IRS Issues Two Separate Rulings on Treatment of REIT's Cash and Stock Distributions
In Private Letter Rulings 201516047 and 201516050, the IRS ruled that the cash and common stock distributed in a stock and cash distribution by a REIT will be treated as a property distribution with respect to the REIT's common stock under Sections 301 and 305(b) (section references are to the Internal Revenue Code of 1986, as amended), and the amount of the distribution of stock received by any common stock holder electing to receive stock will be considered to equal the amount of money which could have been received instead. The IRS further ruled in Private Letter Ruling 201516047 that the terms of the stock and cash distribution will not cause the distributions to be considered preferential under Section 562(c).
Late Straddle Election to Be Treated as Timely
In Private Letter Ruling 201516010, the IRS found that an open-ended investment company taxpayer had shown reasonable cause for failing to make a timely mixed straddle account election under Regulation Section 1.1092(b)-4T(f) and ruled that the late election would be treated as timely filed.
IRS Supplements Reorganization Ruling to Include Additional Payments
In Private Letter Ruling 201516014 (supplementing Private Letter Ruling 201438009), the IRS ruled that additional payments received by a corporation as part of a Section 368(a)(1)(D) reorganization will be treated as "other property or money" within the meaning of Section 361(b)(1) and as a distribution in pursuance of a plan of reorganization if transferred to repay such corporation's creditors by a certain date.
IRS Publishes Proposed Regulations on Hedge Fund Reinsurance Arrangements
The Department of Treasury and the IRS are aware of situations in which a hedge fund establishes a purported foreign reinsurance company in order to defer and reduce the tax that otherwise would be due with respect to investment income. As the terms "active conduct" and "insurance business" are not defined in Section 1297, Treasury and the IRS are proposing regulations to clarify the circumstances under which investment income earned by a foreign insurance company is derived in the active conduct of an insurance business for purposes of determining whether the income is passive income, and thus the extent to which the company's assets are treated as passive assets for purposes of determining whether the company is a passive foreign investment company. See Preamble to Prop Reg 04/23/2015; Prop Reg § 1.1297-4.
Passive Loss Self-Rental Rule Applies to S Corporation Lessors
The Tax Court has ruled in Williams, T.C. Memo 2015-76 that, although the passive activity loss rules in Section 469 do not explicitly state that they apply to S corporations, those rules, and specifically the passive loss self-rental rule in Regulation Section 1.469-2(f)(6), which treats otherwise passive income as nonpassive income, do in fact apply to rentals by S corporations.
All Controlled Foreign Corporation Loan Obligations Must Meet 60-Day Test for Exception
In Chief Counsel Advice 201516064, the IRS has concluded that unless a controlled foreign corporation holds for fewer than 60 calendar days during a taxable year all obligations which would constitute United States property within the meaning of Section 956, without regard to the 30-day rule described in Notice 88-108, the exclusion from the definition of the term "obligation" in Notice 88-108 does not apply with respect to any obligation held by the controlled foreign corporation.
Large Cash Payments in US Territories Must Be Reported
In Legal Memorandum 201516065, the IRS concluded that taxpayers engaged in a trade or business in a U.S. territory are required to file Form 8300, "Report of Cash Payments Over $10,000 Received in a Trade or Business," because those taxpayers are subject to the general jurisdiction of the IRS. This filing obligation is in addition to any filing obligation the person may also have with territory tax authorities under rules similar to Section 6050I, including under territorial mirror income tax codes.