This is a roundup of Bloomberg Tax’s three days of coverage from the American Bar Association’s midyear tax conference in Boca Raton, Fla. Our reporters were there to bring you the details of upcoming guidance, enforcement efforts, and questions surrounding a popular capital gains tax break.
Read up on what you missed.
IRS Chief Counsel Michael Desmond talked to Bloomberg Tax about next steps after the agency on Friday announced an 80% acceptance rate for a settlement offered to individuals who may have been involved in abusive micro-captive insurance arrangements.
The schemes involve small insurers that can choose to pay tax only on their investment income under a perk in the tax code.
The high acceptance rate shows that “people see the writing on the wall” after the U.S. Tax Court ruled in favor of the IRS in three different micro-captive cases, Desmond said.
Those that didn’t accept the deal should expect aggressive enforcement from the agency, Brian McManus, a partner at Latham and Watkins LLP in Boston focused on tax controversy, told Bloomberg Tax.
Open to Settling: In Saturday remarks, Desmond stressed the importance of thinking carefully about which cases should be settled and which cases should head to trial.
The IRS is always open to considering settling a case, but there is also value in seeing a broad range of cases go to trial, he said.
“Unless we have tools like this and think consciously about what cases should be ending up at trial and decision, we risk creating a body of law that involves only tax protesters that refuse to settle anything, or very well-financed, aggressive taxpayers who have an outsized appetite for litigation,” he said.
Nearly half of the cases that get docketed at Tax Court each year are settled by Appeals, Desmond said. About 24,650 were petitioned to the tax court in fiscal 2019.
SECURE Act
Treasury working groups are digging into issues posed by the SECURE Act, a law that took effect Jan. 1 and governs tax breaks for retirees.
The groups are focused on releasing guidance addressing filing deadlines, notice requirements, and administrative duties. The department is also trying to determine which provisions of the law need clarity immediately, in the short term, and in the long term.
“These working groups are already looking at forms and pubs,” Treasury attorney adviser Bill Evans said Friday.
SECURE Act implementation is going on at the same time Treasury and IRS are working to wrap up guidance under the 2017 tax law and to carry out the Taxpayer First Act (Pub. L. 116-25), an IRS overhaul law signed last July.
“We are swamped,” Treasury senior actuary Harlan Weller said Friday.
The SECURE Act was included in the year-end funding package (Pub. L. No. 116-94) that Congress passed in December.
Don’t Forget: Treasury is also trying to check off several regulatory projects, including adding student debt repayment programs to employee benefits plans.
Taxpayer First Act: The IRS could send a reorganization plan, as well as a revamped customer service strategy, to Congress by July, acting National Taxpayer Advocate Bridget Roberts said Saturday.
The reorganization plan—required by the Taxpayer First Act—is due by Sept. 30. It could come together sooner because it is closely connected to the agency’s plan for customer service, which is due July 1, Roberts said.
More Work on Opportunity Zones
Treasury and the IRS are considering what the 2020 Census will mean for opportunity zones, a capital gains tax break created in the 2017 tax overhaul.
The census could bring changes to some of the nearly 9,000 tracts designated for the perk.
IRS attorney Julie Hanlon-Bolton said the agency also is considering guidance on the loss of opportunity fund status.
There are also lingering questions about how penalties will work, like for investors who may face automatic, erroneous penalties based on whether or not they meet certain deadlines to raise and deploy their capital.
Finishing Tax Law Guidance
Treasury may use leaner regulatory projects to get the most pressing issues resolved quickly as it tries to finish guidance tied to the 2017 tax law.
One example of more focused guidance is on the dividend write-off a U.S. corporation gets from a foreign company in which it owns shares under code Section 245A.
Officials are planning to finish final rules under the code section this spring on how it interacts with global intangible low-taxed income, a category created in the 2017 law. They are also planning proposed rules on other issues under the code section.
Guidance on Debt-Related Fees
The IRS will still address the treatment of debt-related fees, even if the provision doesn’t wind up in final guidance under tax code Section 163(j). That section includes a limit for interest payment write-offs equal to 30% of adjusted taxable income.
Diana Imholtz, an attorney in the IRS Office of Associate Chief Counsel, said future guidance on the treatment of fees relating to debt instruments may be the answer.
Treasury and the IRS issued proposed rules (REG-106089-18) addressing commitment fees—the fees lenders charge borrowers to compensate the lenders for their commitment to lend. They requested comments on whether fees paid in connection with lending transactions that aren’t otherwise treated as interest for tax purposes should be treated as interest for purposes of the code section.
Cloud Computing Rules
Treasury is aware of criticism facing proposed cloud-computing rules (REG-130700-14), Wade Sutton, deputy international tax counsel at the department’s Office of International Tax Counsel, said Friday.
Groups including the Tax Executives Institute said what can be considered de minimis, or below the minimum threshold for taxation, is unclear in the proposed rules. The Information Technology Industry Council asked for a safe harbor.
The rules are meant to clarify whether cloud transactions and digital content access should be classified as provision of services or lease of property. The classification determines where the transactions are taxed.
Treasury Mum on OECD
Early Friday, nearly 140 countries involved in the Organization for Economic Cooperation and Development released a statement signaling they had reached agreement on some elements of a rewrite of global tax rules.
That was a significant step in negotiations, but Treasury officials who attended ABA didn’t talk about it.
Treasury International Tax Counsel Douglas Poms and Sutton, also in the department’s Office of International Tax Counsel, declined to comment on the topic.
Pamela A. Fuller, an attorney at Royse Law who spoke on a panel with Sutton, warned attendees not to expect much on the OECD development.
“Everything is considered very politically sensitive, so our highly esteemed Treasury speaker really can’t talk about it,” Fuller said.
Treasury didn’t respond to a request for comment about whether officials were directed not to talk about the issue.
The backdrop to the statement is months of tension as countries, including France, moved to impose digital services taxes that would hit large U.S. companies. The U.S. has opposed those measures, and threatened billions in retaliatory tariffs on French goods in response to that country’s digital tax.
Enforcement Overseas: The Department of Justice remains laser-focused on individuals who open accounts offshore to hide money from the IRS. Jeffery Leon has more.
Avoiding the BEAT
Trying to avoid the base erosion and anti-abuse tax by adjusting the price of an arm’s-length transaction is a move that may raise eyebrows at the IRS, said Christopher Bello, branch chief for Branch 6 at the IRS Office of Associate Chief Counsel (International).
The arm’s-length principle of transfer pricing says that a company’s internal units must do business as though they were unrelated. The 2017 tax law created the BEAT, a 10% minimum tax meant to stop base-eroding payments to offshore entities through excessive deductible payments.
Closing Agreements: Treasury will likely use closing agreements, not private letter rulings, to offer relief to companies with repatriated earnings. Siri Bulusu has more.
Foreign Tax Credits: Final foreign tax credit rules will address a gap in the proposed version: payments made to a disregarded entity that doesn’t meet the definition of a foreign branch.
The IRS issued the proposed rules in December (REG–105495–19).
Learn more about Bloomberg Tax or Log In to keep reading:
See Breaking News in Context
From research to software to news, find what you need to stay ahead.
Already a subscriber?
Log in to keep reading or access research tools and resources.