IRS Releases Controlled Foreign Corporation Guidance
The IRS released two legal advice memoranda addressing the CFC rules. AM 2015-001, found here, addresses the question of whether a U.S. parent corporation must increase its earnings and profits by the amount of its income inclusion with respect to its foreign subsidiary under Section 951(a)(1) (Section references are to the Internal Revenue Code). AM 2015-002, foundhere, addresses the issue of the most appropriate method to calculate the actual effective rate of tax and the hypothetical effective rate of tax for purposes of determining whether there is tax rate disparity pursuant to the regulations under Section 954(d)(2) (commonly referred to as the "branch rules") in the case of property manufactured by a CFC.
IRS Finds Arrangement Relating to Foreign Currency Is Not Insurance
In Chief Counsel Advice 201511021, found here, the IRS held that an arrangement involving foreign currency fluctuations between members of an affiliated group of corporations and the group's affiliated insurance company (a foreign currency swap written in the form of an insurance contract) did not constitute insurance for federal income tax purposes. The contracts did not satisfy the three-factor test defining insurance since they lacked insurance risk, they were not insurance in the commonly accepted sense of the term and they did not result in risk distribution.
U.S. Tax Court Issues Decision on Refundable Tax Credits
The United States Tax Court issued its decision in Maines v. Comm'r, 144 T.C. No. 8 (Mar. 11, 2015), found here, holding that EZ Credits (refundable tax credits) issued by New York for engaging in certain economic development activities in the state resulted in taxable income to the recipients for federal income tax purposes. The Tax Court found that the credits were taxable as an accession to wealth and were not a refund of previously paid state taxes. The Tax Court also reviewed the QEZE Credit (another refundable tax credit), which is a credit against income tax liability for real property taxes paid. The Tax Court found that the QEZE Credit refunded was not a taxable accession to wealth, but under the "tax benefit rule" the refundable portion was subject to federal income tax
U.S. District Court Prohibits IRS From Collecting Tax Liability Under Transferee Liability Rules
According to a decision of a U.S. District Court for the Middle District of North Carolina, the shareholders of an investment club taxed as a C corporation were not liable for the corporation's tax liability under the transferee liability rules of the Internal Revenue Code. The corporation liquidated its investment portfolio and then the shareholders sold the corporation's stock to a third party who did not pay corporate tax for the year of the transactions. The District Court held that the shareholders of the C corporation were not liable for the unpaid taxes because they did not make a fraudulent conveyance under state law. Andrew v. U.S. (DC NC, 2/12/2015) 115 AFTR 2d ¶ 2015-437.
Information Reporting Required for Payments to LLCs
The IRS released Chief Counsel Advice 201447025, found here, concluding that Form 1099 information reporting is required for payments made to an LLC that has not elected to be classified as a corporation for federal income tax purposes. Taxpayers making payments of $600 or more to an LLC in the course of their trade or business must determine if the LLC has elected to be treated as a corporation. If a taxpayer does not obtain that information or determines that the payee is not a corporation, Form 1099 information reporting is required.
IRS Notice 2015-28 Extends Temporary Nondiscrimination Relief
In Notice 2015-28 (2015-14 IRB, 03/19/2015), found here, the IRS extended for one year temporary relief from the rules requiring qualified plans to not discriminate in favor of highly compensated employees. The relief is applicable to certain "closed" defined benefit pension plans (i.e., defined benefit plans that provide ongoing accruals but that have been amended to limit those accruals to some or all of the employees who participated in the plan on a specified date).
IRS Uses Commerciality Doctrine to Deny Tax Exemption
The IRS denied tax exemption to an organization engaged in e-commerce activities in PLR 201403017. More than 50 percent of the organization's activities consisted of conducting educational courses and training, and the remainder of its activities focused on providing technical services and consulting. The IRS held that the organization failed the operational test for exemption under Section 501(c)(3) because it operated in a commercial manner by providing services to clients (for an hourly or project fee) such as website development, database development and Internet marketing tools to increase their business and profits. The organization's educational seminars also were not sufficient to qualify the organization for tax exemption, as the IRS found that the seminars were a way for the organization to obtain additional clients for whom the organization could provide services for a fee.
Joint Committee on Taxation Releases Report on Recent Tax Legislation
The Joint Committee on Taxation released a report on tax legislation enacted in the 113th Congress. The report includes explanations on the provisions of the Tax Increase Prevention Act of 2014, and the Achieving a Better Life Experience Act of 2014. The report is availablehere.
Joint Committee on Taxation Releases Report on U.S. Taxation of Cross-border Income
The Joint Committee on Taxation has released a report, which can be found here, on present law and certain policy issues involving the U.S. taxation of cross-border income.