Portfolios Will Not Be Treated as Publicly Traded Partnerships
In Private Letter Ruling 201514003 (available here), the IRS ruled that segregated asset portfolios will be classified as partnerships for federal tax purposes if each portfolio has at least two members and files Form 8832, Entity Classification Election. Further, each portfolio will not be treated as a publicly traded partnership. The asset portfolios were regulated investment companies (RICs) under Section 851 (section references are to the Internal Revenue Code of 1986, as amended) whose shares are sold to domestic life insurance companies. The portfolios converted from corporations taxed as RICs for federal income tax purposes to portfolios taxed as partnerships. Such a change in the tax status of a portfolio could have the effect of increasing the amounts of the dividends-received deduction claimed by the life insurance company sponsoring the investment entity.
Federal Circuit Holds That Policyholder Dividends Are Deductible in Year the Dividends Are Announced
In Massachusetts Mutual Life Insurance Co. v. United States, No. 2014-5019 (available here), the U.S. Court of Appeals for the Federal Circuit held that policyholder dividends were fixed in the year the dividends were announced, that the dividends in question are premium adjustments and that premium adjustments are rebates, thereby satisfying the recurring item exception to the requirement that payment occur before a deduction may be taken. The Federal Circuit ultimately disagreed with the government’s arguments because, among other reasons, (1) the liability to pay the dividends at issue is contingent on other events, such as a policyholder’s decision to maintain his or her policy through the policy’s anniversary date, in which case the liability has not been established in the year the dividends were determined; therefore, since a liability must be fixed before it can be deducted, MassMutual could not deduct its obligations until the following year, and (2) even if the liability were fixed, the payments still could not have been deducted until the year they were actually paid because the dividends did not qualify as rebates or refunds, which would meet the recurring item exception to the requirement that economic performance or payment occur before a deduction may be taken.
Spring Cleaning of Payroll Records
The Spring 2015 issue of the SSA/IRS Reporter (available here) offers some advice for employers to follow in cleaning up their old payroll records, suggesting a four-year retention rule.
OECD Releases Discussion Draft on Strengthening CFC Rules
The OECD released a discussion draft (available here) on strengthening controlled foreign corporation (CFC) rules, under action item 3 of the base erosion and profit-shifting project. The discussion draft considers all the constituent elements of CFC rules and breaks them down into the “building blocks” that are necessary for effective CFC rules, which include definition of a CFC, threshold requirements, definition of control, definition of CFC income, rules for computing income, rules for attributing income, and rules to prevent or eliminate double taxation.
IRS Provides Guidance on Who Is Authorized to Sign a Power of Attorney for a Partnership or LLC
In legal advice issued by Associate Chief Counsel, the IRS has provided guidance on who is authorized to sign a power of attorney appointing a representative for a partnership or limited liability company with respect to various situations. See AM 2015-004 available here.
More Information Added to FATCA Systems FAQ
The IRS has updated a list of frequently asked questions on the international data exchange services system and on the international compliance management model system. The FAQs are available here.
IRS Reissues Publication on FATCA Notification Schemas
The IRS has released Publication 5216 (Apr. 2015), Foreign Account Tax Compliance Act Notification XML Schema v1.4 (available here), providing a general description of the notification schemas for FATCA reports.