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This blog is a service of Alston & Bird's tax groups – Federal, International and State and Local – and focuses on current issues and events in federal, international and state and local tax of interest to business.

Federal Tax ADVISORY: Federal Tax Crimes

April 1, 2014 | Posted by Federal Tax Group | Topic(s): Penalties

Few taxpayers are aware of the operations of the Criminal Investigation Division of the IRS, and rightly so. Out of hundreds of millions of tax returns filed, only 3311 persons were convicted of tax crimes in the government’s FY 2013, according to the Report of the CI Division. Nevertheless, the small number masks the extreme seriousness of tax crimes to those involved.

The advisory is provided in PDF on the Alston & Bird website: www.alston.com/advisories/fed-tax-april-2014   

Written by Federal & International TaxAlston & Bird LLP 

International Tax ADVISORY: Treasury Presents… More FATCA Regulations

March 17, 2014 | Posted by Edward Tanenbaum | Topic(s): International - Corporate Tax Planning

This advisory discusses the U.S. Treasury and IRS release of two sets of regulations relating to the Foreign Account Tax Compliance Act (FATCA). The new regulations were published in the Federal Register on March 6. Enacted by the 2010 HIRE Act, FATCA imposes a 30-percent withholding tax on certain payments to foreign financial institutions (FFIs) and passive non-financial foreign entities (NFFEs) that do not report information about their U.S. accounts and substantial U.S. owners, respectively. One set of the new regulations (T.D. 9657) modifies various provisions of the “final” FATCA regulations issued in January 2013. The other set of regulations (T.D. 9658) provides rules to coordinate the withholding and reporting regimes of Chapter 3, Chapter 61 and Section 3406 with FATCA.

The advisory is provided in PDF on the Alston & Bird website: www.alston.com/advisories/int-tax-march-2014  

Written by Edward Tanenbaum, Partner, Federal & International TaxAlston & Bird LLP 

Federal Tax Advisory: An Unusual F/D(?) Reorganization

March 3, 2014 | Posted by Jasper L. (Jack) Cummings | Topic(s): Federal - Corporate Tax Planning

This advisory discusses IRS LTR 201406005, which evidently blessed as an F or D reorganization the transfer by a subsidiary of all of its assets to its parent corporation, despite the fact that the parent had previously bought an asset from its parent by assuming a liability greater than the value of the asset.

The full advisory is provided on the Alston & Bird website: http://www.alston.com/advisories/fed-tax-march-2014/  

Written by Jack Cummings, Partner, Tax | Alston & Bird LLP

State & Local Tax ADVISORY: Litigating in the Georgia Tax Tribunal

February 7, 2014 | Posted by Clark Calhoun | Topic(s): State and Local Planning

This advisory was originally published in State Tax Notes, as part of Alston & Bird’s regular column “Audit & Beyond.” See 71 State Tax Notes 235 (January 27, 2014).

This advisory discusses the Georgia Tax Tribunal, which was created by an act of the Georgia General Assembly during the 2012 legislative session in order to establish “an independent specialized agency separate and apart from the Department of Revenue to resolve disputes between the department and taxpayers in an efficient and cost-effective manner.”

The advisory is provided in PDF on the Alston & Bird website: www.alston.com/advisories/litigating-in-georgia-tax-tribunal  

Written by Clark Calhoun, Senior Associate, State & Local Tax | Alston & Bird LLP

Federal Tax ADVISORY: Important No-Rule Changes: Rev. Proc. 2014-3

February 3, 2014 | Posted by Jasper L. (Jack) Cummings | Topic(s): Federal - Corporate Tax Planning

One of the most important bellwethers of what the IRS is thinking is the annual revenue procedure that announces the issues on which the IRS ordinarily will not rule, or never will rule, or will not rule because the issue is under study. The IRS always numbers the procedure “3” and issues it on New Year’s Day. This advisory discusses Rev. Proc. 2014-3.

