAQs New voluntary compliance program to correct workers erroneously treated as independent contractors.

� To be eligible (a) must have consistently treated the workers as nonemployees; (b) must have filed all required Forms 1099 for the workers for the previous three years; and (c) cannot currently be under audit by IRS.

� Terms of the offer: � (A) Must pay 10% of the employment tax liability due on compensation

paid to the workers for the most recent tax year, determined under the reduced rates of Code Sec. 3509;

� (B) Will not be liable for any interest and penalties on the liability;� (C) Will not be subject to an employment tax audit for the worker

classification of the workers for prior years; and� (D) Will agree to extend the period of limitations on assessment.

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Payroll

� FAQ VCSP� Rejection of application will not automatically trigger initiation of a

federal audit.

� VCSP concerns future years only.

� Cannot participate if member of consolidated group is under audit.

� IRS won’t share information about VCSP with DOL or state agencies.

� PMTA 2011-15� When a taxpayer must know about a safe harbor for purposes of

worker classification.

� Driscoll (CA 11 2/8/2012)� In a Tax Court reversal, a parsonage allowance was limited to one

residence.

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IRS

New audit guidance for:

� Attorneys

� Consultants

� Architects

� COBRA continuation

� IC Discs

� Conservation easements

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IRS

� Chief Counsel Advice 201146017 - IRS can summons a taxpayer's original electronic data files to obtain associated meta data.

� IR 2012-62

Immediate changes to ITIN, must have passports and birth certificates

LB&I abandons Tiered Issue Process – will be replaced with specialized practice groups.

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Other Preparer Rules

� Notice 2011-80, 2011-43 IRB - Guidance on when to renew preparer tax identification numbers (PTINs), how suitability testing will be conducted, and when the continuing education requirement will begin.

� Notice 2011-92, 2011-48 IRB - PTIN requirement scrapped for enrolled retirement plan agents.

� Rev Proc 2012-12, 2012-2 IRB –

Standards to become an IRS Continuing Education accrediting organization.

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Return Preparer Program

� 740,000 individuals have registered. 60% of PTIN holders are neither attorneys, CPAs, nor enrolled agents;

� “Supervised preparer” category where returns under the supervision of an accountant, enrolled agent, or attorney;

� Clarification that being a

Registered Tax Return Preparer doesn't carry any sort of endorsement from IRS;

� Circular 230 revisions;

� Deferred fingerprinting PTIN applicants; and

� No plans to extend the competency tests beyond the Form 1040 series of returns.

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Fingerprinting

Prop Reg § 300.0 , Prop Reg § 300.12 , Prop Reg § 300.13 , Prop Reg § 300.14

� IRS to collect fingerprints in evaluating the suitability of applicants and potential participants. Includes processing the fingerprints through the FBI identification records database.

� No intent to fingerprint attorneys, CPAs, EAs, enrolled retirement plan agents, and enrolled actuaries who apply for a PTIN at this time.

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Administration

� Prop Reg § 301.6109-1, 3/13/2012 - Any person assigned an EIN must provide updated information to IRS in the manner and frequency prescribed.

� Prop Reg § 1.610-2, 2/14/2012 - Expands list of preparers eligible to obtain a PTIN to include preparers working under proper supervision and those preparing returns not covered by the competency exam for RTRPs.

� Rev Proc 2012-18, 2012-10 IRB - New guidance on ex parte communications between Appeals and other IRS functions.

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Administration

� Kawashima v Holder, Attorney General ( Ct 2/21/2012) - Conviction for willfully making and subscribing a false tax return, or aiding and assisting in the preparation of a false return, is a deportable offense under the immigration laws.

� Prop Reg § 301.6039E-1 1, 1/25/2012 - Requires most individuals applying for a U.S. passport to provide certain information with the application (name, address, TIN, and date of birth).

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Administration

� Tax Court – Notice of Proposed Amendments to Rules

Greater privacy protection for whistleblowers.

� AOD 2011-005, 12/09/2011

Nonacquiescence with Tax Court’s decision in Norris, TC Memo 2011-161. Badges of fraud are not equal, consideration should be fore taxpayer’s entire course of conduct as reflected in the record.

� Salem Financial, Inc. (Ct Fed Cl 1/18/2012)

Taxpayer waived any work product protection and tax practitioner privilege when it relied on the tax adviser’s advice as part of its defense to IRS penalties.

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Economic Substance


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� LB&I-4-0711-015, “Guidance for Examiners and Managers on the Codified Economic Substance Doctrine and Related Penalties.”

� LB&I instructs examiners on how to seek approval to apply economic substance doctrine.

� Chief Counsel Notice CC-2012-008� Coordination Procedures

for the Economic Substance Doctrine and Related Penalties

09/21/2012

Taxpayer Advocate 2011 Report toCongress IR 2012-6

� International tax compliance challenges

� Offshore voluntary disclosure program

� Underfunding of the IRS

� Automated adjustments instead of exams

� IRS’s math error authority

� Changing taxpayer demographics

� Excess collections – 4.7B

� Amend levy procedures in economic hardships

� Amend erroneous refund penalty

� Enact a 100% civil penalty in return preparer fraud

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Other

� T.D. 9550, 09/01/2011 ; Reg §301.6707A-1

Final regs explain penalty for failing to report reportable transactions.

� Legal Advice Issued by Field Attorneys 20114702F

LIFO conformity rules violated by giving financial statements using IFRS to lending bank.

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federal tax update - ficpa

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