Senate Finance Committee Democrats Release Report on Tax Avoidance Strategies
The Senate Finance Committee Democratic staff released a report, found here, on March 3, 2015, outlining tax avoidance strategies using financial products. The report estimates that these strategies will cost billions of dollars in lost tax revenue over the next decade and provides proposed solutions to eliminate them. The report identifies six major tax avoidance strategies as follows: (1) using collars to avoid paying capital gains taxes; (2) using wash sales to time the recognition of capital income; (3) using derivatives to convert ordinary income to capital gains or convert capital losses to ordinary losses; (4) using derivatives to avoid constructive ownership rules for partnership interests; (5) using basket options to convert short-term gains into long-term gains; and (6) avoiding income taxes by deferring compensation.
U.S. Supreme Court Issues Decision Regarding Tax Injunction Act (TIA)
In Direct Marketing Assn. v. Brohl, U.S. S. Ct., 13-1032 (Mar. 3, 2015) (the decision can be found here), the U.S. Supreme Court reversed a Tenth Circuit Court of Appeals decision by holding that the TIA does not bar an out-of-state retailer's suit to contest the enforcement of a Colorado law that imposes notice and reporting obligations on retailers not collecting sales or use tax on online purchases. Under the TIA, federal district courts "shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law." Colorado legislation requires retailers that do not collect sales or use tax to notify any Colorado customer of the state's notice and reporting requirements.
IRS Permits Professional Corporation and Non-shareholder Management Company to File Consolidated Tax Return
The IRS issued PLR 201451009, found here, permitting the filing of a consolidated federal income tax return by a practice management company and two "captive" professional corporations (PCs). The management company described in the ruling does not own any shares in the PCs. Compliance with the "corporate practice of medicine" (CPOM) doctrine, in place in a number of states, necessitates the use of captive PCs. Under the CPOM doctrine a business corporation cannot practice medicine or employ a physician to provide medical services. A PC, formed by the business corporation, provides the professional services while the business corporation receives a management fee from the PC in exchange for the provision of management and other administrative services for the PC. The ability of a management company and a PC to file a consolidated federal income tax return potentially is significant, in part, because losses of one member of the consolidated group can offset income from other members of the group.
IRS Rules Senior Housing Is Healthcare Property for REIT Purposes
The IRS ruled in PLR 201509019, found here, that age-restricted housing communities are congregate care facilities within the meaning of Section 856(e)(6)(D)(ii) (Section references are to the Internal Revenue Code) and, consequently, are qualified healthcare properties under Section 856(e)(6)(D)(i) (relating to the related-party rent exception for REITs). As described in the ruling, provided the communities are operated and managed by an eligible independent contractor, amounts paid to the taxpayer by its wholly owned taxable REIT subsidiaries for renting the communities are not excluded from the definition of rents from real property by operation of Section 856(d)(2)(B).
IRS Releases Proposed Regulations Regarding Reporting of Tax Items on Day Corporations Join or Leave Consolidated Group
The proposed regulations, which can be found here, would revise the rules for reporting certain items of income and deduction that are reportable on the day a corporation joins or leaves a consolidated group. The IRS and the Treasury Department released the proposed rules because of uncertainty regarding the appropriate application of the current "next-day rule" under Treas. Reg. Section 1.1502-76(b). Generally, the proposed rules would alter the regulations by changing the next-day rule so it applies only to "extraordinary items" resulting from transactions that occur on the day of a corporation's change in status, but after the event causing the change.
U.S. House Approves 529 Plan Expansion
The U.S. House of Representatives approved H.R. 529, found here, which would modify the rules for Section 529 plans. Qualifying expenses would be expanded to include certain computers, peripheral equipment and software. The bill also modifies the computation of the taxable portion of a distribution when the contributor has established multiple accounts for a student. Also, the proposal allows beneficiaries to pay no tax in the event that they receive a refund from an educational institution (e.g., after withdrawing from enrollment) provided that the refunded amount is contributed back to the plan within 60 days.
IRS Releases Winter 2015 Issue of Statistics of Income (SOI) Bulletin
The IRS released the Winter 2015 issue of its SOI Bulletin, found here. The SOI Bulletin presents, among other items, information on foreign recipients of U.S.-source income and partnership returns. Data relating to foreign recipients of U.S.-source income shows that (a) U.S.-source income paid to foreign persons (reported on IRS Form 1042-S) totaled $568.5 billion in 2011 (which represents a nearly 2 percent increase from 2010; (b) withholding taxes on such income totaled almost $9 billion, a nearly 12 percent drop from 2010; and (c) nearly 90 percent of the U.S.-source income paid to foreign persons was exempt from withholding tax. For partnerships, the data shows that more than 3 million partnership tax returns were filed in 2012, with the real estate and leasing sector representing almost 50 percent of all partnerships. Domestic LLCs, the data on partnerships reveals, made up the majority of all partnerships.
SIFMA Comments on Revised Qualified Intermediary Agreement
The Securities Industry and Financial Markets Association (SIFMA) has commented on the revised Qualified Intermediary Agreement (QI Agreement). The comment letter, which can be accessed here, seeks clarification on restrictions on the joint account procedure, on the consequences of a "hold mail" instruction, and on an optional application of the QI Agreement to qualified securities lenders.
IRS Posts FATCA Notifications User Guide to Its Website
The IRS' website now contains a FATCA user guide, found here, on notifications that are sent from the IRS international compliance management model system via the international data exchange service in response to the transmission of a FATCA report. The user guide explains the meaning of notifications and describes the steps that should be taken to address the issues identified.
IRS Releases Publication on REMICs and CDOs
The IRS has released Publication 938, found here, containing directories relating to real estate mortgage investment conduits (REMICs) and collateralized debt obligations (CDOs). The directory for each calendar quarter is based on information submitted to the IRS during that quarter.