IRS Issues Final Regulations on Foreign Tax Credit Splitting Events
The IRS has issued final regulations on the application of Section 909 (section references listed below are to the Internal Revenue Code), which provides a matching rule to prevent the separation of creditable foreign taxes from the associated foreign income. The final regulations largely adopt the temporary regulations that were issued in 2012 and include clarifications of some of the definitions of splitter arrangements in Treasury Regulation Section 1.909-2T, including “usable shares loss,” as well as the interim mechanical rules for tracking split taxes and related income. The final regulations are effective for tax years ending after Feb. 9. TD 9710, 02/09/2015; Reg. §1.704-1, Reg. §1.909-0, Reg. §1.909-1, Reg. §1.909-2, Reg. §1.909-3, Reg. §1.909-4, Reg. §1.909-5, Reg. §1.909-6. The regulations can be found here.
IRS Rules No Gain or Loss in Exchange and Reorganization
In PLR 201506008, the IRS ruled that no gain or loss would be recognized on a transfer of assets, including reinsurance contracts and new administrative services contracts, to a partnership in exchange for corporate stock under Section 351. The purpose of the transfer was to create a new joint venture to add more branded insurers to the partnership’s insurance options to customers. PLR 201506008 can be found here.
IRS Rules S Corporation’s Redemption Plan Will Not Create Second Class of Stock
In PLR 201506004, the IRS ruled that a redemption plan (Redemption Plan), as described below, will not cause the corporation to be treated as having a second class of stock under Section 1361(b)(1)(D). The Redemption Plan provides that any shareholder who desires to have his stock redeemed must have his nonvoting and voting shares redeemed in a certain ratio of nonvoting to voting unless the board of directors in its discretion approves the stock redemption in a different ratio. The taxpayer represented that the purpose of the redemption ratio in the Redemption Plan was to ensure that the taxpayer’s voting power and economic ownership between two families of shareholders remained approximately equal and to prevent an individual shareholder from owning a disproportionate amount of voting versus nonvoting common stock. PLR 201506004 can be found here.
OECD Releases Implementation Guidance for the Base Erosion and Profit-Shifting Project
In guidance released Feb. 6 related to the base erosion and profit-shifting project, the OECD outlined three key elements that the OECD and G20 countries have agreed will enable implementation of the BEPS Project: (1) a mandate to launch negotiations on a multilateral instrument to streamline implementation of tax treaty-related BEPS measures, (2) an implementation package for country-by-country reporting in 2016 and a related government-to-government exchange mechanism to start in 2017, and (3) criteria to assess whether preferential treatment regimes for intellectual property (patent boxes) are harmful. The OECD release can be found here.
Transaction Is Not a Valid FASIT
In redacted field attorney advice, the IRS concluded: (1) a transaction is not subject to the financial asset securitization investment trust (FASIT) provisions because it failed to qualify for the exception to the repeal of the FASIT rules, and (2) the stock issued as part of the transaction is not a regular interest under Section 860L(b)(1) because the terms for the payment of dividends to the shareholder must qualify as a fixed rate or a variable rate permitted under the REMIC rules. Accordingly, the IRS concludes, the transaction must be treated under regular tax principles. The memorandum is available here.
IRS Addresses Power of Attorney for Corporation
In emailed advice, the IRS advised that the power of attorney for a corporation must be executed by the officer of the corporation who has authority to legally bind it and who must certify that he or she has that authority, noting that the existence of an indemnity agreement does not alter that requirement. The full email is available here.
IRS Releases Final Instructions for Form 1042-S for 2015
The IRS has released final instructions for Form 1042-S, “Foreign Person’s U.S. Source Income Subject to Withholding,” for 2015. The instructions are available here.
Guidance Issued on Application of Quality Stores Holding to Claims for Refunds of Employment Taxes Paid for Severance Payments
As a result of the Supreme Court’s holding in United States v. Quality Stores, 134 S. Ct. 1395 (2014), the IRS will disallow all claims for refund of FICA or Railroad Retirement Tax Act taxes paid for severance payments that do not satisfy the narrow exclusion contained in Rev. Rul. 90-72. According to the announcement, this includes all claims for refund that were held in suspense pending the resolution of Quality Stores and claims filed by taxpayers located within the Sixth Circuit’s jurisdiction. Taxpayers must contact the IRS for appeal requests in which the underlying refund claim included an additional or different basis for the claim or concerned payments that satisfied the requirements of Rev. Rul. 90-72. The guidance can be found here.
IRS Offers Tips to Avoid Common Form 5500 Filing Errors
The IRS has published a list of common errors that taxpayers make on employee benefit plan Form 5500 series returns or information reports. It has also offered suggestions for how retirement plan sponsors can avoid getting flagged for an Employee Plans Compliance Unit compliance check. Click here for the online article titled “Avoid IRS Scrutiny – Review Your Form 5500 for Errors.”
IRS Releases Fact Sheet on 2014 Tax Law Changes
The IRS has released a fact sheet highlighting 2014 tax law changes, including changes to tax forms related to the Affordable Care Act, the extension of several tax benefits (including deductions for state and local sales taxes and nonbusiness energy property credits), a one-rollover-per-year limit for IRA owners, the elimination of a reporting requirement regarding specified Canadian retirement plans and a new way to make tax payments. The fact sheet is available here.