AICPA Suggests Projects for Priority Guidance Plan

May 24, 2021

Internal Revenue Service
Attn: CC:PA:LPD:PR (Notice 2021-28)
Room 5203
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044

RE: Recommendations for the 2021-2022 Guidance Priority List (Notice 2021-28)

Dear Sir/Madam:

The American Institute of CPAs (AICPA) is pleased to offer our suggestions regarding the 2021-2022 Guidance Priority List, which was prepared by the AICPA Tax Policy & Advocacy Division's committees and technical resource panels, and approved by our Tax Executive Committee.

The suggestions are listed under the AICPA working group that developed them, and we have indicated the priority order for our comments under each category of the attached document. For your convenience, contact information for each working group's chair and AICPA staff liaison is listed. Please feel free to contact these individuals directly with your specific questions or concerns.

In addition, the AICPA again encourages the Department of the Treasury and the Internal Revenue Service to continue pursuing tax simplification. Although we recognize you must balance competing interests and concerns when drafting guidance, we urge you to consider the following as part of the process:

• Use the simplest approach to accomplish a policy goal;

• Provide safe harbor alternatives;

• Offer clear and consistent definitions;

• Use horizontal drafting (a rule placed in one Internal Revenue Code (“Code”) section should apply in all other Code sections) to the greatest extent possible;

• Build on existing business and industry-standard record-keeping practices;

• Provide a balance between simple general rules and more complex detailed rules; and

• Match a rule's complexity to the sophistication of the targeted taxpayers.

The AICPA is the world's largest member association representing the accounting profession, with more than 431,000 members in the United States and worldwide, and a history of serving the public interest since 1887. Our members advise clients on federal, state and international tax matters and prepare income and other tax returns for millions of Americans. Our members provide services to individuals, not-for-profit organizations, small and medium-sized businesses, as well as America's largest businesses.

We appreciate your consideration of these comments and welcome the opportunity to discuss these issues further. If you have any questions, please contact me at me at (612) 397-3071 or Chris.Hesse@CLAconnect.com; or Melanie Lauridsen, AICPA Senior Manager, Tax Policy & Advocacy at (202) 434-9235, or Melanie.Lauridsen@aicpa-cima.com.

Sincerely,

Christopher W. Hesse, CPA
Chair, AICPA Tax Executive Committee
American Institute of CPAs
Washington, DC

Encl.

---

AICPA Tax Division Comments on the 2021-2022
Guidance Priority List (Notice 2021-28)

May 24, 2021

Corporations and Shareholders Taxation Technical Resource Panel (Julie Allen, Chair, (202) 414-1393, Julie.Allen@us.pwc.com; or Elizabeth Young, Senior Manager — AICPA Tax Policy & Advocacy, (202) 434-9247, Elizabeth.Young@aicpa-cima.com.)

Tax Cuts and Jobs Act Related¹

1. Provide additional guidance related to and the application of section² 163(j):

• Ordering between the computation of Adjusted Gross Income (AGI) and other code provisions that limit deductions based on a taxpayer's taxable income.

• The interaction between section 163(j) and section 108.

• The interaction between section 163(j) and section 382.

• The applicability of section 163(j) for consolidated groups including but not limited to Treas. Reg. § 1.1502-11(b).

2. Provide guidance on the interaction of limitation regimes (e.g., section 383 and a separate return limitation year) with the refundable credit mechanism adopted in section 53(e).³

3. Provide guidance on section 247 related to contributions by Alaskan Native Corporations to Settlement Trusts:

• Coordination of taxable income limitations under section 247 with sections 172, 250 and 163(j).

• Clarify ambiguity created by reference to the Settlement Trust recognizing income in the year the contribution is received equal to the amount of the deduction allowed, when the deduction may not be allowed in the year the contribution is received. Specifically, clarify if the income should match the deduction or if the income arises in the year it is received.

General Issues

4. Provide guidance regarding the treatment of intercompany transactions in determining satisfaction of the gross receipts test for purposes of section 165(g)(3)(B).

5. Provide further guidance on the application of Treas. Reg. § 1.1502-13 and clarification on the scope of the anti-abuse rule.

6. Provide guidance under section 382 with regards to Subchapter S.

7. Provide further guidance on the interaction of section 382 with respect to controlled foreign corporations (CFCs) following an ownership change.

8. Provide further guidance under section 1202 regarding Qualified Small Business Stock, specifically:

• Clarifying the active business requirement under section 1202(e).

• What constitutes a qualified trade or business under section 1202(e)(3)(B), e.g., whether Financial Technology companies are a qualified trade or business thereunder and guidance defining an insurance business.

• The interaction of section 1202 in the case of a qualified stock sale and a subsequent qualifying reinvestment under section 1045.

• Whether a partner with a carried interest subject to section 1061 that invests in a partnership fund (“fund of funds”) that acquires qualified section 1202 stock is deemed to acquire an interest in those qualified section 1202 shares for purposes of section 704(b).

• Clarification of the definition of “substantially all” under the section 1202(c)(2)(A) holding period.

9. Provide guidance concerning the application of Rev. Rul. 99-6 involving members of a consolidated group.

10. Provide guidance on uncertain tax position (UTP) reporting of an acquiring corporation on its Schedule UTP, Uncertain Tax Position Statement:

• Whether an acquiring corporation needs to report a tax position taken on a selling consolidated group's pre-closing consolidated return for which the selling group did not record a reserve.

• Whether an acquiring corporation needs to report on its Schedule UTP on the acquiring consolidated group's post-closing return, tax positions already taken on a selling consolidated group's return (where the “only once rule” applies).

11. Provide guidance under section 382 on identifying 5% shareholders of public companies, specifically with respect to:

• Incorporating specific private letter rulings (PLRs) into a revenue ruling to provide comprehensive authoritative guidance as a safe harbor method.⁴

• Coordinated acquisitions.

