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ABA Members Recommend Projects for Priority Guidance Plan

MAY 28, 2021

ABA Members Recommend Projects for Priority Guidance Plan

DATED MAY 28, 2021
DOCUMENT ATTRIBUTES
  • Authors
    Arnold, Joan
  • Institutional Authors
    American Bar Association Section of Taxation
  • Cross-Reference

    Responding to Notice 2021-28.

  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2021-21957
  • Tax Analysts Electronic Citation
    2021 TNTF 104-36
    2021 TNTG 104-42

May 28, 2021

Mark Mazur
Acting Assistant Secretary (Tax Policy)
Deputy Assistant Secretary (Tax Policy)
Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220

Hon. Charles P. Rettig
Commissioner
Internal Revenue Service
1111 Constitution Avenue, NW
Washington, DC 20224

William Paul
Acting Chief Counsel
Internal Revenue Service
1111 Constitution Avenue, NW
Washington, DC 20224

Re: Recommendations for 2021-2022 Priority Guidance Plan

Dear Messrs. Mazur, Rettig and Paul:

The American Bar Association Section of Taxation welcomes the opportunity to provide recommendations for inclusion in the 2021-2022 Priority Guidance Plan. These recommendations represent the views of the Section. They have not been approved by the Board of Governors or House of Delegates of the American Bar Association and should not be construed as representing the policy of the American Bar Association.

The enclosed recommendations were made by members of the following committees within the Section.

Administrative Practice

Affiliated and Related Corporations

Civil and Criminal Tax Penalties

Corporate Tax

Capital Recovery and Leasing

Exempt Organizations

Foreign Activities of U.S. Taxpayers

Individual & Family Taxation

Partnerships & LLCs

Pro Bono & Tax Clinics

Real Estate

S Corporations

Tax Accounting

Tax Collection, Bankruptcy and Workouts

Although members of the Section may have clients who might be affected by the federal tax principles addressed by these Comments, no member who has been engaged by a client (or who is a member of a firm or other organization that has been engaged by a client) to make a government submission with respect to, or otherwise to influence the development or outcome of one or more specific issues addressed by, these Comments has participated in the preparation of the portion (or portions) of these Comments addressing those issues. Additionally, while the Section's diverse membership includes government officials, no such official was involved in any part of the drafting or review of these Comments.

The Section of Taxation would be pleased to discuss these comments with you or your staff.

Sincerely,
Joan C. Arnold
Chair, Section of Taxation
American Bar Association
Washington, DC

Enclosure

cc:
Thomas West, Deputy Assistant Secretary, Domestic Business Tax, Department of the Treasury
Jose E. Murillo, Deputy Assistant Secretary, International Tax Affairs, Department of the Treasury
Douglas O'Donnell, Deputy Commissioner, Services and Enforcement, Internal Revenue Service
Krishna P. Vallabhaneni, Tax Legislative Counsel, Department of the Treasury
Kevin Nichols, Acting International Tax Counsel, Department of the Treasury
Peter Blessing, Associate Chief Counsel (International), Internal Revenue Service
Rachel Leiser Levy, Associate Chief Counsel (Employee Benefits, Exempt Organizations and Employment Taxes), Internal Revenue Service
John Moriarty, Associate Chief Counsel (Income Tax & Accounting), Internal Revenue Service
Holly Porter, Associate Chief Counsel (Passthroughs & Special Industries), Internal Revenue Service
Robert H. Wellen, Associate Chief Counsel (Corporate), Internal Revenue Service
Kathryn Zuba, Associate Chief Counsel (Procedure & Administration), Internal Revenue Service
Erin Collins, National Taxpayer Advocate, Internal Revenue Service


AMERICAN BAR ASSOCIATION
SECTION OF TAXATION

Recommendations for the 2021-2022
Department of the Treasury and Internal Revenue Service
Priority Guidance Plan

These comments are submitted on behalf of the American Bar Association Section of Taxation (the “Section”) and have not been approved by the House of Delegates or Board of Governors of the American Bar Association. Accordingly, they should not be construed as representing the position of the American Bar Association.

As requested in Notice 2021-28,1 the Section has identified the following tax issues that we recommend the Department of Treasury (“Treasury”) and the Internal Revenue Service (the “Service”) address through regulations or other published guidance in 2021-2022. Some recommendations relate to Public Law 115-97 (the “2017 Act”)2 or other recent legislation, such as the Taxpayer First Act (“TFA”),3 the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act,4 and the American Rescue Plan Act of 2021 (“ARPA ”)5; some recommendations involve burden reduction; and others involve general priority guidance projects. In each case, the name and contact information for a representative of the committee making the suggestion is provided.

ADMINISTRATIVE PRACTICE

Mary Slonina, Chair, (202) 203-9772, mary.i.slonina@pwc.com

Implementation of Other Recent Legislation

1. Guidance under section 1001 of the TFA with respect to procedures for requesting access to case files and protesting denial of a referral to the Independent Office of Appeals. (Priority: Medium)

2. Guidance under section 2102 of the TFA with respect to the implementation of an internet platform for the filing of Form 1099. (Priority: Medium)

General Guidance

3. Guidance for the use of electronic signatures on forms, documents, and any and all submissions filed with the Service (separate and apart from guidance provided in the context of COVID pandemic relief). (Priority: High)

AFFILIATED AND RELATED CORPORATIONS

William R. Pauls, Chair, (202) 220-2059, wpauls@deloitte.com

Implementation of the 2017 Act

1. Regulations or other published guidance addressing the application of the intercompany transaction rules of Treas. Reg. § 1.1502-13 in connection with multiple provisions of the Act. (Priority: High)

2. Regulations under section 15026 (Treas. Reg. § 1.1502-47) addressing consolidated group computations under multiple provisions of the Act. This item is a carryover from the 2019-2020 and 2020-2021 Priority Guidance Plans. (Priority: Medium)

a. As noted in the preamble discussion to the proposed amendments to Treas. Reg. § 1.1502-47 published in July 2020,7 Treasury and the Service continue to study issues pertinent to life-nonlife consolidated groups for purposes of potential future guidance.