The full advisory is provided on the Alston & Bird website: www.alston.com/advisories/fed-tax-feb-2014

Written by Jack Cummings, Partner, Tax | Alston & Bird LLP

International Tax ADVISORY: Domestic Subsidiary Not Taxable on Complete Liquidation into Foreign Parent, Except for Certain Intangibles

January 15, 2014 | Posted by Edward Tanenbaum | Topic(s): International - Corporate Tax Planning

This advisory discusses PLR 201348011, in which the IRS ruled that a U.S. subsidiary would not recognize gain or loss on the distribution of its assets to its foreign parent in complete liquidation—except for gain attributable to Section 936(h)(3) (B) intangibles. The letter ruling offers some positive insight on the IRS’ application of the nonrecognition exception and the general anti-avoidance rule in the Section 367 regulations.

The advisory also discusses final, temporary and proposed IRS regulations (T.D. 9650) relating to determining ownership of passive foreign investment companies (PFICs) and annual reporting requirements.

The full alert is provided on the Alston & Bird website: www.alston.com/advisories/int-tax-1-15-14  

Written by Edward Tanenbaum, Partner, Federal & International Tax | Alston & Bird LLP

Federal Tax Advisory: Statutory Interpretation Still Lives

January 2, 2014 | Posted by Jasper L. (Jack) Cummings | Topic(s): Federal - Corporate Tax Planning

This advisory discusses United States v. Woods, where the Supreme Court of the United States ruled that the substantial valuation misstatement penalty could be determined in a TEFRA audit and applied when the audited partnership was found to violate the economic substance doctrine. To the Fifth Circuit, that meant that the partnership was a sham that did not exist for federal income tax purposes. Because the partnership did not exist, the partners could not have any basis in their partnership interest. When they reported having any basis at all, that basis must have been more than 400 percent greater than zero and the penalty applied.

The full alert is provided on the Alston & Bird website: http://www.alston.com/advisories/fed-tax-stuatuory-interpretation-571-US/    

Written by Edward Tanenbaum, Partner, Federal & International Tax | Alston & Bird LLP

Section 336(e) and S Corporations

The regulations issued in 2013 putting Section 336(e) into effect allow a result like that of a Section 338(h)(10) election when the buyer is not a corporation. Like the Section 338(h)(10) election, the Section 336(e) election can be made by shareholders selling an S corporation, as well as when one corporation sells the stock of another corporation. Therefore, unlike Section 338(h)(10), a Section 336(e) election can be made in a case like this:

Example 1: A and B each own 50 percent of the stock of S corporation. Partnership Private Equity Firm (PPEF) wants to buy the stock and have a Section 336(e) election made. A and B arrange to be partners of PPEF, and each will own five percent of PPEF after the sale.

This scenario may not be that unusual when the buyer is an investment partnership acquiring a high-growth target. It raises several issues that can prevent use of the Section 336(e) election.

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International Tax ADVISORY: Treasury Issues New Final and Proposed Regulations on Dividend Equivalent Transactions

On December 4, 2013, the U.S. Treasury issued final and proposed regulations under Section 871(m) of the Code. The final rules extend the current definition of “notional principal contracts” (NPCs) to payments made before January 1, 2016, while the proposed regulations introduce rules that may modify the scope and application of Section 871(m)’s resourcing rule for “dividend equivalent” payments.

Also, in Chief Counsel Advice 201349015 (CCA), released December 6, 2013, the IRS advised on the proper reporting of U.S. taxable income and the proper standard for determining the “compulsory amount” of creditable foreign taxes imposed on transactions between a U.S. corporation and its foreign disregarded entity (DRE) or branch.  