• Proper application of “Non-Stock Treated as Stock” to debt of a distressed loss corporation.

• The 10% threshold for the small issuance limitation and small redemption limitation (i.e., based on actual value or calculated under section 382(l)(3)(C)).

12. Provide guidance under section 382(l)(5) regarding the uncertainties whether a corporation's parent or subsidiary is “under the jurisdiction of the court”⁵ or “in bankruptcy.”⁶

13. Provide guidance regarding shareholder overlap and the scope of section 304, as applied to public merger and acquisition transactions.

14. Provide guidance clarifying the tax characterization of Simple Agreement for Future Equity as a prepaid forward contract, a warrant, or equity.

15. Provide guidance with respect to cancellation of debt owed by a corporation to its shareholder, specifically:

• Confirm that generally form over substance governs (i.e., when stock is issued, section 108(e)(8) applies; when no stock is issued, section 108(e)(6) applies) in a meaningless gesture situation.

• Confirm that section 108(e)(6) generally applies to transactions under section 367(c)(2).

• Address extent to which contribution of debt to capital can qualify under section 108(e)(6) even when subsidiary remains insolvent after the contribution.

• Address treatment of a reduction in the adjusted issue price of the debt owed by an insolvent subsidiary (i.e., is the reduction treated entirely as a contribution to capital under section 108(e)(6) or is there a deemed value-for-value debt exchange).

16. Provide guidance concerning the proper application of the payment-ordering-rule in troubled companies context.

17. Provide guidance for determining when the continuity of business enterprise requirement is satisfied following a section 382 ownership change.

18. Provide guidance that excludes the application of section 351(g) to redemption transactions between members of a consolidated group where a member redeems its stock through the issuance of non-qualified preferred stock as defined under section 351(g).

Employee Benefits Taxation Technical Resource Panel (Deborah Walker, Chair, (202) 257-5609, dwalker@cbh.com; or Kristin Esposito, Director — AICPA Tax Policy & Advocacy,

(202) 434-9241, Kristin.Esposito@aicpa-cima.com.)

CARES Act Related⁷

1. Provide authoritative guidance on the employee retention credit (ERC) as follows:

• Credit enhancements and extension made by the American Rescue Plan Act of 2021 related to qualified wages paid between July 1, 2021 and December 31, 2021.

• Whether wages paid to S corporation owners (regardless of their ownership percentage) and their actively employed spouses qualify for the ERC if all other requirements of the credit are met.

• Treatment of the following items in calculating gross receipts:

  • Paycheck Protection Program (PPP) loan forgiveness proceeds

  • Deferred advance payments in the year following receipt

  • Section 481(a) adjustments, and confirmation that the taxpayer should look to the underlying character of the section 481(a) adjustments to determine the inclusion in gross receipts, e.g., if the section 481(a) adjustment relates to an expense item, it is not included in gross receipts

  • CARES Act and other COVID-19 related grants

SECURE Act Related⁸

2. Provide guidance related to the following items:

• Changes to 401(k) plans.

• Adopting a 401(a) plan after year end.

• Changes to distribution rules for birth or adoption of a child.

General Issues

3. Provide guidance on aggregation under section 414(m).

4. Provide guidance on student loans and section 401(k) and section 403(b) plans.

5. Provide a Revenue Procedure detailing closing agreement procedures for retirement plan items that cannot be settled in the Internal Revenue Service (IRS) Voluntary Correction Program as related to Employee Plans News Issue 2013-10, December 19, 2013.

Exempt Organizations Taxation Technical Resource Panel (Jennifer Becker Harris, Chair, (425) 454-4919, jharris@clarknuber.com; or Irina Petrashkevich, Senior Manager — AICPA Tax Policy & Advocacy, (202) 434-9247, Irina.Petrashkevich@aicpa-cima.com.)

Tax Cuts and Jobs Act Related

1. Provide further guidance regarding the allocation of indirect expenses between an exempt activity and unrelated trade or business or between more than one trade or business, as indicated in TD 9933.

CARES Act Related

2. Provide further guidance on the section 172 changes of net operating loss (NOL) deduction under the CARES Act and how it interplays with section 512(a)(6), as indicated in TD 9933.

3. Provide guidance on the ERC and the treatment (and timing, if applicable) of PPP loan forgiveness for purposes of determining a significant decline in gross receipts.

General Issues

4. Issue proposed regulations under section 4966 and section 4967 in response to guidance in Notice 2017-73 regarding excise taxes on donor advised funds.

5. Issue final regulations on section 509(a)(3) supporting organizations. Proposed regulations were published on February 19, 2016.

6. Issue final regulations under section 529A on Qualified Achieve a Better Living Experience (ABLE) Programs as added by section 102 of the ABLE Act of 2014. Proposed regulations were published on June 22, 2015.

7. Provide guidance under section 4941 regarding a private foundation's investment in a partnership in which disqualified persons are also partners.

8. Issue final regulations under section 6104(c) (publication to state officials). Proposed regulations were published on March 15, 2011.

9. Issue final regulations designating an appropriate high-level United States (U.S.) Department of the Treasury (“Treasury”) official under section 7611. Proposed regulations were published on August 5, 2009.

10. Issue guidance on section 4943(g) philanthropic businesses.

11. Provide further guidance revising Rev. Proc. 80-27 regarding group exemption letters, in addition to Notice 2020-36 published on May 18, 2020.

12. Provide guidance on circumstances under which an LLC can qualify for recognition under section 501(c)(3).

Individual and Self-Employed Tax Technical Resource Panel (David Baldwin, Chair, (480) 758-5617, Dave@baldwintax.com; or Amy Wang, Senior Manager — AICPA Tax Policy & Advocacy, (202) 434-9264, Amy.Miller@aicpa-cima.com.)