3. Regulations under section 1502 addressing the proper treatment of gross receipts when a member joins or departs a consolidated group. (Priority: Medium)

a. Proposed regulations issued in December 20198 under section 59A noted that Treasury and the Service are studying this issue. For example, for purposes of section 59A, a pertinent question involves the appropriate treatment of a deconsolidating member's gross receipts history as it relates to the original consolidated group and the acquiring consolidated group.

4. Regulations under section 1502 (Treas. Reg. §§ 1.1502-32 and 1.1502-51) addressing the application of the investment adjustment rules in connection with the operation of section 951A. These rules were reserved for separate consideration by T.D. 9866.9 (Priority: Medium)

5. Regulations or other published guidance addressing the application of section 53(e) with respect to minimum tax credits that carried forward to the first tax year beginning in 2018 in a situation where some or all of those minimum tax credits are (or become) subject to a limitation under section 383 or the separate return limitation year provisions of Treas. Reg. § 1.1502-55(h)(4)(iii). (Priority: Medium)

Implementation of Other Recent Legislation

6. Corporate alternative minimum tax and minimum tax credits, as amended by the CARES Act.

a. Regulations or other published guidance addressing the potential impact of a net operating loss carryback to a tax year to which the corporate alternative minimum tax still applies. (Priority: High)

i. FAQs released by the Service on May 27, 2020,10 suggest that, if a net operating loss arising in a tax year beginning after December 31, 2017, is taken into account in determining the alternative tax net operating loss deduction in a carryback year, there may be a delay in processing any refund sought by the taxpayer with respect to that carryback year. Given the potentially disparate outcomes that could result from opting not to take into account a net operating loss arising in a tax year beginning after December 31, 2017, in determining the alternative tax net operating loss deduction in a carryback year, we recommend published guidance addressing this topic.

b. Regulations or other published guidance addressing the impact of the CARES Act's acceleration of the refundability of minimum tax credits carried forward to the first tax year beginning in 2018. (Priority: Medium)

i. For corporate taxpayers, the refundability of minimum tax credits that carried forward to the first tax year beginning in 2018 has been accelerated under the CARES Act, either by way of the election available under new section 53(e)(5) or through the other amendments made to section 53(e). If a member of a consolidated group was sold to another consolidated group in 2019 or 2020 before the CARES Act was enacted, with the expectation that the departing member would be allocated a portion of the selling group's remaining minimum tax credits, those minimum tax credits may no longer exist to be allocated to the departing member. Transition relief may be warranted in such an instance.

7. Guidance related to net operating loss carrybacks.

a. Regulations or other published guidance allowing a “split-waiver” election to be made with respect to a net operating loss arising in (i) a tax year beginning in 2017 and ending in 2018 or (ii) a tax year beginning in 2018, 2019, or 2020, where an acquired member was a stand-alone corporation in a carryback year. (Priority: Medium)

i. Treas. Reg. § 1.1502-21(b)(3)(ii) allows a “split-waiver” election only if a member was in another consolidated group in a carryback year. Further, the proposed and temporary regulations published on July 8, 2020,11 do not depart from this approach.

b. Regulations under section 1502 (Treas. Reg. § 1.1502-21) addressing whether a “split-waiver” election under Treas. Reg. § 1.1502-21(b)(3)(ii) is available for transactions that occurred in 2018 where such an election was not included in the relevant consolidated return filed for that year. Proposed and temporary regulations were published on July 8, 2020.12 (Priority: Medium)

Identifying and Reducing Regulatory Burdens/Burden Reduction

8. Regulations under section 1502 removing obsolete rules and updating regulations to reflect statutory changes. This item is a carryover from the 2020-2021 Priority Guidance Plan. (Priority: Medium)

General Guidance

9. Regulations or other published guidance discussing the application of section 165(g)(3) in the context of a consolidated group. (Priority: High)

a. On October 13, 2017, the Service released a statement indicating that it is studying issues associated with the application of section 165(g)(3) in the context of a consolidated group.13 This topic has taken on significantly increased importance. Issues for potential consideration include (i) the character of gross receipts received by a consolidated group member in an intercompany transaction and (ii) whether some form of dispensation may be appropriate in situations where a consolidated group does not have access to documentation or other pertinent information for purposes of determining the gross receipts of a member due to circumstances such as (x) the age of that corporation (and the attendant considerations associated with the relatively recent advent of electronic recordkeeping) or (y) the acquisition of the stock of that corporation from another consolidated group.

10. Regulations under section 1502 (Treas. Reg. § 1.1502-97) addressing the application of section 382(l)(5) and (l)(6) in the context of a consolidated group. Treas. Reg. § 1.1502-97 was reserved in T.D. 8824.14 (Priority: High)

11. Regulations or other published guidance addressing the application of the affiliation rules of section 1504(a) to professional corporations in situations where, under applicable state law, only licensed professionals in the relevant state may own shares in the professional corporation. (Priority: High)

a. There has been a significant rise in the number of professional corporations that have associated themselves with larger corporate enterprises engaged in the provision of medical and other professional services. Increasingly, questions surround the potential ability for these professional corporations to be included in the consolidated group that includes the larger corporate enterprise. To date, the Service has provided informal guidance in the form of private letter rulings and other technical memoranda addressing this topic, but no overarching set of standards exists to guide the resolution of this issue.