The full alert is provided on the Alston & Bird website: www.alston.com/advisories/int-tax-adv-dec-2013   

Written by Edward Tanenbaum, Partner, Federal & International Tax | Alston & Bird LLP

Federal Tax ADVISORY: Tax Reform Update

December 2, 2013 | Posted by Jasper L. (Jack) Cummings | Topic(s): Federal - Corporate Tax Planning

Tax reform has been in the offing ever since the 2008 elections. It took a back seat to more pressing national problems for a few years, but calls for major tax legislation have become more frequent and believable. One source of the calls has been the White House when seeking a “grand bargain” on taxes and spending programs, which so far have fallen on deaf ears in Congress. The other sources have been various interest groups and members of Congress who are thinking of tax reform in other terms. Now, Senator Baucus has released drafts of several specific proposals. This advisory reviews what form tax reform can take in general. We will discuss the specific Baucus proposals in later issues.

The full advisory is provided on the Alston & Bird website: www.alston.com/advisories/fed-tax-dec-2013  

Written by Jack Cummings, Partner, Tax | Alston & Bird LLP

Internal Spinoffs

LTR 201347005 is a straightforward ruling on multiple internal spin-offs of Controlled holding one of the two businesses of a domestic group. The spins only push Controlled up to two levels below the Parent, and do not appear to involve any unusual features. The stated reason for the spins is to allow the spun business to grow and avoid some regulatory burdens. The spinoffs had occurred before the ruling was issued.

Why did this taxpayer go to the trouble to obtain these rulings? The only hint is the fact that the group previously experienced losses. An Investor previously bought common, preferred and debt of the Parent. The cash received was contributed down to parts of the business that was not spun off.

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International Tax ADVISORY: IRS Releases New FATCA Guidance, Including Draft FFI Agreement

November 15, 2013 | Posted by Edward Tanenbaum | Topic(s): International - Corporate Tax Planning

This advisory discusses Notice 2013-69, which includes a long-awaited draft Foreign Financial Institution (FFI) Agreement, as well as additional guidance under the Foreign Account Tax Compliance Act (FATCA). In addition to the draft FFI Agreement for participating FFIs and those FFIs subject to a Model 2 intergovernmental agreement (IGA), the Notice contains guidance on forthcoming revisions to the FATCA regulations.

The full alert is provided on the Alston & Bird website: www.alston.com/advisories/int-tax-11-15-13

Written by Edward Tanenbaum, Partner, Federal & International Tax | Alston & Bird LLP

Federal Tax ADVISORY: Buying Assets

November 1, 2013 | Posted by Jasper L. (Jack) Cummings | Topic(s): Federal - Corporate Tax Planning

This advisory discusses the buying and selling of businesses—the most common corporate transaction with tax consequences, and argues that buyers should not be unduly wary of asset acquisitions.

The full advisory is provided on the Alston & Bird website: www.alston.com/advisories/federal-tax-buying-assets/ 

Written by Jack Cummings, Partner, Tax | Alston & Bird LLP

Section 304 Games

Since the repeal of the collapsible corporation rules, section 304 has been the most confusing corporate tax section in the domestic context. Its function is to convert a stock sale into a redemption for purposes of applying section 302 to determine whether the sale proceeds will be taxed as a dividend, or at least will be taxed under section 301 rather than section 1001.

But to accomplish this goal, the section has employed numerous deemings and hypothetical transactions. Every 10-15 years, either Congress or Treasury decides that these fictions require another tweak, and somehow they never quite get it right. Getting it right means writing the rules so that no taxpayer can find a way to use section 304 to obtain an advantage that Treasury thinks is inappropriate.

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International Tax ADVISORY: Taxpayer Could Not Increase Foreign Tax Credit Due to Interest Expense Allocation

October 15, 2013 | Posted by Edward Tanenbaum | Topic(s): International - Corporate Tax Planning

In Chief Counsel Advice 201336018, the IRS concluded that, in determining the interest expense allocation for foreign tax credit (FTC) purposes, the taxpayer’s adjusted basis in shares of a related foreign corporation should not be reduced by the principal amount of a loan, the interest on which is optionally payable in stock of the related foreign corporation. The advice reasoned that there was insufficient connection between the loan and the stock of the related foreign corporation to apply the special basis reduction rule of Reg. Section 1.861-12T(f).