Tax Cuts and Jobs Act Related

1. Provide guidance on section 199A corrected final regulations (REG-107892-18) and Rev. Proc. 2019-11 including: ⁹

• Provide guidance related to the definition of compensation in section 415 as it relates to section 199A.

• Clarify that the deductible portion of self-employment tax under section 164(f), the deduction for self-employed health insurance under section 162(l), and the deduction for contributions to qualified retirement plans under section 404, do not automatically reduce Qualified Business Income (QBI).¹⁰

• Modify Treas. Reg. § 1.199A-3(b)(1)(vi) to provide that taxpayers may allocate the various deductions, which are not direct deductions of the trade or business, proportionately to the businesses based upon relative positive QBI, not based upon gross receipts.

• Update Treas. Reg. § 1.199A-6(d)(3)(i) to specifically provide that the calculation of QBI for trusts and estates should not include indirect expenses as a reduction of QBI. Additionally, update the QBI calculation example in Treas. Reg. § 1.199A-6(d)(3)(viii) to provide that the state and local taxes and trustee fees discussed therein are solely indirect expenses and, thus, not allocated to QBI.

• Provide that an excess section 734(b) adjustment generates unadjusted basis immediately before acquisition in the same manner as an excess section 743(b) adjustment.

2. Provide guidance on whether the annual election under section 266 to capitalize taxes and carrying charges of investment property (previously a 2% miscellaneous itemized deduction), in lieu of deducting the expense, remains available for taxpayers owning real estate — noting that section 266 requires an otherwise deductible expense.

3. Provide guidance that the revised section 163(h) language “qualified residence interest” is interpreted as no longer including home equity debt. Therefore, tracing rules are applied to determine the category of interest this debt produces without the need to make the Treas. Reg. § 1.163-10T(o)(5) election to treat the debt as not secured by the home. Additionally, provide clarification that treating the interest on the home equity debt as described above does not affect the categorization of any acquisition debt that is part of a single loan or home equity debt.

4. Provide guidance on the meaning of “cash” under sections 170(b)(1)(G) and 170(f)(17). Specifically, provide clarity on whether the term “cash” for these two provisions has the same definition.

5. Provide guidance on the section 461(l) excess business loss limitation.¹¹

SECURE Act Related¹²

6. Provide guidance on the use of section 529 plans to pay student debt. Treasury and the IRS should clarify priorities as this provision applies to both the plan beneficiary and siblings.

General Issues

7. Provide guidance on the taxation of virtual currency.¹³

8. Provide guidance on the term “reports” under section 1202(d)(1)(C) in regards to partial exclusion for gain from certain small business stock.

International Taxation Technical Resource Panel (David Sites, Chair, (202) 861-4104, David.Sites@us.gt.com; or Amy Wang, Senior Manager — AICPA Tax Policy & Advocacy, (202) 434-9264, Amy.Miller@aicpa-cima.com.)

General Issues

1. Issue regulations on section 245A, including its application to foreign corporations.

2. Issue final regulations on the treatment of foreign tax credits (FTCs) under the various new and updated international tax provisions, including:

• Allocation and apportionment of foreign income taxes, including taxes imposed with respect to disregarded payments,

• Definitions of a “foreign income tax” and “a tax in lieu of an income tax;” and

• Timing rules for claiming a foreign tax credit.

3. Issue proposed regulations addressing certain issues arising from the Tax Cuts and Jobs Act (TCJA) with respect to foreign corporations with previously taxed earnings and profits (E&P) as described in Notice 2019-01, including the application of sections 959 and 961 to passthrough entities.

4. Allow any reasonable method, including simultaneous equations, for purposes of determining deductions that are limited by taxable income (e.g., deductions under sections 163(j), 250, and 172). Taxpayers need guidance regarding the coordination of deductions limited by taxable income.

5. Issue additional computational, definitional, and other guidance on the implications of the repeal of section 958(b)(4).

6. Issue guidance under section 367 as described in Notice 2016-73.

7. Provide more complete and definitive guidance under the passive foreign investment company (PFIC) regulations as follows:

• Update the PFIC regulations to take into account the enactment of section 1297(d), which eliminates the overlap of the PFIC and Subpart F regimes under certain circumstances (including the application of section 1297(d) to a PFIC owned by a U.S. partnership that has U.S. partners) (see e.g., PLR 200943004).

• Provide guidance and explanatory examples under section 1297(c) regarding the 25% ownership look-through rule and its interaction with the section 1297(b)(2)(C) related party income rules.

• Provide guidance on the application of the definition of passive income under section 1297(b)(1) including whether the section 954(h) exception applies to section 1297 for foreign corporations that are not CFC.

• Expand guidance under Treas. Reg. § 1.1298-1(b)(2)(i) to allow disclosure of multiple PFICs on the same Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund.

• Provide guidance on a standardized format for PFIC reporting by flow-through entities to their owners.

• Provide further and definitive guidance under the PFIC regulations by reviewing and potentially increasing the de minimis reporting exception from the current $25,000 threshold, such as an increase to mirror the Form 8938, Statement of Specified Foreign Financial Assets, reporting thresholds.¹⁴

7. Provide guidance when finalizing Prop. Reg. § 1.1291-3(e) regarding indirect dispositions of section 1291 when access to books and records necessary to determine the amount of excess distribution is denied by the holder of the PFIC's books and records.

8. Finalize the proposed section 898 regulations on conforming year-ends of certain foreign corporations to the year-ends of their U.S. shareholders.

9. Provide a regulatory exception under section 6038 for down-stream attribution requiring partnerships, S-corporations, and trusts to file Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations, or Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships, for constructive ownership of a foreign corporation (or partnership) created solely by attribution from its partners, shareholders or beneficiaries.¹⁵

10. Finalize proposed regulations under Treas. Reg. §§ 1.861-18 and -19 regarding the taxation of software as a service, platform as a service and other cloud computing platforms (particularly in situations where the provider does not own the servers on which the solution is hosted). Guidance is needed in determining both the character and source of income.