12. Regulations under section 1502 (Treas. Reg. § 1.1502-75(d)) addressing group continuation. This item is a carryover from the 2019-2020 and 2020-2021 Priority Guidance Plans. (Priority: Medium)

13. Regulations under section 1502 (Treas. Reg. § 1.1502-76) addressing when a member joins or leaves a consolidated group. Proposed regulations were published in March 2015.15 This item was on the 2018-2019 Priority Guidance Plan. (Priority: Medium)

14. Revenue Ruling amplifying Revenue Ruling 99-6,16 addressing intercompany sales of partnership interests. This item was on the 2018-2019 Priority Guidance Plan. (Priority: Medium)

15. Regulations or other published guidance addressing the application of section 1504(a)(4)(C) to preferred stock with accreting yield in common fact patterns, including situations involving stock that has been determined to not give rise to deemed dividends under section 305. Although the determination of whether a redemption or liquidation premium is unreasonable is an inherently factual exercise, certain issues in this area, such as whether accreting yield constitutes a redemption premium, would benefit from formal guidance to permit consistent treatment. (Priority: Low)

CIVIL AND CRIMINAL TAX PENALTIES

Caroline Ciraolo, Chair, (443) 845-4898, cciraolo@kflaw.com

Identifying and Reducing Regulatory Burdens/Burden Reduction

1. Guidance on filing delinquent international information returns to incentivize use of Delinquent International Information Return Submission Procedures (“DIIRSP”). (Priority: High)

a. In June 2014, the Service established the DIIRSP. The Service instructed taxpayers to include a statement of facts that established reasonable cause for failure to file.17 The DIISRP website provided that “[i]f a reasonable cause statement is not attached to each delinquent information return filed; penalties may be assessed in accordance with existing procedures.” Furthermore, the Service stated that the information returns would not be automatically subject to an audit but may be selected for an audit under normal audit selection procedures.

b. In November 2020, in recognition of the fact that it was not reviewing the reasonable cause statements at the processing stage and, instead, was automatically assessing civil penalties on late-filed international information returns submitted through the DIIRSP, the Service revised the DIIRSP website.18 The website now provides that taxpayers may, but are not required to include a reasonable cause statement with their submission, but the penalties may be assessed without any consideration given to reasonable cause. Rather, it may be necessary for taxpayers to submit or resubmit a reasonable cause statement following the penalty assessment.

c. In light of the anticipated costs, lengthy legal battles, and potential substantial civil penalties, taxpayers and their advisors are no longer incentivized by the DIIRSP. Rather than voluntarily resolve prior noncompliance through a disclosure, many taxpayers are simply choosing to wait to see if the Service selects their returns for examination and, if so, raise applicable defenses at that time. This situation results in fewer taxpayers coming into compliance and much less revenue to the U.S. government.

2. Guidance to expand the First Time Abatement to address event-based filings (international information return penalties in particular) and estimated tax penalties. (Priority: High)

a. The theory behind FTA relief applies equally to delinquency penalties, estimated tax penalties, and event-based filing penalties.

b. The event-based filing penalties are often substantial and not subject to deficiency proceedings, requiring that those subject to the penalties pay in full first before challenging the assessments through administrative refund claims and litigation. This restricts the right to challenge such penalties to those who can afford to write the check.

c. This step would promote sound tax administration, increase voluntary compliance, and reduce the substantial burden on the Service, Justice Department, and the courts, which have and continue to manage the substantial administrative disputes and litigation involving event-based filing penalties.

3. Updated guidance on the application of the Graev v. Commissioner19 line of cases.20 (Priority: Low)

a. The courts continue to issue orders and decisions regarding the managerial penalty approval requirement under section 6751(b). However, the last update to the Internal Revenue Manual (I.R.M.) appears to have been in June 2020. Additional feedback is needed to inform Service personnel and taxpayers of the current landscape and avoid unnecessary time, effort, and fees challenging unauthorized assessments through administrative appeals and litigation.

4. Guidance making it clear that the Service's Criminal Investigations division will not recommend prosecution for charges that otherwise would be untimely except through the operation of the Wartime Suspension Limitations Act,21 which extends the statute of limitations with respect to fraud against the government occurring during any period of war or authorization of the use of the armed forces until five years after an official Presidential proclamation or Congressional resolution announcing the end of hostilities. (Priority: High)

a. This guidance is needed to avoid the potentially unlimited statute of limitations in cases involving tax offenses following the Ninth Circuit's decision in United States v. Nishiie.22 Given that an authorization for the use of armed forces was provided shortly after the events of September 11, 2001, and no official announcement of termination has been made, if the suspension is applicable, crimes more than two decades old could be recommended and prosecuted.

General Guidance

5. Revise the I.R.M. Practice Units, and other administrative guidance and training materials to define willfulness for purposes of civil FBAR penalties as intentional conduct.23 (Priority: High)

a. This is a significant issue for persons from the United States with foreign financial accounts and is the subject of a number of administrative appeals and court actions around the country. In litigation, the government has sought (with success) to expand the definition of willfulness beyond intentional conduct, to include reckless conduct. It is difficult for taxpayers or their advisors to differentiate between negligence and recklessness. We believe that applying the “willful” penalty to persons who were not acting intentionally will discourage taxpayers who are not sure whether their conduct fell on the wrong side of the negligence/recklessness divide from voluntarily disclosing noncompliance.

b. We believe this step would promote sound tax administration, increase voluntary compliance, and reduce the substantial burden on the Service, the U.S. Department of Justice (“Justice Department”), and the courts, which have and continue to manage the substantial administrative disputes and litigation involving the willful civil FBAR penalty.