The full alert is provided on the Alston & Bird website: www.alston.com/advisories/int-tax-oct-2013

Written by Edward Tanenbaum, Partner, Federal & International Tax | Alston & Bird LLP

Federal Tax ADVISORY: Loss Duplication Regulations Finalized Reg. Section 1.362-4

October 1, 2013 | Posted by Jasper L. (Jack) Cummings | Topic(s): Federal - Corporate Tax Planning

Nine years after enactment of Section 362(e)(2) and seven years after proposal of regulations, the Treasury issued final regulations, effective for transactions occurring after September 3, 2013.

The full advisory is provided on the Alston & Bird website: www.alston.com/advisories/fed-tax-oct-2013   

Written by Jack Cummings, Partner, Tax | Alston & Bird LLP

Federal Tax Advisory: Better Luck with Economic Substance Doctrine: John Hancock Life Insurance Co. v. Commissioner, 141 T.C. No. 1 (2013)

September 9, 2013 | Posted by Jasper L. (Jack) Cummings | Topic(s): Federal - Corporate Tax Planning

This advisory discusses a recent U.S. Tax Court ruling on a combination of LILO and SILO transactions that were supposed to generate lease and depreciation deductions. The IRS attacked the deductions primarily under what it called the substance-over-form doctrine, and secondarily under the economic substance doctrine. The taxpayer won the economic substance doctrine issue, but lost the substance-over-form issue. There are several lessons here for taxpayers.

The full advisory is provided on the Alston & Bird website: http://www.alston.com/advisories/fed-tax-sept-2013/

Written by Jack Cummings, Partner, Tax | Alston & Bird LLP

Federal Tax Advisory: Section 336(e) Regulations Issued

August 1, 2013 | Posted by Jasper L. (Jack) Cummings | Topic(s): Federal - Corporate Tax Planning

This advisory discusses Treasury regulations that allow certain sellers of stock to elect to treat certain sales and distributions of 80 percent of the vote and value of the stock (“qualified stock disposition”) of a domestic target corporation as if the old target sold its assets to a new target and liquidated into the stock seller. Treasury finalized the regulations to be effective for qualified stock dispositions with a disposition date on or after May 15, 2013. The disposition date is the date on which the qualifying amount of stock is disposed of over a period of 12 months or less, so this regulation is effective for transactions right now.

The advisory is provided on the Alston & Bird website: www.alston.com/advisories/fed-tax-aug-2013  

Written by Jack Cummings, Partner, Tax | Alston & Bird LLP

International Tax Alert: FACTA Delay!

July 16, 2013 | Posted by Edward Tanenbaum | Topic(s): International - Corporate Tax Planning

This alert discusses the IRS’ new timelines, in Notice 2013-43, for FATCA compliance in response to numerous concerns voiced worldwide about the timing of FATCA implementation.

The full alert is provided on the Alston & Bird website: www.alston.com/advisories/FATCA-delay/

Written by Edward Tanenbaum, Partner, Federal & International Tax | Alston & Bird LLP

International Tax Advisory: IRS Says Income on Federal Reserve Collateral of Foreign Bank Must Be Allocated Between ECI and Non-ECI

July 15, 2013 | Posted by Edward Tanenbaum | Topic(s): International - Corporate Tax Planning

In a recently released Technical Advice Memorandum (TAM) 201325012, the IRS said that interest earned by a foreign bank on notes pledged as collateral for access to the Federal Reserve must be allocated between effectively connected income (ECI) and non-ECI under the “Ten Percent Rule” in Regulations Section 1.864-4(c)(5)(ii)(b)(3).

The advisory is provided in PDF on the Alston & Bird website: www.alston.com/advisories/int-tax-7-15-13  

Written by Edward Tanenbaum, Partner, Federal & International Tax | Alston & Bird LLP

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