11. Provide guidance under section 986(c) on how to compute foreign exchange gain and loss when taxpayers have tiered CFCs with different functional currencies, including in the section 964(e) context.

12. Review current international information return requirements and consider additional exemptions similar to Rev. Proc. 2020-17. The following are some potential increased thresholds and exemptions to consider:

• Expansion of foreign trusts eligible for the exemption from Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, and Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner (Under Section 6048(b)), reporting pursuant to Rev. Proc. 2020-17.

• Increase of Form 3520 reporting threshold, or at a minimum, threshold for automatic penalty assessment, for foreign gifts and inheritances.

IRS Advocacy & Relations Committee (Kathy Petronchak, Chair, (832) 373-6463, kpetronchak@comcast.net; or Melanie Lauridsen, Senior Manager — AICPA Tax Policy & Advocacy, (202) 434-9235, Melanie.Lauridsen@aicpa-cima.com.)

Tax Cuts and Jobs Act Related

1. Provide additional guidance under section 6662(d)(1), regarding the special rule for taxpayers claiming section 199A deduction, which lowers the penalty threshold from 10% to 5% for those taxpayers. Specifically, guidance is needed on the application of the penalty and available alternatives to avoid the penalty (such as disclosures, safe harbors or reasonable cause exceptions).

General Issues

2. The IRS should provide guidance authorizing electronic services (E-Services) registrants to submit a Power of Attorney (POA) (Form 2848, Power of Attorney and Declaration of Representative) on the E-Services platform, similar to the method currently used for Form 8879, IRS e-file Signature Authorization, e-filing authorization and as previously available. Furthermore, as highlighted by the impact of COVID-19, a permanent solution is needed for submitting the POA through E-Services.

3. Issue regulations under sections 6662A, 6662, and 6664 regarding the accuracy-related penalty and reasonable cause. Specifically, issue regulations under section 6662A that address (among other matters): (a) the definition of a “reportable transaction understatement”; (b) coordination of the reportable transaction understatement penalty with the substantial understatement penalty, particularly when multiple years and both penalties are involved; (c) coordination of the reportable transaction understatement penalty with the accuracy-related penalty on underpayments; and (d) application of the penalty (if any) to NOL carryback and carryover years. Additionally, update the sections 6662 and 6664 regulations to reflect numerous statutory changes, such as changes made by the American Jobs Creation Act of 2004.

4. Update Treas. Reg. § 301.9100-2 to provide that either filing an Administrative Adjustment Request (AAR) counts for corrective action or that Bipartisan Budget Act (BBA) of 2015 partnerships should be filing an amended return to obtain automatic relief under that provision. Treasury Reg. § 301.9100-2 provides automatic extension of time to file certain late elections provided corrective action is taken within 12 months of filing the return. Corrective action is generally filing an amended return and attaching the late election statement. In the case of missed elections that are eligible for this relief by BBA partnerships, such as section 754 elections, an amended return is not currently permitted — BBA partnerships must file an AAR to make adjustments to an already-filed return.

Partnership Taxation Technical Resource Panel (Sarah Allen-Anthony, Chair, (574) 235-6818, Sarah.Allen-Anthony@crowe.com; or Alexander Scott, Senior Manager — AICPA Tax Policy & Advocacy, (202) 434-9204, Alexander.Scott@aicpa-cima.com.)

Tax Cuts and Jobs Act Related

1. Provide further guidance and revise the current final regulations. Additionally, finalize regulations under section 163(j) pertaining to subchapter K.¹⁶

2. Issue proposed regulations on section 461(l), including rules related to sales of partnership interests and guaranteed payments and rules for suspending losses from multiple trades or businesses.

3. Issue proposed regulations pursuant to Notice 2020-75 and clarify definition of “specified income tax payments.”

CARES Act Related

4. Provide guidance on the treatment of tax-exempt income and proper timing of basis adjustments attributable to forgiven PPP loans under the CARES Act.¹⁷

5. Provide guidance and procedures regarding the CARES Act loss carrybacks and accompanying amended return procedures¹⁸ on tiered partnerships and carryback effects under the Centralized Partnership Audit Regime procedures.

Centralized Partnership Audit Regime Related

6. Issue guidance with respect to Treas. Reg. § 301.6227-3(b) as to whether excess negative additional reporting year tax, if any, attributable to an AAR filed by a partnership may be refunded through the reporting year return, carried back or forward to other years, or is permanently lost.

7. Provide final regulations addressing adjustments to basis and tax attribute rules under Prop. Reg. § 301.6225-4 and Prop. Reg. § 301.6226-4.

8. Update guidance and procedures to reflect the AAR process, as most guidance and regulations reference “amended return.”

9. Provide a procedure for correcting informational items on a Form 1065, U.S. Return of Partnership Income, and/or Schedule K-1 outside of the AAR process.

10. Provide an automatic procedure for a superseding partnership return before the extended due date in cases where an extension has not been filed.

General Issues

11. Provide guidance for taxpayers to rely on final copies of the forms and instructions even if those same forms and instructions are later updated in the tax year.¹⁹

12. Provide comprehensive guidance on application of section 465, specifically the aggregation rules under section 465(c)(3)(C) and the application to partnerships.

13. Provide guidance on the meaning of partners' interest in the partnership in connection with the use of targeted allocations under section 704(b), including under what circumstances the targeted allocations would qualify under the economic effect equivalence test under the regulations.²⁰

14. Provide further guidance on the application of Notice 2009-70 to section 704(c) layers.

15. Provide guidance under section 6063 defining the circumstances in which an originally filed partnership tax return is considered validly signed by a partner within the meaning of this statute. In addition, guidance is needed regarding the circumstances under which the partnership representative's signature is considered valid on an original return, an amended return or a POA for the partnership (e.g., if the partnership representative is not a partner).