6. Work with FinCEN to update the FBAR regulations regarding the willful civil FBAR penalty to address the issue raised by U.S. v. Colliot.24 (Priority: Medium)

a. The FBAR regulations establish a cap on the willful FBAR penalty of $100,000.25 Congress amended the statute in 2004 to increase the civil willful FBAR penalty to a minimum of $100,000 and a maximum of 50% of the balance in the unreported account at the time of the violation.26

b. Two district court found that the regulations set a ceiling on willful FBAR penalties, capping such penalties at $100,000.27 The district court decisions were appealed but then settled. Other courts have rejected this reasoning, but it remains an open issue that can be resolved by updating the regulations.28

CORPORATE TAX

Scott M. Levine, Chair, (202) 879-3437, smlevine@jonesday.com

Identifying and Reducing Regulatory Burdens/Burden Reduction

1. Guidance related to satisfying the gross income test for worthless securities in affiliated corporations under section 165(g)(3). (Priority: Medium)

a. Section 165(g)(3) provides that the character of deductions resulting from securities of affiliated corporations becoming worthless during the year depends in part on whether more than 90% of the aggregate of an affiliated corporation's gross receipts for all taxable years have been from sources other than those specified in section 165(g)(3)(B). This requirement imposes a significant compliance and administrative burden on corporations with long histories and corporations that have multiple predecessors. Further, the gross receipts from earlier years have reduced relevance taking into account inflation.

b. Consider providing safe harbor relief whereby taxpayers satisfy this requirement by establishing that more than 90% of the aggregate of the affiliated corporation's gross receipts for some number of the most recent taxable years have been from sources other than those specified in section 165(g)(3)(B).

General Guidance

2. Regulations or other published guidance providing for certain “safe harbors” or “presumptions” relating to the application of the control requirement of section 304(c) in the public corporation context. (Priority: Medium)

3. Regulations or other published guidance as to the application of section 165(i) to a worthless stock deduction under section 165(g).29 (Priority: Medium)

EXEMPT ORGANIZATIONS

Carolyn O. (Morey) Ward, Chair, (202) 508-4645, Morey.Ward@ropesgray.com.

Implementation of Other Recent Legislation

1. Regulations under section 512 regarding the allocation of expenses, depreciation, and similar items shared between an exempt activity and an unrelated trade or business or between more than one unrelated trade or business, and addressing changes made to the section 172 net operating loss deduction by section 2303 of the CARES Act.30 (Priority: High)

General Guidance

2. Proposed Regulations pursuant to sections 4958, 4966, and 4967 regarding donor advised funds.31 (Priority: High)

3. Guidance revising Revenue Procedure 80-2732 regarding group exemption letters.33 (Priority: High)

4. For organizations whose exempt activities ordinarily involve meeting in person, guidance confirming that a temporary failure to meet in person due to conditions attributable to a disaster that prevents or inhibits in-person gathering, such as the COVID-19 pandemic, will not affect an organization's exempt status or foundation classification (e.g., educational institutions, churches, social clubs). (Priority: High)

5. In the event Treasury is not prohibited at any time during the fiscal year from finalizing regulations or other guidance relating to the standard that is used to determine whether an organization is operated exclusively for the promotion of social welfare for purposes of section 501(c)(4), proposed regulations under sections 501(c) and 527 relating to political campaign intervention.34 (Priority: High)

6. Revenue ruling under section 4944 regarding the qualification of an equity investment in a limited liability company as a program-related investment.35 (Priority: Medium)

7. Final regulations under section 6104(c) relating to publication of information to state officials. (Priority: Medium)

8. Guidance under section 501(c)(3) providing that the term “charitable purpose” includes aid or assistance to individual representatives of groups that have been impacted by structural or institutional racism regardless of whether such individuals are themselves impoverished, underprivileged, or similarly distressed.36 (Priority: Medium)

9. Guidance confirming that an educational organization may fulfill the requirement under Treas. Reg. § 1.170A-9(c)(1) of a “place where its educational activities are regularly carried on” with fully virtual classrooms that offer real-time instruction. (Priority: Medium)

10. Guidance on circumstances under which an LLC can qualify for recognition as a tax-exempt entity under section 501(c)(3). (Priority: Medium)

11. Guidance under section 4941 regarding a private foundation's investment in a partnership in which disqualified persons are also partners.37 (Priority: Low)

12. Proposed regulations under section 509 clarifying that, in certain circumstances, Type I and Type II supporting organizations that designate their supported organizations by name, rather than by class, are permitted to make distributions to publicly supported organizations other than those specifically designated by name. (Priority: Low)

13. Final regulations under section 7611 relating to church tax inquiries and examinations. (Priority: Low)

FOREIGN ACTIVITIES OF U.S. TAXPAYERS

Rachel D. Kleinberg, Chair, (650) 565-7042, rkleinberg@sidley.com

Implementation of the 2017 Act

1. Guidance under section 959 and related provisions (such as section 961) with respect to foreign corporations with previously taxed earnings and profits (“PTEP”) resulting from, in part, subpart F income and GILTI inclusions, and other earnings subject to current tax under various provisions of the 2017 Act (including annual accounts, groups of PTEP, ordering of earnings and profits upon distribution and reclassification).

