IRS Explains Who Is a Real Property Broker Under the Passive Activity Loss Rules

In Chief Counsel Advice 201504010, the IRS considered whether a real estate agent or a mortgage broker could be engaged in a real property brokerage trade or business within the meaning of Section 469(c)(7)(C). Section 469(c)(7)(C) defines “real property trade or business” as “any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental operation, management, leasing, or brokerage trade or business,” but, as noted by the IRS, such terms are not defined in the code or the regulations. After examining legislative history and principles of statutory construction, the IRS concluded that a real estate agent who brings together buyers and sellers of real property can be a so-called “real estate professional” who is engaged in a real property brokerage trade or business. However, a mortgage broker who is a broker of financial instruments is not engaged in a real property brokerage trade or business. The Chief Counsel Advice can be found here.

Transfer of a Portion of Subsidiary’s Assets Doesn't Preclude Their Complete Liquidation

The IRS has privately ruled in PLR 201504007 that, where two wholly owned subsidiaries elect to be treated as disregarded entities, their parent’s transfer of a portion of the subsidiaries’ assets to a controlled entity will not preclude their constructive liquidations from being treated as complete liquidations under Section 332 and that distributing the corporation’s cash to the parent’s shareholders will be a reorganization under Section 361(b). The ruling can be found here.

IRS Rules Interests in Master Fund are Considered Registered Obligations

In PLR 201504004, the IRS ruled that interests in a statutory trust, taxed as a disregarded entity, and a limited partnership master fund, taxed as a partnership, are evidence of interests in a similar pooled fund within the meaning of Regulation Section 1.163-5T(d)(1), and that if the requirements of Section 5f.103-1(c)(1) are satisfied, the interests will be considered obligations in registered form. The taxpayer represented that interests in the master fund and trust would be transferable only pursuant to procedures described in section 5f.103-1(c) of the Temporary Income Tax Regulations. The ruling can be found here

Regs Authorize IRS's Exempt Application Procedures for QNHIIs

The IRS has issued final regulations authorizing the agency to prescribe the procedures by which qualified nonprofit health insurance issuers (QNHIIs) participating in the Consumer Operated and Oriented Plan (CO-OP) program established by the Centers for Medicare and Medicaid Services, may apply for recognition as a tax-exempt organization under section 501(c)(29). Section 501(c)(29) provides the requirements that QNHIIs must meet to qualify for tax exemption. The purpose of the CO-OP program is to foster the creation of member-governed QNHIIs that will operate with a strong consumer focus and offer qualified health plans in the individual and small group markets. The final regulations adopt without revision proposed regulations that were published in February 2012. TD 9709, 01/26/2015, Reg. § 1.501(c)(29)-1.

IRS Corrects Errors in Proposed Hot Asset Regs for Partners 

The IRS has corrected errors in proposed regulations on how a partner should measure its interest in a partnership’s unrealized receivables and inventory items and on the tax consequences of a distribution that causes a reduction in that interest.

Updated 2014-2015 Priority Guidance Plan Adds 11 Projects 

The IRS and Treasury have released the second quarter update to the 2014-2015 priority guidance plan, noting the addition of 11 guidance projects. The 2014-2015 Priority Guidance Plan is available here.

Comments Sought on Regs on Use of Consolidated Return Losses

The IRS has requested public comment on information collections under final regulations (T.D. 8823) on consolidated group members’ deductions and losses, including built-in deductions and losses; comments are due by March 30, 2015.

Offshore Tax Evasion Remains on ‘Dirty Dozen’ List 

The IRS has announced that avoiding taxes by hiding money or assets in unreported offshore accounts remains on its annual “Dirty Dozen” list of tax scams for the 2015 filing season. Compiled annually, the “Dirty Dozen” lists a variety of common scams that taxpayers may encounter anytime, but many of these schemes peak during filing season as people prepare their returns or hire people to help with their taxes. Further, the Offshore Voluntary Disclosure Program, in which taxpayers may come forward voluntarily to disclose their foreign financial accounts, remains open for an indefinite period until otherwise announced.