16. Provide guidance on the application of Global Intangible Low-Taxed Income (GILTI) and Subpart F to partnerships.²¹

17. Provide updated guidance concerning the interaction of section 1245 and section 743. The regulations under Treas. Reg. § 1.1245-1(e)(3) have not been amended to take into account changes to subchapter K, including the regulations under section 751.

S Corporation Taxation Technical Resource Panel (Robert Keller, Chair, (504) 584-1030, rkeller@kpmg.com; or Alexander Scott, Senior Manager — AICPA Tax Policy & Advocacy, (202) 434-9204, Alexander.Scott@aicpa-cima.com.)

General Issues

1. Provide guidance regarding the IRS's no-rule policy over certain matters and provide clarity to ultimately reduce a potential burden on both taxpayers and IRS. Specifically, we request for the IRS to:²²

• Define formally and publish the parameters of the no-rule policy; and

• Issue a revenue ruling or other authoritative pronouncement to provide clarity for certain S corporation matters on which the IRS will no longer rule. Until the revenue ruling or pronouncement is released, we request that the IRS issue PLRs concerning disproportionate distributions.

2. Provide guidance on the treatment of tax-exempt income and proper timing of basis and accumulated adjustments account (AAA) adjustments attributable to forgiven PPP loans under the CARES Act.²³

3. Provide guidance under section 163(j) with respect to self-charged lending transactions involving S corporations.²⁴

4. Provide guidance on the application of GILTI and Subpart F to S corporations and their shareholders.²⁵

5. Issue proposed regulations pursuant to Notice 2020-75 and clarify definition of “specified income tax payments.”

6. Provide regulatory guidance on section 465 aggregation and revisit and finalize existing proposed section 465 regulations.

7. Provide guidance regarding the computation of the period of limitations when a subsidiary of a corporation is improperly treated as a qualified subchapter S subsidiary (QSub) and all of its income, deductions, and credits are included in an S corporation return filed by the parent corporation.

8. Provide guidance as to whether the ability to decant a trust precludes the trust from qualifying as a Qualified Subchapter S Trust (QSST) within the meaning of section 1361(d).

9. Develop a new shareholder-level basis schedule that shareholders are required to attach to any income tax return with items of income, loss, deduction, or credit of an S corporation.²⁶

10. Provide guidance under section 1367 regarding basis ordering rules of certain suspended losses.

11. Provide additional guidance regarding the ordering rule for adjustments to the AAA when ordinary and redemption distributions are made in the same year and an ordinary distribution occurs after the redemption distribution.²⁷ Consider also the possibility of a closing-of-the-books election for AAA purposes as of the date of the redemption.

12. Provide guidance on the application of section 904(f) rules, relating to the recapture of overall foreign loss, to terminations of S corporations and the corresponding basis adjustments that are required.

13. Provide guidance regarding the application of section 302(b)(4) to distributions by an S corporation. Specifically, guidance is needed on whether the shareholders can use an aggregate basis approach in a partial liquidation.

14. Provide additional guidance regarding the inability to utilize certain suspended passive activity losses upon redemption when the sale of S corporation stock is to a related party described in sections 267(b) and 707(b)(1).

15. Provide additional guidance on tax attributes of an Electing Small Business Trust (ESBT). Specifically, the guidance should address tax attributes such as NOLs, FTCs, charitable contributions, and state tax refunds, and the tax treatment of such items upon termination of the S corporation.

16. Update Treas. Reg. § 1.1361-5 to reflect the addition of clause (ii) (relating to termination of a QSub by reason of the sale of the QSub stock) to section 1361(b)(3)(C) made by section 8234 of P.L. 110-28. We offer the following to accomplish this change:

• Delete the obsolete portion of existing regulation;

• Add a sentence to indicate that the old rules apply only for years before the effective date of the changes; or

• Revise and expand the regulations to indicate that the old rules apply to years before the effective date of the changes and also set forth new rules that apply for years after the effective date of the changes.

Tax Methods and Periods Technical Resource Panel (Connie Cunningham, Chair, (310) 951-1694, ccunningham@bdo.com; or Elizabeth Young, Senior Manager — AICPA Tax Policy & Advocacy, (202) 434-9247, Elizabeth.Young@aicpa-cima.com.)

Tax Cuts and Jobs Act Related

1. Provide guidance under section 179 for the specific types of assets that qualify as “qualified real property” under section 179.

2. Provide guidance under section 461(i)(3)(B) and (4) regarding the definition of a syndicate.²⁸

3. Provide additional guidance to implement the final regulations²⁹ under section 451(b) and section 451(c) for accounting method changes.

4. Provide guidance permitting the use of a book percentage of completion method for tax purposes to comply with section 451(b) and section 451(c).

5. Provide procedural guidance for small business accounting method changes under sections 263A, 448, 460, and 471.³⁰

6. Provide procedural guidance related to change in alternative depreciation system recovery period for certain residential rental property owned by electing real property trades or businesses under the Consolidated Appropriations Act, 2021. Additionally, provide procedural guidance related to implementing depreciation accounting method changes for electing real property trades or businesses.³¹

7. Update Rev. Proc. 2015-13 to disregard the 150% rule in Section 8.02(5).³²

8. Provide guidance on TCJA changes to section 174, specifically in the context of contract research arrangements.

General Issues

9. Provide relief under section 473 for taxpayers that use the last-in, first-out (LIFO) inventory accounting method that involuntarily liquidated inventories due to the COVID-19 pandemic.³³

10. Provide regulatory and/or procedural guidance under section 263A(f) that provide rules to: (1) apply section 263A(f) to related parties; (2) modify Treas. Reg. § 1.263A-9 to permit taxpayers to use reasonable methods to allocate capitalizable interest to units of designated property; (3) modify Treas. Reg. § 1.263A-9(d)(1) with respect to the election to trace debt; (4) modify Treas. Reg. § 1.263A-8(b)(4) to make elective application of the de minimis rule for determining designated property; and (5) include routine interest capitalization changes in the list of automatic method changes, as well as other modifications and clarifications to the present regulations, notices, and other procedural guidance.