General Guidance

2. Guidance in response to the announcement in Notice 2019-138 of the intent to withdraw proposed regulations published in August 200639 relating to the exclusion from gross income of PTEP and associated basis adjustments. (Priority: High)

3. Final regulations under section 163(j), including specifically:

a. Guidance on treating a controlled foreign corporation group as a single C corporation for purposes of allocations to an excepted transfer or business.

b. Guidance on treating a controlled foreign corporation group as a single taxpayer for purposes of treating amounts as interest.

c. Finalize the ordering rule when a controlled foreign corporation group member has effectively connected income.

d. Guidance on the computation of adjusted taxable income of certain United States shareholders of applicable controlled foreign corporations.

Proposed regulations were published in September 2020.40 (Priority: High)

4. Guidance under section 959 and related provisions (such as section 961) with respect to foreign corporations with previously taxed earnings and profits (“PTEP”) resulting from, in part, subpart F income and GILTI inclusions, and other earnings subject to current tax under various provisions of the 2017 Act (including annual accounts, groups of PTEP, ordering of earnings and profits upon distribution and reclassification). Further, guidance in response to the announcement in Notice 2019-141 of the intent to withdraw proposed regulations (REG-121509-00) published in August 200642 relating to the exclusion from gross income of PTEP and associated basis adjustments. (Priority: High)

5. Regulations concerning the dividends-received deduction for dividends from specified 10%-owned foreign corporations under sections 245A, 964(e)(4), and 1248(j), and the foreign branch loss transfer rule of section 91, including guidance for the coordination of such provisions with sections 304 and 1059. (Priority: High)

6. Final regulations regarding the allocation and apportionment of foreign taxes imposed on disregarded payments and final regulations regarding the application of section 245A(d). Proposed regulations were published in November 2020.43 (Priority: High)

7. Regulatory guidance needed for section 367 to reconcile provisions with current law and to update long outdated provisions. Our recommendations include:

a. Updating the section 367(a) regulations for changes made to sections 367(a) and 936(h)(3)(B). Primarily, we recommend updating the rules related to the incorporation of non-US business activities and replacing the 2016 regulations.

b. Reconsidering the current section 367(b) regulations as a whole, given the framework changes implemented by the 2017 Act.

c. Adjusting and updating the section 367(d) regulations, and associated outstanding 2012 Notice. Some recurring areas of issue in section 367(d) include (i) the termination of income recognition in the event of a repatriation to the United States of transferred intangibles and (ii) the issue of basis in property subject to section 367(d) (e.g., the statutory language describes any transfer as a contingent sale, implying the existence of basis, but the regulations are largely silent on basis and focus on source and character for foreign tax credit purposes). (Priority: Medium)

INDIVIDUAL AND FAMILY TAXATION

Timothy M. Todd, Individual and Family Taxation Chair, (434) 592-5300, tmtodd@liberty.edu

General Guidance

1. Guidance under sections 24(g), 25A(b), and 32(k), clarifying what constitutes “reckless or intentional disregard of rules and regulations.” (Priority: High)

PARTNERSHIPS & LLCs

Beverly Katz, Chair, (202) 533-3820, beverlykatz@kpmg.com and Tim Leska, Vice Chair, (610) 747-1773, Tim.Leska@sig.com

Implementation of the 2017 Act

1. Guidance under section 163(j), as amended by section 2306 of the CARES Act, on the application to partnerships generally, including the following specific items:

a. Guidance on the application of section 163(j) to tiered partnerships, partnerships owned by a consolidated group of corporations, and trader funds.

b. Guidance with respect to the anti-avoidance rule contained in Treas. Reg. § 1.163(j)-1(b)(22)(iv) and its application to guaranteed payments, including helpful examples of (i) when a guaranteed payment would or would not fall within the rule, and (ii) whether the receipt of a guaranteed payment is treated as interest income when the guaranteed payment is treated as interest expense. (Priority: High)

2. Guidance with respect to whether a foreign partnership (or in certain circumstances a domestic partnership) may (or must) increase its basis in controlled foreign corporation stock as a result in inclusions under section 951(a) or 951A. (Priority: High)

General Guidance

3. Final regulations under section 751(b) with respect to how a partner should measure its interest in a partnership's unrealized receivables and inventory items and provide guidance regarding the tax consequences of a distribution that causes a reduction in that interest. Proposed regulations were published in November 2014.44 (Priority: Medium)

4. Final regulations under section 752 relating to recourse liabilities of a partnership and the special rules for related persons. Proposed regulations were published in October 2016.45 (Priority: Medium)

5. Final regulations under section 743 providing guidance with respect to changes made by the American Jobs Creation Act of 2004 regarding the basis allocation rules. Proposed regulations were published in January 2014.46 (Priority: Medium)

PRO BONO AND TAX CLINICS

Caleb Smith, Co-Chair, 612-624-5813, smit2014@umn.edu

Implementation of Other Recent Legislation

1. Guidance under ARPA on the advance payment of the Child Tax Credit (“CTC”). Specifically, we recommend guidance clarifying how the Service will address:

a. Procedures for resolving conflicting claims for the advance payment of the CTC between individuals claiming the same child, such as expedited appeal processes comparable to the Collection Appeal Program for the purpose of determining eligibility for the advance CTC based on the qualifying child(ren) in question.

b. Procedures for determining eligibility for the advance payment of the CTC where taxpayers biannually alternate claims for the same child.

c. Clarification on whether there is a deadline for taxpayers to submit tax year 2019 and 2020 tax returns, or use the On-Line Information Portal, for purposes of updating eligibility for advance payments of the CTC.

