T&K Tax Knowledge

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.

Recent Ruling Expands Definition of “Qualifying Income” for Master Limited Partnerships

The IRS has issued a flurry of recent rulings that expand what constitutes qualifying income under Section 7704(d)(1)(E) for Master Limited Partnerships (“MLPs”).  MLPs are a subset of Publicly Traded Partnerships (“PTPs”) that receive more favorable tax treatment. Unlike most PTPs, which are taxed as corporations, MLPs that earn a sufficient amount of “qualifying income” remain partnerships for federal income tax purposes.

New Tax Guidance on Same Sex Marriage: Action Required by Employee Benefit Plans by September 16

The IRS has issued guidance on the application of the recent Supreme Court decision regarding same-sex marriage.  Pursuant to new IRS Revenue Ruling 2013-17, for Federal tax purposes, the terms “spouse,” “husband,” and “wife” include an individual married to a person of the same sex if the individuals were lawfully married under the laws of the state in which the marriage occurred. The IRS will treat these same-sex marriages as valid even if the state in which they reside does not.  Registered domestic partnerships, civil unions, and similar legal relationships that are not designated as “marriages” under state law will not be recognized for this purpose.  Employers must take action to comply no later than September 16, 2013 for plan purposes and Federal tax reporting purposes.  It is important to note that the Revenue Ruling applies only for Federal tax purposes, including income, employment, and estate taxes, but it does not apply for purposes of state law or substantive claims for plan benefits that may be available based on marital status.  Please see our Client Alert for more details regarding this new guidance.

- Sharon Fountain, Thompson & Knight LLP

The Government Files Supreme Court Petition in Quality Stores, Asserting FICA Taxes Apply to Certain Severance Payments

On May 31, 2013, the Solicitor General filed the Government’s Petition for Certiorari in United States v. Quality Stores, asking the Supreme Court to review the Sixth Circuit’s ruling.  The Sixth Circuit concluded that certain severance payments paid to employees pursuant to a reduction in force, discontinuance of a plant or operation, or other similar situation are not “wages” subject to FICA taxes. The Sixth Circuit’s decision in United States v. Quality Stores, 693 F.3d 605 (6th Cir. 2012) squarely conflicts with the Federal Circuit’s decision in CSX Corp. v. United States, 518 F.3d (Fed. Cir. 2008) as well as several Revenue Rulings issued by the IRS. The IRS emphasized in its petition that more than $1 billion is at stake and that figure is expected to grow.  We previously discussed Quality Stores in a blog post and client alert.

Presentation on Ethics and Expected Changes to Circular 230

Bob Probasco was one of the panelists for a presentation on “Ethics and Expected Changes to Circular 230” at the 25th Annual Insurance Tax Seminar by the Federal Bar Association.  A copy of the presentation materials is here.  More information about the proposed changes to Circular 230, which we now expect to be finalized by year end, is available at a prior blog post here.

If you have any questions about Circular 230 and the broader ethical requirements related to tax, please contact Bob or any of the other tax lawyers at Thompson & Knight.

Contingency Fees for Refund Claims – Circular 230 Issues

On March 29th, the District Court for the District of Columbia issued an opinion in Ryan LLC v. Lew, in which the plaintiffs challenged a provision of Circular 230 that prohibits tax professionals from preparing and filing refund claims on a contingent fee basis.  Circular 230 regulates practice before the IRS by attorneys, CPAs, and others.  The plaintiffs asserted three different arguments, two constitutional and one statutory, that the provision was not a valid exercise of Treasury’s regulatory authority.  The court ruled for the government and dismissed the portions of the complaint based on the two constitutional arguments.  The third argument, based on the Administrative Procedure Act (“APA”), was not addressed and that part of the case will proceed.