11. Provide additional guidance pertaining to negative additional section 263A costs and the regulations thereunder.³⁴

12. Provide guidance on the tax treatment and characterization of software and e-content transactions.

13. Modify and clarify Rev. Procs. 2019-43 and 2015-13 to, among other things, reinstate the 90-day window, and include additional method changes in the List of Automatic Method Changes.³⁵

14. Provide guidance under section 263(a) regarding the capitalization of natural gas transmission and distribution property.

15. Provide guidance regarding changes in method of accounting for section 174 research and experimental expenses, including guidance for taxpayers making accounting method changes to comply with final Treas. Reg. § 1.174-2.

16. Issue final regulations under section 460 regarding the definition of a home construction contract, including the treatment of condominiums, for purposes of the completed contract method, and rules for certain changes in method of accounting for long-term contracts.

17. Issue final regulations under section 267(a)(3)(B) addressing transactions entered into in the ordinary course of a trade or business in which the payment of the accrued amounts occurs within 8 ½ months after year-end and transactions in which an amount accrued is includible in the E&P of a CFC.

18. Modify the regulations under section 170(e)(3) to provide that, for qualified contributions of inventory, the basis of the contributed inventory is included in cost of goods sold, and only the incremental “enhanced deduction” is treated as a charitable contribution subject to the 10% taxable income limitation for corporations (15% for contributions of food inventory by any taxpayer) under section 170(b)(2).³⁶

19. Provide guidance under section 453:

• Issue proposed regulations under section 453A regarding contingent payment sales.

• Issue final regulations under section 453B regarding non-recognition of gain or loss on the disposition of certain installment obligations.

  • Provide a safe harbor in authoritative guidance under those final regulations permitting related party installment sales of depreciable property in certain circumstances.

20. Issue proposed regulations under section 472 regarding the carryover of LIFO layers following a section 351 or section 721 transaction.

21. Provide guidance on the treatment of advance payments and deemed payments for assumed cost of performance obligations³⁷ with respect to both the seller and the acquirer in asset and partnership interest sales, including treatment under sections 704(c), 751, 743, and 734.

22. Provide guidance on the treatment of section 481(a) adjustments in partnership transactions with respect to sections 743, 734, and 704(c).

23. Issue proposed regulations under section 472 to provide rules relating to internal management reports.

24. Provide guidance under Treas. Reg. § 1.263(a)-5(g) regarding treatment of capitalized transaction costs.

25. Provide guidance regarding the computation of alternative tax NOLs in tax years beginning after December 31, 2017, including the interaction between the 80% taxable income limit on NOLs and the 90% alternative minimum taxable income limit for AMT purposes.³⁸

26. Provide guidance under section 165(i) regarding COVID-19 pandemic losses.

Tax Practice Responsibilities Committee (Les Williford, Chair, (404) 688-6841, lwilliford@bdo.com; or Henry J. Grzes, Lead Manager — AICPA Tax Practice & Ethics, (919) 402-4889, Henry.Grzes@aicpa-cima.com.)

General Issues

1. Provide guidance related to certain core principles (including “significant” and “avoidance”) for defining “tax shelter” under section 6662(d).

2. Provide guidance under section 6676(a) as to the level of authority needed to establish reasonable cause. There is uncertainty whether a penalty is imposed for a claim for refund or credit that was supported by reasonable basis.

3. Provide guidance regarding criteria the IRS will use in determining whether to:

• Assert a section 6694 preparer penalty;

• Refer a matter to the Office of Professional Responsibility, particularly in the case of alleged violations under the section 6694 preparer penalty provisions; and

• Impose a sanction or otherwise limit a practitioner in providing tax practice services.

4. Provide guidance in connection with changes made under the Protecting Americans from Tax Hikes (PATH) Act of 2015, related to the prevention of retroactive claims for various credits (section 32(m) — earned income credit, section 24(e) — child tax credit and section 25A(i) — American Opportunity Tax Credit).³⁹

5. Provide additional clarification on Notice 2009-5 (IRB 2009-03) as well as incorporate such guidance as appropriate in sections 6662, 6664 and/or 6694 regulations and correcting the sections 6662 and 6664 regulations for the 2004 changes to section 6662(d)(2)(C).

Trust, Estate and Gift Tax Technical Resource Panel (Michael Rudegeair, Chair, (212) 863-1369, Michael.Rudegeair@anchin.com; or Eileen Sherr, Director — AICPA Tax Policy & Advocacy, (202) 434-9256, Eileen.Sherr@aicpa-cima.com.)

Tax Cuts and Jobs Act Related

1. Provide regulations referenced in Notice 2018-37 (issued April 13, 2018) regarding trust income payable to a former spouse who was divorced or legally separated under a divorce or separation instrument executed on or before December 31, 2018.

2. Provide additional guidance regarding section 965 and trusts and estates.⁴⁰

3. Provide additional guidance relating to section 199A and trusts and estates, including indirect expenses and loss allocation of trusts and estates.⁴¹

4. Provide additional guidance relating to S corporations and trusts and estates.⁴²

5. Provide additional guidance relating to section 461(l) excess business losses for trusts and estates.⁴³

6. Provide additional guidance regarding GILTI and trusts and estates.⁴⁴

SECURE Act Related

7. Provide implementation guidance regarding the SECURE Act and individual retirement accounts and trust issues, including guidance on the 10-year rule, other trust issues, age of majority, and reporting requirements.⁴⁵

8. Provide guidance to distinguish the 10-year rule from the 5-year rule as to the first and final payment timing. Additionally, clarification is needed whether the 10-year period ends on the anniversary of the death or the end of the tenth anniversary year.