d. Clarification on how notifications will be issued to taxpayers automatically being opted-in to advance payments of the CTC and their opportunity to opt out, especially for taxpayers biannually alternating claims for the same child.

e. Clarification on whether one eligible taxpayer unenrolling for the advance payment of the CTC will have any effect on the eligibility of another eligible taxpayer to receive advance payments of the CTC for the same child. (Priority: High)

General Guidance

2. Guidance on the Service's Offset Bypass Refund procedures under section 6402(a). Specifically, we recommend that the Service adopt the proposals in the comment letter submitted by the Section on January 15, 2021.47 (Priority: High)

REAL ESTATE

Amanda Wilson, Chair, (407) 418-6220, Amanda.Wilson@lowndes-law.com

General Guidance

1. Final regulations under section 897(l) providing guidance on the exception from taxation under the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA)48 for qualified foreign pension funds (QFPFs). Proposed regulations were published in June 2019, including Prop. Treas. Reg. §§ 1.897(l)-1, 1.1441-3, 1.1445-2, 1.1445-4, 1.1445-5, 1.1445-8, 1.1446-1, 1.1446-2, and 1.1446-7.49

2. Final regulations under section 892 related to the taxation of a “controlled entity” in certain cases where such “controlled entity” is a partner in a partnership or where such “controlled entity” incidentally earns income from, or incidentally is deemed to be engaged in, commercial activities. Proposed regulations were published in November 2011.50

S CORPORATIONS

Brad Gould, Chair, (772) 464-7700, bgould@deanmead.com

(Listed in order of decreasing priority)

1. Guidance under section 1362(f) regarding the validity or continuation of an S corporation election in certain situations involving disproportionate distributions, inconsistent tax return filings or omissions on Form 2553, Election by a Small Business Corporation. (This is an issue of primary importance to S corporation practitioners, as the issue has been outstanding for a while. The S corporation committee has worked with the Office of Chief Counsel to draft administrative guidance.)

2. Guidance on the impact of forgiven Paycheck Protection Program (“PPP”) loans on outside basis of S corporation stock. (This is an issue of great importance to practitioners and taxpayers.)

3. Guidance on when section 382 is inconsistent with Subchapter S.

4. Regulations addressing the subpart F and GILTI regimes to S corporations and their shareholders. This item is a carryover from the 2020-2021 Priority Guidance Plan.

5. Guidance concerning the effect of momentary ownership of stock of an S corporation by another corporation during a section 355 and section 368(a)(1)(D) transaction. This item is a carryover from the 2020-2021 Priority Guidance Plan.

TAX COLLECTION, BANKRUPTCY AND WORKOUTS

Lawrence A. Sannicandro, Chair, (973) 849-4036, lsannicandro@mccarter.com

General Guidance

1. Guidance in the I.R.M. providing taxpayers an opportunity to have determinations by revenue officers and managers that offers in compromise (“OIC”) are filed “solely to delay collection action” reviewed by the Independent Office of Appeals, consistent with the rights afforded to taxpayers when the Service levies or seizes property, terminates or proposes to terminate an installment agreement, rejects an installment agreement, or proposed to modify an installment agreement.51 (Priority: Medium)

a. Under the current landscape, the denial of an OIC's processability rests largely in the hands of the collection employee making the determination through the filing of Form 657, Offer in Compromise Revenue Officer Report, to the Offer Unit. The Offer Unit is then tasked with review of the Form 657 based on the information provided by the revenue officer. Taxpayers are not afforded an opportunity for review of the determination by the Independent Office of Appeals. This forecloses taxpayers from the opportunity to have their offers reviewed on its merits by an independent reviewer. We believe that allowing taxpayers to challenge the offer unit determination in the expedited CAP appeal process would balance appropriately the taxpayer's interest in having his offer reviewed and the Service's interest in pursuing collection of unpaid tax.

2. Guidance providing that the Service will forego collection when a taxpayer files a timely protest in response to the assessment of an international information return penalty. (Priority: Medium)

a. Upon issuance of a letter communicating the decision to assess an international information reporting penalty (e.g., Notice CP15), taxpayers sometimes have the opportunity to file a post assessment administrative appeal with the Service's Independent Office of Appeals. However, nothing prevents the collection division from initiating enforced collection action while the administrative appeal is pending, which often takes several months. Thus, taxpayers who have been assessed an international information return reporting penalty, but who have a bona fide claim that the penalty should not have been assessed, must expend resources on appealing the matter to the Independent Office of Appeals as well as defending against the Service's efforts to collect the assessed penalty.

TAX ACCOUNTING; CAPITAL RECOVERY AND LEASING

Ryan Corcoran, Tax Accounting Chair, (202) 370-8235, ryan.corcoran@rsmus.com;

Tracy Watkins, Capital Recovery and Leasing Chair, (202) 370-8195, tracy.watkins@rsmus.com

In addition to the existing guidance listed on the 2020-2021 Priority Guidance Plan, we recommend that guidance be issued for the following items. Items under each part are listed in order of decreasing priority.

Implementation of the 2017 Act

1. Guidance to implement the retroactive changes to the 2017 Act made by the Consolidated Appropriations Act, 202152 requiring an electing real property trade or business to use a 30-year ADS recovery period for certain residential rental property placed in service before January 1, 2018.

2. Guidance implementing the 2017 Act changes to section 174 and software development expensing (e.g., definition of section 174 costs, interaction of section 174 changes with other Code sections, simplified adoption procedures).

