T&K Tax Knowledge

IRS Issues Partnership Disguised Sales Guidance

Posted by Todd Keator, Todd Lowther, and Jessica Kirk

              

The IRS has issued guidance on disguised sales of property within partnerships.  Generally, partners may contribute property to, and receive distributions from, a partnership without recognizing a gain or loss.  But in certain circumstances, the Sections 707 and 752 regulations will characterize a contribution and related distribution as a disguised sale or exchange requiring the “selling” partner to recognize a gain or loss.

Proposed IRS Valuation Regulations Affect Family Limited Partnerships

Posted by Bill Mureiko, Sarah Woodberry, and Tyree Collier

                     

The IRS recently issued proposed regulations under Section 2704 of the Internal Revenue Code dealing with the use of valuation discounts when transferring (during life or at death) interests in family limited partnerships (“FLPs”) and similar entities.  FLPs and similar entities are frequently used in gift and estate tax planning to facilitate the transfer of minority or nonvoting interests to family members at values that are discounted from the pro rata value of the underlying assets.  The proposed regulations, if finalized in their current form, would greatly limit the use of such valuation discounts.  We have prepared a client alert that discusses the new proposed regulations and their implications for taxpayers.  If you have any questions about the new proposed regulations and how they may affect your plans, please contact the T&K tax attorney with whom you regularly work or any of the T&K tax attorneys listed in the client alert.

IRS Issues Proposed Family Entity Valuation Regulations Under Section 2704

Posted by Bill Mureiko and Sarah Woodberry

             

The IRS recently issued much-anticipated proposed regulations under Section 2704 of the Internal Revenue Code which, if finalized in their current form, would greatly limit the use of valuation discounts when transferring (during life or at death) interests in many types of family owned entities, thereby potentially undermining family partnership planning as a means to reducing the burden of the estate and gift tax.  Many commentators had predicted that the regulations would make only modest changes, leaving discount planning essentially intact.  Instead, it appears that the IRS has taken a very aggressive approach to reducing or eliminating valuation discounts in many contexts.  The regulations, when promulgated in final form, will apply only to transfers occurring after the final regulations are published.  A public hearing on the proposed regulations is scheduled for December.  Thompson & Knight will be updating the blog in the days to follow with a more detailed analysis of the proposed regulations and their implications.

Todd Keator Presentation on New Partnership Audit Rules

Posted by Todd Keator

          

Todd Keator recently gave a presentation at the 2016 State Bar of Texas Tax Section Annual Meeting on the new partnership audit rules, with an emphasis on drafting issues in partnership agreements and other documents.  The presentation also highlighted numerous issues raised by the Texas Tax Section's comment letter to the IRS concerning these new rules.  For a copy of the presentation, please click here.  If you have any questions about the new rules, please contact Todd or any other Thompson & Knight tax attorney. 

IRS Clarifies Position Regarding Employee-Partner Status

Posted by Jason Loden

         

The IRS has long held the position that an individual partner in a partnership may not also be an employee of such partnership for tax purposes. The IRS’s position had previously been unclear as to whether an individual partner in a partnership could also be an employee of a disregarded entity owned by such partnership.  The IRS has now issued temporary regulations to address this situation.  We have prepared a client alert that discusses the new temporary regulations and their implications for taxpayers.  If you have any questions about the new temporary regulations and how they may affect your plans, please contact the T&K tax attorney with whom you regularly work or any of the T&K tax attorneys listed in the client alert.

IRS Proposes Reporting of U.S. Disregarded Entities Owned by Foreign Persons

Posted by John Cohn

       

The IRS announced this morning that it is proposing regulations to treat a foreign-owned domestic disregarded entity as a corporation for reporting its existence, its ownership and the transactions in which it enters with related parties.

Article: IRS Guidance Limits Future Rulings on Tax-Free Spin-Off Transactions

Posted by Sam Merrill, Lee Meyercord, and David Wheat

                 

In the Fall 2015 issue of the Texas Tax Lawyer, Sam Merrill, Lee Meyercord, and David Wheat published an article entitled "New IRS Guidance Limits Future Rulings on Tax-Free Spin-Off Transactions".  The article discusses the IRS's issuance of Notice 2015-59 and Revenue Procedure 2015-43, which limit the circumstances in which the IRS will issue private letter rulings relating to spin-off transactions in which either the distributing corporation or the controlled corporation owns relatively large amounts of cash, securities, and other investment assets. The new guidance also significantly circumscribes the issuance of private letter rulings where the spin-off involves a real estate investment trust or a regulated investment company.

A link to the article is available here.  

If you have any questions regarding the article or the recent IRS guidance, please contact one of us or another tax lawyer at Thompson and Knight. 

In Quality Stores, the Supreme Court Holds that Severance Payments are Taxable FICA Wages

Posted by Nancy Allred and Russell Gully

          

On March 25, 2014, the Supreme Court ruled 8-0 in favor of the government in the long-running Quality Stores litigation, holding that severance payments are taxable FICA wages, even if they fall within the category of supplemental unemployment compensation benefits (“sub-pay”) that are not subject to income tax withholding under Code section 3402(o).  We previously discussed Quality Stores in a blog post and a client alert. 

IRS Taps the Brakes on MLP Private Letter Rulings

Posted by Todd Keator

 

The IRS recently announced a “pause” in issuing new private letter rulings (PLRs) to master limited partnerships (MLPs) seeking confirmation that various sources of revenue are “qualifying income.”  See here.  The pause allows the IRS to further study the MLP industry and its ruling process in an effort to ensure consistency in MLP ruling policy and to examine whether broader guidance may be appropriate going forward.  The pause follows a recent wave of PLRs allowing MLPs to engage in certain oilfield service activities considered “integral to” traditional qualifying activities, including provision of drilling services, logistics services, seismic services, hydraulic fracking services, water disposal services, and other well production or stimulation services.  For a discussion of the trends in these recent rulings, see this article.  The IRS has given no time table for when MLPs may again begin to receive PLRs, and has offered no information about the specific issues under consideration.

If you have any questions, feel free to contact me or another Tax lawyer at Thompson & Knight.

IRS Regulation of Tax Return Preparers

Posted by Bob Probasco 

I recently published an article on Law360.com, "Loving: Who Can the IRS Regulate?"  The case involves recent changes to Circular 230 that require registration, competency exams, and continuing education for tax return preparers who are not attorneys, CPAs, or enrolled agents.  The district court overturned the regulations and the Court of Appeals for the D.C. Circuit is currently considering the case.  (For additional information, see our previous blog post, A Surprising Development in IRS Regulation of Tax Professionals.)  The article summarizes the background of the regulations and the court’s decision that Congress did not give the IRS authority to regulate tax return preparers.  Although people can reasonably disagree over the policy issue of whether the government should engage in such occupational licensing, I conclude that the regulation was within the IRS authority to regulate practice before it.  The district court’s narrow interpretation of the authority to regulate could also impact other aspects of Circular 230.  If you have any questions about this issue, please contact me or any of the other Tax lawyers at Thompson & Knight.