Domestic Issues

9. Update Internal Revenue Manual (IRM) 20.1.12.7.4 for section 6695A penalty case reviews to provide that the review process include at least two qualified knowledgeable IRS appraisers.⁴⁶

10. Issue final regulations on compliance with consistent basis reporting between an estate and persons acquiring property from decedents.⁴⁷

11. Revise Form 8971, Information Regarding Beneficiaries Acquiring Property from a Decedent, and instructions.⁴⁸

12. Revise Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return and Form 706-NA, United States Estate (and Generation-Skipping Transfer) Tax Return Estate of nonresident not a citizen of the United States to include a box to check for the executor to request the closing letter together with submitting the user fee at the time of filing the Form 706 or Form 706-NA. Until a box can be added to Form 706 and Form 706-NA, we suggest that the IRS allow executors to request a closing letter either by a hand-written request on the top of the first page of Form 706 or Form 706-NA or by attaching a request statement to Form 706 or Form 706-NA when it is filed accompanied by the payment of the user fee, hopefully via an updated pay.gov interface.⁴⁹

13. Provide for the ability to e-file Forms 706, 706-NA, and 709, U.S. Gift (and Generation-Skipping Transfer) Tax Return, (and related, separately filed forms, such as Forms 3520, 3520-A, 4768, Application for Extension of Time To File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes, 5227, Split-Interest Trust Information Return, 1041-A, U.S. Information Return Trust Accumulation of Charitable Amounts, 8971, and 8892, Application for Automatic Extension of Time To File Form 709 and/or Payment of Gift/Generation-Skipping Transfer Tax). In addition, Treasury and the IRS should provide taxpayers with the ability to electronically pay estate, gift and generation-skipping transfer taxes.⁵⁰

14. Issue final regulations, including examples, on the simplified method for computing net investment income under section 1411 for distributions from charitable remainder trusts.⁵¹

15. Provide guidance regarding transfers by a trustee of an irrevocable trust to another irrevocable trust (often referred to as “decanting”).⁵²

16. Provide a final ruling on the consequences under various estate, gift, and generation-skipping trust (GST) tax provisions of using a family-owned company (private trust company) as the trustee of a trust.⁵³

17. Provide guidance on section 2652(a) and the ability to split gifts under section 2513 in Crummey or similar situations, where the donee spouse has an interest in the trust and others have the ability to withdraw the contributed assets but trust beneficiaries may withdraw all the transfers made to the trust during the year.⁵⁴ In addition, if only withdrawal powers for children can be split on a trust created for the benefit of a spouse and children, clarification is needed that the entire gift is split for GST purposes based on the regulations even though not all of the gifts are split for gift tax purposes.

18. Expand regulations under section 6034 to add an administrative exception to the Form 1041-A filing requirement for complex trusts that claim charitable deductions under section 642(c) solely for contributions flowed through to them from partnerships.⁵⁵

19. Provide clarification in the instructions to Form 709 with regard to Column C in Part 3 of Schedule A, Computation of Taxable Gifts, as to the election made under section 2632(c) (electing “in and out” of a deemed allocation). The instructions state that checking the box in Column C applies only for transfers reported on the return. Confusion can result as the instructions provide that, if a prior election has been made with respect to future transfers, the taxpayer should not check the box in Column C and should not file an explanatory statement with the applicable Form 709. There is also confusion because taxpayers currently need to check a box for both making an election and electing out. ⁵⁶

20. Provide clarification in the instructions to Form 709 to provide that if a Grantor Retained Annuity Trust (GRAT) is involved, complete Part 3 in order to consider making an election or electing out instead of the current instructions stating to complete Part 1.

21. Provide a simplified procedure to obtain an extension of time to elect out of the automatic allocation of the GST exemption to indirect skips and at the end of the estate tax inclusion period, similar to Rev. Proc. 2004-46.⁵⁷

22. Provide guidance regarding the appropriate means and timing of GST allocations to pour over trusts from a termination of a GRAT. Guidance, and examples, are also needed under section 2632(c)(5)(A)(i) addressing the application of the GST exemption automatic allocation rules for indirect skips in a situation in which a trust subject to an estate tax inclusion period (ETIP) terminates upon the expiration of the ETIP, at which time the trust assets are distributed to other trusts that are possibly GST trusts.⁵⁸ In addition, clarification is needed as to whether the Treas. Reg. § 26.2632-1(c)(2)(ii)(A) exception to the ETIP rules for the possibility of inclusion in the gross estate being so remote as to be negligible eliminates the ETIP for almost all GRATs that are short term. Clarification is needed regarding this remoteness exception, including situations when there is no ETIP and whether a GST automatic allocation is equal to the property contributed to the GRAT or equal to the amount treated as a gift to the GRAT.

23. Provide final regulations under section 2642(g) regarding extensions of time to make allocations of GST exemption. Specifically, regarding section 2642(g)(1), taxpayers need guidance related to relief if the taxpayer opted out but wants to do a late allocation.

24. Provide guidance under section 2632(c), regarding the deemed allocation of GST exemption to certain lifetime transfers to GST trusts. In particular, clarification is requested with regard to the exceptions to the definition of a GST trust contained in section 2632(c)(3)(B)(i)-(vi) as well as the exception in the flush language of this section dealing with gift tax annual exclusions. In addition, further guidance is needed under section 2632(c)(3)(B)(i)(III) as per regulations, including examples regarding all the exceptions for a GST trust and on the following issues.

• Definition of GST trust nuances with respect to survival period of a person at least 10 years older where there is a waiting period, and whether the taxpayer can survive only one person and does the waiting period disqualify.

• Contingent general powers of appointment and impact on GST trust treatment.

• A fix for hanging Crummey powers and the complexity where no election was made.