3. Guidance providing the federal tax characterization of software and e-content transactions.

4. Guidance on the state and local deduction cap under section 164 for electing pass-through entities.

5. Additional guidance under section 162(f) related to satisfaction of the establishment requirement, qualified settlement funds, multi-taxpayer settlements, and multi-defendant settlements.

Implementation of Other Recent Legislation

6. Guidance on the computation of gross receipts for the employee retention credit added by section 2301 of the CARES Act, tax including (i) the inclusion of PPP loans, (ii) the determination of quarterly gross receipts with respect to advance payments in the year following receipt, and (iii) the determination of quarterly gross receipts with respect to section 481(a) adjustments (e.g., whether an unfavorable section 481(a) adjustment is not a gross receipt unless the underlying adjustment relates to an item that is a gross receipt).

Identifying and Reducing Regulatory Burdens/Burden Reduction

7. Guidance waiving the eligibility rule of section 5.01(1)(f) of Revenue Procedure 2015-1353 for taxpayers that made an electing real property trade or business election and file an accounting method change in a subsequent year for property improperly classified as nonresidential real property, residential rental property, or qualified improvement property.

8. Guidance updating the section 263A regulations on the allocation of costs under simplified methods to address the de minimis amounts and variance safe harbors.

9. Revenue Procedure under section 451(b) providing methods of accounting for taxpayers required to recognize revenue and costs over time for the production of goods under the New Standards. Areas under which additional guidance is necessary include:

a. Allocation of costs for LIFO taxpayers applying the AFS cost offset method; and

b. Application of section 451(b) to multi-item contracts.

10. Guidance updating Revenue Procedure 2015-13 accounting method change terms and conditions for certain foreign corporations.

General Guidance

11. Guidance related to cryptocurrency issuers and further guidance on the treatment of hard forks. Although Revenue Ruling 2019-2454 and ILM 20211402055 address the treatment of hard forks followed by airdrops and ordinary hard forks, it would be helpful for the Service to provide more comprehensive and precedential guidance that taxpayers may rely on with respect to ordinary hard forks and airdrops, in addition to hard forks followed by airdrops. With current guidance focused on the holders of cryptocurrency, it would also be helpful for the Service to issue guidance concerning the tax treatment of cryptocurrency transactions from the issuer perspective.

12. Guidance regarding the treatment of deferred revenue in taxable asset sales and acquisitions. This item was initially included on the 2013-2014 Priority Guidance Plan but later was removed, and we believe guidance in this area still is necessary. We recommend that the guidance include treatment of such items under sections 704(c), 751, 743, and 734.

13. Guidance under sections 167 and 168 for determining whether certain assets used by a wireline telecommunication service provider are used primarily for providing one-way or two-way communication services.

FOOTNOTES

12021-18 I.R.B. 1130.

2An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018, commonly referred to as the Tax Cuts and Jobs Act, Pub. L. No. 115-97, 131 Stat. 2054.

3Pub. L. No. 116-25, 133 Stat. 981 (2019).

4Pub. L. No. 116-136, 134 Stat. 414 (2020).

5Pub. L. No. 117-2, 135 Stat. 4 (2021).

6Unless otherwise specified, all “section” and “§” references are to the Internal Revenue Code of 1986, as amended (the “Code” or “I.R.C.”), and all “Treas. Reg. §” references are to the Treasury Regulations promulgated thereunder.

785 Fed. Reg. 40,927, 40,929 (July 8, 2020).

884 Fed. Reg. 67,046, 67,047 (Dec. 6, 2019).

984 Fed. Reg. 29,288 (June 31, 2019).

10Available at https://www.irs.gov/newsroom/questions-and-answers-about-nol-carrybacks-of-c-corporations-to-taxable-years-in-which-the-alternative-minimum-tax-applies.

1185 Fed. Reg. 40,927 (July 8, 2020) and 85 Fed. Reg. 40,892 (July 8, 2020).

12Id.

1464 Fed. Reg. 36,126 (July 2, 1999).

1580 Fed. Reg. 12,097 (March 6, 2015).

161999-1 C.B. 432.

19149 T.C. 485 (2017). See, e.g., Grajales v. Commissioner, 156 T.C. No. 3 (2021); Belair Woods LLC v. Commissioner, 154 T.C. 1 (2020); Tribune Media Co. v. Commissioner, T.C. Memo. 2020-2.

20This is also part of NTA's recommendations in the 2021 Purple Book (Leg Rec #33), available at https://www.irs.gov/pub/irs-pdf/p5286.pdf.

21Pub. L. No. 77-706, 56 Stat. 747, codified at 18 U.S.C. § 3287.

222021 WL 1900045, ___ F.3d ___ (9th Cir. May 12, 2021).

23This is part of the National Taxpayer Advocate's (“NTA”) recommendations in the 2021 Purple Book (Leg Rec #35), available at https://www.irs.gov/pub/irs-pdf/p5286.pdf. The Service has been delegated authority to enforce the FBAR penalties by means of a Memorandum of Agreement, see 31 C.F.R. § 1010.810(g), and the I.R.M. contains guidance on the definition of “willfulness” for this purpose, see I.R.M. 4.26.16.6.5.1.

242018 WL 2271381 (W.D. Tex. May 16, 2018).

2531 C.F.R. § 1010.820.

2631 U.S.C. § 5321(a)(5)(C).

27Colliot, supra note 24; U.S. v. Wahdan, 325 F. Supp. 3d 1136 (D. Colo. 2018).

