Second Quarter Newsletter 2018

The omnibus appropriations bill signed into law on March 23, 2018 included several technical corrections to the new partnership audit regime (the “Technical Corrections”), originally enacted in 2015, that goes into effect for partnership taxable years beginning in 2018. Many of the Technical Corrections were included in a technical corrections bill proposed in 2016 but never enacted. Other changes echo proposed regulations promulgated in 2017, giving legislative authority to those rules. Key among the Technical Corrections are authorization to use a push-out procedure in tiered partnerships, a new “pull-in” procedure, and rules governing partnerships that do not pay assessments following an audit. Note that the omnibus bill generally did not include technical corrections relating to the tax reform legislation enacted in December 2017 (with one exception to address the so-called “grain glitch”). Continue Reading Omnibus Appropriations Legislation Enacts Technical Corrections to Newly Effective Partnership Audit Rules

In this Ropes & Gray podcast, Gabby Hirz, counsel in the tax controversy group, is joined by Loretta Richard, a partner in the tax and benefits group and co-founder of the tax controversy group, and Christi Lazo, counsel in the private client group, to discuss another notable Tax Court decision, Lender Management LLC v. Commissioner of Internal Revenue. Lender Management considered whether a family office was operating a trade or business and could therefore deduct investment expenses as business expenses.

In a recent Tax Notes International article, “Is Fishing in Tax Waters Getting Easier or Just More High Tech?,” Brian Studniberg, Gabby Hirz and Loretta Richard provide commentary on the continued role of international information exchange on request given the availability of automatic information exchange.

Click here to read the full article including further insight from the group.

 

In a recent Law360 article, “IRS Could Replace Offshore Voluntary Disclosure Program,” Gabby Hirz comments on the pending closure of the IRS Offshore Voluntary Disclosure Program (OVDP), which allows U.S. taxpayers who have not disclosed foreign bank accounts to come forward while avoiding criminal penalties and paying a reduced civil penalty. Gabby observes that the IRS’s request for comments has caused speculation as to whether IRS is developing a new version of the OVDP. To read more observations from Gabby, please click here.

 

In a recent Tax Notes article, “Essential Guidance in the TCJA’s Wake,” Kat Gregor highlights key areas of focus for the U.S. Treasury when drafting guidance following the passing of the Tax Cuts and Jobs Act. Kat notes that the top priority should be provisions affecting 2017 tax liabilities, which include the new withholding obligation under Section 1446(f) and new international tax provisions.

Click here to read the full article including more insights from Kat.

Kat Gregor, tax partner and co-founder of the tax controversy group, was recently appointed to Law360’s 2018 Tax Editorial Advisory Board. The purpose of the board, according to the announcement, is “to get feedback on Law360’s coverage and gain insight from experts in the field on how best to shape future coverage.”

To learn more about Kat and the other elected board members, please click here.

On February 27, 2018, the Boston Chapter of the Federal Bar Association (FBA) Tax Section and Ropes and Gray co-hosted an event that featured Judge David Gustafson of the United States Tax Court. The event provided the opportunity for attendees to network and connect with other practitioners from Boston area law and accounting firms, the Internal Revenue Service, local non-profit organizations and LLM students from Boston University School of Law and Suffolk Law School.

Judge Gustafson was appointed as judge by former president George W. Bush in 2008. Prior to his appointment, Judge Gustafson served as a trial attorney, Assistant Chief and eventual Chief in the Court of Federal Claims Section of the Tax Division in the U.S. Department of Justice. He offered a variety of interesting remarks about his experience as a Tax Court judge, and provided a behind-the-scenes look at the process behind reviewed opinions.

To view photos from the event, please click here. For more information about the FBA Tax, or to be notified about future events by email, please contact Boston co-chair Gabby Hirz at gabrielle.hirz@ropesgray.com

On March 13, 2018, the IRS announced its first substantive Large Business and International Division (“LB&I”) compliance campaigns focused on partnerships and their partners. Although in January 2017, the IRS announced its intent to conduct a “TEFRA Linkage Plan Strategy Campaign” geared toward new procedures and techniques for assessing tax on partners after TEFRA-audits, its other 23 campaigns announced in 2017 were largely industry-specific campaigns, focused on discrete transactions, or focused on other kinds of taxpayers, such as individuals and foreign corporations. That changed last week with the announcement of three new campaigns focused uniquely on entities taxed as partnerships and their partners and members. The campaigns will focus on three particular circumstances: (1) individual partners or members who provided services to their partnership or LLC without reporting income subject to self-employment tax; (2) individual partners who have reported sales of partnership interests who may have improperly reported the character of their gain or loss; and (3) partnerships who have failed to file returns although continuing to engage in business activities and their partners who have not reported corresponding income. Partners and partnerships who fall into these categories may receive an examination notice for an issue-based examination, or a soft letter alerting them that their tax return may be incorrect. In addition, partners intending to sell partnership interests or report income from services to a partnership this year may want to watch for changes to forms and instructions, including in their tax software.

For more information regarding the new LB&I compliance campaigns, read our full alert here.

On March 13, 2018, the IRS announced a new Large Business and International Division (“LB&I”) compliance campaign determined to impose tax adjustments on taxpayers who have deducted the costs associated with a tax-free spin-off, split-off or split-up under Section 355. In general, transaction costs to facilitate section 355 transactions must be capitalized. The IRS will be examining tax returns of entities reporting section 355 transactions to determine if they attempted to currently deduct transaction expenses. Taxpayers who conducted section 355 transactions in the past few years may want to consider reviewing their return positions to determine if they may be a target of this campaign.

For more information regarding the new LB&I compliance campaigns, read our full alert here.