• Clarification if the trust is a GST trust in the situation with a life insurance trust in which assets are distributed to children either when the parent who is the insured dies or when the children turn 40, whichever is later.

24. Provide guidance on how the taxpayer can allocate additional GST exemption (as a result of the inflation adjustment each year) to a transfer made in the prior year. In particular, guidance should include whether an allocation on the gift tax return timely filed for the prior year is effective as of January 1 and what valuation date is used for purposes of determining the new inclusion ratio.

25. Provide guidance on the automatic allocation rules at death where the estate tax return reflected GST exemption in excess of available GST exemption.

26. Provide guidance on substantial compliance under section 2642(g)(2).

27. Provide guidance for treatment for which only a loan was made to a trust and no gift tax return has been filed, but the trust document reflected a contribution of $10 and a gift of a receivable.

28. Provide clarifying guidance on section 2632(d). Guidance is needed regarding how the rule operates if other events occurred before the death of the beneficiary and on how the interim events are treated, and if the original trust was divided after the original transfer into 0 and 1 inclusion ratios, whether the retroactive allocation applicable is only as to the 1 inclusion ratio trust.

29. Provide guidance as to whether a life estate tenant who holds S corporation stock qualifies as an eligible shareholder for S corporation purposes under section 1361, similar to regulations proposed in 1986 that would have permitted a life estate tenant to be an eligible shareholder if certain conditions were met. The proposed regulations were omitted from final regulations issued in 1995 with an indication that the issue would be addressed in other published guidance.

30. Provide guidance for marital trusts under section 2056(b)(7) similar to Rev. Rul. 2006-26, regarding plans other than individual retirement accounts and defined contribution plans (i.e., defined benefit plans and deferred compensation plans).

31. Provide a harmonization of what is necessary to satisfy the adequate disclosure requirements of Treas. Reg. §§ 301.6501(c)-1(e) and -1(f). At a minimum, Treas. Reg. § 301.6501(c)-1(e) should contain a safe harbor for appraisal reports as exists in Treas. Reg. § 301.6501(c)-1(f).

33. Amend the regulations under sections 6042 and 6049 to require payors to provide charitable remainder trusts information about interest and dividends paid to them in order for the charitable remainder trusts to comply with the ordering rules of section 664(b).

Foreign Issues

34. Expand the types of non-U.S. trusts eligible for relief and exemption from information reporting requirements and penalty abatement procedures in Rev. Proc. 2020-17. The expansion should exempt from Form 3520 and Form 3520-A reporting requirements common foreign plans that are largely standardized governmentally-sanctioned savings plans, such as Canadian Registered Education Savings Plans, Canadian Tax-Free Savings Accounts, United Kingdom Self-Invested Personal Pensions and Employer-type Australian Superannuation plans, which currently are not provided filing relief.⁵⁹ Additionally, provide a de minimis filing exception for foreign trusts with year-end assets or actual plan value in a year under a specified monetary threshold, such as $50,000. In addition, increase Form 3520 reporting threshold, or at a minimum, threshold for automatic penalty assessment, for foreign gifts and inheritances.⁶⁰

35. Provide regulations under section 6677 regarding the failure to file information returns with respect to certain foreign trusts.⁶¹ In administering the penalty for foreign trust reporting under section 6677, issue definitive guidance whereby deference is granted when the year at issue is the taxpayer's first year for which the foreign trust information form(s) are required. For example, add the penalty under section 6677 to the penalties for which administrative relief is granted under First Time Abate.⁶²

36. Provide guidance on the application of section 1411 to accumulation distributions from foreign trusts to U.S. beneficiaries, including the method to determine the portion of the distribution, if any, attributable to income accumulated in years prior to the effective date of section 1411.

37. Provide guidance on issues relating to foreign trusts and the Hiring Incentives to Restore Employment Act of 2010 (HIRE Act), including guidance on the section 679(d) presumption that a foreign trust has U.S. beneficiaries.⁶³

38. Provide further guidance on issues relating to reporting of foreign accounts by U.S. beneficiaries of foreign trusts on the Foreign Bank and Financial Accounts, and U.S. beneficiary reporting of foreign accounts and foreign financial assets owned by foreign trusts, as required by section 6038D.⁶⁴

39. Change the due date of Form 3520-A from March 15 to April 15, to coincide with the due date for calendar year filers of related returns.⁶⁵

40. Provide guidance on whether a foreign grantor trust with a U.S. grantor is required to file Form 1041 or Form 1040NR, U.S. Income Tax Return for Foreign Estates and Trusts, and whether a foreign grantor trust with a foreign grantor and some U.S. income is required to file Form 1041 or Form 1040NR.

41. Provide guidance on the reporting and recognition of gain under the expatriation mark-to-market rules in section 877A, including guidance on the interplay of sections 877A and 684, relating to a transfer or deemed transfer to a foreign estate or trust as a result of an individual's expatriation.

42. Provide guidance on how the GST tax applies to grandfathered domestic trusts that become foreign trusts.

43. Provide further guidance in addition to the proposed regulations (REG-112997-10) regarding several aspects of section 2801.⁶⁶

44. Provide guidance (including safe harbor guidelines) as to what qualifies as a “reasonable period of time” for a U.S. grantor or beneficiary of a foreign trust to pay the trust the fair market value (FMV) for the personal use of trust property under section 643(i)(2). This guidance should also include information regarding the determination of the proper FMV measurement and an exception for reporting de minimis amounts, as accounting for de minimis amounts is administratively impractical. ⁶⁷

45. Provide regulations to enhance guidance in Notice 2009-85 regarding the reporting of tax withholding and payment of these taxes by trustees to the IRS. This guidance should also define “adequate security” for a “tax deferred agreement” for the covered expatriate's return under section 877A(b).

46. Modify Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, and Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, to assist in tracking U.S. withholding credit to which a U.S. beneficiary is entitled due to withholding flowing through a foreign non-grantor trust.