28Norman v. U.S., 138 Fed. Cl. 189 (2018), aff'd, 942 F.3d 1111 (Fed. Cir. 2019); Garrity v. U.S., 2019 WL 1004584 (D. Conn. Feb. 28, 2019); U.S. v. Cohen, 2019 WL 4605709 (C.D. Cal. Aug. 6, 2019).

29See ABA Section of Taxation, Comments on COVID-19 and Disaster Losses under Section 165(i) (2020), available at https://www.americanbar.org/content/dam/aba/administrative/taxation/policy/2020/091420comments.pdf.

30Final Regulations were published in December 2020. T.D. 9933, 85 Fed. Reg. 77,952 (Dec. 2, 2020). They state that “[t]he Treasury Department and the IRS anticipate publishing a separate notice of proposed rulemaking” to address both of these issues.

31Notice 2017-73, 2017-51 I.R.B. 562, requested comments on specific proposals relating to proposed regulations on donor advised funds, and the Section provided comments in response. ABA Section of Taxation, Comments on Notice 2017-73, Request for Comments on Application of Excise Taxes With Respect to Donor Advised Funds in Certain Situations (2018), available at https://www.americanbar.org/content/dam/aba/administrative/taxation/policy/041918comments.pdf.

321980-1 C.B. 677.

33Notice 2020-36, 2020-21 I.R.B. 840, was published on May 18, 2020, and included a proposed revenue procedure. The Service will not accept any requests for group exemption letters until the final revenue procedure is published. See ABA Section of Taxation, Comments on Notice 2020-36, Proposed Revision of Rev. Proc. 80-27 (2020), available at https://www.americanbar.org/content/dam/aba/administrative/taxation/policy/2020/090920comments.pdf.

34See ABA Section of Taxation, Commentary on IRS 1993 Exempt Organizations Continuing Professional Education Technical Instruction Program Article on Election Year Issues (1995); ABA Section of Taxation, Comments on Proposed Regulations Regarding Guidance for Tax-Exempt Social Welfare Organizations on Candidate-Related Political Activities (2014), available at https://www.americanbar.org/content/dam/aba/administrative/taxation/policy/050714comments.authcheckdam.pdf.

35See ABA Section of Taxation, Comments on New Examples of Program-Related Investments in Proposed Regulations Section 53.4944-3(b) (2012), available at https://www.americanbar.org/content/dam/aba/administrative/taxation/policy/080811comments.authcheckdam.pdf.

36Treas. Reg. § 1.501(c)(3)-1 defines “charitable purpose” to include “(i) to lessen neighborhood tensions; (ii) to eliminate prejudice and discrimination; (iii) to defend human and civil rights secured by law; or (iv) to combat community deterioration and juvenile delinquency.” Some Service guidance, however, suggests that assistance to ameliorate invidious discrimination is not charitable unless the beneficiaries also suffer financial distress. See, e.g., G.C.M. 38,841 (Feb. 26, 1982) (“There is no indication that all minority-owned businesses and individuals connected with them, who are the primary beneficiaries of the purchasing councils' activities, are impoverished, underprivileged or similarly distressed. On the contrary, these business owners' status would tend to refute such a classification. Under these circumstances, we do not believe that the business owners who are the direct beneficiaries constitute a charitable class. Thus, as aid to minority business owners in general is not itself a charitable purpose under section 501(c)(3), exemption will be dependent upon the charitable results achieved through a program which provides assistance to these primary beneficiaries.”).

37See ABA Section of Taxation, Comments on Issues on Which Precedential Guidance Is Needed (2016), available at https://www.americanbar.org/content/dam/aba/administrative/taxation/policy/062216comments.authcheckdam.pdf.

38Notice 2019-1, 2019-2 I.R.B. 275.

3971 Fed. Reg. 51,155 (Aug. 29, 2006), corrected, 71 Fed. Reg. 71,116 (Dec. 8, 2006).

4085 Fed. Reg. 56,846 (Sept. 14, 2020).

412019-2 I.R.B. 275.

4271 Fed. Reg. 51,155 (Aug. 29, 2006) (corrections to which were published in the Federal Register in December 2006, 71 Fed. Reg. 71,116 (Dec. 8, 2006)).

4385 Fed. Reg. 72,078 (Nov. 12, 2020).

4479 Fed. Reg. 65,151 (Nov. 3, 2014).

4581 Fed. Reg. 69,301 (Oct. 5, 2016).

4679 Fed. Reg. 3,041 (Jan. 16, 2014).

47ABA Section of Taxation, Comments Regarding Review of Regulatory and Other Relief to Support Taxpayers during COVID-19 Pandemic, available at https://www.americanbar.org/content/dam/aba/administrative/taxation/policy/2021/011521comments.pdf.

48Subtitle C of Title XI of the Omnibus Reconciliation Act of 1980, Pub. L. No. 96-499, 94 Stat. 2599, 2682 (Dec. 5, 1980).

4984 Fed. Reg. 26,605 (June 7, 2019).

5076 Fed. Reg. 68,119 (Nov. 3, 2011).

51See I.R.M. 8.24.1.3(2).

52Pub. L. No. 116-260, 135 Stat. 1182 (2020).

532015-5 I.R.B. 419.

542019-44 I.R.B. 1004.

55March 22, 2021.

END FOOTNOTES

DOCUMENT ATTRIBUTES
  • Authors
    Arnold, Joan
  • Institutional Authors
    American Bar Association Section of Taxation
  • Cross-Reference

    Responding to Notice 2021-28.

  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2021-21957
  • Tax Analysts Electronic Citation
    2021 TNTF 104-36
    2021 TNTG 104-42
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